Andrew Doyle/BERLIN Chris Jasper/LONDON
Lufthansa is planning to buck the European trend and increase capacity by 13% with the introduction of its summer schedules, despite sharing industry concerns over declining yields.
Other European - and US - majors have been saddled with excess capacity over the past 12 months because of the Asian downturn. Many have transferred seats to the transatlantic market, forcing prices down.
The German flag carrier says it is out of step with this trend. The airline has a lower seat availability than it wants, having failed to add capacity at the same rate as other airlines over the past few years because of its privatisation and subsequent restructuring.
While these events - with other factors - meant Lufthansa was less exposed to the downturn that afflicted its European competitors in the second half of 1998, the German giant believes it must still close the capacity gap.
By increasing seat availability, Lufthansa is effectively placing marketshare considerations ahead of yield, although with load factors far higher than those of its competitors on many routes, the airline says the strategy is less risky than might first appear.
Stefan Pichler, Lufthansa executive vice-president sales, says the carrier has "a lot of catching up to do", and compares its 5.3% annual average capacity hike in 1995-8 to British Airways' figure of 9.8%.
Lufthansa's 13% year-on-year capacity increase this summer will be achieved in part by converting its seven remaining Boeing 747-400 Combis to full passenger configuration. In comparison, BA is adding just 2% capacity this year.
The airline is also adding destinations and increasing frequencies with the launch of services to Detroit and Caracas. It is also adding more flights to points it already serves in the USA, southern Africa and Japan.
Lufthansa's schedule changes will link in with the networks of Star Alliance partners United Airlines, All Nippon Airways, Varig and South African Airways, helping to assure take-up of the extra capacity.
Lufthansa and Star partner SAS, together with potential recruit Singapore Airlines, are also studying a cargo alliance that would allow them to integrate network management, marketing and sales, and harmonise products and information technology.
Lufthansa is especially keen to boost passenger capacity in the Germany-North America market, where its market share amounted to only 25% of traffic in 1998, compared with BA's 82% share of UK-North America business.
Ironically, the airline's relatively low exposure on transatlantic routes has helped it ride out the recent squeeze on yields in a market where capacity has increased dramatically because of transfers from Asia.
Around Europe, load factors on North Atlantic routes were down 2% in January compared with the same month in 1998. There was a 7.8% drop in the South Atlantic market. BA and KLM have both suffered losses for the last quarter of 1998, with SAS and Swissair also faring badly. The scramble to fill seats has become frantic on the London-New York route, with BA offering a cut-price fare of £143 ($230). Virgin Atlantic Airways is undercutting this by £1.
Yields in the Germany-US market have taken less of a tumble, with Lufthansa's modest market share limiting the damage.
Although it will not comment on its results for the last quarter of 1998 - which are expected to show a downturn, albeit not so severe as its rivals' - Lufthansa Group has reported a DM2.4 billion ($1.33 billion) pre-tax profit for the full year - up 41% on 1997. This figure includes a DM377 million book profit from the sale of Hapag Lloyd. Revenues increased 4.6% to DM22.6 billion.
Lufthansa is also upbeat about traffic so far this year, with Pichler reporting a 10.4% increase in passengers on the airline's Asian routes in January. Like other carriers, however, Lufthansa expects a rough ride this year, and does not expect financial performance to match traffic figures.
• Lufthansa is studying the launch of a no-frills airline. It says such a move is "viable".
Source: Flight International
