Aviation Week & Space Technology - 3 November 2014

40 AVIATION WEEK & SPACE TECHNOLOGY/NOVEMBER 3/10, 2014 AviationWeek.com/awst

Jens Flottau Frankfurt and Cathy Buyck Brussels

Adrian Schofi eldAuckland

As Air France and Lufthansa strive to

cut costs, pilot strikes infl ict major

pain and demand outlook worsens

Return to underlying profi t

bolsters a battered Qantas

T

he confl icts with their pilots have cost Air France-KLM

and Lufthansa well in excess of €500 million ($635 mil-

lion). Now Europe’s two biggest legacy airlines are fo-

cusing on how to make up for the loss.

“There will be no growth in our hub operations until we

Q

antas Airways has had precious little to celebrate

recently, but that could change with early signs of a

remarkable revival. Just a few months after reporting

record annual losses, Qantas claims to have already climbed

back to profi tability—while rival Virgin Australia remains

fi rmly in the red.

For Qantas, an underlying pre-tax profit for the three

months through Sept. 30 is the most positive indicator yet

that its massive restructuring program is working. In con-

trast, Virgin Australia is adding to its challenges as it takes

over the struggling Tiger Airways Australia.

Qantas is one of many Asia-Pacifi c airlines that typically

reports results half-yearly rather than quarterly. However,

CEO Alan Joyce revealed at the company’s Oct. 24 annual

general meeting that the airline was operating in the black

for the fi rst three months of its fi scal year—without divulg-

ing specifi c numbers. Joyce also confi rmed that Qantas is on

track to achieve his earlier target of an underlying profi t for

the fi scal fi rst half.

Joyce’s prediction of a quick return to profitability

seemed like wishful thinking when the airline’s numbers

for the 2013-14 fiscal year were announced in late Au-

gust. Qantas slumped to an A$2.8 billion ($2.5 billion) loss

for that period, although the underlying loss was $A646

get to a competitive cost structure,” Lufthansa CEO Carsten

Spohr said last week. The airline has kept the number of

its aircraft stable for four years —the fi rst time in 60 years

that the fl eet has not grown over such an extended period.

Spohr’s statement makes clear that future initiatives will go

far beyond the proposed low-cost carrier (LCC) af liates that

are to be added to the group portfolio b y the end of 2015, but

that unit costs at the core airline are the real problem.

Negotiations with pilots have resumed, but the most con-

tentious issues—early-retirement benefits and new LCC

units—have been separated from the talks. While that may

result in a strike pause, the negotiations over pay will almost

certainly lead to higher staf costs: Pilots are demanding 10%

raises ; Lufthansa has of ered 5%. Strikes have cost the airline

€170 million this year, and more industrial action will lead the

airline to issue a profi t warning for 2014.

While the Lufthansa Group reported an overall €849 mil-

lion operating profi t for the fi rst nine months, the airline divi-

sion—Lufthansa and Swiss, Austrian and Brussels airlines

—contributed only €473 million and Lufthansa-branded fl y-

ing €260 million, showing the group’s dependence on high-

margin subsidiary businesses such as the Lufthansa Technik

maintenance, repair and overhaul (MRO) division. Its profi t

million excluding a massive write-down of fleet values.

While Joyce has caught criticism from many quarters, he

has remained committed to his plan for reshaping the airline.

The three-year transformation plan was of cially launched

eight months ago, although major changes that occurred ear-

lier can be viewed as part of the same campaign.

Qantas Chairman Leigh Clif ord says the airline is already

stronger and leaner, with a “more sustainable model.” He

notes that Qantas is conducting a transformation equal in

scale to—if not larger than—those that other international

airlines have been able to achieve only under bankruptcy

protection or with government assistance. Neither benefi t

has applied to the Australian carrier.

The Qantas restructuring plan is aimed at cutting A$2

billion in costs over the three-year period. A large part of

the savings comes from eliminating 5,000 jobs, with half of

these cuts already completed. By the end of June 2015, 80%

of the planned redundancies will have been made. The carrier

also expects to have reduced its debt by $A1 billion by then.

Early retirement of older aircraft is helping boost fl eet

ef ciency, and Qantas reports that aircraft utilization rates

are up by 12% in its international fl eet this year.

The airline’s forecast turnaround can be attributed partly

to the transformation plan, and partly to external factors.

Falling fuel prices are more than of setting the reduced pur-

chasing power of a weaker Australian dollar. The govern-

ment’s repeal of a controversial carbon tax should also help.

Load factors for the three months through September

increased in all parts of the group’s operations—including

the Jetstar low-cost carrier (LCC) subsidiary. Group yields

were down, with sluggish domestic demand outweighing an

improvement in international yield.

One of the most important trends is the easing of capacity

AIR TRANSPORT

Stalled

Transformation

Roo Rebound

The 14-day strike in September by Air France pilots,

including those who fl y the Airbus A380, cost the group

€416 million in lost revenue.

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