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LHs strategy: discussion thread for customers, investors, consultants & armchair CEOs

LHs strategy: discussion thread for customers, investors, consultants & armchair CEOs

Old Nov 3, 2015, 11:47 am
  #2266  
 
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Originally Posted by gum
And it will clearly show how odd the actual situation in Germany is - to risk a company just for that issues.

That's just my opinion hoping for a faster compromise.
Thanks for the comments.

Anecdotal evidence from observations of passenger traffic (or lack thereof) in FRA is that it is already getting quiet in LH-land as people with a choice are proactively re-booking ahead of the strike so as to minimize their travel disruptions. I will be really interested to hear the spin that LH management puts on the financial impact, which seems already like it might be significant. I suppose that the TAs pissed about the GDS charges are always happy to re-book people away from LH these days anyway.

From a strategic point of view, one can see highly paid personnel as a cost that is not longer justifiable and thus need to be minimized, or, alternatively, one can examine as to whether the work structure of highly educated, trained, and solution-oriented personnel can somehow be adjusted to increase productivity and thus make the absolute level of their pay less important.

I am not saying that either path is more or less feasible, just that there is logically a strategic choice. If one is able to make the employees more productive somehow, you land in a situation where everyone benefits. If you are not able to make the employees more productive and need to further cut personnel pay, the way forward there is not necessarily much easier, as we see currently...@:-)

Last edited by N1003U; Nov 4, 2015 at 3:42 am
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Old Nov 4, 2015, 2:43 am
  #2267  
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Originally Posted by N1003U
Thighly educated, trained, and solution-oriented personnel
Come again? While that may apply to the pilots, the FAs go thru a 6 week training and are let loose on the public after that. Same goes for ground staff. While the quality is debatable, the outsourced staff in outstations seems to do the job on minimal training and wages as well.
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Old Nov 4, 2015, 4:17 am
  #2268  
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Great contribution - thanks!

Originally Posted by N1003U
Thanks for the comments.

If one is able to make the employees more productive somehow, you land in a situation where everyone benefits. If you are not able to make the employees more productive and need to further cut personnel pay, the way forward there is not necessarily much easier, as we see currently...@:-)
Thanks for the great contribution, N1003U!

Very openly spoken I think there is only one opportunity to make people more productive per "cost Euro": The remuneration per flight hour has to be reduced.

There are different ways for doing so. But I am convinced that there is something like a natural productivity barrier in air travel and service business. :-:

If you rationalize too much and the contact to the customer is minimized the customer has no time to realize that this is a high-level product and not just another low cost carrier clone.

That said e.g. just throwing a standardized mineral water on the Eco Pax on medium-haul and thus decreasing the workload during the drink's run seems not to be feasible.

I remember an example of a company in the coffee business that for a long time has been displayed as the one and only blueprint for successful business: After increasing the procutivity by new machines and thus reducing the customer wait times the turnover was down.

Simply due to the fact that a specific preparation time is an intrinsic value for the customer experience. The share regained after the previous experience was reinstalled.

Although I can't understand what is so fascinating about coffee with a choice of NN top-ups and ingrediences it seems to be that the customers want to have a specific interaction time when buying a service.

Edit & Forgotten argument:
IMHO all partners have to pay a contribution during a restructuring or a modernization phase: The passengers paying their contribution every day due to the introduction of the NEK (30 inch) seats instead of the former 32-34 space between the rows.

Last edited by gum; Nov 4, 2015 at 4:27 am
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Old Nov 4, 2015, 5:13 am
  #2269  
 
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Originally Posted by oliver2002
Come again? While that may apply to the pilots, the FAs go thru a 6 week training and are let loose on the public after that. Same goes for ground staff. While the quality is debatable, the outsourced staff in outstations seems to do the job on minimal training and wages as well.
Yes, it wouldn't be the first time a company has scrimped on product development and then tried to make excuses about the crap that results.

I claim there is a strategic choice. To increase productivity, you can either cut pay (reduce the cost/employee), or you can increase value (increase the revenue/employee). You can also reduce the number of employees, which will of course typically also raise revenue/employee, at least in the short term.

The first choice is easy: fire everyone and automate the process. Oh wait, that technology doesn't exist yet. OK, just fire the expensive people and hire drones where automation doesn't work (maybe even use the drones to direct people to the automated bits ). Yea might work, but in DACH it doesn't save so much money anyway, and outsourcing won't do your premium image much good in the longer term (unless of course you don't care about your premium image anymore, but if you lose that, you bump very quickly against your cost structure, which is difficult to reform and very uncompetitive within the industry).

The second one is harder: train and empower people to provide value-added services/experiences for the customer. Hmmm...not sure how to do that either.

