Christoph Franz to Leave Lufthansa at Critical Juncture: German Airline Faces High Fuel Prices, Europe’s Economic Crisis and Cutthroat Competition

Updated September 16, 2013, 1:30 p.m. ET

By JAN HROMADKO

The Wall Street Journal

Deutsche Lufthansa AG  Chief Executive Christoph Franz said he would leave the German airline in May, after just three years in the post, compelling the company to find a successor midway through a bruising restructuring.

Mr. Franz, 53 years old, was picked to be chairman of Swiss drug maker Roche Holding AG.

“There will be an orderly and structured process on the issue of my succession,” Mr. Franz told reporters and analysts Monday. “Don’t expect any major changes.” The airline’s efficiency drive “is making good progress and it will be continued under a new leadership.”

Lufthansa, Europe’s biggest carrier by passenger volume, is a sprawling company, with big divisions handling maintenance, catering and information technology. Whoever succeeds Mr. Franz will take on one of Europe’s few profitable national airlines.

But as at its rivals, Lufthansa’s margins are being squeezed by high fuel prices, Europe’s economic crisis and cutthroat competition.

On short-distance routes, it is being undercut by Europe’s fast-growing discount carriers, including Ryanair Holdings and easyJet PLC. Internationally it faces pressure from Mideast rivals Emirates Airline, Etihad Airways and Qatar Airways.

Mr. Franz faced the challenge of restructuring Lufthansa’s disparate European operations, which his predecessor, Wolfgang Mayrhuber, had expanded rapidly through acquisitions. Mr. Mayrhuber is now chairman of Lufthansa’s supervisory board.

Mr. Franz has built a reputation for aggressive restructuring. He turned around unprofitable Swiss International Air Lines as its CEO 10 years ago and then integrated it into Lufthansa.

Lufthansa’s overhaul remains a work in progress that has prompted labor unrest. Adding to the pressure, Europe’s airline industry is bracing for a price war as Ryanair, Europe’s biggest discount airline, is cutting its prices to fend off newcomers.

Mr. Franz on Monday acknowledged the difficult business climate, saying Lufthansa “may have underestimated the cold wind blowing in our faces.” Lufthansa shares dipped in early trading Monday as investors digested the news but recovered to close up 0.4%.

“Mr. Franz’s departure is a heavy blow for the airline,” said Jochen Rothenbacher, an analyst at brokerage firm Equinet.

Mr. Franz’s move was unexpected even to his own team. Thomas Winkelmann, head of Lufthansa’s discount carrier Germanwings, called Mr. Franz’s resignation “a bit of a surprise.”

Not all staff will miss Mr. Franz, who has been pushing to contain labor costs and change working conditions. His efforts sparked strikes that cost the airline €33 million ($44 million) last year.

Mr. Franz has said that Lufthansa must boost productivity to ensure that its losses in Europe don’t compromise its ability to order more fuel-efficient planes and expand internationally. He has aimed to slash operating costs by €1.5 billion by 2015 to improve earnings and allow the airline to renew its fleet without taking on too much debt.

Lufthansa on Thursday will announce its final selection for an order of long-range jetliners, Executive Vice President Nico Buchholz said. The order is likely to be split between Boeing Co. and the Airbus unit of European Aeronautic Defence & Space Co., people familiar with the talks said.

Lufthansa’s stock recently has outperformed shares of smaller rival Air Berlin PLC and those of other big European carriers, such as Air France-KLM SA. But Lufthansa’s stock has lagged behind the broader German market and Ryanair’s shares.

—Marietta Cauchi and Jon Ostrower contributed to this article.

Source:  http://online.wsj.com