January 2006 Archives

Boeing's chief marketing guru Randy Baseler could afford to be a little smug, but he resisted the opportunity - just. On a stopover in London this week he called a last-minute press briefing to cast the rule over last year's record order year and the manufacturer's evolving product line.

Arch rival Airbus may have pipped Boeing in numbers of aircraft orders - 1,111 against 1,029 units - but as our sister publication Flight International has calculated, in terms of value, Boeing is the clear winner. Based on average list prices, it racked up orders worth $111.5 billion compared to $91 billion for Airbus. Not that it really matters, other than in public relations terms.

Where Baseler is really smiling is in the performance of its twin-engined 777 widebody, which racked up an impressive 154 orders in 2005 and now has 827 orders from 43 customers worldwide. He is particularly pleased to compare this record sales year with the efforts of Airbus with the four-engined A340 - it picked up a meagre 15 orders last year (and obtained three cancellations). Baseler doesn't boast too much tough, he remembers when he was getting similarly pasted by his competitor just a couple of years back when 777 orders dwindled to a trickle.

It hardly needs us to add to the prevailing view by many outside of Toulouse that the A340 needs a mid-life upgrade to make it competitive on a wingtip to wingtip basis with the 777. Some form of commercial or cashback arrangement may provide carriers with an incentive to order the A340 in the short-term, but a longer-term solution will be required.

"2005 was an absolutely over the top year," says Baseler, who writes his own blog which is well worth visiting. "In a year like last year there were several things going on that propelled it," he says of the order boom. "There are a lot of new airplanes being offered that won't be delivered until five, six or seven years out - it has nothing to do with near-term demand, it is to do with future demand."

"There are also larger blocks of orders than before," he explains, with carriers prepared to place larger orders to obtain quantity discounts. So where airlines were once happy with orders for 10 or 20 aircraft, orders for many more are now commonplace.

We don't want to be killjoys, but healthy orderbooks do not necessarily say too much about the performance and outlook for the airline business, as our columinist Chris Tarry observes in the February issue of the magazine. We wish it were different, but it's not.

As for 2006, neither Airbus nor Boeing will make predictions for order levels. Both were taken by surprise with the intake in 2005. Don't be surprised though if levels stay strong, albeit back from this most recent peak.

He was no monument, but Ken Mead cast a long shadow around the nation's Capitol, first as the head of transportation investigations for the major congressional watchdog and then, after 1997, as the watchdog for the US Transportation Department itself. And as the Department's inspector general, the post he resigned this week, Ken Mead became the airline industry's 'go-to' guy for separating partisan interests from policy issues and was a trusted arbiter of how an issue should be framed for legislators and what the facts were for policy makers.

His earlier post in the General Accounting Office, now known as the Government Accountability Office, let Mead tell congressional panels what the facts were as issues emerged. His approach was just the facts, as the television detectives used to say on the old "Dragnet" series, and he played a key role in the 1990s rewrite of safety and operating standards for regional airlines in response to the so-called "One Level of Safety" campaign launched by the Air Line Pilots Association to close the gap between major carriers and smaller airlines.

And as inspector general, Mead cut through both political rhetoric and media fog to lay out the facts of issues such the airline industry's precarious finances or the FAA's troubles in modernizing air traffic control. Mead's most recent investigations dealt with maintenance outsourcing, and he both raised red flags and quieted the sillier speculation.

Mead's resignation, after nearly 20 years in the congressional spotlight, surprised most of official Washington, and he offered no explanation and announced no new position. In an Airline Business interview in April 2003, Mead said that security issues had taken up much of his time since 2001, even though the Homeland Security Department was not in his portfolio. And increasingly such intractable issues as the fate of the national passenger railroad, Amtrak, or major highway projects such as Boston's 'Big Dig', were consuming much time.

Democrats and Republicans both praised his work and lamented his departure. Inspector generals were supposed to be "meaner than junkyard dogs", as the late President Reagan once said of them, but his fairness and equanimity meant Mead was no meanie.

By the end of 2006 Belgium should finally have a quasi-national carrier capable of taking on Ryanair at something like it's own low-cost game.

The full integration of SN Brussels and Virgin Express is unlikely to be completed within the year, but if newly appointed chief executive of the two carriers Neil Burrows (above) has his way the combined force will become more competitive as 2006 goes on.

