Lufthansa Long Haul About to Go Low Cost: Big Mistake?

Lufthansa is considering a new low cost long haul subsidiary that may fly Airbus A330s.

The yet-to-be-named subsidiary, which is part of the Wings concept, would operate up to seven Airbus A330-300s. It will begin operations in fall 2015 with three aircraft in Munich, Düsseldorf or Cologne to take advantage of above-average growth in the leisure travel segment and round out the Lufthansa Group of airlines’ current route networks.

..Lufthansa is building on a new strategy to expand its LCC platform, Wings, which could include Germanwings, Eurowings and the new long-haul LCC returning to A320 operations to focus on direct point-to-point flights within Europe.

I’ve never seen a wholly owned low cost carrier subsidiary that has actually worked, outside of Asia Pacific. (Think TED, MetroJet, Continental Lite.)

In fairness, Jetstar (Qantas), FlyDubai (Government of Dubai launched, not technically part of Emirates Group), and Scoot (Singapore) do reasonably well enough.

But i’m not sure the Middle East or Asia Pacific experience is generalizable to Europe (or the U.S.) considering the speed at which Asian markets have been growing.

I don’t view this play as a long-term plan to grow out a low cost carrier within the larger airline. It’s just as likely a way to reduce labor costs for the entire organization.

Air France has been enduring strikes because they’re directly trying to negotiate givebacks from labor. That doesn’t play well in France, or in many of the countries in which Lufthansa operates. But if you essentially build out an operation where the existing employees get to keep their wages and perks, while new employees (initially at the separate low cost carrier) get paid less, the theory goes that over time you can reduce your labor cost. Once your lower paid workers outnumber your older more expensive ones though you probably get friction, but they’re starting off from a lower base.

My read is that this is a long-term labor play for the whole enterprise, even if the operations they build out get swallowed up by one of their larger operations eventually. In that way it’s a different beast from Jetstar and FlyDubai.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Have you not heard of Air Canada Rouge, or does their solid performance not fit with your “wholly owned LCCs don’t work outside of Asia” narrative?
    And why are you comparing TED, which was a short haul domestic US carrier with a long haul LCC? Completely different animals, not to mention TED employees had same pay as mainline employees.

  2. This is nearly a complete copy of AC Rouge, which has been producing huge returns for AC. They’ve gone in to long abandoned markets with reasonable fares using aircraft they’d otherwise dispose of, and are being rewarded with 85%+ LF and growing profit.

  3. Alitalia did this years ago with Alitalia TEAM, which was essentially the AZ operation staffed with cheaper labor. Wasn’t much of a difference from a pax perspective. Will be interesting to see if LH adopts a low-cost model or a low-fare model (a la DY). I would suggest the latter could damage the LH brand if not executed properly.

  4. LX is already using this model successfully via Swiss. They have a wholly-owned low-cost leisure travel airline called Edelweiss. I’ve flown them from TPA-ZRH and they have a pretty decent product. If LX can reproduce this from Germany it should do pretty well.

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