The airline, long known for a focus on business customers, is expanding budget operations as it battles for market share on shorthaul routes in Europe with the likes of Ryanair and easyJet.
Lufthansa's attempts to cut costs have met with resistance from pilots' union Vereinigung Cockpit, which fears the loss of jobs under collective labour agreements and worsening conditions for pilots.
But despite more strikes this year Lufthansa said it was optimistic it would be able to make up for the strike costs incurred so far this year, thanks to a strong summer.
It expects to comfortably achieve full year adjusted earnings before interest and tax (EBIT) of more than 1.5 billion euros, it said.
The target now includes strike costs from the first three quarters, CEO Carsten Spohr told journalists.
Under the new structure, which takes effect from 2016, Lufthansa will group its hub airlines, Lufthansa, Austrian, Swiss and Brussels together under the oversight of Harry Hohmeister, who will move from his role as CEO of Swiss.
The Eurowings division will be headed by Karl Ulrich Garnadt, currently head of Lufthansa's German airlines.
The group's cargo, maintenance and catering units will continue to be managed separately, it said in a statement.
The reorganisation will result in the loss of around 150 management jobs, out of a total 1,000 worldwide.
The 500 million-euro moost to annual profits will be fully realised in 2019.
Lufthansa meets with pilots' union Vereinigung Cockpit on Thursday to discuss early retirement benefits.