Facing intense competition from LCCs in Vienna and rising fuel prices, Austrian Airlines saw a steep drop in earnings for the first nine months and warned of a possible loss for the financial year.

The Lufthansa Group subsidiary reported adjusted earnings before interest and tax (EBIT) of €17 million ($18.8 million) for the first three quarters, down 85% from €110 million in the same period a year ago.

The LCC fare wars at its Vienna hub have taken a toll on the carrier, which issued a profit warning for 2019-20 and announced an aggressive cost-cutting program that could mean the loss of 800 jobs.

“We have to reposition ourselves in order to survive the brutal competition of the low-cost airlines,” CEO Alexis von Hoensbroech said in a statement. “In part, the measures will be painful because they drain resources which we tediously built up over the past years. However, at the same time they are necessary in order to safeguard the future of Austrian Airlines as the leading airline in Austria.”

“We will not retreat a single millimeter on the Viennese market,” he added.

The “PE20” cost-cutting program, part of Austrian’s #DriveTo25 strategy, “aims to reduce in-house costs by €90 million annually starting in 2021 via efficiency and productivity improvements,” the airline said. “Some 700-800 jobs will likely be impacted by the ‘PE20’ program. A large number of these job cutbacks will be absorbed via staff fluctuation. The long-term objective of the airline is to modernize its fleet and then once again return to a strong growth path.”

In 2020 there will be 35 LCC aircraft based in Vienna from various airlines, von Hoensbroech told ATW.

“The number of LCC seats will reach 7 million in 2020 from the current 4.5 million seats this year. We have to expect that in the future the LCC business will remain in Vienna,” he said.

“We have a threat which came from outside—Ryanair under the name LaudaMotion, he added. “The LCC scenery in Vienna will reach a volume which you would not find somewhere else in Europe. Every third seat in Vienna will be offered by an LCC.”

The airline is partnering with Eurowings Europe, another Lufthansa subsidiary, to bolster the Veinna hub and expand decentralized traffic from the Austrian federal states. Austrian Airlines will take over network planning at the Vienna hub, where the carrier will wet lease four Airbus A319/320s from Eurowings beginning Jan. 1, 2020. The airline is also in the process of phasing out its remaining 16 Bombardier Dash 8 Q400s and replacing them with 10 A320s by 2021. With those and the aircraft leased from Eurowings, the carrier will increase its Vienna-based A320-family fleet to 50, up from the current 36.

“Austria’s national carrier plans to bundle its fleet strength in Vienna within the context of its #DriveTo25 strategy program by stationing all its aircraft available in Austria in the country’s capital city where the price war is raging,” the airline said.

Eurowings, in turn, will expand its presence in Salzburg to three A319s, up from the current one, as of summer 2020, and grow its leisure flight operations from Innsbruck.

Fuel costs were also a burden for Austrian Airlines, rising 14% during the first nine months and driving a 4% increase in operating expenditures to €1,679 million. The rising costs meant that, despite passenger numbers rising 6% year-over-year to 11.2 million, revenue decreased 2% to €1,696 million.

The intercontinental business developed well, with passenger volume up by 7%, “but it is not very profitable. Miami will be dropped from the network and will be replaced with an additional intercontinental destination,” von Hoensbroech said.

Kurt Hofmann, hofmann.aviation@netway.at