Lufthansa Reaching out for ‘Five Stars’

In his first press meeting since taking the chair at Lufthansa on 1. Mai of this year, CEO Carsten Spohr today (9 July) outlined the future course of the carrier. His strategic initiatives aim at optimizing the structure, enhancing the quality, initiating new platforms and products, and strengthening the cooperation with hand-picked partners like Air China. The combination of these factors complemented by some other steps is aimed at catapulting the airline on top of the ranking and making it first choice for its global customers, thus pressing its ‘premium carrier’ image further ahead.
The high quality level demanded by Herr Spohr is fully in line with the strategic goals also announced some time ago by Lufthansa Cargo. 

Lufthansa’s CEO Carsten Spohr wants his Group to set industrial standards in all business segments  /  source: LH
Lufthansa’s CEO Carsten Spohr wants his Group to set industrial standards in all business segments / source: LH

It didn’t take the airline’s new helmsman Carsten Spohr long to set his own pithy accents of how to maneuver the big Lufthansa ship safely and successfully through growing competitive storms. No doubt, some changes announced by the manager sound at first sight quite radical and might irritate some of the staff, but pursuing a new path seems to be without alternatives if earnings should be improved now and in future times.


The global market for air transport continues to grow,” stated CEO Spohr, “but in the dynamic and highly price-sensitive market segments, our current platforms only enable us to exploit the growth potential to a limited extent, in view of their sometimes over-rigid cost structures.”


This because LH became increasingly under pressure from two sides on intercontinental routes but also within its European home market: the state aided Gulf carriers that operate at 30-plus percent lower costs and the fast growing discounters like EasyJet, Ryanair and Co. While being squeezed in between these two blocks LH is threatened to constantly lose market shares, if nothing is changed.
In the light of these threatening challenges Spohr decided to change course. He announced that commencing immediately LH is seeking to tap new growth areas, “by creatively and innovatively refining our products and services in both the airline sector and – especially – related markets.”
“By 2020 we aim to have raised our revenues from our new businesses, our new platforms and our service companies from the present 30% to 40% of our total revenue flow,” the manager said
It would be a financial quantum leap, but achievable only if LH succeeds in regaining its role as benchmark of the aviation sectors, setting the industrial standards in the coming years.
This should be realized by a number of interconnected measures.

The current CRJ fleet operated by Eurowings will be replaced by A320 aircraft  /  source: Eurowings
The current CRJ fleet operated by Eurowings will be replaced by A320 aircraft / source: Eurowings

The WINGS concept
WINGS is the name of a new production platform, aligning the carrier’s daughter companies Germanwings and Eurowings to better serving  the growth market for private air travel. Under the master brand WINGS these platforms will be bundled to offer travelers point-to-point flights on intra-European routes. WINGS will complement Lufthansa Group’s current multi-brand system with its multiple hubs of Frankfurt, Munich, Brussels, Vienna and Zurich in all the Group’s European home markets.


The upgrading of Germanwings and Eurowings will affect their fleets.
This ensures that Eurowings will get a fleet roll-over since the competitive cost structures required cannot be achieved with their present Bombardier CRJ aircraft. These will be replaced by 23 Airbus A320 passenger jets, stated Spohr. As to Germanwings he said that their fleet will be further enlarged to up to 60 aircraft for taking over all intra European LH flights except for those serving Lufthansa’s main hubs Frankfurt and Munich.
Amalgamating the European members of the WINGS family will permit an aligned management of all these operations, reads the LH press release.

Where should the growth come from?
Under the WINGS banner the Lufthansa Group further plans to create a competitive new long-haul platform for the price-sensitive segment of private air travel.
Studies are currently being conducted into whether this should be done alone or with a further partner: for the latter option, talks are already at an advanced stage with Turkish Airlines. The reason might be that both TK and LH jointly own Sun Express (50/50%), a Turkey-based regional leisure carrier whose status could now be enhanced. In an initial phase, the new intercontinental platform is expected to operate with a fleet that will gradually be built up to seven Boeing 767 or Airbus A330 aircraft, with operations likely to commence in winter 2015. Where this new production platform, that offers additional capacity for cargo transports in the holds of the aircraft, will be based is still undecided since the studies have not been concluded yet.


In a further move, Lufthansa Passenger Airlines is considering to what extent up to nine of its Airbus A340s could be operated at substantially lower unit costs, either on new routes or on routes currently threatened with closure. Negotiations are under way with all the internal and external stakeholders involved to achieve the cost reductions required.


Ultimately, the extent to which these new platforms and formats can be developed in the longer term will depend on their profitability and their market success, announces the carrier. 
Elsewhere, Lufthansa is working intensively to further develop its bilateral partnerships with other airlines. In this respect a new agreement with Star Alliance partner Air China has been inked for closer collaboration on the MRO and passenger services fronts and, ultimately, a joint-venture arrangement.


Spohr’s regeneration strategy also includes Lufthansa Technik and LSG Sky Chefs. Both will be investing in expanding their business, with a focus on Asia and the Americas. LSG Sky Chefs also aims to increase its involvement in related markets beyond the aviation sector, such as the rail catering segment.

Carrier Sun Express - displayed here is one of their 737-800s – might be a candidate for long-haul operations  /  source: Sun Express
Carrier Sun Express - displayed here is one of their 737-800s – might be a candidate for long-haul operations / source: Sun Express

Quality and innovation
Together with continuous cost saving the two items quality and innovation stand on top of Herr Spohr’s agenda who announced investments of €500m between now and 2020. Part of the plan is a new “innovation hub” to be established in Berlin this year, in close neighborhood to the start-up and digital technology scene. Further, an “innovation fund” will also be set up to expedite the development of promising new ideas from both within and outside the Group.
Lufthansa not only wants to become the first “five-star carrier” in the Western Hemisphere; it also aims to achieve quality leadership in all its various markets. The quality drive here will include bringing greater personalization to its products and services, with the aim of tripling the present revenues from its additional services between now and 2020, the company states in a release.

LH Cargo sees its strategy being confirmed
It seems that the “Lufthansa Cargo 2020” concept is fully in line with Spohr’s aim to turn his airline into a five-star carrier. As emphasized by the Cargo management offering the market superb quality is a main priority. Accordingly, a new cargo center (LCC Neo) will be built in Frankfurt, an innovative IT program (i-Cap) is currently rolled out, aluminum containers will be replaced by light-weights fully managed by LH Cargo’s ULD provider Jettainer and four brand new Boeing Triple Seven freighters have become part of the fleet, with a fifth 777F still to come. The only drop of bitterness might be Spohr’s announcement that LH Cargo has to get rid of two of their 16 MD-11 freighters, leaving 14 of these Boeing variants in operation. 


In a separate release issued today (9 July) LH Cargo reports the upping of its load factor in the first half of 2014 by 2.1%, averaging 70.1 percent. A remarkably high factor compared with the rest of the industry. This is a result of very flexible route decisions and a demand-based capacity management, explains the airline’s new cargo CEO Peter Gerber. He praised the efficiency of the currently deployed four Triple Seven freighters that lead to reduced operational costs, greenhouse gas emissions and produce less noise compared to MD-11Fs. All in all LH Cargo carried 807,000 tons from beginning of January until the end of June, which is 3.8 percent less than in the same period of 2013.
The financial result achieved during the first six months in 2014 will be announced on 31 July. 

Heiner Siegmund

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