Lufthansa owns more ancillary businesses than most airlines, and generally that works out OK. But airline catering is not a growth industry, so maybe it's time for the company to get out of the business.
Deutsche Lufthansa AG is exploring options including a sale for LSG Sky Chefs, the catering arm that serves planes, trains and the International Space Station, according to people with knowledge of the matter.
The German airline is working with advisers to review the business, according to the people, who asked not to be identified because the information is private. Other possibilities include a combination with a competitor or selling a stake to a partner, they said.
Airline catering is growing more slowly than overall air traffic, as short-haul flying outpaces longer routes and budget carriers gain market share. With travelers increasingly unwilling to pay for food on shorter hops and airlines pressuring suppliers on costs, caterers have been branching out into supplying trains and supermarkets to make up for lost business.
Deliberations are at an early stage, and Lufthansa isn’t running a formal sale process, according to the people. It could still opt to retain its ownership of LSG Sky Chefs, the people said.
A representative for Lufthansa declined to comment.
Lufthansa shares rose 0.8 percent to 19.10 euros at 2:09 p.m. in Frankfurt trading after earlier gaining as much as 3 percent, the biggest intraday jump since July.
LSG Group’s sales were little changed last year at 3.2 billion euros and earnings before interest and taxes fell to 45 million euros from 60 million euros in 2016, according to the company’s annual report. The group, based in Neu-Isenburg near Frankfurt, produced 696 million meals in 2017, according to its website.
Lufthansa told investors in July that cost cuts and higher fares would help it reach full-year targets, after disruption from storms and air-traffic-control strikes hurt second-quarter earnings. The carrier has struggled to integrate aircraft it took over from failed rival Air Berlin Plc, while higher fuel costs have been a source of concern.
Sky Chefs was founded by American Airlines in the 1940s and merged with Lufthansa’s own LSG division in a series of transactions through 2001. The combined business grew to become the world’s largest airline caterer, before later being overtaken by Swiss rival Gategroup Holding AG.
The firm has also developed specialized food for astronauts on the International Space Station designed to minimize potentially hazardous crumbs, taste good in space and have a long shelf life, LSG Sky Chefs said in a May blog post.
Deal activity has been heating up among firms providing support services to the aviation industry. Temasek Holdings Pte agreed in July to invest in HNA Group Co.’s Gategroup. Brookfield Asset Management Inc. is in advanced talks to buy Swissport International, the baggage handler also owned by HNA, Bloomberg News reported this month.
Lufthansa previously sought a buyer for LSG Sky Chefs, hiring an investment bank in late 2012 to solicit interest, people with knowledge of the matter said at the time. That search, which came at a time when the carrier was shedding ancillary businesses, didn’t result in a transaction. It has also previously weighed an initial public offering of the unit.
–With assistance from Elisabeth Behrmann, Christopher Jasper and Eyk Henning.
©2018 Bloomberg L.P.
This article was written by Aaron Kirchfeld, Joyce Koh, Manuel Baigorri and Richard Weiss from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to email@example.com.
Subscribe to Skift Pro
Subscribe to Skift Pro to get unlimited access to stories like these ($30/month)Subscribe Now
Photo credit: Lufthansa Group may sell its LSG Sky Chefs unit to concentrate on its core operations. Pictured is one of the airline's Airbus A350s. Lufthansa Group