Tuesday, 29 November 2011

UK Chancellor's Autumn Statement-Gloom for the airlines.

They probably never could have hoped for much from George Osborne today but it turned out worse than that.

First of all there was no mention at all of Air Passenger Duty (APD) which can only mean that it will not only remain at the current suffocating level but increase early in 2012, now by twice the rate of inflation. Band A, its lowest rate for journeys up to 2,000 miles from London is currently £12 for Economy passengers and £24 for all higher classes, including any premium economy. Within the UK of course there is a double hit since it applies in both directions whereas to points outside the UK it is only imposed on the outward flight. Band D, the highest level which covers places over 6,000 miles from London,- eg New Zealand,- is £85 for basic Economy and a massive £170 for all other classes. The problem is that the government income from this source is now so high as to be significant (Over £1bn) so it is very difficult for them to ditch it. The danger is that the golden goose will become sickly and stop producing.

Secondly, although there was a commitment to look at southern England airport capacity ,there was an absolutely specific statement that Heathrow's third runway isn't even up for consideration as a possibility. Not many wide ranging, open minded, strategic studies of national economic importance start off with the outright rejection of the most cost effective and soonest available option. This was a chilling moment. Many would like to see the building of Britain's Thames Estuary Chep Lap Kok or Incheon in Asian double quick time, even at a cost of £50 bn. It wouldnt though be like that. Time to completion would look more like 20 years at best and the cost with accompanying infrastructure would be more like £100bn. The drawings so far, while interesting, have not reached beyond a four runway airport whereas for the long term at least 6 would be advisable plus a massive amount of land for terminals. Most heavy engineering would probably be done elsewhere as metal aircraft structures and sea water don't get along well.

It looks therefore that London airport growth for the next 20 years will depend on squeezing more movements and more passengers through the existing Heathrow site. Gatwick can play its part, but Heathrow is where everybody wants to be. Terminal capacity can be expanded considerably but more movements will depend on more flexible use of the runways. More night movements would help but are very unlikely to be granted.

The two resident British airlines, BA and Virgin Atlantic, will therefore see the day in Westminster as a bad one. Foreign airlines who do well at London will feel the same about the APD though the continentals should be able to work their way around that by separate ticketing for the cross-channel sectors. The Gulf fraternity will see improved prospects for their links to provincial cities on the one hand or the possible routing of large chunks of business via Amsterdam, Brussells or Paris, also with separate ticketing or by using Eurostar . Almost any way one looks at the situation, it is the British airlines and UK Plc which will take the biggest hits.

Footnote: Could the enthusiasm for a Thames estuary airport in the media and amongst politicians be something to do with how few of them live in north Kent or south Essex? They, along with noisy "celebreties", seem much more prolific in central London and out to the west under the Heathrow flight paths. Funny that.

Wednesday, 23 November 2011

Qantas takes another Industrial Relations Leap.

The Qantas dispute, which CEO Alan Joyce a few weeks ago threw into the lap of Fairwork Australia ,is now headed to arbitration. This could take a while and certainly will kick the ball well past the Christmas and New Year holiday period. Joyce's view is that it also delays any industrial action for however long the process takes.

It looks another high risk move but the CEO seems to enjoy those. He has to be a casino operator's nightmare. There's just a chance..........

Although arbitration is arbitration and intended to be thoroughly neutral, the fact is that the people involved in are largely Labour-connected in varying degrees, some directly. That has to raise some risks. Also the unions may not accept the outcome if they don't like it. On top of that, a couple of the Qantas unions are talking about challenging in the Supreme Court the original involvement of Fairwork.

While the whole arbitration process could take months and Joyce is resolutely saying that there can be no industrial action in the meantime, many would not bet on that.

The government does have an interest in the whole affair both because of Qantas' iconic national and international standing and because Prime Minister Gillard was the author of the legislation. There is also an independent Senator who has got a review of the Qantas Sale Act under way with the primary aim of preventing the airline from doing anything offshore or hiring cheaper labour. The government has no shareholding in Qantas but that does not prevent some MPs from feeling that they can run the company by playing around with the Act which was designed during the trade sale process to prevent foreign businesses like BA gaining control. It was certainly never meant to inhibit Qantas' ability to run its own business.

The story continues............

Tuesday, 15 November 2011

Business Travel- The false economy of long haul Economy.

