Pilot Strikes

Lufthansa Grounded Again

Security strike Hamburg airport Feb 9 2015 Lufthansa flights cancelled waiting lines Source DPA 41634614
Lufthansa was forced to cancel flights earlier this week when ground personnel went on strike again at several German airports.
  • Why it matters

    Why it matters

    If airline group Lufthansa cannot reduce its cost base it may continue to lose market share to rivals such as Easyjet and Emirates.

  • Facts

    Facts

    • Lufthansa customers face the 11th strike since last April due to a dispute between management and pilots over pay and retirement conditions.
    • The company, led by former pilot Carsten Spohr, wants to raise the pension age for new pilots to cut costs.
    • Lufthansa wants to expand its Eurowings low-cost subsidiary to better compete with budget airlines.
  • Audio

    Audio

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Strikes have almost become routine among the pilots at the Lufthansa Group. They are currently on strike for the 11th time since last April over a dispute to raise the retirement age.

Pilots at Germanwings, Lufthansa’s low-cost subsidiary, which services flights across Europe, won’t be showing up to work on Thursday and Friday.

Most of the affected flights are domestic German flights. More than 30 percent of the planned 900 Germanwings flights will be cancelled, a company spokesperson told Reuters.

At the moment, the employees and management at Lufthansa are moving further apart every day, prompting Lufthansa executives to consider the scenario of an open-ended strike.

Lufhansa, based in Cologne and led by former pilot Carsten Spohr, has been in a long-running dispute with its pilots as the chief executive tries to reduce costs and expand the group’s budget airline operations to better compete with rivals such as Easyjet, Ryanair and Emirates.

Europe’s largest carrier group agreed in December to expand operations of its discount carrier Eurowings, which will also offer long-haul routes. The Eurowings pilots are covered by a different, less costly wage agreement.

Lufthansa is suffering financially. Last year, it lowered its 2014 profit outlook and it warned of lower margins on its passenger travel operations in 2015 due to fierce competition. The 10 rounds of strikes of last year cost the group about €200 million, or $226 million, in operating profit.

Lufthansa shares fell as much as 2 percent on Thursday, and were down 1 percent by 09:37 GMT on the Frankfurt stock exchange. The DAX blue chip index was up 1.3 percent.

Mr. Spohr, who was put at the helm in May last year to lead the changes, may see more headwinds this year.

At the moment, the respective positions of employees and management at Lufthansa are moving further apart every day, prompting Lufthansa executives to consider the scenario of an open-ended strike. “It could happen in March,” a manager, who declined to be named, told Handelsblatt.

 

Lufthansa A Big Airline Group-01

 

The pilots’ union, Vereinigung Cockpit, which wants to hold onto pilots’ right to retire at 55, is playing its cards close to its chest. “We are weighing all options,” said union board member Markus Wahl. “One of them is an open-ended strike.”

Time isn’t on Mr. Spohr’s side, as he is increasingly coming under pressure. Even a few members of the supervisory board are demanding clearer communication. “Mr. Spohr has the total support of the investor community. But he is currently too guarded when it comes to being upfront with employees,” people familiar with the supervisory board’s thinking told Handelsblatt.

Although many pilots are critical of the haggling over a relatively comfortable early retirement scheme, they are united in their frustration over Mr. Spohr’s policies.

He is suspected of leading the company without a clear destination in sight. Critics want management to be more specific about what Lufthansa wants to do with its so-called Passage division, which includes the passenger travel operations of the Lufthansa brand and Germanwings, and how many pilots it will need.

“What we lack is the big picture, a vision of where Mr. Spohr want to go,” one pilot told Handelsblatt.

 

Lufthansa CEO Carsten Spohr Source picture alliance ZB 35104129
Pressure is mounting on the Lufthansa chief executive, Carsten Spohr. Source: picture alliance / ZB

 

A successful restructuring of an airline group has been British Airways, which merged with Iberia to form the International Airlines Group, said Gerald Wissel of the Hamburg aviation-consulting firm Airborne Consulting. British Airways clearly communicated that 500 jobs had to be cut.

Lufthansa, for its part, insists that its chief executive has taken firm positions in many areas in his 10 months on the job. The creation of the budget platform Eurowings for short-haul and selected long-haul flights is one example. Mr. Spohr plans to offer long-distance Eurowings flights later this year, using crews working for Sun Express, a German-Turkish joint venture.

“Ideas like the Eurowings budget platform are correct and can work if they are implemented in a consistent way,” Mr. Wissel, the aviation expert, said.

Another example of Mr. Spohr’s clear decisions, is a program called “Jump.” Eight of Lufthansa’s Airbus long-haul jets will be transferred to its Cityline subsidiary, reducing costs by 20 percent.

But the future of the company’s biggest problem child, the Lufthansa premium brand passenger business, remains uncertain.

“We were told that the Lufthansa core brand is operating at costs that are 30 to 40 percent too high,” said Mr. Wahl of the Cockpit union.

“But when we asked what they intended to do about it, they said that they were still working on it.” The management of Lufthansa and Germanwings passenger division Passage  is expected to provide more details on February 19.

 

Lufthansa Profit Dives-01

 

Roughly 40,000 employees of Lufthansa Passage received an alarming letter last Thursday. “The bottom line is that a gap is opening up that will take us toward a dangerous red zone unless corrections are made,” the division’s executives warned in the letter. They noted that average revenues in the core business are declining so quickly that the airline cannot keep up by cutting costs alone.

Many employees feel that there are too many unanswered questions at Lufthansa Passage. The core brand, with its stylized crane logo, probably presents the biggest and most difficult challenge for Mr. Spohr.

It is an especially sensitive issue for him as he headed the division from January 2011 until May 2014. “It almost seems as if all previous restructuring programs, such as Score, have gone completely unnoticed at Passage,” a Lufthansa manager of another division told Handelsblatt.

Mr. Spohr has already made one thing clear: The Lufthansa brand will continue to represent the airline’s premium service in the future. Still, most other issues remain unresolved, such as the question of how big the Lufthansa core brand will be in the future.

Mr. Spohr prefers to remain flexible. For instance, if costs are competitive, more routes and aircrafts will be allocated to the premium brand, whereas capacity will be reduced if costs are too high. But such ambiguous statements are particularly vexing to pilots – and only encourage them to continue striking.

 

Jens Koenen leads Handelsblatt’s coverage of the aviation and IT industry and is bureau chief of the Frankfurt office. Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the authors: koenen@handelsblatt.com and  kreijger@handelsblatt.com

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