Airline Leader Interview Lufthansa Group EVP Strategy & Member of Group Executive Committee, Tamur Goudarzi Pour

Transcript

John Strickland:Happy 100th birthday, Tamur. I know, not you personally, but the business.

Tamur Goudarzi Pour:Yeah, thanks a lot, John. I think fascinating, the pictures also from the 1920s. You actually can see the Junkers aircraft in our new Hangar 1, a real hangar next to our headquarters in Frankfurt. You can visit, you can go into the plane and also the Super Constellation from the 1950s. We have that aircraft actually live in the hangar. It can be rented to anybody who would like to visit it. There are also public days to visit. But 100 years, of course, long time for us, long history. And by the way, it's not only about the successes, it's also about dealing with our past. and also the dark years of the Lufthansa Group in Nazi Germany. We have actually just published a book and we did research about those days and we are late doing it, but we're doing it. And I really cherish our, our team that we have gone all the way also to deal with those days, apart from all the great journeys that we have experienced over the last 100 years.

John Strickland:Fantastic. And I mean, it's ironic that, as you said, we've had these 100 years. You had that dark period. We're going through You could say a dark period right now in the world, and we in aviation have been touched by that very much. So let's actually use that as our starting point in a moment. But before I do, don't forget, guys, you can ask questions through Slido as you go along. And I would like to put a Slido poll question to you before we kick off with Tamur. So if the guys could get the poll question on the screen. How do you think Lufthansa Group is performing today? Let's have your answers, please. Is it doing as well as it possibly could? Is it similar to its peers, or could it do better? Let's vote and see what the audience thinks. Looking like we're settling at a Quite a division.

Tamur Goudarzi Pour:What a surprise.

John Strickland:Interesting. Well, that's kind of a context that we'll talk about today, Tamur. But as I said, the situation we're facing, I mean, we never imagined this, what, a month and a half ago? How do you see it from Lufthansa's perspective as we speak today?

Tamur Goudarzi Pour:Well, obviously, I mean, we're all here in the same boat, and I like the address of Secretary of State this morning. Saying what the government actually in Germany is doing to address the issues for industry. But by the way, also the comments we have seen recently from the European Commission side, also encouraging that they take our industry very seriously as a strategic industry. And obviously, we have seen many crises in the past. Some of them have been V-shaped, some like COVID have been rather shaped like a Nike swoosh symbol. So it was, of course, a long and hard way that we came back. And we have, I think, built up certain crisis resilience. And this industry is so resilient that whatever happens, and I'm a firm believer this will happen this time again, we will come out in a great way and aviation will grow more than GDP as it used to be in the past. So we are not that negative about it, but of course, we need to deal with the situation. And it has, of course, many ramifications, not only on the short-term operational side, but what does it mean for procurement, for supply chains, what it means for future demand patterns? Are there changes? But it's too early to tell what kind of form I think this crisis will take, how long it will take, because simply, We are dependent on those geoeconomic, geopolitical topics happening around us. I wouldn't go into it here in the crystal ball mode. Although we are strategy, we prepare, of course, for scenarios, and I think that's what our industry is good at. We'll be preparing for scenarios, and then we'll react when we know a certain certainty that something is taking place. That's the way we have handled it. We will handle it, and I'm confident we will also master this together.

John Strickland:We have to find a solution, hopefully sooner than later. Just if I could ask you briefly, Tamur, you know from family background and indeed work. The first time you and I met was in Dubai, you know, when you were area manager there for Lufthansa. You know the region intimately well. Do you think it's going to be more in the region's hands to find a solution, or is it going to be outside players like the US?

Tamur Goudarzi Pour:Well, it's obvious that this is a question that is not just a regional question, but there needs to be, of course, agreements that also help the region. And that means we have to wait and see what comes out of this. And it will, at the moment, I think, disrupt certain traffic streams. It does. But as I said, I'm confident it will come back. Of course, for the region itself, it needs the notion of stability of the safety and stability umbrella to be interesting again as a destination. We're not talking about the transit question, but about the destination question. Same applies, by the way, for Iran. I'm half Iranian. They're also waiting for their chance to play the role that the country deserves.

John Strickland:In terms of the short-term dislocation opportunities for airlines, there's, of course, airlines like Lufthansa stopped flying to cities in the Gulf region. There's the extra cost of flying around. You were pretty quick to use some of that displaced capacity to put it into markets which previously were being served and taking a large part of the demand for Gulf carriers. Do you think there's more to play in that sense along those lines of taking opportunities to realign your own activity?

