June 2 - Lufthansa PFP Is Lose-Lose Proposition

Airline Putting Strategic Interests at Great Risk

Brussels, Belgium, 2 June 2009 - Some 45 corporate travel buyers, travel agencies and other industry participants today wrote to Wolfgang Mayrhuber, Chairman and CEO of Lufthansa (LH), urging him to abandon the carrier’s Preferred Fares Program (PFP). Underscoring broad global travel industry rejection of PFP, signatories hail from nine countries – Germany, South Africa, Belgium, India, Dubai, UK, The Netherlands, Canada and U.S.More than half of signatories are headquartered or have offices in Germany. Download the Signatory Letter here.

The signatories reinforced how PFP undermines efficient travel procurement processes and procedures developed over time; emphasized how LH is sabotaging its own strategic interests in Brussels and Washington with Parliamentarians, Members of Congress and regulators; and urged the CEO to abandon an ill-conceived and lose-lose initiative and quell the rising storm of protest against his airline and its most important strategic interests.

According to the letter, many observers believe that LH was able to impose its will in the marketplace for ticket distribution services because of its dominant position in the German marketplace for commercial airline services. The rapid consolidation to a few dominant global airline alliances seeking antitrust immunity for joint ventures, and LH’s airline’s ongoing acquisition spree, has made marketplace dominance and the use of that position of great concern to courts, lawmakers and regulators on both sides of the Atlantic.

Signatories underlined current public-policy issues in which potential abuse of market power is a central concern, and in which LH has a vested interest in the outcomes. For example:

1. Will the U.S. Department of Transportation and European Commission go along with an expanded Star Alliance strengthened by antitrust immunity for new member Continental Airlines?

2. Will the U.S. Senate follow the lead of the House of Representatives in requiring renewal for alliance antitrust immunity every three years?

3. Will regulators be ultimately comfortable with LH’s potential acquisition of BMI’s Heathrow slots and LH’s corporate strategy of competitor acquisitions in Europe?

4. Does LH want the German court in the Royal Bank of Scotland case to see LH, already proven dominant in the German marketplace for commercial airline services, leverage that dominance in the marketplace for distribution services, via PFP, with attendant harm to distribution system participants and airline consumers?

5. Does LH really want to risk the damaging outcome of the German court - deciding in the PFP case - following guidance from the court deciding the Royal Bank of Scotland case should that court determine LH abused its dominance in an adjacent market, i.e. the marketplace for charge card services?

Signatories personalized their dissenting sentiments regarding PFP in comments to Wolfgang Mayrhuber. A representative sampling follows.

  • “PFP is a classic case of Lufthansa exerting its dominant market share position in those countries. If PFP is such a wonderful and “Fare Program" why not implement it worldwide?”
  • “Other ‘cost-shifting plans’ will follow by Lufthansa and other airlines. Lufthansa is setting an example here - a bad one - and is more and more acting like a monopolist.”
  • “Lufthansa's only taking advantage of its monopolist position and ignoring customers’ needs.”
  • “The programme is an objectionable abuse of the dominant position of Lufthansa in its market and discriminates against both travel agents and managed travel programmes.”
  • “PFP is generating unacceptable additional costs for my company.”
  • “Not a good Lufthansa decision from a strategic business point of view.”
  • “I vehemently disagree with Lufthansa's cost-shifting and not consulting or working with its travel distribution partners and alienating its best customers.”
  • “We advise Lufthansa to put its corporate customers first.”
  • “I cannot support an airline that is offering fares that are not available in the GDS.”

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