Route Financing

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

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

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

[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

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

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!
Comments welcome

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The End of the Airport Passenger Fees?

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]
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
Comments welcome

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What is ‘Low Cost’?

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

An interview in ATN with Girma Wake, Chairman, RwandAir triggered a question that spooks around for quite a while now.

Wake-GirmaATN: Are you afraid that this new environment will bring more low-cost carriers or do you believe that this model does not fit into the African environment?
GW: I personally believe that low-cost carriers in the African sense will be very difficult to achieve. First, because the cost of fuel in Africa is high, second there are limited  secondary airports in Africa, we all fly from the same airports, and third there are few countries where the traffic density is large enough. If you are paying more for everything, handling, fueling, overflying etc, how can you be a low cost carrier?
So the question will have to be modified, may be not so much on the low-cost aspect of it but considers the issue of flying smaller airplanes to smaller airports covering smaller destinations bringing passengers to the major hubs. Such a model will probably work but the low-cost model as it works in Europe and America will take some time to develop in most parts of Africa.

Can a regional carrier with small airlines operate low cost? Can a long haul carrier operate low cost? Why can’t the big ones operate low cost?

InterskyJust my idea on that: I truly believe that a small carrier can operate a low cost model. In the beginning the carriers operated large narrow-body like 737-800 or A320 with some 185 seats. More and more, they also operate smaller aircraft like the 737-700 or the A319. And the time the prices were really low are gone as well. In the end you have to cover cost of operations as well as secondary cost like marketing, call center, claims and refunds, taxes and the likes. Not to forget the kerosene as a main cost block, forcing the models to slowly converge. Did I mention Intersky’s regional low-cost operations?

German DLR recently made a study on the fare levels. Comparable flights turned out i.e. an average fare incl. taxes/fees (selected days) like

Ryanair (FR) 78,78
Easyjet (U2) 97,44
Germanwings (4U) 144,33
Air Berlin (AB) 158,64
Wizz (W6) 69,99

With “low cost” and “traditional” airlines offering about the same price levels, it is about cost of operations and you got to cover your cost – low cost or “old model”.

IHS actually reports on the importance of low cost carriers for the smaller regional airports. With cost savings programs reducing services (and service), the “old carriers” loose quickly ground to the ever-expanding, young and hungry competitors. Where Lufthansa services about any German airport in the past, today Turkish Airlines offers more services to German Airports from Istanbul than Lufthansa from Frankfurt! easyJet (with a large base in Berlin) today operates more aircraft (199) than Air Berlin Group (153). And easyJet has 166 aircraft on order plus 100 options (Air Berlin Group 55 orders).

But easyJet can be booked in the GDS. There website even supports to book multiple flights connecting, which I did myself to the U.K. lately (via LGW). As I keep saying: The difference between Lufthansa or Air Berlin and easyJet is NOT that they are only bookable on the Internet (which is simply not true), but that easyJet doesn’t have legacy systems and processes – for easyJet, they focus on the business case! Where “airline sales” often gives special rates to portals and travel agency chains, easyJet does not see a benefit to sell low. They focus to sell high. So if you negotiate with them, you don’t negotiate competing the cheap fares. Also repeating myself: Anyone can sell “cheap”, you need no sales manager to do that.

And two remarks closing: Carolyn McCall, CEO of easyJet is known to understand and promote “service” as a unique selling proposition (USP). And WestJet with its Christmas Miracle had clearly a promotion for the WestJet trade mark in mind. While the “established” airlines keep diluting their own trade marks: What again has “Lufthansa” to do with “Germanwings” (Swiss, Austrian, …)? Ain’t they competitors?

Post Scriptum: ANNA.aero just announced axing of Ryanair, mostly of regional routes.

Ryanair_Cuts__2013-14

You should not rely on Ryanair for anything more than a door opener to make your airport known… And as an airport and region, you should have a strategy to sustainably place your airport on the “road map” of the global aviation network. That requires a strategy, incoming, route feasibility studies and all that common homework.

