A characteristic of the transport and aviation industries which makes them so addictive to many working in them (the non addicted are missing a lot) is that normally they are constantly changing, moving forward and new and exciting things are around the corner. Into the mix come unresolved old problems, baggage of the past ,and unforseen new ones all demanding energy and new solutions (eg 787 construction integration, A380 wings).There are some business failures and some triumphs. It is a dynamic industry where standing still is seldom an option. The American and European legacy airlines and their emulators have too often deluded themselves that it is. Then along have come new attacks on old perceived wisdoms and ways of doing business. Aircraft develop, get lighter, cleverer, longer range. Geography suddenly shifts. That's not new. Ever since at least 1946 aircraft ranges and capabilities have periodically seen big step changes. Many African routes in the early 1950s demanded fuel stops at for Rome, Cairo, Khartoum and then in East Africa. Then along came longer range Constellation 749s and DC 6s . Khartoum suddenly found itself falling off the world airline map. The process has continued particularly behind the American east coast gateways and between Europe and the south and east . South Africa and all of Asia came within nonstop range with the 747-400. The most recent seismic shift has has a different cause,-the arrival of the big new Gulf giants , unafraid particularly of aircraft leasing costs (They tend to see these as self extinguishing operating costs rather than a dead weight debt) . Dubai, Abu Dhabi and Qatar have soared into hubbing dominance. European and Asian airlines and dominant airports have looked on aghast and struggled for new responses. Ironically the European majors, by exhuberantly embracing alliances have helped the process along and and dug their own pits by undermining their own strength and the power of their home hubs . See under Airlines alliances below for more.
What then does 2013 look like at the start of the year?
1) AIRCRAFT:
-The A380 continues to sell slowly. The wing production problem persists and all new aircraft until at least well into 2013 will still require substantial downtime for modification and reworking later. This occurs after only 500 flight cycles so encourages operators to keep the average sector time as high as possible despite the need for some shorter haul use for crew training and recency. BA is the main new operator in 2013 but it is only expecting a slow drip of 3 deliveries during the year . The first is dues in July. There is no announcement yet of which routes they will be deployed on after initial training orientated appearances around Europe but the betting has to be initially a prestige orientated daily New York service followed by a daily Hong Kong.
Airbus would like to see new customers for the aircraft in 2013. The US majors, only just buying a handful of B 777-300ERs (American) ,are likely to be a step too far at the moment despite slowly increasing appearances of European and Asian 380s on high demand services at primary east and west coast airports. In the absence of immediate interest from them the primary targets have to be Cathay Pacific (who, like Emirates would prefer the -900 stretch version) , Japan Airlines,and All Nippon. IAG might be persuaded to buy a handful ,- maybe 3 or 4,-of BA spec aircraft for Iberia. In Africa only SAA looks a possible but again only for 3 or 4 aircraft. Beyond that Airbus will have to rely on existing customers increasing their fleets but they will struggle to match increasing delivery rates with the inflow of new orders.
-A350 The first flight is now scheduled for 2013 and the aircraft will then start aquire real credibility.
The real question is what can it offer that an equivalent or bigger 777, particularly the 300ER doesn't do more of or better? Is its claimed 25% fuel consumption reduction fuel consumption really going to come good and tip the balance, especially if it comes with a higher initial price tag and therefore ongoing cosy of ownership. Its delay has resulted in the upward drift of orders from the -800 to the -900 version so as to meet projected midlife capacity requirements. Despite offering a slightly wider (by 5 inches) cabin ,the -800 is threatened by the 787-8 and the -900 competes with the 787-9 where ultimates in range are not required and the 777-200. Boeing can also offer, albeit spanning 2 aircraft types (777 and 787) a wider spread of range and capacity. The A350-1000 looks as if it will come close to the 777-300 ER but not quite match it. A further tweak therefore seems likely to offer a single aircraft type that blankets in all respects the complementary two type the 787 and 777 range .
