May 2010 Archives

Earlier this week, Virgin Atlantic launched services between London Heathrow and Ghana.

Before the inaugural flight took off, I caught up with Virgin Atlantic president Richard Branson to discuss his African strategy and Virgin's prospects for consolidation.

Yesterday a newsletter arrived in my inbox from Iceland Express and, for the second month running, their quirky and entertaining style made me laugh. This is why:

Here's an extract from their latest update: No Icelandic Word for Please

Learning Icelandic is like getting a tattoo on your bum. It's time consuming, painful and you rarely get a chance to show it off.

Some people say the Icelandic language is unnecessarily complicated. For example there are around 45 different ways to say the word "green".

 

And another...Cultural Learnings of Iceland, Part 6: Brennivín

Having a national beverage seems to be de rigeur for small countries who want to sell stuff to tourists maintain their cultural identity. Iceland is no exception.

 

The local tipple is called "Brennivín", an ancient Icelandic word that translates as "we see a really bad headache in your future".

 

And finally...from "Carry on Camping at Reykjavík Gay Pride"

Iceland is famously liberal when it comes to driving on the other side of the street. (Nudge, nudge, know what we mean?) Gay marriage is simply so last year -- we've already moved to gay couples arguing about how to fold the napkins at their adopted children's wedding dinner. Oh, and of course we've got a lesbian Prime Minister. (Relax guys, it's not as exciting as it sounds.)

 

For these and other quirky snippets, take a look at their blog.

Seriously, this was one of the announcements on my eventful Virgin Atlantic flight last night.

Flight VS658 was Virgin's inaugural flight from Accra, Ghana to London Heathrow. The celebratory trip was a glitzy affair and the front end of the aircraft was packed with journalists and members of Virgin's PR and management team (Richard Branson had already departed for South Africa to attend a meeting of The Elders, which include Ghana's own Kofi Annan).

Initially, we had a few teething problems. Check-in had gone a bit slowly as airport staff got used to new systems and procedures; nothing too much to worry about. The flight boarded an hour or so after its 1445 scheduled departure time, but spirits were still high. Virgin's cabin crew were exceptional, as usual.

The captain advised us that he was waiting on the load sheet. Not long now. Time rumbled on and still no load sheet. The Virgin team began to get a bit anxious as we all returned to our seats for a head count. The already hot and humid A340 cabin was not getting any less hot and humid. Glasses of juice and wine gums were distributed by the still-smiling crew.

Miraculously a baby in the Upper Class cabin was blissfully asleep, despite the heat and hubbub. I grabbed the opportunity to interview Virgin Atlantic chief commercial and financial officer Julie Southern for our various titles.

My heart went out to a teenager travelling with his father in Upper Class who was due to sit his school entrance test in Oxford the following morning. We were now looking at a midnight arrival, rather than 2230 as planned. Apparently the Heathrow curfew was not going to be an issue.

By the time the captain came on the tannoy again we were already a couple of hours late. The load sheet was now all sorted, but one of the tyres was deflating. It seems fate was well and truly conspiring against us. We'd be a little while yet. More drinks, smiles and heart-felt apologies from the cabin crew, management and press team.

The aircraft was jacked up while we were on board and the errant tyre was changed. But the next announcement informed us that the engineers had run out of air and they'd gone off in search of a replacement cylinder. I'm not sure they prepare you for things like this in PR training school.

At this point, some economy passengers lost their sense of humour. One woman was demanding to be let off the aircraft and several others joined in the shouting match. It's on days like this when cabin crew earn their money for their saintly patience. They did their best to reassure and placate the passengers.

A medic crew came onboard to offload someone with high blood pressure. The heat and humidity were oppressive. The baby was still asleep. We were probably at the four-hour mark. The captain, Julie Southern and Jonathan Harding (Virgin's GM for international and distribution) did a sterling job of convincing several people who were determined to offload to stay. Seven could not be swayed and yet more time elapsed while we waited for the bags to be found. Still the cabin crew were lovely. A few more last minute would-be offloads were reassured and went back to their seats.

We finally got underway at 2033, nearly six hours after our 1445 departure time to a round of weary, but enthusiastic, applause. The chain of events would be quite comical if it weren't for all the hard work that the Virgin staff put in to making this event a success.

Julie came on the tannoy and apologised profusely that this first Ghanaian experience with Virgin had not gone as planned. She announced that every passenger would be given a free return flight with Virgin in the class which they were travelling in and that any taxi or hotel needs would be taken care of by Virgin on arrival.

We finally touched down at Heathrow at 0405 (we were due to get in at 2230) and were given a letter confirming Julie's promises as we disembarked.

I walked in my door just before 0600. The baby slept through the entire saga. And I hope the teenager made it though his entrance test (there was even talk of Virgin writing to the school to explain).

It's easy to get things right when everything's going smoothly, but it's even more impressive to get it right when everything goes wrong. Nice work, Virgin.

Flightglobal was at the Aircraft Interiors Expo in Hamburg last week putting together three daily papers giving all the news and flavour from the show (our ears have only just recovered now from the onslaught of Reggae music at the Long Beach bar stand we were stationed next to!!). If you couldn't make it to the show, or want to take another look, you can read the papers online by following the links below.

