Talks between Lufthansa (LHAG.DE) and pilots' union Vereinigung Cockpit (VC) about taking a pay dispute to mediation have failed, raising the prospect of strikes at the height of the summer travel season, the union said on Monday.

Lufthansa and its pilots have been trying to agree a mediation process to end a long-running pay dispute, which has already caused more than a dozen pilot strikes since April 2014.

The airline is trying to cut costs to ensure it can compete with fast-growing rivals from the Gulf and low-cost carriers. It is also trying to revamp its pension schemes because low interest rates have increased its pension deficit.

The VC union said Lufthansa had not wanted to discuss all disputed topics and that an agreement to hold off on strikes until the end of July was no longer valid.

"A new escalation of the dispute has therefore become more likely," the union said in a statement.

A Lufthansa spokesman said the company regretted the union's move and called on the pilots to re-enter talks.

The dispute concerns retirement benefits that allow pilots to retire at the age of 55 and receive up to 60 percent of their final salary, before state pension payments start at 65.

Lufthansa, which wanted to scrap the scheme entirely, has agreed to keep it for those who joined the company before 2014 but wants to increase the average age of retirement to 61 years of age. It says the current average age of retirement for its pilots is 59.5 years.

The pilots also wanted the mediation to resolve other outstanding issues, including low-cost expansion, regular pay talks and how Lufthansa plans to reduce costs on long-haul flights to tourist destinations.

Lufthansa said in April it would be willing to enter mediation on a range of issues but the expansion of its Eurowings low-cost brand, which it sees as a response to increasing competition from Ryanair (RYA.I) and easyJet (EZJ.L), was not up for discussion.

The union is against management plans to expand low-cost operations, fearing it could lead to worse pay and conditions, and erode jobs at Lufthansa's main brand.

Lufthansa has put the total cost of pilot strikes at over 300 million euros ($332 million) for 2014 and the first half of 2015.

The pilots are not the only pay dispute Lufthansa is grappling with. Cabin crew union UFO has also threatened strikes in a row over pay and pensions, while talks with union Verdi for around 30,000 staff have been postponed until September to give the two sides more time to debate pension scheme changes. (by Peter Maushagen and Victoria Bryan)