Aviation Network Planning – or: how the Crystal Ball works

There is an updated version of this article that we published on LinkedIn in March 2016

crystalballaviationplanning

Two bad news hit the media this week. Ryanair removes flights from Budapest and Memmingen looses the scheduled services to Hamburg and Berlin. As Michael O’Leary (the Ryanair boss) had already announced that Ryanair will ground aircraft in winter (last year they grounded 80), this seems to be rather strategic and O’Leary’s argument it would be because of high airport charges may be just a smoke-ball, decepting the media. Memmingen on the other hand…

It gives me reason to highlight and explain a bit of the Crystal Ball used in airline route planning. It starts with an idea. Who brings the idea up is irrelevant, except it may be a good idea to do a bit additional research, if your boss does.

Having the idea, question is: Is it feasible? So as a route manager, you’ll talk to the airport, you check MIDT-statistics about flown passengers on the route or routes from neighboring (=competitive) airports, you check “facts”, such as official statistics on commercial relations between the two regions, attractiveness to potential tourists or “VFR”-traffic: Visiting Friends and Relatives. Statistical data…

The MIDT-data is by nature incomplete. Often it does not include direct sales with the airline, Internet sales, etc.. Even if it does, it is based on historic data that relies on facts that are meanwhile outdated. Have the commercial relations strengthened? Did they suffer from bad connection and have faded away? How much were, are and will the travelers be willing to pay for the ticket? If the flight failed, why … hard facts preferred, not guesswork or interpretations by the airports involved.

There is something called “catchment area”, based usually on isochrones, frequently a wild guesswork by the airport itself, more wishful thinking than reality. While working with Yulia on the basics of the CheckIn.com-isochrones, I found in all cases we checked discrepancy larger than 10% different from the airport’s own figures. And in all but one case, the “catchment area” did not cover at all that there are other airports competing with the traveler! An example: If you live in Minden, Germany you are about equally distanced to four airports: Hanover, Paderborn, Münster/Osnabrück and Bremen. For the CheckIn.com-isochrones, we took into account the size of the airport – number of passengers, as the more passengers, the more likely that people choose the larger airport. The distance – the closer it gets by driving time, the better. And other factors we considered relevant or only partially available – like flights to the destination and the weekly frequency and seats (the higher the more “competitive). But quite some more! From that, the system now calculates “fully automatic” the isochrones. And the results are devastating! Even on a “global” airport scale.

The smallest discrepancy of the catchment given by the airport of how many potential travelers would use the airport to the catchment we calculated was 50%. The high ones +90%. That is just basic statistics.

On top of it, you have the questions we did not take into consideration when we worked on the isochrones. Like VFR, like commercial relations, like tourism interest, like … And you better know, where you got it from, how likely it is to be overly optimistic or (sometimes, rarely) pessimistic…

Having that information, you start fine-tuning. You likely have several possibilities, depending on the passenger potential. Take a bigger airplane with more (cheaper) seats and lower frequency. Or take a smaller one with higher frequency, what the business traveler’s will like, but the seat being more expensive. OECD gave some figures for a rough calculation I found quite reasonable for a first idea: An Airbus A320 or Boeing 737 with 150-180 seats costs about 8c (Eurocent) per seat-kilometer (not mile). Use this form to multiply that with the distance for yourself. That is the “net cost”, so add the (increasing) taxes and surcharges onto that cost to come up with an idea about the ticket price you need as an average for flying break-even…

A route planner takes into account much more accuracy, such as real cost of operations, variables depending on aircraft and total hours of weekly/monthly operation. But for a start…

Now comes the next tricky step: How many seats can you likely sell from A to B at this average price, and how many might connect to C but use your flight from A to B? Do you have interline or codeshare agreements at the destination? What air fare do you get? Do you operate the long-haul-sector as well? The cost there likely is cheaper as the aircraft is bigger. But you got to have an idea on connecting services – a science of its own…

So now, at the end of that exercise, you can calculate your risk – how many passengers are you sure about using the offered flights? If you are unsure, your risk is 100%. If you have 50% guaranteed load, you risk less. You also get support from the airports usually, either financial, or “marketing support”. Compared to your operational risk, these are “peanuts”. And in the beginning, you run high risk, so it is wise to not calculate that on your predictive models – if you can’t succeed without, you likely loose.

