* Lufthansa aims to win more leisure travellers
* Considers long-haul low-cost concept
* To expand Eurowings regional airlines
* To grow winter capacity by 2 pct vs previous planned 4 pct
* Shares up 1.4 percent, outperform DAX
(Adds more CEO comments, analysts)
By Victoria Bryan and Peter Maushagen
SEEHEIM, Germany, July 9 Lufthansa may
launch low-cost long-haul flights under a new brand as part of
plans by the company's new boss to battle competition from
Middle East carriers and no-frills airlines.
The long-haul plan would mark a big shift for the company
which prides itself on still being a full-service airline and
also represents a high-risk route that few others have taken.
The challenges facing Lufthansa, which warned on profit last
month, are numerous - Middle East carriers are expanding
aggressively on long-haul travel, low-cost carriers are gaining
customers in short-haul and cargo markets are in the doldrums.
The options for CEO Carsten Spohr, who took the reins of
Europe's largest airline by revenue in May, were expected to
include a bigger push into the low-cost arena or a possible
alliance with a rival.
Under his plans, unveiled on Wednesday, Lufthansa will join
a low-cost rush to attract leisure travellers with cheaper
tickets and no-frills services, while still keeping its premium
"There are markets where we believe that the Lufthansa brand
is important. In other markets we believe that cost
sensitivities are so high, we don't need a full-service brand,"
he said, explaining that the market for leisure travel was
growing faster than business travel via hubs.
Spohr's plan is for Lufthansa to expand its European
low-cost service and possibly add a new one for long-haul
flights. It could consider offering long-haul flights from
Munich or the western German cities of Cologne and Duesseldorf,
with a premium section for higher paying passengers, using used
Boeing 767s or Airbus A330s readily available
on the market.
It is in advanced talks to set up a joint operation with
Turkish Airlines, Spohr said, though Lufthansa could
end up going it alone as well. If Lufthansa's board approves the
plans, such flights could start by the end of 2015.
RBC analyst Damian Brewer said that flying Boeing 767s that
have relatively high operating costs to compete with carriers
such as holiday airline Condor and fast growing rivals
would be very challenging.
"We think the distraction of an ever widening group of
airlines and strategies and the increasingly conglomerate like
nature of the group (ranging from airlines to IT, catering,
maintenance and cargo) will open the way for more focused
carriers like IAG, Air France-KLM and others
outside the EU to take share away," he wrote in a note.
WINGS OF CHANGE
Setting up low-cost long-haul business is not easy and few
have tried it.
Low-cost pioneer Ryanair has said it would not
attempt it because it would need some form of premium or
business class seat to make money. Norwegian Air has
met criticism from rivals and unions for trying to cut staff
costs for long-haul flights from Scandinavia.
Spohr brushed off these concerns, saying: "We have
experience in long-haul, we know what will work or won't work."
Lufthansa will expand its existing European low-cost
services under a "Wings" holding group. It is already growing
its Germanwings brand to take on short-haul traffic within
Europe and now plans to expand its Eurowings regional airline.
Germanwings operates on a cost basis that is 20 percent
lower than that of the Lufthansa brand, while Eurowings is 20
percent lower than Germanwings, Spohr said.
"I think Wings has the potential to become the third biggest
low-cost point to point airline in Europe."
He said three quarters of all intercontinental air travel
and 79 percent of European air travel was for private reasons,
rather than business trips.
Lufthansa's short-term measures to make up for the lower
than expected profit in 2014 and 2015 include increasing the
number of seats it offers by only 2 percent in the winter,
rather than 4 percent as originally planned.
Spohr said that cost efficiency must become a way of life,
even when a programme begun by his predecessor Christoph Franz
ends next year. Unions, which were vocal critics of Franz and
repeatedly called strikes during his time as CEO, have so far
seemed more accommodating to Spohr.
"At least this time we were involved in the decision-making
process, rather than just being presented with measures and told
to fall in," Ilja Schulz, head of pilots' union Vereinigung
Cockpit, told Reuters ahead of Spohr's presentation.
Shares in Lufthansa closed up 1.4 percent at 15.225 euros.
The rise was not enough to make up for Tuesday's 3.8 percent
slide that followed a shock profit warning by fellow legacy
carrier Air France-KLM on Tuesday.
Metzler analyst Juergen Pieper said the long-haul low-cost
plan was worth a go.
"And an attempt is all it is," he told Reuters. "I have the
impression Lufthansa finally wants to be seen as an innovator
again, and not just as trying to catch up with the competition
all the time."
(Additional reporting by Joanna Partridge and Reuters TV;
Editing by Maria Sheahan and Jane Merriman)