[Anonymous]

[AnthonyDunn]

The Financial Times is reporting that Lufthansa has just announced its intention to scrap its dividend for the second time in three years as rising pension costs and an accounting impact linked to volatile fuel prices caused it to record a treble-digit million loss. The German flag carrier slumped to a €732m full year net loss under local accounting rules, compared to a profit of €407m a year earlier.

Management explained the loss had three primary causes. The company booked a writedown following the sale of its IT unit in October and its pension liabilities have jumped as low interest rates make funding retirement obligations more costly. Meanwhile, the oil price slump forced the company to make provisions for contingent losses on its fuel hedging activities at the end of December.

Lufthansa was already facing huge pressure before Friday’s announcement because of fierce competition from low-cost and Middle Eastern airlines. To counteract this Carsten Spohr, chief executive, last year unveiled a new strategy under which Lufthansa will expand its low-cost Eurowings service on short and long-haul routes. But Lufthansa’s pilots see the strategy as a threat to their generous pay and benefits and have repeatedly gone on strike, costing the company €62m in the final two months of the year. ENDS

[KarlMarx]

A predictable post from the forum’s British Bulldog.

Lufthansa Group is sorting out the kind of problems that caused IAG to experience similar large losses a few years ago.

[Swissdiver]

For years, Lufti just relied on the loyalty of the German travellers. But finally they understood how poor was Lufti’s product and started flying with competitors, including notably Turkish. This led to two reactions from Lufti: finally upgrading their products (a partial failure, at least in business class) and “retaliating” against other Star Alliance members by reducing dramatically the miles awarded via their Miles & More program (leading many to consider other Star Alliance programs). Now they can try to explain their losses with the lousy oil price excuse and opaque IT reasons, but the reality is rather they were to slow to adjust to the market changes and tried too long to milk the German cows.

[canucklad]

“Meanwhile, the oil price slump forced the company to make provisions for contingent losses on its fuel hedging”

I’m not an expert at airline accounting, but what I do know is …….when you ask Mickey Mouse for the time, he’ll glance at his Carsten Spohr watch to find out.

You’re spot on Swissdiver, yet another European Legacy carrier that is trying to be all things to all people, believing that their past glory will suffice. And as a result are surprised when they do that by weakening their offering to save costs, their loyal customer base jump ship to the competition, including those within their own alliance.

Hell mend them !!

[SimonS1]

All the legacy groups are like dinosaurs. IAG, Lufthansa, AF/KLM, Alitalia – they all face the same challenges of being outpriced by the locos and out-propositioned by the ME3 with their newer fleets and better hard products. Anyone who has flows on a knackered BA747 in recent times will know that.

Plus they suffer from the mentality of still behaving like state owned enterprises.

Having said that I don’t think the oil price is an “excuse”, the reality is that oil prices dropped sharply and unexpectedly when the airlines were locked into hedging at a higher price. Those hedging contracts need to run off but then there is the possibility of locking in at low prices which will provide protection if prices drift upwards (which they have started to).

To be fair to IAG they do seem to have grasped the nettle a while back and the Aer Lingus bolt on could put them in a good position. Any competition is good, and whilst I don’t personally use BA any improvement in their proposition can only keep others on their toes.

[Swissdiver]

Simon,
I don’t think you can compare BA and Lufti here. BA understood a while ago that the market was competitive. They built the second to none in Europe LHR T5 hub, were the first to introduce the flat bed in business more than 10 years ago and currently work on the third generation. Lufti in the meantime worsened their Frankfurt hub (who believed it was possible), are finally introducing a (below standard) flat bed and struggle with their “partners”. And between a glorious albeit old B747 and an old A340, I choose with no hesitation the former!

