Lufthansa aims for flat capacity in 2012; will phase out 737s by 2016

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Published: April 24, 2012

Lufthansa 737-300. By Rob Finlayson

Lufthansa (LH) is planning to keep capacity flat this year and will phase out its Boeing 737 fleet by 2016 as part of its €1.5 billion cost-cutting measures, Deutsche Lufthansa AG executive board member Carsten Spohr told employees in an internal letter.

Spohr said the move is important to ensure the airline’s future as it adds new fuel-efficient aircraft and competes with fast-growing Middle East and low-cost carriers.

LH’s operating 2011 profit dropped by almost 20% to €820 million ($ 1.07 billion) ( ATW Daily News, March 16 ) . In addition, LH announced a net loss of €13 million ($ 17 million) for 2011 due to a larger-than-expected losses and disposal costs at British Midlands International (bmi), which it sold to British Airways parent company International Airlines Group (IAG) Friday ( ATW Daily News, April 23 ).

LH will increase ASKs by a maximum of 4% in 2013-14 as the airline closes unprofitable routes. “We [have] already dropped Hyderabad, Kolkata and Guangzhou,” Spohr said. “We have to do everything to avoid cancellations of routes to Nanking, Madras and Bangkok, which are in danger.”

LH will phase out all 55 737-300/500s by 2016. The carrier is also expected to phase out all 70-seat aircraft, such as the Bombardier CRJ700 and Dash-8 Q400. When these aircraft are phased out, the Airbus A320 fleet will be the only narrowbodies in the European network. Spohr said that LH should have no aircraft older than 25 years.

According to Spohr, LH will establish a large long-haul fleet with a two-class configuration (business and economy), and will axe its first-class product on some routes. All remaining A340-300s and 13 747-400s will be reconfigured in a two-class layout. LH is also considering introducing a premium-economy class.

LH is delaying a decision on an A340 replacement aircraft until after its cost-cutting plan is complete.

“If we can reduce fuel by 5% by phasing out older aircraft more quickly, including a 5% reduction [of] employee costs … we could save €600 million,” Spohr said, adding the carrier may also renegotiate airport fees and cut personnel costs. Union Verdi said it feared job losses and would fight to prevent this from happening.

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