Eurowings CEO Jens Bischof explains how his LCC is adapting to passenger needs amid the pandemic, offering COVID-conscious budget air travel, and discusses the changing dynamics in the German low-cost market.

This interview is part of Air Transport Month, a detailed examination of the future of the air transport industry as we begin to climb out of the COVID-19 crisis.

 

Transcript:

Kurt Hofmann:

Hello everyone, and welcome to another interview of our Aviation Week Network ATW Leadership Forum. My name is Kurt Hofmann. I'm a correspondent for ATW, and today I have really the great pleasure to talk to Jens Bischof, the CEO and chairman of Lufthansa subsidiary Eurowings. Jens, nice talking to you and welcome.

Jens Bischof:

Thank you very much for the invite Kurt, it's a pleasure to be here.

Kurt Hofmann:

A pleasure for us also, because we know all you guys are very busy during these times. Jens, I like to start, Eurowings is a part of the Lufthansa Group and Lufthansa announced quite a reduction for the winter schedule. Eurowings, I think will just operate around 30 aircraft during the winter. So how you are prepared your company for the winter season is a estimation what you can expect in terms of passengers or traffic in this uncertain times?

Jens Bischof:

Yeah. Well, let me start by saying Kurt, and once again, thanks for being with you and participate in your format. I think that's very good and it's actually part of these times that we quickly adapt and change to new possibilities. And therefore, I really appreciate being with you today. Back to your question. I think without decreasing numbers of infections, without a reliable test strategy and/or vaccines or medication, the recovery for air traffic and tourism is almost not possible. And therefore people, you observe this every day, once you see that a risk area is declared to be open again, you see that people have worldwide a great desire to travel, but of course, all the rules around quarantines and combinations with very different and unpredictable travel restrictions do have a severe effect on bookings and travel decisions. And accordingly we need to adjust our capacities in the Lufthansa group in order to burn as little cash as possible over the coming winter.

Jens Bischof:

This means for Eurowings that during the winter, we believe that only about 30% of our capacity will be flying in order to operate, at least cover the cost or covering the costs and some of the routes, hopefully profitably. And you'll see that of course, with the recent developments around the Canary Islands, this is a very important part at the moment, as Germany's largest leisure airline, we're expanding our footprint, at least in this area. And of course also in other areas.

Jens Bischof:

So bottom line, it's a positive signal for us, and it's a positive signal for the entire industry. And whenever people are allowed to travel, they will travel and they will fly. And we saw this again at the end of October, when Canary Island opened. We sold actually our inauguration flight to Canary Islands. We sold them within days, and that is a good signal that the travel desire is very strong, yet we have to adapt our capacity.

Kurt Hofmann:

Yes, but difficult time ahead as we see the next few months in Europe, anywhere. Again, besides the financial disaster for all the airlines, actually, so everyone will lose money. What we can learn as an airline, like Eurowings, what you can learn from this crisis? Which kind of ideas maybe you create and maybe can take with you when times are coming better?

Jens Bischof:

Well, I would say first and foremost, it's about dynamic change. And when I talk about dynamic change, I mean, high-speed dynamic change. Our environment, as you know, is quite complex and we've built it that environment over many, many years, especially in legacy terms. And I believe with the introduction of AI, of predictive analytics, new internet-based tools, we see that airlines tend to struggle here and there with smaller changes. And now we're working in an environment with huge changes, basically on a daily basis. And that of course, characterizes  COVID, because it's a real game changer. Suddenly we end in a new area where we have to adapt super quickly. We're basically not putting out flight plans twice a year. Basically we do that on an almost everyday basis in order to adapt.

Jens Bischof:

And of course we do see that a lot of things are happening, especially around the customer. The requirements have changed rapidly. Products and services must adapt to this new area. And I'm quite proud that we at Eurowings were able to adapt quicker than almost any other airline in Europe, especially when you think about the question, what customers need at the moment. There is no need for a five Euro or a 10 Euro ticket at the moment. That's not the point. People are searching for reliable hygiene concept. They want to maintain and look after their health. They want to choose an airline which they can trust and which does not jeopardize not only the experience, but also the health condition. And I believe this, with the Lufthansa DNA we can present and really bring across very, very, very, very clear and very explicitly. And so we are changing our products and services quite, quite, quite rapidly.

