Which future for Brussels Airlines in the Lufthansa Group?

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Brussels Airlines Airbus A330 - copyright Wim Peeters
Brussels Airlines Airbus A330 – copyright Wim Peeters

Our forum has intensively discussed whether Brussels Airlines would become Eurowings when and if Lufthansa purchases the 55% of the shares that it does not already own : http://www.luchtzak.be/forums/viewtopic.php?f=7&t=57865.

The dice are thrown, or so it seems. There are serious indications that the German Lufthansa Group will fully take over Belgium’s Brussels Airlines. For those who follow the airline industry this is not really surprising news. Synergies in aviation in recent years are the rule rather than the exception.

A takeover of Brussels Airlines by Lufthansa is written in the stars. The German company already owns 45 percent of the shares in the unofficial national airline of the country since 2008 (the German airline paid 65 million euros for it), and has an option to acquire the remaining 55 percent stake every year in April until next year. One of the conditions was that Brussels Airlines would be profitable. The preliminary figures show that Brussels Airlines has made about 25 million profit last year. Therefore, the road seems open for an acquisition in the second quarter of this year.

The acquisition is not yet a fact: the negotiations are still ongoing and the boards of the companies involved have yet to give their approval.

Brussels Airlines, moreover, has been working closely with Lufthansa, first of all on flights between Belgium and Germany, but also on many other flights: both companies already place their flight code on each other’s flights. Moreover, Brussels Airlines has been part since 2009 in the Star Alliance, the largest airline alliance in the world. Lufthansa is just about the main company of the alliance.

Through the acquisition of Brussels Airlines, Lufthansa would grow into one of the largest players in the European aviation market, as the German aviation giant has several other companies are in its portfolio: low-cost daughter Eurowings, Austrian Airlines and Swiss International Airlines.

Other major European players are French-Dutch group Air France-KLM and British-Spanish International Airlines Group (IAG), which owns British Airways, Aer Lingus, Iberia and Vueling. The three mega-players face two major low-cost airlines Ryanair and EasyJet.

Joining forces offers many advantages for the airlines concerned. So big companies can get better – read cheaper – prices in airports where they operate. That will certainly also apply for a German Brussels Airlines, which already has a dominant position in Brussels Airport, but is still having more competition from “filibuster” Ryanair.

A large company can also negotiate lower prices from aircraft manufacturers when they purchase new aeroplanes. In the same way IAG makes large aircraft orders for British Airways, Iberia, Vueling and Aer Lingus combined. The price per unit goes down if you buy more. The same applies to joint fuel purchases.

That effect of scale also has advantages in terms of personnel. A joint human resource management (HRM) usually means significant savings for the organisation. A boost for the shareholders, but not necessarily for the personnel involved. This explains the current turmoil on the staff of Brussels Airlines.

Without doubt, the intention of Lufthansa to take over Brussels Airlines has to do with the fact that the Belgian company is back in the black figures last year and has therefore become an interesting prey. “I think we are condemned to go into a larger unit,” said Pol Buekenhout of Christian union LBC/CNE. “We hope that Lufthansa can be that unit, but of course under the best conditions that we already have.

The unions realise that Brussels Airlines will be merged into a larger company to remain competitive, but they do not want it to be the low-cost airline of the German group. “Are we going to a low-cost carrier and we will lose employment, or we go to a proper development of a hub in connection with Lufthansa and we get a win-win situation?” asks Pol Buekenhout .

The Brussels Airlines staff is concerned about the plans of Lufthansa. Will Brussels Airlines be kept in its current format, with a strong European network, a strong presence in Africa and some long-haul flights to the US and Canada? Or will it become a so-called “Wings scenario” where Brussels Airlines will be integrated in Eurowings, the low cost subsidiary of Lufthansa?

The trade unions in Brussels – and indeed the management and the current shareholders of Brussels Airlines – opt for the first scenario. They point to the strengths of the Brussels hub. “You feel that people are proud of Brussels Airlines,” said trade unionist Pol Buekenhout. “Lufthansa has to accept that.”

Should the second scenario be selected, the unions fear worse working conditions and salaries for the staff. Also the Lufthansa staff itself show quite some displeasure at the fact that Lufthansa has moved many of its domestic flights into the cheaper Eurowings.

Interesting in this context is the fact that Eurowings already has a base at the Vienna airport, the first Eurowings base outside Germany. The target? Flights for the account of Austrian, but under the cheaper Eurowings label.

Is Brussels Airport becoming a second Vienna and Brussels Airlines changed into a “Brussels Wings”? Those rumours are circulating since last year, but have so far not been officially confirmed. In such a scenario, what should happen to the – profitable – long-haul flights operated by Brussels Airlines, is also unclear.

An independent Brussels Airlines is not an alternative, because there are not enough resources to maintain a strong Belgian airline. In order to avoid the Belgian airline to be shot down, it seems that to shelter it under the wings of Lufthansa is the best possible option. Wait and see if there is enough oxygen underneath those wings.

Viscount Etienne Davignon, chairman of the board of SN Airholding (the holding company above Brussels Airlines) and CEO Bernard Gustin have urged Lufthansa to retain a Belgian anchorage, preferably with keeping the current name.

Brussels Airlines exists since 2007 and originated from a merger between Virgin Express and SN Brussels Airlines. SN Brussels Airlines was the successor of Deta Air Transport (DAT), a subsidiary of the former Sabena, the Belgian national airline went bankrupt in late 2001.

Last year, Brussels Airlines carried 7.5 million passengers. The company has a fleet of over 40 aircraft and employs around 3,500 people.

The airline flies mainly to destinations in the short and medium distances, but also to Africa and some destinations in North America. The African operations are a continuation of a Sabena tradition.

Brussels Airlines has developed a unique model where it offers both low rates and service,” Sciot explains. The model proves successful, because the company makes a profit again and recorded a significant passenger growth. The spokesman reassures: “The idea is that we will continue to develop that model in the future, we see with Lufthansa the best way to do that .

Source: Belga and VRT

 

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