Lufthansa said a project to bring together its Germanwings unit and point-to-point services in Europe was one option being considered under plans to cope better with low-cost competition.
"It is just a business case at the moment," a spokesman for Germany's largest airline said on Friday, after Bild Zeitung reported Lufthansa was planning a new low-cost airline called Direct 4 You.
"No decision has yet been taken on implementation or any brand name," the spokesman said, adding Direct 4 You was the project name.
While Lufthansa is strong in intercontinental and hub traffic, it has suffered in Europe from the rise of low-cost carriers such as easyJet and Ryanair.
It is not the only European legacy carrier trying to find an answer to the low-cost challenge. The French arm of Air France-KLM is also overhauling its European passenger network, with plans to develop low-cost unit Transavia.
Carsten Spohr, head of Lufthansa's German airline division, said in a letter to employees last week the group planned to merge its Lufthansa direct services within Europe and Germanwings.
"As part of this business we will create a uniform shared fleet of A319/A320/A321 aircraft... in order to finally cap the losses being made in decentralized traffic," Spohr said.