December 2008 Archives

Looking back over 2008 I can honestly say it has been a topsy-turvy year quite unlike any other I have reported on in my 20 years of following aviation.

Never before have I seen airline bosses so flummoxed as they tried to navigate through volatile fuel prices, falling demand and then plummeting demand.

Our editorial comments over the past year have been designed to capture and reflect the mood of the airline boardroom, and the stresses and strains placed upon airline leaders.

Back in December 2007 the Gulf carriers came out with an order blitz at the Dubai Air Show.

Our comment, echoed by others, was that the world should be putting on its seat belt as "the world of booming aircraft orders finally collides with the world of economic reality."

This is not to say we are reading the tea leaves better than anyone else, it's just that we believe in economic cycles and the simple fact that the downside was a coming.

In January 2008, we commented that there still seems to be no shortage of investors eager to take part in this dynamic industry, while in February we examined the first signs of China's slowdown in the China applies the brake leader.

In March we indulged ourselves in the marketing debate - web vs GDS - but returned to a hang dog viewpoint in April.

In View from the Top, we said;

"The industry has clearly passed its peak. Now the question is how precipitous will the decline be and will the downturn finally spur consolidation in North America? And who will swoop in and buy into carriers as their stock prices continue to fall?"

In April, reflected in the May comment, bads thing really began to happen.

In that "Cruel Month", we waved goodbye to Aloha Airlines, ATA Airlines, Skybus and Oasis Hong Kong.

The comment concluded with these words;

"It was American poet TS Eliot in his 1922 poem The Waste Land who wrote that "April is the cruelest month..." As far as the airline industry is concerned it is a month when the cruelty may only have just begun.

After considering whether the definition of a low-cost carrier was really redundant in today's world in June, we returned to the gloom in July.

That comment was written following the IATA agm in June. It was entitled "For whom the bell tolls" and for me one of the most poginant quotes came from Virgin Atlantic boss Steve Ridgway.

"We all arrived here knowing that suddenly the reality of what has happened drew home to everybody: $135 fuel, economic slowdown, it's pretty scary. And there are a lot of airlines that are really going to struggle."

It was at this point that the reality of where the industry was headed came home to many.

Hard on the heels of IATA was the Farnborough Air Show, where once again it was the Gulf carriers, led this time by Etihad Airways, that piled in with the orders.

In September the consolidation story was unfolding fast. BA was angling for a wide-ranging alliance with America - surely the new world order was forming.

2008 has been year a tumultuous year for the airline industry. First its record high oil prices, then its what IATA chief Giovanni Bisignani terms the even bigger threat of global recession. Inevitably this has seen a year punctuated with high profile airline collapses, restructuring and consolidation moves. So as the year draws to a close, the Airline Business team takes a look at back at some of the stories that dominated the last 12 months, and look ahead to the stories that.

Airline Business features editor, Kerry Ezard

"My story of the year would have to be the build-up to, colossal failure at the time of opening, and subsequent recovery of London Heathrow's Terminal 5.

I followed this story through from start to finish, through the highs and lows, and eventually got to use the terminal as a passenger for the first time in December.

While T5 was still under construction, I was lucky enough to be taken on a tour of the facility by a BAA representative to help with my research for a feature I was writing on the transformation of Heathrow.

Donning my hard hat and workman's boots, I entered the construction site and was immediately struck by the sheer size of the project. I was led around the facility and told how to envision what everything would eventually look like once it was complete. I blogged about my tour here.

Not long after my tour, I attended a press conference at British Airways' headquarters, where BA and BAA representatives told the assembled group of journalists how all the complex IT systems at the mammoth new terminal would work. I was struck at the time by how supremely confident BAA was that everything would go smoothly, without any hitches.

In fact, in a blog I wrote after the briefing I highlighted a boast made by BAA director of business critical systems and IT, Nick Gaines, that T5 would "not have any system integration problems".

