Lufthansa wants to see its joint venture with Air China up and running by the end of this year, which will be its 89th on the mainland, says chairman and chief executive Carsten Spohr, as the world’s largest airline group looks to ward off competition from Gulf carriers by strengthening bilateral partnerships. “Of the €30 billion turnover we make, €4 billion we make out of Asia … And out of the 240 flights we put into Asia-Pacific every week, 83 of them go to greater China, so it’s by far the most important destination in Asia-Pacific for us,” Spohr told the South China Morning Post on his first visit to Hong Kong since he took the top job in May. But he admits the profitability of the Asian market suffers from fierce competition, especially from new players in the Middle East. “If Dubai, Qatar and Abu Dhabi would not be between Asia and Europe, but would be an island in the North Atlantic, the high yields would be here [in Asia],” he said. “Biggest pressure points on yields are always where overcapacity is highest – this is everything that is served by the Gulf [carriers], in particular India, Southeast Asia.” A joint venture with mainland China’s flag carrier and largest international carrier, first announced in July, was on track to be put up as soon as antitrust government approvals were secured, Spohr said. The two airlines, codeshare partners and Star Alliance members, would co-ordinate and share revenue on all their routes connecting mainland China and Europe in this venture. That amounted to €1.5 billion a year, he said. For now we want to focus on the Lufthansa brand in China, which is a very strong one with a long history Carsten Spohr, Lufthansa CEO As the head of Lufthansa group, which is a founding member and the mentor of Star, the world’s biggest airline alliance, Spohr says there is still a future for alliances because of the network benefits, but he expects more bilateral joint ventures as a necessary “on-top element to add to the basic”. “With new competitors coming into the game, like the Gulf carriers, carriers with strong markets like Air China and Lufthansa will go deeper into bilateral relationships,” he said. “I see [joint ventures] as a recipe for future success.” Spohr declined to give a target combined market share for the two on the China-Europe market, which he says stands at about a quarter now. He said Lufthansa hoped to gain access to China’s secondary cities served by Air China. Hong Kong is one of six cities Lufthansa group currently flies from alongside Beijing, Shanghai, Nanjing, Qingdao and Shenyang. The launch of a new route by Cathay Pacific to Dusseldorf on top of its Hong Kong-Zurich service threatens to take traffic away from the group, whose brands also include Austrian Airlines and Swiss. But Spohr expressed solidarity with his Hong Kong competitor in the face of the bigger rival they share in the Middle East. “We are both premium carriers which believe in a non-stop offer overflying those parts of the industry which believes in waking up people in the middle of the night to go shopping,” he said. “Non-stop made-in-Germany product experience” is what Spohr stresses to be Lufthansa’s competitive offering. “We are spending €1 million per day to improve our cabin products,” he said, as the airline is investing €1 billion in a three-year upgrade programme scheduled for completion by the end of the year. With the launch of a new long-haul low-cost service under its Eurowings brand from October, Lufthansa will fly to Thailand, a range beyond any existing European low-cost carriers’ offerings. “Cologne to Bangkok is about the limit of the range,” he said. “But China is shorter. We do not rule out adding destinations in secondary cities in China for Eurowings, though for now we want to focus on the Lufthansa brand in China, which is a very strong one with a long history.” Low-cost unit set for long-haul services Lufthansa boss Carsten Spohr wants to save as much money as the group is making, if not more. And expanding into long-haul low-cost services is one of the first changes he is bringing to Europe's leading legacy carrier that also has one of the strongest labour unions. The relaunch of subsidiary Eurowings as the first European budget carrier to go long-haul hardly seems to be a logical choice given Lufthansa's high labour costs. But Spohr said his employees understood the need to improve profitability and that generating growth was to their benefit - at least those who have signed up to an ambitious programme aimed at saving more than €3 billion (HK$25.9 billion) between 2012 and next year. "We have reached agreements with all except one union in the past six months," Spohr said. That exception is the union for some 5,000 pilots working for the Lufthansa main brand who staged 10 strikes last year over retirement benefits. Spohr said strikes cost Lufthansa €230 million last year. Eurowings would be operated in collaboration with SunExpress, a joint venture with Turkish Airlines, Spohr said. Lufthansa's restructuring and cost-saving programme was expected to have a revenue contribution of €1.2 billion this year, Lufthansa said at the end of October. That is more than the preliminary operating profit of €954 million it announced last month for last year. Sijia Jiang
