January 2010 Archives

 This weekend JetBlue reaches a major milestone and potential customer service disruptions as it makes a key shift to the Sabre customer service system.

Almost a year after unveiling its plans to switch from its current Navitaire platform that doesn't have the same sophistication as Sabre, JetBlue is now making the cutover.

Studying the lessons learned from its low-cost peers -- most recently and notably WestJet -- JetBlue has taken tender consideration to put measures in place to mitigate the inevitable glitches and disruptions tied to such a significant change in back-end technology.

In fact, JetBlue CEO Dave Barger during the carrier's earning call said he called out to WestJet, "and Sean [Durfy, WestJet CEO], and his team, they've been very helpful in terms of lessons learned".

Disruptions in WestJet's cutover were well documented, and JetBlue has apparently studied WestJet's experience.

Barger says there's a bit of an intentional take-down in the schdeule this weekend and also stresses internally JetBlue is "really managing expectations that it takes a period of time before people are proficient".

But JetBlue understands the short-term pain is worth the role Sabre will play in executing its long term strategy. The switch allows JetBlue to have a full-fledged codeshare with Lufthansa.

In essence Sabre gives JetBlue the necessary foundation it needs as the airline continues its transition from a pure low cost carrier. 

Yet Barger remains realistic about JetBlue's expectations for an entirely smooth cutover. "I'm not going to tell you we're overly confident, but I think there's some really good planning that's gone into place with this transition."

As much as I'd like to publish the telephone number for South African budget carrier Kulula's wacky automated answerphone - which wishes you an "awesome day" and asks if you want the president's job - I suspect it would simply unleash an avalanche of calls from people with no intention of booking a ticket.

(All right, if you insist, it's +27 11 921 0111 and press '1' for Kulula.)

A nascent recovery in business traffic and fewer junk fares are fuelling mild-mannered optimism among US carriers. But what is it going to take to sustain profitability for the long-term, or even for near term?

Analysts are firing that question to airline chiefs a lot during the current earnings season.

Here's what Continental's new CEO Jeff Smisek has to say --

"I think there are a couple of structural changes. One I think you're seeing the industry further, not only unbundle its product, but discover its merchandising power, and the ability to sell goods and services and generate ancillary revenue that has a very significant margin.

The second structural change I think is the transformation of self-service in this industry Customers are demanding more and more and expecting more self-service....during the purchase process, post purchase at the airport after the flight itself."

Smisek believes the promising technology will not only offer better customer service, but should also generate significant cost savings for airlines.

And what about Smisek's counterpart at fellow Star Alliance partner United?  Glenn Tilton echoes Smisek's sentiments, but also takes the US government to task for taxation and outdated air traffic control system.

"...structural issues exist beyond the control of a single airline that will play a considerable role in enabling sustained profitability for this industry....numerous structural hurdles such as excessive taxation, inadequate air traffic infrastructure and outdated regulation must be addressed if we're ultimately going to achieve this goal."

It's no wonder Smisek and Tilton have like minds -- their carriers are embarking on an extensive domestic codeshare and forging transatlantic antitrust with Air Canada and Lufthansa.....Here's Smisek celebrating Continental's launch of flights from Houston to Frankfurt....

File this in the cautious optimism tray. A survey of businsses-focussed travel agents put together by US travel agency network Travel Leaders found that 28.6% expect busines travel booking to increase in 2010, while 38.3% think bookings will remain on a par with 2009. Only 11.9% expect a further decline.

The survey found that around a third of the travel agents said 11% or more of their bookings are in business of first class, while just over half said between 1% and 10% were booking premium seats.

Find out more on the survey here.

On a similar topic, the UK's Business Travel & Meetings Show recently surveyed 1,400 business travel managers. The results indicate some more positive sentiment - around a quarter expect budgets to rise in 2010 and a third plan to book more trips, and another almost half expect budgets to be stable. But this is a classic glass full or empty stuff, as a further quarter expect to have less money to spend in 2010. Perhaps most interestingly, a majority say they are being forced to adopt even stricter travel policies for the year. Crucially for network carriers around 44% said they would be booking lower class airline tickets.

Find our more on this survey here.

So there are some encouraging signs on business travel, and airline traffic figures are also more positive - IATA figures for December showed a 4.5% increase in passenger traffic and 24% increase in cargo demand compared to admittedly very depressed December 2008 figures. But the crucial question remains, how much are people actually paying or willing to pay? For airlines, yields remain the key.