However, an airline is a service, and if one thinks about it a little bit, an airline does a little bit more than just getting people from point A to point B. If it is only about transport, you could slap people in animal carriers with a bowl of water and a bit of dry food and transport them VERY inexpensively, but I am not sure how many customers would sign up for that, even at very low prices. I am betting there are some experiential parts of the shopping, purchase, product delivery, and post-delivery that people will actually pay money for.

But to address the criticism directly, IME, if one makes a direct comparison of average education, communication, thinking, social, and problem solving skills, I would pit an average LH front-line service person (both on board and on the ground) against just about anyone in the industry. But they need to be motivated and enabled to use their skills.

So yes, one might argue (especially given the past 8-10 years or history) that a logical and sensible attempt to increase value might work as well or better than trying to reduce high structural costs. Not sure, but I wouldn't be so fast to discard the idea.
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Old Nov 4, 2015, 6:55 am
  #2270  
 
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Originally Posted by gum
Very openly spoken I think there is only one opportunity to make people more productive per "cost Euro": The remuneration per flight hour has to be reduced.

There are different ways for doing so. But I am convinced that there is something like a natural productivity barrier in air travel and service business. :-:
Actually there are two ways to make people more productive: reduce their cost (personnel expense) or increase their value (sales revenue).

Originally Posted by gum
If you rationalize too much and the contact to the customer is minimized the customer has no time to realize that this is a high-level product and not just another low cost carrier clone.
I agree this is a definite danger if your survival depends on charging a premium for your product.

Originally Posted by gum
I remember an example of a company in the coffee business that for a long time has been displayed as the one and only blueprint for successful business: After increasing the procutivity by new machines and thus reducing the customer wait times the turnover was down.

Simply due to the fact that a specific preparation time is an intrinsic value for the customer experience. The share regained after the previous experience was reinstalled.
Hmmm...the notion that there is intrinsic value in the customer experience...that might be a clue...but I suspect different customers value different things or at least the same things have different values: how do we reconcile that?

Originally Posted by gum
Edit & Forgotten argument:
IMHO all partners have to pay a contribution during a restructuring or a modernization phase: The passengers paying their contribution every day due to the introduction of the NEK (30 inch) seats instead of the former 32-34 space between the rows.
I suppose the passengers will pay only up to the marginal cost of alternate choices. That means the carrier either needs to eliminate competition to extract a monopoly rent (i.e. the customer pays because s/he doesn't have a choice), or provide a value proposition that is at least a good as the next best travel service option (like flying AF via CDG ).

The employees pay for their lack of productivity, but their productivity might be limited either by the absolute level their skills, or by their ability to apply their skills. The first one can be addressed by both the employee and the employer. The second more by the employer.

The company can pay only up to the point where investors start putting their capital somewhere else where it means a better return. That situation is very much in control of company management.

In short, like gum's argument, but I would rephrase it: instead of saying all of the "partners" have to "pay", I would argue that unless all of the "partners" (corporate investors, employees, customers) benefit from the strategy, it will not be sustainable.
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Old Nov 4, 2015, 7:44 am
  #2271  
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100 % agree!

Originally Posted by N1003U
The employees pay for their lack of productivity, but their productivity might be limited either by the absolute level their skills, or by their ability to apply their s

In short, like gum's argument, but I would rephrase it: instead of saying all of the "partners" have to "pay", I would argue that unless all of the "partners" (corporate investors, employees, customers) benefit from the strategy, it will not be sustainable.
Just ^ ^ ^ ^ ^ for N1003U!

For an idea that could pave the way for a five-star airline.
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Old Nov 4, 2015, 8:12 am
  #2272  
 
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In the past, I would always choose Lufthansa above any competition. This was also made very easy for me to do since,
- they had the routes
- they were always punctual and reliable
- their aircraft were comfortable
- they gave very good service
- they looked after me when things went wrong
- they rewarded my loyalty

Now, I will usually avoid them when there is an alternative, because of my list above, only the "reliable" part generally remains, and that only from an aircraft point of view, not from a service point of view. Everything else has been enhanced away. I really cannot bear the back pain I have every time I get out of a NEK seat after 2-3 hours sitting in it. I hate it that they keep finding ways of not giving me miles in my *A program of choice. Why should I pay the same fare for a LH-marketed flight operated by a cost-saving operator that gives me neither lounge access nor service on board, that is often not even communicated before I've bought the ticket.

If they marketed their flights as "Operated by EasyJet" would people still buy their tickets? If your initial reaction to that is "no", then why would you ever book a LH ticket for a GermanWings flight, since in my opinion EasyJet offers at least as good a service right now.

Sad times. And I feel for the pilots and crew. The airline has gone downhill despite them, not because of them as LH management would have us believe.
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Old Nov 4, 2015, 8:52 am
  #2273  
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Pilots and crews - inhale the money, don't they?

