Air Berlin, Europe’s ninth carrier, announces serious makeover

By Bjorn Fehrm

October 06, 2016, ©. Leeham Co: Air Berlin, Germany’s second airline and Europe’s ninth largest carrier by passengers carried, announced that it will wet-lease 40 aircraft to Lufthansa together with many European routes, concentrate all tourist operations into a new business unit before spinning it off and that it will reduce staff further.

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Figure 1. Air Berlin will focus on its long haul network. Source; Air Berlin.

This comes after combined losses of €1.7bn since 2010. Several restructuring programs have not stemmed the losses. Last year they rose to €0.45bn and they have continued on in 2016.

Mixed carrier does not work

Air Berlin has been operating as a mixed carrier over the last 10 years with a gradually weakening base as a European Low Cost Carrier, mixed with a large tourist charter operation and a standard long-haul network. This has not worked.

Air Berlin is one of the few carriers that has lost money in these days of low fuel prices, Figure 2.

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Figure 2. Air Berlin key figures since the large expansion in 2006. Source; Wikipedia.

The airline doubled its size in terms of employees in 2006 but only flew 50% more passengers. It had acquired dBA (which had acquired LTU) and later acquired Niki, the Austrian low cost carrier.

The result was a mixed carrier with several arms of European low cost activities, several arms of leisure operations and a long haul operation growing from LTU’s network. None of these services could be operated as best in class. The losses grew, predominantly in the low cost short and medium haul operations.

A gradual expansion of higher fare long haul and regular network operation started. Etihad Airways took a 29% stake in Air Berlin in 2011 followed by integration of Air Berlin in the Oneworld Alliance during 2012. The low cost operations of the carrier were gradually reduced by elimination of destinations and hubs.

Despite repeated restructuring programs, the losses continued. Finally the concept of a mixed carrier had to go.

The new Air Berlin is a network carrier

Air Berlin has now announced that the company will concentrate its core operations as a dedicated, focused network carrier serving higher-yielding markets. It will do that from its two key hubs in Berlin and Dusseldorf. The core company will reduce its staff by 1,200 people.

The new operations will be served by a fleet of 75 aircraft from next summer, consisting of 17 Airbus A330-200s for long-haul flights. The needed short- and medium-haul connections to major business centers throughout Europe will be served by 40 Airbus A320s and 18 Bombardier Q400s.

The group’s extensive leisure flying will be combined into an independently operating business unit. The idea is to transfer this business to major stake-holder Etihad Airways and TUI AG. Talks have begun to merge this unit with TUI’s TUIfly.

To get rid of the remains of its “Middle Cost Carrier” network, it made a deal with Lufthansa last week to provide up to 40 A320s with personnel and in some cases destinations. Up to 38 aircraft will be wet-leased under a six year agreement. Lufthansa will use the aircraft, crews and destinations to augment its Germanwings operations.

Lessons learned

The competition in today’s commercial airline business is relentless. A business which is not focused on being best in class in its chosen business model will not be sustainable.

Air Berlin was a gathering of low cost, leisure and network business operations in one unwieldy combination. Years of restructuring and cash infusions from Etihad Airways could not fix this.

Now the different parts are split again. It remains to be seen if the new core Air Berlin can flourish as a network carrier; the brand value is mostly from the low cost operation.

5 Comments on “Air Berlin, Europe’s ninth carrier, announces serious makeover

  1. Hartmut Mehdorn later professional life shows a range of failures. Deutsche Bahn, Air Berlin and BER could not profit from is alleged trouble fixing competence.

    • Mehdorn-Bashing is very popular with uninformed Germans. He’s the perfect scapegoat. But at that time Mehdorn took the right decisions. Mehdorn made the contract with Etihad, fixed the mess with the diverse fleet, has closed different bases and so on. Without Mehdorn Air Berlin would be dead years ago.

      But Mehdorn was not able to fix all the stupid decision of Hunold – the founder of Air Berlin. Air Berlin was a growing tourism/charter airline. Then LCC like Ryanair became suceesful. So Hunold thought: Hey, Air Berlin is now a LCC too. That’s soo brilliant. But the cost base of Air Berlin was three times that of Ryanair. Air Berlin could never compete with Ryanair and Easyjet.

      Then it became clear, that all the old flag carriers made a lot of money with long haul business passengers. So Hunold thought: Hey, Air Berlin is now a long haul network carrier too. That’s soo brilliant. Let’s fly to China and so on. But Air Berlin was not part of an alliance, had only a small long haul network, could not offer connection flights at most destinations, had no attractive loyalty program and so on.

      Today Air Berlin can not live with Etihad and can not live without Etihad. Without the money of Etihad Air Berlin will be dead tomorrow. On different was Etihad injects some hundred million Euro each year. But Air Berlin can’t build a healthy network with Etihad. Air Berlin is obviously not allowed to fly long haul to Asia, Australia, East- and South Africa anymore. All traffic from Europe that is routable through Abu Dhabi must be routed through Abu Dhabi. Etihad wants to grow on routes to Africa, Asia and Australia. For Etihad Air Berlin has only the role of a European feeder for their Abu Dhabi hub. Air Berlin had to close all it’s routes to Namibia, Kenya, South Africa, China, Thailand and so on. All Etihad terrain now. Air Berlin is only allowed to grow in Europe, North Africa and America, because that traffic can not be routed through Abu Dhabi without extreme detours. But in Europe Air Berlin has no chance against Ryanair and Easyjet. North Africa is a dead tourism market since the turmoil there. And on North America routes there is a lot of competition. Many strong, healthy airlines against the dead-ill Air Berlin.

      • “Mehdorn-Bashing is very popular with uninformed Germans.”

        Mehdorn criticism is rather active in people that have watched his activities over the last 20 years.
        He is not worth the hype attached to his persona.

  2. Tuifly staff is now doing a “wild” strike by calling in sick against that rumored sell-off to etihad. They succeeded in bringing down the whole flight operation. This also effects airberlin flights operated by tuifly.

    Tuifly is operating on a long-term wet lease contract for airberlin. That contract is said to be very costly for airberlin. And it contains a very uncommon exit clause: the contract can only be terminated by both parties. That deal can clearly be blamed on Hunold.

    Airberlin has sold almost everything valuable in the last couple of years. The frequent flyer program “topbonus” was bought by etihad and all airplanes sold of in a sale and lease back deal. It is said that todays operating costs of airberlin are more or less ok. But since everything of value has been sold, the credit rating took a sinkdive which resultsed in very high leasing rates for the airplanes and outrageous interest rates for the bonds airberlin has issued to get money.

    How a wet lease deal with eurowings to “market rates” (source: lufthansa) would be able to solve those problems, is a mystery to me. The costs will still be too high. The only positive is that airberlin may be able to get rid of the tuifly wetlease by merging the touristic part with tuifly.

  3. I wonder if the large number Air Berlin flights to PMI (Palma de Mallorca) will be reduced after this reorganization.

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