Quo Vadis Aviation

The Endless Runway concept

Side Note

Dear Readers. I’ve spend a quite large amount of my “free” time on qualifying myself on online-PR, -marketing, SEO, SEM, SEA. All those buzzwords that I summarized a bit in the new SEO-optimized page Unhyping Online Marketing (SEO SEM SEA). So I didn’t have spare time to focus on the topics but made note, what to address in the upcoming blog posts.

As I told a friend, it mostly scratches on the surface only, where I could pour some salt into open wounds. Most fun for me was to make that article SEO-perfect, though it does make it a bit hard to read… And it became so much, that I decided to put it in a page, not a blog article (post). If you didn’t read it yet, if you’re in marketing or online, you might want to after reading this post.

What did trigger is the statistics on active users vs. leechers. I know a lot of you read, though most of you I don’t know who you are. I sure do appreciate anyone “outing” themselves to me that they read my blog. Send me a mail to juergen at barthel eu if you don’t want to comment in the blog.

Quo Vadis Virtual Airlines?

Many new airlines come without business concept. What is the business model? What is the USP? Have you made a sincere SWOT analysis? Know your internal and external strenghts, opportunities, weaknesses and threats? Or do you believe with a small, leased fleet, paid maintenance, some commercial off-the-shelf software and some flights in summer to the secondary holiday destinations you can stand up to the existing big airlines? What’s your niche and is it safe and sufficient enough? Else, you simply build up a market for the big ones and find yourself pushed aside – another “victim” to the ongoing consolidation. Nothing new. Nothing unexpected.

There is the saying about how to make a million in aviation. Start with a billion. While I believe with a billion you can achieve something, the usual “airline startup” is 2-20 million. One or two leased A320 or B737. I call them mayflies. They fly one (high) season, maybe two. Then they have no more funds to sustain another low season and “fail”. A failure with prior announcement.

Regional Airlines vs. Low-Cost

Regional Do328 and Low Cost 737, 2009 at Erfurt Airport

Discussing “Regional Airlines” and “Low-Cost Airlines”, all the “experts” keep separating the two models. What they fail to see is the role of low-cost airlines in the regional aviation market.

“Regional Airlines”

The common “definition” of regional airline is to fly small aircraft, up to 100 seats. Often in a mixed fleet. Always at a high cost per seat. So the tickets by nature are and must be more expensive.

“Low Cost Airlines”

Different from Regional Airlines, the Low Cost airlines fly Airbus A320- or Boeing B737- family aircraft with 150 to 200, recently implementing even larger A321 and B737-9/900 with up to 240 seats.

Regional + Low Cost

Both airline types have something in common. Both fly point-to-point. Both classically focus on short and medium haul.

Both also establish some connecting services as their hubs. And airlines like FlyBE try to reduce the cost by using a single-type-aircraft fleet like FlyBE’s 54 Dash 8 Q400, though they have some other aircraft too. Air Baltic converts to a single-type A220-300, their CEO expressed even adding the A220-100 would complicate and increase the cost base. But the choice of aircraft defines the choice of airports and routes. Which leads to the next topic of this article:

The Passenger Airline Food Chain

30+ years ago, when I started in aviation, there was a very clear “food chain”. First came general aviation and holiday charter flights, feeding the demand for certain commercial routes or holiday destinations. When those flights became successful enough, they lost to regional airlines providing scheduled services at fixed times between A and B. The larger holiday charters lost to scheduled airlines and network carriers, taking over those lucrative routes. At the end of the food chain were the large network carriers, connecting smaller cities to their hubs and through the hubs connecting to the world.

Then came the Low-Cost carriers. And everything changed.
… Everything? Really?

The Rise of the Low Cost

So the model of the Low Cost Airlines was to use a single type aircraft fleet, such minimizing the complexity to operate the fleet. Be it exchange of broken aircraft, be it flight crew training (cabin and cockpit), maintenance, etc. Using the highly effective new Boeing 737 models, later also the A320, they focused on one thing. To provide the lowest cost per seat and such undercut the prices that the network carriers with their far higher complexities asked for.

They did not bother about the complexity of hub-services or – god beware – “interlining”, requiring baggage transfer, the need to secure the connection for the passengers, they connected secondary airports point-to-point. Just like the regional airlines, but at lower cost. All they did in fact, they cannibalized the upper end of the regional airlines and also competed with many regional flights of the network airlines. Given their USP of a very, very low cost per available seat kilometer (CASK) or mile (CASM), they covered their niche well and ate away from the profits of both small regional airlines, as well as the large network carriers.

An overlay map of GFK Purchasing Power map Germany with the German airports from Wikipedia.Regional Airports vs. large Hubs

In the past, there was a clear distinction. Regional airports were small airports that were connected to the global air traffic networks by being connected to the hubs. So a regional airport only served a few scheduled flights, plus vacation charter. I had this concept also at the Erfurt-Weimar airport (ERF) 2009/10. Where they did not even understand their Munich flight they subsidized would connect them via Munich to the world. Cirrus Airlines as the operator was “Lufthansa Partner” without code-share into Star Alliance, not even with other airlines in the Lufthansa Group, so all the airport looked at was the few “Lufthansa connections” they could offer from their airport via Munich. Of which some even didn’t connect. In consequence, the locals did not look at those few connections, but focused to fly from Berlin or Frankfurt, both three hours travel time by train. Or they even took the train to Munich. If you know the added time you need in Berlin and Munich to get from the train station to the airport, you understand why I got upset. Simply to date my example of a gross misperception and belittlement of the airport’s value. Even worse, on my first day at the airport, I had to read an article in the main local newspaper that one political stakeholder promoted Arab stakeholders to come to Thuringia. By flying to Frankfurt and taking a bus (four hours minimum). Instead of flying via Munich…

Working with regional airports, my experience is a very strong tendency to short-sell themselves, belittle the own region. It is not made any easier that there are virtually no regional statistics about travel demand and the IT “solutions” are being biased to make big airports bigger and neglect the small airports. As I explained in the December 2017 article about the bias of route viability analyses.

Evolution of regional hubs

Especially in Europe, the political strategy about aviation is “thinking small”, new airports like Berlin are planned too small from the beginning. Airports that were planned for growth, like Munich when moved from “Riem” to “Erding” face political opposition to execute the expansion, adding the originally planned runways. Even London, instead of a bold move to establish a new airport, decided to just add a new Runway to London-Heathrow. A move that will quickly face the same problems Heathrow has today, of inheritance in terminal structures, slot constraints, a limit to the expansion. Should Boris Johnson in the recent turmoil follow Theresa May, there are some hopes that he revitalizes the “new airport” idea for London.

