Thursday, 12 July 2012

Farnborough Transport Takeaways.

By Thursday most of the big announcements from the Farnborough Air Show have been made, the top tier of industry people have begun to leave and some exhibits are starting to go home before the gates are open to the public at the weekend.

While there have been no dramatic announcements during the crucial three days there have been some interesting features.

- Significantly , the A380, Boeing 787 and 737-900NG all appeared in the colours of Gulf and Asian airlines. With current growth in Asia running at over 7% and the Gulf airlines continuing their spectacular additions to network and frequencies, the dynamism, investment and growth are to the east of debt-ridden Europe. The USA with its still dominant core of legacy carriers isn't very exciting either although massive fleet renewals have to happen. Significantly the eastern groupings , other than the Indian subcontinent which struggles with myriad of  economic, philosophical and political problems, are also areas of the world where airport development , modernisation and capacity keep driving ahead in  meeting and anticipating market demand. They are not places where the refurbishment of a handful of tired older aircraft is announced with a flourish of pride and airport development is stuck in endless political wrangling and a "Do nothing" culture. For most eastern airlines and aviation authorities such things are taken for granted and done all the time. Pride is in new aircraft, development, better technical and customer facilities/ service and expansion. That's why the A 380 at Farnborough was Malaysia's, the 787 Qatar's and the 737 Korean's.

- In a display of confidence in the type and in future passenger demand  as well as the risk of future slot limitations at more aiports ,Cathay Pacific converted 16 A350-900 orders to -1000s and added 10 more. With large 777 and A 330 fleets Cathay has always been a shrewd purchaser. In the early days of jets they never bought new aircraft and would go for the less conventional -ie Convair 880,- if its ownership costs were lower. When the Tristar came along it wasn't quite ideal but it was cheaper than the DC 10 and could be made to cover most of the needs. A few were bought new but still most came from previous owners. Only from the 747 onwards has the policy been to buy new and then keep the aircraft for most of their front line lifetime (contrasted to Singapore who have tended to turn their fleets over at relatively young ages before they became expensive engineering-wise). Cathay has also been a master of "misusing"  its long haul fleet by extensively deploying them of relatively short sectors. Not ideal for operating costs but very economical in maximising aircraft and crew utilisation. With the A350 Cathay are again out on a bit of a limb and hedging their bets. This will have helped them get the best deal on this and future additional purchases.  Rest assured ,they will continue to make shrewd and canny decisions.

-Airbus meanwhile is continuing its process of giving the A330 series more weight and range. The -300 now goes up by 5 tonnes to 240 tonnes, giving a 400nm  range increase taking it to 5,950 nm with nearly 5 tonnes more payload. This gives airlines more choice in the decisions as to whether to add A330 and 777 generation aircraft now and save on purchase prices or wait for A 350s and 787s and gain from their lower fuel and operating costs or go for a mix of both solutions. At the same time, there are signs of  787 customers deciding in the light of the 3 year delivery delays to switch orders from the -800 to the larger -900 as certainly by mid life the -800 will be too small. The same passage of time may also make 737-900 customers look at switching to 787-800s as the capacity gap between the two is relatively small and the 787 offers a much more customer friendly widebody environment and further flexibility of deployment. It's a good time for airline mathematicians and economists (yes, there is a difference between the two)  as well as marketing departments.

- The presence of Malaysia's second A380 at a time when it is urgently needed in the fleet denotes the marketing value placed by the carrier on it being seen live or via the media by a wide variety of potential passengers. This visibility will be powerful in establishing the credentials of the airline, ever concerned at Singapore's dominance in the area,  as a leading edge player with the latest equipment. Orders for the 380 continue to be sluggish but despite doubters its long term niche looks assured. The current -800 is the baseline aircraft for the -900  in which both Emirates and Cathay have expressed serious interes,  and later even further stretches. Airbus' immediate preoccupation is to get the wing build problems sorted so that new deliveries not requiring subsequent (up to 8 week) rectification come off the production line as soon as possible. Nobody likes accepting aircraft which they know will have to be modified later.

- In the turboprop arena , ATR continue to sell their products at a steady rate. Bombardier less so. The economics of the ATR and Dash 8 hold their own on short (less than 90 mins) sectors and where they are not threatened competitively by the RJs dominated by the EMB 170/190 series and in due course by updated and re-engined rivals. Thanks to their low initial ownership costs cheap- to- buy classic 737s still produce fair economics in limited markets,-eg Africa,- but are increasingly  high maintainence in all respects.


Thursday, 5 July 2012

Joint EuroLegacy/new Gulf corridor Europe-Middle East.

