February 2010 Archives

Kenya Airways has rejoined the African Airlines Association (AFRAA) after a six-year rift between the two, delivering on its promise to return once the leadership of the body changed.

Titus Naikuni, who is Kenya Airways chief executive, says the change of heart is directly linked with new AFRAA secretary general Nick Fadugba taking up office on 18 February. Fadugba succeeded Christian Folly-Kossi, who held the position for a decade.

Relations thawed after Naikuni paid Fadugba a "symbolically significant" visit. Naikuni has not visited AFRAA's Nairobi HQ since 2004, which is astounding considering that both are Nairobi-based.

Naikuni says the rift was "due to its principled views on certain issues", noting that the visit was to "re-establish close and cordial relations" with the African airline body, "marking the beginning of a new chapter in the KQ and AFRAA relationship".

AFRAA says: "With the return of the national airline of the host country of the African Airlines Association, there is optimism that other African airlines that have withdrawn their membership will soon return."

In addition to rejoining, Naikuni also paid the airline's back membership fees for the last six years.

If you're interested in African aviation, keep an eye out for a forthcoming feature which is due to run in our April print edition and stay upto date by following Airline Business' @AfricanSkies Twitter feed.

File this under unlikely new revenues streams. Could low-cost carriers, already picking up additional business traffic as a result of the recession, be about to tap in to a new demand - premiership footballers? The Portsmouth News is reporting cash-strapped English Premier League club Portsmouth have been forced to shun the usual private jet treatment and turn to budget carrier Flybe for this weekend's game at Burnley. I assume this will also be followed by a table for 11 at a Harvester for the early bird special and a night at the Burnley Premier Inn.

So will these Premiership stars be able to cope. Well only last year Everton manager David Moyes suggested his players might. 'It is refreshing that a club like ours has done well," says Moyes. "We are different, we might still get on Easyjet like the average man would do." 

And judging by this bizarre photo I stumbled on, Portsmouth and England goalkeeper David James looks like he might have already found even less glamorous ways to travel than budget airlines (the result of some team banter rather than his own choice)

Today is a really sad day for Portsmouth, a brilliantly-supported club which now finds itself in administration, and the mood of its supporters will probably not be improved in the knowledge that they have had to turn to the current shirt sponsor of their arch-rivals Southampton, Flybe, to get to the Burnley game.

It also turns the tables a bit from autumn 2008, when the collapse of UK charter operator XL Airways left English Premier League club West Ham United in the unenviable position of losing a shirt-sponsor midway through the season.

Picture credit: Robin Jones/Rex Features

For the most part it was business as usual at Ryanair's press conference in London earlier this week - or usual bearing in mind its pretty much unlike any other airline press conference you will come across. There were calendar girls - there to mark the handing over of a cheque for £110,000 to UK children's charity KIDS raised from the annual Ryanair cabin crew charity calendar. There was Michael O'Leary continuing his recent spat with easyJet and Stelios (this year's Ryanair publicity alternative to charging for toilets appears to be attempts to set up a sumo wrestling bout between the two low-cost carrier icons in Trafalgar Square) and vowing to press ahead with the adverts which have prompted letters from Stelios' lawyers. And there was the usual question about O'Leary and low-cost, long-haul...

...but here there was a slight difference. I think O'Leary has been asked the question of when this could happen at every single press conference of his I have been to since he first revealed his interest in a separate transatlantic operation during an interview with our sister publication Flight International back in April 2007. And O'Leary has consistently said such a project is reliant on securing enough long-haul aircraft at cheap enough prices, and that such an opportunity would not come until there was a deep recession. But now we have had a recession, how close to reality does a such plan look now?  Not very it seems. "It won't happen for at least four to five years," says O'Leary, given the manufacturers' current backlog of widebody aircraft orders. As a result he sees little chance of striking the necessary bargin deal for aircraft, "not unless there is some radical change".

Fast moving developments in Greek aviation - the country's two main carriers Aegean Airlines and Olympic Air have agreed to merge. Aegean is the privately-owned Star Alliance-bound carrier which has steadily grown its presence in the Greek sector over the last year, while Olympic Air is the new privately-owned successor to the long-struggling Olympic Airlines (and Olympic Airways before that). Aegean has off and on show some interest in bidding for Olympic in the past, and declared an interest shortly after Greek investment firm Marfin emerged as a potential buyer last February when an attempt to privatise Olympic initially failed. Marfin ultimately was chosen to buy Olympic's assets - essentially the name and its rights, and relaunched the carrier at the end of September.

