Tuesday, 25 September 2012

Air France joins the interiors battle.They "get it".

In an interesting sign of a legacy carrier "getting it, Air France has announced a major redesign of its 777 and A380 interiors.

The past few years have seen major interior design advances by the Gulf and some Asian airlines in particular .The 777 has become a very long legged ideal Ultra Long Range aircraft and the cabin sizes and shapes offered by the A380 have presented major opportunities for new thinking about interior design. As result the Asian and Emirates A380s have come with a wow factor especially in their premium classes while the legacy customers, Qantas, Air France and Lufthansa  have been distinctly unadventurous. and not taken the opportunities the new aircraft offers. No doubt their accountants hold greater sway and find the word "investment" hard to swallow if it isn't in the aircraft itself  .Even then as they link it to the other bugbear "debt" they have been trying hard both to delay and to minimise it. That's what Treasuries do, just as they do in nation states. Don't expect doing anything other than hoarding money to ever excite them.

New interiors and seating are expensive and time consuming to fit. It is no longer a strip out and refit job but is often accompanied by a substantial, indeed nightmarish, rewiring of seat electronics and in flight entertainment systems. With the enormous cost and downtime involved , airlines are faced with a dilemma of exactly when in the life of an aircraft to strip out or even refurbish cabins so as to maximise the returns and ensure that the new kit has a respectable longevity and payback time. The long delays to 787, A380 and, coming soon , A350 , deliveries has caused huge dilemmas. 747s, 767s and some early 777s which were expected to have been scrapped or sold by now have soldiered on with increasingly shabby and outdated interiors and entertainment systems. In some cases this has and continues to seriously threaten brand proposition and integrity. BA has soldiered on and only recently decided to go ahead with upgrades to some long and short haul 767s as well as a number of 747s. Some airlines have heeded the accountants urgings to just grin and bear it and rebuild customer perceptions when the new aircraft eventually arrive in 2014, 15 or whenever.  That's a long time to carry on not impresssing the customers.

There are two separate strands to the refitting debate. The first is whether or not to go for a total and  much more expensive redesign of both the fittings and the sort of service to be delivered and the second is the simpler need just to keep interiors constantly looking new, something Lufthansa in particular has been very good at while other US and European legacy airlines have chosen to ignore and as result risk looking  distinctly scruffy inside and out. The latter isn't a good idea when you are hoping for brand leadership and premium pricing and we now have the situation where Easyjet and others look a great deal smarter than their so called "full service" and more expensive rivals.

Air France's move, costing several hundred million dollars, is an encourageing indication that at least one of the grand old ladies of Europe has understood where the competition has moved to and is pitching in accordingly. No doubt in other places, especially where there is a history of nationalisation and the finance department tail wags the dog , some will remain in denial and hide under the table  at least until the new fleets arrive. Even then they need to be sure that they aren't just investing in a clean version of the old. They need to join Air France in jumping  into the design war with real enthusiasm, and then resist calls to "thrift" it.

Thursday, 13 September 2012

Two airlines stop operating in two days.

Life was never easy in the airline business and there were two suspensions of business last Sunday night,8th September, the first permanent and the other stated to be for just a year ,to underline this harsh reality.

First to go was BMi Baby. This was a good quality operation but IAG/BA , having obtained BMi from Lufthansa ,did not want to continue with Baby. Apart from the question of profitability, its provincially based network just wasn't the sort of thing IAG/BA is interested in. There was little chance of a buyer. Why would any other airline bother to take on the liabilities and staff and complications under transfer of undertakings legislation rather than just sit back and wait to cherrypick any of the routes they wanted?  The airline came to a dignified and thoroughly professional end with an ordely shutdown at the end of the day's normal operation.

Fortunately the UK is a dynamic market and the empty holes BMi Baby leaves will be plugged by others who can and make money. If profitability is impossible in some, BMi should have abandoned them in the first place. The staff can move on with pride and should be readily employable by those who move in to fill the gaps.

Next down was Air Nigeria, a very different case in a very different part of the world. It had started life as Virgin Nigeria ,which aimed to be a high quality airline following the collapse of the long ailing Nigeria Airways . This itself  was the post independence Nigerian succesor to the potentially much more successful multinational West African Airways which broke up after Ghana's defection in 1958. Virgin Nigeria started life with very high hopes of breaking new ground. Unfortunately all sorts of factors including hostile manoeuvres on the ground did a lot to break its successor,- at least for the time being.

