28-Jul-2021 9:37 PM

Eurowings Discover: Lufthansa's newest alternative for airline growth

Analysis

Eurowings Discover, Lufthansa Group's newest airline, operated its inaugural flight on 24-Jul-2021. An Airbus A330-200 flew from Frankfurt via a short stopover in Mombasa on Kenya's Indian Ocean coast to Zanzibar in Tanzania.

The airline's name and livery are consistent with being a sub-brand of Lufthansa Group's Eurowings subsidiary.

However, Eurowings Discover has its own AOC, its own code (4Y) and its own CEO (Wolfgang Raebiger, who also served as captain on the inaugural flight). Moreover, it is a direct subsidiary of Lufthansa, rather than of Eurowings, and will operate on both long haul and short/medium haul.

It is positioned as a leisure airline, but with full service features. Frankfurt-based, it will add services from Munich from summer 2022. By the end of 2021 it plans to be operating seven medium haul and 10 long haul routes (competing with Condor on seven of these long haul routes). Its fleet plan targets 11 A330s and 10 A320s by mid 2022.

Eurowings Discover addresses the problem of Eurowings' withdrawn long haul network. It may also help to focus Eurowings on efficiency on short haul.

Summary

Eurowings Discover: a leisure airline for long haul and short/medium haul with full service features. Frankfurt-based, it will add Munich from summer 2021.
The airline's 2021 route network plans 10 long haul and seven medium haul routes. Condor competes on seven long haul routes. All medium haul routes have competitors.
Eurowings Discover is planning seven A330s and three A320s in 2021; rising to 11 A330s and 10 A320s by mid 2022.
It has "its own commercial and operational responsibility" within the Lufthansa Group.

Eurowings Discover: a leisure airline for long haul and short/medium haul…

Eurowings Discover is positioned as a leisure airline on both long haul and short/medium haul routes.

The inclusion of long haul differentiates it from the core Eurowings brand, which now operates only short haul routes (after transferring its former long haul routes to Lufthansa Group's Network Airlines segment in 2020).

…with full service features

Eurowings Discover also differs from Eurowings in its market positioning.

Eurowings presents itself as the group's low cost airline, focusing on point-to-point operations.

It offers a higher service level (and has a higher cost base) than rival European LCCs, with different fare classes. Its network includes both leisure destinations and primary airports with significant business demand.

By contrast, Eurowings Discover looks more like a full service airline than Eurowings (although presumably it will be lower cost than the core Lufthansa airline), despite having a leisure focused route network.

Initially operating with economy class and business class fare offerings, its fleet will add a premium economy cabin over the next few months.

All three classes include meals and non-alcoholic drinks in the ticket price. Business class includes all drinks for no extra charge, while premium economy offers a selection of free beer and wine. Additional buy-onboard drinks and snacks are available to economy and premium economy passengers.

All classes offer free inflight entertainment, with movies, TV shows and music streamed to passengers' own screens.

Eurowings Discover: infographic

Based in Frankfurt, it will add Munich services from summer 2021

Eurowings Discover plans a network of holiday destinations in Africa, the Caribbean, the Indian Ocean, South American, North America and Europe.

Launching in Frankfurt, with 17 routes planned by the end of this year, it will begin flights from Munich from summer 2022 onwards.

The airline's 2021 route network plans 10 long haul destinations…

By the end of 2021 the airline is planning to have 10 long haul destinations from Frankfurt.

Already now operating to Mombasa and Zanzibar, it will add Punta Cana (9-Aug-2021), Windhoek (10-Aug-2021, a route previously operated by Eurowings), Las Vegas (30-Sep-2021), Mauritius (1-Oct-2021), Bridgetown (1-Nov-2021), Cancún (1-Nov-2021), Varadero (2-Nov-2021), and Montego Bay (3-Nov-2021).

Previously (before the pandemic), Eurowings operated to four of these 10 destinations from Frankfurt: to Windhoek, Las Vegas, Mauritius and Bridgetown.

The services to Punta Cana and Cancún are currently operated by Lufthansa.

…and seven medium haul destinations

The airline will also add seven medium haul routes starting in Nov-2021, with flights from Frankfurt to the Canary Islands of Fuerteventura, Gran Canaria, Lanzarote and Tenerife, as well as to Hurghada and Marsa Alam in Egypt, and Marrakech in Morocco.

Services to Fuerteventura, Gran Canaria and Lanzarote are also currently operated by Lufthansa.

Condor competes on seven of the 10 long haul routes

The launch of Eurowings Discover follows the end of a commercial agreement between Lufthansa and the German leisure airline Condor. Under the agreement, Lufthansa provided short haul feed to long haul services operated by Condor from Frankfurt and Munich.

The ending of this arrangement allows Lufthansa Group to compete directly with Condor, with whom it has had a long-standing relationship that once included being a shareholder.

Condor operates on Frankfurt to Punta Cana and Cancún and plans to resume its winter service from Frankfurt to Varadero this winter.

This winter, Condor will resume services suspended in Mar-2020 from Frankfurt to Mombasa, Mauritius and Montego Bay. It will also resume its Frankfurt-Las Vegas service in Sep-2021, just before Eurowings Discover enters the route.

According to OAG schedules, there are no competitors to Eurowings Discover on three of the 10 long haul routes it plans to launch in 2021: Frankfurt to Zanzibar, Windhoek and Bridgetown.

