The Lufthansa Group is holding its first Capital Markets Day since 2011 at the airline’s crew training facility in Frankfurt today. Carsten Spohr, the chief executive of Lufthansa, opened the day telling the assembled journalists that Lufthansa and its subsidiaries – Austrian Airlines, SWISS, Brussels Airlines and the embattled Eurowings – were aiming to become the number one airline group in Europe.
In fact, Spohr said Lufthansa was already the strongest airline brand in Europe and that it offered the best product of any other airline in Europe as well. Detailed plans of how Lufthansa planned to challenge monopolies and differentiate itself were laid out but the hot topic of the day was the future of the low-cost brand Eurowings.
The airline has been losing money ever since Lufthansa decided to acquire a large chunk of the bankrupt airberlin fleet to fuel its growth. Along with its core short-haul business, Lufthansa has been growing Eurowings’ long-haul business – as recently as March Lufthansa announced plans to expand the Eurowings long-haul business into its hubs at Munich and Frankfurt.
But in a major reversal, Lufthansa now says Eurowings will give up its long-haul business altogether. Instead, Eurowings will now only focus on short-haul point-to-point services. A number of other changes are coming in order to reduce costs at the carrier:
- Eurowings will now only operate Airbus A320 family aircraft
- A plan to merge Brussels Airlines with Eurowings will now be shelved
- Eurowings will now only be operated under one Air Operators Certificate
- Plan to cut costs by 15% will be announced later
While the entire Eurowings project might be looking like a failure right now, that’s not the way Lufthansa sees it. Spohr explained how non-hub operations used to make losses of around €400 million every year – the airline had to do something and the lower-cost Eurowings has been seen as a key attempt to shore up those losses.
He told the audience that Lufthansa couldn’t simply give up markets or retreat and it couldn’t continue to lose money. Taking over airberlin’s fleet has been a lot more complex than anyone had imagined but Spohr sees some comfort in the fact that both Ryanair and easyJet also underestimated the challenges.
What will now be interesting to hear is how Lufthansa plans to cut costs at Eurowings. A key element of those cuts will come in the form of increased crew productivity – that could come with significant pushback from staffers especially considering the fact that Eurowings cabin crew about to be balloted on strike action over what they see poor pay and working conditions.
Spohr says Eurowings crew have better conditions than staff at competitor airlines and several mentions of “fighting” with unions were mentioned within the first few minutes of the Capital Market Day starting.
Interestingly, despite the growing industrial unrest, Sphor says the Lufthansa Group is the top employer in Germany and that no one ever leaves Lufthansa to do the same job at another airline.