Eurowings, CEO, Jens Bischof

Transcript

Jens Flottau:Hello and welcome to this CAPA Live session introducing Jens Bischof, the CEO of Eurowings, and myself, Jens Flottau. Jens Flottau, Executive Editor Commercial Aviation at the Aviation Week Network. Before I go into my questions, just a few words about the first Jens. Jens started his career at the Lufthansa Group in 1999— in 1990 at Lufthansa Cargo. After having held several other jobs, he became Chief Commercial Officer at Lufthansa Airlines in 2011 and CEO of SunExpress in 2017. Just as the coronavirus began its devastation of 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 relaunches. And I frankly forgot how many times the concept at the new Eurowings has been changed ever since it was founded something like 7, 8 years ago. Not too long ago, Eurowings was supposed to be the airline that handled everything apart from the Munich and Frankfurt hubs of Lufthansa because it was a bit cheaper than mainline. Then it took over parts of Air Berlin, went into long haul, but today everything's different again. So Jens, what is Eurowings doing?

Jens Bischof:Yeah, it's, uh, thank you very much for the introduction, and I think you already framed it very nicely. A lot of changes have happened along the way from Germanwings to Eurowings. And of course, if we, 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 handle 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 and we're doing what we can do best. We're looking at Eurowings and of course at 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're going to 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 2 main pillars are leisure routes in general, becoming the biggest German leisure carrier, I guess. But then you will, 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, we, we are and we will remain focused on the point-to-point outside Lufthansa's hubs, Frankfurt and Munich. That's, uh, that goes without saying. So nothing will change in that respect. We are by far the largest carrier in home base Hamburg, in Düsseldorf, in Cologne, in 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 Mallorca, 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 BFR, 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:But aren't you running into kind of, you know, some resource allocation issues there? When— what, what, what if the group wants you to, you know, focus on Stuttgart and developing Stuttgart, for example, because— I'm making this up, you know— EasyJet is announcing a base there, but at the same time you want to strengthen your, your Mallorca presence from, you know, various German airports, and you only have a certain number of aircraft available and Obviously, the staff that you have, who's, you know, what prevails?

Jens Bischof:Yeah, of course. Number one is Eurowings has a great deal of independence. And 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 own business metrics and of course can follow your own business cases, then of course 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 want to keep in balance with our strong presence out of Germany, because we all know that if you're strong in one catchment, if you're strong in a certain diameter, then of course you should 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 as I said, we've been able to grow our business by far the largest carrier in Hamburg, Düsseldorf, 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? If you even at your, you know, when you're at your peak, you had around, correct me, like 160, 150, 160 aircraft. That's, you know, a quarter of Ryanair. If you're going pan-European, you will automatically sooner or later compete with with airlines that are much stronger and much, much bigger. Why would you do that?

Jens Bischof:Well, number one, we already compete with Ryanair, with EasyJet, with Wizz Air. So there is 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 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. You know, cutting off a lot of you know 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 headcount, driving efficiency, you know, 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, you know, if we grow our pan-European presence, we are very, 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 basis. So where would they be? Would they be in— you mentioned Palma de Mallorca. What else are you looking at?

Jens Bischof:Yeah, well, we have 5 aircraft stationed with our crews in Palma 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 into new bases. And of course, on the other side, we have been able to identify, you know, in the Nordics, but also in Eastern Europe and Southeastern Europe, we have, you know, a few bases already in sight. And already in very precise and very, you know, well-developed talks with airports, communities, of course governments. And that will, of course, reveal over the next, let's say, 3 to 9 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 already wouldn't— if you weren't already named Eurowings.

Jens Bischof:Absolutely. And but however, I think, you know, you're absolutely right, and this was one of the rationals to also, you know, 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 gonna you know, develop the brand much further. I have put in place an entire new commercial team. I have a new head of sales, new head of Eurowings Digital, 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, you know, the growth of Eurowings or the development of Eurowings is part of Lufthansa Group's idea to go much more into the leisure market than it historically has. To what extent are you concerned that, you know, you're stepping on each other's toes by developing that market? I mean, there's been, you know, Lufthansa has started flying to destinations that have historically been Eurowings or Condor or You know, formerly Air Berlin destinations. There's got to be some kind of coordination between the two of you, right?

Jens Bischof:Well, I would say, you know, the distinction from my point of view is quite clear. There is no question that the Lufthansa Group, as the leading airline group in Europe, is clearly also tapping more and more into the touristic sector. 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 Frankfurt and Munich, and primarily, and now in the ramp-up, on leisure long-haul destinations. So that makes it clearly, you know, a separate playing field. Us being, you know, in decentral Germany and also in Europe, focusing on short and medium haul, whereas Eurowings Discover, the other part of the Lufthansa Group, is focusing on leisure long haul out of Frankfurt. So that makes it a clear distinction at that point. And even if there are some, you know, routes which maybe from Frankfurt and Munich would go into short and medium haul, That wouldn't either 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 complement 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, you know, the bigger frame consistent. And as I said, a nice complement between Eurowings Eurowings Discover and the rest of the Lufthansa Group.

