Route Expansion

Air Berlin Suddenly Changes Course

Air Berlin's flock may not be culled after all. Credit: Imago/Jochen Tack
Air Berlin's flock may not be culled after all.
  • Why it matters

    Why it matters

    • Air Berlin is in a partnership with Gulf airline Etihad that has verged on failure following ill-timed takeovers by charter competitors and a costly fleet expansion at a time when air travel demand was down.
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  • Facts

    Facts

    • Air Berlin suffered a €294 million operational loss last year.
    • Chief Executive Stefan Pichler orginally planned to cut unprofitable connections and 1,000 jobs.
    • But a surprise new strategy would reportedly focus on expanding long-distance connections.
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    Audio

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The news from Air Berlin hasn’t been good lately. Just a few weeks ago, Chief Executive Stefan Pichler announced major cuts to the troubled airline’s service, particularly in Europe.

But it now appears that Air Berlin, Germany’s second-largest airline, has chosen to focus on expansion instead, with a surprise new plan set to be discussed by the supervisory board on Tuesday. 

Company insiders told Handelsblatt that the new concept would add connections to the United States, like Dallas for example, and possibly acquire two more Airbus A330s to service the new routes. There would still be cuts in Europe, but they wouldn’t be as severe as originally planned. Just four aircraft would be pulled from Air Berlin’s fleet instead of the 20 that had initially been discussed.

“The long-distance flights are much more attractive in terms of margins compared to the highly competitive traffic in Europe.”

Gerald Wissel, CEO Airborne Consulting

It’s unclear what Air Berlin’s supervisory board will decide when it meets on Tuesday. But the expansion has a good chance of being approved, according to Handelsblatt’s sources.

Gulf airline Etihad, which owns a 30 percent stake in Air Berlin, is said to support such a strategy, though both carriers declined to comment on the matter. An Etihad spokeswoman would only say that Chief Executive James Hogan hasn’t decided for or against a growth strategy.

At Air Berlin, Mr. Pichler’s goal is to reinvigorate the airline with a clear strategy. Following a failed acquisition policy, the carrier suffered a €294 million ($314 million) operational loss last year, having already used up its equity two years ago.

To balance the books, Mr. Pichler originally planned to cut unprofitable connections and lay off 1,000 of the airline’s 9,000 employees. His plan was met with resistance, however, during a supervisory board meeting in late September. The body has been divided over the way forward, and Mr. Pichler was asked to rework his plan.

While a growth strategy would be a major reversal from Air Berlin’s current course, it has advantages. The struggling airline would, for example, avoid a conflict with the pilots’ union Cockpit, as many of the 1,000 positions on the chopping block belong to pilots. After years of trying to cut costs by reducing service, Air Berlin now has too many pilots.

But even if the supervisory board votes for the growth plan on Tuesday, Air Berlin won’t be able to avoid cuts altogether. Unions expect that ground personnel will be hit the hardest.

It’s also unclear just how Air Berlin would finance an expansion. Etihad has already pumped money into Air Berlin several times, and risks becoming the majority shareholder if it does so again. If a foreign company like Etihad acquires a controlling position, Air Berlin would lose its air traffic rights in Germany.

“It’s not a bad strategy to bank on growth instead of focusing only on cutting costs,” Gerald Wissel, with the Hamburg-based Airborne Consulting, told Handelsblatt.

Air Berlin has already been squeezed dry, Mr. Wissel said, so there’s nothing more to gain from cutting costs.

“The long-distance flights are much more attractive in terms of margins compared to the highly competitive traffic in Europe,” he continued. “In that sense, the idea of expanding in this area is logical.”

 

Air Berlin-01

 

Jens Koenen leads Handelsblatt’s coverage of the aviation and IT industry and is bureau chief of the Frankfurt office. To contact the author: koenen@handelsblatt.com

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