Chief executive departs carrier after unveiling cost reduction programme in bid to restore profitability to hybrid model

Air Berlin's hybrid strategy has suffered a setback after it was forced to announce a cost-reduction plan that will see it cut eight aircraft from its fleet, cancel routes and partially withdraw from regional airports, all in a bid to return to profitability.

Launched days after the announcement of a second-quarter operating loss of $46.1 million, the "Shape and Size" programme will be implemented by the airline's interim chief executive, former Deutsche Airbus chariman Hartmut Mehdorn, who assumed the role after the resignation of Joachim Hunold.

Under the programme, Air Berlin will cut capacity by more than one million seats in the second half of 2011. It is also cutting services from regional airports, which it said have become a "casualty" of the new German aviation tax.

© Air Berlin

Flights from Münster/Osnabrück to London Stansted, Vienna and Sylt will be scrapped, as will flights from Cologne Bonn to Valencia and various Moroccan destinations. Cologne to Innsbruck, Naples and Palermo, and Hanover-London flights, will no longer operate in winter.

While the head of transport equity research at Credit Suisse, Neil Glynn, says the programme is partially a result of "very thin margins", which left Air Berlin less able than competitors to absorb the "recurring one-off" events that impact the industry, he adds that strategy also played a hand. "One could argue Air Berlin was caught between two stools fighting against Lufthansa on the one hand and fighting against quite a fragmented host of lower-cost operators through Europe," he says.

Commenting on whether the programme will succeed in delivering a return to profitability, Glynn says that at this point it is short on detail and "something of a band-aid for the winter", adding that its third-quarter results will provide more illumination.

While questions still remain over the model developed by Air Berlin under which the airline provides both long- and short-haul flights pitched as a hybrid carrier, Glynn says: "It doesn't do low cost as well as it should do and it doesn't do full service as well as it should do."

He adds that the airline is sending a blurred message to consumers. "It's not necessarily that cheap, but equally it's not flying with Lufthansa," he says.

Source: Airline Business