Is there overcapacity at Lufthansa? Part D

By Shihal Sapry

In the final installment of our Lufthansa overcapacity analysis, we will evaluate where the 777-X fits in. More specifically where the 777-9X fits in. It is advantageous to read Part A, Part B and Part C first to gain context. 

Lufthansa was the launch customer for the 777-9X, ordering 34 frames. Subsequently, Emirates has jumped the queue with Lufthansa deferring deliveries. The 777-9X is a stretch of the hugely successful 777-300ER. Featuring folding wingtips and the largest diameter General Electric engine in history, the 777-9X hopes to build on the 777-300ER's success. The 777-300ER is slightly smaller than the 747-400. The 777-9X could offer Lufthansa a direct 747-400 replacement. The 777-9X will seat 400-425 Seats as per Boeing's website. Lufthansa has between 340 and 380 seats on their 747-8I. Bear in mind that their 747-8I is in a very Premium Dense Layout. The 747-8I is larger than 777-9X. Initially, the 777-9X was scheduled for delivery in 2020. Lufthansa has not operated passenger 777 aircraft. So when the airline ordered the 747-8I, they already had commonality with the 747-400. It was not commercially viable for the airline to change fleets. Furthermore, Lufthansa already operated A340-600 equipment.

To summarise, in Part A we compared an A340-600 with the A350-900.  We established possible overcapacity in Premium Cabins, and under capacity in Economy Cabin. Furthermore, we concluded a net capacity increase over the A340-600. Hence we could not conclude that overcapacity exists in the 280 to 320 seat aircraft segment. The 777-X is too large for this segment. 

In Part B, we compared the 747-400 to the 747-8I. We noted that the 747-400's were denser(in Business and Economy Classes) than the 747-8I. This was possibly done to reduce cost per seat mile on the 747-400. The 777-X is appropriately sized for this segment. We did not have sufficient evidence to indicate that overcapacity exists in the 340 - 400 seat segment.

Lufthansa's 13 active 747-400's were delivered from 1996 till 2002, making them 15 to 21 years old respectively as at 2017. Perhaps, Lufthansa ascertained that they can operate their 747-400 's effectively until around 2025. Then, the youngest and oldest aircraft would be 23 and 29 years old respectively. With United Airlines' 747-400's being around 26 years old, this is possible. Furthermore, Lufthansa's Maintenance, Repair and Overhaul Division is more than capable of keeping these aircraft flying. Moreover, it would not make economic sense to invest in a retrofit of this aircraft, if it were to be retired soon. It is not illogical to deduce that the 777-9X will replace the 747-400 fleet.

Lufthansa initially ordered 20 747-8I's but only 19 were delivered. Boeing requested one of Lufthansa's production slots for a test aircraft. Lufthansa agreed but did not reorder. We can logically conclude that the number of aircraft in this size segment is optimal. We also mentioned that the 747-8I's cover the capacity ranges of the 747-400's, albeit with larger Business Class Cabins on the 747-8I. Capacity wise, the 777-9X would allow Lufthansa to replace the 747-400, with a similarly sized aircraft or an aircraft that is slightly smaller than the 747-8I. Lufthansa's most well known 747-8I is D-ABYT, which has been well publicized, is painted in a retro livery.

One question that is still unclear, is whether 777-9X will have a First Class Cabin. This can only be answered if we know which aircraft they will replace. In the event that the 777-9X will replace the 747-400, it is unlikely to have First Class. Alternatively if the 777-9X will supplement the 747-8I fleet, then a First Class Cabin is probable. Within the next 10 years, it is unlikely that the 777-9X will replace the 747-8I. By 2025, the youngest and oldest 747-8I will be 13 and 10 years old. Unless a sudden, unexpected change takes place in the aviation industry, the 747-8I's could operate for an appropriate length of time.

Another question that we can pose is, where will the 777-9X's be based? The most logical answer is Frankfurt, for the time being. Munich does not have any 747's. In the event that demand at Munich warrants aircraft from this size segment, then we could very well see a sub-fleet of 777-9X's based at Munich.

Some individuals may claim that the 747-8I is dead once the 777-9X is launched. Without performance information and realistic aircraft seating, it is merely speculation. Since Lufthansa's 747-8I's are very Premium Dense, definite seating layouts are needed in order to make a comparison. However, airlines that have phased out their 747-400's in favour of 777's will not go back to order 747-8I. They already have commonality with the 777-9X, thereby making the 777-9X the aircraft of choice.

In Part C, we discussed the A380-800. With Lufthansa shifting 5 of their 14 A380's to Munich, and by utilising smaller aircraft to replace the A380's, we determined possible overcapacity out of Frankfurt, in the 509 seat segment.

While Lufthansa indicated that 10 A350-900's will be based at Munich (in order to replace A340-600's), the airline has not indicated where the remainder of the A350's will be based. With possible overcapacity at Frankfurt, it is possible that a sub-fleet could be based at Frankfurt, to replace the A340-600's flying the ex A380 flights.

Perhaps the unfortunate collapse of Air Berlin, would ease overcapacity concerns at Lufthansa. Lufthansa plans to resume long haul flights from Berlin and Dusseldorf. Logically, Air Berlin traffic(passengers) could transfer through either Frankfurt or Munich and connect onto long haul flights as opposed to Lufthansa introducing long haul flights from Berlin/Dusseldorf. Lufthansa has extensive long haul flights from Frankfurt and Munich. Furthermore, Eurowings operates out of Cologne. Eurowings would also pick up Air Berlin traffic. Hence it is more prudent to channel Air Berlin traffic through existing hubs, and perhaps over time, introduce additional long haul flights from Berlin/Dusseldorf.

An additional point to consider is cost. Airlines need capital to finance their aircraft. Some airlines do sale and leaseback, others take loans and some simply lease their aircraft. Lufthansa Group has been prudent in their fleet decisions. Take a look at Brussels Airlines. Brussels Airlines will purchase used Airbus A330-300's. The reason being, it is optimal for their network. There is no need for Brussels Airlines to acquire A350-1000 aircraft as this aircraft is not optimal enough for their network. There is no need to invest in an aircraft that is not optimal for your airline and operations.

Austrian airlines still operates 767-300ER's that are reconfigured. So while investing in aircraft is a good thing, an airline needs to also look at their return on investment. Swiss is another example. When Lufthansa bought them, they only operated A330-200 and A340-300 aircraft. After some time, they determined the A330-200 was too small, so they invested in the A330-300 and now they operate 777-300ER's. Lufthansa has to finance their A350-900's in addition to narrowbody purchases. Deferring the 777-9X would allow Lufthansa to stay within their capital expenditure budget for the fiscal years coming up.

So, to answer the question we posed initially; there is evidence to suggest possible overcapacity at Lufthansa, which appears to be confined to the A380-800 fleet(509 seats), and out of Frankfurt. With possible overcapacity out of Frankfurt, and potentially basing the 777-9X's there, the logical decision would be to defer deliveries. Since overcapacity adversely affects yields, holding off on larger aircraft is a more prudent financial decision. Hence, Lufthansa has some time to better optimise their network as well as allow them to remain within capital expenditure budgets.

In conclusion, this graph depicts the layouts used in this analysis.