FLUG REVUE October 2002: Germanwings is Lufthansas low-cost vehicle

GERMANWINGS: LUFTHANSA ENTERS THE LOW-COST FRAY

By Sebastian Steinke

Only a few weeks after Eurowings CEO Friedrich-Wilhelm Weitholz effusively denied before the assembled press any plans to enter the low-cost airline arena, (– "Our Airbuses do not have any strategic significance,” see FLUG REVUE 8/2002), his Westphalian-Franconian regional airline took the first steps towards realising the very concept he had categorically denied.

The five Eurowings A319's which have up to now been operated in a separate charter division, are set to commence scheduled services to European tourist destinations and major cities out of Cologne/Bonn airport from the end of October, flying with a new low-cost carrier subsidiary called germanwings.

In the middle of August, following approval of the new plans by the Eurowings supervisory board, Weitholz publicly announced his change of stance. "With germanwings we are opening up an important new business area on top of regional services, in which we can develop new customers for air transport. I am convinced by the future of this model. The concept exists, the preparations are in full swing and our team is highly motivated for the challenge.”

It is under the name of germanwings, the name of a former competitor of Lufthansa's whose name rights Lufthansa had bought up upon its insolvency in 1990, that Eurowings Luftverkehrs AG is now to enter the low-cost segment. The almost forgotten company once founded by the Kimmel brothers and the Burda company (then German Wings) was originally founded to compete against Lufthansa as a full-fare paying airline that placed special emphasis on service and comfort, and after a tough competitive struggle over take-off times and ticket interlining issues with Lufthansa, it soon disappeared from the market.

According to information provided to FLUG REVUE, in the first phase starting on 27 October the destinations to be served by germanwings from Cologne/Bonn are London, Paris, Milan, Rome, Zurich, Madrid, Barcelona, Manchester, Malaga, Nice, Thessaloniki, Istanbul, Ankara, Pristina and Skopje. Further details, including information about destination airports which are of particular interest, the airline was not prepared to disclose until after a press conference to be held after this month's FLUG REVUE had gone to press. However, rumours were already circulating of plans for domestic flights to Berlin-Tegel, which will upset Germania in particular.

The idea is that the new germanwings airline will above all win over new groups of customers, "travellers who up to now have gone by rail or car and business travellers who are particularly price-sensitive,” as the parent company Eurowings put it. According to as yet unconfirmed reports, germanwings's price structure will start at under Euro 10 per flight in the most favourable case, thus matching Ryanair's special offers. For cost reasons, tickets will be sold directly by phone and over the internet and on-board service will be pared to the minimum.

According to information issued by germanwings, the carrier is expecting to expand rapidly and wants to operate a single-type fleet of A319's. Its present fleet of five aircraft is to be expanded already in the next year. Eurowings's A319's, which have up to now been configured with 142 seats on chartered operations, are to have another two seats added by reducing the size of the galley area. As far as certification is concerned, the maximum number of passengers that can now be carried on an A319 is 149. The possibility that Eurowings's leased A320's might be used on the announced routes to the Balkans has not been totally excluded.

It is interesting to note that Deutsche Lufthansa has a clear involvement in the latest airline start-up through its 24.9% holding in Eurowings, besides having donated the right to use the name germanwings. After several failed experiments in the low-cost area ("Lufthansa Airbus”, "Lufthansa Express”) Lufthansa evidently does not wish to be actively involved in the low-cost segment under its own familiar brand name. However it seems likely that by the beginning of 2004 it will have increased its stake in Eurowings to just under 50%, thus gaining the opportunity to participate indirectly in the growing no-frills segment and thus in the massive reorganisation of the market that is going on at the expense of the classical network airlines.

germanwings will not be hampered by Lufthansa's expensive wage agreements and the restrictive scope clauses (upper limits on capacity agreed with the unions) which apply, for example, to subsidiary Lufthansa CityLine, also based in Cologne, and impose an upper limit of 70 passengers per aircraft on normal flights. It will therefore be able to enter the fray against the tough low-cost competition, which is on the point of becoming irrevocably established in the German market, with a significantly lower cost base and using larger-capacity planes.

The recent successful establishment by fellow Star Alliance member British Midland of a no-frills brand in the UK through the foundation of its bmibaby subsidiary will serve as a model for Lufthansa. The colour scheme initially used on the provisional website "www.germanwings.com”, with its catchphrase "fly high - pay low” in light yellow, brown and grey, bore a strong resemblance to the Lufthansa colours, but was then changed to a more neutral grey.

In parallel to its new low-cost subsidiary, Eurowings is planning to offer its scheduled services to business travellers in the Lufthansa network and to expand these "in line with demand”.

From page 32 of FLUG REVUE 10/2002

Last updated 12 September 2002

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