FRANKFURT—Lufthansa CEO Carsten Spohr told employees to expect deeper cuts to staff levels and the group’s fleet as the recovery of air travel will take much longer than originally anticipated.
Spohr said in an internal virtual town hall meeting Sept. 15 that up to 28,000 jobs have to be cut, equivalent to almost one quarter of the group’s staff. The previous guidance was for around 22,000. The airline is also preparing decisions to retire more subfleets earlier, including the Boeing 747-400, Airbus A340, A380, the A330-200 (Brussels Airlines and Eurowings) and either the Boeing 777 or the 767 at Austrian Airlines.
Decisions are to be confirmed after two days of meetings with the supervisory board scheduled for Sept. 21-22.
Spohr’s plans are based on a much more negative economic outlook. In September, Lufthansa offered less than one third of September 2019 capacity and passenger numbers came in below 20%. For October, the picture is dramatically worse with booking levels down “catastrophically” to below 10%. The main reason is the federal government’s decision to re-introduce a blanket quarantine requirement for passengers arriving from what are defined as high-risk countries based on COVID-19 infection rates.
The Lufthansa CEO now hopes that demand will be at 25% of 2019 levels by the end of the year, around half of his earlier projection. He questioned whether the group will ever be in the position again to reach revenue levels seen from 2017 to 2019.
The company benefitted from a €9 billion ($11 billion) government aid package approved by shareholders on June 25 that it wants to pay back as soon as possible because interest rates rise sharply after three years, according to the agreement. The funds give the airline group a time window of 18 months to become financially self-sustainable again. However, at this point Lufthansa Group is losing around €500 million per month.
Without far-reaching union deals, pilot lay-offs could start at low-cost affiliate Germanwings in the first quarter of 2021, followed by lay-offs at Lufthansa mainline in the fourth quarter. German labor legislation requires a complex set of negotiations and conditions before lay-offs can be implemented. So far, Lufthansa has reached a deal on cost cuts with cabin crew union UFO, but not with pilots union Vereinigung Cockpit (VC) or Verdi (ground staff).
Management will also propose more wide-ranging fleet cuts to the supervisory board. These will include the retirement of several subfleets including the Boeing 747-400 (13 units), Airbus A340 (34) and the remaining A380s (eight aircraft) at Lufthansa mainline, the A330-200s (Brussels Airlines and Eurowings, nine), and either the 777 or 767 at Austrian (six aircraft each). Three of six remaining MD-11s in service with Lufthansa Cargo could stay longer to take advantage of expected additional demand for shipping COVID-19 vaccines early next year.
On top of the widebodies, Lufthansa plans to retire a significant number of aging A319s and A320s. The overall number of phased-out aircraft is now expected to well exceed 100 units.
The company is negotiating speeding up deliveries of A350s, according to Spohr, which it would take on lease rather than owning them to backfill some of the capacity. He also expects the first 777-9 to arrive in the second quarter of 2022. The A350 deliveries will be contingent, among others, on Airbus being able to equip the aircraft with the new business class seats early, which are also going to be standard on the 777-9s.
Asset sales are another major component of Spohr’s rescue mission. He expects the group to sell the European part of LSG SkyChefs in September, according to comments made at the internal event. That is to be followed by the remaining part of the catering unit soon afterwards. Financial services specialist Lufthansa AirPlus is now also up for sale and the group is closing in on selling a minority stake in Lufthansa Technik.
The core airline operation in Germany is to be simplified and cut back to a maximum of five units: Lufthansa, regional carrier Lufthansa CityLine, Ocean, Eurowings and Lufthansa Cargo. Germanwings and some other affiliates operating under the Eurowings brand are to be dismantled. Lufthansa Cargo could be moved under the Lufthansa mainline air operator certificate (AOC).
Ocean is Lufthansa’s new AOC created to cover the long-haul leisure market that is to replace Eurowings’ long-haul arm in the segment. According to company sources, the unit is to grow to around 20% of Lufthansa mainline’s size within ten years, which would be the equivalent of 60 aircraft. Ocean is to also operate 10 A320s for European services from 2022.
The unit is a major obstacle in finding an agreement with pilots over cost cuts because VC is concerned that jobs will shift from the mainline carrier to the low-cost unit. Staff have also become suspicious after being told by management that the ultimate brand may not be determined for 2-3 years. Ocean is the project name. Some fear that the unit could be used by management as a bargaining tool in a new pilot pay deal that comes up for renewal in 2021 and that it could eventually operate Lufthansa-branded services. Spohr told employees in his town hall that they overestimate Ocean’s importance.
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