Austrian CEO says airline will unbundle short-haul European fares

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Austrian Airlines will become the latest full-service airline to unbundle short-haul fares and offer ‘a la carte’ pricing as the Vienna-based carrier seeks to respond to competition. Austrian’s aim of appealing to both low-cost and full-service passengers on the same aircraft diverges from sister airline Lufthansa, which has a separate subsidiary for the low-cost market.

Austrian’s current short-haul “Euro” fare structure offers three economy class fares and two business class fares, with the differences mostly around change flexibility and associated charges. The lowest economy fare includes one checked bag but Austrian will re-vamp its pricing structure for effect later in 2015.

“That is what we will be announcing on the Euro product: to offer the customer the flexibility, to decide individually is he willing to pay for a bag, is he willing to pay for food on board, is he willing to pay for more legroom, for a window seat?” CEO Jaan Albrecht told RGN at the recent Star Alliance meeting.

Albrecht believes the change is in line with passenger demand. “The customers don’t want to have this two-class system, either you buy business class with a package or you buy economy class. The customer wants flexibility, as you would do when buying a car. Are you willing to pay for the extras?”

The short-haul growth in Europe is mostly at the budget end, and Albrecht expects Austrian’s lowest fare will decrease under the new structure. “A passenger that only wants to fly from A to B, it will be cheaper for him in the future because he’s not going to pay for the extras.”

There are parallels to sister airline Swiss’ Geneva fares, the lowest of which does not include checked luggage. Austrian has been able to learn from Swiss about those fare families. But elsewhere in the Lufthansa Group, of which Austrian and Swiss belong, Lufthansa mainline has responded to low-cost demand by having a separate LCC unit, Germanwings (flying short-haul operations outside of its main hub). And soon long-haul, low-cost service will be operated for Lufthansa under the Eurowings brand.

“We have the flexibility at each of the [Lufthansa Group] airlines to start with a rollout at a certain phase,” Albrecht says. Austrian’s restructuring efforts reduced expenses, giving it the cost structure to segment its product on the same aircraft. Lufthansa’s higher cost base – an ongoing contention between management and unions – meant a new airline was necessary to target the low-cost segment.

A challenge for Austrian’s unbundling will be selling it. Albrecht says that only 20% of its global tickets are booked on its website, where it can customise options. The Lufthansa Group is investing in its IT to have commonality, giving speed and flexibility, according to Albrecht.

Meanwhile, the global distribution systems accounting for the bulk of sales cannot easily support new fare structures and ancillary options. For example, Swiss’ travel agent guide for booking Geneva fares on the GDS notes the fare quote will always show the flexible family; a special command – which varies based on the GDS – must be entered to price the “light” option.

Asked if travel agents will support Austrian’s new pricing structure, Albrecht remarked: “That is a negotiation with the GDS of course, which is ongoing.”

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Photo credit: Austrian Airlines Group

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