Lufthansa revamps budget airline Germanwings to take on rivals

Mon Jul 1, 2013 10:16am EDT
 
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By Marilyn Gerlach

FRANKFURT (Reuters) - Lufthansa (LHAG.DE: Quote), Europe's biggest airline, launched its re-branded budget carrier Germanwings on Monday in an attempt to cut costs and win back passengers from no-frills rivals.

Germanwings, which is taking over most of Lufthansa's short-haul flights in Europe, is seeking to re-position itself as a budget airline for business travelers offering extras such as champagne and more leg-room.

Lufthansa shut its short-haul business in January because it had been losing money, mainly due to competition from budget airlines EasyJet (EZJ.L: Quote), Air Berlin (AB1.DE: Quote) and Ryanair RYA.I.

The Germanwings revamp is a major part of Lufthansa's three-year overhaul to boost group operating profit by 1.5 billion euros ($1.95 billion)to 2.3 billion by 2015. Like other European airlines, Lufthansa has been hit by competition from low-cost rivals and Middle Eastern carriers.

Lufthansa, Europe's biggest airline by sales, is in the process of transferring 800 of its cabin crew and 30 planes to Germanwings, where costs are 20-30 percent lower.

Carsten Spohr, a Lufthansa board member, said Germanwings' costs had to be on a par with other budget carriers and raised the possibility of dropping uncompetitive routes.

"If at some point that is no longer the case, and even if that were only true for some routes, then we have to withdraw possibly from such routes or even from operational bases. We don't want that of course and we have to prevent that," he said in an interview published on Monday by newspaper Stuttgarter Zeitung.

The result of pay talks with cabin crew could increase costs, which analysts estimate are still higher than those at EasyJet and Ryanair, but likely similar to Air Berlin's.   Continued...

 
The tails of German air carrier Lufthansa aircraft are seen at Fraport airport in Frankfurt May 6, 2013. REUTERS/Lisi Niesner