Sept. 21 (Bloomberg) -- Air Berlin Plc, Germany's second- biggest airline, said it aims to limit the effect on customers of a 200 million-euro ($274 million) profit-improvement program that includes reducing its fleet.
Removing 18 planes from service, increasing operating times of some remaining aircraft and strengthening ties with the Oneworld airline alliance are part of a “step-by-step” program to increase earnings, Chief Executive Officer Hartmut Mehdorn said today on a conference call with journalists.
The so-called Shape & Size program includes cutbacks in such areas as marketing, administration and maintenance in addition to reducing the fleet to 152 planes by mid-2012, the Berlin-based carrier said today in a statement. The airline said it can't make a profit forecast for 2011 because of “volatile” economic developments. Larger rival Deutsche Lufthansa AG reduced its 2011 earnings forecast yesterday.
“It's not easy, but the whole industry is affected” by concerns that economic growth is slowing, Mehdorn said.
Air Berlin fell as much as 2 cents, or 0.8 percent, to 2.73 euros and was down 0.3 percent as of 12:07 p.m. in Frankfurt trading. The stock has declined 26 percent this year.
Savings are “progressively planned,” with as much as 75 percent of the spending cuts likely to take effect next year, Chief Financial Officer Ulf Huettmeyer said on the call.
A 4 percent cut in aircraft flight hours, combined with the fleet reduction, should help improve productivity per plane, Air Berlin said.
‘Right Direction'
“The measures seem to be going in the right direction, but we don't as yet know over what time frame they will be implemented,” Johannes Braun, a Frankfurt-based Commerzbank AG analyst with a “hold” recommendation on Air Berlin shares, said by phone before the conference call. “A 10 percent fleet reduction is about what I had expected, but the overall capacity reduction of only 4 percent seems rather too little, given the current climate.”
Lufthansa, Europe's second-biggest airline based on traffic, said yesterday that it no longer expects profit this year to increase. The Cologne, Germany-based carrier also outlined plans to widen capacity cuts in its winter flight schedule after last month's results failed to meet plans and seat reservations declined.
Competitors' Forecasts
Lufthansa joined European industry leader, Paris-based Air France-KLM Group, in predicting a decline in annual earnings. Operating profit will remain at the “upper end of the three- digit million-euro” range, Lufthansa said yesterday. Revenue growth in 2011 will outpace increases in costs, including fuel, CFO Stephan Gemkow said today in an online presentation.
The International Air Transport Association raised its 2011 forecast for global airline profits yesterday by 73 percent because of stronger-than-expected demand in Europe and the Middle East. Carriers' earnings will total $6.9 billion this year on sales of $594 billion, a margin of 1.2 percent, the group, whose members account for 93 percent of global passenger traffic, said in a statement. That compares with a June forecast for earnings of $4 billion and last year's industrywide profit of $16 billion.
Air Berlin said last month that it would scrap 1 million seats networkwide, with more than half the cutback at the City Shuttle unit that serves European business centers, to stem mounting losses. Joachim Hunold, who had been CEO for 20 years, stepped down at the time to make way for Mehdorn, the former head of German state railway Deutsche Bahn AG, who took the post on an interim basis.
The airline is using Egon Zehnder personnel consulting company to search for a permanent CEO, Manager Magazin reported today, without saying how it obtained the information.
Mehdorn's Future
Mehdorn said on the conference call that he was brought on board to work on Air Berlin's reorganization and that his future is “not what I'm thinking about on a daily basis. I remain contact with the Air Berlin board about what will happen, but I will be staying long enough to ensure that the Shape & Size program is going the right way.”
In a letter to employees earlier in September, Mehdorn said he would consider any potential jobs cuts “carefully” and “responsibly” as the airline tries to reduce costs. Talks with labor representatives are under way, and Air Berlin will have a better idea of any effects on the workforce by November, when it will give more details on the reorganization, the CEO said today.
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