But then comes the key-point, most airports today fail to have an answer for. Having finally calculated the risk, who takes it? In most cases the airline, virtually alone! Under such circumstances, why should an airline risk a new route with questionable return of investment? In charter flights, the tour operators (sometimes) take the risk, also mostly on their own. Lately, unused seats on some business charter flights, operated by large corporations are being made available to the public, either via Internet or GDS (travel industry flight booking systems).

And if that works well, from such a “business charter” a “scheduled service” with a higher frequency can evolve. But in most cases, the airline is left alone. Any question, why they limit their risk, by pulling the plug when the losses pile up beyond their worse case scenarios?

With eroding net profits, eaten by kerosene, excessive flight crew salaries, taxes and fees, the ability to build a new route in two to three years is very limited. If the route does not take off immediately with a reasonable load factor, the losses pile up so fast, the airline risks extinction if it does not keep a tight control on it.

That’s a short summary into the “science” of airline route planning. If you are an airport who seeks a new route, better do your part of the homework. Can you convince your local “catchment area” population to support the flight, even if the schedule and fares in the beginning may feel higher than from one of the competitive big airports in reach? Will your travel agents sell your flights with fervor – I’ve seen travel agencies at airports offering flights from Frankfurt, Munich, Düsseldorf, but not from the regional airport they were living at! Do you have a grip on the local VFR market? And most important: Can you get commitments from your corporates, business associations (chambers of commerce) or politicians about guarantees on how many seats they could fill? If you are a touristic region: Can your tourism managers qualify, how many people they will have flying on the route? It is fantastic to see, how ingenuous most of the tourist boards are about such basic facts: “Fly and we’ll see”. Flown for a decade, not seen…

Okay. As I’ve put it in the past (as a German saying goes): I take a big long stick and grope in the dark. It requires expertise, experience and good guesswork to do something with all that information you get. Good luck is part of the business.

To summarize planning of new routes:

  • The quality of figures available, as well as my trust in them.
  • The cost of operations
  • From those: A more or less realistic load factor expectation.
  • Who takes the risk?

The first two factors are subject to an educated guess…

And what about Memmingen and Budapest? Memmingen likely has to do above homework now, there obviously was a discrepancy between expectation and reality. And Budapest? I honestly believe Ryanair simply cuts aircraft there for winter – they may want to talk to others if the routes justify a year-round traffic! That may convince Ryanair to consider the next winter. Or do the above homework as well to match expectations and wishful dreaming with the harshness of reality.

Food for Thought
comments welcome

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Ethics in Tourism

There is quite a discussion in Germany these days about Tourisms and Ethics, ever since German politician (Klaus Brähmig of Merkel’s governing party CDU) called for a boycott of travel to Egypt and other “non-democratic” countries. It also comes up on Lufthansa’s latest move to not charge a “service fee” on their website.

Shift Happens NarratedAll in all, I am being questioned by many friends about topics, that make me wonder, how you could call Germany “social market economy” and not what it is: Capitalism! But that is not just in Germany, we talk about a global trend. If you believe in Capitalism, the world is good. The rich get richer, the poor get poorer and the middle class erodes one way or the other (likely “the other”).

There was this video in 2006, I referred to ever so often: Shift Happens Narrated. I did not yet find a good update with 2011 figures, but believe it, it get’s worse.

Is capitalism the right answer? Everything that makes money is good? Do we learn from Exxon Valdez, Deep Water Horizon or the recent gas leakage in the North Sea? Obviously not.

MonsantoRecent reports claim that the international hydra Monsanto intentionally spreaded gene-manipulated (GM) corn crops in Mexico – against the law and in attempted secrecy. This way, they try to get a hold on Mexican farmers, who will in return be charged the “license” fees for using GM corn of Monsanto origin! There is no way, the corn could have reached the fields in a natural way, where it was found. Is everything allowed if it brings money?

Lately (2010), a strong movement forced a political acknowledgement to the Human Right to Water! Do you see the little blue planet picture? But people starve to death, simply missing access to clear water! The consumption of bottled water in Germany exploded from 12.5 l in 1970 to about 130 l in 2006! Did you know that multinationals pump water in areas where the local people face a dry period? This happened even in Michigan, USA – it is not limited to third world countries. That is anti-social, unethical and simple capitalism of the worse kind.

