June 2010 Archives

Some illuminating thoughts from Ryanair chief executive Michael O'Leary today, after announcing more cuts in capacity at UK airports this winter. High profile announcement of winter cuts, in particular at London Stansted, have become the norm for Ryanair over recent years as it complains about airport costs and more recently the UK air passenger duty. Today it announced it would cut capacity 17% this winter at Stansted from November and by 16% across the UK as a whole. "There will be cuts at all our bases in the UK apart from a couple," said O'Leary at a press conference in London today (Edinburgh and Leeds Bradford are the only two of its 11 UK bases where it will increase capacity this winter).

What has become clear is a continued shift of a greater share of Ryanair's activities into mainland Europe, with Spain and Italy key markets. It now has seven bases in Spain and eight in Italy, and in a market where growth remains restrained across many European carriers, Ryanair is one of the keys to the fast growth in these countries. Ryanair today pointed to intra-European capacity figures over the first four months of the year (from CapStats) showing Italy and Spain with the fastest rates of growth in seat capacity among European countries. This contrasts with a fall in seats on offer in the UK. 

The chief target in O'Leary's sights is the UK's air passenger duty, though with Germany embarking on a new departure tax and aviation likely to remain in the line of fire as European governments seek to raise revenue to tackle deficits, it touches on the wider of issue of whether in these cash-short times, aviation is used as a revenue generator or for wider economic growth.

"The way forward is not APD. The way forward is lowering costs and building runways in the south-east [of England], otherwise you are going to lose the business to other [countries]." Growth in Spain has been aided by Spanish policy to encourage new air services. "Spain is growing with worse economic conditions [than the UK], because they are lowering the cost of entry," says O'Leary. "Its less than half the cost [to us] and the fares are higher from Barcelona. You are certainly saving at least €10 million [a year] just by moving those two aircraft [from Stansted]. If you scrapped the tourism tax it would be roughly the same as Spain. But its not just about the tourist tax, its airport fees."

And in a final broadside against the APD in the UK and other countries, O'Leary dismisses the notion that passengers do not object to paying an additional €10 per ticket in taxes with typical honesty. "If people didn't mind paying the extra tenner, I would have it off them long before it got to the government. If there was a way of extracting another cent out of a passenger, I would have done it. So the idea people don't mind paying the €10 tax is absurd."

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Yes two days after Germany inflicted the biggest World Cup defeat in England's history, dumping them out of the tournament in the process, Michael O'Leary conducted a press conference in London today in a German football shirt. It originated after German investors first bet O'Leary would not wear the shirt at a German investor briefing, and then bet him he would not wear it at a London press conference - which is a like a red rag to a bull. And good of the English football team to so obligingly help set up the joke by losing so convincingly.

June 22 marked the tenth anniversary of the founding of the SkyTeam alliance by Aeromexico, Air France, Delta and Korean. The alliance now counts 13 members including Vietnam Airlines, which joined on 10 June, and Romania's Tarom, which has an official 25 June join date.

Here's a slick, polished and feel-good video released by SkyTeam. It shows both some nice metal and liveries and gives you a quick rundown of SkyTeam's milestones. 

AirAsia X chief executive Azran Osman-Rani was in London this week to show off the pioneering long-haul, low-cost carrier's new flat-bed seats (demonstrated here by Azran himself) onboard one of its Airbus A340s. Azran gave journalists a tour of the new interior at Stansted as the aircraft was being readied for its return flight to Kuala Lumpur. The A340s features 18 of the new seats in its premium cabin (along with 309 economy seats), offering a seat pitch of 60" and which stretch out to 77" in full bed mode. The seat, which also features universal power sockets, is part of premium package it offers which it aims to tap into the cost-conscious business traveller and also includes preferred seat assignment, priority boarding and baggage services and onboard meals/drinks. There is no built-in IFE at the seat, though portable players are available for hire. The carrier estimates this comes in at roughly half the cost of traditional legacy carrier business class tickets. "These products have to be very high margin products for legacy carriers," says Azran, adding he can't believe the cost of the AirAsia X seats is so different from those of its legacy carriers. "They really have been able to charge a premium." (Coming soon: I will be posting a video interview with Azran giving more details about the new seat and its strategy shortly)

All but one of the airline's fleet of A330/A340s are now equipped with the seat, together with a revamped economy class (if you look carefully at my bad photo here on the right you can just about make out the big X pattern the red headrests make). 

