Thousands to be refused refunds as Europe's 10th biggest airline ceases trading

After months of uncertainty Air Berlin has announced it will be ending all flights in a matter of the weeks.

The bankrupt airline - Germany’s second largest and Europe's 10th biggest overall - says it's preparing to stop all services by October 28 "at the latest".

In a letter to its employees on Monday, the airline said that flights under the airline code AB "according to the current state of things, will no longer be possible."

Flights operated by its subsidiaries; Niki, an Austrian budget airline, and LG Walter, a German regional airline, will continue.

Air Berlin is currently in talks with Lufthansa (German’s biggest carrier) and UK-based Easyjet about selling parts of its business. The company said in the letter that "in a few days we'll know more" about this.

Aviation expert John Strickland told the Telegraph: "This has been expected for some time. It's now a question of how much capacity will be picked up by Lufthansa and most probably easyJet, and how many jobs this will protect."

Where did it all go wrong?

Air Berlin declared bankruptcy in August following years of losses and the decision of its biggest shareholder, Etihad, to cease bankrolling it.

Etihad said in August that this was “extremely disappointing”, especially as it had provided extensive support to Air Berlin over the last six years, notably with a €250m (£227m) cash injection in April this year, but to no avail.

Air Berlin’s Italian rival Alitalia, also part-owned by Etihad, also filed for bankruptcy this year, with both airlines struggling to fight off competition from low-cost operators such as easyJet and Ryanair.

Air Berlin has also been dogged by delays and cancellations over the past months, which have resulted in it paying millions of euros in compensation to passengers.

In September, nearly 200 pilots called in sick at short notice in a move which forced more than 110 flights to be cancelled in a single day.

All this in turn has hit passenger numbers hard, causing them to fall by 24 per cent year-on-year in July from 3.22m to 2.44m.

Shortly after Etihad withdrew its financial support for Air Berlin, The European Commission approved a €150m loan to allow for the "orderly wind-down" of the airline.

It follows the high-profile collapse of Monarch earlier this month in what amounted to the biggest UK airline failure in history.

Monarch previously served 43 destinations with a fleet of 35 aircraft. It flew 5.43 million passengers last year, making it Europe's 26th largest airline (it carried more than 7 million in 2014), and employed 3,500 people.

More than 110,000 of its passengers were stranded abroad following the sudden announcement, while a further 750,000 people have paid for flights they will not be able to take.

What if I’ve already got an Air Berlin ticket booked?

Scheduled flights will continue up until October 28, the airline has stated.

According to its website, passengers who booked their ticket directly with Air Berlin after it filed for insolvency on August 15 will be refunded in full, or rebooked on an alternative flight.

It also says that passengers affected will also be able to submit additional costs incurred by the cancellation via its website.

Tickets booked before August 15, however, will not be reimbursed due to "insolvency regulations", the statement says.

What is going on in the aviation industry?

Competition between airlines has reached fever pitch – and more failures could be on the cards. 

John Grant, an aviation analyst, told the Telegraph: "The competitive environment has become increasingly challenging for many airlines, with many established legacy airlines launching low-cost long-haul services and the continual growth in services from airlines such as easyJet, Ryanair and Norwegian. This has resulted in many 'mid-market' carriers with relatively high cost bases being continually squeezed to a point of failure.

"There are perhaps too many airlines in Europe today relative to the size of the market, with too many struggling to keep market share. In the United States, five major airlines provide some 80 per cent plus of scheduled capacity and that may be where the European market will head over time."

According to Telegraph consumer expert Nick Trend, all this could spell the end of the ultra-low fares we've become accostomed to.

He wrote yesterday: "We are certainly entering a new phase in the story of no-frills flying, one where fewer airlines are likely to dominate the market and fares may rise."

The recent fall of several carriers is a sharp reminder that airlines are fragile constructs. They work on thin margins and are thus highly vulnerable to failure - anything from shifts in the economy to a sudden decline in the demand for certain destinations due to terrorism fears, as we saw with Monarch.

The last decade has seen the collapse of Zoom, XL Airways and Silverjet (all 2008), FlyGlobespan (2009) and Spanair (2012).

Globally, more than 250 have failed since 2007.