FLUG REVUE December 2003: Lufthansa re-organizes regional network

LUFTHANSA REGIONAL TAKES OFF

By Patrick Hoeveler

The cat is out of the bag: on 16 October, Lufthansa Chairman of the Executive Board, Wolfgang Mayrhuber, announced the airline's new vision for its regional partners. Under the brand name of “Lufthansa Regional”, the new group comprising the airlines Air Dolomiti, Augsburg Airways, Contactair, Eurowings and Lufthansa CityLine, is to commence operations on January 1 next year and make possible Euro 100 million of cost savings per year. Closer co-operation between the regional airlines, he announced, will optimise the route network and strengthen networking between the fleets. The partners will remain “independent and autonomous”. In addition, agreements such as with Cirrus Airlines (see FR 10/03) will remain in place.

Mayrhuber is aiming to slash overall costs by a total of ten percent, for example through joint investment. The airlines will continue to purchase aircraft on their iwn, but they will now all be to the same specification. The new Lufthansa Chairman plans to “get ten percent more flying hours out of our planes”. At present Lufthansa CityLine aircraft are only in service for eight hours a day. The aim is to achieve a “sporty” ten hours, as CityLine's CEO, Karl-Heinz Köpfle, puts it.

The parent company is hoping to win about ten percent more customers with the new brand. Responsibility for ensuring that all the member airlines adhere to an identical standard of quality will lie with a steering committee consisting of a representative from the Lufthansa Executive Board, as the purchaser, and the CEOs of the partner airlines as suppliers. Competition is positively desirable within this circle. Lufthansa will determine which routes it wants flown and the regional partners will then work out the best solution. It was not the aim, however, to set the airlines against each other, Mayrhuber said in Frankfurt. Nor does the designated committee chairman, Werner Knorr, see himself as anything other than a mediator. “We aren't planning to spell out to the smaller airlines what direction they must take.”

According to Mayrhuber, it is the passengers who will benefit from this development. “It is a matter of efficiency for the customer rather than unity at any price.” Whether airfares fall as a result he declined to confirm, with a smile. The Austrian is well aware of the importance of regional airlines. He believes it is “essential” that “regional traffic is developed both through independent connections and also through hub feeding”. At present, a quarter of Lufthansa flights are flown by a regional partner.

But the need to cut costs was also the motivation behind the new structure. Thus, according to Lufthansa, €1.2 billion has to be saved over the next two years, and there is a lot of economic pressure on the regionals as well. However, Mayrhuber wants to convert the new cost advantages into growth. With the new group structure they will be better placed to hold their own against the competition from the no-frills carriers, as Werner Knorr explained to FLUG REVUE.

Accordingly, the CEOs of the “small” airlines view the new arrangements in a positive light. According to Georg Steinbacher of Contactair, even the smallest company is on the same footing. Synergies will create lower costs for the partners. However, Lufthansa is supposed to modify the regionals' payment arrangements under the wet lease agreements accordingly. On the other hand, Steinbacher is not worried that Lufthansa will pass costs onto the small airlines. He views a one-year transition time as realistic.

His colleague at Eurowings, Friedrich-Wilhelm Weitholz, has a similar view of the time frame: the new concept “must be working within 12 months”. He does not have any problems with moving to a bigger brand. “The alternative would be for each airline to fly its own way. And that”, according to Manfred Scholz of Augsburg Airways, “would be an expensive undertaking.” Scholz believes that the new mode of operations will make regional transport more important.

The partners did not have many alternatives. Finally, they did not want to keep fighting the big players forever, as one CEO explained. However, he views the fact that Air Dolomiti and CityLine will keep their own brand names, in CityLine's case with the Lufthansa crane, as a “deformity of birth”. Karl-Heinz Köpfle for his part felt that it made no sense giving up a good brand name. At the Italian airline, according to CEO Michael Krauss, competition law did not require this, but the good name of the brand in Italy was the crucial factor. Therefore he wants to remain true to the “formula of four plus one” and serve as an example for future members of how independence can be retained within the alliance. The fact that the number of members will increase was also confirmed by Wolfgang Mayrhuber. “We are not a closed event.” Insiders suspect that they may be considering adding some airlines in France and the Balkans. New partners from eastern Europe, with their lower cost base, could be quite a challenge in this area. “Fresh wind will liven up the competition between the partners,” as Manfred Scholz put it.

From page 30 of FLUG REVUE 12/2003

Last updated 10 November 2003

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