The economic situation raises questions about the need for Luxembourg to have a national airline.  (Photo: Luxair Group/Archives)

The economic situation raises questions about the need for Luxembourg to have a national airline.  (Photo: Luxair Group/Archives)

Does Luxembourg really need a national airline? Yes, says Paul Chiambaretto, professor at the Montpellier Business School and director of the Pegasus Chair. Luxair contributes to the attractiveness of the country and its results do not make us fear bankruptcy.

The financial health of Luxair has been weakened by Covid and inflation, employees are under pressure due to overwork, unions are mobilised and are planning a demonstration to express the anger of their members, and relations with management are described as tense or difficult. The current difficulties of Luxair will be the subject of

The airline lost €154.9m in 2020 (against a net result of €8m in 2019). Passenger numbers fell by 69.3% to 658,000. In 2021, it still recorded a net loss, albeit smaller, of €2.3m, and carried 1.08 million passengers, almost half the number in 2019.

The State is the majority shareholder of Luxair, with 39.05% of its capital. In 2020, it has agreed to a €50m effort over three years to save more than 600 jobs, between early retirement (265), structural redeployment (227) and cyclical redeployment (157). For its part, Banque Internationale à Luxembourg (BIL), a 13.14% shareholder, has suggested that it might sell its shares, although this has not materialised since and few people are willing to comment on this possibility.

Diplomacy and attractiveness

As one crisis follows another, the question arises: does Luxembourg really need a national airline? There is no doubt about it, according to Paul Chiambaretto, professor at the Montpellier Business School and director of the Pegasus Chair, dedicated to the economics of air transport.

"In recent years, as soon as a national airline disappeared, it was created again, either with no debts or with new investors," he explains. "There was Alitalia [which became ITA Airways in 2020, and is now in the process of being bought out]; Sabena, which became SN Brussels Airlines and then Brussels Airlines, or Swiss Air, which became Swiss."

The company guarantees that certain routes are accessible to or from Luxembourg.

Ministère de l’Économie

Having a national company has several interests for a country, even a small one like Luxembourg. It can act as a "diplomatic instrument". In particular "when you want to improve relations with a country, you will increase the number of routes to that country". This is essential "in times of crisis if you have to repatriate your citizens". In general, it provides connectivity via several direct flights, and therefore contributes to the attractiveness of the country. "This has an impact on the number of companies that will set up their headquarters there, the local GDP." Couldn't another company do the same, by taking over Luxair's activities? "They wouldn't necessarily offer direct flights, because they wouldn't see the point,” Chiambaretto explains.

This is confirmed by the Ministry of the Economy: "Apart from the fact that Luxair is one of the country's largest employers, the company guarantees that certain routes are accessible to or from Luxembourg, which may be less profitable, but which represent a certain (strategic) interest for the country."


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And while European competition laws do not allow governments to freely inject money to save their companies, "the State often acts as an intermediary to find investors", says Chiambaretto.

80% more passengers than in 2019 for the airline

"Some observers predict a consolidation of the sector," he admits. "We can imagine that the healthier companies will buy up the smaller ones. Even if "it is the low-cost airlines that have done best", according to him, and they have "no interest in buying a company in difficulty".

He therefore imagines "takeovers between low-cost airlines". We could also see other mergers, "like Lufthansa (a German airline, editor's note) which bought Swiss and Brussels Airlines". He also notes that "more and more non-airline players are investing in the sector, especially those in logistics, which have a lot of liquidity and are looking to diversify".

With a crisis that has affected all airlines, how do you know who is or is not at risk of bankruptcy? "The big airlines have returned to similar levels of activity as in 2019. If we are at 80-90%, it's fine. On the other hand, if we're at 50%, there's a problem."

Customer elasticity is not infinite.
Gilles Feith

Gilles FeithCEOLuxair

Luxair seems to be in the right. "Until August, we are 20% behind in terms of passengers compared to 2019 on the airline. For LuxairTours, we are 20% ahead", calculates its CEO, . However, "today, each passenger in the plane does not pay the price of paraffin as we do. Because the customer's elasticity is not infinite. We therefore estimate that we will end the year with an operating loss [different from the net result mentioned above] of €5m, if there is no further surge in Covid."

In 2019, the operating result was -€8.7m. In 2020 it had dropped to -€159.8m and in 2021 to -€33.7m. "This year we had a dividend of €70m, so we should have a positive net result."

Niche routes

The conclusion is then that: "There is no risk of bankruptcy at this stage", says Feith. "Luxair is lucky to have had the good dividends from Cargolux. This does not prevent the situation from being "still very complicated until 2025" because of inflation, he predicts.

"We had a risk of bankruptcy, the inability to meet debts, at the beginning of 2021," he admits. "We were able to refinance our building, which gave us the financial capacity to fly in the summer and rebuild our financial reserves. We were even able to pay off the refinanced building again."

For the CEO, his company's strength against low-cost airlines lies in niche routes. "If Luxair no longer existed, companies would take over routes like Lisbon or Rome. But not all the small ones out of the more than 90 we serve.”

It . However, Feith does not see a future with new investors. "Luxair can survive if it manages to expand its fleet, to divide the fixed costs and diversify its offer to fly in the niches. We hope to open Pescara (Italy) and Split (Croatia) by March 2023. We are looking at new routes where we believe there is potential for the Greater Region."

It remains to be seen what the outcome of the aviation tripartite will be. "My great hope is that there will be a mutual recognition that we need to invest in the long term.” Concerning the latest job maintenance plan, which runs until 2023, Feith points out that no employee has been operationally unemployed or out of work since July and that only 15 to 20 people remain structurally unemployed. In addition, 150 people have already taken early retirement since December 2020.

This story was first published in French on . It has been translated and edited for Delano.