Friday, 29 May 2015

Aer Lingus banks towards IAG's ( and Qatar's?) flypaper.

The Irish Government has thrown in the towel on its 25.1%% share in Aer Lingus. It is prepared to sell out to IAG at 2.55 Euro a go. That will just leave a decision by RyanAir on its 29.8%% to come.

Ironically if Ryan do sell they become de facto Ireland's national carrier.

The deal comes with guarantees to the Irish Government that the key network structure of the high frequency London route and the use of Dublin as a trans Atlantic hub will continue for at least seven years and that Aer Lingus will remain a standalone brand in the same way as are BA, Iberia and Vuelling. Seven years is not a long time so while that is a short term comfort it gives no long term guarantees. Anything could  happen after that.

IAG's purchase follows its previous pattern of interests in geographical areas of which Chief Executive Willie Walsh has previous experience. It also continues the policy, other than in the case of Vuelling, of buying legacy carriers whose potential profits come from squeezing out inefficiencies and ancient working practices rather than necessarily route and revenue growth. The threat to any recalcitrants is that Vuelling can over time take over their short haul routes.  Indeed one can forsee Vuelling progressively becoming the operator of all the group's short haul network ,possibly on a pseudo franchise or codeshare basis, anyway.

Further afield IAG has been unsuccessful in persuading Boards to sell them their businesses. A very significant relationship has though developed with the extremely seductive Qatar Airways who recently purchased 10% of IAG in a move explained by its Chief Executive  as representing "an excellent opportunity to develop our westwards strategy". Here comes another development ? Qatar Airways (note the airline not the state per se)  would logically be interested in owning a higher percentage although the total of all non EU holdings is limited to under 50%.  Alone among the Europeans Walsh has recently come out fighting against USA and Europe moves to clip the wings of the Gulf carriers. Could we now be looking at a scenario where IAG finances the purchase of Aer Lingus by increasing its share capital via the issue and sale of additionally created stock to Qatar Airways? Even if it doesn't happen now this sort of progression has to be a long term strategic possibility with very deep and interesting implications.

Wednesday, 27 May 2015

Dutch Poacher turns Gamekeeper.

Ever since 1948 KLM, backed by the Netherlands Government and in close co-operation with Amsterdam's Schipol Airport specifically designed for connecting traffic, has punched above its weight in the world. This is largely thanks to a superbly conceived and executed policy based on sixth freedom business gained through generous bilaterals. Amsterdam's single terminal ,easy to use, home hub has been developed and constantly updated. It has almost uniquely over 60 years kept ahead of actual demand and has as result always been Europe's airport of choice for many travellers. As a bonus, being able to offer international to international connections to the UK has given it an enormous advantage over British based airlines in extracting business from the UK provinces. The recipe was simple. KLM established a comprehensive long haul network fed by short haul spokes to the widest possible range of European and UK secondary cities. It was the prototype model of how to play the international hubbing game. Nobody did it better. With airline, Government and airport authority working hand in hand Amsterdam and KLM have been brilliantly successful in pulling business away from other people's home hubs. All this has required substantial Netherlands Government support in numerous ways including financial.

That's fair enough in the tough rough and tumble world of competition but what if someone else, better placed maybe and with bigger resources comes along and gets even better at it? Seemingly in the Hague that doesn't look so fair.

In response to the avalanche of new  high quality competition the Dutch government,- ironically just days ahead of receiving Qatar Airways' first Amsterdam service, - has said " Enough is enough"  The allegedly "subsidised Gulf airlines are deemed guilty of "unfair competition and will get no more new traffic rights. Maybe the vision of  Milan- New York (Emirates) lookalikes out of out of Amsterdam
is too much to bear.

This is a breathtaking about face by one of the original high priests of the open skies philosophy. Where is that now,-or was that only for an era in which there were no significant challengers?  The whole affair smacks of sanctimonious hypocrisy as do the bleatings on the same subject from the American legacy carriers and Air France and Lufthansa. The subsidy issue, which could be debated for years depending on numerous possible interpretations, is unproven and differs between the three Gulf contenders who also rightly see their accusers as pots calling kettles black. They argue that European and US airlines have from the outset built their own business upon a host of governmental and domestic benefits and arrangements. It can hardly be seen as fair game for a country which has thrived on these and been the master of the sixth freedom business since 1948 to now pull up the ladder.

The geography of many international traffic flows has in any case changed dramatically over the last few years. This is partly down to investment by the Gulf states followed by Turkey and partly to the ever increasing range of long haul aircraft, particularly the big twins with ETOPS clearance stretched way beyond anything foreseen 20 years ago. That has put the Gulf within nonstop range of almost anywhere.

