Air Berlin reconsidering long-haul destinations – does low-cost not work for longer destinations?

Air Berlin is the second largest German airline after Lufthansa and operates semi low-cost flights mainly in Europe, and to some destinations in China and North America since last month. The acquisitions of German competitors and a long-haul operator of tourist destinations are part of the airline’s strategy of expanding its operations from holiday and business destinations throughout Europe to long-haul destinations in China, North America and – operated by its subsidiary LTU – in Thailand, the Maledives, Sri Lanka and the Caribbean.

Yet, as airlines around the world struggle with high fuel costs, environmental criticism and passengers unwilling to spend more on tickets, Air Berlin also suffers. Even the important business travelers cut on their travel spending and seat occupancy in first and business class has slumped.

Air Berlin launched its 5 times a week services from Germany to Shanghai and Beijing in China last month, but now they’re cutting 2 weekly flights to Shanghai and are reconsidering all long-haul destinations as well as unprofitable destinations in Europe.  The intercontinental flights consume most fuel and Air Berlin faces a fierce competition with the established airlines, particularly Lufthansa. It is obvious that Air Berlin has chosen the wrong point in time to launch an intercontinental service. OASIS Hongkonk airlines, the first intercontinental low-cost carrier, also failed and had to cease its operations in spring.

Despite increased revenues and a higher seat occupancy, Air Berlin had to announce the second profit warning this year which puts pressure on the executives to review its current strategy. One measure to reduce costs is the instruction to Air Berlin’s pilots to slow down a bit to save fuel. Whether the airline cancels some of the numerous firm orders which include 25 Boeing 787s and 34 A320 remains to be seen. The market value of the airline is down by 41% since the beginning of this year. This could make Air Berlin a take over candidate though Air Berlin itself still plans to take over yet another tourist airline.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aYEHZI88AwqU&refer=europe

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