Friday, May 24, 2024

Eurowings, Lufthansa’s Budget Service, Off to a Rocky Start

A check-in line for Lufthansa’s low-cost brand Eurowings ahead of Eurowings’ first long-haul flight to Havana, Cuba, at Cologne-Bonn airport, Germany.

But his anger over his first experience flying across the Atlantic on Eurowings, Lufthansa’s new budget airline, remains as vivid as it was on the day he and 300 fellow passengers landed back in Germany — 68 hours late.

“It was an end-to-end disaster,” Mr. Haug, 53, said of the two-week trip to Varadero, on Cuba’s northern coast. The trip was also delayed by a full day at the beginning when Eurowings canceled his outbound flight to Cuba from Cologne.

“I was told this was a new Lufthansa airline, so I expected it to at least be reliable,” said Mr. Haug, a steel salesman from Lauffen am Neckar, near Stuttgart. “Instead it was just cheap, cheap, cheap.”

Eurowings, which analysts say still has too few planes to support its overseas ambitions, cited technical problems with its aircraft.

The extreme delays Mr. Haug experienced were not an isolated case. In January alone, up to one-third of Eurowings’ flights outside Europe were delayed or canceled, affecting hundreds of passengers and generating weeks of bad publicity.

It was an inauspicious beginning for Eurowings, which rolled out Germany’s first no-frills long-haul air service in November, offering one-way fares to destinations in the Caribbean and Thailand for as little as 99 euros, or $110.

For Lufthansa, which made expansion of its low-fare operations a key pillar of its long-term strategy, unhappy Eurowings customers are part of a long list of headaches as the German airline group confronts competition from leaner rivals like Ryanair and EasyJet in the lucrative market serving German air travelers.

A decision in 2012 to shift most of Lufthansa’s domestic German flights to another discount brand, Germanwings — where employee salaries and benefits were lower — contributed around €1.5 billion in cost savings since then. But it met stiff resistance from pilots and other labor unions.

Strikes over the past two years have shaved about €500 million from Lufthansa’s operating profit during that span and inconvenienced tens of thousands of travelers.

The crash in March 2015 of a Germanwings jet by the plane’s suicidal co-pilot prompted Lufthansa to accelerate a planned rebranding of Germanwings under the Eurowings name — a move that coincided with the start of Eurowings’ new long-haul services.

“The perception is that Lufthansa is trying to juggle too many balls at the same time,” said John Strickland, an aviation industry consultant in London.

Lufthansa said on Thursday that its Eurowings business made an adjusted operating profit of €8 million in 2015, on revenues of €1.9 billion. That contributed to an overall 55 percent improvement in the Lufthansa group’s operating profit, to €1.8 billion, from €1.2 billion in 2014. Annual group sales rose by 6.8 percent to €32 billion.

Shares in the Lufthansa Group fell more than 5 percent in early trading on Thursday.

Lufthansa aims to build Eurowings, based in Düsseldorf, into Europe’s third-largest budget airline by number of passengers after Ryanair and EasyJet in the coming years. It is a goal that analysts said would be easily achieved as Lufthansa eventually makes Eurowings the carrier for all flights that do not originate or land in its main Frankfurt and Munich hubs.

But it remains unclear whether Eurowings will be able to bring its operating costs down by the 40 percent needed to make its services competitive with its European rivals, analysts said.

Although fuel prices have fallen substantially over the past two years, the group’s labor costs have remained stubbornly high as unions fight to slow the pace of transition. By the end of next year, for example, Lufthansa expects the Eurowings fleet to triple in size, to 89 aircraft. But only one-fifth of those planes will be flown by pilots working under newer, more flexible contracts, while the majority continue to work under their Lufthansa contracts until retirement.

“Lufthansa is a large group with tremendous network coverage,” said Chris Tarry, an analyst at Ctaira, a British aviation consulting firm. “But at the end of the day, it has got to be profitable,” he said of Eurowings. “Can they bring their costs down low enough, and fast enough, to make it work?”

Europe’s established low-cost rivals, meanwhile, are keeping up the pressure. Last month, Ryanair, which holds just 5 percent of the market in Germany, announced plans for aggressive expansion there, doubling the size of its operations at Schönefeld Airport outside Berlin, and adding new bases near Hamburg and Nuremberg.

EasyJet, too, has recently added flights to Berlin and Stuttgart. Transavia, a budget unit of Air France-KLM, opened its first German base in Munich this month.

Beyond Europe, the troubled debut of Eurowings’ long-haul services raised questions about whether cost concerns may have led Lufthansa to underinvest in the start-up, analysts said.

A decision to serve eight far-flung destinations with just two leased Airbus A330 aircraft quickly proved unwieldy, for example. Technical problems grounded one of the planes on multiple occasions, resulting in repeated delays and cancellations, including the one that left Mr. Haug stranded in Cuba for three days. Under European passenger rights rules, affected travelers were eligible for compensation of up to €600 each.

“Given that this is the creation of a major airline group known for its German style of reliability, it is surprising that they would have started off a seemingly ambitious project with such a small fleet,” Mr. Strickland, the consultant in London, said. “It’s as if Lufthansa wants to prove they’re prepared to let this fledgling fend for itself.”

Although Eurowings plans to add two more jets to its wide-body fleet by the summer — and to reach seven planes by the end of 2017 — the stumbling start has slowed its long-haul expansion. Flights from Cologne to Las Vegas and Boston, originally planned to begin in May, have been postponed until June.

A much promoted service to Tehran that was due to begin this month has been shelved indefinitely.

Mr. Haug, meanwhile, said he was uncertain whether he would fly again with Eurowings after the Cuba fiasco. He said he was holding onto the €250 flight voucher that he and other passengers received, together with an apology, from the airline.

“I sometimes tell my wife that we could use it for a long weekend in Rome,” Mr. Haug said. “But I worry that it might turn out to be a very long weekend.”

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