Air Berlin files for bankruptcy protection

Air Berlin filed for bankruptcy protection this morning, the latest step in the collapse of the German airline. Flight operations continue but Etihad is no longer willing to pump cash into the failing operation and the future of the company appears more bleak than ever. A loan from the German government is in place but the most likely outcome appears to be the brand folding.

Earlier this year the Lufthansa Group took over flying on 35 of Air Berlin’s A320 family aircraft in a wet-lease arrangement. The planes still belong to Air Berlin and are flown by Air Berlin crew but on flights marketed and sold as Lufthansa services. At the time of the agreement the plan was to have Air Berlin shed its ultra-competitive short-haul operations in Europe but maintain its Berlin hub and long-haul flights. Instead of that surviving it now appears that Air Berlin will see its remaining pieces sold off to other companies.

Can Air Berlin shrink to survive?

Air Berlin’s restructuring plans hit a snag

The collapse of Air Berlin would be a financial mess for Etihad, the latest in massive losses by its foreign airline investments. It would also be a significant hit for the oneworld group where Air Berlin provides connectivity within the European continent. There are several other member airlines that can help shoulder the load but they are all less conveniently located geographically to support connections within Europe. Air Berlin never did join the anti-trust immunized joint venture with other oneworld partners across the Atlantic Ocean, its primary long-haul market, putting it at a further competitive disadvantage.

And, of course, one must wonder how much of the carrier’s troubles can be associated with the debacle that is the Brandenburg airport situation in Berlin. Sure, everyone is affected by the new terminal not opening, but Air Berlin was disproportionally exposed to the inability to grow and the challenges of creating connecting flow at Tegel versus the new facility.

Beyond sound bites: Ryanair’s Michael O’Leary on the Future of European Aviation

The competitive pains on the cost side for Air Berlin in the European market are brutal. Ryanair continues to expand in the Continent, with expectations of carrying some 40% of short-haul traffic a decade hence, up from 15% today. CEO Michael O’Leary is not shy about calling out the competitors for their inability to match costs or prices, though in his recent comments AirBerlin was not even an afterthought; the carrier was already written off and not worthy of mentioning in the same breath as EasyJet or WizzAir.

The short haul fleet is likely to end up transferred to Lufthansa Group permanently. The props may end up grounded or sold off to some other small startup that wants to connect truly tiny markets or even a different region. The A330 fleet might be harder to place, especially with the rapid growth in low-cost transatlantic options. Maybe IAG takes them on to bolster the Level brand in a hurry?

Header photo courtesy of Air Berlin Group.

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