For more on this, check out analyst Chris Tarry's view on where the airline sector is in its recovery in his latest market outlook column.

Photo source: Rex Features

Was 2009 the worst year for airlines ever? Yes according to IATA traffic figures for the full year, which were published this morning and show an industry-wide 3.5% slump passenger traffic last year and a 10% fall in cargo traffic. This marks the largest post-war decline in international scheduled air traffic, IATA estimating it has cancelled out two and a half years of passenger growth and three and half years of growth in the freight business.

You can read more from IATA on this here, but in brief passengers levels were 5% down in the three largest markets of North America, Europe and Asia. Growth continued though in the Middle East, traffic up almost 11%. Latin America, the only region whose carriers are expected to post a profit in 2009, was the only other region not to see traffic fall last year. Air cargo was down across all areas except modest growth in the Middle East, with double digits falls in North America, Europe and Africa.

For more on the regional picture and the prospects for 2010, check out our recent forecast infographic and article here.

Any reasons for cheer? Well passenger traffic in December was up 4.5% compared to the same month in 2008 - led by strong growth in the Middle East, Latin America and a recovering Asia-Pacific - while air cargo was up almost a quarter. But this merely clawed back the similar-sized falls endured in December 2008.

And while load factors during 2009 were largely stable as capacity was predominantly cut in line with reduced demand, yields have been hit. Despite a slight improvement in the yield picture in the latter part of the year, IATA still estimates industry yields remained between 5-10% down in December. So while traffic is returning, revenues are likely to take longer to recover, and IATA is still forecasting a loss of $5.6 billon for this year. This might not seem much like a postive, but after industry losses of $16.4 billion in 2008 and an expected $11 billion for 2009, crumbs of comfort are in short supply.

For more on where the airline industry is, watch our expert panel debate the challenges ahead in our special Airline Business Debate video.

It's Friday and perhaps I'm grasping at straws. But yesterday during Continental's earning's discussion carrier CEO Jeff Smisek was asked about the timeline for approval of a transpacific joint venture for Continental, United and ANA, and gave a somewhat interesting answer.

 

 "I am not even going to attempt to prognosticate on how quickly DOT and DOT can go through the process.... the applications for antitrust immunity with repesct to the treaty [Japan-US open skies], I belive are due in February."

 

The three Star carriers quickly submittted their application for antitrust approval in December 2009 after the open skies deal with Japan was concluded.

In the mean time you all know JAL has sought bankruptcy protection while weighing offers from American and oneoworld and Delta and SkyTeam for captial infusions.

So, if applications need to be submitted for review by US regulators in February, shouldn't JAL firm up its transpacific partner by then?  Let me know if I'm off on this one.

No shortage of ambition at Turkish Airlines. Not resting on its laurels after striking a three-year sponsorship deal with European Champions League winners Barcelona, its reported that Turkish Airlines is also signing up as a new official sponsor for last year's beaten finalist Manchester United. The BBC is reporting that under the deal THY will replace another airline, AirAsia, as the team's official carrier (ironically AirAsia boss Tony Fernandes was separately in the running to takeover another premier league team, struggling West Ham United, but ultimately lost out - if you consider not buying a hugely in debt football club missing out). While the deal is still be formally announced, it appears a further sign of THY's intentions to be a global name, but might leave its CEO Temel Kotil (pictured here with the Barcelona scarf) with a tricky balancing act should there be a repeat of the final this year.

THY is far from alone in striking a sponsorship deal with an English Premier League club, with Emirates currently leading the airline fantasy football league stakes with Arsenal currently top of the table.

To find out about THY, which has continued to growth this year and remained profitable over the first nine months of last year, check out our cover interview with Temel Kotil from the summer of 2008

American hopes sometime in the near future to firm a key MOU it signed with Hewlett- Packard in August 2009 for the development of a new passenger service system. 

The carrier's CEO Gerard Arpey gave that brief update during the carrier's 20 January earnings call.

"As we sit here today, we have not signed a definitive agreement. We have been engaged in very detailed and comprehensive and good conversations with HP. We just haven't pushed it over the finish line yet, but we're still heavily engaged and expect to do it sometime in the near future."

The deal to develop the new system dubbed Jetstream was a coup for HP. American opted not to award the business to its long-time partner and former subsidiary Sabre, and denied Amadeus a potential key win in the USA.

Here is a story outlining the deal.

