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Lufthansa took strides late last month to expand its network on both sides of the Atlantic, but the German carrier acknowledged operational and regulatory challenges for its U.S. plans.

In Europe, Lufthansa secured European Commission approval for its acquisition of Austrian Airlines in a deal worth about $237 million, after the German airline agreed to give up certain routes to allay the commission's antitrust concerns.

Lufthansa must cut back the number of flights from Vienna to Brussels and to Frankfurt, Munich, Stuttgart and Cologne, Germany, to make it easier for new entrants to offer flights on those routes.

In return, the commission allowed the Austrian government to provide some of the funding, about $700 million, to restructure Austrian.

Lufthansa bought 90% of Austrian's stock last week and expects to start integrating Austrian into its network starting this month.

In the U.S., Lufthansa signed a codeshare agreement with JetBlue, initially connecting service between 12 JetBlue destinations in the U.S. and Puerto Rico and Lufthansa's global network of 180 destinations, via the New York and Boston gateways.

The codeshare would expand on the German carrier's relationship with JetBlue. Lufthansa secured a 19% stake in JetBlue in January 2008, just under the legal limit for foreign investment in a U.S.-based airline under federal law. Lufthansa officials have said they would like to buy a bigger stake of JetBlue, should federal law be changed to allow more foreign investment in domestic airlines.

The codeshare still faces U.S. Transportation Department approval. Jens Bischof, Lufthansa Americas vice president, said he expected challenges from competitors, not only because of the German carrier's investment in JetBlue but because of its membership in the Star Alliance, and because the DOT recently approved a joint venture between Lufthansa and Star partners Continental, United and Air Canada.

Still, Bischof said he expected to get the necessary approval.

"This is not about market dominance," he said. "It's a customer-service issue."

He said the codeshare should have no bearing on its other agreements, which involve JetBlue competitors.

What Lufthansa has to focus on now, he said, is finding the best way to combine the networks of a low-cost carrier such as JetBlue with a premium airline like Lufthansa.

"It's not a no-frills airline," Bischof said. JetBlue has a strong brand and reputation that will fit well with Lufthansa, he said.

Still, he said, "There are I.T. and operational challenges when it comes to linking a low-cost airline and a premium airline," he said.

But, he said, Lufthansa wants to be careful to keep intact JetBlue's mind-set of combining low fares with reliable service.

At the same time, the codeshare will enable Lufthansa to tap JetBlue's extensive domestic network through Fort Lauderdale, Fort Myers, Tampa and West Palm Beach in Florida; Buffalo, Rochester and Syracuse in New York; Austin, Texas; New Orleans; Pittsburgh; San Juan; and Raleigh-Durham, N.C.

The deal also offers JetBlue passengers access to the German carrier's European, African and Asian service through hubs such as Frankfurt and Munich, Bischof said.

"This [codeshare] has to be viewed in the context of what we are doing in Europe and the United States," he said.