Skift Take

Lufthansa had it pretty easy in its home market for a long time, but sustained low-cost competition has come at a bad time. It will be hoping a revamped Eurowings is enough to see off EasyJet and Ryanair.

Lufthansa Group is preparing for a sustained battle with low-cost competitors Ryanair and EasyJet in its home market of Germany.

The collapse of Air Berlin in 2017 allowed other airlines to plant a flag on Lufthansa’s home turf and with that has come more planes and lower prices making it harder for the once-dominant legacy carrier. Lufthansa though is braced for a fight.

“When it comes to distribution and how do we fight off Ryanair and EasyJet, we are expecting that we will indeed have a very tough price competitive situation with these carriers for the rest of the year and maybe also into 2020,” said Ulrik Svensson, Lufthansa’s chief financial officer on an earnings call with analysts on Tuesday.

“This is our home market. We believe long-term that we sit on one of the most important markets in the whole of Europe, and we are clearly going to make sure that we fight them off.”

The last couple of years have seen an expansion in low-cost activity across Germany. Ryanair entered Frankfurt in 2017 and in the same year EasyJet bought Air Berlin’s operations at Berlin Tegel Airport. An uncertain economic and political climate has further complicated matters.

For its part, Ryanair has pointed the finger of blame at Lufthansa for using its subsidiary Eurowings to engage in low-cost selling and Michael O’Leary, the Irish airline’s CEO, is perplexed by his rival’s attitude to competition.

“I can’t foresee any way Lufthansa will continue to sustain the level of losses that they are meeting in Germany and some of the explanations being produced by Carsten [Spohr, Lufthasa CEO] and the team are just laughable,” he said on Monday.

Eurowings Turnaround

Whatever Lufthansa is or is not doing with Eurowings is made more complicated by the financial problems at the airline.

Earlier this year it announced plans to restructure the carrier, a plan that would see it stop flying long-haul routes. Lufthansa is retiring older aircraft from the Eurowings fleet and also moving to a single German air operator’s certificate to help simplify its structure.

“The aim is to bring Eurowings back to profitability as quickly as possible and so to create sustainable value for shareholders again,” Lufthansa said in its most recent financial report.

In the six months so far this year, Eurowings loss before interest and taxes has increased 25 percent to $305 million (€274 million).

Second-Quarter Results

Lufthansa’s difficult year had already been flagged through a profit warning in June. Pre-tax profit in its second quarter slumped 48 percent to $584 million (€524 million), while revenue grew 4 percent to $10.7 billion (€9.6 billion).

“Whereas long-haul business continued to perform strongly, especially on transatlantic and Asian routes, market-wide overcapacities and increasing competition from low-cost carriers trying to capture market share with low prices are leading to high pricing pressure in European traffic,” the airline said.


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Tags: earnings, easyjet, europe, low-cost carriers, lufthansa, ryanair

Photo credit: Lufthansa aircraft. The airline is facing tough competition in Germany and Austria. Lufthansa Group

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