Lufthansa must prioritize premiumization over cost cutting following widening Q1 loss, says GlobalData

Lufthansa today (30 April 2019) posted a net loss of €342m for Q1 2019, compared to a loss of €39m the same time last year. The company blames rising fuel costs and overcapacity for its meagre results but as long as it focuses on its premium customers, Lufthansa will remain a leading player.

Laura Beaton, Travel & Tourism analyst at GlobalData’s offers her view:

“The first quarter is often the weakest for airlines so although the drop may seem significant, the company can quite easily recover over the year. By concentrating on the less price-sensitive segments such as premium and business, the company could recoup profits and move away from the more volatile low cost segment.

“Low cost subsidiary Eurowings made just 13.4% of the group’s traffic revenue in the first quarter of 2019 and struggled last year due to integration costs after parts of Air Berlin were taken over, so low cost is not a segment Lufthansa needs to depend on.

“Something else that attracts customers looking for more than a ‘no-frills’ experience is the knowledge that companies are doing what they can to be environmentally friendly. The addition of the Airbus A350-900, for example, was widely met with approval as it uses 25% less kerosene and produces 25% fewer emissions.

“Personalization and the integration of technology are at the forefront of premium customers’ demands and Lufthansa already offers a virtual chat bot, named Mildred, via the Facebook Messenger App, which can aid with searching for and booking flights.

“The company is also dedicated to appreciating their customers through its ‘Brilliant Basics’ and ‘Magic Moments’ experiences; added touches such as handwritten birthday cards make customers feel special and encourage them to book with the company again.

“The company has succeeded in the past because it has stuck to its values instead of cutting corners to save money and this is likely the path it needs to continue on to return to profit.”

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