On Sunday night, just as BMi Baby was shutting down engines for the last time, Air Nigeria suspended business for the time being allegedly partly because it could no longer carry the interest payments on $200 million of accumulated debt. Its management says that the cessation of flying is temporary and it should be seen as entering a period in hospital while it is mended. Let's hope that MRSA doesn't get to it. Its struggle for survival has been difficult. Many of the original promises , including being able to operate domestic services out one wing of of Lagos's international terminal , have not materialised or been withdrawn at short notice. It has not managed to develop the right contacts in the new government and it has had a running battle with former Nigeria Airways staff who have seen it as a successor company and therefore obliged to employ them. All sorts of feet seem to have been stuck out to trip them up.

With Nigeria's mountain of petrodollars, Lagos should be the aviation hub of West Africa . It isn't and shows no sign of becoming one and thanks to visa problems and a myriad of operational and facilitation logs across the road. Rightly or wrongly, the very name Lagos airport strikes trepidation into many potential passengers , particularly non Nigerian Africans. Images of hassle abound.  People go there if they have to. If not they don't. Ghana  and Accra are the main beneficiaries.  The Nigerian Government could change all this by getting a proper grip on all aspects of civil aviation and instilling discipline and order into everything people and airlines experience at Lagos airport .Unfortunately it hasn't yet done so and right across the aviation scene there are reports of conflicting interests, diversions of funds, and general lack of will . All this produces a messy shambles. Those Nigerians and foreigners,who do operate successfully to, from and within Nigeria deserve a great deal of credit. The tragedy is it could all easily be so different and so much better.

Virgin Nigeria's problems seemed to start almost as soon as it was born. This was partly as result of a change of government and the airline's failure to embed itself with the new one in depth and breadth . It appeared to lose much of its top level political support and protection. Its mainly foreign top management seldom looked comfortable and settled in the Nigerian environment and this created its own negative resonances locally. The airline really needed a big bang start with a high quality reliable interconnecting domestic, regional and long haul hub at Lagos . It also needed very deep pockets over a long initial period. Starting with just six ex EasyJet 737-300s ,-delivered over time, not all pre startup,-as its regional fleet and an A340-300 or two operating longer hauls it didn't achieve a critical mass quickly enough. Add to that the lack of a unified domestic/international terminal and transfer facility at Lagos plus transit visa requirements or hassles and it faced an enormous and perhaps eventually always unwinnable battle. The demise of its successor company unfortunately comes as no surprise and the role of "national carrier" is now passed to Arik Air. The best thing the government can do is to give it full support and protection from anything or anybody in the way  of success  but otherwise to keep out of it in all other respects. 

Tuesday, 11 September 2012

Lufthansa strikes suspended.No cause for celebration. The legacy shackels remain.

There will be a  German sight of relief or even celebration at the news that the Lufthansa cabin crew strikes for a higher than offered (5% instead of 3.5%) pay rise and the ending of the employment of temporary contract has been suspended while the remaining issues (primarily pay ) go to non binding arbitration.

There shouldn't be. Not anyway  for those who value the continued wellbeing of the national icon Lufthansa .

Lufthansa , like all legacy airlines , is saddled with outdated high cost wage structures, terms and conditions, working practices and productivity. Unions have stood by (they had no option) while new airlines with lower cost bases have entered and in some areas, swept , the markets leaving the old and usually heavily unionised lags struggling and gasping for air. This is particularly true in North America and Europe, the home of most of the remaining big names of the past.

The low cost newcomers,the Air Berlins,Easyjets, RyanAirs, Air Asias, Virgin Australias, JetBlue ,and similar unconstrained by history, have started with clean sheets of paper and come up with lean, mean, organisations with few people and uncomplicated structures. Decision making has been simple and swift. The time lag between decisions and implimentation, rapid and often almost instant. Few committees,over lengthy reports and report-backs. Much more "Just do it".

Legacy carriers, having vigorously opposed any competition from the 1950s onwards ,have mainly given up on trying to hold back the tides of the inevitable,. The more enlightened have instead  fought back by trying to edge down from their old, often civil service model cost structures, towards where the new LoCos are. Included have been attempts, still in many cases ongoing, to reduce and get rid of agonisingly slow decision making pr0cesses, endless internal debates , committees, sub comittees, and report backs so beloved of the state sector. Those were bad enough but then they were followed by followed by the long slog to try to get union approval to anything not paid for in gold. It's a long hard haul requiring determination, patience, stamina, humour and endless hours. The need is simple and clear enough  .Old structures, pay systems, working practices ,productivity and numbers from top to bottom have to be taken apart and redesigned and rebuilt as if from scratch.

