Lufthansa confident it has managed to turn around Europe

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Inquirer
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Lufthansa confident it has managed to turn around Europe

Post by Inquirer »

An interesting bit of reading
http://www.bloomberg.com/news/2013-09-2 ... -help.html

Lufthansa said it has managed to turn around most of its European routes (...) as the company reduced the number of plane types for regional routes and used bigger aircraft with more seats.

European services using Frankfurt or Munich, where three-quarters of the Lufthansa passengers pass through, have been making money.

Lufthansa’s Germanwings subsidiary will become the operator for all its routes within Europe that don’t use Frankfurt and Munich; Germanwings plans to be profitable by 2015 and is seeing higher load factors on routes already taken over from Lufthansa, with both yields and profits on those routes rising thanks to ancillary sales.

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tolipanebas
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Re: Lufthansa confident it has managed to turn around Europe

Post by tolipanebas »

Inquirer wrote:...both yields and profits on those routes rising thanks to ancillary sales.
No surprise to me.

The main difference between Lufthansa and Germanwings is that ordinary passengers now need to pay for things which used to come for free under the more prestigious Lufthansa brand, although they do initially get to pay a lower basic ticket fare.

As other LCCs have already demonstrated successfully, passengers ultimately tend to end up paying a fair bit more in such an 'à la carte' concept, than in an 'all in' concept, on average...

Inquirer
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Re: Lufthansa confident it has managed to turn around Europe

Post by Inquirer »

It's extremely funny to see how most people have a very clear preference for an all-in concept when they are on holidays ("it's by far the best option, with 3 children wanting a coke, or an ice cream all the time"), yet somehow they still think they can beat the system during their travel, which is obviously a mismatch, somehow.

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earthman
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Re: Lufthansa confident it has managed to turn around Europe

Post by earthman »

It's easier not to drink anything for 4 hours than not to drink anything for two weeks of holidays in the hot baking sun.

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tolipanebas
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Re: Lufthansa confident it has managed to turn around Europe

Post by tolipanebas »

Now also officially stated by Lufthansa in their interim report:

"For the first time in five years, we are in the black with Lufthansa’s European traffic – thanks to the progress with Germanwings."

Interesting to note how Austrian Airlines have also returned to profitability, thanks to a restructuring program quite similar in style and content to the one they later brought to BRU too. ;)

http://www.lufthansagroup.com/en/press/ ... /2658.html

Flanker2
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Re: Lufthansa confident it has managed to turn around Europe

Post by Flanker2 »

We'll see if it lasts. I don't believe in the LH concept surviving the next decade, even less in the "Germanwings takes over" concept. Shareholders are cautious as well and not many are excited about future prospects.

The only real thing that LH has going for them is the German market and it's surprising that Passage isn't able to tap more value out of such a lucrative market with such an extensive network.
The day will come where the German economy experiences a temporary collapse within itself and such an event could be catastrophic for LH, because they're not doing a good job tapping into a rich soil. Comparatively, I think that SN isn't doing too bad holding themselves tight in such a lean market as BRU.

Opportunity-wise, LH has much more untapped potential as SN is already squeezing everything they've got out of their potential, but when the going gets rough, SN can survive whereas LH might just have too much mass and nothing to keep it afloat.

FlightMate
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Re: Lufthansa confident it has managed to turn around Europe

Post by FlightMate »

I think you're right saying SN is doing an OK job in such a small market as BRU.

But in Germany, there is still Air Berlin competing with LH, keeping yields under pressure. When a depression comes to Germany, I rather see Air Berlin failing and LH left without any serious competitor, thus staying afloat.
And let's not forget that if german's economy get depressed, the rest of Europe will probably be in a much worse shape.

EBAW_flyer
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Re: Lufthansa confident it has managed to turn around Europe

Post by EBAW_flyer »

tolipanebas wrote: Interesting to note how Austrian Airlines have also returned to profitability, thanks to a restructuring program quite similar in style and content to the one they later brought to BRU too. ;)

http://www.lufthansagroup.com/en/press/ ... /2658.html
I don't know if you realize this, but the "successful" return to profitability of AUA is not that positive for their flying staff!
Actually, all of the planes and staff are transferred to their "regional" carrier Tyrolean, with new contracts.
This caused one fifth (110) of their pilots and more than 200 cabin crew quitting AUA because they could not accept those new terms.

