Air Berlin insolvency

TUI seeks new future for German airline TUIfly

The Air Berlin insolvency is forcing TUI to plan a new future for its German airline subsidiary TUIfly with questions over its cost structure and what to do with one third of its fleet.

August 31, 2017

TUIfly remains on a turbulent flight path and is again facing an uncertain future just two months after talks over a possible merger with Air Berlin’s leisure airline Niki broke down. That deal would have combined TUIfly’s 42 jets (including the 14 wet-leased to Air Berlin) with 17 Niki-operated planes to create a major European leisure airline, with TUI only holding a minority stake. Afterwards TUI said its German airline would operate as a standalone carrier in future but remained open for partnerships.

But the insolvency of Air Berlin has now changed the picture once again. The most pressing issue for TUI is what happens to the 14 B737 planes that it has wet-leased to Air Berlin under a lucrative 10-year contract (expiring in 2019) and which are currently flying under Niki colours.

TUI CEO Fritz Joussen told journalists last weekend that the German tourism group is “constructively” involved in the Air Berlin and Niki sale talks, and emphasised that it wants to find a solution for the 700 crew who operate the 14 jets.

However, the German tourism group does not want to expand TUIfly’s own fleet and routes by taking back the planes. TUI is therefore interested in any Air Berlin investors continuing to use the TUIfly planes, even at lower leasing rates if necessary.

The TUIfly fleet comprises 42 planes, with 14 jets wet-leased to Air Berlin/Niki and the remaining 28 planes mostly used to fly TUI Germany customers to short-haul and medium-haul destinations in and around the Mediterranean. The airline made a loss of €40 million last year.

TUIfly’s managing directors Roland Keppler and Jürgen Büntgen have now written to the airline’s employees to warn them that more cost reductions will be needed. “We need a cost structure in order to be able to make investments in the airline’s further development,” they wrote in a letter seen by fvw. “We only have a short time to turn this difficult situation into an opportunity for the airline and for you as colleagues. But we’re confident that together we can achieve this,” they wrote.

They also signalled possible changes to TUIfly’s commercial strategy through increased seat-only sales, more capacity deals with other tour operators and closer cooperation between the German “airline and tour operator”.

The German leisure airline market has been under pressure for many years due to a mix of over-capacity, intense price competition and the expansion of low-cost carriers in the beach holiday destination business. There have been various talks over the years between major carriers over potential market consolidation but this has not happened for competitive and regulatory reasons.

* The future of the German leisure airline market following the Air Berlin insolvency will be a major topic at the fvw Kongress in Cologne in September. On September 20, TUI CEO Fritz Joussen will hold a keynote speech, to be followed by a panel discussion between Oliver Wagner (Eurowings managing director), Roland Keppler (TUIfly CEO) and Götz Ahmelmann (Air Berlin’s Chief Commercial Officer).

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