The long-haul operator continues efforts to develop self-connections among its passengers - around 80% of its Stansted-Kuala Lumpur passengers connect on elsewhere - and has begun trialling an optional "transit faciliation service" under which self-connecting passengers would not have to collect bags to transfer them on to the additional flight (the bags would be tagged separately at the originating airport). It is being tested on flights through to Australia and the airline believes it could be a way to ease the process for self-connecting passengers without adding complications to its own structure. "It [the tickets] would still be two sectors, but we may charge for that [service] and you get your bags through," Azran explains. It also continues to promote connecting destinations beyond Kuala Lumpur in its advertising, as evidenced by this advert in the London taxi which took us to the Stansted event (there were three in total, all adorned in AirAsia X colours).

AirAsia X has just announced plans for an IPO, probably timed for the second half of next year. Azran says while the original business plan would have been to group together with AirAsia, it is opting to give investors the opportunity to invest in the two different types of business (short-haul and long-haul). "Ultimately we need to raise capital and now the decision is we go for an IPO," explains Azran. "The only link is at the front end, with the brands and the website. So behind the scenes we will be a lot more separate." As part of this AirAsia X will take over employment of its own wide-body aircraft pilots, cabin crew and ground staff as well as its commercial and marketing team. 

Azran would not be drawn on the possible size of the IPO, but says the timing is linked to market conditions and its own profit development as the listing will be based on its 2010 performance and outlook for 2011. The carrier generated revenues of RM720 million ($225 million) and a net profit of RM87 million in 2009. It hopes to roughly double revenues in 2010 and retain similar net profit margins.

Click here to watch our video interview with Azran from September last year   

Last Thursday I had the opportunity to visit the opening ceremony for Air France's new first and business class lounge at Washington-Dulles.  The airport is an important station for the airline, with around 40 years of service.

At one point, the airline even flew there with the Concorde. (BA did as well to London.) According to current schedules, the station is one of the airline's top three busiest in the United States (the other two are New York JFK and Los Angeles). Dulles is also one of five United States gateways to feature a first class cabin.

I really enjoyed having a look around - you can find some of my thoughts and a video tour in the player below.

The new Dubai World Central-Al Maktoum International Airport saw its first flight yesterday in readiness for its full opening for cargo operations on 27 June.

Emirates Flight EK9883, a Boeing 777 freighter operating Hong Kong-Dubai and piloted by Captain Ahmad Bin Huzaim and First Officer Nabil Yousuf Ahmad Mohammad Rai Al Boom, touched down at 1650 local time.

Phase 1 of the airport will feature one A380 capable runway, 64 remote stands, one cargo terminal with annual capacity for 250,000 tonnes of cargo and a passenger terminal building designed to accommodate five million passengers per year.

When completed, Dubai World Central-Al Maktoum International will be the largest airport in the world with five runways, four terminal buildings and capacity for 160 million passengers and 12 million tonnes of cargo. Paul Griffiths, managing director of the airport (in suit), presides over the ribbon cutting ceremony.

The facility opens initially for cargo carriers, with passenger operations currently slated to start up at the end of March 2011 in concert with the IATA schedule change.

In the short term Dubai World Central-Al Maktoum International will increase the airport capacity of Dubai to accommodate the 48% increase in cargo volumes from 1.9 to 3 million tonnes that is anticipated by 2015. In the long term it will serve as a multi-modal logistics hub for 12 million tonnes of freight and a global gateway for the 150 million passengers per annum that are expected to pass through Dubai by 2030.

And if you like a good picture story check out my tour of the Emirates A380 at the recent ILA Berlin Air Show.

Arguments that robust competition from low cost carriers will remain intact if United and Continental are successful in merging have spurred some interesting predictions about the future of Southwest Airlines.

I've listened in on most of the Congressional hearings for the last two days, essentially taking what I feel like is a virtual road trip with the airline execs and other participants.

Most of what you expect was discussed -- job protection, ample competition to protect consumers, etc. Some legislators, such as Senator Lautenberg, even slipped in personal preferences for airline service. Lautenberg in particular expressed his strong desire against the introduction of cell phone use in flight.

But one of the most intriguing topics was an assessment by Hudson Securities analyst Daniel McKenzie about what he deems as the "sophistication of Southwest".

Using an American baseball analogy McKenzie says while most US carriers are in the 7th inning while Southwest is in the 4th or 5th.

Southwest is in the midst of developing a new revenue management system that McKenzie believes will allow the carrier to tap into smaller communities over the next two-to-four years.

The carrier is already "sticking its toe in the water" with new flights to Panama City, Florida that debuted last month. McKenzie says normally Southwest will serve cities with a population of at least 200,000, but Panama City comes in just under that at 150,000.

Southwest does have some cushion with the Panama City service through a three-year revenue guarantee from a Florida real estate developer that donated land the new airport now sits on. So perhaps some smarts sits inside of its evolving sophistication.

