New Aircraft May Spell New Competition

June 25, 2013 on 12:27 pm | In Airline Fleets | No Comments

Around the world, airlines are making record setting orders for new narrowbody aircraft.  We airlines in Southeast Asia and Europe being particularly aggressive while here in the United States airlines are far less so (even American Airlines who desperately needed a new fleet.)

In the United States, most of these orders are being made to replace modest portions of fleets that are nearing the outer limits of age.  100 737s for Delta Airlines just means that old aircraft get replaced with new aircraft.  No real change in fleet size.

Now, many US airlines are modestly upgauging their fleets with slightly larger aircraft.  An A319 buyer is going to the A320.  A 737-700 user goes with a 737-800.  This capacity growth amounts to just meeting organic growth in a modest economy such as the United States.

However, in Europe and Southeast Asia, I suspect something else is going 0n.  Some airlines will use some portion of their order to replace their oldest aircraft (Ryanair and easyJet) but I think the vast portion of their orders are going to go towards growth.

In Europe, I think we will see another fare bloodbath before things settle.  This won’t be just between Ryanair and Easyjet either.  Expect all the other low cost European carriers to be involved.  Norwegian, Germanwings, Air Berlin and Monarch all come to mind as airlines that are likely to be affected by a battle.

In Southeast Asia, the competition is already massive with prices already about as low as they should go with airlines planning double digit growth for multiple years.  Someone and something has to give here.  Yes, low cost carriers in this region are revolutionizing travel but they’re also often operating at a loss for marketshare.  Does this sound familiar?

I expect we will see one or more airlines in this region go bankrupt and I have in mind one particular entity:  Lion Air.

Economic growth in Southeast Asia doesn’t occur at all societal levels and that kind of airline growth isn’t sustainable in that region.  Someone will go out of business or will go bankrupt.  Bet on it.

 

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Ryanair presses for its acquisition of Aer Lingus

July 17, 2012 on 12:18 pm | In Airline News | No Comments

Despite a 2010 EU ruling against a merger with Aer Lingus, Ryanair is pressing forward with its bid to acquire Aer Lingus by offering a 38% premium for outstanding shares with an acceptance date of September 13.   This is, for all intent and purpose, a hostile takeover bid and those rarely succeed in today’s world.

Ryanair would have improved its chances by getting some plan out into the media as to how it would deal with anti-trust issues with such an acquisition.  It hasn’t and investors therefore are unlikely to view this bid as something that can happen.

One wonders just how Ryanair would operate Aer Lingus vs Ryanair.  I would speculate that if Ryanair could takeover Aer Lingus, we would see the domestic component folded into Ryanair and the international component used to establish some sort of LCC long haul carrier much like Air Asia X.  This would leave Ireland without a full service carrier and I suspect Irish politicians won’t be amused by that prospect.

Amused or not, it’s time Ireland face the music on supporting a flag carrier like Aer Lingus.  While Aer Lingus isn’t an Alitalia or Air India, it isn’t an extraordinary concern either.  I am reminded of Malev, the Hungarian carrier which folded earlier this year, when I think of Aer Lingus.   Malev crumbled under relatively small debt (compared to many carriers) and could have been saved if the government really wanted to do so.  Hungary rightfully decided to let it go and to let the marketplace replace the airline.

While I think Aer Lingus isn’t in a position to experience that today or 6 months from now, it isn’t in a position to fight a turning tide should it find its financial prospects suddenly diminished anymore.  Let’s not forget that Ireland is no longer a tiger economy and will be experiencing recessionary times for a while and stagnant growth at best.

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Aer Lingus: Bidders

June 25, 2012 on 1:36 pm | In Airline News | No Comments

Ryanair has launched another takeover bid for Aer Lingus offering a 50% premium over the current share value in the marketplace.  Its previous bid was shutdown by the European Union on anti-competitive grounds.  Etihad has expressed some interest and now Turkish Airlines is pondering an acquisition as well.

Oddly enough, no major airline group seems that interested in Aer Lingus.  No other major European airline other than Ryanair seems interested.   It’s down to scrappy outsiders who want a piece of the airline.

This is because the government owns a major stake in the airline and between it and Ryanair, there is a majority control issue.  You can’t control Aer Lingus without one or the other selling their stake.  Neither of those two parties is interested in selling their stake to someone that can either A) harm the Irish government politically or B) impact the competitiveness of the Irish airline industry.   Or both (Ryanair).

I think much is made about the Irish government selling its stake and I agree that the current government is sending louder signals than most but at the end of the day, I don’t think Aer Lingus is getting sold or merged into any other airline.

I think Ryanair is interested in Aer Lingus from a long haul perspective and it provides growth in an area where Ryanair has not so far moved into.  With such an acquisition, it gains not only the equipment but the know-how needed to execute a long haul international strategy.

Politically speaking, the Irish government has much to fear when it comes to politically fallout from such a sale.  The airline is heavily unionized and those unions carry power when it comes to local politics in Ireland.  Given the size of Ireland, all politics is local.  Jobs are important in an economy that has been impacted by the Euro crisis, debt and a lack of economic growth.

