9/24/14
Lufthansa Group  |  Group
“Sooner or later”

In an interview with “manager magazin”, Group CEO Carsten Spohr talks about the strikes by the Vereinigung Cockpit pilots’ union, the “Wings” growth initiative, Miles & More and much more. Read the interview here, which also appeared in the current issue 10/2014.

Mr Spohr, we flew Lufthansa today and still made it to the interview on time. That’s the good news. But when will there finally be an end to the pilot strikes?

SPOHR No doubt you also flew Lufthansa so that you’d arrive safely and on time, since we’re the most punctual airline in Europe. Which is all the more reason why, for our customers in particular, I regret the repeated strikes by the Vereinigung Cockpit pilots’ union. However, the job of the Lufthansa Executive Board is to focus on the long-term well-being of the entire Company.

With our cockpit costs, we are no longer competitive. We want to implement something which is standard practice at all European airlines today and which already applies to half of the Lufthansa Group’s 10,000 pilots – namely that Lufthansa’s pilots work until the age of 60 rather than retiring at 55.

 

Is it really just about early retirement policies? The core of the conflict goes deeper, does is not?

SPOHR At the core lies the clear recognition that growth and future prospects, on the one hand, and maintaining the status quo, on the other, can no longer both be achieved. We are facing a simple question: how can we grow again as a Company, and which elements of the status quo do we need to say goodbye to in order to enable this? We can no longer survive in today’s competitive environment with privileges that, in some cases, go back to policies made 50 years ago. There are simply not enough customers anymore who will pay for them.

 

So it’s a matter of principle – and a long-standing dispute that you won’t give in to any time soon?

SPOHR We have indeed been talking about this issue for years now. I stated my expectation that cockpit costs need to fall by 5 per cent per hour in a staff letter that I wrote more than two years ago, when I was still Chairman of the Lufthansa German Airlines Board. This matter is too important to make the wrong compromises. It would be irresponsible to jeopardise the futures of more than 100,000 Lufthansa employees simply to maintain the status quo for 5,000 pilots. For this reason, we cannot let ourselves be pressured on this issue by industrial disputes.

 

The pilots appear largely unreceptive to these arguments and to any appeals to their sense of responsibility. How can an agreement ever be reached?

SPOHR I don’t believe that all of the pilots think that way. In discussions in person and at events with pilots, I’ve received a lot of support for maintaining Lufthansa as a leading airline or making us the number one carrier again in places where we are no longer on top. Sooner or later, staff members in the cockpit will also come to realise that if there are no prospects for the Company, then there are no prospects for them either. After all, we ultimately have the same long-term interests.

 

The strikes are hitting Lufthansa in a precarious position. A few years ago, Michael O’Leary from the Irish low-cost carrier Ryanair painted a sarcastic “Auf Wiedersehen, Lufthansa!” on his aircraft. It now seems as if the crude joke is gradually becoming a reality. How much of a future does your long-established Company still have?

SPOHR A long-established company that doesn’t change and fails to continually shape the market probably has little future. However, Lufthansa has some practice here and will succeed this time as well. Incidentally, the CEO of one of our competitors that you mentioned is no longer laughing, but is instead trying to copy the idea of our subsidiary Germanwings to combine low-cost fares with a certain standard of quality. In any case, the talk in Ireland lately has allegedly been about more service and customer friendliness. However, frequent announcements from there are the norm, as everyone knows.

 

Unlike you, Ryanair is having more success on the stock market. Since the Lufthansa share’s highest point in 2007, it has lost around 40 per cent of its value.

SPOHR I measure the long-term success of a company by how it brings the famous triangle of customers’, employees’ and shareholders’ interests into balance. It cannot be disputed that many of our competitors have had more success than us on the stock market in recent years. However, these airlines didn’t have success with their customers and employees. In these areas, Lufthansa is further ahead. And I’m certain that our success with customers and employees will make shareholders happier once more in the long term and thus lead to rising share prices. For this to happen, however, we have to speed up our willingness to change.

 

Growth is also in short supply. While the number of planes with the crane is barely increasing, the Arabian Gulf airlines are ordering hundreds of new aircraft. Will Emirates and Co. soon overtake you?

SPOHR No. I think that an awful lot has to happen before one of our competitors from the Gulf generates revenue of €30 billion like we do. However, it’s not just about revenue. For me, it’s even more important to see customers returning to Lufthansa in the premium segment. The number of status customers – in other words, Frequent Travellers, Senators and HON Circle members – in our home markets is rising. And many people who had to go shopping in the Gulf in the middle of the night are now happy again when they can sleep non-stop and enjoy German porcelain in our First Class and Business Class.

 

Some premium customers may return. However, leisure travellers on a normal budget are all the more happy to fly with the competitively priced, well-equipped Gulf carriers...

SPOHR I admit that there are market segments where they will pose a challenge for us. That applies in particular to price-conscious travellers and destinations away from the traditional economic metropolises. There is a lot of growth here, and we have not been a sufficient part of it to date. Already today, around 80 per cent of our intercontinental passengers travel for leisure, and this percentage will continue to rise. Our response to this is our Wings initiative, which will also include a low-cost product for long-haul routes.

 

In doing so, you will be entering into the most brutal competition possible. Tourism routes to popular destinations in particular are already fiercely competitive these days.