Postillon 24: The ruin is partly in a miserable condition.A necessary step to compete with the new “global hubs” in Istanbul, Dubai, etc., build to size of about 150 million passengers. Berlin? Build to 27 million passengers, when finally ready one day. Current news questions the next opening data in October 2020… As German “Postillon24” satire site published 2015: Archaeologists discover historical ruins of unimaginable dimensions in the south of Berlin (link to Google translated page in English)…

With the large hubs increasingly slot constrained, i.e. Amsterdam simply “out of slots”, the only way is to bypass those airports and increasingly fly to smaller cities. An example can be American Airlines, adding Dubrovnik on the Balkan Adria to their destinations. Sure, the low-cost airlines have a history understanding the value of point-to-point services between smaller, “regional” airports. Basel, as a first base of easyJet evolved into a major hub for the low-cost airline. Business case given, the operation of a regional hub can make sense… And didn’t we joke about easyX when Air Asia X flew to London-Gatwick with majority of travelers connecting onto easyJet…

So far, many of the “low cost airlines” (i.e. Eurowings, Norwegian) focus on larger airports as their hubs; Düsseldorf, Cologne, Barcelona and the likes. Their decision makers obviously are not bold enough to leave the beaten path and go new ways. Ryanair moved into Frankfurt, but it’s said they are not doing well there. Wizz and others establish small bases in regional airports and then grow them, benefiting both the airport, the region and commerce in the regions. Given the slot constraints on the “mega hubs”, we will see a lot more development of regional airports, point-to-point services and hubs. For those airports and their regional development stakeholders, one of the main tasks is to change the perception from “feeder airport” to a bold understanding of their own values and needs – which directly served regional routes make sense? I know, this is a recurring topic on this blog…

The Future of Airports

My friends at Passenger Terminal World, also doing the Passenger Terminal Expo, recently collected views on the future of airports. Personally, I found those views rather conservative. Very focused on the adjusting the status quo, no bold jumps at all. But for several years, some bold ideas keep resurfacing of which I’d like to address two.

The Circular RunwayThe Endless Runway concept

The Circular Runway on first sight is an intruiging concept. You could land anywhere, never a “runway overrun”, never the wrong wind direction and while one plane takes off on the one side, another lands on the other. But.

There are some questions that I believe this idea will never make it to reality. Usually, there is a given wind direction and airplanes take off and land against the wind. So instead of a straight runway you have a circular one that allows to take off and land exactly against the wind. While the remainder of the runway remains unused. A nice to have? Or a lot of sealed ground for no gain?

The other setback is if you exceed the capacity. Adding another circular runway? If need be crossing runways use less space and allow parallel operations. # And they can be started with one runway, adding as demand requires.

Given both those issues, I think will be good reason to stick to the existing straight runways.

Drive Through TerminalDrive Through Airport Terminal

The Drive Through Terminal is also an interesting concept that the designers invented for large airports. But in fact, there are a lot of setbacks from such a terminal that make it less ideal for such airports, but more ideal for regional airports. What I like is the possibility of weather independent operation thanks to the roof, as well as the guide rail system to transport the aircraft from arrival to departure.

The first problem is on large airports that there are airline using differently sized aircraft. So you have classic terminals and drive-through ones only for certain aircraft? On regional airports and low-cost airports, the terminal could be optimized for standard aircraft from 70 seats up to A320/B737 families with up to 240 passengers. Should there be a larger aircraft, it can be handled on the apron.

The other problem with the proposed design is the ignorance of what any airport operations manager can sing of: Disruptions during the turnaround. Once the airplane enters the process, there are now ways to replace the aircraft (see image left). On a small, regional airport, that can be overcome rather easily using one or two lanes only, allowing the aircraft on any stop to be “extracted” or “added” into the “line”.

The third issue is the issue of parallel handling, supporting connecting flights. While the first aircraft boards, the other just comes in. But what I think can be a practical approach is to have drive through in a two step process. Disembarking, embarking – go. If there is a problem, on both “stations”, the airplane can be pulled out backwards or front. Several airplanes could be managed in parallel.

The last issue is the passenger facilities, including and not limited to contemporary airport cities

Summary

There are a lot of ideas out there, but the main hurdle is the conservatism. Airplanes to date are serviced on the left, boarded on the right. A relic. But to change such requires not only different airports but also different airplanes. I doubt I will live to see such a change. Other issues can and should come. So I see the rise of the regionals, also the drive through terminal.

Food for Thought
Comments welcome

Back to the introduction. I’d love to hear from you. You can out yourself on mail, WhatsApp, Viber, here in the comments, that you’re one of the frequent readers of my blogs. It is motivational, believe me. And if you haven’t read it yet, you might want to smile about my SEO-optimized summary of three months studies: Unhyping Online Marketing (SEO SEM SEA)
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Aircraft-on-Ground, Disruption Management …

… and the Ongoing Demise of Small and Mid-Sized Airlines

P.S.: While I wrote this article, Germania, an airline that I know from the beginning of my career, who’s team I booked at American Airlines to Seattle to pick up their first 737s, an airline I have had a personal attachment to, went into insolvency grounding all aircraft after many years of financial losses. The demise of Air Berlin 2017 brought easyJet on their home-apron in Berlin in force, no longer some competition, but clear one-on-one. Such the chance to establish lucrative routes in Berlin evaporated. Instead of benefiting from the demise of their largest local competitor, Germania had to sit aside, watching the threat growing.

Germania did, what they had to do, they focused on niches. Niches that were too small, to fragile to give them safety. Routes they developed well always threatened to be taken over by their competitors operating with lower cost. Erbil, under threat of war, Beirut, …? They announced a base in Pristina (Kosovo). They ordered A320neo, in an attempt to stay somewhat competitive to their competitors like easyJet also introducing the modernized aircraft. Else they operated tourism charter flights – which are in great demand in summer, but one after another airline in that market files for bankruptcy at the end of the season. And Germania published financial troubles as early as August 1st, 2018. So they could not do what needed to be done: Generate enough money in summer to succeed across the harsh winter.

You cannot succeed if you play it small, if your cost is not competitive to your competitors. Not the small virtual airline competitors, the other “day flies” lasting one summer season, two at best, but the big ones. The easyJets, Ryanairs, Wizzes, etc. It’s not fuel cost development that kills you. It’s bad management. It’s a strategy without USPs or with very weak ones – there’s reason, the other airlines don’t bother the routes Germania did.
And as I outlined in an article I published on LinkedIn, this was no sudden issue, they lost money for years!

As it is being said, the unexpected increase on EU261-expenses, the “EU passenger rights” also had it’s impact on the financial situation. If you sell a ticket for € 100 and you must compensate € 300, it does impact your revenue. So back to the topic – flight disruptions.

Having worked last year on the business plan for KOLIBRI.aero as well as on projects related to Airport and Airline Operations Control Centers, flight disruptions have reappeared as an ongoing topic of increasing concern. And my experience doing a study a few years ago at delair together with Zürich Airport (ZRH) about the impact of the deicing forecasting and management tool on Swiss (airline) operations at Zürich became a strong source for my advise to airport operations managers.

Image ©2010 Flughafen Zürich

When working with ZRH “Ice Man” Urs Haldimann on the study, I also got some feedback from Swiss. While managing the deicing in winter is not that much a problem, neither airports, nor passengers understand the rippling effect to the schedule. And often enough, not the airline’s own managers. That in the evening in warm Mallorca, the flight may be late, because of a deicing delay in the morning. So while higher force is accepted for the flight cancelled in Zürich, very often, the airline is required to pay EU Passenger “compensation” multiple the price for the ticket. So a major delay can be far more costly than just related to the immediate flight.

The harsh winter 2013/14 in North America (as likely this recent one) became known in the deicing industry as the Polar Vortex. The accumulating delays forced JetBlue into a “two day network reset”. Crews and airplanes were anywhere but where according to schedule and crew planning they were suppose to be. It took the better part of two days to relocate aircraft and crews back to the planned position, also to make sure the crews received their legally due rest, to then start the new day with a fresh start. As needed as that decision was, imagine the impact to passengers on flights that are booked usually 80-90%.

