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With its headquarters in Cologne and primary hubs at Frankfurt and Munich airports and secondary hubs in Berlin, Dusseldorf, Hamburg, Stuttgart and Milan, Lufthansa is one of the largest airlines in Europe. Operating a large fleet of narrow and wide-body Airbus, Boeing and Embraer aircraft, Lufthansa operates an extensive network of regional services within Germany and Europe as well as Asia, the Middle East, North America, South America and Africa. A publicly listed company, Lufthansa is a founding member of Star Alliance.
Location of Lufthansa main hub (Frankfurt Airport)
Lufthansa share price
3,066 total articles
271 total articles
The recent decision by Lufthansa to end its codeshare agreement with Turkish Airlines (THY) came as a surprise to most observers. Talks between the two carriers over the past 18 months had been seeking closer co-operation, a prospect that had even been discussed by the respective heads of government of Germany and Turkey.
However, the strong growth of THY in Germany has led to imbalances in their relationship. In particular, THY now has a strong presence in secondary German cities away from Lufthansa’s Frankfurt and Munich strongholds. This has undermined Lufthansa’s strategy of funnelling Asia-bound traffic from secondary markets via its hubs as THY increasingly offers an alternative connection via Istanbul.
With fares that Lufthansa cannot match, one of the world’s biggest networks and a product that continues to win plaudits, THY has become a formidable competitor to Lufthansa and its group companies in spite of also being a Star Alliance partner.
A beleaguered United Airlines has outlined ambitious goals for its investors that entails an annual cost cutting scheme of USD2 billion and a pledge to begin returning cash to shareholders by 2015.
After battling operational, revenue and cost challenges during the last couple of years, United has no choice but to crystallise a plan to improve its performance in the medium term. Its target of rewarding shareholders is likely to be a competitive response to Delta Air Lines, who recently outlined plans to return USD1 billion to its shareholders during the next three years.
Additionally, United believes it can increase pre-tax earnings by two to four times during the next four years. Taken together it is tall order for a company that is still trying to deliver on its merger synergy targets. Now that United has declared those goals, the challenge is to deliver a successful execution, something that sceptics might have a right to be weary of.
Etihad's announcement that it was buying 33.3% of Switzerland-based Darwin Airline was made on the first day of the Dubai Airshow and was easily lost in the fury of orders announced that day.
Darwin only flies aircraft with 50 seats, less than the number of premium seats that will be on many of the 350-plus widebody aircraft Gulf carriers ordered at the airshow. But the announcement is significant, and three reasons stand out.
First, for Etihad the carrier will "connect the dots" in Europe for itself and partners, linking hubs but also tertiary cities, which have largely been passed over by Gulf carriers. Many of these cities are served by the Lufthansa Group. This gives rise to the second significant impact: on Europe's legacy carriers. Gulf carriers changed their long-haul business while European LCCs decimated short-haul. Regional traffic was always typically a burden, and will come under further pressure following Etihad's announcement. Third is that Darwin Airline will re-brand as "Etihad Regional", and Etihad openly states Darwin is only the first carrier to use this new brand. As the industry still digests Etihad's partnership and equity strategy, Etihad promises to change another component of aviation – and raise the stakes in the liberalisation of the industry, especially by stamping its name on a European carrier.
Lufthansa’s 3Q2013 profit numbers all fall, but there is ‘clear improvement’: how to understand this
Lufthansa does not make it easy for the casual observer to understand its financial results. It has three different figures for what is generally called operating profit: ‘EBIT’, ‘operating result’ and ‘normalised operating result’, plus a fourth indicator, ‘adjusted operating margin’. Here is how we paraphrase Lufthansa’s 3Q2013 results communications.
“Underlying profitability is moving in the right direction, in spite of weak currency-affected yields. The SCORE restructuring programme is starting to have a positive effect, but is also bringing one-off costs. The transfer to Germanwings should lead to a profit in short-haul for the first time in five years and Austrian should report an operating profit for the first time since we bought it. Our 2013 operating profit should be EUR600 million to EUR700 million and SCORE should take us to our 2015 target operating profit of EUR2.3 billion. We should have a better view next year, when restructuring and product improvement costs reduce, but our recent aircraft order shows our confidence in the future. Trust us for now”.
Lufthansa chairman and CEO Christoph Franz told Bloomberg (9-Oct-2013) that his airline is in discussions with Star alliance partner Air China over a possible commercial joint venture to allow for better connections between Europe and China: “In the future, we will not only link our mutual hubs, but it will be important to also have direct links between major European markets and Air China’s hubs, and the other way round.”
China is an important market for Lufthansa, which already operates joint ventures with partners on routes to North America and Japan. It has a long history of collaboration with Air China in various forms, albeit often with an underlying competitive tension. A new JV would require the two to align their goals in the Europe-China market and could bring the portion of Lufthansa’s ASKs operated under such partnerships close to one half.
On 4-Oct-2013, Lufthansa gave a presentation to analysts and investors in London on developments in its Passenger Airlines business, with a focus on giving more details of the progress of the ‘new Germanwings’. The session was led by Carsten Spohr, CEO of Lufthansa German Airlines, and supported by the CEO and CFO of LCC subsidiary Germanwings.
The speakers gave an update on the transfer of non-hub European point-to-point traffic from Lufthansa to Germanwings and its expected impact on the group’s short/medium-haul losses.
Lufthansa’s plans for Germanwings are more far-reaching than those of Air France with its LCC subsidiary Transavia France. However, IAG already has a fully fledged stand-alone pan-European LCC in the form of Vueling. Moreover, both Transavia and Vueling (and other European LCCs) have lower unit costs than Germanwings. Can it generate enough of a price premium to offset this cost disadvantage?
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