A380 ‘answer to crowded airports’

Here is news that Airbus will enjoy all day today, and copies of this news will be circulating via email for weeks. Emirates president Tim Clark extolled the virtues of the A38O as a 'great crowd-puller'. He spoke at the World Travel Market in London where he said the aircraft was the answer for capacity constrained airports such as Heathrow.

Predicting a pick up in international travel, Clark said: "The sort of thing to do in places like Heathrow is to go with bigger aircraft. It will relieve pressure on those airports." He described the A38O as being more fuel efficient than expected and "hugely profitable". Clark added: “The faster you fly it, the less fuel it burns.” Emirates currently has five A380s operating 16 hours a day and running load factors of 9O%.

The questions jump out; more fuel efficient than expected? hugely profitable? His last quote simply defies physics. Once Airbus required a bigger fan on the engines to achieve QC4, it was possible the fuel burn was going to improve as bypass ratios grew. That the plane is "hugely profitable" is a statement that really deserves qualification. But don't expect it as the company's numbers have never been transparent. As always we have to take him at his word - and the airline is is going to acquire another ~50 of these planes. So imagine the impact if he's not blowing smoke.

His final quote really is something. We don't have the context of the statement but really does seem to defy logic. Again, we have to take the statement as is - but here's a question then: why can't the airline fly it between DXB and the US west coast? Is the plane's range really that marginal? Here's hoping the media with access to him get more detail and color on these statements.

In other news --

• Mexicana joins oneworld
• A sea change?
• Winter cometh
• McCain and the tanker (yes, again)

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EU LCCs continue to shine

Ryanair and easyJet reported another month of positive traffic results for October, with continued traffic growth and load factors at or above 85%. It seems clear that people are willing to "downgrade" to LCCs or stay at home. Ryanair transported 6.2m passengers for a 15% yoy increase in traffic. Load factors remained stable at 85% in the month. But the airline has been buying its traffic - it has held seven seat sales covering 1m seats, either for free or priced at €1, €3, €3 or €15 per seat (plus taxes and charges). Even with ancillary charges at around 20% of Ryanair’s average fare, the impact is minimal. The only reason the airline can be doing this sort of seemingly irrational behavior is to make its competitors bleed faster. With its huge cash pile, Ryanair can afford to bleed for longer. BA, for example, cannot.

Meanwhile easyJet carried 4.2m passengers in October, a 6.6% yoy improvement, while load factor gained 3.0 ppts to 86.8%. Slowing its growth to 7% from 15% means that easyJet is trying to be less risk averse. Culturally these two LCCs are quite different. easyJet is much less vociferous and flies to airports that actually are located at the city a person wants to get to.

The big take away here is this - between these two LCCs, over the past year they have carried over 109m people! Manifestly people are traveling on LCCs rather than network carriers. IATA, in its September traffic report noted network carriers were struggling, “partly reflects a loss of market share by network carriers on short-haul routes to low-cost carriers”.

The race for every airline to become an LCC is on. Which means the long haul LCC is on its way.

In other news --

• BA/Qantas JV renewal - and the Gulf threat to premium traffic
• JAL induced panic - yes it is showing now
• Bombardier eyes cuts - where is the stretch Q400?
• ATA sees a 4% weaker Thankgiving

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JAL losses really impact

Executives at JAL will forgo their December pay as the national carrier approaches its fourth year of losses out of five. The company is expected to report heavy losses on Friday when it announces second-quarter results.

The pay move will affect JAL president Haruka Nishimatsu and some 70 other company officials, a spokesman for the airline revealed. According to reports 17,000 non-executive employees have also been asked to give up their winter bonuses.

JAL asked the state-affiliated Enterprise Turnaround Initiative Corp. for aid as it seeks to avoid collapse amid the global economic recession. Company President Haruka Nishimatsu in September proposed cutting 6,800 jobs and carrying out the biggest reduction of routes in the airline’s history.