Disruptions can also be thanks to airport closures for other reasons, delays can be caused by as trivial as a broken baggage belt, a common thunderstorm or a ground handling crew doing a coffee break in the wrong time window – all things I experienced in my professional life. Flight crew duty times and technical delays are more common. Did you know that the Top 10 of “punctual” airlines have 15-20% of their flights delayed? That means 1 out of 5 flights is lateTo “celebrate” such achievement is beyond me, I honestly feel embarrassed that our industry cannot do better! Don’t come with the typical “explanations” covering for the incompetence to do better. Needless to mention that this is about “departure delay”, whereas passengers truly don’t care about those as long as the flight arrives on time, right? I was recently on a flight that left “on time”. Doors were close, the aircraft was sitting at the gate, waiting for it’s slot in the deicing and departure.

More recently, Primera Air, Azur Air or Small Planet Airlines closed down. Cobalt Air followed shortly after I published the blog post. At least for two of those airlines the cause was said by their respective CEOs to have been “unexpected” cost for delays and disruptions. Though not reconfirmed, rumors have it such were also the cause for the financial troubles Germania faced in Mid-January 2019, filing insolvency early February (see P.S. above). “Refund portals” organizing refunds for delayed passengers result in higher number of refunds. Small fleets with no spare aircraft causes the ripple-effect to sometimes swap over into the next day(s).

Lesson learned from my research about Zürich delays: It very often is cheaper for the airline to cancel the flight to make sure the further aircraft “rotation” (planned flights for the remaining day/week) are not impacted. Especially if i.e. winter operations allow for “higher force” reasoning of the cancellation. While the airline can show goodwill and help the stranded passengers, in such situation they are not legally forced to add the legal, excessive passenger compensation for delays. It also in fact reduces the overall passenger upset. And Zürich can predict the delays!
What I expected quite a while ago is the information of upcoming delay situation to the inbound planned airlines. The example I keep using: Once Zürich (or any other airport) learns about arrival-, turnaround- or departure-delays would inform KLM before their flight leaves, that it would likely develop delays in Zürich and may have an excessive delay departure, maybe KLM would cancel the flight?
The concern: But if those airlines cancel their flights, then the flights will leave early, so KLM could operate on-time…?
Ain’t that shortsighted? Oh holy dear Saint Florian – don’t burn my house, take the neighbor’s one…
So what would be needed would be a bonus/malus system. If an airline “volunteers” for the sake of the overall operation, to cancel a flight in such a situation, maybe it’s relatively empty, could be merged with the following flight – the airline gets a priority the next time, so the full flight gets an on-time departure. An airline deciding not to join that system will never get prioritized and take what they get – including the delays.

Another ongoing discussion is the promotion of the big players for “SaaS”, Software-as-a-Service, more commonly known as “Cloud Computing”. What in my experience lacks of one vital thing, the fallback for a “line down”. There have been three cases that I (just me) know of last year, where line-down caused major flight delays. Because there is no fall-back in place.

Photo by Darren Murph / The Points Guy
Delta takes weather seriously, with a team of 20+ in-house meteorologists (Photo by Darren Murph / The Points Guy) . Taken from Daniel Stechers LinkedIn article.

That problem is multiplied by data silos. As Daniel, VP at IBS points out, there are too many screens an operations manager in the typical airline Operations Control Center (OCC) or also in the AirPort Operations Center (APOC) have on their desk, using old-style Gantt-charts, weather maps and other “sophisticated tools” that show them what happens out there. Very little tools that analyse the data automatically, giving you decision support on a disruption. Or warning you of potential disruptions giving you decision support how to avoid them.

While we do need to replace those multiple screens with dashboards, highlighting what to look at, I disagree to some extend with Daniel’s implications, as I believe we will need to be able to expand from the problem, onto the relevant Gantt charts, graphs, tables and maps. Worse in my eyes is the underlying reason for those screens, as they are clearly attributed to data silos. And if the left tool does not know what the right does, if the airport, the ground handler, the airline have different “realities”, no wonder we have friction that results in ineffective operation causing “issues” and delays. As I mentioned in my article about APOC, OCC, NMOC five years ago. And if I ask about interfaces and am told “XML” or “ASCII”, we talk about triggered “push” or “pull”, but not about a live interface. Another data silo.

Coming back, to close this FoodForThought-article, let’s come back to Germania and other airlines which we have lost recently. If you have no assets (aircraft leased or sold/leased-back which is the same), if you outsourced everything (to which I include “cloud”), if you don’t have “spares” for covering up disruptions, you make a very good business case on the old joke: “How do I become a millionaire in aviation? I start with a billion.” Or the other one: “Saving, no matter the cost”. It’s called a “virtual airline”. And I predict we see increasingly those virtual airlines to fail, as they lack size, assets and revenue (RASK) to compete with their competitors.

Food for Thought
Feedback welcome

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Primera Air, Azur Air, Small Planet Airlines – and the dying continues

After the demise of Air Berlin, forced by Lufthansa and incompetent if not corrupt politicians, we lost Monarch last fall, but the dying continues. This months we’ve been all “shocked” by the demise of Azur Air (Germany), Small Planet Airlines (Germany) and now Primera Air.

Interesting: None of those airlines had any relevant material assets. Working with leased aircraft as most airlines do today, it minimizes the cash-flow. And aircraft are almost not available for purchase, large aircraft leasing companies and the largest airlines dominating the market. No, neither Primera, nor Air Berlin “owned” aircraft. They were all leased.

Whereas Air Berlin struggled, there was an inherited business model that even ambitious CEOs could not overcome. What was Air Berlin? A holiday charter airline? A low cost airline? A network carrier? While Air Berlin tried to be all of that, they failed to be either “properly”. In a competitive, over-saturated market a death sentense.

Now all those airlines have operated Airbus A320 and/or Boeing 737. An aircraft in surplus, a saturated market, flooded not only by the aircraft makers but also by lease offers from the low-cost airlines seeking utilization for their own surplus. And while everyone wants aircraft in summer, the eroding revenues do not pay enough for those airlines to survive the winter. I learned so long ago, an ice cream shop needs to create enough revenue to survive the winter.

And while aircraft lessors add more and more Airbus 320 and Boeing 737 to their fleets, airlines are established without a long-term concept based on clear USPs, those airlines lease the aircraft out in summer and … oops. And then they go broke and the aircraft lessors sit suddenly on their assets without income. Even scheduled airlines like Volotea ground their aircraft in winter.

Even if the airline operates successful, after usually seven years, their leasing contracts expire. And then they understand the need to invest into more modern aircraft, so they do not extend the leasing contract but return the aircraft to the lessors. Who now need to find “other markets” to take their aircraft… Often below cost to minimize the losses!

In consequence, the aircraft financial funds are known to suffer from year 7, often generating losses over their typical 10-year duration. KPMG earlier this year said the average return on aircraft fund are 4%. While some do better, many smaller ones fault. Another consequence is deteriorating market value for Airbus and 737 aircraft, also usually starting seven years after the aircraft is sold into the markets.

source Wikipedia
A320neo family orders & deliveries (source Wikipedia)

So one of the reason for failure is the attempt to compete in a shark pond, using the same aircraft than the competitors, copying their business model and trying to find a small niche – that upon success is quickly threatened by the big fish.

Primera Air as the most recent failure tried to convert “in a rush” from a safe holiday charter airline operating secure routes for Primera Travel Group, into an – as aero.de said – copy of Norwegian, flying with the smaller A321neoLR across the Atlantic. But also trying to fly a mixed fleet of A321neo and Boeing 737-800, while having orders out for two A321neoLR and 18 Boeing 737 Max 9. As small newcomers do have problem getting access to the new aircraft like the A321neoLR, of which most go to the largest aircraft leasing companies to be placed into the existing fleets of their large (safe) airline customers. Why would they prioritize newcomers that threaten their existing clients they have long, very long relations with?

But which “newcomer” airline can wait for 10 years (at current production rates) for an Airbus or Boeing they order??? Can you plan what is in 10 years?

