Lufhansa Group CEO Sees Strengthening Yield Environment

 - June 22, 2022, 11:21 AM
Lufthansa Group CEO Carsten Spohr lamented the lack of availability of new aircraft until 2023 during the IATA general meeting in Doha. (Photo: Lufthansa Group)

Stronger than anticipated post-pandemic demand for air travel demand and a shortage of new aircraft as manufacturers struggle with program delays and supply chains disruptions is creating operational hiccups for Lufthansa in the short-term, but it will lead to a much healthier airline industry in the mid- and longer-term, according to the Frankfurt, Germany-based group’s CEO, Carsten Spohr.

“From a strategic point of view, this industry has had traditionally one major fault: too much supply," he told reporters on the sidelines of the International Air Transport Association (IATA) annual general meeting, which took place in Doha, Qatar this week. "During Covid many aircraft were taking out of service and the OEMs are much slower in putting new aircraft out there but demand is coming back to pre-Covid levels much faster than we anticipated. I think we have some good years for the industry ahead when this healthy demand hits on reduced capacity." 

Supply chain issues and delivery delays have not affected the aviation industry or Lufthansa exclusively, Spohr said, who nevertheless characterized Lufthansa as a “victim” of the Boeing delays. The German airline serves as the launch customer of Boeing’s 777X passenger twinjet, with 20 firm orders, but the program remains mired in delays and Lufthansa now expects deliveries to start in 2025 rather than in 2023 as last scheduled.  

The delay of the 777X aircraft combined with the stronger than expected demand “requires that we have to bring back some of the Airbus A380 or find alternative solutions,” Spohr said. An alternative solution to bridge the capacity gap, he said, could involve acquiring some 777-300ERs either from lessors or whitetails directly from Boeing.  Lufthansa itself does not operate 777 widebodies on passenger services, but two of its subsidiaries, Swiss and Austrian Airlines, as well as Lufthansa Cargo, do.

Some months ago, Spohr was adamant that the A380 no longer had a future in the group. ‘‘I never thought we would have to reverse this decision,” he admitted. Lufthansa stored its fleet of 14 A380s at the beginning of the pandemic and returned six to Airbus. Lufthansa has kept current only 14 A380 pilots but under an agreement with the company’s pilots unions, A350 pilots can also fly the A380 if double qualified.

As Lufthansa needs to capacity for the summer season of 2023 and bringing the aircraft online requires a lead time of about nine months, it will have to decide in the coming weeks. “We have to decide before I go on holiday in July,” quipped Spohr. Meanwhile, the airline plans to reactivate “at least five” more A340-600s from long-term storage for for next summer “because our A350s are coming in too late,” he said. "There are no brand-new aircraft available for 2023,” he lamented. “If you order an aircraft now, it comes in 2025 at the earliest.”

Spohr said he felt confident that demand would continue to be strong, owing to a rebound in corporate travel and the opening of more international markets such as India, China, and Japan.  “Load factors are high, at all major carriers, and yields are going up. I expect they will go up further,” he asserted. “Even if there is a recession, what many now expect, we see additional demand next year.”

Separately, Spohr conceded he was “not very happy” that the Italian government appears slow in executing the planned privatization of ITA Airways. Lufthansa submitted a joint bid with shipping giant Mediterranean Shipping Company for a 40 percent stake in the Alitalia successor airline. The deadline for the bids came on May 23. “The progress, unfortunately, seems to be slowing down,” Spohr said, conceding that he jointly with Gianluigi Aponte, the Italian billionaire founder, owner, and chairman of MSC, had written to the country's Prime Minister Mario Draghi hoping to speed the process. “We explained that we are the right partner for ITA and Italy and that each additional delay will hurt ITA,” he said.