The western world's financial woes have brought inevitable spending cuts in businesses large and small. Not only has it been necessary to satisfy the accountants by removing anything that looks like a self serving extravaggance but also to show colleagues an egalitarian and hair shirted "We all share the pain" approach. Many cuts have been across the board rather than targeted .Essential and non essential spend has been hit equally and in many service businesses the customers as much as the staff. This is all at a time when peak performance by everyone, especially when out and about looking for more business, negotiating deals and visibly looking after customers is more important than ever.

As part of their austerity packages many companies have downgraded employees class of travel and accomodation .Some gone right to the quick by insisting on buying "This flight only" inflexible tickets. None of these things is sensible. Moving down from First to a flat bed Business class is fair enough as the traveller still flies comfortably and arrives in reasonable shape. From long haul Business to Economy is a completely different story. To expect a person to "enjoy" an economy seat on a long overnight trip and then bounce into peak performance immediately on arrival or even the following morning is unrealistic. Absurd would be a better label. The effect can cost the company literally millions although it will never show up directly in the accounts. Why jeopardise very large sums of money for very little additional spend?

Putting a person who is tired, excessively and unnecessarily jetlagged into a serious business meeting is an enormous risk. Host companies are not stupid and will use any weaknesses/signs of fatigue and pressing deadlines to their advantage. A few seemingly friendly questions at the beginning of a series of meetings will usually give them all the information they need. "Did you have a good flight?" ,"When are you home next?". These two alone will expose the vistor's position. Oriental companies are particularly adept at getting and using this sort of information. They also have the advantage of the visitor often being jetlagged and accordingly can arrange programmes to devastating effect. Any company willingly putting its person into the arena in a worn out state reaps what they sow.

The problem isn't only on long haul travel. The short haul redeye and daytrip business market is huge and fuelled by a sort of misplaced macho culture. The first wave of 0600-0700 departures is usually like the great migration. This will have meant early risings of around 4am. For the cost of a night's hotel and a meal or two, the individuals concerned could have arrived the night before and go into their meetings as bright eyed as the home team and yet accounts departments frown and ordain the redeye in the back of the aircraft.

There are signs that some lessons have been learned as business travel in premium cabins has been enjoying a recent resurgence particularly on long haul. On short haul travelling Economy but getting a night in a hotel is a reasonable compromise so that does leave scope for the Low Cost airlines to follow Easyjet and seriously bid for business travellers. On long haul where Business Class ticket prices can look much more costly there is a lot of education and persuasion still to be done. BA's original Business Class ads showing an overnight traveller changing from being the lamb to the slaughter to the man who wins the contract because he travelled Club remains still probably the simplest and most effective message every delivered on the subject. There are tens of millions for airlines to gain by returning to the subject so it's no surprise that many are upgrading their front and middle end products and going for it.

Monday, 14 November 2011

WTM-London World Travel Market. Davids and Goliaths do battle.

Usually a contestant for The World's Largest Rugby Scrum award, London's World Travel Mart this year seemed less crowded than usual although all the way on the Jubilee Line and then the DLR and into Excel's halls there were plenty of people about. The world's travel trade en masse are not the most impressive or considerate of travellers and their sharp elbows probably did little to improve the "journey experience" for others heading east during the week. The big hitters tend to be in evidence and doing the big deals on the Monday and Tuesday while the rest of the week sees a slide towards brochure collectors and a downward move in the pecking order. Long standing exhibitors, great and small, often query the value of being there at all but then stay with it lest absence might prove even more costly. Having the world under one roof all at once does give the well organised the opportunity for fast and effective networking and for the big brands to reach across a very wide audience. In this the brochure collectors can also have a commercial value. For the disorganised and unfocused though it can be a rather expensive week away from the office clouded,- or maybe enhanced,- by high consumption of alcohol and other after hours entertainments.

