Brendan Sobie: January 2007 Archives

For IATA and its dwindling membership, 2007 is the year of deadlines.

All carriers have until the end of December to conduct the IATA Operational Safety Audit (IOSA) and transition to 100% e-ticketing.

That sounds a bit ambitious because 45% of its members have still not been audited and 27% of its members are still issuing paper tickets. But IATA director general Giovanni Bisignani was in London last week to assure reporters that both deadlines will be met even if that means kicking out members.

IATA already has ejected six members for not meeting the first of three IOSA deadlines - 31 December 2006 - for contracting one of the seven companies licensed to conduct the audit. More members will likely fail to meet the second deadline - 31 December 2007 - for having the audit conducted. Even more will potentially miss the third and final deadline - 31 December 2008 - for passing the audit, including putting in place any remedial actions required by the regulators.

Bisignani acknowledges "probably not all will pass" the audit but he says IATA is helping members improve their safety standards and pass through its $3 million "partnership for safety" programme.

So for only 133 of IATA's 244 members have had the audit done, not very impressive considering the programme was launched in 2003. Of these 133 carriers, 100 have passed and the other 33 are still waiting for the results.

Bisignani brushed aside questions that IATA is behind the curve because 45% of its remaining members still have not had the audit done although the IOSA programme is now in its fourth year. He says the seven licensed firms can realistically conduct 111 audits in a single year. He says work was deliberately slow for the first three years to allow the accredited firms to build up experience, understand the standards and make sure they apply them equally across the industry.

Bisignani also claims IATA at the end of 2006 was 3 percentage points ahead of its 70% e-ticketing target. But the last 27% is the hardest. In the Middle East, carriers are only 15% of the way there and in Russia it is 0%.

"We have some worries," Bisignani acknowledges. "A country we have many problems with is Russia."

E-tickets are still illegal in Russia. The Russian government has promised IATA it will soon legalise them, but that will only give carriers about 10 months to actually implement e-tickets. "It's not just taking away paper. It's the need to change the back office," Bisignani says. "It needs major investment."

He says members that miss the 31 December 2007 100% e-ticketing deadline not be kicked out but will have "major problems because paper tickets will not be accepted anymore".

IATA also is behind in its goal for implementing bar-coded boarding passes. Bisignani says 33 airlines now use them and IATA's 2007 target is 80 airlines. IATA also needs another 20 airports to introduce common-use kiosks to meet its 2007 target of 70 airports. IATA has made a lot of progress since launching its "Simplifying the Business" initiative in 2004, designed to cut costs by $6.5 billion, but it's not quite there yet.

China Southern Airlines has become the first Chinese carrier to operate a scheduled service to Africa.

China Southern last week launched a thrice-weekly service from its Guangzhou hub to Lagos in Nigeria via Dubai. Lagos should be the first of several African destinations served by Chinese carriers given growing trade between China and African countries. China Southern says China-Africa trade has been growing in recent years at a 23.6% annual clip. Three African carriers - Air Zimbabwe, EgyptAir and Ethiopian Airlines - already serve this fledging market with services to China from their respective hubs.

"China's second largest trading partner and exporting country in Africa, Nigeria is of great importance to China," says China Southern chairman Liu Shaoyong.
He adds that 30 Chinese companies now have operations in Nigeria with total accumulated investment of over $100 million.

Liu was on China Southern's inaugural flight to Lagos. During his subsequent visit of Nigeria he met with Nigerian president Olusegun Obasanjo (see picture).

Singapore's Tiger Airways has become the first carrier to operate scheduled international services at Udon Thani Airport in northeast Thailand.

The budget carrier earlier this week launched a thrice-weekly flight between Singapore and Udon Thani, which is also the only low-cost gateway to Laos. The Laotian capital Vientiane, which is only served by three full-service carriers, is only 75km or a one-hour drive from Udon Thani.

"Tiger Airways is delighted to be the first international carrier to operate scheduled flights at the new Udon Thani 'International' Airport," says Tiger chief executive Tony Davis. "It is a great honour to be the first international carrier to serve Udon Thani and the people of northeast Thailand as well as providing greater access to Vientiane and Laos."

Davis is pictured below (blue shirt and khaki pants) after the inaugural flight landed in Udon Thani on 9 January. He is accompanied by local tourism authority directors and the Thai and Laotian ambassadors to Singapore.

Tiger now serves every region of Thailand, with 122 flights a week from Singapore to the capital Bangkok as well as Chiang Mai in the northwest and Hat Yai, Krabi and Phuket in the south.

Tiger has been able to rapidly expand its Thai operation because Singapore enjoys open skies with Thailand. But restrictive bilaterals with most other Asian countries have prevented Tiger from launching many potentially viable routes, including a service to Laos. The small landlocked country is an up-and-coming tourist destination but the only low-cost link is provided via Udon Thani, which is also served from Bangkok by Thai low-cost carriers Nok Air and Thai AirAsia. Vientiane is only served by tiny flag carrier Lao Airlines as well as Thai Airways and Vietnam Airlines.

