On a spending spree – that’s how strong Lufthansa comes out of the crisis
While aviation is still suffering from the side effects of one of the worst crises in its history, Lufthansa boss Carsten Spohr is apparently hungry again: for other airlines. A quote makes it clear where he sees his greatest opportunities.
EIt was just a few dry sentences from Lufthansa boss Carsten Spohr at the end of his speech to the shareholders. But they offer plenty of room for speculation. “With the recovery of European air traffic, the pressure to consolidate increases significantly,” said Spohr at the Annual General Meeting on Tuesday. Lufthansa will play an “active role” in this. While aviation is still suffering from the side effects of one of the worst crises in its history, Spohr is apparently hungry again: for airlines.
Spohr’s report on the situation at Lufthansa was a work of contrasts. The airline flew in an operating loss of 1.8 billion euros last year. 2022, which was supposed to be the year of the revival of the aviation industry, did not start with a flight for the company, but with an additional operating loss of almost 600 million euros in the first quarter due to the Omicron wave. The share price: disappointing. The dividend: not applicable.
Spohr sees the future much rosier. He wants to move into the profit zone in the current quarter, the bookings for the summer are extremely promising. “People want to fly,” says Spohr. “As early as next year we can reach 95 percent of the pre-crisis level again,” said the airline boss, correcting earlier forecasts that had only announced this for the middle of the decade.
Now the signs in aviation point to growth again, but also to competition. After the crisis was overcome, the battle for passengers and market share flared up again. Aviation experts such as Heinrich Grossbongardt expect that some ailing airlines will become takeover targets in the near future. “A lot will happen there. And Lufthansa is coming out of the crisis with a very strong competitive position,” says Großbongardt.
During the crisis, Spohr radically streamlined his company. The number of employees was reduced from 140,000 to just over 100,000, and the fleet was significantly reduced. Lufthansa’s strategy of primarily flying its own aircraft paid off here. While some competitors were stuck in long-term leasing contracts during the crisis, Lufthansa took dozens of aircraft out of service and wrote off older or uneconomic types such as the 747-400 or the A380 on a large scale.
In this way, Spohr created the scope for the upswing during the crisis and is now investing massively in his fleet, 2.5 billion euros in net new investments per year. By 2025, 120 new aircraft will be delivered to the Group’s airlines, an average of one new aircraft every two weeks.
The new aircraft should be more comfortable, Lufthansa has developed new seats for all classes. The company wants to score points in the premium segment in particular, where it earns the most money. First class, business class and premium economy are the areas that are filling up the fastest after the crisis – even if 70 percent are still private travelers. According to Spohr, it is “difficult to predict” whether and when the number of business travelers will return to the pre-crisis level.
The fuel balance of Spohr’s new fleet could be strategically even more important. The new jets emit up to 30 percent less CO₂ than the previous models, which not only helps Lufthansa to achieve its climate goals, but also gives it a competitive advantage. Kerosene is one of the biggest cost factors in aviation and will gain in strategic importance given the expected price increases.
Spohr seems to want to extend his shopping spree to airlines
Not all airlines want or can go along with Spohr’s “product offensive”. Only on Monday did Lufthansa announce the purchase of a further 17 long-haul aircraft from Boeing, including seven fuel-efficient “Dreamliners” of the type 787-9, which “were originally intended for other airlines”, according to Lufthansa.
After the aircraft purchases, the Lufthansa boss now seems to want to extend his shopping spree to airlines. His interest in the ITA is no secret. Lufthansa has been working with the cruise company MSC for weeks to find the successor airline to the insolvent Alitalia. However, Delta and Air France-KLM are also said to be interested.
“Italy is a very attractive market. With many business travelers in northern Italy and strong family ties in the USA,” Großbongardt analyzes and at the same time warns of high integration costs in the event of a takeover. However, the expert sees other possible takeover candidates. “The SAS is in big trouble. As a Star Alliance member with a similar corporate culture, she would fit in well with Lufthansa,” he says. The Polish LOT is also a potential target due to its lack of size and offers access to an attractive growth market.
Spohr was still vague in front of his shareholders. “We only talk about mergers and acquisitions when the time comes,” said the manager and at the same time spread confidence: “Airlines from strong home markets with a functioning business model and a strong balance sheet come out of the Corona crisis stronger,” said Spohr. “While the already weak become even weaker.”
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