Lufthansa's Eurowings Problem

In an all-day event with investment analysts last week, Lufthansa trumpeted the overall success of its 2014 business plan—with justification: The company doubled its operating margin from 4% in 2014 to 8% in 2018. But one important aspect of the plan was an unequivocal failure. Eurowings, born in 2015, was supposed to be Lufthansa’s low-cost answer to low-cost competition. It emerged from its predecessor Germanwings, which was burdened by pilots earning mainline wages. But rather than stabilize earnings in non-hub markets outside of Frankfurt and Munich, Eurowings became a headache in its own right. Last year, it posted a $241m operating loss, resulting in a negative 5% operating margin. After thinking it could break even this year, executives last month said “oops,” Eurowings would again suffer something akin to negative 5%.

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