When you get Michael O'Leary going on a hot topic such as the environment, the Ryanair founder and chief executive just does not shut up. At a press conference this morning in London, O'Leary went on like a broken record, reiterating Ryanair's stance on the environment, including its opposition to a controversial European Commission (EC) proposal to include aviation in its emissions trading scheme (ETS), and the UK's plans to double its air passenger duty (APD) from ｣5 ($9.66) to ｣10.

Ryanair has been in the spotlight in the UK since last week when it was called "the irresponsible face of capitalism" by UK environment minister Ian Pearson. Ryanair immediately fought back, pointing out the Dutch Consumer Organisation had recognised it as "Europe's cleanest and greenest airline". This week Ryanair is trying to keep its spin on the environment in the headlines by launching a buy one flight get a second for free sale that "celebrates being Europe's lowest fare and greenest airline".

The promotion, which will run from 11-18 January, will give away up to one million seats with Ryanair covering all the taxes. But wait a second - how is giving passengers who are already flying once over the next month free seats on a second flight they wouldn't normally take celebrate the environment? As several reporters pointed out, passengers will simply be persuaded to take frivolous journeys.

Of course that is not how O'Leary (pictured below at an earlier press conference) sees it. He responded the promotion will "encourage a lot of people to fly on Europe's greenest airline" instead of "Europe's polluters", his phrase for carriers that operate older-generation aircraft.

Ryanair now operates a fleet consisting entirely of new-generation Boeing 737-800s, a fact Pearson apparently was not aware of. "Clearly he doesn't know what he's talking about," O'Leary says, adding Pearson "probably was interviewed by the Guardian at a pub late at night".

O'Leary believes Pearson's description of Ryanair is part of a "scare story" politicians have fabricated to convince the public the fast-growing aviation sector is increasingly responsible for global warming. He thinks aviation is being singled out unfairly because, as a recent report by UK economist Nicholas Stern concluded, aviation accounts for only 1.6% of global green house emissions. Some politicians claim this figure will quickly double as the size of the aviation industry doubles, but O'Leary says they are ignoring the impact of new aircraft and engine technology. He claims even if the industry doubles in size advances in technology will ensure aviation's contribution to global greenhouse emissions stays below 2%.

"Aviation is not the cause of the problem," O'Leary says, adding nobody is attacking the rapid construction of new power stations in China."Why are we rolling around pulling wool out of our navels about cheap flights in Europe?" asks O'Leary. "It's not the case of the problem."

O'Leary does not think the proposed ETS is a potential solution because it "won't do anything to reduce the impact on the environment". Instead he calls ETS "another means of taxing the ordinary passenger".

Meanwhile, O'Leary says he has written to UK treasury chief Gordon Brown to ask him to withdraw the planned 100% increase in the APD and explain where the extra ｣1 billion in revenues the higher ticket tax will generate will go. "Stop taxing cheap flights," O'Leary urges, pointing out business class passengers pay the same amount. "If you want to tax someone, tax the rich."

Ryanair expects its ｣28 average fare will increase to ｣33 at the beginning of February, when the larger APD tax will be implemented. Certainly this will not be the last time we hear from O'Leary whining on this or just about any other topic impacting the aviation industry.

Airbus can't build A320s fast enough for AirAsia. Earlier this week the Malaysia-based low-cost carrier ordered another 50 A320s, lifting its total firm order to 150 aircraft.

That may seem ambitious for an airline that now only operates 50 aircraft, including 15 A320s and 35 Boeing 737-300s which will be phased out before the 150th A320 arrives in 2013. But chief executive and co-founder Tony Fernandes is quick to point out that at 500 million people, South-east Asia has a population bigger than the USA and Southwest Airlines already operates over 400 aircraft. And if you include the rest of Asia, there is a total population of two billion, most of which is within the reach of an AirAsia A320.

"Just in case you thought we were going bananas, we are conservative people," Fernandes insists.

In choosing a venue to sign the new 50-aircraft order, Fernandes decided to return to London, the city he was in when he first decided he would launch a low-cost carrier. Fernandes, then a music industry executive, was in London six years ago during a stopover on his way back to Kuala Lumpur from New York when he saw easyJet founder Stelios Haji-Ioannu on television.

"London is a very special place to me," Ferandes said at the press conference (see picture above) announcing the order. "(In London) I decided my next life would be running a low-cost airline."

He recalls how he took a train to London Luton Airport to check out how low-cost carriers operate. In a later trip to London he went to Stansted, where he met for the first time former Ryanair executive Conor McCarthy "at the lowest-cost coffee shop in town". McCarthy (pictured below at the far left) would become a major investor and co-founder of AirAsia, which launched in late 2001.

