Eurowings Discover aims for the leisure niche

In over a month’s time, on July 24, a new airline within Lufthansa Group will commence operations: Eurowings Discover. While using the same and familiar Eurowings-name, Discover will offer a totally different concept and targets a different market. Eurowings Discover aims for the leisure niche. We have a look at the new airline. Lufthansa raised a few eyebrows last year when in the midst of the pandemic it said it was working on a new airline concept. Under the program name Ocean, Group CEO Carsten Spohr confirmed that it was looking at a long-haul leisure airline to supplement the Lufthansa and Eurowings brands in Germany. In January, the new name was announced: Eurowings Discover, starting operations this summer. On June 16, Discover received its own Airline Operator Certificate (AOC). On July 24, the carrier will operate its first flight to Mombassa (Kenya) with onward service to the island of Zanzibar (Tanzania). History Eurowings goes back to 1993 How does Eurowings Discover fit within Lufthansa Group? For this, we need to understand the position of Eurowings itself. With its own AOC, Discover is entirely independent of Eurowings. Eurowings was established in 1993 after a merger from NFD Luftverkehrs AG and RFG Regionaflug and operated from Dortmund and Dusseldorf. In 1997, Eurowings formed Germanwings as a separate airline. Lufthansa became a shareholder of Eurowings in 2001 when it bought 29.4 percent, growing its shares to 50.91 percent in 2006 and later to 100 percent. Since then, the carrier is part of Lufthansa Group. Eurowings first operated as part of Lufthansa Regional but became the group’s low-cost airline in 2015, targeting Air Berlin, easyjet, Ryanair, and Vueling as its main rivals. The Airbus A320-fleet operated a short-haul intra-European network from Dusseldorf, while a separate entity called Eurowings Europe operated out of Vienna from 2015. Eurowings also entered the long-haul market with Sun Express Deutschland, a 50-50 joint-venture between Lufthansa and Turkish Airlines, that under the Eurowings brand operated a fleet of Airbus A330s out of Cologne-Bonn. From Brussels, Brussels Airlines also operated long-haul service on behalf of Eurowings. Eurowings Airbus A330 long-haul fleet was operated by Sun Express Deutschland and Brussels Airlines. (Eurowings) Following Air Berlin’s demise in 2017, Lufthansa purchased 77 of its aircraft and integrated them within the fleet together with some 3.000 ex-Air Berlin staff. Eurowings saw rapid growth in 2018, but this came at a price: despite more passengers and 19 percent higher revenues but due to higher integration costs, the airline ended the year with an Adjusted EBIT of €-231 million after a positive €60 million result in 2017. In 2018, the focus was on developing Eurowings as a point-to-point carrier with a low-cost structure. Integration Air Berlin resulted in high losses In 2019, Eurowings said it suffered from intense competition and overcapacity on its European network. It reduced capacity in the final quarter, but nevertheless, the airline ended the year with a negative Adjusted EBIT of €122 million and hardly any revenue and passenger growth. Attempts to reduce operating expenses also seemed fruitless as they were even slightly higher than in 2018, although they were adjusted down in the 2020 annual report. Lufthansa’s Board responded by announcing a strategic restructuring of Eurowings, with the aim of making the carrier profitable again by 2021. Overhead costs were to be reduced by one-third, wet-lease contracts terminated, and all activities were concentrated under a single German AOC again. The carrier was to focus on short-haul routes and direct traffic. The integration of Brussels Airlines into Eurowings was stopped and the long-haul network would be moved to the network airline Lufthansa. Longer-term, Eurowings would benefit from a fleet renewal plan that would see the A320neo’s join the airline. In the year that was dominated by the Covid-pandemic, Eurowings’ Adjusted EBIT in 2020 worsened to a negative €703 million as revenues were slashed by 74 percent to €598 million. The airline and Sun Express Deutschland didn’t operate any long-haul services. In June, Lufthansa announced that it would terminate Sun Express and transfer all activities to Eurowings and the Turkish parent airline Sun Express. In the first three months of 2021, Eurowings reported a negative Adjusted EBIT of €144 million with passengers carried at -92 percent to just 