Lufthansa must continue on cost-saving course: Spohr

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Lufthansa is set to retain its Score efficiency programme’s aim of unit-cost reduction as part of its permanent strategy after the controversial scheme officially terminates next year.

Launched by former chief executive Christoph Franz in early 2012 – just after the previous, two-year cost-cutting programme “Climb 2011” exceeded its €1 billion ($1.4 billion) savings target – the Score initiative is to become a “permanent process” from 2015, says Carsten Spohr, who took over the helm in May.

Score’s aim was to raise the group’s operational profit from around €800 million in 2011 to at least €2.3 billion by 2015. But six weeks after Franz’s departure, Lufthansa revealed it would not meet that target. For the current year, the airline expects an operating profit of €1 billion which would translate to €1.3 billion on an adjusted basis excluding one-off effects.

Generating new ideas to raise profitability and differentiate the business from its competitors will remain “best practice”, says Spohr. The airline must permanently make efficiency gains as it needs to overcome yield declines of about 1% and cost inflations of 1-2% a year, he adds.

To aid innovation, Lufthansa plans to invest €500 million into projects across the group by 2020. However, Spohr says a large part of that funding has been allocated for technology initiatives at MRO arm Lufthansa Technik.

The airline will set up a new division in Berlin which is to serve as an “Innovation Hub” through its proximity to what the airline terms the “digital technology scene” and large number of start-up businesses in the German capital. Similar partnerships are to be forged with companies in California’s Silicon Valley.

Meanwhile, Lufthansa’s mainline operations will continue to be focused on high-yield routes from its hubs in Frankfurt and Munich. A charm offensive for “more personalised” onboard service is to aid the target of becoming the “first five-star airline” in the western hemisphere, says Lufthansa.

There is no single measure to respond to the growing competition from Gulf carriers, says Spohr. Lufthansa has to continuously raise its efficiency and service standards to become a premium airline that can offer customers competitive travel options “without a nightly stopover” to change flights at a Middle Eastern hub, he says.

While he has “good contacts” to all Gulf carriers “on a personal level”, Spohr says that there have thus far been no opportunities for co-operation with enough benefits for both sides with any of those carriers and Turkish Airlines. But he does not rule any tie-up in future. Spohr says he is not in principle against such partnerships.

Building up bilateral partnerships through commercial joint ventures with individual Star Alliance partners is a further measure to protect Lufthansa’s business. Spohr says additional joint ventures are “certainly possible”, but any partner would need to be “capable” for such a tie-up.

Air India – which is set to join Star Alliance on 11 July – could become a potential partner in future, says Spohr. But he adds that the Asian carrier is not capable of such co-operation today.