-Boeing 777 and 787: Boeing has faced a dilemma in deciding how much they want these two types to overlap on range and capacity. Their finances and cash flow, badly hit by the 4 year delay in 787 deliveries have benefitted enormously from the extended production life of the 777 and to a much lesser extent the 767. They have been reluctant for the 787 to grow to a point where it was cannibalising 777 orders although they had to accept this would hapopen at some stage. For those who are prepared to join a 4-5 year queue the -900 now does that and the -100 will complete the job. That then leaves the still fast selling-300ER out in a range/capacity calls of its own. Boeing have two options here. One is to extend the 787 still further (needing a new wing?) and theother is to develop a lighter weight construction version of the 777-300ER using more carbon fibre panels so as to get it closer to A350 size/weight ratios and thereby reduce its fuel consumption. The battle and the questions will continue through 2013 but expect 777 orders to gradually slide towards the 787-900 and urgings from the airlines to take one of the above options to cover the future very largest big twin market. The long term bet has to be on the offering of not only the 787-1000 but a -1100 and the winding up of 777 production. As we note above Airbus' logical response would to tweak the A350 upwards into a -1100 version. In the meantime Boeing will enjoy the inclome benefits of the extended 767 production life coutesy of having won back the USAF transport/tanker contract from a version of the A330-200.
-Boeing 747-8i. This is a pleasant aircraft to fly on but is likely to remain a slow selling niche product for a small number of 747 addicted airlines, notably Lufthansa. Squeezed between the A380 which is capable of considerable further stretch, this ultimate lengthening , updating and uprating of the 1960's based 747 is its last fling. Even with its long pedigree its introduction into service has been slow and painful with Flight Management Systems reportedly being particularly problematical.
-Lower down the product range but very significant in its own right is the smaller twinjet EMB 170/190 series (likely to be updated/upgraded) v the new Bombardier C series v the smaller 737/A320 series models. Each overlaps with the other, the Boeing and Airbus offerings giving fleet commonality right through from 100-180 seats but with some serious weight disadvantages at the lower end. Will EMB creep upwards, Bombardier upwards and downwards and will be fleet commonality crewing and engineering benefits still keep the big two safe from these lighter, less fuel thirsty, predators? The Russian Sukhoi Superjet 100 is also in there, along with one or two other possibles . They will find their own niches but are unlikely to have enormous international impact on the main contenders.
-Longevity in service: An issue which is worrying many non US airlines, leasing companies, financiers and manufacturers and spares suppliers for whom an aircraft's time in service is important is a trend to shorter front line and even total flying years. In the 1950's,- probably the decade of the greatest and fastest changes and developments ever for aircraft and airlines, - the front line in service span was around 5 years and sometimes even less. Unpressurised piston airliners (DC4s) gave way to enlarged pressurised versions (DC-6s, then DC7s and Constellations followed by Super Constellations.) .The first jet , the Comet 1, came and went between 1952 and 1954 and then in 1957 the first long haul turboprop, the Britannia arrived only to be overtaken little more than a year later by the Comet 4, Boeing 707, Convair 880 and DC-8. These had a reasonable innings of 10+ years until from the early 70s the first 747s began to elbow them . The big widebodies lifetimes moved towards the 20+ year mark where they have largely remained ever since. Quite suddenly all this is changing. Some A330s and 777s have already gone for conversion into spares in less than 10 years and with 787s and A350s likely to push big fleets of young 777s and A330s out of the way in the next ten years. The picture is more stable in the USA where the large legacy carriers have much more successfuly spun out the lifetime of airliners which would be considered veterans elsewhere but it could change even there.
2) AIRLINES:
-The growth of the "new" Gulf trio , Emirates, Etihad and Qatar Airways looks like continuing unabated. Every new spoke added to their home hubs adds to the synergy and strength of the rest and being within 8 or so hours of most points in Europe, the Middle East, Asia and Africa puts them in the geograaphical centre of vast and growing markets. Two pilot operations with 24 hour downline flight and cabin crew layovers give them significant cost savings over European and Asian carriers as do the aircraft utilisation benefits of being able to avoid most long layovers by operating out of 24/7 bases where middle of the night departures and arrivals have long been accepted as the norm.
