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Tobias2702
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Lufthansa's Loss-making Routes Now And Then

Mon Apr 30, 2012 9:12 pm

Hi guys, there is a German TV channel which repeats the news of the date 20 years ago. So today, there was the news item that on 30 April 1992, Lufthansa had announced to dismiss 1,000 employees because of the "ruinous competition on the North-Atlantic routes".

Judging from recent threads in this forum, LH is today again losing money in certain parts of its network, but now the short-haul routes are making trouble. Obviously, this is due to the LCC competition, which was only a minor issue in 1992.

But why is LH making money on the US/Canada network in 2012, compared to twenty years ago?
 
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shamrock604
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RE: Lufthansa's Loss-making Routes Now And Then

Mon Apr 30, 2012 9:52 pm

I'm guessing that perhaps the Gulf war and ensuing recession probably had something to do with losses on the NATL Network back in 1992.

Generally, routes to and from the US tend to be hit badly during periods of conflict where terrorism is a concern.
 
ElPistolero
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 1:05 am

Have to modify the post to reflect the reality of the LH-UA and LH-AC revenue sharing pacts. LH-UA got anti-trust immunity in 1996. LH-AC began revenue sharing in 1999. With CO entering the fold, you can basically write off competition for Canada and cut it by 40% from the US.

In the absence of competition, its usually not difficult to make money.

 In 1996, Lufthansa and United obtained ATI from DOT and began coordinating price and capacity on transatlantic
routes. They expanded to revenue sharing in 2003.
 From 1996 to 2009, more members of Star obtained ATI along with United and Lufthansa.
 In 1999, Air Canada and Lufthansa began sharing revenues on Germany- Canada routes.
 In 2010, Air Canada, Continental, Lufthansa, and United launched an integrated JV on all North Atlantic routes.


http://ec.europa.eu/competition/sect.../reports/joint_alliance_report.pdf


LH, for its part, is taking a battering from EK in India and in Thailand. LH has pulled out of Kolkotta and Hyderabad, and it is doing badly in Chennai and BKK.

http://atwonline.com/airline-finance...2012-will-phase-out-737s-2016-0423

Guess that foray into India isn't going according to plan.

[Edited 2012-04-30 18:25:47]
 
mogandoCI
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 1:39 am

Is LH doing poorly on those routes because they have the wrong aircraft (340 instead of 777), or because their J product wasn't competitive ?

Is any European airline doing well in second tier cities in India other than BA ?
 
ElPistolero
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 2:16 am

Quoting mogandoCI (Reply 3):
Is LH doing poorly on those routes because they have the wrong aircraft (340 instead of 777), or because their J product wasn't competitive ?

Is any European airline doing well in second tier cities in India other than BA ?

I suspect those are just low-yeild cities. Kolkota definitely is low yield HYD is probably a little more premium because of its status as an IT hub.

I don't think any airline apart from BA is serving tier 2 Indian citieis. BA is the only Euro serving Hyderabad.
 
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Semaex
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 8:08 am

Quoting mogandoCI (Reply 3):
Is LH doing poorly on those routes because they have the wrong aircraft (340 instead of 777), or because their J product wasn't competitive ?

Quite a blunt statement there. I wholeheartedly disagree when someone says that the A340 is the "wrong" aircraft, but hey, that has to do with personal taste too.
On the subject, those routes are quite low-yielding on the one hand, on the other there is massive competition from the Gulf carriers to India. LH is withdrawing from a battlefield they know they can't win on, so that's the deal. On a side note, India isn't the most friendly country towards foreign carriers either, as the A380 situation proves, so I'm guessing that business is harder than in other nations for LH (and other carriers).
 
