German flag-carrier Lufthansa has confirmed it will merge some domestic routes with subsidiary Germanwings in order to cut costs.

The move is designed to improve profits and fend off growing competition from low-cost carriers.

Under the proposals, flights within Germany and some areas of Europe, excluding those from hubs in Frankfurt and Munich, will be merged with existing low-cost airline Germanwings from January 1st, 2013.

The new service will carry over 18 million passengers in its first year, Lufthansa said.

Lufthansa, one of the largest airlines in Europe, carries just over 100 million passengers a year.

The decision to bundle its short-haul flights under the low-cost brand comes after union representatives agreed to begin a formal mediation procedure.

Unions had called a series of strikes over what they perceived to be job losses as the carrier.