This week in passenger aviation witnessed two discouraging moments. First, Finnair, Finland’s flag carrier recorded first-quarter underlying losses of EUR€17.7 million (USD$23 million), compared with a EUR€24 million loss in the same period the year before. CEO of Finnair, Pekka Vauramo, has emphasized (unoriginally) that further cost reductions are required for Finnair to return to profitability. Finnair has spent the last few years cutting back on their European flights and focusing on their “North Pole to Asia” strategy in the hope of convincing long-haul travellers of the advantage of the shorter flights from Helsinki to China, Japan and Korea.
The second piece of bad news was the Lufthansa strike. Striking workers included cabin crew and ground staff at Lufthansa Cargo, Lufthansa Technik, Lufthansa Systems, catering unit LSG Sky Chefs and ground crews. In all, Lufthansa cancelled 1,700 flights, with a mere 30 operating, after strike action was announced at Germany’s biggest airports, including Frankfurt, Munich and Hamburg.
Stefan Lauer, head of HR at Lufthansa declared: “We want to call on the union to end this madness. Germany’s transport sector is becoming the laughing stock of Europe.” The Verdi union, which has 33,000 workers signed up, is pushing for a 5 percent increase in pay and job guarantees for its members. It hopes the strikes will put pressure on management to improve an offer it has described as “scandalous”. It has also threatened further strikes if Lufthansa Group do not meed their demands. To add more misery to Lufthansa management, the pilots’ union Vereinigung Cockpit (VC) indicated that it had requested of Lufthansa this week for a 4.6 percent pay increase for the 2013/2014 period.
From the management side, Lufthansa aim to cut 3,500 jobs worldwide as part of a programme to boost operating profit to EUR€2.3 billion by 2015. Seeing is believing.
With US carriers routinely going in and out of bankruptcy and many flag carriers living off government subsidy, it appears that only a handful of flag carriers can make money. Airline executives at flag carriers have pretty much tried everything they can to stave off poor performance: mergers and acquisitions; forming and enlarging alliances; trimming inflight service to reduce cost; charging for additional services such as luggage; reducing benefits in their frequent flyer programmes and using “fuel surcharge” to increase fares by stealth. Despite all these efforts, poor results continue.
It begs an important question: is it viable to have flag carriers who are profitable?