FLUG REVUE September 2003: Wöhrl takes DBA

RESCUE STRATEGY FOR DBA

By Sebastian Steinke

“We are a low-priced airline that operates with high costs.” Such is Hans Rudolf Wöhrl's sarcastic verdict on the present situation of his new company. The financial situation of the consistently loss-making former subsidiary of British Airways (BA), he said, had worsened this spring after the introduction of cheap fares without any matching growth in passenger numbers to such an extent that, after easyJet pulled out of its agreed purchase option, London had decided to close dba down. “The only question at BA was whether it would be at the end of July or after the summer.”

With losses for the financial year 2003 expected to be in the region of €70 to 80 million, the parent company gave up on its long-standing struggle to compete with Deutsche Lufthansa with a subsidiary of its own in Lufthansa's home market. Over the years, BA had ploughed €400 million into the dba experiment, according to its new owner. But, instead of finally shutting up shop, BA decided it was preferable to hand the company over to the German businessman on preferential terms and to spend the funds that would otherwise have gone on liquidating the airline on start-up assistance for the purchaser (see FLUG REVUE 8/2003).

The eloquent Franconian has been at the helm of dba since the beginning of July, and on 9 July he unveiled his entrepreneurial rescue plan to the press in Munich. The first official duty of the new German owner was to abandon the “deutsche” element of the dba logo. Apparently BA's UK patent lawyers had requested this change, but Wöhrl wants to retain the brand-name dba, with its positive connotations.

His strategy for the airline is as simple as it is difficult: tough economy measures in every area of the company are to halve the losses from the level expected for this financial year by March 2004, with a view to breaking even the following year. With present fares and 136 seats available on board, this means that aircraft utilisation must be increased from an average of 60 percent last year to between 72 and 76 percent. The sales target for 2003 is €300 million. According to Wöhrl, “Every day that we carry over 10,000 passengers is a good day.” But if this exercise does not work as planned, then “rather than burning money, [he will] terminate the experiment” and finally close dba down.

So far the airline has managed to escape this fate. Nevertheless, the entrepreneur has challenged the workforce, including the pilots, who are particularly tough negotiators, to accept a surprise cut of approximately 20 percent in their salaries for a year. This “sensational commitment to the company, the greatest story of all as far as I'm concerned”, will save dba Euro 10 million.

The trained retail trader and qualified airline pilot plans to save another six to eight million euro on the financing costs of the sixteen leased Boeing 737-300's. Another major feature of the planned economy measures is the computer reservation system. In this area dba is to save a further Euro 8 million, albeit not until the second year.

On top of this, Wöhrl (“I'm fanatical about economies”) plans to prune every area of the company. He even ostentatiously goes without paper envelopes for his briefing notes and calculates in advance the overall significance of even the smallest successful economy. Wöhrl loves the simplicity of cost-cutting and, in case of doubt, instead of expensive technology he proposes his “IBM” system – “Manual is always better”.

dba is making a striking about-turn as regards its future target group. After the transformation to a no-frills airline that was introduced only recently at the behest of the former take-over candidate, easyJet, Wöhrl is now steering dba clearly back towards the business travel market segment. He wants this customer group to make up at least half of the airline's business. To this end, he will be offering at least three services a day on domestic German routes, and in most cases between seven and eleven, a fully transferable standard fare of €175, vouchers for drinks and sandwiches, high punctuality and an ultra-easy-to-use internet reservation engine. On the other hand, he has decided against a frequent flyer programme, co-operation with Miles&More, membership of an international computer reservation system or expensive in-flight communications electronics.

At off-peak periods, he plans to fill the remaining seats with quotas of cheap fares from €25. However, passengers who take up these seats will have to pay for their inflight refreshments separately. Wöhrl expects the typical business customer to go for a combination of the “expensive” €175 fare in one direction and a cheap off-peak flight in the opposite direction. The revamped “dba – the best on offer” website is to be launched in August. Here, flexible bargain hunters will be able to work out the lowest fare in each case over a selection period of several days.

Assuming that dba survives the first year, Wöhrl is already making plans for the future. Instead of a leased fleet, for tax reasons he is planning to purchase his own 130+ seat aircraft. In response to a question from FLUG REVUE, Wöhrl amplified this to say that Airbus had offered a number of options, but the question of manufacturer was still completely open. However, if he were to change supplier, there would be a complete changeover. The fleet might be expanded by two to four additional jets as early as the summer schedule 2004.

Wöhrl is already thinking about the new routes that these planes might fly. Many holiday destinations like Majorca he regards as already sewn up. The textiles entrepreneur is therefore more inclined to operate scheduled services between Marseilles, Lyon, Paris, London and “in the Eastern bloc” to Moscow. He already has his eye on some internal German routes, possibly between Stuttgart and Hamburg.

In the medium term, he believes that dba will have to grow significantly, as its basic structure had been designed by BA for a fleet of 25 aircraft and six million passengers per year. The main cause of the chronic losses was the fact that its current size was only 16 aircraft. Fortunately, dba is not encumbered with excessive bureaucracy, but employs only 50 purely administrative staff who have nothing directly to do with the flying or technical side of the business. Through internal reorganisations he plans to replace all the staff previously engaged on purely BA work, which is no longer required. “Exceptions are unavoidable,” Wöhrl adds, referring to redundancies in the administrative area.

At the press conference, Wöhrl reserved his most pointed words for his powerful competitor, Lufthansa. If Lufthansa were to attempt to attack dba with cut-throat prices, he would not hesitate to call in the German Federal Cartel Authority. As an independent small businessmen, he demanded more protection against such attacks than had been granted to the industry giant BA in its struggle with Lufthansa. Politicians should not sacrifice his initiative to rescue dba out of preference for a company partly owned by the state (Lufthansa). “The issue is not me,” he added, “but freedom in the German skies.”

From FLUG REVUE 9/2003

Last updated 11 August 2003

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