Tamur Goudarzi Pour:It depends, of course, also on the length and of the depth of what is changing. But yes, we have used some opportunities where we could. A couple of thousand flights we bought extra with the limitations we have with the extra time elapsed that we need for flying to those destinations in Asia. But yeah, we also use that opportunity. There's some reallocation of flights, of course, within Europe to certain, I would say, touristic destinations in the summer. I think that's what everybody is doing. And yeah, there's a benefit there. On the other side, we have, of course, the high fuel cost, which, as was rightly mentioned this morning, affects us for 20% like everybody else because we have not hedged. everything for this year, but 80%. And that's something we need to, of course, also recuperate. So we will see in the end how this will be netted out. It's too early to tell, and I think very much depends on the geopolitical situation.

John Strickland:And on the point of fuel costs, I mean, you were in the headlines yesterday announcing cancelling 20,000, I think predominantly short-haul flights over the summer. I know the media is wanting to like really I suppose make that something of a hysterical response, but the reality is it's a significant number, but it's also a tiny percentage share of your total output, isn't it?

Tamur Goudarzi Pour:Yeah, well, first of all, we have to apologize to every customer who gets rebooked. Yeah, and our advice is that when somebody asks me now, what shall I do for the summer, I'll tell them, what was your plan? And I don't know, John, what your plan was for next summer.

John Strickland:I've got some flights booked. In the summer and in the autumn.

Tamur Goudarzi Pour:Yeah, so I recommend everybody, of course, not now to get worried, and we want to reassure the passengers that, of course, they can deserve, they deserve, and they should have a great summer vacation. So, and I think we will manage. So what we have published, we're confident that we'll be able to fly with all the, of course, things that we still need to wait to happen, but we're confident that this will be still a good demand summer. But we have to wait and see on that. The number of the flights, 20,000 we announced, indeed this is less than 1% of our ASK. We fly more than a million flights every year, but every passenger affected is somebody we need to take care of.

John Strickland:But equally, I guess if that's across the whole summer, many of those they just wouldn't even have people booked. You will have looked at it from a revenue management point of view. Your aim will be to take out the weakest flights before anybody even gets booked, and it's It's just a function of fuel price, isn't it?

Tamur Goudarzi Pour:You know, well, it's probably a marginal flyer. It's actually 2 things. One is a function of the price, react to that, but also, and that's something we have already decided, that in our strategy to become an airline group out of a group of airlines, we also decided that we would like to consolidate more our European business. And in this consolidation process, we're also taking out routes that have not been performing well where we can offer them also via other hubs. So we have a more optimal network also in the continental flight planning. So that's something we have decided, and that's part of that story. So it's a function of the price, but also a strategic development of our route to make it more efficient.

John Strickland:And one other thing I've got to ask you, both thinking about your own background, having worked in Dubai, you know the region very well. The fact we're going to have a video interview later on from Tim Clark, I think it's fair to say You know, Lufthansa has always had a downer on the Gulf carriers and is not shy in talking about what they perceive as their advantages in operation in terms of interlinks with governments. But they've been taking an ever larger market share. I wonder, would Lufthansa be better to, like, change its tone, accept the existence of these carriers, but focus more on the regulatory aspects in Europe? I think recently I've seen you've started to do that. So yeah, they We are shackled in Europe and therefore other people, Gulf carriers or whoever, are taking our breakfast, if you like.

Tamur Goudarzi Pour:Yeah, I know if you notice, change of tone. I think our line is pretty consistent and we have said in the past, we see it now, we actually welcome competition. We welcome competition which is fair and we also welcome competition on the even level playing field. And we have said in the past and we said now that the level playing field was not given. Due to different standards, labor standards, different ways of access to capital. Many topics we mentioned also, the traffic agreement has to be in a way that is symmetric. Yeah, so obviously that's something where we believe that this should be given that the home markets in Central Europe are much bigger and wider, should be commensurate with the relative size of the home markets. That's the same position we had, we have. That's something where we would continue with that in terms also of traffic rights and other policy consequences.

John Strickland:Could you see a point in the future when Lufthansa may actually partner with an airline, let's say, like Emirates? I'm thinking because we have IAG, who for a long time has partnered with Qatar. Obviously, Qatar is a shareholder in IAG anyway. I think there's still a codeshare around with Etihad, with Air France-KLM. Lufthansa is the odd one out in that sense. And then I think of your alliance partner, United, who you could never have imagined having partnered with Emirates until, what, not much more than a year ago. Now they're both getting the fruits of that codeshare they have.