This is not the time for the European or US governments to head for the defensive bunkers. Fingers in Dutch dykes are no answer.  Our consistent view is that the governments must tell their airlines to get out there and compete or take the consequences. That's business.

Monday, 11 May 2015

Oriental Flavours

Some things change quickly,others less so. Terminals around the world have grown and become attractive places, with more space, light and facilities. Some of the things that go on inside and the thinking behind them haven't kept up with the pace.

Arriving at Siem Riep in Cambodia passengers enter a brand new modern building with an attractive temple-style roof. It's a great leap forward. Unfortunately the immigration department could only manage a short hop. At one end of an impressive long counter the newly arrived hand over $30 for a visa. At the other end it is handed back, having been handled by thirteen officials. For the 50 passengers off a Vietnam Airlines ATR 72 it's a slow process. For a full A321 or larger it would be a nightmare.

The ATR  on which we travelled had departed from Da Nang in Vietnam where the aircraft "stop" markings are ahead of the game, with the A350 clearly marked. Just to make sure nothing's missed out, new lines have also been painted for the TU-134 and DC-10. Both unlikely ever to visit again. It does though indicate a time span of 50 or more years.

A bit further north, Hanoi also has a brand new 1 km long terminal opened in January. Visitors from the 1990s will remember a huge and largely empty open ramp and it being perhaps the only place in the world which followed the original Boeing 747 operating manual which specified three open doors and three sets of passenger stairs.Visitors from the 1990s will also remember the highway into town which started off well suddenly became something like a cart track leading to a rickety substitute for the bridge, the definitive one not having been built yet. Now it's all there and the highway sweeps across the Red River. It's all a Japanese project. Far from being empty the new terminal and ramp see 900 scheduled services a week by 34 carriers. The spinal trunk route to Ho Chi Minh City accounts for 270 of these. It is all  a reminder of the sheer volume of traffic flows within the region of which industry observers in Europe and the USA are often unaware.

The number of regional Low Cost Carriers also takes the uninitiated by surprise. South East Asia has seen a mushrooming of 22 from Indonesia in the south to Vietnam in the north, with three or four competing on some city pairs. Unsurprisingly over-capacity is common and profitability difficult but as in Europe these carriers are making air travel a realistic option for many new travellers . Once hooked they are reluctant to go back to the buses. Air Asia, now with 200 aircraft is one of only ten carriers worldwide to have carried 50 million passengers in a year. Who would have dreamed that 20 years ago? 

The quietest country in the region is Laos. Its capital Vientiane also boasts a new terminal. Lao Airlines operates a small fleet of A320s and ATR 72s while the distant corners of the ramp are home to a few Chinese built MA61s and Let410s, neither customer favourites. Two retired Lao Airlines AN 24s also lurk there but gone is the Royal Air Lao Viscount of years ago.

Bangkok's huge glitzy Suvaranabhumi Airport is impressive externally and, on first sight internally although the use of some rather dark local materials makes some areas rather dark and oppressive. Be ready for some very long walks indeed  and don't book tight connections. Strangely it also displays a few retired aircraft including A330s which would be more appropriately housed at the old but slowly re-emerging Don Muang Airport. Thai, owner of almost every variant of every type of airliner available, is slowly rationalising and restructuring in response to new international competition and to the local Low Cost Carriers, Bangkok Airlines, Thai Air Asia and Nok Air. Hence its contribution to the static park. Whatever Thai's problems though, its customer service style is something that most legacy western carriers can only dream of. Its catering in all classes is good and attractive too.

And there's the rub. Wherever one goes on nearly every Asian airline the service ethic and delivery is good and that's not because they are all soft people. Just look at their history. They are not. Many have had very tough backgrounds and still do. No doubt there are bad days for everyone but they don't show it. The Singapore Girl theme so brilliantly introduced by Singapore Airlines in the 1970s stands in the background to all the newcomers' offerings. Bangkok Airlines is outstanding for smart customer friendly staff who seem to be genuinely enjoying doing their job .The ethic is there everywhere and they are a pleasure to fly with. A lot goes into selection ,recruitment, training , keeping everything and everyone refreshed and looking forward. Not all of the newcomers will succeed. Several of  the original  of Asian "national" carriers who swept all before them now teeter on the brink of being labelled "legacy". We will come back to that theme but for now even those seen in Asia as less good are servicewise very good by European or US standards.

 Some of Asia's official world needs to catch up and understand that it too is in the business of serving people. That's less easy when people have signed up as part of a "border force","immigration authority" and that sort of thing. They aren't so keen on having their rubber stamps, threat of handcuffs etc taken away. Asia isn't the only place that hasn't cracked it yet though.

-John Williams-