ElPistolero
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 11:10 am

Quoting Semaex (Reply 5):
Quite a blunt statement there. I wholeheartedly disagree when someone says that the A340 is the "wrong" aircraft, but hey, that has to do with personal taste too.
On the subject, those routes are quite low-yielding on the one hand, on the other there is massive competition from the Gulf carriers to India. LH is withdrawing from a battlefield they know they can't win on, so that's the deal. On a side note, India isn't the most friendly country towards foreign carriers either, as the A380 situation proves, so I'm guessing that business is harder than in other nations for LH (and other carriers).

No airline is allowed to operate an A380 to India, (not EK, not SQ, not AF, not LH), so in that sense, the competition is on a level playing field.
 
mogandoCI
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 11:59 am

Quoting Semaex (Reply 5):
Quite a blunt statement there. I wholeheartedly disagree when someone says that the A340 is the "wrong" aircraft, but hey, that has to do with personal taste too.

For starters, the 333 is probably cheaper to fly to 2nd tier tier Indian cities since they don't require the range of the 343. And on the high side, airlines are bailing the 346 left and right for the 77W.

The 340 is only right when ETOPS is too much.
 
columba
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 12:09 pm

Quoting mogandoCI (Reply 3):
Is LH doing poorly on those routes because they have the wrong aircraft (340 instead of 777), or because their J product wasn't competitive ?

Well, the A340 is an efficient aircraft not as efficient as the 777 or A330 but still efficient. LH owns the A340 and they are paid for while other airlines using the 777 may safe a buck on fuel but pay leasing rates as well.

I also wonder why people only mention the A340 when it comes to be an unefficient aircraft in LH´s fleet. People could also say they use the wrong aircraft with the 747-400 instead of the 777-300ER  
 
DALCE
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 1:54 pm

Why o why does every LH topic turn into a 343 vs 777 topic! This has nothing to do with the original post. Please discuss about this and not again about why LH has 343's or should dump them... It is getting a sort of annoying to read this in every LH topic over and over again.
 
cricket
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 2:26 pm

Yup, LH is doing soooooo badly in India that the 748 will start ops to DEL and BLR. Certain Indian sectors did not make sense - CCU and HYD, but in DEL, BOM and BLR LH is doing rather well...
 
migair54
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 3:50 pm

I´m sure that mainly the money losing routes are the european routes and some local routes in germany, but some of this routes are the ones feeding the money making ones, so that´s why they have to keep them open.

Quoting Tobias2702 (Thread starter):
But why is LH making money on the US/Canada network in 2012, compared to twenty years ago?

Reply 3 is the reason.

The Joint Ventures across the Atlantic are the reason for many airlines to make money again in such a routes, coordinting prices and schedules, and many more things...

Some of the Asian routes are not profitable anymore because of the Middle east carriers, EK, QR... they can offer much better connectivity and more options, and LH is lucky because the Germany govt is blocking them to get more traffic right to more cities and more freqs.

I´m sure LH is also making good money in JNB, last time I saw there the AF and LH A380 parked the whole day and to do such a thing it must be because they making a lot of money on that route. Also with the help of SA in the JNB end.
 
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Semaex
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 4:32 pm

Quoting DALCE (Reply 9):
Why o why does every LH topic turn into a 343 vs 777 topic! This has nothing to do with the original post. Please discuss about this and not again about why LH has 343's or should dump them... It is getting a sort of annoying to read this in every LH topic over and over again.

  
I apologize on my behalf.
 
1stfl94
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 6:22 pm

Quoting mogandoCI (Reply 3):

Is LH doing poorly on those routes because they have the wrong aircraft (340 instead of 777), or because their J product wasn't competitive ?

Is any European airline doing well in second tier cities in India other than BA

BA pulled their 777s out of Kolkata and Dhaka (admittedly Bangladesh not India) with a better J hard product (soft product debatable)
 
pnd100
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 8:58 pm

Quoting ElPistolero (Reply 4):
I suspect those are just low-yeild cities. Kolkota definitely is low yield HYD is probably a little more premium because of its status as an IT hub.