Under the merger plan, the new company will be Athens Stock Exchange listed and will ultimately operate under the Olympic name. Aegean and Olympic's existing owners - Vassilakis Group and Marfin - will hold equal stakes. The deal is subject to approval from the EC.

"The prevailing conditions in the Greek economy as well as in the aviation sector dictate the combination of forces in order to maintain competitive customer prices, protect levels of employment and increase our competitiveness at a European level," explains Olympic Air chairman, A Vegnopoulos. You can read Aegean's announcement here

It completes a further transformation of Olympic, which only began life as Olympic Air less than five months ago. In the most recent issue of Airline Business you can read our interview with Olympic Air chief executive Antonis Simigdalas, carried out before news of the planned merger was disclosed, about why Marfin and Simigdalas were so keen to keep the Olympic brand alive. Read it here.

In the March 2010 print edition of Airline Business, which has just gone to press, we ran a piece talking about airline strategies to cut credit card transaction costs.

As part of this article, we looked at alternative payment options, such as PayPal. The piece went live on the Airlines Channel earlier this week.

No sooner had I posted the article and a press release dropped into my Inbox from Air France-KLM low-cost arm Transavia, saying it has just introduced PayPal as a payment option.

"Transavia.com has become the first airline company in France to integrate PayPal as a payment method," says the carrier. "The passenger now has the choice between credit card payment, UATP or PayPal."

Both UATP and PayPal were discussed in our article.

PayPal France chief executive Laurent Le Moal adds: "For PayPal, the airline sector is a development priority in 2010."

Credit card providers listen up.

This month Airline Business was in Athens to talk to Antonis Simigdalas about Olympic Air, the project aimed at re-invigorating the Olympic name after years of losses. The new carrier, which in contrast to its debt-ridden predecessor, is privately owned (by Greek investment firm Marfin) and launched flights as a slimmed-down successor at the end of September.

It is a remarkable turn of events, given that Simigdalas was at the heart of efforts to end Olympic's monopoly position a decade before with Aegean Airlines. The latter was one of a number of private carriers to spring up in 1999 to take advantage of the opening of the Greek domestic market, and Aegean - which was led by Simigdalas - stayed the course and has been growing ever since. Indeed with a fleet renewal and stock market listing in the bag and Star Alliance membership on the way, Aegean had overtaken Olympic in domestic market share at the time of new Olympic's launch.

You can read the full interview here, in which Simigdalas explains why he got involved in the Olympic project and why he and Marfin couldn't let the Olympic name go. It turned out to be a particularly interesting time to look at Greece, given the debt problems surrounding the Greek public finances and breaking news of potential co-operation between Aegean and Olympic. This news broke shortly after the interview went to press (I hate it when that happens!!!), so its a case of watch this space.

It's also worth checking out the article for a fantastic photo for the opening spread from Tom Gordon at Billypix. It was taken in the vast Olympic maintenance hangar and is one of my favourite photos from the magazine over the last year. Tom also took the photo above, complete with an old Olympic Airlines aircraft in the background for measure (we wanted one of the new ones, but they were all flying - which must be a good sign!!!).

London City Airport sits right at the heart of the UK capital's financial district, making it a key airport for business travellers. If short-haul business class is going to work anywhere, it's here.

But yesterday key London City operator CityJet announced that it has decided to scrap its business class in favour of a premium-economy product.

Surely this is a sign of today's troubled times - or is it? The new "CityPlus" product includes full ticket flexibility, lounge access, priority airport processing and boarding, seats at the front of the aircraft and doubled frequent-flyer points - which leaves me questioning exactly what's changed.

Sure, the fares are going to be set a bit lower and there will be a seat-back marker in the cabin rather than a curtain, but by all accounts this seems like a very poorly disguised business class.

My feeling is that this is a work-around, aimed at attracting business class traffic without the label, much like premium economy on long-haul. It will tick all the right boxes for the corporate travel departments and make the business men and woman happy because they get to cut a dash for home as soon as their work is done.

