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TUI ends budget foray but low-cost model remains

The formal merger of Hapagfly and Hapag-Lloyd Express has brought an end to TUI's experiment with a stand-alone budget carrier, although the travel group may yet reap some benefits from its endeavours.

TUI launched Hapag-Lloyd Express in 2002 in response to the growth in the low-cost sector, which was eating into its traditional holiday business. Two years later the start-up's chief executive Wolfgang Kurth departed as TUI began the process that led to TUI deciding at the end of August to merge the unit back with leisure carrier Hapagfly.

The cost of the foray into low cost is unclear, but Nils Lesser, Munich-based analyst at investment bank Merck Fink & Co, says the exercise has allowed TUI to force down costs at its German airline operations. "It has put pressure on the pilots," he says, adding that the firm has been able to adapt the lower-cost model of Hapag-Lloyd Express to its Hapagfly charter operations.

TUI, which is under pressure from shareholders to reverse a lacklustre trading performance, says that: "Further strategic options in the German aviation market are being examined." There has been speculation of a tie-up with the country's other major vertically integrated leisure carrier Condor. Lesser says this scenario cannot be ruled out, but predicts renewed efforts by TUI to drive down costs at its airline operations is a more likely scenario for the time being. "They are not focusing on growth. The focus is on further reducing costs," he says.

Christoph Muller, the former Sabena boss who heads Hapagfly and has been appointed to the executive board as head of controlling, will be "transitionally responsible" for the two carriers. ■

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