Lufthansa Group has been more insulated from low-cost competition than most of Europe's legacy airlines. That's quickly changing, and the company needs to get its plans in order. It must find a way to turn its Eurowings operation into a more nimble competitor with lower costs.
As Norwegian Air teases $69 one-way trans-Atlantic fares, Lufthansa Group’s low-cost entity, Eurowings, plans to launch new U.S. destinations, including Orlando, Las Vegas and Seattle, a member of the company’s executive board said in an interview.
Today, Eurowings flies just one U.S. route — three times per week from Cologne to Miami, — as well as several to the Caribbean, including flights to Cuba and the Dominican Republic.
“We are looking into various markets in the United States because obviously the United States by far is the largest long-haul market,” said Lufthansa Group’s Karl Ulrich Garnadt, the company’s executive in charge of Eurowings. “If you look to the market development you see that the North Atlantic is the area in the world where you see the most low cost, long-haul activity.”
Still, Garnadt acknowledged Eurowings has more pressing needs, including bulking up its European short-haul network to compete with Ryanair and other discounters, lowering its costs to better match the competition, and integrating Brussels Airlines into its operation. Lufthansa Group acquired full control of Brussels Airlines late last year, and though it will remain its own brand, the carrier will be a part of Eurowings.
Meanwhile, for long-haul routes, the Lufthansa Group is taking more of a wait-and-see approach, Garnadt said.
“We see that the market’s reaction to our low-cost offer so to speak with high load factors is very positive, and now we see a tendency that everybody now thinks about long-haul low-cost because there’s a growing perception in the market that this could be new trend,” he said. “The final proof for this perception, or for this assumption, we don’t have it yet. We believe that out of Germany, with the traveling affinity of our population, a long-haul low cost product has a fair chance.”
Eurowings’ muted trans-Atlantic approach makes sense. Most European and U.S. legacy airlines fear newish long-haul, low-cost airlines like Norwegian and Iceland’s Wow Air more than any other threat, and they’re developing strategies to try to maintain market positions. That’s why U.S. airlines may introduce fares in which customers give up some extras — like the ability to select seats or change their flights — in exchange for cheaper prices. And it’s also why, in Europe, International Airlines Group, owner of British Airways and Iberia, is launching new trans-Atlantic flights from London and Barcelona, while Air France-KLM plans to create its own long-haul low cost subsidiary.
Lufthansa Group may eventually build Eurowings into a bonafide competitor to Norwegian and Wow, but it has a more imminent concern, one many of its competitors dealt with years ago. After mostly avoiding Lufthansa’s hubs in Frankfurt and Munich, in part because both have high costs, European discount airlines are slowly expanding into Germany’s two largest airports.
This means Lufthansa Group, which historically has deployed Eurowings not at its main hubs but at smaller airports such as Dusseldorf or Cologne, is scrambling to respond.
Later this year, Eurowings will finally fly from Munich, launching 32 new routes, according to CAPA – Centre for Aviation. Eurowings soon will fly to Amsterdam, Paris, London, Rome, Edinburgh, Basel and Geneva, as well as several purely leisure destinations. The routes will be slightly unusual, as Air Berlin will operate them for Eurowings under what the industry calls a a wet-lease agreement. Air Berlin will supply pilots and flight attendants, and Eurowings will market flights and sell the tickets. The arrangement is helping Eurowings expand faster than otherwise would have been possible.
The Munich build-up is an acknowledgement, Garnadt said, that even customers in Lufthansa’s core markets are demanding low cost travel. On many of the new Munich routes, Lufthansa and Eurowings will operate flights side-by-side, giving customers an option of full service or limited service cabin offerings.
“Traditionally, the Lufthansa Group stands for serving more the premium business oriented, long-haul market segments,” Garnadt said. “We have over quite some time, not sufficiently served certain markets. This opened opportunities for other competition.”
Ryanair is a major concern
The biggest new competitor is Ryanair, Europe’s most powerful discounter, which will begin flying in March from Frankfurt, Lufthansa Group’s No. 1 hub. It will fly to Alicante, Malaga and Palama de Majorca in Spain, as well as Faro in Portugal.
Garnadt said Eurowings also plans to start flying from Frankfurt.
“It’s not a direct response to Ryanair but it’s a reaction to development we see in many markets.”Garnadt said “If we are not offering the right product others will do.”
Garnadt said Lufthansa Group executives were at first surprised Ryanair added a Frankfurt base because of the airport’s unusually high costs. But he said Lufthansa Group learned Ryanair is getting better terms than most airlines.
“We firmly believed that Ryanair would never move into an airport where probably the airport costs consumes 90 percent of the fare they charge,” he said. “Now we know what the trigger was. The trigger was that Ryanair is getting conditions to operate to and from Frankfurt that Lufthansa and others operating here can only dream of.”
“Yes, it was a surprise. Then the surprise turned into disappointment because the biggest competitor we have in the European market gets better treatment than the Lufthansa group, which is the biggest customer in Frankfurt.”
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Photo Credit: Eurowings may add more U.S. flights but it's more worried about defending its home turf against short-haul discount airlines. Eurowings