Lufthansa makes 'permanent' cuts as travel plunges

Image source, Getty Images

  • Author, Natalie Sherman
  • Role, Business reporter, New York

Lufthansa is closing its Germanwings budget airline as part of a wider cutback driven by a decline in travel due to the coronavirus.

The German airline said it would de-commission more than 40 aircraft, warning that it does not expect demand to return for "years".

It said it would also reduce fleets in its other businesses, which include Austrian Airlines, Swiss and Eurowings.

Lufthansa's moves could be a hint of more drastic steps to come elsewhere.

"You can't understate the disaster that's unfolding right now in the world's airline industry. There's no sugar coating it," said Richard Aboulafia, aviation analyst at Teal Group.

Parked aircraft

While he said that travel demand has bounced back after other disasters and recessions, until the health risks abate he expects other airlines to follow Lufthansa's lead.

"For the next year," he said "to two years, there's going to be a lot of aircraft retirements, a lot of parked aircraft and a lot of utilization reductions."

Global airlines group IATA has said it expects airline passenger revenues to drop by more than 40% this year and warned that more than 25 million jobs in aviation and related industries are at risk.

Lufthansa has already idled more than 90% of its fleet since the virus outbreak and held talks with the German government about aid. But offloading aircraft means the "first permanent capacity reduction", it said.

"It will take months until the global travel restrictions are completely lifted and years until worldwide demand for air travel returns to pre-crisis levels," Lufthansa said. "Based on this evaluation, today the Executive Board has decided on extensive measures to reduce the capacity of flight operations and administration long-term."

The firm said it will enter talks with unions and its work council quickly to discuss "among other things, new employment models in order to keep as many jobs as possible".

"The decisions taken today will affect almost all flight operations" it said.

Mr Aboulafia said in part the crisis is allowing Lufthansa to accelerate plans to dump older, less fuel-efficient aircraft, several of which Lufthansa said were already scheduled to be sold.

It is a good opportunity to "prepare for rebuilding it with better aircraft one day when demand comes back," Mr Aboulafia said.