◼ BUSINESS Bloomberg Businessweek June 17, 2019
19AsAir Berlin slid into insolvency two years
ago,Carsten Spohrspottedanopportunityto
strengthen his responseto low-costcarriers
Ryanair,EasyJet,andWizz.Thechiefexecutiveoffi-
cerofDeutscheLufthansaAGhadbeenseekingto
makeEurowings,hisbudgetunit,morecompeti-
tivebymarryingbargain-binfareswithLufthansa’s
top-shelfbrandname.SpohrsnappedupAirBerlin
planes,employees,andlandingslots,butsince
thenEurowingshasrackedupalmost€500million
($570million) in losses. This spring, Spohr halted
expansion of Eurowings after soaring fuel prices
and too many empty seats squeezed profits, help-
ing drive Lufthansa’s stock down 10% this year. In
the company’s annual report, he said integrating
Air Berlin had made for an “extremely difficult”
year. “We did not always live up to our premium
promise to our customers and disappointed many
of our passengers with delays,” he said.
Lufthansa’s woes are emblematic of a European
industry that’s facing a second straight bummer
summer. Carriers are grappling with gyrating fuel
prices because of U.S. tensions with Iran and the
escalating trade war with China. Brexit jitters have
sapped consumer confidence among Britons, spur-
ring airlines to ponder airfare cuts to tease out shy
demand. Germans face crowded airspace, jammed
security lines, and strike threats. Eurocontrol, the
regional air traffic authority, says there could be 40%
more delays this summer than there were last.
Despite the demise of Air Berlin, Germania,
Monarch, Wow, and at least a half-dozen other
European carriers since 2017, too many planes still
fly to too many places, making it difficult for airlines
to boost profit by raising prices. Budget airfares in
Germany are 10% lower than this time last year,
according to the DLR aerospace center. Booking site
SkyScanner says fares from Frankfurt to the Spanish
holiday hub Palma de Mallorca have fallen 24% since
last summer, to an average of €135, and London
Gatwick to Rome averages €149, vs. €155 a year ago.
The Stoxx Europe Total Airlines index has
dropped almost 15% since January, and in May it hit
its lowest level in three years. Shares in Norwegian
Air Shuttle ASA are off 70% this year as the car-
rier nurses the financial hangover from a growth
binge. British Airways is digging in for strikes as
contract negotiations begin. SAS faces boycotts
Cloudy, With Little Chance of Profit
● Another bummer summer for European airlines is creating headwinds for Lufthansa
from travelers citing Flygskam, a Swedish neolo-
gism meaning “shame about flying due to climate
change concerns.” Alitalia is on life support while
the government in Rome seeks a buyer for the
troubledcarrier.
After Spohr tookthetop job at Lufthansa
in2014,thetrainedpilotintroducedhisEurowings
plan.Lufthansaspentaggressivelyonthedis-
countunit,including€170million integrating Air
Berlin. Investors more than doubled the share
price in 2017—Lufthansa’s best year ever—as stock
analysts praised the Eurowings strategy. Unions,
though, decried it as a ploy to cut wages: A pilot
at Lufthansa can earn more than €200,000 per
year, while Eurowings pay is capped at €150,000,
according to the website Pilot Jobs Network. With
losses mounting and unions threatening strikes
at Eurowings this summer, shareholders have
turned against the strategy. “Eurowings has been a
catastrophe,” says Michael Gierse, a portfolio man-
ager at Union Investment.
Spohr insists the situation will improve as he
wraps up the integration of Air Berlin, and he says
he’s working to stabilize operations at the com-
pany’s other brands. He’s adding spare aircraft to
keep things running in case of breakdowns, and he’s
increasing turnaround times at airports to ensure
more on-time departures. “We need growth, but
not blind growth,” he said at the company’s annualmeeting in May. “Tickets for less than €10, as offered
by some of our competitors, are economically, eco-
logically, and politically irresponsible.”
Aggravating Lufthansa’s problems is German
infrastructure. Cologne Bonn Airport has Europe’s
worst record for departures, with almost one in
five flights delayed by more than 30 minutes last● Changes in average
price of short-haul
flights from Germany,
2016-18$300200100Cologne-
Berlin SchönefeldDüsseldorf-
Kayseri Erkilet