I pointed out at the time that "it takes a brave person to make such a bold claim to a group of reporters, pens in hand to take note of the comment so that if things do not go as smoothly as predicted, the comment can be thrown back at its source along with a barrage of whys and wherefores". Oh, if only he had known.

The over-optimistic build-up to the opening of T5 continued when I visited the terminal again, shortly before its opening, to interview BA chief executive Willie Walsh for the Airline Business March cover.

The facility had come a long way since my last visit, and we did the interview in one of BA's opulent lounges.

Walsh seemed as proud as punch as he guided our photographer and I around the terminal after the interview. He told me T5 represented a "once-in-a-lifetime opportunity" for BA. Oh, if only he had known.

I'm sure I don't need to tell you what followed. T5's chaotic opening on 27 March turned into a complete PR disaster for BA and BAA.

Problems with the baggage-handling system led to an enormous backlog of bags and the cancellation of hundreds of flights.

Over the next few days and weeks the newspapers and television stations were full of pictures of lines and lines of disgruntled passengers, as BA and BAA were torn to pieces for bringing shame and embarrassment on the UK.

Heads eventually rolled, with the sacking of operations director Gareth Kirkwood and customer services director David Noyes, and BA was forced to delay transferring its long-haul flights to T5.

And some clever soul with lots of time on their hands even devised an online game entitled "Wee Willie Walsh in Terminal Panic", where players could direct a sweating and flustered Walsh to move the mounting piles of baggage around the terminal.

Since its disastrous opening, things at T5 have improved dramatically. But it will probably take a long time for BA to win back passenger trust and to convince them that the terminal does actually work. I used T5 as a passenger for the first time in December and I can testify that everything was running smoothly. I even blogged about my experience to prove to a BA executive I'd met at an event a few days earlier that we journalists do sometimes report when things are going well, as opposed to focusing on when things go drastically wrong.
 

Airline Busines Americas editor, David Field

The big story, the big, big story: it's a short word and it's oil. It was the big story of '08 and it will be central to the thinking of airline executives through 2009. 

In the summer of 2008, oil hit an all-time record price of just over $147 a barrel, spurred by high demand and, to hear the airlines and others tell the story, speculators. (With the so-called 'crack spread,' airlines were paying about $25 more per barrel.)

We were never too sure who these speculators were, but the airlines must have done one heck of a job complaining about them because by the week before Christmas, oil was going for just under $38 a barrel. That was its lowest since the summer of 2004.

Despite their victory over the speculators, the airlines were hardly celebrating. As John Heimlich, the Air Transport Association's chief economist, put it, "it is indeed the era of volatility. How can a labour-intensive, capital-intensive industry conduct multi-year planning amid such economic uncertainty?" Or to quote a non-economist, AirTran chief executive Bob Fornaro, "we just don't know what's going to happen next year."

Airline Business managing editor, Graham Dunn

"My story of the year for 2008 is the seemingly endless ups and downs in Italy's attempts to save Alitalia. I say seemingly, but in fact there was nothing seemingly about it. It was endless. And there were plenty of ups and downs.

Okay to some people it might have appeared Alitalia was on some kind groundhog day-style loop along the lines of..."Alitalia facing crisis"; "Alitalia in last minute reprieve"; "Alitalia facing new crisis".

But journalistically it was a pleasure and a nightmare. An endless stream of twists and turns to report (most of them happening well into the evening after I was meant to have stopped working!).

At one point in October I think I had written 21 stories on Alitalia inside eight days for our ATI newswire service. And the rollercoaster went on.

And as a story it had everything; drama and passion, political intrigue, knife-edge negotiations going right down to the wire and beyond. It touched on this year's key themes of battling financial crisis and consolidation.

And in Italy it dominated the front as well as the business pages as one of the key issue dominating Italy's election and the early months of Silvio Berlusconi's government, not to mention the human cost of job losses.

The story even has an ending; the new carrier takes flight in January. But I suspect we'll be hearing a whole lot more about Alitalia in 2009.

