Air Berlin`s administrators will focus on selling its attractive take-off and landing slots in Germany, a source familiar with the process said, potentially opening up the market to new players.
Loss-making Air Berlin has until now helped to shield Lufthansa and Germany, where a booming economy is fuelling demand for travel, from low-cost carriers.
But the fight is now on for German passengers after Air Berlin filed for insolvency on Tuesday, with Lufthansa seeking to shore up its own position against budget rivals Ryanair and easyJet.
Some doubt that the German government will allow the demise of the country`s second largest carrier to change the balance of power, highlighting Berlin`s willingness to give Air Berlin a loan to keep planes in the air while it negotiates the sale of parts of its business after shareholder Etihad said it would not provide any more funding.
Ryanair`s outspoken chief executive Michael O`Leary told Reuters he sees in the Air Berlin insolvency process a further attempt to block it out of Germany.
"When Malev went bust, everybody stepped in. But there`s no gap to step into here because they`re going to keep the airline flying," O`Leary said, referring to the failure of Hungarian airline Malev in 2012.
Overall, low-cost carriers account for only 33 percent of flights from Germany, against a market share of around 42 percent in Europe as a whole and 61 percent in Britain, according to data from Flightglobal Schedules data.
While Air Berlin is small internationally, it has 27 percent of the market for German domestic flights, while Lufthansa has 68 percent.
The opportunity offered by Air Berlin`s demise has already sparked interest from Britain`s easyJet, which is in talks with the German government over its assets, a source has said.
"Lufthansa and easyJet would be a good fit," said the first source of the slots on offer.
Meanwhile, Thomas Cook`s German airline Condor said on Wednesday it was ready to play "an active role".INDUSTRIAL PRIZE
Among Air Berlin`s potentially most attractive assets include its presence in Germany`s industrial heartland of North Rhine Westphalia, where it has around a third of the slots at Duesseldorf airport.
"(Duesseldorf) is particularly important as it is a heavily slot-constrained airport for environmental reasons and is at the heart of the German economy providing potentially more lucrative business traffic for Lufthansa," aviation consultant John Strickland said.
While Lufthansa has long been interested in taking over more of Air Berlin`s operations and the insolvency means it stands a better chance of being able to pick up parts of the business without taking on Air Berlin`s debt, it may still fall foul of competition rules.
"It could be difficult for Lufthansa to acquire all of Air Berlin`s slots, especially as Lufthansa is very strong in Germany," Jens-Olrik Murach, a partner at Brussels-based law firm Gibson Dunn, said.
Liberum analyst Gerald Khoo also said Lufthansa would have to be careful to avoid increasing its costs, whether through securing aircraft that Air Berlin already flies on behalf of Lufthansa, or through taking on further assets.
He said that Lufthansa`s position in Germany may be secure for a while yet as Ryanair and easyJet may not be able to re-deploy capacity to Germany this winter.
"However, we would expect German airports to move up the list of priorities for next summer for both major low-cost carriers, whether or not they attempt to pick up assets and/or staff from Air Berlin`s bankruptcy process," he said in a note.