DLAKF - Lufthansa: A New Product For A New Era

2023-03-30 18:58:26 ET

Summary

• Deutsche Lufthansa AG is set to offer a more premium and flexible experience meeting flexibility demands from travelers.
• Changes in cabin segmentation have varying results for different aircraft.
• Airbus A350s will be utilized on higher premium-demand routes, while the Boeing 787 will be more of a workhorse airplane.

Deutsche Lufthansa AG (DLAKF) ( DLAKY ) recently ordered more airplanes from Airbus SE ( EADSF ) and The Boeing Company ( BA ). The interesting news was that the bigger Airbus A350-1000 was part of the order. That itself was not a major surprise given that Lufthansa is set to introduce its Allegris cabin product by the end of 2023 and a new first class in 2024. In this report, I discuss how the cabin configurations affect each aircraft ordered and show how each airplane is affected differently.

What Planes Does Lufthansa Have First Class On?

Lufthansa offers a first class product on the Boeing 747-8, Airbus A380, Airbus A340-600. Starting in 2024, Lufthansa will offer the new first class on their Airbus A350-900.

What is Lufthansa Allegris?

Lufthansa Allegris is not just a first class product. It is a complete rehaul of the entire cabin product. In economy class, seats equipped with USB power supply will be installed to charge electronic devices. The inflight entertainment system will include a 13.3-inch 4K monitor that can be connected to via Bluetooth. There are also extra-legroom seats a minimum of two inches more legroom. Lufthansa also will allow guests to book with the seat next to them free.

Premium economy will feature a bigger 15.6-inch screw, a socket besides the USB ports, wireless charging, and improved arm and leg rests with a 39” seat pitch. It is focus on people who want more comfort and to be able to work during the flight but for whom business class might be too pricey.

Business class will consist of traditional the classic business class and suites. The Business Class Suite will be the flagship product of business class with a 27-inch screen and noise-cancelling headphones offering a more private travel experience. The regular business class comes with much of the same but with an 18”inch display.

Throughout the cabin, we see a significant improvement in the standard, with better device connectivity allowing for working throughout the flight and a lot of flexibility for guests to choose what they need. This in some way seems to be somewhat inspired by more demand for flexibility and mobile working in a post-pandemic era.

Allegris In The Airbus A350

Overall, I do believe that if Lufthansa had known they would introduce Allegris years ago, they would have leaned more towards ordering the Airbus A350-1000 from the start. The table below also somewhat shows why.

Going with a more premium cabin requires Lufthansa to reduce the overall capacity of the cabin by 9% and on stable prices and typical prices for the different segments we see that going with a more premium-heavy cabin barely adds to the revenue. The revenue change is just 1% higher. You could say that with fewer passengers the operational costs will also be lower, but major parts of the costs will actually be amortized over fewer number of seats. It is not the case that 9% lower capacity results in 9% lower costs. So, the selection of the Airbus A350-1000 should be a better value driver.

Overall, the capacity will be 2% lower, but the revenue potential will be 5% higher where main economy seating is traded for more premium seating in other economy class.

Lufthansa Allegris: Different Value Proposition On Different Aircraft

What I observed is that with the implementation of the same product, different results are achieved. On the Airbus A350-900, business class capacity and to some extent economy class is traded for more premium economy and extra legroom seating as well as the implementation of First Class. From a revenue perspective, the result is more or less even between the old and new configuration. On the Airbus A350-1000, we see a better reflection of the value extraction as 6% more capacity generates 18% more revenue potential. The Boeing is less focused on the premium seating, but trades economy seating for more premium experience in economy class while adding two seats in business class. This adds 5% in revenue potential on a decrease of revenue of only 2%.

So, Airbus A350-900 and especially the Airbus A350-1000 will be airplanes to fly on the premium-heavy routes, and where demand is lower for the premium product, the Boeing 787-9 will be the preferred option.

Conclusion: Lufthansa Morphs Cabin Product For Higher Revenue Generation

Overall, it will be interesting to see how the premium product from Lufthansa performs. Each aircraft with Allegris has a place in the fleet to address the market with the right airplane. I have flown on Lufthansa on European routes, and the experience has been underwhelming. The international cabin product is likely a whole different story and will be even better than before. Lufthansa has focused on offering more comfort and flexibility, which in my experience have become key demands for travelers after the pandemic.

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