The unions, who could and should have been part of a comprehensive redesign process, have largely given a flat "No" and retreated to their favoured position behind the barricades trying to defend the undefendable and indefensible. Long wars of attrition have followed and are ongoing. On the way a good number of old household names have disappeared. Remember Pan Am, TWA, the old Swissair? In any business , industry or organisation ,immortality is not assured , however big and once all powerful the name. Darwin was right. The developers and adaptors will survive and prosper. The others will die out or just become irrelevant.

Lufthansa work in a European environment of heavily constraining and high cost labour laws which amongst other things make it difficult to flex work forces to match the ebbs and flows of business cycles. The presumpation  is "once in , always in" for any employee so there is little incentive to take them on in the first place. Even management of poor performance is slow and difficult.

The airline looks to have been trying to to achieve two things.

Firstly to narrow the gap between themselves and the new competition by a pay freeze followed by a modest three and a half per cent rise.

 Secondly and more important structurally, they have taken on temporary and lower paid staff through a contractor. These are a red rag to a bull to any union as they are less likely to belong to one (=no membership fees and no obedience to union diktats). They are also, embarrassingly , quite likely to show up the laggardly and expensive ways of the main, better paid and more secure workforce.

What has now happened in the Lufthansa dispute is that the company appears to have bought a six week standoff and suspension of strikes at the expense of giving way on the contract staff . It has agreed to take them onto the main company payroll with the same job for life deal as the rest. In doing so, the company has not even killed off the 5% pay claim as a tradeoff. On the face of it this is a very bad deal indeed.

Why has it done it?

Firstly the German public is not very tolerant of disruption. It goes against the national psyche. If the trains aren't running or the planes aren't flying it must be fixed. The underlying issues are the management's not theirs. If that's a cost issue, again it's the management's problem, not theirs... But it is. Long term Lufthansa's existence is threatened if it can not shift its cost base, become more productive and at the same time offer a truly high quality product cheerfully delivered.

Secondly there is enormous pressure managements of companies in the perishables business not to have strikes. A day's lost car or widget production can be recovered later. A day's lost flying can't. The cash which would have been earned for that day largely disappears.  Forward bookings are also lost as customers vote for the certainty and once having made a booking with a competitor probably can't change it again even if they want to.  That is all bad news, short term for vital cashflow and longer term for profits, dividends , share price and,- no small factor where they - management bonuses. In the case of state owned businesses most of this terrifies governments. In private companies Boards are short term obsessed with the Stock Market, share prices and vulnerability to takeovers if these should drop.

 CEOs and managements have a major struggles on their hands in facing out any strikes . Unions of course are well aware of these and exploit them to the full .

The first task is to convince Governments and/or Boards that investing tens of millions a day in lost revenue is strategically essential and worth it in the long term . Then the CEO has to maintain that support once the action is under way. This isn't easy especially when the media start howling for blood. Previously supportive knees start wobbling and tend to start turning into denial. "Me? No I never really agreed it was a good idea". Futher down the food chain it is essential that the CEO is  in turn resolute and unflinching in supporting the managers delegated to run and manage the strike. They have to have unfailing top level support whatever the outcome or they will start to back of too. Often when the stuff has hit the fan ,Chairmen and Chief Executives have stood aside and fired the senior operatives for having "mismanaged the situation". It's all very well saying "The world favours the brave" but not if the brave then get shot in the back when things get gory. Sadly it has happened elsewhere.

For whatever reason, Lufthansa has already backpeddled on the major issue. Separately contracting even a small  more flexible and cheaper workforce would have improved rather than undermined the long term job security of the main workforce. Temporary ,short term and ad hoc staff are a very useful addition to the mix. Not everybody wants a full time permanent job in the first place so the existence of some of these contracting ones adds to the diversity of choice people have.  Lufthansa was on a good track with the contractors  Abandoning the scheme is a backwards step away from where they should be going.

 That's why Germany shouldn't be even sighing with relief, and much less celebrating .

Friday, 7 September 2012

The Qantas Kangaroo skips out of one bed and into another.

