Lufthansa CEO faces tough test after Germanwings disaster
After an already troubled first year as CEO of Lufthansa, Carsten Spohr must now deal with the aftermath of the Germanwings disaster whilst making the airline group fit to compete for the future.world Updated: Mar 31, 2015 12:21 IST
After an already troubled first year as CEO of Lufthansa, Carsten Spohr must now deal with the aftermath of the Germanwings disaster whilst making the airline group fit to compete for the future.
The crash in the French Alps, believed to have been deliberately caused by co-pilot Andreas Lubitz, happened while Lufthansa is trying to halt declining ticket prices, expand low-cost operations, reduce staff costs and bring an end to a series of pilot strikes.
Spohr, a qualified pilot, has been trying to follow the example of rival IAG, the parent company of British Airways, Iberia and Vueling, by cutting staff costs to make Lufthansa more competitive.
But the resulting strikes since April had already cost the airline over 200 million euros ($216 million) in lost profit and distracted management attention from restructuring measures.
Lufthansa says it needs to bring its costs down so it can compete with short-haul rivals Ryanair and easyJet, as well as the likes of Emirates and Turkish Airlines on lucrative long-haul routes.
But Spohr has said it is too soon to discuss strategy after last week's crash, which killed all 150 people on board a flight of Lufthansa's budget subsidiary, stressing that the airline's focus is on taking care of the victims' families and friends.
Safety will continue to be paramount. "Our pilots are and will continue to be the best in the world," the visibly shaken CEO said after the revelations of investigators last week.
Spohr, who joined Lufthansa as a manager in 1994 and ran its cargo and passenger units before becoming CEO last May, drew condemnation on social media for his initial refusal to reconsider cockpit regulations after the crash.
But since then the 48-year-old has mostly impressed with his honest, measured comments.
Despite his background in management at Lufthansa, he has regular simulator sessions to maintain his captain's licence for an Airbus A320, the type of aircraft that crashed last Tuesday.
Independent aviation consultant John Strickland said this training, which he shares with the ex-pilot boss of IAG, was relevant in such an event.
"Like Willie Walsh of IAG, this means he understands the technical procedures and processes and it adds weight to his knowledge and gives him gravitas," he said.
The tragedy sent shockwaves through a company that prides itself on the rigorous selection and training of its pilots, and analysts said it is crucial for Lufthansa to focus on its safety credentials as it tries to reassure customers.
Shares in Lufthansa hit four-month lows last Thursday after a French prosecutor said Lubitz had locked the captain out of the cockpit and set the plane on a course to crash into the mountainside.
But industry watchers note the disaster seems to have been caused by one man, who prosecutors say hid his illness from his employer, rather than any wilful negligence or technical failings on the part of the airline. This means the reputation and image of Lufthansa shouldn't take too much of a hit.
The pilots' union strikes not only irritated customers, but also angered other staff, who feel they have made sacrifices to bring costs down that the pilots refused to accept.
Gerald Wissel, head of the Hamburg-based Airborne consultancy, said the catastrophe was bringing the 120,000-strong workforce together.
"Spohr could use the return of this solidarity to put Lufthansa on a new footing, to put the focus back on traditional qualities such as safety, quality and reliability," he said.
The crash initially raised questions about whether Lufthansa should continue with its budget expansion, which involved Germanwings taking over short haul flights from all but its two main German hubs, Frankfurt and Munich.
After determining costs at Germanwings are still not low enough to compete, Spohr has decided to expand regional carrier Eurowings and is even making a foray into low-cost long-haul.
Strickland said Lufthansa had to press on. "It was a big step to use Germanwings for European short-haul flights outside of Frankfurt and Munich and that commercial side of the business has to continue," he said.
Still, the financial consequences of the crash could add to difficulties for Lufthansa, which has scrapped its dividend, capped investment budgets and delayed taking new planes as it struggles to finance over 30 billion euros' worth of new orders.
The crash caused it to halt a roadshow for a debut hybrid bond and lawyers have warned that Lufthansa could be facing unlimited liabilities.
The carrier has already provided up to 50,000 euros per passenger in immediate financial assistance, compared with the initial $5,000 provided by Malaysian Airlines after the downing of MH17 over eastern Ukraine in July last year.
While some of the families who have spoken to media say it is too early to think about legal claims, lawyers say an out of court settlement is likely.
German lawyer Elmar Giemulla said families in these cases typically come together to negotiate with the airline.
"You can only achieve a settlement with negotiations and understanding from the other side and I believe Lufthansa does have understanding for the next of kin," he said.
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