I don't think any airline apart from BA is serving tier 2 Indian citieis. BA is the only Euro serving Hyderabad.

There are no European carriers currently serving CCU. LH had a good product to CCU but the yields on these routes are too low. These routes can only be served currently as loss leaders from Europe & who would be interested or capable to sustain that? Secondary cities around the world have potential but require a unique blend of economics, product & equipment to be viable. Based on my first hand experience with LH to CCU I would say that the airline did the best it could under the circumstances & did the right thing for the company by pulling out. CCU has a new terminal to be inaugurated later this year & time will tell if this will turn things around there.

Quoting Cricket (Reply 10):
Yup, LH is doing soooooo badly in India that the 748 will start ops to DEL and BLR. Certain Indian sectors did not make sense - CCU and HYD, but in DEL, BOM and BLR LH is doing rather well...

Good point. DEL, BOM & BLR are India's Tier 1 cities economically & making these markets work is a better indication of whether an airline is doing well in the Indian market. JFK, LAX, ORD in the USA would be a reasonable comparison in my opinion. Just because an airline may not work in DTW does not mean they won't work in the USA at all. DTW is a unique niche market just like HYD or CCU.

Quoting 1stfl94 (Reply 13):
BA pulled their 777s out of Kolkata and Dhaka (admittedly Bangladesh not India) with a better J hard product (soft product debatable)

BA was a great product to CCU but again, the numbers just were not there, just like LH & KL (who also pulled out of CCU)
 
aloges
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 9:06 pm

Quoting migair54 (Reply 11):
I´m sure LH is also making good money in JNB, last time I saw there the AF and LH A380 parked the whole day and to do such a thing it must be because they making a lot of money on that route.

Not necessarily... you have to offer your valued frequent fliers (i.e. SENs and HONs) some goodies for their miles. These might very well come in the form of high availability of award fares to places like South Africa and Florida (MCO, specifically). But that is just hearsay.
 
ElPistolero
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 9:33 pm

Quoting Cricket (Reply 10):
Yup, LH is doing soooooo badly in India that the 748 will start ops to DEL and BLR. Certain Indian sectors did not make sense - CCU and HYD, but in DEL, BOM and BLR LH is doing rather well...

+

Quoting pnd100 (Reply 14):
Good point. DEL, BOM & BLR are India's Tier 1 cities economically & making these markets work is a better indication of whether an airline is doing well in the Indian market.

Not sure about how they are doing to the Tier 1 cities, but pulling out of 2 (possibly 3 if Chennai gets tossed out too) of seven cities served (I m including PNQ) marks a significant decrease in LH capacity to India as a whole.

They may not be doing badly in Tier 1s, but they are losing market share to other airlines, particularly the Gulf carriers. HYD and CCU were put into place to increase market share - and the shutting down of these routes is akin to a retreat of sorts, unless LH is using the aircraft to put in a 3rd daily to DEL or BOM.

Quoting pnd100 (Reply 14):
LH had a good product to CCU but the yields on these routes are too low. These routes can only be served currently as loss leaders from Europe & who would be interested or capable to sustain that? Secondary cities around the world have potential but require a unique blend of economics, product & equipment to be viable.
Quoting pnd100 (Reply 14):
CCU has a new terminal to be inaugurated later this year & time will tell if this will turn things around there.
Quoting pnd100 (Reply 14):

BA was a great product to CCU but again, the numbers just were not there, just like LH & KL (who also pulled out of CCU)

Will a new terminal generate new numbers? If not, it looks like CCU is a lost cause. Doesn't surprise me in the least - I prefer to think of it as an oversized Tier 2 city, as opposed to a Tier 1 city.

Surprised about Chennai though - I always thought it would generate some premium traffic. How is 9Ws international route from there doing?
 
pnd100
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 10:07 pm

Quoting ElPistolero (Reply 16):
Not sure about how they are doing to the Tier 1 cities, but pulling out of 2 (possibly 3 if Chennai gets tossed out too) of seven cities served (I m including PNQ) marks a significant decrease in LH capacity to India as a whole.