So, be aware Brussels Airlines staff...

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RoMax
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Re: Lufthansa confident it has managed to turn around Europe

Post by RoMax »

EBAW_flyer wrote: I don't know if you realize this, but the "successful" return to profitability of AUA is not that positive for their flying staff!
Actually, all of the planes and staff are transferred to their "regional" carrier Tyrolean, with new contracts.
This caused one fifth (110) of their pilots and more than 200 cabin crew quitting AUA because they could not accept those new terms.
LH's staff that's being transferred to Germanwings currently still works under LH-contracts I believe? But LH already said several months ago that they expect hundreds of their staff to leave once their LH contracts come to an end in the comming years and new contracts will have to be signed (of course under less favourable conditions).

Same situation with Iberia Express, but of course Iberia is facing huge headwinds from their staff/unions because of this.

It also seems like KLM is preparing a shift from KLM (mainline) to KLM Cityhopper for their European network to save more money by the end of this decade. Not much is known about this yet, but the unions already said they are against it.

So this is not a unique sitation present at Austrian, it's simply the current development in European aviation as the tradditional airlines don't have a choice being under so much pressure from the LCC's.
SN doesn't seem to be facing a similar situation yet as SN's staff isn't exactly the overpaid, very well treated staff airlines like LH, Austrian (before the Tyrolean-shift), Iberia (having very well paid pilots), KLM, ... have on contract.

sean1982
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Re: Lufthansa confident it has managed to turn around Europe

Post by sean1982 »

No, Belgium has already caught up with reality since the demise of SABENA. The rest of the traditionals are still stuck in the 60's when it comes to how much they pay their staff, but they are beginning to shift towards what the normal pay is in Europe for flightcrew at the moment

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sn26567
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Re: Lufthansa confident it has managed to turn around Europe

Post by sn26567 »

RoMax wrote:SN doesn't seem to be facing a similar situation yet as SN's staff isn't exactly the overpaid, very well treated staff airlines like LH, Austrian (before the Tyrolean-shift), Iberia (having very well paid pilots), KLM, ... have on contract.
sean1982 wrote:No, Belgium has already caught up with reality since the demise of SABENA.
Of course: SN staff are now, and since the inception of the company, on the pay scale of DAT (with the subsequent adaptations), not that of Sabena.

That's also one of the reasons why Sabena created a lower-cost subsidiary in the first place.
André
ex Sabena #26567

sean1982
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Re: Lufthansa confident it has managed to turn around Europe

Post by sean1982 »

Problem is that belgian airlines are on the bottom of the payscale in Europe though (net pay at least). Don't know the exact details for SN, but JAF for example has a very low pay compared with the rest of Europe. I can't imagine SN to be paying huge amounts more to their pilots.

Flanker2
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Re: Lufthansa confident it has managed to turn around Europe

Post by Flanker2 »

I can confirm to you that pilots and cabin crews at SN have one of the worst take-home pays in Europe. Part of that is owed to the delusional Belgian fiscal system.
I can also confirm that its ground staff, both check-in and maintenance, are paid minimum wages or a bit more, depending on career progression. If you don't mind staying poor or if you come from a wealthy family, aviation is great :roll:

The savings you can achieve by reducing salaries are really limited.
What all these big corporations don't see in their reports is how much it costs to train new entrants. Lower salaries and heavy work conditions will only increase employee turn-over, and training and recruitment costs will follow, hence undoing the cost savings. Worse, the impact on overall employee performance is reduced, resulting in lower efficiency and decreased quality of work.

Don't forget also that VIE gave AUA a fees reduction to support their sustained operations. That's money straight from VIE's pockets into AUA's pockets. If these profits are sustained, you can count on VIE to be charging more for their services.

If you see that even AZ turned a profit in Q3, LH better don't cry victory too soon. :lol:

Flanker2
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Re: Lufthansa confident it has managed to turn around Europe

Post by Flanker2 »

This analysis paints the right picture:
http://centreforaviation.com/analysis/b ... t-2-116851

Image

Using bigger aircraft to consolidate capacity and reduce unit cost isn't a bad idea, if your load factors are high.
In SN's case, it just readjusted the whole revenue and cost structure to a higher level, without achieving the intended result, as can be seen from the graph.
But unit costs are still too high
Since becoming an associate of the Lufthansa Group in 2009, Brussels Airlines' problem – simply put – is that cost per passenger has exceeded revenue per passenger. Moreover, the gap has widened since 2010. There has been some growth in revenue per passenger, but this has not been sufficient to outpace cost per passenger. Moreover, fares are subject to competitive pressures and revenue per passenger growth cannot be relied upon.

