At Lufthansa Capital Markets Day, the airline informed its investors and analysts of the upcoming changes at one of its subsidiaries, Eurowings. The low-cost carrier will undergo a reorganization of it's fleet and route network and is expected to turn its tide around.

On June 24, 2019, Lufthansa held a Capital Markets Day and revealed its newest plans to investors and analysts.

Just a few days prior, on June 16, 2019, the German airline group slashed its profit projections for 2019. According to Lufthansa’s own press release, the airline group is striving in the long-haul market, successfully increasing revenues in routes between Europe and North America or Asia.

However, Lufthansa is facing a lot of pressure in Europe. Low-cost heavily influenced the price of a flight ticket on the continent.

And according to IATA’s state of European air travel report, Q1 profitability margins in 2019 have fallen by 3.4% to -5.2% compared to the same period in 2018 in Europe.

As a result, Lufthansa is making significant changes in the airline group.

Specifically, Eurowings is getting an overhaul – route, fleet and business model changes are coming. Lufthansa expects the airline to be profitable once again in 2021, something Eurowings has not seen since 2016.

But a snap decision to overhaul Eurowings follows a similar snap decision to change the way the airline operated in 2015.

First overhaul of Eurowings

Lufthansa announced the new business model of Eurowings on March 4, 2015. The CEO of Lufthansa, Karl Ulrich said that “we see strong demand for low-cost, long-haul travel in the coming years”.

Eurowings started operating long-haul flights at much cheaper prices for both passengers and Lufthansa.

Already then Lufthansa felt the pressure of Europe’s emerging low-cost carriers, as the group lost a lot of money prior to 2015. The airline group posted a net profit of €1.228 billion in 2012, 2013 the net profit was €313 million. In 2014 the number was even lower, as Lufthansa ended the year with a net profit of only €55 million.

The airline group knew it had to make significant changes in order to restore profitability, and in 2014 the Supervisory board approved a concept called Wings.

The plan was to expand low-cost services in Europe and offer more short-haul and long-haul destinations to passengers and as a result, enter the fight against low-cost carriers.

At first, the plan seemed like it delivered the results that Lufthansa wanted. In 2015, Lufthansa’s net profit equaled to €1.698 billion and both Germanwings and Eurowings reached a break-even point. Lufthansa prepared for a future where the profitability of Eurowings would grow further.

The group established one more airline in 2015 – Eurowings Europe, which operated under an Austrian AOC to further sustain the growth. Lufthansa expected Eurowings and other airlines flying under the brand to “grow faster than average.”

Yet something went wrong.

Signs of trouble

While Lufthansa Group increased its profit furthermore, the first signs of trouble were showing up at Eurowings.

The low-cost carrier posted a negative EBIT of €90 million in 2016.

But you could excuse 2016 as a growth and investment year. Eurowings started to lease 33 Airbus A320 family group aircraft from Air Berlin, further homogenizing its fleet to the Airbus A320/A330 family. Eurowings added 4 more Airbus A330 aircraft in 2016, which increased the total wide-body aircraft number to 6.

Lufthansa also exercised the option to fully acquire Brussels Airlines. The deal was done in 2017 and the Belgian airline started operating flights for Eurowings.

Nevertheless, Lufthansa planned to integrate Brussels Airlines to the Wings project. As a result, Eurowings operated flights under 5 (!) different AOC’s: Germanwings, Eurowings Europe, Eurowings Germany, Sun Express Germany and Brussels Airlines.