But it's an interesting development because this could be an indicator about the future of short-haul business travel.

We've heard British Airways chief Willie Walsh's comments about fundamental changes in short-haul business travel and yesterday CityJet chief executive Geoffrey O'Byrne White told me that he believes the business-class cabin on short-haul routes is "pretty well" dead.

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Delta and US Airways are still digesting a decision by DOT to require the divestment of a portion of slots they want to swap at Washington National and LaGuardia airports.

They claim that if DOT succeeds in its effort for the divestiture of 14 slots at National and 20 at LaGuardia, they'll walk away from the deal.  US Airways wants to transfer 125 of its Express slots at LaGuardia to Delta, while Delta aims to give US Airways 42 slots at National.

They argue by DOT essentially wants them to divest 16% of the slots involved in their proposed swap at LaGuardia.

US Airways was banking on getting some cost savings in the deal, which now resides in a delicate state.

Here's how carrier executives outlined the potential savings during a recent earnings discussion --

"We believe in the back half of the year to have some significant savings in airport rents due to the announced transaction ....to get out of a lot of the facilities in the LaGuardia situation and not need a lot of facilities at DCA [National].....facilities in LaGuardia are among the most expensive."

US Airways execs also say the deal allows for the overall aircraft gauge to rise since the carrier currently operates a lot of high-casm turboprops into LaGuardia.

Although previously US Airways management estimated the swap could drive $75 million in profits, carrier Chief Doug Parker said in the carrier's recent earnings call not to mdoel that in 2010 guidance due to the transition necessary to complete the swap.

So that's just a bit of what is going into the evaluation that both carriers are applying to DOT's tentative request. Can they convince DOT to change its mind?  We at least have to wait until the 30 comment period ends until we find out.

The recent Aer Lingus investor day was all about "facts, facts, facts", newly appointed chief executive Christoph Mueller told Airline Business.

See Mueller interviewed by Airline Business editor Mark Pilling here.

The facts in question are the real financial position of the Irish carrier, not those put about by Ryanair, its main competitor and ironically of course its main shareholder.

Mueller is under no illusions about the task of turning around loss-making Aer Lingus, and his team set out the plan to investors on how this will be achieved. And while the gross cash position of the carrier fell by about £400 million in 2009, it still has a strong balance sheet with unencumbered cash of £825 million to hand.

Interest in the Aer Lingus story, prompted somewhat by its close encounters with Ryanair, saw some 80-90 financial types attend the Aer Lingus investor day. It was the first it had held since it went private in 2006, which is remarkable in itself.

While Mueller is keen to dispell any misinformation about Aer Lingus, he does have a word of sideways praise for the carrier's biggest critic: "In the absence of Ryanair we would be dead because nobody would have put sufficient pressure on us."

There are probably several good reasons for choosing an escalator in a Muscat shopping mall as the site for a Turkish Airlines advertisement, but this isn't any of them.

Long-time industry analyst Jim Parker offered an interesting point in his opening remarks recently at the Raymond James Growth Airline conference.

Parker thinks as employee groups seek to regain some concessions made early last decade as a host of carriers spent time in Chapter 11, there could be some leeway in the size of jets flown by mainline regional partners.

He sees a potential to renegotiate current scope clauses to move the dial from 70-seats to 90-seats.

SkyWest CFO Brad Rich is certainly keen on the idea -- but he's also aware of the sensitivity of regionals operating larger jets creates at mainline pilot groups.

Sensitive indeed -- when my colleague Mary Kirby wrote about a potential stretched E-195X, and that American might have an interest, I prodded the pilots. They unequivocally told me that flying belongs to them. Of course, the stretch would be larger than the current 115-seat E-195, so you could see why mainline pilots believe they should operate the aircraft.

Still, it is something interesting to watch as contract talks continue at some of the US majors.

In the mean time, enjoy this fun, but totally unrelated E-195 promotional video from Brazilian carrier Azul.

Just stumbled across this colourful and entertaining rebranding job on one of South African budget carrier Kulula's aircraft - the Flying 101 design giving an idiot's guide to all the elements on an aircraft.  I can't see any sign of any more details from the airline yet, but the blog sites linked to below have more pictures and details.

