While the joint venture between Lufthansa, bmi british midland and SAS has been cleared by the European Commission (EC), Lufthansa and Austrian Airlines have resorted to offering to subsidise new competitors as Brussels threatens to curtail cross-border co-operation.

Although the EC agreed the Lufthansa/bmi/SAS joint venture, it stipulated that the partners give up four London Heathrow-Frankfurt slots. With new entrants unlikely to take on the might of Star and oneworld on these routes, British Airways is the obvious candidate to take them up. Star was hoping that the slots would revert back to its members if no new entrants could be found after a three year period.

The tri-carrier joint venture sees profits and costs shared roughly in relation to size. Ulrich Wachter, Lufthansa's sales and marketing manager for Western Europe says: "We aim to ensure the carrier's fleets are utilised in the best possible manner." Pointing to the services bmi is operating from Heathrow to Spain and Italy, he notes, "bmi has been able to add services which it would never be able to operate on its own". He adds that Star is now able to provide competition to oneworld carriers British Airways and Iberia on the London-Madrid route.

Meanwhile, Lufthansa and Austrian Airlines have offered to subsidise competitors on Austria-Germany routes in an effort to fend off threats from Brussels which would curtail their co-operation. Brussels was apparently unhappy with suggestions that Eurowings could play this role, given it has an equity relationship with Lufthansa. KLM alpi may be a possible alternative. If no solution can be found, Lufthansa and Austrian may have to end their joint venture before the end of the year. Wachter says that the two partners have not raised prices on the route, and argues that blocking such deals will leave Europe at the mercy of US mega-carriers when international deregulation finally happens. SAS and Austrian face a similar threat to their joint venture.

Meanwhile, Wachter is cautious on any possibility that Swissair may join Star, pointing out that although it fits culturally, there is considerable network overlap. He adds that oneworld may be a better fit, "partly because London is the furthest away".

He is equally sceptical of any involvement with Sabena, pointing to the Belgian flag carrier's history of losses. Any involvement will almost certainly feature SAS. "We will not get involved alone," he says. He points out, however, that "the funds at SAS are not eternal", and SAS is bidding to takeover Norway's Braathens. He also pours cold water on any possibility that Lufthansa is interested in Swissair Group's Air Littoral, pointing to the failure of past relationships between the two.

Wachter is more enthusiastic about a possible a link up between SAS and Finnair. Although the latter is in oneworld, there has been speculation that the two Scandinavian carriers are planning talks. A tie-up "would make both carriers stronger," Wachter says, adding that the fierce competition in Scandinavia has "been hurting".

Elsewhere in Scandinavia, Lufthansa is keen to improve joint services with SAS out of Billund in Denmark.

Source: Airline Business