Air Berlin’s profits plummet on sluggish demand

Air Berlin’s
second-quarter profit has slumped by 60 percent to 12.1 million euros as weak demand for flights led to fierce competition and slumping prices.Full statement

Only a modest profit in the 2nd quarter of 2007 despite record passengers and turnover - nevertheless the company is confident of being well equipped for the future.

The sluggishness experienced by the aviation industry in the 2nd quarter of 2007 did not leave Air Berlin unscathed either. “Although we did not meet all expectations, we still created a solid base for further growth,” commented Joachim Hunold, chief executive officer of Air Berlin PLC, on Wednesday when he presented the results for the second quarter of 2007 in Berlin. He also said that the downturn in demand, due to the weather and particularly noticeable in April, led to aggressive competition in the industry, and consequently to falling prices. However, the company is now back on track and can certainly face the future with optimism.

Weeks of bright sunshine in Germany and continuous rain around the Mediterranean resulted in a significant decrease in earnings at the start of the 2nd quarter, especially for airlines that also operate in the tourist business. Even though Air Berlin’s charter flights only account for 37 per cent of turnover, the decrease in bookings taken by tour operators had a full knock-on effect on the company. Many of the last-minute bookings usually made by independent travellers also failed to materialise in April. Hunold came to the conclusion that “the utilisation of our jets did not keep pace with increased choice.”

However, the increase in capacity had been a necessary measure to secure future market shares and avoid losing slots at regulated airports. The company had in fact managed to do this, with an increase of 11.8 per cent in the number of passengers, from 5.35 million (Q2/06) to 5.98 million (Q2/07). Utilisation, though, had decreased from 78.36 to 77.81 per cent. At the same time the seating capacity had increased by 12.4 per cent. The half-year comparison showed an increase in the number of passengers as well, up 11.8 per cent from 9.08 million to 10.15 million. During this period the capacity had increased by 10.6 per cent and the capacity by 0.72 per cent. The turnover per available seat kilometre (ASK) in the 2nd quarter fell from 6.27 eurocents to 5.93 eurocents (-5.4 %). However, the decrease for the half-year was only -1.7 per cent: a reduction from 5.97 to 5.87 eurocents. Hunold emphasised that these were still very respectable figures in the context of the industry.


8.7 per cent increase in flight sales in the half-year.

In the 2nd quarter the turnover accounted for by flights increased by 4.8 per cent from € 487m to € 510.5m in comparison with the same period of the previous year. In a comparison of the figures for the half-year it increased by 8.7 per cent: from € 784.1m to € 852.7 m. The additional revenue per passenger increased from € 2.91 to € 3.54 in the first six months of 2007. Overall the turnover for the half-year increased by 7.1 per cent from € 859.6m to € 920.5m.

In Q2/2007 the EBITDAR (earnings before interest, taxes, depreciation, amortisation and rent) of € 104m almost matched the level of the previous year (€ 104.3m). A comparison of the figures for the half-year showed an increase of 26.2 per cent from € 86.8m to € 109.5m. However, earnings before interest and taxes (EBIT) fell by 47.4 per cent from € 44.7m to € 23.5m in a comparison between the second quarters of 2006 and 2007. When the first quarters, which are traditionally weak within the aviation industry, were included, the EBIT margin remained almost the same (-3.8 % as opposed to -4 %) as in the half-year 2006. The net profit in the 2nd quarter of 2007 amounted to € 12.1m. This corresponded to 2.2 per cent of turnover. A figure of € 30.1m was achieved in the same quarter of the previous year. The half-year comparison showed a net result of € -29.3m.

Planning reliability for personnel costs

While cost savings of 4.07 and 3.57 per cent had been achieved at the EBITDAR level when comparing the figures for the quarter and the half-year respectively, the costs primarily for wet leases had increased by € 19 million in the first half-year. It had been necessary to lease aircraft with a crew because the planned delivery of dry-lease planes had not materialised in time. This factor had been one of the key variables in determining future improvements in the operating result. For the full year of 2007 Air Berlin was aiming for an EBIT above the previous year’s level (€ 64m).

“The lengthy approval process associated with our takeover of LTU unfortunately meant that we were unable to reap the benefit from synergies this year; that cost us a good 30 million euros at the bottom line,” explained Air Berlin’s chief financial officer, Ulf Hüttmeyer. However, he could not blame the German cartel office - nor did he wish to - because it had simply carried out a detailed investigation and also prepared a comprehensive analysis of the current aviation market in the process. Hüttmeyer considered the present pay settlements with the unions as a positive move. They meant that the company could now reliably plan its personnel costs until the end of 2008.

On 20th September Air Berlin will be presenting its new strategy with regard to its market presence and route portfolio in Düsseldorf. The direction is already clear. Greater focus will be placed on business travel.