Germanwings, Lufthansa's response to battle for budget travellers

By Caroline Copley

BERLIN (Reuters) - The Airbus which crashed into the French Alps on Tuesday was operated by Lufthansa's Germanwings, a budget airline that has grown to become the German flag-carrier's main short-haul operator as it battles competition from no-frills rivals.

It was the first crash in the history of Cologne-based Germanwings, which was founded in 2002 and operates flights between European cities and to some holiday destinations in North Africa, Asia and the Middle East.

Acquired by Lufthansa in 2009, the airline was kept deliberately small for many years so as not to compete with its parent company.

But as state-owned Gulf airlines and low cost rivals including easyJet, AirBerlin and TUIfly began to poach more of its customers, Germany's biggest airline decided to expand the services of its low-cost carrier.

Germanwings now carries around 16 million passengers per year and operated a fleet of 78 aircraft as of October 2014, comprising Airbus A319, A320 and A330 planes as well as Bombardier CRJ900 NextGen aircraft.

Beginning in early 2013, Lufthansa moved all of its short-haul flights, except those serving its two hubs of Frankfurt and Munich, to Germanwings to try and keep costs down and better compete with Ryanair.

As it caters for more business travellers, the airline now offers options including extra leg room, a la carte catering and access to airport lounges. At the other end of the spectrum, budget holidaymakers can choose a no-frills, basic option.

But despite branding itself as a budget airline, it remains relatively expensive to run and operates on a cost basis that is only a fifth lower than the Lufthansa brand.

As a result, Lufthansa announced plans last July to expand regional airline Eurowings, where costs are 20 pct below that of Germanwings.

The Germanwings brand will therefore be integrated into Eurowings, Lufthansa said this month. ?Lufthansa has said Eurowings has the potential to become Europe's third largest low cost carrier after Ryanair and easyJet.

Pilots at Lufthansa carriers including Germanwings have repeatedly gone on strike in a long-running row over plans to change early retirement benefits. They also oppose plans to expand Eurowings, which is not subject to the same collective labour agreements.

(Additionbal reporting by Peter Maushagen and Maria Sheahan; Editing by Stephen Brown)