The opening of its sixth base, this one in the north German city of Hannover, marks the latest step in the development of Lufthansa’s low-cost carrier Germanwings. The airline, launched in 2002 as part of Lufthansa’s response to low-cost competition, carried over 7 million passengers and generated revenues of more than $800 million in 2009 and has just taken delivery of its 30th Airbus narrowbody.
“Last year we had the best year ever, we had the highest EBIT in Germany of all carriers, and there were not many in Europe that were better," explained chief executive Thomas Winkelmann, talking during a press briefing in Hannover for the inaugural of its new base. The airline has benefited from business passengers trading down and Winkelmann believes it has been well positioned to pick up this traffic.
“We are a low-cost carrier, but from day one, we focus on quality. We don’t fly from forest to forest. Our business model is based on real airports and real cities,” he says. The carrier has assigned seating, offers larger seat pitch in the first ten rows of most of its aircraft and now offers the ability to book the seat next door to ensure that remains free.
“I believe the customer wants a choice. Middle seat is maybe not the finest way to travel, and there we give our customer the choice,” he says. “The seat is a real value on the airplane. Why do the classic airlines either give it away for free or you can’t even reserve it in advance? No other hospitality industry does all-inclusive pricing, except clubs in holiday destinations. The only reason why most legacy carriers don’t charge [separately], is the GDS systems cannot cope with it.”
But having capitalised on the unbundling of the airline fare elements, Winkelmann says the carrier is benefiting from a new initiative, which rebundles some of these back up into a separate package. “What is going very strongly since the middle of March is we have bundled the products luggage, reserved seat and food and drink, to a thing called ‘best price’. So we have our base price which provides the flight and the fees. And then we sell for €12.99, the luggage, the reserved seat and the food and drink,” Winkelmann says. He adds that nearly a quarter of its bookings have taken up the best price package since it was launched. “It’s unbelievable. It shows that the customer wants to fly low-cost, but doesn’t want to sit cramped in a middle seat. You should have choices between more leg-room and less. And they love it.
"Right now I think we have enough in Germany to do," Thomas Winkelmann, chief executive, Germanwings
“The funny thing is we have a nice sandwich [onboard], and we have a bigger sandwich. Most people upgrade. Because for €1 you get the bigger one,” he adds. “That is a way I think to get yields up and profitability up.” He says the carrier’s ancillary revenues have improved “very nicely” since the best price initiative was launched.
“I believe our best price is booked by business travellers. They come out of the aircraft and say I had a large sandwich, I had a reserved seat, theoretically I had the seat next to me free because I booked it, so where’s the difference? The lounges. I think these are enormously important on intercontinental travel. But on a 45 minute Cologne-Munich run, I’m not so sure.”
He also sees the changing habit of corporate travel policies as having helped raise its profile among business travellers, as firms place increasing emphasis on price. “We are only on the Internet, but…without having worked on it, we are in the corporate systems of the major companies,” he says.
Winkelmann also highlights the way the Internet has enabled it to expand its reach outside of the Germany. “The Cologne route [to London] is 44% booked in the UK, and that shows the power of the Internet. We are really small, we have very, very little marketing money in the UK, and still we can attract almost half the passengers from the UK. From Cologne to Manchester, we started it last November, and 55% are sold in the UK,” says Winkelmann.
As for the future Winkelmann sees Germanwings continuing steady growth. “We have eight options [on Airbus narrowbodies] which we will transfer, hopefully this year, to orders for deliveries next year. But one thing about the Lufthansa Group is it has an enormous number of aircraft and Germanwings would be pretty fast if we see a market situation developing where we see good chances, then we would get appropriate aircraft,” he says.
|Winkelmann together with Germanwings managing director Axel Schmidt at the inauguration of its latest A319 at Hannover|
In terms of bases, the airline will continue to focus on the German market – where it has a presence in its home base of Cologne as well as bases at Berlin Schonefeld, Dortmund, Hamburg, Stuttgart and now Hannover. “Never say never,” he says of an overseas base, but adds: “I have very high respect for individual European markets and cultures. I think some of our competitors learned a very hard lesson. When you leave your home market, yes most of them are very good at developing one or two new countries, but then it gets really difficult, especially when you grow into really small European countries in the south and the east, it can be very expensive, especially if you only sell on the Internet.
“Right now I think in Germany we have enough to do. We have competition from Air Berlin, they have developed enormously, so we have our hands full as an entire group to develop and protect the German market.”