TCG: Lufthansa an unlikely buyer of Condor

All,

In light of today’s deadline for preliminary bids on TCG’s airline, Lufthansa have made the below comments to Reuters at their AGM:

"Germany's largest airline Deutsche Lufthansa will make a non-binding offer for Thomas Cook's Condor with an option to acquire the remaining airlines of the British group Lufthansa's CEO said on Tuesday."We decided yesterday in the meeting of the management board to bid for all of Condor with the option to be able to extend this (bid) to all Thomas Cook airlines," Spohr said on the sidelines of Lufthansa's annual general meeting in Bonn Germany.Spohr added it was unlikely a single buyer could acquire all Thomas Cook airlines due to antitrust regulations."

Condor is the Gernan operations of Thomas Cook - it doesn’t report separate numbers to the overall TCG airline group, but it flies 7m passengers, so 37% of the overall Group by volume. Condor operate 42 aircraft, 16 of which are focused on long haul (numbers are flexible as TCG moves planes between the Groups).

Thoughts:

- We continue to struggle seeing Lufthansa able to buy Condor for competition issues. Lufthansa have 55% market share in the German short haul market, (combined share of Lufthansa + subsidiary Eurowings),  with the nearest rival Ryanair at 10%.  Condor have a 3% market share.  We think its unlikely that the Competition Authority will allow more consolidation by the number 1 player. 

- Note, under AirBerlin Lufthansa had to abandon acquiring part of Air Berlin due to competition concerns. See link for EU press release http://europa.eu/rapid/press-release_IP-17-5402_en.htm . Condor have over 400 slots in Frankfurt and over 200 in Duesseldorf. It was the slots in the latter city (and Lufthansa’s potentially resulting dominance there) that sunk Lufthansa’s attempt to buy Air Berlin.

- Another aspect will be the sheer political pressure on Lufthansa to be seen to try to save employees (ex Lufthansa business for good measure), given the distressed background at TCG.

- Also, participating allows Lufthansa to have some partial control over a process in its own backyard.