A year after initiating a major restructuring, Austrian's new strategy is starting to pay off

Austrian Airlines is planning a major expansion of its Eastern European and Middle Eastern networks as it continues the restructuring that began in late 2006 with dramatic cuts to its long-haul operation.

After posting a E33.3 million ($48.7 million) operating profit for the first nine months of 2007 from revenues of $2.6 billion, Austrian said it was confident it is now "on the right path" and its new "focus east" strategy is working. Austrian's long-haul operation, which has been reduced to only nine routes and 10 aircraft, is again profitable but will not be expanded again anytime in the near future. Instead the Star Alliance carrier will focus on short- and medium-haul services to the east.

In its summer 2008 schedule Austrian will launch service to Nizhny Novgorod and Sochi in Russia. Subject to securing traffic rights and final go-ahead from its executive team, Austrian will also launch service to Jeddah and Riyadh in Saudi Arabia Mostar in Bosnia Wroclaw in Poland and Baia Mare in Romania. Austrian also plans to resume next summer service to Erbil in Iraq, which was initially launched in December 2006 but withdrawn in August because of security concerns.

The expansion should give Austrian 50 destinations in Central and Eastern Europe for its 50th anniversary in 2008 (see chart). This includes seven destinations in Russia, six in Ukraine and six in Romania. Several of its destinations in these and other former Soviet countries are not served by any Western carrier. According to Anton Bily, commercial passenger division director for Western Europe: "That will be our focus in the future - to be the first Western carrier operating [in secondary cities in Eastern Europe]. We'd like to be in Star the first mover."

Eastern Europe now accounts for 2 million of Austrian's 10 million annual passengers and Bily says this is slated to grow to 2.8 million by 2010. He says Austrian plans to add three to four new destinations in the region every summer. About 20 secondary cities are now being evaluated.

Austrian has little appetite for expanding in Asia-Pacific, having dropped early last year seven unprofitable routes to the region. Charter division Lauda Air also shut its entire long-haul operation. "We were talking for years about what our strategy should be. Now it's crystal clear in the company. In order to stay independent we needed to cut our long-haul routes," Bily says, adding Austrian did not want to follow Swiss in becoming swallowed by a larger European carrier.

Bily says Austrian is also not interested in expanding its Western European network, which still accounts for 52% of its flights. He explains flights from Vienna to Eastern Europe are shorter but have significantly higher yields.

Austrian also no longer has any ambitions to invest in Eastern European carriers, following its failed project in the Slovakian capital Bratislava, only 60km (37mi) from Vienna. Austrian had a majority stake in Slovak Airlines, which shut down early this year. "The exercise in Bratislava showed us it's more profitable to focus on our core business," Bily says. "We came to a point that we realised it's a nice try but it wasn't successful. We have good opportunities in Vienna."

He adds a new 17-gate pier will open at Vienna airport in 2009. As part of the restructuring, Austrian has been improving its quality levels, on-time performance and premium offering. It has retrofitted all 10 of its widebodies with new lie-flat business class seats and significantly larger business class cabins. Bily says Austrian has since enjoyed business class load factors of over 65%, prompting the carrier to invest in new cabins for A320s operating medium-haul routes. By September four A320s will be retrofitted with 24 business class sleeper seats.

"To stay independent we needed to cut our long-haul routes"

Anton Bily


Source: Airline Business