Lufthansa

Next Stop: Permanent Revolution

Carsten Spohr-ap
Lufthansa CEO Carsten Spohr hopes to implement a modernization program he presented two years ago.
  • Why it matters

    Why it matters

    • Germany-based Lufthansa needs all the help it can get, after amassing losses of €133 million last year.
    •  
  • Facts

    Facts

    • Lufthansa CEO and chairman Carsten Spohr has been battling unions, lengthy and frequent strikes and a stagnating financial performance.
    • In May, Lufthansa reported first-quarter operating losses of €21 million, blaming low demand for flights.
    • Airport operators and carriers have long been calling for measures, ranging from tax breaks to fee cuts, to help it compete with their global rivals.
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    Audio

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Carsten Spohr climbs a rickety stairway with dim lighting and walls painted in an unappealing green. Most of the buildings in the neighborhood are as rundown as this one.

After walking up four flights of stairs, the 49-year-old chief executive steps over a pair of kid’s shoes and enters an apartment strewn with discarded airplane passenger seats. He’s all smiles.

Mr. Spohr is a big fan of the Innovation Hub, a startup in Berlin launched by Lufthansa. He views the subsidiary, which develops apps for online businesses, as the nucleus of a new, digital Lufthansa. With ventures like this one and other novel ideas, he hopes to radically transform the 90-year-old airline.

Innovation plays a key role in his “7 to 1: Our Way Forward” program

In competition with budget airlines and Gulf states like the Abu Dhabi-based Etihad Airways, Lufthansa is suffering from high costs. “If we want to be worth the extra cost to customers that we are forced to charge because of our higher costs in Germany, we need a constant stream of new ideas,” Mr. Spohr said.

Innovation plays a key role in his “7 to 1: Our Way Forward” program, which he presented in July 2014, a mere 40 days after taking office. But a number of setbacks have prevented him from moving ahead with the program. There have been numerous strikes, and in March 2015, a suicidal pilot at Lufthansa’s predecessor to low-cost carrier Eurowings flew his Germanwings airliner into a mountain in southern France, killing all 150 people aboard.

But now Mr. Spohr says he finally wants to be “the driver and not the driven.” He has pruned his reform program back to three core focuses: quality, efficiency, and innovation. He has initiated a corporate-wide innovation prize that has attracted 135 teams from the company and is spending significantly on what he calls a permanent revolution.

Mr. Spohr is investing  €100 million ($113 million) a year up to 2020, which adds up to the equivalent of a new, wide-body Airbus A330 jet. The money is to flow into projects that would otherwise “receive no money because of uncertain success,” he said, adding that people shouldn’t be afraid to take chances.

The airline executive wants the full program – apps, drones, the use of virtual reality in selling extras for passengers, new systems for improved loading of cargo planes.

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Everyone will benefit, he claims, especially passengers who will enjoy better service. “We must recognize and fulfill the needs of the customers more quickly,” Mr. Spohr said. For instance, the Smile project will analyze big data to assist customers faster with new services. Using data glasses, for example, employees in the airports can show customers extras like Premium Economy Class – and buy the appropriate upgrade on the spot.

But Mr. Spohr is late in coming out with many innovations, according to some analysts.

“Not only industrial companies like General Electric, but also budget airlines, like Norwegian und Easyjet, are years ahead,” said Andrew Lobbenberg, an analyst at Investmentbank UBS.

Until now, Lufthansa has primarily stood out for often being the first to buy new models of planes like the cost-efficient Airbus A320neo but less so much for customer service and efficiency.

Mr. Spohr is aware that his program has to win out over the organization’s inertia. “But ultimately there is no alternative for further development,” he said. He plans to reduce the hierarchy to minimize obstacles. He has eliminated one management tier and shifted the responsibility for core functions, like the designing of plane cabins, to a subsidiary.

Mr. Spohr is not only fighting against the laws of gravity but also employee representatives. A member of the works council takes a skeptical view of Mr. Spohr’s pet project. “The Innovation Hub is most of all a playground where former board assistants can present themselves. It does us little good in day-to-day life,” he said.

 

This story first appeared in business weekly WirtschaftsWoche. To contact the author: ruediger.kianikress@wiwo.de

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