Read our analysis of the challenges facing the newly merged Alitalia and Air One operation, the subject in the just published January issue of the magazine.

Asia/Pacific editor, Nicholas Ionides

I'm going to cheat and claim two - albeit linked - stories of the year: China and India.

These are the two powerhouse economies that the pundits had said would help the rest of the industry avoid a severe downturn, as no matter what happened elsewhere they would keep growing at phenomenal rates.

How wrong the analysts have been, as these two markets have seen their fair share of difficulty in 2008 and their airlines are now begging for help.

In China, demand for air travel had been growing at strong double-digit percentage rates for years, but that changed by the middle of 2008.

Demand was solid in the first half but things weakened after natural disasters in parts of the country followed by the introduction of strict visa restrictions by the Chinese government for security reasons ahead of the Olympic Games in Beijing in August.

While domestic traffic has since picked up, many foreign visitors are still staying away and the country's largest carriers have been reporting declines of around 20% in international passenger numbers for the past few months.

So much for the hoped-for Olympic Games jump in demand. As a result the country's airlines are struggling and several are seeking bailouts from the government.

Cash bailouts are indeed being given out, but expect there to be conditions attached that will lead to consolidation in 2009. India is a similar story, although traffic has been depressed for different reasons.

The country's air transport market started booming in 2003 when new airlines launched and until this year domestic passenger traffic was growing at strong double-digit percentage rates.

Since around the middle of the year demand has fallen substantially, however, after many of the airlines that were growing so rapidly in the fight for market share used up their cash reserves.

Being such a price-sensitive market, fare hikes that followed in an attempt to boost revenues and cope with high fuel prices had a major impact on demand, and passenger numbers are still falling each month.

The airlines are now begging for help in the form of tax breaks and other concessions but little action has been taken by the government, leading to much-needed consolidation among the airlines.

Arch-rivals Jet Airways and Kingfisher Airlines have already announced plans for a wide-ranging tie-up, for example, and one of the more memorable pictures of 2008 was that of rival billionaires Naresh Goyal of Jet and Vijay Mallya of Kingfisher hugging for the news cameras after announcing their partnership.

China and India will of course return to strength as there is still enormous growth to be had once the current downturn is behind us.

But tough operating conditions in 2008 gave their airlines an ugly dose of reality and they will no doubt keep us busy in 2009 reporting on the latest surprises in those emerging markets.

Airline Business editor, Mark Pilling 

Click here for Mark's review of 2008 

Now I'm not really sure a 45th birthday is a milestone that's really worth marking, but it is as good excuse as any for Royal Jordanian to make a splash about its achievements.

These include going from a turnover of just JD1 million and 87,000 passengers in 1964 to carrying about 2.7 million passengers this year and achieving revenues of JD682 million (some $960 million in today's money).

It has recently become the first Middle Eastern carrier to be privatised, and has joined the oneworld alliance. We talked about this with its affable and highly respected CEO Samer Majali earlier this year.

So what did Royal Jordanian's livery look like in the 1960s? Here's one of its Caravelles from 1966.

And a 1980s Boeing 747 (not 707 as I mistakenly put in the original blog until corrected by John Price) ...

I used London Heathrow's Terminal 5 for the first time as a passenger earlier this week and I feel compelled to report that despite the terrible headlines surrounding its chaotic opening earlier this year, I found it to be a pleasant and stress-free experience.

My only experience of T5 up until now had been a tour of the facility as it was under construction, which I blogged about here, and the cover interview I did with British Airways chief executive Willie Walsh, which took place in one of the T5 lounges a couple of months before it opened to the public.

With a little trepidation and carrying hand baggage only (I didn't want to take any chances!) I arrived at T5 on Monday to check in for a flight to Geneva. I didn't have to queue at all to collect my boarding pass from one of the many self-service kiosks, and the line at security was minimal.

