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LUFTHANSA PROFITS ARE UNDER PRESURE

At the end of May this year, Lufthansa CEO, Jürgen Weber, announced a brilliant result of the business year 1995: DM756 million profit after taxes, the best result in the history of the airline. However, the delight didn't last long. Only three weeks later there were first rumors that Lufthansa was generating losses in the amount of three-digit millions for the first half of 1996. Now, the actual numbers are on the table. The result is not as dramatic as the airline branch had expected. Still, 37 percent less profit than in the first half of 1995 were a bad enough outcome for Jürgen Weber to pull on the emergency brake.

The motto for the second half of this year is now to reduce capacity and decrease the costs - the logical consequence of a wrong estimation of the passenger development. Especially on the German market the demand stayed far behind the expectations. The fire at the Düsseldorf airport, price dumping, and overcapacities on the market were named as official reasons for the situation.

According to experts, Lufthansa´s worst problem is its cost structure, especially due to the expensive personnel. Jürgen Weber admitted in a recent interview that Lufthansa is facing work costs of 50 marks per hour, while the airline's main competitor, British Airways, is confronted with only 20 marks per hour. Such a difference could not be balanced with even the highest productivity.

Is Lufthansa steering into yet another crisis? Weber, who had rescued the airline, is still hoping for a result similar to last year, in spite of this year´s disappointing start. The Lufthansa CEO has already initiated a course correction: "We must decrease our expenses by 20 percent in the long term, in total by DM1,5 billion until 2001."

This is to be done with new concepts. Instead of fixed raises of the salaries, Weber plans to pay part of the salaries result oriented. Non-profitable inner-German and European routes are to be transferred to other, cheaper operating carriers. These must pay a fee and can then utilize Lufthansa's name and logistics. However, they will operate on their own economical risk - a classic franchise concept. Jürgen Weber: "This is almost like McDonalds".

From page 28 of FLUG REVUE 10/96