The UK, Europe and USA are all rather predictable in their offerings and are assured of reasonably high volumes of business almost whatever happens. Surprisingly this year the U.K. did not seem to give particular weight to either the Royal Jubilee or the Olympics. Perhaps it felt that these don't need further promotion and are more concerned with the side effects of London accomodation being fully booked and overpriced thus choking off non Olympic demand and the percolation of UK tourists through to the provinces. On top of this there has to be a concern that the astronomic and rising cost of the APD will drive the traditional multi country itineraries which provide much of the Asian and Chinese bulk business away totally or at least mean that they make their final hop home from somewhere other than UK. Not only would that be a loss to UK airlines but as these tourists tend to do most of their very substantial shopping at the last point on the itinerary ,this spend would also be a big loss to the UK retail trade. Not only London and Edinburgh should be worried but also the new cut price designer store outlets such as Bicester Village. Overall the British tourism effort looks haphazard and uncordinated and indeed it is. That's not new and no governmemt has yet understood its value in money and jobs. All have simply thrown money at the BTA and assumed that would solve everything. It won't.

The Middle East and Asia offer high quality and often reasonably priced products which the rest of the world should pay attention to as a model. The standards of their offerings in accomodation, service,furnishings, decor and cuisine both on the ground and on many of their airlines are now the world's benchmarks.

Against all these areas with big budgets and large stands one would expect Africa to struggle for attention. Happily it doesn't as its unique combination of a wild (animals) side coupled with big scenery and exotic beach holiday possibilities and the opportunity to combine the two within a two week stay is a guaranteed draw. Especially right now,the continent should though watch the competition for clues about expected service standards and value for money and not rely simply on carrying on doing what it has been doing for years.

So what did the African offering at WTM look like? John Williams was there asking the question of whether the signs for the next few years were encouraging or worrying. Here are his impressions.............

"But there have only been 2 kidnappings and we've now sent in our army to sort it out" enthused an optimistic Kenyan local tour operator. No problems ahead for Kenya volume then. The adjacent Tanzanian stand looked busier which is interesting as the country has always followed a high yield/low volume approach compared to Kenya's general,- though not exclusively,-lower yield and enormous volume policy. It could be that in a time of tight money Tanzania holds its business better as the wealthy are having to tighten their belts less than the aspirant middle classes. Kenya's Presidential elections next year could be another tourism turnoff. They have a lot to think about and some of their pricing for what are really middle range products is looking heavy. The current weakness of the Kenyan shilling against sterling though makes it generally relatively good value for the UK market.

Eastern Africa neighbours Rwanda, Burundi and Uganda were also present and aiming to pull some of Kenya's business further west. All showed their growing confidence with bigger stands and larger staffs than in previous years. They were much higher profile than before. Unsurprisingly, Somalia was not present other than as a worry in East African minds that it is all too often labelled internationally as part of the region. To the other regional nations it never has been and never will be. Unfortunately the BBC, the Aid agency industry and even Royalty never seem to grasp that and talk emotively about "The East African Famine Crisis". This is hugely damaging to the image and business of the largely or totally unaffected countries of real East Africa.

Malawi, always one of the smaller players also had an upgraded stand. It offers some stunning scenery, the beautiful Lake Malawi and some interesting but not prolific pockets of wild animals at Liwonde and Kasungu but is not an easy or competitively priced place for the individual traveller to get around. Its near neighbour Zimbabwe has everything in abundance except , thanks to its politics, anyone's interest in going there. As result its neighbour Zambia gets nearly all the Victoria Falls business and links this up with its excellent South Luangwa Valley national park. It does not however have the volume of accomodation to take much off Kenya.

As always the biggest African player at WTM was South Africa. Its traditional estate of a stand looked as busy as ever despite the realtively strong Rand. The mood was one of business holding up well and the country seems largely remote from the economic turmoil of much of the world. The 2010 World Cup was a success and the afterglow lingers in the national mind giving confidence to tour operators and other tourism players. Violence levels which grab western headlines from time to time and were swiftly dealt with during the World Cup have not increased. Worries about next year's elections have yet to surface internationally.

Slightly guarded optimism from most countries in Africa then and no real signs of depression or panic, but where were the really positive signs?

The big one is the arrival of Chinese and other Asian tourists. A recent report talked of 2,500 Chinese dollar millionaires who are now becoming high spenders in the travel market. In their wake are large numbers of the fast growing new Chinese middle classes and the signs of them are already apparent in Indian Ocean resorts and top end safari camps. They have different needs to travelling Europeans and some fast footwork, especially on the catering score,not to mention gambling and ever more golf, is a must. There are also now over a million Chinese from laborers to managers working in Africa. Some leading Kenyan operators have already got the message and Chinese guides are being trained as part of their effort. They will be increasingly be in demand and there is massive potential here.