Relationships between Qantas and BA and its predecessors have been on and off in various forms since the mid 1930s. That's almost when airline life began. Whatever the formal relationships, there have almost always been tensions between the northern and southern hemisphere managements as well as between the staff of the two airlines. All the way up and down the Kangaroo route they have often simultaneously been  each others's main partners and bitterest rivals. The latest marital breakdown was therefore probably inevitable one day and should be no surprise.

Times change and nowhere more so than  in aviation. Technology, more speed, more range, more airports, more competitors, the emergence of first the Asian and now the Gulf high quality long haulers, the end of the stultifying iron grip of the old IATA anti-competitive regulations, the arrival of alliances, the growth of freebooting low cost carriers,  the end of restrictive bilaterals and of  much governmental protectionism have demanded rethink after rethink about how to stay in business, let alone thrive.

On the Kangaroo route Qantas and BA have usually clung together through all that in a kind of deadly embrace while the world flowed by and around them . The economics of the very long route with its low yields, poor premium traffic, and  high demands on aircraft time have got progressively worse, something of which both carriers have been painfully aware. Their 1995 response was the joint services agreement behind which blanket BA cut its costs and shrank its physical presence in Australia to just a single daily service. The current schedule is just 7 frequencies a week against Emirates' 72. To add to the woes there are the high quality Asian carriers all fighting over the same markets. Qantas' response has been to maximise its reach from Australia by hubbing over Singapore from several Australian cities and then continuing, mainly to London and using BA to feed onwards or back haul  into Europe from there. Against the growing flood of competitors, ever larger aircraft and increasing frequencies,  BA and Qantas' Kangaroo Route offering  on the a total of 28 flights a week to London, has been almost submerged. Hence Qantas' rethink and its dramatic change of tack in breaking with 80 or so years of  history.

While Qantas and BA had shrunk their core direct same aircraft flights to just Sydney and Melbourne to London ,the competitors were flowing round them from multiple Australasian cities to their hubs in Asia,- and latterly the Gulf-  and then to points beyond.  London was just one of these.  Additionally the Gulf newcomers, based just 6 or 7 hours flying from almost all of Europe, offer excellent connections throughout the Middle East and to Africa . That is where the current winners in the game are.

In the past  governments would come to the aid of beleagured national carriers by restricting the access, frequencies and aircraft size of foreign raiders. At one time in the 1970s, Britain and Australia came up with ICAP,- the International Civil Aviation Policy ,- in a Canute-like attempt to stop all but the two national carriers from carrying UK-Australia passengers. The sheer unreality of this and its colonial power overtones was extraordinary. Inevitably it failed. Countries  almost everywhere began to understand that the additional tourism and other business brought in by foreign airlines was worth far more than any losses suffered by a national carrier and that it made no sense to protect the home team, especially if it also relied on state handouts.  Australia could not now afford to remove or clip the wings of the newcomers, much though some of its nationals might like to. The Gulf airlines will though have been aware of sensitivities and had misgivings about audiable naggings that "something should be done" . It is entirely logical and sensible that Etihad, with its 10% share in Virgin Australia, and now Emirates with the Qantas deal have now taken defensive positions to deal with that.

Who are the winners and losers in Qantas' divorce and remarriage?

The number one winner is clearly Qantas . The Chinese say that the best way of dealing with an enemy is to "Embrace the bear". That way you pin its arms to its sides to neutralise it and then, depending on how far you want to go, you can crush it to death with a rib shattering embrace. Just as BA has tended in the past to pay disproportionate attention to British competitors rather than tackle its real ones abroad, Qantas notwithstanding the huge growth by the eastern carriers and despite all the relationships, has historically seen BA as number one rival and often viewed it with suspicion.  The 1995 Joint Service Agreement has seen the BA brand almost eliminated in Australia and severely weakened in South East Asia. Whether this was intended or not it has been a major strategic success for Qantas

In moving its hub for Europe to ideally located Dubai , Qantas , by means of  a near seamless transfer  to Emirates services  there,  effectively gets  one stop/transfer capability  to almost all primary, secondary and even some tertiary cities in the UK and Europe . In the late 1980s the airline quit Bahrein when the long range 747-400's  arrival ended the need for an additional stop between Asia and Europe. For the first time since then Qantas can now access all of the Middle East. Then there's East, West and North Africa.  By kangaoo-hopping over South East Asia, Qantas' hub will now be in the right place, 2000  miles closer to all its desired destinations.

