Welcome “Jump” to the ever growing collection of airlines operated by the Lufthansa Group. The Lufthansa Jump operation is expected to launch in 2015 targeting long-haul markets which historically have been lower-yielding or more leisure-focused travelers. These markets, such as Bangkok, Hyderabad, Qingdao or Ho Chi Minh City have seen cuts in service in recent years owing to high costs and increased competition. The company wants back in to the markets and hopes that the lower cost structure of the new Lufthansa Jump affords them such.
But Jump is not planned to be a LCC. Jump will launch operations using eight A340-300s which are being retired from the mainline Lufthansa fleet. The planes are expected to be configured with the newest Lufthansa business class product (albeit only 18 seats) plus a small premium economy cabin and 261 economy seats. The current 2-cabin layout offers 42 business class seats and 225 economy seats; overall it is an 11% increase in passengers on board for the new layout, further cutting CASM rates. And the company has negotiated a 25% concession on labor costs with its A340 cabin crew to help improve the operation’s economics. Of course, the economics of the operation are also tied to the aircraft being used. Which makes the A340-300 an interesting choice.
A year ago Lufthansa indicated that the A340-300 fleet was headed towards a 2-cabin layout in the immediate future and retirement not long after that; the type was expected to be out of the carrier’s fleet by mid-2017. Residual value on the open market is pretty much nonexistent so Lufthansa either stows the planes and calls it a day on the investment or tries to run a small, dedicated operation using the aircraft which are already paid for. But the CASM on A343s is not pretty. One analysis suggests that the fuel costs per passenger on the A343s exceeds that of the 787 by around 20%. Even with a plane fully paid for the OpEx grows quickly when fuel costs hover around $3/gallon. Then again, with an estimated $1mm/month lease cost on a new 787-8 perhaps the fuel costs aren’t quite as significant overall, at least when it comes to the ability to turn a profit.
It is also worth noting that this is not the previously announced new LCC Lufthansa expects to launch in 2015 as part of its “Wings” group. Jump will be Frankfurt-based serving marginal yield long-haul destinations while the new LCC will fly from other German cities to leisure destinations.
At some level one is left to wonder just how well the passenger experience can be managed when there are so many different products being offered across different brands. Yes, they are all under the Lufthansa Group umbrella. And there are certainly different market segments, each of which needs to be served with the level of operations which meet the expectations of customers in that market. Lufthansa was already making progress in this direction, cutting back on first class service on many plane/routes, for example, but apparently that was not enough. Labor costs are high within the legacy structures and all of the European mega-carriers are facing similar challenges. The Lufthansa Group appears to be the most aggressive in tackling the issue, splitting operations, farming out work and extracting concessions from crew where possible. And that just might be enough to keep the airline(s) competitive.
But for a customer it becomes a mis-mash of mixed messages and mixed service levels. That can be a challenge. Such splitting of markets can also have an impact on the appeal of loyalty programs. For a Miles & More member it might be mostly business as usual (though GermanWings is definitely not) but for global partners in Star Alliance it becomes quite challenging to work the new partners into the overall marketing focus. Lots of little cuts against the overall message of full global integration.
Then again, if the read on market segmentation is correct then these Lufthansa Jump markets are possibly ones where passengers really only care about price, not the product. And Lufthansa can deliver transportation from A to B on their old, inefficient planes. And for less money when they put a new name on the side.
- Lufthansa cutting first class cabin on some routes
- Some interesting slides from Lufthansa regarding fleet planning
- Lamenting the proliferation of flat-bed business class
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