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. Last Updated: 07/27/2016

German Tour Firm Defies War Gloom With Joint Venture

On the same day that Europe's top tour operator scrapped plans to come to Russia, its German rival, LTU Touristik, did just the opposite, sealing plans to set up shop in Moscow.

LTU Touristik, Germany's No. 3 firm, based in Cologne, announced Monday it has teamed up with a little-known airline in Moscow to expand its presence abroad, despite the doom-and-gloom forecast for the travel industry, one of the first hit by war in Iraq.

It's exactly this dampened morale that prompted TUI to scrap its search for a Russian partner.

"It's better to be a little bit more cautious at the moment," Thies Rheinsberg, director of corporate development for TUI, based in Hannover, Germany, was quoted by Dow Jones as saying.

"If we could clearly see how long the war would last, how the market would develop and when it might bounce back, then that might change things," he said.

Until recently, TUI was in talks with three Russian tour companies -- St. Petersburg's Neva and, in Moscow, Touralliance and Inna Tour -- negotiating for a 25-percent equity stake.

But following the start of war in Iraq last Thursday, Russian tourist companies have been reeling from a mounting wave of cancellations in the midst of what was expected to be a prime travel season.

"The Russian market will take a lot of time," Rheinsberg said. "It's a fresh, emerging market. The structures aren't very stable. There's still a lot of movement, so it's difficult to know on which horse you want to bet."

Yet for TUI's competitor, No. 3 LTU Touristik the time seemed ripe.

"I don't think that one should panic," Dierk Berlinghoff, LTU Touristik's vice president said at a news conference Monday in Moscow.

From Russia, LTU Touristik will concentrate its resources on the very destinations -- Egypt and Turkey -- for which domestic companies have seen demand drop the most since the start of war.

LTU Touristik, together with a small Moscow-based charter carrier called Airlines 400, launched a joint venture called ITourS, in which the German company holds a 70 percent stake, while the airline holds 30 percent.

ITourS will have a presence in seven countries and expects to serve as many as 45,000 tourists in the coming summer season.

"The Russian market is very interesting to us from a growth point of view, and it was the first on our list for expanding our activity," Berlinghoff said. "We have come to Russia for the long term and hope to become one of the most important companies here in the near future."

Founded in 1999, Airlines 400 operates 15 Tu-154M airplanes, of which three to four will run flights for the joint venture.

Operating out of Domodedovo airport, Airlines 400 last year flew 69,000 passengers to destinations in Spain, Turkey, Mountenegro, Greece and Iraq. The airline is a fully owned subsidiary of the Vnukovo Aircraft Repair Plant, which is in turn controlled by the company's management.

Berlinghoff said that LTU Touristik did not hold negotiations with any Russian company other than Airlines 400, pointing to their prior positive experience with Bulgarian Air Charter, which flies six planes belonging to Airline 400.

Denis Timofeyev, general director of newly launched ITourS, with a staff of 20 in Moscow, said the company will initially operate four flights a week, with the first flight to Sharm el Sheikh, Egypt, on April 19.

Russian companies and market watchers were skeptical that LTU Touristik could meet its ambitious targets without slashing costs on travel packages to undersell competitors and establish market share, a practice known as dumping.

"There is fierce competition in the market right now, especially because of the war. There are so many cancellations that how would you enter the market -- through price dumping?" said a tour manager, who asked not to be identified.

"Companies are cutting their programs and meanwhile they are just about to enter. ... It does not look well thought out," the manager said.

"I don't see how a company which enters the market at the end of March and does not plan price dumping is going to have 45,000 tourists," Irina Tyurina, spokeswoman for the Russian Tourism Union, said.