Back to the Davids amongst the Goliaths, perhaps the most positive new green shoot was the first appearance of a Democratic Republic of Congo stand. They were never going to find it easy but their response to the enquiry about ease of getting there and around "You will need to buy a ticket" was a tiny but significant step forward. Whatever the reaction, they will have gained from the experience of being there. At least they were saying "You can come". That is a true beginning and from what they saw in London they will go home with a view of what it is they have to do next. That's how all good things begin,- with a bit of courage and a view of what might be one day possible. Welcome DRC and we hope you got home safely despite all the jagged elbows along the way.

-John Williams and Peter Woodrow.

Friday, 4 November 2011

IAG/BA Bid for BMi. - A "must do".

BA watchers will be delighted to see that, if nothing else did it, UK Secretary of Transport, Justine Greening's statement last Monday that the proposed new 3rd runway at Heathrow is dead and buried has jolted IAG/BA into doing the only thing it can do to avoid continuing into further progressive relative decline. The holding company is bidding to buy failing BMi from Lufthansa who rather extraordinarily have always looked strangely short of ideas about what to do to reverse its aquistion's steadily and alarmingly increasing losses.Big bold moves and a possible move to strong Lufthansa or Lufthansa UK branding was expected but never happened.

BMi's wandering in the wilderness has continued with little sign of direction since the airline's founder and builder, Michael Bishop, bailed out by forcing the sale to Lufthansa. Since abandoning the simple British Midland tag, the brand has been weak in most respects and it has never really set out its stall as to what it really is. When relaunched as BMi most thought that it meant British Midland International. Strangely the airline denied this and said it didn't mean anything at all,-they were just nice initials. Its new light and lighter blue corporate scheme was nebulous and weak and the name BMi almost invisible and that became the character of the airline. Its trans Atlantic ambitions were never realised and its costs were high, a toxic and depressing mix. Although some redundancies are inevitable, BMi's remaining staff and particularly its pilots if they can obtain anything like the deal their Cityflyer Express colleagues obtained when taken over by BA in 2000, should be happy enough to be absorbed into BA despite the very different and not unproblematical big company culture they will now be entering.

For BA, the big prize for the modest outlay said to be around £300 million, is BMi's 53 slot portfolio which would take them and Iberia from 45% of the Heathrow total to around 53%. The inevitable shouts of "not fair" and "anti competitive" are already coming from the Virgin quarter and from others who don't like the idea of a dominant home based carrier, would like a few of those slots themselves or just see a weaker, more fragmented industry as more likely to deliver cheaper fares. The latter group have little to fear as even with 53% of total slots , IAG will still face enormous competition from an array of direct and high and better service quality sixth freedom alternatives on every significant route. A larger Virgin Atlantic,for some time touted for sale, would become more attractive. However as most of its own current activity duplicates the fatter bits of the BA network ,an expanded company would probably add little to the UK's overall strength in the air transport business notwithstanding the fact that the BA brand is not in fact British owned.

Taking over all or the core of BMi won't be all plain sailing for BA. It will need a very clear idea of how best to reorganise and absorb its new aquisition and its people and how to deploy the slots. Rebuilding its seriously depleted Asian coverage, substantially abandoned during the Ayling era, should be a priority but this will need the right aircraft in the right configurations. BMi's Middle East and African networks also fill a gaping hole in BA's portfolio and many of the routes could suit the substantial order for B787s,-particularly the -8,- very well indeed. If the Competition Regulator becomes involved they should stipulate that agreement to the takeover requires a guarantee that a percentage of the slots gained must be used for these routes rather than adding to BA's already disproportionate dependence on serving the USA.