Then we come to the flight crews. While pilots usually are either type-rated on the Airbus A320-family or Boeing 737-family, a mixed Boeing/Airbus-fleet either requires respective crews for each aircraft or the cross type-rating. While pilots usually pay for their flight training, in return, they require high salaries in order to pay off for their – substantial – investment. Even Ryanair now faces the consequences of their “outsourcing” and slave-kind payments of their pilots. While I keep seeing their pilots recruiters immediately jumping on Primera Air but also trying to convince pilots from South America or Asia, if they don’t change their attitude to their pilots, they will keep having problems. Their recent announcement to close the base in Bremen and Eindhoven and reduce the base in Weeze are simply puffing. As Ralph Anker showed in his Anker Report. Behind each and every dropped route or base are airports, suddenly deprived from services. And pilots and crews, suddenly forced to find work elsewhere, likely move. Ryanair is the airline that does not care. Europe’s favorite airline? I doubt.

Summarizing, I come back to the point I keep emphasizing. Ever since easyJet (1995) and Wizzair (2003) I have not seen a new airline that had a USP and a clear concept. What is your USP? For the investor, the traveler and yourself? Or are you just another copy, trying to cash in?

I believe A320 and B737 families will hit a brick wall. Investing in those aircraft or airline models trying to operate a few of them is high risk. At best.

Food for Thought
Comments welcome!

Side note: Taking all those “natural thoughts” into account, in a team of experts we’ve developed a business model, that now seeks funding. With a unique concept, multiple USPs and under- if not unserved markets. But that does not work with small money. If you want to do it right and lasting, you need to do it right. And invest. Not just building “an airline”, but focusing on development of assets, as a side-effect securing the returns on the investment. If you know potentially interested investors, let me know and I’ll establish the contact to Kolibri. Or refer them to my call for investors.

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Long-Haul Low-Cost? Supersonic? Quo Vadis?

While we work here on a business plan for a new airline, we did discuss and disqualified many of the existing airline models. Is that negative? Or realistic?

These days some news hit me in short succession, that make me rethink the assessment my friend Ndrec and I made when discussing possible, viable business models for a new airline.

I did the picture above a mere year ago. Meanwhile Niki is gone too, as is Virgin America. Mighty Norwegian being said to be likely acquired by IAG shortly. We have “new” players like Blue Air. But the question for any new business case must be:

What is Your (E-)USP?

Now Ray Webster, former CEO of easyJet opened the Routes Europe Conference with a keynote:

“I don’t see long-haul low-cost as a viable model. Operating a small aircraft across the Atlantic is not efficient, and low-cost carriers aren’t going to fill a 787 or an A380”

Ray Webster, former CEO easyJet

Even students traveling on longer flights do want more services the longer the flight gets.

In contradiction to that assessment, Eurowings now opens up New York-services, taken over from the late Air Berlin operating from Düsseldorf. We all looked at Norwegian, though their “success story” also seemingly was bought on the cost of revenue, the airline now is said to be acquired rather shortly by British Airways/Iberia holding IAG (also owning Aer Lingus).

Whereas I simply do not understand the “brand strategy” of either Lufthansa or IAG…

  • IAG: Aer Lingus, British Airways, Iberia, Level, Vueling … Now Norwegian adding to the mix of “it’s not me”?
  • Lufthansa Group: Air Dolomiti, Austrian, Brussels, Eurowings, LGW, CityLine, Swiss, Sun Express. Also “it’s not me”?

The work on a business plan for a new airline was triggered last year initially by some investors, going down the same “me-too”-dead end using old, inefficient Boeing 737-aircraft. Cheap to get, but their fuel consumptions renders them virtually useless.

BlueSwanDaily believes in the future of Supersonic… Are you kidding me? Yes, I believe supersonic will come, but expensive niche for the rich and wealthy. No real change to the Concorde business model.

I myself worked out a “green” concept a few years ago, but we’re neither getting there… The project got grounded in the wake of Lehmann Brother’s and a world financial crisis and the original interested investors gone never took up speed again. [Update: The Korean Wingship seems a ready-to-go WIG, though using conventional fuel, no green hydrogen or battery powered e-engines]

So we looked at models that differ from the existing ones. Where are unservered or underserved markets and why are they not served well? One issue sure is the airline analysis tools misleading their users to “established routes” and airports.

So we started with the original intent of a small scale operation. And recognized why so many such projects are doomed. There is a pilot shortage hovering on the horizon, Ryanair running pilot acquisition as far as South America and Asia. Most airlines do not value their workers but drain them.

And having discussed the very same issue again yesterday with friends who must relocate in the automotive industry as a direct consequence of overpaid managers, back again, using old images:

Maybe. Just maybe. I believe Ndrec and I came up with a sound business idea, which requires far higher investment than we originally envisioned. Coming with a round and sound business plan paying off that major investment in 10 years safe. Because we do have a unique selling proposition (USP). Because we do have an emotional USP. Because we thought it through and instead of failing at the first obstacle, we save cost from day one and make this a company to work for?

And working on that, we learned a big deal about the faults of the airlines we see in the market. And it boils down to the normal questions: What’s your (emotional) USP? What makes you different, why should the intended consumer decide to use your product. We see too much “me too” in the market. Buy your market share in the B737/A320 shark pond?

30+ years ago, my training officer told me that joke:

A man starts a business selling screws.
His friends questions him: “You buy
the screws for 1 €, you sell them for 95c?
How do you want to make money?”
“Oh, the quantity does it!”

My training officer told me to look after yours. Not only in the company, also your supply chain. Make sure you have long-term suppliers selling you the quality you need for a good reputation.

Later I learned the same lesson from space shuttle Challenger, management ignoring their own experts warning them of the temperature being below safety specifications. Shuttle Columbia dying of a piece of foam worth a few cent perforating the heat shield. Of Concorde crashing from a “minor” piece of scrap metal.

I’ve paid very high (in hard Euro) for another lesson. Starting with a sound idea (regional airlines’ franchise concept to share cost and operate a larger scale of operations), it turned out later that the stakeholders did not look for a franchise, but a means to start their own small operation and “share” the cost with the other small players. Clearly understanding the small operations to face obstacles they cannot overcome on their own. Could not. Cannot. Will not. A costly mistake I made. But lesson learned!

Then at delair I learned about airline disruptions and how our industry uses historic processes to “manage” somehow. How airlines use manpower instead of intelligence to cope i.e. with a winter storm.

With Ndrec, I found a seasoned manager understanding the need to either do it right – or don’t do it. And we got surprised how much money we save if we do it right! Not short term, there we need more to invest. But then very shortly, within less than 10 years. Now we reached the point of the reality check: Will we find solvent institutional investors helping us to pull this off? Cross your fingers.

For all those other airlines out there… Do your homework. First and foremost: What’s your USP? What’s the business case?

Food for Thought
Comments welcome

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Air Berlin, Monarch Airlines, Ryanair – Lessons Learned?

In the past weeks, we got shocking news. Where the insolvency of Air Berlin was more or less expected, the grounding of some 20 thousand flights impacting more than 700 thousand passengers by Ryanair – attributed to a “pilot shortage” – as well as the recent demise of Monarch Airlines came more of a surprise.

