This paper examines the German low cost airline industry by analysing how the growth of low cost competition has influenced the industry's pattern of employment relations. The paper highlights the role of Lufthansa, as both the traditional flag carrier and the leading site of employment relations within the German aviation sector. The paper explains how Lufthansa has positioned itself to face low cost competition by, among other initiatives, creating its own low cost subsidiary (Germanwings). Competitive pressures, stemming from the liberalization of European aviation and demand for low cost travel, have produced a marked divergence in this industry from the typical pattern of German employment relations. The paper explains this divergence by situating the case study within the varieties of capitalism literature.