And despite the growth of Solar Power and other alternative energy possibilities, our governments build atomic power plants where we don’t know how to get rid of the waste products, they support building of dirty coal power plants, emitting more Carbon-Dioxide than thousands of old cars could, simply dancing to the whistles of the energy lobbies. They let Greece go into a major crisis, simply to give the banks time, to move their foul papers to the state. Don’t believe it? There is extensive German coverage on Monitor, a bi-weekly report by public television channel ARD in it’s dossiers.

All that said… What about the travel industry?

wigMany years ago, there was a question about the difference of a Tourist to a Terrorist. With tourists, there are no bombs involved, but the results are even more devastating… Yes, this is exaggerating. But thousands of divers ruin the coral reefs around the world. Thousands of tourists skiing the alps (or Rocky Mountains) have a devastating effect to that natural preserve. Aircraft exhausts are in high altitude, having a worse effect than ground time. But even back in 2007/08, when I was involved in the feasibility study for a WIG, all development I hear about is “less kerosene”, bio-fuels replacing kerosene (with unknown new side-effects), but that project stalled with the world financial crisis and seems to be of a low priority. Coutries like the Maldives could replace their entire local aircraft fleet and replace by a clean alternative.

I hear a lot about the “reduced noice levels” of aircraft, but in the discussion about the night flight ban in Frankfurt, I asked publicly, where there are hard facts about this? How did the noise levels reduce and why are the airports then paying new millions every year in counter-noise-modifications in their neighborhood?

Many meetings could be replaced by professional video conferencing, but our managers keep the “need” to meet for their routine meetings “in person”. Trains focus on high speed route networks in competition to air (and that makes sense), at the same time neglecting the local traffic – how to commute from a small township to the bigger town for work?

Yes, I love aviation, I am an airliner by vocation. But yes, I have a soul and yes, I question the tendency to keep status quos without need. The feasibility study provided figures that such a solution would pay off within maximum three years, then it’s a cash cow. It could revive the old harbor cities (the ones on the seaside). But such revolutionary developments are opposed by the “old school”, all the investment going into the airport infrastructure.

Responsibility begins with each and everyone of us. We are supposed to be Christian’s, but Christian behavior would call for social behavior and I cannot see such. The question is: Where will we be in 100 years? Watch the “Shift Happens” video again:

flat-earthName this country

Richest in the World. Largest military. Center of world business and finance. Strongest education system. World center of innovation and invention. Currency the world standard of value. Highest standard of living.

… England … In 1900!

How did travel develop in the past 100 years. People traveled by ships, horse carriage and some railroad systems. Just a 100 years ago, Titanic sunk. Today it takes less than six hours to travel from Frankfurt to Boston. In the 60’s, American Airlines and IBM invented Sabre and revolutionized the distribution of airline seats. I was with American, when they started to provide Sabre terminals to the first travel agencies in Germany – which have already gained experience with the START-system, accessing the Lufthansa “Res”-system through a pre-windows environment! In 1996, as the “GDS Coordinator” I was primary element for the development of the first Internet Booking Engine for business travel (air, hotel, car). We had “e-Mail” (called “SITA-Telex”) in the late 80’s, no one spoke about “Internet” then. But I also introduced the “Internet” and the new “World Wide Web” to the Airline Sales Representatives Association back in 1994, recommending i.e. Continental Airlines to register their domain name for a few bucks quickly. They sure ignored my recommendation and for years used “www.flycontinental.com” instead.

GalileoCRSIs that “you”?

What is our business? Is it to manage a GDS? Many travel agents (seem to) believe so. Then we are database operators. AN20MAYFRAHKT18 – that is a database request. Is your business to issue tickets? Then you are no longer needed, as eTicket is the new standard.

What was “your business” 100 years ago? It was not to book the air ticket and the hotel. It was a complete consulting, how to get Grammy from her home in Middlesex to Aunt Cathy, who emigrated with her husband to this new colony Swaziland in the South of Africa. Could she use some of the new airplane-routes? Where could she use trains? Where were carriage routes? What vaccinations would she need, where would she stay overnight, what could she do on the multi-day-stops en-route?
Or you booked the summer seaside. If you lived in England, you were lucky, you could book one of the “packages” offered by some “Thomas Cook”. Else, you had to read a lot about the “common” spas, recommend and explain you client the advantages, book the trip, the hotel, the treatments.

