When Coins2Day spoke with Lufthansa CEO Carsten Spohr in November, the company had just scaled back its earnings targets due to a weaker global economy and overcapacity. The German airline is being squeezed on short-haul flights by discount carriers like Easyjet and Ryan Air and by booming Middle Eastern carriers on long-haul routes. It’s been also been plagued by pilot strikes, which have cost the company hundreds of millions of dollars.
But when surveying his airline’s overall operations, the CEO, who’d been on the job just six months at the time of his conversation with Coins2Day, pointed to its discount arm Germanwings as a bright spot.
“Our low cost subsidiary Germanwings [has] been a great success; bigger than we expected,” he said. Indeed, Lufthansa is in the process of shifting more of its European traffic from its flagship brand to Germanwings and its other discount subsidiary, Eurowings, because of their lower operating costs. Spohr told Coins2Day that he expected Germanwings—which launched in 2002—to be profitable in 2015. “It very much looks like we will be meeting that target.”
On Tuesday, it was easy to wonder if that still holds true.
An Airbus A320 jetliner operated by Germanwings crashed in the French Alps on its way from Barcelona to Dusseldorf on Tuesday morning. All 150 people on board are presumed dead.
Spohr Tweeted on Tuesday that it was a “dark day” for Lufthansa. The company said on its website, “Everyone at Germanwings and Lufthansa is deeply shocked and saddened by these events. Our thoughts and prayers are with the families and friends of the passengers and the crew members.”
When asked about the business implications of the crash, a Lufthansa spokeswoman said that its highest priority was conducting a full investigation of the crash and providing the families and friends of the plane’s passengers and crew with “all the care and assistance they need.”
Shares of Lufthansa dipped as much as 4.6% in European trading on Tuesday and closed 1.7% lower.
When such airline catastrophes occur, there’s always speculation about what it will mean for the businesses involved for the long-term. Robert Mann, an industry consultant and a former airline executive, says that most plane crashes, as tragic and headline-grabbing as they may be, “have very little impact on a carrier’s ongoing business.”
There are a few exceptions, mainly in cases where “there is an indication of systemic issues or incompetence.” Mann points to ValuJet as an example of a carrier that was wrecked by the latter.
In 1996, ValuJet Flight 592 caught fire shortly after takeoff and crashed into the Florida Everglades, killing all 110 passengers that were on board. An investigation into the crash determined that a ValuJet subcontractor that had illegally loaded oxygen tanks into the plane’s cargo hold was responsible for the tragedy “It’s ironic, since it wasn’t even ValuJet’s fault; it just happened to use a vendor who was incompetent,” Mann says.
But still, ValuJet couldn’t shake the scrutiny and fallout from the tragedy. After the Federal Aviation Administration grounded all ValuJet planes, the carrier eventually returned to the air with a reduced fleet, but it never rebuilt its customer base and ultimately merged with the smaller AirTran Airways, which is now a part of Southwest Airlines.
Then there’s Malaysia Airlines, which saw a drastic drop-off in passengers following the disappearance of Flight 370 in March 2014 and the fatal downing of Flight 17 in Ukraine in July. The Malaysian government took the airline private in August in an attempt to restore its financial health.
Based on reports of Tuesday’s plane crash, it’s not clear what caused the Germanwings aircraft to go down. Mann notes that Lufthansa services its Germanwings fleet, alongside the rest of its planes, at Lufthansa Technik, one of the airline industry’s largest maintenance providers. Lufthansa’s last fatal accident occurred 20 years ago, and Germanwings’ safety record was perfect until Tuesday.
Lufthansa is “a quality organization”, Mann says. The value of that attribute can’t be overstated. Every airline passenger is after a good price, but “the one thing people will not trade away is safety,” he says.