France's Le Figaro reports that Air France/KLM and Etihad are preparing to launch this autumn a "joint enterprise" aimed at establishing a "Europe-Middle East corridor". The venture is expected to include Air Berlin and Alitalia . The two groups are said to be working on the routes, aircraft, pricing and marketing policies and profit sharing. No small task across such a broad spectrum of differences between the players. It's hardly a seamless grouping in  service quality and styles whatever codeshares are stuck over it to confuse unwary customers. The legacy Europeans could certainly learn something from the Gulf carrier's disciplined  and attractive approach to the service business,- if their legacy unions would let them.

The report could also tie in with rumours from East Africa that Etihad and Kenya Airways might do something together, a notion which has more credibility if KLM, the rather passive 26 % owner of Kenya Airways, is also involved.

So who's up to what?

It's difficult to see what Air France and KLM bring to the Etihad party . Etihad ,like Emirates and Qatar, is primarily a sixth freedom carrier, and already has superior products between France, the Netherlands and Abu Dhabi whence there are also quick road connections to Dubai . KLM is  substantially a sixth freedom player at their end of the route as, to a lesser degree,  is Air France. Etihad, with its Air Berlin partner and its own direct services to a multiple European capitals and secondary cities already outflanks the European duo in Europe .Onwards from Abu Dhabi it offers a plethora  of  destinations in the Middle East, eastern and southern Africa , the Indian sub continent, Asia and Australasia. Some of these are in competition with Air France/ KLM s own competing direct services so where is the attraction of this deal for them? Maybe as a low cost way of fighting Emirates and Qatar in particular to places the Europeans have little chance of profitably serving direct?

Etihad may see this joint "corridor"  as a way of holding their own against their Gulf rivals while the Europeans may see hugging Etihad close as a way of keeping their deep pocketed competitor(s) at bay.  If that's the case this relationship would be based on counterbalancing mutual competitors,- not because the parties love each other. A marriage based on sand?

Alternatively the Gulf carrier may see a plethora of alliances and minority shareholdings as a hedge against the possibility that governments, responding to squeals from declining "national carriers",  will revert to protectionism and start to restrict traffic rights to what they see as primarily sixth freedom predators. It's probably too late for that but it's always an emotion-driven risk.

Etihad's growing list of alliances and large and small shareholdings in other carriers shows starkly the difference of approach between them and Emirates. The still growing giant next door in Dubai has chosen to expand by doing its own thing and has just announced another clutch of new destinations and enhanced frequencies.

Some of Etihad's new tie-ups look useful. Air Berlin brings in more German traffic. If Kenya Airways were added it could be useful in expanding Etihad's reach in Africa though the risk for the African airline would be that it helped a powerful competitor to grow in their nest, cuckoo's egg style, until it moved into more of the Nairobi based airline's destinations in their own right. Tough call.

Monday, 2 July 2012

Air Tanzania,-Top Level Firings inspire wry response from an anonymous staff member.

Tanzania's Minister for Transport has sacked the Acting Director-General for an old favourite , alleged errors in the appointment process. It's not unlike that other long standing East African favourite,- dismissal for alleged discrepancies between claimed  and real educational qualifications. It's often difficult to determine which side is doing what with the evidence. It would be much more straightforward to just say "I can fire you,- and you're fired", but that just isn't the way.

Fortunately there are people in what remains of Air Tanzania still with enough sense of humour to put pen to paper. This one writes to the local press..................

Letters: Why firing Air Tanzania bosses is wrong decision by Minister.

To the editor:
The public has applauded the decision by the minister for Transport, Dr Harrison Mwakyembe to sack Air Tanzania’s acting director-general Paul Chizi and suspending four other top officials.

It was claimed that the airline was not performing well and most people mentioned the fact that we had no airplane as evidence of this.

It is this point I would like to address as it is what has gripped the imagination of the people. They say it is ridiculous that a national airline would be without a single plane and therefore our bosses deserve to be fired.

You are all being ignorant and missing the point- the fact that we did not have a single plane was a clever, intelligent move that ensured the brand Air Tanzania was not associated with any accidents.

People need to realise that each time you have a crash it goes on record and the airline gets a bad reputation internationally and so the safest thing to do for us was to get rid of all the planes- which brought the chances of an accident occurring to zero.

Yes, our last flight crashed in April but that was the last one and might have been necessary to ensure we achieve a zero accident record for the long term.

What your readers also fail to realise is that not having any planes meant that the company could save money. During the short period when we had no planes we managed to save a lot of money because we didn’t have to pay for things such as fuel and on flight meals.

In turn this meant the extra income could be diverted to such things as high salaries and bonuses to attract the best minds in the industry.

We were on our way to being the best airline in the world but because the minister interfered that will never be. All those who are happy that our bosses were sacked I would like you to think about that and realise the future we have lost.

Signed:   ‘Indignant staff member’

June 2012.