Lufthansa just made a series of fleet and structural moves that, on the surface, look like logical cost-cutting in the face of high oil prices. But taken together, they reveal something much bigger: a carrier trying to fundamentally reshape its cost structure in the face of labor constraints and a fundamental disagreement over the business model itself.
Lufthansa Is Retiring Aircraft, Shuttering Regional Subsidiary, And Outsourcing More A350 Flying
Before we get to my analysis, let’s lay out what Lufthansa has actually announced.
Lufthansa is accelerating several previously announced fleet changes.
- The remaining four Airbus A340-600 fleet will be retired in October 2026 (your last chance and mine to go check out those “downstairs” bathrooms…something I did thankfully check out on this flight, though I wish I had taken pictures…)
- Two Boeing 747-400s will be grounded this winter ahead of final retirement in 2027 (there are eight currently in the fleet)
- Nine Airbus A350-900s will be shifted to Discover Airlines, its lower-cost longhaul subsidiary
At the same time, Lufthansa is reducing overall capacity across its network due to sharply higher fuel costs and ongoing labor disputes. It’s also accelerating the shutdown of CityLine (not to be confused with Lufthansa City Airlines), blaming “significantly increased kerosene prices, which have more than doubled compared to the period before the Iran war, as well as rising additional burdens from labor disputes.” As a result, “the implementation of the corporate strategy is being partially accelerated.” Lufthansa also says CityLine’s fleet of CRJ-900s are “nearing the end of their technical operational capability and have comparatively high operating costs.”
None of this is happening in isolation.
The Real Story: Lufthansa Is Moving Flying Away From Expensive Labor
The A350 shift to Discover Airlines is very telling. Discover exists for one reason: lower labor costs. By moving widebody flying there, Lufthansa can avoid mainline pilot contracts, operate longhaul flights with cheaper crews, and maintain capacity without paying legacy wages.
And it comes as Lufthansa remains locked in recurring disputes with labor groups over pay, pensions, and working conditions…Lufthansa passengers are currently enduring an extended strike, now in its fifth day, that has stranded tens of thousands and forced Lufthansa to cancel most longhaul service.
So while Lufthansa frames this as fleet modernization and capacity adjustment, the subtext is clear: desperately trying to show labor it cannot win this battle.
The Heart Of The Labor Controversy
As I understand it, Lufthansa labor and management are so diametrically opposed to one another that I see no solution short of 1.) top-level leadership change at Lufthansa coupled with 2.) a more limited package to pilots and flight attendants.
Management claims that Lufthansa’s labor unions are absolutely unreasonable in an environment in which profits were already virtually zero before fuel prices spiked. It asserts that the demand for higher pay, better benefits, and a more generous pension is pie in the sky during a time of economy-wide uncertainty in Germany and will absolutely bankrupt the carrier.
But workers claim the reason Lufthansa is so unprofitable is due to poor management, not costs that are unreasonable when compared to their peers. Inflation and a sense of economic malaise has hit Germany and workers reasonably want to at least “keep up” with inflation and be able to save for the future. Workers also claim that had Lufthansa not wasted os much time and money trying to create new subsidiaries to reduce its labor costs, its actual costs would be lower and its profits higher.
Wherever the truth lies, the strike is now five days long and as Labor Day (May 1st) approaches in Europe, I would expect more flights in the days and weeks ahead.
Finally, a brief note on German labor law. Layoffs are very hard and workers can strike over changes to work or pay agreements, but setting up new subsidiaries and laying off workers due to “restructuring” is an exception. Lufthansa does it this way, for better or for worse, because it is restrained by Germany’s strict labor laws. Practically, it is the only way it can shed workers from its other divisions.
The Odd 747-400 Decision
One detail that stands out is the plan to ground two 747-400s this winter, only to bring them back for a short period before final retirement in 2027.
If these aircraft are inefficient, expensive, and nearing retirement anyway, why not just retire them now?
A couple explanations come to mind.
- Lufthansa may want a hedge for peak summer demand
- It may still need these Queens because replacement aircraft are delayed
But grounding aircraft only to bring them back for a short final stint feels unlikely. You may wish to get on these once more now if you can.
CONCLUSION
Lufthansa’s latest moves reflect a deeper effort to shift flying away from expensive labor structures and into more flexible, lower-cost platforms…workers are crying foul and saying Lufthansa is wasting time and money, harming the carrier’s reputation and hurting employees.
