Lufthansa chief looks to O'Leary for inspiration

Lufthansa is one of those airlines with true scale. Mr Ulrich Wachter heads operations for the whole of Europe (excluding Germany) and has to monitor developments in the 33 countries where the airline flies. He presides over charging regimes in 67 airports and has direct responsibility for 3,000 flights a week.

"My area stretches from Shannon in the west to Siberia in the east," he explains.

But Lufthansa is not just an airline, he hastens to point out, it also has tourism, air maintenance and cargo businesses stretching around the globe. Almost 2,000 Irish people alone work for the company in various operations stretching from a call centre to a maintenance operation called Lufthansa Technic.

However, Mr Wachter, as vice-president of sales and services for Europe, admits that his company can learn something from smaller markets like the Irish one and, in particular, from an airline executive called Michael O'Leary.

"We have learnt a lot in relation to simplicity over recent years. I always say in a meeting, when I feel we are too complicated once again, I tell them I wish we had an inflatable doll of Michael O'Leary sitting on the table. Then all the things we need to do would be much simpler."

The airline has a twice-daily service from Dublin to Frankfurt and a three-times-a-week service between Dublin and Stuttgart.

The company remains bullish about the future for Ireland. But what of the general aviation market. Will there be a bloodbath this winter as predicted by Mr O'Leary?

"I have great respect for him and he has often been right. Luckily he hasn't always been right... We thought a lot of airlines would simply disappear after September 11th and SARS but they are still there.

"We do have an over-capacity in Europe, on that Michael O'Leary is right. But I don't see a problem as long as markets develop normally. But if we have any more disasters or terrorist attacks in Europe, I don't know what is gong to happen...

"The sensible players have already taken out capacity. We took out a lot of capacity last year and are bringing it back gradually. I have to prove to my board that I can get very high load factors or else I will not get additional aircraft.

"I think, once capacity doesn't grow dramatically now, traffic growth will even things out.

"It will not be a bloodbath but it will become tight for the low-cost carriers because the markets are limited and there are so many of them."

Lufthansa has 90 per cent of its fuel hedged for 2004, but only 50 per cent for next year. He says this will impose a burden, although the airline believes oil will fall next year when Saudi Arabia reluctantly increases production.

"Otherwise they suffer as well, because if the world economy is not doing well, they will not be doing well," he states.

Lufthansa imposed a surcharge in response to escalating fuel costs and he says low-cost operators are also adding charges, but "you just can't see them".

He says the use of a surcharge is important to Lufthansa because it shows passengers it is not permanent.

Lufthansa would like to increase its services to Frankfurt from Dublin. But its ambitions for Ireland do not stretch to taking over Aer Lingus.

"I think we'll concentrate on getting our own business right," he says. "Acquisition has never been Lufthansa's priority. I wouldn't say Aer Lingus is not attractive. It's just that, at this stage, I don't think we have the funds. It's not in our policy. If we feel we should work with another airline, we try to do it with a partnership."

He says attempts a few years ago to get Aer Lingus to join the Star Alliance failed and the Irish carrier opted instead for One World. He says he could understand if Aer Lingus wanted no part in alliances in the period ahead, especially if it wants to become a low-cost operation.

"They don't need alliances. It's slowing down their business."

He is not convinced that Aer Lingus can transform itself from a traditional flag-carrier airline to a low-cost operator.

"I am not sure that model can work. If you have grown up as a classic airline, I think it's almost impossible to change to a low-cost operator for two reasons.

"It's very hard to change all your contracts, your labour contracts and still keep the motivation up. We tried that many years ago when we founded Lufthansa Express and it was a disaster.

"Secondly, it's a thinking factor. Our whole thinking, the way we are set up, is totally different from a low-cost airline... I think it's better to close down one airline and open a new one.

"But then again, when you are Aer Lingus and have Ryanair in your market, you probably have to look at it," he says.

However, he claims Lufthansa has benefited on the Frankfurt route from some of the changes Aer Lingus has introduced. He says this has made Lufthansa take notice of the Irish market.

"I would love to also look at a service to Munich," he says.

Asked why the company has decided to employ such large numbers here, he is unequivocal.

"Initially the main attraction was Government grants... But it is not only that. In Ireland... people usually have a very high level of education. You get languages. You get good quality labour. That is very important for us in the technical field," he says.