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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 Oct 3, 13, 7:51 pm
  #1  
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Cool LHs strategy: discussion thread for customers, investors, consultants & armchair CEOs

Lufthansa is presenting on SCORE in London today:

http://investor-relations.lufthansag...on-2013-10.pdf

The most interesting slide is page 4:

The operational KPI do not show the improvements they predicted:

While LH is selling more revenue seat kilometer (RSK, +1,4%), they could only do so for a lower price: the yield per revenue kilometer sold (revenue passenger kilometer, RPK) fell (!) by 0.7%.

That's pretty bad: Flyers have voiced their anger here that Lufthansa is trying to force up-sell customers to F and J and not opening lower booking classes. This should mean more money per revenue passenger kilometer but in the big picture that strategy did not work out: the yield overall did not increase, it fell! Passenger paid less (on average) than last year! Revenue management increased SLF but not yield, looks like there is a bit more work to be done.

Also interesting: cost per available seat kilometer fell by 1.5% and that's not LH's hard work, it's fuel prices going down: excluding fuel, cost only decreased by 0.8%! It would be interesting to see how much of this decrease is owed to the newer planes and the better economics of those planes.

Lufthansa is also claiming that premium traffic is doing well, again that should mean that the yield per revenue passenger kilometer should go up: it did not.

Bottom line, Lufthansa has made more profit but not because they increased pricing (they were not able to do that across all passengers). They increased the loads (RSK +1.4% while ASK +0.2%) but seemed to have done so for lower prices than anticipated and/or mostly in Economy. Falling fuel prices are helping them a lot: cost (CASK) is down 1.5%, excluding fuel only down 0.8%.

Fare earned divided by kilometers flown = yield for revenue passenger kilometer (RPK)

All seats offered times kilometers flown = available seat kilometer (ASK)

All seats actually sold times kilometers flown = revenue passenger kilometer (RPK)

All costs divided by ASK = cost per available seat kilometer (CASK)
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Old Oct 3, 13, 9:02 pm
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Nice!
Originally Posted by SMK77 View Post
..That's pretty bad: Flyers have voiced their anger here that Lufthansa is trying to force up-sell customers to F and J and not opening lower booking classes. This should mean more money per revenue passenger kilometer but in the big picture that strategy did not work out..
The above numbers do not segregate premium traffic from discounted offers. So the Nonstop You attraction of smelly backpackers could very well pull these indicators down even though premium pax had to pay more.
This would also go well with the "more seats sold". If these were Nonstop You chairs, it would explain everything else even with a steep increase in upsellinf C and F.
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Old Oct 3, 13, 9:18 pm
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Interesting that nothing about M&M and not much details about Asia. I wonder how they wanna compare with Middle Eastern carriers.
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Old Oct 4, 13, 2:54 am
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This one made me laugh:
"Become Europe's first 5* airline"
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Old Oct 4, 13, 2:57 am
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SCORE won't work on yield improvement.

Simple reason- if the product delivers more value- people will pay more for it. If the product does not- people won't pay. While it is true there are routes where Lufthansa (or any other airline for that matter) hold a practically captive audience- you don't need SCORE to improve yield there.

This reminds me of the time I was walking through Munich in the rain- and there was an umbrella vendor- as the rain got heavier he changed the price from 12 EUR to 20 EUR- I said "but 2 minutes ago it was 12 EUR!" to which he replied "and 2 minutes ago it wasn't raining". He didn't have SCORE, he didn't even had a computer, and he "yielded" 8 EUR more out of me at that moment- however I can tell you it would be a very difficult to imagine sunny day before I went back and bought something from that vendor.
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Old Oct 4, 13, 3:23 am
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Very interesting reading material.
I believe LH made it clear that they have major problems in the Asian, ME and Africa market. "Under presure" means we have major problems in these market!!
LH is really hit by the Gulf carriers and does not know how to respond quality wise towards Premium- and Economy passengers in these markets.

