German airline Deutsche Lufthansa has announced a turnaround plan for Eurowings, saying its budget unit would focus on short-haul services in future.

Deutsche Lufthansa will later transfer the commercial responsibility for Eurowings long-haul services to the network organisation.

Plans include the standardisation of Eurowings fleet on the Airbus A320 family. Brussels Airlines, for which a turnaround plan would be unveiled in the third quarter of 2019, will not be integrated into Eurowings.

Lufthansa expects to see a 15% reduction in Eurowings unit costs by 2022.

Deutsche Lufthansa chairman of the executive board and CEO Carsten Spohr said: “With the airlines in our group, we are excellently positioned in our home markets, which are among the strongest in the world.

“Our group’s service companies are also world leaders in their fields. We want to translate this market strength even more consistently into sustainable profitability and value creation. And it is to this end that we are presenting concrete actions today, which will enhance our efficiency and generate value for our shareholders. Because we don’t just want to be number one for our customers and our employees: we want to be the first choice for our shareholders, too.”

In its revised 2019 full-year outlook, Lufthansa said yields in the European short-haul market are affected by sustained overcapacities caused by carriers who seek to accept significant losses to extend their market share, putting pressure on yields at the Network Airlines and Eurowings.

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The airline estimates unit revenues at Eurowings to decline significantly in the second quarter of 2019. They are estimated to decrease at a mid-single-digit rate in the full year.

Lufthansa is changing its existing dividend policy in order to allow shareholders to take part more substantially in the group’s results.

In future, the group seeks to regularly distribute to 20% to 40% of its net income to shareholders. In the medium term, the group intends to raise its free cash flow to at least €1bn a year.