Speculation that the demand destruction from the coronavirus will be long-lasting and result in a smaller airline industry after the pandemic is starting to become a reality.
On Tuesday, Deutsche Lufthansa AG (CXE: LHA) announced a significant restructuring that includes a permanent reduction in capacity and the consolidation of several flight operations within the airline group. The company said the board of directors made the decisions because it expects global travel restrictions won’t be completely lifted for months and that it will take years until worldwide demand for air travel returns to levels before the coronavirus crisis.
Vasu Raja, American Airlines’ senior vice president for network strategy, said in The Wall Street Journal that few people are making plans to travel in the next three to five months.
The Lufthansa Group has already cut capacity by more than 90% and parked about 700 aircraft.
Based on the estimate of a slow recovery, Lufthansa Airlines is decommissioning six Airbus A380 double-decker planes, seven A340-600s and five Boeing 747-400s. The carrier is also withdrawing 11 A320 single-aisle planes from short-haul operations.
The six A380 aircraft were already scheduled to be sold back to Airbus in 2022. The decision to phase out the A340s and B747s was made because they burn more fuel and pollute more than more modern aircraft, Deutsche Lufthansa said. With fewer planes, Lufthansa will have less capacity at its hubs in Munich and Frankfurt, Germany.
Meanwhile, Lufthansa Cityline, which operates in Europe, will withdraw three A340-300 aircraft from service and end long-haul flights to tourist destinations for Lufthansa.
Another subsidiary, Eurowings, will also phase out 10 A320s used on short-haul routes and reduce its long-haul business that is sold through Lufthansa. And the company will accelerate its decision to bundle flight operations into one unit, while Germanwings flight operations will be discontinued altogether.
The restructuring already initiated at Austrian Airlines and Brussels Airlines will also go faster due to the coronavirus crisis, Deutsche Lufthansa said. The downsizing includes fleet reductions. And SWISS International Air Lines will delay deliveries of new short-haul aircraft and consider early retirement of older aircraft.
All Lufthansa Group airlines have also terminated almost all wet lease agreements with other airlines flying under their name.
“The aim remains the same for all employees affected by the restructuring measures: to offer as many people as possible continued employment within the Lufthansa Group. Therefore, talks with unions and workers councils are to be arranged quickly to discuss, among other things, new employment models in order to keep as many jobs as possible,” Deutsche Lufthansa said in a statement.
In an effort to maintain customers, Lufthansa Group is also offering more flexible travel arrangements. Lufthansa, SWISS and Austrian Airlines are allowing all tickets to be rebooked at new fares, while Brussels Airlines will apply the new fare structure on routes to and from North America. Customers who keep their reservations for flights that have been canceled are able to retain the ticket and value and can convert it to a new booking through April 30, 2021, and those who rebook by the end of the year will receive a $50 discount. Fares are likely to be considerably lower for the foreseeable future as airlines try to attract business.
Lufthansa is also responding to the coronavirus on the humanitarian front. On Tuesday, a Lufthansa Cargo B777 freighter arrived in Munich from Shanghai with 8 million protective face masks in 4,000 cartons. The shipment was transported on behalf of the Bavarian state government in cooperation with logistics provider Fiege.
The masks will be used at medical facilities as well as other companies that need to protect workers from infection.
Lufthansa Cargo’s 17 freighters are completely booked moving critical goods around the world, and the airline said it is operating 25 special flights with passenger aircraft dedicated solely to cargo. An additional 60 cargo flights with passenger aircraft are planned for next week, Lufthansa said.
Many airlines are deploying passenger planes for cargo-only flights to alleviate an equipment shortage resulting from the widespread grounding of passenger fleets. But Lufthansa is the first to transform passenger planes into freighters at such scale.