The trio have also strengthened their position by offering higher quality ground and air and service and catering than most of their non Asian rivals, especially the American and European legacy contingent who have tended to sheer away almost everything they can on the basis that every mouthful, every chocolate "given away", takes six figure sums off the balance sheets. Unfortunately these things also reduce perceptions of reduced service and caring and an unquantifiable percentage of revenue walks away as result. As these so not show up in any accounts, many airlines accept them as a worthwhile loss, although they have little idea of what the figures really are. If they stood at the Gulf and Asian carriers' boarding gates they might begin to get some sort of idea, but finance people tend not to go near airports or customers.
-There is talk of Alitalia again offering itself to Air France/KLM and some indications they might just buy. Not every proposition is a good one and this looks like a dead cert for that catageory. Some airlines can damage your health and Alitalia has long looked like one. Another largely unreformed state owned legacy carrier, getting the Italian flag carrier overhauled, modernised, slimmed down and firmly and consistently into profit looks like a long haul. Air France/KLM , master of two out of three (the other being Frankfurt) continental Europe's has enough on its hands without the severe migrane that controlling or digesting Alitalis is likely to cause. The task is in IAG's Wille Walsh league (see below) but for most other people it is one opportunity best passed up.
-IAG. Against many predictions, IAG CEO Willie Walsh was able to enjoy his Christmas turkey,- if he takes time off for such things,- knowing all of Iberia's unions other than the pilots had, against all past form, signed up to go along with his package of routes, fleet and staff reductions. Even the pilots seem to be edging towards constructive discussions. They are though, reasonably enough, seeking details of how and where the airline, once trimmed back, would resume longer term growth. They will have identified from Walsh's history in Aer Lingus and BA that he is good at slash and burn to make businesses viable my matching resources including working practices to output but has a much less clear view of how to develop the airline once that is. BA has had a virtual moritorium on overall growth of its long haul fleet for the best part of 15 years and its orders for 12 A380s and 24 787s do no more than replace similar numbers of 747-400s and 767s. Its staff look in vain for any big plan for the future. Iberias's pilots are right to ask for one for their part of IAG as managed decline isn't attractive for anyone and talk of growth via more "mergers into" aka "aquisitions by" IAG doesn't answer the question. They and other strategically aware staff and sharehilders will want to know the plans for each of the owned brands as if they were at least semi-separate businesses.
-Alliances all three major alliances will continue to mop up strategic stragglers and unless very careful and very demanding in doing so probably continue to dilute their core quality. Competitively alliances have always been presenred by their supporters as offering enormous public benefits. In reality they have reduced rather than increased competition. They have also reduced the significance of the world's major international hubs. Before alliances passengers would connect from any airline to any other via interline or IATA ticketing agreements. They would receive through tickets, be able to check their bags through to destination and do all the things alliances claim only came in under their regimes. Special fares were also avaliable between two or more carriers via a host of different multi carrier round-the-world and other deals. Hubwise, at London for example all incoming passengers on any airline could and would connect to almost any flight by any outbound carrier. Now most interlining is restricted to connections only between alliance members. At a stroke therefore Heathrow the airport and BA, the hub master, have lost a good chunk of their connectivity.
Alliances have enabled collections of smaller carriers to mimic the reach of the formerly world dominant majors. They were therefore not strategically a good thing for the majors to back and yet , unlike the so far far very independent Emirates, none of them saw it and instead engaged in a headlong scramble to sweep as many smaller airlines under their alliance wings as possible. Collectively not very clever.
-African airlines have settled into a Big Three,-SAA, Kenya Airways and Ethiopian, each very different and unlikely to integrate with any of the others despite Kenya Airways' CEO Titus Naikuni saying it would be a good idea. Better for the continent's customers would be continued and developing competition between the three, usefully spurred on by the need to compete with the product of the other Big Three spreading out across Africa from the Gulf. Kenya Airways' achilles heel is the glacial progress in bringing their home base, Nairobi's Jomo Kenyatta Airport into the 21st century. West African airlines and airports meanwhile struggle for identity as substantial players.