There was a collective guffaw in the Flightglobal/Airline Business editorial office here in south London yesterday when a press release with this headline fell into the inbox:

Air France denies the obligation for corpulent passengers to pay for a second seat

It was the politically correct use of the word corpulent that tickled us.

The story came up after Air France issued the release clarifying its policy on accommodating larger passengers (full release below).

It is a touchy subject and was covered recently, with much subsequent web coverage, after Kieran Daly published a remarkable picture of an American Airlines flight with a corpulent passenger overflowing into the aisle.

Here's the release:

As opposed to the information disclosed in the press this morning, Air France has no intention of making corpulent passengers pay for a second seat.

However, Air France plans to make one single change to its service starting 1 February, which is to refund corpulent passengers the cost of the second seat in economy they have purchased, if the Economy cabin is not fully booked. 

Since 2005, Air France has been offering corpulent passengers the possibility of purchasing a second seat to ensure they travel in optimum comfort and safety. This second seat benefits from a 25% discount.

Congratulations to the folks over at Ethiopian Airlines and at new Togolese carrier ASKY, which launched operations on 15 January with a maiden flight from Lome to Abidjan and Banjul.

ASKY is part-owned by Ethiopian Airlines (which we recently did a cover profile on) and the two airlines are working together to create a West African hub at Lome. The start-up is led by former Ethiopian commercial vice-president Busera Awel, who I first met during Ethiopian's 60th birthday celebrations in 1996.

This is a regional carrier, which is good for the continent. Africa needs more point-to-point services, helped along by the support of a strong and well-respected partner. Indeed, partnerships were very much the theme of November's African Airlines Association general assembly in Maputo. 

During the conference one executive chatted to me about Africa's lack of direct flights, likening African flights to a game of pool. To get from A to B, you have to re-bound off a cushion to get to where you actually want to go. I thought this was a great analogy.     

I have been following this start-up project for two years, so it's good to see it get off the ground - both literally and figuratively. Well done to all involved.

The tragic situation in Haiti is galvanizing carriers across the globe. Airlines ranging from El Al to Republic Airways Holdings have offered relief either through special flights, the donation of frequent flyer miles, bonus frequent flyer miles for Red Cross donations or matching donations.

Several carriers including Air Canada, American and WestJet have delivered supplies to Haiti. United, who doesn't offer regularly scheduled flights to the country, plans on 20 January to start the first of 30 flights to Haiti to deliver personnel and supplies to the rescue effort. (photo credit ONEXONE foundation -- Joe Adler.) 

Even lessor GECAS has become involved in the Haitian relief effort after it was approached by the Hope for Haiti charity for help in securing a cargo aircraft to ship supplies to Haiti. After GECAS Cargo lead Chris Damianos contacted Arrow Cargo, the carrier agreed to operate two relief flights for Haiti.

I realise I've probably missed several carriers that have offered help and aid, so please feel free to alert me to any efforts you know about.  

Despite the tremendous amount of support being offered to Haiti from worldwide organizations, the Port au Prince airport continues to face challenges in handling the large volume of relief efforts. This Canadian Press article details frustrations by some humanitarian agencies in getting access to the airport, which late last week was taken over by the US military. As I put this post together, CNN is reporting Doctors Without Borders continues to face challenges in gaining proper access to the airport.  

Well he got one of his ambitions in getting hold of the Lotus racing team but AirAsia boss Tony Fernandes has lost out on buying his favourite English football club West Ham United.

No bubbles today for Tony on this one then ("We're forever blowing bubbles is West Ham's anthem").

Here's what Tony said on Twitter about the takeover:

"Deal lost on west ham. Hopefully new owners protect what's good. We gave awesome deal and new ideas to rejuvenate a club and bring excitment."

After the Christmas Day attack on a Delta Air Lines Airbus A330, it's hardly surprising that aviation security is again under the spotlight.

We've already witnessed the furore over body scanners, which show a little too much detail, but that's as far as it can go, right?

Apparently not, according to this article from Raw Story, an "alternative news nexus" which which claims to "unearth and spotlight stories underplayed by the popular press".

The piece talks about new "mind-reading scanners" from Israeli firm WeCU Technologies (as in "we see you"). Apparently this system would projects images onto airport screens which would only be recognised by a would-be terrorist.

"The logic is that people can't help reacting, even if only subtly, to familiar images that suddenly appear in unfamiliar places. If you strolled through an airport and saw a picture of your mother, you couldn't help but respond," explains WeCU chief Ehud Givon in the article.

