Airline Leader Interview Lufthansa Group Chief Strategy Officer Tamur Goudarzi Pour

Transcript

Jens Flottau:So I was going to start with the following question: which job is worse, having to lead a task force that is supposed to improve the service quality at Lufthansa, which is the job that you've had until like 4 weeks ago, Or trying to figure out what the strategy is.

Tamur Goudarzi Pour:Yeah. Thanks, Jens. I think, as you can tell, I like challenges. So in this case, both jobs are pretty challenging and have been pretty challenging. And the customer excellence task force, I think, was very important in the sense also for myself that it really brings you day to day really with the core problems that the customer faces from flying from A to B without the luggage, when the app is not working, when certain things happen in irregular situations. And all of you have experienced that the last summers. And we have to say, we still have not managed to get all the basics right. And it's probably differing by region, by geography somewhat. But that's still a task that was with us also after the task force. And looking ahead, I think we all look already for the next summer. how we can do it better, because that's the conditio sine qua non for all the other things we're doing.

Jens Flottau:So let's talk about the strategy and your new job first. So you have an excuse if you don't know the answer to this next question, because you've, as I said, you've just, you know, started 4 weeks ago. How many AOCs does Lufthansa Group have?

Tamur Goudarzi Pour:Yeah, AOCs is something we count in different ways, but it's double digit.

Jens Flottau:Well, I guess that's a correct answer. Thank you very much. What is your definition of the core of Lufthansa Group? And if you look back, how has that changed over the past years? You've sold some units, catering, for example. What's the core today?

Tamur Goudarzi Pour:Yeah, I think you can describe us now as an airline management group. And you might recall we called ourselves an aviation group.

Jens Flottau:Yes.

Tamur Goudarzi Pour:There's a stronger focus on the passenger business, but also on the cargo business. I would say 80% now is passenger business, 20% is cargo business, and not to forget, very important for us, also Lufthansa Technik, growing business with a tremendous growth plan going forward. This 80/20 gives you an indication that we have moved more to the passenger business, and there clearly positioning ourselves with the benefits of a group in Europe, of a European aviation airline group, with the benefits of a premium approach that we have as probably no other group in the world or even in Europe or even the world.

Jens Flottau:In terms of the overall strategy fixing Lufthansa Airlines, the core brand must be the absolute most important angle. It's not making— it's about to break even this year. I think that's the guidance, but all the other airlines in the group are profitable, but the core isn't. At least not much. To what extent can you actually make it, get it to a margin that's acceptable, or are there other aspects that are just not, that you cannot change?

Tamur Goudarzi Pour:Well, we have tremendously grown over the last years, and the group is now approaching $40 billion turnover for this year, roughly. A major part is Lufthansa Airlines, The share is decreasing, though, and we are now producing less than a quarter of our turnover in Germany. We have more than a quarter of the cost, but we have less than a quarter of the group turnover of the group in Germany. Still, the important size of Lufthansa is absolutely making it necessary to turn around Lufthansa Airlines now because it has not achieved yet the targets that we're aiming for. We are aiming for minimum 8% medium-term EBIT margin for all the carriers. That means Lufthansa, which does not reach that right now, needs to turn around because it's still a— although it's a decreasing share, still a very important part of our total business.

Jens Flottau:Can you just run us through the main points of that turnaround program that is supposed to run until, I think, '26, right?

Tamur Goudarzi Pour:'28. It's supposed to run until '28. We have communicated the numbers for Lufthansa Airlines. It's cumulative— cumulative EBIT improve— sorry, cumulative cost and also revenue improvement of €2.5 billion over the years until 2025, €1.5 billion until 2026. It entails a number of measures, hundreds of measures, which broadly fall in the categories of Ops modernization, so getting the core, as I mentioned in the beginning, right in our hubs to fly reliably, punctually from A to B, from Munich, from Frankfurt, the main big hubs which, which we need a better punctuality, better reliability. So we are modernizing those hub structures. We have complexity topics where we have very complex tariff structures with, with labor relations. We have administration efficiency questions, which is not only a Lufthansa airline topic but one for the group. Many of the topics that you find in Lufthansa are somewhat also connected to group topics. And we have commercial topics where we also want to have a third of the total target in revenues. So two-thirds is cost, one-third is roughly revenues. We have multiple measures on, let's say, ancillaries, on corporate business, on other topics. where we need to definitely also get revenues, so the, uh, revenue per passenger up, uh, in that given time frame. So it's a lot of work. These are only a few examples of, of what the ambition is. Um, another one is that we have to sort out the exact structure of all our AOCs. So, um, how do we manage, uh, a Lufthansa with, uh, the new kids on the block like the City Airlines, with the Discover Airlines, and how we manage also our wet lease partnerships. That's another one which is important for Lufthansa to solve. We have quite a lot of work in front of us.

