Lufthansa has sold its 50% stake in Thomas Cook to KarstadtQuelle, netting €800 million ($1.05 billion), but opening up the possibility that Condor could become a competitor in the future.

The deal sees Lufthansa retain 24.9% of Thomas Cook in-house carrier Condor for the next two years, after which German retailer Karstadt has an option to buy Lufthansa's stake. Lufthansa previously only held a direct 10% share in Condor but had majority control once its half share in Thomas Cook, owner of the other 90%, was taken into account. The move to a 24.9% direct minority holding, with Thomas Cook holding the rest of the stock, allows Lufthansa to transfer Condor off its books and onto Karstadt.


Condor could be a future rival to Lufthansa

Frank Skodzik, analyst at investment bank WestLB, notes that Lufthansa's continued involvement with Condor is very much related to the history of the leisure carrier and Lufthansa's own strategic interests. Condor has been part of the Lufthansa Group since 1959 and retained a strong Lufthansa identity after it was put into the C&N Touristic joint venture with KarstadtQuelle, later to become Thomas Cook, in 1997.

"Condor people feel they are Lufthansa people, especially the pilots," says Skodzik. By maintaining a link with Condor, Lufthansa is keeping access channels open for Condor pilots, who have always had the right to go across to Lufthansa. "This is especially important given the worldwide shortage of pilots," adds Skodzik.

However, KarstadtQuelle has hinted that it might be looking to divest Condor to concentrate on the retail side of the Thomas Cook business, opening up the possibility of more low-cost competition for Lufthansa. "A worst-case scenario would be if Air Berlin or TUI took over Condor," warns Skodzik.

For the next two years at least Lufthansa will have a say in where Condor ends up. "We want to help shape Condor's development," says Lufthansa chairman Wolfgang Mayrhuber.

Mayrhuber says the proceeds from the sale of Thomas Cook will go towards "core business" activities. Skodzik predicts the money will be used to fund Lufthansa's pension obligations and a significant increase in capacity planned for the near future. He notes that after fairly conservative available seat capacity growth in 2005 (2.5%) and 2006 (1.8%), Lufthansa is ramping up growth. He expects capacity to increase by 5.4% in 2007 and has pencilled in 5% growth for both 2008 and 2009.

As part of the deal, Lufthansa will also take over Thomas Cook's 50% stake in Turkey's SunExpress. The other 50% is held by THY Turkish Airlines.

Source: Airline Business