And yes, it was expected from you to be knowledgeable about the countries, their political, cultural, economical and social systems. If you traveled to an Islamic country, what are the rules? Why to be careful and patient about cows in India. And to know that India was British colony. Sometimes I wonder, how many of the people selling “Seidenstraße” ever learned some detail about Marco Polo. Venice, Genoa have been the center of the world those days – the “seafaring nations”. Frankfurt, London, Atlanta, Peking are the centers today – of the “airfaring” world. What are “nations” in a globalizing world? But U.N. is a toothless tiger. Lybia, Tunesia and Egypt were (as Kuwait) some years ago immediately targets of military – for the sake of crude oil. But in Syria thousands are slaughtered, but they are not a capitalist necessity, so the world looks and doesn’t do.

Ethical DilemmaAn old saying says: Don’t talk about ethics to a hungry man!

Ethics begins with myself. Do I fly or drive – or do I take a train? Is the trip necessary? Can I achieve the same outcome with a video-conference and e-Mail? It is also about: Is this to the best of my employer – or do I justify the trip, simply because I want to see someone – or get somewhere. And it is about: Can I help to make this world a better place?

Yes, companies are about making money. But if only money rules, we adore the Golden Calf again. How un-Christian can we get? Talk to me about Ethics in Tourism. Yes, we got to survive. But at all cost?

The travel industry prospers, but for some reason, the employees do not participate. It’s all about money. Is it?

 

Food For Thought

And as usual, your comments – private or in the blog – are appreciated…

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Social Networks …

A personal post today…

Do you know …

… where you usually find me online?

social-networks2

Many people keep telling me, they did loose my phone number… What could be easier to go to www.barthel.eu an check it out?

Some people ask me for the source of the Lazarus Long quotes I happen to use so much… Same site, simply look at “Links“.

If you are member in social networks, you are likely too to be able to link to me – at least for the big ones… Mostly I use a customized e-Mail-address to identify Spam sources. It is usually jb.[sitename] at barthel.eu, that works i.e. for Apple, Facebook, Google, LinkedIn.

I am not in Xing any more, as I did get spam mails and when I reported them, Xing simply neglected they’d be at fault and denied to even look into it. Being neglected doesn’t help at all to proof their innocence.
Plaxo, Hi5 and other sites had so little value to me, that I never came to use them much… I have an account on StayFriends, but don’t use that much either, there are just some friends being there and not on Facebook (yet).

At Amazon, we use a family account and do maintain small wishlists, you can find that using amazon at …

I am not much using eBay – mostly the stuff is not truly cheaper than on the free market and I am not really into “second hand”, especially not for sources I don’t know. Neither Facebook’s BranchOut – it doesn’t compare to my LinkedIn-network. I link on Routes Online, but they don’t support much social networking yet, I do more with Routes on Facebook (and LinkedIn) than on the Routes-site.

yb-social-networksYulia mostly uses mail.ru and Odnoklassniki.ru (StayFriends for Russians).

Time flies
Time flies

What concerns me quite a bit… It is wonderful to be “remote” and keep the contact. But it takes too much time! At my last job, I got so many mails, if I would have answered them all, I wouldn’t have been able to do my job! And I do not talk about the Spams, they’ve been filtered away, but the once that did “require” my attention. We do not need a secretary any more to handle our writing, but we need an assistant to filter out our mails and respond to the unimportant ones! And yes, I understand, you want my second best (you won’t get my family), but I plan expenses and I won’t just spend budget “on the fly”, because your product is so hip. My day has – believe it or not – 24 hours. Out of which there is time to work, time to take care about myself, time for family and time for friends. We have something called work-hours and we have something called weekend (though in our industry, that may be mid-week or be skipped occasionally). And at work, I am there to lead my (employer’s/client’s) company to success, not “yours”… If I spend money, it is to achieve objectives – you may have nice, hip solutions, but if they do not meet my objectives (at the end of the year, a maximized income for my company).

I prefer Facebook for two reasons:

  1. facebook-logoThe communication is more personal – I believe social networks are not “all business”, but it is about friends. Friends in different stages. I wrote a story once on a blog I meanwhile disabled about the Greek definitions of “love”, ranging from Eros (sexual) and Philia (“platonic”, loving friendship), to Agape (religious) and possibly the most important here: Xenia (hospitality).
  2. I reach hundreds of “friends” within a single posting. I do not need to bother you with individual mails. And yes, I happen to not only look at my wall, but also (especially on your birthdays if I know them) visit your profile and appreciate it – and regret if we did not meet lately!

logo-linkedinLinkedIn is nice, but it is mostly a business contact list. I occasionally do “answer questions” there, but just to read and reply takes too much time – time that is in short supply!

