=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2002/06/10/f= inancial1520EDT0167.DTL ---------------------------------------------------------------------- Monday, June 10, 2002 (AP) German budget airline challenges giant Lufthansa on key German domestic rou= tes DAVID McHUGH, AP Business Writer (06-10) 12:20 PDT COLOGNE, Germany (AP) -- Hermann Wohlers is finding that flying cheap quickly becomes habit-forming. The Cologne-based architect used to fly Lufthansa, Germany's dominant airline, to Berlin on business. But tiny Germania Airlines made him an offer he couldn't refuse -- $72 one way, no advance purchase. "You save a lot of money" with the smaller carrier, Wohlers said as he hustled for the gate recently to make a 7:30 a.m. flight from Cologne-Bonn airport. It's been working so well that he's booked another budget airline for a long weekend trip to France and Spain. "I'm booked on Ryanair to Perpignan for 22 euros ($20.50)," he said. "Ju= st for fun, for the weekend. I'm going to rent a car and drive down to the Costa Brava in Spain." Budget carriers like Ryanair and Easyjet have caught on with travelers in Britain, where four budget airlines have seized a quarter of passenger traffic. But they're just getting a toehold in Germany, with Berlin-based Germania and Ryanair challenging Lufthansa's dominance of domestic routes in Europe's largest economy. They'll have to get Germans like Wohlers to join other Europeans in acquiring the habit of flying cheap -- and find a way to make money in a tough market where short distances and competition from 145 mph trains and no-speed-limit highways often discourage flying. Germania, with just eight planes on two routes, has already pared a slice off Lufthansa's business on the country's busiest domestic route, between financial center Frankfurt and the capital, Berlin. Formerly a charter-only operator, Germania now flies twice a day in each direction for $93. That provoked a vigorous response from Lufthansa, which cut its prices 60 percent to $98.70 and fought Germania over landing slots at its crowded Frankfurt hub. Germany's Cartel Office, the country's antitrust regulator, stepped in, saying Lufthansa was pricing below cost and ordering it to keep its one-way fares at least $28.70 above Germania's. It can still offer a limited number of special $195 round trip tickets; the usual no-advance round-trip fare is $435. In April, Germania added service to the general public from Cologne and Bonn to Berlin, where it was already operating flights under a government contract to fly commuting bureaucrats displaced by the capital's move from Bonn to Berlin in 1999. It plans to add routes between Munich and Berlin and Hamburg and Berlin next year. Corporate trainer Uli Groenick likes it. "I called my travel agent and asked, how can I get to Berlin cheap," he said. "It's good for the client," he added -- the one paying the expenses. Germania's moves don't amount to a major challenge yet. It sells about 2= 50 seats a day on the Frankfurt route, compared to Lufthansa's 6,700. Ryanair, which is offering flights to 10 destinations outside Germany fr= om its base at Hahn outside Frankfurt, says it will start offering flights within Germany to two or three airports -- it won't say which ones -- next year. Another budget airline, Easyjet, has an option to buy regional German airline Deutsche BA. Analyst Juergen Pieper of Bankhaus Metzler says Germany is a tougher domestic air travel market than Britain or France. For one thing, it's closer to southern vacation destinations such as Italy, reachable in a six-hour drive instead of 12 to 15 hours from England. "Germany has a relatively efficient train and car system, and the distances are not so big, so the market is smaller than in France or Britain," Pieper said. "It's just different from the intra-France market, where you have to pay money to use the highways and where the train system is not so efficient." Germany's speedy trains whisk first-class passengers from Frankfurt's ci= ty center to downtown Berlin in 3 1/2 hours for $150.30 -- with an electrical plug for laptops, lots of leg room, and no airport cab ride. Publicly, Lufthansa says its not worried about budget competition. Chief executive Juergen Weber compared the budget airlines to the dot-com fad in an interview with the Frankfurt Allgemeine Zeitung. "A look at other sectors, such as the 'New Economy,' shows how fast you can burn money," he said. The no-frills experience will highlight "the advantages of a quality network carrier," he said. "He who has vacationed in a tent as a youth prefers a hotel as an adult." Despite Weber's stance, Lufthansa has engaged in a steady public relatio= ns battle with Ryanair, which continually taunts its larger competitor in press releases as "Germany's high-fare airline." Lufthansa won a court decision preventing Ryanair from comparing its fares from a former military airport 60 miles from Frankfurt with Lufthansa's fares from Frankfurt's international airport 15 minutes from the city center. Ryanair might be able to pick off some leisure travelers to destinations outside Germany, analyst Pieper thinks, but will remain a niche player. One reason: Lufthansa gets less than 10 percent of its sales from the intra-German market, much of which simply feeds international flights from its Frankfurt hub -- business that the budgets aren't likely to win. Germania insists it can make its routes pay. It keeps costs down by offering no in-flight freebies such as drinks, snacks or newspapers; by operating only one type of plane, the Boeing 737; and by keeping staffing down to bare bones. Administrative employees are crosstrained to work as flight attendants in a pinch. Chief executive Mustafa Muscati says it only needs to fill 60 percent of its capacity to make money -- something he says it's doing, thanks to the Cartel Office order. Lufthansa "is showing the wrong reaction," Muscati said. "It would be better for them to have us as a competitor rather than someone more aggressive." "What they are doing instead is making us very popular and earning them a lot of bad publicity." On the Net: www.lufthansa.com www.ryanair.com =20 ---------------------------------------------------------------------- Copyright 2002 AP