LHs strategy: discussion thread for customers, investors, consultants & armchair CEOs
#1502
Join Date: Jul 2010
Location: BSL/FRA or PHL
Programs: LH Miles and More, DL SkyMiles, Bonvoy, Hilton
Posts: 2,335
In LH eyes the Y-class product is completely commoditised. Why offer miles and comfort when bulk traffic is driven by price? A passenger queueing thirty minutes for the lavatory might well be put off flying Lufthansa again, but who cares? There's an infinite horde of potential flyers waiting to grab cheap tickets. It's a lighter version the original Ryanair philosophy.
Premium economy will be the neat(ish) solution for those who would otherwise face the criminally expensive booking classes at the top end of Y. Of course, the downside will be diversion to premium economy of cheapskate bums from C-class seats. Indeed, as you say, the big gamble is maintaining demand for the business-class seats at current fare levels in the face of a weakening product.
Premium economy will be the neat(ish) solution for those who would otherwise face the criminally expensive booking classes at the top end of Y. Of course, the downside will be diversion to premium economy of cheapskate bums from C-class seats. Indeed, as you say, the big gamble is maintaining demand for the business-class seats at current fare levels in the face of a weakening product.
#1503
Join Date: Jul 2004
Location: PMI
Programs: BA,LH,CX,EK SPG,IC mainly and a few others
Posts: 1,862
Or here on a direct competitor. And no, I will not post pictures of TK's economy or business meals - would really be unfair to poor LH.
LHR-IST was a 777 leased from 9W both ways, so it is not fair to compare with BA or LH European hard product.
And cheaper than BA and LH too.
Only downside was that I got 837 status miles each way (500+337).
#1505
FlyerTalk Evangelist
Join Date: Jan 2005
Location: VCE
Posts: 14,165
Y+ has been asked for by Lufthansa customers including through the very events set up by Flytertalk, the HON circle, the SEN events, etc for more than 15 years and while it is nice it finally coming (~30 years after Eva launched the product) I doubt (admittedly without any data) it will even make 2% difference on the P&L in 2016 much less 2015.
Has anyone come out with a calculation on how effectively driving away status members and cutting key routes has affected P&L? Or the speed of roll out of business vs. competitors? Or NEK? This would be a lot more useful to than the "difficult revenue environment" press releases which really any company that is losing its premium clients will say. Also Polaroid experienced a "difficult revenue environment" following the launch of the digital camera.
Any ideas yet on how the Ethiad injection to AZ will affect LH group?
#1507
Join Date: Sep 2004
Location: Southern Bavaria, Germany
Programs: LH Blue, BA Blue, Hyatt Gold
Posts: 1,517
Y+ has been asked for by Lufthansa customers including through the very events set up by Flytertalk, the HON circle, the SEN events, etc for more than 15 years and while it is nice it finally coming (~30 years after Eva launched the product) I doubt (admittedly without any data) it will even make 2% difference on the P&L in 2016 much less 2015.
[...]
Or NEK?
[...]
Or NEK?
On that plane 84 seats of Y are replaced by 52 seats of Y+ thus requiring an average Y+ fare (with an assumed similiar load factor) which is approx. 61 % than the avarage Y fare with the same fare restrictions.
The already bookable fares for Y+ suggest that Lufty will reach this goal. ^
There is an additional effect: Taking out some capacity of standard Y will stop the immense pressure on special fares just to fill the large birds.
Although I have no resilient numbers I am convinced that this effect is weighing more than 2 % of revenue of the long-haul sectors.
But the Y+ startegy will only work if Lufty doesn't add a large bunch of capacity on long-haul routes. Therefore it will be critical for success if Lufty really starts his long-haul, low-cost "WINGS" operations.
This would have the result in wiping out a large part of the customer base in many routes. The need for a completely new (smaller) fleet for Lufty's mainline long-haul business would arise.
What NEK is concerned:
This is a typical example of a person not having a solid knowledge of business administration implementing a very simle and reasonable sounding measure. Just cut the costs per seat and all is fine. No calculations about customer behaviour, willingness to pay fares or perceived product value.
The example of the A 321 makes it pretty clear as I stated elsewhere: The capacity increase of 184 seats to 200 seats is a cost-saving of 8 percent or so.
But by this you are risking the exorbitant revenues derived from the Business Class fares. As long as the "C" class fare is more then 1,5-fold the average Y fare plus a reasonable surcharge for flexibility these are your core customers.
A competitive advantage of 8 percent compared to the previous product is zeroed out if even one single passenger doesn't buy your business class product anymore. So you have to offer a real Business Class on all short-haul planes.
In Y class it's the same as increasing the capacity on the long-haul sector: What should you do with that additional 16 (or if you use the full set of 205 seats and having one more FA the additional 21 seats):
Outside the peak travel times in Summer, Easter Holidays and the demand before Christmas you have to fork out with special fares.
That further decreases your revenue potential. That said I assume that you could make more profit with a 172 seater A321 (as a comfortable alternative) than the 200/205 high-density layout.
#1508
FlyerTalk Evangelist
Join Date: Aug 2000
Location: London
Programs: Hilton, IHG - BA, GA, LH, QR, SV, TK
Posts: 16,965
I am convinced that the introduction of Premium Economy will have significant impact on the profit & loss statement. Especially on all routes with the A 380 where there is an *assumed* overcapacity of Y seats.
On that plane 84 seats of Y are replaced by 52 seats of Y+ thus requiring an average Y+ fare (with an assumed similiar load factor) which is approx. 61 % than the avarage Y fare with the same fare restrictions.
