Turbulent business

Air Berlin isn't the first discount airline in Europe to slash routes and ground planes in an effort to stem mounting losses. But its measures to scale back run deep, threatening to severely weaken competition at a number of Germany's smaller regional airports.

Last week Air Berlin, Germany's second-largest airlines, said it would cut one million seats from capacity, ground eight planes and focus on four main profitable routes: Berlin, Dusseldorf, Vienna and Palma.

As part of its extensive cost-cutting strategy, the carrier plans to cancel numerous city shuttle flights to locations such as London, Manchester and Madrid that originate in regional airports including Münster and Paderborn. And it will fly less frequently to Sharm El Sheikh in Egypt and Barcelona in Spain, among other destinations.

Scaling back

That move comes just a few months after discount airline rival Ryanair announced plans to cut capacity this winter for the first time in its history. And even Lufthansa, Germany's largest carrier, said last month that it, too, aims to scale back flights in winter.

"Air Berlin isn't about to abandon any of its profitable routes but rather those that haven't met its expectations, so it remains to be seen how many of these will be scooped up by its rivals, which are also striving to reduce their operating costs," said Cord Schellenberg, a Hamburg-based independent airline industry analyst. "There will be cherry-picking where the cherries are but, frankly, there aren't that many."

Ryanair has already said it would grab routes from Germany to Spain's Alicante, which Air Berlin plans to drop. And Germanwings, which is owned by Lufthansa, has expressed interest in taking over routes as well. EasyJet is also expected to look for opportunities.

Schellenberg anticipates that regional smaller airports like Nuremberg and Bremen will face growing competition from the larger hubs such as Dusseldorf, Frankfurt and Munich. And he also warns that some regional airports could find themselves dependent on only one or two carriers.

"All airports benefit from having several airlines competing for business," Schellenberg told Deutsche Welle. "Less competition results in less choice and that typically means higher prices."

Aviation tax

Regional airport operators are concerned about Air Berlin's troubles and those of other discount airlines, which, in many cases, are their main customers, according to Dirk Bartel, political affairs spokesman with the German Airport Association (ADV). "Some small airports could have difficulty," he told Deutsche Welle. "But we don't expect any of them to be forced out of business."

Air Berlin, like many of its rivals, has been suffering from high fuel prices and an aviation tax that the German government imposed at the beginning of the year in the hope of raising more than 1 billion euros in additional revenue. The tax adds 8 or 10 euros to each one-way flight within Germany, 25 euros to flights originating in Germany over 2,500 kilometers (1,550 miles) and 45 euros for worldwide flights.

The tax added 44.5 million euros to Air Berlin's costs in the second quarter. That came on top of high fuel costs and a drop in traffic caused by the Japanese earthquake and tsunami as well as political unrest in North Africa. At the end of June, the carrier's net debt stood at 616 million euros, up 26 percent from the end of December.

"Air Berlin has suffered more from the aviation tax than Lufthansa, which has mostly absorbed it to make some of its domestic routes more competitive," Bartel said.

He added that the tax has impacted some airports close to neighboring borders as well.

"Ryanair, for instance, has shifted some of its flights from the Bonn-Cologne airport to the Netherlands to avoid the tax," he said. "The shifting of flights from border airports in Germany has had a noticeable affect on their business."

Author: John Blau

Editor: Kate Bowen