German airline Lufthansa said Wednesday it would merge its subsidiaries Lufthansa Direct Services and Germanwings from January 1, 2013 but choose a name for the new company at a later stage.
"Combining our domestic German and European point-to-point services has enormous potential to improve efficiency," Lufthansa chief Christoph Franz said in a statement.
Direct Services operates all domestic and European Lufthansa flights that do not stop in Frankfurt or Munich, the airline group's main hubs, and "will be merged commercially and organisationally with Germanwings to form one company on the basis of Germanwings GmbH from 1 January 2013".
The company's headquarters will be Cologne.
The announcement came less than two weeks after the latest 24-hour staff walkout grounded half of Lufthansa flights in Germany on September 7.
Lufthansa and the union representing flight attendants on Thursday agreed on a mediator to help solve a pay dispute.
The strike affected more than 100,000 passengers, with around half the airline's 1,800 daily flights cancelled.
The stoppage at the airports of Frankfurt, Berlin, Hamburg, Munich, Duesseldorf and Stuttgart was called as unions stepped up pressure in the dispute.
Lufthansa said in its statement on Wednesday that the new company would "operate the Germanwings aircraft and the Direct Services fleet from 2013.
"In addition, the aircraft of Eurowings GmbH are set to fly on behalf of the new company, meaning that around 90 aircraft will cover direct services in Germany and Europe."
Lufthansa expects the new company to transport more than 18 million passengers in the first year.
"As part of the Lufthansa Airline Group the new company will get underway with the accordingly high quality standards," Franz said.
"The decision about the future brand name will only be made in the upcoming months."
"Our aim is to once again fly these services profitably under the umbrella of a single company.
"This means we are continuing to offer our guests the prospect of a dense, high-quality network even outside of our Frankfurt and Munich hubs.
"And our employees in these areas have the prospect of secure jobs within a company of the Lufthansa Group," he added.