Eurowings, CEO, Jens Bischof

Transcript

Jens Flottau:

Hello, and welcome to this CAPALive session. Introducing Jens Bischof, the CEO of Eurowings, and myself, Jens Flottau, Executive Editor of commercial aviation at the Aviation Week Network. Before I go into my questions, just a few words about the first things. He has started this career at the Lufthansa Group in 1990 at Lufthansa Cargo. After having held several other jobs, became Chief Commercial Officer at Lufthansa Airlines in 2011, and CEO of Sun Express in 2017. Just as the coronavirus began its devastation [inaudible 00:00:58] the industry, Jens became the CEO of Eurowings. We'll talk about the past year, but also where Eurowings is headed from here. So, welcome to the program, Jens.

Jens Bischof:

Thank you very much, Jens. It's a pleasure. Thank you.

Jens Flottau:

So, Eurowings. I remember Eurowings as the small regional airline that used to fly ATRs in the 1990s, competing with Lufthansa Cityline. Then in the 2000s, there was this airline called Germanwings, which was relaunched at least once, if I haven't forgotten about other launches or [inaudible 00:01:37].

And I frankly forgot how many times the concept that the new Eurowings has been changed ever since it was founded, something like seven, eight years ago. Not so long ago, Eurowings was supposed to be the airline that hand everything apart from the Munich and Frankfurt [inaudible 00:01:55] of Lufthansa, because it was a bit cheaper than mainline. Then it took over parts of Berlin, went into long-haul, but today everything's different again. So, Jens, what is Eurowings doing?

Jens Bischof:

Thank you very much for the introduction, and I think you already framed it very nicely. A lot of changes happened along the way from Germanwings to Eurowings, and of course, if we look at the whole history of this, I think the launch of Germanwings at that time, was quite promising. And over the years, however, the organization has been expected to held too many projects at once. You mentioned it, rightfully we had short-haul, we had long-haul, we had to integrate large parts of Air Berlin, and later Brussels Airlines. And at the same time, there was, let's say a mix of business and leisure routes.

So, it was really a complex structure. And this is why we, in the meantime, have cut a lot of things that we're doing what we can do best. We're looking at Eurowings, and of course, a short and medium-haul business. Yes, we serve, of course, domestic business routes, but of course also, a large portion of leisure routes, and in the VFR, the visit friends and relatives segment. So, it's a lot leaner, it's a lot less complex. Of course, we'll go into the fleet structure and everything. So, everything was pretty nicely cleaned out, and I think now we're on a very good track, which also translates into our cost position.

Jens Flottau:

So, the two main pillars are leisure routes in general, be it becoming the biggest German leisure carrier, I guess. But then, you will stick to that second pillar of operating the German bases outside of Frankfurt and Munich on behalf of the group, right?

Jens Bischof:

Yes, that's right. We are, and we will remain focused on the point-to-point outside Lufthansa's hubs, Frankfurt and Munich. That goes without saying. So, nothing will change in that respect. We are by far the largest carrier in home-based Hamburg, in Dusseldorf, in Cologne, and Stuttgart. And as you said, we're also in the meantime, we became the largest leisure airline in Germany. And what is changing is that we're just focusing a little bit more on leisure flights. Of course, expanding our international base in Majorca, for example, and we have a strong conviction in the meantime that leisure flights of course, will recover a bit faster over the next few years. And so, we've clearly focused our strategy in that direction, looking more at leisure, looking more at VFR, but also again, still having a nice chunk of business routes, which we feel is very valuable also in the time going forward.

Jens Flottau:

Right. You're running into some resource allocation issues there. What if the group wants you to focus and developing Stuttgart, and developing Stuttgart, for example, because, I'm making this up, and EasyJet is announcing the base there, but at the same time, you want to strengthen your Majorca presence from their various German airports, and you only have a certain number of aircraft available, and obviously the staff that you have. What prevails?

Jens Bischof:

Now of course, number one is, Eurowings has a great deal of independence. I think this is one of the key recipes of success, of course, if you want to launch a, as we say, a value airline, or a low cost arm out of an existing aviation or airline group. So, if you don't have that liberty, if you don't have your business metrics, and of course, can follow your own business cases, then of course you, you would fail. And that's a fact. And I think we've learned that over the last few years. So, of course we're trying to balance it out, because we're going more Pan-European, meaning that, of course, our original home market is and was Germany. Then we opened up more bases, like in Salzburg in Vienna, in Pristina, and also in Palma de Mallorca. And now we're going more and more Pan-European, and adding more bases to these, the ones I've already mentioned.

