IAGblog

The Irish and the German, Act 2

2009-12-09T05:20:00.000-08:00

Aer Lingus CEO, Christoph Mueller, again cautioned the carrier could be taken over by Ryanair if it is unable to stabilize its business and successfully negotiate with its unions. There is nothing to beat the old external threat game when you need to use fear to coax people.

“If Aer Lingus isn’t capable of mastering its own destiny, then of course the likelihood that some form of non-independence might occur is more likely. I believe there is a correlation between our ability to have an agreement with the unions and the likelihood of a bid. I know that it is the desire of all our employees to stay independent and that is the reason I feel obliged to do everything I possibly can to reach an agreement with the unions. One group of employees is resisting and bringing Aer Lingus closer to a situation where we might lose our independence,”

Well said, but is it well heard? We are betting not.

In other news --

Ryanair and Boeing - looking weaker by the day
Norwegian stumbles
Thoughts on United's order
TSA's black eye

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Here it comes

2009-12-08T04:47:00.000-08:00

Yet another piece of legislation bound to drive the US airline industry nuts - but of course the law will apply across the entire economy. 178 Members of the Congress signed (December 7, a date that continues to be associated with infamy) a letter to the National Mediation Board in support of a rule change regarding the way votes are counted in union organizing elections for aviation and railroad workers.

Currently, a vote to organize for collective bargaining purposes under the Railway Labor Act requires approval of a majority of the workers to be included in the proposed bargaining unit. Non-voters are counted as “no” votes. The letter argues that the rule should be changed to require a majority only of the votes cast. The letter was authored by Committee on Transportation and Infrastructure Chairman James Oberstar (surprise!) and Committee on Education and Labor Chairman George Miller.

Think this through for a minute. If you want to create jobs, might it not be better to make it easy to create jobs? Corporations are less likely to create jobs now because they are staring labor trouble in the face. With Wall Street's shenanigans fresh in our minds, you would imagine sympathy for labor is appropriate. Except, Wall Street and Main Street operate in separate, if parallel, universes. Federal Reserve Chairman, Ben Bernanke has warned, “we still have some way to go before we can be assured that the recovery will be self sustaining”. He added he hoped the rebound will stretch into 2010, but noted the US economy still faces “formidable headwinds”. Here comes Congress with its own addition to climate change.

Moreover, if your intent is to revitalize the economy, might you not want to create jobs and thereby rebuild the tax base? If this piece of law gets passed, watch for an agonizing jobless recovery. Happily there is another election to come.

In other news --

EADS has sufficient cash
US LCCs - doing OK by and large
EU sees travel decline
easyJet and old planes

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There have to be green shoots - Wall Street says so

2009-12-07T05:23:00.000-08:00

American carriers’ stocks surged on Friday (December 4 2009) on news the US unemployment rate dropped unexpectedly to 10% in November, smaller than the expected 10.2%. As a result, the AMEX Airline Index lifted 4.3% to its highest point in 21 months. The Dow (+0.2%) was up, while oil prices dropped 1.3%, to $75.47, assisting airline stocks. Full service carriers benefited the most from the unemployment rate news, with US Airways (+9.1%), American (+7.3%) and Delta (+6.0) making some of the largest gains for the day.

So while we may not see the emergence of a recovery yet, the markets are taking it seriously. This is gratifying since one can take bad news for only so long. However, as we are now entering the worst travel period of the year - January is closer than you want to even contemplate - travel vendors are looking at a bleak winter to get through before they might also start to see some sort of recovery.

In other news --

What's up in Hawaii?
787 news - we have a date!
Southwest sparkles
The A350 is born - well sorta

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Bombardier has a better day

2009-12-04T04:21:00.000-08:00

After announcing cuts in CRJ production and hundreds of jobs the company had good news as well. Bombardier COO, Guy Hachey, said they plan to resume test flights of its two CRJ1000 test airframes after Christmas and still needs to complete 30% of its test program. The aircraft is reportedly unlikely to receive certification from Canadian and European safety authorities until after summer 2010. Software problems have delayed the test flight regime for the aircraft by more than three months.

Then American Eagle ordered 22 CRJ700s as part of a $779m contract. The transaction represents the conversion of 22 options held by the airline into a firm order contract. No delivery date was released. So after the bad start to the week, the end of the week looks a bit better.

