COMPLICATED TIMES FOR LUFTHANSA

September 11, 2022

?All companies are going through turbulence, regardless of their size, nationality or status. Recall, if it were necessary, that the 3 American giants that are American Airlines, United Airlines and Delta Air Lines all went through the "Chapter 11" box, in other words by filing for bankruptcy before restructuring. This has also been successful for them because they have regained a health that many could envy them to such an extent that they are happily projecting themselves towards the future by placing pre-orders of BOOM's new commercial supersonic jet and electric and autonomous flying taxis. In short, everything is fine for them.

?On the other hand, the situation is more complicated for the huge Lufthansa Group, which brings together 13 airlines including Lufthansa, Brussels Airlines, Austrian Airlines and Swiss. In 2019, before the pandemic shock, it achieved a turnover of 36.4 billion euros and a net profit of 1.213 billion euros. Roughly speaking, it is a third larger than the Whole of Air France/KLM and its subsidiaries. ?After weathering the Covid storm, everything seemed to have started again faster than hoped. The lights were so green that the acquisition of the Italian company ITA jointly with the Swiss cruise line MSC seemed almost complete. Enough to see life in pink with the control of almost all major European markets.

?And then the mechanics went haywire. It started with Brussels Airlines. Belgium has never renounced major social conflicts. These therefore hit the national carrier to such an extent that several hundred flights had to be cancelled during the months of July and August. Apart from the significant financial cost, this has begun to seriously damage the Group's reputation for reliability.

?But the trouble didn't stop there. To the surprise of foreign observers, Lufthansa pilots also came into conflict with their management and while we were used to a last-minute agreement, as is customary in Germany, the sailors did indeed trigger a massive work stoppage. Thus, on 2 September, the carrier was forced to cancel all its operations at its two main bases Frankfurt and Munich. A thousand flights have thus fallen by the wayside impacting the 130,000 passengers who had to use them. The damage becomes very serious, if only on the economic aspect not to mention the media impact. Indeed, according to European rules, passengers are entitled to compensation of € 600 each time a flight is cancelled due to a strikeby the company's staff, not including, of course, the reimbursement of unused tickets. Thus, potentially, nearly 80 million euros gone up in smoke to add to the 50 to 60 million to compensate for the failures of Brussels Airlines. The case was deemed serious enough by the management of the GRoupe to give a large part satisfaction to the strikers in order to avoid, at all force, a new work stoppage planned for?7 and 8 September. And the note will also be salty. Employees will receive an increase of €200 per month plus a 2.5% increase in January and as much in July.

?And then, icing on the cake one could say, here is that the Italian government announces that it is entering into exclusive discussions with the Air France/KLM group, seriously supported by the Certarès investment fund ?for the takeover of ITA. This is another blow that the management of the Lufthansa Group certainly did not expect, nor did international observers. Admittedly, the case is not yet over. Air France will first have to reimburse the PGE that the French state had generously granted before finalizing the acquisition of a stake in the Italian carrier. But finally, it is difficult to see how the German group could return to the race.

?It is curious to note that as soon as the economic horizon clears, employees all want to make the first potential profits, even before they are reaped. Until then it was thought that this way of doing things was reserved for Latin countries, the France in particular. Now even the Germans are copying this attitude. And we don't know where it's going to end. The air traffic controllers are certainly in ambush and the ground staff will also want to get their part of the cake.

?The Lufthansa Group has strong kidneys. He was able to repay the state loans in advance. He will certainly know how to go through this difficult pass which he would probably have done well.