Lufthansa

Changes - and perhaps conflict - ahead for Austrian Airlines as it seeks a return to profitability

Austrian Airlines is facing a testing period after posting operating losses of well over EUR100 million (USD129 million) over the past two years. The carrier, under the leadership of new CEO Jaan Albrecht, is aiming to return to profitability in 2012 but significant changes will have to occur for this to become a reality. Austrian has stated that it suffers from multiple historical structural disadvantages, forcing it to implement a restructuring programme to stabilise the carrier and ensure its future “once and for all”. But rumblings from staff suggest this might not be plain sailing.

Cost reductions reaching EUR200 million (USD255 million) in 2012 are going to be key factors in the airline’s mission to return to the black. This year will also see continued uncertainty in the airline’s focus markets, with the crisis in the Eurozone and increased expenses resulting from the European Union’s Emissions Trading Scheme likely to affect plans at the carrier.

British Airways/IAG with bmi looks to re-establish world leadership – and long term survival

It can be a fine line between survival and success, just as the blowtorch of a threatened existence provides a powerful motive to pursue ambitious goals.

Last month’s International Airlines Group (IAG)/British Airways move on bmi is only one more piece in the strategic kaleidoscope opening out in front of the Group Chairman, Willie Walsh. The world is his oyster at present. Answering a question following the bmi purchase announcement, Mr Walsh said that despite the uncertain economic environment that Europe’s politicians have created, this was a time of opportunity. His airline is well placed now to capitalise and, as bad news for others spells bargains in the marketplace, the time could well be ripe. In the process, London Heathrow Airport is firmly in the spotlight as Virgin Atlantic also remains a sale possibility. Yet for BA and all of its major rivals, the elephant in the room remains how to service shorthaul network connections profitably.

Star Alliance unveils common economy class seat

Star Alliance has completed its development of a common long-haul economy class seat its member airlines can avail themselves of. The B/E Aerospace seat is approximately 30% lighter than existing seats, and 15,000 of them will be installed by the end of 2012 on long-haul aircraft from Air China, Austrian and Lufthansa, the three initial customer airlines. Installation will begin in the northern hemisphere's 2012 summer.

Airlines and airports feeling impact of global economic weakness with continued freight pressures

Airlines and airports are feeling the impact of the current global economic weakness and declining consumer spending in Europe, which is having a noticeable impact on air cargo volumes. Cargo traffic, which generated USD66 billion in revenue in 2010, has declined every month since May-2011, according to IATA upon the release of its Oct-2011 traffic results, with a 4.7% year-on-year reduction in cargo demand in Oct-2011 amid reduced manufacturing confidence and businesses switching to slower modes of transport.

“Cargo is the story of the month. Since mid-year the market has shrunk by almost 5% and this is far greater than the 1% fall in world trade. Air freight is among the first sectors to suffer when businesses confidence declines,” IATA director general and CEO Tony Tyler said. Meanwhile, Boeing CEO Jim McNerney separately stated the company has seen a softening of freight demand in recent months, describing the freight market as a “watch item”.

Lufthansa responds to Air Berlin at new Berlin airport, but success far from guaranteed

As Berlin's airport fragmentation ends with a new airport to open in Jun-2012, Germany's two biggest carriers are pursuing different strategies for the long-awaited airport, yet the strategies are forcing each other to respond. Air Berlin dominates short-haul traffic from the capital yet has high costs and low yields, indicating its transformation from LCC to hybrid carrier has not been followed by the market, whose premium passengers remain with Lufthansa, who has long been under-represented in Berlin, Germany’s largest city.

Air Berlin is banking on traffic feed, in particular from its oneworld members, to boost profitability, an outcome that may prove to be elusive as carriers continue to favour Frankfurt with its financial centre and accompanying premium traffic. Lufthansa will defend its market share from Air Berlin's chance of success with an equally ambitious measure: slashing costs by a third to better compete on short-haul traffic while continuing to ignore Berlin's long-haul traffic opportunities that Air Berlin has seized on. Each carrier wants the success the other has achieved, but neither are on a firm path to realise their ambitions.

IAG acquisition of British Midland would give British Airways 20-40% capacity increase at Heathrow

The in principle agreement between British Airways and Iberia owner International Airlines Group (IAG) to acquire British Midland from Lufthansa would allow British Airways to increase its number of seats out of prized and slot-restricted London Heathrow airport by 20% to 40% under a range of scenarios. Oneworld's share of traffic at London Heathrow could potentially increase from 47% to 60%.

With such dominating control of capacity from British Airways and oneworld, it is little wonder Virgin Atlantic is trying to secure a deal with Lufthansa for British Midland and its valuable 9% share of Heathrow slots. A Virgin Atlantic acquisition of British Midland, even if British Airways is close to signing the deal, would add to Virgin's bargaining power as it seeks to form or join an alliance to remain competitive.

A short statement from IAG on 4-Nov-2011 about the in principle agreement it hopes to finalise in coming weeks ends Lufthansa's long quest to shed itself of under-performing acquisition British Midland.