November 2010 Archives

It has been a while coming, but British Airways and Iberia are finally fully clear to begin their merged future after securing shareholder approval for the tie-up. The companies will begin merged life under the International Airline Group holdings structure on 24 January, almost two and a half years after the planned deal was first announced.

Back in July 2008, when merger talks were first announced, it seemed to put the European oneworld carriers at the front of the consolidation queue. But cross-border mergers - even within the single European market - are never straight-forward, and this one was further complicated by sharp falls in the stock market which accompanied the global financial crisis and the UK carrier's pension deficit. In ther intervening period, a number of other carriers have agreed and completed mergers of their own.

At the time of the merger announcement in July 2008, the combination of BA and Iberia would have ranked it third in the world by revenue - putting it behind only Lufthansa and Air France-KLM at the time. But after probably the toughest two years in history for network carriers and a series of mergers including Delta/Northwest and United/Continental, the enlarged BA/Iberia will now be the seventh largest in the world by revenues based on the 2009 Airline Business World Airline Rankings:

1. Lufthansa $31.0bn

2. Air France-KLM $29.6bn

3. United/Continental $28.9bn

4. Delta Air Lines $28.1bn

5. FedEx  $21.5bn

6. AMR Group $19.9bn

7. International Airlines Group (British Airways/Iberia)  $18.9bn

The merger is being put together through the International Consolidated Airlines Group, under which Iberia and BA Holdco will be combined under a single holding company. BA will hold 56% of the combined entity, with Iberia having the remaining 44%. Other key facts on the combined carrier:

Fleet size: 406 
Destinations: 204 
Revenues €13.8bn
Passengers 58 milliion
 

So who is the most influential airline leader of the past 25 years? As part of the Airline Business 25th anniversary, we've taken over the Flightglobal weekly poll to find out what you think. The list of candidates is endelss, so we've come up with a shortlist of five possible candidates below (but if you think different, we'd love to hear from you about who should have been on the list and why);

• one-time Alitalia chief but best know for transforming airline industry body IATA into an agenda leading airline body, Giovanni Bisignani;
• larger than life entrepreneur and the man who brought Virgin Atlantic onto the transatlantic, Sir Richard Branson;
• the man who shaped and spent the first half of the last 25 years at the helm of American Airlines; Robert Crandall;
• the father of the low-cost airline industry, Southwest Airlines founder and former head; Herb Kelleher;
• love him or hate him, he's the man who transformed Ryanair into possibly the most commercially successful airline story of the last 25 years, Michael O'Leary

We've had more than 2,500 votes already, but there's still to have your say - the poll closes on 2 December. TO VOTE, CLICK HERE  and cast your say in the Poll section in the top right-hand page of the screen.

For all our special online content including interactive timelines, reflections on the last quarter century from 25 of the industry figures which helped shape the sector and a chance to read our launch issue and our latest 25th anniversary issue, VISIT OUR ANNIVERSARY HOME PAGE.

Airline Business is celebrating its 25th anniversary this month with a special issue of the magazine and supporting online package. You can see all the content, including perspectives and reflections from 25 airline executives who helped shape the industry over the last quarter century, at our special 25th ANNIVERSARY HOME PAGE.

To mark the occasion we got our thinking caps on to try and plot some of the key events that have shaped the industry over the last 25 years and pull together a four page pullout for the magazine and a scrollable interactive online version.

This created quite some debate in the Airline Business office - to the extent that in the space between finalising our interactive online version and going to press with the print version of the timline we added in several more developments!!!

You can see our INTERACTIVE 25 YEAR TIMELINE HERE - follow the high and lows (mostly lows) of the airline industry profit line over the last quarter century by scrolling over the screen; hover over the large circles to bring up more on key significant events, then click on the icon for more details and background information.

Trying to fit the last 25 years into a four page timeline was taxing to say the least and only scratched the surface of what has been an incredible period for the sector. So you can read even more here with:

• Our special BIRTHS, DEATHS AND MARRIAGES feature: a look at the big name comings and goings of the airline industry over the last 25 years;
• Our 25 YEAR TIMELINE IN TEXT: Read more on the key events that shaped the last quarter century of the industry

Call it shameless capitalising on a diplomatic kerfuffle, but we felt it would have been a pity if we couldn't find an air transport angle among this avalanche of hitherto-classified ambassadorial cables.

