LH Group posts better than expected financial results

[tolipanebas]

The LH group has posted better than expected financial results in this year up to Q3, with revenues of 22,8Bn (+6.1%) and net profit of 474M (+64.6%).

interestingly enough, it looks like OS is bought back to profitability after their latest round of restructuring and is contributing significantly to the positive result of the group, especially given its smaller size. In fact, it is now contributing more than much bigger Lufthansa airlines itself even!

More details from a very cautiously sounding LH:
http://investor-relations.lufthansa.com ... erung.html
And
http://www.bloomberg.com/news/2012-10-3 ... affic.html
Which mentions AF is also showing first signs of their turn around from a much deeper downturn than the others...

[sn26567]

One can also read that the short-haul operations of Lufthansa are not profitable. Brussels Airlines is not the only airline of the LH group with a similar problem.

The solution seems to be the integration of these short-haul routes in a low-cost subsidiary, like LH is doing with Germanwings, Austrian Airlines with Tyrolean Airways, and Air France and KLM are planning to do with two separate subsidiaries. I wonder how SN could do something similar to return European routes to profitability.

[wernerrav4]

The results for LH are better than expected for Q3,is this good news regarding Bru Air?

[RoMax]

One can also read that the short-haul operations of Lufthansa are not profitable. Brussels Airlines is not the only airline of the LH group with a similar problem.

Not just LH Group...also about all the other European network carriers. Finnair is outsourcing their regional fleet to FlyBe, Iberia has Iberia Express (and they still stop AMS, TXL and ARN, in my opinion quite major cities), AF-KL is (as you say yourself) looking for solutions, AZ seems to be in the red again,...

interestingly enough, it looks like OS is bought back to profitability after their latest round of restructuring and is contributing significantly to the positive result of the group, especially given its smaller size. In fact, it is now contributing more than much bigger Lufthansa airlines itself even!

As Tyrolean is now in fact the operator of all Austrian's flights, I'm not suprised they returned to profit. Tough so fast and at that level does suprise me.
LH's biggest problem is Europe, with Germanwings taking over all the non-hub operations it will improve, but that will probably take (much) more time than the (extreme) strategy OS used.

[tolipanebas]

An important turn around aspect not often mentioned in the financial press, but quite interesting for aviation enthousiasts nevertheles and fairly obvious at several of the group's airlines too, is the strategy to rationalize fleets to help drive costs down and to scale up the size of the planes used as much as possible.

A further step in this direction will come at the end of next summer, when the wetlease contract Lufthansa has with Augsburg Airways will come to an end and there will be no more turboprops operating for Lufthansa from then on: the smallest plane in their fleet will become the E190.

[RoMax]

A further step in this direction will come at the end of next summer, when the wetlease contract Lufthansa has with Augsburg Airways will come to an end and there will be no more turboprops operating for Lufthansa from then on: the smallest plane in their fleet will become the E190.

Aren't there some CRJ700's anymore?

[tolipanebas]

Yes, indeed.
I was thinking too much of Augsburg Airways itself.
Their E190s are said to be owned by Lufthansa and will most likely be absorbed by the konzern again after the end of the wetlease deal, but the Q400 will disappear from the Lufthansa fleet.
What will happen to Augsburg Airways itself remains uncertain, but Lufthansa clearly is cleaning up the many airlines operating its regional routes and only the subsidiaries are going to be kept.

[Pocahontas]

So most probably no turboprops for Bru. Air. then?

Cheers

[HighInTheSky]

So most probably no turboprops for Bru. Air. then?

Indeed, LH has explicitly voted against converting the wet lease operations of the Q400's flying for SN into dry leases. The aircraft is more economical without a doubt, but not suited for the business model nor the operations that SN needs to focus on.

[Flanker]

They want to support a massive long-haul network with feed from a LCC short-haul network.

The idea is not bad, except that LH isn't capable of running a succesful LCC operation the way FR and U2 do.
It's not the equipment, nor the people, it's the mentality, especially at management level.
LCC is much more than a business model, it's a culture. It's how far you're willing to go, regardless if you need to blackmail people in power for subsidies and tax exemptions .
It's how far you're willing to cut from the passengers, it's how you conduct negotiations with your suppliers, it's how you design processes, it's how open-minded you are, it's how you interact with your staff, it's how you manage your network.

