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:
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.
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.