airberlin announces far-reaching austerity drive

airberlin, Germany's second-largest airline company, has launched "Shape & Size", a comprehensive program aiming to make the company profitable in the future.

The package of measures includes, inter alia, a capacity reduction by more than one million seats in the second half of 2011 and the ensuing reduction of the fleet by 8 aircraft, the cancellation of unprofitable routes, flight frequency reductions, the partial withdrawal from regional airports, and the concentration on the Berlin, Düsseldorf, Palma de Mallorca and Vienna hubs.

At the presentation of the figures for the 2nd quarter of 2011 (Q2), Joachim Hunold, airberlin's CEO, stated in Berlin on Thursday that an improved capacity utilization, an increase in the revenue per passenger, and cost reductions had not sufficed to offset the higher costs resulting from the aviation tax and the increased kerosene price, and the decline of Egypt-related business which traditionally forms an important contribution to the airline company's revenue, but has declined due to the unrest in Northern Africa.

"In order to become profitable, we need to make cuts in our flight routes and in our fleet," stated Hunold. Among the unprofitable flight routes to be cancelled, airberlin's CEO mentioned: Frankfurt - Hamburg, Frankfurt - Naples, Stuttgart - St. Petersburg, Munich - Cairo, and Düsseldorf - Paris.

Hunold cited the regional airports as the casualties of the aviation tax. For example, airberlin will stop operating its flight connections from Münster/Osnabrück to London, Vienna and Sylt. The same applies to the connections from Cologne/Bonn to various destinations in Morocco and to Valencia. Furthermore, airberlin's direct flights from Cologne to Innsbruck, Naples and Palermo will no longer be available during the winter months.

The Hanover - London route will be cancelled. As of November, Karlsruhe, Dresden and Basel will no longer offer direct flight connections to Palma de Mallorca over the winter. Flights from Paderborn to London and Manchester will be a thing of the past. Furthermore, in numerous airports, airberlin will reduce flights to Malaga and Alicante or – as is the case in Klagenfurt – no longer offer these destinations, at least over the winter. In Erfurt, airberlin will give up its presence completely.

As Hunold emphasized: "The aviation tax is causing a dramatic distortion of competition. In relation to revenue, we have to pay almost four times as much as our largest competitor." Whereas airberlin, with a revenue of EUR 1.8 billion in the first half of 2011, had to pay approximately EUR 74.4 million (4.1 percent of the revenue) of aviation tax, our largest competitor in Germany, with a total revenue of EUR 14.1 billion, only had to pay EUR 162 million (1.15 percent of the revenue). Hunold stated: "The aviation tax together with the existing competitive pressure makes it impossible to, e.g., pass on the increased kerosene price to the customers in its entirety. In order to prevent yet further damage to the already low-margin airline traffic in Germany, the aviation tax should be abolished as quickly as possible."

"The planned measures will possibly not suffice to obtain a positive operating result at the end of the year, since some of the savings related to the measures will not become effective until next year,“ explained Hunold.

Ulf Hüttmeyer, airberlin's CFO, emphasized that the company was on the right track towards consolidation. In the second quarter of 2011, the yield (revenue per passenger) increased to EUR 107.68, i.e. 6.5 percent more than in the second quarter of the previous year. At the same time, the seat load factor increased by 3.6 percentage points, to 77.4 percent. Considerable progress was also made with respect to cost reduction (excluding aviation tax and kerosene). In total, this figure amounts to approximately EUR 111 million.

"However, the demand for flights to the tourist destinations in Northern Africa, which are of significant importance to our company, has not recovered in the aftermath of the unrest.“ Hüttmeyer cited the example of Egypt, a destination to which airberlin usually flies about 80x per week. For weeks on end, there were no airberlin flights to Egypt at all, and only in March this year, were flights to Egypt gradually resumed. The same was the case for Morocco and Tunisia.

Overall, in the second quarter of 2011, capacity for North Africa-bound flights was reduced by 25 percent in comparison with the second quarter of the previous year. Hüttmeyer calculated that the loss related to this reduction alone amounted to EUR 20 million for the second quarter. This figure, together with the additional cost for the increased kerosene price of at least EUR 71 million and the aviation tax of approximately EUR 45 million, amounts to at least EUR 136 million.

The airberlin hubs in Berlin and Düsseldorf are developing in a positive manner. One year prior to the opening of the new Berlin airport, Berlin Brandenburg Willy Brandt (BER), airberlin's hub is offering 9,000 flight connections per week, more connections than ever before. In June 2011, following a continuous period of growth, the share of transit passengers reached 17 percent. The highest percentage recorded so far on a single day was approximately 23 percent. airberlin's Düsseldorf hub is equally successful, and airberlin was able to increase the passenger volume for the first six months of the year by 9 percent over the previous year.

In June, the share of transit passengers at the Düsseldorf hub amounted to 16 percent, and the highest percentage recorded so far on a single day was approximately 20 percent. A total of 4,400 flight connections per week are available. The hub in Palma de Mallorca benefited from the new hub structure established in 2010. In the summer of 2011, the number of connections was increased by 15 percent over the summer of the previous year. Starting from the winter flight schedule, the Vienna airport will move more into the direction of a hub as well. In this manner, the airberlin group will offer more transit connections and increased flight frequencies to Eastern Europe (Belgrade, Bucharest, Sofia) and on the North-South axis (e.g. Hamburg - Sofia) as well as improved departure times.

As Joachim Hunold, airberlin's CEO, commented: "Our hubs are already running smoothly, and we are further expanding them. By adding just a single new flight route, we are able to provide several new transit combinations. The hub concept enables us to offer new destinations more rapidly, and to fly long-distance routes in a profitable manner.“

Hunold called the previously agreed codeshare agreements with airberlin's future partners in the oneworld® airline alliance a success story. Since the beginning of this year, airberlin had already registered about 100,000 codeshare bookings from customers of the partner airlines. In North America alone, airberlin is currently offering flights to 35 destinations in the United States, Canada, Puerto Rico and the Bahamas.

FLUG REVUE 05/2018


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