In 2021, Lufthansa modified its inflight service on short haul flights, cutting free food and drinks, and replacing them with a buy on board menu. Have you ever wondered how much money an initiative like that saves an airline? Well, now we know…
In this post:
Lufthansa’s cost savings from cutting free snacks & drinks
Earlier this week, Lufthansa had its annual general meeting for shareholders, and the company’s management fielded some interesting questions. As flagged by YHBU, one of the questions was regarding the economics of Lufthansa eliminating free snacks and drinks in short haul economy.
Here are the insights that Lufthansa management shared:
- Previously Lufthansa spent €0.89 per guest for the complimentary offerings in short haul economy
- Now Lufthansa spends just €0.33 per guest for the complimentary offerings in short haul economy; presumably this accounts for the water bottle each passenger receives
- While Lufthansa didn’t state the total revenue generated from buy on board sales, the airline did share that the average person who makes a purchase spends €8.65 (the big question is the average number of people who make a purchase each flight)
As you can tell, Lufthansa is saving €0.56 per passenger by cutting free snacks and drinks, which amounts to $0.61.
Those numbers surprise me somewhat
Savings of $0.61 per passenger sounds minimal. This reflects a couple of things:
- The snacks that airlines serve are really cheap
- The main cost for much of this catering is getting it delivered to the plane, though I’m guessing that cost isn’t changing for Lufthansa, given that the airline is still catering all kinds of food and drink options that can be purchased
To crunch some numbers on the cost savings here, let’s assume the average Lufthansa narrow body has somewhere around 125 economy seats. Savings of $0.61 per passenger translates to savings of $76 per flight. That doesn’t sound like a lot at all.
What’s probably a bigger contributor to Lufthansa’s bottom line is the revenue from selling buy on board options. Lufthansa states that the average person who makes a purchase spends €8.65, or $9.39. I have no clue what percent of passengers make a purchase.
If it were 10%, that would translate to $117 in incremental revenue. If it were 20%, that would translate to $234 in incremental revenue. If it were 30%, that would translate to $351 in incremental revenue. I have to imagine the number is somewhere in that range 10% and 30%.
By the time you subtract the cost of these products, I’d estimate that Lufthansa is maybe coming out $200 per flight ahead with its buy on board menu vs. the old complimentary offerings. We also have to account for the buy on board fresh meals that aren’t sold, as that’s an additional cost to the airline.
Airline bean counters would view that as a $200 upside. When multiplied by the number of flights Lufthansa operates annually, that comes out to many millions of dollars.
The other question is how much revenue Lufthansa loses long term because of these kinds of cost cutting initiatives. In isolation, most changes won’t cause someone to book elsewhere. That’s why it’s always tempting for airlines to remove one olive from a salad, eliminate paper menus, or whatever.
After all, most people aren’t going to decide whether to fly Lufthansa over Ryanair over a $0.61 sandwich. However, when enough cuts happen, consumers do eventually look elsewhere.
Bottom line
Lufthansa introduced buy on board catering in economy a couple of years ago. The airline has revealed the economic impact of this. The airline has gone from spending €0.89 per passenger to spending €0.33 per passenger, and on top of that, those people who do make purchases end up spending an average of €8.65.
It’s not often we get insights like these, so I sure do find this to be interesting, as it’s not exactly what I would have expected.
What do you make of these numbers shared by Lufthansa?
I fly quite a lot. After cost-cutting I am looking for alternatives. The whole LH Group is no longer a grup of traditional carriers. My FIRST choice within EU is LOT POLISH and AEGEAN.
Well, at 18M pax year that saves $10M. Well worth one less tomato. Kidding aside, just raise the damn airfare by $1 and give us one extra tomato. I wonder what school of economics these execs went to, or more likely, didn't go to.
Lufthansa really is the AA of Europe.
Lufthansa has no incentive to improve because they are a de facto monopoly in the German speaking countries. Even worse is that the German govt facilitates the monopoly by having an unofficial and unspoken policy that Lufthansa is too big to fail. If LH were to ever face real competition it would be the next Alitalia. It would go through multiple bankruptcies and the German govt would rescue it again and again.
What I hear very often is the argument that Lufthansa loses passengers because of bad service or these kind of decisions.
Well, more often than not Lufthansa flights are fully booked in Economy. They couldn't increase the passenger numbers right now even if they wanted to. After all we are at about 100% or passenger numbers compared to 2019 but only at 86% of the flights.
Thus, it seems that demand is still outstripping capacity.
It’s neither about saving nor about making money. It’s just to follow the advice of an overpaid management consultant who told them that’s the trend to follow.
Typical penny pinching from Onestarhansa
With outrages cost for airlines tickets its a shame that you have to buy your own food.
I have been on a few shorthaul LH flights recently and have never seen anyone buy anything. Not sure if this is included in the numbers, but the logistics of stocking the flights and then not selling anything must cost a lot as well.
I recently travelled LX via ZRH and it is getting a bit odd: first, in Business they now serve a sandwich (!) on shorter routes (the one they gave for free until pre-pandemic). Second, they do not serve any BOB options on flights below 50 minutes, even if cold (thus ready). Third and perhaps most embarassing, they are advertising their bottle of water as "free". Btw. all of this whilst causally charging 1000+ EUR for said "short" EU flights.
ps. LX made 77 Mio last quarter.
My recent Lufthansa shorthaul was underwhelming. There should bring back a free snack.
Reminds me of American Airlines and the olive back in the day. As someone mentioned you don't consider the annual income and savings.
There may also be a cost savings in weight reduction, since presumably they don't need to stock as many drinks on board for each flight. Probably pretty small marginally as well, but it all adds up.
Idiots at Lufti messing up flying, I'm off to a better airline.