Air Berlin

Air Berlin sure was no surprise. In fact, when Lufthansa senior manager Thomas Winkelmann in February joined Air Berlin, everyone in the industry knew that he wasn’t taking such post leaving Lufthansa Group, but to prepare for a takeover by Lufthansa. At the same time (February) Etihad “extended” their cooperation, Etihad, being main investor at Air Berlin’s arch enemy Lufthansa? Then they wet-leased 28 aircraft (all A319 and many of their A320s) to Lufthansa’s low cost subsidiary Eurowings, five more to Lufthansa subsidiary Austrian Airlines…? All 321s to be given to Niki, former Air Berlin subsidiary, in December 2016 Air Berlin sold all stakes in Niki to Etihad. Niki now being rumored to be sold to Austrian Airlines…?

To be surprised like Ryanair’s Michael O’Leary, now calling “fire” such is hypocritical. What I do find questionable is the handling of long-haul flights, Lufthansa has (never had in my opinion) the intention to take over Air Berlin, they just positioned themselves for a prime spot, preparing the inevitable insolvency to secure the prime pieces for themselves. Yes Michael O’Leary is right, but a surprise? Calling now for “law and order”, him who bends the rules every time he can?

Air Berlin made many mistakes, trying to evolve from a specialist in tourism flights with a strong USP with their hubs in Nuremberg and Palma de Mallorca to become … something? A low cost airline? A scheduled airline? Operating a mixed fleet of A320- and B737-family aircraft, but also small Bombardier Dash-8 Q400 (50 seat turboprop). Trying to operate low cost, but also doing feeder flights for Etihad? And long-haul flights using five A330 aircraft? As a German saying goes: “Alles, aber nichts richtig”: Everything, but nothing right.

What I see mostly critical is the intentional “mismanagement” of the A330, also the Dash-8’s seem more like a neglected annoyance, not an asset. And a management considering a success to save 80% of more than eight thousand jobs. So 1.600 will loose their jobs. Well done Mr. Winkelmann, I’m sure you will get a bonus and a job promotion for that (blistering sarcasm).

What I find fascinating indeed is the interest of Lufthansa and easyJet in the A320 aircraft. But that I’ll come to below.

Ryanair

So now how about Ryanair? Ryanair used an “outsourcing” model, where Ryanair did not employ pilots directly, but through some questionable constructions (typically Ryanair that) they made the pilots operate as self-employed, only paying them for flight hours. No social security, sick-leave, guaranteed vacation. Several countries (including Germany) started legal investigations in that model.

I have questioned that approach ever since I first heard of it, as everyone in the aviation industry knew that we face a shortage of pilots. Given availability and demand, with the large number of aircraft orders, easyJet and Ryanair both are known to seek to sell aircraft from their enormous back-log of orders they placed with Airbus and Boeing. At Paris Air Show this year, I discussed with experts, confirming that this already backfires on both Airbus and Boeing, as they have to lower their own prices as those airlines handover the substantial discounts the gave the low cost airlines for their humongous orders.

Canadian CAE released a study at Paris Air Show claiming “50% of the pilots who will fly the world’s commercial aircraft in 10 years have not yet started to train”.

So aside a saturation of the European market with A320 and Boeing 737, we are short on pilots. Now Ryanair “pilot management” increasingly questioned, it is no wonder that pilots are open to “competitive offers”. It’s about how you treat your staff. Now Ryanair pilots not really employed by Ryanair, what keeps them from taking up better offers? Then Ryanair decided to change the fiscal (and vacation) year to the calendar year and did not take into account that this will result in a shift in vacation demand in the process? Obviously the managers did armchair decisions, not thinking them through.

To my believe, this situation is a mix of Ryanair bending the rules, offering tickets at prices below any reasonable levels. Confirming my concerns about “hidden income” Ryanair applies. It would be interesting to have a look into Ryanair calculations as how they can offer flights with average fares below the common cost of Kerosene. Not even talking about the aircraft, staff, administration and maintenance. Though yes, I know markets where they also charge more reasonable “average fares”, seems they not everywhere find ways to milk the regions for subsidies of questionable legality.

Monarch Airlines

Some smart-asses say that was already clear from last year that Monarch would have to close down. But Monarch did quite some development in the past year and it hit about anyone I know rather unexpected – as well as passengers, airports, media! Not having any true details on that, it only confirms by view about Boeing 737/Airbus A320 families.

Update: Financial Times reported 750 thousand future bookings having been cancelled, other media says more than 800 thousand future passengers, of which more than 100 thousand are stranded and only a minority covered by tour operators’ insurance for packaged travel…

Boeing 737 / Airbus A320 – the Work Horse…?

All A320 / B737 – What was your USP again?

I have worked on projects with investors buying into Boeing 737. Instantly I questioned the business case for that aircraft. On the one side I hear from airline network planners how increasingly difficult it is to find viable routes for their aircraft. 189 seats usually. On the other side, being bound to those aircraft families to keep the complexity = cost in check, they now add even bigger aircraft with 220-240 seats to their fleet. How that should “improve” the situation is simply beyond me. All that can do is to cannibalize other routes, fly less often.

Now there is a pilot shortage, airlines operating those aircraft are fighting to utilize the aircraft with a sustainable revenue. Insolvencies like Monarch Airlines with 35 aircraft and their flight and cabin crews will likely result in a short relieve for the likes of Ryanair. But given the new aircraft deliveries, that is a drop on a hot stone.

I believe, the market is oversaturated. When “Low Cost” started, the A320 and B737 offered the best cost per seat and loads to compete with existing airlines on the “common” routes. For regional aviation, that aircraft was and is too big. Nowadays we see a consolidation of airlines operating that aircraft, be it Alitalia, Air Berlin, Monarch but even Ryanair, though for different reasons.

Another issue is a feedback I got from a financial expert. There are financial funds for aircraft. All those funds currently suffer as soon as the initial leasing is over from eroding revenue, often resulting in substantial financial losses even before the end of the first 10 years. Thanks to the eroding prices of A320 and B737 aircraft, thanks to the low cost airlines passing on the substantial discounts they received from the aircraft makers on their mass-deals, result in a faster drop of value than anyone anticipated. As FlightGlobal reported already back in 2014 in their special report Finance & Leasing, Norwegian established their own leasing subsidiary to try to sell or lease their surplus orders. And they’ve not been the only one, easyJet and Ryanair do the same, trying to get rid of the liability those aircraft became.
While that gives airlines access to competitive (low) priced aircraft, it ruins both the aircraft makers own price policy, as well as it cannibalizes the business model of the institutional aircraft lessors.

With order books exceeding delivery times beyond 10 years, only large airlines or institutional investors have the funds to invest over a time frame of 10 years. With new aircraft makers building aircraft competing with the Airbus, offering similar or better economics and substantially lower delivery times, airlines using “The Work Horse” take a more or (likely) less calculated risk to bet their money on a work horse. I wonder if there’ll be some (Arab) race horses suddenly and unexpectedly coming up with new business models and more efficient aircraft using the unbeaten path as a shortcut?

And yes, we just work on a business plan for such a “new model” making use of new ideas, unique selling propositions for investors, travelers and airports. No magic involved, just some creativity and willingness to think different.

Food for Thought
Comments welcome

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Changing Roles

As many of the readers of this blog know, I am somewhat personally attached to that little airport in Central Germany, Erfurt-Weimar.

Last week I was taken into a discussion by Thuringia’s Minister President Bodo Ramelow, about how to stop the down-spiral of emigrating Thuringians. Which reminded me about the likewise discussion we had in 2009 shortly before I joined Erfurt Airport with the task to stop their downward-spiral on their passengers.

Real Life Example

What I was faced with was an extremely negative image of the airport within the region. And a lot of demands on how to do business from amateurs in the industry, politicians, tourist offices, etc.