And that is something, which of course, we going to keep in balance with our strong presence out of Germany, because we all know that if you're strong in one catchment, you're strong in a certain diameter, then of course, you should not give it up, and we're going to build on that strength. And we saw, of course, our competition going in and out of Germany, so obviously I think they don't have as much fun as they might have in different countries in Europe, and it's sad. We've been able to grow our business, by far the largest carrier in Hamburg. There's a lot of Cologne and Stuttgart. And again, this will be a nice balance to our Pan-European presence, which we're also growing.

Jens Flottau:

What's the rationale behind going Pan-European? When you're at your peak, you had around, correct me, one 50, one 60 aircraft. That's a quarter of Ryanair. If you're going Pan-European, you will automatically, sooner or later, compete with airlines that are much stronger, and much bigger. Why would you do that?

Jens Bischof:

Well, number one, we already compete was Ryanair, with EasyJet, Wizz Air, so there's not a big difference. And as I said, I think we were quite successful defending our home turf against also our beloved competitors. On the other side, we're already have a presence in the rest of Europe, and we will grow that. So, I think we've come a long way by making things easier, less complex, cutting off a lot of weight, which we have accumulated in the past, as I said, with the integration of Brussels Airlines, with of course, the acquisition of parts of Air Berlin, with long-haul, short-haul. Now we have a consistent homogeneous fleet, with A390, and A320.

So, we're only flying one aircraft type, which makes of course, things a lot easier. And we have used the pandemic, of course, to also streamline a lot of things, also on the cost side, of course. Reducing management, reducing the head count, driving efficiency, getting leaner, and a little meaner. And I believe in that regard, we are, from our cost position, much more competitive than we used to be in the past. And this is why I believe that if we grow our Pan-European presence, we are very well prepared to enter into that competition.

Jens Flottau:

I want to go into the cost issue in a moment, but just one last question on the bases. Som where would they be? You mentioned Palma de Mallorca. What else are you looking at?

Jens Bischof:

Yeah, well, we have five aircraft stationed with our crews in Bama, and of course, more to come. And not only there, as I said, also in Kosovo, or in Austria. However, I believe the current situation, the pandemic will open up new opportunities. So, we will see that after the pandemic, we might see some white spots in Europe. We might see possibilities to grow in some geographies, which might not have been possible, or at least feasible, in the past. From my point of view, this will of course, lead our way to new bases. And of course, on the other side, we have been able to identify in the Nordics, but also in Eastern Europe and South Eastern Europe, we have a few bases already inside, and already very precise, and very well-developed talks with airports, communities, of course, governments. And that will, of course, we will, over the next, let's say, three to nine months, depending a little bit on the speed, how fast we want to recover from COVID-19.

Jens Flottau:

Well, at least you have the right brand for a strategy like this, right? Eurowings. You would have to make it up if you weren't already named Eurowings.

Jens Bischof:

Absolutely. However, I think you're absolutely right that this was one of the rationales to also symbol that we're not so much focused on Germany anymore, but we really have a European aspiration, growing aspiration. Yet the presence of the Eurowings brand is not where it should be from my point of view. So, also in that regard, we're going to develop the brand much further. I have put in place a entire new commercial team. I have a new head of sales, new head of Eurowings Digital, a new head of network management, a new head of marketing and product development. So, we're basically rebuilding the entire team, and we will certainly also drive the presence of the Eurowings brand across Europe.

Jens Flottau:

So, big picture, the growth of Eurowings, or the development of Eurowings, is part of Lufthansa Group's idea to go much more into the ledger market than it historically has. To what extent are you concerned that you're stepping on each other's toes by developing that market? I mean, there's been... Lufthansa has started flying to destinations that have historically been Eurowings, or Condor, or formally Air Berlin destinations. There's got to be some kind of coordination between the two of you, right?

Jens Bischof:

Well, I would say, the distinction from my point of view is quite clear. There's no question that the Lufthansa Group, as the leading airline group in Europe, is clearly also tapping more and more into the touristic segment. And for that reason, it is only natural that the Lufthansa Group is strengthening the presence, developing more routes, and of course, going more into those leisure markets. At the same time, Lufthansa is focused with Eurowings Discover on Frankfort and Munich, and primarily, and now in the ramp-up on leisure, long-haul destinations. So, that makes it clearly a separate playing field. Us being in de-Central Germany, and also Europe. Focusing on short and medium-haul, whereas Eurowings Discover, the other part of the Lufthansa Group, is focusing on leisure and long-haul out of Frankfort and Munich. So, that makes it a clear distinction at that point.

