07 April 2004

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Lufthansa networking Malta to the world

90 per cent of all Lufthansa’s passengers from Malta connect to the airline’s intercontinental flight network. Here Lufthansa Vice President for south east Europe, the Middle East, Africa and Pakistan Joachim Steinbach, on a flying visit to Malta last week, speaks to DAVID LINDSAY about a number of issues including networking the world, airline security in the new millennium, new hubbing activity through Munich airport, new routes for Malta and how the company has weathered the post 9/11 fiscal storm

Lufthansa airlines last week celebrated 20 years of flying to Malta and since its inaugural flight on 31 March 1984, the airline has continuously increased its flight frequencies from at first one, then three, then five times a week.
Over and above that, the airline has just introduced a new Malta-Stuttgart route flying out four times a week, which will see an effective 50 per cent increase in Lufthansa’s capacity for its Malta routes.
But despite the recent drop in German tourism numbers, Lufthansa Vice President Joachim Steinbach is confident when asked how the decision to add a new route came about, “I think it’s a mixture of two reasons,” he explains. “First of all if you have only one flight destination, such as Frankfurt, you often face a situation in which flights are overbooked. In this respect I think the Stuttgart route is a very good alternative to Frankfurt. On top of that, the summer peak tourism season is approaching and the new route capacity will be marketed across our network and fleet.”
While Lufthansa flew some 100,000 passengers in and out of Malta last year, the airline’s Malta business has taken something of a beating over the past two years, particularly since the lifting of flight sanctions to Libya.
Lufthansa Malta General Manager Valdis Dombrovskis explains, “For many years business people and others heading for Libya would fly to Malta and then transfer to Libya. This has now changed after the lifting of air travel sanctions to Libya. This business is now being handled by Lufthansa’s Libya office.
“Of course the drop in German tourism to Malta hurt as well, but our main loss was the Libya business. Lufthansa has now become very much a business airline, as opposed to a leisure airline. In fact, 90 per cent of our passengers from Malta don’t stop in Germany, they use Frankfurt as a hub to go to the world.”
Mr Steinbach elaborates, “If you look at the national airline Air Malta, the difference can be detected. As far as I am informed, you could say that Air Malta is a point to point European carrier with no hubbing function, taking the local traffic from Malta to other European destinations.
“Our theory and business model is that of a network carrier. Speaking of networking, Lufthansa is one of the 17 members of the Star Alliance with the latest entry to the network being South African Airways, also an important partner for us on the African continent.
“The Lufthansa experience with Star Alliance was that from the first moment there was a great deal of visible added value for our clientele, with lounge access, facilitated check in, exchange of mileage programmes and many other perks.
“Lufthansa now literally covers the globe and we are still expanding our network. In fact I was recently in Charlotte North Carolina where we have just opened up a new flight connection from Munich. Now all of a sudden passengers from Munich can connect to booming areas in the east of the United States. Also, together with our partner, US Airways, we can offer 101 destinations connecting from Charlotte.
“We are trying as much as possible to connect our entire network to Munich as part of our strategy to develop Munich as our second hub in Europe.
“Bavaria is a booming business area with several hi-tech enterprises, car manufacturers and media organisations. It’s a very interesting area that is connected very strongly to Asia and United States. Several large German companies, such as Siemens, have their head offices there.
“Another advantage of Munich is that the Frankfurt airport is quite packed and there is no more room for expansion. This leads to a continuous problem with finding slots for aircraft.”
Could Malta expect to be included in the Munich network in the near future?
“As far as we are concerned, we don’t know if this will happen in this year or next year but we are strongly working on establishing more destinations from and developing more connectivity through Munich. If Malta were to be included on the Munich routes, we could probably offer same day connections.”
Europe’s new low budget, no frills airlines have impacted the larger carriers to some extent, I ask what Lufthansa’s experience along these lines have been.
“I think the general comment we have to make is that we have to differentiate between us and the no frills airlines. We all want to be low cost airlines, including Lufthansa – we all want to keep costs under control – but I think we have to differentiate between the two. These airlines have made some major inroads into what is our business. However, these are point to point carriers operating within Europe so they do not yet have the capability to serve as a network carrier as we do.
“Our strategy is to strengthen our network position and to come up with new innovations to meet the challenge, although, more than detracting from our core business, they have created a new market.
