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August 30, 2011 / oneworld82

Air Berlin – From riches to rags?

Air Berlin has already seen it all. From a small, no-frill airline it grew rapidly in a matter of years feeding on the needs of German travelers to have access to local airports for their holiday travel. By tapping into the leisure travel, Air Berlin emulated and in many ways became more successful than Lufthansa’s leisure subsidiary Condor and also leisure airline-slash-travel agent TUI.

As the company continued to grow and expand into new markets, things started to change. Air Belrin’s management decided to venturing into long-haul routes, and wide-body service to North America and Asia was started. Air Berlin became an “hybrid” airline – one that mixed a “no-frills” approach to a more traditional, legacy-carrier one. Codeshare agreements with different carriers (most recently with American Airlines and S7) have made it possible to Air Berlin to go beyond the point-to-point type of airline, giving it access – albeit inderectly – to secondary markets otherwise out of reach. Plus, joining the oneworld alliance next year will provide with more opportunities for cross-selling into a variety of markets, deepening the reach of the company.

Yet, when all seemed to flow well, things turned to the worse. As The Economist points out, what is now Europe’s 5th biggest airline have to cope with a series of macroeconomics (read gas cost) and political (read crisis in Northern Africa) issues that have undermined the profitability of some of its key routes. Plus, a new air travel tax levied by the German government made smaller regional airports like Erfurt – one of the focus cities of Air Berlin – not so attractive to customers anymore (since they now prefer to access bigger, more convenient airports like Dusseldorf’s given the smaller price differential). Increasing costs and increasing losses forced the former CEO out and paved the way to the rise of Hartmut Mehdorn to the helm of the company. The CEO – renowned for its success as leader of Deutsche Bahn (German’s national railway operator) – has appointed a series of cost reduction measures aimed at regrouping and refocusing the company’s efforts of its key hubs – Palma de Majorca (Spain), Wien, Berlin, and Dusseldorf – cutting or limiting the service to/from other airports like Karlshruhe.

But the shrinking of Air Berlin doesn’t mean its demise – not just yet. The carrier’s 173-strong airplane inventory gives the company room for growth once the situation is back to normal and – especially – once the airline formally joins oneworld. Expanded service to Northern Europe and – presumably – to Eastern Europe and the Middle East should favor the company’s resurgence to a steady growth path. Whether its mix low-cost/full-service model will be sustainable, though, remains to be seen. Will the German market be big enough for two full-service airlines? Or, in the other hand, would oneworld accept to cooperate with a purely low-cost air carrier? Hard to say now. What it’s interesting here, is to see the evolution of the Air Berlin experiment.

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