ISSUE 1 - click here to open

• Check out the 4.3m high giant woman modelled out of silicone Italian newcomers Optimares announced themselves to the show with
• Find out more about efforts to bring 3D technology to aircraft cabins
• Read more on some the new technical innovations for the interiors and IFE market on show for the first time in Hamburg

 

 

 

 

 

 

ISSUE 2 - click here to open

• IFE systems newcomer Lumexis makes its breakthrough after landing a deal with FlyDubai to launch its fibre optics-based IFE system
• Emirates' Tim Clark on the challenges of getting the product right in the tighter restraints of the economy cabin
• Check the progress Airbus is making on its innovative Spice galley solution which aims to radically revamp the traditional onboard catering trolley

 

 

 

 

 

ISSUE 3 - click here to open

• Find out more about what the ground-breaking Qatar Airways order for Thales' TopSeries in-flight entertainment and connectivity system for up to 60 Boeing 787s means for the industry
• Connectivity provider Row 44 is ready to double the bandwidth for its Ku-band system
• Why Crane Aerospace's new seat motion control system could help provide a smoother experience at the seat for passengers

 

 

 

Plus for all our interactive coverage from the show, including tweets, blogs and video interviews, go to our dedicated Interiors landing page: flightlglobal.com/Ham10

So competition looks set to hot up at Barcelona's El Prat Airport as Ryanair, as previously speculated, has today announced plans for a base at the Spanish airport. It is to base five aircraft and operate 20 routes from El Prat as of September this year. It marks base 42 for Ryanair, its eighth in Spain and bring it into the centre of the Barcelona market - it already has bases at nearby Reus and Girona. This is highly significant for all players in Barcelona.

The Airport

For El Prat, which opened a new terminal last year, it marks a major boost for its passenger traffic levels - after it was one of the hardest hit airports in 2009 as its passenger numbers fell almost 10% last year to 27.3 million. This reflected the hard economic hit Spain has taken during the recession and the capacity cuts and consolidation which Barcelona-based budget carriers Clickair and Vueling undertook before ultimately merging last July.

The Competition

What will the arrivial of Ryanair at Barcelona's main airport means for existing operators at the airport? Currently low-cost carrier Vueling has the largest market share at the airport, while easyJet has continued to expand its operations there and Star Alliance carrier Spanair is this year expanding fast at the airport. I asked Vueling chief executive Alex Cruz during our recent Airline Business cover interview about the competitive environment at Barcelona and about the possible arrival of Ryanair. Here is a quick extract and you can read the full article here.

Yet ironically for a merger born from overcapacity, the new Vueling enters this summer with heightened competition from both easyJet and, in particular, Spanair. The latter, bought by Catalan investors last year, is launching 11 new routes from Barcelona this year. Cruz says there has been a sense of déjà vu recently in weekly commercial meetings. "The [former] Vueling team say they've been there before. But there is also a sense that, and I think this is one of the great advantages of learning from past experiences, the commercial team that comes from Vueling openly feel they underestimated the potential damage the new entrant Clickair would do to them. I think everybody is very conscious that under no circumstances will we underestimate [new competition] this time."

Cruz does not think there is overcapacity yet in Barcelona, but in the long term much will hinge on Spanair's intentions and whether Ryanair emerges as a direct competitor at El Prat, which already operates at two nearby airports. "There is the potential for overcapacity," Cruz acknowledges. "If they [Ryanair] come to Barcelona, then we are ready for them, but the game will surely change. But who is best ready to compete with them? Certainly it is ourselves, with the strength and market share we have. So we will not be running around like a headless chicken." On the Spanair front, he says it is difficult to make any medium- to long-term conclusions, as Spanair remains early in its new approach to Barcelona. "This year they have opened up a number of new routes that are traditional Vueling/Clickair routes, so we are going to be head-to-head on some of those," he says. "We will have to see who does better and who reports profits at the end of this year."

Ryanair

For the Irish budget carrier which has made its business based on flying from secondary airports, El Prat is the second largest airport (behind only Madrid Barajas) in its network of bases - the airport was the 42 busiest by passenger number in 2009 - and shows a further sign of the times (either that Ryanair is increasingly open to operating from primary airports or that primary airports are increasingly keen to attract Ryanair - depending how you view it).

Virgin Atlantic has touched down in Ghana for the first time, launching its new thrice-weekly service between London Heathrow and Accra in a timely fashion just days after the apparent demise of Ghana International Airlines.

Fresh in from a screening of the new Harry Potter film at Universal Studios in the States, Virgin Atlantic president Richard Branson came along for the inaugural celebrations (for the Harry Potter fans out there, the film is apparently "tremendous" and "beautifully done").

Airline Business caught up with him in Virgin's Club House lounge for a pre-departure video interview, which will be online soon. To give you a sneak preview, Branson said Virgin might be forced to partner up with another airline to keep pace with the consolidation trend.

"If the playing field is so tipped against us that it is almost impossible to be an independent airline, we may come to a position where we have to consolidate. But this is not something we want," said Branson. He added that it is too early to say who Virgin might team up with.

Later on, he gave a casual media briefing around the Upper Class bar on board. Here's a quick sample of what was discussed.

