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With Air Berlin, Lufthansa assumes the German skies

In total, 81 of the 144 aircraft of the low cost company fell in the hands of the German giant. The discussions continue with EasyJet on the resumption of other aircraft.

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With Air Berlin, Lufthansa assumes the German skies
Two months after bankruptcy of Air Berlin Company, Lufthansa obtained lion's share of remnants of its former competitor. On Thursday, 12 October, an agreement was signed between two parties: German giant obtained LGW and Niki, subsidiaries of Air Berlin, in addition to 20 or aircraft. In total, 81 of 144 airplanes Berlin fall into Lufthansa hands, which put 210 million euros on table in this transaction.

The German group has also committed to Rehire 3 000 of 8 500 employees of Air Berlin, who will work in future for its low-cost subsidiary Eurowings: EUR 1.5 billion have been made available for this purpose, said Carsten Spohr, CEO of Lufthansa , Thursday, October 12, which talks about a "big milestone in history" of company to Crane, founded in 1926 in Berlin. Lufthansa takes over Air Berlin terminals at Tegel and Schönefeld airports and ensures a number one position in German capital.

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On Frankfurt Stock Exchange, investors greeted deal: Thursday, Lufthansa action climbed by 3.2%, to 25.34 euros, or its highest level since early 2001. "Lufthansa is coming out of this operation with Air Berlin, which should ensure an increase in sales over next few years," says HSBC bank analysts.

Concerns about price increases

The Thursday agreement does not, however, sign end of negotiations. As discussions continue with EasyJet on resumption of or aircraft in group. Since 25 September, Air Berlin has reduced its negotiating partners to two: Lufthansa and British company, which is currently interested in 20 to 30 medium-haul aircraft. At moment, no agreement has been announced.

If discussions were to fail, anor candidate for takeover, such as Condor group, would return to negotiating table. But time is pressing: The last Air Berlin flight is scheduled for October 27th. On or hand, deal with LUFTHANSA will only take effect when European Commission has given its consent. The latter should not intervene as early as end of year and it is likely that German giant should be forced to abandon links or take-off and landing slots.

Lufthansa makes sure with this transaction a market position that generates strong criticism. From outset of agreement, protests of competing companies against future power of that company had been scathing. Today, market experts do not hide ir concerns about price rises. We missed an opportunity to reorganize German air transport market for benefit of competition and refore customers. On German inland connections, like Cologne-Munich or Berlin-Frankfurt, it is probable that a quasi monopoly is created. This will not be done without price increases, as re are no more take-off and landing slots available, warns Tomaso Duso, director of Business and Markets department at Berlin Economic Institute (DIW).

98% on inland links

According to figures of Bank of America Merrill Lynch, Lufthansa group, including its low-cost subsidiary Eurowings and Air Berlin as a whole, would hold a market share of 98% on German inland links and 65% on European links to Departure from Germany. The increased participation in se segments of anor actor such as EasyJet is considered by many experts to be an indispensable guarantor of competition.

But Carsten Spohr defended himself on Thursday in columns of daily Handelsblatt: "No or branch has experienced such continual declines in prices in recent years." "Tariffs are sometimes so low that companies can no longer live," said Lufthansa's boss. He still believes that competition "could be set up on routes on which only Lufthansa and Air Berlin were faced", arguing that group's low-cost subsidiary, Eurowings, could itself offer lower prices than Lufthansa.

"It is a cheap attempt to minimise competition problems," says Daniel Zimmer, former director of Monopoly Commission, a body responsible for advising German government on competition issues. No director will ever seek to create between two of his companies in same group same competition as one to which so far Lufthansa and AirBerlin were engaged. »

The current director of same commission, Achim Wambach, said that European Commission will evaluate deal closely. "The authorities will prevent creation of a monopoly," he said, arguing that Europe could not be regarded as a homogeneous market and that journeys should be examined one by one. A last straight line in projects of Lufthansa, which wants to make its subsidiary Eurowings great competitor of EasyJet and Ryanair on European market.


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