The already bookable fares for Y+ suggest that Lufty will reach this goal. ^
There is an additional effect: Taking out some capacity of standard Y will stop the immense pressure on special fares just to fill the large birds.
On that plane 84 seats of Y are replaced by 52 seats of Y+ thus requiring an average Y+ fare (with an assumed similiar load factor) which is approx. 61 % than the avarage Y fare with the same fare restrictions.
The already bookable fares for Y+ suggest that Lufty will reach this goal. ^
There is an additional effect: Taking out some capacity of standard Y will stop the immense pressure on special fares just to fill the large birds.
Of course, there might well be a queue waiting to take up any spare seats in business-class: there again ......
Last edited by IAN-UK; Aug 14, 2014 at 3:35 pm
#1509
FlyerTalk Evangelist
Join Date: Jan 2005
Location: VCE
Posts: 14,165
Interesting data comparing LH, AFKL , and IAG:
http://centreforaviation.com/analysi...nce-klm-180710
http://centreforaviation.com/analysi...nce-klm-180710
#1510
FlyerTalk Evangelist
Join Date: Jan 2005
Location: VCE
Posts: 14,165
You indulge in the rosy view of a convert. A less subjective analysis has to consider the very real risk of cost-conscious passengers normally in business-class finding the Y+ product attractive enough for them to desert the J-class cabin. It won't take the loss of many of these to wipe out gains ....
#1512
FlyerTalk Evangelist
Join Date: Jan 2005
Location: VCE
Posts: 14,165
A combination of NEK, "short haul" flights of up to 4.5 hours without proper business class, long haul business class behind the competition (still no lie flat for example on any of the 744 fleet and much of the Airbus fleet), pricing increases and schedule reductions to key Asian destinations, and what seems to be a somewhat decreasing value proposition for the frequent flyer (unless only full fare) all the while adjusting the Star Alliance equation to be not equal (such as TK with only 25% status miles) have put Lufthansa behind alternatives not only of the GCC yet also IAG (BA in particular), and even AFKL- something I would not have imagined possible just three years ago.
#1513
Join Date: May 2009
Location: SIN (with a bit of ZRH sprinkled in)
Posts: 9,442
I think it's safe to say that we can talk all day about what the future might bring, but the only thing that is safe to say is that the current numbers don't look THAT well, especially when comparing to the competition.
Now, this terrible summer 2014 in LH's core market might bring their July/August numbers up quite a bit. I wouldn't be surprised if Q3 2014 numbers for LH will be - quite a bit actually - better than 2013 due to this. Lots of last-minute bookings in higher booking classes, less empty seats especially on flights to the South. Obviously not just for LH, but given the bad weather was mostly focused on DACH-region, LH will profit from it the most.
Now, this terrible summer 2014 in LH's core market might bring their July/August numbers up quite a bit. I wouldn't be surprised if Q3 2014 numbers for LH will be - quite a bit actually - better than 2013 due to this. Lots of last-minute bookings in higher booking classes, less empty seats especially on flights to the South. Obviously not just for LH, but given the bad weather was mostly focused on DACH-region, LH will profit from it the most.
#1514
Join Date: Sep 2004
Location: Southern Bavaria, Germany
Programs: LH Blue, BA Blue, Hyatt Gold
Posts: 1,517
You indulge in the rosy view of a convert. A less subjective analysis has to consider the very real risk of cost-conscious passengers normally in business-class finding the Y+ product attractive enough for them to desert the J-class cabin. It won't take the loss of many of these to wipe out gains from Y-migration.
Of course, there might well be a queue waiting to take up any spare seats in business-class: there again ......
Of course, there might well be a queue waiting to take up any spare seats in business-class: there again ......
The entrepreneurial airlines - like BA - introduced Economy + approx. 11 to 12 years ago. The first route was London->New York also having a significant load of Business pax.
IMHO the down migration from J/C classes to Y+ didn't happen there and also won't happen on the few (remaining) Business passengers. Many companies have already slashed Business Class privileges for a large part of their employees. That said I see the low number of middle/upper managament people remaining where they are: In the Business Class cabin.
Especially if the larger accounts have negotiated decent discounts on Business Class travel.
Additionally this class in between offers completely new and unseen opportunities for enlarging customer loyalty. A wide opening for paid upsellings (e.g. by miles) will attract those flyers who endure NEK all year long and then can get a deal with their familiy flying Y+ to a far away holiday destination.
That sad I think the Y+ product will be especially successful on the longer routes from Germany like to the US West Coast and China/Japan/Far East Asia.
#1515
FlyerTalk Evangelist
Join Date: Aug 2000
Location: London
Programs: Hilton, IHG - BA, GA, LH, QR, SV, TK
Posts: 16,965
Lowest fare "commodity" travellers will stay where they are: high-Y fares are the ones likely to find Y+ tickets more attractive (one attraction being the cabin is NOT Business, and therefore within corporate travel policies).
If "rare bird" high-Ys move up, they'll free up more Y seats for those from the infinite masses seeking travel at lower fares.
So increased revenue from moves upwards will be somewhat offset by less revenue for the Y seats vacated in that move.
The opposite signs are attached to migration down to Y+ from C. And here vacated C seats don't have infinite numbers waiting to fill those vacated.
It's not as simple as it looks .
Lufthansa's revenue and research teams could probably populate that simplified outline with sensible numbers. We can't. So only time will tell....