Lufthansa bets Germany’s Mittelstand will rescue business travel

German national carrier Lufthansa is “optimistic” about the return of corporate travel, betting that executives from the country’s small-and-medium sized companies will take to the skies again in an effort win business overseas.

“Many of our corporate customers are not just the global, blue-chip companies . . . but SMEs which are the backbone of the German economy,” said Carsten Spohr, the carrier’s chief executive.

Spohr’s confidence, which relied on data gathered by Lufthansa’s sales team, was supported by representatives of Mittelstand companies. In a survey conducted in February by the VCI — which represents 1,700 German chemical and pharmaceutical companies — nearly 60 per cent said limits on travel were the biggest challenge facing their businesses.

The study, which polled more than 120 small or medium-sized enterprises, found that the inability to take business trips was preventing companies from acquiring new customers and hindering development projects.

“They don’t have a global infrastructure to live without corporate travel,” Spohr said of such businesses. “They don’t even sometimes have people on the ground in markets in Asia or the US, so people need to go there themselves.”

The question of whether business travel will ever return to its pre-pandemic levels is one that has hung over the airline industry. The Financial Times reported last month that Europe’s largest banks are planning to slash business travel permanently by as much as half from pre-Covid levels.

Lufthansa, which includes Austrian, Swiss, Brussels and Eurowings airlines, has long been heavily reliant on revenues from business customers. Prior to the pandemic, corporate bookings accounted for 45 per cent of the group’s revenue.

However, the Frankfurt-based company — which received a €9bn bailout from European governments last year — expects business travel to remain below 2019’s level until at least 2025, and is scaling back premium capacity as a result.

The group has decommissioned more than 100 aircraft, and is significantly revamping its long-haul fleet. Roughly a third of its first or business class seats will be eliminated as a result of removing Airbus A380 and A340-600 models from its line-up.

The more modern Airbus A350 has a more flexible configuration, Lufthansa said, allowing the airline to shrink the number of business class seats on routes using the plane from 48 to 36.

At the same time, Lufthansa will expand the number of premium economy seats, Spohr said, because they provide significantly better profit margins per square metre. This less-expensive class is also favoured by companies with tighter budgets, which the airline believes will lead the rebound.

Customer surveys indicated “significant pent-up demand in the German Mittelstand, which is a key customer group for us,” the 54-year-old former pilot said.

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“We don’t share the pessimism of some regarding the future prospects of business travel,” he added. “Basically the smaller the company, the more they will be requiring corporate travel also in the future.”

It is a view echoed by the VCI survey of Mittelstand companies. Despite the rapid adoption of remote working during the Covid-19 crisis, “medium-sized businesses want to visit their foreign sites as soon as it is safe to do so,” the VCI told the FT. The German Business Travel Association, VDR, said 70 per cent of members surveyed were “ready to resume business travel at a moment’s notice”.

Nonetheless, Lufthansa is not counting on a rebound in short-haul corporate trips.

“The business day trip for a single meeting in another European city is seen as notably likely to decline,” said Daniel Roeska, an analyst at Bernstein. “A longer trip with more meetings has a stronger rationale.”