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Lufthansa Hub Management &Management of Hubs
Karl Ulrich GarnadtExecutive VP Services und HRLufthansa German Airlines
MUC, Terminal 2June 25, 2008
Lufthansa Group2
Agenda
Development of system and governance: Lufthansa‘s multi hub system
Comparison to competitors‘ approaches
Lufthansa on the right track
Lufthansa Group3
The Lufthansa Group is attracting more customersthan ever
Frankfurt 1970 Frankfurt 2008
Munich 2008
7,013,9
20,6
47,0
62,9
0
20
40
60
80
1970 1980 1990 2000 2007
Passengers in Mio.
* Deutsche Lufthansa AG, Lufthansa Regional, and incl. SWISS from July 2007 on
*
Duesseldorf 2008
Lufthansa Group4
Frankfurt
2,813 weekly frequencies to 169 destinations in 75 countries
Fleet: 105 short-haul aircraft, 70 long-haul aircraft
FRA
MUC
ZRH
Munich
2,649 weekly frequencies to 109 destinations in 40 countries
Fleet: 102 short-haul aircraft, 23 long-haul aircraft
Direct Services1,733 weekly frequencies to 67 destinations in 26 countries
Fleet: 76 short-haul aircraft, 3 long-haul aircraft
Zurich
76 destinations in 42 countries
Fleet: 60 short-haul aircraft, 27 long-haul aircraft
* Direct flights onlyFleet as of May 2008. Includes Regional Aircraft. Long-haul fleet includes Wetlease (Privatair). LX Fleet (Regional) includes Wetlease.
Starting with one centre hub, Lufthansa is movinginto a true multi hub system
DUS
… plus 57 destinations* and 1.724 weekly frequencies a dditionally via STAR
Lufthansa Group5
The advantages of a hub system are still mostappealing…
In theory the most efficient way to organise trafficIn theory the most efficient way to organise traffic
45 aircraftCost: 100
Point-to-point
9 aircraftCost: 20
Hub-and-spoke „Horses for courses“comparative unit costs
Seats
CRJ200
CRJ700
CRJ900
AvroB737-500
B737-300
A319
A320 A321
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
40 90 140 190
Lufthansa Group6
… but to respond to our customer base, we have to combine a multi hub yystem with direct (point-to-point) services
From single-hub to multi-hub 360o-offer for our customers
2-Hub Modell
Kapazitätsb
indung von 17 A
/C
Kostenbindung: D
M 598 M
io.
FRA
MUC
HAM
FRA
MUC
Multi hub transferoptions plus
direct services
DUS
Lufthansa Group7
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PHLJFK
CLTATL
IAD
ORD
EWRBOS
DTW
YYZYUL
FRA
MUC
IAHDFW
DEN
YVRYYC
LAX
SFO
PDX ZRH
PNQ
BOM
BLR
MCOMIA
CCU
DEL
HYD
LHE
MAA
SEA
FRA 184
MUC 70
ZRH 55
FRA 48
MUC 10
ZRH 14
The Lufthansa network matches important flows of traffic, our multi hub system guarantees high connectivity
Example: number of frequencies per weekfrom a Lufthansa hub to North America andIndia/Pakistan respectively
Source: Flash, Summer 2008 (Calendar week 38)
Lufthansa Group8
From „Hub Management“ to „Division“: Core operational, se rviceand management functions have been assigned to decentrali zedunits, closer to the customer and the competition
History 2004 - 2007
+
+
+
Station management
+
Infrastructure+
Costs of infrastructure
+
Crew MUC (Cabin/cockpit)
+
Network management
Now/future
+
...