Not that the subject will surprise anyone: a US Government request that embassy personnel in China and Central Asian states approach "appropriate level" officials and "encourage them to deny overflight" of an Air Koryo Ilyushin Il-62 operating between North Korea and Iran.

The communication describes the flight, JS621 from Pyongyang to Tehran, as being "of proliferation concern" and that it "may be carrying [North Korean] personnel involved in ongoing co-operation with Iran on ballistic missiles".

It gives details of the scheduled flightpath of the 28 July 2008 flight and requests that states being overflown - China, Kyrgyzstan, Uzbekistan and Turkmenistan - deny clearance or "require that it land and be subjected to inspection" before allowing it to proceed. The same applied to the return service, JS622, three days later.

"Alternatively," it says, "if this aircraft requests a fuelling stop in your country, we request that you grant this permission and promptly search the aircraft upon its arrival for evidence of prohibited items or activities."

No word on whether the requests were heeded or whether Air Koryo gratefully accepted Condoleezza Rice's invitation to make the unscheduled pit-stop...

Airline Business has been in Panama for one of the key events of the year for Latin American airline sector, ALTA's 2010 Airline Leaders Forum. The event was held at a fascinating time for one of the most dynamic regions of the sector, as consolidation moves take hold. This has been led by the Avianca-TACA and LAN-TAM deals, and has also seen a rush of global alliances activity. Avianca-TACA and Copa have just been confirmed for Star Alliance, while Aerolineas Argentinas is heading to SkyTeam.

For the news, analysis and colour from this year's Leaders Forum, check out our three daily papers from the show:

ALTA Airline Business Daily: day 1

ALTA Airline Business Daily: day 2

ALTA Airline Business Daily: day 3

Those fearing world domination by Emirates should feel a shiver up their spine with the announcement the Dubai-based carrier is now JetBlue's seventh interline partner.

Well ok, perhaps that's a bit dramatic -- but it's Monday and maybe you need an extra kickstart.

Feel free to disagree, but this tie-up should really make things interesting in New York, which is already turning into a bloodbath.

A growing sentiment in North America, particularly in Canada, is that Emirates is trying to build Dubai into a hub to rival the likes of London, Paris and Frankfurt as a connect point to the Middle East and Asia. 

So as I run through my initial thoughts (and please feel free to tell me if they're correct or incorrect) about this deal, the issue that strikes me is JetBlue's shareholder Lufthansa can't be too pleased about this morning's annoucement.

But while Lufthansa might raise an eyebrow to the announcement, JetBlue has made clear to all stakeholders it intends to fully exploit the "open architecture" of the its JFK hub. Here's how JetBlue chief Dave Barger explained the situation to Airline Business earlier this year.

 

When JetBlue unveiled its partnership with American, speculation mounted about how the new tie-up would affect the relationship which JetBlue and Star Alliance member Lufthansa created in 2007, when the German carrier took a 19% stake in JetBlue and secured two positions on JetBlue's board.

Barger recognises that when Lufthansa finalised its $300 million investment in JetBlue in early 2008, "the timing was very fortuitous" as later that year oil prices reached historical highs of $147 per barrel. He expresses a huge amount of gratitude to Lufthansa for the guidance and board expertise it has supplied to his airline.

Yet, at the same time, he declares JetBlue has remained very consistent with its message to its German Star Alliance shareholder. "What we've always said to Lufthansa is that, as the largest airline at Kennedy and the largest domestic airline in New York, we're attractive to many airlines in terms of partnership opportunities. Does Lufthansa have a point of view? You bet they do."

He would like to think Lufthansa will remain a long-term strategic shareholder in JetBlue. "Of course, they're going to have to make that decision as we move into the future. As we add American and other carriers, that's going to be transparent. We're going to be monetising this opportunity we have at JFK and that should be in Lufthansa's best interest," he explains.

Barger often refers to JetBlue's strategy of partnering with aligned and unaligned carriers at JFK as "open architecture". And while there is no exact replication of the Kennedy model elsewhere in JetBlue's network, Barger does see an opportunity to replicate aspects of the concept in Boston, Orlando and "potentially other real estate".

This deal occurs as American, BA and Iberia are launching their transatlantic joint venture that entails almost hourly shuttle service from JFK to Heathrow and as Delta and its SkyTeam partners Air France-KLM and Alitalia continue to bolster their New York presence. 