I doubt any Ejet smaller than a E195 or a CRJ smaller than a CRJ1000 can make any money with fuel and yields where they are. The MRJ is years away, which means only one thing: LH is going to leave the market wide-open for new entrants who see a merit in serving

[tolipanebas]

After operating the Q400 for half a year now, SN has experienced first hand this plane is indeed not the versatile allrounder which can do the same as a jet for just half the fuelburn.
Yes, the Q400 is cheaper to operate, but it also comes with tons of operational problems which make it a dog on many of the routes it was first deployed on.
As this site's very own avgeek trip to SXB has shown, occasional flyers don't like to be on this plane for too long, most premium and frequent passengers dont want to be on it at all even, it comes with loads of loading restrictions and it just doesn't seem to be able to be used efficiently and flexibly to feed a long haul network on a constant basis with.
The Q400 is a nice plane for nearby and thin point-to-point routes, NOT to feed a longhaul network with, so it should be no surprise OS is the only other LH group airline which sees use in them in future, given they have an extensive network to regional and often even domestic airports.
SN are really struggling to find sufficient suitable destinations for their 5 strong fleet as can be demonstrated by the fact the Q400 got already pulled off quite some of the routes they were originally sent to almost exclusively and they have now started to use their small Q400 fleet in a more dispersed way throughout their shorthaul network, allowing them to work around the many operational handicaps of this plane by sending them out on the thinnest of flights where it likely won't matter.
The first hand operational experience on their own network has brought sufficient insight to SN to already conclude the Q400 is not a suitable plane to become the backbone of their mediumhaul fleet, just as anybody with some basic insight in the matter could already have predicted.

[Flanker]

If that's the conclusion of the test, sure why not.
Of course Tolipanebas is comparing Avro's fitted in a low density configuration flying around at 60% load factor with a Q400 in high density configurations flying at 70% load factor.
He's also not taking into consideration the fact that the new overhead bins are much larger and even larger than the ones on the Avro's, despite only having 4 abreast seating compared to the 5 abreast.

The Q400's cargo loading space is also square which allows for fitting more luggage compared to the rounded shape of the Avro's belly. It's funny though that Horizon and AC Jazz have no problems loading the Q400's with supplies and oversize luggage while SN can't seem to fit all the luggage for intercity regional service.

Or are we missing something here?

If you don't want them, get rid of them.
It's not like you're going to last long with your 20 strong fleet of A320's flying around empty.

[RoMax]

Or are we missing something here?

Maybe that SN is not just doing intercity regional service with their Q400's (for which the Q400 is just fine) but also feeding their African network, result: a full aircraft with pax that have heavy oversized luggage. Well yeay, just fine for certain routes. But as Tolipanebas explained, there are serious operational limitations when taking into account the specific character of certain routes in SN's network.

btw, you are comparing Avro with Q400...as if SN believes they can continue into eternity with their Avro's, as if they don't know the disadvantages of their Avro's.

The Q400 is a back up solution, but not a long term solution. Why: simple, because their operations showed that the Q400 has too many operational limitations on SN's specific regional routes. They do have certain routes for which the Q400 is great, but the amount of routes is not large enough to justify a fleet operated by themself.

(and please stop comparing a European network carrier with Canada or the US...)

[FlightMate]

Maybe Sn should try to solve the operational problems before rejecting the Q400.
After all, if the aircraft is that cheap to operate, that should be the most important decisive factor.

Solutions: Limit the hand luggages to something reasonable.
Allow a bigger limit for b.business (or even b.flex), impose restrictions on specific routes (where it is known that hand luggages will cause trouble).

A32F is all very nice, but not if they fly empty all the time. And I'm not sure an A318 can compete with the Q400, operating cost-wise (maybe Flanker could crunch the numbers)

[RoMax]

A32F is all very nice, but not if they fly empty all the time. And I'm not sure an A318 can compete with the Q400, operating cost-wise (maybe Flanker could crunch the numbers)

I don't think anyone is talking about A32F for the routes currently operated by Q400 (except for Flanker). The Bombardier Cseries (the prefered next generation regional jet of the LH Group) is already much closer (especially as RJ100 replacement), tough maybe still too big for several SN-routes?!