THE RECOVERY: "Personally I'm an optimistic on recovery. I don't think we're going to have a second dip."

SIA'S VIRGIN ATLANTIC STAKE: "I don't think they're looking to sell."

VIRGIN'S AIRASIA X INVESTMENT: "Air Asia X is going very well. This is a financial, rather than strategic investment, so whether or not we keep it in the long term, we will have to see."

LONG HAUL, LOW-COST: "I don't think a pure low-cost airline out of the UK makes sense. I'm not sure it would work."

THE BA STRIKE: "I wouldn't want to be involved in an airline which is tearing itself apart. Your relationship with your people is everything. A lot of BA passengers who have never flown with us are trying Virgin Atlantic. They have done themselves long-term, as well as short-term damage."

VIRGIN'S NEXT AIRLINE MOVE: "Space. This may lead to intercontinental travel in a fraction of the time and fuel would be a fraction of the cost compared with today's intercontinental flights."

VOLCANIC ASH: "We sent our aircraft up, BA sent their aircraft up and we didn't find ash. We didn't expect to find any 1,000 miles away from the volcano. We want the CAA and the Met Office to do proper monitoring of the ash cloud, not just holding a finger in sky as they have done until now."

THE PRICE FIXING CASE: "[Virgin Atlantic CEO] Steve Ridgway and all the people working with Virgin have my complete confidence"

 

AND FINALLY...WHAT'S KEEPING HIM UP AT NIGHT: "I think if you stayed awake with the problems of the airline industry you'd never get good night's sleep. You know that something is going to hit you each year, but you never know what it's going to be...SARS, 9/11, bird flu, the recession. We're just trying to battle our way through."

This is turning into a bit of a blogging about strikes day for me (see earlier BA post), but this one was too good to pass up. Spanish pilots union SEPLA has announced that its members at Spanair will go on strike for half an hour in early June. Yes that's right, half an hour.

Using my rusty Spanish, I've managed to deduce from SEPLA's website that pilots at Spanair will strike for 30 minutes (9am until 9.30am) on Monday 7 June to protest the alleged release to the media of details of conversations held between Spanair pilots before the airline's fatal Boeing MD-82 crash in August 2008.

Let me say right off the bat that I am in no way making light of the seriousness of the union's reasons for announcing this action, but I couldn't help contrasting this planned strike with the one currently going on at British Airways.

Unite is in the throws of staging three five-day walkouts over planned changes to pay and working conditions. SEPLA, meanwhile, says it is "conscious of the difficult situation that airlines are in at the moment" and doesn't want to inconvenience passengers, hence the planned strike only lasting for half an hour.

Is there something Unite could learn from this? Is it possible to make a point by just striking for long enough to have a cup of tea, rather than inflicting millions of pounds worth of damage on your employer and throwing the plans of the travelling public into disarray? Just a bit of food for thought.

Emirates president Tim Clark was at the Aircraft Interiors Expo in Hamburg last week, fresh from the Middle East carrier revealing a five-fold increase in profits for its financial year just ended. During a panel discussion to open the conference, Clark had some pretty interesting things to say about yield development when I asked him how the airline had performed through the economic crisis.

Clark On Yields...

"Like most of the long-haul network carriers we faced decline in the premium business but then, so what? Volumes came from different segments of our market. They paid a little bit less, but then we took out 17% of our cost base so we were able to absorb the decline in the yield," Clark said. "But we got it back in the course of 09. We pushed the fares up 35% last year between April and December in the light of everyone else going south, air networks being shrunk and aircraft being put on the ground. The view was if we spent 25 years building our brand and investing so heavily in it, let's test and see if the market was going to be as loyal to us as we thought it was,, and it truly was. In fact we got a lot more coming out from different segments who had hithertoo not been able to travel on us because the price we were charging for the premium offering in the old days was far too high. For example baby boomers in the UK. As soon as the premium fares fell to levels they could afford....that business came to us in large amounts. Our business cabins remained full, albeit we were getting less money, but this is what you have to do in business. You can't expect it will be a bed of roses all the time. And in the last year we have actually managed to get our yield back to where they were prior to the 145 dollar for oil price in May 2008. We now have pricing about the same as first quarter 08, which is already a good yield. Take the cost out as we have done, and bingo, profits come along as they have done."

For more on this plus, Clark's veiws on why the real challenge on interiors lies in getting the product right within the tougher space constraints of the economy cabin, watch our video interview with Clark here.

If you haven't already seen it, check out this video clip showing BA boss Willie Walsh surrounded by Socialist Worker party protesters imaginatively chanting "we support the cabin crew".

While I wouldn't be averse to taking home Willie's six-figure salary, I don't envy him his job right now. The bitter row between BA and the Unite union is showing no signs of being resolved, and I imagine there must be some sore heads around from all that banging into a brick wall.

I've seen pictures of people holding up placards that say "Willie bullied me", and I've read stories quoting BA cabin crew as saying they hope colleagues will cross the picket line to protest the union's "militancy". So my question is, who's bullying whom? And when will they be sent to the headmaster's office?

