Long haul on the cheap: Lufthansa′s strategy | Business| Economy and finance news from a German perspective | DW | 04.12.2014
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Long haul on the cheap: Lufthansa's strategy

Germany's biggest airline, Lufthansa, is banking on the no-frills, long-haul flights of its Eurowings brand, the inspiration for which came from Asia. Andreas Spaeth takes a closer look.

In the long-haul sector pressure on prices is massive. Airlines like Emirates, Qatar Airways and Etihad are flooding the market with cheap economy class tickets, making it hard for Germany-based Lufthansa to compete, as it has higher costs than its competitors.

Lufthansa was forced to give up some of its routes, to and from Abu Dhabi for instance, because of its competitors' dominance in the region. On Wednesday, however, Lufthansa revealed how it intends to deal with the problem.

Lower wage costs

The airline is set to rebrand Eurowings as a long-haul low-cost carrier, with up to seven Airbus A330-200 jets, operated out of the western German town of Cologne. The airline will mainly serve tourist destinations, such as Florida, the Indian Ocean and southern Africa.

"Due to increased competition we need to extend our portfolio to be able to tap into growth markets we couldn't otherwise cover," Lufthansa Passage board member Jens Bischof told DW. Workers are to be employed by the German-Turkish joint venture Sun Express Germany, whose wage costs are much lower than those at Lufthansa's core fleet.

Watch video 03:40

Restructuring: Last call for Lufthansa! (23.09.2014)

It is also one of the measures being attacked by the pilots' union as part of their repeated strike action in the last few months.

Long-haul cost savings

Low-cost long-haul flights are a tricky issue, as airlines cannot achieve the savings they enjoy with low-cost short-haul flights, which are usually well booked. Costs for fuel, aircraft leasing and overflight charges are the same for all airlines, so low-cost carriers cannot make any savings there.

There have been a number of failures in this segment, with the exception of Asia where Air Asia X and Jetstar have managed to survive. But Air Asia X cancelled its routes to Europe years ago. It has, however, announced it will try again.

In Europe, Norwegian Air Shuttle has been successful in this segment with brand-new Boeing 787s.

Lufthansa is modeling the new Eurowings on Scoot, Singapore Airline's low-cost carrier, which was founded in 2012. "Scoot is an interesting concept," Bischof told DW. "We have looked very closely at Scoot to see what we can learn from them."

Role model Scoot

Flying with Scoot from Singapore to Taipeh gives you a good idea of what passengers can expect on Eurowings long-haul flights. Before take-off, even business class passengers only get one small can of water. During the flight, passengers get a packaged meal and one drink. If you want more, drinks are around 2.50 euros ($3) and a meal costs around 7.50 euros.

It is not what passengers in Asia are accustomed to, as airlines there are rightly renowned for their excellent service. "Customers here had no idea what to expect from a low-cost carrier - they thought they'd get free drinks and meals. The really had to adapt," Campbell Wilson, head of Scoot explains.

Flugzeug - Airline Scoot

Scoot was Lufthansa's role model for Eurowings

Forty percent cheaper

Low-cost offshoots are the only way forward for many established traditional carriers if they want to attract price-conscious customers. "Our ticket prices are 40 percent below economy prices at our parent company," Wilson says.

But flying low-cost is also less comfortable and the flight times can be inconvenient. Wilson says the low-cost concept was slow to take off in Asia. "There was a lot of confusion at first, people just weren't familiar with the concept."

Now, Scoot has a fleet of six aircraft, taking 2 million passengers a year to destinations within Asia, four of which are in China and three in Australia. Eight hours from Singapore to Sydney is the longest flight, all its flights are between five and nine hours to and from Singapore.

The business model is popular in Asia - in Singapore, more than a third of all passengers fly low-cost, mainly on short-haul flights though.

Lufthansa board member denies Eurowings will simply copy Scoot. "The geographical factors alone make that impossible. A six-hour flight wouldn't get you far from central Europe."