Tamur Goudarzi Pour:Yeah, well, first of all, we have great partnership strategy. And by the way, we are having, I think, 19,000 unique O&Ds with all our partners and our own network that we offer. I think that's the widest network in the whole world.

John Strickland:So with one of the Gulf guys, could you think you would ever get that way?

Tamur Goudarzi Pour:Yes, it was my intro. On the Gulf carriers, we have limited partnerships with SBAs. We have single coaches, single partners as well. There is no other thing currently planned. If they have suggestions to us, then of course we are happy to listen, but at this point in time, there's no plan to do any different kind of partnership.

John Strickland:Okay. Now, I know you're in a closed period financially with your Q1 results coming out in a few weeks. You were profitable for last year as a business, not thinking about that could do better on the Slido question. You were not performing as strongly as your peer group financially in the last year. And maybe the interesting thing is that Lufthansa German Airlines, the biggest part of the group, is at the moment perhaps a bit like a lead weight for the rest of the group, something that you acknowledge as a business. It's dragging down results. And you have, say, a smaller part of your group where you worked before, like Swiss, Performing very strongly, I think, on the low-cost side, improving results. I guess that's a big focus of your attention now, to restructure the business to get to that point where you can deliver long-term high levels of profitability.

Tamur Goudarzi Pour:So we basically, the whole team fully agrees with your first question to the audience. We can do better. So that's why we set our aim high in our last Capital Market Day to an 8 to 10% medium-term margin, and that's still the same. And so in order to reach that, we need to get also those carriers on a higher margin that are not there. And we all know that Lufthansa is in the middle of a turnaround. That's also the name of the program. And we are making good progress on that one. Yeah. And of course, in that situation, you have multiple discussions with your stakeholders and, and it's not an easy transformation path. But yeah, we are on course for that. So I would say yes, Lufthansa, particularly the Lufthansa Airlines, particularly, of course, has to make a bigger leap than the others. But for everybody, there is a program, by the way. Also, Swiss has a program.

John Strickland:Right.

Tamur Goudarzi Pour:It's not just that we say Swiss is fine, but Swiss also has ambitions. And so that is a collective target, 8 to 10% margin medium term, and everybody has to make his contribution.

John Strickland:Within that, in the same week that you celebrated your 100th anniversary, you were facing very public labor discontent. I think strikes between pilots and cabin crew that played out last week. This is something that seems to appear more frequently for Lufthansa as a group than against its peers. In the past, you might have said Air France always on strike. It seems it's found a way in recent years, maybe under Ben Smith, to calm things down. IAG, again, I think has had relative industrial harmony. Why does Lufthansa sort of get to this point with its strike wiping out maybe a lot of the progress you made?

Tamur Goudarzi Pour:You might not see it directly, but the numbers show that we actually have, for the whole group, we have actually less strikes than in the last years. And we have the strikes indeed with particularly the Lufthansa Classic airline, where 2 specialized unions are, you know, in a tough discussion process with us. We don't see at the moment many strikes in either, not what we have seen in some countries, in Belgium or in Austria or in Switzerland. So it's a very specialized situation. And there's also different unions. I mean, in Discover, one of our daughter companies, or in Citi, we have different unions and there we have just concluded agreements. So yeah, we are in a tough discussion process. We're always in favor of a fair and sustainable agreement. We believe in the social partnership. We believe in the role of the unions. And so that's something where— that's something that's important that we have discussions. But when you have this transformation, it's natural that in the bargaining process you have such conflicts. And that's something we simply need to discuss with them. And that's happening. The next stages, we'll see. Can't predict this, but that's something we continue our course there.

John Strickland:I mean, it seems particularly a challenge when you get a powerful, and you could say strongly intellectual labour group like pilots. I mean, you could perhaps say many pilots think they know how to run all airlines better than the airline's management, wherever it is. That could be a cynical and simplistic statement that I've made, but trying to get them on board, I I can think of a couple of examples in the past. Maybe it was a pandemic when I think IAG, they opened their books completely to the pilots union in the UK so they could see themselves, you know, it was— they were not being lied to, to kind of get one over. And I don't know if that's an approach your HR people are taking already or whether it's something they could employ, be more open to get the challenges understood.

Tamur Goudarzi Pour:I get you on the negotiator team now, John. But yeah, I think we have a clear, I'd say, open arms approach where we would like to continue those dialogue. There is a clear strategy how we engage in this dialogue that we are not changing, but it needs the dialogue. It's important. I mean, after every strike, it's like every football game after the end of the game, It's just before the next game. So we continue. In an aquarium, the fish always meet a couple of times. Basically, I'm sure the next stage of discussion is coming.

