Lufthansa To Ground Aircraft?

Lufthansa is reportedly considering grounding 20, if not upwards of 40 aircraft as part of an immediate response to the war in Iran affecting the Middle East, but the world too. With prices rising at an alarming rate, airlines are being forced to respond and consider all available options in order to preserve their standing in the industry and weather the ongoing storms. Boy, have we heard this before. As flagged by local media, the CEO when speaking with employees at a recent meeting indicated that a temporary grounding may well be the very best way to navigate the ongoing turbulence. If the planes were to be grounded, there would be around a 2.5% reduction in available seating capacity. While this would impact the business, it would also have its positives, allowing them to prepare for whatever the situation becomes, especially if it is going to worsen. The core problem for airlines like Lufthansa and many other across our industry, it is that jet fuel has become dramatically more expensive since the conflict escalated. Airlines have reported that higher fuel prices are becoming an ever-pressing problem, forcing a complete retooling of not just the status of aircraft that are active, but crucially, you're looking at the price of fares, capacity, deployment, and so much more. For Lufthansa, while grounding planes would be a tough decision, it's not something that it hasn't been forced to do before during the COVID-19 pandemic. Obviously, under something more extreme, it sent planes to storage to preserve its standing in the industry during the tough period. In the short to medium term, the temporary grounding would allow the business to at least protect margins and avoid retaining jets at current cost levels to keep them airborne, which would only worsen the damage. What largely differs for the moment this crisis from the pandemic is that demand remains strong at least for the moment. And while these airlines are able to fill the planes that would even be on the ground, simply put, these markets and their performance are not strong enough to absorb the major increase in operating costs that leads to profitability across key routes being damaged unless the price point for tickets or extras are pushed in an upward direction. For passengers, the impact of the grounding would be felt first through fewer scheduled choices as fewer planes in the air would mean that strategic decisions about which flights to operate across the network would likely focus on less profitable routes. What this can mean is less flexibility and on some of the remaining flights, look to push the prices up as well since there's more pressure than ever on those customers with connectivity initiatives if there are fewer choices. As full of tons are, the grounding of the aircraft can still positively affect overall margins and present itself a safer option in the short term with reduced exposure to weaker routes amidst surging costs. But it isn't all positive. At the end of the day, no matter how it's put, parked aircraft go on to reduce market share, weaken the network available and signal the need internally to prioritize its costs over growth until stability can be achieved. And when the stability can be achieved, remaining completely uncertain certainly has alarm bells ringing. Is this isolated? Well, the prospect of grounding aircraft on a temporary basis is not something only Lufthansa would be considering given the situation unfolding right across the industry. Some airlines have already acted on this either enacting emergency plans, cutting their own services, or in the case of Qatar Airways, sending many of their to storage, ranging from the 380 to the A330, even next generation 787s, while keeping others parked in Doha as their operations remain still heavily restricted. There are also other airlines which are changing how they price their flights to try and cope. Look at Qantas, who have put on surcharges to their international services, and then JetBlue who have increased the costs for their checked baggage. How each airline responds to the effects of the conflict will drastically vary. However, what is similar is that each airline is feeling the pinch in one way or another because of the rising costs to operate. And especially for the companies that are already on tight margins, finding ways to absorb costs has really become the toughest thing over the last five weeks and will continue if things are not resolved. Keen to hear your take on the prospect of Lufthansa parking planes, whether or not you believe this to be the best decision or something that has to happen. Thanks again for your support despite, again, the circumstances. I hate that all of this is happening. I hate that there's constant negativity. But unfortunately, what can I say? This is pretty big at the moment. It's occupying everywhere. And my job to you is to bring you the latest in our industry, pretty or ugly. Thanks again, and I'll see you back here tomorrow or potentially in 12 hours for another emergency video.