Quote from LH presentation:
Asia and Middle East/Africa under pressure
�� Forex developments dilute APAC yields by ca. 4 %pts. year-on-year (Q2)
�� Weak Yen pressures Japan routes – JV with ANA eases effect on LH
�� Indian Rupee, competition and macro weakness pressures India routes
�� Chinese market is growing strongly, partnership options under evaluation
�� Gulf carrier competition remains intense
�� Strategy for the market includes introduction of two-class fleet and earning
capacity measures; successfully proven on first routes

Last edited by Terbang; Oct 4, 13 at 3:35 am
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Old Oct 4, 13, 3:30 am
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Originally Posted by Rambuster View Post
This one made me laugh:
"Become Europe's first 5* airline"
I guess one could justify a 5* rating if one only looked at the F product.

Or are you suggesting the subpar C product, pretty average Y product, M&M and the terrible NEK product should also be taken into account?

I sometimes wonder how they come up with such nonsense and whether they actually believe it themselves.
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Old Oct 4, 13, 3:30 am
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Originally Posted by Rambuster View Post
This one made me laugh:
"Become Europe's first 5* airline"
Indeed.
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Old Oct 4, 13, 3:39 am
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Originally Posted by Jasper2009 View Post
I guess one could justify a 5* rating if one only looked at the F product.

Or are you suggesting the subpar C product, pretty average Y product, M&M and the terrible NEK product should also be taken into account?

I sometimes wonder how they come up with such nonsense and whether they actually believe it themselves.
F class is indeed top notch.
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Old Oct 4, 13, 4:02 am
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Originally Posted by Rambuster View Post
F class is indeed top notch.
That's why

Strategy for the market includes introduction of two-class fleet and earning capacity measures; successfully proven on first routes
I don't assume they are talking Y/F or C/F, are they?

HTB.
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Old Oct 4, 13, 4:12 am
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Originally Posted by Rambuster View Post
This one made me laugh:
"Become Europe's first 5* airline"
Well, this obviously refers to the loyalty stars we will be enjoying on our M&M cards from next year.
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Old Oct 4, 13, 4:58 am
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A 0.8% cost decrease excluding fuel is quite significant I think!

Does anybody know the trend for yield per revenue km in previous years, or a comparison with other airlines? I would be willing to bet that a big chunk of this yield reduction is due to external factors (i.e. competition to ME & Asia) and is impacting other airlines as well.

From a business point of view, the target of lowering costs and increasing customer satisfaction (i.e. become a 5 Star airline) is of course the holy grail....
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Old Oct 4, 13, 5:49 am
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Thanks for sharing the link to the document. My "favourite" is topic 3 on page 6: Reduce short-haul fleet from 9 to 3 aircraft models and the following page.

This will lead to a reduction in complexity of the network as well as the frequency of operations especially on minor routes.

The consequence will be a further reduction of the number of full paying C/Premium pax due to the fact that schedule is not so convenient than before. The opportunity of business travel on the same day will be "enhanced".

I don't think that by this measures they will be able to initiate a trend to higher fares/premium pax.
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Old Oct 4, 13, 6:55 am
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Originally Posted by 8420PR View Post
..From a business point of view, the target of lowering costs and increasing customer satisfaction (i.e. become a 5 Star airline) is of course the holy grail....
They didn't intensively cater for the second half of that equation though...

But then the trash carrier of the OneWorld, MH, also received a 5th star. So there is a large, prejudiced, uninformed, gullible, and easily manipulated army of morons out there who has the energy to vote for some airlines entirely undeserving of applause.

So given that LH is the flag carrier of the biggest monolithic market on Earth, with a further decrease of literacy and influx of non-integrated alines, there is an excellent chance that LH will soon be voted up by the Skytrax folks ....
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Old Oct 4, 13, 8:16 am
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Originally Posted by 8420PR View Post
A 0.8% cost decrease excluding fuel is quite significant I think!

Does anybody know the trend for yield per revenue km in previous years, or a comparison with other airlines? I would be willing to bet that a big chunk of this yield reduction is due to external factors (i.e. competition to ME & Asia) and is impacting other airlines as well.

From a business point of view, the target of lowering costs and increasing customer satisfaction (i.e. become a 5 Star airline) is of course the holy grail....
IAG reported for the same period (1H 2013)

Yield per RPK: +2.0%
Cost (ex fuel): -0.2%

AF/KLM reported for the same period (1H 2013)

Yield per RPK: -2.5%
Cost (ex fuel): -1.5%
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