Aviation took a hard knock in the slowdown that started in mid-2008. Business since then has improved, but so has the rivalry in the skies. The West Asian carriers with their inexpensive tariffs have posed a serious threat to carriers like Lufthansa on popular routes like India-Europe-USA. Lufthansa Director (South Asia) Axel Hilgers talks to Mihir Mishra and Bhupesh Bhandari on Lufthansa’s plans for the Indian market.
How does the market look at the moment?
Still good, although we are going from a very busy summer to a low season as we approach Diwali. The festival season is low season for outbound travel from India but inbound traffic is very strong from Europe because the weather is nice and tourism is strong. I expect October and November to be less than the earlier months like August. December and January are picking up again.
So, outbound and inbound follow different cycles?
Yes, unfortunately. I think all airlines have to struggle with this. We try to balance this.
What are the peak seasons for outbound travel?
December and January. Second half of December is very strong and till April is high season for us. The period from June to September is also good for us. There are only a few parts of the year where you have imbalances, which is now.
How do you address this?
This is not a major problem. When we say outbound travel is not full means we have 75-80 per cent occupancy, which is not bad. The minimum seat factor all the airlines are aiming is 80 per cent and we have achieved the same when we combine the two (outbound and inbound).
So, 80 per cent occupancy is commercially viable?
Yes, it needs to be above 80 per cent.
Which is the bigger market for you: Outbound or inbound?
Both. About 30 to 40 per cent of our tickets in the India-Germany sector are sold in India, about 30 per cent in Europe which includes Germany and the rest in the US.
How do the yields look in the India-Germany routes?
The yields have increased by over 30 per cent from last year. This is a huge increase as corporations have started travelling in premier class, which has increased the yields. Last year, corporations travelled less, and whenever they did it was in a cheaper class. We operated our flights in summers with almost 90 per cent occupancy in business class. In September, we see downgrades, which is a good sign.
What is the profile of the customers who travel with you?
It varies from time to time. In summers we have less business travellers, but in general our mix is 20:80.
Is it that a few cities in India give you 80 per cent of the business?
We have two flights daily from Delhi, 12 flights a week in Mumbai, which we will increase to 14 from the next summer. These are the two major centres for us like all the other airlines. We have a daily flight from Bangalore. It is the third city which gives us maximum revenue and the clientele is more premium. Delhi is more tourists and Bangalore is more corporations; so this route had suffered the most in 2009 as corporations were travelling less. This is the route which has seen the maximum jump. These are the three cities on which we are dancing in India. And the fourth city in terms of importance is Chennai from where we operate a daily flight. We also have three flights to Hyderabad and three to Kolkata, but they contribute less revenue as they have less capacity. And the other flight is Pune which is booming at the moment, and with the launch of two-class seats the route is picking up.
Do you say revenues are better from corporate travellers?
Obviously. Even the corporate traveller who sits in economy is flexible. If you want to fly to Germany today and return tomorrow, then it is a pure business trip and you have to pay more. The leisure travellers plan their trips much in advance and book the tickets, which makes it cheaper.
How much higher are the yields on corporate travel?
It depends on so many parameters. We have 15-18 booking windows for various sections. It depends on the time of the booking, which increases by the time you approach the flight timing. There are various classes for various people depending on the need and that helps us in managing the yield.
Who are your biggest rivals in these routes (India-Germany)?
We have three competitors. One is the classic competitor — British Airways, Air France, KLM and other European Airlines. Then there are the West Asian carriers. These have made India their home market and operate a lot of capacity in and out of India. The country has a lot of people and a lot of Indians also live in West Asia, especially a certain segment called labour, and this gives them the base load. The Indian carriers — Air India and Jet Airways — are also our competitors. Both the carriers fly all the routes we fly.
Are you saying that your main competition is from the West Asian carriers?
West Asian carriers are our more serious competitors, as they are pumping more capacity into the Indian market. Obviously, our main focus at the moment is on them because they have increased their capacity to India so much that we have to watch this carefully.
How will you counter the West Asian carriers?