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Ryanair faces scrutiny

June 6, 2012 on 1:00 am | In Airline News | No Comments

Ryanair owns a significant stake in Irish airline Aer Lingus and Ryanair CEO Michael O’Leary has made no secret of his desire to take over Aer Lingus and merge it into Ryanair. Ryanair’s hostile takeover bid was rebuffed 5 years ago but it retains a 25% stake in Aer Lingus to date.

British fair trading authorities have initiated an investigation into Ryanair’s Aer Lingus holdings and has questioned whether this is in the best interest of competition on routes between Ireland and the United Kingdom. In light of the fact that IAG was permitted to buy BMI and fold its operations into British Airways, I am somewhat suspicious of the UK’s interest in Ryanair.

The truth is that Ryanair is a lightening rod for controversy and Michael O’Leary makes it hard to ignore the airline. Ryanair’s holdings in Aer Lingus are a bit odd but, in my opinion, have actually forced Aer Lingus to behave more like a private airline which has only benefited the consumer. A merger between the two airlines seems a bit weird to me, however. The cultures between the two airlines aren’t compatible nor are the fleets at this point. Additionally, Ryanair has no real experience in operating an airline with long haul routes.

The UK is likely making Ryanair a focus of attention because of its bad boy antics in the UK and across Europe. It’s an airline that continues to make far more money than most european airlines and a thorn in the side of many governments. Europe isn’t above spanking such bad boys from time to time but that is all it is, a spanking.

I doubt that Ryanair would be forced to divest its holdings in Aer Lingus but I also doubt that anyone will permit it to merge with Aer Lingus either. Ireland’s government holds a larger stake in Aer Lingus and it has been most schizophrenic in its treatment of the airline by signaling a desire to see it privatized and at the same time holding on to its ownership stake like a valued family keepsake. If anything, the Irish Government has done more harm to Aer Lingus and the consumer than Ryanair could even be accused of.

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Aer Lingus and the Irish Government

March 17, 2012 on 1:00 am | In Airline News | No Comments

The Irish government has long threatened to sell its stake in Aer Lingus which is currently at 25.1%.  In fact, that intention seems to get announced annually while no action is really taken on the part of the government to actually engage in the sale.

A number of airlines have expressed at least some interest in acquiring the stake although those same airlines also express concern about the pension obligations that Aer Lingus has presently.  Most would prefer to see the Irish government get those obligations settled before a sale takes place in order to avoid the risk that the airline may be financially impacted by them sooner than later. 

Airlines such as Ryanair, who already owns 29.4% of Aer Lingus, as well as Qatar, Etihad and even JetBlue appear to have expressed strong interest in the airline stake.  I regard Ryanair as a very unlikely candidate simply because I think the Irish government has no desire to see the two airlines consolidated and, frankly, because Ryanair CEO Michael O’Leary already pisses them off regularly as it is.

Qatar and Etihad are interesting candidates and may well throw their hats into the ring but there is the issue of foreign ownership of the airline.  It is unlikely they would be permitted to acquire much more of a stake in the airline and, as a consequence, they’ll be unlikely to influence the airline’s operations as much as they may want.

JetBlue seems also unlikly for reasons having to do with the fact that JetBlue isn’t an international airline, not really, and its knowledge of the European marketplace is limited to say the least.  They do benefit from an existing close relationship with Aer Lingus but that can only go so far for JetBlue. 

One other entity sometimes considered is International Airlines Group, holding company for British Airways and Iberia Airlines.  That group is engaged in purchasing BMI presently and hasn’t stated a preference for Aer Lingus publicly.  However, IAG CEO Willie Walsh is a former Aer Lingus executive who knows the airline, knows the government and knows european airlines.  If the BMI purchase were to fall through or be impacted by regulatory requirements, I would not be surprised to see them turn their attention to Aer Lingus.

At the end of the day, I don’t think the Irish government really wants to sell its holdings.  The airline still operates as the flag airline of Ireland and its a source of pride for a country who feels strongly about representing itself internationally.  I think they like talking about the sale but I think no one wants to explore the political impact of such a sale very seriously.  It’s safer to hold onto the shares than suffer consequences in the voting booths.

As for Aer Lingus itself, I think they would like the government to help out with the pension obligations and then have the freedom to operate with less political influence than they currently experience.  That said, Aer Lingus has struggled more often than not to earn a profit and few see the carrier as a strategic purchase.  The airline needs better strategic relationships with other airlines and it is difficult to get those into place when the Irish government yields a heavy influence on the airline’s operations.

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Michael O’Leary, Ryanair and the 737

February 1, 2012 on 12:20 pm | In Airline News | 3 Comments

Ryanair’s CEO Michael O’Leary has decided to express his disappointment in what they’ve seen of the 737MAX so far.  He mentions that what they’ve seen from the A320NEO so far, they’re impressed but what they’ve seen of the 737MAX so far does not.  O’Leary, not surprisingly offers that anybody buying aircraft right now is nuts given the prices. 

