Lufthansa Repeats Plan to Break Even With Germanwings

Deutsche Lufthansa AG (LHA), Europe’s second-largest airline, said it wants to turn around its Germanwings unit by next year after moving large parts of its network to the short-haul subsidiary.

“We are planning a break-even in 2015,” Chief Financial Officer Simone Menne said late yesterday at the Hamburg club of business journalists. The airline chose to expand Germanwings rather than surrendering the routes to the likes of low-cost carriers Easyjet Plc (EZJ), Ryanair Holdings Plc (RYA), she said.

Lufthansa is in the process of shifting large parts of its European network to Germanwings after years of losses on shorter routes outside the main Frankfurt and Munich hubs. Europe’s former flag carriers have struggled to make money on short-haul, with Ryanair and Easyjet offering lower fares, coupled with a fresh focus on service that makes the more attractive.

Germanwings is “very, very well positioned” in the domestic market as the unit manages a high frequency of flights from various regional airports, Menne said. In Hamburg, Germanwings will have more competition after EasyJet recently opened a base. Germanwings will add Rome and Prague as well as Thessaloniki, Greece, and Toulouse, from the city this year.

Brussels Challenge

Lufthansa’s Brussels Airlines unit, in which it holds a 45 percent stake, faces strong competition from Easyjet, Ryanair and Vueling Airlines SA at its home base, Menne said.

“The fight of low-costers at the same location will have an impact on Brussels,” the CFO said. “We had planned a break-even in 2015, we must see how the competitive situation evolves in Brussels.”

Brussels posted a loss of 21.95 million euros last year, after a deficit of 59.9 million euros in 2012. Lufthansa has the option of buying the remaining 55 percent in Brussels by 2017, Menne said.

Following the worst strike in Lufthansa history last week, the management plans a “swift solution” with pilots on pension pay, Menne said. Whether the expected “high double digit million” cost from the strike will hurt full-year remains to be seen, she said. It will resume talks with Vereinigung Cockpit pilots union on April 10, airline spokesman Christoph Meier said today.

Keeping Target

For now, Lufthansa will stick to its target to lift operating profit to 2.65 billion euros ($3.65 billion) by 2015, Menne said. The company earned 697 million euros in operating profit for 2013, it said on March 13.

The three-day pilot strike, which ended last Friday, could do “a real damage” to the company if passengers refrain from booking Lufthansa in coming months as they fear disruptions, Menne said.

Like European rivals, Lufthansa has pursued cost and revenue sharing pacts, teaming with United Continental Holdings Inc. on trans-Atlantic flights, All Nippon Airways Co. in the Germany-Japan market and seeking a deal with Air China Ltd. (601111) The company is optimistic that it will reach a joint venture agreement with Air China “in the medium term”, Menne said.

“It is very complex, as we need to agree on routes, conditions and there also cartel issues, which in the Chinese context is a rather long-term issue,” she said.

To contact the reporter on this story: Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net Benedikt Kammel

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