Low-cost? Low chance for Air France and Lufthansa

Sun Sep 28, 2014 6:21am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Victoria Bryan

BERLIN (Reuters) - Venerable old airlines Lufthansa (LHAG.DE: Quote) and Air France (AIRF.PA: Quote) know the smart money is in the low-cost market –Ryanair (RYA.I: Quote) raised its forecasts again on Thursday - but powerful labor unions are keeping them from the bounty.

The full-cost airlines were slow to respond to the explosive growth of the likes of Ryanair and easyJet (EZJ.L: Quote) from the late 1990s for fear of cannibalizing their main revenue and because the upstarts were not directly competing on the same routes, and the efforts of Lufthansa and Air France were modest at best.

But now, with half of Europe's air travel market seized by the budget airlines, it is no longer a lack of will or foresight that is holding back the two carriers.

Air France's big plans to expand its Transavia low-cost unit are in trouble due to a costly strike by French pilots who fear the project would mean lower pay and jobs moving elsewhere.

Talks reached an impasse on Saturday, with both the airline's management and the French government rejecting a request from the union for a mediator. The airline said it would be able to operate only 45 percent of flights on Sunday. [ID:nL6N0RS0LK]

Lufthansa, for its part, plans to expand its little-known regional carrier Eurowings, and is considering setting up a new low-cost long-haul arm, but is running into similar headwinds.

Lufthansa said on Thursday that pilots had been unwilling to engage in talks in trying to reduce costs on certain routes to Asia, where it has already agreed cost reductions with cabin crew, catering and maintenance staff. The pilots have also taken strike action this year over retirement benefits.

Industry experts say the pilots haven't grasped the threat to the legacy carriers from low-cost rivals and fast-growing Middle Eastern airlines. Such threats have already prompted both Lufthansa and Air France to cut their earnings expectations this year, while Ryanair basked in its second uptick in two months last week.   Continued...

A Lufthansa aircraft (L) passes by the retired Air France Concorde number 5 on the tarmac of Roissy airport, northern Paris,  March 20, 2008.    REUTERS/Charles Platiau