Europe: July 2009 Archives

During British Airways' first quarter conference call this afternoon, chief executive Willie Walsh said: "We are looking at opportunities in the future to raise revenue through very limited unbundling of our product."

While stressing that BA will retain a clear focus on being a premium airline, Walsh said there may be some changes to its "current customer proposition".

When asked for an example, he said this could include changes to non-premium customers' baggage allowances although silver and gold card holders would be exempted from the move.

"We would still offer a bag free of change, but looking at excess baggage charges, there may be some revenue opportunities for us there," he said.

BA recently revealed that it is scrapping all meals, except breakfast, on its short-haul flights.

With the finalisation of easyJet's fleet plan through until 2012, it appears that board relations are now returning to normal in the wake of the well-publicised spat between founder Stelios Haji-Ioannou and his fellow board members.

Last November easyJet admitted that a "far-reaching debate" had broken out over its strategy. Stelios urged the board to rein in its expansion plans, refused to approve the airline's accounts and called for a reversal its non-dividend policy by 2011. At the same time he stepped up his shareholding and threatened to appoint himself as chairman.

EasyJet chairman Sir Colin Chandler promptly rebuffed the claims, saying the board had adopted a cautious fleet strategy and taken steps to conserve cash, reduce its growth plans and dispose of surplus aircraft.

But with the release of easyJet's third quarter interim management statement this week, it appears that all is well again in the easyJet camp. The board says it has agreed a fleet plan which will deliver 7.5% average annual growth in seats flown over the medium term. It adds that this "prudent growth" will enable the airline to take advantage "substantial opportunities" in the short-haul market, while at the same time maximising margins.

"One of easyJet's strengths is the flexibility of its fleet planning arrangements and the board will continue to regularly review fleet planning decisions in the light of economic conditions, the market opportunities available and the financial strength of the business," notes the board.

An easyJet spokeswoman declines to comment on the dispute between Stelios and the board, simply saying "it's all sorted now".

Stelios' spokesman says the easyJet founder is "comfortable with the current growth strategy and fleet plan", but he stresses that the plan remains "fluid", depending on the macro environment.

He adds: "The recession hasn't affected passenger demand as much as Stelios and some other commentators had feared after the collapse of Lehmans last autumn, but consumer confidence is a fragile thing at the best of times."

The spokesman goes on to say that EasyJet's organisational revamp (with the appointment of Bob Rothenberg and Keith Hamill as a non-executive directors, Sir Mike Rake as deputy chairman and Sir David Michels as chairman) has "strengthened the board considerably over the past six months, so Stelios is now more relaxed generally about the company's strategy and its risk-reward equation".

It seems that analysts tracking easyJet's progress are pretty comfortable with the feud resolution. NCB Stockbrokers equity analyst Neil Glynn says: "The issue looks to have been resolved for now. However the dividend question may recur in less challenging times."

Glynn believes easyJet has no plans to issue a dividend, given current demand pressures, but he adds: "In the medium term, when easyJet's bottom line and balance sheet look healthier, it (or a share buy-back) will likely come back to the table."

Andrew Fitchie from Collins Stewart says: "My understanding is the new chairman-elect has worked closely with Stelios. Management has toned down medium-term growth plans, which could accommodate some form of capital return post 2011. That de-risks the business and aligns everyone's interests. Job done!"

Fitchie also hints that the recruitment process for easyJet's new commercial and finance directors are "well advanced".

Regarding the dividend issue, he says this may come back on the table from 2011 onward: "They've said they'll be cash positive post 2011. Which means they either (a.) pay down debt, or (b.) pay a dividend and pay down debt. I'll bet they do (b.)."

EasyJet's fleet plan, taken from its third quarter interim management statement: 

EasyJet has joined the ranks of airlines sponsoring English football teams, and the difference between budget and full service carriers has perhaps never been so clear. So while Emirates and Etihad are supporting Arsenal and Man City's respective attempts for a seat at the English premier league's top table, EasyJet have opted to back its home-base club Luton Town in its attempts get back into the football league.

