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29/10/2008 – LH Pt 2 : Lufthansa Trimming Expansion While Taking Over 2 Airlines & Making A Play For 2 More
For an airline that is reportedly trimming its expenses, is Lufthansa spreading its self to thin?
Lufthansa has recently announced that it will be trimming its routes to reduce costs. This announcement comes on the heels of Lufthansa’s 2008 3rd quarter net profits falling by 75%; this loss is largely due to the significant increase in fuel costs earlier this year. To compensate for this loss, Lufthansa plans to reduce spending by €246,263,870 (US$318,000,000).
Lufthansa’s reduction in spending obviously does not include their interest in acquiring additional airlines. These acquisitions allow Lufthansa to grow, while also reducing their own capacity on specific routes.
Earlier in 2008 Lufthansa purchased a 45% stake in Brussels Airlines, with the option to take over 100% of the carrier in 2011.
Today Lufthansa announced it would be purchasing a 50.1% stake in BMI. This stock purchase will give Lufthansa an 80% stake in BMI
In addition to the stake in Brussels Airlines and the 80% stake in BMI, Lufthansa is pursuing other carriers as well. Lufthansa is aggressively going head-to-head with Air France-KLM for a stake in the soon to be restructured Alitalia. Alitalia will merge with Lufthansa partner carrier Air One as early as the 1st of December. Should the deal to take a stake in Alitalia fall through, Lufthansa is already making contingency plans to establish a business unit registered in Italy. This new business unit is to be named Lufthansa Italia SpA.
Elsewhere in the Lufthansa’s interest in taking significant stakes in foreign carriers, is the carrier interest in Austrian Airlines. Earlier this week Lufthansa forced Austrian Airlines to push its sale deadline back from October 27th to the end of the year. Lufthansa is seeking to purchase a 42.75% stake in the Austrian flag carrier, which will be operating at an approximate deficit of €125,000,000 by the end of the year. Much like the battle for a stake in Alitalia, Lufthansa is bidding against its French rival Air France-KLM.
In these volatile times for the airline industry, will Lufthansa’s wide spread stakes in foreign carriers allow the airline to grow, or will it collapse under its own weight? Only time will tell.