TUIfly | Air Berlin

Merger would create new ‘European leisure airline group’

TUI is set for a controversial strategic re-think in the aviation business by merging its German airline with Air Berlin's 'touristic' fleet in a new 'European leisure airline group'.

Europe’s largest tourism group would transfer in-house carrier TUIfly to an Austrian-owned ‘airline group’ which would also incorporate Air Berlin’s leisure fleet. This new ‘TUI-Air Berlin’ group would mainly compete with Thomas Cook’s German airline Condor but also with Lufthansa’s budget airline Eurowings, Ryanair and Easyjet, which are all expanding inexpensive flights to holiday destinations.

But the move has quickly generated protests by the TUIfly workforce that have hit flight operations, and raised questions about how the new airline would provide capacity both to TUI’s tour operating business and to other tour operators in future.

The strategic shake-up follows last week’s announced restructuring of Air Berlin under which Germany’s second-largest airline will wet-lease 40 jets to Lufthansa for low-cost flights and split off 30 others into a separate ‘leisure travel’ unit, leaving it with a core fleet of 75 jets for European city routes and long-haul flights from summer 2017 onwards.

TUI, Etihad Airways and Air Berlin confirmed yesterday (Wednesday) that they are “in discussions to create a strong European leisure airline group, focused on point-to-point flying to connect key tourist markets”. TUI’s supervisory board is due to decide on this new airline group at its October 26 meeting. But the three companies stressed that any agreement will need regulatory approval.

The new ‘leisure airline group’ would comprise TUIfly, which operates a fleet of 41 jets, together with the 14 planes wet-leased by TUI to Air Berlin under a lucrative long-term contract and Air Berlin’s low-cost Austrian unit Fly Niki, which operates 17 planes. This would come to a total fleet of 62 planes which would serve a broad network of destinations from Germany, Austria and Switzerland.

Under the proposed deal, TUI and Air Berlin’s core shareholder Etihad Airways would each hold a strategic 24.9% stake in the new company, which would be majority-owned (51%) by an Austrian foundation in order to protect traffic rights.

For TUI, the main benefit from the airline deal would be to remove financially weak TUIfly from its books by turning it into a minority holding. In 2014, some 7.8 million passengers flew on TUIfly services.

For Air Berlin, the deal would end the expensive long-term contract with TUI under which it wet-leases 14 jets, including crew, at above-market rates, and would effectively terminate its hybrid business model of leisure and business travel flights.

However, it is unclear whether the new group would operate as a single airline or as a holding company with separate operational fleets, using the AOC licences of TUIfly and Fly Niki. In particular, Fly Niki, which operates at lower costs than TUIfly, could prove a critical issue for the TUIfly staff, who are reportedly relatively well-paid compared to rivals.

TUIfly’s crews have already made their fears very clear over the last few days as many of them called in sick, forcing the airline to cancel numerous flights and delay others. The German carrier’s works council is demanding a guarantee that it will remain a separate unit and that Hanover will remain its home base in future.

In response, TUIfly managing director Jochen Büntgen reassured staff that the airline would remain a separate Hanover-based unit within the new airline group and existing contracts would be protected. In addition, TUI Germany “will commit itself to contracting flight capacity for several years and will thus be an important long-term client and partner for the new group”, the airline emphasised.