Digital Mission Lufthansa Finds Its Way to San José

German airline Lufthansa is scouring Silicon Valley looking for ways to build a digital future – building alliances with startups and exploring ways to mine customers' valuable data. It could use the boost amid sluggish growth numbers.
Seeing into the future. Lufthansa offers a vicarious first class experience.

 

Germany's flagship carrier, Lufthansa, has just launched a direct route between its hub in Frankfurt and San José, the international travel hub serving Silicon Valley. The demand for seats on the new route reflects a growing connection between Germany and the Californian home to countless tech firms.

It shows that Lufthansa has finally realized the urgency of reinventing itself if it wants to remain an important player in the digital age – and if it wants to boost passnger numbers that have sagged since the start of this year.

In fact, a Lufthansa delegation recently went on an exploratory journey through Silicon Valley, dropping in on numerous tech startups. While the jaunt was partly to promote the new route, Lufthansa was also courting the next generation of startup founders.

Building these kinds of links with the West Coast is going to decide the future of Lufthansa, according to Sebastian Herzog, chief strategist and founder of the airline's new “Innovation Hub.”

“All of the startups that are currently experiencing the highest success levels, like Airbnb or Uber, were founded by people who hadn't come from the classical branches of the travel industry,” he said.

The 90-year-old German airline has seen the need for a wider focus and a rapid change in gear.

Spotify, Uber and Amazon have set new standards. The customer expects that a business knows what his preferences and tastes are, and makes tailored suggestions. David Doyle, Lufthansa

When Carsten Spohr took over the controls in 2014 as Lufthansa's chief executive, he devised a digitalization program with innovation at its core. He called it “7 to 1.”

The targets have helped a great deal, according to Torsten Wingenter, Lufthansa's director of innovations since November 2015.

“After the message came from above – that innovation is important to us – we didn't have to explain it any more,” he said. “It sent a jolt right through the organization.”

There are already five initial joint ventures with startups, including accommodation portal Airbnb, the limousine service Blacklane and the global WiFi hotspot provider Skyroam. But that's only scratching the surface.

In the areas of big data and artificial intelligence, Lufthansa is still at the starting blocks. Call it the El Dorado of German industry: the analysis of passenger preferences, to improve services but also to predict travel trends or to personalize offers.

 

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Mr. Spohr has many other concerns – a workforce that strikes regularly for better pay and conditions, for example, and subsidiary Germanwings' plane crash last year. Add to that the possible effects of Britain's exit from the European Union and other uncertaines like the terrorist attacks in Brussels or Istanbul.

Lufthansa's planes are flying a little emptier this year: Passenger numbers were down 1.1 percent in the first half of 2016, even as the airline expanded the kilometers per passenger it offers by 1.7 percent.

"The uncertainty has grown," Mr. Spohr said of the overall economic outlook, adding: "Less growth means fewer travels."

The silver lining in the case of Brexit is that some British rivals like British Airways or even EasyJet may suffer greater losses, easing some of the price pressure on Germany's flagship carrier and Europe's largest airline by revenue.

Still, Lufthansa's margins are under pressure from budget airlines. Mr. Spohr wants to justify the higher prices on the basis of better service, which he believes should primarily come from the digital sector.

“In the past we always concentrated on the aircraft,” Mr. Wingenter told Handelsblatt. “Lately we're noticing that we need to understand the whole chain, because that's what makes a customer's travel experience.”

“We don't have to be the airline that offers the best price, but we have to be the airline that offers the best total experience.”

How that will look in reality has already been tested on the passengers of the maiden flight from Frankfurt to San José. Before departure they were supplied with tablets and virtual reality glasses. During the flight Lufthansa used the tablets to live stream a conference which was taking place in the forward part of the cabin. The technology has been devised with the business traveler in mind.

“There are events around the world with a high density of of people who are interested in a particular theme,” Mr. Wingenter said. “We see this as a kind of kick-off flight – as preparation for a conference or perhaps as a means for companies to hold a press conference and product launch right there on board, in order to save time.”

Lufthansa is currently testing a similar product at New York's JFK international airport. There at the departure gate, with virtual reality glasses, the company's ground staff can show economy class passengers a 360 degree VR simulation of what it's like in premium economy, in the hope of selling upgrades.

Mr. Wingenter said the tests are ongoing, but the results up to now have been promising.

“It's worked so well that we're now also thinking about introducing it at German airports,” he said.

With the San Francisco startup Neuroon, they're testing the use of an intelligent sleeping mask which, with help from sensors on the skin, can monitor a passenger's brainwaves – and via an Android app, which works on Samsung smartphones, recommends sleep times which can help the passenger overcome jet lag.

There are already five initial joint ventures with startups, including accommodation portal Airbnb, the limousine service Blacklane and the global WiFi hotspot provider Skyroam.

The passenger would be woken by integrated LED cells directly in front of the eyes, to simulate sunrise. Alongside this Samsung project, Lufthansa is examining partnerships with other big tech firms, Mr. Wingenter said.

“We're in discussions with Amazon at the moment, to see if we can combine the services of the speech-recognition virtual assistant Alexa to make flight booking easier,” he said.

“We're also working with Facebook on a programming interface for Messenger. And we've been looking into the use of chatbots.”

Customers today are used to a certain level of service, from the moment of booking, explained David Doyle, director of personalized passenger experience at Lufthansa.

“Spotify, Uber and Amazon have set new standards,” he said. “The customer expects a business to know what his preferences and tastes are, and make tailored suggestions.”

When it comes to the travel market, Lufthansa is seeing growing competition form Silicon Valley giants like Google, which has started its own booking platform, “Google Flights.” The world's most used search engine is trying to draw customers away from other travel booking portals like Expedia or TripAdvisor in order to capture and retain that valuable data.

That makes it tougher for carriers like Lufthansa to access this information.

“For us, that makes it more difficult to figure out what the passenger needs,” said Mr. Doyle.

The digital mission to Silicon Valley is designed to change that.

 

Britta Weddeling covers Silicon Valley for Handelsblatt. Christoph Schlautmann in Düsseldorf contributed to this story. To contact her: [email protected].