All seven medium haul routes have competitors

Eurowings Discover will face competition on all seven of its medium haul routes this winter. On five routes there will be multiple competitors, and ultra low cost Ryanair operates on four routes.

Eurowings Discover will compete with Condor and TUIfly to Fuerteventura and with these two plus Ryanair to Gran Canaria, Lanzarote and Tenerife.

It will compete with Condor, TUIfly, Air Cairo and Flexflight to Hurghada, but only with TUIfly to Marsa Alam and Ryanair to Marrakech.

Eurowings Discover plans 11 A330s and 10 A320s by mid 2022

According to the CAPA Fleet Database, Eurowings Discover has three Airbus A330-200s as at 26-Jul-2021.

Each currently has 263 economy seats, 46 economy plus seats and 21 premium economy seats. They are 16-17 years old, hardly at the cutting edge of emission reductions.

These aircraft, leased from GECAS, were previously operated by SunExpress Germany on behalf of Eurowings' long haul network, before going into storage in Jun-2020. One remains inactive, stored at Munich.

Eurowings Discover's website says that it plans a fleet of seven A330s and three A320 aircraft in 2021.

A Lufthansa press release of 17-Jun-2021 says the fleet will grow to 21 aircraft by the middle of 2022 (11 A330s and 10 A320s) and the airline's aircraft will come from the existing Lufthansa Group fleet.

"…Its own commercial and operational responsibility" within the Lufthansa Group

In spite of its name including the word 'Eurowings' and its parent company being Lufthansa, the new airline appears to have a certain amount of independence within the group.

With its own 4Y code, Eurowings Discover operates flights "in its own commercial and operational responsibility", according to Lufthansa Group. Nevertheless, it "complements the Lufthansa tourist offering at its German hubs".

Lufthansa Group draws a parallel between this combined business model and the matched offers from the group companies SWISS and its leisure subsidiary Edelweiss at Zurich.

By including the Eurowings name in its new airline, the Lufthansa Group is building on a brand developed over several years. It is avoiding the pitfall encountered by Air France with its aborted attempt to set up Joon, a new airline with a new name and new brand.

Flight bookings on Eurowings Discover are fully integrated into the Lufthansa feeder network. This allows connections with Lufthansa flights to be included in a single booking.

Before its late Jul-2021 long haul launch, Eurowings Discover has been ramping up operations and gaining experience as a wet lease operator for the Lufthansa Group airline Air Dolomiti.

According to OAG, in the week of 26-Jul-2021 it is operating A330 services from Frankfurt to Rome Fiumicino and Barcelona under Air Dolomiti's EN code.

CEO is a pilot with significant management experience in the group

Wolfgang Raebiger, chief executive of Eurowings Discover, has been with Lufthansa Group for more than 20 years.

An experienced pilot, Mr Raebiger has held past management positions in the group, which have included Assistant to the CEO of Deutsche Lufthansa AG, Head of Flight Operations at Lufthansa Cargo, and CFO of Aerologic (a Lufthansa Cargo/DHL joint venture).

He was appointed to lead Project Ocean in Feb-2020. This project, to start a new leisure airline, was rebranded as Eurowings Discover in Jan-2021.

Eurowings Discover addresses the problem of Eurowings' long haul network

Lufthansa learned the value of having alternative growth platforms when it developed Eurowings, which had a separate labour agreement for point-to-point, lower cost operations. It replaced Germanwings, its previous alternative platform.

Eurowings' growth not only developed a lower cost means of production, but also put pressure on Lufthansa itself (and its labour force) to improve its efficiency.

The long haul part of Eurowings' network has caused greater challenges than the short haul. The reasons for this are complex, but two main points help to explain it.

Firstly, a cost advantage is harder to achieve on long haul, where passengers need a greater level of service and where premium travel is needed to cross-subsidise cheap 'no frills' fares.

Secondly, the need for feed makes a pure point-to-point operation more challenging.

Eurowings' long haul network operations were outsourced through a wet lease to SunExpress Germany, part of the SunExpress joint venture between Lufthansa and Turkish Airlines. It operated six A330s for the brand.

A decision to transfer commercial responsibility for Eurowings' long haul network back to the group's Network Airlines segment indicates that the structure was not entirely successful. The closing down of SunExpress Germany early in the pandemic added an operational challenge to the commercial one.

The 2022 fleet plan for Eurowings Discover includes 11 A330s - almost double the old SunExpress Germany/Eurowings widebody fleet after only a year of operations.

If it can genuinely be lower cost than Lufthansa, this increased ambition makes sense, particularly if all long haul leisure routes are transferred to it. The key success factor then, apart from low costs, will be the relationship with Lufthansa over feeder traffic.

It may also help to focus Eurowings on efficiency on short haul

The inclusion of short/medium haul routes in Eurowings Discover was not always expected to be part of the plan. After all, Eurowings itself is still the Lufthansa Group's main point-to-point, lower cost operator on short/medium haul.

Yet Eurowings has never been truly low cost, based on CASK, compared with leading European LCCs and with the low cost subsidiaries of its rival groups, IAG and Air France-KLM.

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Perhaps the Lufthansa Group sees value in developing yet another alternative platform, this time to keep Eurowings focused on efficiency.