Austrian Airlines Enters Cost-Cutting Mode Amid Low-Cost Competition

Austrian Airlines will now begin the process of cutting costs and terminating jobs in order to increase its profits. The airline has recently been impacted by a rise in competition from popular low-cost carriers.

Austrian Airlines Enters Cost-Cutting Mode Amid Low-Cost Competition
Austrian Airlines is cutting costs to beat LCCs. Photo: Austrian Airlines

Reducing spending, increasing performance

According to ATW Online, Austrian Airlines is now looking to reduce its spending by nearly $70 million. Other sources suggest that this figure could be even higher. Austrian newspaper Die Presse expects the flag carrier of Austria to cut some $100 million from its expenses by taking up to 500 jobs.

This strategy is what is hoped to be Austrian Airlines’ solution to LCC competition. Its biggest threats are the likes of Laudamotion, easyJet, Wizz Air and LEVEL. But there are around 16 low-cost airlines doing battle in Vienna.

The competition in the Austrian capital is hotting up. Laudamotion recently announced it would be basing four more aircraft in Vienna. For its summer 2020 schedule, it aims to provide 17 new routes from Vienna International Airport. Wizz Air also released six new routes from the airport.

But, how will Austrian Airlines be able to compete?

Beating the LCCs

There are various ways that traditional carriers can compete against low-cost carriers. Firstly, an airline can reduce fare prices.

Austrian Airlines Enters Cost-Cutting Mode Amid Low-Cost Competition
Reducing fares is one way Austrian might try to beat the competition. Photo: Austrian Airlines

If Austrian Airlines cuts costs where it can, it will be able to subsidize fares to compete with the likes of Ryanair, who offer flights to Vienna from as little as $12.96 one way. Following the low-cost model, a move like this could mean charging for additional services that were previously free. This could be meals onboard or luggage fees.

But whilst Austrian Airlines is cutting its costs and its jobs, it’s not hinted that it will be reducing fares just yet. However, the airline has said that it’s taking another approach.

Austrian will prioritize experience

In October, it received the first of 10 extra Airbus A320 aircraft. The aircraft were ordered to replace its Dash 8-400 which are gradually being phased out. In a press release, the airline said the aircraft:

“…will strengthen the Austrian Airlines fleet at Vienna Airport…”

Watch out LCCs. Rather than going cheap and cheerful and sinking to the LCCs’ level, Austrian Airlines is trying to one-up them. It wants a swanky new fleet that can peel customers’ eyes away from their wallets and towards a better travel experience.

Austrian Airlines Enters Cost-Cutting Mode Amid Low-Cost Competition
Austrian is taking more A320 aircraft in a bid to keep its customers. But, will it work?  Photo: Austrian Airlines

Speaking about the fleet development, which was termed by the airlines as “strategic”, Austrian Airlines‘ Chief Commercial Officer gave a stern warning. Andreas Otto said:

“[These] additional A320s should also be understood as a strong signal towards low cost competition. We are defending our market position and are determined to fight for our customers.”

But what kind of message will the airline be giving off when its customers find out that its cutting back staff? We’ll have to watch to see how this new development reflects in Austrian Airlines’ financial reports. A press conference for Austrian’s third-quarter financial earnings will be held on 7th November. A spokesperson for the airline told us:

“In this press conference, we will also provide an update on our strategy program.”

Incentivising Austria

Why has Vienna become such a competitive spot?

Amid the collapse of Air Berlin, not only were there more slots available in Vienna Airport but an incentive was introduced as well. The more aircraft an airline based, the more money it would receive. According to the Financial Times, when an airline has more than three aircraft based in Vienna and records 750,000 departing passengers each year, it gets a rebate. €540 ($604) per one hundred passengers.

Unsurprisingly, low-cost carriers lapped it up and are enjoying the profitability.

Update: 07/11/2019

Austrian Airlines has now released a statement recording a “significant decline in earnings.” The airline said:

“We succeeded in attracting additional customers in despite of the competition from low-cost airlines…However, the glut of budget airlines in Vienna and higher jet fuel costs intensify pressure on ticket prices and thus on our earnings.”