The new 50-aircraft order ensures AirAsia "will become the Ryanair and Southwest Airlines of Asia", Fernandes says.

The AirAsia group, which now also includes affiliates in Indonesia and Thailand, carried 15 million passengers in 2006 and expects to carry 21 million passengers in 2007, which Fernandes says will make AirAsia bigger than most large Asian network carriers, including Malaysia Airlines, Thai Airways and Singapore Airlines.

Fernandes is proud to say AirAsia by 2013 will become one of the largest A320 operators in the world and by far the largest in Asia. In 2015, Fernandes estimates AirAsia will carry 60 million passengers to 70 destinations. For that to be achieved, AirAsia will have to exercise its options for another 50 A320s, lifting its total firm order to 200. "All 200 aircraft would be needed for the three franchises" Fernandes says, adding new franchises are not required to support the group's potential 200-aircraft fleet.

He says the A320s are helping AirAsia reduce its available seat kilometre cost from 2.5 cents to only 2 cents. "With our cost base we can reach 500 million people," Fernandes says.

"That's the lowest cost I've seen anywhere," John Leahy, Airbus chief operating officers customers, said at the contract signing.

Leahy signed his first deal with Fernandes in late 2004, for 40 A320s and 40 options. A second 20-aircraft contract was signed in March 2005. In July 2006 they signed a contract for another 40 firm aircraft. The new order, for 50 firm aircraft and 50 options, means AirAsia will take an average of almost two A320s per month.

"We wish John could deliver them faster," Fernandes says, joking he has been trying to convince Leahy to cancel the Airbus A380 programme to make room for more A320s.

Not surprisingly Fernandes isn't exactly paying the $70 million per aircraft list price. "I would like to see in my lifetime Conor McCarthy and Tony Fernandes actually paying catalogue price," Leahy jokes. "We'll settle for what we can get here."

Airbus will have another opportunity to praise AirAsia next week in Toulouse when the carrier takes the 3,000th A320 to roll off the assembly line. AirAsia is just about the best story Airbus has to recount these days, when A350 and A380 delays seem to capture the headlines.

It used to be simple. Low-cost carriers stuck to short-haul point-to-point routes, offered no frills and refused to forge alliances with other carriers. Network carriers offered frills and operated from hubs a mix of short-haul and long-haul routes with multiple partners.

The creation of AirAsia X just throws all that out the window. Tony Fernandes' empire now includes a five-year-old pure low-cost short-haul operation, a five-month-old regional turboprop operation and soon a long-haul supposedly low-cost operation. It seems Fernandes (pictured below), a flamboyant former music industry executive, is trying to become another Richard Branson, not another Herb Kelleher.

Fernandes looked briefly at the long-haul low-cost sector before launching Malaysia-based AirAsia in late 2001 but quickly determined it would not work. Long-haul, low-cost is an oxymoron and simply too complicated. Low-cost carriers are about keeping things simple - one type of aircraft, quick turnarounds, no frills and no interlines or alliances.

Fernandes first muddied the model last March, when he agreed to take on thin regional routes in order to complete a watershed deal with the Malaysian government. Fernandes so desperately wanted Malaysia Airlines' (MAS) subsidised domestic operation off his back he agreed to assume responsibility for MAS' loss-making turboprop operation in rural eastern Malaysia in exchange for MAS relinquishing 99 of its 118 domestic routes. AirAsia first said it would subcontract the turboprop operation to a totally independent third-party, thus keeping true to its pure low-cost model. But in the end the third-party, Fly Asian Xpress (FAX), turned out to be owned by Fernandes and some of his closest business partners.

Now FAX will be used to back the new long-haul operation, AirAsia X, and as part of the deal publicly listed AirAsia will take a 20% stake in FAX. So now we have a low-cost carrier parent company - with a majority stake in Malaysia-based AirAsia as well as 49% stakes in affiliates in Indonesia and Thailand - owning part of a regional carrier. And the same regional carrier from July will operate widebodies - most likely Airbus A330s - in a two-class configuration on routes to the UK and China. What is low-cost about that?

FAX will undoubtedly call its new AirAsia X operation low-cost but nothing about FAX follows the traditional low-cost model. FAX will have at least three types of aircraft, a second class on the long-haul flights with almost flat-bed seats and possibly even an alliance. Fernandes is talking to Virgin Atlantic and easyJet about a potential tie-up with AirAsia X.

Of course the differences between low-cost and network have been fading for some time. Network carriers all over the world have been gradually taking on more low-cost characteristics while some low-cost carriers such as India's Kingfisher now look more like network carriers. Further proving the blending of the once distinct models, AirAsia X will be the world's fourth so-called long-haul low-cost carrier, following Australia's Jetstar International, Oasis Hong Kong Airlines and Viva Macau. These three, all of which launched late in 2006, all have two classes with some frills.

