Air Berlin to Drop Routes as Loss Looms

Air Berlin Plc (AB1), Germany’s second- biggest airline, said it will shrink its network and slash capacity by more than 1 million seats as fuel costs, taxes and the impact of Arab unrest push it toward a full-year loss.

Air Berlin fell as much as 6.5 percent in Frankfurt trading after the company said after the close yesterday that it may fail to post positive annual earnings before interest and tax.

Europe’s third-biggest discount carrier, which had been targeting an operating profit, will respond by implementing “far reaching measures” including second-half capacity cuts, route cancellations and reduced frequencies, it said in a statement.

“The operating flexibility within the model is simply not sufficient to cope with the recurrent exceptionals that this industry is exposed to, whether that’s harsh winter weather, ash clouds or the Middle East and North Africa,” said Neil Glynn, an a Credit Suisse analyst in London with an “underperform” rating.

Air Berlin’s operating loss widened to 32.2 million euros ($46 million) in the second quarter from 28.2 million euros a year earlier, it said yesterday, worse than the 18.4 million- euro figure predicted by analysts. Revenue of 1.12 billion euros was also “lower than planned,” the company said.

The Berlin-based carrier had said on March 24 it would return to profit this year from an operating loss of 9.3 million euros in 2010, buoyed by economic growth, rising employment and an increase in business travel.

Chief Executive Officer Joachim Hunold said the same day that the company planned to reduce summer capacity to Egypt and Tunisia by 33 percent because of the unrest. Air Berlin currently serves 13 destinations in the two countries plus Algeria and Morocco, according to its website.

Shares of the carrier were trading 4.4 percent lower at 2.56 euros as of 11:52 a.m. local time, taking declines this year to 31 percent and valuing the company at 218 million euros.

To contact the reporter on this story: Alex Webb in Frankfurt awebb25@bloomberg.net.

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net