“Despite certain inconveniences associated with such flights, such as distances between airports used and city centres, they have created a demand.
“When it comes to our product development in the future we have to bear in mind two aspects. The first is the product segmentation for our top customers, who comprise a good portion of our clientele and for who we are doing a lot such as terminal enhancements in Frankfurt, a new business class and the wireless LAN and FlyNet on board.
“But on the lower end of the market we are also doing something, especially in our European business, to offer new solutions, products and new fares.”
Lufthansa is a large investor in technology for the comfort and convenience of its passengers, I ask about the concept behind this investment when many airlines are cutting costs from what could be considered a superfluous area of investment.
“Lufthansa is always investing in innovation and the concept is that we want people to live on board, dine on board, sleep on board…enjoy life on board. This is the concept behind a new business plan for Lufthansa, which has benefited from a good deal of funding. This state of the art plan will be rolled out very soon.
“Our new intercontinental business class seat is a newly designed seat that comes out into a two metre long bed with features such as massage and air cushions. There is a range of services such as being able to plug your laptop into the FlyNet internet on board. I think that, at the moment, this is the most advanced seat in the airline business.
“We are also upgrading other services for customers and we have extra facilities under construction at Frankfurt airport to guarantee them a direct uplift and a better service underground.
“We feel that right now we have the competitive edge. We differ from the competition on the ground to a high degree, which is where people want to have the quality differentiation – in terms of going through security and having better access to the planes. These factors have become a real hassle due to relatively new safety regulations at major airports.”
While airport safety regulations on the ground are the responsibility of the respective airports, Lufthansa has nevertheless seen changes in security in the air in the wake of 11 September.
Mr Steinbach comments, “What we do in the cabins are two things. Firstly, all the cabin doors are completely locked right now so the times when you could take small children for a walk through the cabin or to talk to the captain are, sadly, over. On top of that, there is a lot of security in the air, such as unidentified air marshals travelling on US routes.”
Along with increased security precautions for the airline industry came the increasingly deeper red of companies’ balance sheets, which has led many of Lufthansa’s competitors to carry out massive job cuts. Mr Steinbach is asked how Lufthansa has managed to refrain from layoffs, particularly in light of last year’s dismal financial results.
“Lufthansa’s financial results were just published recently on 25 March, and I think we have to look at the issue as a whole group.
“Lufthansa’s passenger business was in a weak position after a terrible first quarter of 2003, which characterised by the Iraq war, SARS and other detrimental factors for the industry. However, by the end of the year we had slightly recovered and we are now in a position to break even as a passenger airline.
“But in addition to the passenger business, we also have to look at the Group’s other companies such as LGS Sky Chefs and Thomas Cooke that belong to the group. These have had rough years, being particularly hit by the crises. Of course the catering industry was hard hit as well and after 11 September LSG Sky Chefs lost major clients and major standings in food and beverage on board because their clients all had a major cost cutting and reduced spending on food and beverage. This was the total impact on top of the regular business for Lufthansa for 2003.
“However, what we did in this environment was implement a cost cutting programme and remain very flexible when it comes to grounding capacity.
“The philosophy is that we act flexible. We want to keep the workforce because they are skilled and trained and we’d rather cut down on the working hours in order to be flexible when it comes to the cost situation. However, when growth initially does come back we have the people still available and other airlines that have laid off thousands of people will have to start all over again.
“In fact, staff hours were cut for staff in Germany from 37.5 to 35 hours a week for a certain period because they were not used all that time. As such, we didn’t have to release any staff. We cut the working hours to save the workplace.
“For 2003 we have managed to do that and the prospects for 2004 are rather optimistic right now. Of course we have to take into consideration the fact that the situation remains very volatile. There is no doubt about it. If take a look at all these terrorist attacks, it seems these will go on and on and on and I’m sure that the airline industry will remain in a perpetual crisis environment situation, so it is imperative that we remain flexible.”

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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