But the world has changed.  It’s not the late 1990′s or early 2000′s and manufacturers are not struggling to sell aircraft.  To the contrary, they are struggling to meet demand based on orderbooks.  Ryanair got stunning prices for their original massive orders.  Enough so that they could buy them, operate them for a few years and sell them at a profit.  Neither Boeing nor Airbus is interested in making such deals anymore and rightfully so. 

Airlines put off buying large quantities of aircraft for quite a long time and now the legacy airlines not only want them, they need them.  If O’Leary and Company wish to continue to operate a successful ULCC, they’ll be lining up to buy them as well because they do offer the kind of incremental gain in efficiency that is going to make the world’s legacy airlines much more competitive with ULCC’s like Ryanair. 

The truth is, I think the Airbus A320NEO does fit Ryanair’s needs a bit better these days.  But that would require a fleet change that would take years to accomplish and with A320NEO delivery positions reaching “unobtanium” levels for the next decade, the 737MAX probably does offer the best option given their position.  One thing is sure, the COMAC 919 isn’t going to deliver what Ryanair needs and certainly not on time.  Airbus can’t build more even faster to meet the demand on the A320NEO even with some airlines orders going away.  So I’m not sure why O’Leary wants to make an enemy of Boeing.

The truth is, Boeing will be happy to sell to O’Leary and take his abuse while they do it.  They’re just not going to give away aircraft anymore and it appears that it will take O’Leary a while longer to realize the position he and his airline are in.

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Sunday Trivia: TPG

January 15, 2012 on 1:00 am | In Trivia | No Comments

The Texas Pacific Group, now known as TPG Capital, was formed by David Bonderman and other partners  in the early 1990s.  One of its first investments was in Continental Airlines which became very profitable for the group.

Question:  What airline did David Bonderman invest in early 1990′s and remains its chairman today?

The answer after the fold: (more…)

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Welcome to the New Year – Part 2

January 3, 2012 on 1:00 am | In Airline News | 2 Comments

World Alliances

I’m not sure we’ll see much in this territory for SkyTeam or Star Alliance.  They’ll continue to succeed and be smart in their attempts to gain more dominance in more parts of the world.  I think Oneworld is going to be smarting through this next year as a function of health problems at founding members American Airlines and QANTAS.  I also think that gaining the LATAM membership is not nearly as “sure” as they think it is. 

The Middle East

After ordering an insane amount of widebodies in 2011, Emirates will order another insane amount of widebody aircraft and beat up on Boeing about its 747-8i.  This has begun to feel like an addiction problem.

India

The airline industry in India has imploded and we’re just watching the mushroom cloud of debris settle.  For 2012, more explosions and more governmental heads will push even deeper into the sand.   Air India has already become the new Alitalia.

The Far East

Chinese airlines will order more aircraft and I expect we’ll see orders from them for 777s and A380s and possibly some A350s.  Not unlike 2011.  I don’t think we’ll hear about any stunning orders from that part of the world, however. 

China will tout its COMAC C919 even harder and most of us will try desperately to keep from laughing even harder.  Ryanair will back away from this aircraft quietly, I think. 

Japan will find ANA deploying more and more 787s on more and more routes with more and more success with that aircraft.  JAL will take delivery of its 787s and find that they not only work well for JALs needs but actually exceed expectations.  I think we’ll see an order for some more Boeing aircraft from JAL this year and I think it will be the 737MAX and 777-300ER.  No huge numbers but large enough to make a splash.

South America

LATAM got its approval from Brazilian and Chilean authorities (barely) and LATAM will begin consolidating its operations to make more money.  I think we’ll see a largish order from LATAM and it will be for an airliner to replace aircraft on both the Brazilian and Chilean side of the airline.   The aircraft of choice will be, I think, the Airbus A320NEO and I think they’ll bump up orders for the 787 and 777 as well.   TAM has 27 A350-900s ordered and I think that order *might* be at risk.  The strategy of using Airbus for narrow bodies and Boeing for wide bodies seems to be a smart one for airlines in that region.

I don’t think we’ll see more consolidation in South America but I do see South America becoming a bit of a battle ground between airline alliances.  Most see LATAM going with Oneworld and while I can’t disagree with the arguments, I think that SkyTeam and/or Star Alliance might just swoop in with one hell of a package that may be too hard to resist.  If this happens, Oneworld and American Airlines gets kicked in the groin in South America.

Aerolineas Argentinas?  The Alitalia of South America in 2011 and the same in 2012.  Enough said.

Europe:

British Airways managed to get through 2011 without any huge problems and saw Willie Walsh move up to the CEO position of International Airlines Group which means Willie’s still in charge.  Iberia, British Airways’ sister airline, saw Willie stirring things up with plans for a LCC subsidiary.  Iberia pilots decided to strike because shooting onself in the foot can’t be just an Indian thing.   IAG also managed to get a tentative deal to buy BMI from Lufthansa and become the Emperor of slots at London Heathrow . . . maybe.

