Consolidation is hotting up with germanwings, eurowings and TUIfly planning to merge
Plans to merge the operations of germanwings, eurowings and TUIfly mark the beginning of the next chapter in the German airline consolidation story, and could lead to the creation of a significant rival to Air Berlin.
In late January, tour operator TUI Travel announced that it had entered talks and signed a memorandum of understanding with Lufthansa and the majority owner of eurowings with the aim of merging eurowings and its wholly-owned subsidiary germanwings with TUIfly. Eurowings is 51% held by Albrecht Knauf and 49% held by Lufthansa, but Lufthansa holds just shy of 100% of its voting rights.
If the merger goes ahead it will create a much stronger airline that would be just ahead of Air Berlin in terms of number of flights (see chart), annual passenger or aircraft numbers. Combining the activities of these three carriers would create an airline with a fleet of over 100 aircraft and a network of almost 200 destinations. In contrast the Air Berlin Group, which includes dba, LTU and stakes in Belair and Niki, operates just over 130 aircraft.
Uwe Weinreich, an airline analyst with HypoVereinsbank, says the proposed merger is a "logical consequence, given the acquisition of dba and LTU, and the planned acquisition of Condor by Air Berlin", and represents a "continuation of the concentration process". He adds that TUI was under pressure after the announcement of the Condor acquisition to do something to compete against Air Berlin.
"TUIfly was very price aggressive at the beginning of 2007 but they couldn't fill their aircraft, so this was a logical aim for TUI," says Weinreich, who believes TUI approached Lufthansa rather than vice versa because TUI has more to gain from the deal, which would have only a "negligible" impact on Lufthansa.
According to Weinreich, the aim is to create a 40/40 joint venture between Lufthansa and TUI, with Knaufman taking a 20% stake. He says the merged carrier is expected to begin operations in summer 2009, adding: "I would assume the brand would be germanwings this would be the logical consequence. It's possible they could use the germanwings and TUIfly brands, but I don't think that would be a good idea."
ABN Amro analyst Andrew Lobbenberg says the proposed merger "appears to make broad strategic sense", but warns that merging the labour groups "could prove challenging". He also points out that it is unclear where eurowings will fit into the equation: "Though corporately eurowings is indeed the parent of germanwings, in fact its business, flying regional services for Lufthansa, would seem a natural partner for Lufthansa Cityline, rather than for the future germanwings/TUIfly leisure business."
Dortmund-based eurowings operates a fleet of 33 regional jets, while its Cologne-based low-cost subsidiary germanwings operates 27 Airbus A319s. TUIfly, which comprises Hapagfly and Hapag-Lloyd Express, operates a fleet of roughly 50 Boeing 737s. TUIfly's parent company, TUI Travel, is itself the result of a recent merger between tour operators TUI and First Choice Holidays.
The proposed merger of eurowings, germanwings and TUIfly is subject to regulatory approval and has yet to pass through the due diligence phase. Lufthansa says the move is aimed at "strengthening the brand of the players involved", adding that there is no timeframe on how long negotiations are expected to last. Specific details concerning "when, how and why" the proposed deal will take place are all under discussion.
Source: Airline Business
