Evidence of poor logic or Irish Roulette

Aer Lingus' Board of Directors reaffirmed the urgency in achieving €97m in cost savings as outlined in its Transformation Plan, following a review of its progress.

Aer Lingus has accepted an invitation from the National Implementation Body to conclude negotiations with employee representatives under the auspices of the Labour Relations Commission. At the conclusion of the talks, the Board and Management will meet to review the results, and in the event that the required €97m savings have not been agreed in full, will proceed to implement an alternative means of delivering the savings within the timeframe set out under the plan. Before you read on - go over that last sentence one more time. Focus on "alternative means". The next part is really funny.

Alternative means "could include further reductions in capacity", which obviously leads to additional redundancies. The carrier stated that while the preference will be for such redundancies to be on a voluntary basis, compulsory redundancies cannot be ruled out. Read veiled threat.

So it goes like this Paddy - either you "retire", or we fire you. If you fight that, we will sell our planes, kill the company and still fire you. Do you get that Paddy? Of course Paddy does not buy this. He knows the company won't die - the government won't let that happen. So he will not play along. This is a game called Irish roulette and, unlike Russian roulette which is played with a gun, this one is played with an airline.

In other news --

• Germany fingers Emirates - and now it gets really interesting
• TSA reaches - don't be surprised
• Airbus ahead at United?
• The EU's airline compensation plan

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British travel slumps

The number of visits abroad by UK travelers slumped by 14%, or 9.8m, to 61m in the year to September. Inbound travel to the UK was down by 9% or 3m to 30m in the same 12 month period.

A 24% drop in business travel to the UK in the year to September contributed to a continuing fall in total arrivals. Business trips by UK residents abroad were down by 16% in the 12 months to September, compared with a year earlier. Holiday travel to the UK increased by a marginal 1% during the 12 months, according to data released today by the ONS in the latest Overseas Travel and Tourism Statistical Bulletin.

VisitBritain hailed the inbound figures as showing that the UK tourism industry looks to have reached a “turning point”. The national tourism agency forecasts that inbound tourism will help lead Britain’s economic recovery during the coming months with modest growth expected in 2010. As long as sterling remains weak, that is. But a weaker dollar will reduce the number of American visitors.

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• Air France-KLM stumbles
• Delta piles on JAL
• The scary part gets scarier
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Funny pricing

Airlines are complaining about weak yields. They seem to have now sorted out the demand and capacity situation. But, as always, there is the buying of market share to worry about. However, airlines have no become fee-junkies. This is a great way to looking competitive on the booking engines but grabbing cash at check-in.

US Airways has added a 5% surcharge on all US services on or after May 8th 2010, to protect the carrier in case of increases in fuel prices or other costs. Delta, Northwest and United increased surcharges on busy periods during March 2010 and April 2010 from $20 each way to $30. Surcharges have also been increased to $50 on the day after the Super Bowl. For now, American and Continental have yet to raise their surcharges. But watch out, if the others get away with it, they will follow.

Clearly its time for Southwest to roll out their "fee-free" ad campaign to remind people of what is going on.

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• Air India pilots agitate again
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• Another balloon story

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Aer Lingus - the new Alitalia?

It took the Italians decades to fix their airline. They certainly seem to have fixed it so far - there was a profit report recently. So the Irish have a model to look to. Aer Lingus is expected to announce more job cuts as it concludes talks with trade unions as part of another round of $100m cost paring.

Last week Aer Lingus revealed its revenues fell 10% in the last quarter, compared with the same period in 2008, and its cash burn is worrying industry analysts. At the end of September, it had cash reserves of about $600m, ~39% lower than last December.

Last month, new CEO Christoph Mueller, outlined plans for cuts that would include 676 jobs from the workforce of nearly 4,000. The airline could sell some of its aircraft, and according to reports, eight Airbus jets could be sold.

It is still possible that the future of Aer Lingus could be determined by its major competitor and biggest shareholder, Ryanair. It is thought MOL remains interested in doing some sort of deal to get control of Aer Lingus. But EU regulators have ruled against any merger. Last month, MOL denied a report in the Financial Times which claimed Ryanair could take control of Aer Lingus through a rights issue. He insisted there was “no substance” to it. For now.

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• Embraer makes a win in Dubai
• The C-5M rocks!
• Airbus wins another one in Dubai
• Boeing makes its first wins in Dubai - thanks Algeria

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A320 "sharklets"

With Air NZ as launch customer, Airbus announced that based on fluid dynamics research and using the A350XWB as a model, they decided to scale the A350 "sharklet" for the A320 family. Airbus projects a 3.5% improved fuel burn to give 500Kg extra payload or 150NM range. EIS is projected at 2012. Interestingly Airbus is working with Aviation Partners on this project but not using their design. AP is going to work with Airbus on the retro-fit program.

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• Finnair pilot strike - a Titanic deckchair dance
• Boeing fixes two more 787s
• BA cabin crew ballots out
• Dubai day one

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Vietnam makes a splash

Vietnam Airlines has agreed to buy four A380s and two A350XWB-900s, in a deal worth almost $1.8bn. Leahy has been saying for a while that he has more customers in the wings. Vietnam's economy is growing fast - it is the newer lower cost labor option after China.

Clearly these airplanes are meant to radically expand the nation's reach. There is no information for now on which routes the planes will be targeted for. But long hauls they are for sure. Our guess would be the EU and North America.

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• BA & IB merger is on - but there may be a lot of indigestion

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More strikes at Iberia

Unions representing Iberia’s cabin crew revealed they will stage eight more days of strikes unless a pay agreement is reached. As if this week's mayhem weren't enough. The dates for the proposed strikes are 30th November to 2nd December, and 14th December to 18th December. This will cause major disruption going into the holidays. The airline has already been forced to ground hundreds of flights this week due to strikes.

