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Austrian Airlines is the national airline of Austria and is based at Vienna International Airport. Along with its regional subsidiary, Tyrolean Airways, and charter arm, Lauda Air, the carrier operates both domestic and international networks, particularly to Eastern Europe and the Middle East.
On 1-Jul-2012, as part of its restructuring and cost reduction programme, Austrian transferred all of its mainline services to Tyrolean. At least 110 pilots refused the transfer, accepting instead very generous redundancy terms. The carrier continues to operate under the Austrian Airlines AOC and under the Austrian brand.
Austrian Airlines is a member of the Star Alliance.
Location of Austrian Airlines main hub (Vienna International Airport)
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After reporting 1Q results that were modestly better than last year before one-off costs, Lufthansa Group's 2Q2014 results show a deterioration in its underlying profits. Weaker revenues, especially in Asia Pacific and on the North Atlantic and in the cargo segment, and the effect of strikes and the Venezuelan currency devaluation weighed on the 2Q figures.
These factors were flagged by the company last month when it lowered its 2014 and 2015 operating profit targets and the reduced targets are unchanged. The group has reiterated its previous unit cost reduction target and so the lower profit outlook is entirely due to the revenue environment.
A new MoU between Air China and the Lufthansa Group to establish a joint venture covering Europe-China routes still awaits many – in fact, nearly all – details. But it is not difficult to see this JV enhancing the position of each airline, assuming it meets EU competition requirements. Competitors will seek to grow existing JVs while establishing new ones. In some instances they will be responding to the Air China-Lufthansa JV, and in other instances they have been ready but held off due to an uncertain regulatory environment. Allowing another JV potentially increases the pressure for more to follow.
But more immediately, and closer to the purposes of Air China and Lufthansa, the JV will at least partly remove lingering tensions between Air China and Lufthansa Group, the two largest carriers between Europe and China. Air China has overshadowed Lufthansa, with more growth to come as Air China sits astride what will be the world's single largest aviation market. But Air China requires precious beyond traffic that Lufthansa can control, as well as more extensive international experience. Between them, the two account for 35% of Europe-China flights, and 84% of Germany-China flights.
For Lufthansa, a China JV adds to those in Japan and North America, while this is the first long-haul JV for Air China. Meanwhile Gulf carriers are not this JV's primary target; their access in China is relatively restricted and routes to Europe via the Gulf are circuitous.
Asian airlines are expanding partnerships and collaboration with new hubs. Following Singapore Airlines' expanded partnership with Turkish Airlines and Cathay Pacific's with Qatar Airways, All Nippon Airways – now Japan's largest international carrier – is likely to open a service from Tokyo to Istanbul and deepen its partnership with fellow Star carrier Turkish Airlines. This would be the first Japanese service to Turkey, complementing those from other Asian countries including Korea, Malaysia and Singapore. It would also be the first strategic partnership between a Japanese carrier and an airline from a new hub in Turkey/the Gulf.
The rationale is clean cut. Turkey has become a popular tourist point for Japanese passengers, who would pay a premium to fly on a Japanese carrier to Istanbul. ANA can use Istanbul to open new destinations in Eastern Europe, the Middle East and Africa that it and competitor Japan Airlines cannot reach but Middle East Gulf carriers can.
ANA's challenge is tapping these new markets while sustaining its important relationship with the Lufthansa Group, whose seven daily flights to Japan are under a JV with ANA. An expanded Turkish Airlines partnership would have sensitivity in its overlap with Lufthansa, which has recently very publicly terminated most of its cooperation with Turkish as the fast growing "fourth Gulf airline" increasingly challenged its hub role.
Lufthansa reported narrower losses in 1Q2014, although the underlying improvement in the operating result (adjusted for one-off costs and a changed depreciation policy) was only slight. Unit costs fell as expected, but unit revenues were also down. The improved group result owed much to lower fuel costs and contributions from ground-based activities such as MRO.
The seasonally weak 1Q result is not usually much of a guide to the full year for European airlines. This time, 1Q was further weakened by airport strike action and the move of Easter into 2Q. The Group's FY2014 profit targets remain unchanged, in spite of a pilot strike early in 2Q2014, helped in part by a lower fuel cost outlook. However, the headroom in the targets is narrowing. Cost restructuring remains on track and so unit revenues will probably be the key to the full year result.
New Group CEO Carsten Spohr replaced Christoph Franz at the helm on 1-May-2015. He will want to ensure that he does not have to preside over any reduction in profit targets, while also attending to a range of other key issues.
An impending three day strike by Lufthansa pilots – described by the carrier as "one of the biggest walkouts" in its history – highlights what continues to be a challenging labour relations environment for Europe's legacy carriers. In spite of years of competition from LCCs and cost efficient long-haul players, and after significant progress with restructuring programmes, such disputes remain common.
Labour-related issues are affecting a number of other airlines, including Austrian Airlines, Air France, Aer Lingus, SAS and Finnair. Even LCC Norwegian Air Shuttle faces key strategic questions in connection with the use of low-cost labour to grow its nascent long-haul business. In general, however, LCCs enjoy a less unionised environment and greater labour flexibility.
It is not uncommon for labour unions to become more militant as the profit cycle picks up, but airlines cannot always hide behind this excuse. As IAG CEO Willie Walsh has said*, "it is not about unions, but management. Management needs determination and can do it if it wants to…Cost creep is requested by unions, but made by management”.
In 2013, Lufthansa showed the first signs that its SCORE restructuring programme may be having an impact on its results. While its operating result fell from its 2012 level, this was affected by restructuring costs and project implementation costs, which should produce benefits in future years. Adjusting for these one-off costs, underlying profitability improved for the first time since 2010, mainly due to lower unit costs.
Ahead of an imminent change of leadership at the top of the group, Lufthansa has also announced a couple of small, but fairly radical, changes. First, it will separately incorporate its FFP and, second, it will bring its aircraft depreciation policy more in line with market practice.
Lufthansa is now somewhere close to half way through SCORE. Outgoing CEO Christoph Franz, who will leave on 30-Apr-2014, can be credited with instigating the programme and delivering a fairly solid start. As with all restructuring programmes, their success or failure can only really be judged when they are complete and it will be the responsibility of new CEO Carsten Spohr to steer the group to the right result at the programme’s end in 2015.