Jens Flottau:Just one last question on the Lufthansa Airlines restructuring. There are some angles that you— for instance, the pilots. If you're a pilot at Lufthansa and you're a senior pilot, you're a captain, it doesn't matter whether you fly an A320 or an A380. you will make the same amount of money roughly because the, you know, the pay scheme isn't linked to aircraft size. That's a deal from like 20, 30 years ago when, early '90s, I guess, under Jürgen Weber. Is there any chance you can break this up somehow and get Lufthansa Airlines short haul, make it more competitive?

Tamur Goudarzi Pour:Well, it's fairly straightforward. I mean, without that margin of 8%, we will not be able to finance all the aircraft that we have on order. We have 250 aircraft on order, and many also should go to Lufthansa. But the growth scenario within the classic AOC of Lufthansa Airlines will depend very much if we find with our partners in the unions, in the workers' council, agreements that makes it possible cost-wise to grow. If we do not make it possible there to grow with those deals, then we will grow in the other parts of the company, which will mean more growth at the other AOCs like City, like Discover, which anyway have their growth path. But the exact growth trajectory depends very much on how successful we are with those new agreements that we are now aiming with turnaround.

Jens Flottau:Is there a scenario where Lufthansa Airlines would only operate long-haul and you would give all the short-haul flying to City or Discover or Euro wings? I mean, you've—

Tamur Goudarzi Pour:Well, we haven't gone that far, but I will not exclude anything right now where we don't know yet what these discussions will bring. Of course, we're looking at all options, but that's not our intention. Our intention is to find agreements with the stakeholders, with the partners, and to make it worthwhile also flying short-haul with Lufthansa. We will see.

Jens Flottau:There's an interesting discussion evolving. Klaus-Michael Kühne, your largest shareholder, gave an interview to one of the German Frankfurter Allgemeine Zeitung just a few days ago saying that, you know, he's not happy with the, you know, the number of AOCs that you are, that you've created, that you've bought, and that you've actually neglected the core airline. And he wants that addressed. He owns 20%, for those of you who don't know. So his— yeah, he has a say in the company. How do you react to that?

Tamur Goudarzi Pour:No, I think we had an active discussion with of course, with the representatives of the shareholder. That's intensive and very good dialogue, I think, and that continues. For us, it is the question, can we, as I mentioned before, can we find solutions that allows us again to grow also more in Lufthansa Airlines? We're happy to do that if we find those solutions. Otherwise, what's always important is whatever AOC is flying in the Lufthansa Group, we have to secure a core minimum commonality between the AOCs in terms of passenger experiences. This is absolutely a must. When you are a frequent flyer with Miles More, you should experience the same when you fly on City Airlines than if you fly on Lufthansa. There should be no difference. That's something we are working on. That's something where not yet all the holes have been filled, but that's also very important. I think if the customer experience is that, that he does not really mind and he understands why he has that premium approach on all of those AOCs and he experiences it, then there should be no problem from a customer perspective. I think that's very important. We always have to see it from the eyes of the customer. On the other hand, I think the turnaround developments will show how much we can do with what kind of AOC structures.

Jens Flottau:What are the limitations of this? For example, the City Airlines, model, which you've just, you know, started this year. They have to run on their— they have their own 2-letter code. You're code sharing with them, so that could create confusion for the customers, I imagine. Are you concerned about that, or is that not an issue?

