To set for more consolidation

The latest developments in the German airline industry have set off a flood of speculation about the future strategies of a whole range of passenger carriers.

Air Berlin’s acquisition of DBA means that Germany’s second-largest airline now offers budget flights to European leisure and city destinations, together with mid-priced domestic services. TUI’s decision to merge Hapagfly and HLX will create the third-largest German airline, also with a mix of low-cost and charter flights, although with more of a focus on European holiday destinations and a relatively thin domestic network. Attention is now turning to the future plans of LTU and Condor, with their mix of short-haul and long-haul routes, but also of Germanwings, the Lufthansa group budget carrier.

Following the Air Berlin-DBA deal, LTU stressed that it would remain an operational partner of the two airlines but independent.

But at the same time, managing director and minority shareholder Jürgen Marbach says: “Condor would be the ideal partner for us because we have the same business model.” But he admits this is only a theoretical possibility because of cartel reasons and Condor’s position in the Lufthansa group. Although TUI uses LTU particularly for long-haul flights, there is no prospect of the market leader upping its investment in aircraft, however. “We are open for alliances,” Marbach says.

But the years of searching for a financial investor before ex-DBA owner Hans Rudolf Wöhrl bought a majority holding proved how difficult it is to convince an external investor. First of all, the Düsseldorf-based leisure airline needs to complete its financial turnaround and prove it can operate profitably in order to become an attractive partner. LTU’s main chance lies in long-haul routes where it already has an established operation. Marbach aims to expand the successful USA routes with more flights to Asia and South Africa. One obvious future option would be for Air Berlin to take over LTU, integrate its short-haul routes while leaving the long-haul services under the well-established LTU brand.

The future of Condor, the Thomas Cook in-house carrier and second traditional German charter airline, is also uncertain. KarstadtQuelle is negotiating to buy Lufthansa’s 50% stake in Thomas Cook to gain 100% ownership of Europe’s second-largest travel group. But it is still unclear whether Karstadt, which is not interested in running an airline, will also buy Condor fully or in part. If so, it could then sell the airline on to a financial investor. Observers have speculated that Condor could be brought into a new airline grouping with Hapagfly and HLX. But Lufthansa might not support the prospect of a second strong German competitor emerging alongside the Air Berlin group.

The prospect of Condor and Germanwings moving closer together within the Lufthansa group now appears to be fairly remote, although their business models would be complementary. Experts have frequently predicted that in the long-term, the two airlines could be merged with Germanwings taking over Condor’s short-haul business and Condor concentrating on long-haul leisure routes. This would clearly position them within the Lufthansa group and avoid conflicts with Lufthansa as a full-service network carrier. Germanwings stresses that it is business as usual, although many are awaiting to see what the strategy of incoming CEO Thomas Winkelmann, an ex-Lufthansa North America chief, will be.