To form new German airline group
A new German airline group has been formed with the acquisition of domestic carrier DBA by the fast-growing budget airline Air Berlin. The two airlines aim to cooperate closely with LTU to create a dense network of flights within Germany, to major European destinations, and to long-haul leisure destinations. The move increases head-to-head competition with Lufthansa and puts pressure on TUI to clarify its long-term airline strategy, and on Condor to decide its strategic positioning.
DBA will remain a separate company and the two managing directors Martin Gauss and Peter Wojahn will remain in their posts. But the brand will effectively disappear with flights marketed and aircraft displayed as Air Berlin (“powered by DBA”). The flight schedules for the coming winter months will be harmonised where possible, and a joint summer schedule will be in operation from 1st April 2007.
For Air Berlin, the acquisition of the smaller DBA gives the airline a major presence in the domestic German market and a large number of business travel customers. Air Berlin CEO Joachim Hunold commented: "The route networks of Air Berlin and DBA complement each other superbly because there are no overlaps. We can integrate DBA’s domestic routes in our European network without any problem, thereby achieving a clear increase in the number of business travellers using our airline.” Air Berlin currently only has 18% business travellers but DBA about 70%. In future, about 30% of the enlarged group’s customers will be business travellers. Through the acquisition, Air Berlin will also gain valuable slots at Munich and Düsseldorf airports. Air Berlin CFO Ulf Hüttmeyer put the operational synergies from the deal at €71 million by 2008.
For DBA, the sale means of the effective survival of the former chronically loss-making ex-British Airways subsidiary. Over the last three years, owner Hans-Rudolf Wöhrl has brought DBA into profit through cost savings but its long-term future has always been in doubt due to its limited size and narrow focus on the domestic market. Wöhrl has repeatedly publicly said that Air Berlin was an ideal partner for DBA.
Air Berlin and dba now expect to carry around 20 million passengers this year. In the first half-year, the number of passengers travelling on Air Berlin rose by 12.5% to 6.9 million while H1 turnover grew almost 15% to €625 million. The airline, which halved the seasonal first-quarter loss, ended with a slight net loss of €1 million compared to a deficit of €43.1 million in the first half of 2005. Looking ahead, Hunold said: "In the third quarter and with the same basic conditions, we are expecting even better results, both operationally and below the line."
In response to the acquisition, LTU stressed that it would continue to cooperate closely with Air Berlin/DBA in future but that there were no changes to its ownership structure. Under their cooperation agreement, DBA and LTU have started to coordinate flight plans and mutually market each other’s services. The Air Berlin European flights and DBA domestic services operate as feeders for LTU’s long-haul flights from Düsseldorf and Munich. On its strategy, LTU said it would position itself more strongly as a scheduled airline with a focus on long-haul routes, offer more frequent services and extend its seat-only sales for business travellers. LTU is expected to remain in the red this year with a loss of about €15-20 million due to high fuel prices and despite increasing revenues by about 10% to €1 billion.
Meanwhile, the DBA deal marks the latest stage of the consolidation of the German market and increases pressure on competitors to respond. TUI Airline chief Christoph Müller is engaged in merging Hapagfly and HLX but the broader issue of TUI’s overall European aviation strategy remains open. The future of Condor, which competes with Air Berlin and Condor on short-haul and long-haul routes, remains unclear amid the ongoing uncertainty over the future ownership of Thomas Cook, and whether Condor will remain part of the group.
