The airline's catering division, LSG Group, has been active in airline catering for more than 70 years and last year made 591m meals, but like its rivals Do&Co and GateGroup, it is contending with a shift from free airline food to buy-on-board that is forcing these companies to reinvent themselves, exemplified by the recent move by British Airways.
"Transforming from a caterer to a retailer is a big challenge," LSG Group CEO Erdmann Rauer told Reuters in an interview. He went on to say that he expected 10 to 15% of the €14bn (US$15bn) global airline catering market to shift to buy-on-board, adding that packaging and appearance will become more important in encouraging flyers to make a purchase.
LSG is still achieving 4% growth in the traditional airline food business and is investing in more luxury meals for business and premium economy passengers, as well as providing food for Lufthansa lounges in Munich and New York. It is also seeking contracts in other areas, such as catering for trains and convenience stores, with customers including German rail operator Deutsche Bahn, Britain's Virgin Trains, and 7-Eleven. Contracts such as these could help to ensure continued work for the 210 kitchens it has around the world.
Airline catering, including buy-on-board, currently accounts for 85% of LSG's revenues; a number predicted to fall to about 75% over the next five years, with the remainder coming from non-airline customers, Rauer said. One challenge the company faces is aligning its profit margins closer to those of its competitors. LSG reported an operating margin of 3% in 2015, compared with rival Do&Co at 10% and GateGroup at around 6%. Rauer added that LSG's operating margin should rise again in the next three to five years, saying, "Change costs money. It's a burden on profit but it's an investment to make the company fit for the future."
Last year, LSG made adjusted core profit of €99m, equivalent to 5% of Lufthansa Group's 2015 profit of €1.8bn.
