In a newly filed updated, Ryanair’s wholly-owned Austrian subsidiary Laudamotion said it now expects to make a €90 million loss for the 2019 financial year – that’s €10 million more than a recent profit warning and €40 million more than Ryanair had originally planned the budget Vienna-based airline would be losing at this point. If Ryanair has any hope of getting Laudamotion to break even by 2021 then it will have to massively reduce costs.
And that’s exactly what Laudamotion plans to do, telling staffers in a leaked memo that it would cut or eliminate altogether any costs that were not “absolutely necessary for the purpose of delivering a safe, reliable and on-time air service”.
Andreas Gruber, the low-cost carrier’s chief executive, said in the January 10 dated letter that Laudamotion continues to “operate in a very difficult trading environment,” blaming a price war in both Austria and Germany that has seen average fares fall €15 below what they should be being sold for.
“Lauda is losing almost €2 million each week,” Gruber warned. “These losses are currently being funded by our parent company, Ryanair, but cannot continue indefinitely.”
Ryanair bought a 75 per cent stake in Laudamotion in March 2018 before going onto acquire the whole business around 10 months later. Its home base in Vienna has become a low-cost battleground with competition from Wizz Air and IAG’s budget brand LEVEL driving ticket prices down.
The Lufthansa Group, which owns Eurowings and Austrian Airlines, has also publicly said it will compete against Ryanair on price in order to lose any more market share in its home market. Austrian intends to cut around 800 jobs this year as it attempts to fight off competition from a “glut of budget airlines”.
Laudamotion doesn’t intend to cut jobs – instead, making plans to hire more than 300 pilots and cabin crew, as well as expanding its fleet to 38 aircraft in 2020. But working conditions for those new hires will take a hit. Laudamotion says any new joiners from January won’t be covered by a collective labour agreement and that “roster inefficiencies” (ie. cutting the amount of paid time) for all staff will be reduced.
Staffers will also have to start buying their own uniform, paying for airport parking and even their own ID badges. Laudamotion will, however, offer a €360 allowance paid in instalments over the course of the year.
“It is only when Laudamotion is trading profitability that we can contemplate returning to pay increases for pilots and cabin crew,” Gruber explained in the letter, saying he hoped this would be “sooner rather than later”.
In November, Laudamotion faced criticism for introducing a new sickness policy that left some employees too frightened to call in sick for fear of facing disciplinary action. The Austrian Cockpit Association said safety could be risked but the airline denied all the allegations.
Unlike Laudamotion, it’s parent company has increased its full-year profits guidance by between €50 to €100 million owing to a better than expected Christmas and New Year travel period. At the top end of the guidance, Ryanair could report a profit of as much as €1 billion for 2019.