As Lufthansa retrenches, Wizz Air looks to spread wings
Reuters
Published Jun 03, 2020 12:51
Updated Jun 03, 2020 13:15
By Ludwig Burger and Sarah Young
FRANKFURT/LONDON (Reuters) - Lufthansa (DE:LHAG) pledged tough restructuring on Wednesday, even as budget rival Wizz Air (L:WIZZ) upgraded a Middle Eastern expansion - underscoring the contrasting fortunes among airlines grappling with the coronavirus crisis.
The pandemic has strained airline balance sheets and darkened the outlook for demand especially for long-haul travel, weakening some big names while handing opportunities to leaner rivals.
Lufthansa warned that deep cutbacks and asset sales will be necessary to pay off 9 billion euros ($10.1 billion) in German rescue aid, with more to come from Austria and Belgium.
"In view of the very slow recovery in demand, we must now take far-reaching restructuring measures," Chief Executive Carsten Spohr said as the company plunged to a deep quarterly loss.
The group, whose carriers also include Swiss, Austrian and Brussels Airlines, expects a significant 2020 earnings decline and has begun talks on job cuts expected to impact as many as 20,000 positions.
Smaller Hungarian player Wizz Air sounded upbeat about the recovery as it assigned more planes to its new Abu Dhabi joint venture, maintaining fleet plans after years of breakneck growth.
"Whatever we can fly we're going to be flying, because we've seen that there is actually demand out there," Wizz CEO Jozsef Varadi said, unveiling a record pre-crisis annual profit.
As lockdowns ease, airlines of all stripes are restoring some flights while contending with a patchwork of lingering restrictions and consumer wariness.
They are also cutting long-planned capacity for 2021 onwards - a thornier task for network carriers taking aid from governments determined to defend their airports.
Air France-KLM (PA:AIRF) has received 7 billion euros in French-backed aid but remains in talks on a further 3-4 billion from the Dutch government, which is concerned about future traffic at Amsterdam-Schiphol.
Such pressure could hamper Lufthansa's efforts to rationalise traffic through Vienna and Brussels as it pursues rescue aid from both governments. It also faces more competition on some routes after giving up slots as an EU aid condition.
Brussels Airlines will cut its fleet and workforce by 25-30% while Austrian reduces wage costs by 20%, Lufthansa has said. The group posted a 2.1 billion-euro first-quarter loss and said it was consuming 800 million euros in cash per month.
Ryanair (I:RYA) boss Michael O'Leary has hailed the coronavirus shakeup as a "once-in-a-lifetime" opportunity for the low-cost giant at the expense of bailed-out rivals.
"A problem with the state aid subsidy is they all come with costs (that) prevent those airlines engaging in meaningful labour reform or productivity gains," he said last month.
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Echoing that sentiment, Wizz Air outlined plans to fly 60% of its summer capacity and 80% from September, while cutting 1,000 of its 5,000-strong workforce. Underlying net profit rose 30% to 345 million euros for the year ending March 30, the company said, stressing its ample cash reserves.
"We seem to be one of the most resilent airlines in the world," CEO Varadi said. "If we don't fly a single service ... for the next 24 months we are still in business."
Written By: Reuters
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