x Abu Dhabi, UAEWednesday 26 July 2017

Cost reduction plan shifts the emphasis on to budget travel

Lufthansa's announcement it would be moving all short-haul flights that do not start or finish in its hubs Frankfurt or Munich to germanwings is the biggest plank in its cost savings “Score” plan.

Lufthansa customers travelling on key routes such as London Heathrow to Berlin or London Heathrow to Hamburg will be doing so on germanwings flights. Adam Berry / Getty Images
Lufthansa customers travelling on key routes such as London Heathrow to Berlin or London Heathrow to Hamburg will be doing so on germanwings flights. Adam Berry / Getty Images

Lufthansa realigns services with cut-price germanwings unit

The biggest plank of Lufthansa’s cost savings “Score” plan is the controversial move to bolster the role of its germanwings budget subsidiary for short-haul European flights.

In December the company announced it would be moving all short-haul flights that do not start or finish in its hubs Frankfurt or Munich to germanwings.

The decision means that over the year starting from July, Lufthansa customers travelling on key routes such as London Heathrow to Berlin or London Heathrow to Hamburg will be doing so on germanwings flights rather than more expensive and luxurious Lufthansa ones.

Lufthansa says the low-cost airline, in which costs are 20 to 30 per cent cheaper than its flag carrier alternative, is expected to carry as many as 16 million passengers a year.

“We received a lot of calls from customers saying, ‘What are you doing?’ says the germanwings chief operating officer Oliver Wagner.

“Long-term customers were saying, ‘How dare you do this to me.’ There are a lot of scare stories about budget airlines. They were worried that they would have to pay to use the toilet. Things like that.”

Although Mr Wagner is quick to reassure customers that use of the toilet will remain free, germanwings planes are designed to be as efficient as possible. This means a lighter paint job, no hot food and asking passengers to embark and disembark from the airport apron rather than locations closer to the terminal building.

Germanwings planes have no business-class section. Instead, the company says its most expensive economy seat, branded as “Best” is designed to be “the equivalent of a Lufthansa-branded business-class ticket but cheaper.”

To this end the middle seats in the first three rows of the plane, which are reserved for Best customers, will remain empty to give passengers more room.

“When customers actually see germanwings they are very impressed with the service we offer,” Mr Wagner says.

As part of the plan, 52 aircraft are moving from Lufthansa to germanwings, increasing the budget airline’s fleet to 87 aircraft by the end of next year and making it the country’s largest low-cost airline. And more than 800 Lufthansa cabin crew are being transferred from Lufthansa to germanwings.

Like its passengers, the airline’s cabin crew are taking some convincing. This summer the group narrowly avoided strike action after management came up with a last-minute pay deal for germanwings flight attendants.

Mr Wagner says the changes are necessary for the airline to complete with the likes of easyJet, Ryanair and airberlin, the budget German airline in which Etihad Airways owns a 29.2 per cent stake.

“Our industry is characterised by affordability and accessibility,” he says. “Back in 1965 the cost of a flight from Germany to Mallorca was [the equivalent of] €680, which was 87 per cent of the average German net monthly income. Now it costs €188 – just 12 per cent of average incomes.”

He says the way low-cost carriers are set up means they are always between 30 per cent and 50 per cent cheaper than their legacy rivals.

So will it work? At the moment it seems to early to tell. Loss-making germanwings plans to be profitable by 2015. In September, Lufthansa hinted it had so far seen “a significant lift” in its European business without providing numbers.

Industry veterans point to similar attempts by British Airways to create BA Connect, a low-cost airline designed to handle most of BA’s domestic and European services that did not serve London Heathrow or Gatwick. The airline was reported to lose as much as £1 million (Dh5.91m) a week before it was sold to flybe in 2007.

business@thenational.ae