Attestor rescues Condor from bankruptcy

Condor's Medium-Term Future is Secured, But There’s Still a Long Road Ahead

“Condor’s future is secured”, celebrated the press release published by the airline. There are plenty of reasons to celebrate. After a lengthy process that took more than a year, starting in September 2019, following the collapse of Thomas Cook, over the past week Condor Flugdienst, Germany’s traditional holiday airline, finally sealed the deal on the sale of a majority stake to new investors. With the acquisition, Attestor effectively rescues Condor from bankruptcy.

The new owner is England’s Attestor Capital Limited, an asset manager founded by Germany’s Jan-Cristoph Peters.

In addition to acquiring a 51% stake in Condor, Attestor has also pledged EUR 200 million in fresh capital and to invest EUR 250 million to “modernize Condor’s long-haul fleet”, said the press release, “[ensuring] the rapid ramp-up of flight operations after the Corona pandemic [and further enabling] the long-term development” of Condor.

While fresh cash and new ownership are welcome, there remain several challenges Condor faces.

“Condor has little time for a solution”

“Condor has little time for a solution”, said Shakeel Adam, Managing Partner of consultancy firm Aviado Partners, to WirtschaftsWoche magazine, warning that “Condor has to become more profitable and customer-friendly“.

"We truly enjoy flying Condor on leisure routes. The service is excellent but the premium product is outdated and feeling tired. The soft product is the difficult part and Condor does it well. The hard product is the expensive part."- Adam

Although the recovery in Europe’s aviation market has already started – more specifically, led by the leisure travel segment -, Condor’s future is not yet secure. Quite the contrary. Condor must now forget the past and move forward quickly to avoid irreparably losing ground to larger (and well-financed) airlines which are all focused on attracting leisure passengers in a post-COVID recovery.

Aviado Partners forecasts that, over the next two years, the market recovery will be led by mostly leisure travel (Condor’s focus).

Even in the longer-term, the leisure segment will play a much more important role for airlines than pre-COVID.

Therefore, the network competitors that previously focused on the corporate passenger are expected to invest aggressively to grow their leisure focussed offerings.

If Condor is to survive, it must be ruthlessly disciplined in its mission to focus on the leisure segment and seek a competitive edge over large network carriers seeking to take a larger piece of their market.

“Condor is the strongest leisure carrier, but at the same time, we it has not grown much over the last years, even though the market has been growing”, Adam reminds us.

Indeed, prior to COVID, Condor’s growth was below its peers. A 2018 analysis article by CAPA shows this trend very well. Condor’s 2018 capacity in Germany, indexed to 100 in 2013 was 140. Meanwhile, Ryanair’s (RYAAY) 2018 relative indexes capacity was at 194, easyJet’s (EZJ.L) at 233 and Eurowings was at 294.

Meaning that even before COVID, airlines competing for the Condor’s target leisure passenger within Europe had outgrown the airline in its home market.

Source: CAPA.

The same trend is observed in another core market for Condor: leisure long-haul from Germany, where for many years, competition has been growing especially from the Middle Eastern carriers, particularly on Eastbound markets.

As a simple example, Emirates’ market-share from Germany to “Southern/East Africa, Asia, Middle East and South West Pacific” grew from 6.0% to 10.2% according to a study by the Deutsches Zentrum für Luft- und Raumfahrt Institute of Air Transport and Airport Research in 2012. This trend was found with other Middle Eastern carriers.

While it is not intrinsically negative for an airline to lose market-share, Condor’s numbers show that its position as Germany’s carrier of choice for tourism flights has been threatened for years before COVID. As airlines compete for revenue in a post-pandemic world, the pressure will only increase on Condor.

The most significant threat to Condor will most likely come from the various Lufthansa Group

The Lufthansa Group carriers will most definitely prioritize self-operated leisure operations, as evidenced by the cancellation of their partnership with Condor – a move Bloomberg labeled “an existential threat for Condor”. While leisure demand will certainly boom for the near future and Condor is best placed to capture the demand initially. The question is whether it can hold on. Especially in the context of a return to a new equilibrium when travel normalizes in the medium term. There will certainly be far more leisure focused capacity by 2025 flying to/from Germany and central Europe in general. Will Condor be able to hold on to its share in the face of large network carriers then being over capacity?

Condor must quickly move to battle on two fronts: short-haul and long-haul, where it has lost its edge over the years. Condor’s new owner is indicating a strong commitment to invest in the long-haul needs in the long-term, but it is a race against time to secure a market position before legacy carriers shift too much. And to do so with cost discipline.