Tamur Goudarzi Pour:I think we're fairly experienced with how we run code shares, but the important thing is, again, that there's seamless experience of all services by the customer, no matter if it's the co-chair or not. I think that that is absolutely adamant, as much as in the given system with the classic system that we have. When you look long-term, medium-term, you need to change offers and orders. You need to change the backbone. And but that goes not only for us, that goes for the whole industry. That's the challenge that's out there still, apart from Bitsi apps that we reform the '60s technologies there that has started. The train has left the station. But this is a process that will take much longer. That's something that takes 5, 7, up to 10 years. We have to do both, work in the existing world on seamless experiences, but also preparing for the jump into the next generation of technological backbones.

Jens Flottau:You just called Lufthansa an airline management company, which is an interesting concept.

Tamur Goudarzi Pour:Airline management group.

Jens Flottau:Airline management group. The group has bought a lot of airlines over the last 10, 15 years, Swiss, Austrian, so on. You're just about to buy ITA. You've bought Brussels Airlines, but few of those acquisitions have been financial successes so far, Swiss being the big exception, being a huge success. If you look back at how Lufthansa has integrated these new affiliates, What went wrong and what went well?

Tamur Goudarzi Pour:Yeah, well, I wouldn't, I wouldn't share it like that. If you just look at the Q3 numbers, I don't know if you know which was the most successful AOC in Lufthansa Group in the Q3 this year.

Jens Flottau:Swiss.

Tamur Goudarzi Pour:It was not Swiss. It was not Swiss. It was Austrian. So, so it's not like that. So it's actually that we have not that bad results.

Jens Flottau:But that's disappointing, right?

Tamur Goudarzi Pour:Yeah, exactly. And even, even Brussels had a better result or comparable result with Swiss. So, and our issue is not that. Our issue is the main airline, that's Lufthansa Airlines, which is still a big share, and that's why we have to really focus on that. All the other benefits that we will do when we have structural transformation in the group will benefit all of the carriers. It's not just for one airline. So whatever we do on, on the IT side, what we do on finance side, this will benefit also the the smaller carriers who then become also even more profitable. We are not worried about that. We need to solve our Lufthansa Airlines crisis issue, and that's something where all focus is on. Plus, what can we do in the group even more and better to bring the sticks together, to bind around it, and to use that really special benefit that we have like no other airline group in Europe has, where we have the overlapping businesses and we can offer those passengers a network like nobody else. And that's something where I think we play out these cards even better. Also on the customer side, we can definitely have a premium approach, a premium offering for the customer out there.

Jens Flottau:But would you say that even tighter integration is necessary in the future?

Tamur Goudarzi Pour:To a certain extent, you can do even more there. I think on the revenue side, on the offer for the customer, the new offers for the customer, sometimes asset-light, it doesn't have to be all related to the pure flying from A to B product. There's a lot more possible on the revenue side. There's definitely a lot possible on the cost side because I mentioned we have in the backbone still unresolved topics on finance, on IT, on HR side. So supporting functions as well, that's something we can work on. So there is still— thankfully, there's still a lot of opportunity there to, to bring the sticks closer together.

Jens Flottau:Why did you not buy SAS and ITA instead?

Tamur Goudarzi Pour:Well, I don't think it came up as an option at that time, and we were good partners, of course, SAS, and we wish them all well now in the new partnerships. For us, it's also an opportunity now to, to focus more on Scandinavia again and to see are there untapped potentials for us in Scandinavia. I think still the, our frequent flyer program, our footprint in Scandinavia is good but can be further expanded. So for us, it's another business opportunity now.

Jens Flottau:Well, it's a self-created opportunity, right? Because you didn't buy them, you left them to Air France-KLM. Isn't that a big concern rather than—

Tamur Goudarzi Pour:No, I see it as an opportunity, and we cannot do all acquisitions. We're quite busy now with finalizing the ITA deal. It's still not final, final, but we have good hope, and then we'll see. I think consolidation in Europe is still continuing. There's still about, I think, 62% now is the penetration in Europe of the top 5 versus around 80% in the US now. There's probably another 10%, 15% maximum that is possible, but that still is out there in the next years and we will see how that will play out.

