Wednesday, 27 November 2013

Boeing fights Airbus with mud and an attempt at oriental psychology. Was there a flaw?

Boeing's verbal assault on Airbus' offer to China of reduced weight A330s as a low(er) capital cost solution to some of the country's capacity and air traffic congestion problems was a mix of pure mud and an attempted use of oriental psychology to offside its rival.

Mud is a standard feature of  fights for aircraft  orders. It isn't new. It's been around for a long time , sometimes expressed loudly and sometimes quietly behind the curtains in a sort of "Pssst.... did you know the wings fall off " sort of  way. Psychology and above all " Face" is important in China. Sometimes it's almost everything.

First then to the mud. To first say that the proposed slimmed down version of the A330-200 for shorter range domestic use is old technology so nobody in their right mind would go for it and, to cover the options a bit if you really wanted that sort of thing Boeing just happen to do a nice line in the latest versions of the 1950s/60s designed 737 was a pretty good dollop of the brown stuff.

Next to the psychology/face issue. At first sight/hearing that was much cleverer. Saying that not only was the weightloss A330 a heap of old tech rubbish but that even to offer it to the Chinese was itself a demeaning affront to wise and honourable customers when there were higher tech, newer (Boeing) things available hit both the mud and the face bottletops neatly, were it not for the added unspoken insinuation that the Chinese would be mugs to buy it anyway.

It's this last bit which might be Boeing's undoing. Nobody likes to be told they are less than 100% astute. The risk is the Chinese might decide that the immediate lower purchase price of the older A330 wins over a glitzy new more expensive and more fuel efficient alternative, -let's call it as a random example a 787-8.  For one thing the A330's capital cost is cheaper right now and continues to be over the time it is financed or leased ,whereas the fuel economy benefits of the more expensive to buy new alternative are only harvested over the next 15-20 years and even then are reduced by its higher financing costs. That could well persuade the accountants that the cheaper A330 is the one to go for. If you are Chinese you might then be less than happy with the people who said it would be almost beneath their dignity to even be offered such an aircraft.

 The Boeing line was therefore risky as well as probably totally ineffective anyway. Their spokesperson should have looked a jump or two further down the line. Although it is counter culture particularly Boeing/Airbus spats " What they are offereing is good but ours is much better" could have been a better option. Unthinkable though, unthinkable. You just can't say things like that when you are selling aeroplanes.

Monday, 18 November 2013

Kenya Airways Chief threatens USA via Boeing. Not the best idea.

Kenya Airways' Group Managing Director and CEO, Titus Naikuni, last week warned the USA that  if they did not become more amenable to direct Kenya-USA flights, the airline might switch future aircraft orders away from Boeing to Airbus.

This doesn't look a good move. Although Boeing would be sorry to lose a good customer, soon to add 787s to its fleet of 737s, 767s and 777s, it would not, in view of its huge backlog of orders for all types,- now hugely reinforced by the Gulf fraternity at the Dubai Air Show,- lose too much sleep over this. Face yes, a bit of that as it has kept Airbus out of Kenya Airways since the 2001 777 v A330 contest, but sleep no.

Kenya Airways does not have a large fleet. It isn't a Qatar Airways which can shout at any and every one and still be assiduously courted, however much it may hurt or aggrieve those doing the courting. Its engineering and flight operations are used to Boeing  and their performance and design philosophies. They are well geared up to flying their products. To switch to an alternative at this stage of their growth programme would be a huge and expensive complication. The USA and Boeing know that.

Mr Naikuni would have done better to quietly talk to the Americans either in Nairobi or Washington , -as he must surely have done in the past,- behind closed doors about how the practical obstacles to direct flights can be overcome. Only a couple of years ago Delta were within 24 hours of opening flights when a last minute abort was ordered by Washington.

What was and is the problem?

In one word,- security.

Recent events in Nairobi will not have helped. First was the alleged action or inaction of the police and army when fire destroyed the central international arrivals building at Jomo Kenyatta International Airport. Far worse though was what appeared to happen in the more recent terrorist attack on Nairobi's Westgate shopping mall. The exact actions of the police and army are unclear and the Kenya government appears to be in no hurry to talk openly about them. What is evident enough though is that a small well organised group of intruders killed a lot of people quickly in the opening stages and that whatever the security forces responses were they didn't contain the problem and that as result it got chaotically worse. The question then has to be what would have happened if the attack had been on the airport and how it, or any other form of attempt to infiltrate security proceedures either in the building or on the ramp, would have been dealt with. In theory the airport is secure and the airlines operate on that basis. In reality there are serious fears that it isn't. Those are the things with which Mr Naikuni has to confront the Kenya Government and get fixed. At the moment the US refusal to allow direct operations makes them his best ally, not his adversary, in talking to his own government. The conversations will not be easy in a country where official denial is a way of life. They are though the only way to go.