And even if there's some routes which may be from Frankfort and Munich, would go into short and medium-haul, that wouldn't bother us. If we fly, as an example, from Mallorca to Munich, and Eurowings Discover does it the other way around, we just have a nice compliment of the schedule. But of course, there are no plans whatsoever to develop Eurowings Discover out of Frankfurt and Munich. And that, of course, leaves the bigger frame consistent. And as I said, a nice compliment between Eurowings, Eurowings Discover and the rest of the Lufthansa Group.

Jens Flottau:

Okay. So, we have to talk about crisis management for a moment, of course. You've put in place some more capacity over the Easter holidays, and have talked about how to rebuild the network in the second half of the year.

Jens Bischof:

Yeah.

Jens Flottau:

So, can you talk about the second half? How much additional capacity do you think you can deploy?

Jens Bischof:

Yeah. Well, of course, as we all learned very painfully, the speed of the recovery is much slower than anticipated. And has a very strong correlation with effective testing concepts. And of course, the vaccination, especially when it comes to broader number, and a larger number of people. So, currently in the, let's say in the dark days of the pandemic, where we're flying 20 aircraft, and as you rightfully mentioned, number one, we came from 150 aircraft, but that included, again, a lot of businesses, which we've just cut off as an integration, long-haul flying, and so on. And of course, a lot of wet leases, which we deployed in our system. So, at the beginning of the pandemic, we shrunk to our core, if you will. And we basically have 75 aircraft available, 60 for Eurowings Germany, and a 15 for Eurowings Europe. So that is the 75.

That's basically the core of the core, which we want to redeploy as soon as possible. Of course, depending on the post-Corona, or the easing of the effects of COVID. So, in the dark days, we operated 20 aircraft, and we believe that there is a good chance to ramp up the business up to 80 aircraft this summer. At the peak of the peak, I have to say. Maybe not consistently over the summer. That would be a great improvement, and it's very much tied to the contracted number of vaccines, which we have available in Germany, but also in other geographies throughout Europe. So, there's a strong correlation between the vaccination, the testing, and efficient test concepts, and our fleet development.

If we learn that it will drag along even longer, we have to adapt. But by current aspiration and forecast, and based also on the observations in 2020, when the markets in the Mediterranean opened, like Greece, and Spain, and others, we saw a very steep increase of capacity. And of course, a steep increase in demand. And I believe if this would be the case again, then we would have a good chance to operate the 80 aircraft as of this summer. As I said, in the peak of the peak. And our aspiration is then to grow the number of fleet beyond the hundred aircraft already into 2022.

Jens Flottau:

So, the 80 aircraft, would that be at full utilization also in the summer, or would you just rotate them through, but fly them less per aircraft?

Jens Bischof:

Well, of course in an ideal scenario, we want to use the economies as a scale, and we want to fly them as productive as possible, because otherwise your cost position is not where it should be. So, for that reason, yes. Also here, the assumption is for summer. If we fly the 80 aircraft, we will only fly them in a productive way. If this would not be possible, we would most probably slow down the ramp-up. But again, this is a plan B or plan C. We're clearly still on the plan A in order to deploy the 80 aircraft.

Jens Flottau:

How far in advance do you plan this? Usually, in normal times, you would go by summer timetable, or winter timetable, with some little changes here and there, but not as dramatic as it is now. Is this two weeks ahead? Three weeks ahead.

Jens Bischof:

Well, it's really on very short notice. And you mentioned just the Easter period with Mallorca, which is maybe a great example how we can showcase what we're doing in these days. In the past, you were basically planning your network twice a year, right? For the summer timetable, for the winter timetable, so we'd basically do this. Everybody in this industry does it on an almost weekly basis, and you have to be very flexible. You have to react very fast when it comes to publishing, and also picking up demand. Going back to Mallorca, and after the German Institute, who does the risk analysis for the risk areas, was putting Mallorca down from the list of countries with a infection risk. So, basically meaning that there was no restriction left. We saw a huge spike of bookets.