Whatever the answer, these continuing strikes seem suicidal and it's hard to see how the airline will be able to recover its reputation. I was at London Heathrow last weekend to check in for a BA flight to Hamburg, only to be told that the flight was so overbooked I might not get on it.

As I waited and waited to hear whether I'd be fortunate enough to get on the flight that I'd booked months in advance and paid a lot of money for, I listened to the disgruntled passengers around me who were in the same situation. The one sentiment they all kept repeating was "Never again will I fly British Airways".

This is just one small example from one small group of disgruntled passengers.

For anyone who's still reading, I did get on the Hamburg flight by the skin of my teeth. I was informed less than half an hour before the flight was scheduled to depart that I could actually use the seat I'd purchased. Oh, thank you so much, you're too kind. Then it was on me to leg it through the airport in order to get on in time. 

This month for the June issue of Airline Business I interviewed Vueling chief executive Alex Cruz for our cover interview. It was an interesting time to catch up with Cruz, nearly a year a since Vueling merged with the fellow Barcelona budget carrier Clickair - where Cruz had been editor since its launch in 2006. The merger has brought a financial turnaround for the previous loss-making carriers, but challenges remain ahead - notably through increased competition from easyJet, Spanair and possibly from Ryanair - which has previously been linked to starting direct flights from Barcelona's El Prat Airport.

You can see his take on how the merger has worked and the competitive position in Barcelona, together with some really interesting insights into how Vueling hopes to exploit the potential of mobile technology to provide new services and boost ancillary revenues. Read the full article here. 

You can also watch our video interview with Cruz about the merger and the importance of the new terminal its home airport of El Prat from September last year here.

Picture by Ian Billinghurst/Billypix

Considering they were sitting in front of slides that showed a business announcing annual losses of an eye-watering €1.5 billion I thought the top team of Air France-KLM looked remarkably upbeat at their annual press conference in Paris yesterday.

OK the figures were expected and when you've been living with charts that are plastered with red ink for so long, perhaps the impact of such a loss becomes dulled.

Air France-KLM chief executive Pierre-Henri Gourgeon (far left) said these results came in "the face of a brutal crisis". His introduction was the only sign of nerves about the results as he skipped through the highlights to quickly hand over a more detailed description of the year to KLM head Peter Hartman (right).

The tall Dutchman said that it was "only an ash cloud that spoiled lots of our energy" as he ran over the measures the group is taking to restore its fortunes. The bill for the ash cloud to the group is currently running at lost revenues of €260 million by the way.

The journalists in the audience at the grand Academie Diplomatique in Paris were asking questions in batches of two or three at a time. "Thank you for your many questions," said Gourgeon to one scribe with a note of slight exasperation.

His longest answer was about safety, as the crash of an Air France Airbus A330 in the South Atlantic remains high on the news agenda in France. Gourgeon also talked about the ash cloud issue, but not in the harsh terms of some of his counterparts in other airlines and in IATA.

On the Airbus A380, Gourgeon commented that it was "an excellent tool in this situation".

And while Air France-KLM has been overtaken in revenue terms by the expanding Lufthansa Gourgeon is not overlying concerned. "Now it happens that they consolidate [the results] of bmi and Austrian." Their losses have put a drag on Luftahnsa's results. "One part of this is this negative effect is due to them," he notes, adding, "and this is why we didn't fight to the bitter end to buy Austrian".

The Air France-KLM investment in Italian flag carrier Alitalia was going OK he said. "There is no need for us to question our investment in Alitalia."

Further afield, Air France-KLM is keen on joint ventures in China. In late 2011 or early 2012 it will have in place a revenue and cost share JV with China Eastern, says Gourgeon. This is in addition to the launch of a JV between Air France and China Southern this winter. "There might be others later," said Gourgeon, referring to ventures in China.

Overall the 2010 Air France-KLM press conference was a muted affair, much in line with the business climate. This big group has a big plan to turn itself around but it won't be quick.

One of the interesting innovations on show during Aircraft Interiors Expo in Hamburg this week has been from UK design firm Blue Sky, which has been developing an economy seat concept designed to enable airlines to alter the number of economy to premium economy seats without having to change seat pitch. Its Stella seat system can be adjusted to offer 6 inches more legroom and moves the passenger 3 inches closer to the floor, creating up to 40% recline to make it more comfortable to sleep on longer flights.

"The USP is our cabin layout management system," explains Blue Sky director Dominic Robinson. "You can manage the layout of the cabin by changing the seat pitch. It is designed as business tool to leverage passenger yield."

It has been working with Crane to use its new actuator system and has teamed with UK interiors specialist AIM to manufacturer the seats.

For more on some of the other new innovations in the cabin, go to our dedicated landing page covering the Aircraft Interiors Expo here and bookmark the Runway Girl blog.

The Flightglobal team has been out in Hamburg putting together a daily paper at the Aircraft Interiors Expo and our interactive team has produced loads of videos and images from the show.

Big announcements dominating the show include Qatar Airways' deal with Thales to equip up to 60 Boeing 787s with its broadband connectivity service, while much of the interiors activity has been dominated by initiatives in the economy and premium economy sector. This shift in emphasis away from the innovations in the premium cabin which dominated much of the last decade reflect both increased attention to the economy sector as passengers have traded down during the economic crisis, as well as attempts to bridge the gulf with a generation of vastly improved business class cabin.