Once I got through to the other side, I kept having to remind myself that I was at Heathrow. It felt light, airy and modern, and there was not a vile green flecked carpet anywhere in sight.

My flight left on time with no hitches, and my flight back the following day actually landed ahead of schedule, which the pilot felt compelled to keep pointing out.

The disasterous opening of T5 in March damaged BA's reputation and it was clear from the pilot's repeated reminders that we had landed ahead of schedule that the carrier and its staff are under strict instructions to win back passenger trust and salvage BA's reputation.

Next time, maybe I'll risk checking in some baggage and see if I get it back! 

JetBlue chief executive Dave Barger likes the Caribbean at the moment. He told us that here at the Network Latin America event, organised by Airline Business and hosted by the Aruba Airport Authority on this lovely island.

Barger was a keynote speaker on Monday where he explained the carrier's Caribbean crusade, which actually will include Colombia, probably Mexico and probably a few other neat places as well.

Here's what I wrote for our sister online news service Air Transport Intelligence following Dave's comments:

HEADLINE: JetBlue evaluates 24 more Latin and Caribbean destinations

JetBlue Airways is examining the potential of 24 potential destinations in Latin America and the Caribbean as it continues its recent build-up of service in the region, says Dave Barger, the carrier's chief executive.

Speaking at the Network Latin America event being held on the Caribbean island of Aruba yesterday, Barger said the airline's "Caribbean campaign" of growth on these "North-South" routes from the US had been made possible by moving onto routes cut by network US carriers and by adding routes from gateways like Boston and Orlando.

"We find that when we go into these new markets we are truly stimulating the market," he told the audience of 200 airline planners and airport marketing executives. For examples its new routes from Tampa and Orlando to Cancun had been a good success.

"Let's not just hear about traditional city pairs, let's hear about those non-traditional markets too," he told airports interesting in attracting the carrier to serve their destinations.

"Hunkering down amidst a shaky US economy and volatile oil doesn't mean avoiding opportunities," he said. "Cutting overall costs, boosting ancillary revenue and restructuring the route map can allow carriers to take advantage of opportunities in the Caribbean and Latin America."

This year JetBlue has been reallocated capacity from unprofitable transcontinental markets to shorter-haul Caribbean ones where the returns are better, he said. In the third quarter of 2008 15% of its capacity was in the Caribbean, up from 12% in the same period in 2007.

Barger said JetBlue will announce a new route from Orlando to the Caribbean this week. Other new routes already announced are a service between Orlando and Bogota, Colombia that begins on 29 January and a service between Boston and the island of St Maarten on 14 February.

On 3 December it launched its first intra-Caribbean route between San Juan in Puerto Rico and Santo Domingo in the Dominican Republic.

"JetBlue is also expanding into seven gates [from four] at Fort Lauderdale. These kind of mini hubs are just excellent opportunities to connect service," he said.

Barger said the carrier is also evaluating routes to Mexico. "I'm a patient guy but I'm getting impatient [about launching its first service into the the country]," he joked.

This month Airline Business has been to Oslo to meet Norwegian chief executive Bjorn Kjos. These are busy times for Norwegian. The fast-growing budget carrier has no sooner finished restructuring its Swedish operations, than it is embarking on an expansion at Copenhagen to take advantage of the demise of Danish budget operator Sterling. Its urgent need for capacity to operate the new routes pushed back plans to accelerate the withdrawal of the MD-80s it inherited through the acquisition of FlyNordic last year. As part of restructuring efforts, Norwegian was in the process of returning these aircraft to the lessors ahead of the original late 2009 return date. But having returned half this fleet, it will retain four of these until September next year.

You can read the full interview in our forthcoming January issue. Although it is only our first issue of the year, I will already bet there won't be a better backdrop for photos in 2009. The omens were not great when we arrived at Norwegian's office at Oslo's old airport at Fornebu, offices which probably aren't going to win any design awards. Is there anywhere that might make quite a nice backdrop for pictures we asked? Well we have the sea just a couple of minutes drive from here says Kjos. At a stretch, a ten minute drive from our offices might get us as far as the big DIY Superstore. But just two minutes away from Norwegian's offices we found, well, see for yourself with a quick taster...

