(Corrects share price bullet point to add move)
* Joachim Hunold recommends D.Bahn ex-CEO as interim chief
* News comes after Q2 EBIT loss of 32.2 mln euros
* Carrier says hit by air travel tax
* Plans to cut route network to become profitable
* Shares down 3.4 percent after initial climb
By Maria Sheahan
FRANKFURT, Aug 18 (Reuters) - Air Berlin founder and chief executive Joachim Hunold quit on Thursday after the low-cost carrier posted a quarterly loss and cut its network in the quest for a first annual profit since 2007.
If the board accepts Hunold’s suggestion, Hartmut Mehdorn, the former head of state-owned rail operator Deutsche Bahn , would take over as interim CEO Sept. 1
Shares in the carrier, Germany’s second-biggest airline after Lufthansa , briefly turned positive after the announcement, rising as much as 4.4 percent, but traded 3.4 percent lower at 2.47 euros by 1003 GMT.
The debt-laden carrier said it was suffering from a German air travel tax and high fuel costs which it was unable to pass on to customers.
It said it would focus on profitable routes by cutting more than 1 million seats from capacity, though it does not expect any positive impact on earnings before next year, when it aims to break even.
Hunold, criticised by analysts for a domineering management style and lack a clear strategy, said a different CEO would bring a fresh perpective to the challenges faced by the company, adding that he wanted to stay on as non-executive director.
Between 2006 and 2009, Air Berlin made acquisitions worth about 500 million euros ($723 million) and ordered dozens of planes as Hunold strove to super-size the carrier, a vision that hit a brick wall during the economic crisis.
Hunold launched Air Berlin in 1991 and took it public in 2006. From record levels of over 20 euros in 2007, the shares slumped to below 4 euros the following year and have never really recovered.
Air Berlin warned that low-cost carriers would suffer disproportionately from the air travel tax levied in Germany since the start of the year.
The tax, which added 44.5 million euros to Air Berlin’s costs in the second quarter, comes on top of high fuel costs, political unrest and a drop in traffic caused by the Japanese earthquake and tsunami.
Top German rival Lufthansa last month said it would scale back plans to increase winter capacity after soaring fuel costs led to lower than expected profits.
Air Berlin, which has struggled to compete with Lufthansa over heavily travelled routes such as Hamburg-Frankfurt, warned last week that it might not be profitable on an operating basis this year.
At the end of June, Air Berlin’s net debt stood at 616 million euros, up 26 percent from the end of December, as the company spent money on financing new aircraft, cutting the proportion of equity used to finance its assets to 12 percent.
“The falling equity level is a clear warning signal for investors,” DZ Bank analyst Robert Czerwensky said. “We still recommend investors continue avoiding the stock.”
The company said it aimed to improve the equity ratio in the course of the second half.
The carrier is cancelling flights to London Gatwick, Manchester and Madrid and will fly less frequently to Sharm El Sheikh in Egypt and Barcelona in Spain.
Rival Ryanair , for its part, said on Wednesday it would scoop up routes from Germany to Spain’s Alicante that Air Berlin is dropping. ($1 = 0.7099 euro) (Editing by David Cowell) ($1 = 0.692 Euros)