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I am not sure if LH was really pushing for this, but believe this is one of the populist moves of the new conservative government to “protect German jobs and companies”. LH applies the same discounting from foreign destinations connecting through their hub in FRA. Recnty bought JFK-FRA-MAD return business and the ticket was cheaper tha just buyong JFK-FRA return. The reason i suspect is that they have to compete with Jetairlines on the same route.
The German government would be well advised not to interfere. As to the argument of State Subsidies.. all airlines in one shape or another get some protection form their gov.. landing rights (slots at LHR), tax relieve on jet fuel, tax relieve on GST etc. as some example.
If one would like to make that the decisive factor – well, welcome to the US/EU banana war.
Let the companies decide at which price they offer their product and us the customers which product at which price point we prefer.