Lufthansa Eyes Cost Cuts To Return Eurowings To Profit

By Dave Simpson
Lufthansa Eyes Cost Cuts To Return Eurowings To Profit

Lufthansa's budget airline, Eurowings, is aiming to cut costs by 15% over the next three years and focus on short-haul flights as part of a plan to return to profit by 2021, the German carrier said this week.

Lufthansa cited falling revenues at Eurowings as a major reason behind a profit warning on June 16. Eurowings' revenue was forecast to drop sharply in the second quarter.

Eurowings expanded last year as it took over large parts of Air Berlin, but is making a loss as it faces tough price competition from Ryanair, easyJet and Wizz in Europe.

Lufthansa said that its Eurowings fleet would consist only of planes from the A320 family in the future and that it would seek to boost productivity at Eurowings by limiting itself in Germany to one air operator's certificate from four currently - a move that should reduce its administrative and personnel costs.

Eurowings' long-haul business will also be managed by Lufthansa in future.


Lufthansa earlier this month cut its expectations for annual earnings before interest and taxes to €2 billion to €2.4 billion from €2.4 billion to €3 billion previously.

"Too Much To Do In Too Little Time"

CEO Carsten Spohr told an investor conference in Frankfurt this week that management had underestimated how complicated it would be to integrate Air Berlin into Eurowings. He said, "They had too much to do in too little time."

Brussels Airlines, the Belgian national flag carrier of which Lufthansa took control in 2016, will therefore not be integrated into Eurowings, Lufthansa said. A turnaround plan for Brussels Airlines will be announced in the third quarter.

Pegging Its Dividend Payout Ratio To Net Profit

Lufthansa also said this week that it would start pegging its dividend payout ratio to net profit to give the group more flexibility. It will pay out a regular dividend of 20%-40% of net profit, adjusted for one-off gains and losses.

Spohr said  that this week's announcements sent "a clear signal that this company cares about its shareholders and tries to create value for them".


Aiming To Use Innovations In Sales And Distribution To Help Revenue

Lufthansa said its Network Airlines - made up of Lufthansa, Swiss and Austrian Airlines - would aim to use innovations in sales and distribution to help increase unit revenues by 3% by 2022.

Network Airlines will try to reduce unit costs by 1-2% a year, it added.

Network Airlines chief commercial officer Harry Hohmeister told Lufthansa's capital markets day that the network wants to expand its small market share in Africa and South America and boost turnover by 50% to almost €900 million by 2022.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.