German budget airline Lufthansa announced yesterday that it has received a €9 billion “stabilization package” from the German government.
As part of the agreement, the company will put €7 billion of the funds toward building capacity for its expanding short-haul airline business, along with new aircraft.
The largest portion of the funding will be allocated to new aircraft and spares to allow Lufthansa to expand its domestic and regional network. The expansion is expected to cover routes to 200 destinations and create more than 40,000 new jobs.
“We are taking immediate action to expand our regional network and rebuild our short-haul operations to be able to compete effectively in future,” said Carsten Spohr, Lufthansa’s Chief Executive. “As part of our transformation we are investing in larger aircraft that offer increased capacity and better efficiency. This will give us the flexibility to grow the network in an expansionist manner.”
Lufthansa plans to use the funds to launch a new Regional High-Capacity Jet (RH-1) which will have a seating capacity of 160, the company said. The aircraft will fly international routes along with domestic and regional routes and Lufthansa said it would add 20 more units to its network of aircraft this year, bringing its total to 350 aircraft.
Lufthansa is also expected to receive a five-year plan for the development of its cloud-based operations system known as Lufthansa Systems by end of 2019, as well as plans for an intra-European consolidation by year-end 2020. The company is expected to add more than 200 flight frequencies and 200 additional daily flights.
The remaining €1 billion will be utilized by Lufthansa for capital expenditure costs.
According to the company, one of its greatest long-term goals is to build a strategic partnership with US company JetBlue.
Yesterday, the company announced that Richard Englert had been named as head of Lufthansa’s short-haul business. The airline has been heavily criticized for being too Eurocentric and not making a serious attempt to challenge industry leaders United Airlines and Delta Air Lines by expanding to US destinations. The pressure from low-cost competitors like Spirit Airlines has put added pressure on Lufthansa to be competitive.