It has signed a two-year shirt sponsorship deal which the airline says enables to invest in the local community, help Luton in their campaign back in to the league and also enables the airline to reach tens of thousands of fans (this might be a bit optimistic for the visits of Barrow, Salisbury City and Forest Green Rovers!!!), and also judging by the colour of the kit, gives the team an added luminous advantage over the opposition during evening games.

As a follower of a similar once mighty football giant now suffering in the fifth division (as we like to call it), I have to applaud EasyJet's support of a smaller club.

And with the start of the new season less than a month away, I think its time to set up our own airline fantasy football league. By my reckoning there are now six English clubs sponsored by airlines (let me know if there are any I have missed!), so lets see which finishes highest in their respective leagues.

AIRLINE FANTASY FOOTBALL LEAGUE (Last year's position included)

FlyBe (Exeter - 2nd)

Emirates (Arsenal - 4th)

Etihad (Man City -10th)

Gulf Air (QPR - 11th)

FlyBe (Southampton - 23rd)

EasyJet (Luton -24th)

Interesting insight into the long-term Ryanair thinking from deputy CEO and chief financial officer Howard Millar during a first quarter results press conference in London today (27 July).

Millar said the carrier had no intention of slowing its growth because of the recession - which it now expects to drive average fares down a fifth in its current financial year - and is on track to reach its long-term aim of doubling traffic and profits from 2007 levels of 40 million passengers and €400 million by 2012.  It expects passenger levels to grow 15% this year to reach 67 million by March 2010. "We have no plans to cutback in growth. We think it's the ideal time for growth," he says. (photo: Adrian Pingstone)

But Millar adds: "Beyond 2012, we think that average growth will be more modest. You can't forever grow at 15%. I think [after 2012] you will see more modest levels of growth, of between 5% to 9%. [Growth of] 15% is not sustainable for ever."

Among the other key points from Ryanair today:

• Millar says while the carrier has been talking to Boeing (and that Airbus doesn't want to talk to the carrier at the moment) about its long-term large aircraft deal -  no deal is done and the carrier is prepared to wait.
• Ryanair has completed a $1.5 billion aircraft financing for 55 aircraft covering its deliveries until the end of Sep 2010
• The carrier has extended its fuel hedging position and is now 81% hedged for the full financial year - which it estimates leaves it on track for fuel savings of around €460 million over 2008/09
• Miller believes any separate long-haul operation, previously promoted by Michael O'Leary, is "several years away".  He says: "You must have really cheap aircraft and relatively low fuel prices. So far that hasn't materialised."
• Overall the carrier still aims to double its profits for the full year, but its more pessimistic yield expectations - having earlier forecast a 15% to 20% fall in yields for the year it now expects this to be at least a 20% fall - has prompted it put its full-year profit forecast at the lower end of its previous €200-€300 million range.

"We only have a limited horizon, so we have to use our best judgement," says Millar "But we have taken the view it is going to be a pretty tough winter. We think there are no signs of a recovery anywhere within Europe. There are no signs of green shoots. This winter will be tough for everyone."

A strong performance in the second quarter from Spanish low-cost carrier Vueling, marking its last quarter as a single entity with its first second quarter operating profit in its history.

  Vueling of course this month completed its merger with fellow Barcelona-based budget carrier ClickAir, but today's second-quarter operating profit of €13.4 million ($19 million) was for the old Vueling operation only. It marks a sharp turnaround on the carrier's financial problems of a couple of years ago - it made operating losses of €13.7 million and €11.3 million in the second quarters of 2007 and 2008 respectively - and the successful implementation of its restructuring and shift in emphasis to increase focus on business travellers. Vueling's second quarter operating profit was before restructuring costs, but the carrier says its profit over the last 12 months already offsets restructuring costs, enabling it to break even on a 12 month rolling basis.

