Austrian Airlines has passed a resolution to cut four Airbus A330 aircraft to achieve fundamental consolidation of the flag carrier’s long-haul fleet.In an Extraordinary Meeting held on 1 November 2006, the Supervisory Board of Austrian Airlines AG has approved the proposal of the Board of Management to cut the Airbus A330 fleet, which consists of four long-haul aircraft, starting in 2007.

In prior agreement with the Committee of the Supervisory Board, the Board of Management submitted the proposal to accelerate further the optimisation of the Austrian Group within the scope of current budget preparations and the amendment of the medium-term corporate plan in an effort to drive forward a consistent and positive results trend.

The measures already introduced will provide for the concentration of the entire Fokker fleet within Austrian arrows (by transferring to Austrian arrows the three Fokker 70 currently operated by Austrian) and the sale of the two remaining four-engined Airbus A340-300 in 2007. In addition to this, the decision has now been reached to cut the Airbus A330 fleet out of the Group’s long-haul capacities and to begin with the commercial realisation of the four aircraft as rapidly as possible, so completing an important step in the process of fleet harmonisation.

As a result, the Austrian long-haul fleet in future will consist of a homogenous Boeing B777 and B767 fleet already equipped with the extended and redesigned Business Class, complete with the comfortable lie-flat sleeper seats.

During the preparation of the quarterly balance sheet, the results of the new traffic flow system clearly showed that the Austrian long-haul programme has come under increasing commercial pressure compared to the previous year, and that this trend has produced negative results, particularly on routes with a low proportion of direct traffic. The main reason for this is a low market and economic potential of individual routes from and to Austria, even when increased catchment areas are taken into consideration. For this reason, management now views a strategic and operational repositioning of the entire long-haul programme as an unavoidable focus for the restructuring of the Austrian Group.

The cut of the A330 fleet will streamline the Austrian long-haul route network. In concrete terms, scheduled services to Shanghai will be terminated from 7 January 2007, flights to Phuket, Mauritius and Colombo/Male from the end of April, and those to Kathmandu in May 2007. Lauda Air will withdraw from the long-haul charter segment in 2007. The routes to the cities of Karachi in Pakistan and Chennai (Madras) in India that have been under evaluation in recent month will not now be opened up. The new US destination Chicago will be incorporated into the network from 29 May 2007.

Austrian Chief Executive Officer Alfred ?-tsch made the following statement on the new drive towards group restructuring: “Since assuming my position, I have striven to implement the restructuring of the Austrian Group that is necessary to produce a positive results trend in the form of optimisation, without introducing severe measures. The current economic situation, however and primarily the capital increase, now demand that we fundamentally restructure low-revenue productions. The capital increase gives us the chance to accelerate our programme of improvements, but only on the precondition that we ourselves create strong foundations for profitable growth and consistently eliminate loss-making routes.

In agreement with the Supervisory Board, therefore, we have decided to introduce medium- and long-term production adjustments in the form of genuine restructuring steps above and beyond the short-term measures of concentrating the entire Fokker fleet within Austrian arrows and selling the two remaining Airbus A340. Another motivation for taking this step at this point is the increased demand in the market for long-haul aircraft at present due to the delivery delays for the Airbus A380, which will enable us to dispose of our Airbus A330 aircraft at better conditions. As consequence of these restructuring measures we expect - based on the losses accumulated in the current year on the respective routes - a positive contribution up to EUR 40m per year, which will - according to our assumption - reach its full-year effect as of 2009, after cutback of costs related to these measures.

The reductions in personnel in Austrian Flight Operations and the commercial-technical divisions that will accompany the disposal of the Airbus long-haul fleet, the details and timeframe of which are currently being agreed, will be implemented with highest social responsibility. ‘Soft’ measures such as part-time working and the leasing out of personnel will be exhausted wherever possible in an effort to minimise the proportion of redundancies actually necessary. Employees whose activities are directly or indirectly dependent upon the Airbus A330 fleet will receive attractive redundancy settlement offers within the framework of a social plan. In this way, we intend to provide as much of a social cushion as possible, easing the personal situation of those employees, who will unfortunately have to leave the company. It is mutually agreed not to talk about any specific personnel figures as long as we are negotiating solutions with the staff representatives.

Our passenger mix shows that the fundamental contribution of the Austrian Airlines Group to the transport quality of Austria as a business location lies in our continental medium-haul network, with the focus on Eastern Europe. The share of passengers who transfer from our current long-haul network into our medium-haul is 14 %, and only supplies an 7 % share of our revenue.

Against the background of the losses we currently generate on sections of our long-haul programme and the relatively low contribution of the long-haul segment to our European traffic system, this consolidation will lay the foundations for a structural readjustment, close to the diagnosis of the problem.

In our future long-haul product, we shall concentrate on routes offering stable direct traffic share and with it higher revenue potential when measured on the strength of intensive Austrian business links and existing tourism flows.”
——-