In other news --

JAL Act 3 - and the price keeps going up
US Airways nears bottom
Azul hits its stride
Big Airbus order

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The critical mass of LCCs

2009-12-03T05:23:00.000-08:00

Isn't this an amazing chart? Overall, South Asia (dominated by India) has the highest proportion of LCC penetration of any region worldwide, at over 46%. If ever one needed to understand a big picture, this would be it. For us this shows that the airline business will continue to move towards commodity pricing worldwide. That means network carriers will become more dependent on alliances than ever.

As the chart shows, there are regions where opportunity is calling. Entrepreneurs could exploit these gaps - even if governments don't like airlines they don't own. The economic impact of travel as a job creating and tax generating machine is likely to overcome knee jerk state airline protection.

As air travel recovers, it will be LCCs that first show this in traffic growth. Since LCCs are not natural long haul operators, there need for LCCs to create alliances is growing. But nobody is in that space enabling it. You would think, given the number of industry conferences where airline managers get to talk to each other, somebody would have started this already.

It is our view that LCCs will keep travel popular - despite the anti-airline fervor in the EU. LCCs are the one segment of the airline industry nimble enough to handle shocks and recover fast.

In other news --

AirTran has a great November
And so did Continental
WestJet grows and grows
Delta achieves its synergy goals

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Jet Airways check pilot "prank"

2009-12-02T04:59:00.000-08:00

Just when you think you've heard enough about Indian pilots, along comes this story. Apparently a Jet 737 flew into Mumbai with a check pilot in the jump seat. At 3,700 feet, the check pilot pulled a circuit breaker. He ostensibly did this to check the pilot's ability to handle an emergency. With the circuit breaker pulled, the autopilot tripped, the flight director disappeared and the ground-proximity warning system went off. The pilots managed to recover and land the flight safely.

But while check rides are normal, pulling a circuit breaker on a commercial flight is not OK - this is done in a simulator for a reason. If something goes wrong, nobody gets hurt. Aircraft manufacturers have strict policies against pulling circuit-breakers during flight — they are not pulled even on a check or a test flight. So what was this check pilot thinking?

The scariest part? This check ride pilot has not been named, reprimanded or taken off duty. Jet is clearly so scared of its pilots they are treating the man with kid gloves. This is manifestly the wrong thing to do because he will feel exonerated - if he pulls this stunt again, and it does not work out, what then? Recall the clever people doing pre-delivery Etihad A340-600 engine run up tests in Toulouse, they also pulled a circuit breaker - and there was no happy ending there.

In other news --

The crown jewel is on the table
Korean speaks on JAL and Skyteam
Unhappy aviation labor industrial disease
The German vs the Irish - Act 1

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An Airbus riposte

2009-12-01T05:08:00.000-08:00

Are they nervous? Airbus announced it is confident Emirates will meet its contractual commitments on aircraft orders, including 53 outstanding orders for A380 aircraft. The carrier has already taken delivery of five A380s out of 54 ordered, and has unfilled orders for 50 A350s. Our guess is just a bit.

The funny thing is, even if the al-Maktoum's didn't call Toulouse to request this statement, Airbus would need to make it. In our Airbus report we stated the A380 program was at risk by being exposed to one customer for so much of the program. This is a time for both sides to look brave, really brave. And pray the folks in Abu Dhabi don't take too long to wire the money.

Our sense is that Abu Dhabi will wire the money, but a manifest sense of power movement from Dubai to Abu Dhabi has to occur. This sense has to be clear and present - like everyone in the world needs to know and realize where the power lies. In other words, just as we are now familiar with the name al-Maktoum, we need to be familiar with the name Al Nahyan, specifically, His Highness General Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi. Image is very important in this part of the world. Among the small statelets, this is even more so. The person approving the bailout has a second chance (this year) to demonstrate where the buck really stops. He will not miss this opportunity because the last one was, perhaps, not as carefully managed as this one will be.

In other news --

ILFC deal close?
US Airline Pilots Association wakes up
A new aerospace player?
U-Turn Al is back - hammering Boeing once again

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Proof London is going to be better off

2009-11-30T04:25:00.000-08:00

Doubters that London will be better off with its airports owned by different firms is showing already. The new owners of Gatwick have earmarked the elimination of long check-in and security cues as a top priority.

The investment fund Global Infrastructure Partners (GIP) bought Gatwick from BAA for £1.5bn, with the deal expected to be closed by the end of this week, subject to European Commission approval. GIP says it will deploy a team of “fixers” in a bid to overhaul the operations.

