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FRANKFURT (Reuters) - Germany's Lufthansa (DE:LHAG) said on Wednesday it had agreed to order 25 new Airbus (PA:AIR) planes worth 2.5 billion euros ($3.24 billion / 1.99 billion pounds) at list prices to replace older aircraft and cut fuel costs at two subsidiary airlines.
Lufthansa's supervisory board agreed to buy 10 current-generation A320ceo jets for its Eurowings low-cost unit and 15 revamped A320neo aircraft for its Swiss International division, Germany's flagship carrier said.
A further 13 A320s will be transferred from the group's total aircraft order volume to Eurowings starting in 2015 as it seeks to expand budget operations to tap into a segment of the market that it sees as offering strong growth.
Lufthansa, which has prided itself on being a full-service airline targeting business customers, wants to expand Eurowings, a little-known unit, to serve tourist routes from destinations outside of Germany, where it already runs budget services under the Germanwings brand.
"There are more customers out there that can't be reached with the premium segment," Lufthansa Chief Executive Carsten Spohr said at an event in Frankfurt last week.
Eurowings currently uses Bombardier (TO:BBDb) CRJ900 aircraft but Lufthansa says these are not cost-effective enough for expansion. The plan is for the unit to operate up to 23 A320s, with revamped operations to start early next year. The first base outside of Germany will be in Basel, Switzerland.
Lufthansa pilots and cabin crew unions have criticised the plans as further cost-cutting, while investors and analysts are unsure whether Lufthansa should branch out.
Rival Air France (PA:AIRF) last week announced plans to expand budget flights using its Transavia low-cost unit, triggering an Air France pilot strike now in its third day.
(Reporting by Kirsti Knolle, Writing by Victoria Bryan, Tim Hepher; Editing by Jonathan Gould and Susan Thomas)