292.000. Lufthansa said it would intensify the restructuring program. Plan for new long-haul leisure niche airline is born Lufthansa continued its plans to transform Eurowings into a profitable short-haul European carrier and at the same time started developing the business plan for a long-haul leisure airline, trying to capture a specific niche in the leisure market. While the recovery of long-haul traffic after the pandemic is expected to take at least until 2024, the leisure market is seen to be the first to recover again. Lufthansa spokesperson Martin Leutke tells Airinsight: “Lufthansa Group has seen growth potential in the touristic segment for many years and decided already back in 2019 to further strengthen its position in this market. The latest boost in demand for holiday travel underlines the importance of this strategic decision.” Eurowings Discover will offer a leisure product with a focus on quality. (Eurowings) For Eurowings Discover, Lufthansa has taken a close look at its subsidiaries in Switzerland. Here, its partner Edelweiss (part of Lufthansa Group since 2008) offers short- and long-haul leisure products to destinations all over the world in close partnership with SWISS. In 2019, it carried 2.7 million passengers with a mixed fleet of sixteen A320s and A330/A340s, although the two A330s have been stored in March and May this year. More on these later… “With matched offers from SWISS and Edelweiss, the Lufthansa Group has successfully operated this combined business model at the Zurich hub for many years already”, says Leutke. Discover will get an identical role within Lufthansa Group: “With a range of short-, medium- and long-haul services, the new airline complements the Lufthansa tourist offering at its German hubs Frankfurt and Munich.” Discover is completely different from other low-cost long-haul carriers Asked how the Eurowings Discover product differs from the long-haul product offered by Sun Express/Eurowings, Leutke says: “The product and service concept of Eurowings Discover is tailored to the specific needs of the touristic customer, with a particular focus on quality. Eurowings Discover aims at making the journey of its guests a special experience.” Also, the airline won’t be a direct competitor to low-cost long-haul rivals like LEVEL or start-up Norse Atlantic but will compete more with leisure airlines like Condor or TUI. “Eurowings Discover is a touristic hub carrier that is fully integrated into the feeder network of Lufthansa. It is not a point-to-point carrier. Moreover, a core element of its sales strategy is the tour operator business. The product and service are targeted to a more premium customer segment. Thus, Eurowings Discover has a completely different business model than the competitors mentioned.” While Eurowings staff (picture) are paid according to common standards, unions say those at Discover are paid even less than at Ryanair. (Eurowings) Unions highly critical of low-cost model Discover Discover’s business model is based on reduced costs, notably those of staff. Swiss aviation website aeroTELEGRAPH reported last September that for its initial phase, the carrier intended to hire cockpit and cabin crew for two years on so-called 70-percent contracts. This means they will be paid 70 percent of regular salary levels, which for a Captain would be between €7.400-10.000 per month, and for a First Officer between €4.300-5.500, dependent on their experience level. According to German pilot union Cockpit, this would be around half of what they earned under the previous long-haul contract at Eurowings and below that of Sun Express. Cabin crew union UFO said that a gross income of €1.120 would be insufficient to pay monthly living expenses in Frankfurt, where the crew of Eurowings Discover will have to be based. Last September, four unions sent a letter to Chancellor Angela Merkel to complain about how Lufthansa Group is pushing rivals Condor and TUI out of the market thanks to the €9 billion it has been granted as restructuring aid. They also criticized the airline’s redundancy plans at Sun Express Deutschland (which was liquidated in June 2020) and Germanwings while at the same time hiring staff for Ocean/Eurowings Discover to unfavorable standards. “Remunerations are even below these at Ryanair, the staff is offered part-time jobs only, and cabin crew at Ocean will be paid a salary just over €1.000. Lufthansa is undermining the German payment system and creates a precarious social environment.” Eurowings Discover also