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Business

Low-Airfare Wave Swallows German Carrier

The budget airlines have taken Europe by storm, causing havoc for established flagship carriers. This week, Germany's second biggest carrier 'Deutsche BA' announced it would be bought by British budget airline EasyJet.

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Deutsche BA's 16 planes could soon sport this subdued design

In the end, it just wasn't enough.

Only last month, Germany's second biggest airline Deutsche BA announced new strategies to get out of the red. The German subsidiary of British Airways wanted to transform into a budget airline, offering super-low ticket prices, no-frills in service and new popular destinations.

But on Wednesday, Deutsche BA had to admit that that new strategy wasn't enough to get the carrier out of the red.

British Airways Deutsche BA Logo

the logo of the German unit of British Aiways Deutsche BA

Its mother company, British Airways, offered Britain's budget airline EasyJet an option to buy Deutsche BA. The price will be between 30 and 46 million euro ($27.5 and $42 million). The option will remain open until March 31st of next year.

EasyJet CEO Ray Webster said buying Deutsche BA would boost the budget airline's growth. "Through this deal, we can establish EasyJet as the largest budget airline in Germany," Webster said.

EasyJet is also planning to buy another competitor, former British Airways subsidiary Go. If EasyJet finalizes these deals, it will become Europe's biggest budget airline, with 14 million passengers a year. Ireland's Ryanair, which holds the number one slot now, would be relegated to second place.

Troubled from the start

Deutsche BA was founded in 1992. Today the airline owns 16 Boeing planes and offers 130 flights a day, connecting German cities like Berlin, Hamburg, Cologne and Munich. Deutsche BA employs 860 people and expects to fly some 3.2 million passengers this year.

But from the day it first took to the sky, Deutsche BA lost money. And in hindsight, the plans to turn the airline into a budget airline, only seem like a last-ditch effort to save it. But in the end, even cutting ticket prices by 20 to 30 percent didn't help.

Deutsche BA's new business strategy did, however, make the company more interesting for prospective buyers: If EasyJet buys Deutsche BA now, it will get a carrier that has already adapted to the market situation and where painful cuts have already been made by the old Deutsche BA management. "The new Deutsche BA business concept fits very well into the EasyJet strategy," the head of Deutsche BA Adrian Hunt said.

Germans go for budget deals

Budget airlines like Ryanair, Buzz and Go have been waging a price war in Germany for months. But EasyJet will leave the competition behind once it buys Deutsche BA.

Low-cost carriers squeeze profits out of a simple corporate structure, selling tickets via the internet and a fleet with only one plane type, which simplifies training for pilots and crews.

Industry analysts think that in five years the market share of low-cost carriers could leap to around 20 percent in some European countries. Budget airlines are seen growing most on routes between big European cities. And this creates a big headache for traditional full-service airlines like Lufthansa, British Airways and KLM.

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