Jens Bischof:

We've been one of the first airlines offering a free middle seat for purchase, which in the meantime is a real good sell in terms of that we've sold well above 10,000 middle seats in the meantime. So that is something which I believe from flight guidance, from a Corona insurance, hygiene concepts, even free middle seats and other, this is something where you see that a value concept for an airline works particularly well in our space. And that is why we're doing much better than most of our low cost competitors.

Kurt Hofmann:

So that means your passengers appreciate this ideas and measures you offers.

Jens Bischof:

Oh, absolutely. If you look at your colleagues ranking of Aero Telegraph, as an example, Eurowings in the meantime is under the top three ranks of the most popular airlines. If we look at the Horizon brand ticker, we see that, especially in times of crisis, we gained about 25% in brand recognition from our customers. So there's clear evidence, not only by booking numbers in these uncertain times, but also if we look how the brand comes across, how trustworthy Eurowings is perceived in the public, you see clear improvements. And that for me is a clear sign that customers are clearly recognizing what we're doing here at Eurowings.

Kurt Hofmann:

Eurowings also reacted quite quickly. I think it was in Dusseldorf where Ryanair, let's say it's Laudamotion or Lauda Europe now in these days. And also will close this space and you reacted there with capacity. I think you base aircraft there. Are you also plan if somewhere else maybe, another of your competitors will go away, like at Stuttgart or something. Are you planning to also add capacity there quickly if someone of their low cost carriers, competitors disappear?

Jens Bischof:

Yeah. Well you absolutely right, Kurt. First and foremost, I think if you look at Ryanair, we see that they have already left now Dusseldorf. They've left Stuttgart, they've left Bremen and Nuremberg. And also easyJet has given up a significant number of domestic flights and cut its Berlin presence almost by half. And that is something where we see of course opportunities. We have 40 aircraft based in Dusseldorf, and they're really based there. And there was no question that we're going to take over approximately 90% of Ryanair's destinations and routes, which they left behind. And apparently Ryanair and easyJet have fun almost everywhere across Europe, except Germany. And this is not only COVID driven. It could also be, due that we know better the customers in Germany, that our value concept is better perceived by the customers as we spoke before. And that not only just cheap prices are a decision item in customer's mind in these days.

Jens Bischof:

And this is even more true in times of crisis in times of uncertainty. And yes, you can expect that we will also react in other geographies as we did in Dusseldorf, that we're picking up opportunities and that Eurowings is clearly expanding its leading footprint as a leisure airline here in Germany.

Kurt Hofmann:

I'd like to talk another question about your competitors. I just had a chat with Mike O'Leary from Ryanair a few weeks ago and he told me that Eurowings is too expensive in terms of costs. They will never make it to become profitable. So we all know Michael O'Leary for his statements. How is your cost base? Can we compare it to a kind of easyJet or Ryanair, we say is probably as much lower, whereas Eurowings at the moment located and you have to maybe go down more business costs?

Jens Bischof:

Well, let me try to answer this in a broader context, because we all know that due to its extremely low price policy, which has only limited success in these days at Ryanair, you see that they urgently need a low cost structure, which we all know they facilitate through several things. And we saw the layoffs here in Germany. We saw that they laid off people immediately in Dusseldorf as they're moving on. And that is something which we're not doing. We are reliable and customers can trust in our presence and they can trust on our continued services, air services.

Jens Bischof:

On the other side is the profitability of an airline is not just about cost positioning. It's also about the revenue quality you're acquiring from your customers. And that is something where Ryanair dreams about the possibility what we achieve with our value concept. And of course we're looking at cost very seriously, but we're not cutting costs on customer's expense. I do believe that if you look what we've done in the meantime, since I arrived, I really try to create value for the customer, which is price worthy number one. And secondly, which is affordable. And that is something which also from my times that the JetBlue board in New York, when I was on the board of directors, we created that special space, where we said there are some routes are overpriced, some are underserved or some are just not rightly served because the value proposition is not correct.

Jens Bischof:

And this is exactly what we're doing here. So we compare ourselves of course, going into the direction into easyJet in terms of cost, and even if we a little bit above right now, we have no problem with this because we have a revenue proposition from our customer, which is way better than Ryanair and still a lot better than easyJet.

