Post
by sn26567 » 18 Jun 2019, 12:20
What the profit warning of Lufthansa doesn't say
A comment by Michael Machatschke
Carsten Spohr wanted to be nice to the investors. The current profit warning of the Lufthansa chief sounds in places like a success story. There is talk of a "strong long-haul business" and the intention to defend the Group's "leading position" in its home markets. So tuned, the story is made for investors to better accept that the profit will be significantly lower than previously planned, and the stock drops sharply.
In fact, it would be exaggerated to fall into Doomsday rhetoric. Two billion euros pre-tax profit - the now lower target issued - would have been enough to cheer a few years ago in the headquarters of Lufthansa. The profits of virtually all airlines are currently declining. After fantastic years, the industry now has to settle for less good, but certainly not catastrophic figures.
And yet there is something alarming in the profit warning. Lufthansa is obviously in a huge mess with its subsidiary Eurowings - but is unable to address the problem openly and offer convincing answers.
Who is to blame for the misery in the European business and thus the loss of Lufthansa? Spohr's bulletin points to the others: "Aggressive competitors are willing to accept significant losses to grow their market share." The other way around, one gets closer to the truth: the Lufthansa spin-off Eurowings works too cumbersome and too expensive to compete directly with low-cost airlines such as Ryanair or EasyJet.
Actually, Eurowings should finally have made a profit this year. It will not work out again. And the Lufthansa strategists have to ask themselves whether something is fundamentally wrong with the Eurowings brand.
It is undeniable that many gross calculations speak for the second platform of Lufthansa. Only the internal competition has made it possible for Group CEO Carsten Spohr to remain tough in the dispute with the pilots, according to the formula: If you do not give in, then growth is only possible with Eurowings! And only thanks to Eurowings Lufthansa could really benefit from the bankruptcy of the blissful competitor Air Berlin. In the classic Lufthansa line, it could hardly accommodate the Air Berlin planes and their routes.
But with all its added value, the main purpose of Eurowings has come too short: to offer easy, reliable and highly efficient flights in Germany and Europe. Eurowings is still a jumble of different airlines and business models under one roof, including intercontinental flights. Currently, the Belgian Brussels Airlines - the specialist for Africa traffic - is also to be integrated. This has nothing to do with a slender low-cost airline, and this is also evident in the reliability. In the chaos summer of last year with many enervating flight cancellations and delays, Eurowings took an inglorious top position.
In the meantime, management has counteracted and, among other things, provided more replacement aircraft. However, this further increases the cost and does not fix the built-in inefficiencies.
In many other companies, a comparable situation would start a discussion about the relevant division manager, in this case, Lufthansa Executive Board member and Eurowings boss Thorsten Dirks. He seems to have enough backing, his contract was recently extended. It could be tight for him anyway. Because the supply of excuses disappears. The integration of the Air Berlin remnants should be completed sometime.
And the myth that sinister Desperados ruin the market, even with lively repetition, is not credible. Only one thing will help Dirks like Spohr: an honest stocktaking and massive reforms.
André
ex Sabena #26567
