The Lufthansa Group positions itself among the largest airlines in the world and assumes the role of leading European airline group. In this role, the Lufthansa Group aims to continue to play a part in actively shaping the global airline market. It strives to follow the mission statement: the Lufthansa Group connects people, cultures and economies in a sustainable way. In doing so, it aspires to set standards in terms of sustainability and customer-friendliness. It uses the potential of innovation and digitalisation to develop customer-focused products and increase efficiency. Corporate responsibility and identity are put into practice locally and supported by overarching functional processes that enable synergies and economies of scale. A strict focus on costs, operational stability and reliability in all areas are firmly established in the DNA of the Lufthansa Group. The safety of flight operations is and will always be the top priority.
Structuring the Group along the airline value chain helps to maximise synergies between segments and makes it possible to scale business from external markets at the same time. The airlines form the core of the Lufthansa Group, with their comprehensive networks in their home markets of Germany, Austria, Switzerland, Belgium and northern Italy. In two business models – network airlines and point-to-point airlines – they serve the relevant customers and market segments with dedicated brands and differentiated quality promises, connecting Europe with the world. The airline business is supplemented by Aviation Services that have synergies with the airlines. The aim is to continue strengthening the role of the airlines in the portfolio of operating segments over the long term.
The aviation industry is defined by dynamic markets and competition, even when not facing a pandemic. The main drivers of this dynamism are exogenous uncertainty, changing customer demands and shifts in the value chain. These include new data-driven decision-making tools that have an increasing influence on airlines’ distribution and increased activity from aircraft and engine manufacturers in the maintenance business. To meet these challenges, the core principles of the corporate strategy are continuous transformation and modernisation of the Lufthansa Group. The aim is to safeguard the Lufthansa Group’s leading market position by making it a more agile, flexible and competitive organisation.
The coronavirus pandemic has had an impact on the aviation industry unlike any seen before. The travel restrictions imposed in reaction to the pandemic and the global economic slump pose fundamental challenges for the industry and the Group. Experts assume that demand will not regain its pre-crisis level any earlier than 2024. The pace of recovery is subject to great uncertainty, however, especially concerning the spread of the coronavirus and its mutations, the availability of vaccines, and potentially lasting changes in travel patterns.
The Lufthansa Group has tackled the short-term effects of the pandemic by quickly adjusting available capacity to meet reduced demand, cutting costs, taking further steps to safeguard liquidity, and ensuring the Company’s solvency by raising new funds, particularly in the form of government stabilisation measures.
The Group is anticipating the long-term effects of the crisis by adapting to a permanently smaller market with a comprehensive restructuring programme and adjusting its strategy to make the best possible use of the market opportunities resulting from the changes wrought by the crisis. Above all, this means focussing even more closely on individual customer needs, expanding its position in the tourism segment, and differentiating the various Group airlines within the framework of the multi-airline model, while simultaneously increasing synergies and reducing complexity.
Successfully coping with the pandemic is a prerequisite for the strategic development of the Lufthansa Group. The comprehensive restructuring programme ReNew was set up for this purpose. It combines all the restructuring programmes at the airlines and service companies in the Group. On the basis of this fundamental restructuring, the intention is to improve profitability and cash flows, refinance and repay the funding from the government support package as quickly as possible and achieve the strategic objectives.
ReNew guides and coordinates all the restructuring activities on the basis of four modules:
- ReStructure combines the decentralised restructuring programmes for the airlines and Aviation Services. Its overarching goal is to catch up with the leading competitors in the respective markets in terms of profitability. The main focus is on the implementation of a much smaller and more efficient production structure in all Group companies. This entails a reduction of the operating fleet by around 150 aircraft, as well as the currently planned reduction of the workforce by some 27,000 full-time equivalents, which cannot be maintained long-term with the lower production volumes.
- ReOrg serves to implement a more efficient organisational structure, including turning Lufthansa German Airlines into an autonomous company as well as restructuring the Group Functions and matrix process organisation. This will entail, among other things, the loss of around 1,000 administrative FTE in Group Functions and the reduction of management positions across the Group by at least 20% compared with the period before the crisis. Downsizing the Executive Board of Deutsche Lufthansa AG and the management boards of subsidiaries compared with 2019 was also part of this measure.
- ReFocus aims to focus the Lufthansa Group even more sharply on its core airline business, so that the portfolio of operating segments is made up exclusively of synergistic units. This means that the sales process for the remaining non-European business of the LSG group should be resumed as soon as possible. Disposals of other non-airline companies are also under review.
