Retooled and realigned, Augsburg set for recovery

 - May 9, 2008, 5:41 AM

Bavarian regional airline Augsburg Airways, wholly owned by Germany’s Haindl family, hopes to approach break-even margins by the end of this year following a massive restructuring effort. Begun March 29 with a contract to revamp a six-year-old marketing relationship with Lufthansa Airlines, the overhaul has resulted in the loss of some 140 jobs and the grounding of five airplanes. But thankfully for airline stakeholders, Augsburg has managed to adjust its costs and capacity to counter the E20 million decline in revenue it suffered last year, perhaps marking the end of one of the most painful periods in its illustrious history.“Our future is now secured,” proclaimed Augsburg chairman Manfred Scholz, who predicted that the German domestic market will resume annual growth of between 4- and 6 percent starting in 2004. “We want to take part in that growth as a part of Lufthansa, delivering passengers to Lufthansa’s main hubs,” notably Munich, Hamburg and Frankfurt.

The former head of finance and personnel of one of Europe’s largest paper companies, Haindl GmbH, Scholz replaced colorful CEO Olaf Dlugi before Augsburg implemented its new exclusive agreement with Lufthansa on June 1. A Team Lufthansa member since 1996, Augsburg now wet-leases its entire active fleet of four Bombardier Dash 8Q-400s and eight  50-seat Dash 8-300s as part of an ACMI (aircraft crew maintenance insurance) arrangement under which Lufthansa controls all marketing, sales and route planning.

Flown an average of 250 to 280 hours a month, the airplanes come from three lessors: Deutsche Leasing and Austrian finance groups BAWAG and BACA. Six operate out of Munich and three from Hamburg, where the airline controls line maintenance stations. A single Dash 8 originates in Hof and another two fly out of Augsburg, where the airline maintains a pilot school and heavy-maintenance center.

Before entering the new arrangement, Augsburg maintained a franchise relationship with Lufthansa under which it flew its own network of routes and assumed responsibility for its own marketing and sales. Scholz said a complicated cost structure rendered the previous activities difficult to control. Profitable in 2000 on revenues of E105.5 million generated from 972,228 passengers, Augsburg suffered deep losses last year when it boarded just 891,047 passengers and took in E84 million. During restructuring, the airline reduced its workforce from 560 to 420, closed several passenger routes and grounded two 38-seat Dash 8-200s and three Dash 8-300s, one of which it planned to hand over to Royal Jordanian subsidiary Royal Wings.

Scholz said the airline keeps the grounded turboprops in airworthy condition for charter use or occasional substitutions on scheduled flights. He described the -200 as difficult to operate profitably, but he said the larger -300 and Q400 have performed much better on internal German routes. A new terminal at Munich Airport slated for completion next year will double the city’s annual passenger capacity to 50 million, perhaps opening new opportunities for at least two of Augsburg’s grounded aircraft. Scholz also said the prospect of increased volume could call one or two more new Q400s.