Frankfurt Airport & Lufthansa argue over Ryan Air discounts

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Lufthansa at Frankfurt is a dominant presence

Lufthansa and the owners of Frankfurt Airport (Fraport) don’t have an easy relationship.

Both need each other. It matters less that Lufthansa need Frankfurt as much as Frankfurt need Lufthansa. Without Lufthansa the airport would lose 66% of its business, but they don’t always make their biggest airline feel very welcome, or very well treated.

A couple of years ago Fraport was fuming because Lufthansa, irked by the ever-present Turkish Airlines, a fellow Star Alliance member, was eating into Lufthansa’s business everywhere you looked. The airline reacted by cutting their code shares, and making life more difficult for the Turks to undermine their business – and that impacted Fraport through raised costs and a loss of Turkish frequencies as some flights moved to other airports.

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When Ryan Air decided to move in to Frankfurt – something it rarely ever does is challenge super-dominant and strong established airlines right on their doorstep in expensive airports so directly – Fraport made it possible by doing something that incensed Lufthansa. They gave Ryan Air a discount. A big discount, something akin to 30% is what’s been alleged.

For once I don’t blame Lufthansa (and allegedly some of the smaller operators and foreign airlines with scheduled routes), for being just a bit ticked off. I would be.

For one there was no real need for Ryan Air to be given a discount, the airport really didn’t the business that desperately, but money is money. Ryan Air budget customers are some of the lowest spending shoppers – 65% of Fraport’s costs are covered not by landing fees, but from the vast shopping facilities that pop up on every available space. It’s one of the biggest and most profitable shopping venues in Germany.

Yet Ryan Air who never do anything without careful costing and route analysis are now the second largest airline by passenger volume at the airport. There is no way Lufthansa is happy about that.

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Frankfurt is one of the busiest hubs in Europe and crucial to the German economy

Lufthansa painted itself into a corner in some respects. It gave Ryan air the opportunity through its own policy. When it established German Wings and Eurowings (which the former has since been merged into), the idea was that they wouldn’t operate at the two Lufthansa hubs of Munich and Frankfurt. In turn the main airline wouldn’t offer regional flights, diverting them to Eurowings, who would offer national and international routes to all other German airports by way of direct flights.

Lufthansa didn’t seem to grasp that by doing this they’d cut out their own low-cost airline from Frankfurt. They seemed to think that their own modified ticketing and pricing options would be sufficient. In comes Ryan Air and there’s nothing to compete with it.

So from Lufthansa’s point of view, they as Fraport’s biggest customer, have been shafted good and proper, Fraport have gained an unruly child in Ryan Air, who now have so many passengers flying through the airport, the Fraport management doesn’t want to lose the processing and landing fees by turning Ryan Air away, but is faced with its biggest customer demanding similar discounts, and they’ll have to give in.

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If anyone’s in any doubt that Lufthansa means business, the fact that they’ve decided to base 5 A380’s at Munich now that its Terminal 2 is open, and are committed to expanding operations at Munich at the expense of Frankfurt – and there are many reasons that’s a good move, cannot be lost on Fraport.

For one, Austrian customers at present, fly Vienna to Frankfurt to go to the vast majority of long haul destinations not served by Vienna. They’d be happier with the option of nipping over the border to Munich or just flying the half distance from Vienna to Munich and on. Vienna’s catchment area is large, extending to Budapest in Hungary and Bratislava in Slovakia, just over the border. Prague too is easy for Munich flights.

Nobody is saying Lufthansa is leaving, or even drastically cutting back at Fraport, but the message is simple; there are alternatives. And those will grow considerably when the new Berlin-Brandenburg Willy Brandt Airport opens – potentially giving Lufthansa a new hub as it develops Germany’s capital city market even more quickly.

Fraport has a double-edged sword, it gets cut either way, but it’s a self-inflicted wound, made worse by Lufthansa not seeing the low-cost woods for the legacy trees.

In the end neither  Fraport or Lufthansa really understood Ryan Air and its commercial and negotiating philosophy. In many respects that’s the funniest part about the whole thing. Michael O’Leary once again took an airport for a ride and snubbed an old school mega carrier.

 

 

©Jon Champs 2017

(images unattributable)

 

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