Fleet (Dedicated tailsigns)
+
„Divisions“ (FRA, MUC and Direct) have increasing resp onsabilities
Lufthansa Group9
FRA
MUC
ZRH
Each division is taking over a specific role, theentire system benefits from an increased sense of entrepreneurship
DUS
Lufthansa Group10
Strenghts
� Lufthansa as dominant hub carrier� Broad destination portfolio (360 degree) � Highest number of flights per day� Strong value for the region as the largest employer in the state
of Hesse
Frankfurt, backbone of the Lufthansa system: strongLH position, but limited growth due to capacityrestrictions
Requirements
� Expansion of infrastructure urgently needed: Terminal capacity and runway
� Adjustment of night curfew
Perspectives
� A380 operation from autumn 2009� Administration approval of extension plans� Extension of runway and terminal capacity expected for
autumn 2011
Lufthansa Group11
Munich: Europe´s highest rated hub by customerswith dynamic growth
Requirements
� Expansion of infrastructure urgently needed: „Satellite“ and third runway
� Intermodality improvement (High speed trains to downtown Munich)
Perspectives
� Improvement of network quality, growth by size of airplanes� Rollover regional fleet (decrease of unit costs)� Further stabilisation of continental network� Independent base for cabin and cockpit crew
Strenghts
� Short minimum connecting time (30 min)� Consistent three class operation� Solid system partnership with airport� Positive results Terminal 2
Lufthansa Group12
Direct services are supporting lufthansa‘s presencein non-hub-catchments and completing our 360°-offer
Requirements
� Fair competition, e.g. no distortion by subsidy payment tonon profitable airports
� Focus on competitive cost base (productivity, aircraftsize, airport cost)
� Innovative marketing concepts
Perspectives
� Further development of successful programs, e.g. „betterFly“� Further expansion in important catchments, especially
HAM and DUS, including intercont operation DUS� Local system partnership, cooperation e.g. regarding
infrastructure BBI
Strenghts
� Local presence and competence in non-hub-catchments� Innovative steering, pricing and marketing� Strong focus on competitors
Lufthansa Group13
With Zurich and Milan Lufthansa seizes attractivemarket opportunities
Zurich
� Economic success: Trust in SWISS integration pays off� Access to important customer groups in the Swiss market� Local identity, value of two brands� Zurich enables additional transfer options within the
Lufthansa Hub system
Milan
� Economically important region with high volume of traffic� Perspectives
- Development of European network with focus on business traffic
- Close cooperation with partners and airport- First step: Positioning of 6 shorthaul aircraftoperated by Air Dolomiti in spring 2009
Lufthansa Group14
Agenda
Development of system and governance: Lufthansa‘s multi hub system
Comparison to competitors‘ approaches
Lufthansa on the right track
Lufthansa Group15
Aircraft fleets( Regional aircraft included )
AF/KL LH/LX BA Iberia Ryanair EasyjetAir Berlin
Longhaul
Shorthaul and regional
on order
115
133
58
379
177
82
343
123
153
146
4922
164
135
116
159
14146
114
Source: ACAS, without LCC: Germanwings, Clickair, Flybe, Transavia
The European airline market – key Players
Lufthansa Group16
The „Big Three“ in the legacy league
BA AF / KL LH Group
� Focus on mega-catchmentLON and longhaul
� Low focus on traffic outsideLON
� Limited Europeanfeed
� One brand� Oneworld
� Successful in the past� Future with Open Sky?
� Moderate growth
� Moderate feeder trafficin PAR
� Extensive feed AMS
� Two brands� SkyTeam
� Strong growth basis andsuccessful integration
� Growth strategy
� Two hubs PAR/ AMS� Mega-catchment PAR
� European feed isessential
� Strong presence inEuropean feed markets
� Multiple brands� Star Alliance
� Growth strategy
� No mega-catchment� Multi hub
� Success depends on position in Europeanmarkets
Lufthansa Group17
ZRH
* exemplarySource: LH Catchment Data
Different market structures drive different strateg ies
LON
MAD
15,5
2,8
5.9
19.4
PAR
MXP
ROM4.6
13.7
13.5
9.3
6.2
7.3
12.5
Catchments* (population in millions within 90 min)
STO1.3
BUD3.3
ATH3.1
VIE4.3
IST8.8
DUS22.6
AMS13.5
CPH2.4
FRA12.5
MUC7.3
Lufthansa Group18
7 7
11
95
3
AF/KL LH/LX BA
Transfer
Local
Source: MIDT O&D Passengers 2007 vv
Longhaul passengers in 2007, in Mio.
