Why Low-Cost Airlines Are Flocking to Vienna

Until last August, Vienna Airport had not been used to attention. But then the airport’s second-largest customer collapsed — and now it has become a battleground for Europe’s low-cost carriers. It is the demise of the Air Berlin Group, under 2 billion euros of losses, that has been largely responsible for the airport’s newfound popularity as a clutch of carriers attempt to fill the void left by its collapse.

Since last summer, Hungary’s Wizz Air and Level, International Airline Group’s low-cost long-haul airline, have launched out of Vienna, while Lufthansa Group’s Eurowings and IAG’s Vueling have increased their flights from the Austrian capital. After a tortuous process, Ryanair took over Niki, which was part of the Air Berlin Group based in Vienna. Lufthansa then swallowed up the rest of Air Berlin. With easyJet establishing its European operations in Vienna in the wake of the Brexit vote, all of Europe’s major low-cost airlines are now operating out of Austria.

But it’s not just the fall of Air Berlin that has prompted the rush to Vienna. A new incentive from the airport for low-cost carriers, an appealing regulatory environment and Vienna’s booming tourist industry have added to its appeal.

David O’Brien, chief commercial officer of Ryanair, says the airport is “finally incentivizing the basing of aircraft there,” although it remains to a certain degree a high-cost capital-city airport dominated by the Lufthansa Group and particularly its Austrian Airlines subsidiary. József Váradi, CEO of Wizz Air, adds that the airport’s management is now “far more commercial,” and thus willing to attract airlines, than earlier incarnations that relied on the Lufthansa Group, which carried 56 percent of Vienna’s passengers before the collapse of Air Berlin.

Vienna is a very difficult market, or will be a very difficult market.

Lufthansa Group spokesperson

Julian Jäger, the airport’s joint CEO, thinks it is the airport’s volume incentive that has impressed the likes of O’Brien and Váradi. This was introduced in January with the specific intention of attracting low-cost carriers: Airlines that base at least three aircraft at Vienna and grow to more than 750,000 departing passengers a year receive a rebate of 540 euros per 100 people, with more favorable tiers of refunds as passenger numbers climb.

Jäger said the arrival of the low-cost carriers would lead to a 5 percent growth in flights this year and 6 percent in passenger numbers to 25.9 million. Given that the number of flights to and from the airport had been gently dipping since 2010, this is an important change in direction.

The booming tourist industry is another big plus for the airport. Tourism in Vienna grew 4.4 percent to 15.5 million overnight stays in 2017, according to the government.

Vienna also has geographic charms for airlines, according to Jäger, who pointed out that its catchment area contains parts of Slovakia, the Czech Republic and Hungary, and that it acts as a bridge between the continent’s east and west.

However, it is the void left by Air Berlin that has been most significant, paving the way first for the Lufthansa Group to step up its operations and then for Wizz Air to establish a base in Vienna. Wizz Air plans to move three aircraft to the airport this year, accounting for 69 weekly flights. Last month, Level announced it would start flying from Vienna. Willie Walsh, CEO of IAG, which also owns British Airways, said its four aircraft there would grow to 30.

Ryanair’s involvement came through the complex and eventful purchase of Niki, now known as Laudamotion. This followed last month’s decision from the European Commission, allowing the airline to raise its share of Laudamotion from 25 percent to 75 percent, securing its ownership and position at Vienna Airport. IAG, which had also been a bidder for Niki, said that despite not winning, it had been “overwhelmed by the support from the local market,” persuading the group to introduce Level there.

However, Vienna has had its problems and controversies.

Its rejected application for a third runway, later overturned by a higher court, remains contentious, in the eyes of some. O’Brien, for example, is not convinced the third runway is anything more than “an unnecessary expense,” given that London Gatwick has only one runway and handled 21 million more passengers than Vienna.

Andrew Lobbenberg, an analyst at HSBC, also raises the difficulties in making profits at the airport. “We have no doubt that all these carriers will make significant losses in Vienna,” he said in a recent note.

But if it is tough for airlines, competition will bring benefits for passengers with lower fares. A spokesperson for the Lufthansa Group sums up Vienna’s paradoxical attraction: “It’s good for the consumer and it’s a bit hard for the airlines. Vienna is a very difficult market, or will be a very difficult market.”