They may not be doing badly in Tier 1s, but they are losing market share to other airlines, particularly the Gulf carriers. HYD and CCU were put into place to increase market share - and the shutting down of these routes is akin to a retreat of sorts, unless LH is using the aircraft to put in a 3rd daily to DEL or BOM.

Retreat is not always a foolish move, in fact it means that you recognize your error & wish to consolidate around your strength. Sticking to projects that are not working is not a good way to run any operation. If I was a stakeholder in LH I would want sustainable quality returns on investment instead of simple market share. If LH strategy was to add CCU & HYD to simply increase the quantity of Indian market share at all costs then that was not very wise from a business standpoint. I agree with you that if that was their strategy it was not very well handled.

Quoting ElPistolero (Reply 16):
Will a new terminal generate new numbers? If not, it looks like CCU is a lost cause. Doesn't surprise me in the least - I prefer to think of it as an oversized Tier 2 city, as opposed to a Tier 1 city.

Surprised about Chennai though - I always thought it would generate some premium traffic. How is 9Ws international route from there doing?

The new terminal may indeed generate new numbers. CCU has many built in latent advantages. It has a burgeoning population of over 15 million. There is a high number of educated & skilled workers in one of the world's fastest growing economies. Within 1,000 km there is no real competition in terms of international calibre airports. RGN, DAC & CCU are in the running for rising to the next level. With the recent reforms in Myanmar (Burma) tourism will increase as was highlighted by the BBC. Bangladesh's economy also shows signs of sustainable growth. CCU may be in the best position to rise if the new terminal works out, but that is a big if.

Don't forget that with Kolkata, a lot of the infrastructure in the city is still there from when it was a more important destination, it just needs to be updated. The fact is that Kolkata as a city is still considered a tier one city by many Indians & even the Indian government. Kolkata's GDP is still ahead of or on par with Bengaluru or Chennai. It's airport CCU on the other hand is definitely not tier one which is where (depending on how they finish) the new terminal may signal a turnaround. Please note that I am very cautious in making that statement based on history but I submit to you that the possibility is there.

The only way to have made a destination like CCU work as a foreign carrier is to send the smallest possible plane. Only regional carriers like SQ, TG or EK can afford to send widebodies based on cost structure. But even those widebodies are the smallest they have like the A332 with EK. QR sends an A320.

European carriers like BA I think overstepped by sending a 777. LHR-CCU is 4,318 nm (7,997 km). To be honest I'm not 100% sure but is that not within the range of the 767 that BA has? If so, I would think that this is the way to serve CCU from Europe. BA maybe could have flown 3x per week to CCU & 3x per week to DAC with a 767. I'm not in the industry so I'm sure there are reasons that they flew the 777 but in the current market, secondary cities in India / China can't make that economically viable. LH does not even have a 767 in their fleet. What aircraft other than the A333 could they have flown to CCU? They gave it their best shot but the economics were not there & they withdrew. I say that is sound business to focus on DEL / BOM / BLR.
 
UALWN
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RE: Lufthansa's Loss-making Routes Now And Then

Tue May 01, 2012 10:32 pm

Quoting pnd100 (Reply 17):
I say that is sound business to focus on DEL / BOM / BLR.

It may well be. On the other hand, it is conceding the rest to the likes of EK and QR. I'm currently planning a trip to India. I checked QR and I was amazed to see they serve 12 Indian cities non-stop from DOH, and I can connect to every one of them from BCN. So with QR I have one-stop flights to DEL, BOM, and BLR, but also to CCU, MAA, HYD, GOI, ATQ (Amritsar in Punjab), AMD, CCJ,, COK, TRV. Not even EK competes with that.
 
