Air Berlin Scraps Earnings Forecast on Difficult Winter

Air Berlin Plc scrapped targets for profit and debt as efficiency measures by Europe’s third-biggest discount carrier fail to offset weaker demand that the company predicts will continue into 2014.

Earnings before interest and taxes will “almost reach” analysts’ predictions this year, the Berlin-based airline said in a statement late yesterday, scaling back from an earlier forecast that the company will break even. Analysts are estimating a loss on that basis of 42.3 million euros ($57 million), according to the average of five estimates compiled by Bloomberg. Net debt will total about 650 million euros by year-end, versus a prior target of 500 million euros.

“Despite the third quarter having gone well, we have been unable to meet our earnings targets” because of “market conditions and special external factors,” Chief Executive Officer Wolfgang Prock-Schauer said in the statement. “Given the weak demand and the unabated intense competitive environment, even further price erosion is apparent for the current winter half-year” that began at the end of October.

Germany’s economy lost momentum in the third quarter and France’s unexpectedly contracted as the euro region’s recovery flags. Air Berlin is halfway through a program to improve operating profit by 400 million euros that includes trimming fleet and workforce and dropping unprofitable routes. Parts of the effort were nullified after a hot German summer discouraged travel. Ryanair Holdings Plc, Europe’s largest discount carrier, trimmed its earnings goal twice in as many months.

Stock Falls

Air Berlin fell as much as 2.3 percent to 1.73 euros, the steepest intraday decline since Oct. 28, and was trading down 2 percent at 1:05 p.m. in Frankfurt. The stock has gained about 13 percent this year, the third-worst performance on the six-company BI EU Airlines Index, which has gained 34 percent.

The number of passengers carried in the third quarter fell

5.6 percent, even with increased code sharing of flights with minority shareholder Etihad Airways PJSC and partners in the Oneworld alliance, Air Berlin said. Revenue declined 3.5 percent to 1.35 billion euros.

Ebit rose 14 percent to 115.6 million euros as operating expenses dropped 5.2 percent because of lower airport charges and fuel costs, it said.

Air Berlin sold seven of the 25 aircraft it owned to China’s Minsheng Commercial Aviation Ltd. after the end of the quarter. The total number of sales may amount to 10 to 15 aircraft by the end of the year, Chief Financial Officer Ulf Huettmeyer said today on a conference call.

Air Berlin will cut capacity by 3 percent in the fourth quarter, mainly on short-haul routes, and trim the number of city pairs connected to about 400 from 440. The company still expects to generate an operating profit next year, when it now expects to meet the net debt target of 500 million euros, Prock-Schauer said.

Before it's here, it's on the Bloomberg Terminal.