The logic sort of works, but is this really on the cards? The Israel Export & International Cooperation Institute lists a company called WeCU on its website, but it only appears to employ three people and the website link is under construction and requires a password.

Genuine or not, it makes for an interesting talking point.

[Photo credit: US National Institute on Aging]

Just a quick point to another in the recent mini-flurry of interviews with Michael O'Leary, this one in the Irish Independent focusing less on Ryanair and more on the man himself (though separating the two is not always easy!). Here's a little extract, giving his response when asked if in a different universe he could have had a career in stand up comedy.

"I wouldn't.get away with a lot of things because I'm perceived to be a rich, successful businessman. And rich successful businessmen are normally boring bastards in business suits pontificating about the world. And I tend not to be. I wear jeans because it's comfortable. So I'm slightly different from the run of the mill. In the past few years I've become a parody of myself, in any case."

It's a really interesting piece and you can read Carissa Casey's full article here.

And just a quick plug, if you haven't already seen it, for the interview piece we ran in Airline Business at the end of last month. Focusing on O'Leary's importance to the Ryanair model, its pulled together largely from a couple of one-on-one interviews with O'Leary we had at press conferences late last year, and I think makes for one of our most interesting cover features. Read the full article here 

Merely months after it drastically broadened its business to include branded operations, Republic has lost a key expert in execution of that strategy.

Republic today said Sean Menke has resigned as its chief marketing officer. It's not a huge shock since in a matter of weeks Menke transitioned from CEO of Frontier Airlines to head of marketing at Republic.

Republic closed on its purchase of Frontier after it emerged from Chapter 11 last year, and also acquired Midwest Airlines in an attempt to diversify as opportunities for its main business -- serving as a regional operator for US major airlines -- continue to evaporate.

Menke's departure is a big loss for Republic. With his exit Republic loses someone who at Air Canada was key in launching a la carte pricing and subscription fares, which allowed customers to pay for an unlimited number of flights for three- to-six months.

Menke was also key in helping to launch Frontier's wildy successful "A whole different animal campaign." 

It's a tough time for Menke to leave. Republic's executive management admits it has little experience in running branded, independent operations, and they're working feverishly to integrate Frontier and Midwest. Republic executives recently admitted they've "dismantled everything that was Midwest", except for the cookies.

Menke's efforts in navigating Frontier through Chapter 11 won him accolades from the local paper in Frontier's Denver base. He's been honored as the Business Person of the Year at The Denver Post.

Airline Business also had a chance to talk with Menke shortly after he was tasked to intertwine the strategies of Frontier and Midwest.  

Given the season, it's somewhat fitting that early indications of recovery are emerging from Lapland - or Finland to be more precise.

Photo credit: dryfish

Finnair has just released its traffic figures which might just show early signs of the green shoots which executives across the airline industry are waiting on.

In the words of Airline Business columnist Chris Tarry, a 16% increase in business passenger numbers in December does not make a trend, but it's a start and it's considerably more uplifting than most of the numbers which have been bouncing around the world's airline headquarters lately.

Finnair says the number of business class passengers on its Asian routes grew by a quarter. "A pick-up in business travel between Europe and Asia is perceptible," says Finnair senior vice-president for communications Christer Haglund. This is hardly surprising, as all eyes look east for good news.

Cargo demand at Finnair, which fell by 12% over the year, also showed some green shoots with 6% growth in December. This is a positive sign as cargo tends to be an early indicator of industry decline and recovery.

But Finnair's overall picture - a 9% drop in passenger traffic in 2009 compared with 2008 - is far from positive, and when we make comparisons with December 2008 we have to remember that traffic was already depressed at that time.

For some insights into what 2010 might hold for the industry, it's worth taking a few minutes out of your day to view our Airline Business Debate programme where Chris Tarry, Robert Milton and our editor Mark Pilling chewing over the key issues as we look forward.

If that's not enough to lift your spirits, take a look at Finnair's Christmas video which scores highly for reindeer cuteness and general "Aww!" factor.

Arguments over Virgin America's ownership have been silenced, at least for now.

Its ownership structure plagued the carrier prior to its launch in  2007, and last year the issue surfaced again after Virgin America advised US regulators of a substantial shift in its ownership.

The disclosure spurred harsh rhetoric from Virgin America's rival Alaska Airlines, and required a review by the US Transportation Department of the changes.

The result was a modified ownership structure of Virgin America's majority shareholder VAI. Cyrus Aviation, who's affiliated with original investor Cyrus Capital Partners, is the major holder in VAI.