Plans include a new lounge to cope with the airport’s growing business traffic, expansion of security areas, and remodeling the check-in hall. One of the main problems at present is that each airline has fixed check-in desks, which are unused when that airline has no flights. GIP says that if airlines share facilities, they could cope better at peak periods, easing the traffic flow through the check-in hall.

GIP’s founding investors GE and Credit Suisse own 10% of the $5.6bn fund. In a departure from the usual practice of infrastructure funds which have little hand-on management of their assets once they have been bought, GIP plans to improve operations and thus increase the investment return. This week they will send in a team of five senior managers to improve working practices.

Michael McGhee, GIP’s partner in London, told The Times: “These things take time and it will be at least 18 months before passengers will notice a real difference. However, there are some simple changes we hope to make during 2010 which should start to improve matters. Many infrastructure assets are, or were, government-owned and they tend to keep the structures they inherited, so there are big efficiency gains possible if you can introduce best industrial practice. We have got these former GE black-belt people that are able to do that.”

Ah yes, GE's black belts. That should ruffle a few ex-BAA feathers. Throwing a bit of Six Sigma will really get things unsettled. But anyone flying to or through Gatwick should anticipate these changes leading to good things. This, in turn, will force Heathrow to respond. And a positive cycle will start.

In other news --

Odd Thai logic
Tim Clark on Heathrow approach
Dubai ripples spread - but the brave faces step up
Can Marfin make Greeks and Turks work together on JAT?

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easyJet calls for emissions standards

2009-11-27T05:20:00.000-08:00

With an average fleet age of 3.4 years, easyJet did a clever thing yesterday. They decided to take the fight to the EU's ant-airline lobby. Its about time somebody did this. The LCC called for the introduction of mandatory emission standards for aircraft that would lead to a 40% reduction in CO2 emissions for next generation of aircraft.

easyJet called for a three step introduction of new legislation, starting with short-haul aircraft where current aircraft families (A320 and 737) are already over 20 years old. easyJet proposes that: • By 2015 every new aircraft type would have to meet the standard; • By 2024 airlines could not add to its fleet any new aircraft that did not meet the standard; • By 2030 airlines could not operate aircraft that did not meet the standard.

Now the only other airline that will endorse this move is Ryanair. They have, as yet, not been heard from. MOL might follow this lead if he thinks it will put Ryanair ahead. But you can expect a cold shoulder from the rest of the EU airlines. But easyJet has called for something the EU politicians will likely grab. Its a cheap PR stunt if nothing else. The anti-airline crowd are likely to now give easyJet a pass for a while.

In other news --

The F-35 source code issue
Dubai World fallout starts today
JAL to pay 10% on loans
Lufthansa selectively suspends First Class

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The US and Japan - the language thing

2009-11-26T06:23:00.000-08:00

Even as the Japanese government continues its veiled ways with JAL, it has to come to grips with reality in another sphere. Japan Transport Minister, Seiji Maehara, indicated that Japan and the United States would conclude an open skies aviation liberalization agreement by the end of 2009, stating, "I was briefed that an agreement will be reached by as early as the year-end".

The fifth - and possibly final - round of negotiations is to be held early December in Washington. The talks commenced in October 2008, so its not as if the matter has been rushed.

The key issue, apparently, may be what is meant by the term "open skies"; the US view of "open" is considerably different from Japan's and the recent round of talks left a great deal more to be agreed. This sentence alone should make your hair stand on end. If indeed the parties are still at this stage after a year of "negotiations", then what the heck have they been talking about? Dealing with Japan has never been an easy, transparent thing for Americans since General MacArthur left the place. The Japanese culture is ancient and set in its ways. Americans quite probably cannot work within a framework where patience is unlimited - after all American policy wonks work in four year cycles.

However, there is some pressure on Japan to liberalize if it wants to create an opening for JAL to conclude a full JV with either American or Delta. The US DoT will not grant anti-trust immunity for a JV unless an open skies agreement is in place. So does the Japanese minister really want open skies by year end? At what stage do we all understand what open skies mean?

Think about these rather fundamental matters and realize just how risky American and Delta's plans for JAL are. No matter what, there is a quagmire ahead.

In other news --

The power of UAVs
Are we past the bottom?
Emirates blinks in Germany
Marfin moves or is that "conquers"?

