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.
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.
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.
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