The two main unions representing Iberia cabin crew are CTA and SITCPLA. The SITCPLA union said in a statement. “We have called for eight more days because there is no will to reach an agreement. Our wages have been frozen since 2005 and, according to the company’s viability plan, this will continue until 2011.”

Iberia, in merger talks with BA, plans a hiring freeze plus a company-wide wage freeze for 2010 and 2011, lay-offs of all cabin attendants older than 55 (YES!) and additional savings of up to €37m a year in overhead costs for 2011 and 2012. Iberia wants to reduce costs to combat falling profits. The company made a loss of €165.4m in the first half of the year. That means the company is in for a rough ride because its whole labor force will be unhappy. Perfect timing for a merger.

Of course what the Spanish labor is ignoring is that the merged airline is likely to be based in Madrid. That means more jobs - but the merger has to happen first.

In other news --

• Hubris thy name is Dubai
• ANA wants an LCC
• Can the Irish march to a German drum?
• Qantas offers JAL help

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A380 ‘answer to crowded airports’

Here is news that Airbus will enjoy all day today, and copies of this news will be circulating via email for weeks. Emirates president Tim Clark extolled the virtues of the A38O as a 'great crowd-puller'. He spoke at the World Travel Market in London where he said the aircraft was the answer for capacity constrained airports such as Heathrow.

Predicting a pick up in international travel, Clark said: "The sort of thing to do in places like Heathrow is to go with bigger aircraft. It will relieve pressure on those airports." He described the A38O as being more fuel efficient than expected and "hugely profitable". Clark added: “The faster you fly it, the less fuel it burns.” Emirates currently has five A380s operating 16 hours a day and running load factors of 9O%.

The questions jump out; more fuel efficient than expected? hugely profitable? His last quote simply defies physics. Once Airbus required a bigger fan on the engines to achieve QC4, it was possible the fuel burn was going to improve as bypass ratios grew. That the plane is "hugely profitable" is a statement that really deserves qualification. But don't expect it as the company's numbers have never been transparent. As always we have to take him at his word - and the airline is is going to acquire another ~50 of these planes. So imagine the impact if he's not blowing smoke.

His final quote really is something. We don't have the context of the statement but really does seem to defy logic. Again, we have to take the statement as is - but here's a question then: why can't the airline fly it between DXB and the US west coast? Is the plane's range really that marginal? Here's hoping the media with access to him get more detail and color on these statements.

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• Mexicana joins oneworld
• A sea change?
• Winter cometh
• McCain and the tanker (yes, again)

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EU LCCs continue to shine

Ryanair and easyJet reported another month of positive traffic results for October, with continued traffic growth and load factors at or above 85%. It seems clear that people are willing to "downgrade" to LCCs or stay at home. Ryanair transported 6.2m passengers for a 15% yoy increase in traffic. Load factors remained stable at 85% in the month. But the airline has been buying its traffic - it has held seven seat sales covering 1m seats, either for free or priced at €1, €3, €3 or €15 per seat (plus taxes and charges). Even with ancillary charges at around 20% of Ryanair’s average fare, the impact is minimal. The only reason the airline can be doing this sort of seemingly irrational behavior is to make its competitors bleed faster. With its huge cash pile, Ryanair can afford to bleed for longer. BA, for example, cannot.

Meanwhile easyJet carried 4.2m passengers in October, a 6.6% yoy improvement, while load factor gained 3.0 ppts to 86.8%. Slowing its growth to 7% from 15% means that easyJet is trying to be less risk averse. Culturally these two LCCs are quite different. easyJet is much less vociferous and flies to airports that actually are located at the city a person wants to get to.

The big take away here is this - between these two LCCs, over the past year they have carried over 109m people! Manifestly people are traveling on LCCs rather than network carriers. IATA, in its September traffic report noted network carriers were struggling, “partly reflects a loss of market share by network carriers on short-haul routes to low-cost carriers”.

The race for every airline to become an LCC is on. Which means the long haul LCC is on its way.

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• BA/Qantas JV renewal - and the Gulf threat to premium traffic
• JAL induced panic - yes it is showing now
• Bombardier eyes cuts - where is the stretch Q400?
• ATA sees a 4% weaker Thankgiving

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JAL losses really impact

Executives at JAL will forgo their December pay as the national carrier approaches its fourth year of losses out of five. The company is expected to report heavy losses on Friday when it announces second-quarter results.

The pay move will affect JAL president Haruka Nishimatsu and some 70 other company officials, a spokesman for the airline revealed. According to reports 17,000 non-executive employees have also been asked to give up their winter bonuses.

JAL asked the state-affiliated Enterprise Turnaround Initiative Corp. for aid as it seeks to avoid collapse amid the global economic recession. Company President Haruka Nishimatsu in September proposed cutting 6,800 jobs and carrying out the biggest reduction of routes in the airline’s history.

Asia’s largest carrier by revenue is struggling to secure fresh government aid to finance its restructuring and is shrinking fast. The restructuring process could take months, however, in part because JAL must negotiate cuts to pension payments with retirees and a group of hostile unions. The cuts in pensions has manifest political implications in aging Japan.

As an aside it appears now that the Japanese government is siding with the Delta-led solution. No surprise really. By splitting the deals this way, Japan gets the highest bid out of both alliances. In our view the state and airline are in cahoots (though we can't prove it). The state knows it must save the airline, and in return the airline must give up something to the state. It seems this "give back" will be to allow the state to decide who gets the airline as an alliance partner. Expect squealing at oneworld - if we see more travel to Tokyo by its current partner airline CEOs you know why. There is just a hint of panic within oneworld at this stage.

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• The quiet crash
• Aer Lingus says cost cuts are working
• BA and United headed to court
• The Onion does United

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