Saturday, 17 November 2012

World Travel Market 2012,- Some reflections on African parrots and other things.

“We’re going to democratise air travel in Africa”.A bold objective, indeed.US Presidential Election fever is infectious but its eruption at World Travel Market was totally unexpected. The proud claimant was Ed Winter, CEO of FastJet, about to launch his new low cost carrier to every sub-Saharan corner of the continent.  For too long, apparently, incumbent African carriers have,un-democratically, concentrated on “high net worth” travellers whereas FastJet will now make air travel possible for everyone with fares as low as USD20 all-in. The action is due to kick off from Dar es Salaam before “the end of November”. The actual date appears to be 29th with two routes , one to Mwanza on Lake Victoria which has competing air services but is poorly served by road and rail and the other to Kilimanjaro between Moshi and Arusha where there is competition from PrecisonAir and sometimes Air Tanzania. There’s also a fairly good road. 

Joining Ed Winter on the panel at the ‘Out of Africa’ airline seminar were Tewolde Gebramariam, CEO of Ethiopian Airways, and Mbuvi Ngunze, COO of Kenya Airways, two successful carriers with more than 70 years of experience each on their African patch.  Both were far too polite to take issue with Ed Winter . They preferred to concentrate not stealing business from the bus companies but on how to remain profitable facing the surge of new, non-African, carriers sweeping across the continent. Neither carrier is afraid of the competition but the speed of the advance and the generosity with which route rights are  granted are prompting gasps to their regulators of ‘whoa, whoa, let’s slow down a bit and exercise caution’. Both carriers have big fleet renewal programmes underway and these have to be paid for. On the other hand the Gulf and Turkish carriers in particular have given their host destinations unprecedented levels of quick and easy connectivity with the rest of the world. As result even those African states like Ethiopia and Kenya with successful and growing airlines will be reluctant to clip the newcomers’ wings.

While Arik, on the Nigeria stand, was delighted with their London-bound flows – “We just don’t have enough seats” - Ethiopian and Kenya Airways were very conscious of major shifts under way in traditional markets. “North-South traffic is declining; East-West is growing, and rapidly”.  Such tectonic shifts force continuous rethinks of strategies and business plans.  The arrival of FastJet is but one element of these changes but as yet evokes more of a wry smile than an expresssion of fear. There is a feeling that new parrot liveried airline haven’t yet shown a real up to date understanding of the business in Africa and that the continent may not be waiting for them as eagerly as they might believe. For a start don’t they know that African parrots are purely West African ? They don’t exist in the wild in the rest of the continent. If you don’t know your parrots do you know your onions?

Meanwhile Kenya Airways has also been looking at the regional LCC model but remains unsure that the market or timing is yet right to launch its nascent Jambo Jet. It will also face the problem all legacy carriers have in setting up a low cost infant. Making it truly independent of its parent and really free of its costs is not easy. Iberia have been the most recent example where unions have fought in the courts to avoid the newcomer undermining their power base by paying the new company’s staff less and/or getting them to work harder.As result they have largely ditched the idea and bought all of low cost Vuelling instead. Kenya Airways’ previous attempt in the early 2000s, Flamingo similarly failed to  gain altitude and was eventually reabsorbed into the mainline company.

There are other long established African carriers grappling with their particular regional challenges. Small home markets ,long sector distances and simple lack of critical mass are among the huge and maybe insurmountable barriers to profitability. As we have noted many times before, small national carriers look doomed  although governments continuously pour huge volumes of cash into keeping them afloat. Air Namibia ,Air Botswana, Air Malawi and Air Tanzania are just four of them and at least the first two and are currently seeking to defy gravity and escape persistent penury with bold regional route expansions. Despite this the facts of life are that their small home markets will remain a constant and the new routes have equally long sector distances and assosciated high costs.  FastJet could find these owning governments the most likely to welcome their arrival and indeed lay out the red carpet to speed their entry . Trying to batter down closed or unwelcoming doors is a waste of time when other, much more immediately profitable ones, might respond well to just a friendly knock and not need even so much as a gentle push.

Ethiopian’s Tewolde Gebremariam of Ethiopian  says of Fastjet , “It may work, but …..”

