We’ve known for a long time that airberlin has been in a rough financial situation, as they’ve fundamentally had an identity crisis. They couldn’t decide whether they wanted to be a low cost carrier or a full service airline, in terms of their route network, product offering, etc. Despite Etihad’s significant investment in airberlin, they’ve continued to rack up unsustainable losses, and needed a change.
For a while now we’ve been hearing about airberlin’s restructuring plan, which sees them leasing many of their aircraft to Lufthansa. It may seem a bit odd for an airline to lease their planes to their biggest rival, but the two airlines do share one common goal: to keep EasyJet and Ryanair out of Germany as much as possible. So I guess the strategy comes down to “the enemy of my enemy is my friend.”
Well, the details of airberlin’s massive restructuring are now official. Here’s the bullet point summary of their changes:
- Dedicated, focused network carrier will serve higher-yielding markets from Berlin and Dusseldorf, with a core fleet of 75 aircraft, as a leaner, more efficient business
- Touristic business separated into an independently operating business unit as strategic options are evaluated
- Up to 40 aircraft to be provided to the Lufthansa Group*, reducing excess capacity while protecting employment and minimising restructuring costs
Airberlin will lease 40 planes to Lufthansa
By the summer of 2017, airberlin plans to wet lease 40 Airbus A320 family aircraft to the Lufthansa Group (including 29 A320s and 11 A319s). These planes will be used by both Eurowings and Austrian, apparently.
This is a six year wet lease deal, which means that airberlin is responsible for the aircraft, crew, maintenance, insurance and overhead services. So essentially the planes will be repainted in Austrian and Eurowings colors and operating their flights, though everything else about them will be airberlin’s responsibility.
This essentially allows airberlin to reduce their losses and liability. Meanwhile Lufthansa assumes all the upside and downside of the deal.
What will airberlin look like going forward?
Once all is said and done, airberlin will have a total of 75 aircraft, including 17 Airbus A330 aircraft, 40 A320 family aircraft, 18 Q400 turboprop aircraft.
Given the smaller scale of their operation, fewer staff will be required, so they plan on laying off 1,200 people by the summer of 2017.
For the first time I can remember, airberlin is also being clear about their strategy going forward:
“The core airberlin proposition in future is now clear: a dedicated focused network carrier serving higher-yielding markets from two hubs in Dusseldorf and Berlin.
“A leaner, fitter, stronger airberlin has a bright future.”
It’s good that they finally have a core strategy now, which is to serve higher yield markets out of Dusseldorf and Berlin, rather than a lot of random leisure destinations.
On top of that, airberlin is hoping to expand their US flights, and also concentrate on year-round short-haul business markets, including Italy, Scandinavia, and Eastern Europe, along with getting a higher share of domestic business travel.
At the same time, airberlin will be operating their leisure routes under a separate business unit. It seems pretty clear that they’re eventually hoping to sell that off and focus on their core operation as a network schedule airline.
Bottom line
While it’s unfortunate to see cuts to this degree, this seems like a very smart move. Airberlin finally has a vision for what they want to be, and is able to focus on the core of what they want to do thanks to their smaller fleet. So I’d say this is great news for airberlin, even though the job cuts are sad. Then again, I suppose laying off some people now is better than having to lay off everyone in a couple of years when the airline would have likely otherwise gone out of business.
At the same time, I’m still not sure I totally understand the Eurowings strategy, as Lufthansa seems to be going through an identity crisis of their own. I understand they’re taking over a lot of these routes because they want to prevent EasyJet and Ryanair from entering these markets, but are they really planning on taking big losses on these routes, or how are they going to improve on these routes?
It will be interesting to see how this all plays out…
a comment on Lufthansa - I recently paid over $13k for the LAX - Frankfurt 1st class route since I never saw mileage redemption availability. Anyway, everything was great with Lufthansa - service, seat, Frankfurt's 1st class terminal. Superb.
Except - I had so looked forward to the Rimowa amenity kit. It was not given or available on either leg of my journey. Instead, I was given a Jacob Jensen kit, which was not nice. Didn't even bother to keep it. Bummer.
Not quite related to the content of this post, but: any thoughts on why Airberlin seems to only be offering economy-class seats for American Airlines' Aadvantage awards from Europe to the U.S.? It seems next to impossible to book their (really great!) business class product using Aadvantage points.. any advice you might have on this would be really appreciated!
I wonder if this means that the routes that are sold off will continue to bear AB codeshare flight numbers?
@tassojunior - There's a phenomenon in the Florida leisure market where some European nationalities tend to congregate in certain areas, and Fort Myers and the surrounding beach areas are particularly popular with German travelers. Fort Myers lets AB get a good chunk of that German business from a central location, much better positioned than TPA. (And TPA's had LH for about a year now.) Surprisingly, unless they want to completely abandon the leisure market, RSW...
@tassojunior - There's a phenomenon in the Florida leisure market where some European nationalities tend to congregate in certain areas, and Fort Myers and the surrounding beach areas are particularly popular with German travelers. Fort Myers lets AB get a good chunk of that German business from a central location, much better positioned than TPA. (And TPA's had LH for about a year now.) Surprisingly, unless they want to completely abandon the leisure market, RSW is a really good choice for them.
"Want to get away from holiday travel focus" and yet 3 of their non-stops to the US are Miami, Orlando, and Fort Myers, Florida..... Fort Myers !
Non-stops to WAS,CLT, PHL, and/or DFW would make sense for business travel. They should be getting feeders from AA the same way Lufthansa gets feeders from United. Abandoning that function to BA is stupid. Many people would prefer not to deal with LHR.
I certainly hope the plan will work, if not there will be an LHGroup monopoly on even more routes. And what a monopoly means you can look up in any microeconomics textbook. So in that sense I wish AB all the success.
But I'm sceptical, I must admit. AB deficits are NOT because of being successless on the market or more generally the revenue side. Payloads are very high, on average in the high 80s,...
I certainly hope the plan will work, if not there will be an LHGroup monopoly on even more routes. And what a monopoly means you can look up in any microeconomics textbook. So in that sense I wish AB all the success.
But I'm sceptical, I must admit. AB deficits are NOT because of being successless on the market or more generally the revenue side. Payloads are very high, on average in the high 80s, which means many flights sold out. Fares are not paricularly low, neither. So revenue is may be not great, but quite ok.
The trouble is on the cost side, in particular poor lease terms, high pension liabilies in some parts (not Belair and NIki, but legacy LTU and AB), poorly timed fuel hedges, poor fleet strategy (mixed A320 and 737 on a permanent basis), etc.
Now does the new strategy address the cost side? Well, the network carrier part doesn't. The holiday flight business line might, if it can be sold at a reasonable price (that's the plan, in negotiations with TUI). The wet lease to LHGroup is sort of a "take the loss at one" deal. LH is unlikely to pay the high AB lease terms, but at least the will pay a fixed amount of money which will allow AB to realize the write off at once under the new IFRS 16. So bottom line, we are likely to see a huge write off in 2016 and then a slightly improved expense situation in the future. But, at least the lease of their long haul flight and ex-LTU staf cost will remain.
So it might work, if TATL traffic will develop ok and so does the network traffic in Europe. But neither one is certain.
I see another strike by LH & AB looming on the horizon. Somebody's gonna get their feelings hurt over this acquisition...
@lucky- Since you have been talking about new routes in your recent posts, what do you feel about American Airlines new service to Seoul and Barcelona from Chicago?