Winkelmann plans expansion at germanwings

Germanwings’ chief Winkelmann is opting for expansion on home turf rather than looking abroad

Germanwings chief executive Thomas Winkelmann has bad news for airports trying to woo the low-cost carrier. Germanwings, he says, will stick to Germany and not open any overseas bases because there are plenty of opportunities to expand in its home market following the sale of dba, Condor and LTU to rival Air Berlin.

“We’re the only pure low-cost carrier left in Germany,” he says. “Our home market is Germany and we want to grow with Germany.”

He says germanwings is on pace to carry more than eight million passengers in 2007 and reach the 10 million passenger mark in 2009 – and can do this without any overseas bases. He points out Germany has a population of 80 million and Germans travel more frequently than any other European nationality. “We have our hands full with Germany.”

Winkelmann plans to expand all five of germanwing’s bases – Berlin Schonefeld, Cologne/Bonn, Dortmund, Hamburg and Stuttgart. He says the “top priority” will be to expand Cologne/Bonn and Stuttgart. “We’re the top carrier at both airports and we’ll build up our network there.”

Germanwings has nearly 70 destinations and a fast-growing eastern European network. Kiev and Skopje are its newest destinations and Winkelmann is looking for more new routes to ex-Soviet states, including Sarajevo where germanwings has been trying to secure rights for several months. “If it opens up we are there,” Winkelmann says, adding there are three or four other destinations in the region germanwings will fly to if it gets the green light from local authorities. He calls Croatia “a wonderful germanwings niche”, pointing out that the airline has more flights in Croatia than Croatia Airlines.

But for now Winkelmann is not interested in setting up a base in eastern Europe or acquiring one of the region’s several new low-cost carriers. He says there are currently too many low-cost carriers operating in central and eastern Europe and germanwings will wait for carriers to fold before making any big moves. “We have a lot of players there now that won’t be there forever.”

Germanwings currently operates 27 Airbus A320 family aircraft. It will take another seven A319s next year, three of which will be used to replace larger A320s and four of which will be used for growth. Winkelmann acknowledges expanding the fleet by less than 15% is conservative given the much more rapid expansion of other central European low-cost carriers. But he says “therefore we are profitable and they are not. We’ve seen a lot of carriers expand too fast recently.

“Our goal is profitable growth. We’ll end this year better than last year. We’re very conservative in our balance sheet.”

Even profitable low-cost carriers such as Ryanair are starting to curtail capacity growth, Winkelmann says. “You see signs the honeymoon phase is coming to an end,” he says. “They are running out of territory and their orders are too big.”

He warns low-cost carriers with weak balance sheets and large order books may not survive. If there is consolidation in the overheated low-cost sector, germanwings will pounce and accelerate its expansion by taking aircraft from its sister carrier. Lufthansa, which operates mainly from Germany’s two largest airports Munich and Frankfurt while germanwings sticks to medium-size airports, owns 49% of germanwings. Winkelmann points out that “Lufthansa Group is a big Airbus customer” and if germanwings has a good business case for more rapid expansion it could be allocated some of the A320s Lufthansa has on order.

Stiff competition
For now germanwings is happy to wait and see. It faces stiff competition from low-cost carriers based outside Germany, including easyJet and Ryanair, both of which are much larger. But Winkelmann says germanwings has an advantage because Germans appreciate flying with a German carrier and it also has a large following among business travellers.

“Germans trust brand names and trust the brand names of German companies,” he says. He adds the carrier also has higher ancillary revenues than Ryanair or easyJet although it does not charge for checked bags or early boarding. “We try to be the Amazon of airlines. We know our passengers.”
Winkelmann says 40% of germanwings’ passengers fly on higher-yield business-type fares. He says germanwings has been able to build up a business passenger following by operating to primary airports at major European cities, offering high frequencies on key business routes and getting into the inventory systems of German corporations.

“Some airports have marketing budgets but no business,” Winkelmann says, referring to some of the alternative airports Ryanair serves.

Germanwings offers a flexible fare that is popular with business travellers and in November will start allowing name changes for certain tickets. It now has contracts in place with 300 German companies, which account for 5% of its passengers and a significantly larger portion of its revenues. “To get into the inventory of big corporations you have to have your fares accessible and directly in the system of corporate booking tool,” Winkelmann says.

Winkelmann joined germanwings from Lufthansa in September 2006. He previously headed Lufthansa’s New York office, where he served as vice-president for the Americas. Winkelmann says the switch from overseeing long-haul operations to low-cost short-haul was not too difficult, explaining both jobs involve targeted selling and differentiation at the airport by providing superior service to higher paying customers. “It’s long-haul but there are a lot of similarities.”

He is quick to point out germanwings’ customer profile is different than Ryanair and germanwings tries to treat its business passengers differently “The one that pays more needs to be treated better.”
Winkelmann insists germanwings will not put advertising billboards inside its aircraft or hawk lottery tickets in-flight. “You have to be careful. These days customers have choices and if you show them something annoying they will remember it for two years.”

In a different kind of attempt to create a new revenue stream, germanwings introduced a transfer scheme in late August in which passengers can connect between its flights. Winkelmann says the new “Smart Connect” service should boost its average load factor from 82% to 84% but germanwings will stay true to the low-cost model and will not codeshare with other carriers. The transfer scheme is “zero cost” for germanwings because passengers must re-check their own bags and be re-screened by security. Cologne/Bonn, Stuttgart and Berlin Schonefeld airports are paying for the scheme by supplying a booth for re-checking bags.

“We’re a point-to-point, not a connecting airline,” Winkelmann says. “We only do things where we stick to our business model.”

Only five years old, germanwings is a young forward-thinking company. Winkelmann, who is 48, says most of the carrier’s 980 employees are in their 20s. “I’m the grandfather in the building.”

Source: Airline Business