We learned about cuts at Lufthansa earlier this week to the onboard product. Today, Lufthansa announced it would make cuts, including staff cuts, at its troubled Austrian Airlines subsidiary. Austrian followed with further clarification.
Trouble At Austrian Airlines
After a successful turnaround by former Star Alliance CEO Jaan Albrecht, Austrian Airlines finds itself in a hole once again. It still expects to report a slim profit for the year, but warns profit has all but vanished and 2020 looks even more challenging.
Fierce Competition In Vienna
Austrian is facing huge pressure at its main hub in Vienna.
In addition to EasyJet, Ryanair, and Wizzair, Laudamotion, funded by Ryanair, and Level, funded by IAG, are ramping up service. This has created a period of record-low prices for passengers traveling to and from Vienna, but a fiercely competitive landscape some argue is unsustainable.
For example, take a look at some of the pricing on Ryanair this week:
Alexis von Hoensbroech, CEO of Austrian put it bluntly:
We have to reposition ourselves in order to survive the brutal competition of the low-cost airlines.
That sounds like a promise of cuts. But Hoensbroech claims that is not what he mean:
We will not retreat a single millimeter and will maintain our premium strategy.
Our long-term strategy remains in full force. We want to modernize Austrian Airlines and make it profitable and investment ready.
How will this occur?
Do As I Say, Not As I Do (Eurowings Coming)
Despite his promise to maintain a premium strategy, another low-cost carrier is entering the Vienna market: Lufthansa-owned Eurowings.
Starting next year, Eurowings will offer service between Vienna and:
- Barcelona
- Birmingham
- Nuremberg
- Rome
- Zadar
Unlike full-service Austrian, Eurowings charges for baggage, food, and drinks onboard and doesn’t offer business class.
Most importantly for Austrian and Lufthansa, labor costs at Eurowings are far less than on Austrian.
CFO Wolfgang Jani lamented this development as an unavoidable necessity:
Highly-qualified jobs will be eliminated because low-cost carriers offer considerably lower salary and social standards. Fair competition is fine, but please, it should not involve committing social fouls.
He was referring to low-cost carriers with low-paid flight attendants, but the Eurowings creep into Vienna will result in some of the same issues.
Job Cuts + Fleet Standardization
Austrian also plans to cut 700-800 job and standardize its fleet, hoping it will save 90 million Euros over two years.
Lufthansa Chief Financial Officer Ulrik Svensson, speaking in Frankfurt today, said:
In an increasingly challenging market environment, it is more vital than ever that we consistently take every action within our influence and further reduce our costs.
We have resolved several further measures to improve the performance of our only modestly profitable and even loss-making companies.
The job losses will not all come immediately; Austrian hopes most will come through natural attrition and a non-essential hiring freeze. Improved productivity and automation have made some positions redundant.
Meanwhile, Austrian will standardize its shorthaul and regional fleet around Airbus A320 family aircraft. 18 turboprop aircraft will be retired.
Finally, Austrian will cuts its unprofitable Miami route and scale back its seasonal summer Los Angeles service from daily to 5x weekly. It has not announced a new route to utilize the extra aircraft.
CONCLUSION
Austrian faces fierce competition in Vienna. Thus far, it is holding to its full-service model, which seems like a smart move in a sea of competitors racing to the bottom. But with competition not only likely to stay, but grow, Austrian will have to become even more agile and efficient.
image: Austrian
I had a choice for a forthcoming flight ex VIE: Austrian direct in a fare class that earned no points, Lufthansa one stop but for a fare that included no luggage ( tried to contact Lufthansa via Twitters to check *Gold entitlements but that proved impossible) or Lauda on a direct flight, with luggage, seat selection @ 1/2 the price ( although nowhere near as cheap as those cited). A no-brainer.
I guess it isn’t surprising they are cutting the Miami route, but for the life of me every time I search for flights to Europe from Miami, in any class, direct or connecting, Austrian is consistently one of the most expensive options, even in their own alliance, despite flying a 767 on that route, more than the LH A380, LX 777/330, TK 777, TAP 339neo, SK 330, ect and they almost never released award seats.
I flew Austrian BEG-VIE-ORD in business class this summer and it was the best business class I’ve experienced. Great food and drink and incredibly warm, gracious, friendly service. I hope they can find a way to capitalize on these advantages as, hands down, they greatly exceed LH and all US carriers.
Meanwhile, some airlines will never again lose money.
Sad. I like OS. Flew them long haul J several times, and also short haul. Service was great, got my baggage allocation, meals, lounge access, no hassles. I avoid LCCs; though flew the old Nikki once which wasn’t bad, but I paid for full service on that flight, and one time on Southwest. I don’t want to be bothered with the scams, surprise fees, etc when flying. Not worth it. It takes money to provide a full-service mainline airline, I understand that, and I don’t mind paying for it. The future though seems to be a world of flying cattle cabins. Many people seem to relish it, even ones who can afford to pay OS fares. A race to the bottom.
I would have agreed with you, until relatively recently. Unfortunately Star Alliance has descended into a loose alliance of competing airlines , to the disadvantage of consumers: fare classes, earning rates, luggage allowances are as clear as mud, contradictory between carriers…and it’s a general muddle bordering on chaos. They even bad mouth each other.
In respect of Austrian: the lounges are poor and barely worth entering; I like the inflight product but decline to pay a significant premium for it just for the sake of nothing more than a barely edible pastry.
The interminable ‘spin’ from Star Alliance does not match the reality for consumers: I’m going LCC until they sort it out, but not holding my breath.
Eurowings has been operating out of VIE for some time now so your reference to them “entering the market” is not correct. The destination you mention might be new for them from VIE but they have operated flights to other destinations for a couple of years now.
I meant beyond DUS, HAM, TXL, CGN. Do they operate already beyond hubs?
Eurowings has been flying VIE-FCO on behalf of OS for years. It is doing it right now. It did yesterday. It does today. It will do it tomorrow. So I don’t really get what all the fuzz is about.
CTA, FAO, FUE, AGP…all non-hubs.
They are ending service to BHX and BCE at the end of the year, for whatever that is worth.
“Starting next year, Eurowings will offer service between Vienna and”
Are you sure? As per this article from last month, those routes will be transferred from Eurowings and will be operated by Austrian:
https://www.routesonline.com/news/38/airlineroute/286621/eurowings-transfers-selected-vienna-service-to-austrian-from-jan-2020/
Did they backtrack already?
To me, Austrian and Premium are not two words that go together. Even among European carriers Austrian business class on shorthaul is a downgrade on anyone else, the seat pitch is unbelievably tight and the food is awful.
My experience with OS has been a positive one as far as on board service is concerned but a very poor one as far as the ground service is concerned! Vienna Airport does not lend itself to premium service! On the ground, whatever the cabin, OS offers nothing more than LCCs and the lounges are pathetic and overcrowded!