I absolutely refuse to fly LH. They nickel and dime for a legacy carrier and even weigh and measure your carry ons.
Turkish airlines all the way
Penny wise, pound foolish. What Lufthansa gains in incremental revenue is probably lost through alienation of passenger loyalty and increased frustration and anger with Lufthansa. The bean counters are so busy crunching their tangible metrics but they have no capacity to consider the intangibles of brand loyalty and customer experience enhancement, and how those can increase revenue.
0.33 Euro per water bottle? Lufthansa should just go to Costco
Don't forget the free chocolate ;)
„In isolation, most changes won’t cause someone to book elsewhere.“
Honestly, I do. More and more. I was the most loyal StarAlliance fan boy. Flying SAS and LH. During Covid-19 I was forced to try new things since I needed to travel between Germany and Sweden. To my surprise, it wasn’t actually as bad as I thought it would be to travel Easyjet between BER and ARN.
They had a good schedule, with reasonable...
„In isolation, most changes won’t cause someone to book elsewhere.“
Honestly, I do. More and more. I was the most loyal StarAlliance fan boy. Flying SAS and LH. During Covid-19 I was forced to try new things since I needed to travel between Germany and Sweden. To my surprise, it wasn’t actually as bad as I thought it would be to travel Easyjet between BER and ARN.
They had a good schedule, with reasonable flight times. Direct flights. Then you discover that the service level for a one hour flight is actually not that much of a difference anymore compared to a legacy airline.
And then you suddenly realize that you are saving a heck of money, too.
Miles? Well forget about miles. The legacy carriers don’t let you earn any miles any longer. What is the point flying LH group, SK and the other carriers within Europe anyway?
That wasn't what Ben said. He is saying that customers won't book alternatives purely due to these changes. It sounds like you changed your mind thanks to other reasons and then you found out that the service level is consistent across full service and low cost carriers
Meanwhile, Turkish Airlines is upgrading their already excellent (free) on board meals. Lufthansa: a true embarrassment to Germany.
Lufthansa.. it’s German for cheapskate
Who actually flies within Europe on LH, apart from intercontinental connectors, hub captives, and OPM flyers.
You can get an LCC, with more legroom or an exit row, same sandwich, all the priority stuff, baggage for half price of an uncomfortable LH flight.
There is a reason why Ryanair is growing, and LH is not.
True however millions do also travel on legacy carriers. LCC don’t offer connections and only point to point.
Well, that isn't universally true. Many LCCs do offer connections.
I regularly fly EuroBiz with Lufthansa connecting through FRA or MUC for less than direct LCC airfares. And there's many people like me. Particularly families. LH airlines are often €100 or more cheaper pp on a route, which obviously adds up
Catering is actually much better on Ryanair than Lufthansa. Not to mention that Ryanair crews are incentivized to sell, sell, sell, unlike LH Group crews which disappear to galley after first round of service.
To those commenting: Really??? Ticket prices went through the roof, and you are making justifications for LH nickeling and diming passengers to save a few millions per year which is really nothing for an airline of their size? Cheap, cheap, cheap…
Aegean Airlines has a new ad campaign to promote their new complimentary meals in economy class (their biz class meals have always been top notch). Cant wait to try them next month. Lets...
To those commenting: Really??? Ticket prices went through the roof, and you are making justifications for LH nickeling and diming passengers to save a few millions per year which is really nothing for an airline of their size? Cheap, cheap, cheap…
Aegean Airlines has a new ad campaign to promote their new complimentary meals in economy class (their biz class meals have always been top notch). Cant wait to try them next month. Lets hope with extortional new prices starts a reversal in more airlines offering free meals again…
Have fun with the absolute terrible seat pitch on A3. The worst I have ever experienced.
You clearly haven't flown BA in a row other than an exit or bulkhead. A3 Y is not bad at all.
Sure you “crunched the numbers” on a per flight basis but your lack of business acumen failed to calculate on an annual basis, which is tens of millions of dollars. You make it sound absurd they would take such a step. You are absurd making it sound like change. Another misleading headline and article.
@ IntlBizTraveler -- I'm sorry if you're having a rough day and are looking for someone to let it out on, but it seems like either you didn't read the post, or you just chose to ignore what I wrote.
My business acumen failed to calculate that there would be an annual benefit to this? Allow me to quote what I wrote in the post:
"When multiplied by the number of flights Lufthansa operates...
@ IntlBizTraveler -- I'm sorry if you're having a rough day and are looking for someone to let it out on, but it seems like either you didn't read the post, or you just chose to ignore what I wrote.
My business acumen failed to calculate that there would be an annual benefit to this? Allow me to quote what I wrote in the post:
"When multiplied by the number of flights Lufthansa operates annually, that comes out to many millions of dollars."
Could you also please clarify what's misleading about the post or headline?
Still a saving of around 30million a year
It’s like telling someone that they only spend €2 a day on chocolate, which is €730 a year. More than enough for a ticket to New York on Lufthansa
How many passengers would Lufthansa lose if they increased all their fares by one euro and included the food again? None. None at all. However, they are losing customers now due to being perceived no better than a low-cost airline by most travellers.
Food on board is the kind of feature that has much higher perceived value among customers than the actual cost to deliver it.
Indeed. I choose flights based on times, seat availability and amenities available if the prices are close. A few dollars either way doesn't matter. Even twenty dollars more is okay for a better situation. Nickle and diming is a turnoff and raises the question whether they are cutting back in other areas too.
I actually prefer buy on board. I would much rather pay EUR 8 for a pleasant sandwich or salad than get an inedible one for free.
Pretty sure the €8 sandwich on aircrafys are also inedible…
Airplane food sucks period. I bring my own or eat before or after the flight.
Except the BOB is no better and sometimes worse than the included meal.