Tony Concil talks to Lufthansa CEO, Carsten Spohr, about the Germanwings tragedy and the way forward for the Lufthansa Group
Our thoughts are with the friends and families of those involved in the Germanwings tragedy. What went through your mind when you heard what happened?
Every airline CEO tries to prepare himself to deal with a terrible accident. Although the magnitude of what happened on 24 March was enormous.
At Lufthansa, we have always prided ourselves on the fact that safety is in our DNA. We knew very early on after the accident that it had not been in our hands to anticipate what had happened and, if you look at the photos of the days immediately after the accident, you can sense that we were in shock. The emotional impact was clear in our faces. It was the saddest tragedy in Lufthansa’s 60-year history. Of course, we needed to stay focused on the issues at hand. And we did. The airline’s responsibility is to take care of the families and friends of the victims. Doing the right thing with respect to them continues to guide us.
What does the Germanwings tragedy mean for the Lufthansa Group, going forward?
It proves once again that there is no such thing as 100% safety in flight. This has relevance for the entire industry.
The amazing safety record of our industry is not a given. We have to work hard at it every day and night. The tragedy should act as a reminder of that for everybody. And every accident must be used as an opportunity to improve safety. It’s our joint responsibility now to see what we can do better.
Turning to broader issues, do you think consolidation in Europe has gone as far as it can go?
The top five carriers in the US represent about 90% of the market. In Europe, the top five carriers cover less than half of that. Clearly there is room for more consolidation in Europe. And I believe that there is also a need for more consolidation and that it will eventually happen.
It will, however, be challenging—particularly when we speak about consolidation across political borders. National ownership of airlines is still very prevalent. If you go east from Vienna, with a few exceptions in Hong Kong, Korea, Japan or Australia, you don’t really find airlines outside the control or ownership of governments.
Privatization is the prerequisite for consolidation. For various reasons, governments hang on to their airline investments. It may be national pride or because aviation plays a role in the national strategy. Some are very successful. Others struggle.
Eventually, governments have to realize that this is a business that is best run on commercial principles. And I expect that we will see regional consolidation spreading slowly, rather than a dramatic change in a short timeframe.
Lufthansa has built a group of airlines and related businesses. What are the benefits of this structure?
Our strategy is based on three pillars: our full-service airlines operating out of our quality hubs in Frankfurt, Munich, Zurich, and Vienna; our point-to-point service in Europe, which we will consolidate under the brand of Eurowings; and our non-aviation businesses, where we have leading market positions, for example, in MRO and catering.
The aim is to optimize each of these three pillars according to the needs of our customers. So there is a focus on quality services at the hubs, to make Lufthansa the first European five-star carrier; a focus on improving our point-to-point services outside of these four hubs; and a focus on expanding the global coverage of our non-aviation market leaders.
The reason we have chosen Lufthansa to be the five-star carrier is that, while we are proud to have more than one primary brand in the group, we have invested heavily in Lufthansa in recent years across all product lines. We see the five-star rating as a reflection of this investment.
How do you accommodate the different character of each airline?
The Lufthansa Group is more than merely a rationale of numbers. Each brand engages the emotions of customers, employees and shareholders in a unique way.
Some functions in the group have been centralized, but the closer you move to the individual brands, the more things are decentralized. There is ‘Swissness’ in Swiss and a strong hospitality element in Austrian. In Lufthansa, the German strive for perfection is evident. The strategy is to keep these brands alive and enhance their attributes in the future.
How can the industry—and Lufthansa—move toward sustainable profitability?
I have always been convinced that sustainable profitability comes from a balance in the customer-employee-shareholder triangle. When we say we want to be the number-one choice, we want to be the number-one choice for all three groups.
Lufthansa has been around for quite a long time on single-digit profit margins only, but without bankruptcies or Chapter 11. And I would say that short-term profitability should not be confused with long-term success. But as an industry, we at least need to earn the cost of capital, and it is true that not many airlines have been able to achieve that. It shows that the industry is not in a healthy state.