John Strickland:You mentioned about restructuring the business, and I know publicly you're talking much more about Lufthansa Group. I think you are either the architect or one of the main architects of this new structure, centralization of a lot of the commercial functions with the partner airlines Focusing more on the individualization, customizing culture locally. How is that going so far? Because it's less than a year since that began, isn't it?

Tamur Goudarzi Pour:Yeah, it's actually more than a year now, and we're in execution mode now. I mentioned one example with the consolidation in continental traffic, and— but let's not misunderstand it. It's really to use the strength of the group where it makes sense, when it's customer-facing. So everything that's related to seamless travel, to experience of the customer from a whole group perspective. Everywhere where you have the USP of the airline, and I think Jörg said it nicely before when you refer to the ITA, when you have the USP of the brand, of the culture, of the hospitality, of the specific marketing, all those elements when the customer really feels alive on board, on the ground, that's something where we see the differentiation, where the Italianità, the Swissness play a big role, and we believe in that. So there we are strengthening even the specific USPs of the airlines. And then thirdly, we are also behind the curtain when we have the question of IT, of procurement, fleet procurement, where we actually have benefits. Yeah, by the way, we have 8,000 people in IT only, and we are streamlining and we are reorganizing this completely. It's a huge exercise. Sometimes some airlines have not that many staff, so it's a huge thing for a couple of years. It's not something goes very quickly. So number one, customer-facing, bind the sticks together. Group of airline becomes an airline group where there's the USP of the airline and you can actually live it and feel it. You use that as a differentiator, particularly in Europe. And third one, behind the curtain, anything that you can do from enabling functions, from IT to AI, by the way, as well, that's something where you, you work together.

John Strickland:I mean, revenue management and network planning, that's definitely part of a centralization process.

Tamur Goudarzi Pour:Integration, yes, but they're still sitting in the local hubs, by the way, because there's still a connection as you need to optimize.

John Strickland:That's what I meant. There must be some kind of local knowledge that has to be brought into that.

Tamur Goudarzi Pour:Of course, of course. And the teams sit also in the hubs. It's not that you send— integrate it all in Frankfurt. Yeah. So this is something very important because you need to still cater for the specific needs of each hub while you also optimize European network.

John Strickland:I mean, in terms of modernization, you touched there on fleet procurement. You've got a big order book. You're starting to get more new generation aircraft in. And indeed expedite retirement of some of the older ones. I guess that's a key part of the change for Lufthansa, to simplify that both in operational terms and efficiency and customer experience.

Tamur Goudarzi Pour:Yeah, of course. I mean, by the way, operations is also something where you make sure that each hub is resilient and working on its own, particularly in crisis times. So that's also something which stays rather decentral. You have some, of course, commonality in ground processes and in flight ops or flight steering processes. But there you keep also a decentral logic. Yeah. But then when it comes to the fleet, and this is before this program started, of course, we have decided to economize our fleet, to make it more efficient, to have less fleet types, to get these. Now, it came with a long delay and, you know, we still haven't received the 777. Yeah, we are in 2020.

John Strickland:When is that expected to arrive? 2028?

Tamur Goudarzi Pour:It was supposed to come in 2020. So we will see when it exactly will come now. I wouldn't give a date on that, but the topic is that now we're receiving almost every week one new tech aircraft.

John Strickland:Okay.

Tamur Goudarzi Pour:Almost every week. So this is now happening and you see it also with the product renovation, Allegris, Swissensis. This gets super feedback from the customers. They can experience this. And of course, we have to work it out now operationally that this also is then handled on the, on the front line in the right way. So almost every week, one new aircraft coming.

John Strickland:And you mentioned AI as well. I mean, both in terms of customer use of AI to help customers and in running the business. Tell us a bit about both of those.

Tamur Goudarzi Pour:Yeah, I mean, AI for all of us, apart from the hype cycle, it's one topic is the AI literacy for everybody, how we're using in your daily business, how you integrate that in your actually platform in a safe, secure way for the company. The second one is where it's actually helping apart from automation and digitalization also on processes that you can do more efficient on development of IT tools, etc. But then of course there is the also interesting question on the customer side. And for that, when you talk particularly about agentic AI and how you integrate that now, I think we're very much at the beginning. of the journey and 3 things you need to address there. One is trust of the customer, and it's a bit like when you change from the landline to the mobile phone. We still trust the mobile phone with 98% functionality. The 2% is accepted that you don't have connection.

John Strickland:Yeah.