[canucklad]

And again you’re right Swissdiver, last couple of times I flew LH, I was very disappointed with the long haul on board product. Although the “Y” offering on the FRA-LHR sector was quite good, better than BA.
But then I’d I’ve been relieved to be on a FR flight just knowing I was escaping FRA. Totally shocked at the overcrowding, the dirtiness, and for what I’d assume would be a blue chip route, the need to bussed.

And when given a chance to compete they imagination fails them , as per my comment at 09.29

http://www.businesstraveller.com/discussion/topic/What-do-you-think-of-the-A380?page=4

And they are normally, one of the more expensive options when I book my long haul ” Y ” flights, making them very uncompetitive. So todays news explains a lot , and doesn’t surprise me !

[TMConsulting]

Swissdiver I would even add that they are taking some of their subsidiaries down with them… Swiss: they used to be more flexible with their fare rules (on a “per fare component” basis) but they had to align to Lufthansa’s more restrictive attitude (“most restrictive” applies to all flight).

[LuganoPirate]

I think Swissdiver that many Germans were attracted to the ME3 not because of comfort or facilities, but due to price. Even the older generation who you’d think would be die-hard Lufthansa fans have switched due to two reasons. High fares and no appreciation of loyalty since the miles awarded are puny on the cheaper fares so giving virtually no chance of earning a free ticket.

[SimonS1]

Swissdiver – YMMV there I’m afraid. I wasn’t just comparing BA and LH, more the legacy airlines.

If T5 is second to none in Europe that that is a backhanded compliment. I do everything I can to avoid T5 with it’s crowded lounges, miserable staff etc.

Plus whilst I agree that BA introduced a flat bed 10 years ago times have moved on and they have been left behind.

With a choice between an old 747 and an old 340 I wouldn’t take either. I would choose a new aircraft with the ME3 with a premium hard product that is light years ahead of coffin class on BA, or LH, or KLM. Not to mention the chauffeur transfers, premium baggage and other things that do make a difference.

[AnthonyDunn]

@ KarlMarx – 25/02/2015 07:45 GMT

Oh dear Karl, what’s with the shoulder chip? Since when has taking some pride in one’s own country been an issue? My posting was a direct lift (slapped wrist!) from the FT without any commentary on my part bar the thread title.

As you correctly point out though, LH is now dealing (and none too successfully if the number of strikes over the past twelve months is an indicator) with problems that BA started addressing some years ago. As is also witnessed by the litany of complaints from LH management at the Gulfies, the concept of competition is causing them some difficulties. That too stands in rather stark contrast with the attitude of IAG, in the person of one of my least favourite CEOs, who opted to embrace the Gulfies through Qatar.

Perhaps it’s time for you to stop acting as one of the forum’s resident LH apologists?

[Swissdiver]

Simon,

Lounges: the smelling sausages in Frankfurt are not really pleasant, are they…

Ugly A340 vs. glorious B747: let’s agree to disagree.

Now to the Middle Eastern:
Qatar stinks unless you are lucky to fly on the right aircraft.
I didn’t fly with Etihad lately.
Emirates in all right, but Dubai airport looks like an horrendous mall at peak hours. And these hours are in general between midnight and 4am. Yak!
I prefer by far be sleeping on a direct flight from Europe!

One more thing: I hate having to worry or research if I will have the right fully flat bed. At least with BA or for that matter, Swiss, I know. With LH, AF, IB and the Middle Eastern, I don’t know!

[KarlMarx]

AnthonyDunn – 25/02/2015 12:15 GMT

I am not a Lufthansa apologist, in fact I seldom fly the airline, but I don’t appreciate ‘knocking copy’ in an apparently xenophobic context.

If you wish to praise BA, by all means do, the financial results have been strong recently.

[AnthonyDunn]

@ KarlMarx – 25/02/2015 13:20 GMT

As you ought to be aware, my comments re: BA cut both ways. There has been plenty of coverage, positive and negative, of BA’s financials on BT. So why should not the same coverage be given to other carriers?

And where on earth did you get the “xenophobia” from?

[Author]

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