Lufthansa, Thomas Cook's Condor in Tie-Up Talks

Deutsche Lufthansa AG is in talks with Thomas Cook Group PLC's Condor Airlines about a tie-up, people familiar with the talks said, as the German flag carrier seeks to expand is Eurowings budget unit.

The talks are still at an early stage with no assurance a deal will be done, the people said. The negotiations range from cooperation to a potential takeover of Condor by Lufthansa.

Lufthansa once owned Condor before eventually selling its stake.

"I think Europe urgently needs another wave of consolidation," Lufthansa Chief Executive Carsten Spohr said last month. Budget unit Eurowings was set up in a way it could "serve as our tool for consolidation," he said.

Lufthansa also has been considering whether to exercise a purchase option for the Brussels Airlines and potentially folding the operation into Eurowings. The German carrier already owns 45% of Brussels Airlines.

Europe's airline sector remains heavily fragmented when compared with the U.S., where waves of consolidation have reduced the number of carriers, helping underpin profits.

Airlines in Europe have seen ticket prices fall amid stiff competition between rapidly expanding carriers such as budget airlines Ryanair Holdings PLC and Britain's easyJet PLC, and network airlines such as Lufthansa and Air France-KLM SA, who have set up discount units to battle their cheaper rivals.

Thomas Cook in February reported that Condor's underlying earnings before interest and taxes fell by £ 8 million ($11.5 million) in the first-quarter ended Dec. 31.

"While we continue to deliver growth in our long-haul markets, overcapacity and weak demand in the short and medium-haul sector has resulted in a lower year-on-year performance," Chief Financial Officer Michael Healy said at the time.

Write to Archibald Preuschat at [e-mail] and Robert Wall at [e-mail]

(END) Dow Jones Newswires

April 22, 2016 07:15 ET (11:15 GMT)

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