We will counter them first with the best network on earth which we and our group partners like Swiss Air, Austrian Airlines, British Midland and Brussels Airlines offer. We have a super network, and when we combine it with our Star Alliance network, we provide the best network, which these carriers together cannot offer.
You might have the best network in the world but most Indian travellers fly to destinations where all of you fly?
Compare the destinations — Emirates fly with ours and you will find we are three times more. Everybody flies to Chicago, San Francisco or New York, but we also fly to many other destinations like Seattle and Orlando.
Many Indian carriers do fly to the major destinations where all of you fly.
But we are offering the widest network. Apart from the network, it is also our product, seamless travel and combinability with our partners, pricing and fare conditions. One answer to the competition is the North Atlantic product we are offering to our Indian customers called Atlantic Plus Plus. It is a joint venture between Lufthansa, Air Canada and Continental-United. Austrian will join next year and Swiss is still evaluating it. A customer will choose whichever carrier he wants to, the pricing and fare conditions remain the same. We do not care whether a travel agent is selling a Lufthansa ticket to the US via Frankfurt or a direct Continental flight to the US as long as our Atlantic Plus Plus member’s ticket is sold. This is an important answer to the competition.
We also have same kind of arrangement in Europe to provide a lot of flexibility to our customers, and they simply love it. We are also harmonising our operations in Europe and across the world so that we do not fly wing to wing. We are exchanging lounges and mileage programmes. These are the factors important to customers.
With these factors you can easily tackle British Airways and Air France-KLM but the West Asian carriers are very aggressive. They provide lot of offers to price-sensitive consumers. How can these offers be tackled?
There is no denial to the fact that the consumers will fly to the US via West Asia with Emirates, I do not deny this. If Emirates is cheaper on some destinations, we are also the cheapest on some routes. We provide a lot of options to our fliers by providing private jets to business class fliers and free companion ticket in business class. We provide offers when the demand is low and we are competing. We cannot offer the same as Emirates offers but we are also countering it. Sometime they may miss the opportunity by being aggressive. We do intelligent business. Not everyone enjoys a break in journey in Dubai all the time. We focus on bringing people from A to B as conveniently and as seamlessly as possible.
How will Air India’s entry into Star Alliance affect you because you have a code sharing agreement with it?
Yes, we will continue it (code sharing) and possibly extend it, and will look at our networks so that we do not fly wing to wing, scheduling, frequent flier programmes and how to share lounges.
Is there a business case for a low-cost carrier between Europe and India?
As of now, we do not see any case. In Asia, there are a lot of low-cost carriers but they are all four- or five-hour flights. It is difficult to have a low-cost carrier on long haul than on short haul due to obvious reasons. The turnaround time for low-cost carriers is very short, which can only be done at smaller airports. We are all bringing our costs down. We are negotiating with airports, hotels and ground-handling agents to bring costs down.
By how much have you been able to bring your costs down in the last one year?
Every business unit has brought its costs down. We (Lufthansa Group) have a target to save ¤1 billion by 2011. I get targets every year to bring costs down internally. We are not only saving cost but also investing in the future by building lounges in Mumbai (which is operating) and Delhi.
But with yields improving one would assume that the pressure to cut costs would have reduced?
No, the yields had decreased quite a lot during the slowdown and we are flying with lesser capacity than in 2008 and make almost the same money. You cannot say that the aviation market is back to its old strength. Our capacity is still not the same we operated in 2008 and we wish to reach that capacity by the summer of 2011.
I hope that we can fly the Airbus 380 into India. We have applied for traffic rights to fly an A380 to India. Once we fly that to India, we will be offering our best product to India, and even though our flights might not increase, we will increase capacity. India is in our list to operate A380 as soon as we get the permission.
Once you get the permission, on which route would you operate the A380?
We would operate it on the Delhi-Frankfurt route. The A380 operates out of Frankfurt in Germany and Delhi is the best destination in India because it is the entry gate for tourism.
If you get the permission to operate A380 next week, are you confident that the flight will be full?
It is always a challenge to fill the flight. According to our business plan, Delhi is completely the winner and if it comes then we will run after everyone to fill the plane. Whenever we operate, we want to operate it every day, but that depends on the government’s permission.