Jens Flottau:Why was ITA so attractive to you? Italy has this huge penetration of low-cost carriers. It's a relatively small airline compared to some of the others. You still wanted to do it. Why?

Tamur Goudarzi Pour:Well, it's an important market, first of all. I mean, and that's what our CEO Carsten Spohr says, is we're transporting more passengers right now before we have acquired ITA via Germany to Italy than we actually transporting from the US to Germany already now. So more passengers from US via Germany to Italy than we're transporting currently passengers from the US to Germany directly. So that shows you already that already in the given structure, we— it's a very important market for us, second biggest European market for us. So, and with that new acquisition, we hope that this can be even strengthened. We believe there's much more growth possible, and we believe the catchments around Rome but also around Milano are so strong that they make great additions to our European network.

Jens Flottau:What's next beyond ITA? There's been talk about— where's Martin? Baltic joining the group in one form or another, at least as a minority, you buying a minority stake. TAP is to be privatized sooner or later. You must be looking at all of this, right?

Tamur Goudarzi Pour:No comments from my side now on the concrete endeavors, but I mentioned to you before There's still about 10 to 15% consolidation possibilities, I think, in Europe out there, but I wouldn't comment now on single entities.

Jens Flottau:Buying all these airlines, the ultimate target, the ultimate goal is to grow and to grow outside of Germany. Isn't there another way to grow, which is commercializing what you do inside Lufthansa Airlines Using passenger data, coming up with adjacent products. We haven't gone very, very far in this regard in Europe overall and specifically in Lufthansa as well, right?

Tamur Goudarzi Pour:Yeah. Basically, there are 3 growth areas. One is you complement or you grow organically your traffic streams that you deal with. For example, we are not very strong in South America. How we can become also stronger in South America. Second one is that you bring the strength of the airlines together, what we discussed before, how you use those network benefits. And there are substantial benefits still out there, also in the traditional way. Maybe the biggest lever that is out there is a qualitative jump in what you can do in revenue per passenger. And there is a lot out there we can learn from modern airline retailing. Where we as airlines traditionally thinking of these traffic streams are not very good at. That's not our home turf, but that's something where we believe there is substantial gains possible within the given structures of what you call new loyalty, new forms of, of engagement with customers, but also in terms of adjacent new businesses where you can generate new streams of asset-light ancillary structure. That will add to the value. It doesn't have to be always reselling your inventory that you already have. So bringing another, I don't know, ASR, advanced seat reservation price out there or something like that, but rather looking at things the customer in captive time or during the whole process of thinking about the trip up to post-flight engagement is engaged with you because it's travel retailing. It is something completely different what we currently do now. There's a lot of opportunity there because this is asset-light and the return of investment is huge. You need, as a conditio sine qua non, as a starting point, the traveling, the flying as a basic business, and it has to work properly. On top of that, there is so much possible that none of us, and I don't compare to airlines, none of us has currently captured.

Jens Flottau:How much is possible? Is it just travel-related or do you sell? Whatever products that are— sell products that are not travel-related?

Tamur Goudarzi Pour:A lot is possible. Take, I mean, some—

Jens Flottau:Can you put numbers on it?

Tamur Goudarzi Pour:Well, huge numbers. I mean, IATA communicated one number which says $45 billion additional revenue and cost effects. I think it's a conservative figure globally as an additional EBIT effect, including payment topics, including new forms of media retailing topics. Let's take that one. New forms of loyalty topics, many things there. Let's take the media retailing. You know, there's a huge hype now. Everybody looks at what can we do in terms of Wi-Fi on flight, how it can be offered for free. How can you commercialize that? How can you commercialize that with the captive time, but not only during the flight, in the lounges, maybe even at the time the passenger thinks about and gets inspired about travel? How can you commercialize that? Take the example of commercialization. It's media retailing. It is Google in the air, if you want. It is other forms of bringing new fintech products to the customer that we haven't combined with travel before. So there are many other possibilities there. I think it's just starting. There's a lot of trialing at the moment, and, and the technology will allow us now, I think, to do these things fairly soon. And I think that is something where we definitely will have additional revenue opportunities in the future.

