x Abu Dhabi, UAEWednesday 26 July 2017

Lufthansa chief vows no end to fightback against Arabian Gulf carriers

Lufthansa says it is sticking to its strategy of deep cost-cutting despite strong economic headwinds.

 The venerable German flag carrier is struggling to compete with Emirates Airline, Etihad Airways and Qatar Airways, which have been steadily eroding its international market share. Reuters/Ralph Orlowski
The venerable German flag carrier is struggling to compete with Emirates Airline, Etihad Airways and Qatar Airways, which have been steadily eroding its international market share. Reuters/Ralph Orlowski

Frankfurt // Halfway through its most ambitious efficiency push yet, Lufthansa says it is sticking to its strategy despite strong economic headwinds that continue to hinder its fightback against Arabian Gulf carriers.

Speaking at the company’s training centre in Frankfurt, the outgoing chief executive, Christoph Franz, said that Lufthansa would continue its efforts to regain market share.

Mr Franz blamed an increase in fuel prices and continuing weak demand for air cargo in Europe for the fact that operating profits slumped 36.1 per cent to €524 million (Dh2.59 billion), despite Lufthansa having succeeded in saving €618m last year through ambitious cost-cutting.

But he said Europe’s biggest airline in terms of revenue was sticking firmly to its present strategy.

“They [the Gulf carriers] are a challenge and they will stay a challenge,” Mr Franz said. “We feel that we are increasing our competitiveness with regard to the consistency to our quality product offering and at the same time we are also working to improve our cost position.”

Lufthansa started to implement its controversial “score” cost-cutting drive in January last year in an attempt to boost operating profit to €2.3bn in 2015. The venerable German flag carrier is struggling to compete with Emirates Airline, Etihad Airways and Qatar Airways, which have been steadily eroding its international market share.

The drive included about 800 measures last year to improve earnings and cut costs. Ultimately this will mean 3,500 job losses, while the savings will help to fund the group’s largest ever fleet renewal.

“There is no deviation from our plans,” Mr Franz said. “If we continue like this [before the efficiency drive] we will have to shrink. That’s the real reason why we want to change mentalities within the company.”

Last week the company placed a US$19bn order for 59 new aircraft split between Boeing and Airbus. In the Boeing deal, Lufthansa will launch a new and larger version of the 777 long-range jet.

The move comes just six months after the group signed up for 100 Airbus short-haul planes.

Lufthansa also has big plans for overhauling its existing fleet. The group is investing €3bn in introducing new first and business-class seats as the airline attempts to lure back high-paying passengers who have grown used to pampering on Gulf carriers.

Mr Franz, who this month announced he would be stepping down from next year to join the Swiss pharmaceutical company Roche, said that his departure would have no effect on the programme.

“The captain of the Costa Concordia left the ship when it was sinking. I will leave the plane when it is increasing flights so that’s the major difference,” he said.

“There is never a perfect moment to take such a decision or to change your company, but this is a milestone which we will have when I leave. Will the score programme be less intense? Please tell me the advantage. There is no advantage. The score programme is not the private idea of one single CEO. There is shared responsibility. There is a common strategy of the executive board. I am absolutely convinced that my colleagues will continue when I take my new position.”

The prize sought is a big one. According to Boeing, air traffic between the Middle East and Asia-Pacific is set to be the fastest growing air market in the world over the next decade, increasing by 7.3 per cent.

“We expect much of this to come from trade which would have gone via Europe and can now travel directly,” said Randy Tinseth, Boeing’s vice president for marketing.

lbarnard@thenational.ae