Air Berlin Restructuring: Etihad Purchases NIKI, All Popular Medium-haul Tourist Destinations To Be Transferred Starting From Summer 2017

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Air Berlin has sent out emails to their customers and Topbonus members announcing details of the ongoing company restructuring which apparently won’t leave much behind of the airline as we know it.

ab-restructuring

Apart from the already announced transfer of aircraft to competitors Etihad will purchase the entire Air Niki and take over the very popular mid-haul tourist destination traffic to Southern Europe and North Africa.

This essentially means that Air Berlin as we know it will be gutted and completely taken apart. These tourist destinations were in fact the reason how the airline made money, especially in the 1990s/2000s eventually culminating in the takeover of rival LTU. From there on however the carrier started a downwards trend.

The email reads:

Transfer of airberlin medium-haul tourist routes to NIKI

An important milestone in the restructuring of airberlin was announced on Monday: the sale of airberlin’s subsidiary airline NIKI to Etihad paves the way for a simplified business model for airberlin with a clear focus as a network carrier. As part of this transaction, the airberlin flight slots to all medium-haul tourist destinations to southern Europe (except Italy), including the Canary Islands, Madeira, Turkey and North Africa, will be transferred to NIKI from the start of the summer 2017 flight schedule. All holiday flights to those regions booked with airberlin will then be operated by NIKI.

Earlier this year, we informed you that airberlin is continuing to examine the routes it will operate from the beginning of the summer 2017 flight schedule. This includes a much-improved offer of flights to a greater number of destinations in the USA. To establish the new airberlin as everyone’s top choice airline for flights to the USA, increased capacity will be provided at a number of airports in Germany and throughout Europe.

I’m surprised that Etihad can purchase the carrier outright and in full ownership after the transaction has been completed. On top of that, the sum that is reportedly being paid for NIKI (300 Mio EUR) is more than generous, one could say over the top.

You can find more details on the transaction in this Bloomberg article.

Air Berlin Plc will receive 300 million euros ($319 million) from Etihad Airways, the main backer of the troubled German airline, gaining an important lifeline as it restructures.

Abu Dhabi-based Etihad will buy Air Berlin’s stake in Austrian leisure-flight operator Niki for more than four times Air Berlin’s market value and will sidestep restrictions on foreign ownership of European airlines by folding the company into an Austrian-based holding.

The transaction is part of a larger deal reached in November between Etihad and tour operator TUI AG to combine airline assets in a leisure market burdened by a glut in capacity. Etihad will end up with 25 percent of the joint venture, which will operate about 60 aircraft with capacity to carry 15 million passengers a year. TUI will hold 24.8 percent, with the remaining shares owned by private foundation Niki Privatstiftung.

I think this describes very much the core of the deal as in Air Berlin is finally giving away the crown jewels, the still lucrative tourism segment to popular destinations such as the Canary Islands, Madeira, North Africa, Turkey and especially Southern Europe.

As part of the deal, Air Berlin will take possession of Niki’s Airbus Group SE single-aisle A321 planes while handing over its Airbus A319 and A320 models to the Austrian partner, the German airline said Monday in a statement. With the start of the summer 2017 schedule, Niki will take over Air Berlin’s routes serving southern Europe excluding Italy, as well as North Africa and Turkey. The stake disposal will help Air Berlin’s earnings once the transaction is completed, the carrier said.

Air Berlin, which has a market value of 68.9 million euros, has racked up 1.27 billion euros in losses over three years, generating bailouts from Etihad.

What will all this mean for Air Berlin once the transactions are completed? You can access their corporate communique here where the company outlines part of their strategy and what the customer can expect from next year onward.

In future, airberlin will position itself as a network carrier. Domestic routes, flights to European cities and long-haul destinations will remain part of this strategic realignment, and in some cases will be further expanded. The extensive services to and from Italy, operated together with our partner Alitalia, will remain an integral part of the airberlin network.

After completion of this planned transaction, the new airberlin will be a more focused carrier operating a total fleet of 75 aircraft.

airberlin will also be more attractive for its passengers: as a dedicated network carrier. airberlin will focus more than ever before on excellent connections to its two hubs in Berlin and Dusseldorf, which are served by high-frequency flights from numerous European and domestic airports. In addition to the domestic flights to and from Dusseldorf and Berlin, airberlin will continue to operate decentralised routes such as between Hamburg and Munich, Munich and Cologne, or Stuttgart and Hamburg.

From the start of next year, airberlin will substantially expand its long-haul network, providing even more flights from its hubs in Berlin and Dusseldorf to eight destinations in the USA (Boston, Chicago, Fort Myers, Los Angeles, Miami, New York, Orlando und San Francisco). In addition, passengers can continue to book attractive flights with airberlin to Abu Dhabi, Cancun, Curaçao, Cuba, the Dominican Republic or new to the Seychelles (LL: this is going to be a codeshare flight with Air Seychelles).

In other words Air Berlin will focus primarily on becoming a long haul carrier from their Berlin and Duesseldorf hubs. These two cities will be connected to a range of domestic connections and the carrier will also continue to serve what Air Berlin calls decentralized routes. I’m not sure if all this will be sufficient to fill their planes especially on the long haul.

In comparison, Lufthansa has switched such routes over to their budget carrier Germanwings (much to unpopular acclaim) so they clearly didn’t see any positive outlook for mainline flights. Will Air Berlin be able to generate enough revenue on these routes to operate them profitable?

Conclusion

Air Berlin will shrink to a tiny 75 aircraft carrier with literally nothing left in the shop to bail themselves out if the new strategy doesn’t work. Etihad managed to inject another 300 Million Euro into Air Berlin to keep them afloat for god knows how long and pretty much in the only straight forward way possible that still complies with the law: Simply overpaying for a purchase by a large margin. Etihad paid four times AB’s market value for their acquisition of NIKI and then struck a deal with TUI to make sure they have a way to fill these planes.

Competition is very important in the German market because without Air Berlin, Lufthansa will have a monopoly and dictate the price and conditions unless a third party such as Ryanair enters the market more widely. That means prices will go only one way and that is up. I see this as Air Berlin’s last chance to turn around and operate profitably or the lights will eventually go out.

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