It has taken a while to get to this stage, a process complicated by what one source close to the carriers describes as the inevitable "Belgian politics". The two carriers came under a common holding company - SN Airholding - in October 2004. A year later the executive chairman and chief executive of SN Brussels resigned suddenly.

Now Burrows, who has led Virgin Express for 5 years, takes the helm. He has a tough job, but on the plus side SN Brussels and Virgin Express seem to be able to stick around when others have fallen.
Read the exclusive Airline Business interview with Neil Burrows.

When Airline Business Asia-Pacific editor Nicholas Ionides interviewed Naresh Goyal late last year, the ebullient founding chairman of Jet Airways stressed that while he is expanding fast overseas, the focus is still very much on the Indian domestic market.

With last week's announcement to the Bombay Stock Exchange that Jet is to buy domestic rival Air Sahara his comments are borne out. "I don't want to make the mistakes that a lot of US carriers and other major carriers worldwide have made and gone international while neglecting the domestic," Goyal told Airline Business. "Our focus must remain on domestic. This is our largest market and it is growing at 25% per year. That is the bottom line."

A combination of Jet and Air Sahara will be the first airline consolidation in India and is expected to be far from the last. They are India's largest privately owned carriers and will make a powerful team, bringing together Jet's estimated 40% domestic market share with Air Sahara's 10%.

The price for Air Sahara will not be cheap: Jet says around $500 million. But the chance to cement Jet's already strong domestic position at a time when Air-India and Indian Airlines have still to become tough and agile competitors, and when the rash of new low-cost start-ups are only just establishing themselves, looks like another sage piece of business by the wily Goyal.

Moreover, the landing and take-off slots that go with an Air Sahara takeover, considering the airport capacity crunch in India, are also gold dust.

Goyal's focus may be on domestic expansion, but he is also excited about Jet's significant growth potential on international routes.

The Air Sahara deal, if closed, could be a critical springboard for the ambitions of this emerging Indian force.

Or at least the continent's airlines are. And that For Sale sign is in stark contrast to what's on offer in the States, says British Airways chairman Martin Broughton. Travelling to New York City to address the Wings Club, long-standing aviation organisation, Broughton said the US offer to liberalise ownership and control of US-flag airlines - the offer that is supposed to melt the freeze in transatlantic open skies talks - just doesn't go far enough.

The Transportation Department plan holds out to foreign investors the opportunity to participate in some of the commercial decisions of US airlines -  but the actual control of US airlines would remain in the hands of US citizens. Crucially, US airlines must remain 75% US-owned.
The EU, on the other hand, is offering full, 100% control of its airlines with no limits, exclusions, or caveats as the basis for a new agreement with the US for a transatlantic open aviation area. Broughton says, "The European aviation market currently has more attractive investment opportunities. It's growing and most of its airlines are financially sound without resort to state aid or Chapter 11."

Long-haul carriers are catching on to the idea of providing passengers with live television - an idea pioneered by US low-cost carrier JetBlue Airways. And now Japan Airlines (JAL) and Lufthansa are closing in on Singapore Airlines (SIA) in the race to extend their in-flight entertainment offering. All three carriers were early customers of Connexion by Boeing's high-speed internet service but SIA was the first to offer, from July last year, live in-flight global television via travellers' laptops. JAL and Lufthansa have now followed suit.

It seems that nowhere now are you immune to 24-hour newsfeed. Depending on which region the aircraft is flying over, passengers can receive BBC World, CNBC, euro news or MSNBC programming. All content is in English, and passengers must listen through headphones, which will reassure travellers dreading being forced to follow the progress of sports games or interminable news bulletins playing on a neighbour's computer.

Since July the service has been available on SIA services between Singapore and London and other selected long-haul flights.

Lufthansa claims to have the largest internet-equipped fleet - with 50 long-haul aircraft already equipped. It says that by the end of 2007 its entire long-range fleet of more than 80 aircraft will be internet-enabled.

JAL's in-flight internet service is currently available in all classes on certain aircraft serving five intercontinental routes and says it continues to expand this on to other routes, notably on Japan-Europe and Japan-North America services.