hit flak from Swiss unions when they found out that the airline would lease the two stored Airbus Edelweiss A330-300s. The unions filed a complaint about the incorrect application of state aid, which the Swiss government provided in 2020 to strengthen the position of SWISS and Edelweiss. Redirecting assets from Edelweiss to a Lufthansa subsidiary in Germany did only contravene the state aid conditions but actually would weaken the Swiss airline, the unions said in April. Eurowings will lease two Airbus A330-300s from Edelweiss. According to Swiss unions, this contravenes the conditions for state aid to the Swiss leisure airline. (Edelweiss) On the subject of payments and contracts, the Lufthansa spokesperson says: “To this day, the airline has employed around 500 staff in cockpit and cabin. Most of them come from subsidiaries of the Lufthansa Group as the focus has been and will be on offering Group employees a perspective. Eurowings Discover offers jobs in competitive conditions during the worst crisis in aviation. The working conditions are similar to those of other airlines in this segment.” Discover starts with four aircraft Eurowings Discover plans to start in July with four aircraft, growing its fleet to a maximum of eleven aircraft by the end of the year. Currently, there are six A330-200s and two -300s designated to the airliner. The -200s are leased from GECAS and have been operated by Sun Express Deutschland on behalf of Eurowings before, while the -300s are leased from Edelweiss and are owned by the Swiss carrier. Discover intends to add a further three A330s next year to bring its long-haul fleet to eleven. While it primarily aims at the long-haul leisure niche, Discover will also operate on short and medium-haul routes from November. For this purpose, three A320s will join this year and another seven until mid-2022. These too will be sourced from within Lufthansa Group, where a number of A320ceo’s is available at Lufthansa, SWISS, Austrian, and Eurowings itself. In preparation for its own operations, Discover operates a number of wet-lease services from mid-July on behalf of Lufthansa’s Italian subsidiary Air Dolomiti. Then, on July 24 and under its own IATA-code 4Y, Eurowings Discover will commence the first long-haul service out of Frankfurt to Mombassa. This is followed in August by three weekly flights to Punta Cana (Dominican Republic) and five to Windhoek (Namibia). From October, Mauritius and Las Vegas will be served three times a week. Interestingly, the Eurowings website offers the same destinations without any reference to Eurowings Discover. Instead, it says flights will be operated by Brussels Airlines. Discover’s 2021-2022 winter schedule includes three weekly long-haul services to Bridgetown (Barbados), Montego Bay (Jamaica), and Varadero (Cuba), while in November it launches short-haul routes to the Canary Island, Egypt, and Morocco. In 2022, Discover will add services from Frankfurt to Fort Myers (US), Panama City, and Victoria Falls from March 30. Halifax (Canada) has been confirmed from June 13. More destinations have been mentioned but need confirmation. From late March, the carrier will also operate out of Munich but it has no intention of establishing to base any aircraft and crew in the Bavarian capital. The Munich schedule includes Punta Cana, Cancun (Mexiko), and Las Vegas. Asked if Discover has any plans to launch services to Asia as well, Martin Leutke says: “Travel business in Germany is very seasonal, therefore in summer, the focus is more on routes to Africa, Nord Atlantic, and the Caribbean. Eurowings Discover creates its flight program in close alignment with the needs and wishes of its tour operator partners.” Eurowings has based three aircraft at Berlin Brandenburg. (Eurowings) Eurowings to open base in Prague Meanwhile, Eurowings itself has not sat on its hands either. From October 31, the carrier opens a new base in the Czech capital Prague and will position two A320s there, expanding this to three aircraft in the summer of 2022. The airline will employ some 100 staff to run the base, which will become the tenth and offer flights across Europe. With Prague right in the middle of the territory of direct-rival Wizz Air, Eurowings isn’t shying away from the competition with the East European ultra-low-cost airline. Since May, Eurowings has based three aircraft at the new Berlin Brandenburg Airport, with the aim of strengthening its position at the German capital.

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