August 18, 2011 / 9:36 AM / 6 years ago

Air Berlin CEO quits after Q2 loss

<p>File picture shows Joachim Hunold, CEO of German Air Berlin airline as he poses beside a scale model of an airplane before the company's annual news conference in Berlin March 27, 2007.Arnd Wiegmann/File</p>

FRANKFURT (Reuters) - Air Berlin's (AB1.DE) Chief Executive Joachim Hunold quit on Thursday after the carrier posted a quarterly loss and cut its network in the quest for a first annual profit since 2007.

Shares of Air Berlin, Germany's second-biggest airline after Lufthansa (LHAG.DE), turned positive after the announcement, rising as much as 4.4 percent, and were 2.6 percent higher at 2.49 euros by 0917 GMT.

Air Berlin said it was suffering from a German air travel tax and high fuel costs which it was unable to pass on to customers.

The carrier 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.

Hunold, who is stepping down September 1, recommended that Hartmut Mehdorn, the former CEO of state-owned rail operator Deutsche Bahn, replace him on an interim basis.

TAXING TIMES

Air Berlin warned that low-cost carriers would suffer disproportionately from the 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.

RISING DEBTS

The airline racked up debt when it aggressively expanded via acquisitions and placed aircraft orders before the global economic crisis. It has since had to sell planes, cancel some orders for the Boeing (BA.N) 787 Dreamliner and issue a bond and new shares to pay down debt.

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 carrier is cancelling flights to destinations such as London Gatwick, Manchester and Madrid and will fly less frequently to Sharm El Sheikh in Egypt and Barcelona in Spain.

Ryanair (RYA.I) is scooping up routes from Germany to Spain's Alicante that Air Berlin is dropping, the Irish low-cost carrier said on Wednesday. (Editing by David Cowell)

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