The retirement of the A340-600 and the eventual farewell to the 747-400 may grab headlines, but the real story is the quiet restructuring of where Lufthansa flies, who flies those airplanes, and under what contract.
It isn’t at all clear to me at all how this will end. I also cannot say who is being reasonable or whether both unions and management are being unreasonable. A day of reckoning is coming.
A radical downsizing plan, indeed.
The shutdown of Lufthansa CityLine GmbH is not entirely unexpected, as the group had already planned to phase out the brand in favor of its subsidiary, Lufthansa City Airlines GmbH. However, this sudden shutdown is surely surprising, and will cause inconvenience to passengers who have booked flights on this network.
By shrinking its fleet, the veteran German flag carrier is warning that recovery will take years.
To add: Discover was founded for operating long haul touristic services to compete primarily against the growing Condor Airline (which was part of LH many years ago). It’s correct that wages are lower at Discover, but the product is also more on a touristic focus – smaller Premium Cabins and fewer frequencies including. However we see Discover also on routes such as PHL (6/7) which I would consider less touristic, but cost sensitive.
Regarding the strikes: The strikes are multifold, pilots and cabin crew from different AOCs. Got some it’s about the money, for some about closing the AOC (Cityline) and for the pilots about the pension plan which should be adjusted to the market environment instead of fix and high interest rates. Aside to that there is the situation of the different unions for the same job group. The cabin crew strikes at LH Classic are organized by UFO while the management just made a wage agreement with Verdi for LH City. So this is a big bag to handle.
We can also be honest that LH management did errors, one I’m seeing is the complexity (and delays build) with its new business class product Alegris.
I am curious if the German government is allowed to involve in these talks at all because I just can’t imagine any nation will allow its “national” airline to go on strike for weeks with no end in sight. Given the extreme actions that Lufthansa just takes, the labor group will go full blown crazy now. No side is willing to back down so I can see the labor group just continues to strike once every two weeks or simply coordinate actions that they will go on strike during the beginning of major holidays or events. Let remember that some major German airlines like Frankfurt and Munich literally has minimal or limited ULCC actions. Who will dare to book on Lufthansa now?
A serious question though – Why hasn’t the Lufthansa board fire Spohr by now? The airline is badly managed from the whole nightmare involving Allegris cabin, which is wrong in every way possible – overly complex cabin and the poor rollout! Then the inflight product remains awful. The whole fleet overhaul project just goes sideway. Surely Boeing and Airbus have issues too but why do other airlines seem to manage better. Operating those Boeing 747-400s and Airbus A340-600s can’t be cheap Week after week, they are all bad news. The labor relationship is not sustainable and does the board really think going combative with the major labor group will work? Ultimately Europe is no USA. All these Lufthansa subsidiaries are just confusing but for short haul flights, it is okay. However Discover Airlines is really a leisure airline and their crews are not the same as the mainline LH group. Their premium product is just lacking. It is no longer a fake business class with an empty middle seat.
Lufthansa really needs a new visionary leader.
So Spohr wants to shrink his way to profitability while going to war with his people? Good luck with that. France has labor laws that are about as difficult to navigate as Germany yet since Air France introduced competent management they’ve become better, happier, and more profitable while closing down low cost subsidiaries. They’ve literally shown exactly how Lufthansa can get out of the hole they’ve dug themselves. The first thing that needs to happen is new (hopefully capable) leadership. Spohr just doesn’t seem to get it. In fact, he’s trying to get more control over the parts of the Lufthansa empire that are more profitable than Lufthansa itself, which bodes ill – if you have a subsidiary that’s doing better than the main company the one thing you absolutely want to do is not mess with that profitability as he’s doing. Once a competent CEO comes in they can make needed changes, which should ensure better financials and start with a clean slate with labor.
Lufthansa crews are quite rightly striking because Spor wants to ‘Walsh’ the airline as happened at BA. That amounts to cutting labour costs to the bone to increase executive bonuses and shareholder dividends while cutting the pay of those doing the work. LH crews watched Walsh do this at BA and have always been determined to learn from the fate of those at BA and not allow the same thing to happen. BA now operates as a shadow of it’s former self. What was once the ‘world’s favourite airline’ is now certainly not and is Best Avoided. The same must not happen to Lufthansa or airlines in the LH group.
It’s management that needs to go.