Germany seems to favour consolidation, which is bad news for consumers
Everybody is good at something. Air Berlin has shown skill at losing money, doing so at the operating level for eight of the past nine years. Last week, Germany’s second-largest airline filed for insolvency after its largest shareholder Etihad, the UAE-based carrier, halted financial support.
National champion Lufthansa looks to have the inside track on buying up Air Berlin. Already the former has bought planes from Air Berlin, leasing them back, thereby making the flag carrier a creditor. Instead of supporting competition, the German government seems to favour
consolidation of the market. Great for Lufthansa holders, but bad news for consumers.
Air Berlin is likely to be sold in parts. It has the largest share of passengers at one of the two Berlin airports, Tegel, favoured by business flyers, and at busy Düsseldorf.
Lufthansa dominates three other big airports: Frankfurt, Munich and Hamburg. A combination of the two carriers would mean Lufthansa controlling half of German airport slots and 90 per cent of the domestic market. Champion indeed. It could rule the air on domestic pricing.
All this upside has put some octane into the share price of Lufthansa. Already this year, cost cutting, labour dispute settlements and better traffic have boosted its share price 75 per cent, far ahead of the MSCI European Airlines index.
Germany is Europe’s fourth-largest airline market, but one of the least profitable last year, notes consultant RDC. One fewer airline only decreases competition for flyers. Irish carrier Ryanair,
which managed to snag some slots at Frankfurt last year, would dearly like to challenge Lufthansa more directly. However, given Lufthansa’s front-running position Ryanair and rival easyJet may be lucky to get anything in the sale process.
As poor as Air Berlin has been at running its airline, Lufthansa has shown great élan by positioning itself as the favourite for the assets. Let its rivals display their skills as well.
Copyright The Financial Times Limited 2017