Jens Bischof’s first week at Eurowings was something different. He had just moved from Antalya to Cologne from the fairly profitable Turkish Lufthansa subsidiary Sun Express in order to finally bring the relatively unprofitable subsidiary Eurowings based there into the black. But after two days at his desk, he was able to throw whatever plans he may have had into the shredder. The corona pandemic is now spreading at breakneck speed in Europe, and the airlines have had to almost completely cease operations. It was spring 2020.
Bischof, a Lufthansa man for decades with the appropriate stable smell that is important in the group, then first dissolved the strategy department at Eurowings. “There was only one strategy anyway – survive,” remembers the 57-year-old. Three and a half years later, he can now say that he managed to survive, also because the Lufthansa Group was partially nationalized at times and thus had access to money that no bank wanted to provide by mid-2020. Although it is only mid-September, Bischof now dares to say that Eurowings will make a profit this year for the first time as a Lufthansa subsidiary.
For the group and for Eurowings anyway, this is a milestone that should not be underestimated. For practically for decades, the group had not been able to find a suitable and, above all, profitable answer to the low-cost airlines Easyjet and Ryanair, which they regarded as a major threat to their position in the lucrative German market. The offshoot Germanwings was an economic failure and was then closed in the wake of the corona pandemic. Eurowings, previously a small regional airline, took over all European routes that did not touch the hubs in Frankfurt and Munich. And Bischof should finally deliver the concept with which Eurowings does not lose money in the battle against Ryanair and Easyjet.
Initially, Eurowings benefited enormously from being able to directly take over Lufthansa’s market position (i.e. take-off and landing times) at important airports such as Düsseldorf, Stuttgart or Hamburg. But the idea that the airline had to be as cheap as Ryanair and offer a corresponding basic product was abandoned. Instead, Eurowings was accused of being cheaper than Lufthansa, but more expensive than its low-cost competition. As long as customers felt the added value, they would be willing to pay for it, according to the calculation.
Ryanair has average ticket prices of around 60 euros per route, while Eurowings costs 130 euros. Eurowings flies from expensive major airports, offers a kind of mini-business class in the front of the aircraft and has also said goodbye to some of the dogma of the low-cost purists in many other places. Behind the scenes, however, Bischof, who usually appears extremely jovial, has implemented a fairly rigid austerity course. In his own words, the Eurowings boss has reduced unit costs “in the thick double-digit percentage range”, an exercise at which his predecessor Thorsten Dirks had failed.
What is currently helping Eurowings is the enormous demand in air traffic after the corona pandemic and the high prices that passengers are currently willing to pay. Sometimes Bischof has to listen to the fact that it would be a big deal if he didn’t manage to transfer a profit to the corporate headquarters in Frankfurt at these moon prices. Bishop thinks this is a bit too simplistic. Because the costs for fuel and fees have increased so much that this puts some of the high ticket prices into perspective. Nevertheless, it is clear: “Sustainable economic efficiency is the goal.”
It is also clear that this would not work with the old Eurowings concept. The airline was originally only chosen by the group to take over all flights that did not go through the hubs in Munich and Frankfurt. Eurowings, like Lufthansa itself, initially transported primarily business travelers. But the segment has still not recovered after the pandemic. And so Eurowings pivoted to serve more destinations that are attractive to private travelers and vacationers. Their share has now increased from 40 to 60 percent. Eurowings only flies a few connections within Germany, especially those where a train journey would take more than four hours.
The long-haul was a disaster for Eurowings
But the shift to tourism is not without difficulties: the business is much more seasonal – in summer it is booming, in winter demand is not high enough. That’s why Eurowings is now adjusting its fleet size to the lower demand in winter and operating around 100 aircraft. An additional 20 will be rented by specialist companies and their crews to cope with the higher demand in the summer. Eurowings also wants to offer more longer routes that also work in winter. From October onwards, the company will fly from Stuttgart and Berlin to Dubai four times a week, and more flights to the Canary Islands are also on the agenda. “But we have no plans to fly from Düsseldorf to New York,” says Bischof.
That’s right, Eurowings had tried long-haul routes before the pandemic, but it was a financial and sometimes operational disaster. The business has now been taken over by Discover Airlines, which until last week still flew under the Eurowings Discover brand. Discover should finally make money on long-haul tourist routes and is also allowed to operate some medium-haul routes from Frankfurt and Munich. Managing director Bernd Bauer expects that Discover, like Eurowings, will also report a profit for the first time this year.
The Discover fleet is expected to grow from 22 to 28 machines next year. Five of them will be stationed in Munich and serve European routes, the remaining 23 jets will fly from Frankfurt. And Eurowings is also spending money on fleet renewal: 13 aircraft A320neofamily cost around 1.5 billion euros. But that can only be the beginning. A large number of the machines are now getting old, the small Airbus A319 make up around a third of the fleet, but are extremely unsuitable for the tourism business. Eurowings would like to swap them within the group – with a sister company that might have more use for them, and would prefer to take larger aircraft themselves.
But at least it’s no longer about survival, but about good planning. And that’s why Bischof has now revised a decision from his early days at Eurowings: there should soon be a strategy department again.