airberlin: Significant strategic decisions in 2010

Friday 25, March 2011


airberlin: Significant strategic decisions in 2010


airberlin aims further growth with oneworld – Revenue increased to EUR 3.72 billion, number of passengers to 33.6 million – Net debt reduced by EUR 84.9 million – negative EBIT of EUR 9.3 million


In the current and in the coming year, airberlin, Germany's second-largest airline company, will be intensively preparing for its upcoming membership in the international airline alliance oneworld®, which is scheduled for spring 2012, as well as expanding its intercontinental flight connections, and strategically enlarging its presence in Eastern Europe. The key markets will remain Germany, Austria and Switzerland, and the area surrounding the company's major hub in Palma de Mallorca (Spain). For 2011, airberlin anticipates a further increase in the number of passengers and an increase in total revenue. At the press conference on the Annual Financial Accounts, held on Thursday in Berlin, Joachim Hunold, airberlin's Chief Executive Officer, stated: "We are not satisfied with the way earnings developed in 2010. However, airberlin has taken significant strategic decisions to prepare itself for the future“. In this context, Hunold mentioned the agreement with respect to airberlin's upcoming membership in oneworld, and the increase of airberlin's participation in NIKI Luftfahrt GmbH and the full consolidation of NIKI. "The decision to join oneworld is one of the most important strategic steps in the history of airberlin, and with NIKI, attractive opportunities for growth, particularly in Eastern Europe, are opening up for us,“ stated Hunold.


For 2010, Air Berlin PLC increased its revenue to EUR 3.72 billion, i.e. 1.1 percent more than in the previous year (2009: EUR 3.68 billion – including the TUIfly city routes and, as of July 2010, also including NIKI Luftfahrt GmbH). The number of passengers increased by 3.8 percent to reach 33.6 million, thus achieving a new passenger record. Nevertheless, the operating result fell short of expectations due to the harsh winter in Europe, the air space restrictions imposed as a result of the volcanic eruption in Iceland, the air traffic controller strike in Spain and the announcement of strikes against Air Berlin PLC & Co. Luftverkehrs KG. Whereas EBITDAR (Earnings before leasing expenses, depreciation, amortization, interest and taxes) increased from EUR 607.1 million to EUR 618.5 million, EBIT (Earnings before interest and taxes) decreased from EUR 29 million to EUR -9.3 million. The financial result decreased from EUR -59.3 million to EUR -133.3 million, total equity decreased from EUR 610 million to EUR 505.3 million. Ulf Hüttmeyer, airberlin's Chief Financial Officer, stated that this development resulted from the repurchase of the majority of a convertible bond placed in August 2009. "This transaction enabled us to prevent the dilution of our shareholders' equity, and will reduce our financing costs by approximately EUR 76 million by 2014," stated Hüttmeyer. Furthermore, airberlin reduced its net debt by an additional EUR 84.9 million (15 percent). For the 2010 financial year, pre-tax earnings amounted to EUR -141.6 million (2009: EUR -29.5 million). 


Preparing for oneworld

"oneworld's invitation for airberlin to become a member of the global airline alliance in the coming year provides airberlin with the pre-requisites for connecting to additional key markets, such as North America, Russia and the Far East, and thus for further stable growth," stated Hunold. Therefore, airberlin is intensively preparing for its upcoming 2012 membership. According to airberlin's CEO, this includes expanding the selection of intercontinental flights, starting from summer 2011, for example, by increasing the frequency of flights to San Francisco, Los Angeles, Florida, New York and Vancouver. Other examples are the bilateral cooperation agreements for earning and redeeming topbonus miles on all eligible flights in the oneworld network, acquiring access to the airport lounges of the oneworld partners, and the bilateral agreements with the partner airlines for operating flights under a shared flight number. Such codeshare agreements have already been concluded with American Airlines, Finnair and S7. Negotiations are currently being held with British Airways and Iberia, and are making good progress. 


Full consolidation of NIKI Luftfahrt GmbH

In July 2010, Air Berlin PLC & Co. Luftverkehrs KG acquired an additional 25.9 percent of the shares of NIKI Luftfahrt GmbH from the Privatstiftung Lauda (private Lauda foundation) and thereby increased its current participation in NIKI Luftfahrt GmbH from 24 percent to 49.9 percent. From July 2010, NIKI Luftfahrt GmbH has been fully consolidated within the airberlin group. NIKI Luftfahrt GmbH will remain a legally independent company with its own management. Hunold commented as follows: "Following years of successful cooperation and partnership with NIKI, the increase of airberlin's participation was a logical development. NIKI has allowed us to access the entire Austrian market, and thus complements and expands our own network in a meaningful manner. NIKI's base airport Vienna is developing more and more into another significant hub of the airberlin group."


More business-class passengers and increased comfort

"airberlin is benefiting from the recovery of business travel," stated airberlin's CFO, Ulf Hüttmeyer. In a fiercely competitive environment, airberlin was able to increase the number of corporate agreements to 1,441, i.e. 286 more than in 2009. Furthermore, one year ago, airberlin introduced a corporate program for small and medium-sized businesses with three or more permanent employees, namely the business points, for which 5,942 companies had signed up by the end of 2010. Hunold stated: "In this manner, airberlin is increasingly establishing itself as a business carrier." The growing number of participants in the frequent flyer program is likewise a contributing factor. Since April 2006, airberlin has been able to increase the number of participants by 44 percent, to more than 2.4 million at present. 


As of November 2011, airberlin will further improve the comfort on its long-distance flights and equip its entire Airbus A330-200 fleet with new seats in both the business and economy class. The in-flight entertainment system will also be replaced in both classes. The new seats and the on-board entertainment program will be gradually installed in the long-distance fleet cabins. 


Integration of LTU

The integration of LTU will take place according to plan as of 1 April 2011. LTU's flight operations will become part of airberlin, and maintenance in Berlin, Düsseldorf and Cologne will be consolidated in airberlin technik. "We have the approval of the employee representatives and the authorization from the authorities. We are anticipating significant savings due to reduced complexity, the phasing-out of redundant structures, and the simplification of the work flow," stated Hunold. The integration of LTU is part of the new program "Accelerate 2012". This efficiency program is based on the pillars revenue increase, capacity adjustment, and cost reduction.


Outlook for airberlin

For 2011, airberlin anticipates a 4 to 5 percent increase in the number of passengers by improving seat capacity utilization, and higher revenue. "For airberlin, the current financial year 2011 started with an additional strain on both the revenue and the expense side," stated Hunold. He cited the political turmoil in Tunisia and Egypt as a reason: "As the market leader in Egypt, airberlin was the airline which was affected the most by the flight cancellations and the reduced number of bookings." As a result of the political instability, kerosene prices have drastically increased. airberlin will pass on the additional cost, via fuel surcharges. Hunold also mentioned the additional risk ensuing from the aviation tax which has increased the price pressure in Germany and will lead to changes in demand, the extent of which is difficult to forecast. However, at present, there are also positive signals, such as economic growth, decreasing unemployment, an increase in business travel and increased consumer confidence. "I am convinced that we can obtain a positive operating result in 2011, provided that the framework conditions do not worsen“, stated Hunold.



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