Lufthansa’s Austrian Flop Draws Airline to More Joint Ventures

Deutsche Lufthansa AG (LHA) said the disappointing returns of its Austrian Airlines subsidiary are reinforcing the carrier’s commitment to target partnerships over outright takeovers to help expand its route network.

Lufthansa has announced a partnership with All Nippon Airways Co. (9202) on Japan-Germany flights to share costs and coordinate fares, and the carrier is seeking regulator approval for a trans-Atlantic joint venture with United Continental Holdings Inc. (UAL) Similar tie-ups may follow, said Isabel Todenhoefer, who oversees mergers and acquisitions at Lufthansa.

“We expect that in the coming years we’ll be able to consolidate further, away from our European markets,” Todenhoefer said at a conference in Dusseldorf today. “In 2009, we thought traffic in eastern Europe would explode. That clearly didn’t happen.”

Lufthansa’s Austrian subsidiary had sought to capitalize on travel demand in Europe, which didn’t materialise as predicted amid sluggish economic growth, according to Todenhoefer. Passenger growth at Austrian was 1.8 percent last year, trailing the 2.4 percent carried by the group and 3 percent by the Swiss division.

Lufthansa has been discussing closer ties with Turkish Airlines since at least November, as the company explores deeper ties with carriers serving the booming Gulf region. The airlines are members of the Star Alliance, and are partners in the Antalya-based Turkish low-cost carrier SunExpress.

“When it comes to traffic flows, we see much more coming from Asia, Africa and the Middle East and we hope to participate in that growth,” Todenhoefer said.

Lufthansa is still working on a sale of parts of its LSG Sky Chefs catering business, though there is no immediate deadline for a transaction, Todenhoefer said. The Lufthansa Technik maintenance and repair unit adds value beyond merely contributing earnings, Todenhoefer said.

“We think the fact that we have it and it’s No. 1 in its business provides the aura of safety and security the airline needs,” she said.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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