Virgin Atlantic didn’t die, didn’t find new partners and didn’t extricate itself from the chokehold that Singapore Airlines has on it.  Richard Branson actually didn’t make the news very often except to shout, stamp his feet and act insulted that Virgin Atlantic wasn’t able to do a deal to win BMI.  Expect Virgin Atlantic aircraft to start carrying some message against the IAG deal for BMI.  I actually think that Virgin Atlantic will have to find an airline alliance to join and if I’m right, I would lay very heavy odds on it being the Star Alliance. 

Lufthansa did itself a favor and got rid of BMI and I expect they’ll continue their very conservative mangement of the airline and the subsidiary airlines.  I do wonder how much longer Lufthansa can rely upon its A340 aircraft and somewhat expect Lufthansa to bite the bullet and buy the 777.

KLM/Air France:  I see nothing here at all.  Not in 2012.  I don’t expect a large widebody order nor a narrowbody order. 

I do expect Ryanair to make an order and I do think it will be the 737MAX.  In fact, I think it may well end up being the 737MAX-9 instead of the 737MAX-8.  Instead of repudiating the C919, Michael O’Leary will just quit talking about it.  Instead, he’ll suggest stripper poles could be installed on Ryanair aircraft. 

All in all, I think it will be a tough year for European airlines.  The financial crisis on that continent will make it very hard to earn an honest profit and Middle Eastern airlines will continue to erode the long haul traffic that European airlines have enjoyed for decades.

Tomorrow, a summary of what I see for 2012 and the world airline industry.

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Porn on a Plane

November 14, 2011 on 1:00 pm | In Trivia | 1 Comment

Last week Ryanair did it again by speculating on adding pay per view on their aircraft that could include porn.

Say all you want but there is no way in hell that’s happening in this decade.

And it’s all about the free press. O’Leary did it again and lest you think he’s running out of moves, let me suggest you are wrong.

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Ryanair and the COMAC C919

November 9, 2011 on 1:00 am | In Airline News | 2 Comments

Ryanair says that it may buy or lease used aircraft to fill its gaps until the COMAC C919 arrives in 2018 with a 200 seat aircraft. 

I say that that statement is Ryanair standing up and yelling “Look at me!  Look at me!” to Boeing and Airbus.  ]

While Ryanair says its dead serious about this aircraft, they conveniently do not rule out striking a deal with Boeing or Airbus on their aircraft and I would point out that China has yet to produce a viable commercial aircraft . . . ever.  They are getting closer and I do believe that China will one day manage to succeed. 

However, their ARJ21 is a non-starter since it is heavy and, you know, no one has really ordered it except Chinese airlines who were told to order it.  Building a first time, competitive single aisle mainline aircraft requirese a body of experience that China doesn’t have.  Brazil has it.  Arguably Japan has it.  Canada even has it. 

China doesn’t. 

So why should Boeing or Airbus feel threatened by Ryanair’s moves?  They shouldn’t.  Sooner or later, Ryanair will have to make a move on a next generation 737MAX or A320NEO.   And they will get a good deal but gone are the days of getting a deal where you can buy a 737-800 and sell it in 3 years to *make* money on the sale.  Neither manufacturer are, in the least, that desperate.

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He’s Back . . .

October 15, 2011 on 1:00 am | In Trivia | 1 Comment

Just a couple of weeks ago, I realized it had been quite some time since we heard something outrageous from Michael O’Leary.  Sure enough, he’s back.

This time he’s beating the drum about toilets but with a twist.  O’Leary claims that they’ve proposed removing 2 of 3 toilets on its 737-800 aircraft which would permit them to seat 195 passengers  instead of 189 at present.  He claims it would save passengers about 5% on air fares.

Let me first point out that we’re talking about a savings of about $4.00 on an $80 one way fare.  That said, I’ll admit that O’Leary is right in that price is king and having the lowest prices has been a very successful model for Ryanair.

I’ll also point out that Boeing has to get such a configuration certified for the airliner and that can be a very costly proposition. 

Will O’Leary get his way?  I kind of doubt it.  At least with respect to the toilet proposal.  Furthermore, what do you do when you have a toilet go out of service on an aircraft at remote station?  Fly without?  That might be asking for more trouble than it’s worth.

But he did get his way.  He got you and me and the world media to pay attention to Ryanair again.

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Ireland may sell Aer Lingus

September 9, 2011 on 1:00 am | In Airline News | No Comments

The government of Ireland is, again, pondering the sale of its part of Aer Lingus but has already indicated that Ryanair would be rebuffed as a buyer on competitive grounds.  Ryanair is offended but says it may consider selling its own stake in Aer Lingus to the right buyer as well.

Now to find a right buyer.  Part of me wonders if the International Airlines Group aka British Airways/Iberia would be interested.  Aer Lingus isn’t a global partner in anything but it could provide some European consolidation that might benefit all parties.  Past IAG, I cannot see who would be interested in owning what they can more profitably compete against.

Another part of why I believe IAG might be interested in IAG’s CEO:  Willie Walsh.  He came up in the airline busines at Aer Lingus.  He knows its strengths and weaknesses and he successfully competed against Ryanair while he led that airline.

