FRANKFURT Nov 30 Closer ties with Turkish
Airlines could keep Lufthansa in the race
for longhaul flights to Asia and stem the flow of business to
A combination of the German airline, Europe's biggest by
revenues, and the world's fastest growing carrier would create a
group with about 600 aircraft, more than the three big Gulf
carriers' combined fleet of 500 planes.
Westbound traffic is in decline, making eastward growth
crucial. Turkish Airlines' Istanbul hub straddles Europe and
Asia and is hours closer to Europe than Gulf airports.
While Lufthansa has not confirmed any plans for strategic
negotiations, Turkish Airlines Chairman Hamdi Topcu told
broadcaster NTV this month that talks on tie-up expansion with
Lufthansa would begin in December.
"Lufthansa is really constrained now in terms of looking for
strategic partners. It's running out of options. Turkish
Airlines is still the best option at the moment, and probably
its last," Cheuvreux analyst Peter Oppitzhauser told Reuters.
Lufthansa, whose passenger business is forecast to post an
operating loss this year, is slashing costs and cutting jobs to
cope with high fuel prices and stiff competition.
Middle Eastern carriers are building alliances and investing
in new routes and new aircraft to divert a thriving traffic flow
between Europe and Asia to their hubs and lure passengers with
lower prices as well as better food and inflight service.
Airlines will add 19 percent capacity on routes between
Europe and the United Arab Emirates (UAE) in the first quarter
of 2013, partly so passengers can switch planes there, according
to UBS which forecasts 12 percent growth on direct Europe-China
services. Capacity between Europe and the United States is
expected to shrink.
European airlines, meanwhile, are cutting costs and shelving
growth plans, hit by high fuel costs and weak markets.
Lufthansa said Gulf airlines are aggressively expanding, by
offering more seats to Europe and taking stakes in other
"It is a question of time before Europe's connections to
other regions will be conducted only via the Gulf states," it
said on its website.
Lufthansa, the only major European airline that does not
have a Gulf partner, says the three big Gulf carriers enjoy
competitive advantages through public subsidies and preferential
fuel prices not available to U.S. and European firms.
The Gulf carriers say this is not the case.
Emirates, the biggest Gulf carrier in terms of fleet and
number of routes, agreed in September to form an alliance with
Qantas, with the Australian carrier replacing Singapore with
Dubai as its hub for European flights from 2013.
Qatar Airways, the state-owned carrier vying with Etihad as
the second biggest in Middle East, said in October it would join
the oneworld alliance, which includes British Airways,
while Air France-KLM, Etihad and Lufthansa's German
rival Air Berlin agreed on flight code sharing.
"While nothing is decided or formally announced, a
combination of Lufthansa and Turkish Airlines would make the
Qatar-oneworld deal and the Etihad-Air France-KLM-Air Berlin
code share agreement look relatively like child's play," market
research group Centre for Aviation (CAPA) said.
Lufthansa and Turkish Airlines together could offer more
flights and invest in newer and more fuel efficient aircraft, as
well as have pricing power over their rivals.
"Obviously there won't be an equity tie-up in the near
future but (the Turkish state) will have to think of something
because (Turkish Airlines) will be privatised," analyst Alper
Paksoy of BNP joint venture unit TEB Investment said.
Turkey's government appointed a banking consortium to advise
it on the airline privatisation last year.
Analysts said the two airlines could form joint ventures
initially - for instance in catering, IT and maintenance -- and
at some stage later agree a cross-shareholding. EU and Turkish
laws on airline ownership are a barrier to any full merger.
The airlines could also expand their code sharing to more
Asian destinations and share profits, the way Lufthansa already
does with United Airlines for Transatlantic routes.
Lufthansa and Turkish Airlines already cooperate via code
share agreements, and they have a 50-50 joint venture, charter
Turkish Airlines' appeal to Lufthansa is clear, CAPA analyst
David Bentley told Reuters.
Labour costs, which comprise a major portion of airlines'
operating costs, are lower in Turkey, where air travel is
becoming increasingly affordable for its 75 million population,
mirroring other emerging economies.
Its revenue has grown at an average of almost 24 percent per
year over the past five years, outpacing by far Lufthansa's 9.1
percent and Air France-KLM's 2.0 percent, according to Thomson
Reuters data. During that time, its average operating margin was
almost twice that of Lufthansa.
"Turkish Airlines has a good presence in regions where
Lufthansa has low presence, like the Middle East, South Asia and
the Mediterranean. It enables Lufthansa to diversify its offer
without investing in new routes and aircraft," MainFirstBank
analyst Loic Sabatier said.
The Turkish carrier is also close enough to Europe's cities
to fly there with small single-aisle planes which are cheaper
than wide-body aircraft and allow for higher frequencies.
An Istanbul-based analyst also said that passengers find it
inconvenient to have a stopover in Dubai or Abu Dhabi about
halfway through a 13-hour trip from Europe to Asia and would
prefer having a short two or three hour flight and a break
before a 10-hour journey.
At the same time, any deal would give Turkish Airlines
access to Lufthansa's passengers from wealthy European
countries, and a tie-up with an airline that has a good
reputation on safety and quality would give its image a boost.