Group Breakup Would Hurt Fight Against Emirates, Turkish, Chinese And U.S. Airlines

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The Lufthansa Group’s first objective is to emerge from the COVID-19 crisis in tact as a single airline group without a breakup of any members.

CEO Carsten Spohr said only the current group structure will allow its individual airlines to compete against global carriers including Emirates, Qatar Airways and Turkish Airlines.

“We want to keep the Lufthansa Group and European airline group together, whatever the scenario,” Spohr said at its annual meeting, or hauptversammlung. “That is our overarching goal.”

There is greater imperative as government aid benefits airlines in the world’s two largest aviation markets.

“Competitors in the U.S. or China are now getting in great shape with state support,” Spohr said.

Most airlines are only receiving loans, but the U.S. provisioned $25 billion of direct grants to passenger airlines. The grants cover payroll expenses and do not need to be repaid. China has not yet specified comprehensive aid.

A third category of airlines is a usual thorn for Lufthansa: super-connector airlines in the Middle East, a group that typically includes Emirates, Etihad and Qatar Airways.

Turkish Airlines, whose capital contains the Bosporus, is sometimes considered the “fourth” Gulf airline because of its large connecting traffic.

“If we want to compete globally against three major airline groups in the U.S., China and the Gulf Region and the Bosporus, then we will be able to do so only as a European airline group,” Spohr said.

Discussion of breaking up a European airline group has been in the context of the more profitable KLM leaving the structurally weaker Air France, a debate that started before COVID-19.

IAG is seeing discord from some British Airways staff after the carrier announced up to 12,000 redundancies – a quarter of its workforce – despite British Airways making an outsized contribution to group profitability.

There is far less talk of any airline leaving the Lufthansa Group. But there have been signs of aeropolitical friction as countries worry local airlines feed Lufthansa’s hubs in Germany, where the group is headquartered.

Austrian Airlines this year decried local authorities allowing Etihad to open a flight to Vienna. Low-cost airlines rapidly grew in Vienna in part because of local incentives. Austria appears frustrated Austrian Airlines has had little long-haul expansion while shifting some short-haul flying to Lufthansa.

The Swiss government may have had initial hesitations about providing aid to Swiss International Air Lines, owned by Lufthansa in Germany. But Spohr said the state told him it will be the main guarantor of loans to Swiss and Edelweiss. Spohr expects the Swiss parliament to formally approve the aid in early May.

The global airline aid examples may bolster Spohr’s ongoing “intensive” talks with governments for support.

“It is all the more important now that international competition not be distorted by differing types and scopes of state aid,” Spohr said.

Reports about Lufthansa’s aid package, or staatshilfe, have suggested loans. While Spohr did not publicly suggest alternatives, he exercised caution about loans. “We cannot allow ourselves to become heavily indebted,” he said. “That would paralyze us for years.”

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