Lufthansa Reveals Major Shake-up of Eurowings

 - June 24, 2019, 12:27 PM
Eurowings will transfer the commercial responsibility of its long-haul flights to Lufthansa group network airlines as it changes its strategic focus to point-to-point, short-haul services. (Photo: Eurowings)

Eurowings will close several bases, focus on short-haul operations aboard Airbus A320-family aircraft, and temper annual capacity growth until 2022 to just one percent as part of a major overhaul revealed on Monday by its parent company. The comprehensive turnaround measures aim to bring the budget carrier “to profit as swiftly as possible and sustainably generate value for shareholders,” Lufthansa Group told investors and analysts during its capital markets day. Eurowings carried 7.5 million passengers in the first quarter and posted an adjusted operating loss of €257 million ($292 million) on revenue of €805 million.

The overhaul also marks the end of the integration of Brussels Airlines into Eurowings, which Lufthansa planned to complete next year. The new plan calls for a “closer alignment” of the Belgian carrier with the group’s network airlines: Lufthansa, Swiss, and Austrian Airlines. Lufthansa Group will release further details and a turnaround plan for Brussels Airlines in the third quarter, the group noted while remaining tight-lipped on the reasons for the second reversal of the strategy. When Lufthansa in 2008 bought an initial 45-percent stake in the airline, executives at that time vowed to develop Brussels Airport and Brussels Airlines as integral components of its multi-hub and multi-brand strategy. It ditched the approach at the end of 2016, when the German group acquired full ownership of Brussels Airlines and instead opted to bring the Belgian carrier under the Eurowings umbrella to help scale up its in-house budget subsidiary, allowing it to better compete with Europe’s largest low-cost carriers, Ryanair and EasyJet.

The acquisition of Brussels Airlines and of assets of defunct Air Berlin, together with the integration of Lufthansa’s other German low-cost airline, Germanwings, provided Eurowings with a high compound annual growth rate of 19 percent in terms of availabale seat kilometer (ASK) between 2015 and 2018. That, however, came at the expense of increased complexity and resulted in a heterogeneous fleet, multiple air operator certificates (AOCs), and high integration costs, conceded Eurowings CEO Thorsten Dirks. Long-haul operations proved a “distraction.”

The complexity will make way for a new focus on simplicity, he stressed. The number of AOCs in Germany will further reduce to one, down from four in 2018 and two currently; the commercial responsibility of Eurowings’ long-haul flights will transfer to the Lufthansa group’s network airlines; Eurowings will concentrate solely on short-haul services.

The fleet will be modernized and harmonized. The turnaround plan eyes a 10- to 15 percent increase of the productivity of asset aircraft by 2022 and a reduction of the short-haul fleet size (139 aircraft now) of 10- to 20 percent. At the same time, gauge size will increase by 15- to 20 percent to lower unit cost. All 15 wet-leased De Havilland Canada Dash 8-400s will terminate from 2021. The nine oldest A320 aircraft—today, the oldest aircraft has flown for 28 years—will phase out by the end of this year and from 2021 Eurowings will get new A320neos from the Lufthansa Group order book; the first four will arrive in 2021 and 16 examples in 2022.

Lufthansa also targets markedly higher crew productivity at its Eurowings subsidiary, including an increase of days of duty and daily flight hours for pilots. The turnaround plan envisions an increase in block hours per pilot from an average of 530 in 2018 to 750 in 2022. Pilots with Lufthansa contracts will transfer to Lufthansa.

The different measures should result in unit costs reduction of 15 percent, from an estimated 6.10 euro cents per ASK in 2019 to 5.20 euro cents in 2022.