Etihad deal

Air Berlin Lives to Fly Another Day

Air Berlin Ethiad
Etihad has sold a total of 82,000 flight seats via Air Berlin for this season.
  • Why it matters

    Why it matters

    The agreement between Air Berlin and Etihad is fiercely contested by rivals as it gives Etihad access to German routes it is not permitted to operate.

  • Facts

    Facts

    • Air Berlin is Germany’s second-largest airline and is 30-percent owned by Etihad.
    • The two operate a code-share agreement on flights to and from Germany.
    • Etihad estimates troubled Air Berlin has made €252 million ($277 million) in profits since the deal began in 2012.
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    Audio

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Air Berlin, Germany’s second-largest airline, and its Abu Dhabi-based partner and shareholder, Etihad Airways, have been granted an extension to sort out a code-sharing agreement that competitor Lufthansa has challenged as being legally dubious.

The two carriers have been given until January 16 to figure out a new schedule for code-sharing, which has provided a vital lifeline of sales for financially struggling Air Berlin. The two carriers are being allowed to continue with their code-sharing until a new plan is developed.

The decision wasn’t an easy one for German Transport Minister Alexander Dobrindt. He says Etihad’s three-year-old code-sharing partnership with Air Berlin isn’t covered by Germany’s air transport agreement with the United Arab Emirates.

But the state-owned Persian Gulf airline, which owns nearly 30 percent of Air Berlin, has already sold 82,000 tickets for the winter season that start today and run through March.

Had the ministry declared the arrangement invalid, tens of thousands of passengers would have been unable to fly, and struggling Air Berlin would have suffered serious economic damage. Etihad estimates Air Berlin has reaped €252 million ($277 million) in profits since they began their code-sharing agreement in 2012.

A court in Braunschweig had already ruled that Germany’s Federal Aviation office had to extend the code-sharing agreement at least through November 8, 2015.

“The failure by the German government to approve the code shares in time would severely, and possibly terminally, damage Air Berlin,” Etihad Chief Executive James Hogan said in a press release.

Air Berlin has teetered on the verge of failure since an ill-timed series of takeovers of a charter competitors such as LTU, and a costly expansion of its fleet at a time when air travel demand was contracting. The airline has also been hemmed in by the political clout of Lufthansa, Germany’s national carrier, which operates out of its hubs in Frankfurt and Munich and has tried to relegate the German capital to the status of a provincial hub.

Until recently, Lufthansa was willing to tolerate Air Berlin’s strategic relationship with Etihad. But a recent string of damaging, costly strikes at its core operations, and the disastrous crash of one of its Germanwings discount jets earlier this year in the mountains of southern France, has raised financial pressure on Lufthansa to take a tougher line on its much smaller domestic rival, Air Berlin.

The United Arab Emirates has blamed the German government for the confusion.

Code sharing is an agreement where airlines market flights together. The arrangement allows carriers that don’t have air traffic rights for certain destinations to sell tickets under their name, but have those flights serviced by partner airlines who do have the proper permits.

Etihad, the U.A.E.’s national airline, sold tickets for destinations between Germany, the United States and the Middle East that Air Berlin would service. According to Mr. Dobrindt, 31 of the 64 connections aren’t covered by the bilateral agreement with the United Arab Emirates.

The dispute primarily has to do with flights from Berlin, where Etihad hasn’t been granted air traffic rights. Through the code-share agreement, Etihad can offer tickets from Berlin to destinations in the United States. That means additional competition for German carriers like Lufthansa and Condor.

The United Arab Emirates has blamed the German government for the confusion. Bilateral consultations to update the air transport agreement began in October 2014. The Emiratis say Berlin didn’t accept invitations for another round of talks in December last year. The next round wasn’t held until June of 2015, just a few months before the winter flight plans were issued.

A political solution to the conflict now looks unlikely. The German Transportation Ministry has said it is down to Etihad and Air Berlin to hammer out a business arrangement that’s covered by the old bilateral agreement. There’s been no mention of further talks with the United Arab Emirates.

The ministry has suggested replacing the code-sharing agreement with interlining, an arrangement in which two air carriers accept each others tickets. Etihad could continue selling tickets for flights from Berlin to the United States, but the tickets would have to carry Air Berlin’s name.

When asked whether or not they would switch to interlining, Air Berlin and Etihad said they first had to take a closer look at the ministry’s statement.

 

Jens Koenen covers the aviation and space industry for Handelsblatt. Donata Riedel covers economic policy. To contact the authors: koenen@handelsblatt.com, riedel@handelsblatt.com

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