Near Death, Air Berlin Does the Unexpected: Sell Seats at a Profit
In the throes of death, Air Berlin has managed to do what it rarely could in its prime: Sell tickets at prices high enough to ensure a profit. AB6210—the last flight of the insolvent carrier, scheduled to depart Munich for Berlin at 9:35 PM today—has been sold out for two weeks, with some seats going for six times the typical fare.
Since its announcement that today would be its last day of flying, the carrier has seen an outpouring of emotional goodbyes. While social media has no shortage of complaints from travelers stranded by the shutdown, fans have posted selfies on board their last flights and photos of the company’s trademark red-wrapped chocolate hearts broken in half—evidence that Air Berlin failed not due to lousy service, but because for years its ticket prices didn’t cover its costs.
Its final long-haul journey, to Miami 12 days ago, received a water salute by fire trucks at Dusseldorf airport. On the return leg, the pilots buzzed the terminal before landing (prompting a rebuke from management and an investigation by German aviation authorities). On one of its last trips to the Sicilian city of Catania, the feeling of nostalgia was palpable, with the pilot and flight attendants thanking customers for their support, prompting cheers and applause from the fully booked cabin. As passengers disembarked, they learned that there’d be no more chocolate hearts, a casualty of the insolvency.
“You don’t become a pilot for the money, you become a pilot for the love of the profession,” said James Lee Phillips, a pilot who started at Air Berlin in 1990. “The team is now torn apart. A lot of people will be in mourning.”
Yet analysts say that while the carrier’s demise might mean a temporary increase in prices as rivals sort out capacity issues, longer term it won’t necessarily spell higher fares for German fliers. Deutsche Lufthansa AG will take over more than half of Air Berlin’s fleet, giving it a dominant share on many routes, but low-cost players will pick up landing rights from the insolvent airline, helping keep a lid on fares, according to Sanford C. Bernstein analyst Daniel Roeska.
“This merely buys Lufthansa time, maybe a year, to lower costs further, until the large low-cost airlines push further into Germany,” Roeska said. “Pressure on ticket prices won’t go away.”
Air Berlin’s life was extended by billions of euros in bailouts from Etihad Airways, the flag carrier of the United Arab Emirates that became the German airline’s largest shareholder in 2011. Etihad this year also cut off support to Alitalia SpA, spurring two of Europe’s largest-ever airline failures in a year when global airline profits are expected to remain close to their 2016 peak.
“I appreciate all the hard work of my friends and former colleagues at Air Berlin,” said Kim Lundgren, the former Pan Am pilot who founded Air Berlin in 1978 and retired in 2006. “I do feel there were some missed opportunities, but the airline business is rarely straightforward.”
Because of Cold War-era rules that reserved West Berlin air service for U.S., French, and British carriers, Lundgren incorporated his company in Oregon. He opened for business with a single plane—a leased Boeing Co. 707—and one route: to the Spanish resort of Palma de Mallorca. After the fall of the Berlin Wall, the carrier expanded from Berlin, though it focused on shuttling German vacationers to and from Spain.
In 2006, Air Berlin bought DBA, the German arm of British Airways, and in 2010 it purchased Niki, an airline founded by Formula One champion Niki Lauda. In 2006, Air Berlin sold shares to the public for 12 euros apiece. The next year, they peaked at 21.50 euros. The company, though, never fully integrated its purchases and failed to hold down costs as the fleet ballooned to 170 aircraft by 2011.
The expansion of low-cost airlines and the financial strength of Lufthansa meant a double-squeeze for Air Berlin, and its attempt to serve everyone from price-sensitive holidaymakers to demanding corporate flyers turned the shares into a penny stock by 2015. Since going public, Air Berlin has posted a net annual profit only three times, with losses widening over the last four years.
Niki, which still flies under its own brand, will continue to operate, as will 30 aircraft that Lufthansa uses for its Eurowings low-cost arm. To fill the gap left by Air Berlin, Eurowings plans to add routes such as Berlin-Brussels, -Helsinki and -Milan, and Lufthansa is introducing a long-haul link to New York. German leisure airline Germania said it will quintuple capacity from Berlin this winter. And low-cost specialists such as Ryanair and EasyJet aim to pick up the insolvent carrier’s slots.
Other Air Berlin planes and crew could end up continuing to fly as the carrier has been working frantically in recent days to hammer out last-minute deals with EasyJet and Thomas Cook’s German affiliate, Condor.
Still, travelers face rough times ahead as capacity will plummet at the airline’s hubs in Berlin and Dusseldorf. And 180,000 customers who booked flights that have been canceled won’t get reimbursed—though Lufthansa is offering stranded passengers half-off its fares through Nov. 15. For anyone who couldn’t get a seat on that final hop from Munich to Berlin, meanwhile, there’s still plenty of room at 7:40 and 8:30.