Should people expect airlines to reduce fares because the price of oil has fallen?
The euro is weak and we pay fuel in dollars. But the time when costs drove pricing are long gone. The market sets the price. So let’s see how the market responds to the lower oil price.
You have had a tough time with your pilot unions over the past year. How do you bring pilots into your vision for the airline?
When I talk to pilots individually, they have a very keen sense of consideration between their privileges and their perspectives. Add to this the fact that our pilots are closely attached to Lufthansa, and that fuels my optimism for a long-term resolution to our labor conflict.
You compete globally, but operate from Europe. How easy is it to do business in Europe?
Europe is a mature society. It gives us a great quality of living. That comes with a price. Of course we need to compete on costs. Many of the changes that we have accomplished have been focused on cost efficiency. But in a cost-only market we cannot be competitive. Successful European companies leverage the European lifestyle. Look at the car manufacturers.
We need to create a similar upside for aviation. At the company level, we are doing that with our brand strategy.
There is a government element as well. Aviation’s role as an economic catalyst is present wherever the industry exists. This is most visible in developing markets. Regulators in Europe find it harder to see aviation’s benefits. There is plenty of attention from regulators on customer service issues. At the same time, necessary infrastructure improvements are often ignored.
Is there sufficient focus on infrastructure in Europe?
Europe has huge cost issues with its airports and with its air traffic management system. I am optimistic that we will eventually fly across Europe with a Single European Sky (SES) as efficiently as we enjoy borderless travel on the ground, because of the Schengen Agreement. Achieving the SES will need a lot of patience but there is no real reason why it cannot be achieved.
Building new terminals, and additional runways in particular, are a very different challenge. Issues of noise and air quality are public concerns that are difficult for politicians to overcome. Of course, resolving both of these issues will make European airlines stronger competitors. And we have a history of solving such challenges.
Is the European industry good at getting politicians to understand the value of aviation?
We have obviously not been able to get governments or the public to understand the multiplying effects of aviation. Other countries have. As an industry, we should speak with one voice about the benefits of aviation. IATA and other associations should play a more active role. Some jobs are better led collectively with the support of individual companies.
If you could fix one thing that affects your business, what would it be?
On an abstract level, I would like to see an answer to the question of whether this industry will be served by privately owned or government-controlled entities.
On an operational level, I would fix the problem of why aircraft are not able to fly in straight lines between A and B. Every day, we are wasting time, fuel and money and unnecessarily emitting CO2. This has to stop!
Where will the next great frontier be for technology?
Actually, compared with what has been achieved in the past decade, I think we will see far smaller steps in technology in the years ahead. I don’t think the next big leap in technology will happen during my career as an airline CEO.
Does being a former pilot, as well as the CEO, give you a special insight?
Actually, I am an engineer and the tradition in Germany is that technological companies have CEOs with an engineering background. Every CEO needs to be able to manage at an abstract level. Being a pilot helps me to get on top of the operational details when required.
That ability gives comfort to investors and the management team. And it creates credibility among staff.
How would you describe your management style?
I try not to hide my excitement about the industry and my company. I hope that comes across in the way I manage. I can’t imagine having that same excitement in another industry.
2014: Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, responsible for 117,000 employees in the Lufthansa Group
2011: CEO of Lufthansa German Airlines
2007: CEO and Chairman of the Executive Board of Lufthansa Cargo
2004: Appointed to the Management Board of Lufthansa Passenger Airlines
2000: Vice President, Alliances and Cooperations, Lufthansa
1998: Responsible for Lufthansa’s regional partnerships in Europe
1995: Personal Assistant to the CEO and Chairman of Lufthansa
Education: Degree in engineering from Karlsruhe University, Germany. Qualified as a commercial pilot from Lufthansa Flight Training. Holds a Captain’s license for the Airbus A320 family