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UPDATE 3-Lufthansa picks Spohr as boss to lead battle on budget carriers

* Spohr named to replace Christoph Franz as CEO

* Lufthansa in middle of restructuring programme

* New boss to take up post on May 1

* Spohr says appointment is "honour and obligation"

* Lufthansa shares rise 1.2 percent

FRANKFURT, Feb 7 (Reuters) - Germany's Lufthansa has picked Carsten Spohr as its new chief executive, naming a company veteran to lead the battle against low-cost carriers and fast-growing Gulf airlines.

Germany's largest airline has been looking for a new boss since September, when it was announced current CEO Christoph Franz would leave at the end of May to become chairman at Swiss pharmaceuticals company Roche.

It said on Friday that Spohr, who has been head of the carrier's passenger airline business since 2011 and had been tipped to succeed Franz, will take up the post of CEO on May 1.

Shares in Lufthansa rose in response to the news, trading 1.2 percent higher at 17.62 euros by 1319 GMT and outperforming a 0.2 percent gain by Germany's blue-chip DAX index.

"Spohr knows the business. He has shown that he is well-connected and can restructure the group," said Ingo Speich, a fund manager at Union Investment, which holds shares in Lufthansa.

Like other European legacy carriers, Lufthansa is battling competition from budget carriers Ryanair and easyJet as well as Gulf airlines like Emirates, which are expanding rapidly in the market for lucrative long-haul customers.

Spohr, a 47-year-old native German from Wanne-Eickel in the country's industrial heartland, will take over in the middle of the SCORE restructuring programme, which aims to improve operating profits to 2.3 billion euros ($3.1 billion) in 2015, compared with 524 million in 2012.

Defining a new strategy for Lufthansa beyond the end of the SCORE programme is seen as his biggest challenge.

LABOUR DISPUTES

"A solution must be found for how to compete with low-cost carriers. And Lufthansa needs to try to create value for its long-haul business from its route network, from alliances and mergers," Union Investment's Speich said.

Some analysts say Lufthansa has been slow to react to new rivals and enter growth markets, and will need a more decisive strategy in future.

"They should have looked earlier at growth destinations, such as India, where the Middle East carriers are now big, and they should have updated their fleet earlier," said Euromonitor analyst Nadejda Popova. "If you don't have a good fleet, how can you penetrate new markets?"

She said the amount of time it had taken Lufthansa to decide whether to introduce a premium economy section, like other established carriers, indicated that management had been confused. "They should take a decision and just go for it."

The new CEO will also have to grapple with recurring labour disputes as Lufthansa, like other airlines, tries to squeeze costs to compete in a fiercely competitive industry.

But Spohr said on Friday that he was convinced the airline was on the right track and that he aimed to make it "resilient and ready for the future also beyond 2015".

"As a Lufthansa man 'born and bred', I view the appointment as the new CEO as both an honour and an obligation," said Spohr, who holds a commercial pilot's licence to fly Airbus A320-family planes.

TRACK RECORD

Spohr worked his way up through the ranks to become the CEO of Lufthansa Cargo in 2007. Four years later, he was promoted to the group's management board to oversee its passenger airline business, taking over from Franz.

Under him, the passenger airlines business has improved results and seen the relaunch of low-cost unit Germanwings to serve non-hub traffic within Europe. The passenger business posted operating profit of 300 million euros in the first nine months of 2013, almost triple the 111 million a year earlier.

Spohr, however, drew his share of wrath from workers over the restructuring as the passenger airline business took the biggest hit in terms of cost and job cuts.

His labour troubles are set to continue as pilots' union Vereinigung Cockpit (VC) started balloting more than 5,000 Lufthansa pilots this week on whether to go on strike in a pay dispute.

Joerg Handwerg, a board member at VC, told Reuters that he saw Spohr as a logical choice as new CEO because he had been successful in his job and knew the company very well.

"However, we won't be giving him any premature praise. We will have to sit down with him and talk matters over. For us, Lufthansa has to make management credible and trustworthy and they have to learn how to stick to their promises."