First day at work, the GM of Tourism Thuringia, Bärbel Grönegres was quoted in the local newspaper (TA, 02Mar09), having visited the United Arab Emirates to promote medical tourism to Thuringia. Having a Munich-Erfurt flight by Lufthansa-Partner Cirrus Airlines at the time, she recommended the Arabs to take a flight to Frankfurt, to be picked up with a bus for a +3 hour tour to Thuringia. Tourism material did not contain reference to the airport. Questioned about the reason, her reply was “Who knows, how much longer we will have that flight”. Ever since, that became a prime example I use for “negative thinking” or “calling for disaster”.

The next winter, the Thuringian Olympic athletes brought home a record number of medals. But at the following ITB, it was more important to promote Franz Liszt, who lived a dozen years in Weimar. The fact that the Russian-Orthodox chapel, Grand Dutchess Maria Pavlovna who’s invitation brought him to Weimar has built and got buried in is under direct protectorate of the Russion Orthodox “pope”, the Patriarch, such making it a pilgrimage site for the Russian Orthodox church has completely failed to trigger any support by Weimar or Thuringia Tourism. Air Berlin reported it to be a “known reason” for a substantial part of their Russian Berlin-passengers to add Weimar to their travel plans.

In order to promote the government-funded route, after fierce discussions, Cirrus Airlines agreed to offer a low-cost ticket at 99€ return, having only about 6€ after the high taxes on the ticket. That offer was made available especially to the Thuringian government offices and the state development agency (LEG). Nevertheless, LEG planned and executed delegations traveling with the train to Berlin to take flights from Berlin, instead of promoting the route. The same also for the ministries and ministers. Even the responsible minister taking flights from Frankfurt and Munich instead of using the PSO-route he signed responsible for. During the months we’ve actively promoted that 99€-fare also to the industry and the travel agencies and also had it largely available, not one of the flights used up the 99€ tickets allocated to them. Being at the verge of a bankruptcy, Cirrus Airlines finally ceased to operate that route in December 2010.

By the time, working with the local industry associations, political parties I have been able to increase the passenger numbers by about 20 percent. In fact, to date, the airport is far from the 320 thousand passengers I left them with. With Weimar being the neighboring but historically better known city internationally, I pushed forward the renaming to Erfurt-Weimar with the attempt to improve the incoming for the airport. Paid almost completely from the limited marketing budget. A strategic decision executed after our parting-of-ways in December 2010 after my two-year contract was not extended in the wake of the retreat of Cirrus Airlines. A strategic decision though made obsolete by the “political” decision by traffic minister Christian Carius to not replace the route as I recommended with an Amsterdam-service. Sad decision indeed, as with our parting ways, the discussions with KLM were simply discontinued (KLM calling my number reached someone speaking German only, I was gone) and despite their interest in a PSO (public service obligation) financial route support, we had discussed flights based on mere startup incentives and marketing support.

Opposing myself ongoing subsidies, to demand a route but to leave the (substantial) risk completely with the airline is neither the answer. Whereas comparing the CheckIn.com-data about airport catchment areas with the data provided by airports we found that data to be completely off-set in a majority of cases. It caused us to make basic data available for free. But if the data provided by the airport is not hard, but guesstimates or outright lies, when the airline starts a flight based on that data, the airline takes the risk. To not only does the airport sneak out of the responsibility, they increase the airlines’ risk – is that a game? Or serious business?

Fraport Bulgaria’s more than doubled “population within two hours” can not result from the “drive time off-sets implied by Fraport Bulgaria investigating the discrepancy.

Changing Roles

Now since I started in aviation 30 years ago, the market has drastically changed. In the good old days, there were (often highly subsidized) “national airlines”, used to promote the country. Back in my early days, the airlines were the executive for the tourist offices and also worked closely with commercial development agencies. But ever since, those national airlines have either adapted or went out of business. The emerging “low cost” airlines virtually evaporated the income of the airlines, competition becoming fierce.

As I keep emphasizing with my updated image of Purchasing Power and Airports, there is a relation between a strong airport and the regional purchasing power. It is indeed a hen/egg issue, but if you are a small airport in a weak region, maybe it makes sense to consider how to attract travel (tourism, commerce) to your region. Not how to drain your region of the money by sending the population to the Mediterranean for vacation, but by having incoming, scheduled services, by adding point-to-point routes and to attract low cost airlines.

If we do not talk about PSO (Public Service Obligation) where the government pays for basic flight services, if you build an airport and wait for airlines to find you, keep on sleeping (and burning money). So if you are a small airport and you have little to no money, what can you do?

Having an airport is not enough any more.

The airport is part of the region’s infrastructure. As such, it needs to be integrated into a political and commercial strategy. Whereas in the example of Erfurt-Weimar, the airport is being kept as a scapegoat, being challenged in one sentence for the aviation noise (a good joke with so few flights) and for not having flights. A political punch-ball.

Other, successful airports like Memmingen in Southern Germany are integrated into and understood as a strategic value for the regional development. In fact, Memmingen is not politico-owned but owned by more than 60 co-owners from the region’s industry. Such, instead of being a scapegoat for political power games, everyone in the region understands the need to actively support the airport. Anyone harassing the airport confronts everyone in the region. A political suicide!

At Erfurt, I was asked to establish flights to Moscow. One company. 10 employees. Even with a small (expensive) 50-seat aircraft and weekly flights only (which are usually not sufficient for commercial demand), we talk about 40 seats by 52 weeks in two directions or 4.160 tickets to sell every year. But for a decent offer that is useful to the industry, you need at least twice weekly flights.

Leaving that task to attract airlines to the airport alone, at the same time running blame games and scapegoating, the airport cannot justify such flight. But what if the state development agency and the chambers of commerce, on demand by the political PTBs (powers-that-be) qualify the demand from all those small and midsized companies? Not on a low-cost, but with reasonable ticket prices. Not at prime time at the maximum risk for the airline. Maybe instead of a weekly, can the region sustain a double or even triple-weekly flight making it interesting for the companies in the region? Are those companies willing to support the launch period by committing to use the flight, even if slightly more expensive than a flight from Frankfurt or Berlin? Keep in mind, the people have to get there, you also pay for gasoline/parking or rail. Transport to those hubs is not free either. And the longer check-in times make them even less attractive, right?

Interesting approach. I’ve talked to several smaller airports where they agreed that their chamber of commerce and regional development agencies “pre-purchased” tickets at the cost of the average ticket price needed to cover the operational cost. Then they to sell it to their members. Not covering the full cost of operations, but simply taking their share of the risk! Why should they not, if they believe in the numbers and data they provide to the airline to promote their business case?

Then talk about Tourism. Given such flight, are the local tourism PTBs ready to promote such flight in the outlying region? What about other promotion? Don’t leave it to the airport! Is there a joint concept by the political PTBs, the state development and commerce PTBs, the tourism PTBs on what flight they want, how they will promote the flights?

“We have an airport”. That’s nice. But not enough.

And for a Minister President even only on a state level? You better think about a strategy. Or close down the airport. Having flight to summer vacation is not enough. It drains money from your region into those destinations. What’s in it for you? Why do you fund an airport? No scheduled services? No incoming? Do your homework.

Changing Roles

It’s no longer the job of the airline to promote your region! They simply don’t have the funds to do that. It’s not their business case.

It is the job of the political, commercial and tourism PTBs to qualify what they finance an airport for and come up with ideas and business cases for airlines to take the risk to fly there. And no, a “business case” is not necessarily paying subsidies. If you have a good business case that the airline will make money on the route by flying paying passengers, I can rest assure you that the airline will prefer that over subsidies that are usually associated to political nightmares.

Compiling sound numbers is a good start… And yeah, I might be willing to help you with that.

