Skift Take

Fuel costs are hitting some lines hard this season. Is it time for the budget carriers to stop pretending that air travel can really be so cheap?

Air Berlin Plc, Europe’s third- biggest discount carrier, fell as much as 5.2 percent after its second-quarter loss widened on increased fuel costs.

The stock dropped 9.9 cents to 1.82 euros and was trading 1 percent lower at 1.90 euros as of 9:17 a.m. in Frankfurt, taking the decline this year to 24 percent and valuing Air Berlin at 222 million euros ($275 million).

The German airline, 29 percent owned by Etihad Airways of Abu Dhabi, had a net loss of 66.2 million euros in the quarter versus 43.9 million euros a year earlier, it said yesterday after markets closed. Costs reductions were 5 million euros greater than anticipated and sales rose 1.7 percent to 1.14 billion euros even as capacity was reduced, the company said.

“We were able to compensate for sharply rising external costs with internal measures,” Chief Executive Officer Hartmut Mehdorn said in a statement. “The revenue growth shows that we are on the right track.”

Air Berlin is seeking 200 million euros of savings this year from an efficiency program that limited the increase in quarterly operating costs to 29 million euros, including oil- price related gains. Losses were also pared by an after-tax benefit of 15.9 million euros, the company said.

Air Berlin has cut routes and frequencies as a slowdown in European economies hurts demand, reducing capacity by more than 1 million seats to save 250 million euros and pare debt by 50 million euros. It has also put on hold 19 jets due for delivery this year and in 2013, and is closing bases in Erfurt and Dortmund, shaving a further $508 million from spending.

The fleet reduction means Air Berlin will be less affected by seasonal changes in demand, while the expansion of long-haul flights will aid its efforts to enter “the profit zone as planned next year,” Mehdorn said.

Etihad agreed to a $350 million package of financing and funds for planes with Air Berlin in December. The Gulf carrier reckons a 105 million-euro equity investment will be recouped in extra revenue in two years, making it a better bet for cracking the tightly regulated German market than adding new airliners.

Editor: Chris Jasper. To contact the reporter on this story: Dorothee Tschampa in Frankfurt at [email protected]. To contact the editor responsible for this story: Chad Thomas at [email protected].


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Tags: air berlin, earnings

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