Etihad Pledges Support to Earnings Laggard Air Berlin

Etihad Airways pledged to stick with its investment in Air Berlin Plc after saying the German carrier is lagging behind most other units in achieving profitability.

Among Etihad’s seven so-called equity partners — each anchored to the Gulf company via minority stakes — Air Serbia, Air Seychelles, Jet Airways India Ltd. and Virgin Australia Holdings Ltd. are all reaching their targeted goals, the Abu Dhabi-based company said Wednesday in its annual earnings statement.

Other holdings may be unprofitable but they contribute to the group via enhanced connectivity, code-share revenue and economies of scale, Chief Executive Officer James Hogan said, singling out the German company.

“Even with an investment such as Air Berlin, where it has taken longer than expected for the airline to reach sustainable profitability, we are seeing incredibly strong returns,” Hogan said. “That is why we remain committed to the restructuring of that business.”

Etihad Earnings

Etihad posted net income of $103 million in 2015, up from $73 million a year earlier. Sales of $9 billion were swollen by $1.4 billion from the 5 million customers its equity and code-share partners delivered onto its flights.

Air Berlin, in which Etihad has a 29 percent stake, is set to reveal its seventh annual loss in eight years when it releases earnings Thursday. The company had a net loss of almost 377 million euros ($425 million) in 2014 and probably suffered a shortfall of about 350 million euros in 2015, according to the average estimate of two analysts.

Competition from discount carriers led by Ryanair Holdings Plc is squeezing Air Berlins’ market share, while Deutsche Lufthansa AG is expanding into low-cost territory as it transfers more short-haul routes to its Eurowings arm.

German newspaper Handelsblatt said Feb. 23 that Air Berlin could be delisted as part of a restructuring, while Italian reports have said it may be put under the control of a holding company for Etihad’s European assets alongside Alitalia SpA and Switzerland’s Etihad Regional, to be run from Rome.

While Air Berlin makes a contribution to Etihad by feeding customers onto its planes, that ambition was clipped as German courts curtailed their code-sharing plans, excluding five routes.

Etihad raised its holding in the German carrier to the current level in 2012 and has since provided financial help including a 300 million-euro bailout in 2014.

The Gulf company said its holdings in all seven partner airlines have been achieved via an investment smaller than the cost of three new aircraft.

Published on Bloomberg.