Air Berlin shrinks to survive

By D.S. | BERLIN

AIR BERLIN, Germany's second-biggest airline and the fifth-biggest in Europe, is set to shrink as a new, cost-cutting boss, Hartmut Mehdorn, takes over from Joachim Hunold, its founding chief executive. The impact on European air travel will be considerable, though the writing has been on the wall for a while. A German air-passenger tax introduced in January, higher fuel prices and the unrest in north Africa have all hit Air Berlin's margins this year. The air tax, in particular, has cut the volume of low-cost passengers flying from small regional airports, such as Erfurt in east Germany, and Cologne/Bonn, which is uncomfortably near to Dusseldorf, a big air-travel hub.

Air Berlin will sensibly concentrate its business on four main airports: Berlin, Dusseldorf, Palma (Majorca) and Vienna. It will cease flights from Erfurt completely and limit the number of destinations it offers from other smaller airports such as Karlsruhe, Stuttgart, Hanover and Hamburg. This is good news for Deutsche Bahn, the German state-owned railway, which incidentally Mr Mehdorn used to run.

Air Berlin got too big too fast. It has 170 aircraft serving 163 destinations in 39 countries. It competes head-on in Germany with the mighty Lufthansa and its low-cost subsidiary Germanwings. But it should survive if it trims its network as planned and makes use of all the cross-selling opportunities it will get next year from joining oneworld, the British Airways alliance which includes Iberia, Finnair, American Airlines and will soon include Russia's S7.

In the mean time Germanwings and another low-cost airline, Ryanair, are preparing to fill some of the airspace that Air Berlin is vacating: for example, flights from some smaller German airports to Alicante, Naples, Palermo and a handful of north African cities. EasyJet, which tends to use bigger airports, may be tempted to grab those cancelled Air Berlin routes that compete head-on with Lufthansa.

Nevertheless, the shrinking of Air Berlin threatens to hasten the demise of smaller German airports. Erfurt is looking for a replacement airline, though its owners, the state government of Thuringia and the city of Erfurt, are resisting the temptation to subsidise a newcomer. The neighbouring state of Saxony saw how fickle airlines can be when Ryanair arrived with fanfare last year at the small airport of Altenburg near Leipzig, then this March axed all its flights there.