- RePay aims to plan, coordinate and implement the refinancing and prompt repayment of all the funding from the government support packages and existing financial liabilities on the best possible terms. Suitable financial instruments for this purpose are being evaluated. In addition, suitable measures are to be taken to strengthen the balance sheet of the Lufthansa Group and optimise its gearing in order to obtain an investment grade rating again.
The strategic objective of the Lufthansa Group is to continuously align its services, business models and organisational structures with the complex and dynamic market environment. This will make it possible to systematically make use of the opportunities arising from trends and changes to the market. Key success factors are a consistent focus on customer needs, close attention to costs and responsible, sustainable business practices. Flexibility and adaptability are increasingly important as the market becomes more dynamic.
In view of changes to the structures of supply and demand, an even greater focus on the customer is a core element of the Group strategy. The aim is put customers, with their individual wishes and needs, at centre stage and further increase customer loyalty by implementing holistic measures which offer direct and tangible customer benefits. At the same time, the intention is to make the travel experience as simple, flexible and individual as possible.
A particular focus is on the seamless digital travel experience for the customer, which is linked with personal appreciation. By concentrating on products and services with direct relevance for the purchase decision and willingness to pay, the focus on the customer is reconciled with the necessary structural cost reductions. For instance, automated and contactless processes, such as the self-service baggage drop and check-in, assistance in the event of flight irregularities and general interactions with customers make travelling easier for passengers.
Customer services will continue to be automated, including goodwill gestures and improved digital information across a variety of channels. Customer-facing employees will also have greater decision-making authority in order to offer passengers an even better service. Products will continue to be made more modular, as with different Business Class seat types or the introduction of an individual, high-quality catering range for sale on short and medium-haul flights in Economy Class, because this makes it possible to align them even more closely with customer needs.
Consistent use of the potential for innovation and digitalisation is the foundation for increasing customer satisfaction and boosting efficiency in an operating environment determined by higher customer expectations and pressure to be efficient. Modular solutions will increasingly feature in product and service development to limit investment risks. The products and services of partners will also be used in areas in which the Lufthansa Group cannot provide them cost-effectively itself. Customer-related tasks have been combined with IT and digital activities in one Executive Board function for this purpose. Allocating clear responsibility for defining and developing new products, services and customer loyalty measures makes it possible for customers and their individual wishes to always take centre stage.
Responsibility is the basis for commercial activity in the Group. The Lufthansa Group aspires to lead the airline industry with high standards of responsibility. It therefore builds continuously on its environmental commitment, is dedicated to many social issues and treats its employees responsibly and fairly.
In terms of environmental policy, the Lufthansa Group aims to cut its net carbon emissions in half by 2030 compared with 2019 and supports the objective of making aviation carbon neutral by 2050. To this end, the Lufthansa Group continues to invest in fuel-efficient aircraft, accompanied by steps to increase the operating efficiency of the airlines, carbon offsets, and the further expansion of intermodal traffic in cooperation with Deutsche Bahn, Austrian Railways and various bus operators. The Lufthansa Group also works with policymakers and partners in industry, technology and research to support the industrialisation and use of sustainable fuels.
In addition, the Lufthansa Group includes sustainability aspects as a vital factor in the design of its products and services. The Lufthansa Group platform Compensaid offers Group passengers and travellers with other companies attractive and personalised ways of making carbon offsets via various sales channels. In its product and service development, the Lufthansa Group systematically applies the principles “reduce – recycle – reuse – replace”. Here the aim is to replace disposable plastic products with environmentally friendly products wherever possible and to reduce plastic packaging overall.
In terms of responsibility for its employees, the Lufthansa Group attaches great importance to offering its staff an attractive working environment with transparent structures, efficient processes and a wide range of voluntary social benefits. This is vital for retaining committed employees
who can tackle future challenges and for ensuring that the Company is competitive and successful. In terms of social responsibility, the Company promotes greater equality of opportunity for disadvantaged people worldwide via the financial and material support for educational establishments and training provided by helpalliance, the Group’s own aid organisation.
The central importance of sustainable business for the Lufthansa Group is reflected in the fact that it is represented by a dedicated Executive Board function. Implementation of the sustainability strategy is further supported by its embeddedness in Executive Board remuneration and the audited disclosures in the non-financial declaration.
Dialogue with the Company’s stakeholders is also a component of sustainable corporate governance. This continuous exchange gives the Lufthansa Group a better understanding of its different interest groups’ needs, expectations and wishes, which permits their inclusion in the Company’s business practices.
