Eurowings Follows Crisis Reset With European Expansion Plan

Madhu Unnikrishnan

March 29th, 2021

Germany’s largest leisure carrier Eurowings has big ambitions to expand its presence across Europe, as discounters scramble to capture market share following the coronavirus pandemic market upheaval.

The Lufthansa Group-subsidiary is expanding its Palma de Mallorca base on the back of strong leisure demand for Mediterranean holidays as Southern Europe slowly reopens. But that is just the beginning Eurowings CEO Jens Bischof said last week, the airline plans to expand service to Egypt, Greece, Italy, Morocco, Spain, Tenerife and Turkey this summer.

“Eurowings has a pan-European ambition,” he said during an Aviation Week webinar. “We want to grow the business in the short- and medium-haul segment.”

This summer, Eurowings will add its first routes to the UK from a point outside of Germany: Mallorca to both Birmingham and Manchester. The airline is also opening a new base at Berlin’s Brandenberg airport with an eye on capturing some of the many holidaygoers to the German capital, many of whom fly market leaders EasyJet and Ryanair.

Outside of Germany, Eurowings has four bases: Mallorca; Pristina, Kosovo; Salzburg; and Vienna.

The European ambitions are quite the about face for Eurowings. The airline entered 2019 losing money in the face of increased competition from other discounters. The Lufthansa Group slashed its capacity growth plans to zero that year with an aim to return Eurowings to solid financial footing. Then, the pandemic hit.

The Covid-19 crisis allowed for a needed reset at Eurowings. It closed the higher-cost Germanwings operation and streamlined flying on a single operating certificate, ended pricey aircraft wet leases, and slashed overhead costs by 33 percent in 2020. The adjustments came as the Lufthansa Group reported a €6.7 billion ($8.1 billion) net loss for the year.

Those savings coupled with Eurowings leisure-focus in the Lufthansa Group set it up to grow out of the crisis. The carrier plans to fly roughly 80 Airbus A319 and A320 aircraft — it has 102 aircraft — and about 80 percent of 2019 capacity this summer.

“We believe we’re going to see a very strong rebound, especially in tourism travel,” said Bischof. “The rebound will be very, very steep.”

Capacity at Eurowings will be about half of 2019 levels during the second quarter, according to Cirium schedule data. Third-quarter capacity will be about 70 percent; however, that is likely to change with many schedules being adjusted up until around 30 days out.

Bischof’s optimism gave no hint of concern for the current rise in Covid-19 cases in parts of Europe. In just the past week, France, Greece and Italy have all reported rising infection rates.

“There will be summer demand, but travel will be fraught with obstacles and this will prevent meaningful outperformance,” wrote Bernstein analyst Daniel Roeska, citing the rising case counts in a report last week.

Rising case counts or not, Bischof said Eurowings continues to see strong bookings. For example, reservations for flights between Munich and Mallorca jumped as much as 700 percent — albeit over a very low base — during certain periods in the past few weeks. This prompted the airline to add additional frequencies in the market.

In addition to Eurowings’ European ambitions, Bischof shed some light on the Lufthansa Group’s plans for the new long-haul leisure brand Eurowings Discover. The airline will use the Eurowings name to leverage brand familiarity in the German market but is an entirely separate carrier with its own operating certificate. In addition, its operations will focus on Frankfurt and Munich, rather than Eurowings traditional bases in secondary cities.

“The reason for doing this, and reorganizing this, is of course that the hubs have a better feed,” said Bischof referring to Lufthansa’s main Frankfurt and Munich hubs.

Edward Russell

EasyJet and Ryanair Diverge on European Summer Travel Outlook

The leaders of Europe’s largest budget carriers, EasyJet and Ryanair, have distinctly different takes on the outlook for the coming summer travel season.

Both EasyJet CEO Johan Lundgren and Ryanair Group CEO Michael O’Leary are hopeful for an uptick in flyers come June as vaccination rates rise and travel restrictions ease across the continent. But that is where the similarities end, with Lundgren vaguely and cautiously optimistic for the period when asked during an Aviation Week webinar. Conversely, O’Leary touted a recent “surge” in bookings and significant pent up demand for Ryanair’s plans to fly up to 80 percent of its 2019 capacity this summer.

“We’ve been locked up for essentially the last 12 months, people have been home schooling [and] they’re desperate to go back to the beaches of Europe — they’re desperate to begin enjoying family life again as normal on the back of a successful Covid vaccine program,” said O’Leary. Ryanair anticipates travel within Europe will resume safely and with few — if any — restrictions by June.

Keeping with his summer optimism, Ryanair unveiled 26 new routes primarily between the UK and southern Europe. They include a return to Belfast City airport with eight routes, as well as new service between London Stansted and Preveza, Santorini and Zakynthos in Greece, and Rodez in France. Ryanair previously served Belfast City from 2007 to 2010, Cirium schedules show.

Lundgren was a distinct contrast to O’Leary. After declining to provide any guidance for the summer, he did say that 85 percent of EasyJet’s 342-aircraft strong Airbus A320-family fleet were in “fight-ready conditions” for the travel recovery. In addition, staff have been kept certified to be ready to go when needed.

