Lufthansa (LH, Frankfurt International) has announced that in light of a slower than anticipated market recovery, it will increase its group capacity reduction plans by 50 more aircraft, including the long-term and possible permanent grounding of all A340-600s and A380-800s.
"In addition to the fleet changes already communicated, the following decisions have been made: after six A380s were finally taken out of service in the spring, the remaining eight A380s and ten A340-600s, which were previously intended for flight service, will be transferred to long-term storage and removed from planning. These aircraft will only be reactivated in the event of an unexpectedly rapid market recovery. In addition, the remaining seven A340-600s will be permanently decommissioned," the group said in a press release announcing its new strategy.
Following the changes, the group will retire 150 aircraft, as opposed to the previously announced 100, by the middle of the 2020s. These decisions will result in an incremental EUR1.1 billion impairment charge, which Lufthansa expects to record in the fourth quarter of 2020.
Although media had earlier reported that the carrier would seek to retire all quadjets except the B747-8s, the announcement does not mention either the remaining six B747-400s or seventeen A340-300s.
The German airline underlined that previous expectations to operate around 50% of last year's capacity in the final quarter of 2020 now seem unrealistic, with 20-30% being the more realistic hope. As such, further cuts are unavoidable. Lufthansa added that the incremental cuts would affect not just the fleet, but also staff, with layoffs now expected to go beyond the previously announced 22,000 positions.
"The change in permanent staffing levels within flight operations will be further adjusted in regards to market development. The compensation and reduction of personnel surplus will be discussed with the responsible employee representatives. Irrespective of the negotiations on reconciliations of interests and social plans for redundancies within the Lufthansa Group, the executive board's objective remains agreeing on crisis packages with the collective bargaining partners that limit the number of necessary redundancies," the group said.
The group said that the worsening outlook notwithstanding, it still plans to return to positive cash flow in 2021.
Meanwhile, pilots' union Vereinigung Cockpit (VC) has said that it has received an internal communique from the airline regarding plans for Lufthansa's long-haul leisure specialist Ocean (Frankfurt International). According to the union, the start-up is already undergoing AOC certification (what has also been confirmed by the carrier) and plans to launch with three widebody aircraft in spring 2021. The union raised questions regarding the financial rationale for the move given current market conditions.
"The question arises as to whether Lufthansa has to spend so much money in the middle of the biggest crisis since September 11 to compete with already ailing carriers Condor (DE, Frankfurt International) and TUI fly (Germany) (X3, Hannover) in the leisure business. We are assuming years of start-up losses," VC President Markus Wahl said.
The new unit may likely be modelled after Edelweiss Air (WK, Zurich), a leisure subsidiary of Swiss (LX, Zurich), which itself is a subsidiary of Lufthansa (LH, Frankfurt International).