All this sets the Asian carriers a challenge too. How will they deal with this shift in hubbing geography? New nonstop services to a plethora of European destinations by the highly efficient (in-service figures awaited) 200+ seater Boeing 787-800?  Again, giving them this headache is excellent strategy by Qantas. It is ruthless as far as BA is concerned and problem posing for other competitors .For the Australian airline it is bold and the right decision at the right time.

The Gulf hubbing idea wasn't a Qantas and Emirates first. Etihad and Virgin Australia had gone there already with their codesharing deal and by Etihad  taking a 10% shareholding in the Australian  airline.  With the Emirates deal, Qantas have made sure they aren't outplayed by their local rival. Again Qantas' strategists will be giving each other high fives.That's if their rather forbidding 3 tower Mascot HQ permits such things.

 The deal also looks like a a shrewd one for Emirates,- and for Dubai,- too.  Apart from some concerns about the actual brand equality of the Qantas product , it does not cause them any pain or restrict their much loved freedom to steer their own course in the world. It has neatly removed any possibility of Australia Plc trimming back its growth ambitions or any threat to its useful incremental trans-Tasman rights. It should also give the airline additional transfer business from Dubai to the rest of its network, thereby helping to support larger aircraft and/or more frequencies. All of this adds to Dubai's already impressive hub synergies.

The Emirate of Dubai itself will also welcome this very high profile success in becoming another perceived major airline's hub for its European traffic.  That sits well with Dubai's determination to be the prime regional centre for international business.

The prime loser is IAG/ BA. Forget the PR statements about an "amicable" separation.  This is a hard business world and there has to be a feeling that they have been done over however much they may understand the good sense and inevitability of Qantas' move. There won't be any high fives or openings of fizzy bottles in IAG's HQ overlooking Heathrow's runways or down the road in Waterside where the BA brand live in rather detatched isolated splendour in their reclaimed and manufactured parkland . Without the Qantas codeshare and joint venture their own brand presence in Australia is minimal.  It has also been sharply reduced in Singapore and Thailand where BA has no organisation of its own .The joint offline office in Malaysia , to which the airline has indicated it might return ,was recently closed.  It has therefore now got to rebuild its once strong presence in South East Asia almost from scratch.

BA will in time recognise that Qantas have in fact done them a favour. Maybe they do now. By taking the hard decision ,the Australians have forced Atlantic-focused BA to pay attention and seriously think about their business in Asia. It could and should be a major awakening leading to the seizing of new opportunities and fighting back in the maket. Alliance partners are all very well, but within them he who gets the business keeps all but a tiny fraction of the revenue. Airlines can't live on meagre interline and codeshare commissions. BA should be a major player in Asia. Instead, since the 1990s  it has progressively shrunk and withdrawn. Nagoya, Osaka, Fukuoka, Seoul, Manila, Taipei, Kuala Lumpur and Jakarta have all been abandoned. Seoul is now reopening and there has been talk of others and more direct nonstop services to China's new megacities.BA now has the rare opportunity of a fresh start in Asia but it will need to make some serious investments in aircraft, premesis and people.

A reasonable prediction is that BAwill before long  bite the bullet and cease serving Australia with its own through running aircraft. Operating end to end just isn't worth the candle.Load factors may  be high bit so are costs and yields per mile are dreadful.

Possible new BA "partners" for Asia and Australasia include Cathay Pacific,(traditional, known quantity, long history of relationships good and bad), Qatar Airways (new but unlike Emirates for Qantas , not ideally located for BA) or Malaysia Airlines.(again some past history, not all of it helpful ,but an interesting possibility with an underutilised base airport)

To enlarge a little, the simplest and culturally easiest choice might be Hong Kong's Cathay Pacific though historic relations with them have many similarities with the Qantas story. BOAC/BA and their then Hong Kong agents, Jardines until the mid 1970s fought to keep Swire owned and controlled Cathay out of London . The rivalry between the two airlines and their sponsoring two dominant trading companies was very much part of the local scenery. Even in the mid 1990s Cathay urged the Hong Kong government to halve BA's uplift rights between Hong Kong and Taipei and Manila thereby contributing to BA's withdrawal from these two end sectors The rapprochment and Cathay's joining of One World started after that so is still relatively recent. Since then Cathay have grown to 4 well spaced  flights daily to London while BA have shrunk to just two services. The westbound pair are in effect just one as they fly only 30 minutes apart. A new relationship with Cathay might see BA return to 3 flights a day, one timed to offer a range of direct onward connections to Australia but it would be a pretty tenuous link.  Why would customers not just opt for Cathay to Cathay where they know that the service will be consistent throughout.? (The same question applies of course to Qantas/Emirates codeshares over Dubai. How many who experience the Emirates product and style will want to fly on Qantas metal?)

