Lufthansa and Air Berlin to Bolster Long-Haul Flights -- Update
November 11 2015 - 1:00PM
Dow Jones News
By Robert Wall and Archibald Preuschat
German's two largest airlines on Wednesday announced plans to
bolster their long-haul operations, with Deutsche Lufthansa AG
deepening cooperation with Singapore Airlines and the country's No.
2 carrier Air Berlin betting more heavily on U.S. flights.
Both carriers have struggled to implement restructuring measures
that left them financially lagging behind competitors, such as
budget airlines Ryanair and EasyJet in the short-haul market and
British Airways parent International Consolidated Airlines Group in
long-haul.
Lufthansa and Singapore said they would seek antitrust immunity
to form a joint venture to allow them to closely coordinate
schedules and pricing. The tie-up is aimed at ending the loss of
business both carriers have suffered on routes between Asia and
Europe to the rapidly growing Middle East carriers, such as
Emirates Airline and Qatar Airways.
Lufthansa Chief Executive Carsten Spohr called the relationship
"a cornerstone of our Asia strategy."
The two will share revenue on flights between Lufthansa's
Frankfurt, Munich and Zurich hubs and Singapore, as well as on the
Asian carrier's newly announced route to Düsseldorf.
Schedules will also be coordinated for flights beyond those
destinations, giving Lufthansa greater reach into markets such as
Indonesia, Australia and Malaysia. The partnership will also cover
the Lufthansa affiliates Swiss and Austrian and Singapore's
SilkAir.
The German carrier already has joint-venture agreements with
United Continental Holdings Inc. and Air Canada, covering
trans-Atlantic flights, and with All Nippon Airways on Japans
routes. It also is in talks with Air China to establish a similar
arrangement on flights between Germany and China.
Carriers have embraced such joint ventures to gain merger-like
efficiencies at a time when national airline ownership regulators
limit cross-border consolidation.
Lufthansa's problems are far larger, though. The airline is
battling with pilots unions and those of cabin crew to win
concessions over pay and employment terms.
Cabin staff have been on strike since Friday, grounding much of
the airline, with 931 flights canceled Wednesday, or about a third
of the airline's schedule. A similar number of flights is due to be
scratched Thursday after two German courts rejected a request by
the airline to force an end to the labor action. The strike is
poised to last through Friday.
Lufthansa has offered several concessions to unions in recent
days, raising concern with analysts the carrier may not have the
stomach to force through changes considered overdue.
Air Berlin's overhaul aims to streamline operations to focus on
regularly scheduled flights and deliver profitability in 12 to 18
months, Chief Executive Stefan Pichler said in Berlin. He said the
airline's costs are lower than those at rivals.
The airline will grow its long-haul business, adding flights to
Boston, Dallas and San Francisco from Düsseldorf, and promises to
expand cooperating with Oneworld alliance partner American
Airlines. It also is adding frequencies to other U.S. cities to
help win higher-paying business passengers.
The focus on growth will mean Air Berlin will cut fewer jobs
than it projected, said Mr. Pichler, who has been at the helm since
February. He didn't spell out how many positions would be cut.
Air Berlin will also strengthen ties with Etihad Airways an
Alitalia. The Abu Dhabi based airline owns 29.2% of Air Berlin and
has provided financial support the keep the airline afloat. It also
owns 49% of Alitalia.
Cooperation with Etihad is facing headwinds, though, with the
German government threatening to withhold approval of some
code-share flights between the two airlines, which could further
weaken Air Berlin's financial position. Mr. Pichler said not
granting those codeshares could jeopardize his airline.
Debt at the airline was EUR787 million ($844 million) at the end
of September, while shareholder equity was a negative EUR544
million, about 30% worse than at the end of last year. Mr. Pichler
said the company's financing plan would allow it to cover its
obligations, though he declined to say whether this would involve a
fresh injection of funds from Etihad, its largest shareholder.
Natascha Divac contributed to this article.
Write to Robert Wall at robert.wall@wsj.com and Archibald
Preuschat at archibald.preuschat@wsj.com
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(END) Dow Jones Newswires
November 11, 2015 12:45 ET (17:45 GMT)
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