“The travel sentiment and the bookings are so reactive of the daily news flow,” said Lundgren. “People are really, really waiting to see what the roadmap is going to be, and what’s going to happen in terms of restrictions.”

What happens with travel restrictions within Europe could go any way. Governments in at least Germany, Greece, Spain, Italy and the UK have begun or talked about beginning reopening measures aimed at restarting their economies. However, a recent increase in Covid-19 infections — even as vaccination programs shift into high gear — in parts of Europe has some worried of a third wave on the continent.

O’Leary brushed aside concerns over another wave of infections and Covid variants, emphasizing his bullishness on vaccines. He touted the UK’s target of vaccinating 80 percent of adults, and the EU’s aim for 70 percent of adults by the end of June for his optimism.

According to the latest data from the UK, 55 percent of adults had received at least one dose of a Covid-19 vaccine as of March 24. However, only 5.3 percent had received two doses.

O’Leary is not alone in his optimism. Eurowings CEO Jens Bischof said he expects a “very, very steep” rebound in leisure travel this summer (See story above). The budget carrier plans to expand its presence outside of its core German market, including new nonstops between Mallorca and the UK.

Lundgren’s caution may be well placed. If the pandemic has taught the industry anything, it is that Covid-19 is a wily adversary. A spike in travel last summer was followed by a second wave of infections that fall and winter, and a second cull in flights. For the first quarter, European airline capacity will be down 74 percent compared to 2019, according to Cirium. EasyJet, Eurowings and Ryanair have all similarly slashed schedules by between 88 and 90 percent.

But from the bottom of a crisis many say the only way one can go is up. Budget carriers are widely expected to do just that when the recovery arrives.

“The key changes to the market — more short-haul, more leisure, more expensive competitors — all point towards a growing opportunity set for airlines who focus on leisure short-haul traffic,” wrote Bernstein Research analyst Daniel Roeska in a report last week.

Edward Russell

Domestic Market Buoys Aeroflot’s Budget Carriers

Having a home market that spans 11 time zones is a good thing now, when domestic airline markets are recovering and international aviation remains moribund. So it was for Russia’s Aeroflot Group, but the benefits were not spread equally among the company’s airlines.

Primarily domestic leisure carrier Pobeda, for example, saw its February traffic, measured in revenue passenger kilometers (RPKs), rise more than 16 percent year-over-year. And the carrier operated almost 20 percent more capacity on 26 percent more flights. International traffic was down, however, by almost 70 percent. This brought the total number of RPKs down by almost 6 percent compared with last year.

Similarly, Rossiya’s domestic RPKs were up 19 percent in February. Load factors on domestic flights rose by 7 points to 81 percent. The carrier’s capacity was up more than 8 percent compared to last year. International traffic at Rossiya was down by 95 percent, bringing the carrier’s total traffic down 48 percent in February compared with 2020.

At Aeroflot, meanwhile, February domestic traffic was off by 31 percent from the year before, and international traffic fell by 84 percent. Of the group’s carriers, Aeroflot was the only one to report all numbers that were significantly lower than last year, with the total number of RPKs down by 67 percent, year-over-year.

The traffic figures are no surprise. Domestic leisure is rebounding the world over, and Russia benefits from having a vast home market. Russians increasingly are taking their holidays at home or venturing to near-international destinations. Aeroflot, the group’s premium and intercontinental brand, has had to retrench as international traffic dried up due to travel restrictions and lack of demand.

The group’s 2020 financial results were stark. Revenues fell by more than 55 percent from 2019, and groupwide, traffic fell by more than 50 percent in the year.

Madhu Unnikrishnan

Good Times Roll for Lufthansa Cargo

Lufthansa Cargo is having a banner year, CEO Dorothea von Boxberg said during an Aviation Week webinar. The cargo carrier is using every last freighter it has to its “maximum” capacity. But with long-haul passenger flights operating at a fraction of their 2019 levels, “there is still a lot of cargo capacity missing,” she said.

Early in the pandemic, Lufthansa Cargo carried a lot of electronics and tech gear as people in most of the world set up home offices. Laptops, which usually go by surface transport, were reaching their destinations on air freighters. Now, goods are more varied but air freight is being supercharged by e-commerce as homebound populations increasingly shop online, von Boxberg said. Automotive parts are a growing sector now, as is industrial demand as companies restock inventories.

Pharmaceuticals have been stable throughout the year, even with the shipments of Covid vaccines, which account for only a small percentage of Lufthansa Cargo’s pharmaceutical traffic. Before the vaccines were developed, von Boxberg said the conventional wisdom was that air freight would play a critical role. And it does, but most vaccines are being shipped via road transport from distributed manufacturing centers. As vaccinations pick up in more remote places in Africa and Asia, far from vaccine manufacturing sites, airlines will play a larger role, she said.

Maritime cargo has remained constrained, first by overwhelming demand — a spillover that air cargo lines benefited from — and now by a worldwide shortage of shipping containers, she said. The vast majority of the world’s cargo goes by sea. If airlines peel off a tiny percentage of maritime cargo’s volumes, it’s significant, she said.

