Business

Lufthansa Slashes Costs Amid Fare War, Less Business Travel

Passenger aircraft, operated by Deutsche Lufthansa AG, on the tarmac during a strike by workers from the Verdi union at Frankfurt Airport in Frankfurt, Germany, on Thursday, March 7, 2024. Germany is experiencing a fresh wave of travel disruption after airport ground staff and train drivers separately began stoppages set to affect services into the weekend. (Alex Kraus/Bloomberg)

(Bloomberg) -- 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 AG 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 travelers in short supply, the airline isn’t able to compensate for seasonal demand fluctuations, Ritter wrote.

“We are experiencing a ‘new reality’: not a crisis, but a structural change,” Ritter wrote in the letter. After two years of soaring demand, “we are seeing a normalization in the market. This is accompanied by high competitive pressure,” he said. 

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, Delta Air Lines Inc. warned of worse-than-expected financial results and a weak outlook for the third quarter. 

Lufthansa plans to cut administrative costs by 20% and marketing spending by 10%, 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 travelers visiting friends and relatives, or going on vacation. As a result, travel is skewed toward the summer instead of the winter, according to the letter.

The group is reviewing fleet and aircraft allocations to determine how best to reduce complexity and stabilize its operations, according to the letter. It is also examining how to achieve higher fares through investments in its product.

(Update with more details from staff letter from third paragraph.)

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