Jens Flottau:Okay, so let's— 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, you know, talked about, you know, 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, how much additional capacity do you think you can deploy?

Jens Bischof:Yeah, well, of course, as we all learned very painfully, you know, 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, we were 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 15 for Eurowings Europe. So that is the 75, is 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 my 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 kind of 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 100 aircraft already in 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 of scale and we want to fly them as productive as possible because otherwise your cost position is just 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 advanced do you plan this? I mean, usually, I mean, in normal times, you You would go by time, by summer timetable, winter timetable, and with some little changes here and there, but not as dramatic as it is now. Is this 2 weeks ahead, 3 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 for the summertime table, for the wintertime table. So we basically do this— everybody in this industry does it on an almost weekly basis. And you have to be very, 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, you know, the German institute who does the risk analysis for the risk areas was putting Mallorca down from the country, from the list of countries with an infection risk. So basically meaning that there was no restriction left, we saw a huge spike of bookings. So in several days after the announcement, we saw a sevenfold— or the bookings increased by 7 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 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 in 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, you know, that 7-fold increase in PANA flights, how did that compare to, you know, pre-crisis levels? I mean, 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, you know, throughout all the airlines operating in Europe. So if you would add that effect of the 7-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, you know, domestic flying, which they tried for some time. EasyJet have taken over the former Air Berlin base in Berlin, but has kind of used it in a different way. Basically no domestic, a lot, but a lot more European flying. But now everything's up in the air again. How do you think this will play out, you know, over the next, you know, 2, 3 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, if we look at our customer surveys in these days, especially in times of the pandemic, we see that, you know, safety, health, trust— these are things which just come first in these days. And it's not just about cheap prices and, you know, funny lotteries, whatever you might have 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 5 years in the US, and I think JetBlue had a really compelling and excellent value concept. And we're working along those lines with the Lufthansa DNA inside. It's a carefree product. It's, you know, 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 of as low as of €10 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 just see that there is a good confirmation from our customer base that we're walking along the right path. And Also, you know, triple gold from the German Customer Award with best customer satisfaction, best customer service, and the best value for money. So these are all, you know, I would say little signs of proof of concept that we're walking really in the right direction and the customer appreciate the value concept of Eurowings.

Jens Flottau:So the JetBlue of Europe. Maybe.

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

Jens Flottau:Yeah. You mentioned cost. Obviously, you took advantage like everyone else here in Germany of the 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 what— where are you when you compare your unit costs to your parent, Lufthansa, and let's say EasyJet?

Jens Bischof:Well, I mean, as I said before, This pandemic and the way we were setting up with a lot of wet leases and, you know, you know, third-party capacity allowed us to shrink to the inner core very, very fast. You know, 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, with 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, you know, 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 beloved competitors like EasyJet and others. So we don't have 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, you know, find products which are just 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 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 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, one aspect of What I understood from the interview with you and your colleagues 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?

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, you know, 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, I mean, also in the past, I, I've been quite into, you know, the way JetBlue is working. At SunExpress 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 in 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, you know, positioning, which is quite compelling.

Jens Flottau:So, I mean, you mentioned you've been with SunExpress before you joined Eurowings for 3 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 running a low-cost carrier or a value airline, as you call it?

Jens Bischof:I don't know if you know 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 you know serve more 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, you know, if you, if you see the 2 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 you try to avoid whenever there is a chance to raise fees or have a certain punishment of 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 front end, but you really invest on the customer front end. There is a case that the customer is really willing to award this 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, uh, 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 front end.

Jens Flottau:Okay, so before we have to wrap up, unfortunately, I want to ask you again about the fleet, looking forward in particular. So you still have A319s, you have obviously A320s. How about the NEOs and how about retiring the A319s? Will you stick to them for longer even though they're, you know, getting old and are not as effective in terms of unit costs? And how would that— how will that evolve?

Jens Bischof:Well, I mean, Jens, we've used the pandemic and also the crisis situation with 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 A320s. We have now a much better, much more cost-efficient, much more reliable A319-320 fleet. I'm very, very confident that with that we can create a very stable operation. And also our maintenance concepts are now much easier, cheaper, more efficient. So the core of 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, you know, the Germanwings operation and so on and so forth. We had the wet leases from Luftverkehrsgesellschaft Malta and so on and so forth. So we're now in a totally different setup. We have sister ships. So the technical variety is very, very slim, meaning, you know, 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 320s will come in. We're also, you know, in the current evaluation whether we should even move up and go into the 321. But this is yet to be decided. So bottom line is much more efficient, much more consistent. And, you know, sister ship-like fleet with a better cost structure, which provides us more operational reliability and certainly also 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, Jens, I think this is all we've had time for. Thanks a lot for spending the time with us, and I'll hand back the program to my colleagues at CAPA Live.

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

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.