Lauda finds a successful airline formula: Julia Bright on the ex-racing ace's Lufthansa deal
Monday 20 July 1992
Mr Lauda has planned just such a partnership with a larger, well- run European airline for some time to strengthen the Austrian Lauda Air's position in the market. Top of his list were Lufthansa, and British Airways, of which he says: 'They have the edge on everyone else because they have the best systems.'
But Lufthansa makes good sense as a partner - the countries are neighbours, both German- speaking and with similar markets.
'We have brought to Lufthansa a low-cost operation. On the other hand Lufthansa has economies of scale which are useful to us. But,' stresses Mr Lauda, 'we retain our integrity and independence.'
The airline he founded seven years ago with two Fokker P27s, and built up in the face of strong opposition from the state-owned Austrian Airlines, is on target and will make dollars 3m ( pounds 1.56m) profit when the full year ends in October on dollars 150m turnover. Last year, it lost dollars 800,000 (on dollars 140m turnover) becauseof the initial impact on bookings of the crash of one of its Boeing 767s in Thailand a year ago, when 223 people were killed.
The former Formula 1 racing driver, who was himself nearly killed in the German Grand Prix in 1976 when he suffered appalling burns, does not hesitate as to which was the worst day of his life. 'My own crash was no problem whatsoever because I was only in charge of my own life. I took the risk to be a racing driver. The Boeing 767 accident was a completely different thing. People buy a ticket to fly from Bangkok to Vienna, and they don't arrive.'
From the start, Mr Lauda, who impressed everyone by his demeanour and handling of the tragedy, was convinced the fault was mechanical, but he spent a year trying to find out the facts. The thrust reverse system was discovered to have been faulty. It inexplicably deployed in the air, causing the plane to lose control. Now Boeing has modified its planes completely and certification criteria have altered so the accident can never be repeated.
Mr Lauda had already made up his mind at the time of the crash that should his company be proved negligent in any way, he would quit the airline scene.
Twenty per cent of his airline's shares have been quoted on the Austrian exchange since 1990. The shares are about 20 per cent down on the issue price. Of the remaining 80 per cent, Mr Lauda owns just over half. Itas, the biggest tour operator in Austria, owns the balance; and Mr Lauda owns 49 per cent of Itas.
This gives him an enormous advantage - if there is a downturn in scheduled business he can simply tailor demand, ring up his Itas partner, Basile Varvaressos, and tie in his fleet to the charter business - which accounts for half the airline's profits. 'This means our planes fly 16 hours every day, more than any other airline I know. The cost to Lauda per seat is less and we can offer improved quality for less money.'
Mr Lauda says that he is selling on quality. 'If I can make sure that I can sell a better seat for a reasonable price that passenger is guaranteed to come back.' His new Amadeus business class arrives with the delivery of two new Boeing 767s later this year, bringing the total fleet to eight (four 737s and four 767s). 'We designed the French-made stretchout seats ourselves - they are the best business-class seats anywhere in the world,' he says.
He says you do not need to be a genius to run an airline. 'You must be aware, and concentrate on the quality of the product, while controlling costs.'
Two years ago he won his final battle against the Austrian authorities and was given permission to fly scheduled flights worldwide, having first been granted a charter concession and, in 1986, limited scheduled rights.
Lauda Air now flies scheduled flights to Hong Kong, Sydney, Melbourne, Phuket, Seoul, Bangkok and Miami - and five times to London each week. Next year Los Angeles will be added to the routes.
There has been no communication with Austrian Airlines for a long time. 'There is really no conflict because we are generally competing for different routes. They have said for 10 years that we are not competitors,' says Mr Lauda. 'But on long haul they fly only to New York, Tokyo and Johannesburg. We were the first long-haul carrier in Austria - flying to Sydney when they didn't even think about flying to New York.'
Although there might seem to be a similarity between Lauda Air and Richard Branson's Virgin Atlantic, Mr Lauda believes his situation is rather different. 'Austrian Airlines is a small carrier in the world of big airlines and not very aggressive. Branson has to fight British Airways, which is a very profitable and good airline.
'Then he has the large American airlines such as United, Delta, and American to battle with. But we both have the same approach and I admire him because he, first of all, set new standards in flying.'
Mr Lauda points out the advantages of being a small airline, which allows for much greater flexibility. 'I have no union problems and a motivated team that I can turn around every day. If someone has a problem we sort it out. When we want to do something new, we sit and talk about it and think of the best way logically to achieve it. By the time big airlines invent something we have been doing it for years,' he says.
Mr Lauda is a workaholic. His spare time is spent acting as a consultant to Ferrari to help its Formula 1 team win a Grand Prix.
His Viennese apartment overlooks the Opera House, but that is not, apparently, an inspiration. 'I went once when I was 16, and sat there for four hours through the Meistersingers von Nurenburg. I said: 'I am never coming here again' - and I haven't'
Among his betes noires are bankers, whom he avoids as far as possible. 'You get on with one, then find another is already working against you. The best thing is to run your own show in a financially sound way and never get into a situation where you have to ask for something from a bank.'
The latest deal with Lufthansa seems to be evidence of that.
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