Lufthansa Says Auf Wiedersehen to Superjumbos

Edward Russell

March 8th, 2021

Lufthansa Group has joined the growing list of airlines retiring the superjumbo jets in favor of smaller, more efficient models as the industry shifts to recovering from the coronavirus pandemic.

Speaking during the group’s fourth-quarter earnings call last week, CEO Carsten Spohr confirmed that Lufthansa has “permanently decommissioned” its 14 A380s, as well as its 10 Airbus A340-600s and Boeing 747-400s — many of which were already in temporary storage — as part of its Covid-19 fleet restructuring. Further group changes will include phasing out Airbus A330-200s and A340-300s, and Boeing 767-300ERs and 777-200s as part of a push to slash 100 jets from its 757 aircraft-strong fleet by mid-decade.

The fleet changes will affect every group airline, including Austrian Airlines, Brussels Airlines, Eurowings, Lufthansa and Swiss. Austrian will lose about a quarter of its fleet, including its 767s, and Brussels as much as a third.

But in a vote of confidence in Boeing, Lufthansa listed the 20 777-9s that it has on order as part of the “new normal” for its long-haul fleet. The 777X program has faced repeated delays with the planemaker pushing entry-into-service to 2023 in February — almost four years later than originally planned.

Lufthansa is far from alone taking a scalpel to its long-haul fleet. Air France-KLM has retired its A380s with chief financial officer Frederick Gagey saying in February that the group had removed nearly all of its four-engine aircraft. British Airways and Qantas Airways their 747s, and Delta Air Lines its Boeing 777s to name a few. The retirements were among the largest models at each of these airlines, a segment that is uniformly forecast to remain soft for some time to come.

The Lufthansa Group’s plans to simplify its widebody fleet. (Image by Lufthansa)

Lufthansa Group reported a €6.7 billion ($8.1 billion) net loss in 2020. Revenues fell 63 percent to €13.6 billion during the year. Cargo was the one bright spot with Lufthansa logistics revenues rising 11 percent to €2.8 billion. Passenger traffic fell 75 percent on a 69 percent drop in capacity.

“2020 was dominated by the crisis,” said Spohr. “2021 will be marked by modernization, transformation and redimensioning of the Lufthansa Group.”

In addition to the major fleet changes, that “redimensioning” of will mean operating differently. Renegotiated labor agreements allow all of the group’s airlines to serve the once off-limits inner sanctum of Lufthansa: Its Frankfurt and Munich hubs. This means higher-cost Lufthansa can cede, for example, leisure-heavy Mediterranean routes to budget arm Eurowings. This is already on display with lower-cost Brussels’ plan to take over select Brussels-Frankfurt flights from Lufthansa this summer.

However, the planned changes will take a toll. The group aims to shrink its workforce to around 100,000 staff by mid-decade, said Spohr. Employee numbers stood at 110,000 at the end of 2020 after staffing was cut by about 20 percent last year.

This year, Lufthansa plans to recover to about 40-50 percent of 2019 capacity. While 2021 is starting out slow — capacity will be at roughly 20 percent levels in the first quarter — the ramp up is forecast to accelerate in the second quarter, said group chief financial officer Remco Steenbergen on Thursday. The aim is to fly about half of 2019 capacity this summer.

Edward Russell

Azul’s Fourth-Quarter 2020 Capacity Beats 2019

Brazil’s Azul pulled off a feat in the fourth quarter that few other airlines in the world could claim: It posted a positive operating margin, in its case of almost 11 percent. And just as startling, the carrier reported fourth-quarter domestic capacity exceeded fourth-quarter 2019 capacity.

These feats occurred despite Brazil experiencing one of the most challenging periods in the pandemic, with resurgent cases of the disease and new variants of the virus spreading throughout the country. Management, though, was optimistic that domestic demand in Brazil would continue to grow in spite of Covid’s progression through the country.

During the quarter and the year last year, Azul’s international demand collapsed, but this helped fuel domestic demand. With fewer Brazilians traveling to Florida or Europe, more took vacations in the country, CEO John Rodgerson told investors during the company’s earnings call last week. “The international [network] being closed hasn’t impacted us as much as we thought,” he said. International capacity for the quarter was down 79 percent compared with 2019.

As with many carriers around the world, cargo was a bright spot for Azul. The airline is focusing on door-to-door package delivery throughout its far-flung domestic network to take advantage of growing e-commerce in Brazil, Rodgerson said. Cargo revenues were up 64 percent in the quarter. Cargo capacity was up as the carrier operated its Airbus A330s on domestic routes and deployed two Boeing 737 freighters. Azul also can convert its older Embraer regional jets and ATR turboprops to package delivery if demand grows.

Still, Azul wasn’t immune from the industry’s travails. Even though traffic and revenues snapped back in the fourth quarter, for the full year, the carrier reported losses of 10 billion reais ($1.8 billion). The carrier ended the year with 162 aircraft and said it was not planning to expand until it had maximized utilization of its existing fleet.

Madhu Unnikrishnan

In Other News

  • Turkish Airlines reported passenger revenues fell by more than 60 percent year-over-year in the fourth quarter, but cargo revenue grew by about the same amount, although not enough to offset passenger losses. For the full year, passenger revenues plunged by two-thirds to $3.8 billion, while freight rose by 60 percent to $2.7 billion. Turkish reported a full year loss of $836 million.
  • U.S. regional Mesa Air Group is looking across the Atlantic for growth. The company struck a deal with UK-based Gramercy Associates to apply for an air operators certificate. Mesa said it is considering whether to similar regional services to European airlines as it offers in the U.S. The company recently added a third Boeing 737-400F freighter in the U.S. to carry cargo for DHL and said it is exploring cargo opportunities in Europe.

Madhu Unnikrishnan

Edward Russell

March 8th, 2021