Eurowings Taking on Lufthansa's Toughest Job

Thorsten Dirks, the new head of Lufthansa budget subsidiary Eurowings, needs to deliver.
Quelle: dpa
Time to get this puppy off the ground.
(Source: dpa)

All eyes are on Thorsten Dirks, the new face at Germany’s largest airline group tasked with remaking Lufthansa’s budget subsidiary, Eurowings, which last year posted an operating loss of €91 million.

There is industry speculation that the former chief executive of Telefónica Germany did not know what he was getting into when he took his new office on Monday. The Hamburg native now has what Lufthansa employees consider “probably the toughest job in the Lufthansa group.”

The challenges are numerous. Mr. Dirks must sort the hodge-podge of different brands and shape them into a product that the customer sees as uniform. Eurowings consists of the old Germanwings, the former Eurowings, leased aircraft from SunExpress and Air Berlin and, most recently, Lufthansa-held Brussels Airlines.

04 p21 Lufthansa in Numbers-01

When Eurowings was launched in 2015, management likened it to a power strip, to which other airlines, including those that are not part of the Lufthansa family, could connect. However, the restructuring has made it clear that integrating the group’s own brands has been a challenge. With Mr. Dirks, Lufthansa’s supervisory board has brought in a manager experienced in bringing things together.

But Mr. Dirks must also create cohesion to turn a profit, and quickly. There is hope – the budget carrier is expanding rapidly, with its fleet expected to reach 170 aircraft by the end of the year. This is a respectable number in the European budget segment. Competitor Easyjet operates 260 aircraft. Sales last year also increased by 7.9 percent to top €2 billion ($2.18 million). In the first quarter of 2017, income doubled to almost €700 million, partly as a result of the integration of Brussels Airlines. Mr. Dirks has been given the tools he needs to provide the group with additional growth.

However, Lufthansa’s latest offspring has remained in the red, with an operating loss of €91 million last year. The airline was still making a profit in 2015. In the first quarter of this year, the operating loss increased by a slight €1 million to €132 million. According to the annual report, this was mainly attributed to “project costs for the development of the new Eurowings,” as well as the “intense competitive environment in European aviation.”

04 p21 Lufthansa in Comparison-01

Mr. Dirks has a number of levers at his disposal to lift Eurowings into the black. On the one hand, he can tighten the organization’s efficiency. Insiders say that there is significant potential for the Lufthansa subsidiary here. Mr. Dirks is known for tough cost management. “He will undoubtedly make a clean sweep through the company,” said a Lufthansa official.

He can also slow down and adjust growth in favor of profitability. But with rivals like Ryanair making moves in the German market, Eurowings needs to spend money to defend its turf.

Mr. Dirks will also have to navigate the political side of his job. Eurowings is structured so that it requires approval from the mothership to make its business decisions. The appointment of Mr. Dirks, who came into his position from another country and industry, suggests that the supervisory board is looking to provide the group with greater independence from the parent company. Lufthansa kept its first budget subsidiary, Germanwings, artificially small to avoid cannibalizing the Lufthansa market. This strategy was ultimately ineffective.

But then again, it would not be acceptable for Eurowings to snap at the routes where Lufthansa is making good money with its core brand, for the sole purpose of becoming profitable. In other words, Mr. Dirks is about to be navigating a balancing act.

 

Jens Koenen leads Handelsblatt's coverage of the aviation and space industry. To contact the author: [email protected]