SPOHR We definitely don’t want to be lining up in the Dominican Republic’s crowded airspace, but would rather add specific new routes to our existing network that are likely to be of interest to Lufthansa’s leisure travel customers. Southern Africa will play a role here, as will the beaches of Florida and the Indian Ocean. We can achieve a lot here with a different brand that flies at a lower cost and is fresh and innovative.

 

Do you even have the right aircraft for that? Experts say that flying long-haul on a low-cost basis will only be possible with the new lightweight planes, the Dreamliner B787 and the A350 from Airbus. According to reports, however, you want to use outdated models like the fuel-guzzling A340.

SPOHR There’s a misunderstanding here circulating in the media. The question of whether we will use our A340 planes for longer has nothing to do with the new Wings platform. Our plan there is to operate used A330s and B767s for long-distance flights.

 

Which are also very mature aircraft models.

SPOHR But they are available at short notice, and we’ll need them as early as autumn of next year, when the first long-haul flights of the new Wings airline are scheduled to take off. Speed is more important at this stage than waiting years for the optimal aircraft. If the initiative proves to be a success, we’ll certainly examine whether to order Dreamliners or A350s for it.

 

Where will you take off from?

SPOHR The first seven aircraft are to be stationed in Munich, Düsseldorf or Cologne.

 

Is this the beginning of a paradigm shift – away from transfer traffic via the hubs, and towards direct flights that are so popular among passengers?

SPOHR The hub system will remain at the core; we’re simply adding to it. To put it in numbers: We have 600 passenger aircraft. We operate 500 of these at our hubs in Frankfurt, Munich, Zurich, Vienna and Brussels. One hundred of them are earmarked for the Wings initiative, around seven of which are initially for intercontinental routes. Nevertheless, direct traffic is growing faster than transfer flights, and we want to be a greater part of this in the future.

 

Wings is embarking on an expansion course in Europe, too, under the names of Germanwings and Eurowings. Wasn’t the market divided up among big players like Easyjet and Ryanair long ago?

SPOHR There are indeed many players in the market already, and the number is increasing. For this reason, we’re launching our initiative in our home markets – Germany, Switzerland, Austria and Belgium. In terms of strategy, we have to ensure in any case that we maintain our market dominance. There will probably be a consolidation of low-cost carriers at some stage. And we want to play a leading role here. Our aim is clear: we want the Wings group to move up into third position in point-to-point traffic in Europe.

 

The pilots are showing little enthusiasm for Wings. They worry that it will regularly lead to low-level blackmail in the future along the lines of: either you make concessions or the new aircraft will all go to the low-cost subsidiaries. Is this a realistic scenario?

SPOHR We have no intention of forcing our pilots onto another platform. However, I believe that this can happen voluntarily. As a pilot in the Lufthansa Group, you will be able to decide in future whether you aspire to move up more quickly in an environment that is profitable and growing thanks to lower costs. Or whether you want stay put in a core area that is perhaps only growing moderately in order to maintain the status quo. These two scenarios will co-exist to a lesser and lesser extent in the future.

 

So if you want to have a career, you’ll have to switch to the low-cost subsidiaries?

SPOHR There’s no doubt that you can make captain more quickly in a growing airline than in a premium carrier whose primary source of growth is larger aircraft and where positions only become vacant when pilots retire. That reflects the current reality of the market and is not due to the maliciousness of management.

 

It seems as if all the long-established carriers are growing through low-cost subsidiaries at present, with Air France-KLM recently announcing a low-cost campaign. Is flying in Europe becoming purely a low-cost business?

SPOHR I don’t believe so. In Germany in particular, customers want certain standards of service. Lufthansa, in any case, will continue to operate as a premium carrier with its core brand, and not just on long-haul routes.

 

Your customers have at times questioned these standards in recent years. A not-insignificant number of frequent flyers have complained that Lufthansa is saving money at the expense of its best passengers.

SPOHR It goes without saying that customer satisfaction should not suffer as a result of what is essential cost management. I admit that there have been grievances, which is why we have made important changes. We have upgraded our catering in First Class and Business Class, significantly improved our range of in-flight entertainment, and are introducing miles bonuses that can be selected additionally with Miles & More Selections. In addition, all of our First Class and Business Class cabins will have been refitted with the new seats by the coming winter. From customer surveys, we can clearly see that satisfaction levels are increasing again.

 

You still need to make further improvements to your Miles & More loyalty programme, though. Upgrades and attractive bonus flights are hard to come by.

SPOHR We are the victims of our own success here. The load factor of our aircraft is reaching record levels. This means that we often have to decide whether we can sell the scarce number of seats or release them for customers to redeem their miles. In view of the tight margins in our business, this poses a dilemma, to be very honest. We are therefore planning to also introduce variable bonus awards.

 

This means that miles will have to be used for popular flights and upgrades?

SPOHR Yes. In exchange, however, we will create greater capacities and new incentives for customers who have already reached their status and want to take advantage of other benefits. In addition, we will be testing a simple discount system for European point-to-point traffic that will also reward customers who only fly occasionally. I believe that many frequent flyers and new customers will be excited about these new features. •

The interview was conducted by Manager Magazin editors Michael Machatschke and Martin Noe. Photo: Christof Mattes

 

Kerstin Speitmann