Interesting times

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It’s been a difficult year for the Lufthansa Group, mainly due to the fall-out from the Germanwings crash in March, which authorities ruled was intentionally caused by pilot Andreas Lubitz and resulted in the deaths of 146 people. But the group has bounced back with a host of new routes and products, and also has a new man in charge in South Africa, in the form of Dr Andre Schulz, who joined editor Dylan Rogers for coffee in Johannesburg.

2015 had already been a year to forget for the Lufthansa Group, as Germanwings is a stablemate of Lufthansa, SWISS, Brussels Airlines, Austrian Airlines, Edelweiss, SunExpress and JetBlue, and the repercussions of the March tragedy were felt across the group.

So, it was a little surprising that Lufthansa chose to run the risk of incurring the wrath of the international travel industry by announcing in June that it would levy the surcharge of approximately $18 on all GDS bookings from 1 September, but not on bookings made directly at its websites, service centres and ticket counters.

A bold move, but one that Lufthansa believes is a step in the right direction for the industry.

“There are big cost positions in the airline industry that you cannot influence, such as fuel, the dollar, airport service charges etc,” says Schulz. “So, it’s not a matter of saving costs, it’s more an issue of limiting increases. Lufthansa decided that the industry needed to change and that it not be the burden of the airlines, when you look at the margins involved.”

“Those GDS margins are about 20%, whereas Lufthansa is fighting for 2-3%. So, something is wrong with the system,” he says.

Schulz acknowledges that as the first airline to go this route, Lufthansa is sticking its neck out.

“You don’t make too many friends in the beginning, but I think it’s part of change management,” he says. “You can be sure that we’ll get the heat from the agents and GDS companies. But, if I was a GDS, I’d want a business model that works in the future together with the airlines. I think it’s a wake-up call for the industry.”

It hasn’t all been controversy for Lufthansa in 2015. The group has also been active in launching new routes and reviewing its strategy, including a renewed focus on Africa. That has included the moving of its regional office from Johannesburg to Lagos and the launch of Nairobi as a new Lufthansa destination, with five weekly flights starting at the end of October.

“We are also looking at the African market from a group perspective, and that’s quite a change, because we have so many different hubs and production platforms,” says Schulz. “So we’re looking to match up the platforms with the most appropriate market. Lufthansa used to fly Frankfurt-Accra, but we feel that Brussels, with its bigger economy class, will have a much better fit and so will take over that route. There will be more handovers and changes in the Lufthansa group in the future.”

Another focus area for Lufthansa has been the rolling out of its premium economy product, with installation on all its long-haul aircraft due to be completed in October.

“When you look at the development of the business class and full-flat seat, it took a while to fit the whole fleet,” says Schulz. “But then they noticed that the gap between the new, upgraded business class and economy class had become so much bigger, both product and price wise, that there was room for a fourth compartment. Previously, we didn’t see the niche that premium economy could serve, but with the new full-flat seats in business, the gap opened up.”

This has also tied in nicely with the more austere times we find ourselves in, with many corporates reviewing their travel policies and watching every penny spent.

“Some passengers aren’t allowed to fly business class anymore,” says Schulz. “So, premium economy is targeting businesses with restricted travel policies that have changed so significantly since the global financial crisis. That’s one of the biggest reasons we’re seeing success in premium economy.”

And success – along with more ‘peaceful’ times – is something the Lufthansa Group will hope to see more of in 2016 and even the latter part of 2015, as the year draws to a close.