This assignment investigates the process of crisis detection, reorganisation and restructuring using the example of Air Berlin. In August 2017, Air Berlin went insolvent as the company has not been able to turnaround the crisis, they have been stuck in.
First of all, the analysis focuses on the time before and at the beginning of Air Berlin’s crisis. Afterwards, internal and external factors that influenced Air Berlin’s business pre-crisis will be examined to analyze their state in the market. When the crisis occurred, investigation focuses on the different stages of crises through which Air Berlin went by analyzing all relevant financial figures. It is of interest how they reacted to the crisis financially, operationally and strategically. The goal of this research is to elaborate Air Berlin’s crisis and examine key facts that led to the total dissolution in 2017.
Table of Contents
1 Introduction
2 SWOT analysis
3 Indicators of crisis
4 Reaction and turnaround process
5 Insolvency proceeding
6 Conclusion
Research Objectives and Topics
This assignment investigates the comprehensive process of crisis detection, organizational restructuring, and eventual insolvency of Air Berlin, analyzing the strategic, financial, and operational factors that led to the company's total dissolution in 2017.
- Analysis of pre-crisis conditions and initial market positioning.
- Evaluation of internal and external factors influencing the business decline.
- Examination of the various stages of crisis (stakeholder, strategic, and liquidity).
- Assessment of turnaround measures and management reactions to financial instability.
- Review of the role of key stakeholders and the eventual insolvency proceeding.
Excerpt from the Book
3 Indicators of crisis
The first stage of crisis is the Stakeholder crisis. In this stage Air Berlin struggled with important stakeholders which are mostly customers and shareholders12. From 2011 to 2012 the company´s customer satisfaction ratings decreased dramatically for service and price conditions. They dropped from the first place in both categories which they obtained in 2011 to the 3rd place in service and to the 6th in price conditions losing one of their competitive edges13.
Air Berlin´s stock price directly correlated with their net profit. From more than 20 euros per stock in 2007 the price dropped to 3.50 euros in 200814. The year Air Berlin had to report a negative net profit of -75 million euros15. This situation led to a shareholder crisis as net profit and share price never recovered to pre-crisis levels.
Air Berlin was under pressure and tried everything to grow, e.g. by expanding their number of aircrafts and destinations16, but that strategy was not sustainable. In 2012, Etihad bought 29,2% of Air Berlin’s stocks17. However, this huge investment from Abu Dhabi was bound to conditions in the interest of Etihad.
The next stage of crisis is the strategic crisis. The SWOT analysis in Chapter 1 already pointed out that Air Berlin did not decide on a clear strategy. While Ryanair and Easyjet positioned as low-cost carriers, Lufthansa had a competitive edge in being a comfortable and reliable carrier with many destinations. Air Berlin´s tried to drive a hybrid strategy combining a low-cost approach with full network service and business charter flights18. This may be interpreted as a lack of strategic focus given the strong competitors in each segment.
Summary of Chapters
1 Introduction: This chapter introduces the scope of the study, focusing on the history, business model, and the research objective regarding Air Berlin's decline.
2 SWOT analysis: This section evaluates the market position of Air Berlin at the start of its crisis, highlighting strengths like brand awareness against weaknesses like low margins.
3 Indicators of crisis: This chapter details the progression through different crisis stages, including stakeholder dissatisfaction, strategic misalignment, and product-related sales declines.
4 Reaction and turnaround process: This section analyzes the management's various attempts to stabilize the company, including fleet restructuring and the partnership with Etihad.
5 Insolvency proceeding: This chapter covers the final collapse of the company in 2017, the withdrawal of investor support, and the role of government-backed loans.
6 Conclusion: This chapter synthesizes the main findings, attributing the failure to a combination of rising costs, lack of strategic focus, and ineffective turnaround measures.
Keywords
Air Berlin, Insolvency, Crisis Management, SWOT Analysis, Aviation Industry, Turnaround, Stakeholder Crisis, Strategic Focus, Profitability, Liquidity, Cost Structure, Revenue Decline, Fleet Management, Etihad, Market Competition
Frequently Asked Questions
What is the fundamental focus of this research?
The paper examines the decline and eventual dissolution of Air Berlin, specifically tracing the path from its initial crisis detection through various stages of restructuring to its final insolvency in 2017.
What are the central themes of the work?
Key themes include crisis theory in an aviation context, strategic misalignment, the impact of cost structures (COGS and leasing), and the role of stakeholder and investor relations.
What is the primary research goal?
The goal is to elaborate on the critical facts and developments that led to Air Berlin’s total business collapse after the company failed to successfully execute a turnaround.
Which scientific method is applied?
The study utilizes a descriptive case study approach, conducting a SWOT analysis and examining financial figures, market trends, and stakeholder reports to track the stages of the crisis.
What topics are covered in the main body?
The main body covers a market position analysis, the identification of different crisis stages (stakeholder, strategic, sales, and liquidity), and an evaluation of management’s turnaround efforts.
Which keywords best characterize this work?
The work is defined by terms such as aviation crisis, turnaround management, cost structures, insolvency, strategic focus, and stakeholder management.
Why did the sale and lease-back policy contribute to the failure?
The policy significantly increased operating costs because while it provided short-term cash, it traded long-term asset ownership for expensive, recurring lease payments that the company could not sustain.
What role did the Etihad investment play in the timeline?
Etihad's 2012 investment provided a temporary financial injection and a five-year credit line, but it ultimately failed to provide a sustainable solution, and its subsequent withdrawal accelerated the final insolvency.
How did competition impact Air Berlin's strategy?
Intense competition from low-cost carriers like Ryanair and full-service providers like Lufthansa forced Air Berlin into a "hybrid" strategy that lacked a clear focus, leaving them vulnerable in both segments.
- Quote paper
- Anonym (Author), 2020, The process of crisis detection, reorganisation and restructuring using the example of Air Berlin, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/960374
