FLUG REVUE October 2005: LTU looks ahead despite problems

October 2005

Interview with LTU's CEO Jürgen Marbach

“THE OIL PRICE IS A MAJOR PROBLEM”

As Chief Executive Officer of LTU, Jürgen Marbach holds the fate of the company in his hands. FLUG REVUE spoke to him about the current situation of the airline and its prospects for the future.

FLUG REVUE: LTU celebrates its 50th anniversary this year. What would you say were the three biggest milestones in the company's history?

Jürgen Marbach: When a company can trace its history back 50 years, naturally a lot has happened in that time. I would say that the three biggest milestones were, firstly, the 1961 move from Frankfurt and Cologne to Düsseldorf, our present home base, which has one of the biggest catchment areas in Europe.
The second milestone was incorporating the first TriStar into the fleet in 1973 and then investing in other aircraft of that type. LTU was the first holiday airline to herald in the jet age. In the years which followed, it was the TriStar that was responsible for LTU's success story.
The third milestone would be the conversion of a highly heterogeneous and expensive fleet into a purely Airbus fleet, which began in 2000. Today we have one of the lowest cost and most modern fleets in the world.

FR: In the history of the company, there have been high points and low points. What was the most serious crisis that it had to overcome?

Marbach: The most serious and biggest crisis for LTU was definitely its near-insolvency in 2001 after its main shareholder, SAirGroup, went bankrupt. The Swiss had sold LTU's aircraft to finance the purchase of LTU, and we had to lease them back in an expensive deal. After its Swiss majority shareholder went to the wall, LTU was left with empty coffers, yet its costs were high. Mercifully, everyone, especially LTU's workforce, played along with the situation and we survived the crisis most effectively.

FR: There are studies which prophesy that the future prospects for the classic holiday airlines are not very good. On the one hand, it is argued, the no-frills airlines will steal market share from the holiday airlines, while on the other hand the traditional network carriers will increase the pressure on the holiday airlines. How has LTU adjusted to this competition?

Marbach: LTU no longer sees itself as a pure holiday airline and stopped positioning itself as such some time ago. Our strategy is relatively simple: LTU will fly any route that is feasible and profitable. Of course we will continue to be a holiday airline, but we offer just as good a range of connections to business travellers, and we even have a Business Class. Over 90 per cent of our flights are scheduled flights.

FR: So is LTU an inexpensive holiday airline with the character of a network airline?

Marbach: I would prefer to answer that question by saying that LTU is an airline.

FR: What proportion of MTU's passenger volume is marketed by organisers and what proportion comes from individual ticket sales?

Marbach: At present two-third of our business is with organisers. The biggest of these are REWE Touristik and TUI. One-third of tickets are sold to individuals. But the trend is moving more and more in this direction, that is, in favour of individual ticket sales.

FR: In this connection, how important was the introduction of the First Comfort Class on long-haul routes?

Marbach: The introduction of the First Comfort Class was a brilliant decision. The utilisation is more than satisfactory, and this is definitely also due to the good price:performance ratio. Especially on the flights to New York, Cape Town, Bangkok, Cancun and the connections to Florida, the First Comfort Class is nearly always sold out.

FR: At a time of hard-hitting cost reduction programmes amongst the airlines, does LTU need a bonus programme to promote customer loyalty?

Marbach: A bonus programme could make sense as a means of promoting customer loyalty. It is against this background that we have launched our Red Point programme, which currently has over 500,000 registered participants. The system is simple and very transparent, and, besides, the whole family can benefit from it. Of course, one first has to set aside a provision to pay for it, but this investment is worthwhile.

FR: What impact is the high oil price having on LTU?

Marbach: The oil price is actually a major problem, and the price of kerosene has tripled over the last ten months. All the airlines are having to cope with this. No one can predict with accuracy how it will continue. Because of this, at the moment hedging transactions are expensive and risky. Some of the costs can be compensated for with fuel surcharges and price rises, but on the other hand the no-frills airlines are of course making life difficult for us.

FR: Has the conversion to a pure Airbus fleet paid off?

Marbach: The changeover has saved us huge amounts of costs, and because of the commonality between different Airbus aircraft, we are able to deploy our aircrews a lot more efficiently and hence more productively. Airbus is the best aircraft on the market for LTU's profile.

FR: If one day there were to be a short-haul version of the Airbus A380, would this be something for LTU, for example, on the route to Palma de Mallorca?

Marbach: The idea has its attractions, but the Airbus A380 is simply an order of magnitude too big for us. Sure, there are days and times when we could fill an A380 flying from Düsseldorf to Palma, but there would not be sufficient demand to operate a whole aircraft of that size at a profit in the long-term.

FR: How satisfied are you with the situation at your home base in Düsseldorf, given that it is not possible to increase the number of flight movements there due to the regulations?

Marbach: We like being in Düsseldorf, and we have an extremely good relationship with the airport operating company. With regard to the regulations, yes there are problems, but there is some leeway in sight. The airport has applied to increase the number of flight movements by 20 percent, and we are working on the assumption that they will succeed. Düsseldorf must be allowed to grow if it is to hold its own in the international competitive environment. The best place for LTU to grow is at its home airport. The catchment area in this region is certainly big enough.

FR: Will LTU have to add other departure airports in its route network if it wants to grow in the future?

Marbach: To grow, it is not necessarily essential to increase the number of departure airports. We have concentrated on the big airports in Germany and so far this has worked out very well. Far more critical are the market and the passengers. These two factors determine from where LTU flies. Our approach is demand-oriented rather than supply-driven.

FR: LTU is looking for investors to take over the parked shares. What is the situation here?

Marbach: Given the familiar framework conditions, it is not that easy at the moment to find someone who is prepared to invest in an airline. But we are not actually relying on an investor either in the short-term or medium-term. We are having some interesting talks, and it could well be that a decision is made in this area before the end of the year.

From FLUG REVUE 10/2005

Last updated 14 September 2005

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