 If BA followed Qantas and switched its Australasia hub to the Gulf , Qatar Airways is the only uncommitted possibilty amongt the three big new carriers there. BA's needs though are the reverse of Qantas'. Qantas needs to hub via as short legs as possible into the Middle East and Europe whereas BA needs to do the same to Asian and Australian cities.BA will probably therefore be more interested in an Asian hub. Hong Kong could be too far north for their Australian traffic.

Another loser could be One World . Tim Clarke's comments that the end may be beginning for the standard model mega-alliances is significant. Although the initial briefings indicate that Qantas will remain in the alliance, whether or not two serious divorcees sitting across the table from each other will really work is open to question. There is also the matter of the One World frequent flyer programme. Qantas are talking of allying their own scheme with that of Emirates who are not in One World , so where does that leave things? Just one of those details.

Qantas have taken the big ,adventurous mould breaking step. It's the best one for themselves. For everyone else the ball is therefore now in play. Cats amongst pidgeons?

Thursday, 6 September 2012

Goldsmith vows not to be a Conservative candidate again if the Party does not renew their no 3rd Heathrow runway pledge

Zac Goldsmith , MP for Richmond has vowed not to stand again as a Conservative if the party manifesto in 2015 does not renew their pledge not to build  a 3rd Heathrow runway.


Goodbye Mr Goldsmith.

Wednesday, 5 September 2012

RyanAir,- Brand consistency, but............

Never one to mince his words or indulge in cuddling the customers, Ryanair's boss Michael O'Leary has been at it again.

Faced with a customer complaint that their family, having left home without printing their boarding passes, had to pay what in reality was a 300 Euro fine to get them at the airport. Tough luck is O'Leary's theme, most know and follow the rules and those who don't just forget can "b----r off". All very clear and no chance of  cuddly loyalty inducing "Never mind, we quite understand,- here's your money back". Ryan clearly isn't interested in what it sees sentimentality and ongoing relationships. Its message is simple :You pay your money, you have your flight and that's it. Next time is another day which may never happen and only price and maybe a bit of convenience will govern your choice. Liking us won't. We don't want a cosy relationship.

That's one way of looking at it, but it isn't the only way and others will disgree with the verdict. Airlines operate on small margins . They also rely on repeated high load factors to keep them in business. Most brands in any industry would take the view that even if they don't particularly want to be loved, it's best not to be actually disliked or,worse, hated. You may be doing well but each notch on the progression towards absolute unpopularity and brand toxicity builds up a percentage of the market who will try to avoid you. Ultimately that reaches a percentage who dislike the brand so much that they will not buy it at any (low) price. The laws of physics dictate that any object moving forward needs to maximise its performance and minimise its costs by avoiding unnecessary bow wave or drag. Ryan seems to be denying this basic rule. Bold, yes, but wise?

At the moment the low fare airlines are doing well .Some of their success though is built on a misconception that they are always much cheaper than the legacy carriers. In fact that is far from universally true. Scrutiny of competing fares in Europe will often show that that the gap between the likes of Ryan and easyJet and BA, KLM, Lufthansa and others is often narrow. Sometimes it is nonexistent after . The costs of early departures,late arrivals and other inconveniences. There can be overnight accomodation near the airport or expensive taxis because public transport is asleep. To see it all set to music just Google "Cheap Flights" by Fascinating Aida. Even if after all those expenses theer is still a gap there is also the last fiver or tenner to be saved through BA's tea, coffee, drinks and rolls or nuts being free . When the chips are really down and maybe a bit of convenience and Terminal 5 at Heathrow are added in, the contest is even closer or a dead heat or even a win for the old familiars. Then  it's down to who you like , or don't like.

So far Ryan has done well without an emotionally committed following . Nobody knows how much better it could have done if it had one. What happens next if the recessionary tide really goes out in the face of Eurowoes, people's lack of spare cash or whatever other financial mishaps crop up? Might the company not then wish it had those few extra percentage points of load factor who felt warm towards it and stuck with it though thick and thin ? As it is,  the brand's unloved customers  might shrug and say "You've had your money, we've had our flight . Next time is another day and we owe you nothing."

