Final Approach

Fight Or Flight Time For Air Berlin

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If Air Berlin does not come up with a viable plan it could be grounded for good.
  • Why it matters

    Why it matters

    Air Berlin is being bailed out by its largest investor Etihad, which is causing the industry and politics to wonder who will be calling the shots at the German carrier in the future.

  • Facts

    Facts

    • Since going public in 2006, Air Berlin has underwhelmed investors and others.
    • Fears grow that major shareholder Etihad Airways, which is Gulf-based, could control Air Berlin in the future.
    • No reason exists to keep the German company going if it can’t come up with a solid strategy to achieve success on its own, the writer argues.
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    Audio

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To put things in context, it often helps to look to the past. When Air Berlin, Germany’s second largest airline, went public in 2006, it had a loss after non-recurring effects of €115.9 million ($150 million) from the previous year.

But equipped with fresh capital after launching on the stock exchange, things were supposed to be on the up. There was talk of savings potentials, of increasing passenger growth and of additional acquisitions in the industry. But even then, investors were skeptical about why the price range and the number of shares offered were reduced. Dealers spoke of a “crash landing”.

Eight years later, little has changed. Operating results are still negative, and there is still no viable plan for the airline’s future. Details are expected at the end of September, but how will the new strategy differ from previous unsuccessful ones? Investors are looking forward to some answers.

They are not alone. German government authorities, such as the Federal Aviation Office and the competition office, are waiting with bated breath.

Yet one player is above all: the Gulf-based airline Etihad Airways. And fears are growing that this major shareholder could be the only one calling the shots at Air Berlin in future.

The law is clear: A German airline must be under German ownership and must also be run from Germany. And let’s be honest, the idea of a strong and, more importantly, state-funded airline from the Gulf region acting as savior for a financially weakened German company is not at all convincing. Everyone concerned knows that.

The counter-arguments are well-known and not new: There is no real alternative. Jobs have to be protected, and the ubiquitous Lufthansa needs a competitor.

 

012 BAir Berlin

 

But anyone arguing along these lines will be following the example of Opel, a General Motors subsidiary, and Schlecker, a drugstore chain, both of which were embroiled in similar scenarios. The question of Air Berlin’s systemic relevance would need to be answered. And like in the above cases, it would have to be answered with a resounding no.

If Air Berlin were to go out of business, other airlines would take over the routes, planes and possibly even the majority of staff at lightning speed. Even the argument that Lufthansa needs a strong competitor does not hold water. The airline, represented by a crane in its logo, has been competing with airlines across Europe and the world for ages.

For the government, there is not even the slightest need for a knee-jerk reaction to the economic difficulties involved. It cannot and indeed should not relax any rules stipulating that more than 50 percent of ownership be in the hands of E.U. citizens, otherwise important air rights will be lost.

At the moment, this rule is still being observed in the case of Air Berlin. And the actual cooperation with Etihad is mostly route planning, procurement and so-called code sharing, i.e. where two airlines share the same flight. Other airlines do the same thing.

Fears that Air Berlin could mutate into a feeder for Etihad if this chronic frailty persists are not unfounded.

Whether it will stay like this in the future is the decisive point. Fears that Air Berlin could mutate into a feeder for Etihad if this chronic frailty persists are not unfounded. After all, airports with reportedly three times the capacity of Germany’s largest airport, Frankfurt, are being built in the Gulf region. The intention is surely to have them jam-packed with passengers.

This is why local politicians in Hesse, where Frankfurt is located, and in the Bavarian capital Munich, which boasts one of Europe’s largest air hubs, are watching developments at Air Berlin like hawks.

The key question behind all this is quite simple: Is it politically legitimate for a German airline, damaged by failures in management and strategy, to go to a rival, which has been tasked by its own national government with becoming number one in the world and is being heavily supported by the same government, to achieve this goal? Or do we say: “The market has spoken; Air Berlin has not been able to make it on its own for years. So, a savior will not help, let alone a savior operating in a way which distorts competition.”

The answer: Air Berlin must finally present a concept that is viable in the long-term and will enable the airline to exist independently. If there is none, then there is also no reason to keep the company going forever, as harsh as this conclusion may be.

This article was translated by James Breen. Vinny Kuntz also contributed to the story. Contact the author: schnell@handelsblatt.com

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