Lufthansa Deal

And Then There Was One

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The takeover is complete. Source: Reuters

Lufthansa formally agreed to buy a large part of bankrupt rival Air Berlin on Thursday, sending its shares soaring but raising questions about how consumers will fare in a country serviced primarily by just one airline.

“It is now clear that our hard struggle to achieve competitiveness and growth has paid off,” Lufthansa CEO Carsten Spohr told Handelsblatt in an interview. He predicted that Lufthansa would become one of three airline groups that emerge to control European air travel in the same way that Delta, United and American now control the U.S. market.

Shares in Lufthansa, buoyed by investors who took a positive view of the airline’s near-monoply status in Germany, were up nearly 3 percent, at 25.50 Monday. The stock has climbed from 9.95 euros a year ago, a gain of 156 percent. Lufthansa’a performance helped send the DAX index of the top 30 German stocks over the 13,000 mark for the first time.

 

“Air Berlin provided Lufthansa with a good competitor and when this is no longer the case, consumers will be at a disadvantage.”

Felix Methmann, travel expert at German Consumer Association

Lufthansa said it would acquire 81 of Air Berlin’s aircraft, as well as buying discount carriers Niki and LGW from Air Berlin for €210 million ($248 million). The airline is already leasing 30 jets and their crews from Air Berlin, which filed for bankruptcy August 15 after Middle East airline Etihad, which owned a one-third stake, stopped providing financing. The airline’s final flight will be October 28.

Lufthansa’s purchase must still be approved by European competition authorities in Brussels. While the stock market rejoiced about the deal, consumers were not so enthusiastic about the end of competition. A passenger wanting to fly from Germany to Vienna now has four main options: Lufthansa, Austrian, Eurowings and Niki, all owned or controlled by the Lufthansa group.

“From the point of view of the customer, it’s not the best thing for Lufthansa to incorporate so much of Air Berlin,” said Felix Methmann, a travel expert at Germany’s Central Consumer Association. “Air Berlin provided Lufthansa with a good competitor and when this is no longer the case, consumers will be at a disadvantage.”

The internet portal compare.org looked at 40 air routes in Germany that have either one or two carriers offering regularly scheduled flights. It found that the flights on the single carrier legs cost about 10 percent more than those with two carriers. “We therefore concluded that ticket prices will increase as a whole after the Air Berlin bankruptcy,” said Clemens Polywka, who headed the study at the portal.

Even Lufthansa acknowledges that prices on some flights will rise, arguing that Etihad subsidies allowed Air Berlin to fly some routes at a loss, which will no longer be the case.

But Lufthansa’s CEO said it was likely that competition will increase with foreign rivals such as Ireland-based Ryanair, even suggesting that the Eurowings subsidiary will act independently in setting prices and can undercut Lufthansa. “I am sure we will experience even stiffer competition from healthy airlines,” Mr. Spohr said.

He said that Lufthansa will invest €1.5 billion in Eurowings, building it up to become the third largest low-cost airline in Europe after Ryanair and Britain’s EasyJet.

The sale on Thursday of Air Berlin’s main assets left open the possibility that another airline will come in to buy the remainder of the company’s domestic German routes. The field had narrowed to just two airlines – Lufthansa and EasyJet – when the British airline suddenly pulled out of the talks last week. That followed speculation that EasyJet was moving instead to quickly bid on planes and crew from Monarch Airlines, a low-cost carrier that went bankrupt in Britain last week, another victim of Europe’s cutthroat airline competition.

The only other candidate for the German routes is Condor, a leisure airline owned by Britain’s Thomas Cook and now the second largest airline in Germany. Condor mostly flies from German cities to Mediterranean holiday resorts.

The purchase of Air Berlin’s assets was the second coup for Mr. Spohr this week. On Tuesday, Lufthansa reached a contract agreement with Cockpit, the German pilots’ union, which will presumably end a series of strikes that have dogged the airline in recent months. The contract will allow him to cut salaries by 15 percent at Lufthansa, in line with lower salaries already in place at Eurowings.

This story was adapted for Handelsblatt Global by Charles Wallace, an editor for Handelsblatt Global in New York. Sven Afhüppe is the co-editor-in-chief of Handelsblatt, Jens Koenen leads Handelsblatt’s coverage of the aviation industry, and Grischa Brower-Rabinowitsch is head of Handelsblatt’s companies and markets section. To contact the authors: afhueppe@handelsblatt.com, koenen@handelsblatt.com, and brower@handelsblatt.com.


 

 

 

 

 

 

 

 

 

 

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