Brendan Sobie: December 2006 Archives

AirAsia took delivery today of its 50th aircraft, an impressive accomplishment given the Malaysia-based low-cost carrier is only five years old.

The carrier, which pioneered low fares in Southeast Asia, says with the 50th aircraft it will embark on the second chapter of its amazing story. In the second chapter, AirAsia promises to "strengthen and enhance its route network by connecting all the existing cities in the region and expanding further into Indo China, Indonesia, Southern China and India".

The carrier launched with a hub in Kuala Lumpur and has since added hubs in Bangkok and Jakarta with affiliates Thai AirAsia and Indonesia AirAsia. It also has added three hubs in Malaysia - Johor Bahru, Kota Kinabalu and Kuching. The latter two opened this year after a landmark deal with the Malaysian government which saw its main competitor, Malaysian Airlines, withdrawing from most domestic routes. The two continue to compete on major trunk routes.

AirAsia says its second chapter will also include new training and maintenance facilities plus new ecommerce initiatives. The carrier will soon introduce web and PDA check-in services.

"The past five years has been a blast," says AirAsia's flamboyant chief executive, Tony Fernandes (pictured below). "Our growth from 2 to 50 planes is a testament that we have a winning product - low fares and quality flying experience."

AirAsia now has a fleet of 15 A320s - the 15th A320 arrived today in Kuala Lumpur - and 35 Boeing 737-300s. It has another 85 A320s on order which will be used to replace the 737-300s and provide another 50 growth aircraft that will allow AirAsia to hit the 100 aircraft mark in 2011. AirAsia should reach the current size of Easyjet and Ryanair in 2012.

AirAsia already operates 300 flights per day on 70 routes across 10 countries. It has already carried more than 26 million passengers since launching in December 2001 and expects to carry another 18 million passengers in 2007.

How can a low-fare carrier operate in a country that prohibits low fares?

That is the question China's new stable of private carriers must grapple with as they try to compete against more established government-owned airlines.

The parent of Spring Airlines, China's first self-proclaimed low-cost carrier, has been fined 150,000 yuan ($19,000) for selling tickets too cheaply. Chinese regulations prohibit airlines and travel agents from offering discounts of more than 45% off full standard fares, which are set by the government.

Jinan Spring Holiday Travel, which launched Spring Airlines in 2005, allegedly sold over 400 Spring Airlines tickets at the end of November between Jinan and Shanghai for only one yuan, well under the government regulated minimum one-way fare on the route of about 500 yuan.

Shanghai-based Spring is China's second private carrier after Tianjin-based Okay Airways and was the first to unveil a budget carrier strategy, which is supposedly modelled after Southwest Airlines. There are now two other private carriers in China - Wuhan-based East Star Airlines, and Chengdu-based United Eagle Airlines. Hainan Airlines also has established a low-cost operation earlier this year known as Lucky Air.

While several of these carriers claim to be low-cost they acknowledge they are not true low-fare carriers because the government does not allow them to sell heavily discounted tickets. Low-cost is also really not an accurate description given China's high operating costs and taxes. Most operating costs, including airport charges, are fixed and set by the government at relatively high rates compared to other countries. So far China simply does not seem to be interested in opening up China to true low-cost players despite all the international hype about the potential of China's low-cost market.

if the Chinese government were interested in creating a low-cost market which would enable more of its citizens to fly (something the government may not want to encourage) it would have to allow airlines to sell tickets at whatever prices they see fit. There is nothing stopping low-cost carriers from North America, Europe or even other parts of Asia from selling promotional fares of less than one euro, dollar or ringgit. Spring claims to be profitable although it only operates four Airbus A320s in a high operating cost environment. If this is really the case how can it be low-fare or low-cost?

Delta Air Lines has become the first US major in five years to operate a service to the African continent.

The carrier's inaugural flight to Johannesburg landed yesterday (see picture above), completing a 20-hour journey from Atlanta via Dakar in Senegal.

Delta, which has never before operated any routes to sub-Saharan Africa, will also launch a service next week from New York to Accra in Ghana.

Africa has not been served by any US major since 2001, when both Delta and TWA dropped their Cairo services. But the US government, by signing open skies agreements with several African countries, has been trying to promote more direct air links with Africa. Miami airport also has been holding an annual conference with the Foundation for Democracy in Africa to promote more US-Africa links. More flights between the USA and Africa are seen as a must if efforts to boost trade and economic ties between the two are successful.

Miami is now trying to woo South African Airways (SAA), which used to serve Miami, and Kenya Airways, which is looking at adding its first US destination. SAA also flew to Atlanta until earlier this year. The switch prompted Delta, which had been a codeshare partner with SAA, to look at launching its own Johannesburg service. Delta recently inked a codeshare pact with small domestic carrier Nationwide Airlines, which will carry Delta's code on its flights within South Africa.

