Eurowings, the discount subsidiary of the Lufthansa Group, is expected to make more heavy losses in 2019 after the airline updated the markets on its financial position. The airline had been hoping to break even this year after reporting a loss of €231 million in 2018 but the latest figures put a possible loss at between 4-6% of annual revenues.
The Lufthansa Group says Eurowings is facing overcapacity and tough competition from competitors who are “willing to accept significant losses to expand their market share” – particularly in Germany and Austria. The airline said it expected unit revenues to drop significantly in the second half of the year as it attempts to compete with aggressive rivals.
The likes of Ryanair are backing Austrian carrier Laudamotion, while Europe’s IAG Group also expanded its discount LEVEL brand into Vienna with a slew of short-haul services last summer. IAG doesn’t yet report individual operating performance for LEVEL but did say that the carrier’s lower ticket prices had dragged down passenger revenues across the group which also includes British Airways and Iberia.
Luadamotion made a significant loss last year but Ryanair says much of this can be attributed to out of the ordinary start-up costs.
Making matters worse for Eurowings has been its inability to “streamline” its costs as fast as intended. A series of new cost-cutting measures are expected to be announced within weeks.
In March, Lufthansa blamed losses at Eurowings on the carrier’s rapid expansion following the purchase of a large chunk of the former Air Berlin fleet. Eurowings typically operates at lower costs than network airlines like the mainline Lufthansa brand, as well as Austrian and SWISS, and has been taking over a number of predominantly leisure routes from Lufthansa.
Despite strong growth in its long-haul business, Lufthansa says its profit margin is expected to drop by about 1-2% from previous forecasts. Again, the airline blames intense competition in Europe, as well as higher than expected fuel costs.