Lufthansa Adds Germanwings Routes as Low-Cost Unit Cuts Expenses

Deutsche Lufthansa AG (LHA)’s Germanwings discount subsidiary is adding aircraft on routes where the German carrier previously lost money as it benefits from lower costs.

The airline, which operates at as much as 30 percent lower costs than Lufthansa, has begun taking over the parent’s network in Stuttgart, with stations including Dusseldorf, Hamburg, Berlin and Cologne to follow. Germanwings plans to eventually operate Lufthansa’s European short-haul routes outside the airline’s main hubs in Frankfurt and Munich.

“We have more planes in Stuttgart today than 5 years ago, as the transformation to Germanwings allowed us to operate routes profitably that had been loss-making for many years,” Carsten Spohr, a board member at Lufthansa who is responsible for the companay’s passenger airlines business, told reporters in Hamburg today. “The size of our fleet depends on the number of routes we can fly profitably.”

Beefing up Germanwings, founded in 2002, is the central project of an efficiency push that plans to increase Lufthansa’s operating profit to 2.3 billion euros ($3 billion) by 2015. The airline’s European short-haul operations had caused as much as 300 million euros in losses in past years, more than eating up profit generated on long-haul routes last year.

The move will create a low cost carrier operating 87 planes, competing with Ryanair Holdings Plc (RYA) and Easyjet Plc (EZJ), Spohr said. The unit will take over about 10 percent of Lufthansa’s sales, 20 percent of its passengers and 30 percent of its fleet in Europe, he said.

Unlike Lufthansa, Germanwings is selling sizable parts of its capacity to tour operators. This year, demand has been “especially strong” for such services, resulting in Lufthansa selling more than 1,000 flights, the manager said.

To contact the reporters on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net; Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net

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

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