Asia’s largest carrier by revenue is struggling to secure fresh government aid to finance its restructuring and is shrinking fast. The restructuring process could take months, however, in part because JAL must negotiate cuts to pension payments with retirees and a group of hostile unions. The cuts in pensions has manifest political implications in aging Japan.

As an aside it appears now that the Japanese government is siding with the Delta-led solution. No surprise really. By splitting the deals this way, Japan gets the highest bid out of both alliances. In our view the state and airline are in cahoots (though we can't prove it). The state knows it must save the airline, and in return the airline must give up something to the state. It seems this "give back" will be to allow the state to decide who gets the airline as an alliance partner. Expect squealing at oneworld - if we see more travel to Tokyo by its current partner airline CEOs you know why. There is just a hint of panic within oneworld at this stage.

In other news --

• The quiet crash
• Aer Lingus says cost cuts are working
• BA and United headed to court
• The Onion does United

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Canadian numbers

Traffic numbers at Canada's two major airlines drifted in opposite directions last month; WestJet boosted its percentage of seats filled and Air Canada reporting a slight drop. WestJet said its load factor in October was 77.3%, up 1.5 ppts from the year before. Air Canada reported a load factor of 79.6% last month, down 0.6 ppts from October 2008 on a consolidated basis.

Yet another example of the move away from network carriers to the more simple to comprehend LCC model. It seems this is the case everywhere now - LCCs offer something the market understands and values.

In other news --

• Another United stuff up
• Will they ever get the Il-76 right?
• BA numbers and the unsettled future
• Emirates' numbers

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A little Irish fracas

They like a little fight on the Emerald isle don't they? Take a look at this. AEA condemned a plan by the Irish Aviation Authority to increase fees charged to airline customers by 17% in 2010 and states that cost-recovery pricing was a "substantial contributor to the industry’s financial difficulties and an obstacle to recovery". The AEA also added that the €10 travel tax has contributed to a fall in passenger numbers of 15% at Irish airports this summer.

Not to be left out of the fight, Ryanair supported calls by the AEA to eliminate the Irish Government’s €10 tourist tax and to freeze airport charges at Government owned DAA monopoly airports. Ryanair also supported AEA’s condemnation of the aviation regulator’s decision to allow a 17% increase in airport charges.

Irish Aviation Authority defended itself against claims by the AEA that Ireland could become a "no-fly zone" as a result of an €10 government travel tax and an alleged 17% increase in the IAA's user charges. The IAA strongly refutes the alleged 17% increase, claiming it will only increase its en-route rate by 3.9%, which is "consistent with similar Air Navigation Services Providers in Europe who have received no government assistance".

So who is telling the truth? There is clearly a "€10 tourist tax" which is bugging the LCCs especially. But the 17% price increase is obviously open to debate until it is defined properly. Meanwhile it is good to see a spat.

In other news --

• China's high speed rail impacts
• A rising star in India - GoAir shines
• Milwaukee gets more attention
• September traffic - LCCs keep on growing

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The inexorable power of the LCC

This image displays passenger growth (% change yoy) and the message is pretty clear. MOL is right when he says “Ryanair is the only major European airline to grow traffic and profits strongly. We are winning substantial market share from the big three high fare flag carrier groups led by Air France, BA and Lufthansa and we expect this trend to continue”.

Note the only other carrier showing any consistent growth is easyJet. The EU LCCs are not only moving share, they also have the ability to grow markets because their fares are so low. The difficulty is that once a person has been convinced that air travel is a commodity, what happens when they decide to fly a long haul? Can one justify the huge price increases to fly a network carrier?

Given this situation we think the EU is ripe for a long haul LCC. As readers are aware, MOL has been talking about this for some time. First mover advantage is helpful. So who moves first?

In other news --

• NMB gets its first responses from yesterday's announcement
• Jeff Smisek on a merger with United
• Saudi Arabia buys Airbus
• Now its Qantas' pilots who were distracted

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IAG launches "consultant power by the hour program"

These are not easy days to be in the commercial aviation business. Imagine then what its like being a consultant to the industry! Rather than worry about how to overcome obstacles, we have developed a program to provide people the help they need at a price point that fits any budget.