ROUTES:
-The arrival of long range low fuel burn 787s with capacities in the 220- 280 range it makes it easier for more primary city to secondary city pairs and even some secondaries to secondaries to bypass major hubs. This, as Boeing has intended, really opens up the 787 v A380 argument and battle and is one factor limitingo predictions for A380 sales at least in the short term. It could also cause come anxiety in the Gulf.
-Despite the above, the A380 with over 60 now delivered and a solution to its wing problems in sight, and the Boeing 787-8i are carving their own niche and spreading onto more high density routes around the world . In the end the US majors will have to respond, even if on a lomited number of very high demad and slot restricted routes. The A380 in particular is winning public approval and has become the preferred aircraft wherever it flies. In several of its configurations the premium cabins do have a genuine "wow" factor although many of the same characteristics are now being replicated on smaller aircraft . Which US major will blink first?
Happy New Year!
What then does 2013 look like at the start of the year?
1) AIRCRAFT:
-The A380 continues to sell slowly. The wing production problem persists and all new aircraft until at least well into 2013 will still require substantial downtime for modification and reworking later. This occurs after only 500 flight cycles so encourages operators to keep the average sector time as high as possible despite the need for some shorter haul use for crew training and recency. BA is the main new operator in 2013 but it is only expecting a slow drip of 3 deliveries during the year . The first is dues in July. There is no announcement yet of which routes they will be deployed on after initial training orientated appearances around Europe but the betting has to be initially a prestige orientated daily New York service followed by a daily Hong Kong.
Airbus would like to see new customers for the aircraft in 2013. The US majors, only just buying a handful of B 777-300ERs (American) ,are likely to be a step too far at the moment despite slowly increasing appearances of European and Asian 380s on high demand services at primary east and west coast airports. In the absence of immediate interest from them the primary targets have to be Cathay Pacific (who, like Emirates would prefer the -900 stretch version) , Japan Airlines,and All Nippon. IAG might be persuaded to buy a handful ,- maybe 3 or 4,-of BA spec aircraft for Iberia. In Africa only SAA looks a possible but again only for 3 or 4 aircraft. Beyond that Airbus will have to rely on existing customers increasing their fleets but they will struggle to match increasing delivery rates with the inflow of new orders.
-A350 The first flight is now scheduled for 2013 and the aircraft will then start aquire real credibility.
The real question is what can it offer that an equivalent or bigger 777, particularly the 300ER doesn't do more of or better? Is its claimed 25% fuel consumption reduction fuel consumption really going to come good and tip the balance, especially if it comes with a higher initial price tag and therefore ongoing cosy of ownership. Its delay has resulted in the upward drift of orders from the -800 to the -900 version so as to meet projected midlife capacity requirements. Despite offering a slightly wider (by 5 inches) cabin ,the -800 is threatened by the 787-8 and the -900 competes with the 787-9 where ultimates in range are not required and the 777-200. Boeing can also offer, albeit spanning 2 aircraft types (777 and 787) a wider spread of range and capacity. The A350-1000 looks as if it will come close to the 777-300 ER but not quite match it. A further tweak therefore seems likely to offer a single aircraft type that blankets in all respects the complementary two type the 787 and 777 range .
-Boeing 777 and 787: Boeing has faced a dilemma in deciding how much they want these two types to overlap on range and capacity. Their finances and cash flow, badly hit by the 4 year delay in 787 deliveries have benefitted enormously from the extended production life of the 777 and to a much lesser extent the 767. They have been reluctant for the 787 to grow to a point where it was cannibalising 777 orders although they had to accept this would hapopen at some stage. For those who are prepared to join a 4-5 year queue the -900 now does that and the -100 will complete the job. That then leaves the still fast selling-300ER out in a range/capacity calls of its own. Boeing have two options here. One is to extend the 787 still further (needing a new wing?) and theother is to develop a lighter weight construction version of the 777-300ER using more carbon fibre panels so as to get it closer to A350 size/weight ratios and thereby reduce its fuel consumption. The battle and the questions will continue through 2013 but expect 777 orders to gradually slide towards the 787-900 and urgings from the airlines to take one of the above options to cover the future very largest big twin market. The long term bet has to be on the offering of not only the 787-1000 but a -1100 and the winding up of 777 production. As we note above Airbus' logical response would to tweak the A350 upwards into a -1100 version. In the meantime Boeing will enjoy the inclome benefits of the extended 767 production life coutesy of having won back the USAF transport/tanker contract from a version of the A330-200.
