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Forget London and Paris: Vienna has become the hottest ticket in European aviation as carriers pour planes and investment into a market once regarded as an industry backwater.
Ryanair Holdings Plc is among a clutch of operators ramping up capacity in a challenge to local flag carrier Austrian Airlines, sparking hefty price cuts for flights to a city known mainly as a draw for classical music and Baroque architecture.
Europe’s top airlines are targeting Vienna after the collapse of Air Berlin Plc left a gap in the market. Discounters Wizz Air Holdings Plc and EasyJet Plc have joined the feeding frenzy, along with the Level arm of British Airways owner IAG SA, and low-cost Eurowings, which shares owner Deutsche Lufthansa AG with Austrian Airlines. Passenger numbers jumped 11 percent last year, but the fare slump is testing carriers’ resolve.
Vienna has become “a bloody party,” according to Wizz Chief Executive Officer Jozsef Varadi, while HSBC analyst Andrew Lobbenberg says the current rate of expansion is “too good to be true” and indicates an unsustainable, unstable and irrational market.
“The strategic visions of the various major European carriers are all playing out on top of one another,” Lobbenberg said in a March 11 note, predicting that at least two players will be forced to quit.
While hotels, restaurants and bars benefit from the influx of visitors, only 76 percent of the seats for flights at Vienna airport were filled last year — well below the average for Frankfurt or London’s Heathrow.
Vienna had previously been a neglected market by the industry. Even after the end of the Cold War added Slovakia, eastern Hungary and the Czech Republic to its catchment area, the city was largely ignored by low-cost carriers.
That changed in October 2017 with the collapse of Air Berlin, the only significant competitor to Austrian Airlines in Vienna. Its Niki unit ended up in the hands of founder, ex-Formula 1 driver Niki Lauda, who rechristened it Laudamotion and promptly sold to Ryanair.
“Vienna was probably the last bastion of the legacy system untouched up to a year ago,” said Wizz boss Varadi, whose airline opened a base there in June. “The airport was sort of backing the Lufthansa-Austrian airlines legacy monopoly, but clearly that didn’t deliver growth.”
Vienna airport also launched a 500 million-euro ($565 million) spending package to modernize its two terminals and increase capacity, and instituted an incentive program that granted fee discounts for higher volumes.
Julian Jaeger, joint CEO of airport operator Flughafen Wien AG, said the current fare war is unsustainable and he expects to see capacity consolidation. All the same, sees Vienna attracting more long-haul carriers.
At Laudamotion, deputy chief Colin Casey said the city is the perfect staging post for Ryanair to challenge to Lufthansa in Germany and other central European markets. Existing routes are performing well, with the carrier boosting its Austrian fleet to 11 aircraft from seven and planning to add more planes.
IAG CEO Willie Walsh said in an interview in Brussels on March 6 that he was “very pleased” with Level’s performance in Vienna, without disclosing future plans.
For its part, Austrian Airlines said it’ll defend its home base. “We’re prepared to fight to fend off the increasing competition,” CEO Alexis von Hoensbroech said in an email, and take “further steps to defend our hub,” he said.
—With assistance from Richard Weiss.
©2019 Bloomberg L.P.
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