Footnote: EasyJet is very deliberately increasingly treading a different path. Its latest move, already trialled, is to roll out fully allocated seating from November . Thereby it eliminates one of the worst perceived  features of low cost travel ,the dreaded departure gate scrum and trampling of the less swift and robust. They are to be congratulated. The legacies will be saying "ouch!" though. The game never stops. Deniers beware.

Monday, 3 September 2012

Quick roundup to start September.

- Britain's interminable debate about  future Heathrow, London and South East England looks set to continue not to the decision and do-it phase but, yes, more debate for several unproductive years to come. Everyone knows, the need is now. They also know that " now"  is impossible even with a following wind. The UK's planning laws and processes coupled with slow 5 day week,daylight hours only, building rates mean that a "Go for it " decision would take at least 7 years to see the job done. That means a conclusion is even more urgent .Competing airports are moving ahead by the day. Disappointingly, but predicatably, the coalition government is kicking the ball further on and way into the long grass. An independent commission of enquiry is likely to be set up, thereby pushing any decision safely beyond the 2015 General Election. Not everybody's idea of political courage.
If of course the Conservative Party really wanted to put the cat amongst its own pidgeons it could just dust off the last Commission on the subject of where the 3rd London Airport should be. In 1971 seven out of eight Commisioners recommended Cublington, north of Aylesbury in Buckinghamshire. The eighth dissented on environmental grounds as did most of the mainly Conservative population of the county. Cublington was then rejected by the Government and Maplin Sands on the Essex coast selected instead. Eventually in the face of the bird lobby and the military who didn't want to lose their firing range that too was abandoned . Instead Stansted was partly developed, and given a modern terminal and good rail link to London but it's never quite been the success it might have been. The wrong place the wrong side of London . The Cublington site is much more central , is still there and the area around it relatively undeveloped............

-There are many very good arguments for building the third runway at Heathrow, not least of which is the simple fact that it's almost full now and that being the UK's only major hub airport  it's where the airlines and their passengers want to go. One bad arguement is that the slot problem is currently costing UK Plc £ billions because businesspeople can't fly easily by BA or Virgin to several Chinese mega-cities and other Asian and South American business centres. That simply isn't true. London based businesspeople can easily commute to practically anywhere in the world via high quality near seamless transfers in the Middle East or Asia. From provincial UK, anyone living within easy reach of Glasgow,Newcastle,Manchester or Birmingham is probably better off using those alternatives anyway.
Despite the  Heathrow squeeze BA and Virgin have recently decided to use up to 4 (BA) and 3 (Virgin) slots a day to fly to Leeds and Manchester respectively. Where's this problem with slots for Chongquing , Kuala Lumpur, Jakarta, Manila and the rest then?

- For those looking for another quieter and hassle free way in addition to London City to fly out of the UK's London area,a quick visit to London (Southend)  has left a favourable impression. With Easyjet's A319s serving Belfast,Amsterdam,Geneva, Barcelona,Jersey, Mallorca, Ibiza and Malaga, Aer Lingus ATRs flying to Dublin and Waterford and Air Arran said to be next in , the new simple, straightforward ,terminal building is a far cry from its down at heel barely used predecessor. With a (mostly) covered walkway to the adjacent station which offers trains every 15 minutes taking 50 minutes to London's Liverpool Street it's easy. There is even a nice lawn in front of the building upon which the customers, wellwishers and airport staff can while away any flight delays while enjoying the Essex experience of watching  successive hen and stag groups, attractively and eccentrically clad or not, arrive in their stretched limos. It's an education as well as an experience. The atmosphere is of a place out to enjoy itself .Any queues are tiny.

- Away from the UK, the Kenya Government is also having a few problems getting airport expansion and construction done. A new terminal , separate from the present semi circle of 3, is planned for Kenya Airways and its Skyteam partners. Nairobi airport is out of terminal capacity and that's a threat both to Kenya Airways' ambitious and so far very successful expansion agenda, to the tourism industry and to Nairobi continuing to have the network edge over its neighbours and rivals, Ethiopian and Addis Ababa. The contract was about to be signed  by the Minister of Transport with a Chinese construction company  when the country's Procurement Commission stepped in, ordered it to be halted and the Airport Director to take some unplanned leave. A few days later that order has been overruled elsewhere in the country's political establishment and the signing of the contract can now go ahead. More to come on this one?