Tobias2702
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 12:33 am

Let me elaborate my previous question. I've just done a little as research how the LH mainline fleet on 1 May 1992 looked like:

short haul:
11x Airbus A300-600
31x Airbus A320-200
??x Boeing 727 --> who can help here?
36x Boeing 737-200
41x Boeing 737-300
31x Boeing 737-500
------------------------------
> 150 aircraft


long haul:
25x Airbus A310
18x Boeing 747-200
16x Boeing 747-400
11x Douglas DC-10
-----------------------------
70 aircraft


Today, there are 195 short haul and 130 long haul aircraft in the fleet, which is an increase of the longhaul percentage (=shift of focus) compared to 1992. But, provided that the majority of the domestic and European routes are unprofitable today (other than in 1992), and -- as some of you are suggesting -- many longhaul routes aren't proftable either (maybe not the American ones like in 1992, but the Asian ones), then where DOES Lufthansa make its money today at all?
 
PanHAM
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 5:25 am

Quoting Tobias2702 (Reply 19):
??x Boeing 727 --> who can help here?

727s were leaving the fleet, 8 still shown of which 3 were stored at SXF. Have no memory if the other 5 had been still operational at that time.


Concerning the short haul aircraft oday, don#t forget the many Embraers, Bombardiers etc,
 
cricket
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 8:26 am

Quoting pnd100 (Reply 17):
Don't forget that with Kolkata, a lot of the infrastructure in the city is still there from when it was a more important destination, it just needs to be updated. The fact is that Kolkata as a city is still considered a tier one city by many Indians & even the Indian government. Kolkata's GDP is still ahead of or on par with Bengaluru or Chennai. It's airport CCU on the other hand is definitely not tier one which is where (depending on how they finish) the new terminal may signal a turnaround. Please note that I am very cautious in making that statement based on history but I submit to you that the possibility is there.

CCU has a lot of good traffic potential, the only problem is that much of it depends on aged parents. The withdrawal of LH will close a lot of options for people like my cousin who is studying near BOS, LH was her best option. Now she will have to fly via DEL or BOM. EK will gain some traffic, but I feel DEL and AI could be a bigger beneficiary as long as they don't price themselves out of the market.
 
PanHAM
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 9:21 am

Quoting Tobias2702 (Reply 19):
??x Boeing 727 --> who can help here?

should have looked it upstraight away:

last B727-230 flight was October 4th, 1992 D-ABKT FRA-HAM to be retired . That puts an end to 28 years "Europa Jet" service woith LH.. Since my first flight in an LH 727 was in 1967 and the last certainly in that year I have seen 25 years of that.
 
pnd100
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 11:29 am

Quoting UALWN (Reply 18):
It may well be. On the other hand, it is conceding the rest to the likes of EK and QR. I'm currently planning a trip to India. I checked QR and I was amazed to see they serve 12 Indian cities non-stop from DOH, and I can connect to every one of them from BCN. So with QR I have one-stop flights to DEL, BOM, and BLR, but also to CCU, MAA, HYD, GOI, ATQ (Amritsar in Punjab), AMD, CCJ,, COK, TRV. Not even EK competes with that.

To be fair, LH did not concede the secondary cities because they never had them. Those cities are not LH's market. It's not just premium flyers in business class. There is a large group of economy fliers who care more about timing of connections & service rather than fare alone. In India they can be found on routes from BOM / DEL / BLR.

From the secondary cities the passenger mix is much more volatile & price sensitive. The gulf carriers succeed to these secondary Indian airports not just because of the VFR connector but also in large part due to the labourer market who is O&D to the region. There isn't a large market of labourers flying from India to Germany.

Quoting Cricket (Reply 21):
CCU has a lot of good traffic potential, the only problem is that much of it depends on aged parents. The withdrawal of LH will close a lot of options for people like my cousin who is studying near BOS, LH was her best option. Now she will have to fly via DEL or BOM. EK will gain some traffic, but I feel DEL and AI could be a bigger beneficiary as long as they don't price themselves out of the market.

