In July I wrote about the terrible financial situation of airberlin, which is Germany’s second largest airline. The airline lost almost $500 million last year, despite oil prices being as low as they are.
They seem to fundamentally be struggling with an identity crisis, as they’re not sure whether they want to be a low cost carrier or a full service airline. Etihad has a 29.2% ownership stake in airberlin, though for quite a while there have been rumors of them wanting to decrease their stake, given no clear end in sight for airberlin’s woes.
At the time we learned that Lufthansa is apparently in talks to buy parts of airberlin. Specifically, they were looking at taking over all of airberlin’s flights that aren’t to/from Dusseldorf or Berlin, and adding them to their growing Eurowings division. Up until now we haven’t really known what that would look like in practice. Would airberlin sell the planes to Lufthansa, and what happens to their employees? Or would they just lease the planes?
Well, it looks like we now have more information as to what this agreement could look like in practice. The Sueddeutsche Zeitung reports on the plan between airberlin and Lufthansa that’s apparently in the process of being finalized:
- Starting in late October, Lufthansa would wet lease 40 airberlin planes (about a third of their fleet), meaning that the flights would continue to be operated by airberlin crews on behalf of Lufthansa
- Through this arrangement, Lufthansa would be taking on all the risk — airberlin would be paid a fixed amount for the flights (presumably roughly the breakeven cost, to reduce their overall losses), and Lufthansa would assume all the risk
- Under this arrangement Lufthansa wouldn’t actually be taking over Etihad’s stake in airberlin, so since Etihad would still be in the equation it’s possible we’ll see some sort of codesharing between Etihad and Lufthansa
So, why on earth would something like this make sense?
- Airberlin is bleeding money, so they’ll do just about anything to reduce their losses, even if it involves leasing planes to one of their biggest competitors
- Lufthansa doesn’t want airberlin to go out of business, because they know that if they do, other European low cost carriers (like Ryanair and Easyjet) would greatly expand in the German market, and they could have a much greater impact on the overall market
So it’s an interesting move, because I highly doubt that Lufthansa will be able to turn an operating profit on these flights, as they won’t really be doing much differently than airberlin aside from how they’re marketing the flights. At the same time, that could be worth it to Lufthansa, as a measure to minimize competition.
While this deal hasn’t yet been finalized, it’s sure looking like it’s going to happen, and the wet lease could start late next month. This is a fascinating way for two huge rival airlines to work together to prevent others from entering the market. While that can be hard to rationalize (could you imagine United voluntarily leasing out their planes and crews to American, and having them continue to operate the same routes?), it sort of makes sense in the context of the European aviation market.
What do you make of Lufthansa’s plan to wet lease 40 airberlin aircraft for their intra-Europe flights?
(Tip of the hat to LoyaltyLobby)