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UPDATE 2-Air Berlin heads for another loss in fierce price battle
November 14, 2013 / 3:15 PM / 4 years ago

UPDATE 2-Air Berlin heads for another loss in fierce price battle

* Scraps target for operating break-even

* Aims to come close to consensus for 40 mln euro EBIT loss

* Cites price pressure, tough competition, difficult winter

* Takes more measures beyond Turbine savings programme

* Shares down 2 percent, underperforming sector (Adds analyst comment, details on cost)

FRANKFURT, Nov 14 (Reuters) - Loss-making German airline Air Berlin on Thursday abandoned its target of breaking even at the operating level this year and said it would slash costs further, amid cutthroat competition and a muted economic recovery.

The airline, which is partly owned by Gulf carrier Etihad, said it was looking for additional sources of income so it could at least come close to market consensus for a 2013 loss before interest and tax (EBIT) of 40 million euros ($53.62 million).

Air Berlin, Germany’s second-biggest airline after Lufthansa , has been grappling with deteriorating finances for several years following a period of aggressive growth.

Last year, it managed to post its first net profit in five years after selling its frequent flyer programme to Etihad.

But Lufthansa’s Germanwings has stepped up competition with Air Berlin for business customers willing to pay higher fares than leisure travellers, while overseas rivals Easyjet and Ryanair have piled on pressure by adding more flights to Europe’s biggest economy.

“Given the weak demand and the unabated intense competitive environment, even further price erosion is apparent for the current winter half-year,” it said as it published quarterly financial results, adding it was cutting capacity by 3 percent in the last quarter of the year.

NEED TO DOWNSIZE

To return to profit in the long run, Air Berlin has already begun a restructuring programme - dubbed Turbine - in which it is cutting 900 jobs, or 10 percent of its workforce, and slashing unprofitable routes.

It said on Thursday Turbine was on track to contribute 200 million euros of savings this year, but it was taking steps to cut costs further, without providing details.

Goodbody Research analyst Donal O‘Neill said Air Berlin needed to downsize dramatically to compete with other low-cost airlines.

“The cost base is simply not where it needs to be to compete with Ryanair and easyJet, or even Germanwings,” O‘Neill said.

Lufthansa by contrast said last month that Germanwings was on track to break even in 2015, after posting a 200 million-euro loss for 2012.

In the third quarter through September, Air Berlin posted a smaller-than-expected 14 percent gain in EBIT to 115.6 million euros, because as warm weather in Europe meant fewer people booked flights at short notice.

For the first nine months of the year, its EBIT loss widened to 81 million euros from 78 million.

Shares in Air Berlin were down 2 percent at 1.736 euros by 13:44 GMT, underperforming a 0.4 percent gain by the STOXX Europe 600 Travel & Leisure index.

$1 = 0.7460 euros Reporting by Marilyn Gerlach; editing by Tom Pfeiffer

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