Lufthansa Plans Another End Run Around Labor With New Regional Subsidiary

Lufthansa

Over the last several years, Lufthansa Group has felt like a creation by Dr Frankenstein — pronounced FRONK-en-steen, of course. It has cobbled together seemingly unrelated pieces to try to create a profit monster. The company is never done tinkering, and now it is at it again with yet another new airline it wants to staple on to its creation.

This time the company is looking toward the regional space to create a new airline. Forget that it already owns two of them, because this will serve a new market. What market is that? Well in typical German bluntness, the company says it needs a new one to get around the restrictions it agreed to at the other airlines. I think they said out loud the part you’re supposed to keep to yourself.

So what is the story with the Lufthansa Group regionals? The two players are Lufthansa CityLine and Air Dolomiti. Neither one has been very good at sticking to their original missions, but that’s just because of what Lufthansa does with its subsidiaries.

Air Dolomiti’s primary purpose was to be an Italian airline that fed originally Munich and eventually Frankfurt from a variety of Italian cities. Today it flies 15 Embraer 195s for Lufthansa around Europe, but it operates under its own name as well. You can book direct with Air Dolomiti or via Lufthansa even though that makes no sense at all since Lufthansa has owned the company fully since 2003, and it is an integral part of the Italian network.

Air Dolomiti started out primarily as a turboprop operator, but it has morphed into the jet carrier it is today. Lufthansa was bullish on growing the airline and had planned to add another dozen Embraers from CityLine. But that plan was scrapped. It has only added 1 airplane since 2019 with I think one more on the way.

Lufthansa CityLine is a whole different story. That airline has flown for Lufthansa with regional aircraft since the 1970s. It was known as DLT until 1992 when Lufthansa bought it and named it CityLine. In 2014, Lufthansa decided to weaponize CityLine by initiating a project called “Jump,” giving it a handful of old A340s that it said it could no longer fly profitably on its own. Instead, it would have CityLine do the flying under the Lufthansa brand with cheaper CityLine pilots but Lufthansa flight attendants.

This was simply a ploy to get the pilots to agree to concessions, and a new agreement with the pilots just a couple years later eliminated the CityLine widebody flying. But CityLine kept growing like kudzu in all different directions.

Today, CityLine has 30 CRJ-900s in its fleet along with 11 Embraer 190/195s that were supposed to be transferred to Air Dolomiti. It has now gotten into the A319 business as well with 11 in the fleet, one or two being operated as cargo and the rest in a passenger configuration. The CityLine network is pretty massive. Here’s the July 2022 map courtesy of Cirium. It stretches from Helsinki to Sevilla and Cork to Varna.

The A319s, in case you’re wondering, are all Munich-based and fly all over Europe from there.

With that background, why on earth does Lufthansa need another subsidiary? You could probably understand if Lufthansa wanted to work with a third party for some capacity, but a new subsidiary seems nuts… except in the mind of a Lufthansa exec.

You can read through the transcript of the most recent earnings call to get a better sense of what’s going on. In short, this is just an end run around labor.

There appear to be two reasons for the creation of this new airline. First, there is a scope clause with labor that restricts the size of CityLine. Part of that is an agreement limiting CityLine to nothing over 75 seats from 2026. Somehow, this does not preclude Lufthansa from just starting a new airline to get around the scope clause. And that’s why on the call you hear it being called CityLine 2.

The other piece is on the pilot side. You may remember Germanwings which used to be a low cost carrier that was eventually relegated to flying under the Eurowings brand. Then Lufthansa said it had too many airlines flying under the Eurowings brand, so it decided to shut down Germanwings. Now it has 250 pilots there that are going to lose their jobs, because the union didn’t want them coming into the other airlines and jumping ahead of the existing crews there. So, instead of just keeping Germanwings, Lufthansa will now transfer these people to the new regional airline, because it can probably do whatever it wants there.

And that is the theme of this. As CEO Carsten Spohr proudly explained, there are scope clauses in place on CityLine that were negotiated with labor. But Lufthansa has the right to start up a new airline that’s completely free of scope clauses. How this is legal or makes any sense is completely beyond me. What’s the point of a scope clause if it’s so easy to get around?