Of course we were helped by the layer of snow and the setting sun (all part of the plan our photographer Tom assures me!), but it sets the bar high for the year to come. So can anyone do better? Welcome to the inaugural award for the most stunning backdrop within a two minute drive of an airline's office...

The bookie may never lose, but on this occasion the regulator has sided with airlines that complained about Irish betting firm Paddy Power's national press advert which put odds on the next airline to go bust.

Paddy Power's advert appeared after a a couple of high-profile airline collapses this September, causing consternation among some of the listed airlines and prompting a complaint to UK advertising watchdog, the ASA. The complaint was the advert denigrated the airlines listed because it implied they might go into administration.

The bookmaker argued it provides odds for topical news story and that after two airlines entered administration, says it received "numerous requests" for odds on which airline would be next. It considered betting on airlines going into administration to be a legitimate market and notes it proved one of its most popular non-sports markets for September.

But while acknowledging the betting market was driven by popular demand and the odds were not manipulated, the ASA concluded "such a betting market inevitably suggested that airlines were at risk of entering administration and that some airlines were more at risk of doing so than others; the advert suggested that the airlines it featured were at risk." Consequently it concluded that because the advert suggested named airlines, particularly those with the shortest odds, might go into administration, it had unfairly discredited those businesses.

Paddy Power has been told the advert cannot appear again in its current form, while for its part the bookmaker says it has closed betting on the next airline to enter administration and has no plan to run the campaign in future.

Click here for the ASA ruling

Probably something like Terminal 5 at JF Kennedy International Airport that's what. It's the JetBlue Airways terminal the carrier recently opened with some fanfare.

So do airlines do a better job than airports themselves?

I've just been through Terminal 5 and am now sitting on JetBlue Flight 757 to Aruba (which by the way is absolutely rammed - did I hear you say credit crash?) and I will offer my observations.

Firstly, for the record I'm taking the JetBlue experience for the first time. I thought it only fair seeing as its CEO Dave Barger is speaking on Monday at the Airline Business Network Latin America event in Aruba.

I feel I know JetBlue well through several years of reporting on the carrier. And now as a customer I know them even better, especially as they've been e-mailing me lots and lots prior to the flight because I signed up to their loyalty scheme TrueBlue.

So Terminal 5: first observation is you can check-in your bag at the kerb. This costs $2 and is probably something frequent flyers will do to avoid the bag drop queues.

The terminal is clean and bright. There are lots of kiosks. I try to check-in at one.

Oops it says, no can read your passport (a British one), off to the regular check-in line for you. That was painless enough and enlivened by some cheery JetBlue staffers.

 Security was fast, but first thing in the morning when JetBlue has its big first wave it is apparently rather different.

Iberia CEO Fernando Conte was in London yesterday at an extremely opportune - and accidental - time. He was giving a long arranged speech that turned out to be just a day before its suitor British Airways announced it was eyeing a deal with Australia's Qantas Airways.

BA and Iberia have been exploring a merger for some months.

So when did Conte find out that BA was also talking to Qantas, asked my colleague Kevin Done from the FT? "I knew it one hour before it was published. BA CEO Willie Walsh called me and informed me of the discussions," he told the audience at the Aviation Club.

Conte seemed relatively unruffled, but he was ready for the question. So, does it matter that BA is talking mergers with two carriers at once, albeit they are in different continents?

In some ways probably not, but the inference in the question is: can BA actually run two large mergers at once, and is it a question of either/or?

Conte himself has been courting and been courted for some time. "One year ago we were in discussions with many [potential] partners," he told the press throng.

He knows the value of Iberia, describing it as "very attractive" because of its solid balance sheet and strong market position on the South and Latin American markets.

