MIAMI — In late January, Lufthansa CEO Dr. Christoph Franz addressed the media at the airline’s annual media day in New York. During his speech, Franz giving the public his personal insight and perspective into the state of the airline industry as seen through his eyes.
The Lufthansa Group is absolutely massive, encompassing Lufthansa, Austrian, Swiss, Brussels, and the low cost carrier German Wings. In North America alone, the group employs over 14,000 people, where the group operates to 20 cities and maintains 40 catering facilities.
Dr. Franz says the airline industry is in a period of long term growth, and will stay in a time of 5% annual growth for at least another decade. This 5% will come from Latin America, the Middle East, and Africa said Dr. Franz, as these regions catch up to the rest of the world.
While the Lufthansa Group is healthy financially, Dr. Franz is weary of a new breed of competition. “We are now in a competition of different airline systems. On the one hand, we see the highly integrated state aviation systems, particularly in the Middle East and in some Asian countries, where the airline is state owned, but we are not only talking about the airline. Here, we are talking about the airport, air traffic control, airline service companies, all state owned, all belong to the same owner, and sometimes the head of air traffic control is the head of the airline. So the whole development we see is an integrated development a system, and in most cases, not many can be developed in order to show maximum profits, but in order to create a system which serves as a tool for the economic development of some countries.”
“And on the other side,” Dr. Franz continued, “we have the classic privatized companies here in the US and also in Europe, operating in a complex environment.” Dr. Franz is keenly aware of the advantage many younger airlines currently possess as they grow exponentially on a global scale. “It is creating a more and more difficult situation for those companies who act as normal corporations because the rule of the game are very different rules.”
It’s no secret that the aviation industry is heavily taxed and regulated, and Dr. Franz is an adamant believer that this burdensome taxation is putting the industry in danger. “In Europe, we are in the situation that government allows a lot of regulatory luxury, and this is clearly hampering the development of opportunities for many European players.”
As an example of “regulatory luxury,” Dr. Franz explained that the airline’s major Frankfurt hub is closed for the equivalent of three months of the year due to a ban on night flights, limiting capacity to a degree. “Just imagine, for example, the New Jersey Turnpike would be closed for three months and there would be chaos. In aviation, this is apparently not an issue, so you can do it.”
Aside from the hotly competitive nature of the industry, Dr. Franz spoke about the group’s continuing fleet renewal and passenger experience improvements. The Lufthansa Group is one of the few customers of the Bombardier CSeries, however, the new airliner has seen several recently delays and a slow testing program.
Dr. Franz noted that the CSeries is living up to all performance expectations, but the delivery delays are disappointing. “This is an extremely efficient aircraft, the most efficient aircraft of its size, which will basically be a challenge also for other aircraft suppliers to match this performance.” Dr. Franz, however, is praying for an early delivery.
The airline also has the Boeing 777x on order, but Dr. Franz is looking for potential price cuts on the current generation 777 to bridge the gap until the 777x is ready for delivery. “I think it is common knowledge that aircraft tend to be sold to large and good customers with substantial discounts. So, the question of if there is additional discount to the existing discount, that is an interesting question. Hopefully, we would be able to achieve this discount.”
On the current fleet, the airline group is installing lie-flat seats across its business class offering, a process lasting more than three years and costing over a million Euros per day.