Air Maneuver

Lufthansa’s Triple Play

lufthansa imago bloomberg, DPA, pr
With its new structure, Lufthansa aims to fly above the competition. Sources: Lufthansa, Imago, Bloomberg, DPA
  • Why it matters

    Why it matters

    If Lufthansa does not find a way to deal with growing competition from low-cost carriers in Europe and with Gulf airlines on long-distance flights, it will not survive.

  • Facts

    Facts

    • The low-fare platform Eurowings is to be rapidly expanded.
    • Fifteen percent of management positions are being eliminated.
    • The airline will slim down from five to three divisions.
  • Audio

    Audio

  • Pdf

Lufthansa aims to fly with a lighter, less complex structrue to navigate through increasingly turbulent competition.

In a restructuring move approved by the supervisory board on Wednesday, Lufthansa will go from five to three divisions: premium flights out of hubs like Frankfurt and Munich; cut-rate carrier Eurowings; and the airline’s service business, consisting of the catering subsidiary LSG SkyChefs, maintenance specialists Lufthansa Technik and freight company Lufthansa Cargo.

“With the new structure, we are orienting ourselves even more directly to the needs of customers,” said Chief Executive Carsten Spohr after the supervisory board met and approved his plans.

The restructuring is intended to simplify airline business and give top management more opportunities to have a direct impact. “We have reduced our managerial levels and decisions will be made more quickly,” said Mr. Spohr.

“We have reduced our managerial levels and decisions will be made more quickly.”

Carsten Spohr,, Lufthansa Chief Executive

The man at the top believes the reorganization will yield €500 million, or $564 million, in savings. Up to 15 percent of managers will lose their jobs during the restructuring – a clear signal to pilots that it’s high time for them to also contribute to reducing Lufthansa’s costs.

The restructuring shows how serious management and the supervisory board are with its Eurowings brand, as the airline stuggles to compete with low-cost European airlines and Gulf carriers.

The pilots’ union, Vereinigung Cockpit, has fought Eurowings for months, because it believes Lufthansa management is trying to eject pilots from the company’s comfortable labor agreement. On Thursday, a new round of talks was scheduled between the union and Lufthansa.

Company sources say members of the supervisory board concerned about the airline’s bottom line are united behind Eurowings and Mr. Spohr’s tough policy toward pilots, who have gone on strike 13 times since the beginning of 2014.

 

The Big Transformation-01

 

The new structure will also bring changes to the management board. In the future, the passenger business will no longer have its own board member. A five-member board will oversee all three divisions directly.

Harry Hohmeister, up to now responsible for passenger service of the Swiss subsidiary and Lufthansa’s stakes in other airlines, will take over responsibility for Lufthansa’s premium flight business. His contract has been renewed for five years.

Within the company, the decision to include Mr. Homeister, not known to be a particular friend of Mr. Spohr, is considered to be an astute move by the Lufthansa chief executive. “Mr. Spohr has brought a critic on board,” said one manager, who wished to remain anonymous.

For a while, Karl Urlich Garnadt, who had headed passenger service for Lufthansa, had been considered to be the most likely candidate for the new position. He now will be in charge of Eurowings.

The service subsidiary, meanwhile, will be directly under Mr. Spohr.

Bettina Volkens will remain on the management board – in the same function as head of personnel. That decision is also remarkable, considering she was brought on board by Mr. Spohr’s predecessor, Christoph Franz. By extending her contract, Mr. Spohr not only demonstrated support for his colleague, but also strengthened her position in coming negotiations with pilots.

 

Lufthansa in Numbers-adjusted 01

 

Simone Menne remains head of finance, and has also been assigned to head the IT sector.

As for marketing, no board member will have all-encompassing responsibility. Jens Bischof, up to now the head of marketing for passenger service, will exercise this function in the premium flight sector.

Eurowings will have its own marketing structure because “marketing in this segment is different and much happens online,” Mr. Spohr said.

This is a daring construction. In the future, one of the greatest marketing challenges will certainly be to make sure that the premium airline and the strengthened low-fare competitor don’t battle each other too strongly.

With the new structure, Mr. Spohr wants to make Lufthansa fit to fight the competition. In European transportation, low-fare airlines like Ryanair are expanding rapidly on short and medium-range routes. On long-distance routes airlines from the Persian Gulf, as well as Turkish Airlines, are taking away Lufthansa passengers.

Mr. Spohr’s triple solution is the airline’s response.

 

Jens Koenen is Frankfurt bureau chief and leads coverage of the aviation and IT industries. To contact him: koenen@handelsblatt.com

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