IAG's analytics services sell under its AirInsight brand. Take a look at our site here. For anyone that works in commercial aviation, the use of US DoT data is a fundamental requirement. The Form 41 data, for example, is a cornerstone of any analysis. IAG has developed a solution that takes Form 41, T-100, DB1B and even on-time data that enables analysts to get from data to information faster than existing sources.

Since time is money, because our solution is so fast we are able to generate information quickly, this saves clients' money. IAG now offers full access to its data services at $150/hour. That means if you have a data query, we can build it while speaking with you on the telephone! Once we have your table set the way you need, we email you the information in Excel - ready to for use in a document or for additional analysis in the client's own office.

We happily accept the challenge to find a more cost effective and faster solution. If you would like to give this a try, please contact us via email: info at iag-inc.com.

National Mediation Board recommendation

Here's a subtle but powerful item to help American organized labor. The National Mediation Board has proposed changes to the Railway Labor Act that would base the outcome of union elections at airlines on the majority approval of people who vote. The current rules require a majority of an entire work group to vote for a union in order for it to be certified, meaning a worker choosing not to vote at all is casting a "no" vote.

This is a subtle but important change. For a union to be accepted meant it had to get the majority of the workforce involved to vote in favor. Now it will not have to - it just needs to make sure all those who are fired up vote. This makes it much easier for Unions to get their way. We expect this subtly not to go unnoticed by management. Especially at airlines and Boeing.

In other news --

• KPMG comes out in favor of oneworld
• Ryanair numbers
• Airbus' nice win at ANZ
• Some funny links overnight

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Lufthansa takes BMI off the table

In an interesting move, Lufthansa has withdrawn BMI from sale, stating it is no longer in talks with buyers after an acceptable sale price was not achieved, with plans to concentrate instead on turning around the loss-making carrier. Apparently Wolfgang Prock-Schauer, bmi's new boss, is thought to have the ability to turn the airline around. Lufthansa's CFO said Austrian will be profitable in 2011 and Brussels will be profitable in 2010.

Therefore only bmi remains a drain on the group. We expect to see a lot of changes at bmi. The Germans will apply a full court press on bmi to raise its efficiencies and performance to comply with group numbers. The UK airline has a lot of potential, not the least of which is its handy slot allocation at Heathrow. It seems the idea of getting bmi sorted out is a good one because any buyer discounted its offer knowing there were all sorts of changes that needed to be made. And, frankly, Lufthansa has shown that it needs no teacher in turning around under performing airlines.

In other news --

• MOL and the static strategy
• Climate Change Tax
• The rash of free WiFi - might not be a good thing
• US-Japan open skies progress

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A thought on the UK's ADP

In a conversation with ATW's Perry Flint in DC yesterday, recorded as a podcast here, we discussed the EU focus on pollution from aviation. Perry made an interesting case for the UK being at the core of the movement that is causing EU airlines headaches.

This conversation was especially interesting in light of the UK's plan to increase its Air Passenger Duty (ADP). Climate change seems to be a bigger worry in the UK than anywhere else. easyJet funded a survey among UK residents and found "that 80% of the population agree that all flights, including cargo and private jets, should be taxed, while 69% said the tax ought to be designed to tackle climate change". Meanwhile according to IATA, the £2.5bn APD is completely disproportionate to the £572m that it would cost to offset the entire carbon footprint of UK aviation.

Andy Harrison, CEO of easyJet calls the ADP a "daft tax". IATA says "UK is a case in point of a government detached from reality". Strong words, but it seems UK residents have drunk deeply from the cup of global warming; and the government have drunk deepest.

In other news --

• Lufthansa reports - not bad, but winter will be awful
• The Houston surprise
• United committed to Australia - but not to shareholders
• Open Skies - the other side of these deals

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