The other problem for BA will be finding the managment expertise initially to run and then quickly absorb its new aquisition. The shadow of the Dirty Tricks allegations has hung over its corporate culture for at least twenty years and blunted its competitive approach to business. As result it has been the giver in the One World alliance and, amongst other things, more or less abandoned Australia and South East Asia to Qantas and North East Asia to Cathay Pacific, instead focusing even more disproportionately on the Atlantic as its core business. Alliances and codeshares are all very well but the fact is that seats sold on the partners earn only tiny commissions and in no way equate to sales on any member's own services. BA and other major hub based worldwide airlines probably did better in the world of IATA interline ticketing and fares than in the new more restricted world of alliance member to alliance member connections where 40% or more of their home hub's potential connecting business may be unavailable to them as it is ring fenced by rival alliances. There is little of the former free flow traffic where the operator with the biggest network or highest frequencies disproportionately took most of it. Strategically the major carriers should have avoided alliances and codeshares like the plague but most were seduced by them and as result lost a lot of their fire power. Tim Clark of Emirates in a recent interview by Airline Management says that they have been absolutely clear about the risk of losing their independence and ability to compete in their own right and have been determined to avoid it. With at least 40 new slot pairs to play with, assuming they have to give some away, BA has a one off opportunity here to reassert itself and its own interests. It will need a culture change and some highly competitive, probably new,tough and internationally minded strategy driven people to achieve that. It has to do it or its future is elsewhere.

Tuesday, 1 November 2011

UK Transport,-Airports and HS2,- 2 Statements and some Realities.

Media focus over the last few days on the Eurozone crisis and other miseries has meant that two very important statements on transport policy,- one by new Conservative Secretary of State, Justine Greening and the other by her Labour opposition equivalent, Maria Eagle, have gone largely without comment. Both are of major significance for the UK's economic and social future and deserve much wider publicity.

Firstly there was Ms Greening, MP for Putney and Roehampton's declaration to a meeting of aviation people that "The political reality is that the (Heathrow 3rd runway) decision has been made and it is done". Contrary to hopes that with the last election now well behind them and over three to go before the next, the Conservatives might review their fatal electioneering promise to axe what was then Labour's plan for the additional runway, this has to be the end of the last chance of its resurection. The British airline industry has reacted with predictable dismay and it does mean that either it goes into relative decline or one of the Thames estuary options is swiftly taken up and undertaken with un-British haste regardless of what birds, insects, rare plants etc it may come across. A byproduct of this stance is that it makes talk of bending the proposed HS2 railway from London to Birmingham and the north to take in Heathrow an even less sensible proposition than it is now. Thanks to the efforts of European, Middle Eastern and Asian airlines offering excellent high quality links to the world via their home airports, Heathrow is fast diminishing in importance to northern England and Scotland. It is though still significant for southern and western England and south Wales.

Ms Eagle speaking for Labour discarded their previous position of championing Heathrow's third runway by also declaring it dead and buried. For once cross party agreement but unfortunately on an issue where both are now wrong. She did though reaffirm Lord Adonis' support for HS 2 though in a changed form. With an over optimistic glance at gaining support from disgruntled Tory voters in the Amersham/mid Chiltern Misbourne Valley/Wendover corridor, she declared, Miliband style, that they they were not Nimbys and she in effect shared their pain, environmental concerns etc. She and the party are now for HS 2 following a deviation which most of its customers do not want so as to loop via growth- stymied Heathrow thereby adding to the journey time and cost per person per journey for evermore.

Although both parties have linked the abandonment of the Heathrow runway to the case for building HS 2 there is less and less relationship between the two. Thanks to European, Asian and Gulf airlines providing ever increasing links to the world via their efficient and attractive hubs, northern England and Scotland do not need Heathrow so providing an expensive rail link to it from those places is not worthwhile. The rail links the airport does need are to the south, west and Wales. These do not have significant airports offering extensive and high frequency connections to other people's hubs. The most obvious, short and therefore relatively cheap link would be from Terminal 5 direct to the Great Western mainline heading west. Now that the GW line is to be electrified and the T5 platforms are already built and unused ,it becomes particularly easy and both for Crossrail and long distance trains from Paddington to Reading and beyond, north to Birmingham, west to Bristol and Wales and south west to Exeter, Plymouth and Penzance.

HS 2 and the 3rd Heathrow runway remain the greatest strategic transport needs for the UK. Politicians need to understand that they are separate not conjoined issues and take action on both. Talk of a new airport in the Thames estuary for £50 bn in ten years is airport pie in the sky. This is UK, not Hong Kong or Korea. Apart from the upheaval it would create for the whole Thames Valley corridor economy from west London to at least Swindon, out to the east birds live in the Thames estuary. People around there want to sleep. There will be unique mosses, badgers and who knows what else? It would take decades to circumnavigate these via countless enquiries, reviews, appeals and the rest. £50 bn would quickly morph into £100bn and keep going while Britain's transport systems went the other way.