The interesting bit about the potential evolution is can Southwest's new revenue management system support the deployment of its standard 737 fleet into those smaller markets?  Delta is serving Panama City primarily with regional jets, offering flights to Atlanta, Memphis, Harrisburg, Pennsylvania and Knoxville, Tennessee.

So the big question is what, if any, fleet decision will accompany the growing sophistication of Southwest? Earlier this decade there were some musings about the Embraer E-190, but those quickly evaporated.

It's not only a question for the grandaddy of all LCCs Southwest. Canadian low-cost carrier WestJet is also examining its options to delve into smaller Canadian markets to expand its domestic market share.

But for the moment each carreir remains mesmerized by the 737, content to let simplicity take precedence over sophistication.  

photo credit -- reviewjournal.com  

Slot trading. It's always been a bit of a sticky subject when it comes to who owns what and whether or not it's completely legal.

But it seems the answer is at hand...in the form of an online shop.

Airport Co-ordination Limited has set up the Amazon or ebay of the slot trading world with slottrade.aero - which it claims is the world's first airport slot trading web portal.

"SlotTrade is aimed at making the previous 'grey market' in airport slots more open, efficient and transparent.  The slottrade.aero website allows airlines to advertise available and desired slots in a secure and confidential way, and provides a registry of completed slot trades," says ACL.

Will this kick off questions of legality? Or is it exactly what the industry needs and has been waiting for? Let me know what you think.

Thanks to Andrew Lobbenberg of RBS European Transport Equity Research for pointing me towards this cracking little story in the UK's Guardian newspaper today about the performance of Stelios in the dock.

Stelios is in a battle with easyJet over the use of the airline's brand.

Here's a recent AB blog where the airline's chairman responds to Stelios on the issue.

Those of you who've read the section on baggage performance in British Airways' annual report might have noticed that the soft-focus term 'shortlanded' has replaced the perennially-trendy 'mishandled' which, in turn, succeeded the historically-accurate 'lost'.

You understand, of course, that this doesn't matter one jot if you're in Paris and your suitcase is en route to Timbuktu. I mention it purely for the curious observation that British Airways' main hub, London Heathrow, has a governance group for baggage charges among whose members is...Stewart Shortland.

Argentina's much-maligned flag carrier Aerolineas Argentinas is taking what it hopes is another step in its reinvention as a new world carrier with a new image.

Created by well-known branding agency FutureBrand, the new look is long overdue.

I attach the PR blurb about the rebranding below, which contains all the usual rebranding language: in itself an entertaining read. I particularly like this bit: "The old institutional typography has been replaced by a more modern, lightweight and agile one, which preserves the traditional italic writing, symbol of the progress and optimism that represents this new phase." Quite.

More importantly, what we want to really know is whether this lick of paint is only really skin deep, and that underneath it is really the same old, loss-making, legacy, Latin basketcase.

This recent Airline Business article shows what they are trying to do on the strategy front.

Tell me what your views are either via the comments or direct to mark.pilling@flightglobal.com

Aerolíneas Argentinas, the national flag carrier, prepares itself to launch a fully renewed image

The new brand image preserves some of its historical elements, though with slight
adjustments, that position the company amongst world class airlines: the condor, par excellence symbol of the airline, has been redrawn, styling its strokes and providing greater
purity to its shape.

Also, the distinctive blue color of the company has been replaced by a light blue, which is closer to those of the national flag, enhancing its presence in its application on the aircrafts of the new fleet.

The old institutional typography has been replaced by a more modern, lightweight and agile one, which preserves the traditional italic writing, symbol of the progress and optimism that represents this new phase.

"Aerolíneas Argentinas proudly presents its new image, having now regained confidence, regularity and timeliness and also increasing the number of frequencies as well as
improving its service.

"That is why we propose to believe again, and once more raise the values that made us a world class airline" said Mariano Recalde, its President, adding that implementation of the new identity system will be implemented gradually, following the times for the replacement of supporting materials.

To address this change, the airline worked with FutureBrand, a global branding consultant company that participated, with other competitors, in the bidding process and resulted
winner.

FutureBrand is recognized for having been responsible for renewing the corporate identity of high-profile airlines such as British Airways, Air Canada, South African Airways, LAN and Avianca.

During the recent IATA AGM in Berlin I caught up with Malaysia Airlines chief executive Azmil Zahruddin. Its nearly a year since Zahruddin took the helm of the airline last August, after Idris Jala - who he had worked closely worked with on the transformation of the airline since 2005 - left to take a job in the Malaysian cabinet.

