Lauda Air Luftfahrt Ag Business Information, Profile, and History

Company Perspectives:

Lauda Air connects Austria to many paradises on earth with one of the world's most modern aircraft fleets. A rapid growth based on the fruitful, consequent realization of its slogan "Service is our success." But, as all airlines today basically fly equally far, equally quickly, using almost identical aircraft types, Lauda has always strove to make the time spent on board especially enjoyable for its passengers.

History of Lauda Air Luftfahrt Ag

Lauda Air Luftfahrt AG is a unit of Austrian Airlines Group specializing in charters and Far East travel. Founded as a charter airline by Formula One racing legend Niki Lauda, the carrier grew quickly after obtaining the freedom to start long-haul scheduled services to Australia in the late 1980s. Lauda Air carried 1.7 million passengers to 38 destinations in 2000. Charter operations continued to account for a third of revenues.

Born on the Track

Andreas Nikolaus "Niki" Lauda was born the son of a paper factory owner in Austria. At age 18, he began motor racing and won his first Formula One race at age 26. He was eventually named world champion three times. This made him a national hero in Austria, and his fame and hard-driving charisma no doubt helped inspire loyalty from his employees, from whom he was said to expect a "150 percent effort."

Lauda quit racing Ferraris ("driving around in circles") to develop his own airline, which would be called Lauda Air Luftfahrt AG. In 1979, Lauda started flying passengers between Germany and Austria with two small Fokker F27 turboprop airliners.

The young airline quickly accumulated a mountain of debt, prompting Lauda to mortgage his house and return to the racing circuit; he won his third Formula One championship in 1984.

In 1985, the fleet was upgraded with two Boeing 737s, the plane of choice for low-cost start-up airlines. In the same year, Lauda forged a partnership with Greek financier Basile Varvaressos, owner of the ITAS travel agency.

Lauda earned a reputation as an involved manager with a focus on quality and cost control. While price was important, Lauda felt it equally important to differentiate the carrier with top-flight quality. "Service is our success" became the company's motto. The three keys were clean aircraft, good food (gourmet catering by Vienna-based DO & CO), and friendly cabin attendants. Business class service, in a nod to the company's Austrian origins as well as high expectations, was named Amadeus Class.

Lauda began flying from Vienna to Sydney via Bangkok in the late 1980s, its first scheduled long-haul route. This was also the fastest connection between Germany and Australia. Lauda Air obtained a license to operate limited scheduled flights in 1986; worldwide scheduled rights followed in August 1990. These were obtained against stiff opposition from government-controlled Austrian Airlines, then awash in red ink.

Twenty percent of the airline was floated on the Vienna stock market at Sch 210 a share in 1990, with proceeds earmarked to finance new aircraft. The company also started a cargo department in 1990.

In May 1991, Lauda Air lost a Boeing 767 airliner, which crashed in Thailand, killing all 213 passengers and ten crew members aboard. The puzzling accident was attributed to the inexplicable in-flight deployment of a thrust reverser rather than to pilot error.

Partner of Lufthansa in 1993

Lauda Air held strategic partnership talks with Deutsche Lufthansa AG (LH) in the early 1990s. Lauda's Vienna hub and access to Eastern Europe made it strategically attractive to LH. The LH/Lauda pairing was initially seen as a move to counter the aborted Alcazar alliance, which would have linked Austrian Airlines, Swissair, SAS, and KLM.

In July 1992, Lufthansa acquired 26.47 percent of Lauda Air through its Condor charter unit (it bought a 26 percent stake in ITAS at the same time), and a strategic alliance agreement was officially announced in January 1993. The phrase "Partner of Lufthansa" was painted on the tails of Lauda aircraft.

By February 1993, the Lauda fleet numbered eight planes: four Boeing 737s and four long-range 767s. It served Munich, Miami, and Los Angeles using aircraft from Lufthansa's Condor unit. It was also flying cargo and passengers, on a weekly basis, as far as Sydney, Melbourne, Hong Kong, and Bangkok.

After-tax profits were Sch 43 million (U.S.$4.3 million) for the 1992-93 fiscal year. Though nearly 70 percent of passengers were on charter flights, earnings from scheduled and nonscheduled operations were equivalent. Lauda Air had about 700 employees. The founder was still logging 60 hours a month in the cockpit.

Lauda formed a Milan-based subsidiary, Lauda Air S.p.A., in early 1993 as the company launched a charter service linking Italy--with a population of 60 million, a market several times the size of Austria--with tourist destinations in the Caribbean.

In 1994, Lauda Air bought out the 25.9 percent stake held by Basile Varvaressos, the head of the Austrian ITAS travel conglomerate who had been Lauda's long-term partner. In July of that year, the 39.71 percent holding that Condor then held in Lauda Air shifted to its parent, Lufthansa. Niki Lauda personally held an equivalent number of shares, and the remaining 20.58 percent of shares were publicly traded.

