Deutsche Lufthansa AG’s Carsten Spohr faces a career-defining test of his capabilities as chief executive in the aftermath of a crash that could widen divisions at a carrier already riven by labor unrest over his cost-cutting plans.
With the tragedy being blamed on one of the company’s own pilots, Spohr must deal with the emotional impact on staff and questions posed about training and monitoring methods, while continuing to push crew to accept savings he has said are vital in stopping the business slipping from aviation’s first tier.
Complicating matters is the fact that the crash came at the same Germanwings low-cost unit around which Spohr is seeking to rebuild Lufthansa’s short-haul network. Without that switch, the company seems set to continue losing traffic to discount rivals such as Ryanair Holdings Plc and EasyJet Plc at a time when travelers may be reconsidering their loyalties to a carrier that had pitched its safety record as a significant selling point.
“Task number one has to be to calm their employees as best they can,” said Addison Schonland, an aviation industry consultant at AirInsight from Baltimore, Maryland. “This event it out of the blue. Lufthansa has such a sterling reputation that it’s almost beyond belief that this happened.”
Spohr, previously in charge of the main airline brand and elevated to CEO last May only after the company spent almost five months trying and failing to find an outsider, has adopted a more conciliatory approach than predecessor Christophe Franz, who had clashed with staff over his sober analysis of the twin threat to Lufthansa from European discount rivals and the fast- growing carriers of the Persian Gulf, with their superior network connections and higher-rated cabin products.
That’s won Spohr little credit with unions or the financial community, with pilots staging 22 days of strikes, the worst in Lufthansa’s history, and two earnings downgrades and a profit slump leaving it with seven buy ratings among 31 analysts and a 5 percent stock drop this year after a 10 percent fall in 2015.
Data collected by Bloomberg show the company also has the lowest aggregate rating in the 29-member Bloomberg World Airline Index, which was so even before the crash. Six hedge funds have shorted the stock in anticipation of a further slide.
With the Germanwings crash in the French Alps on Tuesday being laid at the door of the Airbus A320’s first officer, Lufthansa’s top-notch safety reputation is on the line and more than 118,000 staff across eight airline units and subsidiaries that span engineering to inflight food have been left reeling.
A crash that initial theories suggested might have resulted from a freak depressurization incident or aircraft systems failure now reaches to the heart of Lufthansa’s own practices and culture, with the company’s staff-screening program called into doubt, together with rules allowing a pilot to remain unaccompanied in the cockpit when the other has left.
Lawsuits and compensation claims are also likely to take a financial toll, even before the possibility of a revenue hit from any slump in bookings is taken into account.
The critical question now is whether the tragedy will bring factions that have developed within the company together or foster soul searching, further splits and a sense of crisis.
Spohr moved early to reiterate his belief that, despite the emerging explanation of the crash, Lufthansa’s pilots “are the world’s best.” The company’s flight-crew union has meanwhile put the conflict with management over benefits on indefinite hold, while the UFO union representing cabin attendants said its members are pledged to stand as one with the airline and pilots.
Name to Go
“Our confidence in our pilots is unbroken,” said UFO head Nicoley Baublies. “While our world has been shaken lastingly, we will get through this catastrophe as a family of fliers.”
Lufthansa itself has observed minutes of silence at various bases, created a forum for mourning on its intranet, laid out books of condolence at some sites, and published an employee newsletter dedicated to the tragedy.
In strategic terms, Lufthansa may be thankful that the Germanwings name is already set to gradually disappear as the business is folded into the company’s Eurowings brand, which though smaller is reckoned to have greater potential appeal in foreign markets. Spohr must still, though, reconcile labor groups to his plan to transform short-haul operations outside Lufthansa’s Frankfurt hub into a true low-cost player.
“Such a shocking event might get people to realize they should not waste energy on internal disagreements,” AirInsight’s Schonland said. “I would hope this gives everyone pause and helps to focus attention on working together.”
This article was written by Richard Weiss from Bloomberg and was legally licensed through the NewsCred publisher network.