In our experience LH was the best option to CCU. In my opinion LH can't make a secondary airport in either India or China viable yet because it does not have a suitable aircraft / configuration. 221 seats on the A330-300 are good but having 8 first class & 48 business class can't work to destinations like CCU or HYD in the current state. Like I said before, these destinations are 767 markets 3x per week & unless the airports grow or a suitable aircraft arrives, their time has passed.
 
cricket
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 12:24 pm

Quoting pnd100 (Reply 23):
Like I said before, these destinations are 767 markets 3x per week & unless the airports grow or a suitable aircraft arrives, their time has passed.

Pity that LH doesn't have the aircraft to make these work, PNQ only works because of the J-configured A319 and because the huge number of German companies in the Pune-Nagar belt. I hope I can share your optimism that the new CCU terminal can make more European routes viable, but that has to be coupled with increased regional traffic - to the North-East, Bangladesh and Burma where CCU can be a vital connecting hub.
 
UALWN
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 1:29 pm

Quoting pnd100 (Reply 23):
To be fair, LH did not concede the secondary cities because they never had them.

Of course LH should not be in the business of flying people to places like, say, AMD or CCJ. However, CCU, HYD, MAA? I'm not so sure. My point is that from now on, my go-to airline for traveling to India won't be LH but QR. Even if LH keeps on flying to DEL, BOM and BLR...
 
pnd100
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 2:42 pm

Quoting Cricket (Reply 24):
Pity that LH doesn't have the aircraft to make these work, PNQ only works because of the J-configured A319 and because the huge number of German companies in the Pune-Nagar belt. I hope I can share your optimism that the new CCU terminal can make more European routes viable, but that has to be coupled with increased regional traffic - to the North-East, Bangladesh and Burma where CCU can be a vital connecting hub.

LOL please note that I'm not necessarily optimistic. My mood about CCU is cautious at best! :p
Look at it this way, HYD also has a modern terminal. It's quite comfortable from my experience but that does not guarantee that it can gain the trust & business of intercontinental carriers. Where I think CCU has an advantage is in a) geography vs HYD & b) in terms of population Kolkata is nearly 3x the size of Hyderabad & therefore the market potential here is also greater. Any reconsideration of CCU by LH & other Euro carriers will be based on the AAI's ability to operate the new terminal in CCU efficiently

Quoting UALWN (Reply 25):
Of course LH should not be in the business of flying people to places like, say, AMD or CCJ. However, CCU, HYD, MAA? I'm not so sure. My point is that from now on, my go-to airline for traveling to India won't be LH but QR. Even if LH keeps on flying to DEL, BOM and BLR...

Please note that CCU currently ranks 9th in India in terms of international passengers (http://www.aai.aero/traffic_news/feb2k12annex3.pdf) behind DEL, BOM, MAA, HYD, BLR, COK, TVR & CCJ. Unless the business environment in CCU changes it will not rise higher.

Lufthansa is currently it is not equipped to fly to secondary cities that far away from Germany. Their product & natural geographic advantages are plus points. In my humble opinion, LH should concentrate on it's current core of profitable routes & cater to it's core market.
 
airbazar
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RE: Lufthansa's Loss-making Routes Now And Then

Wed May 02, 2012 4:51 pm

Quoting pnd100 (Reply 23):
From the secondary cities the passenger mix is much more volatile & price sensitive. The gulf carriers succeed to these secondary Indian airports not just because of the VFR connector but also in large part due to the labourer market who is O&D to the region. There isn't a large market of labourers flying from India to Germany.

LH's bread&butter to the tier2 cities was connecting passengers from the US. Following the .com bubble and subsequent economic crisis in the US, that market dried up. Even the Indian carriers which once showed interest in expanding in the US, canceled their plans. It certainly doesn't help that the gulf carriers also started expanding in the US.

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