Lufthansa, Eurowings and Easyjet are the big winners from the break-up of Air Berlin while Condor and TUIfly face difficult questions about their future strategies, writes Paul Needham.
Now that the dust is settling on the demise of Air Berlin a new competitive landscape is becoming clearer on the German aviation market. The collapse and break-up of the former number two, which was active in different market segments under its so-called ‘hybrid’ business model, has fundamentally transformed the picture.
The big winner is clearly the Lufthansa Group which has secured up to 81 leased planes and valuable slots at various German airports at relatively low cost. Lufthansa itself will take over about 30 planes for various German and European routes, thus strengthening its dominance of the domestic market.
More importantly, its subsidiary Eurowings will gain about 50 more planes, giving it a fleet of 210 jets next summer to expand flights both as a budget carrier on city routes and as a leisure airline to Mediterranean and long-haul destinations. With planned 40 million passengers and turnover of €5 billion, the airline will quickly grow into a giant and become a major seat capacity provider for many tour operators. Its pricing policy will be closely watched in future.
Easyjet is the other main winner with its inexpensive €40 million deal to take over 25 planes (and slots) at Berlin-Tegel. This will transform it from a niche player in the German aviation market into the market leader in Berlin and the prime competitor to Lufthansa on major domestic German routes. The British airline could never have grown so fast organically and now has a historic opportunity to establish itself firmly in Germany.
Ryanair could also end up as a winner. It is the prime candidate to add new routes if competition authorities force Lufthansa (or Eurowings) to hand over slots at German airports to avoid a monopoly on those routes. Regardless of this, Europe’s largest budget airline might well use the Air Berlin market exit to speed up its planned expansion in Germany, more likely focusing on European routes with a high share of leisure passengers.
So where does all this leave Condor and TUIfly, the two specialist ‘beach holiday’ leisure airlines? Both are small in comparison to Eurowings and much smaller than Ryanair and Easyet which also have big ambitions for more Mediterranean flights. Instead of competing with both Air Berlin/Niki and Eurowings, they will now have to face competition from a mighty Eurowings in future.
However, they may also benefit from tour operators who will want to avoid over-reliance on Eurowings by spreading capacity more broadly than in the past. Condor, with its more diversified business model (one-third of sales from Thomas Cook, other tour operators and seat-only sales respectively) and mix of short- and long-haul routes is probably better positioned. TUIfly, with a smaller fleet, short-haul routes only and bigger reliance on in-house sales, has relatively little room for manoeuvre and needs to reduce operating costs.
Another factor is whether other airlines try to use Air Berlin’s collapse as an opportunity to expand their German routes. This applies particularly to niche charter carriers such as Germania and Small Planet as well as destination-based carriers from the Mediterranean and North Africa (including Sun Express). They could provide valuable capacity for German tour operators in place of Air Berlin/Niki in future.
In other words, there is still more competition in the German aviation market than appears at first glance. In the long-term, the disappearance of Air Berlin could even lead to more competition rather than less as other carriers expand and price their seats competitively.