08-Oct-2009 3:50 PM

Air Berlin unit revenues reach highest levels in 18 months in Sep-2009

Analysis

Air Berlin reported a 4.4% revenue per ASK improvement to EUR 6.22 cents in Sep-2009 - the highest figure in at least 18 months.

Summary

Unit revenues reach highest levels in 18 months in Sep-2009;
Continues to gain market share, despite capacity contractions;
LTU concludes all collective negotiations;
Commences cooperation with Pegasus Airlines;
Receives two new A320s;
Expanded service for Winter schedule 2009/10.

Air Berlin revenue per ASK (RASK) growth (% change year-on-year): Apr-2008 to Sep-2009

Air Berlin has reported impressive increases in RASK over the past two years, stemming from its effective capacity deployment plans and acquisitions that have reduced fare competition in some core markets.

Air Berlin revenue RASK (EUR cents): Apr-2008 to Sep-2009

Air Berlin has also benefited from trade downs by business travellers from full service carriers. CEO, Joachim Hunold, previously stated the slowing economic conditions in Europe "could be an opportunity for us, as it increases cost-consciousness".

Continues to gain market share, despite capacity contractions

The German LCC transported 2.7 million passengers in the month, a 5.0% reduction, as the carrier implemented a targeted 4.8% capacity (ASKs) reduction. Load factor decreased 0.2 ppts to 82.3% in the month.

Despite the carrier's capacity contractions, Air Berlin is continuing to gain market share, as growth in the European market continues to shrink at a greater rate.

Air Berlin vs AEA passenger growth (% change year-on-year): Jan-2008 to Sep-2009^

LTU concludes all collective negotiations

In other positive news for the carrier, Air Berlin announced that LTU management has negotiated a settlement with ver.di, the service workers' union, with regard to the airline's cabin staff, and VC (Vereinigung Cockpit), with regards to its cockpit personnel, meaning the Air Berlin subsidiary has now concluded all its collective negotiations. Each agreement involves improved productivity.

Air Berlin /LTU Oct-2009 labour agreements

	Ver.di	Vereinigung Cockpit
Represents	Service workers' union - Cabin Staff	Cockpit personnel
Ratification Date	By 13-Nov-2009	By 13-Nov-2009
Validity	Until 31-Dec-2010	Until 31-Dec-2010
Block hour guarantees	66 block hours per month backdated to 01-Jan-2009 69 block hours from 01-Jan-2010	68 block hours per month also backdated to 01-Jan-2009 69 block hours from 01-Jan-2010
Redundancies	Agreed to exclude all redundancies until 31-Dec-2010, even in times of fluctuating demand	Ruled out any enforced redundancies before 31-Dec-2010
Pay freeze	Pay freeze on linear salary increases until the end of 2010	Pay freeze on linear salary increases until the end of 2010
Other elements	Protection of vested rights Introduction of a sector supplemen	Safeguarding of the LTU cockpit personnel's standard of living; An extra grade on the pay scale for Air Berlin's co-pilots; Introduction of a sector supplement; Retirement plan funded by the employers is being negotiated

This is a positive development for Air Berlin, which was forced to cancel several German domestic services and an LTU long-haul service on 31-Aug-2009, due to a one-day strike by some of its Cockpit Pilots Union pilots. The pilots also enacted a similar strike in Apr-2009.

Commences cooperation with Pegasus Airlines

Air Berlin and Turkey's Pegasus Airlines have commenced cross-linking of their websites, providing both companies with new market opportunities. Under the agreement, passengers are able to book 17 additional connections from Germany to Turkey, as well as 26 routes within Turkey.

The partnership is not a traditional interline or codeshare agreement and is similar to that in place between JetBlue and Aer Lingus. Such an agreement enables the carriers to avoid the costs and challenges of a traditional codeshare arrangement, by having a partnership primarily based on connecting the airline's respective websites.

According to Air Berlin CEO, Joachim Hunold, "the cross-linking of the Internet portals will enable Air Berlin to increase its presence on the Turkish market. In return, Pegasus Airlines will benefit from having greater access to the German market."

The cooperation agreement follows Turkish ESAS Holdings' acquisition of a 15.3% stake in Air Berlin earlier this year. ESAS Holdings is the second largest industrial and financial group in Turkey and the owner of Pegasus.

Receives two new A320s

In fleet news, Air Berlin and GECAS announced the delivery of two new A320-200s to Air Berlin. GECAS acquired the aircraft through a purchase and leaseback transaction with the airline. The aircraft are part of an existing order agreement between Air Berlin and Airbus.

Air Berlin is expected to have over 130 outstanding aircraft for delivery at the end of 2010, including 25 B787s.

However, the LCC has stated it intends to review its order for 25 B787s, the first of which is scheduled to be delivered in 2013. The carrier, which plans to make a decision in the next few months, stated this decision would be based not only on the programme status, but also on its own long-haul strategy.

Air Berlin aircraft order book: as at Jun-2009

Contract Date	Supplier	Aircraft	Delivery	Delivered 1H2009	Outstanding (Jun-2009)	2H2009 deliveries
2004	Airbus	60 A320/319/321s	2005-12	3	24	5
2006/07	Boeing	100 B737-700/800s	2007-14	4	91	3
2007	Boeing	25 B787s	2013-17	0	25	0
2007	Bombardier	10 Q400s	2008-9	6	2	2

Expanded service for Winter schedule 2009/10

The recent fleet deliveries will help accommodate the carrier's expanded Winter Schedule (01-Nov-2009 to 30-Apr-2010), as part of which the carrier plans to add ten new destinations and 54 direct services to its route network.

As part of the new schedule, Air Berlin is positioning itself as the largest German carrier in Italy and strengthening its presence in Austria:

Italy: Four further destinations in Italy are being added to the schedule - Cagliari and Palermo, Naples and Bari. From Stuttgart, the carrier will operate to seven Italian destinations as part of the schedule;
Austria: To incorporate Klagenfurt in its Austrian network, and to increase frequencies from Salzburg, Innsbruck and Graz.

In addition to expanding its service, especially from Cologne and Stuttgart, the airline will soon commence operations from Memmingen Airport. For the first time ever, Air Berlin is also offering a new service from Cologne/Bonn to Morocco and Tunisia, with services to Tangiers, Nador and Tunis.

Air Berlin background Information:

Founded in 1978, Air Berlin operates over 350 daily services to more than 100 destinations across Germany, Spain, Portugal, Scandinavia, Italy, Hungary, Switzerland, UK and North Africa;
Air Berlin operates a mixed fleet (now including 11 different aircraft types) of 124 aircraft, serving 99 destinations across its broad network;
The Air Berlin Group includes not only Air Berlin, but also the Austrian airline NIKI (24 %), the Swiss airline Belair (49 %), the Munich-based airline dba (100 %) and the Düsseldorf-based airline LTU (100 %).