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Lufthansa's Plans With Germanwings  
User currently offlineTobias2702 From Germany, joined Sep 2008, 731 posts, RR: 0
Posted (4 years 8 months 1 week 4 days 19 hours ago) and read 5535 times:

Hi guys, is there anyone who can shed some light on the relationship between LH and 4U? As I understand, the situation is as follows:

4U is a daughter of LH, operating low-cost flights to typical holiday destinations and some major European cities, as well as some domestic German routes, thus directly competing AB. But compared to AB, 4U is in a much weaker position: smaller network, no real connecting flights, no free onboard snacks. 4U's major bases are CGN and STR, which are quite neglected by LH -- and where AB has considerably grown over the past years, especially since X3 has mostly retreated from the scheduled market. So, are there any intentions of LH to strengthen the position of 4U? Why has 4U a seperate FF program at all? DE is still connected to miles and more.

The third important 4U base is SXF. Some years ago, they chose to retreat from TXL, because they couldn't stand competition from AB (then only holiday flights) and dba (German domestic). Now, they seem to do quite well in SXF, but how will the situation change once the new BER airport opens? AB already prepares the opening of a true hub there by adding routes and frequencies to TXL, whilst LH does not have any short-term plans. If you take today's timetable, Berlin-Munich, Berlin-Stuttgart and Berlin-Cologne will be operated by all LH, AB and 4U from the same airport by 2011, which will mean an intense competition. To my knowledge, currently LH and 4U do not offer any overlapping routes. Why isn't 4U stronger linked to the LH network? Does LH think of 4U as a partner, or rather as a competitor? What is the sense of 4U at all?

And I just came to think: Why did LH sell DE to Thomas Cook two years ago? They could have taken over 4U's "business flights" and merged them into the LH-network (maybe as sort-of low-cost branch), and have the rest be merged into DE, thus creating a strong "LH leisure". But as the situation is at the moment, I just don't know what sense 4U makes at all.

I appreciate your thoughts and comments.


PA, AF, UK, BA, AB, DL, LH, FR, BD, A3, EZY, DY //// A319/320/346, B733/735/73G/738/744/763, AT4, 146, CR2, DH4
6 replies: All unread, jump to last
 
User currently offlinejoost From Netherlands, joined Apr 2005, 3185 posts, RR: 4
Reply 1, posted (4 years 8 months 1 week 2 days 22 hours ago) and read 4519 times:

It's an interesting subject. Any company that starts a new venture to compete agressively with others - not just airlines - have the same problem: you want to take market share from your competitor, but not from your mother company. It's relevant in the automotive industry, in the telephone business, travel agencies, and of course airlines.

Just some thoughts:

Quoting Tobias2702 (Thread starter):
To my knowledge, currently LH and 4U do not offer any overlapping routes.

They both fly HAM-STR, STR-VIE, STR-ATH, CGN-MUC. A few years ago, they had more overlapping routes including a trunk route like HAM-MUC. Here, 4U was withdrawn.

Quoting Tobias2702 (Thread starter):
Why has 4U a seperate FF program at all? DE is still connected to miles and more.

It's much cheaper to operate the Boomerang club, than to enroll in Miles & More. Although M&M is of course part of Lufthansa, it operates as a company on it's own and that's for a reason: MM-points have a certain value, more than Boomerang points. Think of this:

When giving away Boomerang points, they only need to give back seats - most likely seats that wouldn't be sold anyway - in their own route network. So it doesn't cost them much. In the worst case, it's missed revenue if the person traveling would have traveled anyway on 4U, even when booked, but travels for free now. But that's it. Their is no cash-out for 4U to give away Boomerang points.

Now when giving away M&M-miles, it's different: these can be used on all other StarAlliance flights. Now for example, when you book a reward flight on United using Miles & More, UA doesn't give it away for free: they simply send a bill to Miles & More. M&M won't pay the full fare, but they do actually pay UA for that seat. Now, therefore, when 4U would give away M&M-miles, the Miles & More GmbH will send a bill to Germanwings for these points. And of course these points might eventually end up within the LH group (when spent at LH, LX, SN, OS), but the money might equally well go to other companies like UA, CO or SQ. And that's why M&M is more expensive.

That's also the reason why FF-programs can make money for airlines. MilagePlus for example, UA's program, is reported to be a steady money-maker, as many members collect the points at other StarAlliance companies, and these airlines all send money to MileagePlus.


