Air Berlin Scales Back U.S. Routes as Savings Plan Widens

Air Berlin Plc will drop two U.S. destinations as Europe’s third-largest discount airline reorganizes its route network in a program to restore profit.

The carrier will scrap flights linking Dusseldorf, Germany, with San Francisco and Las Vegas, as well as Vancouver, when the summer schedule takes effect in March 2013, the Berlin-based company said today in a statement. The airline will also drop flights to Barcelona and Madrid, with those routes replaced by services through Oneworld alliance partners, it said.

The airline, 29 percent-owned by Etihad Airways of Abu Dhabi, outlined plans in October for its second savings program in a year to ensure a “positive result” in 2013. Even after a project set up last year to cut annual costs by 250 million euros ($319 million) exceeded targets, Europe’s worsening economy requires additional measures, Air Berlin said yesterday.

“We are on the right track, but the journey is far from over,” Chief Executive Officer Hartmut Mehdorn said in a statement. “Our goal remains a return to profit next year.”

Targets for the spending-reduction program will be announced in coming weeks, Air Berlin said. Mehdorn declined on a journalists’ conference call today to rule out job cuts as part of the strategy. Worker representatives will be the first to be informed should such a decision be made, he said.

Stock Rises

Air Berlin rose as much as 2.9 percent to 1.59 euros and was trading up 0.3 percent at 2:27 p.m. in Frankfurt. That pared the stock’s decline this year to 38 percent this year, valuing the carrier at 181 million euros.

The U.S. cutbacks will be partly offset by increased Air Berlin flights to Chicago, Miami, Los Angeles and New York’s John F. Kennedy International Airport, the hubs of Oneworld partner American Airlines, the German carrier said. Bases in Palma de Mallorca, Spain, and Vienna will gain European routes, while passengers in Germany and Austria wanting to fly to Madrid or Barcelona or on intra-Spanish routes will be offered seats on Iberia and Vueling, other Oneworld members.

Deutsche Lufthansa AG, Europe’s second-biggest network airline, has also started an efficiency-improvement plan, with a target of saving 1.5 billion euros annually by 2015. The Cologne, Germany-based company is eliminating as many as 4,500 jobs and moving all short-haul operations outside its Frankfurt and Munich hubs into the Germanwings low-cost brand.

Profit Rises

Air Berlin’s third-quarter earnings before interest and taxes rose 4.5 percent to 101.2 million euros, the company said. Revenue increased 1.4 percent to 1.4 billion euros. Net income more than doubled to 66.6 million euros, while the nine-month loss narrowed to 102.5 million euros from 134.3 million euros a year earlier.

“More restructuring efforts is a positive, but at the same time an absolute necessity,” Johannes Braun, a Frankfurt-based analyst at Commerzbank AG with a hold recommendation on Air Berlin stock, said today in a note. “We keep our cautious stance given lingering balance sheet risks.”

The airline plans to sell a majority stake in its frequent-flier program by the end of this year, it said today.

The disposal is “a positive surprise,” Robert Czerwensky, a Frankfurt-based analyst at DZ Bank who recommends selling Air Berlin shares, said in a report to clients. “The transaction will improve the financial profile further.”

Earlier Cutbacks

Air Berlin scaled back seating capacity by 2.2 percent with the earlier network reorganization, which closed airport bases in the German cities of Erfurt and Dortmund. Passenger numbers in October fell 5 percent to 3.18 million travelers, while the load factor, or proportion of seats filled, increased 1.3 percentage points to 81 percent, Air Berlin said Nov. 6.

This year’s target is for an annual loss before interest and taxes narrower than 87 million euros, Chief Financial Officer Ulf Huettmeyer reiterated today. The existing cost-saving program will add 230 million euros to operating profit this year, Air Berlin said.

Fuel costs rose 11 percent to 355.8 million euros in the third quarter, pushing total operating expenses 2.4 percent higher to 1.31 billion euros, Air Berlin said. The Etihad tie-up has added 50 million euros to earnings so far this year, Mehdorn said on the call.

The carrier is suing the operators of Berlin Brandenburg Airport over the facility’s postponed opening, it said Nov. 6. The 16-month delay may cost Air Berlin tens of millions of euros, the carrier said.

Two aircraft have been sold this year, with the airline hoping to complete the sale by the end of the year of a further seven identified as surplus to requirements in March, CFO Huettmeyer said on the call.

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