Food for Thought
Comments welcome

In memoriam: Airline Sales Representatives Association Frankfurt e.V

asra

Having addressed “Airline Sales & e-Commerce” in presentations between 1994 and 2007, I became honorary member in 1999. I have tried to raise awareness for the changes our industry faces but now regretfully have to accept the official disbanding of the association effective August 1st, 2014.

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Global Economic Centre of Gravity

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

A Wake-Up Call

Frankfurt Airport at night
Frankfurt Airport at night

If you ask yourself, why Germany and Europe and their Aviation Industry stumbles behind on a global scale, ask our politicians! Ask them why new airports are being built in Turkey (+150 Mio. passengers) and Dubai (+160 Mio. passengers), triple the capacities of Frankfurt (56 Mio. passengers), more than double that of London-Heathrow (70 Mio. passengers). Each! More even than all London Airports together have – and they operate at their limits, new expansion stalled in bureaucracies. And ask them, why German Airlines go bankrupt (Augsburg Airways, Cirrus Airlines, Contact Air, OLT, …), struggle to survive (Lufthansa) or are already steered by Arabs (i.e. Air Berlin, Darwin Airline) … Our answers? “Air Passenger Duty“, night curfews, stop of 3rd runway in Munich (instead of Transrapid), Capital Airport disaster in Berlin, etc., etc.
There was a time, when German Lufthansa was the measure of all things. Without Lufthansa, i.e. the Boeing 737 would never have been build, nor become the most successful airplane type of all times.

Emirates A380 Hub Dubai
Emirates A380 Hub Dubai

Today the big shots are called by the Arab airlines, Emirates wiht 39 Airbus A380 just ordered another 140 of that mega-airplane, their fleet of 200 aircraft triples with more than 400 new aircraft on order. And Lufthansa’s Star Alliance partner Turkish Airlines doubles the fleet, adding almost 200 to the existing 200. And as mentioned, Istanbul gets another airport (they have two already) for another 150 million passengers, three times as many as Frankfurt manages today.
Lufthansas order list may look similar, but most of the aircraft needs to replace older generation “gas hogs”. And with 10 A380 and another four on order, with 29 747 with just 10 new on order, Lufthansa is in no position to play in the same league as an Emirates.

Germany Purchasing Power vs. Airports
Germany Purchasing Power vs. Airports 2016 [updated 2016]
What many oversee is the commercial impact of aviation. As I show for many years now the correlation of economic centres in relation to airports and their size, there is simply also a historic development giving a warning example.

As Carthage and Rome have been the centre of the world in there time, as was Genoa (Columbus) or Bombay. Always the metropolises where strategically located at trade routes. And as shipping (the one on the water) got competition by rail, street and aviation, developments in aircraft construction shot airports like Shannon or Anchorage into the insignificance of history.

train-vs-planeMy former boss compared this with the old American railroad tycoons. Their self-conception was to build rail tracks and operate large iron horses, not the mass transport of people and goods. As the first aircraft were developed, they belittled these developments. As the World Wide Web developed, Microsoft belittled this development and to date limps reactively behind current developments (the Windows 8 Apps are simply uncompetitive compared to their Apple paragons).

Merkel-PutinAnd currently, the politicians of the “industry nations” miss to set the right tracks for the future. Would Moscow get the Russian corruption in check, no politicians would dare to challenge the authoritarian regime of this resource rich country. Just as they handle China with velvet gloves, knowing exactly that money rules the world and in the end, if they want to “profit” from the business, they dodge their high moral and ethics first… And aviation is simply a punching ball for them, screaming “noise” and “pollution”, no matter the major, largely unsubsidized developments in quieter and fuel efficient aircraft… Yeah, don’t think, just hit’em and milk’em!
For aviation, it is finally about moving people and goods from A to B (as efficiently as possible). And who believes the thousands of aircraft seats ordered in the Middle East would fly empty… Where does the traffic flow? Minimum growth in Europe. A graph by the CEO of Turkish Airlines given when he took seat of chairman of the European Airline Association AEA pinpoints it:

global economic centre of gravity 1971-2031

At the same time Lufthansa impairs it’s cooperation with Star Alliance Partner Turkish Airlines, with the reasoning that they would “unfairly” pull longhaul passengers to their hub in Istanbul. “Obstinacy” you call that I think. Because factually, in the current political sludge and struggle for survival, Lufthansa has nothing substantial to counter such developments