logo-skypeAnd I love Skype, as it does allow to see each other.And yes, Skype is also “social networking”. As Social Networks are not limited to “online portals”, but are about people I know! In person 😉

icon-routesI just missed ITB – the third time in 24 years. I meet friends at Routes, at French Connect, at ITB, also in Frankfurt, Munich or Berlin traveling – I don’t travel half as much as I used to and I do admit, I miss that. I don’t want to travel as much as in my “traveling days”, but it would be nice to travel several times a year long haul for business… I also admit, I can’t wait to leave Erfurt. It is a beautiful, medieval city with nice shopping and night-life, but it’s no longer connected by scheduled flights whatsoever and such for most of you “at the a… end of the world”. I want to be more accessible again and have you visiting me… As mentioned before, Xenia, the loving hospitality, is very important to me, I love to have my friends visiting. And network live and in person 😀

 

Lately, I got on Facebook a nice anonymous quote: “It’s been said, that everlasting friends go long periods of time without speaking and never questioning their friendship. These friends pick up phones, like they just spoke yesterday, regardless of how long it has been or how far away they live, and they don’t hold grudges. They understand that live is busy but friendship lasts.”

So … how do you use online tools and portals for social networking? How do you see the buzz word “social networking” on- and offline? Do you prefer the more personal communication and link I use in Facebook or more the “be linked and don’t bother” of LinkedIn? What do you think about my blog and does it make you think – or do I bore you? I see the blog is being read (I do have general webserver-statistics), but I do not see as much comments as I’d like? But most:

And where and when do we meet again? When did we talk last time?

Food for Thought

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Tourism in Europe – Economic Factor or Cash Cow

itb-flagsReferring to the air traffic taxes in the U.K., Ireland and Germany, a renowned consultant lately compared tourism politics in the Middle East / Emirates and in Europe. In the Emirates, aviation and tourism are considered economic factors – in Europe a cash cow for the politicians…

Now we have the ITB in Berlin, the most important trade fair for Europe in the World. Our chancellor, having recently opened CeBIT computer fair in Hanover was not seen in Berlin yet. Instead, Philipp Rösler, Commerce Minister and head of the minority party FDP (currently 3%, unlikely to make it into government again), was sent to the opening ceremony. Following a scandalous interview by Merkel’s fellow party member Klaus Brähmig, who advised Germans to boycott travel to Egypt, following publications of negative impact on the “ecological air travel levy” (simply “the aviation tax”), the signal could not have been clearer. The value of Tourism in the mindset of our political elite is non-existing, except for being a possible cash-cow. This is also confirmed, looking at the bureaucratics and the political “non-support” for the German airports in the question of night operations.

nachtflugverbot

An airplane that is on the ground costs money. And if you fly transcontinental, flights may arrive and leave at night. On regional flights, utilization is a key driver for economic operations. By limiting flights to daytime-operations, Germany strengthens surrounding countries and regions, without such limitations. And the airlines in those countries, as they can utilize their aircraft more.

Dead-Cash-CowAnother topic of the same issue: The European Safety Umbrella (ESFS or whatever new name they give it). Currently Germany guarantees 230 Billion Euro of that one – the country’s household last year was 355 Billion Euro… We better hope that Greece survives. But what I miss to see, is an active political support for the Greek tourism industry. All the experts emphasize Tourism to be the major economic driver and business for Greece, but thanks to the political hick-hack, the Tourism is in recession there! It might be wise to invest some of the money to stabilize (maybe provide guarantees and affordable credits to businesses) to assure Greece tourism companies to survive and even prosper…? But the politicians now focus on Tunisia, Egypt and other areas, neglecting Greece and thus giving the wrong signal.

200-billion-marksWhat “strategy” does the political elite in Germany and Europe have for Tourism as an economic factor? What are the lobbying organisations doing – and why is the tourism industry so weak?

Your feedback is appreciated!

