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Lufthansa Group Takes Strict Measures to Seize Recovery Opportunity
The worst part of the pandemic seems to be winding up in Europe and the US, and the demand for travel is finally rising. Like the rest of the European operators that are beginning to accommodate to the post-pandemic world, Lufthansa Group took drastic measures to begin to mitigate the economic impact of this almost two-year crisis.
The holding announced that it is seeing a slow-but-steady recovery in bookings, with a projection of 30% for June, 45% for July and 55% for August, which would take the group to operate in 2021 at 40% of the total capacity of operations carried out in 2019.
Lufthansa Group’s restructuring program aims to save €3.5 billion by 2024, and half of that cost reduction should be complete by the end of this year. The company indicated that the three pillars of these improvements will be reduction of personnel, simplification of operations and modernization and standardization of the fleet.
The first pillar will represent a saving of €1.8 billion to 2023, and about half of the goal has already been achieved with the reduction of approximately 26,000 employees since the beginning of the coronavirus crisis. However, it does not seem enough; through a combination of collective agreements, voluntary retirements and layoffs, the company seeks to reduce an additional 10,000 positions.
Regarding the simplification of operations, the group will close SunExpress Deutschland, discontinue the passenger operations of Germanwings – the firm was transferred but its personnel and fleet operated under wet-leasing for Eurowings, which had absorbed it in 2015 – and will close bases and operation sites. Other measures will aim at optimizing maintenance services and systems, renegotiating contracts, and reducing external consulting services.
On the fleet modernization side, the group will retire 150 aircraft by 2023 (taking it to 650 aircraft vs. the 800 it had in 2019) and will see moderate fleet growth from 2024. The company will permanently retire 7 models from its long-haul passenger fleet and will consolidate operations in 6 aircraft: the Boeing 747-8, 777-9, 777-300, 787-9 and Airbus A330-300 and A350-900.
The measure implies the definitive retirement of the Airbus A380, 340-300 and -600 and A330-200, as well as the Boeing 747-400, 777-200 and 767-300. Lufthansa Cargo operations will be simplified around the Boeing 777F, withdrawing the MD-11F trijet from active service.
The hopes of the group are aimed at its multi-hub strategy and its variety of products: since the expectations for a rapid business travel recovery are low, the holding will rely on its renewed leisure product Eurowings as one of the profit drivers, acting as a complement of the other leisure-focused carrier, Edelweiss. Also, Lufthansa’s investment in direct distribution, allowing travelers to book directly, and the Miles & More program are two important tools in a renewed, digitally-driven customer experience. These innovations seem to play a pivotal role for the holding to be in a better position than other carriers for capital injections and shareholders’ interest.
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