Friends are good to have wherever you can get 'em, and Richard Branson's would-be US venture, Virgin America, has few so far. But one has emerged from the bayous and wetlands of Louisiana: Air Gumbo, which calls itself a "starting-up airline our self". Based in Lafayette, Louisiana, one of the centres of Cajun music, Air Gumbo tells the Transportation Department that Virgin America's plan is good for people, just as its own plan is. Calling itself "a one-frill airline," Air Gumbo has planned to begin flying since early 2003, basing its service strategy on Louisiana-style hospitality on aircraft painted to look like "a bowl of gumbo, including a giant red crawfish, onions, sausage and red peppers," in the words of its founder, named Ralston Champagnie.  As they say, 'You gotta take friends where ya' find 'em'.

A keynote presentation by Mexicana boss Emilio Romano will be one of the highlights of Network 2006, the route planning event for the Americas. Hosted by Airline Business, Network will bring together over 200 airline and airport delegates in San Antonio in early March (visit www.networkusa.info for more information).
Mexican aviation is a hot topic at the moment. As Airline Business special correspondent David Knibb reports in the upcoming February issue of the magazine: "Mexican aviation has awakened from a deep sleep. Its two major airlines are being privatised and a swarm of startups aim to exploit Latin America's largest emerging market. In no other country in the world has commercial aviation changed so much so fast."
Romano has a remarkable story to tell. His airline has just been privatised, it has announcing new routes to the USA and China and Mexicana has launched a low-cost subsidiary called Click.
Click is just one of six low-cost startups planned for the Mexican market. Three, including Click, are already flying, with the others launching this year. Several are flying from Toluca, 25 miles northwest of Mexico City, putting this airport on the map.
As in other markets that have witnessed a burst of low-cost activity, consolidation will no doubt be on the cards at some point. But, for now at least, the start-up phase is making for a dynamic air transport environment.
For further background on Cintra's sell-off of Mexicana and Aeromexico read the Airline Business cover interview last April with the president of its governing council Andres Conesa.

Virgin Atlantic Airways has taken the concept of the Frequent Flyer programme to new heights with its Flying Paws scheme. Globe-trotting pets are presented with their own passport that gets stamped with a paw print each time they fly, redeemable against future airfares or a range of animal gifts such as bowls or toys.

From the first time they take to the skies, says Virgin, dogs, cats and ferrets (why ferrets we ask) receive an onboard pet pack that includes a Virgin Atlantic collar tag and other goodies, while regular travellers can earn enough stamps to receive grooming, designer label clothing or a personal portrait by a famous animal artist .

There is a more altruistic angle to the programme too - once five stamps (worth ｣50 or around $90) have been gained the money can be donated to a registered animal sanctuary or charity.

The carrier has carried some 3,000 pets since 2003, when pet passports became widely accepted, and has enrolled nearly 1,000 animals in the Flying Paws programme.

Virgin Atlantic is not the first carrier to offer a Frequent Flyer programme for pets. United and Midwest Airlines in the USA, among others, also run schemes whereby pets accrue points each time they travel that can be used as air miles by their owners, but none offer the same rewards for four-legged travellers. Unless you know better?

Airline Business Americas Editor David Field has been busy this week commenting to a hungry US media on the failure of Independence Air. See his interview on the popular PBS channel and listen to his comments on National Public Radio.

The London office has also been receiving calls from European-based media, which seems mainly interested in wondering if the demise of Independence Air sounds any warning bells for the continent's low-cost players. It spoiled their story line somewhat when we told them no.

For some perspective on the story read David Field's interview with Independence head Kerry Skeen, who explained the carrier's strategy in a cover interview back in June 2004.

The enplaned blog site also has some interesting views on why Independence didn't make it.

When is a strike over? By one union's measure, it's not over until the last picket leaves. And by that measure, the mechanics strike against Northwest Airlines may never end, even though the airline has replaced many members of the Aircraft Mechanics Fraternal Association, which walked off the job in August, about a month before Northwest went into bankruptcy reorganisation. Northwest said it was prepared and would fly through and around a strike, and it was and did.

But the union continued to picket, even up until New Year's Eve, when its remaining 2,223 members voted 56% to reject a contract offer that would have meant the end of the strike. Strikers stood to get four weeks of severance pay and compensation for any vacation time they had on the books.