Kurt Hofmann:

Yes. Is it possible to think of an estimation about the summit 2021 or is it too difficult to talk about as we don't know what happens all over the winter and hopefully we find a bit more solutions to cover the Corona crisis. Can you give us an outlook if possible?

Jens Bischof:

Of course, of course. And as you know, Kurt, there's only limited space for optimists in these days., But I count myself as one of that species. And in other words, I do believe if you look at the industry, the entire industry expects a very weak first quarter of 2021 and probably a difficult first half of the coming year. But even in this difficult fall and winter, there are signs which are encouraging. As I said, the desire for travel is there. People want to travel. I expect that there is a major catch-up effect once we get the pandemic under control, where testing strategies are in place, vaccine, medication, whatever have you. So for early summer, we're seeing almost, I would say normal booking intakes in these days, which reflects the fact that people do believe that solutions will be found. They assume that travel restrictions will be lifted and they want to fly.

Jens Bischof:

And of course, leisure travel will recover faster than other segments. And that brings me a little bit to the positive or optimistic scenario that of course the peak of the summer '21 might show a quick rebound, especially in the leisure space, especially in the space of the visit family and friends segment. And we will see that there will be significant movement.

Jens Bischof:

However, this is under the precondition that we're successful in dialogue with politicians to find sustainable and reliable testing strategies, medications, vaccines are found, and that we are able to deliver this in a reliable and clean and good way to our customers, that they trust us and that we reduce that uncertainty. And then of course you will see that even Eurowings will be further able to expand its footprint as the leading leisure airline in Germany.

Kurt Hofmann:

Let's say the airlines who survived this crisis, let's say the coming winter, all the airlines which survived this, will be then much leaner and much more quicker when something has to change. Do you believe so as well as the airlines learning a lot from this?

Jens Bischof:

Well, I would say, and put it even more drastically, airlines that are not efficient will no longer exist after the crisis to be very honest, Kurt. The crisis is too sharp. The slump is too rapid. And I think a competitive cost position is even more important as a lifeline in these days for each and every airline. So just to stay in the game, if you will. So prices alone are a decision point in these days, but there are no longer enough as a decision point. And since COVID, as I said, safety, health, trust, these are the topics which we need to address first and foremost. And whoever puts together the best care and value package is going to convince the customers and will win the race in the future. And I believe again, with our Lufthansa DNA, we can represent this in a very good and trustworthy fashion. And I think we're very well positioned to succeed because we're changing and adapting so fast.

Kurt Hofmann:

Final question. Also regarding Lufthansa, what can Lufthansa learn from Eurowings?

Jens Bischof:

Well, Lufthansa number one is a powerhouse and it's an industry leader in many areas and has always done its pioneering work setting standards. But Lufthansa is also smart enough to look twice when subsidiaries, adjacent companies come up with new developments and things in the market. And of course we exchange our data. We exchange our knowledge and experiences. And especially if you take the free middle seat, which Eurowings launch as one of the first airlines this summer is a very good example. Now you have it available even on Lufthansa economy class. And whether you look for more comfort or you believe that more distance is according to your needs, you will have the choice, not only at Eurowings, but also at Lufthansa.

Jens Bischof:

And of course we have the advantage of being a little smaller, a little bit more agile and speed and agility are important, especially in times of rapid change, as we said. And I believe if you look at the current change of dynamics at Eurowings, this is quite impressive. And the customers, they like it and Lufthansa will also change accordingly. And that is a good symbiosis if you will, here especially in the Lufthansa group where we exchange knowledge, data, experiences with Lufthansa, with Swiss, with Austrian, Brussels Airlines, Air Dolomiti and others.

Kurt Hofmann:

Jens Bischof, CEO of Eurowings. Again, thank you very much for your time talking to us. All the best for your airline and hopefully you have a good winter and start powerful into the summer, 2021.

Jens Bischof:

Thank you very much, Kurt. That's very kind of you. It was a true pleasure being with you and wishing you all the best. Stay healthy. Thank you.

Kurt Hofmann:

Thank you, Jens, and ladies and gentlemen, thank you for watching and until the next interview. Thank you and bye-bye.