This of course was at the height of the economic crisis, when as Zahruddin observes, nobody knew if there was any light at the end of the tunnel (though as it turns out, for Asia there has been no shortage of light). So what have the first ten months been like?

"It's been manic," he sums up. "I probably have had an easier time in terms of transition as the problems I am worrying about are the same ones I was worrying about before. [The difference is] before there was probably someone who was worrying more than I was, but not any more."

As if dealing with the economic crisis was not enough to contend with, Azmil also has a high profile and expanding low-cost carrier on its doorstep in the shape of AirAsia (and its long-haul sister operation AirAsia X). So what's it like competing with them?

"It's like being on a treadmill, you have to keep running," he says. "With AirAsia we have been competing for quite a while. We are both co-existing and I believe will continue to co-exist. We just have to make sure we are strong in what we are doing."

You can read the full article, in which Azmil talks about the carrier being ready to enter a new phase of growth, that we published in our second issue of Airline Business Daily News from the IATA AGM here, but here are a couple of extra insights from Zahruddin on current issues which we didn't have room for in the paper. Asia of course has been at the heart of the economic recovery and, while this has been led by strong domestic growth in the key emerging markets of China and India, Zahruddin says Malaysia has also enjoyed above average traffic growth

"I expect 2010 to be better," says Zahruddin, pointing to a sharp year-over-year improvement in its underlying performance during the first quarter. "Quarter two is always challenging and remains challenging," he adds, but will be better than quarter two last year."  He notes it will be the third and fourth quarter that will be crucial, noting only then will it be clear what impact the continued economic problems in Europe might have on the wider global picture.

And what are the worries keeping airline CEOs awake at night? Fuel is certainly on the agenda. Zahruddin points to the steady increase in fuel costs over the last 12 months, which has after a recent relenting in the oil price, steadied at the around the $80 per barrel range compared with $60 a year ago. After the heavy hits airlines around the world took on fuel hedging, I asked Zahruddin what role he thinks hedging plays for airlines now in mitigating the fuel impact.

"Hedging is not a solution," he says, describing it as a "smoothing mechanism". He adds: "It doesn't alter the fact that costs are going up. It merely postpones it, but does not avert it. If it [fuel] is going up, your costs will go up." And he notes that even if you mitigate your costs by using more fuel efficient aircraft - Malaysia Airlines is itself about to embark on a major fleet renewal - ultimately if fuel prices go up, the extra costs will eventually have to be passed to the consumer. "At the end of the day, you still burn fuel."

For more from Azmil, watch our video interview with him from the IATA AGM here.

A monster $11.5 billion order for ANOTHER 32 Airbus A380s simply blew the lid off the ILA Berlin Air Show today.

I got the news on the bus on the way up here from central Berlin after finishing at the IATA Annual General Meeting. All the IATA delegates with me were amazed.

So the first destination had to be the Emirates A380 on the flightline here at ILA.

Initially it was nose-to-nose with a Lufthansa A380, but this later took off for Brussels (does anyone know why?).

Just look at those queues of punters at the show keen to get inside this latest Emirates A380, which the carrier has literally just taken possession of and flown in from the Airbus plant in Hamburg.

I got lucky because Emirates manager public & government affairs Will Lofberg spotted me and whisked me past the queue.

The A380 was on a football pitch in honour of a certain tournament kicking off this weekend. These lads were having a keepie-up game.

Here's Will and I (Will on the right below) on the front stairs from the A380's upper deck down to the cockpit.

In the cockpit I had the pleasure to meet Captain Abbas Shaban who had flown the A380 from Hamburg. He's been with the carrier for 15 years and explained that this A380 was one of the Airbus prototype's - MS9 I recall from memory.

Captain Shaban is a former Gulf Air pilot and shares the cockpit with First Officer Hauke Smid (below left), who has flown for DHL and LAB of Bolivia.

Lufthansa's A380 viewed from the Emirates A380 cockpit.

And finally, the most popular place on the Emirates A380 - the business class bar!

Having had four days at the IATA Annual General Meeting here in Berlin where the Airline Business team has been publishing a daily paper I thought at quick visit to the ILA Berlin Air Show, where our fellow journalists at Flight Daily News are publishing a paper for this show, would be the decent thing to do.

To be honest I was hoping to mainly go and irritate them slogging away in the boiling hot press room and provide a little moral support. Nope: a hastily arranged Airbus press conference to announce a TAM order popped up and into the front row I went.

The guest of honour was TAM chairwoman Maria Claudia Amaro (seen below), the daughter of the late Captain Rolim Amaro who founded the airline.

The story is pasted at the bottom of this page.