Regardless, look for interesting price points from all the players in New York. And something else to support the truly global nature of the business - at some point in one day you'll be able to hop on a Brazilian-made Embraer E-190, transit through New York and board an Airbus A380.  

Russia's S7 has today become a member of oneworld, filling in one of the alliance's "whitespots". S7 Airlines and its subsidiary Globus serve 90 destinations in 28 countries and they add nine new countries to the oneworld network, namely Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan.

For more on the various alliances' whitespots, take a look at the coverage from our recent alliances conference where the leaders of oneworld and Star made a rare appearance on a panel together.

Also, keep an eye out for our January print edition, which will feature S7 chief executive Vladislav Filev on the cover and the full low-down on S7's strategy.

Let's face it, Russia is a bit of a mystery to most of us, so the cover interview will be supported by a feature which will debunk what's going on in the Russian market.

You might also want to look back to our alliances special report from our September issue, which included a focus piece on the relationship between alliances and ownership regulations.

Who is REDjet you ask? Well, its seems its orgins date back to 2006 when a father and son team thought it would be a good idea to launch the Ryanair of the Caribbean.

In a filing with US regulators in May Airone Ventures -- the company behind REDjet-- said it wanted to fly intra-Caribbean flights and offer service from Barbados to the US.  They were going to dry lease an MD-80 from Allegiant, and also said the successful US travel group would take a 10% stake in the company.

Then Airone backpeddeled as reported in this Travel Weekly article, and said it incorrectly stated Allegiant was taking a stake.

So fast forward to today and REDjet wants to launch flights next month with two 149-seat MD80s based in Barbados. REDjet's website only says "launching soon." Unconfirmed reports are showing that the aircraft were previously at American.

Irish businessman Ian Burns and his son Robbie are the founders of the new airline boasting fares of $9.99, "before taxes", which can run extremely high in some Caribbean markets.

It seems like REDjet is taking its clues from various LCCs models and melding into its own offering. Whether the Burns' can execute their low cost strategy flawlessly in the Caribbean remains a huge unknown. But it's going to fun to watch a bit of shake up in the market.

Check out the Trinidad and Tobago news blog for some really great insight into the Caribbean market and how REDjet might carve out its place there.  

Airline Business is celebrating its silver anniversary in style, as we prepare to release our 25th birthday issue (due out on 22 November). This special edition will be packed with contributions from the industry's most respected leaders.

In the meantime, take a peek at our anniversary video, which is packed with airline chief executive reflections, rounded off with a market outlook update from our very own columnist Chris Tarry.

(And finally...the upbeat music soundtrack to our birthday video is aptly called "The Yearbook")

Travelling back from the World Route Development Forum in Vancouver a couple of months ago, I fell foul of the liquids in hand luggage restrictions at the airport on the way back and had to hand over my over-sized bottle of maple syrup. I felt such a fool. I travel a fair bit, I work in the industry and have even written several articles about these very regulations. I should have known better...

...but not as much, you would think, as UK security minister Baroness Neville-Jones. Read here for more.

Interesting developments at Spanish low-cost carrier Vueling, which today announced plans to set up a base in the French city of Toulouse next year.

It It marks the first time the Spanish carrier has returned to the idea of non-Spanish bases since its consolidation through its merger with Clickair in 2009. Vueling in its pre-merger days briefly operated a Paris base before withdrawing back to its Spanish strongholds.

Vueling's chief executive Alex Cruz talked to me about some of the challenges of operating overseas bases when I interviewed him in September at the World Low Cost Airlines Congress. Here is a small extract from the article:

Clickair and Vueling cut their respective fleets of Airbus A320s ahead of last year's merger to counter over-capacity in the market. But the combined carrier is now looking at expansion with six aircraft due to join the fleet for next summer. "We'll spread the extra capacity about our bases and where we have the opportunities," says Cruz. "We have to grow carefully. We need to make decisions about more domestic bases [for summer 2011], then we are going to evaluate bases outside of Spain."

"What we are not, is big risk-takers," he adds. "But we cannot afford not to take some risks in order to keep growing. But it will be measured." The original Vueling operation briefly had a base at Paris Charles de Gaulle, before later returning to its Spanish strongholds.

Cruz says the key challenge on operating non-Spanish bases is from a labour rather than commercial standpoint. "We have to study what is the most optimal way to create and manage a workforce outside of our home country. The moment that happens [we are ready]. We believe we are commercially enabled."