Meanwhile it's probably best to stick with Boeing who Kenya Airways and its people know well and whose products they are good at operating. Using your friends as hostages isn't a good idea.

Sunday, 17 November 2013

Board changes,- IAG tightens grip on its two legacy brands.

In what was at first sight a fairly innocuous statement on 7th November, IAG announced some very significant changes to its governance.

Ever since BA and Iberia were sold by their shareholders to the new holding company , IAG, the Chief Executives of the two brands, Keith Williams and Luis Gallego, had sat on the IAG Board where their role was both to further the interests of the new company and to represent and even champion those of their respective wholly owned "companies". BA and Iberia also had non executive chairmen, Sir Martin Broughton and Antonio Vazquez respectively. That structure is now abandoned.

The carefully, -some would say cleverly,- worded anouncement devotes its leading paragraph to Broughton and Vazquez relinquishing their Chairman roles so as to focus on their IAG functions as  Deputy Chairman and Chairman respectively. So far so good.

The second paragraph is also encouraging although not for students of corporate governance who believe the two roles should always be separated. Williams and Gellago ,now free of a Chairman sitting on their shouders, will each add that to their CEO roles.  In theory not having an IAG board member sitting on their own boards might give each more independence to define their own futures and run their own businesses.

The rub though comes in the third paragraph. Having achieved "promotion" within their own brands ,Williams and Gallego will now lose their seats on the IAG board. This means that they are no longer able to represent their brands on it.  They now are now reduced to being supplicants who will have to present for consideration and approval their strategies, plans and performance records.  BA and Iberia will in reality have less independence and input to and control over their own destinies.  The allocation of  investment, aircraft and other resources will be even more controlled from the centre than it has been so far. The real power in the group now becomes more concentrated than ever in the hands of  IAG which really means just three people,- Willie Walsh (the main driver), Antonio Vazquez and Martin Broughton. The other (nine) members of the twelve member Board can be expected to be less significant players. The brands themselves simply aren't now at the top table.

Monday, 11 November 2013

This and That...

- The multiplier effect of more:  Boeing 's delivery of at least a few 787s to a wide range of customers is having the desired effect. The aircraft is being seen in more and more colours , more and more frequently and at more and more airports in more and more parts of the world. It has gone global remarkably quickly and the more it is seen about the more confidence it it grows. This is a good recipe for getting it established, something that grows in importance every day as the A 350 , now with 5 fuselages complete and two aircraft in the air, snaps on its heels with an in service date early into the second half of next year. Then it is the 350's turn to start seriously snapping at the heels not only of the 787 but also the much more distant 777X. The game is on.

-A piece of research recently conducted for Airbus by the London Sleep Centre reveals that there is a world of difference between an economy seat which is 17 inches wide and one that goes the extra inch to 18. A great difference might be stretching it a bit but as the Tesco people say "Every little helps". Entirely coincidentally of course this answer certainly helps Airbus. It just happens to fit well with their fuselage widths but sadly not Boeing's. Starting with the smallest, the A320 series fuselage is 6 inches wider than the 737's. On the 320 therefore 6 abreast 18 inch wide seats fit nicely. On the 737 they don't . Not if you want a half useable aisle anyway. The same sort of thing happens going right up the range to the 777 whose best economics are achieved with a 10 abreast economy cabin. That can't be done with 18 inch wide seats but is just fine for 17 inch ones. Even at 9 abreast the 777 can only comfortably (?) offer 17 and a half inches  whereas the 5 ins wider new A350 can manage 18 inches. Funny that. No surprise either that Airbus should want 18 inches to become an industry standard.