Jens Flottau:So have you already launched a concrete project for this, or how does— how do you manage this inside?

Tamur Goudarzi Pour:Yeah, it's also part of—

Jens Flottau:In your group, or is it—

Tamur Goudarzi Pour:It's— well, we have, we have a commercial team that works on it. We call it Commercial Excellence. It's a program also, and modern air retailing plays in there, and it will help also the Lufthansa turnaround. As I mentioned, we have also a revenue target there. So there are the straightforward things you can do on the classical ancillaries, but there are also these elements of new revenue streams that we are looking at. And yeah, our whole group is working on that. And yeah, it will take some time, but I think that that is the biggest opportunity to drive the revenue per passenger.

Jens Flottau:So what are the revenue targets? I mean, where are you now? Where do you want to be in 3 years?

Tamur Goudarzi Pour:Well, I gave you the number basically for the turnaround program.

Jens Flottau:Well, but not for commercialization.

Tamur Goudarzi Pour:That's including 1/3 of commercial numbers. So you can easily deduct. So 700 million or something.

Jens Flottau:Yeah.

Tamur Goudarzi Pour:And I think it's actually north of that. So if you look at the whole group, because this was only the Lufthansa airline figure, so it will be even more than that.

Jens Flottau:We have a question here from the audience. Why does Swiss rely on Helvetic and why not consider buying Helvetic to streamline the business?

Tamur Goudarzi Pour:First of all, Helvetic is a great partner of ours, and Heike is also in the audience, CCO of Swiss, and she knows how valuable this partner is to us. We're using Helvetic also flexibly, so we have a base number of aircraft that we have full year with Helvetic, and we are using additional for the summer seasonality. It's a perfect partnership, and I think, yeah, they're also getting new aircraft. We're happy for that and it works perfectly fine. No need to buy them.

Jens Flottau:You rely a lot on wet leases. Speaking of Helvetic, airBaltic is going to be a big strategic partner for this. Next summer, we talked about next summer, how many aircraft will be wet leased?

Tamur Goudarzi Pour:Well, the precise number is not fixed yet because we're still in discussions, but yeah, we have still quite a high number of wet leases. Of course, as I mentioned, to maybe close the circle from what we said in the beginning, We have to make sure that on the one hand, it is of course great for revenue opportunities in the summer. At the same time, you have to make sure that there's a seamless customer experience. So whatever you do on the wet lease side, don't forget about harmonizing services and products, that you have minimum requirements not only on the technical side but also on the commercial side, on the customer side. So as I said, the customer needs to have a seamless experience, and if it's a high-quality wet lease partner with a premium approach, then if he or she fits to us, then it's a perfect match. Not for every wet lease partner, we can say that. We have quite high standards. I'm happy to say that airBaltic is, I think, a great partner. Helvetic is a great partner, others too. There will be always wet lease partners, but we have to make sure there's a seamless experience.

Jens Flottau:You mentioned MRO as being part of the group, Lufthansa Technik. Lufthansa Technik is undergoing its own strategic review and repositioning, trying to figure out what growth is possible. Can you share some details already, or is it ongoing?

Tamur Goudarzi Pour:It's a great— I mean, in the given environment of supply-side constraints that we have with new aircraft coming late, with aircraft flying longer, the whole question of the engines, it's the perfect ground for a company like Lufthansa Technik.

Jens Flottau:It's the perfect time to go into engine maintenance, right?

Tamur Goudarzi Pour:Actually, it's the perfect time to go into the business, and the growth plans are quite substantial, and they will have their own communication about the exact growth trajectory. But there are multiple possibilities with the global scaling and the global scope that Lufthansa Technik has already now, and they will further expand in further geographies, I'm sure, in Europe and also beyond Europe.

Jens Flottau:So that review is going to be completed when? Next year? Early next year? The review, the strategy review plan?

Tamur Goudarzi Pour:No, that's completed already and it's, it's in the making. It will be communicated soon.

Jens Flottau:Okay. We're landing 5 seconds early. Thank you very much, Tamur.

Tamur Goudarzi Pour:Thank you.

Jens Flottau:And thanks for listening.

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.