Maybe Sn should try to solve the operational problems before rejecting the Q400.
After all, if the aircraft is that cheap to operate, that should be the most important decisive factor.

Solutions: Limit the hand luggages to something reasonable.
Allow a bigger limit for b.business (or even b.flex), impose restrictions on specific routes (where it is known that hand luggages will cause trouble).

Restrictions on certain routes reduces the service and flexibility in the network/fleet. Btw, hand luggage is not the only problem (you just put them in the cargo hold, I've had it more than once on a Q400 flight, tough I didn't experience SN's Q400 service yet), the check-in luggage is another factor. Try operating a Q400 on a slightly longer regional route filled with AFI transfer pax and their luggage...

As a full service network carrier you have to find the right combination of low costs and service. The Q400 is too limited, it's not like SN didn't try it, and also the LH Group tried it. Well it's simple, they've decided it's not the key to a succesfull future, ok, time to look at other things and try to make the best of it until you have another solution.

[Flanker]

Luchtzak never sleeps...

I don't think anyone is talking about A32F for the routes currently operated by Q400 (except for Flanker). The Bombardier Cseries (the prefered next generation regional jet of the LH Group) is already much closer (especially as RJ100 replacement), tough maybe still too big for several SN-routes?!

That's one of the issues, so let's discuss it.

Let's start with the CS100:
The CS100 will have similar total operating costs as the RJ100 if SN takes it.
I estimate that its fuel burn will be around 2 tons, compared to 2.2-2.3 tons for the RJ100. Of course the CS100 is a slightly bigger airplane in a 5-abreast configuration (actually it's smaller if the RJ100 is fitted with 6-abreast) with more capacity so fuel consumption per passenger will be like 20% less.
However, the CS100's don't come with cheap lease rates so all the advantages gained by fuel consumption will be eaten up by the higher capital cost and will cost even more.

If SN's operations run on 250 hours per aircraft per month, the monthly fuel bill comparison is as follows:
CS100: 250 hours x 1.9 tons/hour x 1000 USD/ton = 475.000 USD
ARJ100: 250 hours x 2.3 tons/hour x 1000 USD/ton = 575.000 USD

The monthly lease bill will be as follows
CS100: 270.000 USD
ARJ100: 25.000 USD

Maintenance-wise, the ARJ100 brings around 100.000$/month higher maintenance bill due to age and imperfections.

So as you see, the higher lease prices of the CS100 will not be compensated by its lower fuel burn, although there will be quite some money saved in the maintenance department.

The reason for this only small difference in fuel burn is obvious.
Despite having 2 highly efficient engines compared to the 4 guzzlers of the ARJ100, the CS100 has an OEW (Operating Empty Weight) of over 33 tons. Compare this to the 26 tons of the ARJ 100.

For the sake of completeness, basically the CS100 is a useless dog even against the EMB 195.
The reason is that the EMB195 achieves the same fuel burn than the CS100 already, because it's over 4 tons lighter for the same capacity.



Now that the CS100 is in the garbage, let's talk about the CS300.
The CS300 is slightly smaller than the A319 in terms of capacity, but at around 35 tons, it will be 5 tons lighter.
When Airbus NEO'ed the A319, John Leahy said that the NEO just killed the business case of the CSeries. Leahy had a point, because even though the CS300 would probably beat the A319NEO on fuel burn performance, Leahy still has a few more perks to offer to the airlines: Leahy can offer a family of aircraft, a mix of A319, A320 and A321. The A320 family can carry ULD's and it's an established airplane. Plus when it come to delivery slots or production cost, there is no way that Bombardier could keep up with Airbus.
Sure, Bombardier has the merit of being able to offer a mix of CS100 and CS300 but is it a merit considering that the CS100 is a dog and basically it would make more sense to operate the CS300 emptier than to buy CS100's?

In SN's case, what good would the CS300 do if they already have more than 15 A319's?
What good would it do to have CS100's?

If anything, if they don't realise that the Q400 is their only viable short-term option for now, until better RJ's like the MRJ or the re-engined Ejets come, SN's only marginally viable option is to beg for LH's used CR7 and CR9's.