By the fall of 1994, Lauda had added another three Boeing 767s, bringing its fleet to 11. Niki Lauda had reduced his own flying hours but was still certified to fly each of the types his namesake carrier operated. Lauda Air then served 42 charter destinations and 11 scheduled destinations.

Lauda Air carried 1.5 million passengers in 1995, half of them business travelers. In 1995, Lauda added four of Bombardier's Canadair Regional Jets (a long range derivative) to its fleet for regional routes, including a new route to Sofia, Bulgaria.

Staff grew to 1,200 employees in 1996. That year, Lauda began deploying its regional jets on unprecedented joint operations with Austrian Airlines to Rome, Nice, and Milan. After-tax profits rose 13 percent, to Sch 53.1 million (U.S.$3.8 million), in the fiscal year ending October 31, 1996.

Austrian Cooperation in 1997

Though it had a population of less than nine million, Austria's central location had 40 competitors flying into Vienna. Seeing a lack of growth potential in the home market, in the late 1990s Austria's three main airlines--Lauda, Austrian Airlines (AUA), and regional carrier Tyrolean Airways (42.8 percent owned by AUA)--began a strategy of cooperation. The three airlines hoped to save as much as $200 million a year through increased sales and combining maintenance, finance, and other operations. The influence of this tripartite grouping was extended through the alliance AUA had with Swissair, Sabena, and Delta, and Lauda's own codeshares, including a new one with Malaysian Airlines System. In March 2000, Lauda and AUA joined the Star Alliance global marketing affiliation led by United Airlines.

AUA was to focus on scheduled traffic on medium and long haul routes, while Tyrolean covered regional and domestic traffic and Lauda focused on charter operations and routes to Australia and Asia. Lauda Air began flying the advanced, long-range Boeing 777 in September 1997. The 777 was financed by AUA, which leased the plane to Lauda.

In the spring of 1997, AUA acquired a 19.7 percent stake in Lauda Air from Lufthansa. AUA also acquired shares from Niki Lauda and from another investor, giving it a 36 percent voting share altogether.

Air Transport World cataloged Lauda Air's style around this time. The planes were named after pop culture icons such as Marilyn Monroe, Elvis Presley, Freddie Mercury of Queen, Bob Marley, and, understandably, Enzo Ferrari. Flight attendants (who faced a mandatory retirement age of 38) wore blue jeans and signature red baseball caps like the one that had become Niki Lauda's trademark since a horrific Grand Prix accident in 1976.

Lauda Out in 2000

In November 2000, AUA announced plans to reorganize Lauda Air following losses from high fuel prices and unfavorable foreign exchange transactions (essentially, failure to hedge against a strong U.S. dollar). Niki Lauda stepped down as chief executive, disputing the extent of the carrier's loss--its first since 1991. AUA officials calculated the loss at Sch 1 billion, about 50 percent higher than Lauda's reckoning.

AUA executive Ferdinand Schmidt succeeded Lauda while remaining CEO of Lauda Air Italy, in which he held a controlling stake. Soon after, AUA bought an additional 11 percent stake in Lauda Air from Lufthansa, raising its total holdings to 47 percent. (I Viaggi del Ventaglio Group, an Italian tour operator, acquired 40 percent of Lauda Air Italy in 2002.)

AUA continued to increased its shareholding in Lauda Air. The Vienna Stock Exchange delisted the stock in August 2001 due to the very low volume of free floating shares.

Lauda Air adopted a new symbol in the fall of 2001, the UFO. The spaceship represented high technology and the shape of things to come. At this time, AUA owned 67 percent of the airline's shares, with 30 percent owned by the Lauda Foundation.

AUA repositioned Lauda Air as a charter line. In April 2002, it was replaced by Rheintalflug, a regional subsidiary of AUA, on its route to the UK (Manchester). Scheduled service to Australia kept the Lauda brand.

Principal Competitors: British Airways plc; Condor Flugdienst GmbH; Deutsche Lufthansa AG; Qantas Airways Limited; Société Air France.

Chronology

• Key Dates:
• 1979: Auto racing legend Niki Lauda launches his own charter airline.
• 1985: ITAS travel agency owner Basile Varvaressos taken on as a partner in the airline.
• 1986: Lauda Air begins limited scheduled operations to Australia.
• 1990: Lauda Air floats on the Vienna stock market.
• 1992: Lufthansa acquires a holding in Lauda Air.
• 1994: Niki Lauda buys out Varvaressos.
• 1997: Austrian Airlines acquires holding in Lauda Air.
• 2000: Niki Lauda steps down as chairman.