116 flights cancelled
The Lufthansa pilots want the management to maintain the scheme that allows them to retire early at 55 and still keep some of their pay until they reach the age at which state pension payments start.
Pilots' union Vereinigung Cockpit (VC), which represents about 5,400 pilots at the airline, had threatened strike action last week.
Just hours ahead of a meeting with management convened on Thursday, the union announced that if the talks failed to lead to an agreement, pilots at Lufthansa's budget carrier Germanwings would strike for six hours from 0400 GMT on Friday.
Lufthansa said it had wanted to use Thursday's talks to agree a timetable for further negotiations, rather than reach a final deal.
"It is not realistic to expect to reach a deal on a new model for pension provisions in one day," Lufthansa head of personnel Bettina Volkens said in a statement on Thursday.
Germanwings cancelled 116 flights planned for Friday morning, equivalent to 70 percent of its flights during the six-hour period. It said that 15,000 passengers would be affected.
About 700 of the Lufthansa Group's more than 9,000 pilots work at Germanwings.
Lufthansa shares extended losses after the announcement that the talks had been broken off and were trading down 3.2 percent at 1156 GMT.
Pilots at Lufthansa held a three-day nationwide strike in April, grounding almost all the company's flights and wiping off 60 million euros ($79 million) from its first-half profit.
However, the action was widely condemned across Germany as people criticised the demands of what many regard as a highly paid group of workers. The pilots' union had said this week that any subsequent strike action was likely to be smaller, and for only a few hours at a time.
Germanwings, which operates European short-haul flights outside of Lufthansa's Frankfurt and Munich hubs with a fleet of 52 aircraft, has 164 flights scheduled for Friday's strike period. At Stuttgart, Germany's sixth-largest airport, 36 flights were cancelled.
Bankhaus Metzler analyst Juergen Pieper said the six-hour walkout could result in a 2-3 million euro hit to operating profit and that this strike, at least, would not endanger the company's goal of about 1 billion euros of profit this year.
RAIL STRIKE TOO?
Travellers in Germany also face a possible walkout by employees at rail operator Deutsche Bahn. However, VC and the train drivers union GDL said they would coordinate to avoid a total shutdown of domestic transportation routes. The GDL said on Thursday that it would not go on strike this week.
During previous strikes Lufthansa has rebooked passengers on domestic German flights on train services instead.
The early retirement scheme was introduced more than 50 years ago because pilots could not work beyond the age of 55 and so were left with a gap of up to eight years before they could draw a pension. The scheme provided for them to receive 60 percent of their wages during the interim years.
Lufthansa wants to scrap the scheme and increase the early retirement age to 61 now that a European court has ruled pilots may work until the age of 65. The airline initially cancelled it with effect from the start of 2014 but now says it will remain in place until 2016 to allow time for negotiations.
Lufthansa has been overhauling its business to boost group operating profit to 2.3 billion euros by 2015, up by 1.5 billion euros on 2011, and compete with budget airlines and Gulf carriers.
It says the negotiations on the early retirement scheme do not form part of the SCORE cost-cutting programme.
Lufthansa is in the process of transferring much of its European short-haul business to Germanwings, except for flights to and from its hubs in Frankfurt and Munich.
However, it says costs at Germanwings, about 20 percent below those of Lufthansa, are still too high. The group is therefore planning to expand the use of its smaller Eurowings budget brand, where costs are 20 percent below those at Germanwings, and is considering setting up a new low-cost long-haul business.