PSFK.com

http://www.swiss-miss.com/

For more on Kulula check out their website HERE

Kulula

And for more about Kulula's sense of humour, check out our recent blog on one of the interesting options available on their automated answerphone.

Almost two decades after the old giant Aeroflot operation was split up with the creation of around 300 regional operators, reports suggest Russia has scrapped plans to create a new powerful airline group under the RosAvia banner and is instead looking at privatising the six Russian opeators which were to form the backbone of RosAvia, and merging them into Aeroflot. Read the ITAR-TASS report here. The RosAvia project was itself established out of the collapse of the AirUnion grouping in 2008.

Reports, citing Russian transort minister Igor Leviten, suggest the merger would increase Aeroflot's domestic market share from 15-20% to 30-35%, and that 15 air carriers controlled around 80% of the market share as of the end of 2008. "This means that the process of the sector's consolidation is under way. This is a global trend and the same can be seen in other countries," he is quoted as saying.

It comes just days after a deal was agreed under which Russian tycoon Alexander Lebedev sold his 25.8% stake in Aeroflot to the state, increasing the latter's stake in the carrier to 77%. More on this here.

More signs of an improved economic picture today from Ryanair, which minimised third quarter losses and raised its full-year guidance today off the back of better than expected yields. In essence the carrier has not had to discount fares as much as it expected to fill its aircraft. While year-over-year yields were still 12% down in the third quarter, this is better than the 20% fall it had anticipated - and it expects a further improvement in the last quarter with yields down around 7-10%.

So have European economies turned the corner?  "We are seeing demand returning, not to pre-2009 levels, but they are moving back up in places like Germany, France, Spain, Italy and Scandinavia," Ryanair deputy chief executive Michael Cawley said during a third quarter results conference in London today. But he says other markets, such as the UK and Ireland, are seeing slower signs of demand recovery

Ryanair retains its long-term aim of doubling passengers and profits by 2013 full-year, but there was something of a caveat today - or as Cawley describes, a clarifying of the conditions needed to achieve this. The carrier maintains its plans to double passenger and profits, but says this is subject to fares and fuel. This reflects that at the time it set out its target, average fares were at €44 and oil at $68 a barrel - and average fares were down at €30 in the last quarter and oil at around $72 a barrel.

"We have just clarified the circumstances under which it [doubling profits] will happen," says Cawley. "Will we have oil at $68 again, who knows? Could it go back [to $68]? Absolutely," Cawley says, noting oil was lower than this during the last year. Similarly, pointing to the historical precedence of Southwest Airlines, he notes declining yields could stabilise as average traffic growth slips into single-digit figures - reflecting the much larger base on which Ryanair will be growing.

What of two other key elements for Ryanair - ancillary revenues and its new aircraft order?

On ancillaries - Ryanair revenues here grew only 6% in the third quarter, below the growth of passenger volumes due to "changes in consumer behaviour".  Cawley says the carrier had seen some "inhibitions" from passenger to spend as much on ancillaries. "That situation is beginning to stabilise and from here on we would see it growing in line with traffic," he says, adding it has always expected ancillaries to settle at around 20% of total revenues (for the first nine months of the current year ancillaries stood at 20.4% of total revenues).

On future growth - Cawley says there has been no contact with Boeing (or Airbus for that matter) since Ryanair announced in December it ended talks with Boeing after failing to secure the terms and conditions it wanted for a 200-aircraft deal to cover its 2013-16 growth. He said the carrier would only revisit this if Boeing called them with improved terms. In the absence of a new aircraft deal, it will press ahead with plans to generate up to €1 billion in surplus cash by the end of 2013, which would be available to return to shareholders through special dividents

"We are indifferently frankly," he says of whichever model it follows, but stresses the carrier's belief  in the viability of growing the business for both its existing aircraft, and for additiona aircraft, if a future deal is ever struck. "I've never been as optimistic as I am now about Ryanair's ability to join points A-to-B 200 times a year."

For more on Ryanair, read the recent Airline Business profile of Michael O'Leary and his importance to the Ryanair business model.

Watch Michael Cawley talk about the carrier's 3Q results in this Bloomberg interview .