Lufthansa Cuts First Class Seats, Ousts Air-Miles Hunters

Deutsche Lufthansa AG (LHA) said sales of first-class tickets have risen more than 10 percent following a revamp of its premium cabins and efforts to fill seats with paying customers rather than passengers burning air miles.

The trimming of first-class routes to focus on the strongest markets, coupled with cheaper but less flexible fares aimed at wealthy leisure travelers, has also spurred uptake of the premium product, Jens Bischof, sales chief for Lufthansa’s main brand, said in an interview at the carrier’s Frankfurt hub.

“There’s good demand and it’s very robust, not just a marketing peak,” Bischof said. “We try not to fill first at any price. It’s an exclusive, innovative product.”

Lufthansa has decided to remove first-class cabins from one-third of its long-haul aircraft, with the remaining 70 planes receiving an upgrade that includes more comfortable seats fitted with thicker mattresses and a more elaborate culinary offering. About 60 of the jetliners due for the refit have already been overhauled, driving the sales gain, Bischof said.

Lufthansa’s repositioning of its premium offering comes as Gulf carriers led by Dubai-based Emirates lure affluent long-haul passengers with scores of new wide-body aircraft. Its plan will see older Airbus SAS A340 and Boeing Co. (BA) 747 wide-bodies cut to two classes, while some new planes will have four cabin options as premium-economy berths are added for the first time.

‘Upgrade Class’

The German carrier’s reduced-price, leisure-oriented offering knocks about 40 percent off the price of a first-class seat for travel to about 30 destinations, Bischof said.

Lufthansa was selling first-class tickets from Frankfurt to Bangkok in January for 4,299 euros ($5,785) this week, less than fully flexible business-class seats cost. With a 400-euro fee for cancellations, the fares are ill-suited to an unpredictable schedule, and so won’t hurt lucrative corporate sales.

Chief Executive Officer Christoph Franz said separately that Lufthansa may have stuck with a comprehensive first-class network for too long, and that the product risked becoming “an upgrade class” for people redeeming frequent flyer points.

“For an entire product class to be more or less serving as a mile-burning product, that’s not the right thing,” the CEO said in an interview in New York on Nov. 6. “It’s a top-notch luxury product. We want to have passengers essentially for first class, with a few upgrades.”

Yield Pressure

Lufthansa typically carries 200,000 passengers a day — of whom only 700 travel first class, catered to by 1,500 dedicated flight attendants. It also last year tightened rules to bar most employees from flying first class on business-related trips.

Franz, who leaves Lufthansa next year to become chairman of Swiss drugmaker Roche Holding AG, said he was “surprised” by the rapid success of the revamp and parallel efforts to stimulate demand. “Hopefully we can continue in the same direction in the next two years,” he said.

Improved first-class bookings haven’t on their own been enough to reverse a trend of falling yields, a measure linked to average fares. Yields declined 3.1 percent in the third quarter, Lufthansa said on Oct. 31, accelerating from a 2.5 percent drop in the previous three months, with the slide blamed on adverse currency effects and the addition of more economy-class seats.

Five-Star Goal

Bischof said there’s no trend away from first-class travel to business jets, a service Lufthansa offers in partnership with Warren Buffett’s NetJets Inc., which supplies the planes.

The airline operates more than 1,000 private jet flights a year, with about one-third of its customers also booking a first class ticket. “There is no cannibalization,” Bischof said.

While Lufthansa doesn’t break down sales for first class, the share of premium revenue on long-haul flights, including business berths, was 47 percent for the first nine months, the lowest proportion in 4 years. That revenue is generated from just 20 percent of customers, Bischof said.

Lufthansa, which has orders for 295 new planes, aims to become the first western airline to receive a five-star rating from airline-review firm Skytrax by 2015, having already been awarded that rank for its first-class service.

Source : bloomberg