We've pooled together the best of our coverage here on our dedicated Aircraft Interiors Expo landing page, so check it out to catch the flavour of the show and keep an eye on the Runway Girl blog for the latest. You can also watch several videos, including an interview I did with Emirates president Tim Clark who tells me why getting the product right in economy is the hard bit and gives some great insight into how its managing yields through the downturn. Watch it here.

In an open letter published on easyJet's website, the airline's chairman Sir Michael Rake, has responded in detail to the statement of Stelios Haji-Ioannou on the airline's strategy.

I give it to you in full here. It makes fascinating reading. Go to the easyJet website for the extra appendix info.

18 May 2010

Dear Shareholder

On the afternoon of Friday 14 May 2010 I was made aware of Sir Stelios Haji-Ioannou's resignation from the Board of easyJet plc. Subsequently Sir Stelios issued a statement setting out concerns about the current strategy that the Board of easyJet is pursuing.

In the light of this statement and the resulting press comment I felt it important to write to you to draw together the facts of the various matters now under public scrutiny as I and the remaining Board see them.

The Board is both surprised and disappointed to find itself in a public debate over strategy as Sir Stelios and I had agreed principles of engagement in May 2009 specifically to avoid such situations. In the view of the Board there are simply no grounds for a dispute.

Business performance

As you can see from the chart attached as Appendix A, since IPO the easyJet share price has increased by 34%, a superior performance to its European airline peers.

This year the underlying performance of easyJet (before ash cloud disruption) has been better than that anticipated by the Board a year ago. At that point the estimated profit before tax for the financial year ended 30 September 2010 was expected to be £160 million. However in our interim results statement on 11 May 2010 we stated that that "full year pre-tax profit would have been in the range of £175 million to £200 million at current exchange rates and fuel price1, prior to the recent volcanic ash related disruption. This disruption has caused additional cost and lost contribution estimated at between £50 million and £75 million. Therefore, the Company has revised its profit expectations for the year to a range of £100 million to £150 million at current exchange rates and fuel price1."

Note 1: Rates as at noon on 10 May 2010: US$1.50/£, E1.15/£ and US$738 per metric tonne.

Dividend

The Board of easyJet is fully aware of Sir Stelios' wish for a cash return from his investment in easyJet and as I commented at the company Annual General Meeting held on 18 February 2010, the Board keeps the issue of returns to shareholders under review. Given the strong underlying performance of the Company this year, I believe the Board could well be in a position to consider the matter of some sort of return within a reasonable time frame.

Size of fleet

easyJet's Airbus aircraft orders were the subject of Class 1 circulars in 2002 and 2006. The arrangements described in those circulars included a recommendation from the entire Board and received shareholder approval. In 2005 and 2007 the Board approved the conversion of purchase rights granted under the Airbus contract to the status of firm orders. Further
details are set out in Appendix B. These decisions were made with the agreement of the entire Board including Sir Stelios. No aircraft have been ordered from Airbus since June 2007. 
At the request of Sir Stelios, in spring 2009 the Board took extensive legal advice which allowed it to evaluate the possibility of renegotiating our arrangements with Airbus. Subsequently, the Board was able to gain some additional flexibility in our fleet planning arrangements.

easyJet's stated medium term growth rate of 7.5% in seats flown per annum was approved by the Board in June 2009. The Board minutes from that meeting show unanimous agreement. This agreed plan was subsequently communicated to the market on 29 July 2009 as part of a normal Interim Management Statement, the contents of which were unanimously agreed and an extract of which is attached in Appendix C.

The Board of easyJet is committed to ensuring that the Company achieves an appropriate financial return on its capital and therefore has set a target of 15% Return on Equity which we continue to believe is achievable. Naturally, the Board reviews capital expenditure plans and fleet planning decisions on a regular basis in the light of economic conditions, the market opportunities available and the financial strength of the business. As you would expect no further orders will be placed with Airbus until Carolyn McCall and Chris Kennedy join the company on 1 July 2010 as Chief Executive and Finance Director respectively, and have had a chance to review the plans alongside the rest of the Board and executive management team. This point was noted in the minutes of the 5 May 2010 Board meeting, which occurred before Sir Stelios resigned.

Brand licence litigation

The legal action with easyGroup over the interpretation of the brand licence agreement continues. The Board has been proactive in trying to achieve a commercial settlement of the dispute within the limits of what we believe would be reasonable to our institutional shareholders. As you will be aware the view of our professional advisers Herbert Smith is that the Company's interpretation of the brand licence is well-founded and therefore the Board does not feel it is right, in the interest of all shareholders, to offer material concessions to easyGroup. The court hearing is scheduled for early June 2010 although a decision from the court might not be given until Autumn 2010.

I will be in contact with you again should there be further material developments. I and the Board of easyJet remain committed to the interests of all shareholders. I believe the resolution of the brand licence dispute and settlement of Sir Stelios' Board rights will help achieve a sensible way forward.

Yours faithfully,

Sir Michael Rake 

That's the Bob Dylan song that came to mind for US Airways CEO Doug Parker today.

