Lufthansa, TUI combine to float low cost airline

31 January, 2008:

German travel group TUI and Lufthansa have teamed up to float a new low-cost airline.

A report from Germany said that TUI and Lufthansa have already taken the initiative a step ahead by signing a letter of intent for a merger of TUI Travel, Hapag-Lloyd and Hapag-Lloyd Express with Lufthansa units Germanwings and Eurowings. It is expectedthat TUI and Lufthansa would each own 40 per cent, while Albrecht Knauf, who is a partner with Lufthansa in Germanwings and Eurowings, will hold a significant stake in the new entity.

Analysts have opined that Air Berlin, a fast growing airline, is seen as a target of the TUI-Lufthansa merger. It is believed that Lufthansa does not want Air Berlin to become the dominant German player in the lucrative niche market. Foreign players such as Ryanair and EasyJet have already made a breakthrough into the German air-travel market.

The TUI-Lufthansa deal, if it really takes off, would see the new entity transporting about 30 million passengers a year, which will be close to what Air Berlin does now. Lufthansa is way ahead boasting of 56.4 million passengers a year.

Meanwhile, TUI could be the main beneficiary of the new carrier combine. Its air transport unit has struggled while the general tour operator activities
were profitable. TUI hopes to finalise a deal with Lufthansa by mid-2009.

Lufthansa is transferring some pilots to the new group to save on labour costs in the process. It has also decided on a 5.5 per cent pay hike, agreeing to the demands of the workers union, Cockpit. The deal would be come as manna to as many as 4,400 pilots as they stand the chance of pocketing a one-time bonus equivalent to one-quarter of their monthly salary.






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