Airline turbulence

Time for face-saving compromises

Lufthansa and Air Berlin are both flying through heavy turbulence at present for different reasons. Both German carriers need face-saving compromises if they are to remain internationally competitive.

The current dispute between Lufthansa and cabin crew is just the latest confrontation between the group’s management and its staff. Pilots went on strike 13 times over the last year, causing thousands of flights to be cancelled and costing the airline millions in lost revenues and additional costs. Now flight attendants want to follow suit by taking industrial action for eight days in a row. The impact would inevitably be similar.

For outsiders, the reasons for these disputes are increasingly hard to understand. Pilots and cabin crew appear to be defending outdated privileges in terms of pay and working conditions. Public opinion in Germany has clearly turned against the pilots, and the cabin staff could be next if they carry out their strike threat.

In reality, the airline unions are more worried about Lufthansa’s expansion of Eurowings as a low-cost flights platform that operates up to 40% more cheaply than the parent airline. It has lower pay levels and operates outside the group’s collective pay agreement. Lufthansa has clearly said it sees most of its future growth coming from Eurowings rather than its core Lufthansa-branded business. This low fares business is seen as the main way to fight back against the advance of Ryanair and Easyjet in the German short- and medium-haul market and expansion of rivals such as Emirates, Etihad and Turkish Airlines in the long-haul market.

So what’s the solution? Basically, Lufthansa employees must recognise that the world has changed and they have to make compromises for the airline to stay internationally competitive. There is plenty of room for a face-saving compromise on the formal issues in dispute. In exchange, Lufthansa has to present a much stronger positive growth strategy for the core business rather than warning constantly about the competitive threats.

Meanwhile, Air Berlin is in an even more difficult situation. The dispute over its code-share flights with Etihad Airways is just the tip of the iceberg, even though it has gained a couple of months to find some kind of solution.

Fundamentally the airline remains a victim of its hybrid strategy of trying to be everything for everyone. Under the former management, Air Berlin tried to compete with Lufthansa for business travellers on European routes, operate feeder flights to Abu Dhabi for Etihad Airways, become a network carrier for Oneworld and maintain its strong tourism network. But many of these routes are unviable or have low demand.

New CEO Stefan Pichler knows this and wants to downsize the airline, focusing on its core business and most profitable routes. Air Berlin’s shareholders, with their differing interests, must now accept the need for a face-saving compromise that would allow Air Berlin to shrink back to a leisure-focused airline operating mostly short-haul routes to tourist destinations and selected long-haul destinations such as the Caribbean as well as Etihad feeder flights.

The big winners at the moment are Ryanair and Easyjet which are both happily expanding in Germany by targeting the weaknesses of the two local incumbents.

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