Beginning in Summer 2018, Lufthansa’s low cost carrier, Eurowings, will begin serving Frankfurt as the LH Group seeks to stem the competition coming from other European LCCs.
In an article published in Airliners.de, Eurowings boss Karl Ulrich Garnadt stated that due to the pressures seen coming from Ryanair and others, it made good business sense to counter the new competition. Ryanair plans to begin service to Frankfurt this spring.
Such a move is made easier due to the fact that Eurowings will inherit 33 aircraft in the coming months after Lufthansa agreed to lease the aircraft from Air Berlin. This is of course in addition to the aircraft that will join Eurowings after the acquisition of Brussels Airlines closes. In all, the Eurowings fleet will grow to nearly 120 aircraft making it easier to operate from large hubs and to take on their competitors directly.
Previously, Eurowings announced that it will begin flying from Lufthansa’s other Mega-Hub in Munich in March. The initial timetable calls for flights to 32 cities throughout Europe, mostly towards ‘Holiday’ type destinations.
Over the past few weeks it was quite obvious that Air Berlin was in ‘perilous peril’. News starting coming from Germany that Etihad was no longer happy with their stake in Air Berlin and was even looking at ways to divest of their ‘mistake’. At the top of most headlines was the fact that Lufthansa was prepared to take advantage of AB’s weakness and takeover aircraft and routes while Air Berlin restructured their operations.
With the latest news from Germany on Monday, we now gain clarity and confirmation of what has been discussed previously.
People in Europe were waking up to headlines that Air Berlin indeed will be restructuring operations in an attempt to return to profitability. Leading the list of changes is the elimination of over 1,000 jobs and reduction of its fleet of 127 aircraft to only 70 by the end of this year.
To dovetail this announcement, Lufthansa has been planning for this and had previously offered to assume control of 40 of Air Berlin’s aircraft and operate most of the Air Berlin routes that do not serve Dusseldorf or Berlin, both of which are major AB hubs. LH will ‘wet lease’ the aircraft and crews from AB and will operate them under ‘Eurowings’, LH’s Low Cost Carrier unit. What this means is Air Berlin is guaranteed to receive ‘rent’ for the aircraft, but Lufthansa gets to keep profits, or absorb losses.
In addition to the aircraft that Lufthansa will take over, it appears that Air Berlin will also sell 17 of their birds currently owned by ‘Niki’ to TUIFly. ‘Niki’ is an Austrian based subsidiary of Air Berlin.
The timing of the implosion of Air Berlin couldn’t have happened at a better time for Lufthansa. At the top of LH Group’s priority list for 2016 was to make sure that Eurowings would be set up for success and become accretive to Group’s balance sheet. So far success has been muted for a variety of reasons including the fact that the fleet is a bit undersized, uber aggressive competition from competitors, and a change in consumer sentiment in Europe that has fewer people thinking about travel.
With the injection of 40 aircraft, new routes, and broader coverage Lufthansa has the opportunity to make Eurowings what it is supposed to be, which is a low cost option for passengers to travel to destinations not usually served by mainline carriers. At this moment, Eurowings only has 33 aircraft in the fleet making it difficult to reach their goal. With the influx of 40 new aircraft, crew and hundreds of new flights, EW will have literally doubled in size over night without much effort or substantial risk.
Eurowings now has the opportunity to finally meet the expectations that everyone had for it. However the expectations may have doubled as well!
Lufthansa Group’s Supervisory Board is scheduled to meet Wednesday, September 27 to review and vote on the proposal for bailing out Air Berlin. It’s expected to be approved unanimously so expected another announcement in the coming days that confirms what we already know.
Lufthansa’s Executive Board was set to give their recommendation today on whether or not the Supervisory Board should vote to acquire the remaining stake of Brussels Airlines that LH does not already own. Over the last few weeks, momentum had been growing that the deal would be announced in April, but not we’ll need to wait til September at the very soonest to see what is decided. Currently, LH owns a 45% stake in the airline and has until 2017 to exercise its option to buy the remaining 55% from SN Airholding.
The reason given for this delay is to allow Brussels, and Belgium at large to recover after the recent bombings at the airport and metro stations. On the surface, it looks like a valid reason but in my opinion I think there may be other reasons that go beyond sympathy.
Since announcing the potential buy up of SN, Lufthansa has made it no secret that it is looking for other partners as it tries to boost its Eurowings LCC (Low Cost Carrier) division. In addition to the SN deal, which still seems most likely, LH has approached SAS as well as Thomas Cook’s ‘Condor’ to see if there is any desire from these airlines to join Lufthansa Group. Lufthansa has simply said that exploratory conversations had taken place but no decisions had been made.
In my opinion, I don’t think LH tapped the brakes on the SN deal because of the terrorist attacks. As tragic as the events were, it was not a direct strike on Brussels Airlines and thus would have changed the tenor of the deal with Lufthansa. In addition, the SN deal was nothing new. LH has obviously been aware all along what the timeline would be for the deal and since it is already a 45% stake holder, it would be a simple accounting transaction that would close the deal for the remaining 55%.
What I think is happening is that LH sees a very fragmented LCC market in Europe, with far too many players involved which leaves only a few successful LCC operators such as EasyJet and Ryanair. LH sees opportunities to bolster its line up with potentially larger market players such as SAS or Condor as compared to SN and they simply are going through their due diligence to confirm they don’t miss a better opportunity elsewhere. With the sovereign ownership group of SAS being motivated to sell the airline, and Thomas Cook wanting to get rid of Condor who is saddled with 800 million euro in debt, LH might be able to get a fantastic bargain and at the same time at something new to the group, while still maintaining the SN stake.
Ultimately however, I truly feel that LH will take the path of least resistance and bring the rest of Brussels Airlines into the fold.
Just my 2¢……