This morning during a televised interview, Department of Homeland Security boss John Kelly suggested that not only can an electronics ban be put in place on flights between Europe and the USA, but that it may be expanded to ALL international travel involving the USA.
During his interview, he suggested that Homeland Security and the TSA were looking at ways to ‘raise the bar’ on screening processes and to eliminate potential soft spots in air travel security..
This additional ‘threat’ comes on the heels of his comments on Friday where he did not deny the idea of expanding the Electronics Ban to include flights from the USA to Europe. The original ban threat covered only flights from Europe to the USA.
So now, in the third iteration of Kelly’s strategy, it looks like he’s going to throw a big wet blanket on all international flights operating from and to the USA.
At this point, I suspect the ban is inevitable. Kelly has been making way too much noise, and every time he speaks he seems to ratchet up his rhetoric about how laptops will do nothing but blow up airplanes. He also quipped that if Americans knew the kind of risks that are out there, we’d “never leave our house”.
Why not tell us, and let us decide.
I suspect there are no shares of airline securities in his portfolio 😉
Today was a busy news day for Lufthansa and not in a positive manner. Aside from an earnings report that was lackluster with future forecasts that were not overly optimistic, Ryanair announced something that will force a shift in how Lufthansa does business on its home turf.
It was perhaps not a coincidence, but on the same day that Lufthansa announced their 3rd quarter financial results, Ryanair announced that they would begin offering flights from Frankfurt. A place where Lufthansa controls over 60% of air traffic movements and also an airport in which LH owns an 8% share.
Ryanair in its announcement stated that 2 737 aircraft would be deployed beginning in March 2017 and will focus primarily on warm-weather holiday markets in and around the Mediterranean region. Ryanair expects to invest over $200 million dollars into this expansion that is specifically targeted at Lufthansa’s low cost carrier unit, Eurowings. Ryanair will now operate out of 9 German airports.
Plans for Eurowings never included operating in Lufthansa’s hubs in Munich and Frankfurt, but due to the ‘attack’ of LCC carriers upon Eurowings, Lufthansa had to relent and recently announced that in fact it would operate Eurowings out of Munich, and today they were forced to announce that Eurowings may also be coming to Frankfurt. This decision had to be made as a direct response to Ryanair’s action. LH didn’t provide specifics, simply because they were caught off guard by the Ryanair gambit. However, expect a Eurowings / Frankfurt announcement sooner than later.
WHY NOW FOR RYANAIR?
Previously, Ryanair avoided Frankfurt-Main (FRAPORT) like the plague choosing instead to operate out of Frankfurt-Hahn which is about 70 miles outside the city. Their CEO, Mike O’Leary, even went on record last year saying that Ryanair would never fly out of FRA. What prompted the change in strategy was the inducements that the Frankfurt Operating Authority offered Ryanair, including substantially reduced landing fees, gate expenses, and similar overhead. In all, Ryanair will pay 40% less than other airlines for the same services. FRAPORT said this was done as part of a new strategy of offering huge discounts in order to attract more airlines and routes. My question is where are you going to fit them when the airport is already at capacity and your dainty neighbors don’t want flights departing or arriving when the sun is below the horizon? But I digress……
Of course this irritated LH’s senior management who now are challenging their own business partner in FRAPORT to extend similar discounts to those already using the airport. This soap opera will get more interesting over the coming weeks as Lufthansa responds to the Ryanair announcement. But give credit where credit is due, Ryanair simply is taking advantage of an opportunity that was placed nicely onto its lap. FRAPORT has initially suggested that no deals will be made with existing carriers at Frankfurt, but I can’t see that remaining the case.
USED INSTEAD OF NEW…..
Also part of todays earnings commentary was an announcement that going forward, Lufthansa may opt to purchase used aircraft instead of new aircraft as it looks to replace aging aircraft in the short haul fleet (regional jets, etc). The rationale behind this decision is to reduce some of the capital expenditure as a result of softer earnings expectations. This does not affect any orders that Lufthansa has placed for new aircraft, it may just result in fewer orders for new aircraft. LH still plans to spend 2.2 – 2.7 billion dollars a year over the next 3-5 years as it takes delivery of new aircraft.
NO TO ITALY AND ALITALIA…….