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Ryanair and COMAC

June 25, 2011 on 1:00 am | In Airline News | No Comments

Ryanair has signed a design agreement with COMAC to participate in design discussions on the COMAC 919 airliner.  Ryanair has been searching for a way to either A) bully Boeing into offering more 737-800 aircraft for below profitable prices or B) replace their Boeings with a rock bottom priced aircraft.

Is this the path forward?  I don’t really think so.

This is Ryanair trying to shoot another shot across Boeing’s bow.  The COMAC 919 is highly unlikely to be a competitive airliner even at deep discounts.  It would be a far greater threat if Bombardier had a CSeries aircraft planned that fit Ryanair’s needs.  They don’t, Airbus won’t play the threat game and Boeing has no interest in selling 737-800s so cheaply that airlines can sell them at a profit.

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90/10

February 7, 2011 on 1:00 am | In Airline News | No Comments

Evidently Ryanair thinks it should be shutting down at least 10% of all routes it opens or it isn’t doing its job.  Its argument is that many of those routes have never been flown before and it is impossible to predict success for all of them. 

This makes considerable sense but it is also worth pointing out that Ryanair’s outsourcing model for ground support also allows them to contract away from unsuccessful routes without feeling pinned in by the costs to withdraw from a market.  In addition, its decisions on these routes are uninfluenced by other considerations such as regional flights feeding into these routes.

Other airlines could stand to be a bit more brutal over their routes as well.  All too often one set of routes is operated unprofitably to support the money it feeds into more successful routes.  The Ryanair model (and other LCC airlines as well) of insisting that route support itself is the better, more sustainble pathway to success.

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Subsidies

November 29, 2010 on 1:00 am | In Airline Fleets, Airline News | No Comments

The dirty little secret in aircraft sales are the subsidies that are used both in the United States and Europe to bolster their exports.  You see, you can actually affect your trade balance by selling just a few extra aircraft and that really isn’t possible to do with virtually any other industry.

Right now, foreign airlines such as Emirates or Ryanair can purchase airliners using financing from sources such as the US government in the form of low cost loans.  If we sell and deliver more 737s to Ryanair or 777s to Emirates, it helps our trade balance.  The airlines get to grow with lower costs that are a function of these loans that offer lower than market interest rates.

And let’s face it, Ryanair and Emirates aren’t exact airlines in need of subisidies. 

The same situation exists in Europe with Airbus.  You didn’t think that United Airlines and Northwest Airlines bought those Airbus A320s at market rates, did you?

To date, it’s been the dirty little secret among governments and the manufacturers.  Recently, US airlines started pointing out the inherent disadvantages of this when it comes to their ability to compete and they’ve got a strong point. 

The truth is, sudsidies aren’t necessarily bad if we’re using them to bolster transportation in parts of the world where obtaining any financing is difficult.  But we’re not.  Not really.  It’s a good idea that has been turned on its head with loopholes for situations that just no longer exist. 

Now a pack of airlines who are major beneficiaries have indicated that they are open to relaxing the “home country” rule that forbids such subsidies being offered to airlines in home countries as long as no restrictions are put into place that would inhibit their own great deals.  Read more about it HERE

How nice.   It’s notable that removal of this “home rule” would also permit several of these airlines to get the same great financing  in Europe on Airbus models in addition to Boeing aircraft. 

How about we end all subsidies to all airlines with the exception(s) of those in true third world areas?   Is it appropriate that an airline like Ryanair can purchase airliners from Boeing at already ridiculously low prices and then finance them with such low cost loans that they’re able to buy a 737 and re-sell it for a *profit* 3 years later?

No, of course not. 

A better idea would be to come to an agreement on how to offer these subisidies to airlines in poor countries who might really benefit from such a subsidy and then eliminate such things for any airlines operating in modern economies.

This means you Ryanair/Emirates/Virgin Blue/Etihad/CargoLux/Oman/Norwegian/Pegasus/Wizz airlines.  Not a one of you is a disadvantaged airline.  Instead, you’re all airlines who are pounding your competition into the ground with lower costs that really are a direct function of these subisidies.

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Spirit Airlines to do IPO

September 22, 2010 on 1:00 am | In Airline Fees, Airline News | No Comments

Spirit Airlines has decided to do an Initial Public Offering (IPO) of stock and thinks the value will be about $300 million. Spirit is currently privately owned by a number of high profile investors who, it has been said, are ready to cash out of their investment. 

Does this mean they don’t like it?  No.  Their investors are venture capitalists and by their nature, they look for an exit once an investment has been successful.  Spirit has enjoyed that success and according to this story in USA Today, they make a good case.

Their aircraft utilization has risen from an acceptable 9 hours per day in 2006  to 13 hours per day.  They are now earning over $30 per passenger in ancillary revenue vs just $5 in 2006.   They’ve also managed to earn a profit for each of the last 3 years in what has been arguably the worst climate possible for airlines.  While they have had an initial loss for this year, blaming it on higher wages and fuel costs, expect another profit for the full fiscal year. 