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Another deferral

2009-11-25T05:15:00.000-08:00

India’s Minister for Civil Aviation, Praful Patel, announced Air India has deferred the delivery of three 777-300ERs past 2010 and 27 787s past the scheduled delivery period, commencing in April 2011. Updated delivery dates were not disclosed. Air India also plans to lease out three new 777-200LRs.

So far so good? Well, wait a moment. The Minister made this announcement? Not the airline - what does that mean? We find this not only odd but rather telling. First it demonstrates an unusually aggressive meddling by the state (again) with the ever present Mr Patel at the forefront.

Boeing cannot be too pleased that its newest 777s are being hocked so early. The LRs are niche planes and serve well only ultra long routes. Note also that Jet Airways has parked some of its newer 777-300ERs in the desert. India's big airlines are struggling as ambitions have met reality. The 777s on offer are superb airplanes one would think a number of operators would like to have access to. But probably not configured the way the Indians have them set up. So probably these magnificent airplanes are going to gather dust for now. Which does not help their owners at all.

In other news --

bmi starts to shrink
Jestar saves Qantas
Emirates moves on Paris
USAirways changed fleet planes - helpful for Airbus' United campaign?

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Eurocontrol Unit Rate Proposals Unacceptable

2009-11-24T05:21:00.000-08:00

IATA reacted quickly to proposals from EU nations to increase their overflight costs. "The impact of the 2.7% increase in unit rates is equal to adding $360m to airline costs. That is not acceptable,” said Giovanni Bisignani, IATA’s Director General and CEO.

•Eight states proposed to freeze unit rates at 2009 levels: Belgium, Former Yugoslav Republic of Macedonia, Cyprus, Norway, Spain, Switzerland, Slovenia and Slovakia •Seven states proposed reductions below 2009 levels: Portugal, Greece, Croatia, Moldova, Malta, Bulgaria and Finland •19 states proposed increases over 2009 levels: Armenia, Serbia-Montenegro, Poland, Romania, Hungary, Austria, Turkey, Bosnia and Herzegovina, Sweden, France, Albania, the United Kingdom, Italy, Ireland, Denmark, Czech Republic, Germany, the Netherlands, and Lithuania

The highest increase was proposed by Armenia at 32%. Adjusting for the amount of traffic handled, the greatest impact of the increases will be felt by proposals for increases in Poland (+18%), Romania (+17%), Austria (+14%), France (+6%), the United Kingdom (+5%) and Italy (+4%).

The ability to raise this type of tax is irresistible to many nations. It taxes aircraft movements and is therefore popular with the Greens (and anti-travel freaks). It is a direct tax and therefore quite efficient.

IATA will use this type of taxation to keep clamoring for a "single sky" over the EU. The single sky idea will be immensely popular with Brussels because it could generate money and it could try claim the single sky as part of its other power grabs. Despite the heat of IATA' reaction, the cost is "only" $360m.

In other news --

JAL's keiretsu unravels?
Good bye Terminal 2
United's clever Internet ploy
easyJet's 2010 growth plans

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JAL tries to cut pensions

2009-11-23T05:25:00.000-08:00

In a deal that looks horribly like that faced by the US auto industry, JAL is coming to grips with being an old, established, and once upon a time flag carrier. (Just like BA). JAL has asked retirees and employees to accept an average 40% cut to their pension payouts and warned it could face bankruptcy if an agreement could not be reached. No carrot here - just two sticks.

JAL President Haruka Nishimatsu made a plea in May to the company's pension fund for payments to be reduced by more than half, aiming to slice into a pension shortfall estimated at JPY330bn as of March. Pensioners, not surprisingly, strongly opposed the cuts and can block them under current laws, which require the company to secure the approval of two-thirds of retirees and employees to make changes to benefit payments. Moreover, the company is obligated to honor its deal with pensioners who have no ability to make up any income losses now.

Coming up with a solution for this shortfall is seen as a requirement for the support from a state-backed turnaround fund, which is debating whether to bail out the airline with public funds. As always in Japan, the chess pieces move slowly and are not necessarily doing what you think they should be doing. Its rather opaque to western eyes.

