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European airline groups: Lufthansa hints at holding company structure

Premium Analysis

Buried in an 11-Dec-2019 announcement about senior Lufthansa Group appointments was a reference to "the planned legal independence of the Lufthansa airline". This seems to indicate that Europe's largest airline group is moving towards a holding company structure, aligning it more with IAG, Air France-KLM and Ryanair, which has adopted a holding company structure this year. Currently, Lufthansa itself is both the group's parent and its largest operating company.

Among European airline groups, IAG pioneered the holding company concept and, with its brand neutral parent name, still applies it more completely than the others.

The approach is to allocate capital where returns are highest, to use distinct brands for distinct markets, and to facilitate future acquisitions and start-ups without distracting management of the operating companies.

Air France-KLM has a holding company and different brands in different markets, but has been less rigorous about efficient capital allocation. Lufthansa applies capital discipline to its subsidiaries and has distinct brands, but its current group structure arguably preserves an inbuilt bias in favour of the parent airline.

Ryanair's conversion appears pragmatic, increasing its flexibility over labour and brands rather than a pure capital allocation focus.

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