Cost reduction must be the main focus for restoring profitability.
Lufthansa’s call option may not be called
When Lufthansa bought its 45% stake in SN Airholding in 2009 for EUR65 million, it anticipated increasing this to full control once the necessary traffic rights were secured. Lufthansa has a call option over the remaining 55%, which became exercisable in Apr-2011 and lasts until Apr-2014. When the deal was first announced in 2008, Lufthansa said that the price for acquiring all of Brussels Airlines could be as much as EUR250 million, depending on performance-related factors.

There is already considerable cooperation with the Lufthansa Group, including codeshare agreements, FFP integration and an ongoing project to optimise neighbourhood traffic between Brussels and other group hubs.

Lufthansa currently has little to gain from exercising its option and increasing its share of Brussels Airlines' losses.

Passenger
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Re: Lufthansa confident it has managed to turn around Europe

Post by Passenger »

tolipanebas wrote:Now also officially stated by Lufthansa in their interim report: "For the first time in five years, we are in the black with Lufthansa’s European traffic – thanks to the progress with Germanwings." Interesting to note how Austrian Airlines have also returned to profitability, thanks to a restructuring program quite similar in style and content to the one they later brought to BRU too.
http://www.lufthansagroup.com/en/press/ ... /2658.html
The full report is online now:

"Management presentation on the Results":
http://investor-relations.lufthansagrou ... enne-Franz

"3rd interim Report January-Sptember 2013":
http://investor-relations.lufthansagrou ... 13-3-e.pdf

Source page:
http://investor-relations.lufthansagrou ... -2013.html

EBAW_flyer
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Re: Lufthansa confident it has managed to turn around Europe

Post by EBAW_flyer »

Brussels Airlines is not mentioned in those reports?
I also understand April 2014 is the last call option for LH into SN, what will happen if LH does not call?
Does LH keep its 45% and the other 55 are for sale for any other party?

airbuske
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Re: Lufthansa confident it has managed to turn around Europe

Post by airbuske »

EBAW_flyer wrote:Brussels Airlines is not mentioned in those reports?
I also understand April 2014 is the last call option for LH into SN, what will happen if LH does not call?
Does LH keep its 45% and the other 55 are for sale for any other party?
Brussels Airlines is not (yet) a full Lufthansa Group member and is not mentioned in
the reports.
The call option is extended until 2017 if I rember wel.
Best regards,

Airbuske

Inquirer
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Re: Lufthansa confident it has managed to turn around Europe

Post by Inquirer »

EBAW_flyer wrote:Brussels Airlines is not mentioned in those reports?
This is a remark which pops up regularly on this forum.
As a general rule not just in this case, but for all businesses, financial reports include results of consolidated business segments only, meaning they must at least be majority owned first.
Minority stakes like the one Lufthansa holds in B.air are considered non-consolidated equity investments only and are thus only reported on whenever there's a significant variation in the appreciation of the value of the investment, never in operational details: as long as Lufthansa doesn't take at least a majority stake in B.air, you're not going to be reading much on their operational performance in Lufthansa's financial reporting documents, I am afraid, as there is no legal obligation to do so.

sean1982
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Re: Lufthansa confident it has managed to turn around Europe

Post by sean1982 »

Flanker2 wrote:I can confirm to you that pilots and cabin crews at SN have one of the worst take-home pays in Europe. Part of that is owed to the delusional Belgian fiscal system.
I can also confirm that its ground staff, both check-in and maintenance, are paid minimum wages or a bit more, depending on career progression. If you don't mind staying poor or if you come from a wealthy family, aviation is great :roll:
If you desperatly want to stay in Belgium yes, not if you're prepared to look abroad

shockcooling
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Re: Lufthansa confident it has managed to turn around Europe

Post by shockcooling »

sean1982 wrote:If you desperatly want to stay in Belgium yes, not if you're prepared to look abroad
Working in CRL then ;)

But indeed, wages are low purely due to belgian tax.

LH turned around europe, I heard SN did the same and are now expanding with 2 extra medium haul A/C iso long haul...

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