As he was introduced prior to his speech at the Aero Club of Washington it was noted at times Parker uses lyrics from Dylan songs to describe the airline industry.

On this occasion Parker didn't readily have a Dylan quote handy in his prepared remarks. But he quickly said "Like A Rolling Stone" popped into his head in light of broken off merger talks between United and US Airways.

"How does it feel...to be without a home," Parker said lightheartedly, follwed by joke about him being the ugliest CEO in the industry. That remark was in reference to a now well-publicised remark by Continental Chief Jeff Smisek that his carrier didn't want United to "marry the ugly girl".

Smisek has since apologized to Parker. And Parker fully endorses the proposed United-Continental deal, telling the audience he hopes their agreement gets the required regulatory approval.

Parker says if Continental and United are successful with their propsed merger, of the remaining four large network carriers two will be headed by former CFOs and two will be steerd by former lawyers. "These are people that care about returns," says Parker. "Even the lawyers," he jokes.

One former CFO Parker has no immediate plans to chat with is American's chief Gerard Arpey. Despite huge speculation that American and US Airways could be the next pair of US majors to figuratively tie the knot, Parker assures he has no plans to meet with his counterpart headquartered in Texas.  

The British Airways cabin crew strike is turning into one of the most bitter industrial disputes in the UK of the past few years.

Yesterday BA's lawyers got the latest strike action overturned on a technicality.

Here's an interesting video - using actors - made by the union that pits a notional cabin attendant against an unfeeling BA manager. It's entitled "Brutish Airways".

And finally, note the small head this guy is holding in his hand - who could it be? I had some others of Willie Walsh being held by cabin crew but some were defaced and a bit rude! Oddly enough I don't think Willie would mind if I published those but I do.

Taking its commitment to environmental sustainability a step further, KLM has supported a  new wind project on the island of Bonaire in the Dutch Caribbean.

The project is designed to provide the entire island, roughly 5,000 homes and businesses, with renewable energy while cutting carbon emissions by roughly 30,000 tons per year.

KLM is working with Gold Standard, a non-profit carbon credit certifying organization, to publish a case study of its work on the wind project in Bonaire, which will also create about 24 new jobs on the island.

Gold Standard General Counsel and Director of US markets Lisa Hodes says 100% of every Euro committed by KLM passengers to carbon offsetting is dedicated to the project.

Certification of carbon offsetting is gaining traction as airlines work to communicate their sustainability efforts to both passengers and regulators. At this point a lot of passengers are largely confused about exactly what the end result is when they commit to invest in a carrier's carbon offset projects.

IATA Assistant Director for environment best practice Jon Godson joined Hodes at the recent ICAO Colloquium on Aviation and Climate Change, and explained prior to IATA issuing guidance passenger up-take on airline carbon offset schemes was relatively low.

IATA officially launched its offset programme in June 2009 with TAP, and Godson says seven carriers are readying to go "live" in June or July of this year.

Wading through the complex carbon market is going to be challenging for carriers as more regional emissions trading schemes are created while ICAO strives to develop guidelines to make those schemes more uniform.

Who ultimately will take responsibility for management of carbon trading also remains undetermined and creates a lot of uncertainty for carriers attempting to build their own sustainability programmes in anticipation of falling under one of several regional ETS programmes in development.

One the challenges ICAO faces at next assembly in September is getting its 190 member states to agree on a framework for market based measures to manage carbon containment in aviation. Let's wish the organisation luck -- It's a formidable task aptly assessed by ICAO Council President Roberto Kobeh Gonzalez, who says most of the obstacles ahead are policy challenges.

Andrew Lobbenberg from RBS describes easyJet's plight as a combination of a soap opera, comedy series and horror show.

And our latest episode ended on a real cliff hanger, as founder and former chief executive Stelios (pictured left) quit the easyJet board (although he and his family still owns a 38% stake, so they won't be leaving the cast just yet). Cue dramatic music and roll the titles, before switching to the evening news (where, undoubtedly, you'll find more of the same).

But this plot rings a bell. Stelios is objecting to what he believes is an over-ambitious growth rate, at 7.5% per year. Haven't we had this storyline before? Yes, we have (albeit without the dramatic exit).

Stelios (read his resignation letter here) now wants to convince the other shareholders to reject the easyJet growth strategy, renegotiate the Airbus deal and instead stick with its 190-aircraft fleet (easyJet has outstanding orders for another 59 aircraft).

But Lobbenberg and his team disagree with the charismatic founder's thinking, stating flatly: "We do not share Stelios' view that the optimum path for easyJet is to hold at 190 aircraft." RBS highlights the fact that easyJet and Ryanair's market-leading aircraft deals, struck in the wake of the events of 11 September 2001, are "key structural advantages for these two carriers over peers" with "very considerable value".

It adds: "For easyJet to walk away from its competitively priced aircraft stream before it is exhausted would appear a sub-optimal strategic move in our view. EasyJet has what we believe to be the best narrowbody aircraft contract that any customer has from Airbus." By comparison, "Ryanair is in a strategic quandary right now as it is running out of its cheap Boeings and faces this question now before the products from other suppliers are defined. EasyJet is not and it happily has time to wait and see how technology and products develop, before availing itself of competition amongst aircraft suppliers".