Spirit isn’t an airline I would typically fly but I will concede that they have found an untapped market following what is almost a Ryanair+ business model.  They’ve lowered base fares dramatically and earned good revenue from “unbundling” their services and while many don’t like what they’ve done, their relatively full aircraft and annual profits point to the fact that many are happy to take the deal.

Spirit outlines their intent to retire debt and fund growth from this IPO and to do that, Spirit is going to have to branch out from their Florida/Gulf/Caribbean marketplace and attempt operations in other parts of this country.  They’ve done well with their Caribbean focus and I expect they’ll look for other cities to take advantage of that strength.  Perhaps in Texas or California.  It is interesting to me that they’re about to start service from Chicago O’Hare to Las Vegas and that’s their market:  inexpensive fares to leisure destinations.

Whether you like their approach to airline service, you can’t argue against their success and they do have a solid business case going forward.  They also face some risks going forward like any airline.  As they age, their labor costs will go up, for instance.  As they succeed in their various “fees”, other airlines will likely adopt some of their practices.  But Ryanair has an aging labor force and they continue to do well.  Other airlines in Europe have adopted Ryanair-like strategies.  Ryanair is still succeeding because they’re still executing their strategy better than anyone else.  Spirit has that same potential.

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You only need one pilot

September 7, 2010 on 1:00 am | In Airline News | 1 Comment

Ryanair’s Michael O’Leary has done it again and raised the ire of pilots, agencies and even the public by suggesting that not every flight needs 2 pilots.  He made his suggestions in this Bloomberg Business Week story.

O’Leary suggests that by eliminating one pilot and ensuring that a flight attendant was “trained” to land the plane, airlines could save even more money and offer even cheaper flights.  And, as always, he’s got the media and other interested parties attention with his outrageous suggestion. 

Relax.  It isn’t going to happen.  O’Leary is masterful at getting free publicity with his comments to the press.  Just like suggesting pay toilets and standing room only fares, this one is more about getting in the news than it is actually about doing it.

The truth is, the workload for pilots is at its greatest on the very short flights he suggests pilots are unneeded on.   Even though it is possible for computers to take off, fly a route and land an aircraft, it’s still important to have situational awareness and our traffic control systems don’t provide that level of situational awareness.

Nevertheless, O’Leary is right about one thing.  You have to work at challenging present business models in this industry or you can fall behind.  One thing I do agree with him on:  Passengers aren’t nearly the delicate creatures they are made out to be. 

There is another thing I kind of like about the man.  He got Kate Hanni to bite at his bait on the one pilot concept and now she and her organization, FlyerRights.Org, are running around trying to get governmental organizations to assure her that such ideas won’t trickle into the United States. 

Of course they won’t.  They’re unworkable in terms of flight safety.  They’re unworkable in terms of the sheer legal liability they introduce.  And to pay them attention at all affords O’Leary and Ryanair a win.   It’s one very important way that Ryanair saves money and offers the very low fares that attract its large base of customers.

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Can you be all things to all people?

August 22, 2010 on 1:00 am | In Aircraft Development, Airline Seating, Airline Service | No Comments

Since I started writing this blog, I’ve come to one thought many times:  Airlines, at least most of them, work very hard these days at trying to be all things to all people.  The reason for this is that the airline business, particularly in the United States, is all about market share. 

In other words, to be viable as an airline, particularly a larger airline, you have to have a pretty significant chunk of market share for a set of routes.  Without that share, you won’t average a load factor that earns you a profit.  In fact, it isn’t just about market share of a particular segment.  If you dominate solely in leisure travel, you’ll struggle to survive much less make a profit.  Even Southwest Airlines has learned the value of the business traveler. 

But is that the right direction going forward?  Some variation of that is probably going to remain the truth for some time.  However, I do wonder if airlines aren’t harming themselves by trying too hard to be all things to all people. 

When it comes to domestic service, I do think it would be wise for more airlines to emulate United’s 3 class domestic service of First / Economy Plus / Economy.  Offering more value for more money is a strategy that plainly works although I also understand the perceived risk involved with that.  You can’t easily change the configuration of an aircraft to meet changing seasonal demand for a particular product.  This is an area where aircraft manufacturers could do some work.

However, at the international level, I think many US legacy airlines are trying too hard to be all things to all people.  I’ve always admired Continental’s approach with their BusinessFirst and Economy products.  BusinessFirst is business class and, let’s face it, that’s what is going to sell at the front of the aircraft day in and day out when compared to first class. I think the new ContiUnited (I must come up with a new moniker for that) would be wise to adopt the Continental model BusinessFirst and the United Economy Plus/Economy model.  It’s 3 classes of seating but really 2 classes of service.

Airlines seem to be overstressing themselves in other places as well when it comes to trying to appeal to everyone.  When you’re trying to market to the leisure crowd, the business crowd and the uber-rich crowd, your message gets muddy.  Can you identify who does what best for which crowd in objective or subjective terms? 

You have far less of a problem with that in other parts of the world.  If you want best price in Britain, you’re likely going to fly Ryanair or EasyJet.  If you want a more business oriented service, you’re likely going to pick British Airways.  It’s notable that BMI has more of an American approach and they don’t do so well.   Ryanair specializes in delivering the best price possible and has focused on that goal relentlessly.  British Airways specializes in service and image and focuses on that goal pretty well despite current problems and criticisms. 