-Boeing 747-8i. This is a pleasant aircraft to fly on but is likely to remain a slow selling niche product for a small number of 747 addicted airlines, notably Lufthansa. Squeezed between the A380 which is capable of considerable further stretch, this ultimate lengthening , updating and uprating of the 1960's based 747 is its last fling. Even with its long pedigree its introduction into service has been slow and painful with Flight Management Systems reportedly being particularly problematical.
-Lower down the product range but very significant in its own right is the smaller twinjet EMB 170/190 series (likely to be updated/upgraded) v the new Bombardier C series v the smaller 737/A320 series models. Each overlaps with the other, the Boeing and Airbus offerings giving fleet commonality right through from 100-180 seats but with some serious weight disadvantages at the lower end. Will EMB creep upwards, Bombardier upwards and downwards and will be fleet commonality crewing and engineering benefits still keep the big two safe from these lighter, less fuel thirsty, predators? The Russian Sukhoi Superjet 100 is also in there, along with one or two other possibles . They will find their own niches but are unlikely to have enormous international impact on the main contenders.
-Longevity in service: An issue which is worrying many non US airlines, leasing companies, financiers and manufacturers and spares suppliers for whom an aircraft's time in service is important is a trend to shorter front line and even total flying years. In the 1950's,- probably the decade of the greatest and fastest changes and developments ever for aircraft and airlines, - the front line in service span was around 5 years and sometimes even less. Unpressurised piston airliners (DC4s) gave way to enlarged pressurised versions (DC-6s, then DC7s and Constellations followed by Super Constellations.) .The first jet , the Comet 1, came and went between 1952 and 1954 and then in 1957 the first long haul turboprop, the Britannia arrived only to be overtaken little more than a year later by the Comet 4, Boeing 707, Convair 880 and DC-8. These had a reasonable innings of 10+ years until from the early 70s the first 747s began to elbow them . The big widebodies lifetimes moved towards the 20+ year mark where they have largely remained ever since. Quite suddenly all this is changing. Some A330s and 777s have already gone for conversion into spares in less than 10 years and with 787s and A350s likely to push big fleets of young 777s and A330s out of the way in the next ten years. The picture is more stable in the USA where the large legacy carriers have much more successfuly spun out the lifetime of airliners which would be considered veterans elsewhere but it could change even there.
2) AIRLINES:
-The growth of the "new" Gulf trio , Emirates, Etihad and Qatar Airways looks like continuing unabated. Every new spoke added to their home hubs adds to the synergy and strength of the rest and being within 8 or so hours of most points in Europe, the Middle East, Asia and Africa puts them in the geograaphical centre of vast and growing markets. Two pilot operations with 24 hour downline flight and cabin crew layovers give them significant cost savings over European and Asian carriers as do the aircraft utilisation benefits of being able to avoid most long layovers by operating out of 24/7 bases where middle of the night departures and arrivals have long been accepted as the norm.
The trio have also strengthened their position by offering higher quality ground and air and service and catering than most of their non Asian rivals, especially the American and European legacy contingent who have tended to sheer away almost everything they can on the basis that every mouthful, every chocolate "given away", takes six figure sums off the balance sheets. Unfortunately these things also reduce perceptions of reduced service and caring and an unquantifiable percentage of revenue walks away as result. As these so not show up in any accounts, many airlines accept them as a worthwhile loss, although they have little idea of what the figures really are. If they stood at the Gulf and Asian carriers' boarding gates they might begin to get some sort of idea, but finance people tend not to go near airports or customers.