Carrier CEO David Cush is now also an investor and member of Virgin America's board of directors.

But the most interesting fact to emerge from the review is a pledge by Virgin Group to supply Virgin America $63 million in debt financing.

A Virgin America spokeswoman explains that Cyrus plans to purchase an additional $15 million of the debt Virgin Group is supplying to Virgin America, which means Virgin Group is supplying a net of $48 million in debt financing, with Cyrus supplying the remaining $20 million.

US regulators seem comfortable with the new investment and have concluded that Virgin America is "not dependent on Virgin Group for capital to finance its ongoing operations".

Based on the new ownership structure, Virgin Group still maintains a 25% stake in Virgin America.

Regulators have also dismissed Alaska's request for a public inquiry into Virgin America's ownership.

There are so many spare Chihuahua's in San Francisco that they are being flown to New York, where they clearly have a dearth of these remarkably unappealing creatures.

The charitable airline transporting the 15 microdogs is good old Virgin America - well done to them.

"The massive overpopulation of Chihuahuas in California is forcing animal shelters on the West Coast to look to shelters on the East Coast for help - where there is demand for the dogs," says Virgin America.

The Chihuahua airlift is being organised by the City of San Francisco Animal Care and Control and the rehoming is being done by the American Society for the Prevention of Cruelty to Animals.

If you want to see more Chihuahua airlift shots, no obligation though, check out this site.

The murky world of credit card hold backs is being revealed in the failure of Flyglobespan. This BBC online story explores the ins and outs of whether one of Flyglobespan's credit card providers contributed to its downfall by withholding funds from online ticket sales.

It is certainly an issue we've heard a little about before, albeit not too much on the record as airline bosses don't like revealing this kind of detail about their business. I know it was something SkyEurope battled with, and other airlines like Zoom and XL Airways are mentioned in various reports.

Clearly getting the money for the sale of an airline seat is not as straightforward as you might think, which makes sense when the money is being handled by a third party and not yourself.

After this latest story I am sure a lot of carriers will be taking a close look at their arrangements with their credit card operators to check that they won't come a cropper.

New Continental CEO Jeff Smisek has wasted no time is differentiating himself from his fellow chiefs at other US carriers.

After formally taking the reins from Larry Kellner on 1 January Smisek sent a note to employees today telling them he has refused to accept a annual salary and bonus until Continental turns a yearly profit.

Filings published today with the US Securities and Exchange commission indicate that Smisek has acknowledged that his ability to particiapte in Continental's 401k or employee stock purchase programme are "impacted" by his salary waiver.

I can't peg an exact number of shares Smisek currently holds in Continental, but a quick look on Forbes.com shows the value of his unexercised options is about $1.5 million.

I had the chance to sit down with Smisek and his predecessor Kellner in September for an Airline Business interview, and here are his thoughts on achieving profitability.

"You've got to be profitable.  We've got to get back to profitability and we're going to have a single minded focus on that while preserving our culture."

Smisek at the time said clearly the airline business is not known for having adequate returns on invested capital.

"But it is my mission and everyone's mission in this business to change that...and we'll be very focused on that."

In his letter to employees Smisek stresses that he is not asking anyone else to waive their salary or take a pay cut. Rather, his move is a demonstration of his own belief that Continental's employees can help return the carrier to profitability.

It's a daunting task as no can predict if the fallout from the failed 25 December terrorist attack will have a measureable effect on the bottom lines of global carriers.

Collectively the world's airlines are expected to bleed about $5.6 billion this year, based on IATA's latest figures, which is an improvement from losses of $11 billion in 2009.

But Smisek's push for profitability occurs as industry losses for 2000-2009 reached $49 billion. He's not blind to those statistics as he stresses to employees Continental has lost close to $1 billion since 11 September 2001.

Yet he's strong-willed in attempting to rally Continental's employees. "It's our airline and it's time to take control of our destiny."   

There is lots of noise around today about comments made by the head of the UK's Office of Fair Trading about Ryanair's charges for using credit cards and virtually every other method of payment to buy tickets.

I've just done a clip with UK radio station LBC and its presenter Nick Ferrari on the topic.

Personally I find this kind of charge irritating, but I know they are coming, as long as you follow an airline website carefully you won't get charged for something you don't want, and as a consumer I do have the ultimate choice: If I don't want to buy it I can always press the NO THANKS button.

We've just done a major profile on Ryanair and Michael O'Leary - check it out here....

...and on the wonderful world of airline ancillary charges - check that out here.