by Lufthansa Flyer | Apr 25, 2016 | Brussels, Corporate, Eurowings, Featured, LCC, Lufthansa |
Over the past several days, you’ve seen my posts about Lufthansa looking to acquire or ‘tie up’ with a partner in an effort to execute a quantum leap in its Low Cost Carrier unit, Eurowings.
Up til now, Lufthansa has approached the ownership of SAS to discuss the potential of a tie up so that SAS could meld into the Eurowing unit and focus on the LCC business with its world-wide network. SAS ownership, primarily comprised of Sweden, Norway, and Denmark is keen on the idea since the sovereign ownership has been looking to unload their share of SAS back into private hands. The other option, and the one that seems most likely, is Lufthansa’s acquisition of the remaining stake of Brussels Airlines, of which LH already owns 45%. LH has until next year to exercise the option, but it appears as though the decision can be made in the coming weeks.
The newest option is the idea of acquiring Condor from the Thomas Cook Group. Condor, for you avgeeks, was originally founded by a group that included Lufthansa in 1955. LH originally was a 25% stake holder until 1959 when it acquired the entire airline. Lufthansa began selling shares of Condor to Thomas Cook in 2006, and was completely divested of Condor in 2009.
This recent develop has Lufthansa discussing the option of either a tie-up or a complete acquisition of Condor and their 46 aircraft. Predictably, LH and Thomas Cook have both declined comment on the topic.
However, a deal with Condor would not be without its of baggage. Condor is currently saddled with 800 million Euro of debt and reported a loss of over 10 million Euro for their most recent fiscal quarter. Should Lufthansa look to actually acquire Condor outright, it would probably simply take over the debt obligations and pay Thomas Cook next to nothing for the ‘privilege’. Thomas Cook would most likely be content to rid themselves of the liability.
So why is Lufthansa meeting with all of these potential partners?
My theory and opinion, is that Eurowings is not doing as well as expected and their planned growth trajectory has been revised downward. Certain routes launches have been delayed and it appears that the fleet is not growing as quickly as it needs to in order to gain market share. Though LH executives speak optimistically of Eurowings, I can’t help to think that they are doing this because they have to, but have their reservations about the prospects for it. With a tie up or acquisition, it would immediately add a substantial amount of aircraft and expand the Eurowings timetable dramatically, instantly making them a serious competitor for Euro LCC’s such as Ryanair and EasyJet.
What do I think happens?
I think LH is shopping around just to execute a bit of due diligence before it acquires the remaining stake of Brussels that it doesn’t already own. Brussels Airlines is profitable and is already well integrated into the LH Group, so it obviously offers the path of least resistance. What I’m wondering is what will the SN employees have to say should Lufthansa relegate them to the LCC market, offering low fares along with low frills. Brussels is known as a very solid airline because of their outstanding Business Class product on long haul flights and a very strong route network in Europe and Africa. I wonder how that changes should the Eurowings culture moves in.
by Lufthansa Flyer | Apr 20, 2016 | Featured, Lufthansa, Miles & More |
If things go according to plan and history, Lufthansa should be rolling out ‘enhancements’ to Miles & More sometime in the 3rd or 4th quarter of this year. Typically LH tweaks their program every 2 years so we’re due, and if the announcement is similar to what other Frequent Flyer programs have implemented, people will start to cry that the sky is falling and the end days are upon the elitist maximizer…….
If you have been paying attention to airline loyalty programs, you’ll notice that most have transitioned, or are transitioning away from miles flown to determine status and are gravitating towards cash spent to determine status levels. In other words, programs have become revenue based and the trend is spreading through the airline industry.
What may happen to Miles & More? A few things…..
According to trusted sources that are near and dear to Lufthansa, it appears that one major change to Miles & More will be a move towards a revenue-based loyalty program. From an airline’s perspective, this model has obvious advantages to the balance sheet and only makes sense to be implemented. What remains to be seen is what the spend requirements will be for those striving for Frequent Traveller, Senator or HON Circle status levels. Should the revenue model come to pass, expect the program to be favored towards passengers who are paying for full fare classes (F, A, C, D, J, E, G, B, Y).
Discount fare classes such as P and Z along with most Economy Classes will be on the losing side of the proposition as far as helping you gain status is concerned. Another major concern will be how the program handles passengers who fly a lot of segments within Germany and Europe, but don’t spend a lot of money because even the most premium fares are not very high in most cases.
Other considerations on the drawing board for Miles & More include revamping the program to better integrate Eurowings (Lufthansa’s Low Cost Carrier unit) and how mileage/spend credit will be calculated from flights operated for Star Alliance member airlines. Not much has come out of the rumor mill on these points, but it is obvious that Miles & More will need to be amended to account for these points should the transition to revenue-based loyalty take place.
Am I a fan of this? Mostly yes.
What I like about revenue based programs is that it does reward an airline’s best customers and that is what a loyalty program should do. Reward those that spend the most money, not those trying to ‘game’ the system just so they can get into a lounge. What I don’t like is that I’ll have to focus more on the dollars I spend vs. the fare classes I buy, but the benefits of the program and my travel habits easily support the decision to accept a revenue-based plan.
With the current Miles & More platform for example, it is easy to gain Senator Status for as low as $4000-5000. Especially when you can book United ‘A’ fares within the United States for only $800 (Chicago -Washington DC – Seattle as an example). A smartly built itinerary can easily yield 18-20,000 status miles with something like this. Book 5 or 6 trips, and you’re Senator. You never would even have to board a Lufthansa operated flight to earn SEN, yet Lufthansa now bears the costs of that Senator’s membership including Lounge Access, E-Vouchers, etc. Creating a true loyalty program that actually rewards loyalty is in my opinion the proper business decision for any airline.
Predictably, there will be a lot of protesting, snorting and grunting if and when these changes come to pass. In my humble opinion, the Snorters and Grunters will ultimately be those that will be priced out of a loyalty program simply due to their lack of loyalty. In theory this should improve the quality of the program for those who actually are loyal (key words of course being ‘in theory’).
Much more to come as we get closer to September and October when I expect the rollout of any changes.
by Lufthansa Flyer | Apr 15, 2016 | Eurowings, Featured, Lufthansa |
In an effort to expand Lufthansa’s Eurowings brand, LH has been exploring options with fellow Star Alliance member ‘SAS’. Over the last 6 months, LH has been in discussions with SAS’ ownership (Norway/Denmark/Sweden Governments) to determine if some kind of merger or partnership would be possible to help both airlines accomplish their objectives. It has been no secret that the governments that have stakes in SAS want to get the airline off their books after providing an emergency lifeline to the airline in 2010 to keep it in business.
Lufthansa’s objective to is to take a quantum leap with Eurowings to put them at the top of the Low Cost Carrier (LCC) market in Europe, while SAS is looking to stem the tide of falling market share over the last several years.
From what I gather, the actual acquisition of SAS by Lufthansa is unlikely, as is a minority stake position. However, it seems that both carriers are keen on the idea of expanding their relationship that would allow Eurowings to immediately increase their footprint and give SAS the opportunity to expand their LCC market and move away from ‘Sovereign’ ownership. A partnership seems to offer the path of least resistance.
A major factor that will determine what happens between SAS and LH is what Lufthansa decides to do with Brussels Airlines. LH currently owns 45% of Belgian carrier with an option to buy the remaining stake. A Lufthansa Supervisory Board meeting on April 27 should bring clarity on this. Its widely believed that LH will acquire the remainder of the airline and actually integrate SN into its Eurowings division. LH has until 2017 to exercise the option to complete the purchase but it is likely to be completed this year if the board approves the transaction.