-"Fortune favours the brave". British Prime Minister David Cameron courageously reminded his nation of this Latin proverb just a couple of weeks ago, happily when speaking about proposed new High Speed rail line HS2. Unfortunately his classical education doesn't seem to stay front of mind for long when it comes to aviation or, to be more precise, the Conservative "Say No To...."constituencies around Heathrow, Gatwick and Stansted. Consideration had been under way to relax or modify some of the night movements restrictions so as to create some more capacity, especially at Heathrow. The outcome is a handbrake turn and the smell of buring rubber, not early morning kerosine. A decision is deferred for 3 years until 2016. That's after the snails' pace "Dont report back until after the Election" Davies Report on southern England's future airport runway capacity needs goes public in the second half of 2015. The linkage of the two studies is absurd and dishonest. The night flight restrictions issue is about "Now". The Davies Report is about at least 10 to 15 years hence if sites other than Heathrow are chosen. If fortune does indeed favour the brave, Mr Cameron's and British aviation's futures are both bleak.

Friday, 8 November 2013

New, cuddly Michael O'Leary. Goodbye to toxicity. Hello love?

Remember what we were saying a few weeks ago about RyanAir risking becoming a toxic brand? It looks as if Michael O'Leary must have read it. Out of the blue , or perhaps the threat of red ink, he has launched a charm offensive ( words hitherto often the other way round) and is promising a more human, more cuddly RyanAir. Some will churlishly say that 's anything that's cuddly at all but give the man a chance,- he's got to start somewhere. The essential thing is that he must have recognised that the drag effect of actually being disliked reduces any company's potential market by whatever percentage of potential customers are turned off and won't even consider dealing with it.

 Some airlines may have been smug about O'Leary and felt a warm glow of satisfaction that they of course were not like Ryan,- or at least their advertising wasn't. In fact there are a good number who need to pay attention and run their own toxicity checks. They may be reassured by the demonstrated support from some very loyal customers. They should ask themselves though whether this loyalty is the product of virtual handcuffs locked on by the power of their frequent flyer programmes or corporate incentive deals between the airline and businesses or whether the customer standing in front of two aircraft about the leave for the same destination would choose theirs or the other one. Having come to either a favourable or unfavourable answer they should then ask themselves why the decision did or didn't go their way.

Time then for those airline people driving home this Friday afternoon basking in a feeling of warm superiority over Mr O'Leary and enjoying their hitherto unchallenged belief that " Of course our customers love us" to have a sudden " Oh ----"  moment of " But what about those who don't , and are there people out there who don't bother to talk to us who given a free shot wouldn't or don't touch us with a barge pole?" The horror scene might switch to a view of one of their maybe quite recent competitors' departure lounges. They might just then have a very nasty turn. Enough to spoil the weekend.

Another jolt to the industry from the man from Ireland. Next he'll be saying " We'll take good care of you". Never underestimate him.

Monday, 4 November 2013

The great Heathrow debate goes round.. and round. Boris declares it toxic.

London's Mayor, Boris Johnson, whose job it is to do the best for the capital rather than the country or even neighbouring boroughs, addressed the Confederation of British industry today. Once again his theme was the impossibilty of expanding although his primary reason that  expansion of Heathrow could never happen because it is "politically toxic" was the worst possible reason anyone could give for not proceeding. Many things are in one way or another politically toxic but simply have to be done in the national interest. expanding Heathrow is one, building HS 2 is another as are more motorways. The UK is in serious danger of none of these,-or their alternatives such as a new Thames Estuary airport,- ever being built , and so maintaining the sclerotic status quo with UK Plc losing business while its transport arteries clog up further by the day. Don't tell anyone that the end game after that is total failure.

Yet again Mr Johnson, fresh back from his clearly mind boggling trip to China, claims that Heathrow having less flights to that country than does Helsinki is a major problem. This gets repeatedly trotted out by many people. The fact is that it isn't a problem. BA could be flying to several more Chinese cities right now if it wanted to but it doesn't. The airline has a good stock of slot sitting routes,-eg Leeds, Rotterdam,- which with no disresepect to the cities concerned are hardly strategic or big money makers and could easily be switched to long haul destinations. There are no plans to do so. Why? Passenger volumes and yields are likely to be low so they won't make much, if any money. For British businessmen the prospect of an easy change of flight at Helsinki, Dubai or anywhere else should not prove too daunting or even much of an inconvenience. If it does they are probably unlikely to have the strength and resolve needed to do business with China or anywhere beyond the M25 London orbital motorway anyway.

For all David Cameron's talk, also at today's CBI jamboree, of fortune favouring the brave, the need for action etc, this one is set to run for a while yet. He has no intention of being brave enough to get the report on London airport capacity and what to do about it published before the May 2015 General Election. It is indeed too politically toxic, particularly for the Conservative Party with its string of west London constituencies under the Heathrow flight path. Meanwhile airlines serving and wishing to serve the airport increasingly gasp for air,- and concrete.