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Oliver Wagner
Vice President Miles & More
Deutsche Lufthansa AG

CC: Mr Juergen Weber
Wolfgang Mayrhuber


July 12th 2002

Dear Mr Wagner

This letter represents the efforts of a group of your best customers to discuss with you the impact of changes you are implementing to Miles & More.

Most of us are Senators, having spent significant time and money on the Lufthansa product for many years. Many of us are also elite-level in the programs of other airlines and alliances. As such, we have a good perspective to evaluate the changes to M&M in terms of the competitive positioning of Lufthansa.

We understand the in the current market position it is important for Lufthansa to rationalize its costs and perhaps even cut services. On the other hand, we are sure Lufthansa understands that it is a competitive environment and passengers have more choice than ever.

So we hope to help Lufthansa understand how best to change the program while not affecting too much the benefits that are most important to us and ensure our loyalty.

Please find below our comments:

1. Notice and Dialogue

We feel that there has been a lack of dialogue on the issue of changes (include some changes to the program made without any notice) which may damage Lufthansa’s relationship with its best clients. As many people have said, communications is the key to a good relationship, and in this case it is no different. We recommend:

- No changes should be made without notice (such as the changes in the guaranteed bookings for Senators)
- Do not tell us how a change with an obviously negative impact is designed to “serve us better”. We are savvy consumers of your services and such patronizing is insulting. Instead, tell us plainly that the benefit is being cut, and what other benefits are (hopefully) being introduced to offset the cut.

2. Guaranteed Bookings for Senators

As we understand, this benefit was changed without notice so that now the booking only guarantees seat at full fare. Since full-fare Y and C class tickets are almost always available, this renders the booking guarantee virtually useless.

We feel that this is a significant cut which affects many Senators. This benefit is important to us because we can be sure that we get a seat at a reasonable price. With the condition of the travel budgets of companies and individuals today, many Senators are forced to fly on discount fares. By guaranteeing us access to those fares, you guaranteed that we would fly with you. But when we lose our access to those fares, we will likely be forced to fly on another carrier with a lower price. You should not see the guarantee as having caused lost revenue to Lufthansa. In fact, Lufthansa gained revenue from it.

We recommend you to re-instate this benefit, or at least expand the classes it applies to beyond Y and C. If you cannot do that, we would like to ask you to replace this benefit with the ability to waitlist for any fare/class of tickets, especially ones with a “closed waitlist”. Doing this would ensure that if a seat opens on a lower fare (usually with a “closed waitlist”), that seat will go to your best customer.

3. Changes in Requalification

As we understand, the requalification rules are being changed to base requalification on a calendar year. Unfortunately, we have received very little information (see point #1) so it is difficult for us to understand the ramifications. Nevertheless, it is clear that requalification will be more difficult under these terms. We hope that there will be some new benefits added to the program which will compensate for this added difficulty.

Again, with the state of many business and personal travel budgets, travelers will be forced to choose which status they will be able to maintain. By making requalification more difficult and cutting benefits at the same time, Lufthansa might find that the number of its highest tier members is reduced more than it expects.

We hope that this letter is helpful in your search for ways to improve the program. As your most loyal customers, it is in our interest that Lufthansa continues to succeed.

Thank you
Signed,
.....
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Dear Sirs:

I would like to thank you for your letter dated July 12, 2002. I very much appreciate your loyalty towards Lufthansa and your initiative to discuss the recent program changes within Miles & More. I would like to seize this opportunity to address each of your thoughts and suggestions, giving you the background on each issue:

ad 1. Notice and Dialogue

It is our intention to clearly communicate program changes to our customers in due time. In late June, we did send out the information on the upcoming changes. Regarding the changes in requalification, we gave our customers a six months notice, regarding the increase of mileage required for day trips, we gave a three months notice, and regarding the booking guarantee, we gave over a months notice. We thought that this would be sufficient. Having now learned that it was not, we apologize for the inconvenience that this may have caused to you and we will certainly take this into account for future changes.

Concerning the manner in which we communicated this information to you, I agree that regarding the changes in requalification, we could have been a bit more precise. The reason why we kept it a bit more general was the complexity of the issue. However, our communication concerning the booking guarantee and the new "prices" for day trips was clear. Please keep in mind that we do not only communicate to Senators but also to Frequent Travellers who might not be so familiar with the Senator benefits as you are.

ad 2. Guaranteed Bookings for Senators

When we implemented the booking guarantee a couple of years ago, the original idea was to be able to offer a seat to our top customers even if the aircraft was fully booked. Unfortunately, the benefit was very often used in cases when the aircraft still showed availability in the lower booking classes, and so we went back to the old idea of guaranteeing a seat only when the aircraft or the requested class of service is sold out. This was and still is a benefit which you do not find with many other airlines. In fact, none of our major competitors provide such a degree flexibility to its top customers. I am sure you will agree that from an economical point of view it does not make sense to allow even our top customers to buy a ticket for 143 ˆ on a Monday morning from Hamburg to Frankfurt, when the demand for the flight is far above our offer. Our objective was and still is to provide the degree of flexibility to our top customers that they need, but we need to ask for a reasonable price for it.

ad 3. Changes in Requalification

Within the Star Alliance, we are trying to hamonize our programme structures and policies whereever possible and feasible. Since most of our Star Alliance partners use the calendar year as a basis for requalification, we have decided to move away from our current model which calculates requalification on any given 12-month period of your two year status (e.g. your status runs from March 2002 until February 2004, our current model checked every twelve-month-period (03/02 until 02/03, 04/02 until 03/03,...,03/03 until 02/04) to see if the customer reached the threshold of 150,000 status miles.) The new model will only check calendar years. I would appreciate if you considered that in the last couple of years, we have implemented some major changes that have made status qualification and requalification much easier for our customers - e.g. we introduced the executive bonus and we accept the miles collected on our Star Alliance partners as qualifying miles.

I truly hope that I was able to give you some valuable insights into our way of thinking, and I would very much appreciate if you remained loyal towards Lufthansa, even though you might be a bit disappointed right now. Please be assured that we here at Lufthansa and at Miles & More will be introducing new services within the next twelve months that will prove to you that our top customers are very much the focus of our daily work.


Sincerely yours,

Oliver Wagner
Vice President Miles & More
Deutsche Lufthansa AG
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