You can also watch our recent video interview with Alex Cruz from the recent World Air Forum in Cannes here and you can read our cover interview Alex Cruz from March this year here.

Further to my blog of a month ago about the low-cost, long-haul aspiration of Norwegian carriers - one of the prospective operators, Norwegian, has taken a further step in that direction by today disclosing it has signed a letter of intent with aircraft lessor International Lease Finance for a pair of Boeing 787s to operate long-haul flights. The two aircraft are due to join the fleet in 2012 and are being taken under 12-year leases. More details here. 

Norwegian is a Boeing-737 operating short-haul carrier that has previously floated the idea of beginning a long-haul operation, which it said would operate as an independent entity to the short-haul carrier. It indicated it envisaged acquiring up to 15 widebodies for the long-haul operation, which could begin in 2011. It has listed New York and Bangkok as being the most likely initial destinations..

United is saying own farewell to Chicago icon Oprah Winfrey as the final and 25^th season of her wildly popular and long-running talk show gets underway.

It's an opportunity for United, which is merging with Continental but keeping its headquarters in Chicago, to hold tight to its title of "Chicago's Hometown Airline."

United is sporting one of its 757s with a newly painted livery featuring The Oprah Winfrey Show logo and a specially decorated interior.

To cap it off Oprah is welcome passenger onboard with a special video greeting ans each customer on the flight is receiving a monogrammed "Oprah 25" fleece blanket - no charge.

The feel good campaign keeps United's brand in front of customers, but behind the Oprah logo the carrier is really getting down to business and cleaning up its balance sheet as the merger integration continues.  Continental recently announced the calling of $175 million of 5% convertible notes due in 2023.  CRT Capital Group analyst Michael Derchin says while that's not surprising, "it is evidence of management's plan to deleverage its balance sheet on a fast timetable. Management indicated to us this morning [November 2] that the call of the Continental 5% notes is incremental to the $540 million debt reduction goal."

All US carriers are drilling home the message to analysts that they're cleaning up their balance sheets is a top priority. It's pretty good sign that maybe this business cycle could be different, perhaps even one of sustained profitability.  Stay tuned.

The SkyTeam board of governors were in Paris yesterday - along with what appeared to be more Borussia Dortmund fans than in Dortmund itself (the German side was playing Paris Saint Germain in a Europa League tie last night and had obviously decided what better place to meet up than under the Eiffel Tower).

Anyway, yesterday's meeting marked the last SkyTeam governors meeting of 2010 - the tenth year since its formation and a significant one given the acceleration in its recruitment drive. After the meeting (which I almost inadvertantly gatecrashed having arrived an hour early as I wondered about the hotel aimlessly) the alliance held a short press conference to provide an update on recent developments. The most recent of these is confirmation that Shanghai Airlines will be following its new partner China Eastern into SkyTeam next year and the soon to be finalised plan to bring Aerolineas Argentinas into the alliance. And chairman of the SkyTeam of the governing board, Leo van Wijk, sees this recruitment drive continuing over the coming months.

You can read more on where SkyTeam wants to plug the gaps here. 

Airline Business also recently held a cracking first Alliance, Joint Ventures and Partnership conference - and you could read some great content on the alliance picture from the event here.

The above picture by the way is from SkyTeam to celebrate their tenth anniversary - but can you match the airline with the cabin crew colours?  

More alliance movements today as SkyTeam has confirmed the widely expected entry of Shanghai Airlines, alongside its parent China Eastern Airlines. Confirmation came today, the day after Shanghai Airlines formally left Star Alliance. Shanghai merged with China Eastern earlier this year and, shortly after China Eastern in June announced its intention to join SkyTeam, Shanghai said its was quitting Star at the end of October - though today marks the first confirmation it will follow its parent into SkyTeam.

Shanghai Airlines becomes the third carrier to switch alliance camps; Continental Airlines early made the journey the other way round to join Star, while one-time Star member Mexicana later joined oneworld.

It continues to be a period of hectic activity among the alliances; SkyTeam itself has just announced plans for its first Latin American member, Aerolineas Argentinas; while oneworld's latest member Russian carrier S7 formally joins later this month. To find out more about the comings and goings, as well as insights into the strategies of the three main alliances, check out our recent alliances analysis here.(picture credit: Anssi Koskinen/DR)