In the end, Lufthansa is just playing the same game it always plays. It is trying to engineer the most perfect airline group it can through overly complex machinations that will probably just be unwound at some point in the future, but not before angering its employees.

15 comments on “Lufthansa Plans Another End Run Around Labor With New Regional Subsidiary

  1. No word on what the new airline will actually… do?

    Like destinations, aircraft type and source, target market, or other basic information.

    1. Jason H – they’re calling it CityLine 2, so it’s just another regional operator, but one that will probably focus on the CRJ-900s and maybe larger… basically whatever CityLine won’t be able to do.

  2. As a retiree for the past three years in Malta, I read with interest your article on LH. I love flying business on LH all around Europe three to five times a year. Even during the Covid period, they still provided full meals and booze. And, most importantly, from what I can see from reading all sorts of aviation blogs, is not subject to an out of control customer base. And the flight attendants are first class.

    Recently I noticed that if I fly to Helsinki, via Munich, we sometimes now fly on CityLine. It first caught my attention when we first boarded one. Hmm. Things got smaller. Even though business is 2-2, they only sit one person per side.

    But, you best get the folks at Cirium to update their map. They left Malta off of it. FYI, it is an island just south of Sicily.

    Another piece of LH trivia for you. This past summer, LH in conjunction with Viking Cruises, flew non-stop, weekly from EWR to MLA. For that, a somewhat larger A330.

    1. Every time I board a European airline in J, I chuckle because while it’s nice having the center or a single seat blocked, it really doesn’t give me THAT much more space. I get that they like the flexibility it grants them (transitioning to high density takes seconds) but it sort of devalues the product to me, especially given the price premium they ask for it. To your point, though, LH crews are top notch.

      Unrelated, do you love being retired in Malta? We are still at least a decade out but that’s on our short list (for context, American).

  3. You forgot to mention Eurowings Europe, the Austrian subsidiary of Eurowings (presumably with cheaper labour than core German Eurowings). I think LH Group intends to set up a Eurowings Malta to fly under the Eurowings brand… but take advantage of different tax laws in Malta (ie lower tax than Austria) and possibly also different employment laws. If it is good enough for Ryanair to close down their Austrian subsidiary Lauda and create a new Malta based Lauda Europe, it must be good

  4. I read that Lufthansa has an interest in buying ITA. Maybe that would be a simpler solution to the airline’s apparent “problem” than creating a whole new subsidiary. Once in the fold, Lufthansa could simply rebrand its new acquisition as Alitalia, and become the “World’s Worst Airline” by default. Dr. Frankenstein (pronounced Fronkensteen) would be proud of that monster. Gene Wilder would be happy too. But what about Godzilla? He has to get into this story somehow, doesn’t he?

  5. Great description of LH’s typically convoluted thinking processes, Cranky! Perhaps they’ll name this one “CityLine Discover” – or would that not be confusing enough? Seriously, Lufthansa Group has to be one of the most confusing airline entanglements on Earth, operating so many seemingly unrelated entities that it surely must compete against itself in some markets.

    1. LuftEuroCityWingsDiscoveDoloSa

      With the right font that could encompass the entire fuselage!

    1. It’s not even a Frankstein’s monster, more like what came out of the transporter accident in the first Star Trek movie, yet somehow still alive.

  6. Cruel irony…my wife and I have been on vacation in Europe for about 11 days, and we were flying back this morning from Frankfurt to DFW on AA. I say “were”, because when we get the airport, we find out that the German version of TSA has declared a strike today for Frankfurt, Dusseldorf, and CGN. A few other airports yesterday or tomorrow.

    No security…no flights. ARRGGH. Got rebooked for tomorrow. Not real happy with Germans at the moment.

    American had a classic shrug response. Sorry, it’s out of our hands, so you’re on your own. Your flight went as scheduled. Don’t worry, it’s all the airlines, even the European ones. Same response.

    And of course we stop to get something to eat, and they wouldn’t serve us until we walked in the door with vaccine cards and TWO masks. Not just one. Please get me out of here.

  7. I wouldn’t be surprised if the German government starts taking a harder look at things like this, although in the “traffic light” coalition the Free Democrats (the most pro-business of the three parties) control the transport ministry, and the government is a little distracted right now, to say the least. But it’s a pretty blatant end-run around the unions, and I’d expect both the SDP and the Greens to be opposed.

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