We could stand to see a bit more focus out of our airlines.  Isn’t it interesting that when airlines set up “specialty” brands in-house, they usually did pretty well and only went away when the competition in that specialty went away?  I think there is a lesson there.  Does every flight need to meet every need?

I think the key to becoming more adept at specializing in customer needs, we need aircraft that are more easily configurable for particular demands.  It’s interesting to me that business class in Europe is often coach seating with the middle seat “blocked” from use.  Sometimes that same middle seat can be folded down into a “service” area for the aisle and window seats.  What if an airline or seat manufacturer came up with a product that allowed configuration of seat pitch in a manner of minutes with the addition of a row or two of seats in less than half an hour? 

There is nothing wrong with segmenting service for various needs and charging for it.  No objects to those pricing models.  The issue with “fees” is charging for something that had no charge until recently and acting like you are doing someone a favor.   Airlines could create a great deal more value in their product with more specialization towards particular customer needs and wants. 

After 40 years, I think coming up with seating that is configurable “on the fly” shouldn’t necessarily be quite the challenge it’s made out to be.  The industry should be able to meet this challenge and I think when they do, they may find a way to more reliable profitability.

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Boeing lands a big one?

July 19, 2010 on 1:00 am | In Airline News | 2 Comments

There are several reports out now that Emirates Airlines is going to announce an order for 30 Boeing 777 aircraft at this year’s Farnborough International Airshow in the United Kingdom this week.  I’m sure that this will further strike fear in the hearts of airline executives and I’ll repeat THIS response.  Just because they order it doesn’t mean they’ll know what to do with it when the time comes.

Another interesting piece of news is that Air France has invited Airbus and Boeing to respond with a proposal for supplying as many as 100 widebody aircraft over the next decade.  The assumption is a mix of both the Airbus A350 and Boeing 787.  I suspect conventional wisdom will give Airbus the upper hand (we are talking about Air France based in France where Airbus aircraft like the A350 will be made and where the French insist on buying local) but I like Boeing chances for this.  Boeing could win this order by offering a mix of 787 and 777 aircraft with GE engines.  Air France already has a large fleet of 777 aircraft, experience with the GE engines and may well be attracted by the expected quick and relatively cheap transition for pilots to move between the two aircraft.

Steven Udvar Hazy has his new company, Air Lease Company, and reportedly will be at Farnborough on the hunt for building his new portfolio of lease aircraft.  While money is starting to flow back into the lease business, I do wonder if the game hasn’t changed since the early 2000′s.  Airlines have seen the benefits of owning their aircraft because in bad times, they can leverage those aircraft for more operating capital in those bad times.  In addition, I don’t think Airbus and Boeing are in the mood to offer huge discounts to the lessors anymore.  If Michael O’Leary of Ryanair can’t get a deal for 200+ aircraft, why should we think lessors will?

Randy Tinseth, VP of Marketing for Boeing, will be releasing Boeing’s most recent current market outlook at Farnborough and it’s quite a positive one.  Boeing sees a need for 30,900 new aircraft between now and 2029 of which they expect 21,000 to be single aisle airliners.  They’re forecast is based on a growth rate of 5+% per year in the airline industry and that’s based growth rates since 1978 deregulation in the US (which have averaged 5% per year.) 

What’s interesting to me is that they see the regional jet share of that outlook as being significantly less than in the past.  I think that depends on what you call a regional jet.  If you’re speaking of 50 or less seats, I agree.  If we’re talking about 75 to 110 seats, I’m not sure I do agree.  Indeed, I think that the 90 to 130 seat market is going to be very hot and I think that Boeing and Airbus ceding that market is a mistake.  Even car manufacturers have discovered that it’s wise to cultivate customers at the entry level as opposed to waiting 20 years for them to be able to afford your product.

Finally, I understand that Boeing’s 787, ZA003, has landed in the UK and that marks its first appearance in Europe.  FleetBuzzEditorial.Com got some photos of the 787 landing at Farnborough which can be seen HERE.  I still really dislike the demo interior they’ve installed in that aircraft.

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British Airways and Unite (the union)

May 25, 2010 on 1:00 am | In Airline News | No Comments

There is a whole lot of speculation on British Airways and its future.  I noticed one reporter speculating on whether British Airways reputation will ever recover.  I’ve seen other stories speculating on their financial viability for the next year.  Still another story actually was making a “buy” recommendation on their stock.  In other words, it’s great sport to speculate on BA right now.

In many respects, BA’s problems with its labor are of its own making.  Long after many other global airlines wised up and trimmed their costs, BA was plunging ahead with its so very “British” service product.  Management continued to pay very generous salaries to crews, buy aircraft and send the “flag” to odd places in the world.  It was unsustainable, particularly in Europe, but they persisted along just like a drunken Alitalia as long as they could.