In addition, the on-going blockage of the Suez Canal is expected to add to the constraints facing maritime cargo.

These benefits, though, won’t last forever. Maritime transport will recover, and as economies stabilize, restocking will be less urgent. But for now, and through year’s end, Lufthansa Cargo sees a very bright near-term future, von Boxberg said.

Madhu Unnikrishnan

British Airways Downsizes London HQ

It’s not just the big technology companies like Microsoft and Twitter adopting remote work policies permanently; the travel industry isn’t far behind either.

British Airways is now considering selling its Waterside headquarters in the UK, which is located next to Heathrow Airport. There are also reports Amadeus has put its data center in Germany up for sale, while Accor is still hunting for a buyer for its iconic Paris HQ.

British Airways’ decision to look at selling the 9,000-square-metre site comes as carmaker Ford prepares to redesign its own offices for a mix of hybrid workers. In North America, its 30,000 employees will be given a chance to work remotely if they don’t have site-dependent work to complete.

IAG, the parent company of British Airways, has been dealt a devastating blow by the pandemic. On March 18, it said it planned to raise about $1.2 billion through a bond issue, strengthening its finances to help it survive the pandemic in case the travel downturn lasts longer than expected.

But the official line for the HQ disposal is a shift towards flexible working.

“The global pandemic has shown us that many of our colleagues enjoy working remotely and want to continue, and this has accelerated our approach to offering more agile and flexible ways of working,” a spokesperson said.

“Our aim is to find a hybrid working model that suits our business, blending the best of office and remote working for our people. We’ve also restructured our business to emerge from the crisis and are considering whether we still have the need for such a large headquarters building.”

Matthew Parsons

Punitive Taxes in Latin America Will Stifle Airlines, Economic Recovery, IATA Says

Argentina’s recent upping of its departure tax from $51 per ticket to $57 is a sign that many Latin American governments still see aviation as a “cash cow” and not an economic engine, Peter Cerda, IATA regional vice president for the Americas, told reporters last week.

Although IATA is encouraged by Argentina’s gradual reopening, the departure tax will dampen demand and could nip the airline’s — and the economy’s — recovery in the bud, Cerda said. Too many governments in the region have levied punitive taxes on airlines and their passengers, and even though demand has “fallen through the floor” in the region, this trend shows no sign of abating, he said.

Airlines also are challenged by the patchwork of differing restrictions throughout the continent. Mexico, for example, has remained almost completely open. Other countries, like Chile, Peru, and Uruguay, have had more restrictions. This lack of coordination makes it difficult to plan routes.

In 2020, demand across the region fell 66 percent compared to the year prior, with traffic at levels unseen since 1998 and revenues since 1993, Cerda said. Still, he stressed that airlines should not aim to return to 2019’s revenues, noting that the region’s airlines have been losing money since 2017. It is imperative that governments work with airlines as partners and to invest in infrastructure both in the air and on the ground, added Cerda. Latin America, unlike Europe and North America, does not have a viable surface-transport alternative to air transport.

Governments in the region also have not invested in their airlines during the pandemic. While carriers have received more than $225 billion worldwide in state support during the pandemic, less than 1 percent has come from governments in Latin America, Cerda said.

Although countries in Latin America are slowly reopening, there have been some recent setbacks. Brazil, for example, saw domestic traffic rise to almost to pre-pandemic levels at the end of the year, before slowing down again recently as the country has struggled with fresh Covid outbreaks.

IATA is urging governments worldwide, not just in Latin America, to implement more testing and to accept digital health passports to screen and admit vaccinated passengers. Governments should shoulder the responsibility of testing and not make airlines collect test fees, as Venezuela is doing, Cerda said. Governments need to accept a single standard, IATA has said.

Madhu Unnikrishnan

In Other News

  • The U.S.-UK open skies agreement entered into force last week, formally cementing the rules of the air transport industry between the two countries. The two countries signed the agreement in November and began implementing the agreement on Jan. 1. The UK had been included in the U.S.-EU open skies deal, but Britain’s exit from the bloc required a new air transport agreement with the U.S.
  • In another cargo development, maritime traffic in the Suez Canal backed up when an enormous container ship ran aground and blocked the critical waterway. Shipments from Asia to Europe were delayed. Time will tell if air freight ticked up while the Suez remained clogged.
  • Beleaguered Mexican carrier Interjet is expected to file for administration this week. The carrier essentially halted operations at the end of the year and before that was down to a handful of Sukhoi aircraft. It returned its Airbus fleet last year. The carrier’s operations toward the end of last year were becoming more sporadic as reports emerged that it had difficulty paying its fuel bills, and Interjet’s employees have not been paid in months, Mexican news reports say. Under Mexican law, the carrier will apply for bankruptcy and must have its reorganization plan approved by the courts.
  • The world’s airlines are in a tricky spot, IATA reports. Balance sheets have been battered by the pandemic, but hope is on the horizon. That’s a double-edged sword for airlines. Increasing economic optimism is leading fuel prices to rise — but before travel has recovered. This could complicate airlines’ return to financial health, IATA said.

Madhu Unnikrishnan

Madhu Unnikrishnan

March 29th, 2021