Mr Nishimatsu told a gathering of unions and retirees on Monday that he sought a cut of slightly more than 30% from retirees and a reduction of more than 50% from employees, and wanted to reach a formal agreement by the end of January. "If we can't, the risks to our survival will increase, including the possibility of a court-led reorganisation," he said, referring to the risk of a court-led restructuring. To cut into its pension obligations, JAL is asking to change the annual interest rate on pension reserves from the current 4.5% to a variable rate tied to benchmark Japanese government bonds, now around 1.3%.

The proposed cuts impact 17,000 current employees and 9,000 retirees. If JAL and its employees and retirees can't come to an agreement, the government has said it would consider crafting legislation to forcibly implement cuts. But that would be difficult as legal experts believe such legislation breaches constitutional protection of property rights and some pensioners have threatened to sue.

Noticeably quiet throughout all the maneuvering around the JAL situation has been the previous government. The new opposition no doubt is watching carefully - they have far more experience at fudging things to make everyone happy. The new government is going to stumble over JAL. No matter what it does, someone's ox gets gored. That is when the LDP will pounce.

In other news --

The decay in the SAAF
Now Qantas is in play?
Faux Pas deluxe at easyJet
New Gatwick plans - they're discovering customers!

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Evidence of poor logic or Irish Roulette

2009-11-20T05:31:00.000-08:00

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

2009-11-19T06:02:00.000-08:00

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.

In other news --

Air France-KLM stumbles
Delta piles on JAL
The scary part gets scarier
Senegal news - meet our new friends from Dubai

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Funny pricing

2009-11-18T06:12:00.001-08:00

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.

In other news --

Air India pilots agitate again
Green is the coming color
LCC phenomenon keeps growing
Another balloon story

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Aer Lingus - the new Alitalia?

2009-11-17T04:47:00.000-08:00

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.

In other news --

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"

2009-11-16T05:03:00.000-08:00

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.

In other news --

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

2009-11-13T05:27:00.000-08:00

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.

In other news --

Arizona's Beach
Oil rears its greasy head
Travel agents may make a comeback
BA & IB merger is on - but there may be a lot of indigestion

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More strikes at Iberia

2009-11-12T05:45:00.000-08:00

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’

2009-11-11T05:38:00.000-08:00

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.

In other news --

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

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EU LCCs continue to shine

2009-11-10T05:20:00.000-08:00

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.

In other news --

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

2009-11-09T05:50:00.000-08:00

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.

In other news --

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

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Canadian numbers

2009-11-06T00:52:00.000-08:00

Traffic numbers at Canada's two major airlines drifted in opposite directions last month; WestJet boosted its percentage of seats filled and Air Canada reporting a slight drop. WestJet said its load factor in October was 77.3%, up 1.5 ppts from the year before. Air Canada reported a load factor of 79.6% last month, down 0.6 ppts from October 2008 on a consolidated basis.

Yet another example of the move away from network carriers to the more simple to comprehend LCC model. It seems this is the case everywhere now - LCCs offer something the market understands and values.

In other news --

Another United stuff up
Will they ever get the Il-76 right?
BA numbers and the unsettled future
Emirates' numbers

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A little Irish fracas

2009-11-05T02:21:00.000-08:00

They like a little fight on the Emerald isle don't they? Take a look at this. AEA condemned a plan by the Irish Aviation Authority to increase fees charged to airline customers by 17% in 2010 and states that cost-recovery pricing was a "substantial contributor to the industry’s financial difficulties and an obstacle to recovery". The AEA also added that the €10 travel tax has contributed to a fall in passenger numbers of 15% at Irish airports this summer.

Not to be left out of the fight, Ryanair supported calls by the AEA to eliminate the Irish Government’s €10 tourist tax and to freeze airport charges at Government owned DAA monopoly airports. Ryanair also supported AEA’s condemnation of the aviation regulator’s decision to allow a 17% increase in airport charges.

Irish Aviation Authority defended itself against claims by the AEA that Ireland could become a "no-fly zone" as a result of an €10 government travel tax and an alleged 17% increase in the IAA's user charges. The IAA strongly refutes the alleged 17% increase, claiming it will only increase its en-route rate by 3.9%, which is "consistent with similar Air Navigation Services Providers in Europe who have received no government assistance".

So who is telling the truth? There is clearly a "€10 tourist tax" which is bugging the LCCs especially. But the 17% price increase is obviously open to debate until it is defined properly. Meanwhile it is good to see a spat.

In other news --

China's high speed rail impacts
A rising star in India - GoAir shines
Milwaukee gets more attention
September traffic - LCCs keep on growing

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