As part of the same session today, LH Group CEO Carsten Spohr put to rest the rumors surrounding Lufthansa taking a stake in Alitalia as part of a larger deal to acquire Air Berlin. There had been conversations between Etihad (stakeholder in both Air Berlin and Alitalia), Alitalia, and Lufthansa about a potential 3-way deal that would have LH take a substantial stake in Alitalia, and in return Etihad would proffer Air Berlin. This plan was in addition to the existing plan that will have Lufthansa wet-lease 40 aircraft from Air Berlin and fly the planes the routes that those birds normally served. In his comments, and perhaps they were unscripted, but Spohr simply stated that the personal home that he owns in Italy is about as much as Lufthansa is going to invest in Italy. Hopefully a speechwriter doesn’t get a bonus for that wit.
‘IMHO’ (Brewing for a while!) ………
For this LH fan it’s become increasingly frustrating to see an Airline struggle in a business where by all reasonable measures, it should be the dominant player. It has allowed itself to be nickle-and-dimed into positions that it shouldn’t be in. It should have stepped up and fixed its labor woes years ago instead of suffering hundreds of millions in losses due to strikes as a result of unhappy labor. It would have been ridiculously more cost effective to settle with labor instead of being stubborn to bend to a compromise.
I think another mis-calculation was the decision to create some kind of super-LCC within the group. Thus far Eurowings has not proven itself as a successful model and the jury is still out as far as its viability is concerned. I’m hoping it works out because in theory EW would be a fantastic complement to the group but on the other hand I think Lufthansa has taken their eye off of what used to matter.
The successful Lufthansa paid attention to their best customers, took their advice to heart, and developed product and services based on what these passengers were asking and willing to pay for. With that commitment came a fierce loyalty from their best passengers. That has changed. No longer is Lufthansa actively soliciting the advice of ‘HON’ and ‘Senator’ level passengers. Instead they have turned their focus on the low-margin passenger who travels once or twice a year and wants to buy the cheapest seat possible. They’ve transformed marketing and social media campaigns to focus on the guy or gal who will pay €79 euro for a once in a lifetime trip from Stuttgart to Ibiza.
I’m no marketing expert, but I am well versed in reading corporate financials. When I see the priority being shifted to filling up an economy cabin with $400 fares instead of focusing on the far more loyal, and far more profitable, premium cabin passenger, it comes as no surprise to see Lufthansa struggling on the balance sheet. They keep referring to a challenging operating environment but other carriers seem to do well in the same environment. A few years ago, fuel expense was the scapegoat. Now the scapegoat-du-jour appears to be the fierce competition coming from LCCs. Eventually the list of rationalizations is going to run out. The challenges to Lufthansa’s success are within the airline, not outside of it.
Focus on your best passengers. They’re the ones that will determine success or failure for any carrier.
In news out of Germany in the last several hours, it appears that Lufthansa is a little bit more than serious about acquiring routes and aircraft from a struggling Air Berlin.
In a potential deal between unlikely bedfellows, Lufthansa is in discussions with AirBerlin’s main stake holder, Etihad, about the prospects of acquiring upwards of 40 aircraft and a majority of routes that are not operated in or out of AB’s hubs in Berlin and Duesseldorf. The acquisition would also include the crews for the aircraft.
Air Berlin currently operates 148 aircraft, so any acquisition would be a major one, since it would cut Air Berlin’s fleet by 27%. But this kind of a deal would also take the sting out of AB’s balance sheet which has hemorrhaged $1.29 BILLION in losses over the last 3 years.
The aircraft and routes would be assigned to Lufthansa’s Eurowings ‘Low Cost Carrier’ division and would immediately grow market share by eliminating the AB competition on the routes. This also plays well in Lufthansa’s plan that seeks to grow Eurowings by 25-30% in the coming year.
The one fly in the ointment will be the anti-trust fears that Germany and the EU will have. Historically, Germany and/or the EU have not looked favorably at deals that potentially reduce competition in the marketplace. But on the other hand, the real threat exists for the loss of thousands of jobs and the failure of an airline.
Not that the EU has made any good decisions lately, but here’s a chance for them to not screw something up! 😉
It would also be a welcomed jab at the ME3 who have been dumping capacity into Europe thanks to their subsidized operations, but I digress…….