Lufthansa looks set to follow the example of British Airways with Go, and launch a low cost subsidiary this year.

The German carrier's executive board is currently discussing a feasibility study for a new airline to operate primarily on domestic routes. The carrier would use between six and 14 Boeing 737s and have its own brand, management and flight crews. Lufthansa's Frankfurt and Munich hubs are unlikely to be used. In-flight service would be reduced and fares would be lower.

One source says the new airline's fleet would gradually be increased to 33 737s by transfers from Lufthansa and adds that catering and maintenance will be outsourced.

According to a Lufthansa spokesman the main intention is to 'target the cost structure' on domestic routes which are not 'money bringers'. The primary aim is 'not to look at [cabin crew] personnel costs, but raise efficiencies by increasing frequencies and time in the air and reducing the number of people employed on the ground,' says the spokesman.

However a local industry source says the study, presented to the board at the end of January, did not come up with a profitable solution. The source says management had earmarked DM70-80 million (US$39-44 million) for the new airline and hoped to convert DM100 million annual losses on shorthaul routes into a DM50 million profit.

Andreas Diederich of consultants R&C Airline Industry says there is a 'very high probability that the project will not come onto the scene'. He does not expect the low-cost venture to be launched for another year, if at all, and says the carrier would 'concentrate on specific business routes within Europe'. The carrier's image would not 'change dramatically', Diederich predicts.

Regional German carrier Eurowings nonchalantly points out that this is Lufthansa's 10th 'lite' project, and sees little chance of it starting up in the near future. A Eurowings spokesman says a Lufthansa low cost operation could be 'a threat' to Eurowings if it 'built up flexibility in its flight plans'. But it would have to contend with the unions first, he adds.

Carl Michel, chief executive officer of domestic rival, Deutsche BA, is 'not worried' by Lufthansa's plans which he describes as 'more to do with politics than economics'.

'They did it before and failed,' says Carl Michel, in a reference to Lufthansa Express which suffered from a lack of change in work practices. 'Lufthansa needs to cut costs dramatically,' says Michel, pointing out that Deutsche BA's cost per ASK is 20 per cent below Lufthansa's on its domestic routes.

Deutsche BA puts its low cost base down to its average nine hours a day flying time, thirty minute turnaround, uniform fleet, young workforce and extensive subcontracting.

Michel believes that the introduction of another Lufthansa product, in addition to CityLine and Team Lufthansa, would leave customers 'confused'.

Source: Airline Business