Food for Thought!
Feedback welcome…

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Route Financing

Discussing Routes conferences, I recently appreciated several discussions about the imbalance of route financing in Europe. In the discussion, we boiled it down to a simple question:

Who Takes the Risk?

Image courtesy The Economist
Image courtesy The Economist

As we all know, airlines struggle to make money. Which I personally believe is a house-made problem. The use of legacy systems, legacy distribution models make the legacy carriers operate on a cost per seat that’s no longer competitive. In the 70s, a cheap return flight Frankfurt-New York was 2.500 German Marks, about 1.300 Euros. That was 40 years ago. Today the cheap flights sell for below 400 Euros. Return! So the revenue melted away. The cost for aircraft and seats got cheaper too with bigger aircraft. The fixed cost of the flight divided by seats. But that’s another story.

So who are the players in the game.

  • The Airline
  • The Airport
  • The Traveler
  • The Region
Image source
Image source

Let us look at my example I keep using consulting airlines and airports about new routes. At Join! we usually start discussing new routes with airports and quickly learn day in / day out: Everyone wants new Routes, the analyses supporting the case are mostly biased, it all looks sunny-shiny, but no, they don’t want to take the risk. In EU-Europe, they are often not even allowed to take the risk. How stupid is that?

So we usually approach the chamber of commerce, state development agencies and such asking for concrete demand for the routes the airport asks for. All we usually get is some wishful thinking. This company wants flights there? How many seats a year? 4-6… You got to be kidding me…? When we tell them the simple maths, they frequently retreat and have no answer.

The Maths?

Alex Simon was the only passenger aboard and loved it...
Alex Simon was the only passenger aboard and sure loved it… (Picture courtesy Welt.de)

An A319 has 124 seats. At 80% average load (which is low nowadays), we talk about 96 seats. Which have to sell out and inbound. At four flight pairs a day (five to six weekdays, two to four on weekends), we talk about eight legs in average (more is better). At 365 days, we talk about 280 thousand passengers the aircraft should fly every year. Let’s take out some maintenance, but we still get to a target of 250 thousand passengers. For each daily return flight, we talk about 200 seats target. For a double daily, double that.

The A320 or 737-800 is around 189 seats, so roughly 50% more.

From Southwest Airlines - Culture, Values & Operating Practices
From Southwest Airlines – Culture, Values & Operating Practices

Keep in mind there are disruptions. Less frequently on the technical side, the aircraft makers understand the cost involved in a technical grounding. But the airline has to have resources to survive such groundings. But we also talk about weather related flight cancellations. Flights remaining empty for the one or other reasons. Days people tend not to fly (religious holidays), fluctuation in demand… We talk about delays made worse by passenger compensations required by law. The disappearance of interline agreements allowing for involuntary rerouting of the passengers, not to talk about regional routes where the flight might be the only choice.

The cost of aircraft, crew, kerosene, insurance, distribution, maintenance etc. pp. being calculated, adding the “taxes and fees” on top, you talk about a cost per seat per leg at 80% load factor as somewhere between 70 and 100 Euro. On a 99 Euro return fare on the Erfurt-Munich flight in 2010, Cirrus Airlines after taxes and fees had less than seven Euros.

Risk Scenarios

The airports are restricted in what they can do, usually to discounts on the local fees. So the classic:

adding some small change...
adding some small change…

The Airline Takes the Risk. The very common approach. Yes, we give you discount on the landing fees. A drop on a (very) hot stone.

Guaranteed Load. Classically the field of tour operators, purchasing a fixed number of seats on the flights. Works very well in high season, but in the past two decades, the number of flights where the tour operator charters the aircraft became negligible. Even in that market, most flights are “set up” by the airline and then marketed to a number of tour operators. Once the shit hits the fan, as recently i.e. in Turkey, the tour operators cancel their seat allocations leaving the airline suddenly with unfilled air planes. But the aircraft is still there, it costs money!
A similar approach is to get such guaranteed seats from corporate clients, though they usually demand “lowest fare” for the guarantee at “last seat guarantee”, adding difficulty on the pricing games the airline can play. So a good airline sales makes sure to keep the flexibility. We discussed the purchase of (virtual) ticket stock at cost per seat + X, but very few of the corporations demanding a specific route then come up and commit. So we’re back to the airline taking the risk.

So in reality, we can (and have to) look at realistic scenarios.

Who Benefits?

“What are the facts? Again and again and again-what are the facts? Shun wishful thinking, ignore divine revelation, forget what “the stars foretell,” avoid opinion, care not what the neighbors think, never mind the unguessable “verdict of history”–what are the facts, and to how many decimal places? You pilot always into an unknown future; facts are your single clue. Get the facts!” [Lazarus Long]

And even with all the facts, navigating the future is a risk. Get what you can in the best quality. The better and unbiased the data, the less your risk!

Permanent Subsidies

If you know me, I am no fan of subsidies. You got to understand who benefits and to what extend. Get the maths down. then invest.

On the other side, there may be reason for permanent “subsidies” by the region flown from and to. As they benefit from better flight connections, from tourists, business travelers, commerce, taxes. Why is it that I keep asking if anyone has some sound research to share about the impact of a new flight to the economy? Why are the state development agencies “in need” but unable to qualify that impact to their economy? I am still convinced airports like Erfurt-Weimar, Lübeck or Kassel need scheduled services to be connected to the global aviation networks. Not to the nearby hubs that they can reach easily with rail or car. But studies exist that confirm that beyond four hours drive time a flight makes sense.

Temporary Investment

Risk Sharing

Who benefits?

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Delay and Disruption Management

[edited]

Sharing the Bloomberg headline What Do You Want, Cheap Airfare or an On-Time Flight? Daniel (S.) today quoted from the article on LinkedIn:  “An ultra-low-cost carrier will never, ever try to be as punctual as a big legacy #airline. Being on time all or most of the time costs money.”

After an initial misunderstanding we agree: That is stupid!

Delay and disruption management are the single most important influenceable cost factors in aviation today!

Yes, we can make good aircraft deals, we use revenue management to sell out tickets as expensive as we can in the low-cost world. But operations is the single most important cost driver we can influence today. We can neglect it, like many seasoned airline and airport managers do, we can deny and ignore it. And loose money.

While doing the research at late delair for the Zurich Airport case study, focusing on the impact of a contemporary deicing management, just that improvement in (IT-supported) process saved about 20 million in one winter alone there. For Swiss (about 50% of the flights). Now working on a financial summary that thanks to the acquisition of delair by SITA never made it “to market”, I spoke with the OCC (Operations Control Center) manager of Swiss in Zurich. Who confirmed what they all knew (and know), but their management remains blissfully ignorant about: It is all about rotations in an airline. The aircraft starts somewhere in the morning and flies to different places throughout the day. And a disruption or delay anywhere en-route is prone to impact the entire rotation. Worse, a late aircraft usually accumulates more delays as ground handling is also tightly scheduled without spare manpower to cover up for such situations. Then crews fall out of schedule as they have to have their rest times. And while the airline may reduce the financial damage by calling for higher force on a snow event in the morning, on the flights down the line, I am told they tend to pay. And passenger compensation often exceeds the value of a single ticket!

In 2014 I wrote this article about Airport Operations Center (APOC), Airline Operations Control Center (OCC) and ATC’s Network Operations Center (NMOC) and how they do not communicate with each other. I asked just recently about a common airline system with decent, contemporary, f***ing basic interfaces and learned that none of my precious industry expert friends knows such. Worse, I got more feedback than I wanted about the issues all my friends in this industry can tell about; where thanks to missing such data flow, the right hand does not know what the left one is doing. In the process, trying to improve a bad situation, but working with different information, making things often enough worse.

