Axel Hilgers, Lufthansa’s Gurgaon-based director (South Asia) sees no signs of immediate recovery in the aviation sector which is reeling from heavy losses. He admits to a decline in the airline’s business from India but says that the German carrier has managed to improve its market share by three per cent. To mark 50 years of Lufthansa’s operations in India, the former sports professor who looks after the airline’s operations in India, Nepal, Bhutan, Bangladesh, Sri Lanka and Maldives, met Shuchi Bansal and Sharmistha Mukherjee. Excerpts:
What are Lufthansa’s current challenges in the Indian market?
The general challenge is to overcome the downturn affecting not just India but the whole world. We have to configure our aircraft to continue to earn money in India. This is how we like to put it: Out of a smaller cake, we’d like to get a bigger piece. In these difficult times we cannot increase our revenue. The yields are suffering because of over-capacity in the market. Therefore, we are concentrating on market share. In the first five months of 2009, we have gained 3 per cent market share. But revenue-wise we cannot compare 2009 with 2006 or 2007. It is a tough year and the drop in business is significant.
Is that why you have shut down your sales offices in India?
The main purpose of closing the offices was to get the sales organisation and the processes right. We don’t necessarily need offices at every destination that we fly to. We have a call centre in India and a fulfilment centre in Bangkok where other back-office functions are centralised. The purpose was to use the call centre and the fulfilment centre. I don’t deny that we had to get a little bit leaner in India.
Do you plan to withdraw flights from India?
No. At the moment we have cut costs in our internal processes but not on products. We don’t want to give away destinations. We hear people say that Lufthansa will drop out of Kolkata. I do not exclude it, but this would be our last decision. Currently, we have decided to fly according to our summer schedule. But if the crisis continues we have to look at our winter schedule.
I’d like to say I don’t see any signs of recovery. And I think my statement is in line with what I read the CEO of British Airways saying recently: the times are very difficult and there is no light at the end of the tunnel. In 2010 we are hoping for better times.
Have airlines seen such bad times before?
Aviation is a volatile business. It goes up and down. The earlier two downs had a reason for it. We had 9/11 in 2001. Then there was SARS which caused a downturn, especially, in Asia. This is an economic downturn and it seems the recovery will take a little longer. Corporates are really cutting down on travel costs. They are flying less and flying cheap. So we have increased economy class seats from 234 to 270. Business class (Delhi-Frankfurt) has been cut from 80 to 66.
Air India (AI) has increased its frequency to Frankfurt and is offering lower fares. Is it a threat to Lufthansa?
AI is our number one partner in India. We hope that it will join Star Alliance very soon. In fact Lufthansa helped AI set up operations in Frankfurt, with slots and flight timings. But you are right. It is also our competitor because it has increased capacity to Frankfurt where it is building a mini hub. There is more capacity going to Frankfurt out of Delhi, Mumbai and Ahmedabad. But this is normal in business life. You can cooperate but if you fly to the same destination, you also fight for passengers.
Will Air India’s lower fares affect Lufthansa’s business?
There is always an effect if there is more capacity coming into the market. As for fares, we take a very close look at fares and adapt them to the product we offer. Obviously, there’s always a carrier which may be cheaper. When AI launched Frankfurt, it may have had a promotional fare. But in the long-term we see that our prices are competitive.
Are European airlines operating in India under threat from Emirates airline?
Emirates has really grown in the last year. It is, no doubt, one of our major competitors in India. For Emirates India is almost like its home market. It is a good airline and has taken away market share.
But at the end of the day we have various advantages. One is Star Alliance and the wide network it offers. Emirates only has its own network.
Elsewhere in the world airports are reducing charges. Indian airports are asking for more. How does this affect your operations?
Airport charges in India are going up not only for the airlines but also for the individual passengers. There are certain fees because India is investing in infrastructure. This is great for India and it needs to be financed. But being an airline I hope that India will reduce these charges in the future because this will help bring in more flights and make our operations profitable.
The government has been mulling over allowing foreign airlines to pick stake in domestic carriers. Will Lufthansa be interested?
I personally cannot answer this question. It is a question for my CEO who has a team for the merger business. Lufthansa is very active in the merger market. We have projects in Europe, like Swiss airline, which are already finalised. The other projects like Brussels or Austrian airlines are waiting for an okay from the European Commission. So, all these businesses have to be digested first. I don’t know if we are in any position to make any commitment or investment today (in India). Also, let me clearly state that there are no talks with any Indian airline to buy shares.
It is believed that the government has written to the airlines asking why travel agents’ commission is not being paid.
We have not received such a letter. You had earlier said that we have closed down offices. This is a clear indication that Lufthansa is working very closely with travel agencies. Today at least 96-97 per cent of our distribution in India is done by travel agents. Last year, Indian carriers and travel agents’ associations negotiated and implemented the Net Fare model. This has worked perfectly. There is no commission but with this model travel agencies can earn more money than before because the airlines give away their end price control. This model is followed in 80 per cent of world. In the last eight months, Lufthansa as well as other airlines have sold tickets. As far as I know, travel agencies have not closed down because of this. It shows the model is working in India.
Are no-frills airlines the way to go?
I believe more in the model which Lufthansa is running at the moment. We are a full-service provider. We have the cheapest and best buys for passengers who are price sensitive. But we also offer something to the business class passenger. For the premium segment customer we have a private fleet, first class and the business class. This is Lufthansa’s strength. The low cost airline is only for a particular segment.
