LUFTHANSA plans to slash costs and cut back on future projects as a “new reality” of lower corporate travel and increased competition drives down fares from post-pandemic highs, according to a letter to staff.
The lead carrier of the wider Deutsche Lufthansa group said that while its costs have risen sharply, unit revenue has been lower than expected as customers aren’t prepared to pay higher fares, according to the letter from unit chief executive officer Jens Ritter seen by Bloomberg News. With corporate travellers in short supply, the airline is not able to compensate for seasonal demand fluctuations, Ritter said.
“We are experiencing a ‘new reality’: not a crisis, but a structural change,” he said. After two years of soaring demand, “we are seeing a normalisation in the market. This is accompanied by high competitive pressure”, he added.
Across Europe and the US, airlines are struggling to fill planes in the all-important summer vacation season, which has dragged down ticket prices. On Thursday (Jul 11), Delta Air Lines warned of worse-than-expected financial results and a weak outlook for the third quarter.
Lufthansa plans to cut administrative costs by 20 per cent and marketing spending by 10 per cent, according to the staff letter. It is also instituting a hiring freeze in administrative functions and plans to postpone or cut back certain other projects.
The airline expects business travel to remain at its current low level, and to see more leisure travellers visiting friends and relatives, or going on vacation. As a result, travel is skewed towards the summer instead of the winter.
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The group is reviewing fleet and aircraft allocations to determine how best to reduce complexity and stabilise its operations, according to the letter. It is also examining how to achieve higher fares through investments in its product. BLOOMBERG
