Lufthansa sees no new GCC expansion amid ‘overcapacity’

Lufthansa Group said on Wednesday the GCC aviation market is at capacity and the airline would not be expanding in the region for the next 12 months.

Harry Hohmeister, member of the executive board and chief officer of hub management at Lufthansa Group, said the group expects between 2 percent and 3 percent capacity growth in the Gulf in 2016, compared with 6 percent globally including low-cost carrier Eurowings.

The group “is very happy with the current set-up here” (flying twice a day to Dubai from Zurich and Frankfurt on Lufthansa and Swiss) and is planning no further expansion in the GCC on its premium carriers, Hohmeister added.

He told media in Dubai: “We react to market needs, and right now there is a clear sign of overcapacity in the region.

“It is overcapacity that is not commensurate with demand development – and this is not healthy. We are going to do our share [to address this] by adjusting capacity growth.

“Too much capacity creates problems therefore we are being quite restrictive this year on capacity growth.

“In the region we will not have further expansions for the next 12 months; it’s not for ever – nothing is forever in this industry – but certainly for the next year.”

His comments came after Lufthansa Group reported a Q1 2016 operating loss of 53 million euros ($61 million), reducing from 167 million euros during the same period last year, prompting the group to cut overall capacity growth plans for the year from 6.6 percent to 6 percent.

The group is expected to cut the number of management staff across the group by 25 percent this year, Hohmeister told media this week.

He said he envisages future growth coming from new low-cost carrier Eurowings, which launched in 2015 with 620 seats per week between Dubai and Cologne Bonn.

Eurowings is targeting expansion of long-haul routes in the coming years, including increasing its GCC network and exploiting emerging markets such as Iran and Africa.

The group as a whole in March signed a memorandum of understanding (MoU) with Iran Air – which Hohmeister said opens the potential for a “multitude of projects”. However, “nothing has been finalised yet”.

On Eurowings, he said: “We want to use Eurowings as a platform for further consolidation in Europe and are investigating several opportunities at present, possibly through a franchise model.

“Consolidation is very important for further development in Europe.”

A possible UK exit from the Eurozone, or ‘Brexit’ would be “an unnecessary and difficult move and bring complications in terms of free market approach and air traffic regulations,” Hohmeister said.

“I feel, as a European, that as a partner, you do not run away. I would urge the UK to stay and be part of the change and reforms to take place.”

Published on Arabian Business.