The airlines form the core of the Lufthansa Group. Their nationwide presence in their home markets enables them to offer an attractive range of flights and route networks. The Lufthansa Group aims to maintain the leading market position of its airlines going forward. To ensure that this is the case, the Lufthansa Group’s traffic system is being transformed into a multi-traffic system, consisting of hubs, direct traffic and intermodal offerings.
Lufthansa German Airlines and SWISS will continue to set standards for quality and cost-effectiveness in these areas in future. With their wide range of destinations and frequent flights, they offer the greatest connectivity of all the European airlines.
Austrian Airlines and Brussels Airlines connect their home markets with Europe and the world. At the same time, they combine a high-quality and attractive product with a low cost base, which can hold its own against low-cost carriers at the bases in Vienna and Brussels.
With Eurowings, the Lufthansa Group has an innovative and competitive offering in direct traffic, which addresses both price-sensitive and service-oriented customers with low-cost basic fares and additional service options that can be booked flexibly.
As a consequence of the market disruption caused by the pandemic, all the airlines in the Lufthansa Group are implementing restructuring programmes to cut costs and permanently secure sufficient profitability. In addition to reducing operating costs across the board, adapting the headcount in flight operations and administration to future demand is an important instrument for achieving this goal.
The existing commercial integration of the airlines is being intensified to exploit potential synergies to the fullest and minimise the need for coordination. The functional organisational structure that has proven successful at Network Airlines will be extended to direct traffic in future. This will allow the Lufthansa Group to establish faster, more direct decisionmaking processes, particularly between Group Functions and the subsidiaries.
The total number of flight operations is being cut to reduce the complexity of the production landscape. Economies of scale will be realised consistently and flight operations with competitive structures and a good operating performance will be scaled up. At the same time, production is being made more flexible in order to better balance market volatility and seasonality. Examples include the termination of flight operations at SunExpress Germany and of passenger flight operations at Germanwings.
The ongoing optimisation of the Group fleet has been accelerated as a result of the crisis. Key targets are the systematic renewal of the fleet to cut fuel consumption, reduce carbon emissions and trim the number of aircraft models by retiring and phasing out older, less efficient aircraft, such as the Airbus A340-600 and A380. Phasing out large aircraft also increases operating flexibility. The fleet is to be scaled back by 150 aircraft compared with the size before the pandemic.
In order to exploit opportunities in the long-distance leisure travel market, the range of long-haul connections from the hubs in Frankfurt and Munich aimed at private travellers is being expanded. Some of these routes will in future be carried out under the Eurowings Discover brand, whereby passengers benefit from the broad feeder network and the established ground processes of Lufthansa German Airlines. Lufthansa German Airlines is also making use of its global distribution strength.
In order to strengthen the market presence in the main traffic flows, successful joint ventures are being expanded and partnerships intensified in key markets such as South America and India. The range of intermodal transport solutions that are seamlessly integrated into the travel chain is also being extended. Although the pace of consolidation in the airline industry has slowed temporarily but significantly as a result of the coronavirus crisis, the Lufthansa Group still aims to drive the consolidation of the airline sector actively as soon as the conditions are right.
With its Aviation Services, the Lufthansa Group has several companies that are global leaders in their respective sectors. In order to secure and build on their successful positioning, Aviation Services are permanently adapting their business models to changing markets and competitive environments. Lufthansa Cargo is becoming an integrated airfreight logistics company by digitalising the logistics chain and achieving growth by intensifying its worldwide joint ventures. Miles & More is the central programme for customer loyalty and is developed continuously by means of systematic alignment with customers’ interests. This entails adapting the structure of the programme, for instance, and making the Miles & More partnerships broader and deeper in order to make the programme even more attractive.
The value contributed to the Lufthansa Group by every one of the Aviation Services is reviewed and refined continuously. In connection with its positioning as an airline group, the Lufthansa Group not only assesses the attractiveness of the individual market segments, it also determines whether it is the best owner for the respective company on the basis of existing or potential synergies. It may therefore make sense for certain Aviation Services companies to be developed outside the Lufthansa Group or together with partners.
Following the sale of LSG group’s European business in 2020, the disposal of LSG group’s international business will be taken forward as soon as conditions allow. Disposal and partnering options for all or part of Lufthansa Technik and AirPlus are also under review, taking into account the necessary capital expenditure, synergies and value creation potential.
In view of the fundamental impact of the coronavirus crisis, restructuring programmes are also being implemented at the Aviation Services companies to increase efficiency, cut costs and strengthen their competitiveness.