Originally Posted by Tafflyer
Sad times. And I feel for the pilots and crew. The airline has gone downhill despite them, not because of them as LH management would have us believe.
Dear Tafflyer,

I am convinced that especially the last paragraph of your post is completely untrue.

If you compare the average remuneration of pilots or cabin crew with the competition you will get a first idea of the cost position of Lufthansa. @:-)

Just follow the following links:

http://www.airliners.de/pilotengehal...-cockpit/31906

Or the privately operated portal for statistics:
http://de.statista.com/statistik/dat...-nach-airline/

Or a reliable German newspaper:
http://www.wiwo.de/unternehmen/diens...n/9717604.html

That said you can just move back to a previous post: While the passengers have their fair part on the restructuring efforts, the crews have not.

They even allowed to split up the Lufthansa Passenger Airline into a low-cost-subsidiary and a small core company. And the area near the Intercont. bases of Frankfurt, Munich and Dusseldorf don't have the living costs of the SAR Hong Kong.

I know that their job is very demanding and full of responsibility and challenges. But nevertheless there is no reason for overpayment.
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Old Nov 4, 2015, 9:04 am
  #2274  
 
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Originally Posted by gum
Just ^ ^ ^ ^ ^ for N1003U!

For an idea that could pave the way for a five-star airline.
Thanks for the flowers, but identifying the problems and their strategic implications is not so hard. Any idiot with half a brain and a bit of logic in an internet forum can do that...

Actually solving the problems and forming a workable strategy based on those solutions is the hard part...@:-)

If you hunt around a bit online, there is a case study or two on the demise of Swissair. It seems SAGroup also recognized their problems while there was still time to do something. They just didn't do a great job of solving the problems...oh, and they took some really terrible advice from consultants...

A key skill is logical and objective thinking.
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Old Nov 5, 2015, 11:51 am
  #2275  
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Originally Posted by N1003U
They just didn't do a great job of solving the problems...oh, and they took some really terrible advice from consultants...

A key skill is logical and objective thinking.
And that skill is embodied within the DNA of companies like Berger, BCG or MCK.

I corrected the false Statement multiple times already, they did not listen to MCK and the Hunter plan, they circumvented a major part of Hunter, because Hunter was capped at appr. 100 Million ...and they simply invested significantly more!!

The strategic option presented by MCK was perfectly fine, hence MCK is MCK and Swiss is a slave working hard to please the hungry crane.

Always listen to experts, never listen to the fans in the stands who risk the company only for a short span of glory.

It is Switzerland after all... why do they need a major airline????
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Old Nov 5, 2015, 12:50 pm
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Originally Posted by FD1971
And that skill is embodied within the DNA of companies like Berger, BCG or MCK.
Those firms certainly have some good people, but the depth of the skill could certainly be debated. I would argue in such a firm being well-connected is much more important that actual skill.

Originally Posted by FD1971
It is Switzerland after all... why do they need a major airline????
Why not, if they can make a business out of it? And it seems they did, at least for a while, until they steered the ship onto the rocks.
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Old Nov 6, 2015, 1:05 am
  #2277  
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Even UFO think LH is having a good year. From their strike declaration:

Lufthansa peilt fr das Jahr 2015 das erfolgreichste Geschftsjahr der Unternehmensgeschichte mit einem Rekordergebnis an. Die Gesamtjahresprognose wurde gerade von 1,75 Mrd. auf 1,95 Mrd. nach oben korrigiert.
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Old Nov 6, 2015, 12:33 pm
  #2278  
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Originally Posted by oliver2002
Even UFO think LH is having a good year. From their strike declaration:



As pointed out so often, Menne is working hard to hide all the cash since several quarters, luckily the account for provisions for the early retirements is underfunded.
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Old Nov 6, 2015, 12:39 pm
  #2279  
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Originally Posted by N1003U
Those firms certainly have some good people, but the depth of the skill could certainly be debated. I would argue in such a firm being well-connected is much more important that actual skill.
What is actual skill?

They went to a very good University plus a top Business School and also got a PHD from a good University. Additionally, they have all the data they need and are subject to high level projects each and every week....

Originally Posted by N1003U

Why not, if they can make a business out of it? And it seems they did, at least for a while, until they steered the ship onto the rocks.
I did quite some research about SR and the flying operations start to bleed cash around 1988. I was not able to figure out whether stupid internal pricing approaches resulted in artificial profits at units like Catering or Maintenance, but from a pure cost perspective they were not competitive anymore long before airlines like SN or AZ started to lose control of costs

And revenues back per km 25 years ago are certainly not comparable to today. Kudos to LH for fixing a really broken airline. ^
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Old Nov 6, 2015, 10:56 pm
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Very interesting article for our German speaking folks here:

http://m.manager-magazin.de/magazin/...a-1061285.html
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