Driving innovations linked to the digital revolution and changes in customer trends, maximising the potential of joint ventures and modernising its cost structure are among the strategies Lufthansa Group says will help create a profitable and sustainable future.
The effort seems to be paying off, as the German aviation group recently reported its best-ever nine-month results with total revenues rising 12.1% year-on-year to €26.76 billion.
The results reflect systematic development of its three business pillars -- network airlines, point-to-point airlines and aviation services -- via synergies and economies of scale, said Heiko Brix, senior director of sales in Southeast Asia and the Pacific for Lufthansa Group Airlines.
The group consists of Lufthansa Passenger Airlines, Lufthansa Cargo, Lufthansa Flight Training, Lufthansa Technik, Lufthansa Systems, Lufthansa Industry Solutions, LSG Sky Chefs and partner airlines including Austrian Airlines, Brussels Airlines, Eurowings, Lufthansa Regional, and Swiss International Airlines.
"What is happening within the group is the further utilisation of the synergy between the three pillars. For example, Swiss, Austrian Airlines and Brussels are bringing sales and physical teams together by moving under one roof to fully use the leverage that each airline brand has," he told a news conference in Bangkok in June this year.
Lufthansa Cargo transports a large proportion of its freight using the belly capacity of passenger aircraft. Lufthansa Technik, in turn, has access to maintenance licences negotiated with manufacturers when group airlines order new planes.
From the network airline strategy perspective, the focus is on increasing income via Lufthansa Passenger Airplanes, Austrian Airlines and Swiss which already have "a strong backbone" while more and more revenue comes from its joint ventures, such as with Air China and ANA.
The longest-established joint ventures with revenue sharing are those with United Airlines and Air Canada. One with All Nippon Airlines of Japan was announced in 2012, while a venture with Air China was launched in April and one with Singapore Airlines began in October.
The JV with Singapore Airlines includes flights between Singapore, Australia and Germany, Switzerland, Austria and Belgium. Since November 2015 the two carriers have expanded capacity between Singapore and both Germany and Switzerland. This includes the introduction of new flights between Singapore and Dusseldorf in July 2016.
Nevertheless, network airlines (Lufthansa, Austrian and Swiss) are still the main source of revenue, generating €17.69 billion for the first nine months of 2017, an increase of 6.1% from the same period last year.
"Focusing on our position as a premium carrier and developing new products to really show the added value of the premium carriers of the group is the key, as we do not always discuss prices, which is important for competitiveness, but to really create added value," Mr Brix said.
Digital technology and related innovations have also become crucial for the group, as more people are flying more frequently, and they are demanding more than just an off-the-shelf travel product.
"The customer trend is changing toward individualism as they expect their needs, travel behaviours and individual requirements to be reflected and on offer," Mr Brix said.
For example, the airline now has access to more customer data from its mobile applications that can tell it about basics such as seat preferences and also identify extra sources of revenue from non-flight-related sales or additional needs.
The Smile app (Surpass My Individual Lufthansa Experience) offers customised products, services and communication, enhanced by the Internet of Things. For example, passengers landing in Frankfurt or Munich can see which baggage carousel their luggage will arrive at. This helps them navigate the airport more easily and saves time.
Other uses of the app include personalised lounge offers and flight offers on external websites with real-time prices and availability. The airline sends personalised ancillary e-mails with offers for different children's age groups, specifically for customers travelling as a family, along with Premium Economy upsell offers during the booking process.
"Smile is about collecting data, understanding the need, and personalised offers to increase our sales and resales so there is a clear commercial task behind it. But it is a win-win situation because it can make travellers happier by approaching them digitally to make them understand that we can offer tailored products," said Mr Brix.
The group is also investing €500 million in new technology such as tablets for flight attendants so that they can have all the information on each individual passenger available, along with virtual reality presentations during flight booking and upgrading to assist customers.
Amid the challenges posed by leaner rivals on both short- and long-haul routes, Lufthansa has struggled with the high labour costs associated with legacy carriers. This has led to pilots' strikes in recent years but "this challenging time with our pilots has finally been resolved", said Mr Brix.
The Vereinigung Cockpit union, which represents about 5,400 pilots, staged walkouts most recently in November 2016 to back calls for an annual 3.7% pay increase over five years, backdated to 2012. Management deemed the demand too high but an agreement was finally negotiated in March and signed in October. A vote by union members is expected to take until mid-December.
The deal also includes a shift from a defined-benefit to a defined-contribution pension scheme, more flexible working hours and aims to increase the average retirement age. If it is approved, it could bring Lufthansa's cockpit staff costs down by 15% and reduce pension liabilities by several hundred million euros, the airline has said.
Lufthansa pilots are well paid by industry standards, averaging around €180,000 per year, while a captain can earn as much as €22,000 a month before tax.
As for the new fleet, Mr Brix said more Boeing 777 jets were due for delivery in 2020 with a new business class seat offering more privacy. The group is "investing heavily" in new seats for Swiss and will bring 25 new Airbus A350 jets and new A320 models with new engines into the fleet between now and 2025.
In Asia, a new Singapore-Munich direct flight was announced in June while Munich-Hong Kong and Munich-Beijing services with the A380 will be launched in the summer of 2018.
Stefan Molnar, the new general manager for sales in Thailand, Vietnam and the Mekong region, told Asia Focus that currently there was "no plan" to add additional flights in the Mekong region where Vietnam "has a great potential". But the group was still well-equipped to connect countries within the Mekong region via its regional hubs in Thailand and Singapore.
"We are looking at this very carefully and on a constant basis," he said. "If you look at Myanmar, there are a lot of things happening and we can expect more demand from there, but Thailand continues to be an important economic hub which will still act as a crucial bridge between Europe and the Asean region."
