Last weekend, I was invited to join a Lufthansa press luncheon in Seattle but have had a very busy week since returning and only now have had a chance to decipher my notes.
The event brought together representatives from Lufthansa to discuss recent and future events within the airline as well as representatives from Boeing who provided insights into the 747-8i and 747-8F programs. I’ll take this opportunity to highlight some of the key points made during the lunch.
1. Airline Consolidation In Europe: Lufthansa projects continued consolidation in the European Airline market. Lufthansa has suggested that they may be active in consolidation, but are not actively seeking opportunities. A major driver behind the consolidation according to Lufthansa is the fragmentation of the airline market in Europe. In Europe, 48 airlines comprise 90% of the marketplace, whereas 90% of the US airline market is made up of only 6 airlines. Accordingly, representatives from Lufthansa feel that the European airline market is ripe for consolidation, either through merger or attrition.
2. Fuel Costs: Lufthansa took the luncheon as an opportunity to highlight the impact of fuel costs on its operations. Over the last 15 years, fuel prices have increased 170% and today represent 35% of the airline’s operating expense. Prior to this spike over the last decade and a half, fuel comprised 10-15% of total operating expenses, suggesting an obvious squeeze on margins. LH listed their 3 highest operating expenses: 1. Fuel 2. Air Traffic Control and Airport Fees and 3. Staffing.
3. Fleet Management: Lufthansa briefly covered their plans for fleet renewal and aircraft orders. Currently, LH has 168 aircraft on order. Highlighting this list of orders are 5 Boeing 777 Freighters for Lufthansa Cargo, 30 Bombardier C-Series aircraft for SWISS and in addition, LH plans to announce a “significant” double digit order in the coming weeks that may include Boeing 787s, the 777X and Airbus A350. No indication has been given in terms of the exact models, except that it will be comprised of these 3. I suspect the order to be in the 40-60 aircraft area.
4. Fleet/Cabin Modernization: According to their presentation, Lufthansa will be spending an average of 1 million dollars a DAY over the next 3 years as it retrofits new business class seats into its long haul fleet. PREMIUM ECONOMY SEATS are being finalized and will be debuted in BERLIN in March 2014 at the annual ITB Convention/Show. The Premium Economy seats will begin to appear in aircraft in October 2014. Discussing Flynet (Lufthansa’s inflight WiFi product), 90% of long haul aircraft are equipped with Flynet, the 10% lacking Flynet are the Airbus 380 aircraft in the fleet and plans are to have them retrofitted within the next 12 months. Lufthansa also has indicated that they are looking into the concept of removing monitors from Inflight Entertainment Systems at a point in the future. The driver behind this idea is the fact that most passengers are now traveling with laptops, tablets and smartphones and can view IFE content directly on their own devices.
5. Network Expansion Plans: Lufthansa sees South America as a growth market and is investigating potential route expansion to the continent. They are also looking at increasing capacity on existing routes to meet an expected rise in demand. Speaking about North American destinations, Lufthansa does not plan to announce any new North American routes in the next 12 months.
1. The 747-8i and 747-8F program: Representatives from Boeing provided a brief update on the status of the 747-8 platform including recent orders from Korean Air and Air China. Boeing seems to be encouraged at the additional take-up on the 747-8i but I sensed very little enthusiasm when they were asked about future orders. They suggested that they are seeing additional interest develop around the 747-8i, but I was not convinced that the interest is significant based on their comments. Based on comments made during the lunch, it appears that LH was the driving force behind the development of the 747-8i for passenger service whereas Boeing had originally intended the 747-8 platform to be strictly a Cargo aircraft. With the advent of the 777X and 787 platforms, the 747-8i may become a victim of the success of its siblings.