Carsten Spohr, the man in charge of one of the world’s largest passenger airlines, is speaking over the din at Toca, an upscale restaurant on the mezzanine level of Toronto’s Ritz-Carlton hotel. He’s describing a recent ad for Lufthansa German Airlines, where he has been chief executive since 2011. It’s all about the luxury of German precision.
“We just had this great new commercial,” he says at our dark, noisy table. “It’s a French guy waking up exactly at 7 o’clock, getting a clean taxi to the airport, being welcomed by a nicely dressed check-in girl and then sitting down in a brand new aircraft. And he keeps saying, ‘These Germans! These Germans!’” (The television spot ends with the man being offered a glass of red wine and muttering: “And this constant perfectionism ... fantastique.”)
Mr. Spohr likes that precision stereotype. The 46-year-old executive is sharply dressed in a business suit, speaks perfect English, often with a wide grin. In conversation, he’s fully engaged, his hands clasped, his eyes direct. In management, he is just as direct: he tries to get close to the details, big and small, and to the employees who implement them. “If you look at my schedule, I would say 20 per cent of my work, sometimes 30 is meeting with staff, not just management staff. It’s front-line staff: pilots, flight attendants, mechanics.”
It’s part of who he is. As a child, he loved to gaze up at all the scheduled flights on the huge departures board. After earning a degree in industrial engineering, Mr. Spohr went for his commercial pilot’s licence and flew Airbus A320s for years while also rising through Lufthansa’s management ranks – a rare combination of pilot and manager at the same time at the airline.
Knowing the details matters a lot in an industry that Warren Buffett has called “a death trap for investors.” Recently, the global airline business has been in one of its periodic upswings. The Bloomberg World Airline index is up 23 per cent in the past year; Deutsche Lufthansa AG, the parent company of Mr. Spohr’s airline, is up 30 per cent.
But the business is famously cyclical, and although Lufthansa was one of only three major European carriers to earn a profit in 2012, Mr. Spohr is leading an effort to go up-market, yet cut costs at the same time.
“Old values should never keep you from modernizing yourself continuously,” he says over bite-size entrees. Central to his strategy is the idea that the standard of service among North American carriers has slipped dramatically, as have customer expectations, leaving room for Lufthansa to capture more profitable travellers willing to spend more on a ticket.
For example: “We invested a huge amount of money in our ground product” – his term for the airport experience – “a new terminal in Munich, and when we opened a new terminal in Frankfurt just a year ago, we added five new lounges in [that] one terminal.”
Lufthansa has its own, separate terminal for first-class passengers its Frankfurt hub. Access is strictly limited; passengers are personally told by a valet when their flight is ready. Then they are driven to their planes in Porsches or Mercedes. A first-class, round trip ticket across the Atlantic costs about $10,000.
“The further up the class of service, the more we invest per passenger. Caviar service on every flight at Lufthansa first class, which is difficult for us to get,” Mr. Spohr said. “Five per cent of the global caviar production goes to Lufthansa first class. Five per cent. We are the biggest caviar customers in the world.”
The difficulty is making Lufthansa’s different levels of service profitable in a country of high labour costs. “In the end, it’s always about two things: having a superior product and being efficient enough to produce it at a cost which allows you a profit.”
Much of that now depends on cost-cutting, despite the first-class accoutrements and caviar. SCORE (“like score a goal, an English term,” Mr. Spohr made a point of noting) is the name of Lufthansa’s new, internal efficiency program, which implemented about 800 measures last year to reduce costs. It resulted in around €618-million ($852-million) in added profit in 2012.
The goal is to improve profitability for the entire Lufthansa group, including its subsidiary airlines and other businesses, by €1.5-billion by 2015. Lufthansa’s airlines contribute about 60 per cent of the entire group’s revenue.
The airline is in the process of expanding its mainline fleet, replacing bigger aircraft with smaller ones that spend more hours per day flying, as well its low-cost carrier Germanwings (more English words, Mr. Spohr again noted), which links secondary airports such as Stuttgart, Cologne and Hanover to the main Frankfurt and Munich hubs.
The key is to keep up with the competitors who are also adding more routes.
“Compared to other industries, the biggest strategic hurdle for us is that the entry level is low, but the exit level is high,” Mr. Spohr said. “What do I mean by that?”
The liberalization of the airline industry, which swept into Europe from the United States, makes it that much easier to start an airline, he explained. “You don’t even need to own the aircraft. You can lease the aircraft. There are always some jobless pilots that you can hire. And by liberalization, which we very much support, you can just start operating,” Mr. Spohr said.
But that same process also keeps non-profitable airlines flying, through protective bankruptcy laws, government stakes in carriers and even super-rich individuals owing vanity airlines.
Lufthansa’s response has been to link its subsidiaries closely to its mainline. “In my view, just copying the business model of others doesn’t make somebody like us successful. You have to believe in your own strength, but you have to adapt your business model. That’s what we do,” Mr. Spohr said.
With Germanwings, “we bring in the best of both worlds. We bring in the Lufthansa engineers and the Lufthansa pilots, but on the sales side we very much adapt to the low-cost business model,” including an emphasis on online sales and fewer frills.
Meanwhile, Lufthansa is introducing premium economy fares next spring, an industry trend Mr. Spohr isn’t so crazy about. “When companies don’t allow their employees to travel in business class any more, it’s a trend I don’t generally like. But if it’s there, I want to respond,” he said.
But what passengers respond to, in turn, is Lufthansa staff, Mr. Spohr said. It’s more important than the fancy terminals or the new lounge or the caviar. Travellers get their strongest impression from the service they receive from Lufthansa staff, and that’s what Mr. Spohr primarily sees as the airline’s product.
He notes that his office overlooking Frankfurt airport is what grounds this view. He can see the service depicted in the television commercial right from his desk every day.
Born in Wanne-Eickel in western Germany on Dec. 16, 1966
Married, two daughters
Holds a Lufthansa captain’s licence to fly Airbus A320s
Educated at the Karlsruhe University with a degree in industrial engineering. Trained at the Lufthansa Flight Training school and completed a management training course at Deutsche Aerospace AG in Munich.
On his childhood ambition: I always wanted to work with an airline. When I was young, my dad would fly off and we would pick him up at the airport. I just love airports. I still do, even though I’m there almost everyday. I love the atmosphere.”
On management: “Nowadays, with the complexities we have, it’s all about putting the right team together. I think the hype in North America about individuals [leading], I think a little bit those days are over. I think to run a company … it’s a team effort to make such a company successful.”
On passion: Some old values are coming back, it seems to me. A passion for your company, a passion for the job you’re doing is something which is nowadays cherished and valued by others.”