Mark Pilling: March 2006 Archives

Refreshingly honest is the only way to describe Aer Arann chairman Padraig O'Ceidigh. "What you see is what you get with us," he says, addressing the Airline Business/UATP Airline Distribution conference here in Dublin yesterday (29 March). What you do get is one of Europe's fastest growing regional airlines which O'Ceidigh's team has turned around from a small Irish island-hopper back in 1994 to a business than will turn revenues of some Euro100 million this year.

And there are no flash powerpoints or consultant plans to woo the audience on Aer Arann's great strategy to achieve this feat. "Our model was put together on the back of an envelope," he said. "If you'd told me 10 years ago we are going to have an airline that is European regional airline of the year I would have said we're not going to get there. But we have done it, one step at a time. One of the key fundamentals I had was to keep it as simple as we possibly could."

The transformation has been achieved largely by going from being totally dependent on selling its tickets via the Aer Lingus distribution system to direct sales. It was a move forced on it after the market crisis following 9/11. "In 2001 I realised all our cash is with Aer Lingus - it's not with us." In a downturn that spelt bad news for Aer Arann. "You've got a problem when suppliers start looking for upfront cash and your cash is with another carrier."

"We'd hit a wall, our money was being drained from us. We decided on a radical change - to be standalone. It was a big risk but we made a bold call and decided to be a point-to-point regional airline." It has not been an easy ride, said O'Ceidigh. For two years he didn't take any salary out of the company.

But the leap of faith has worked. Aer Arann now sells 92% of its tickets directly, compared to 15% four years ago. It sold just 8,000 seats on its old interline arrangements last year. With its fleet of 12 ATR turboprops it carried 1 million passengers in 2005. This will rise to some 1.3 million passengers this year, he said.

Aer Arann's achievement is all the more impressive because it has taken place in the backyard of two of the industry's most competitive carriers: Aer Lingus and Ryanair. So what of the future: "All I can tell you is we're going to do our best," said O'Ceidigh.

With all the recent hullabaloo about Ryanair, following a UK television programme in mid-February about safety lapses, there can only be one way to find out the real truth behind what really goes on during a flight with the Irish low-fares giant - try it yourself.

That's what I have just done for the first time as I travelled over to Dublin this afternoon to attend the Airline Business/UATP Airline Distribution conference. I must say I am disappointed, for Ryanair's product and service did just about exactly what it claims on the tin (to paraphrase a UK commercial for Do-It-Yourself products).

It was cheap: the London Gatwick-Dublin return cost a mere ｣57.10, with only ｣23 of that attributable to the actual airfare. Some ｣30 of taxes gobbled up most of my money.

It was on-time to the minute. In fact, I timed the turnaround at Gatwick, which was an impressive 31 minutes from the Boeing 737 stopping at the gate to the departure for Dublin. It only took this long because of refuelling, we passengers were all settled and ready well before.

There were no-frills, but that is to be expected with Ryanair.

And on the safety and security side it all seemed to go like clockwork. All passports were checked properly, all procedures were followed to the letter.

My only gripe is that it was almost a non-experience. The staff could have been robots they were so disinterested and perfunctory about their task. This is the one area that Ryanair could do better - some simple warmth, a smile, some interest in the customer costs nothing and generates plenty of brand loyalty.

But I did get value for money didn't I, so I can hardly complain. Which is just what a Ryanair executive would say.

I've got another flight on thursday with Ryanair when I go home. I suspect the truth will be much the same. We'll see.

It is perhaps rather appropriate that chief financial officers (CFO) are generally pretty somber chaps. I mean who wants a bean-counter that's cracking the funnies when there's the fuel hedging programme or the latest yield figures to discuss?
So, the assembled German media (plus the odd interloper from the airline press corps) were initially baffled and then pleased to hear the personal observations of Dr Karl-Ludwig Kley (seen left at the press conference with Wolfgang Mayrhuber), CFO of Frankfurt-based Deutsche Lufthansa AG, at the aviation giant's annual press conference on Thursday 23 March. The normally dour Kley (although I am told he has a wicked sense of humour when off-duty) allowed himself this liberty as, after all, he is leaving. "I have mixed feelings standing here," he said wistfully, addressing the packed house of reporters. "A little bit of me will remain here at Lufthansa."

He didn't elaborate which bit, but certainly not his ambition, which is hopefully going to be satisfied with the deputy chief executive's job (and perhaps later the top job) at German pharmaceutical conglomerate Merck.
"Lufthansa is a fantastic company, it has fantastic products…and a management team that is the envy of others," grinned Kley, who has been with the carrier over eight years. That team has stuck it out through thick and thin. "The executive board has always held together and never had any disagreements on strategic matters," he said. What never? Come on.
But being the CFO of Lufthansa is naturally a 24-hour job. "I can't remember any day when I was able to sit back and relax - in particular the past 12 months has been very challenging." As I consult the 141-page annual the small matter of a pay check for Euro 475,000 ($570,000) and last year's bonus of Euro 385,500 is his not ungenerous yearly compensation for all this hard work.
Kley, who is being replaced as CFO by insider and rising star Stephan Gemkow (latterly of Lufthansa Cargo's executive board and seen below), says the company has "reached new heights and will continue to climb".

Somewhat needlessly he added: "I will remain a customer of yours," with a nod to his soon-to-be-former boss and executive board chairman Wolfgang Mayrhuber. Well that was nice to hear, and I imagine Merck has a nice juicy corporate deal with Lufthansa too so that Kley can still enjoy plenty of upgrades to first class.
Mayrhuber was taking this all very well. I mean who likes their CFO to hand in his cards just a few weeks before the main financial event in the calendar? But Mr Mayrhuber is nothing if not an absolute gentleman and a professional. "Dr Kley was a very spontaneous and imaginative colleague…we could rely on him…and his work has always been excellent," he said, paying tribute to his outgoing finance guru.
Now, what else? Oh yes, a little about that work. In 2005, Lufthansa Group revenue rose by 6.5%, operating profits grew by 50.7% and net profits climbed by 12.1%. But that's another story.

