Thursday's press meeting at 09:30 (07 Nov 2019) confirmed the speculations that had been in the news since the previous week: Austrian Airlines is on the brink of a massive, €90 million cost reduction programme.
One in ten jobs in the 7,000-strong company is affected, meaning a reduction of around 700 to 800 employees up until the end of 2021. The airline expects the majority of staff reductions to happen with natural fluctuation. However, since the previous major restructuring happened 2011/2012, at which time the company had just under 6,000 employees, it would seem logical that the 1,200 jobs that were created since then could well be at risk.
Tough competition through price wars are the reason for this move
Austrian Airlines faces losses not only this year, but also in 2020, as the increase of low-cost carriers at Vienna International Airport has resulted in fierce price wars.
At the press conference, Austrian Airlines CEO Alexis von Hoensbroech explained: “We have to reposition ourselves in order to survive the brutal competition of the low-cost airlines. In part, the measures will be painful because they drain resources which we tediously built up over the past years. However, at the same time they are necessary in order to safeguard the future of Austrian Airlines as the leading airline in Austria.”
The airline had returned to profitability in 2013 following Lufthansa's initial restructuring, and its adjusted operating profit amounted to 83 million euros in 2018. However, during the first nine months of this year, this fell by 85% from €110 million to €17 million and the by third quarter, the resulting €70 million is a 33% loss compared to the same period last year.
CFO Wolfgang Jani added “The flood of low-cost airlines and the rise in kerosene costs are putting pressure on ticket prices and thus on our results."
What does this mean for air cargo?
Lufthansa Cargo took over Austrian Airlines’ cargo operations back in 2010 and operate the Vienna hub, using cargo capacities on board Lufthansa and Austrian flights, as well as Road Feeder services. In separate news, Lufthansa Cargo has also reported global losses this year, affected the same as a number of other cargo operators by the ongoing weak cargo market.
It is, as yet, unclear as to what extend the restructuring will affect the cargo network out of Austria. Austrian Airlines is planning to use larger aircraft and less frequencies on certain routes, and their press department currently does not foresee cargo operations being affected. Nevertheless, their press release states that the national carrier plans to bundle its fleet strength in Vienna, that Austria’s Germany flights out of its regional airports will gradually be taken over and operated by Lufthansa, and that the decentralized crew bases in the provinces will close down. It also points to cooperating with Eurowings on a wet-lease basis, thereby extending its network to include the direct short-haul destinations Barcelona, Birmingham, Nuremberg, Rome and Zadar, whilst at the same time disclosing that the last Miami flight was scheduled for 08 NOV 19, and that the Los Angeles summer flight operations would be reduced from seven times per week to only five. Long-haul direct flights are the attractive ones for cargo, rather than short-haul, inner-European bellies, and Austrian’s long-haul destinations have dwindled in recent years.
Cargo competition has always been tough out of Vienna, since not only does the company compete against the rich network of direct flights of Middle East and Asian cargo operators, but also has growing hubs nearby: notably Budapest, which is due to open a state-of-the-art Cargo City in just two weeks from now, and is already a strong magnet for competitor airlines.
Is it still economically viable to keep a Lufthansa Cargo hub running in Vienna, or is the future one of simply being a feeder to the group’s German hubs, as business moves to competing Eastern European hubs and other direct flight cargo carriers?
The Lufthansa Cargo press department has yet to comment on the cargo situation out of Austria.