If though the parrrot people were to change their tack as we suggest that doubt might just change to a hint of anxiety. The question is though, do FastJet understand that there is this much easier route and how, where and with whom to go about it?  Many will watch with interest.

John Williams
7 November 2012

Monday, 5 November 2012

Roundup of a windy week..

HURRICANE NEWS: Business along the north eastern seaboard of the USA has been severly interrupted by Huricane Percy and the resultant airport closures. JFK, La Guardia and Newark all had two day outages but were back up and running on Thursday morning, no mean feat when other surface transport links are making getting to and from work  a nightmare for many staff. Fortunately this is an amzingly resilient industry and often at its best when things are going wrong. Ground and air operational and customer service staff come into their own on these occasions and while those cosily esconced in  marketing and other more fashionable and usually better paid backroom functions are reduced to impotence . They become totally dependent on these people bringing in the revenue and kick starting inbound cashflow. Every hour saved in getting the network back on track is money in the bank and stems the relentless outflow of funds which mostly, other than direct operating costs like fuel, goes on regardless of whether or not  aircraft are in the air and passengers and cargo are being carried. CEOs and Boards could do well to pause a moment and think before awarding themselves larger bonuses for service recovery rather than diverting the money to those who rallied on the day, maybe slept in airport offices, worked disrupted rosters or battled their way to work through debris and traffic clogged streets and actually made it all happen. These people certainly weren't "working from home".

AIRCRAFT MANUFACTURING NEWS:  BAe, rescued from its senior management's and  uncomprehending UK politicians' call for a merger with (aka sellout to) EADS by Mrs Merkel over egging Germany's political demands, is showing signs of refocusing on the nasty side of business. That is to say ,making things rather than selling itself. Chairmen, CEOs and Boards are often mesmerised by mirages of greater corporate, not to mention personal, wealth via mergers, aquisitions, alliances and focus on them rather than plotting the company's long term survival by organically growing and making and developing the right and the right quality products. This isn't surprising. In many cases the "merger" or whatever other financial or organisational change is mooted is very exciting, drives adrenaline production, excuses inattention to the real business and at the end carries prospects of big personal financial gains. Not that they would be interested in the latter of course. Management buyouts are a classic. The people who have let the company underperform or even approach insolvency can offer to buy it at a knockdown price, suddenly find new unbounded energy to at least part rescue it and then flog it off at a much higher price to a venture capitalist or other who may well milk it almost dry and sell it on again to someone else who sees their own way of massaging a gain out of it,.. and so the gory tale can go on.

BAe has created its own problems. Back in history when the BAe One-Eleven , the first modern twinjet, started life in the early 1960s the company was still a big player in the airliner business. It was then heavily taken aback by the Heath government's political refusal to back the widebody twin BAe 2-11 which would have competed with substantially French Airbus A300. Heath was prepared to pay any price to get France to remove its objection to British membership of the then youthful  EU so the BAw 2-11 took the hit. BAe then lost interest in further developing or even producing the One-Eleven and killed it off to make way for another politically driven aircraft, the BAe 146 which eventually became a steady seller and outsold the One-Eleven. The company though still found the military market with its captive customer the UK Ministry of Defence, high margins and handful of further export markets much more attractive than the capital/development intensive civil side of its activities. It killed off the 146 development, the Avro RJX,with a single swift and merciless blow just after the excuse of 9/11. That was the end of making complete aircraft. It then concentrated on making Airbus wings . Its 20% shareholding in Airbus secured a monopoly position on that. Then in 2006 it sold its share in Airbus leaving its ongoing sole wing producer status open to challenge as well as price competition. Clever?............or not?

The news that BAe is now going to refocus on its opportunties as a standalone company is therefore welcome and long overdue. Whatever the safeguards, being a minority member of a larger entity would have meant that it been taken over, and it was not a true partner. How could it be? As an entity it would have ceased to exist. Ask the former BA about the reality of IAG.

Well done Mrs Merkel. You have saved BAe,- from itself.

