Lufthansa braces for battle with budget rivals in home market

BERLIN - Reuters

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German airline Lufthansa said on July 30 it saw no let-up in the pressure on fares in Europe, mainly as budget carriers like Ryanair move in on its home market.,

Europe’s largest aviation group by revenue is in the midst of a restructuring as it tries to remain competitive not only against fast-growing budget rivals on short-haul routes, but also carriers such as Emirates and Turkish Airlines on long-haul routes.

Ryanair, Europe’s largest airline by passenger numbers, said earlier this week it plans to slash winter fares as it bids to carry an extra 12 million passengers this year.

Lufthansa has already seen a fall over the last 18 months in overall yields, an indicator of average fares achieved, including a 5.7 percent drop in the second quarter alone. In Europe yields fell 6.1 percent in the quarter.

And there is no let up in sight, Lufthansa Finance Chief Simone Menne said on July 30 after the group reported a better than expected 50 percent increase in its second-quarter core profit, helped by lower fuel costs.

“The competitive situation in Germany, as you can see from our rivals, is getting tougher,” she said.

In order to compete, Lufthansa is expanding its Eurowings low-cost unit and has introduced a new fare structure that brings tickets more into line with the likes of Ryanair and easyJet.

But Ryanair has its own plans for the German market, where budget carriers have been slower to gain share than in other countries due to the dominance of Lufthansa and Air Berlin.

Ryanair, which has previously said it wants to increase its market share to over 15 percent from the 4 percent it has now, will open a sixth German base in Berlin in September and start a four-times-a-day service between Berlin and Cologne, one of Lufthansa’s major domestic routes, from this winter.

“We are optimistic we are able to compete, we do not expect we will make losses on this route despite the entry of Ryanair,” Menne told analysts.

The Eurowings expansion plans were part of the reason for a series of pilot strikes over the last 18 months.

But the VC pilots’ union last week proposed conducting a market study and then basing a pay deal for Eurowings pilots’ on salaries at easyJet.

Rival Air France-KLM is also struggling to agree with pilots on a way to bring down costs.

Despite the pressure, Lufthansa confirmed its forecast for adjusted earnings before interest and tax of over 1.5 billion euros ($1.7 billion) this year, excluding the effects of strikes.