Lufthansa’s tourism push puts Germany on spot after bailout

Bloomberg

Deutsche Lufthansa AG’s bid to tap a revival in tourism once coronavirus lockdowns ease has put the German giant on a collision course with its former leisure arm, Condor.
Lufthansa is using surplus long-haul jets to target
sunspots such as Mauritius, the Dominican Republic and Namibia that are expected to recover before the airline’s bedrock corporate markets. As a result, it has ended a half century-old deal to feed passengers towards Condor, starving the smaller carrier of business on flights to many of the same destinations.
The switch presents an existential threat for Condor, which has no answer but to demand German regulators intervene. A plan to merge with LOT Polish Airlines SA was undone by the coronavirus crisis and Condor was already on life support when Lufthansa put a target on its back. The bigger airline is desperate to scrape up passengers where it can, and makes no apologies — daring the government to go back on its pledge not to interfere.
“Life is going to be tough for Condor,” said Daniel Roeska, an analyst at Sanford C Bernstein in London. “Lufthansa needs to generate cash, which right now is more likely to come from tourism than from business travel. Why should Lufthansa subsidise Condor with cheap feeder tickets?”
The spat leaves the German government with a type of dilemma that’s popping up more frequently in Europe. As money from earlier airline bailouts dwindles, politicians are being forced to decide which carriers
to support with more aid or through regulatory moves.
Wizz Air Holdings Plc asserts that protectionist rules are keeping it from expanding at London Gatwick and at other hubs in Europe. The French government is separately under pressure from the EU to strip Air France-KLM of some slots at Paris-Orly airport, as it discusses topping up the airline’s $12 billion bailout.
In Germany, the government pledged not to intervene in Lufthansa’s business even as it became the biggest shareholder through a 9 billion-euro bailout. Now there’s frustration that the larger carrier is using its strength to squeeze Condor out of crucial markets, according to a person familiar with the matter.
The government is also concerned that it won’t be able to recover the 550 million euros advanced to Condor if it fails, said the person, who asked not to be named discussing sensitive matters. Lufthansa dwarfs its smaller rival. It had revenue of 36.4 billion euros in 2019, before the virus crisis hit, compared with 1.7 billion euros for Condor. Lufthansa is taking orders for 1.6 billion euros of new bonds and will use proceeds to partly repay the state-aid package.
Lufthansa has introduced just a handful of new leisure destinations that overlap with Condor’s. For the coming summer, the number has multiplied. Condor accuses Lufthansa of abusing its market power by cutting off the feeder traffic and charging low-ball fares on competing routes.