Graham Newton talks to Lufthansa CEO, Carsten Spohr, about the industry’s continuing appeal.
How badly has the crisis affected Lufthansa and what is your immediate strategy for recovery?
We were one of those carriers that came into this crisis on the back of some of the best years in our history. Our business was running well, based on a clear strategy and we were in a strong financial position.
And it still didn’t protect us!
Originally, when we had to cancel our China flights, we realized that this pandemic is a big blow. But just a short time later, we had to stop our services to the United States, which accounts for up to 50% of our long-haul business. That was the point at which it became obvious that this crisis could be fatal, even for us.
We immediately began talking to governments because the situation needed to be stabilized quickly. That started with the German Government, but of course we spoke with the home governments of all the carriers in the Lufthansa Group. Every government took a different approach to this. But the readiness and willingness to save the airlines was undoubted in all cases.
For airline staff, seeing empty airports, planes parked along runways and empty corridors in offices was something you never forget.
And now as air travel picks up again, every single flight reopening is celebrated, even at a carrier the size of Lufthansa. I flew to the United States recently and it felt very special. There is a different spirit in the industry now and we need to celebrate the small things.
How will the ReNew program help?
It was obvious before the pandemic that our industry was in an era of change. Digitization and sustainability were transforming the way we do business. COVID-19 hasn’t altered anything in that respect but what it has done is accelerate the process.
Our ReNew program is about seizing that opportunity. But this is more than just another reorganization, another restructuring, another reduction in costs, another restart. It is deliberately named because there is an element of a brand new beginning in this.
Have customer expectations changed and how will you adapt to the new reality of tests and contactless travel?
Perhaps the most important change is that the customer now understands again that traveling is not a commodity. That was never my belief anyway and I argued in many interviews that we undervalued our industry and therefore €5 fares were both irrational and irresponsible. The COVID-19 pandemic has proved this argument.
What aviation brings to the world, the level of quality and service that airlines provide, is now valued more because of the disruption caused by COVID-19.
At the same time, we kept on making flying more convenient and even safer with contactless boarding. Cameras that use face recognition technology work even with passengers wearing their masks. In my opinion, the trend towards less contact and the desire for more space will not go away. Customers will value space, especially on longer haul flights. That will see people moving up from economy to premium economy and from there to business class. We will end up gaining new business class travelers.
Cargo is the one bright spot for the industry. What can be done to make it more efficient and help airlines to benefit from the growth of e-commerce?
Cargo was always extremely important to the Lufthansa Group as we are operating one of the world’s most modern freighter fleets. Our cargo revenue has gone up from 8% of total revenues to more than 20%. This is obviously partly because other revenues are down but there is no doubt that cargo has become more important.
It is a growing business where sustainability plays an increasingly important role. Expectations are high, companies are only doing business with like-minded carriers and sustainability initiatives are measured professionally, something the passenger business can learn from.
In terms of digitization, it is unfortunately the complete opposite. In this respect logistics must learn from the passenger business. Because our passengers tell us where the pain points are. Shipments don’t do that. IATA has a big role to play in speeding up the industry’s understanding of cargo digitization and ensuring we work together with our logistics partners to make air cargo even more efficient.
Are aviation environment targets bold enough and should the industry go further?
Aviation’s environmental targets were ambitious when we set them. But the world has moved on and so has aviation. The truth is that climate change is more important to us now than it was 10 years ago. And we have to take what we have learned and put our knowledge into action.
Aviation is doing just that. Think about how much better new aircraft are from a sustainability point of view. And we have worked with partners to develop several sustainable aviation fuels. They just need government support now so that sufficient supply can be produced, and the price comes down.
Aviation must acknowledge its environmental responsibility, but it also needs to be transparent and communicate its achievements.
Is it important to go ahead with modernizing the fleet despite the poor economic climate for airlines?
Yes, that is essential for the future. At Lufthansa, we ordered additional brand new widebodies in early May. The order is a symbol that we believe in our airline, we believe in our industry, and we are taking the best possible position for our competitiveness and a sustainable future.
Next generation aircraft emit 20%–30% less CO2. And they are up to 50% less noisy too, which is something a lot of people forget about. And, of course, they are better financially speaking with lower costs. So, they make a huge difference.
What are the longer-term implications of governments taking stakes in airlines, not only at Lufthansa but also across the industry?
It will be different for every airline and for every government. Most airlines never wanted government involvement, but it had to happen in this unique crisis.
What is interesting is that we saw it in nearly every country regardless of the region or the political system. Why? Because all those governments realized that aviation is essential to their economy and their people. We should value this as a positive sign for our global industry. They couldn’t and they didn’t want to let airlines fold. But this in no way changes my opinion that governments should take stakes in airlines only temporarily.
We aim to fully pay back the stabilization package as early as possible. In fact, Lufthansa is already in the process of paying back and at the same time we are also investing in the airline. It is a not a case of either paying off debt or investing in the future. We must do both.
Whereas last year capital markets were not an option for us, they are now receptive again.
Our job as management is to define a clear path out of this crisis situation, appealing to all stakeholders.
Given that Germanwings and the German subsidiary of Brussels Airlines are closed down, does the idea of an airline group and airline alliances still have merit?
Aviation will always need alliances because we can’t properly serve a customer in the modern, connected world with a single airline. And in mature markets like Europe, different business models are needed to meet different customer segments. An airline group is one way of meeting this challenge.
Some business fundamentals will not change.
What is your feeling about the industry’s future? Will it ever fully recover, or will passenger fears overs sustainability and health dampen demand?
One element of safeguarding our future is to show that we are proud of aviation. This has been the most difficult time for the industry since the second world war, wherever you are in the world. But people’s fascination with flying has not suffered. I would say it has even increased. We shall never lose sight of that. In this regard, I urge people to watch the movie, Living in the Age of Airplanes again.
I hesitate to make a detailed forecast because they have all been wrong in this crisis. But I share the belief that by the mid-2020s aviation will have fully recovered. And by then it will be a more sustainable industry, partly because of outside pressure, but mostly because of our own desire to improve. It will also be an even safer industry too, because it has always been the case that flying gets safer and nothing will change that. Again, that comes from the industry’s own desire to improve.
And I really hope it will be a more digitalized industry that is fully connected with our partners to allow our customers a true multimodal travel experience.