So, in several days after the announcement, we saw a seven-fold, or the bookings increased by by seven times against the booking period just before the announcement. So, there is a huge dynamic. And what we did is, we basically looked very carefully, how far, and how fast are we filling up these aircraft? How can we, of course, add new flights in a certain period, if the demand is stable and solid? And how can we also continue to offer attractive prices? Because Eurowings understands itself in the meantime as a value airline. So, we want to provide great value for money for our customers, and that is something which, of course, we wanted to also maintain in the ramp-up and very unusual times. Like now over Easter. And that has proven to be very successful. So, we've published about 300 additional flights over Easter just to Palma de Mallorca, and we saw that the demand was there in order to pick up that capacity. And that worked out very well, but as I said, that's a duty which you have to do in hours and a few days basically.

Jens Flottau:

So, how did that seven fold increase in PAMA flights, how did that compare to your pre-crisis levels? I assume you were still way below, right?

Jens Bischof:

Yeah, exactly. Of course, we're always talking about a booking level where we were extremely low, and that compares throughout all the airlines operating in Europe. So, if you would add that effect of the seven-fold increase, basically we're still slightly under 50% of the pre-COVID dimensions, or the quantities. So, for that reason, we're still talking about a good trend, a nice trend, a steep trend, but yet of course, in absolute numbers, we're still way under 2019.

Jens Flottau:

Yeah. I would like to ask you a bit about the German leisure market. There's been changes even before the crisis. Ryanair has pulled out of domestic flying, which they tried for some time. EasyJet had taken over the former Air Berlin base in Berlin, but has used it in a different way. Basically no domestic, but a lot more European flying. But now everything's up in the air again. How do you think this will play out over the next two or three years?

Jens Bischof:

Yeah. Well, also here, you framed it correctly. Basically, Eurowings in the meantime, if we look at the German, low-cost, value market with almost 50% share in Germany, Eurowings is very well-positioned, and we understand what German customers really want and expect from a value airline, or a low cost airline. So, if we look at our customer surveys in these things, especially in times of the pandemic, we see that safety, health, trust, these are things which just come first in these days, and it's not just about cheap prices, and funny lotteries, whatever you might've seen in the past. So, our USP, as I said, is a value concept. And you might know, I served on the Board of Directors of JetBlue for five years in the U.S., And I think JetBlue had a really compelling and excellent value concept.

And we're walking along those lines with the Lufthansa DNA inside. It's a carefree product, you have value for money, we've been able to adapt our product offering during the pandemic very fast. Take the free middle seat as an example, which we start selling already, as low as of 10 euros per free middle seat. We have a friendly service. It's super professional, it's a pleasant customer experience. And if we look at our NPS, we see that there is a good confirmation from our customer base that we're walking along the right path, and also, we're triple gold from the German Customer Award with best customer satisfaction, best customer service, and the best value for money. So, these are all, I would say, little signs of proof-of-concept, that we're working really in the right direction, and the customer appreciates the value concept of Eurowings.

Jens Flottau:

So, the JetBlue of Europe.

Jens Bischof:

Maybe. It's not a bad comparison. I always admire Robin Hayes and his entire team, because they're doing a fantastic job in the U.S., in that market segment. And I believe that is something where you should smart copy wherever possible, and of course, adaptable to the local needs.

Jens Flottau:

Yeah. You mentioned cost earlier. Obviously you took advantage, like everyone else here in Germany, of your short-time work schemes, that must have helped you a lot. But let's talk about structural cost cuts. What did you do since you arrived at Eurowings, and where are you when you compare your unit costs to your parents, Lufthansa, and let's say, EasyJet?

Jens Bischof:

Well, as I said before, this pandemic and the way we were setting up with a lot of wet leases and third-party capacity, allowed us to shrink to the inner core very, very fast. To come down from 150 aircraft down to 75 is nothing which you can typically do overnight, with some very painful decisions, and hard decisions. Was decisions which had a lot of consequences. We were able to manage to do so. And of course, we renegotiated our labor contracts, we reduced our headquarters size, restructured the Eurowings management, overhead count went down, we have much more productivity now, or able to produce more productivity once we're back in the air and fly productively. So, I think, again, we've come a long way in order to be absolutely on par with our peel of the competitors like EasyJet and others.

So, we don't have to tie to hide. On the other side, let me also say, we cannot do it cheaper than Ryanair, there's no doubt. But we can do it better. We can adapt more to the needs of the customer. We can find products which are needed in times where people want to have more air to breathe in an aircraft, where they seek for more comfort, for more trust, and really have the health on top of their minds. And that is something where I believe again, we're a par-to-par with competitors like EasyJet, and yet, of course, we might be a little bit more expensive, but our revenue position is also quite better than a Ryanair, and that reflects in our profitability once we come out of this situation of Corona.

