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(Updates with acceptance of resignation in first paragraph, comment from analyst in ninth.)
Aug. 18 (Bloomberg) -- Air Berlin Plc Chief Executive Officer Joachim Hunold quit after 20 years in charge as Europe’s third-biggest discount airline prepares to slash routes and ground planes in an effort to stem mounting losses.
Hunold, 61, will step down on Sept. 1 and board member Hartmut Mehdorn, 66, the former chief of German state rail operator Deutsche Bahn AG, will become interim CEO. The stock traded 2.8 percent lower as of 2:06 p.m. in Frankfurt after jumping 4.4 percent when the resignation was announced.
Air Berlin will scrap unprofitable routes, cut frequencies and partially withdraw from regional airports to focus on four main hubs, the company said today in a statement. More than half of the 1 million seats that are being eliminated will go at the City Shuttle division that serves European business centers.
“I’d planned to step down for some time but thought it better to resign at this juncture so the company can make an unburdened fresh start,” Hunold, who will remain as a director, said on a conference call. “I find it very hard even to conceive right now of doing anything similar somewhere else.”
Hunold, who had previously worked at charter carrier LTU, joined Air Berlin as managing director and majority shareholder in 1991. American founder Kim Lundgren had to seek local owners when German reunification gave the country sovereignty over Berlin’s airspace for the first time since World War II.
“It’s a surprise how quickly the resignation has come about,” said Per-Ola Hellgren, an analyst at Landesbank Baden- Wuerttemberg in Mainz, Germany, who is reviewing a “buy” rating on the stock. “Mehdorn is the best candidate, but it won’t lead to any fundamental difference in Air Berlin’s situation.”
The savings measures “will possibly not suffice to obtain a positive operating result at the end of the year” as fuel costs, aviation taxes and the effects of political unrest in Arab countries weigh on earnings, Hunold said today. The board said later that it accepted his resignation with “great respect.”
Air Berlin shares have declined 33 percent this year, valuing the company at 213 million euros ($307 million). Ryanair Holdings Plc, Europe’s biggest discount carrier, has slipped 17 percent and EasyJet Plc, the No. 2, is down 24 percent.
“Something radical needs to be done to get control of the debt, bring Air Berlin back to profitability and move forward,” said Joe Gill, an analyst at Bloxham Stockbrokers in Dublin. “It’s been a disaster for shareholders. They need someone to totally overhaul the business model and strategy and if they can’t get their cost base right they might have to just sell.”
Gill doesn’t have a rating for Air Berlin but has an “overweight” recommendation on Ryanair, which said May 23 it will cut capacity for the first time in its history this winter as fuel costs threaten to render dozens of routes unprofitable.
Air Berlin is a “hotchpotch” of scheduled and chartered services, short-haul and long-haul routes and unionized and non- unionized labor, operates a “mishmash” of different aircraft types and has too big a based in Palma de Mallorca, Gill said.
Among routes being cut by Air Berlin are those from Frankfurt to Naples and Hamburg, Stuttgart to St Petersburg, Munich to Cairo and Dusseldorf to Paris. The network will be focused on Berlin, Dusseldorf, Vienna and Palma, the airport for which its first flight left Berlin-Tegel in 1979.
The eight planes being dropped represent almost 5 percent of the 170-strong fleet.
Air Berlin had a second-quarter net loss of 43.9 million euros, wider than the 33.9 million euros predicted by analysts. The carrier first said on Aug. 11 that it would struggle to post a full-year profit and planned to shrink its network.
--Editors: Chris Jasper, Chad Thomas.
To contact the reporter on this story: Alex Webb in Frankfurt firstname.lastname@example.org; Steve Rothwell in London at email@example.com To contact the editor responsible for this story: Chad Thomas at firstname.lastname@example.org.