UK AIRPORTS NEWS : The UK has seen a flurry of competing proposals for the provision of additional runway capacity in London and the South East, a matter which is subject of an urgent government review to be completed by.........2015 with some preliminary proposals promised within the breathtakingly short timescale of just one year. Presumably that will float a few possibilities and conclude "Please don't get excited.These are just a few ideas. Our full report is only 2 more years away. We will talk to you again then".
Meanwhile Boris and Olsen islands have been joined on the nonstarting grid by more runways at Luton, 3 more at Stansted and a new nod from Transport Minister Hammond towards the creation of a two airport hub "Heathwick",-that calling the 2 airports a single hub and linking the terminals by high speed (airside, immigration and customs bonded?) train. That should stack up well against CDG, Schipol, Dubai and others who can offer: "Your departure gate is 35 yards over there.." Heathwick staff could proudly declare: "Your departure gate is 35 miles over there..." Such are the dreams of politicians.

Another Heathrow story is that the state owned China Investment Corportaion has brought a 10% share in what was the BAA from the Spanish company Ferrovial. This gives the Chinese Government a seat on the 14 man board. The UK Government of course has a 0% shareholding and no board involvement. Notions that this move may open the way to more Chinese destinations being served, -a British government wish,- are fanciful. There are plenty of  BA slots in particular which could be used for these but the airline chooses not to. Instead it is adding more services to Manchester (also Virgin Atlantic's choice rather than more to China) and exciting new destinations like Rotterdam. The fact is that services between London and many provincial Chinese cities are more likely to make losses than profits .They don't have enough high yield business traffic or the very high volume of very low yield leisure customers to make them work for any aircraft currently in the BA fleet. BA's relatively small economy class cabins don't help but even then the volume isn't there for their 747s and 777s. The arrival of the 787 may help, especially if they came up with a small business class coupled with high density economy cabin. The leisure side of the business is almost entirely low cost Chinese groups but much of this market avoids the UK because of the separate visa fee of around £70 plus Britain's exorbitant Air Passenger Duty which makes flying long haul out of the country far more expensive than out of Amsterdam (no duty) and Paris (low duty). The UK Governments tourist-hostile fiscal and immigration policies are the impediment to more services to China.The lack of runways and slots at Heathrow is currently not one.

AFRICA NEWS: The continent's new Low Cost airline Fastjet, brought to you by the creators of Easyjet, Go and others ,seems to be morphing into Not So Fastjet as tripwires, problems, swamps even , some made by others making and some self inflicted appear out of the continents' dawn,- and that's often the best part of the day. The quick start route of being grafted onto Fly540 seems to have been an even quicker way into complications. Who did the due diligence before getting involved with a business who several newspapers report have serious issues with staff and fuel companies? No doubt it was seen as a quick way to aquire a Kenyan and other Air Operators Certificate so looked good on paper but was it really?  Just like anywhere else , one neds to go around with eyes wide open in Africa. The first two A 320 series aircraft are due to finally (?) arrive and start gobbling up leasing and other costs by the end of November. Presumably FastJet has a heap of initial working capital courtesy of generous backers so that's no problem?  Having opted for a first base in Tanzania rather than Kenya the first routes were/are to be the less than continent- moving ones from Dar es Salaam to Mwanza and Kilimanjaro. Other than that, fares as low as $20 from Dar to Nairobi have been mentioned. As Travel News Kenya notes, that's way lower than the taxes alone. Not a great way to start keeping up with those leasing payments, not to mention the very high levels of remuneration allegedly being paid to at least one or two of its key players. The launch of this venture doesn't look as easy as its proponents may have at first thought. Like the first foreign explorers they may be finding,- as those did ,- that the land has actually already been found by and is well known to those already living there. Furthermore these ungrateful people may not be lining up to gratefully accept a handful of shiny new low cost beads in exchange for their birthright. More to come on this one.

FLEET NEWS: Turkish Airlines have continued their "We can outflank the Gulf" strategy with additional orders for 15 A330-300s and and  B 777-300ERs. Like Thai,Singapore and Cathay Pacific , all canny bottom line as well as product focused, it has chosen to fly both fleets rather than go for commonality via a mix of 777-200s and -300s. These have always been interesting choices and others have faced a similar one when deciding between the A330-300 and the 777-200 ER and now LR. The 330s capabilities have gradually edged upwards via higher gross weights being offered and the decision has often come down to a one liner. If the A330 can do everything you want it to do then go for it. Once it becomes marginal,- ie doable but at a stretch ,- go for the go anywhere , do anything 777. Simple.