 

Food for Thought

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Always Online – the Smartphone Revolution

How the smart phone changes my life – and will change yours if it hasn’t already…

First a quick review, how I got “addicted”… First Yulia “fried” the mobile phone that she brought from Russia. 2009, being the year the first real “smart phone”, the iPhone 3(GS), hit the German market, it was virtually impossible to get any other “smart phone” that would allow us to install and use the phone to write Cyrillic SMS – a must have for my wife. So I had the choice to order a phone from Russia – or get her an iPhone…

As she got the iPhone, I “inherited” her iPod (1st gen.) and started to use it. To read e-Books, to hear music, to go online and quickly check things, to do many things. One of the short-comings of that iPod was the missing camera, so I could Skype, but I could make no video calls at that. So getting the opportunity, I got myself upgraded to the (at the time brand-new) iPod 4th generation and started using Skype and do again many more things with it… No, I did not take an iPhone as – at the time – I had a dual-SIM-phone and appreciated the ability to have one phone for business and private. One major disadvantage remained – I needed WLAN to use online (= smart) functions… So when iPhone 4S came out, I had waited for iPhone 5 but decided to wait no longer… So here I was… Having predicted always onlineback in 2004 at my annual ASRA presentation about e-Commerce-trends, I finally am…

c't Schlagseite 1/2003
Always Online: New Device found: Airbus A320 – Installing

Another issue I mentioned in the last years was the evolution of RFID (Radio Frequency Identification), which is virtually the same as the NFC (Near Field Communication) that is expected to be part of the next smartphone generation. A sender transmits a signal that triggers the “passive” RFID chip. “Powered” by the radio waves, the otherwise “passive” RFID chip (where NFC may use “own” power) returns a given code, that can be used to identify the passport or ticket number, the suitcase’s ID, the frequent flyer number …

c't Schlagseite 15/2005
Dear valued customer! The RFID chip in your tampon reports to be filled to the brim. Fantastic offers on tampons in the next aisle, shelf 7…

Receiving that RFID it is the server to be able to use and interpret these short codes. Following the Security by Obscurity-idea, such solutions increase the security, by removing unnecessary (and time-consuming) “checks”, bothering the passengers today.

One of the new apps (smart phone programs) I got was Barcoo, giving me information about products I saw in the store, identified by its barcode I scan with the inbuilt camera. And one of the more recent trends is the QR-code (Quick Response), the “next generation barcode”. Different from the good old barcode, the QR-code has the ability to contain more complex information, it can give you a simple URL (internet address), a vCard (virtual business card), event information (calendar data), WLAN access information, … Many, many possibilities! All you need is a smart phone, maybe a small “app” (application, a program) to interpret the QR code. To create one, go online, there are tons of generators around, many are free to use. Abusing the high quality error correction being part of the QR-code, you can even add a logo or icon to personalize it (which the scanner interprets as “faulty data”):

SocialSample

Same principle as QR-code, just one reference area in the center
Same principle as QR-code, just one reference area in the center

So airlines us QR-codes to manage check-in-data and get you your “online boarding pass”. They will use RFID and NFC to identify your suitcase, to identify your passport and it’s “public” data, check you in automatically, enable the lounge access and charge you directly and automatically over your phone in case you are not entitled for free access. A sticker at the entrance provides you with the current (changing) access code to enter the free WiFi, etc., etc. pp.

Now… Computer hardware looses about 50% in size every two years, doubling the capabilities in the same time. Only the necessary screen size today is an issue, why that technology is not (yet) in a watch – or any other “aesthetic” jewelry or gadget you may prefer.

iPhone’s Siri to me is still a female bitch. Usually she simply claims not to understand me… But as soon as that improves (and it will), you can have a small hearing device behind your ear to telephone. The microphone being a stylish necklace (or the entire thing a small headset). If you need to go online, you unfold an external flex-screen or put on some stylish sun glasses. You won’t need a mouse, as Siri’s grandchild will understand your wishes and/or your eye movement is tracked: “Blink to Enter”… Remember the Visa advertising?

What did they know 2000 about “smart phones”? Where will be in another 10 years?

Yes, please share your thoughts: For those who agree or disagree, it is the exchange of ideas that broadens all of our knowledge. [Richard Eastman]

Food for Thought…

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Cheap Pizza…

“You can make a pizza so cheap, that nobody wants to eat it”
[Gordon Bethune, former CEO of Continental Airlines]

Being asked about my sanity to invest into Join!, the start-up of an airline network, this article is about “cheap pizza” or why I still think it is a good idea to start a regional airline today.

ERFstatsIn order to complete my statistics about the passenger development before / during / after I’ve been working at Erfurt Airport, I had a look at the monthly development, as well as the annual one of Erfurt and Germany (published by ADV.aero) and Europe and the world (published by IATA) as a comparison.