Two things happened.  First, Willie Walsh showed up from Aer Lingus where he spent most of his career and where he built a reputation as a CEO by transforming Aer Lingus from a doddering state owned airline into an enterprise capable of competing with the best, Ryanair.   Walsh learned how to lean out a company, maintain good service levels and operate an airline in this century. 

Second, the world airline economy crashed with unprecedented oil prices and an unprecedented decline in business travel all at the same time. 

Walsh rightly identified that BA had to be more productive.  Indeed, rather than just focus on slashing staff, he wanted concessions that allowed BA to simply compete with other airlines on productivity.  He’s worked tirelessly to reduce costs, manage money better, maintain service and improve productivity.  He’s done this despite years of relative neglect on the part of previous CEOs and, yes, he’s been brash about doing it. 

I’ll be honest.  He rubbed me the wrong way when he showed up at BA and, more importently, in the global press.  As time has gone by, I’ve changed my mind in many ways.  Now, he strikes me as much more a leader than just a cost slasher.  I’m impressed with his read of his airlines economic situation as well as his take on the markets served by British Airways. 

My own take on most of BA’s employees is that  most “get it”.   The pilots even get it and that’s saying something because pilots are generally the most militant of all labor groups.   You see, few countries have better examples for losing entire industries due to obstinate labor actions that ignore changing markets and economic climates than Britain.  Seriously, take a look at what happened to their car industry in the 1970′s.  Or their aviation industry from the 1970′s through the 1980′s. 

I’ve noticed that most British citizens who are engaged in the world understand that demanding your cake no matter what the circumstances doesn’t work and often removes an industry from your country forever.  It isn’t that they are anti-labor, it’s that they have, in most cases, become a pragmatic people and that’s good for them. 

Then there is Unite, the labor union representing crew staff (flight attendants) for British Airways.  This cheery crew has set about to inflict real and serious damage upon the airline at every opportune moment and over issues that most in the company agree have to change.  It’s as if all the labor organizers who struck against the British car industry took a 30 year holiday and showed up drunk and clueless to lead Unite. 

It’s hard to respect a union that seeks to inflict strikes on both the airline and the traveling public during, oh say, the Christmas Holiday Season.  Or after their employer announced record losses well in excess of $800 million dollars.  It’s particularly strange to see them make these choices despite the fact that a large minority of their own membership are crossing the picket lines to support their airline.  No, actually, it’s downright bizarre. 

If Willie Walsh (and the board of directors) understand anything, it is that they cannot lose the issue in this strike.  Failure to “win” on the productivity issues will set a precedent and likely see the downfall of the airline show up shortly thereafter.   While Walsh has been a very stern and scrappy fighter in all this conflict with Unite, he has, by all appearances to me, also shown great restraint in not allowing this to be personal.  He continues to show this restraint despite Unite making it not only very personal for Walsh but for anyone who attempts to help the airline as an employee. 

I’ll grant that the one petty thing I take issue with Walsh on is the travel privileges restrictions he imposed on any crew that struck.  That was a misstep and one that he pursued for too long.  It is nice to see that he’s offered to reinstate those privileges in the last round of negotiations.

Here is a kicker, during the last negotiations where Walsh was offering those privileges back, one union negotiator (Derek Simpson) was “twittering” about the negotiations in real time from his Blackberry. 

What. . . the. . . hell?

Anyone in the industry accepts that union leadership is going to tend to be loud and bombastic and even full of threats in public and especially when the cameras are own.  It’s also accepted that those same people will be restrained, professional and serious in negotiations.  Playing games with Twitter during negotiations is just a wild breach of protocol and, frankly, does a great misservice to the Unite membership. 

Why?  How do you engage in negotiations with people who play games like that and then act as if it is nothing after the fact?  It’s very difficult to do and very hard to establish trust after a breach like that. 

It also insults the public following this strike.  Yes, even the public knows that is a breach.   And it was completely unnecessary given just how close the two parties are to having an agreement.  Indeed, British Airways essentially came to an agreement when the leadership of Unite then attempted to re-open settled areas of the disagreement.  They longer Unite’s leadership continues to act as they have, the more they have to lose in both public opinion as well as negotiating leverage.

The issues that BA is fighting for with Walsh’s leadership are recognized as so important that other airlines are lending support to BA and many of them are BA’s arch enemies in the marketplace.  Seriously, who would have ever thought that Ryanair would be leasing aircraft and staff to BA in order to maintain airline schedules during strikes.

I think BA will win.  I hope that Walsh survives this strike but I do have some small doubts about that unless he manages to close this deal soon.  I don’t think BA’s reputation is in tatters for the rest of its life.  It will take a  short while and that will be that.  Anyone declaring that they’ll “never fly BA again” over this strike is almost 99.9% certainly full of it.  They’ll fly them the very next time the price is right for where they’re going.  I don’t think BA is going to become insolvent over this but I think they’re looking at several years to rebuild their financial strength again. 

The one curious thing (to me) about all of this is the apparent lack of government involvement in this conflict.  If this had been going on in the US, someone would have stepped in by now and insisted on binding arbritration and cooling off periods.  Both BA and Unite could use one of those.

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