Over the past few days, information has been coming from Lufthansa regarding a major initiative it is embarking upon that will lead to an annual savings of Euro 1.4 billion (1.84 billion US Dollars) by 2015.
In communications to its employees, Lufthansa stated the savings will be recognized by creating more efficient administrative processes, a reduction of overhead and by optimizing purchasing programs throughout the entire organization. A previous cost reduction initiative focused only on passenger airline operations where as this new program, referred to as SCORE (Synergies, Costs, Organization, Revenues, Execution), is targeting the entire Lufthansa empire which includes Austrian Airlines, Swiss International, Brussels Airlines and Germanwings. Also included in the program will be Technik, LSG Skychefs (catering) and other subsidiary companies and divisions. The goal of the program will be to increase operating margins beyond 3%.
In a company newsletter released to employees on February 10, Lufthansa’s Chief Executive Officer Christoph Franz cited competition from low cost European carriers and Middle East Airlines as primary motivators for the initiatives. Among his comments, he stated “We no longer have a tail wind”.
Another key motivator for this initiative is that by attaining these savings and efficiencies, Lufthansa will then be able to justify and afford a Euro 9 billion (11.8 billion US Dollars) capital investment into the company over the next 3 years.
I’m sure I’ll have more information to add as Lufthansa rolls out the program over the coming weeks and months.