IATA reports EU, with 9,5% growth 2011, the second strongest market in the world. That is behind Latin America, but before Asia! The market being challenged by political mistakes, increasing the tax burden on aviation. Milking aviation until it collapses instead of strengthening it in its role to attract and support commerce is sure short sighted expression of ignorance. Unfortunately, this political development makes Europe at the same time the global area with the lowest profits world-wide and – to my understanding – has forced the collapse of a number of routes, airports and airlines in the past year. Where the failure of one, opens the opportunity for the other.

ADV confirms Germany, having added aviation tax in 2011, to have only grown by 5,0%, visibly below EU-average. This may also be a result of the struggling by Air Berlin and Lufthansa to cover up for the resulting strain on profits, closing down a number of routes, focusing on their hubs. Which opens opportunity on several of these abandoned routes.

cirrusdefunct spanairdefunctRecently, Cirrus Airlines and Spanair, the one being a code share partner of Lufthansa, the other being a Star Alliance member, ceased their services and filed for bankruptcy, leaving more routes unserved. The failure of one opens the opportunity for others.

Airplus (leading credit card provider for companies and business travel) reports that the business travel in Germany will increase exponentially compared to other markets. At the same time, the average air fares are increasing.

There are some airline operational models, that can be used exclusively or in a combined operation.

  • Hub & Spoke (Network) Airlines
  • Low Cost Carriers
  • Regional Aviation
  • Business Charter
  • Tour Operators

Hub carriers usually operate one or several hubs, routing passengers from and to smaller places through their hubs into their networks. This is mostly the classic way, airlines operate since the 1980s. In those days, the airline took the financial risk to establish new routes. Challenged and responding to low cost carriers, their ability to do so has eroded.

Low Cost Carriers compete with, making them virtually a mix between hub carriers, regional airlines and charter operators. They operate point-to-point-services with larger aircraft, offering ability to start with lower air fares. They temporarily profited from the fact that airlines had to build war chests to finance the establishment of new routes. Meanwhile they come to recognize that operating an airplane is a cost factor and as the established airlines responded to their threat, the advantages they built upon increasingly eroded.

Regional Aviation is usually referred to as the operators of smaller aircraft of up to 100/120 seats maximum. Their focus is to establish air services for regional airports with limited passenger numbers. Using smaller aircraft, they can operate higher frequencies required by business travelers, still being of less interest to the low cost airlines, usually operating mid-size jet aircraft (100-180 seats) with a lower frequency and focusing less on the business traveler’s needs.

Business Charter usually fills the gap, where the operation for a scheduled service between two airports is not supported by the passenger numbers needed, but business travelers need to go either on a customized schedule and/or traveling between airports not connected by existing scheduled services.

Just to complete the picture: Tour Operators have aircraft flying leisure travelers seasonal between their point of living and their place of vacation. The aircraft can be owned by the tour operator, it can be charted exclusively by a single one or a group of tour operator(s), or it can be offered to the tour operators. As such, there is a business opportunity for airlines focusing on operations for business travel, to offer their aircraft on weekends, midday or night to tour operators.

On the positive side: Hans-Rudolf Wöhrl, who already founded NFD (today Eurowings), later bought and turned arouned DBA, now joined into the board and invests in Intersky, a smaller regional airline in Friedrichshafen, Germany.

Updated 2015
Updated 2015

So why attempting to launch a regional airline just now?

The major carriers straighten out their networks, focusing their routes to serve into and out of their hubs. Low Cost operates usually larger aircraft, accommodating the leisure traveler with lower frequency. Many routes are served once to trice a week only, making them less likely to be of interest for business travelers. On the other end, business aviation reports a surge in demand.

Likely the increasing demand for business aviation reflects the reduction of flight services by scheduled airlines (be it major airlines or low cost). Business travelers are not as focused on the air fare. It must be competitive, but their focus is frequency. If needed, they charter the aircraft to enable the necessary business trip.

So it needs careful route analysis. How many people will travel between A and B? Flying between A and B with a 50-seat aircraft twice-daily service (daybreak) plus twice on the weekend at 80% load factor generates 25.000 seats a year. That means 25.000 return tickets to be sold – of 50.000 one-way tickets. Double this for a 100-seater… And when you fly that, what do you do with the aircraft between the morning and the evening rotation?  Can you utilize it at night? An aircraft standing around looses money. So you better consider the options for a secondary service that utilizes the aircraft in midday. And if you have local tour operators interested to charter the smaller aircraft for their services, utilizing it on the weekends or at night adds to improve the return-of-investment for the aircraft and its operations.

