Fewer flights

A day after announcing a 10 percent reduction of its fleet, German media reported that Air Berlin, Germany's number two airline, was considering getting rid of its CEO Hartmut Mehdorn much earlier than expected.

According to an article published this week in business monthly Manager Magazin, the Air Berlin board hired executive head-hunting firm Egon Zehnder to start looking for a replacement for Mehdorn just weeks after he took over the post on September 1.

Mehdorn, the former head of Germany's national rail operator Deutsche Bahn, had been brought in as an interim trouble-shooter for the beleaguered airline, which is frantically downsizing to ride out the current economic crisis. Mehdorn originally said he would be in the job for at least 18 months.

Drastic measures

Air Berlin said in a statement on Tuesday it would cut its fleet from 170 aircraft to 152 by next summer in a bid to cut costs by around 200 million euros ($273 million).

"We are currently operating in a turbulent environment, both in terms of competition and economic conditions," Mehdorn said. "In order to secure the company's future for the long term and to restore our former strength, every single company division will be scrutinized over the coming months."

The company also promised to reduce flight hours by only 4 percent so "productivity per aircraft will increase."

"The situation is serious," 69-year-old Mehdorn said Wednesday. "There's no time to lose."

Freeing the boss

Cord Schellenberg, a Hamburg-based independent airline industry analyst, says the decision to engage a headhunter would not have been made without consulting Mehdorn, and is part of Air Berlin's larger strategy.

"It will still take them at least a year to find a replacement. Maybe it will give Mehdorn the freedom to do what he wants in the next months," Schellenberg told Deutsche Welle. "He can think to himself, 'I don't need to make any more friends here, I can just get the job done and get out of here.' Maybe it's just meant to show his determination."

"He has a very direct personality," Schellenberg said. "Unlike his predecessor Joachim Hunold, who oversaw the growth of the company, Mehdorn is like a terrier who gets into every part of the business and says thumbs up or thumbs down. And for that you do need a certain independence. If the decision was made without his agreement, it would of course de-motivate him."

The company has blamed recent losses on high fuel prices, a new German aviation tax and sagging demand for travel to northern Africa. It says it's difficult to predict its performance for the rest of 2011 given the volatile economy.

Wider malaise

The German airline industry is currently struggling to adjust to the dipping economy. Just a day earlier, Air Berlin's main rival, the much larger Lufthansa group, said it no longer expected to meet its profit targets for this year due to ongoing economic uncertainty and disappointing business in August.

While Lufthansa was still expecting operating profit to reach many hundreds of millions of euros, "the target of a further increase on the previous year's figure of 876 million euros no longer appears to be achievable," the airline said.

The adjustment "reflects a weaker-than-expected monthly result" in its passenger business in August. In addition, "further booking trend expectations were also adjusted... in view of ongoing economic uncertainties." At a special investors' day in Zurich on Wednesday, Lufthansa further downgraded its planned expansion of capacity for the coming winter season.

Author: Ben Knight
Editor: Sam Edmonds