Efficient feeder services are the lifeline forLufthansa‘s longhaul system
(37%)
(63%)
(26%)
(74%)(41%)
(59%)
BAAF / KL LH Group
Lufthansa Group19
On time performance (Departure)AEA-Hubs April 2008 in %
78,3 78,0
83,0
73,6
52,8
88,284,2
79,3400
333
265
302
372
165
200
395
0
10
20
30
40
50
60
70
80
90
100
OSVIE
LXZRH
LHMUC
KLAMS
LHFRA
IBMAD
AFCDG
BALHR
0
50
100
150
200
250
300
350
400
450
Lufthansa hub performance in comparison to majorEuropean hubs
*Average number of departures per day
*
Lufthansa Group20
On time performance: Zurich and Munich take toppositions, but room for improvement
AEA Comparison
Ranking Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08
1 VIE VIE VIE VIE VIE AMS AMS ZRH VIE MUC VIE VIE VIE 88,2%
2 MUC AMS AMS MUC AMS VIE VIE MAD MUC ZRH MUC MUC ZRH 84,2%
3 ZRH ZRH MAD ZRH MUC FRA FRA AMS ZRH MAD MAD MAD MUC 83,0%
4 AMS MUC MUC FRA FRA ZRH MAD VIE MAD VIE ZRH ZRH AMS 79,3%
5 FRA MAD ZRH MAD ZRH MUC MUC MUC AMS AMS AMS FRA FRA 78,3%
6 MAD FRA FRA AMS MAD MAD ZRH FRA FRA FRA FRA CDG MAD 78,0%
7 CDG CDG CDG CDG CDG CDG CDG CDG CDG CDG CDG AMS CDG 73,6%
8 LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR LHR 52,8%
Lufthansa Group22
FRA
MUCZRH
Fragmented market and demand patterns in CentralEurope require a broad strategic approach, notlimitited to „Multi Hub“
Multi-PRODUCT
Multi-HUB
Multi-BRAND
Global
Network
Lufthansa Group23
Ground product evolution: customer convenienceand process efficiency
Mobile BordkarteMobile Bordkarte
LH0024, S10A, 08DEC, M
Daten
Lufthansa wünscht Ihnen einen
guten Flug.
Mobile BordkarteMobile Bordkarte
LH0024, S10A, 08DEC, M
Daten
Lufthansa wünscht Ihnen einen
guten Flug.
Mobile boarding pass
� Pilot routes: FRA-HAM and vice versaMUC-HAM and vice versa
� Check-in channels: Mobile internetSMS push check-in
� From end of June 2008 mobile boarding pass will also beoffered at online check-in on all domestic routes as an alternative to home print boarding pass
� High customer satisfaction
Online check-in with home print boarding pass
� More than 10,500 online check-in users per day in May 2008
� Online boarding pass available on:
- all flights ex-Germany (except USA)
- 560 routes worldwide, 50 of these intercont
� Extension on further routes planned in 2008 (especially USA)
Lufthansa Group24
To further improve the lounge product LH will inves t more than 150 million Euro in the next few years
Lufthansa Group25
Besides premium traffic market: Our “Multi Product” strategy supports our seat load factor and the productivity of aircraft
Competitive pricing concepts Extension of seasonal services
Lufthansa Group26
Investments in modern technology reduce costbase and help the environment
Average specific fuel consumption(litres per 100 passenger kilometres)
30,3%Reduction since 1991
Lufthansa-fleet 2007:4,32 l/100pkm
4,31
4,36
4,39
4,38
6,2
5,64
5,315,19
5,145,14
4,984,97
4,68
4,574,65
4,51
4
4,5
5
5,5
6
6,5
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
4,32
15 Airbus A 380-800
18 Airbus A 330/340
15 Bombardier CRJ 900
20 Boeing 747-8
30 Embraer 190
64 Airbus A 320-Family
Fleet investment, LH Group
Lufthansa Group27
Agenda
Development of system and governance: Lufthansa‘s multi hub system
Comparison to competitors‘ approaches
Lufthansa on the right track
Lufthansa Group28
LH/LXAF/KLBAOAL
