Austrian Looks East as it Turns 50

posted: 04 April 2008 06:05 pm ET

: As Austrian Airlines turns 50, its fleet (including aircraft operated by its subsidiaries Lauda Air and Tyrolean Airways), has grown to nearly 100 airliners. Included in the fleet are Airbus A319s (one is seen here), A320s and A321s; Boeing 737-700s and 737-800s; 767-300ERs; 777-200ERs; Bombardier Q300s, Q400s and CRJ 200s; and Fokker 70s and Fokker 100s. Credit: Austrian Airlines

VIENNA — Two huge parties featuring the chancellor and vice-chancellor of Austria, more than 4,500 employees and some 2,500 guests from all over the world marked Austrian Airlines' 50th birthday this week.

Austrian held the festivities on March 31 in a vast maintenance hangar at its technical base at Vienna Schwechat Airport. The hangar was the only location Austrian had that was big enough to hold the 2,500-seat "aircraft cabin" the airline created for the live-music-and-film show it put on to remind its party guests of the airline's history.

Among the guests were senior executives (in many cases CEOs) and uniformed flight attendants from each of Austrian Airlines' 19 Star Alliance partner airlines — including the newest member, Turkish Airlines, which officially joined the alliance on April 1.

Austrian Airlines began life with flight number OS 201 from Vienna to London on March 31, 1958, operated by a Vickers Viscount 779. Fifty years later, Austrian Airlines Group — which includes Lauda Air and regional airline Tyrolean Airways (branded as Austrian Arrows) as well as Austrian Airlines itself — operates 98 jet and turboprop aircraft, flies to 130 destinations and carried 10.8 million passengers last year.

"We have brought together many millions of people from every country in the world, and we are a natural ambassador and powerful advertisement for Austria itself," said Alfred Ötsch, CEO of Austrian Airlines Group.

Taking advantage of Vienna's location at the center of Europe — within 3 hours' flying time of any European city — as well as Vienna's enviable ability to offer the shortest connecting time between flights (just 25 minutes), Austrian has created a niche that is demonstrably profitable and offers strong potential for high-rate growth.

Its strategy relies on linking secondary destinations in western and eastern Europe, central Asia and the Middle East through its Vienna hub, as well as offering links at Vienna with Austrian's long-haul services to strategic destinations in North America and the Far East.

Austrian's 'Focus East' strategy

Key to the entire strategy is Austrian's "Focus East" philosophy, which has seen the group develop a network of 48 destinations in 24 countries in central and eastern Europe and central Asia. Austrian boasts it serves more eastern European and central Asian cities than any other airline.

After launching service to three new central/eastern European destinations this week (Baia Mare in Romania, and Sochi and Nizhniy Novgorod in Russia), Austrian now offers 588 connections a week to central and eastern Europe and central Asia. By the time Austrian launches service to Jeddah and Riyadh in Saudi Arabia in August, the group also will be offering 117 connections a week to 13 cities in 10 countries in the Middle East.

The strategy is working well, said Rudolf Mertl, Austrian's executive vice president of Network and Sales. Some 60 percent of the group's passengers are people connecting at Vienna, with only 40 percent being passengers whose journeys originate or end in Austria.

In 2007, of Austrian's connecting passengers, fully two-thirds were linking to and from secondary destinations. Only 19 percent of Austrian's traffic last year was long-haul and only 15 percent of its passengers were connecting between primary destinations.

In fact, said Mertl, so much of the Austrian Airlines Group's passenger traffic connects between secondary destinations that its fleet of regional airliners — which includes Bombardier Q300 and Q400 turboprops as well as Bombardier CRJ 200, Fokker 70 and Fokker 100 regional jets — outnumbers Austrian's and Lauda Air's fleet of mainline jets.

Among European airlines, Austrian (with a 16 percent share) is second only to Lufthansa (with a 21 percent share) in terms of total transfer traffic to eastern Europe and central Asia, said Mertl. Austrian is reinforcing its hub strategy by moving into the soon-to-be-opened, four-level 'Skylink' terminal at Schwechat, designed specifically to cater for fast connections between flights.

Eastern European economies growing faster

A big advantage Austrian sees to its strategy is that the economies of the central and eastern European countries are growing faster than those of the developed western European nations. IATA forecasts that traffic growth in eastern European countries will average 7.8 percent a year from 2007 to 2011, and predicts that transfer traffic to and from eastern Europe to several other regions will grow much faster than that.

"This strong economic growth is a driver for more flights," said Mertl.

Importantly, Austrian's secondary-destination-linking strategy also allows it to charge high fares. It ranks first among all the members of the Association of European Airlines (AEA) in terms of revenue per passenger-kilometer (known in the airline industry as "yield"), and its yield is 34 percent above the AEA average.

Furthermore, said Mertl, Austrian's average yield from passengers connecting between secondary destinations is the highest of any of its passenger groups. Taking its yield from passengers flying between primary destinations in 2007 as an index benchmark of 100, Austrian derived an average yield of 164 from passengers flying between secondary destinations.

To strengthen its high-yield, premium-fare strategy, Austrian is launching a new service concept in the aircraft with which it will serve Jeddah, Riyadh and other medium-haul destinations. Starting in late July, Austrian will offer 24 business-class sleeper seats — each offering a 46-inch seat pitch — in four of its A320s. Each of the aircraft will have only 102 economy-class seats.

Each business-class passenger will have access to an individual inflight entertainment program, and the airline boasts that the standard of inflight cabin service in the four A320s' business-class cabins will be "exquisite."