Stelios has laid down the rationale behind his thinking. He claims each additional aircraft "progressively dilutes margins and destroys wealth", citing a drop in margins from 10% a decade ago to 1-3% today, 10 years of "flatline" share price growth and "zero dividends" as evidence. (Check out his share price vs fleet growth chart here and draw your own conclusions).

He goes on to accuse easyJet management of "relentless growth in aircraft numbers at the expense of any profit margin increase" and of "squandering shareholders' funds", questioning: "How can you buy 200 aircraft with shareholders' money and create no wealth for shareholders?"

Well, it seems the "flatline" has now been disrupted. With the combined effects of this new rift and the ash crisis, we have seen easyJet's shares lose value. As RBS says: "We thus seem set for a messy few weeks, if not months of fighting, with management and the board being distracted from optimally managing the company."

We've already seen Stelios launch a public verbal attack on outgoing easyJet chief Andrew Harrison. Perhaps the next twist in this industry soap opera is that Stelios and Ryanair chief executive Michael O'Leary will discover that they actually agree on something.

In our January edition of Airline Business, Michael O'Leary (in his unique style) told us how he sees a changing model for Ryanair, now it has reached maturity.

And, in closing, Stelios says: "The low-cost airline model is maturing, and management needs to now adopt different priorities to take the business forward. To date, easyJet management, supported by certain other board members, have refused to do this."

Well the British Airways lobby team has done an excellent job on new UK Transport Secretary Philip Hammond briefing him on the realities of life in the airline business.

Here is a couple of quotes from him on the BBC's Today radio show this morning (link to the full interview here) talking about the rights and wrongs of the forthcoming cabin crew strike:

"My message to BA and to the people who work for BA is that the future success of the airline and the future security of the jobs of the people who work for BA depend on two things: BA retaining the loyalty of its customers, which clearly is becoming strained, and BA being able to deliver a business model which allows it to compete with lower cost airlines who do not have some of the legacy costs BA has."

"If the competitors that BA is facing have a lower cost base, in the end BA will not succeed unless it is able to get its costs down," said Hammond.

Now of course Hammond will not come out and say the cabin crew are in the wrong, but this message is as clear as it can be to me - this government says settle like all your other colleagues have done and get back to work!

One of the consequences of the new coalition government taking office in the UK between the Conservatives and Liberal Democrats will be the cancellation of plans set in place by the previous Labour Government to build a third runway at London Heathrow. The policy document setting out the position is pretty brief, here it is (it is section 11 of the document), but for more on the political complexeties of the situation, there is a good piece in the Financial Times here. For what its worth, my own guess is - with the strong business lobby supporting Heathrow expansion - is there might be some way to go in this story.

And on the UK election and green theme, check out our blog about the UK's first Green MP - Caroline Lucas who penned an article for Airline Business back in 2005.

Caroline Lucas, the green politician whose views on all things aviation and airlines are well known to many in the industry, has made history in the UK by being voted in as the first Green Member of Parliament in yesterday's UK General Election.

Ms Lucas wrote a feedback article for Airline Business in 2005 - reprinted in full here:

The green view on aviation
Airline Business (Mar2005, 743 words)

Source: Airline Business

And the Air Transport Action Group's Philippe Rochat disagreed, replying with the article "No more science fiction".

Expect a lot more profile for Ms Lucas following her successful campaign.

Lufthansa's low-cost carrier Germanwings kicked off operations at its new Hannover base at the end of last month - I was among a small of group journalists who joined the inaugural flight on one of the new routes - a London Stansted connection to the

north German city. (This is us pictured here at Stansted for the check-in - though in typical budget carrier-style it was not so much a champagne breakfast, as coffee and a pastry!!!)

Germanwings is basing three A320 family aircraft - the 28th, 29th and 30th aircraft to have joined its fleet - at Hannover. Alongside Stansted the initial Hannover routes include flights to Stuttgart - one of its other five bases in Germany- and connections to Vienna, Milan, Budapest, Rome, Barcelona and Moscow. It will also serve Split, Zagreb, Dubrovnik, Zadar, Bastia, Palma de Mallorca and Heraklion.

"Cologne is our main hub and Cologne and Hannover had the same number of passengers at the start of the last decade. Today Germanwings has 16 aircraft based at Cologne with a total of 4 million passengers. So Germanwings has more passengers now than the entire airport in 2002. That shows the magic of the low-cost model and we feel there are a lot of possibilities here [at Hannover]," explained Germanwings chief executive Thomas Winkelmann, during a press briefing at Hannover airport (and pictured here on the right of managing director Axel Schmidt at the inauguration of its latest A319 at the airport).

"There are plenty of people in lower Saxony that drive to Berlin, or drive to other places, so this is the chance. I don't see a reason why we should not copy the success we have had in Cologne or Stuttgart," Winkelmann adds.

And what does it mean for Hannover airport? "It is a real great step forward in terms of destinations, passenger numbers and connectivity," says Raoul Hille, chief executive of the airport. "From today we expect an additional 500,000 passengers out of this operation in 2010 and pre-sales seem to be pretty good and the first flights are full. We have right now about 5 million passengers so this is nearly 10% of the total operation, so it's a real large step forward.

