Joachim Hunold, the chief executive of discount airline Air Berlin PLC, Thursday offered his resignation and recommended board member Hartmut Mehdorn as his successor, after introducing an extensive austerity package to counter weak earnings.

The board of directors will come to a decision by Friday at the latest, the company said. Mehdorn was formerly CEO of Deutsche Bahn AG, but resigned in 2009 following a scandal involving allegations of spying on staff.

Earlier Thursday, the loss-making airline said it will cancel unprofitable routes as high fuel prices, a new German aviation tax and weakening demand for travel to North Africa weighed on earnings.

"The aviation tax is causing a dramatic distortion of competition. In relation to revenue, we have to pay almost four times as much as our largest competitor," Hunold said, adding that the company is unable to pass this cost and high fuel prices on to its customers.

"In order to become profitable, we need to make cuts in our flight routes and in our fleet," Hunold added.

The company will reduce seating capacity by around 5%, cut fleet size by eight aircrafts, cancel routes and partially withdraw from regional airports, while concentrating on the Berlin, Dsseldorf, Palma de Mallorca and Vienna hubs.

"The capacity reductions and concentration on more profitable routes are clearly positive news as it should help to increase utilization, yields and profitability," BHF Bank said.

However, these planned measures won't help to generate a positive operating result at the end of the year, since some of the savings related to the measures will not become effective until next year, Hunold added.

Air Berlin's poor performance contrasts with other rival European low-cost airline players. Last month, EasyJet PLC said profit in 2011 would be higher than market expectations, despite being hit by unrest in North Africa, partly because demand had been higher than expected.

Meanwhile, Ryanair Holdings PLC, Europe's biggest low-cost operator, reported a jump in profit in its latest quarter as traffic and average fares jumped, more than offsetting the rise in costs. Ryanair, which has led the low-cost airlines in a charge to get more revenues outside ticket sales, said it's now considering charging for some reserved seats on each plane.

"Almost all airlines managed to achieve better results, except Air Berlin", said Metzler Bank analyst Juergen Pieper, adding that the company isn't financially well-equipped to lead an aggressive price war, particularly with Deutsche Lufthansa AG.

"It makes more sense to take a cautious approach and always keep an eye on profitability," Pieper said, noting that even Air Berlin's net debt has reached a crisis point.

At 10:00 a.m. GMT, its shares traded down 5% at EUR2.43, while the broader DAX traded 3.2% lower.