Shifting grounds: European legacy carriers have operated on a hub-and-spoke model for decades that relied on a dirty secret — short-haul feeder flights were a loss-leading necessity designed solely to fill high-margin long-haul flights. But as Lufthansa’s latest turnaround plan reveals, that model may have finally broken under the weight of ruthless competition from Gulf and low-cost carriers (LCC), as well as a mix of stringent domestic aviation taxes.

How it’s coming down: Europe’s largest carrier (by revenue) rolled out a turnaround plan last September that pares back domestic feeding and capacity. The plan would see Lufthansa cut 4,000 jobs by 2030 and axing more than 50 frequencies from its summer 2026 schedule, hitting domestic links such as Munich–Cologne, Düsseldorf–Berlin, and Frankfurt–Leipzig/Nuremberg. Regional services from Frankfurt to Toulouse and from Munich to Tallinn and Oviedo will also be suspended next spring.

Double trouble-

Lufthansa is currently caught in a strategic squeeze. From the bottom, budget carriers are “ruthless” efficiency machines, siphoning off market share from legacy carriers while “manufacturing demand” at prices legacy airlines cannot match, John Grant, a partner at Midas Aviation, told EnterpriseAM. Unlike legacy carriers, they “maximize the number of hours their aircraft fly” and do not wait for connecting passengers, he added.

From the top, Gulf carriers have moved from being simple long-haul competitors to becoming local bypasses. Etihad is aggressively moving into what is known as “secondary city” hubs in Europe, with direct services to Prague, Warsaw, Tbilisi, and Bucharest — all routes that have historically been strong for Lufthansa. By offering different scheduling and price points, Gulf carriers are providing an alternative that renders the Frankfurt hub unnecessary for many travelers, Grant told us. “Choice is what the market wants,” he added.

The drivers: margin wars and tough policies-

The gap is real: Middle Eastern carriers lead the industry with a 9.3% net margin and a $28.60 net yield per passenger, while European peers struggle with just $10.90. The gap is so wide that the high margin in our region includes a spate of loss-making operators such as Kuwait Airways, Grant told EnterpriseAM.

Catching up on this gap is further complicated by Europe’s tight compliance landscape, whereas the Gulf continues to build up its market power through state-backed incentives. Under the RefuelEU, carriers face a mandatory 2% SAF blend that started back in January 2025, with double-price penalties for missing the target — something that Grant says is inevitable given SAF supply chain snags and price. Meanwhile, the UAE is making SAF goals voluntary, with 1% target and plans to produce some 700 mn liters of SAF annually by 2030.

These policies have real market repercussions. For example, EU rules apply only at departure, meaning that a Paris-Doha-Singapore flight would require paying the green premium only on the first leg from Europe –– a loophole that could divert around 24% of long-haul traffic to non-EU hubs.

The fix-

Mind your lane, win your race: Lufthansa’s true challenge is internal — it must get its cost base, network, and distribution right, Grant told EnterpriseAM. While legacy airlines often try to be “too smart and too clever,” survival now depends on “knowing what you’re good at and staying with that,” he added. Subsidizing feeders no longer works — instead, legacy carriers like Lufthansa need to focus on where they can still turn a positive margin.

This is why Lufthansa is now repositioning around long-haul returns. The group is targeting 6% capacity growth on long-haul passenger routes in 2026, anchoring a broader push to lift margins to 8%–10% between 2028 and 2030. Meanwhile, short-haul capacity growth will be deliberately capped, with efficiency — not volume — driving network decisions.

A case in point: If you’re planning Lufthansa’s network in Frankfurt, why fly a half-full Frankfurt-Munich, when the same aircraft can run Frankfurt-Hethrow at the same time, carry more passengers, and attract more business traffic — while still feeding long-haul networks, Grant argued.

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