New Lufthansa CEO may step up challenge to low-cost rivals

Mon Jul 7, 2014 11:58am EDT
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By Victoria Bryan and Peter Maushagen

BERLIN/FRANKFURT (Reuters) - With state-owned Gulf airlines and low-cost rivals poaching more of its customers, Germany's biggest airline Lufthansa (LHAG.DE: Quote) may have decided it has little choice but to join them.

New Chief Executive Carsten Spohr will say this week how he aims to win back investors after a profit warning knocked $2 billion off Lufthansa's market value. A new round of cost cuts, a deeper push into cheaper no-frills services or a possible alliance with a Middle Eastern airline could be on the menu.

All would mark a shift for a company that has its own low-cost division but still prides itself on being a full-service airline distinct from the likes of Ryanair (RYA.I: Quote) and easyJet (EZJ.L: Quote) and has accused the state-owned Gulf airlines of distorting the market.

Lufthansa has said plans by Etihad of the United Arab Emirates to take stakes in ailing European carriers Air Berlin and Alitalia amount to part-nationalization.

Analysts are now calling for Lufthansa to work more closely with airlines it has criticized the most.

"If you can't beat them, join them," said Jonathan Wober, chief financial analyst of independent aviation market analysis group CAPA. "Probably at some point they need to find a way of embracing the Gulf airlines or Turkish Airlines (THYAO.IS: Quote) in a partnership, although that's easier said than done."

Other large airlines have struck various alliances with the Middle Eastern carriers that are investing heavily to funnel more passengers through fast-growing hubs halfway between European and Asian markets.

Air France (AIRF.PA: Quote) and British Airways (ICAG.L: Quote) already work with Etihad and Qatar Airways, while Emirates [EMIRA.UL] partners with Qantas (QAN.AX: Quote), a member of the OneWorld alliance that competes with Lufthansa's Star Alliance.   Continued...

New CEO of German air carrier Lufthansa Carsten Spohr delivers a speech on the occasion of a baptizing ceremony of a Boeing 747-8 Intercontinental at the ILA Berlin Air Show in Selchow May 22, 2014. REUTERS/Tobias Schwarz