- Ethiopian, now the very proud possessor of Africa's first and at the moment only, Boeing 787 is doing what any PR savvy business would and flaunting it all over the continent, initially one off scheduled substitutions for 757s ,767s, and 777s . Brazzaville, Kinshasa, Malabo, Douala, -the list grows daily. When that's complete the aircraft will settle down to operate to Washington. In the meantime it will have justified claims to be Africa's first 787 and also first scheduled 787 to almost anywhere on the continent, thereby shortcircuiting possible later claims by rivals , especially the one next door. "First regular 787" just doesn't sound the same. Smiles all round at the moment in Addis.

-On the subject of the 787,the plans of early recipients , including Delta and Qatar ,are interesting. Most see an early need to showcase it on their busiest routes.  London therefore features strongly. However as  seriously slot limited Heathrow usually requires the largest aircraft in the fleet, -hence Emirates moving to an all A380 service on the route, -it is doubtful whether the 787, at least in the -200 version,- will last long on routes between slot constrained primary cities.
In the meantime airlines everywhere will be eager to learn the 787's actual in-service fuel burn and other economics so as to weigh it against its nearest and probably cheaper- to- own A330 series of which some airlines-eg Singapore and Thai,- have ordered more , almost certainly on very favourable terms, as an interim measure until more is known about 787 and , later, A350 real performance.

-The grapevine including the UK's Sunday Times has been saying that IAG may buy into loss making US heavyweight (and that's just labour agreements) and trans Atlantic partner, American Airlines which could also merge with US Air. Some would say that risks a serious bout of corporate indigestion. Buying into  American would be consistent with an apparent IAG view that the best way to make money is to invest in dusty, inefficient legacy businesses and boost the group bottom line by stripping out costs until , in theory anyway, they and the group are hugely profitable. All well and good as an idea but politics, labour laws, unreconstituted unions and serious long standing and deeply embedded structural inefficiencies, can make it a race against time to get the costs down before they threaten the whole group. We have talked before about the fate of former BA shareholders now holding IAG paper . Once again they might well ask why and for what benefit to themselves they were they led, albeit like trusting lambs, into a "merger" which was actually a sellout to a new offshore overall holding company, the losses and problems of whose other constituents they now have to fund by using the profits of their former and still successful brand. If IAG resources were diverted into a shareholding in American, the date of any significant dividend would likely fade  into the future and the money needed to revitalise and expand BA long haul in particular would be even harder to find than it is now.

-Nothing more has been heard of Qantas/Emirates discussions although some indicate an early announcement .A codeshare or other agreement would be a major change for Emirates who are extremely protective of their brand and would worry about the differences between the two in hard product, catering and ground and air customer service and perceived staff attitudes. They might though just feel a link could be a useful strategic counterbalance to Etihad's involvement with Virgin Australia.

Saturday, 1 September 2012

Lufthansa strike woes,- The struggle to get and keep legacy carrier costs down to lower baselines.

Lufthansa's cabin crew are causing the airline,- and others flying into the country,- some grief by calling a series of strikes in Germany at 6 hours notice. Strike-affected aircraft blocking stands yesterday caused the closure of Frankfurt airport to all inbound flights not already en route. A bit better than the US 9/11 immediate closure of all airspace to all inbound international flights even if already on their way, but still a problem which won't have pleased either Lufthansa's passengers or foreign carriers.

In an effort to control costs and get Lufthansa's legacy airline wage rates down and a bit closer to new norms, the airline has had a successful 3 year pay freeze. So far so sensible. Now the unions would like to claw some of that back with a 5% increase covering 14 months. The company,keen to hang on to its modest structural gain, has offered three and a half percent. Not a big difference, but over time the effect of a point or two builds and builds and the gap between the legacy carrier and the newcomers and many foreigners again becomes unsustainable.

That's why Lufthansa wants to dig in , BA style of 2 years ago, and take the pain until the union gives up. Against it doing so are of course the union itself and to varying degrees a German public who say that the disruptions , as well as being an impediment to business, are a stain on the national image of efficiency and everything functioning like clockwork as well as just a serious nuisence. The airline, which unlike BA is seen as very much an icon of Germany and necessary to its working, will therefore come under increasing pressure to "get round the table " in British parlance. That's a thinly coded way of saying "Give in and pay them the money". Lufthansa needs to firmly say "Nein!" and sweat it out. If  it doesn't, many of its employees could find themselves knocking on the door of Air Berlin and others somewhere down the line. Have they not noticed that Lufthansa has also declared 3,500 redundancies and a halt to expansion?