"The future of our customers in Hannover is quite well balanced. We have Air Berlin, we have Germanwings, we have the legacy carriers, we have some carriers in our special niche in east European markets."

And if you haven't already seen it, check out this video for an audacious bit of Germanwings publicity with a bit of dig at its rivals as highlighted in our earlier blog

So where will a merged Continental and United Airlines sit in the world order of airlines?

Well in passenger traffic terms, if you base it on RPKs for 2009 for the respective carriers pre-merger, Continental/United comes out top of the lot, marginally ahead of Delta following its merger with Northwest. But in passenger terms it would come in second behind them - carrying more than a hundred million passengers annually, but around 15 million less than Delta. And in revenue terms they sit in third place behind Europe's Lufthansa and Air France-KLM. But the merged carrier would still dwarf what a merged British Airways and Iberia would look like.  (Figures from Flightglobal Insight; all data based on 2009 calendar year - 2009/10 financial year results not released yet for Air France/KLM and BA/Iberia)

         2009                RPKs (m)       Passengers       Revenues

Continental/United     312,258          101.7m            $28.9bn

Delta                        304,025          116.0m            $28.1bn

Air France/KLM         202,045          71.5m              $30.5bn 

American Airlines      196,904          85.7m              $20.0bn

Lufthansa*                164.475          88.5m              $31.0bn 

BA/Iberia                  161,927          52.8m              $19.1bn

*Lufthansa traffic figures include FY 2009 data for Austrian Airlines, bmi, Brussels Airlines and Swiss International Air Lines  

The volcanic ash crisis appears to have claimed its first airline casualty - Swedish regional airline start-up Flyglinjin directly blaming the disruption resulting from the Icelandic volcanic eruption (which has this morning resurfaced in closing Irish airspace) for having to cease operations while it seeks fresh funding. Here is the story from Flightglobal's premium new service Air Transport Intelligence.  

VOLCANO BLAMED AS SWEDISH START-UP CEASES OPERATIONS

David Kaminski-Morrow, London (03 May, 19:42 GMT, 127 words) 

Ash disruption from the Icelandic volcanic eruption is being blamed directly for the collapse of a new regional airline in Sweden.

The start-up carrier, Flyglinjen, had been established to operate initially from the city of Jonkoping to Stockholm Bromma, using wet-leased turboprop aircraft. It had also identified Copenhagen as an early destination.

But it is axing services, attributing its decision to the disruption resulting from last month's eruption of the Eyjafjallajokull volcano.

"We have been forced to cancel all flights," says the company. "The reason is the poor economic situation, caused by the problems encountered in relation to the Icelandic volcanic ash."

Flyglinjen says it is seeking new investors to relaunch services "as soon as possible". Five entrepreneurs had originally backed the carrier's creation.

Source: Air Transport Intelligence news

By now all of us have heard that 3 May appears to be the day that Continental and United could announce a merger that would make the combined entity the largest airline in the world.

We can leave it to the pundits to hash out it the advantages of this tie-up outweigh the disadvantages.

But here's an excerpt of an Airline Business interview with Continental's CEO Jeff Smisek from about eight months ago before he officially became the airline's chief. His gives insight into his view of airline mergers, and a sense of relief that Continental walked away from meger talks with United in 2008.

Offering his assessment of a potential merger between Continental and United Smisek says many facets were involved, "including financial issues, and if you fast-forward from April 2008 to what happened in September, the financial markets did not exactly improve, so we were particularly right in making that call".

Smisek also cautions it is still a case of early returns on the Delta-Northwest merger. "We will see how they do. That was going to be a merger of addition that seems to be now pretty much a merger of subtraction from what I can tell, but part of that of course is the recession."

Yet if the Delta-Northwest merger is successful Smisek believes "everyone in the business, including us, needs to be thoughtful and responsive. I think the jury is out on that [the merger]. But we will watch it very closely."

While Smisek expects to realise a number of revenue synergies and cost savings from Star membership, he concedes that a merger can deliver greater benefits in those areas. However, through an alliance, carriers avoid significant integration costs, and more importantly, "you do not have to integrate your people and you do not have to integrate your cultures".

Merger mania here in the USA began its fervor on 7 April when someone with knowledge of talks between United and US Airways leaked the negotiations to the non-aviation DealBook blog featured in The New York Times.

Kudos to TheStreet.Com's Ted Reed. At the recent US Airways media day he asked carrier chief Doug Parker point blank why US Airways couldn't better manage the process of disclosing merger talks.

Reed expressed a frustration, which I fully and completely understand, that this type of news is always leaked by investment bankers to non-aviation journalists or media outlets.

Parker's response to Reed was: "We didn't leak anything and I don't know who did." Parker says the talks occured for quite a while before the leak was sprung. Giving a refreshing and frank assessment of the leak Parker concludes: "I can't control people who don't work for us."

Parker also joked that crafting US Airways' announcement that talks with United had broken off took a little creativity since the carrier never announced discussions with United in the first place.

So possibly it will soon be the big 4 US carriers. Let's hope consolidation produces the desired outcome.  (photo credit minibran.worldpress.com)