This is a photograph guaranteed to scare the life of most mortal airline chief executives worried about the market power of Emirates. And it doesn't contain any potentially game-changing 500-plus seat Airbus A380s yet.

The carrier, shown here with a large chunk of its fleet gathered at its Dubai hub and powerbase, recently took delivery of its 90th aircraft, a Boeing 777-300ER. By the end of the year it will reach the magic 100-aircraft mark, and will easily exceed it during 2007. What this means is that aircraft in Emirates livery will soon be visited a major city near you, or if they are already in town, they will be upping frequency.

Such seemingly unstoppable, and by all accounts profitable, growth, makes others nervous and jealous. And the story is far from over. As its chairman, HH Sheikh Ahmed bin Saeed Al-Maktoum, says: "The Emirates fleet, which started on a humble footing of just two leased aircraft in 1985, has since doubled in size every five years on average."

That progress will continue it seems because the airline has over 100 aircraft on order, including 45 A380s and 60 777s, and more orders to come.

Ryanair boss Michael O'Leary was a happy man on Friday 16th March (quite appropriately St Patrick's Day) as his horse War of Attrition won the prestigious Cheltenham Gold Cup in one of the UK's richest races.

O'Leary says he was given the horse by his brother Eddie four years ago and it has gradually been improving since then, culminating in its scorching performance in the Gold Cup. A delighted O'Leary also commented on the horse's apt moniker 'War of Attrition': "He's well-named - like his owner, always causing trouble!"

The Cheltenham Racing Festival, which takes place over four days in the south-west of England, will prove to be a winner for O'Leary in another way for his airline will have carried hundreds of Irish racing fans over the Irish Sea to the meeting. It is no surprise to see Ryanair dedicating a special page on its website for racegoers.

An invitation to an airline chief executive's home for a press reception is a rare thing. So it was with relish that I accepted the kind offer of Naresh Goyal, the irrepressible founding chairman of India's Jet Airways, to attend a little soiree at his house in London earlier this week.

At the behest of his new PR gurus, London's Cohn & Wolfe, Mr Goyal was bubbling about his Airbus A340 services between London and India, which only started up in May 2005 and are already achieving about a 75% load factor and capturing some 23% of London-India marketshare.

I imagine Mr Goyal does not have your average airline chairman's pad. In fact, the London home of this Indian entreprenuer, who is on paper a billionaire, is in one of the capital's most exclusive locations overlooking Regent's Park. The entry road is packed with black BMWs, Mercedes-Benz's, Range Rover's and all manner of large cars. Next door to his house a plaque tells visitors that British composer Ralph Vaughan Williams lived there during the middle of the last century.

The lavishly furnished reception room at Mr Goyal's house is bustling with activity. The delicious scent of the food, prepared by its London-based in-flight caterer Bombay Brasserie, wafts around the gold mirrors and opulent sofas. The wine is taken from its on-board selection. Everyone is there, including Mrs Anita Goyal, the head of the house, and Jet's executive vice-president marketing & sales, except Mr Goyal. Guess what, this workaholic is on the phone. And there is nothing better that he likes to do than talk - mostly about his airline, definitely about doing deals and making connections, and always with the enthusiam of a newly born pup.

Along with a couple of keen scribes I corner Mr Goyal, firing off questions about his international ambitions and the pending takeover of Air Sahara. He is in his element, chatting about his airline's plans, calling across the room and breaking into the conversations of his other staff for details we ask for that he doesn't know.

So what did we learn?
* Jet is going to begin serving Amritsar to the north of capital Delhi in June with daily services from London with an Airbus A330 leased from ILFC.
* Mr Goyal expects to obtain Indian regulatory approval for its $500 million purchase of Air Sahara in a few weeks time.
* The Air Sahara purchase is mainly to acquire 22 aircraft parking slots at Mumbai, Delhi and Chennai, and other infrastructure like hangars and landing slots, giving Jet "five years of growth" in India's capacity constrained market. It includes no liabilities.
* The combined Air Sahara and Jet Airways will have annual revenues of around $2 billion.
* Jet has $445 million set aside in an escrow account to finance the deal.
Mr Goyal says a few words to the assembled gathering as the evening comes to a close. He has a lot of time for the UK press: "We like you because you don't write bad things about us." Compared to the Indian press corps that is - anyone who has been on the receiving end of the Indian media, which makes a pack of hyenas look friendly, knows what he means.

And within five years he wants Jet to emulate his airline idols - Cathay Pacific Airways and Singapore Airlines.

So I say my goodbyes, and look forward to the next invitation to look through the keyhole at an airline CEO's house. To be honest, I think I might have a long wait.

The axe is falling fast at Japan Airlines (JAL) as the carrier confirmed last week's stories (covered by our blog of 20 February) of deep rifts among its senior managers by announcing that chief executive Toshiyuki Shinmachi is resigning.

After a board meeting on this first day of March JAL said that Shinmachi will step down late in June to be replaced by 58-year-old company veteran Haruka Nishimatsu, the airline's senior vice-president finance and purchasing. Shinmachi, who was only made chief executive last year, is still on board however, as the airline's chairman.

Other executives to fall victum to the cull are executive vice-president Katsuo Haneda, senior managing director Hidekazu Nishizuka and managing director Takenori Matsumoto.

It's a mess at JAL at the moment.