Congratulations Herb, Southwest Airlines was the first and perhaps soon will again be the world's only true low-cost carrier.

Has the drive for ancillary revenues gone too far?

On a two-hour easyJet flight I was on four days ago, I was offered for sale not only snacks and beverages but gaming cards, train tickets, take-away small champagne bottles and a teddy bear the flight attendant promised can be sold for a profit on eBay.

I'm all for low-cost carriers keeping air fares low by selling goods on their website and on board aircraft. But the non-stop peddling of items can become annoying, especially on a flight where you can't drown out all the hawking with in-flight entertainment.

The Airbus A319's public address system was on almost for my entire flight as the lead flight attendant tried repeatedly to persuade passengers to buy certain items. Gaming cards were sold not once but twice on the short flight and we got a full recount of recent winners that had travelled on earlier flights. Small champagne bottles were offered not only for in-flight consumption but it was suggested passengers should buy extra bottles and take them to New Years Eve celebrations.

EasyJet has been at the forefront of industry efforts to drum up new ancillary revenues. In the 12 months ending 30 September 2006, the carrier generated EURO131 million ($255 million) in ancillary revenues, an increase of 34% compared with the previous year. That equates to 86 pence per passenger and clearly, if sales pitches on their flights are any indication, there is room for more revenue expansion.

As part of its drive to further increase ancillary revenues in its current fiscal year, easyJet recently began charging for early boarding. But on the flight I took easyJet's "Speedy Boarding" product only guarantees you a choice seat on the bus that takes you to the aircraft. In the end it didn't matter if you checked in early or bought the "speedy boarding" privilege - there was a mad dash to the front and rear staircases when the bus arrived at the aircraft. In fact, the people who checked in last ended up boarding the bus last, giving them the best position when the doors of the bus again opened when it arrived at the aircraft.

Onboard gambling represents another potential new source of ancillary revenues. Ryanair, which generated EURO259 million ($339 million) in ancillary revenues for the year ending 30 September 2006, will introduce onboard gambling later this year. EasyJet has so far elected not to follow its rival and introduce onboard gambling. But at least onboard gambling is a quiet activity, with passengers gambling using their mobile phones and other GPRS-enabled devices such as Blackberries.

In a new twist to in-flight entertainment offerings, Israir Airlines has installed a Torah - a scroll of Jewish laws - on a Boeing 767-300ER.

The Israeli carrier says in a statement that it has become "the first airline to maintain an authentic Torah Scroll on board its aircraft".

The "Sky-Torah" was completed last week by a specially trained scribe in Florida and installed on Israir's lone 767. Israir had a special ceremony at New York's JFK airport to welcome the torah "with singing, dancing, live music and important Rabbis and dignitaries in attendance".

Israir uses its 767 to compete with its much larger rival, El Al Airlines, on the popular New York-Tel Aviv route. It also operates a Boeing 757 on European routes and three ATR 42s on domestic services.

The introduction of a Torah on Israir flights, which it says will enhance the prayers of its religious passengers, comes less than one month after a major dispute erupted between El Al and Israel's ultra-Orthodox Jewish community. Since its launch in 1948, El Al has traditionally not operated flights on the Jewish Sabbath, which starts at sunset on Friday and ends at sunset on Saturday. But at the beginning of December El Al operated several flights on Sabbath to transport passengers that were stranded due to flight cancellations caused by an airport workers' strike.

The ultra-Orthodox Jewish community, which accounts for about one quarter of El Al's passengers, threatened to boycott El Al after the rare Sabbath flights were completed. The boycott was called off last week after Israel's ultra-Orthodox Jewish community completed an agreement with El Al requiring the airline to maintain its revenue-losing policy of not flying on Sabbath. In the event of an extraordinary circumstance, El Al reportedly has agreed to consult with an ultra-Orthodox rabbi before operating any future flights on Sabbath.

Israir, founded in 1996, does operate some flights on Sabbath. But its Sky-Torah could entice religious passengers to fly Israir. While flying, Jewish religious passengers congregate in small single-sex groups during prayer times, often at the back of the aircraft or in the galley. Depending on the timing of the flight, prayers sometimes are required several times on a flight between New York and Tel Aviv as the aircraft crosses several time zones.

While prayers do not require a Torah, the presence of a Torah enhances a prayer experience and turns the aircraft into a virtual synagogue. The Torah scroll is no small book - it is a bulky handwritten and complete body of Jewish laws (see picture above). The Torah is typically only brought out and unscrolled on Sabbath and select holidays. Each Sabbath a unique section of the scroll is read during the prayer session. But the presence of a Torah on an aircraft during non-Sabbath days provides an environment conducive to praying and gives Israir an important religious symbol all Jewish passengers can identify with.