Cash cow - milked dry
Cash cow – milked dry

Aviation in Europe: Lufthansa and Air Berlin have rested too long on their successes, Western politicians simply understand aviation as a milk cow they can drain, ignoring the negative repercussions to commerce of their decisions against aviation development. Even Ryanir “stumbles” and frantically tries to reshape the own, aggressive business model, replacing it in fact with a core-different business model. If that will succeed? I doubt it.

Feeder for the Hub (FRA)
Feeder for the Hub (FRA)

My expectations: One global hub will remain in Europe. With Easyjet and current focus by Norwegian, London has a good chance, if they get their capacity problems managed. London isn’t dependent on the drip of British Airways as are Frankfurt (Lufthansa) or Paris (Air France), being tied to these airling operators for the better or worse.
Passengers from or to Europe then will fly with regional feeder services into the real global hubs in Moscow, Istanbul, Abu Dhabi or Dubai. As a hub to South America Portugal could position itself, but also Madrid and Morocco (outside the EU) are showing ambitions, a prophecy being rather risky there.

The traffic and commerce streams are changing. And I have concerns about the ability of the industry nations politicians to realize that the world suddenly bypasses them. And when they wake up, it will simply be too late.

Food for Thought
Comments welcome
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Crumbling Facades

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

What is money all about?

Crumbling FacadesFirst the financial market in the United States failed. Constructs where a single person is responsible for the loss of 50 Billion US$ are just the top of an iceberg. That ice berg turned and we all feel it’s repercussions.

But it was not the U.S. that caused the problem, but the greed of financial managers and the corruptibility of the politicians that made it possible. German’s federal state banks had to be sold, only to learn the buying banks from the other states are simply in similar troubles.

Deutsche Bank manager Ackermann and Deutsch Bahn boss Medorn keep up the facade of the reasoning for the indecent salaries they and their buddies in other corporations pay themselves, blaming others in their companies for the problems their companies face. Isn’t it the CEO who is ultimately responsible? If he has his company not in check, he may not be worth his salary. If his company looses money, they make a bonus? When they fire people, they make another bonus? “No risk, just fun” the yellow press recently titled…

Companies asking for help, often “suddenly” coming up with hidden “treasures” and financing leaks often as high as the losses so far admitted. Oops. If I have a management that has no up to date information about their financial situation, I can imagine this in a start up or small company – but we talk “global players” here! My advise: Fire them! Sue them! You got to, they got to learn the basics of business before they are allowed any management job again!

Politicians having been informed as early as August about the financial troubles of German Hypo Real Estate but now claim their innocense?

In Russia, Oligarch Boris Abramovich lost first the control on AirUnion, which meanwhile “somewhat” restarted as Rossavia as a state airline, now looses Malev as well. His buddy Lebedev is out of a deal to take over German Öger Tours, he’s short on money – weren’t these the people anyone worldwide envied for their incredible wealth?

And wasn’t “U.S. President” a synonym for integrity? Thank you Mr. Bush… What a legacy for Barrack Obama.