-There is talk of Alitalia again offering itself to Air France/KLM and some indications they might just buy. Not every proposition is a good one and this looks like a dead cert for that catageory. Some airlines can damage your health and Alitalia has long looked like one. Another largely unreformed state owned legacy carrier, getting the Italian flag carrier overhauled, modernised, slimmed down and firmly and consistently into profit looks like a long haul. Air France/KLM , master of two out of three (the other being Frankfurt) continental Europe's has enough on its hands without the severe migrane that controlling or digesting Alitalis is likely to cause. The task is in IAG's Wille Walsh league (see below) but for most other people it is one opportunity best passed up.
-IAG. Against many predictions, IAG CEO Willie Walsh was able to enjoy his Christmas turkey,- if he takes time off for such things,- knowing all of Iberia's unions other than the pilots had, against all past form, signed up to go along with his package of routes, fleet and staff reductions. Even the pilots seem to be edging towards constructive discussions. They are though, reasonably enough, seeking details of how and where the airline, once trimmed back, would resume longer term growth. They will have identified from Walsh's history in Aer Lingus and BA that he is good at slash and burn to make businesses viable my matching resources including working practices to output but has a much less clear view of how to develop the airline once that is. BA has had a virtual moritorium on overall growth of its long haul fleet for the best part of 15 years and its orders for 12 A380s and 24 787s do no more than replace similar numbers of 747-400s and 767s. Its staff look in vain for any big plan for the future. Iberias's pilots are right to ask for one for their part of IAG as managed decline isn't attractive for anyone and talk of growth via more "mergers into" aka "aquisitions by" IAG doesn't answer the question. They and other strategically aware staff and sharehilders will want to know the plans for each of the owned brands as if they were at least semi-separate businesses.
-Alliances all three major alliances will continue to mop up strategic stragglers and unless very careful and very demanding in doing so probably continue to dilute their core quality. Competitively alliances have always been presenred by their supporters as offering enormous public benefits. In reality they have reduced rather than increased competition. They have also reduced the significance of the world's major international hubs. Before alliances passengers would connect from any airline to any other via interline or IATA ticketing agreements. They would receive through tickets, be able to check their bags through to destination and do all the things alliances claim only came in under their regimes. Special fares were also avaliable between two or more carriers via a host of different multi carrier round-the-world and other deals. Hubwise, at London for example all incoming passengers on any airline could and would connect to almost any flight by any outbound carrier. Now most interlining is restricted to connections only between alliance members. At a stroke therefore Heathrow the airport and BA, the hub master, have lost a good chunk of their connectivity.
Alliances have enabled collections of smaller carriers to mimic the reach of the formerly world dominant majors. They were therefore not strategically a good thing for the majors to back and yet , unlike the so far far very independent Emirates, none of them saw it and instead engaged in a headlong scramble to sweep as many smaller airlines under their alliance wings as possible. Collectively not very clever.
-African airlines have settled into a Big Three,-SAA, Kenya Airways and Ethiopian, each very different and unlikely to integrate with any of the others despite Kenya Airways' CEO Titus Naikuni saying it would be a good idea. Better for the continent's customers would be continued and developing competition between the three, usefully spurred on by the need to compete with the product of the other Big Three spreading out across Africa from the Gulf. Kenya Airways' achilles heel is the glacial progress in bringing their home base, Nairobi's Jomo Kenyatta Airport into the 21st century. West African airlines and airports meanwhile struggle for identity as substantial players.
ROUTES:
-The arrival of long range low fuel burn 787s with capacities in the 220- 280 range it makes it easier for more primary city to secondary city pairs and even some secondaries to secondaries to bypass major hubs. This, as Boeing has intended, really opens up the 787 v A380 argument and battle and is one factor limitingo predictions for A380 sales at least in the short term. It could also cause come anxiety in the Gulf.
-Despite the above, the A380 with over 60 now delivered and a solution to its wing problems in sight, and the Boeing 787-8i are carving their own niche and spreading onto more high density routes around the world . In the end the US majors will have to respond, even if on a lomited number of very high demad and slot restricted routes. The A380 in particular is winning public approval and has become the preferred aircraft wherever it flies. In several of its configurations the premium cabins do have a genuine "wow" factor although many of the same characteristics are now being replicated on smaller aircraft . Which US major will blink first?
Happy New Year!
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