Against this background and with the prospect of synergy savings from the merger - which new Vueling chief executive Alex Cruz, former head of Clickair, describes at its number one priority in the coming months - the airline is forecasting a full-year pre-tax profit for 2009 after restructuring costs

For more on the Vueling merger, check out our recent stories here.

And to read about another European budget carrier enjoying a record second quarter, see our recent blog about Norwegian. 

In echoes of the great movie "Catch me if you can" starring Leonardo DiCaprio (seen below at the UK premier in 2003), a British 17-year-old has been caught trying to convince officials that he was setting up an airline.

Read the full story here from UK newspaper The Daily Telegraph.

This brings to mind another teenager, Martin Halstead, who tried to set up an airline in the UK flying on some regional routes a couple of years back. I wrote this blog about Martin after meeting him at the Routes event in 2005.

Unfortunately his venture - Alpha One Airlines - bit the dust.

Anybody got any other stories about teenage airline entrepreneurs?

In amongst the doom and gloom of the current airline market, Scandinavian budget carrier Norwegian is today highlighting record second quarter pre-tax profits of NKR245 million ($37.5 million). This compares to an NKR86 million loss at the same stage last year and comes off the back of revenues up more than a fifth to NKR1.9 billion.

Norwegian's CEO Bjorn Kjos says: "Despite operating in an industry facing large economic challenges, we deliver the most profitable second quarter in the company's history. Our competitive cost base enables us to be profitable across our whole route network. Despite the industry wide decline in traffic figures, both in Norway and Europe, Norwegian has experienced a significant passenger growth."

If you want to find out more about Norwegian, then click here to read our Airline Business cover interview with Bjorn Kjos from December (shortly after the carrier had moved into Copenhagen to exploit last year's collapse of Sterling). It also gives a great excuse to run one of the stunning photos (thanks to Tom Gordon at Billypix) we got of Kjos as part of the cover shoot. 

Air France has today debuted its first A380, which is to be deployed on the daily Paris Charles de Gaulle-New York JFK route in November, detailing the aircraft will be outfitted in a 538-seat configuration.

This This marks the highest-density layout of any A380 so far put in service. Emirates opted 489 seats, Singapore Airlines 471 and Qantas 450. At the other end of the spectrum, Reunion-based carrier Air Austral is expected to take delivery of two all-economy A380s configured with 840 seats in 2014

You can find loads more on how the the early A380 operators configured their ultra-large aircraft in this article on A380 interiors by Max Kingsley-Jones from Flight International last September.

Yes this is the shock news that Ryanair and the UK's Advertising Standards Agency (ASA) at last agree on something. Both have welcomed news of the completion of the UK Office of Fair Trading's consideration of the ASA's referral over the clarity of Ryanair's website and advertisting - which has resulted in the Irish budget carrier taking a number voluntary steps to increase the clarity and transparency of its website (details here). Both welcomed it, but seem to have slightly different takes on it...

Here is the ASA statement:  "Following the ASA's referral of Ryanair in 2008 for repeated breaches of the non-broadcast Advertising Code and for refusal to co-operate with the self-regulatory system, we welcome the conclusion of the OFT's investigation and the progress that has been made."

While Ryanair says: "Ryanair welcomes today's OFT announcement which concluded this referral. We were happy to make the minor adjustments recommended by the OFT to improve our website and advertising.  Ryanair is pleased with the OFT's conclusion of this case which confirms Ryanair's belief that there was no substance to the ASA's original referral, and we welcome the fact that the OFT has dismissed the ASA's request 'to consider taking action against the budget airline Ryanair."

So lets give the last word to the OFT. "We welcome Ryanair's action which we believe will make it easier for consumers to access the information they need when choosing low cost flights," says OFT director of consumer markets, Mike Haley.

For more on the long-running spat between Ryanair and ASA, here's a story I wrote for out premium news service Air Transport Intelligence back in April last year...

Ryanair advertising spat heads for consumer-trading body
Graham Dunn, London (04Apr08, 15:04 GMT, 389 words)