Tamur Goudarzi Pour:And the level of trust on an AI is not that high. It's not at 98% at this moment, also because technology is developing every day better, but it's not yet there. So How you have that trust element enabled with the customer for the engagement that we then can do in a different way. And we promised personalization for 10, 15 years. We have not delivered in the same way that we actually should have done. This might be an opportunity now to actually personalize offer in a different way. But you need to also further raise the trust level. The second topic, which is important, is the question of autonomy. So when these AIs reach a certain degree of autonomy, how do you manage that? And how do you make sure that this is used in the right way? Also then when it concludes tasks for you that benefit the customer for new products that are asset light. And the third one, which is very important, is the orchestration now. That is the question of how the AI is orchestrated with, I would say, the big runways of MCP's question of connecting the new API in the AI world But going deeper into that, then how the agent-to-agent discussion, let's say, call it, how that is managed, because that is something where, where I think the future will be very important, how the agent of the customer is interacting.

John Strickland:I don't think it was Lufthansa. I don't even know if it was an airline where the talk was that these agents were talking to each other. They were trying to find ways around company regulations to always help the customer, even if that wasn't actually what the The company wanted in that case, you know, they were literally finding ways to kind of break the rules.

Tamur Goudarzi Pour:Yeah, so the customer has his own agent. So the question is, how is the agent of the company interacting with that one? And for that, by the way, we also as an industry need rules of the game. So when you go to pharma industry and there's a new pill developed, there are certain rules for it. So at the moment, it's Wild West a bit for us as an industry. And I think we together with IATA have the obligation here also to see what are minimum requirements. It's also a cost question, by the way, look-to-book ratio and so on. When you look at these booking processes, how this is actually managed also from industry perspective. So that's something where we need to do better. And there's an initiative now, IATA has launched that, and I think we should carefully advise that we, we do that together.

John Strickland:Tamur, we've got 90 seconds left officially, and I want to ask you 2 more questions in that time. So I'm going to have to force you to give quick answers. on really fundamental things. Consolidation. I mean, Lufthansa has bought into a number of companies. We heard from your colleague, Jörg, just now about ITA, that integration going well. TAP is up for grabs. Tell us what you can. It's early days. Lufthansa has said publicly you put a bid in for TAP.

Tamur Goudarzi Pour:Yeah, we put a bid in. We're very confident. I think we are the right partners because also we differentiate more also geography-wise than our competitor. There are 2 in the race now. We wait now for the government to conclude the phase, so-called phase 2. We are hopeful this will come fairly soon, and the signals I get is the government actually wants to speed up the process. So the next phase would be then after the non-binding, which we gave on the 2nd of April, would be then the topic of the binding offer. That would go until probably sometime end of July. We have to wait for the exact timing there. And then we see what the government decides. But we have a strong belief that for the geographic complementarity, for the benefits that Lufthansa brings with being able to integrate, and ITA has been the fastest integration commercially we have ever done with any of the carriers, so we learned a lot, but also what's good for Portugal in terms of bringing tourism from the wide network that we have to Portugal, but then of course also in connection with the role of Lisbon towards South America. I think not only there, when you fly from North America to Africa, you have 10% less way to go than you would go with either a flight via Frankfurt or Zurich. So there's a natural, there's a natural benefit that TAP would play in the Lufthansa Group concept. So from all these aspects, I think we would be the right partner and the right—

John Strickland:Interesting that IAG pulled out. They felt unless they could get a majority share, it wasn't worth pursuing. You believe it is worth pursuing?

Tamur Goudarzi Pour:Of course, yeah, we firmly believe that this would be the right addition to the Lufthansa Group.

John Strickland:Because it's second time around, isn't it? There was the Niedermayer consortium from Latin America, and then that all fell apart in acrimony because of government interference, I think, more than anything. We're in injury time. I just want to very quickly ask you, is the Star Alliance still a good tool for you? You've got much closer activity within your own group and your Group airlines. Is it still a good tool?

Tamur Goudarzi Pour:Well, in the 100 years video, I think it was a short clip there where the late '90s then the Star Alliance was founded and we were one of the main founding members. And it has still great advantages for the customer, for the recognition of the frequent flyers, of the lounges, of the baggage through check-in, etc. And then there are other forms and formats of partnerships at the JVs that have emerged and bilateral partnerships. So the train of partnerships further developing. It's not only airline to airline. Let's also think of airline to non-airline. I mentioned asset light, new commercial models, but that's probably, uh, beef for another session.

John Strickland:We have to have another session, Tamur. So Tamur Goudarzi Pour, thank you very much for your time today. Thanks for coming.

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