AIRYY Air China Limited (PK)

German's two largest airlines on Wednesday announced plans to bolster their long-haul operations, with Deutsche Lufthansa AG deepening cooperation with Singapore Airlines and the country's No. 2 carrier Air Berlin betting more heavily on U.S. flights.

Both carriers have struggled to implement restructuring measures that left them financially lagging behind competitors, such as budget airlines Ryanair and EasyJet in the short-haul market and British Airways parent International Consolidated Airlines Group in long-haul.

Lufthansa and Singapore said they would seek antitrust immunity to form a joint venture to allow them to closely coordinate schedules and pricing. The tie-up is aimed at ending the loss of business both carriers have suffered on routes between Asia and Europe to the rapidly growing Middle East carriers, such as Emirates Airline and Qatar Airways.

Lufthansa Chief Executive Carsten Spohr called the relationship "a cornerstone of our Asia strategy."

The two will share revenue on flights between Lufthansa's Frankfurt, Munich and Zurich hubs and Singapore, as well as on the Asian carrier's newly announced route to Dü sseldorf.

Schedules will also be coordinated for flights beyond those destinations, giving Lufthansa greater reach into markets such as Indonesia, Australia and Malaysia. The partnership will also cover the Lufthansa affiliates Swiss and Austrian and Singapore's SilkAir.

The German carrier already has joint-venture agreements with United Continental Holdings Inc. and Air Canada, covering trans-Atlantic flights, and with All Nippon Airways on Japans routes. It also is in talks with Air China to establish a similar arrangement on flights between Germany and China.

Carriers have embraced such joint ventures to gain merger-like efficiencies at a time when national airline ownership regulators limit cross-border consolidation.

Lufthansa's problems are far larger, though. The airline is battling with pilots unions and those of cabin crew to win concessions over pay and employment terms.

Cabin staff have been on strike since Friday, grounding much of the airline, with 931 flights canceled Wednesday, or about a third of the airline's schedule. The strike is poised to last through Friday.

Lufthansa has offered several concessions to unions in recent days, raising concern with analysts the carrier may not have the stomach to force through changes considered overdue.

Air Berlin's overhaul aims to streamline operations to focus on regularly scheduled flights and deliver profitability in 12 to 18 months, Chief Executive Stefan Pichler said in Berlin. He said the airline's costs are lower than those at rivals.

The airline will grow its long-haul business, adding flights to Boston, Dallas and San Francisco from Dü sseldorf, and promises to expand cooperating with Oneworld alliance partner American Airlines. It also is adding frequencies to other U.S. cities to help win higher-paying business passengers.

The focus on growth will mean Air Berlin will cut fewer jobs than it projected, said Mr. Pichler, who has been at the helm since February. He didn't spell out how many positions would be cut.

Air Berlin will also strengthen ties with Etihad Airways an Alitalia. The Abu Dhabi based airline owns 29.2% of Air Berlin and has provided financial support the keep the airline afloat. It also owns 49% of Alitalia.

Cooperation with Etihad is facing headwinds, though, with the German government threatening to withhold approval of some code-share flights between the two airlines, which could further weaken Air Berlin's financial position. Mr. Pichler said not granting those codeshares could jeopardize his airline.

Debt at the airline was €787 million ($844 million) at the end of September, while shareholder equity was a negative €544 million, about 30% worse than at the end of last year. Mr. Pichler said the company's financing plan would allow it to cover its obligations, though he declined to say whether this would involve a fresh injection of funds from Etihad, its largest shareholder.

Natascha Divac contributed to this article.

Write to Robert Wall at robert.wall@wsj.com and Archibald Preuschat at archibald.preuschat@wsj.com

Access Investor Kit for "Deutsche Lufthansa AG"

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0008232125

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 11, 2015 12:05 ET (17:05 GMT)

Air China (PK) (USOTC:AIRYY)
Historical Stock Chart
From Nov 2024 to Dec 2024

Air China (PK) (USOTC:AIRYY)
Historical Stock Chart
From Dec 2023 to Dec 2024