With a settlement, all strikers who had not taken other jobs would have been eligible for up to 26 weeks of unemployment benefits. Northwest said it would not contest their claims.

But Northwest offered strikers no jobs, only limited recall rights down the road. The airline has outsourced most of the strikers' work and hired permanent replacements to do the aircraft maintenance that it is keeping in-house. Of the 880 mechanics that Northwest is keeping in-house to maintain its planes, 280 are strikers who crossed union picket lines and 200 are Northwest mechanics who were laid off before the strike. They are working under a contract that slashed wages by 26% from pre-strike levels. Meanwhile, about 100 pickets continue to walk the line, because the strike is never over for them.

It's gone. Independence Air, an experiment in low-fares that either was brave or foolhardy, is no more. The carrier, once known as Atlantic Coast, makes its last flight Thursday night after less than two year as a regional jet discounter in the bargain-hungry Northeast.

Its sad story raises some familiar questions, most universally this: can I do the job better than my boss?

The concept of Independence grew for nearly five years, starting when the airline was operating as Atlantic Coast Airlines. For nearly 14 of its 15 years, Atlantic Coast had operated as a regional carrier for United Airlines and later Delta Air Lines, but by the summer of 2000, United was cancelling thousands of flights when United's pilots ran a slow down as part of a labour contract dispute.

Independence chief executive Kerry Skeen, angered that his airline's fortunes were tied so closely to United's, began looking for ways to break away. After United went into Chapter 11 reorganisation, it said it would lower the per-flight fees it paid its regional partners. So Skeen declared independence.

He saw his fleet type as his strength, while most observers saw a flaw in the fleet: 87 Canadair 50-seat RJs that it had used in its Express feeder days. Skeen told Airline Business that he could overcome the higher per seat costs of an RJ operation with lower distribution costs, and higher staff productivity. Maybe.

But fuel costs began their dizzying rise just as Independence launched - flying directly into a vicious competitive response. During the early planning stages, fuel was at about $30 a barrel, rising to the $40 range by the time the airline launched in June 2004. And by mid-2005, it was as high as $70 a barrel.

Meanwhile, United fought back, matching or undercutting the already low Independence fares and using its loyalty plans as a targeted weapon. So Skeen added Airbuses, but by mid-2005 it was too late. Skeen began looking for a buyer, but his deep commitment to being independent had already led him to rebuff a bid by Mesa and made bidders wary of his "For Sale" sign.

The inevitable bankruptcy in November was followed by an intensified search for buyers, and United actually expressed interest though it would not specify what it wanted. By New Year the shutdown talk was intense, and now is a reality.

It is expected that interest will emerge in the airline's Washington Dulles gate leases, especially in its newly completed terminal area there, and the question now is: will United take the gates or will JetBlue and/or AirTran use them to boost their limited Dulles operations?

If United moves to pick up the slack Independence leaves at Dulles, it still leaves a question: could it do a better job than the predecessor?

Listen to Americas Editor David Field comment on the demise of Independence on US National Public Radio and read our original Kerry Skeen interview of June 2004.

Lufthansa's announcement at the turn of the year that it will take on 2,400 new employees during 2006 is a good indicator of the relative health of the air transport business. As the carrier notes, most of the jobs will be in operational areas, with 1,420 new flight attendants and 220 ground staff being sought.

This is a picture being mirrored in many parts of the globe. Although traffic growth rates will slow this year, a steady rise means more flight, cabin and ground crew will be needed from Bangalore to Berlin.

Much of the demand for pilots is coming from the Middle East and India, while low-cost carriers in Europe and the Asia-Pacific are recruiting from every available source. The worry of course is that a tightening job market will push up wages, a trend already being seen in some markets.

Wage pressure is almost certain to be a stronger feature of the air transport job market during 2006. As the industry recovers, unions will naturally begin returning to the negotiating table to claw back concessions given during the tough times.

It will be a significant challenge for management to keep the lid on wage rises, while at the same pushing through contracts and working practices that feature greater productivity and flexibility.

And, as British Airways demonstrated recently, job cuts are far from finished at some carriers in some sectors of the workforce. It is reducing its management headcount by over a third between now and 2008, which will see some 600 posts being removed.