Lufthansa Group executive board chairman Christoph Franz provided (07-May-2013) a positive interim assessment of the SCORE programme, but cautioned: "Our company is facing serious challenges. Global aviation has changed. Our industry is under pressure – especially in Europe. Competition is getting tougher and tougher. This can also be seen by looking at our company figures. Which is why I won’t even try to put a gloss on them: They are inadequate if we are serious about being profitable in the long term". The carrier is planning to achieve sustainable profitability levels by 2015 at the latest. By then, the Group aims to use the SCORE programme to boost its operating profit to EUR2.3 billion. Mr Franz added: “Our industry is not only sensitive to crises, it’s also a high-cost sector: kerosene, fees and staff costs, investments in fleet, cabin and ground products – these are all major, fixed-size cost items. Few changes can be made here. So we will need to change ourselves, if we want to survive into the future. We want to shape the industry before it shapes us.” To achieve this goal, more than 2500 ideas for improving profitability have been generated by Group employees since SCORE was launched. Such suggestions include reorganisation of the Group’s administrative processes, eliminating duplicate structures, improving fuel efficiency or the strategic restructuring of the intra-European business segment with the new Germanwings. On the company's inability to improve profitability in 2012, he explained: "Numerous negative factors – including the high price for kerosene, which drove up expenses by some EUR1.1 billion – ate away at the SCORE successes. And yet without SCORE, we would have posted a negative result in 2012". Mr Franz also noted that 2013 and 2014 will be decisive for the successful implementation of SCORE activities and that their impact on profit will largely be visible only from 2013 onwards, there were signs of more positive business development in the first quarter of the current year. He said: “Demand in passenger business is following a satisfactory trend. SCORE is on track. Overall, first-quarter earnings for the Lufthansa Group are stable – despite restructuring costs. This gives us cause for optimism.” [more - original PR] [more - original PR - German]
Lufthansa Group: 'we will need to change ourselves, if we want to survive into the future'
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Lufthansa: mainline pilot deal, growing Ryanair threat at Frankfurt; Eurowings vital to both.
The Lufthansa Group's juggling act continues to impress with the sheer number of balls that it has sought to keep in the air over the past year.
Striving for labour productivity improvements in its mainline operations, while also attempting to minimise industrial unrest; expanding its Eurowings low cost brand through organic growth, while also integrating the acquisition of Brussels Airlines and the wet lease of aircraft from airberlin; facing the growing threat of Ryanair's entry into its biggest hub at Frankfurt, while seeking to maintain a good relationship with the airport's owner Fraport; keeping positive momentum in its financial performance after earning more than its cost of capital in 2014-2016, while the global cycle may have reached a peak.
In the same week as reporting solid, if unspectacular, financial results for 2016, Lufthansa has achieved a break through agreement with its pilots over pay and conditions. As a strategic tool, Eurowings helped it to reach this agreement, but the LCC subsidiary now needs to become financially successful.
Later in Mar-2017, Ryanair will start its first four Frankfurt routes, to which it will add 20 more next winter. Eurowings will need to be part of Lufthansa's response to this growing competitive threat.
Eurowings: new Munich routes outsourced to airberlin. Frankfurt hub may be next for Lufthansa's LCC
When Lufthansa began to transfer point-to-point short haul routes to its LCC Germanwings in 2013 it specifically excluded routes to/from its two main hubs at Munich and Frankfurt. Although its two main hubs have been less penetrated by LCCs than many other major European airports, this is changing. Moreover, competitor LCCs are growing rapidly across Germany and in other Lufthansa Group home markets. Even Air France-KLM established a Munich base for its LCC Transavia in summer 2016 (but this is under review). More ominously, Ryanair is to enter Frankfurt in summer 2017.
Lufthansa first revealed in summer 2016 that it was considering opening a Munich base for its LCC operations, now grouped under the Eurowings brand. On 21-Dec-2016 it announced plans to base four A320 family aircraft at Munich for 32 Eurowings routes from summer 2017.
Perhaps it was always inevitable that Eurowings would eventually extend to selected routes from Frankfurt and Munich, but agreements with pilots were understood to have limited the group's flexibility. Confirmation that the operation of Eurowings routes at Munich will be outsourced to airberlin under wet lease appears to have loosened this restriction. Eurowings routes from Frankfurt are also being considered.