totti

I second your analyses ^ . The problem is that the LH will get away with it because of their market power on the routes I mentioned above - at least I think so.

flysurfer

Really? Even a heavily discounted C ticket (Z) is about EUR 2500. That's 25 domestic roundtrips on cheapo fares (mind you: including tax, because without taxes it's more like 100 of these roundtrips to give LH the same revenue). So if you base mileage earnings on the plain fares (w/o taxes), I guess the almost-zero mileage earnings for E fares and similar are pretty much in line.

totti

It depends on the point of view. I think Tyrolean meant that from the customers point of view in his example customer B is much more loyal but LH is not willing to appreciate this but rewards FTL to a customer that maybe flys LH just once in C. Again, strange from the customers point of view.

But you are right that is enhencements are pretty much in line with the LH policy of the last years and it is clearly to be seen which way it will go on. From LH's point of view it is understandable that they are only interested in the money a customer spends to the airline. So customer A is much more "important".

Tyrolean

Sorry that I did not make it clear. Leave out L,T,E fares. As Business-Traveler that is stuck to the cheapest fare by travel restrictions (which I am gladly not) you rarely get those cheap shots. You will end up with unflexible mid-priced tickets (G,H,M,...). Domestic they cost average about 200 Euro (net Fares). You get 1000 Miles per roundtrip. So you need 35 Roundtrips about 7000 Euro net Fares.
I had the chance of a 500 Euro Roundtrip MUC-LHR in K and T = 750+125 Miles! Is this a cheap ticket (on one segment but I cannot book oneways!)

Only a diminishing minority is flying ONLY for gaining status. I doubt that there is anybody who gained a status by flying only L,T,E fares in the last year. There may be travelers who would fly ADDITIONAL FLIGHTS for the status. But this is now over. But why did they kick those? Is a person who just puts his butt in a plane to gain status a bad customer?

Now to the L,T,E Fares:
The reason for those very cheap tickets is yield management or marketing. If LH loses money with cheap tickets they should not offer them.
But they have two impacts: They show "Otto Normal" Customer that LH offeres cheap fares --> load the image of LH with value for money.
It is the same as the effect of butter-prices:
A normal shopper in a supermarket is not able to compare the prices of all products. So he has only in mind the price of some products (eg. butter).
If these prices are considered cheap the whole supermarket is considered cheap!

Second point: Yield, marginal costs and cost reduction.
The plane has to fly anyway. So LH has two options. Leave the seat empty or sell it for a cheap price. The cost of the flight is sunk when the gate closes.
The fuel cost of a passenger on a domestic flight is not very high.
But you get the fare (even if it is low) direcly in the revenue.
It is the same if I take somebody in the car with me. I had to go anyway so my cost are sunk. If he pays me 20 Euro for fuel I have minimized my cost by 20 Euro. I would not ask to pay him the real cost for the drive (50 cent per km)!

I think that they do not know what they are doing!

flysurfer

I think it's not simply about revenue, it's about profit. At least it should be. The most profitable customer is the most important one. That way, a customer who doesn't fly THAT much but always flys in paid F or C is more important than a pax flying twice as much in paid G,H,M,K fares. While both may generate the same annual revenue, the "full fare occasional traveller" generates more profit per seatmile than the "mediocre fare road warrior". That's why I can understand that our occasional traveller may end up with more miles and a higher status, even though he was the less "loyal" one – if you define loyalty only by the annual revenue generated by a pax or the number of flights a pax takes with a certain airline or alliance. However, I'm sure LH and other profitable airlines define loyalty by the profit a pax generates per euro spent.

Bankrupt airlines define loyalty differently. UA MP, for example, punishes high-yield pax and rewards pax traveling on cheapo fares. With MP, pax can easily accumulate heaps of award and status miles (and upgrade vouchers) by traveling on the cheapest fare available, and they can even upgrade most of these fares to a higher COS with an abundance of instruments. OTOH, high-yield MP pax flying in paid F and C are stuck with laughable COS bonuses of 50% or 25% (LH M&M rewards this kind of PROFITABLE loyalty with 300% or 200%, plus 25% or 50% executive bonus). Even worse, high-yield MP members don't get more upgrades than the cheapest travellers, as 500-miler (and AFAIK also regional) upgrade accumulation is based on BIS miles only, entirely disregarding paid COS.

totti

As flysurfer argues here (and I second this) LH knows exactly what they are doing and form a economic point of view they are doing quite well.

For sure they fill up the plane with this E,L,T fares and reduce costs but as flysurfer mentioned this as not such a deep impact to the profit, at least I think so.

Tyrolean

True. I agree with most of the Instruments of M&M but not with everything.
As calculated before, the frequent GHK flyer can contribute much more to the profit than an infrequent Z Flyer.

The next point is that a Status should attract your Airline for the FUTURE.
So what is the influence of the customers loyality is set by the "loyality program"
A frequent flyer has (given there is an alternative) the choce.
If you give him a shining plasic card that makes his travel a bit easier (C-Checkin, Lounges) he will chose your airline (I do not ask for the things that UA gives...) IN THE FUTURE.
--> Big influence of the loyality program to the customers loyality
This type of customer knows every perk and is extreamly sensitive If these perks are cut.
Big opportunity and big threat if something is cut.
Kick him and he will move some business away to an Airline that gives him more service.
The unfrequent Z flyer gets the benefits anyway. He will rarely chose upon Status, because he has Lounge-Access and priority service included in his ticket.
--> Small influence of the loyality program to the customers loyality
(There are enought flyers who do not know the perks of the program)

With the cutting of qualifying segments the gap was made much bigger!
I really do not want to change M&L in the way that MP is, but LH is pretty much barking up the wrong tree.

berenike

It is all about the contribution margin, not the revenue. The margin on a longhaul is way higher than on the short European flights. Take away the taxes from a 99 Euro ticket and you have 20 Euros left. Those tickets are sold under cost. Loyalty is fine, but only when contribution is right. You don't want loyal customers that create a loss for you.

