During Lufthansa Group’s Capital Markets Day on June 24, 2019, the German airline conglomerate announced a slight shift in strategy – Eurowings will slash its long-haul routes and Brussels Airlines, which has been integrated under Eurowings wing, will operate more closely with the three network carriers, namely Austrian Airlines, Lufthansa (LHAB) (LHA) and Swiss.

Significant changes are coming to the airline – after a spur of growth these past few years, the carrier is taking a step back, including job cuts. A cost reduction plan, called Reboot, to achieve profit margin goals, was announced.

Current skies above Belgium

Defining the current situation at the Brussels-based airline is fairly difficult. When Lufthansa Group announces its financial or traffic results, the group puts Brussels Airlines under the same wing as Eurowings. In 2018, Eurowings posted a pre-tax loss of $257 million (€231 million) – the financial report wrote-off the loss because of “non-recurring integration costs and irregularities in flight operations”, as expenses increased by 11% compared to 2017.

But, seemingly, performance throughout 2018 sent off alarm bells ringing that something had to change. Cost-cutting measures were implemented – the aforementioned withdrawal from low-cost long haul flights to focus on intra-European flights for Eurowings. For Brussels Airlines – a reboot was needed.

A spokesperson from the airline has confirmed that the airline launched the cost-cutting program, called Reboot, in June 2019.

“After a few years of constant growth, our profit margins fell,'' said the spokesperson, adding that Brussels Airlines “needs to reach a profit margin of 8% in order for us to be able to grow again,” she added.

The growth is evident in the last few publicly available financial reports from the airline.

In 2017, the company increased its capacity by 11% and hired 645 new staff, 160 of which were from Thomas Cook Airlines Belgium, when the latter’s parent company sold its operations to Lufthansa (LHAB) (LHA) . Throughout 2017, the airline carried 9.1 million passengers on its routes, an increase of 17.3%. But the final line of the financial report was barely green – an operating profit of only $16.6 million (€14.98 million) was achieved.

2016 was a fairly difficult year – following a terrorist attack in March 2016 at its main hub in Brussels Airport (BRU), the airport was closed for 12 days. Still, passenger numbers were up – 7.7 million travelers onboard the Belgian airline throughout the year, up by 3.2%. Yet profits were small – operating profit in 2016 stood at $22.7 million (€20.4 million).

It is fairly clear that while the airline was poised to only grow for the past few years, a stop had to be made in order to stabilize operations and achieve bigger profit margins.

Reboot will, unfortunately, include job cuts at the airline. The airline’s representative confirmed that the plan is to introduce job cuts via a voluntary plan. In addition, the dismissals will not come instantaneously – they will be spread out through three years to minimize the negative impact.

Fleet developments

Brussels Airlines’ fleet has 60 aircraft to its name, according to airfleets.net data. Most of the operated jets are narrow-bodies, with four regional aircraft – Bombardier CRJ 900 (operated by an ACMI carrier, CityJet). Additionally, there are 16 wide-bodies flying with the airline’s colors, including one quad-engine Airbus A340. The fleet’s average age is 14.8 years.

The carrier is currently undergoing a wide-body fleet rejuvenation – announced on November 30, 2018, the carrier noted that it would replace seven of its A330s. The airline is hopeful to finish the rejuvenation in early-2020. Nevertheless, the “new” aircraft are not exactly new – they were flown previously by other operators around the world, mostly Lufthansa Group Airlines.

Both Airbus and Boeing Orders and Deliveries data showcases that the airline has no outstanding orders for new aircraft – the spokesperson also confirmed that for now, we should not expect Brussels Airlines shaking hands with manufacturers to confirm a deal for new jets at least until 2022.

Its only hope to receive new aircraft is if Lufthansa (LHAB) (LHA) decides to share its order of 20 787 Dreamliners and 20 Airbus A350 aircraft, as the Group aims to replace four-engine aircraft to lay “a sustainable foundation for our future in the long run”. The aircraft are supposed to join Lufthansa’s (LHAB) (LHA) fleet starting in 2022, but are unlikely to be based in Brussels – the Belgian airline would need to hire or train a lot of new personnel, which would be counter-intuitive for Reboot, as it does not operate the 787 or the A350.

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Lufthansa Group decided to update its long haul fleet with as much as 40 new Boeing Dreamliners and Airbus A350 XWBs. The order is to be split in two equal parts between Boeing 787-9s and Airbus A350-900s that are to “primarily” replace current “four engine aircraft”. Speaking of which, the Group is also removing A380s from its fleet, selling some back to the manufacturer.  
 

But if Brussels Airlines will be closer to the network airlines, where it will go? Considering the fact that a major Lufthansa (LHAB) (LHA) hub, Frankfurt (FRA), is relatively close to Brussels (BRU) and the country neighbors Air France-KLM to the north and the south, what opportunities are out there?

Bless the rains down in Africa

Regarding long-haul flights, the airline is definitely shifting focus to offer more capacity towards Africa.

In 2017, out of the total 9.1 million passengers, more than one million travelers flew on the Brussels Airlines African network. Ever since the carrier has only increased its capacity and offering to Africa.

Firstly, the Lufthansa (LHAB) (LHA) group as a whole unified its sales activities for Africa on July 16, 2018. A sales hub, overlooking operations in the continent, was established in Brussels, at the airlines’ headquarters. The Chief Executive Officer of Brussels Airlines, Christina Foerster, noted that the carrier has a “long-standing experience in the African market'.' Two months after, on September 18, 2018, the airline announced that it is investing further in its Africa network, increasing the capacity on flights to the continent.

The latest round of increased capacity to Africa came on October 9, 2019, when Brussels Airlines announced that the carrier is once again flying daily to Kinshasa, Democratic Republic of the Congo.

With 84 weekly flights and 17 destinations in sub-Saharan Africa, the African continent remains Brussels Airlines’ most important market.

Its short-haul and intra-European network is, in one way, lucky – Brussels is the de facto capital of the European Union, hosting many of the diplomatic bodies, including the European Commission, European Parliament and several others. In addition, Eurocontrol, which oversees air traffic above the continent and North Atlantic Treaty Organisation (NATO) are also based in Brussels.

In total, Brussels Airport (BRU) welcomed 25.7 million passengers in 2018. Brussels Airlines had a market share of 40%, accounting for 81,246 out of 202,658 commercial passenger flight movements.

20.1 million out of the 25.7 million passengers arrived or departed to destinations within Europe, affirming the need for a strong short-haul network. However, 52% of passengers crossed Brussels Airport’s terminals with the goal to travel to holiday destinations, with only 28% of travelers coming in or departing on a business trip, according to data provided by the airport.

While Brussels Airlines’ long-haul network is heading towards a very clear path – to provide a connection with sub-Saharan Africa – its short-haul network might see some changes, aligning with Lufthansa Group’s strategy. With the German airline group struggling to contain low-cost carriers, namely easyJet and Ryanair, Eurowings was deployed to counteract the pressure from the two British Isles-based LCCs. Thus, Reboot might also prompt management to take a look at its intra-European network, shifting some of the unprofitable or barely profitable routes to Eurowings in order to achieve the 8% profit margin goal.

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Lufthansa has announced its latest traffic results, including figures for its two mainline subsidiaries and the low-cost carrier, Eurowings. While the three network airlines, namely Austrian Airlines, Swiss International Air Lines and Lufthansa, foresaw great results, Eurowings is showcasing worrying trends as the calm flight season of fall begins.