Lufhansa Group CEO sees a strengthening yield environment
Stronger-than-expected post-pandemic demand for air travel and a shortage of new aircraft as manufacturers grapple with schedule delays and supply chain disruptions create operational issues for Lufthansa in the near term , but it will lead to a much healthier airline industry in the medium to long term, according to Frankfurt, Germany-based group CEO Carsten Spohr.
“From a strategic point of view, this industry has traditionally had a major flaw: too much supply,” he told reporters on the sidelines of the annual general meeting of the International Air Transport Association (IATA). , held this week in Doha, Qatar. “During Covid many planes have been taken out of service and OEMs are much slower to bring new planes to market, but demand is returning to pre-Covid levels much faster than expected. I think we have some good years ahead for the industry when this healthy demand is met with reduced capacity.”
Supply chain issues and delivery delays have not exclusively affected the aviation industry or Lufthansa, said Spohr, who nonetheless called Lufthansa a “victim” of Boeing’s delays. The German airline is the launch customer for Boeing’s 777X jet, with 20 firm orders, but the program remains mired in delays and Lufthansa now expects deliveries to begin in 2025 rather than 2023 as planned.
The delay of the 777X aircraft combined with stronger than expected demand “forces us to bring back part of the Airbus A380 or find alternative solutions,” Spohr said. An alternative solution to fill the capacity gap, he said, could be to acquire 777-300ERs either from lessors or directly from Boeing. Lufthansa itself does not operate 777 wide-body aircraft on passenger services, but two of its subsidiaries, Swiss and Austrian Airlines, as well as Lufthansa Cargo, do.
A few months ago, Spohr stated categorically that the A380 had no future in the group. “I never thought we would have to reverse that decision,” he admitted. Lufthansa stored its fleet of 14 A380s at the start of the pandemic and returned six to Airbus. Lufthansa has only kept 14 A380 pilots up to date, but under an agreement with the company’s pilot unions, A350 pilots can also fly the A380 if they are dual qualified.
As Lufthansa needs capacity for the 2023 summer season and the entry into service of the aircraft requires a delay of around nine months, it will have to decide in the coming weeks. “We have to decide before we go on vacation in July,” Spohr joked. Meanwhile, the airline plans to reactivate “at least five” more A340-600s from long-term storage for the summer of 2023 to reduce a capacity shortfall. “There are no brand new planes available for 2023,” he lamented. “If you order a plane now, it arrives in 2025 at the earliest.”
Spohr said he was confident demand would continue to be strong, due to a rebound in business travel and the opening of more international markets such as India, China and Japan. “Load factors are high across all major carriers and yields are increasing. I expect them to increase further,” he said. “Even if there is a recession, which many now expect, we see additional demand next year.”
Separately, Spohr admitted that he was “not very happy” that the Italian government seemed slow in executing the plan to privatize ITA Airways. Lufthansa has submitted a joint bid with shipping giant Mediterranean Shipping Company for a 40% stake in the successor airline to Alitalia. The deadline for bids came on May 23. “Progress, unfortunately, seems to be slowing down,” Spohr said, conceding he wrote jointly with Gianluigi Aponte, the Italian billionaire founder, owner and chairman of MSC. the country’s Prime Minister, Mario Draghi, in the hope of speeding up the process. “We explained that we are the right partner for ITA and Italy and that every further delay will hurt ITA,” he said.