Austrian aims to return to growth in 2014

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Austrian Airlines is set to deliver a low double-digit million euro operating profit for 2013 after what chief executive Jaan Albrecht calls an "extremely tough" restructuring process over the past two years.

When the former Star Alliance chief took the helm at Austrian in November 2011, the future was looking "bleak" for the wholly owned Lufthansa subsidiary, he says. The carrier had made a €59 million ($81 million) operating loss in 2011 and expected cost increases to widen that deficit to €206 million the following year.

If that had happened, he says, it would have been "the end of Austrian Airlines". The carrier was under “immense pressure” to return to profitability, he adds.

Albrecht’s team implemented a turnaround programme to slash costs and increase revenues by €220 million. However, the initiative also included investments worth around €90 million.

For the current year, Austrian expects an operating profit "in the lower double-digit million euro" range, it says.

In 2012, the airline made a €65 million operating profit, but it says that result was due to one-off effects from the operational transfer to regional subsidiary Tyrolean Airways as well as new accounting regulations for employee benefits. If the financials had been adjusted to strip out those benefits – the Tyrolean move was completed in July 2012, mainly to curb statutory pay increases for pilots and flight attendants – the airline would have made an operating loss of €10 million, it says.

New labour arrangements for both flying and ground personnel have delivered savings worth around €45 million a year. Austrian’s former collective-bargaining agreement with pilots, which stemmed from an era before the Alpine flag carrier was privatised through the takeover by Lufthansa in 2009, was "out of this world", says Albrecht. It included statutory annual and biennial pay increases as well as inflation compensation, which would have let to an overall 8% salary rise for pilots in 2012 without any pay negotiations.

The airline transferred its pilots and flight attendants to the respective Tyrolean contracts, because those deals had been arranged in a regional airline sector where a more private-sector mentality prevails, says Albrecht.

However, Austrian also cut unprofitable routes and renegotiated terms with around 60 suppliers. Better conditions at Vienna airport were a central issue in those discussions, as the capital remains the airline’s main hub and is the location for extensive facilities such as maintenance and administrative buildings.

Modern terminal facilities with quick passenger transfer times were also a main objective, as Austrian wants to build up its hub operations with a main focus on more long-haul routes as well as connections to Central and Eastern Europe. Lufthansa did not invest in Austrian to move long-haul traffic from Vienna to its hubs in Frankfurt and Munich, but to grow the carrier’s own business and thus gain access to the local market, says Albrecht.

Investments were made to revamp aircraft interiors – particularly the Boeing 767 and 777 long-haul fleet with new business-class seats and IFE systems – and improve onboard catering. The revamp was long overdue, says Albrecht. But "opportunities" for new interiors had been missed in the past, because the airline was not financially able to make the necessary investments, he says.

North American and Asian destinations are the main focus in growing the network. Austrian is not looking to establish flights to, for example, Latin America, says Albrecht. The carrier started services to Chicago in 2012, will establish a route to Newark in July – the New Jersey airport is a hub of Star Alliance partner United Airlines – and is evaluating potential additional flights to destinations on the US East Coast as well as to Shanghai and Hong Kong.

Austrian is adding a wet-leased 777 to its long-haul fleet in 2014. That fleet currently comprises six 767-300ERs and four 777-200ERs, Flightglobal’s Ascend Online database shows.