So with all these crumbling facades, it is not the time for blame. But it’s time to roll up your sleeves and work to get us out of the mud hole these irresponsible and greedy idiots drove us all into. I am daily facing cases, where good people loose their jobs to managers, still thinking to cut heads is the solution. Or airline managers believing that it’s important to increase revenue at all cost. Flights take off fully booked but causing the airline to loose money?! That has nothing to do with bad sales, but with a bad, price-only-focussed strategy of short-sighted managers. Good service needs good people. But our industries miss to show their own strategy. What makes an airline commercially successful? More aircraft with less people? A drop in service? A university graduade being sent to the key account having no idea what a cross ticket is or what makes a travel reseller select one airline vs. another? Pay for coffee inflight? The next business for airports and catering companies is logically to have vending machines offering snacks and drinks at the gate (or on the aisle infront of the waiting room) at cost below that offered inflight…

BethuneQuote

But what keeps my mind busy is the question, why the facades visibly crumble, why we work in an industry where everyone tells me no one in his right mind would invest in? I did question the human “resource”-thinking. I hear from Lufthansa that the “Lufthanseat” (the employee news) is off reality. American Airlines staff tells me they have never heard of the company update video I remember from the 80s.

BransonEmployeesOur industry is like the opposite to the car industry, but not any better: Where they focus to build the big cars for big money and ignored the growing demand for low-consuming cars, our managers seek quick revenue at any cost…? Load factors and market share at the cost of yield and income.

We can learn from the current U.S. president. Airlines got to learn again that the manager is head of the family. That means (s)he also has to look after the family income and budget. But they got to get out of their glass domes, listen to staff and customers alike and finally start face reality!!! And come to grips and learn to make money!

Food For Thought – your thoughts about this sure are welcome…

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From Russia With Love …

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

DontPanicThis blog-post has been prepared, as are the next ones the next two weeks. I decided to go for an adventure trip to Russia. And no, not to Moscow or Saint Petersburg, but into the country.

The region I visit is addressing international markets but lacks a decent airline connection. In fact, there is one. But being expert for aviation distribution, I was simply unable to book the flight and have to travel from Moscow more than 12 hours by train. The flights I intended to fly out of Germany on were just cancelled on short notice. So I had to adjust my plans and that involved to stick within the schedule. Ad hoc changing the visa due to a flight cancellation? No way! Booking an affordable flight to Moscow? Nonrefundable. So I had to wait for the visa to be issued before I could book. Hotel? More expensive than in Berlin. So the entire trip turned out to be a preplanning nightmare and a bureaucratic Ironman challenge.
If I would like to do business there? There is a lot to be done and I work on a study to give them the look from the outside.

Thanks to exceptionally motivated people in the German Foreign Chamber of Commerce in Moscow, Olga Bleykhman, being a member of the Russian Marketing Guild in St. Petersburg, who became quickly a very close and valuable friend, Alla my personal translator in Magdeburg and long year friends such as Heinz, Richard or Mike, to mention some, I have been able to compile quite a detailed study, I am now trying to complete “on site”.
I will report upon return!

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Low Cost 2009

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

NoFrillsIs low cost at its end? Lately Ryanair sued a German tour operator for combining Ryanair product with hotel, etc. for a travel package. Concern was posted, if that was an intelligent move, though I did reply that it was in line with O’Leary’s public known strategy.

But now Ryanair grounds aircraft, stating it would be more expensive to fly them. Just two years ago, talking about the need to turn around aircraft faster, O’Leary assaulted all other airlines, stating an aircraft needs to fly, time on the ground loosing the company”s money. 180° turn…

Ryan Air now tests “hand luggage only”. That’s a niche of the niche. With a body diameter of about 3,6m and no cargo hold, how about a “Mini-A380”-design with two levels, adding passenger capacity in what was the cargo hold? “Sub-Economy”? Who needs seats? I used the above image in this year”s ASRA-presentation, I didn”t know, how advanced my thinking was.

Now Ryanair reports an 85% drop in net results for the first quarter, a net loss of 60 Mio. Euro being a serious possibility. Just two weeks ago, I just mentioned the joke here about the guy purchasing the screws for 1 $/€, selling it for 99c. No Mr. O”Leary, selling your seats for 99c does not improve your revenue…

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