But yes, no matter how well you qualify your route potential, it remains a risk. So you got to find investors to believe in your route analyses and believe (or need) it. You can also talk to other involved parties or bodies, such as airports, chambers of commerce, politicians, companies and reduce the risk by having commitments for tickets. Remember, we talk about 50.000 one-ways every year… But in the end – this does not have to be subsidies, it could be commitment to sell a certain amount of tickets.

That said: There are many routes, which require business-frequency with smaller aircraft and would not work with lesser frequency but bigger aircraft (and fares), as the business traveler would not fly only one-way. Increasingly, the retreat of the major carriers from the regional airports opens up opportunities for smaller airlines. Our idea of a “network” offers those small, “individual” operators access to know-how, distribution, services and quality usually available only to larger scale of operations.

Every  failure or retreat from a route or airport opens opportunity for someone else. Though the times, the airlines’ take the risk alone are over – if you start up, you better find out, who comes with you on the journey.

Food for Thought. And yes, I appreciate your thoughts.

As Richard says: “For those who agree or disagree, it is the exchange of ideas that broadens all of our knowledge”

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Crisis? What Crisis?

crisis-dtvGerman Tourism Association DTV reports a record year in German Tourism1, German Airport Association ADV reports a passenger record2 – the same news reaches us from all over the world… Crisis? What Crisis?

Airplus3 and American Express4 published their outlook for 2012, expecting a stable market, more meetings, but increasing cost for air and accomodation… Crisis? What Crisis?

airbusboeingordersAirbus Industry reports a record order backlog, with the Airbus 320-family (mostly 319+320) being the most demanded aircraft in the  world today… Crisis? What Crisis?

Yes, what crisis? The average income of a senior manager in the “Fortune 500” across the world has multiplied in the past five years (at least doubled), at the same time, the average income of a worker in the same company has decreased (thanks to inflation and loss of monetary value)… My tone now becoming sarcastic: Crisis? What Crisis?

Throughout the world, increasing natural disasters are reported to be a result of Global Warming. But our politicians cannot agree on counter measures. The EU Emission Certificate Trading is challenged by the main emitting countries, namely China, the U.S., but also Russia… Crisis? What Crisis?

crisis-greeceThe Greece Prime Minister informed the EU years ago about the inevitable bankruptcy.  The politicians avoided that at all cost, their delay tactics gave the banks the opportunity to move all risk from the banks to the tax payers. Thank you Mr. Ackermann, thank you Mrs. Merkel! Thanks to such “politics”, no longer the banks are “challenged”, but the European states are! This is no “sitting it out” of our representatives of state, but I call it criminally corrupt! Crisis? What Chrisis?

The U.S., it’s currency being the lead world currency, is brought close to a bankruptcy in itself, thanks to the Republican “opposition”. How stupid can such a (Republican) “representative of state” be?
But: The German Minister is caught having copied his doctorate work – “Guttenplag” has been a nominee for the word of the year. Our Federal President is being caught taking credit and other benefits (free flights or holidays) from industry managers. And while corruption is forbidden and you can go to jail for it, lobbying invests record amounts last year – securing the politicians to vote in their favor. And not just our former Chancellor Schröder is safely and well paid employed by an industry, he secured long-term deals and commitments with during his state of power… Bunga-Bunga! Crisis? What Crisis?

Russia is corrupt? At least you know that! The Arab Spring is in danger to become a barrel burst in Egypt? Global Warming is no issue, but the tourism industry is the milk cow to the politicians (whereas in the Middle East they are a factor to support commercial development). Crisis? What Crisis?

I tell you what crisis we have:bankspoliticos

The Bank Crisis: The banks are the real power in governments.

The Political Crisis: Our politicians do not represent the people, nor any strategies or ideas: They simply represent the lobbies that pay them fortunes and do everything to keep in power, not to loose these honey pots!

bierdeckel-taxIf they would have any “strategy”, they would make the beer-tab-tax-report a reality and safe millions of Euro in tax administrative cost. They would make travel and tourism a strategy. They would seek minimum wages and support future development like solar industry – and not add tax burdens on them. As they would support families, enabling them to combine business and family – and have day care for the children (something I found painfully amiss myself last year!)

Crisis? What Crisis?

Food For Thought…


Sources:
1 FVW | 2 FVW | 3 FVW | 4 FVW
ARD Monitor Dossiers

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