Jens Flottau:

I mentioned the history of Eurowings, and one aspect of that was that Lufthansa was very successful in importing processes, and rules, and costs as a consequence to Eurowings in the past. How do you prevent your colleagues in headquarters to repeat that [inaudible 00:26:39]?

Jens Bischof:

Yeah, as I said, we have a great deal of independency on the one hand side, and wherever we want and need to participate on larger projects, or economies of scale from the group, we have the ability to do so. And that is, of course, a huge advantage from my point of view. And as I said, also in the past, I've been quite into the way Jetblue is working. At Sun Express in Turkey, we had, I would say, one of the most competitive cost positions throughout Europe, and of course, the surrounding areas of Europe. So, I know since years, how to deal with that necessity on how you can structure a value concept, or a low cost airline. And again, we have a great understanding of the Lufthansa Group, and with that liberty, and yet also being able to play the ball wherever I need it throughout the group, then I can play it, and that's great. With my team, we love that, and that gives us a competitive positioning, which is quite compelling.

Jens Flottau:

So, you mentioned you've been with Sun Express before you joined Eurowings, for three years, but ultimately, you're kind of a Lufthansa import too, right? Your background is in legacy airlines. What did you, yourself, learn to adapt to, to running a local carrier, or a value airline, as you call it?

Jens Bischof:

I don't know if there are two categories of legacy airline managers, or low-cost airline managers. I think the cost position of an airline is your life insurance, right? In an airline. No matter if you serve more of the business segment, the premium segment, the leisure segment, or the low-cost segment as such. So, for that reason, I believe everybody has to do a really good job in order to have the right to play, or even better, the right to win. And that is something which I think, if you see the two worlds from both sides, that is very valuable. Also, if you find your brand positioning going forward. And if I talk about a value concept, the secret of a value concept of course is, that you produce at low-cost very efficiently, but you certainly provide value, which means where you try to avoid whenever there is a chance to raise fees, or have a certain punishment on the customer for a fee, you try to pull this away.

And on the other side, you create something which is really valuable, and there is a willingness to pay from the customer side. You don't save on the customer from that, but you really invest on the customer front end if there is a case that the customer is really willing to award the service. If there's no case, it's just nice, you leave it out. But if there is a willingness to pay, and if there is a possibility to buy a certain, or to sell a certain service, then of course we're going after that. And that is the fine balance, and there is not so much leisure versus low-cost. Low-cost is anyways, as I said, our life insurance. It's more about customer value, and that you avoid saving on the customer from that.

Jens Flottau:

Okay. Before we have to wrap up, unfortunately, I want to ask you again about the fleets, looking forward in particular. So, you still have A3 nineteens, you have obviously A3 twenties. How about the Neos, and how about retiring the nineteens? Will you stick to them for longer, even though they're getting old, and are not as attractive in terms of unit costs? And how would that evolve?

Jens Bischof:

Well, Jens, we've used the pandemic, and also the crisis situation with the, literally almost a full grounding, in order to resort our fleet, and reassemble our fleet. So, we have, of course, kicked out all the aged and a little tired A3 twenty. We have now a much better, much more cost efficient, much more reliable A3 nineteen, three twenty fleet. I'm very confident that with that, we can create a very stable operation, and also our maintenance concepts on now much easier, cheaper, more efficient. So, the core, what we operate today, is very different to the old times, where we had a zoo, of course, by adapting aircraft from the ex Air Berlin operation, or even the Germanwings operation, and so on and so forth. We have the wet leases from [inaudible 00:31:27], and so on and so fourth. So, we're now in a total different setup. We have sister ships.

So, the technical variety is very, very slim, meaning, better to maintain, easier and of course, cheaper to maintain. And then we will, of course, also adapt the Neos as of next year. So, three twenties will come in. We're also, in the current evaluation, whether we should even move up and go into the three 21, but this is yet to be decided. So, bottom line is, much more efficient, much more consistent sister ship-like fleet, with a better cost structure, which provides us more operational reliability, and certainly also a better cost efficiency. That is something which I'm very proud of, because we used that time during Corona very wisely in order to reshuffle the entire fleet consistency.

Jens Flottau:

Okay. I think this is all we've got time for. Thanks a lot for spending the time with us, and I'll hand back the program to my colleagues at CAPALive.

Jens Bischof:

Thank you very much, Jens. It was a pleasure. Have a great conference, and thanks for having me.

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