Brussels Airlines Prepares 'Reboot' Restructuring Program

 - August 29, 2019, 1:28 PM

Brussels Airlines aims to reduce costs by 8 to 12 percent to achieve an operating margin (EBIT) of 8 percent in 2022. CEO Christina Foester said that's the level of profitability the company needs to finance its own investments. “We need a margin of 8 percent to self-finance our current and planned investments in fleet renewal, network expansion, and people development” according to an internal communication from management to staff that was leaked by two Belgian newspapers, L'Echo and De Tijd, on Thursday. Although the memo does not mention any concrete measures, such as possible job losses, it points out that the cost savings may be even higher depending the inflation or falling yields. Also, rising fuel prices may require additional measures.

Foester's 8 percent EBIT margin target would bring Brussels Airlines in line with the Lufthansa target—of between 7 percent and 9 percent in 2019—for its network airlines unit. Based on IATA data, airlines in Europe earned an average operating margin of 6.2 percent last year.

According to the memo, only one seat per flight, of an average of 154 seats per aircraft, yields a profit. Twenty-seven seats are unsold while proceeds from the sale of the 126 remaining seats cover expenses—30 seats cover fuel; 20 are for wages, 18 for maintenance, 15 for navigation and landing fees, 10 each for leasing and baggage handling, nine each for catering food and advertising, and five to cover other expenses.

Brussels Airlines spokeswoman Kim Daenen confirmed to AIN the existence of the internal memo and noted it was no secret that the airline's profitability was not good, and margins need to improve to secure the company’s future. The “Reboot” turnaround plan, she noted, is part of a wider review of the company’s organization and set-up following Lufthansa’s decision in June to drop plans to integrate Brussels Airlines into the group’s low-cost carrier, Eurowings. The new strategy calls for a “closer alignment” of the Belgian carrier with the group’s network airlines: Lufthansa, Swiss, and Austrian Airlines. “As communicated by Lufthansa in June, we will release further details in the third quarter,” Daenen said.

Speaking on the sidelines of an Airlines for Europe (A4E) event in Brussels earlier this summer, Foester told AIN that Brussels Airlines reported a profit last year, but she said the profit “was not even enough to buy a spare engine.” The carrier’s fleet renewal in recent years has been fully paid for by Lufthansa, a situation “which is, of course, ultimately unsustainable,” she said, adding that all subsidiaries in the German group have “to earn their investments.”

Brussels Airlines posted a €12.8 million ($14.14 million) profit in 2018, owing to an insurance pay-out for the terrorist attacks at Brussels Airport in March 2016.