Not many US majors, however, seem interested in Africa. Even Delta, which is looking to further grow its market-leading transatlantic operation, says no more African destinations are on its radar screen. Delta says forward bookings of its new African routes are encouraging, with most sales to Ghana generated from the USA and the Johannesburg flight receiving equal bookings from South Africa and the Americas.

Below is a picture of (left to right) US Consul General Stephen Coffman, Delta vice president of sales and affairs for Europe, Middle East and Africa Frank Jahangir and chief executive of South African tourism Africa Moeketsi Mosola cutting the ribbon following Delta's arrival yesterday at Johannesburg.

The first in a potential wave of new premium class products debuts today as Singapore Airlines (SIA) places its first Boeing 777-300ER into service.

SIA is outfitting its new Boeing 777-300ER fleet with new first, business class (pictured above) and economy class seats which, as generally is the case with SIA in-flight products, will likely be followed by many of the world's leading airlines.

The business and first class seats, at 30in and 35in, instantly become the widest in commercial service. The economy seat is also more spacious and features a wider seatback television screen, an AC power supply socket and a USB port.

SIA last week took delivery of its first two of 19 777-300ERs on order. The first aircraft will be placed into service tonight on SIA's Singapore-Paris route. From tomorrow the aircraft will also be used during the day to operate one of SIA's Singapore-Hong Kong services.
SIA competes mainly against Air France to Paris and Cathay Pacific Airways to Hong Kong, which is introducing an equally innovative new economy, business and first class seat next year.

More SIA routes will receive the product refresh as SIA takes another eight 777-300ERs over the next seven months. From 20 December, SIA will begin using the aircraft on its thrice weekly Singapore-Milan-Barcelona route. From January it will also be used from Singapore to Zurich and from Singapore to San Francisco via Seoul. In May, one of SIA's two daily Singapore-Frankfurt service will be upgraded to the 777-300ER (pictured below).

SIA believes the new product will allow it to boost premium class revenues - it will charge more for business class seats on the 777-300ER than its other aircraft and the new seat may woo business travellers away from other airlines. "The cabin products set a new benchmark for the airline industry. We have transformed what customers can expect in the cabin, and taken account of the clean-sheet designs of the new generation aircraft to include new features," says SIA chief executive Chew Choon Seng.

Growth in the London market could be further constrained by a local government decision this week to block a proposed increase in traffic at Stansted airport.
Uttlesford District Council has rejected a proposal from British Airports Authority (BAA) to increase a cap at Stansted from 25 to 35 million passengers annually. Low-cost carriers, which generate the majority of traffic at Stansted led by Ryanair and easyJet, will now have to try and find another London area airport to handle their growth.
But channelling growth to another airport will be difficult given similar local opposition to expand Luton, another London satellite airport popular with low-cost carriers. London's two close-in airports, Heathrow and City, are completely off limits to low-cost carriers because of slot constraints while Gatwick, which is used by easyJet and to a much lesser extent Ryanair, is also nearly at capacity.
Luton and Stansted both only have one runway and plans to expand operations on their single runways - yet alone add a second runway - face stiff opposition from community groups. Opposition to BAA's proposal to increase the cap at Stansted was led by the group Stop Stansted Expansion (SSE), which claims: "BAA's plans would have had an appalling impact on this predominately rural area as well as generating the equivalent of an additional five million tonnes a year of carbon dioxide emissions at a time when tackling climate change is the most pressing issue facing the world today."
Indeed increasing environmental challenges are now dominating the agenda of major airline industry trade groups in Europe and have become a huge barrier to airport expansion in the region. Airports Council International Europe (ACI-Europe) is warning of a looming capacity crunch and is concerned continued setbacks and long delays in securing approval for airport expansion or new airport projects will impede growth from next decade. Environmental issues and opposition from local communities, which seem to often fail to recognise the important role airports play to local economies, are by far the largest causes to such delays.
The airlines are not exactly helping the cause by opposing several airport expansion projects, on the grounds they will have to pay for them through higher user fees. EasyJet and Ryanair have led opposition to BAA's plan to build a new terminal at Stansted, although this plan along with a proposed second runway is separate than the more short-term proposal to increase the annual passenger cap to 35 million using the existing infrastructure. IATA also has been an opponent to BAA's long-term Stansted expansion plan and is concerned the project could be partly covered through cross subsidies from other BAA airports.
BAA's new owner Ferrovial will likely be encouraged by the UK government to sell off some of its airports following the conclusion at the end of this year of a review by the UK's Office of Fair Trading. Ferrovial could find it more difficult to fetch a good price for Stansted if Ullesford's decision, which will likely be appealed by BAA, is upheld. And if the airport is sold, its users will almost certainly ask for the new owners to guarantee a reduction in user fees, making it impossible to fund any major expansion should in the unlikely event it receive government approval.
The combination of all this increasingly bitter opposition from a wide section of groups could just lead to a standstill with no airport upgrade projects going forward anywhere in Europe. There are already huge capacity constraints in London, Dublin, Frankfurt and several other European cities. If this problem spreads to more cities it will not be good for anyone involved in this industry.