I also heard just this week, how airline managers love the big planes (A380), a Lufthansa manager was quoted that they love the big bird, but that they don’t know if they can ever be operated long-term commercially revenue-making.  Or read a comment, how much these airline “managers” love new inflight entertainment and seats and fancy stuff. But don’t understand, why Windows-XP-machines in their OCC need replacement. It’s “fancy”, touchable, visible to see the airplane or fancy seats, but no-one sees the impact of deicing. Okay, we have a winter-delay. Who cares, we’ve calculated it into our prices forever and it’s been always like this. It can be improved? Who cares.

Source firewalkeraussies.comAnd while the airlines benefit, I hear from the airports that they do not show any interest in A-CDM and A-CDM improvements. While they cut into the flesh on most airport’s fees, while they let them starve; while most airports need to invest heavily to compensate the losses from “aircraft handling” by doing their best to increase “non-aviation revenue”, while this is daily life today, airlines demand airports to invest into those technologies and development and process improvements, but are not willing to pay. Did Swiss pay a Penny (Rappen) for the improved deicing at their home airport? Make a guess.

So while I know that seasoned managers in aviation act that stupid and short-sighted. Delay and Disruption Management is the single most important factor we can influence to save big money.

As I should have known Daniel’s opinion, i.e. from his LinkedIn article about why airlines burn money every day I keep myself referring to.

And if you need someone to discuss such projects or to manage them? Keep me in mind. And Daniel 😉

Food for Thought
Comments welcome!

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Carolyn McCall + easyJet Vienna

Three news this week I find noteworthy about easyJet.

Where I have learned early to have the greatest respect for Dame Carolyn McCall, she now resigned at easyJet to join the TV industry. And the same time, easyJet is in the process to acquire an Austrian AOC (air operators certificate) to prepare for a post-Brexit world. Third, they celebrated their delivery of the first A320neo (new engine option) and converted A320-orders to A321.

While the first may be a career move for Dame Carolyn McCall (and that is all that counts from any employee view), it is a tragic loss to our industry. And I might be wrong, but I believe this will be similar to the loss of Steve Jobs at Apple.
Carolyn McCall has understood that “service” and “behavior” are not that expensive but important difference-makers. easyJet customers’ loyalty is substantially stronger than Ryanair’s or British Airways’. How you treat your customer not only if legally required (Ryanair continually failing even on that) makes a difference. I learned back in my early days with American, that friendliness and a smile are the spoonful of sugar the traveler needs. And they understand things can go wrong, even more than our industry pretends.
Her successor is rumored to be likely easyJet Christine Browne, the management remains to keep it’s female touch. But does she understand, live and provide the role model for “her” airline about “customer focus”? Or will she fall into the trap American did in the days when Bob Crandall left, to focus on money, money, money?

easyJet on the Move?

About the process to obtain an Austrian AOC, there are several pitfalls and hurdles I see in that decision.
Austria is not truly a “low cost country”. Which is similar true for the U.K. or Switzerland, but where the U.K. enjoys two strong source and destination market with London, Switzerland enjoys a very strong economy. And they are rather flexible on taxes (Wizzair is in Geneva for good reason).

If and how the Brexit impacts the U.K. market remains to be seen. But Austria and Vienna do not have that strong a market. And while Basel has been underserved by classic airlines, at Vienna easyJet will face potentially fierce competition from Lufthansa group, whereas they might hope to benefit from the retreat of Niki from the Vienna scheduled flights market.

The flying part though is not the issue of my concerns, I’m sure easyJet will do okay on that end. But establishing a “sub-HQ” in town comes with a price tag. And there are other European cities that might have been cheaper and bureaucratically more efficient than Austria.

A320/321neo. A Change-Maker?

The third news that “hit the media” was about the delivery of the latest Airbus A320neo, as well that they convert A320-orders to A321s. Such they upscale the fleet to the 250-seat A321s, I have concerns.

While the A320neo comes with 12% better performance, by 2022, when all orders are delivered, the aircraft will reflect about 1/3rd of the easyJet fleet. And as Airbus changed the structure, the “old” ones can not simply be “upgraded”. So on a fleet level, that will account for a 4% benefit. Or to give a common example: For a 100 Euro ticket, you then might pay 96 Euro. Though I happen to believe that this will be simply accumulated to improve the ROI of the airline.

Further, on the “work horse” A320, it’s only 25%, the others are A321neo’s. Whereas I believe the A321 will simply cannibalize routes that are currently operated by A320s. Whereas, will larger aircraft and the “better economics” per seat equal the lower possible frequency? And frequency is something business travelers like. Is the cost advantage that high that it will exceed the advantages of a higher frequency? I have my doubts.

Quo Vadis easyJet?

How will those two decisions impact on easyJet?

Get me right. I love easyJet for many years. Their inflight product is as good as their overall friendliness and efficiencies. They focus on business case but keep customer-centric in mind. But as Ryanair, they try to sell aircraft they ordered, finding it hard to place the large aircraft in Europe. Now they face a Brexit and size-up the aircraft, cannibalizing their existing routes at that.

For Carolyn McCall it is a good time to leave the company at the peak of “her” success. The successor will phase some repercussions out of his/her control, as well as some tough decisions to make.

Food for Thought!
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The End of the Airport Passenger Fees?

Inflight Shopping

As I outlined in my summary on the Hamburg Aviation Conference, my friend Daniel expressed his believe that within 20 years, there will be no more passengers fees.
At the same time, Michael O’Leary was recently quoted that he expects in very short time they will offer the flights for free.
But flying costs money, no matter how good the aircraft engines become, terminal construction and maintenance, ground handling, air traffic control, gasoline, pilots, cabin crews, aircraft, insurance, it all needs to be paid. And no matter how effective you calculate …

… someone has to pay the bill.

Airlines lower their ticket prices, covering the “loss” with “ancillary revenues”. While those “ancillaries” have been understood as services previously bundled (inflight meal, baggage, flight insurance), they meanwhile extend quite into “inflight shopping”.

At the same time, traditionally airport landing fees, split into the landing and passengers, covered for the airports’ cost of operations and development. This basic, sensible model is now threatened. It will change. But how. When the airline and airports fight for the revenue of the passenger – I believe both will loose.

Airport Duty Free

So currently it is a fight between airport and airline for the money of the traveler. I hear airlines expressing their anger about the airports increasingly draining the pockets of the passengers pre- and post-flight. And the airports upset about architectural changes enforced by the evaporating aviation income, forcing them to add shopping in arrivals halls and rebuilding terminals for improved shopping, i.e. forcing the passenger through the duty free store. Or how to speed up the check-in process to increase the dwell time of the traveler to spend more money shopping. And the shop owners about the increasing pressure to cash in on the passenger in order to pay the expensive rental deals with the airports. And, and, and…

And no, it does not help to imply that the politicos should provide airports similar to train stations. Yes, it is true, airlines bring business to the regions. Airports are important infrastructure. But in the end … someone has to pay the bill.

Source firewalkeraussies.comWhat we will need is a serious, joint discussion about the future business model in aviation. At the moment there is no discussion. There’s the airlines, the airports and business models that cannot work. And we need to have the politicos and the usually government-controlled ATC (and border control, security, etc.), we have to have the ground handlers, the shops and all other players on the table. You can’t reconstruct all the small airports. We don’t need a fight. We got to work together for a sustainable business model. ERA, AAAE, IATA, ICAO, this is your call.

Food for Thought
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