The Q400 is perfect for SN, just not the way they are using it now. They need brand new nextgen's with larger overhead bins and a proper business class, as previously discussed. The nextgen's have most of the maintenance flaws of the classics worked out, making them essentially much better than the Q400's SN is operating right now
Plus in a 58Y + 9C configuration of 67 seats versus a 78 seat configuration, you're very unlikely to have problems with carry-on and hold capacity.

Even when the ARJ is full, plenty of carry-on has to go into the hold by the way. Like on the Q400, the ARJ also has a high wing, meaning that under the wing, the bins are so small that they're barely usable.
This lack of overhead bins problem is also common on the B737/A320, there just never is enough bin space for everyone unless people do as it used to be done: put their bags under their feet.
20 years ago, the big trolleys that you see nowadays were not allowed as carry-on so those problems were less common.

[Inquirer]

The Q400 is perfect for SN, just not the way they are using it now. They need brand new nextgen's with larger overhead bins and a proper business class, as previously discussed. The nextgen's have most of the maintenance flaws of the classics worked out, making them essentially much better than the Q400's SN is operating right now.

Even though all this is very much off topic, allow me to say the results of the Q400 operations are no surprise to me. The Q400 just isn't a serious jet replacement.

You truly feel it every second of the journey, from the moment of check in even (loads of luggage limitations), through boarding (multiple reseatings for balance problems), in flight (noise, vibrations, catering, toilet,...) as well as post flight (buses iso terminal bridges).
Some larger bins and a differently shaped seat isn't going to turn a pretty average regional prop into say an A919lite, IMHO.

If you build your company completely around this plane and its limitations, you can probably make good use of it, but one has to ask oneself the question: is that the real purpose of it all, or should one just get the right plane for the global business model, which goes far beyond just regional flying alone? Remember you want to offer some kind of product consistency too, in the end!

If you need to try too hard to make something fit your plans, it normally means its just not suitable for your business and its high time to look for alternatives. I for one am pleased to learn Lufthansa will ditch the Q400 from their timetable and it comes as no surprise if they are pushing BRU.air in the same direction: if it got tested and found largely unsuitable, then you can only applaud them for this decision, can't you?

[Pocahontas]

Passengers are not happy with a Q400, always flying in the turbulent layers when it's cloudy, no to speak about CB's. So operating an aircraft at a lower operating cost and losing even more pax is not an option either.
Baggage and cargo is a big problem as well, with the Q400. The LH Group is going for a uniform fleet, and since there are no Q400's in the fleet, my guess is that SN will not dry-lease any Q400's in the near future.

[FlightMate]

And if they try everything, and nothing works?
Sure, in the future, when long haul brings a lot of transit pax, it might be good to increase the capacity on the european network, but for now, If they can fill their q400 and make money out of it, they shouldn't complain. We're in survival mode!

When I travel EY in Europe, whether on Ryanair or Lufthansa, I don't complain about the comfort, I know it will be crap anyway.
Business is a different matter of course.
So I think that if SN can put a nice business class in the turboprops, and something half decent in the back, fill their planes, and make money by adjusting the yields up, that's the way to go!
Hell, even offer the long haul pax more checked luggages for free on the european network, just to solve the hand luggages problems!

[Inquirer]

Yet the conclusion may very well be that B.air most likely can not sufficiently fill a Q400 with the type of passengers they currently have, for the simple reason the plane would get maxed out well before it'd reach an acceptable headcount.

We are always talking from an intercity perspective, but my last flight with them was to LYS for instance and there were only 10 Europeans on board that morning flight: all the rest were Africans. Don't know about the amount of checked luggage of course, but it almost looked as if they hadn't checked any luggage at all and where carrying everything with them!
The flight was on AVRO and the cabin was packed with luggage: no way you could ever fit that in a Q400, believe me, and that is the situation today. Add a couple of extra intercontinental routes and you can indeed completely toss the Q400 aside on anything but the few intercity routes like to HAJ.
I may not know much, but I do fly them several times a month to see that especially their morning flights look more and more like domestic African flights and so I can very well imagine they have different needs even for short flights than what you might think from a purely European perspective.

Remember that in the end, the plane needs to fit the route and the airline, not the other way round.
I think it's a bit of a weird situation when you are going to look for other routes and change the airline just to make a certain plane somehow work, especially prior to its purchase, don't you agree?
I'd say you'd be getting the wrong plane then?