On a side note: If you wanted your left seats booked you would lower the price close to the flight not raise it.

Regards

Christian

Grog

While I see your point, with the TSC purchase it's 50% more than that. And, as long as LH owns parts of airports, it's more than that.

Every business offers something under cost: free napkins at an schnellimbiss, wine tasting at the vintner, etc. Making less with such loyality? Maybe; but I have trouble believing they lose. If they were really losing money with offers, they would not have introduced Euro-wide BetterFly.

bertheike

Well LH may own M&L, but M&L is still another separate company ( profitcenter ).
M&L gets for every mile from an *aliance airline ( incl. LH ) money, and pays money for the award.
So any airline calculates how much miles/money they can spent, for the fare the customer paid. And there for it is more than logical, that for a cheaper fare, they only are willing to give less miles.
Maybe one can compare a FFP with a cashback creditcard.
And even the money spent is not the basis for revenue.
on an E/T class for 29 euro++ they may be don`t earn anything, they only reduce operating costs. But therefor they not willing to give any aditional discount/miles! As higher the fareclass, as higher the revenue should** be. That´s the reason why they give different miles by fareclass.
The best controll by the airline would be to give the status/miles totaly by revenue or at least fare paid. But this is not possible, because they can not store the revenue or even the fare a customer paid for a single segment.
Now someone may have the idea they easyly could store the fare from each ticket, but if a fullfare IATA involves more airlines, it is not possible to splitt this.
**should means also the fareclass not always shows how much is the revenue! Here I have to bring up again ex Libya fares. A TIP-VIE-FRA-BKK-HKG-SIN-FRA-TIP-TOB in F/C costs around 1600 Euro++ under 1900 Eur. all in. Is booked in F and C where no F avail.! If one only flies FRA-SIN rt. in F he ends up at least with 8000 Euro. In the first case the customer paid only 1/5 the fare and gets around 20k miles more.
What we learn; it´s very difficult for the airline/FFP to honor a customers loyality in a faire way.

Tyrolean

Depends on the cost definition:
Total cost of the Flight divided by pax (should be about 80 Euro by 80% load factor) --> yes.
Value added by not letting the seat empty --> Yield --> no.
The profitablility of a flight depends not on the only pax but in the total sum generated by the flight. Beleive me, LH yield management is good!

If they lose money with it, ther must be a reason why they sell it!
20 Euro + TSC + Fuel Surcharge...

BTW what are the costs of an FTL?
- The Card - printed every 2 years
- The Monthly Magazine for German residents - Sponored by lots of ads form companies that whant a HIGH BASE OF CUSTOMERS. Reducing the number of FTL reduces this sorce of income.
- Priority check-in - no cost
- Lounge use - only LH-Biz-Lounges. The lounges are there anyway so only the food (which food) and drinks consumed count (Average 5 Euro)
If you distribute all the fixed lounge costs on all Biz-Pax and FTL it wont be hight as well.
What is the cost of an FTL that switches his business?
I know FTL who swiched about 10.000 Euro of travelbudget (Yes you can be FTL with that budget and not SEN!) for lower reasons.

Travel Man

My guess is that:
a) Lufthansa lounge: Always access
b) Star lounge: Only with star flights

Rudi

No, the rules really changed:

for Senators from LH's miles&more lounge information: 4) Zugang zu Star Gold Lounges am Abflugtag und -ort mit gültiger Bordkarte für einen Star Alliance Flug, unabhängig geflogener Klasse.

(and the VIE lounge is a miles&more lounge run by miles&more member OS, not a StarAlliance lounge)

flysurfer

That's just not true. The unfrequent Z flyer (me, for example) likes status, because he also has cheap domestic and European flights (T,E,U). He (me) also likes award miles and vouchers, as he likes to upgrade his unfrequent Z flights to F (when there's space) or to book the occasional F award trip for himself or family & friends. So he (me) gives his loyalty (revenue & profit) to LH instead of always choosing the airline/alliance with the cheapest Z fare.

Now, are intercontinental Z fares (ex Germany, of course) low-yield or high-yield or something in between? With very long advance booking periods and almost impossible change restrictions, Z fares cater to a very specific type of customer: the self-paying, recreational premium pax (aka me). Due to the draconian rules, Z fares don't interfere with "real" business pax (who often have someone else paying for everything – bau just mentioned in another thread that he has never ever bought a LH ticket in his life), so there's zero fare cannibalizing. Z fares have limited fare buckets, they provide planning security to the airline and they fill C seats (that otherwise would often stay empty or used for upgrades) with paying pax that generate considerable profit - the profit is considerable simply BECAUSE that C seat would otherwise have stayed empty with a significant probability.

So my guess is that LH understands that this special type of "ZSHOT" (me) is important for their bottom line. That's why they hand out the perks to keep the ZSHOT (me) loyal. Also consider that ZSHOTs like me are decision-makers. We are free to decide when to fly, what COS to fly and with carrier to chosse. So we are more easily lost to the competition than a business traveller working for a huge multinational with negotiated fares and many internal travel rules. Since I VOLUNTARILY give LH more than 15,000 EUR of my private money in annual revenue for 12 longhaul seats that would probably stay empty (or filled with upgraders) at least half of the time, I guess I might not be such a bad customer after all.

flysurfer

VIE SEN lounge and OS M&M have always had different rules than LH M&M and LH SEN lounges.