Market shares in premium traffic: LH Group in leading position in most European markets
30%
5% 2%
64%
46%
10% 6%
38%
7% 8% 4%
81%
18%11%
3%
68%
10% 5% 2%
83%
8% 2% 2%
87%
45%
7%2%
47%
19%12% 6%
63%
27%
11% 5%
57%
12% 4% 3%
81%
5%
46%
3%
46%
2% 4%
36%
59%
Premium traffic market sharesLonghaul traffic to/from Europe
Source: MIDT 2007
Spain/Portugal
UK, Ireland
Scandinavia
Germany
SwitzerlandAustria
Italy
France,Benelux
Eastern Europe
GreeceTurkey
Russia
CIS
Lufthansa Group29
40
50
60
70
80
90
100
1992 1994 1996 1998 2000 2002 2004 2006 2008
AEA average
Lufthansa‘s seat load factor exceeds the AEA average
* 2008: Jan-April only. SLF cum. 2008 expected to remain stable.Source: AEA (Association of European Airlines) and Lufthansa Annual Reports
[%]
*
Lufthansa Group30
40
50
60
70
80
90
100
2000
2001
2002
2003
2004
2005
2006
2007
2008
40
50
60
70
80
90
100
2000
2001
2002
2003
2004
2005
2006
2007
2008
AEA average
1) domestic and cross border Europe* 2008: Jan-April only. SLF cum. 2008 expected to remain stable.Source: AEA (Association of European Airlines)
*
Our capacity is highly utilized, on longhaul flightsbut also in European traffic
AEA average
*
SLF longhaul flights SLF shorthaul flights 1
[%][%]
Lufthansa Group31
The productivity of our fleet is increasing
Entwicklung der Flottenproduktivität (Kont Regional)
7,5 7,5
7,9
7,0
7,7
7,9 7,9
7,4
7,1
6,46,66,87,07,27,47,67,88,0
Total FRA MUC DIRECT
2006 2007 2008 (expected)
Entwicklung der Flottenproduktivität (Kont Classic)
8,6 8,8 8,8
7,0
8,7 8,9 9,0
7,48,3
0,0
2,0
4,0
6,0
8,0
10,0
Total FRA MUC DIRECT
2006 2007 2008 (expected)
Shorthaul (Classic)
Shorthaul (Regional)Entwicklung der Flottenproduktivität (Interkont)
14,414,3
14,714,8 14,8 14,7
15,0
14,5
13,8
14,0
14,2
14,4
14,6
14,8
15,0
15,2
Total FRA MUC DIRECT
2006 2007 2008 (expected)
Longhaul
Aircraft productivity, in block hours per day
Lufthansa Group32
Thank you for your attention!
Lufthansa Group33
Disclaimer
This presentation is for informational purposes only, contains preliminary financial and other information about Lufthansa and is subject to updating, revision, amendment and completion. This presentation does not and is not intended to constitute or contain any offer of securities for sale or a solicitation of an offer to purchase any securities of Deutsche Lufthansa AG or any other company and neither this presentation nor anything contained herein shall form the basis of any contract or commitment.
Certain statements contained in this presentation may be statements of future expectations and other forward-looking statements or trend information that are based on management's current views and assumptions and involve known and unknown risks and uncertainties. In addition to statements which are forward-looking by reason of context, including without limitation, statements referring to risk limitations, operational profitability, financial strength, performance targets, profitable growth opportunities, and risk adequate pricing, as well as the words "may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, or continue", "potential, future, or further", and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements. Lufthansa assumes no obligation to update any such statements or any other information contained herein.