First-Hand Information on Economic Policy with Lufthansa CEO Carsten Spohr
Lufthansa is facing challenging times. The COVID-19 pandemic brought international air traffic close to a standstill. The government had to step in to save Lufthansa from bankruptcy. Now this crisis seems to have been overcome and the aviation industry is reporting rising growth rates overall. A key issue in the industry is the transition to climate-neutral aviation. But how can Lufthansa successfully manage this transition in the face of stricter regulations for European air traffic, while its international competitors can continue to emit CO2 without being restricted by emissions trading? ZEW President Professor Achim Wambach discussed these and other questions with Lufthansa CEO Carsten Spohr on 7 November 2022 as part of the ZEW event series “First-Hand Information on Economic Policy”.
Many of the issues Carsten Spohr is currently dealing with are also relevant for economists. This applies in particular to environmental issues, but also to the importance of industrial and competition policy, which he emphasised at the beginning of his presentation at ZEW Mannheim. The CEO of Lufthansa AG started his presentation by looking back at the crisis, reminiscing that, “with 90 per cent turnover gone overnight, you don’t stand a chance.” Spohr recalled the shock the aviation industry suffered from the COVID-19 pandemic and the resulting global restrictions on air travel. The government bailout saved Lufthansa AG, but this came at a high price for the company, Spohr said. As part of the deal, the government took a 20 per cent stake and the airline faced considerable costs when repaying its loans. In the meantime, he said, the loans had been repaid in full and the state had sold its stake – at a profit of one billion euros. Spohr admitted that he would have preferred to keep the money within the group. For Lufthansa, however, the chapter of the bailout is now completely closed.
Nevertheless, the pandemic has left some traces: Firstly, the industry had stumbled “from a financial into an operational crisis” this summer. The sudden restart overwhelmed the commercial aviation system. Staff shortages made it impossible in many places to handle flights with the usual efficiency. Spohr said Lufthansa had to cancel ten per cent of its flights. A quarter of its staff was laid off due to the crisis. Now they were hiring again. Secondly, distortions of global competition remain. In the case of many international competitors from the Gulf region, it is unclear how much money the respective governments had made available to the airlines. Money that, according to Spohr, has not been and will not be paid back.
On emissions trading and synthetic fuel
Spohr pointed out that the global competitive conditions had to be made fairer with regard to climate protection. In Brussels, there have been discussions to make the use of synthetic fuel mandatory for all flights within Europe, without considering that this would increase fuel costs per litre fivefold. A similar case is the cost of emissions trading, which also only applies to flights within Europe, Spohr said. He added that this would create the wrong incentives since “the environment will not benefit if people are encouraged to stopover in Dubai when flying from Sofia to San Francisco because it is much cheaper.”
The subsequent debate with ZEW President Professor Achim Wambach focused, among other things, on the conflict of goals between industrial policy and climate protection through regulation. As Spohr criticised “Fit for 55” – the EU’s climate programme, which includes reducing greenhouse gases in Europe by 55 per cent by 2030 – for putting the industry at a disadvantage in global competition, ZEW President Wambach asked whether a border adjustment mechanism could ensure Lufthansa’s competitiveness. “We definitely support Fit for 55,” Spohr said. Still, a border adjustment mechanism would need to be included in the programme. A passenger who changes planes on a trip from Stockholm to Singapore needs to participate in Fit for 55 at every stopover or not at all.