User currently offlineTobias2702 From Germany, joined Sep 2008, 731 posts, RR: 0
Reply 2, posted (4 years 8 months 1 week 2 days 11 hours ago) and read 3892 times:

Thank you very much for this comprehensive answer, up to now I wasn't fully aware how FF programs really work.

I checked my statements again, and I have to clarify that MM miles can only be spent on DE flights, not earned. Wouldn't something like this also make sense in case of 4U? What is the difference between the two airlines (I mean, DE isn't affiliated with LH anymore at all). As DE offers long-haul flights, a MM member can serve much more money when spending his or her miles there than with 4U. So according to your explanation (and I hope I get your point here) if a passenger earns miles on say LH and spends them on a DE flight, miles and more will partly pay DE for the seat and bill LH. Why does LH like this?

Quoting joost (Reply 1):
They both fly HAM-STR, STR-VIE, STR-ATH, CGN-MUC

Sorry for my bad research work. Thanks for clarifying.

Are there any comments on my other questions regarding 4U's position on the German market?

edit: Oh, and I forgot to emphasize in my original post that by 2011 flights from BER to MUC, STR and CGN will be the only domestic ones offered by all LH, AB and 4U, with BER-MUC the highest frequented German route. Will LH really want 4U to compete with the mainline product?

[Edited 2010-04-15 14:36:03]


PA, AF, UK, BA, AB, DL, LH, FR, BD, A3, EZY, DY //// A319/320/346, B733/735/73G/738/744/763, AT4, 146, CR2, DH4
User currently offlineGodBless From Sweden, joined Apr 2000, 2753 posts, RR: 16
Reply 3, posted (4 years 8 months 1 week 2 days 11 hours ago) and read 3768 times:

Quoting Tobias2702 (Reply 2):
I have to clarify that MM miles can only be spent on DE flights, not earned. Wouldn't something like this also make sense in case of 4U?

Isn't this also the case with 4U already today?


User currently offlinejoost From Netherlands, joined Apr 2005, 3185 posts, RR: 4
Reply 4, posted (4 years 8 months 1 week 1 day 23 hours ago) and read 3430 times:

Quoting GodBless (Reply 3):

Isn't this also the case with 4U already today?

Indeed, you can spend MM miles on 4U, but not earn them. When spending MM miles on 4U-flights, Germanwings receives money from Miles & More. It's interesting for Lufthansa to have people spending their miles at 4U, rather than flying UA.


User currently offlineGodBless From Sweden, joined Apr 2000, 2753 posts, RR: 16
Reply 5, posted (4 years 8 months 1 week 1 day 21 hours ago) and read 3279 times:

Btw. if you collect Payback points you can actually earn M&M miles... You can collect payback points on 4U and there is an option to have your payback points converted to M&M.
The points collected on 4U do not depend on the route flown but rather the rate paid (I think you earn 1 point per Euro).


User currently offliner2rho From Germany, joined Feb 2007, 2772 posts, RR: 1
Reply 6, posted (4 years 8 months 1 week 1 day 13 hours ago) and read 2753 times:

The main purpose behind 4U when it was created wasn't for it to become a large, pan-European LCC one day. Its only purpose was to keep U2, FR & Co out of Germany and from directly competing against LH. Looking at the situation today, it seems that they have succeeded rather well.

Indeed, as LH concentrated its operations around FRA & MUC, it would not have been possible for them to compete in price against LCCs with point-to-point services from focus cities such CGN and STR. 4U effectively enabled LH to pull back from those focus cities, while keeping the other LCC's out. Today, the only airline truly competing against LH in the German-speaking market is AB, which is not really a LCC despite often being classified as such.

Nevertheless, LH's CEO has recently stated that the short-haul network is unprofitable and further cost-cutting is needed to stay competitive. You may have noticed for example that LH has lately been trying to transfer flights to their many regional subsidiaries (CityLine, Eurowings, Air Dolomiti, ....) at every possible occasion, due to their lower crew costs.

For the future, I see several possibilities for the LH point-to-point flights identified as unprofitable:
- give more of them to the regional subsidiaries, but that would clash head-on with scope clauses
- give more of them to 4U
- create a lower cost base sub-airline within LH, much as IB is planning to do
- a combination of the above


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