Tom Enders, Airbus head man, had many words of praise for TAM, which is now the country's largest carrier. "Now the big boys have disappeared and TAM is the big boy in Brazil," he said. The big boys were Varig, VASP and Transbrasil, all now long gone.

TAM is a huge Airbus customer with 176 A320s, A330s and A350s on order.

If it orders the A380 it will have the full set!

Above at the signing of the deal at ILA, from left to right: John Leahy and Tom Enders of Airbus, Maria Claudia Amaro and Libano Barroso.

TAM splashes out for more A350s and A320s

TAM Airlines, which is a customer for three out of the four Airbus types, ordered more Airbus A320s and A350XWBs yesterday at the show but won't add the A380 until the end of the decade at the earliest to make the full set.

"According to our growth forecasts we don't need the A380 until 2020," said Libano Barroso, chief executive of the Brazilian carrier. "There is also an infrastructure thing to fix in Brazil," said Maria Claudia Amaro, TAM chairwoman, referring to the country's congested airports.

"The earliest slot available [for the A380] is 2015 - just in time for the games," noted John Leahy, Airbus chief salesman, referred to the Olympic Games which are being held in Brazil in 2016.

The new order for 20 A320s and five A350s, worth $2.9 billion, brings TAM's total Airbus orders to 176 aircraft, said the manufacturer's head Tom Enders. "TAM is our largest customer in the entire southern hemisphere," he added.

The top-up order for A350s means that TAM now has 27 of the type on order, 12 A350-800 versions and 15 A350-900s. The carrier will receive its first A350 in 2016. The extra A350 order is because "TAM is replacing its A330s in a faster way than we anticipated", said Barroso.

We have been out in force at the IATA AGM in Berlin and you can read digital editions of our first two daily papers here. Follow the links below:

Issue 1

Issue 2

Issue 3

Check here for more updates and all our news, blog and videos from the AGM

Here at the IATA AGM, several journalists are "Twittering" their way through the conference, including Airline Business journos @VictoriaOnAir, @TheABed and @SivaG.

If you're on Twitter yourself, check out the #IATAAGM hashtag for all the latest bite-sized updates.

Not on Twitter? Take a look at our live feed on our IATA AGM news page: flightglobal.com/IATAAGM

The Airline Business team is here in Berlin at the 2010 IATA AGM, where around 200 airline chief executives from around the world have come together to discuss the challenges the industry is currently facing.

Take a look at our scene setting video below (go on, it'll only take two minutes!)

Frankly, we as busy as a budget carrier on a tight turnaround.

-We're pumping out content onto our page dedicated to the event

-We've already produced two Airline Business Daily magazines (keep an eye on flightglobal.com/airlines where they will be posted online shortly)

-And we've filmed video interviews with some of the industry's leading CEOs (So far we've spoken with Malaysian Airlines, Thai Airways, EgyptAir, Air Malta, Gulf Air, Qantas, Kingfisher, American Airlines and Iberia, as well as the incoming IATA chairman - all these and more will be available on the video player below) shortly

Giovanni Bisignani
Director General and CEO
International Air Transport Association (IATA)

66th IATA Annual General Meeting and World Air Transport Summit
Berlin, Germany

Continental's May traffic statistics released yesterday unleashed what analysts seem to think is a wave of positive news about unit revenue improvement for US airlines.

United's bride-to-be posted a whopping consolidated passenger revenue per available seat mile (PRASM) improvement of 23% to 24% compared with May 2009. While the signs are encouraging, carriers are coming off disastrous revenue declines for the same period last year. Continental's consolidated PRASM in May 2009 fell 19.5% to 20.5%.

Still, analysts are encouraged by the improvement expected in May's revenues. Continental's May PRASM handily topped JP Morgan's estimated rise of 17% and a general street estimate of 19%-20%.

CRT Capital Group predicts United and Southwest are expected to report the strongest year-over-year growth in each carrier's history. The company expects a 25% hike in United's unit revenue and a 17% rise at Southwest.

So what's driving this improvement?  CRT cites a combination of a pick-up in underlying demand, some peak pricing power and a sharp break in oil prices.

But one month, or even a strong summer season, doesn't guarantee reversed fortunes for carriers. No one has determined the exact ripple effects of the spooked markets in Europe, and if fuel will hold steady at lower levels.

Even as the latest revenue improvements spark hope, some fundamental truths about the airline industry remain, as recently laid out by Continental's chief Jeff Smisek -- "Running an airline is a tough business. We have low barriers to entry and high barriers to exit, resulting in a highly fragmented and brutally competitive business."

photo credit -- outdoors.webshots.com