Conte has been looking for partners in the Latin region for some years, but as no deal has ever come forth he's clearly not found the right one there.

Now his attention is focused on BA, and he must feel the Qantas news is a unwanted distraction.

His view on the sequencing of consolidation is clear, as I wrote in this story for our sister online news service Air Transport Intelligence:

Regional mergers will come first, says Iberia CEO Conte

While he believes that global consolidation will arrive eventually, Iberia chief executive Fernando Conte said that for the time being the more realistic possibility of mergers is within continents.

"The fact is that if you want to do something between two different continents today it is too complex," he said. Conte was speaking at the UK's Aviation Club in London the day after merger talks between British Airway and Qantas Airways were announced. BA and Iberia are also several months into their own merger talks.

Consolidation in Europe has been successfully achieved, he said. "It has been done within the region and that has been proved - we haven't proved anything besides that," he said, referring to the prospect of global consolidation.

"We can say that the merger between BA and Iberia, if it takes place, will be one of the most important steps in the consolidation process of the European airline industry, and probably will set the scenario for a more global one," he said.

He denied that for BA it was a case of "either/or" when it came to finalising a large merger deal with either Iberia or Qantas.

Read the Airline Business cover interview with Willie Walsh from earlier this year.

Ryanair is proving to be extremely persistent in its pursuit of would-be life partner, the reluctant Aer Lingus.

After having its amorous advances quashed by both Aer Lingus and the European Commission last year, an undeterred Ryanair has made a fresh approach, this time flatteringly offering to acquire Aer Lingus for half what it offered the last time around. There's nothing like making someone feel good about themself!

Aer Lingus appears to be continuing to play hard to get, offering no public comment apart from to urge its shareholders to take no action.

But it looks like Ryanair is ready to play hard ball, with the carrier's chief executive Michael O'Leary telling Aer Lingus that it is "isolated" - for that read "on the shelf" or "spinster" - and "uncompetitive", and has "few realistic third-party alternatives". In other words, "no one else wants you, you old boiler. This is the best offer you're gonna get".

Ryanair claims that if it succeeds in taking over Aer Lingus, the resulting airline would be "one of Europe's 'big four'". Presumably it classes British Airways, Air France-KLM and Lufthansa as the other three big hitters, and is keen to follow their lead and jump on the acquisition trail.

It'll be interesting to see what becomes of Ryanair's latest bid. Will the two rivals end up together after such a tumultuous courtship? And if they don't, what, realistically, are Aer Lingus' chances of survival?  

At the recent ALTA Latin Airline Leaders' Forum, where the Latin carrier CEOs gather for their annual meeting, we produced a daily paper.

Propped up against my laptop in readiness for this handover - see picture - I had a framed colour picture of our November cover. This featured none other than LAN CEO Enrique Cueto.

Now to a man, everyone who visited our office noticed this picture, and more specifically was amazed that we had been able to snap Mr Cueto smiling!

Enrique apparently has a reputation of being a tad glum, or at least not a smiley guy.

He is certainly private, as our interview shows, and certainly a deep thinker about this industry, as the interview shows too.

One thing that did get Enrique's attention during the Forum was a proposal that John Byerly, the US DoT's chief air services negotiator, had brought with him in draft form to the event.

John announced this document to the audience during an Open Skies panel I moderated at the Forum which included the DoT man. Enrique's eyes lit up at the proposal, which is all about waiving nationality restrictions.

The idea, as I understand it, is that if say Chile's LAN bought Brazil's GOL, the Brazilian carrier would still be able to retain its traffic rights to the USA. That is if all sides had signed up to the waiver. Under traditional bilaterals with nationality restrictions these traffic rights could be suspended, therefore making the deal less likely and interesting.

As Enrique is keen on developing cross border businesses in Latin America - eg LAN Ecuador, LAN Argentina, LAN Peru - you can see why.

I saw a hint of a smile on Enrique's face when this proposal was aired. See, it does happen.