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DEALS FROM POSITION OF STRENGTH

Gulf partnership not in a hurry: Lufthansa

London, November 3, 2012

Lufthansa would only enter into any partnerships with Gulf carriers from a position of strength, its chief executive said this week, justifying plans to widen a cost-cutting drive that helped it post higher-than-expected quarterly profits.

Arabian carriers are expanding their capacity, gnawing into European legacy airline's originating traffic in Europe and stealing market share from profitable inter-continental flights.

But with costs for fuel and labour rising and the economy weakening, traditional airlines are also forced to re-jig alliances and tie-up with rivals whose hubs are in Dubai, Doha and Abu Dhabi.

No sooner had Australia's struggling Qantas Airways clinched a 10-year alliance with Dubai's Emirates in September than Air France-KLM agreed on a code-share agreement with Etihad and Air Berlin.

"Air France and Air Berlin have entered these partnerships from a position of weakness," Lufthansa chief executive Christoph Franz told reporters on Wednesday.

"We do not want to do this, we are not under pressure, and we can and we will assess any potential partnerships very carefully," he added.

Franz spoke after Lufthansa unveiled third-quarter operating profits that beat forecasts, thanks to its cost-cutting programme "SCORE", which was launched in February this year. The quarter to September is also a traditionally strong period for airlines.

"The Gulf carriers are joining the global alliances for the first time. This significant change in strategy sees [them] increasingly also acting as an engine of consolidation in the aviation industry. We welcome further consolidation and we will, where it is purposeful and possible, actively participate - but only if it is possible on equal terms," he said.

After years as the brash outsiders in the industry, Gulf airlines are also starting to take a more cooperative approach, seeking alliances rather than direct confrontation with big carriers in the rest of the world.

Qatar Airways in October said it would join oneworld alliance, which includes American Airlines, British Airways and Cathay Pacific, while Etihad linked up with Air France-KLM, a member of SkyTeam.

It was not clear whether Etihad, which holds a minority stake in Air Berlin - Germany's second biggest airline after Lufthansa - would join SkyTeam.

But Air France-KLM CEO Alexandre de Juniac told a German daily in October that Air Berlin must either abandon oneworld or switch to SkyTeam.

Lufthansa, a member of Star Alliance, is the only remaining major European airline without a Gulf partner.

Franz, asked at a staff meeting in October whether a partnership with Gulf airlines was possible, said his priority was to revamp the company and that he did not want to pursue the other European airlines' strategy.

"If we are to hold talks at all, then we need to be on equal terms with the negotiating partner. And to achieve that we need to first get our house in order," a company newsletter quoted him as saying.

Lufthansa has already frozen investments, announced job cuts of 3,500 and is combining its loss-making European short-haul unit with its low-cost carrier Germanwings.

Franz told reporters in October that his priority was "to retain our leading role in Europe so that in the future we can sit with them on equal terms".

"If the head of Air France traffic says ‘If you can't beat them, join them,' that's not the expression of a business strategy conducive to survival," he said.-Reuters




Tags: Gulf | Europe | Lufthansa German Airlines |

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