15.04.2014 Aviation, Low Cost, Management, Sales

What is ‘Low Cost’?

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

ATN: 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?

Just 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.

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

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.

01.02.2014 Aviation, IT

Check-in 2020

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

Aside other sources, I copy the content of that news with kind approval of Momberger Airport Information:

Passengers travelling with British Airways through London Heathrow Airport Terminal 5 have begun to test the personalized digital bag tag being developed by the airline. Microsoft Employees have been chosen to take part in a month-long trial, using a specially adapted version of the British Airways app, to provide essential feedback that will help shape the final product. The digital bag tag, which contains all of a passenger’s baggage details, could eventually replace the need for a new paper tag for every flight. Comprehensive testing of the tag has already taken place to make sure that it works in a live airport environment and can stand up to the rigours of airport baggage systems and everyday travel. Customers on the trial will use a Nokia Lumia Windows smartphone to check in, chose their seat and obtain their mobile boarding pass. Each will be equipped with a specially adapted version of the British Airways app, which automatically updates the digital bag tag with a unique barcode, containing new flight details and an easy-to-see view of their bag’s destination – just by holding the mobile phone over it. They can then save time by quickly dropping their bag off at a dedicated bag drop desk, before going straight through security. The personalized digital bag tags have been specially developed by British Airways, in partnership with Densitron Displays, and Designworks Windsor. #963.AIT4

These news upset me as much as the one I read about Amadeus trying a bag tagging based on 3G-technology. Or Air France and other airlines introducing “home-print” bag tags.

As I mentioned two years ago in my little article about a possible check-in-scenario for 2015, I would see a far more reasonable approach (and easy/fast to bring to market) by the aviation industry to use established standards. Why do they use a QR-code with a modified layout? Anything to hide? Or simply to do it different? Which by the way equals “more expensive”, faulty and slow. And – worse of all: Incompatible like VHS and Betamax…

Why do they try to implement and sell expensive, non-industry-standard-compliant stuff here? Why not using existing and proven technologies like RFID or the newer (but to be standard) NFC? Why force me to use an “App” (and where can I get online when being abroad?) or even worse, an expensive 3G-Network technology? Which Network???

In addition to my (somewhat delayed) prediction about Check-in 2015, I’d also like to see a common free airport WiFi system; wherever an airport offers free WiFi, it’s a common log-in worldwide. Maybe even the same for inflight, just a quick cost note if not free. Or at least a common log-in-process. Enabling to register “globally” is an added value for the Jet Set. And would encourage safer WPA2-connections. “CDM” in action – across aviation industry stakeholders 😉

I’m allowed to dream, right?

Food for Thought
Comments welcome

01.02.2009 Aviation, Low Cost, Values

Crumbling Facades

What is money all about?

First 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…

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.

Our 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…

04.01.2009 Aviation, Sales

IATA says Aviation declines. Really?

According to IATA General Secretary Giovanni Bisignani, aviation warns of a decline in global aviation. But is that reasonable? Yes, global economy suffers. But look at the global maps and you will find a clear relation between airport and decent aviation and the size of cities. Aviation is a key motivator for business, but the travel industry suffers from a major inferiority complex:

Travel Agents: Any financial consultant who at the end of the year gets you €1,000 interest a year will be decently paid, but the consultant where you spend €5,000 for a vacation shall work for free?

Airlines: Global economy needs aviation. But thanks to price dumping (and not only since “low cost”), airlines operate for years at the edge of commercial harakiri.

In December, I was asked by an airline manager, what I would change in the airline industry if I’d have a chance. What I mentioned, many of you heard from me before again and again:
Remove the price tag from the tickets! No other industry in the world provides the information about the price the seller pays for the product. Or you would not buy a car or even a yoghurt without arguing with the cashier about a discount! This is a relic from the decades when airline tickets were decently priced and the travel agent truly was an agent, receiving 9% commission. At the time, many agencies cross-financed other business with their airline sales. An Economy Class ticket for €2,000 at 9% was a nice deal… The hotels, at the time frequently not paying the commission were “negligible”. That’s “the good old days”! Gone.
But if the travel “agent”, or better the travel consultant sells today, they get no commission. Then why do the airlines show the price? It is totally outdated thinking that must be addressed.

The second thought I had in mind I mentioned last week: Airline sales is “suddenly” en vogue again. The managers promoting sales-free and sales-independent “self service” and “internet” without a strategy find themselves the most hit by the financial crisis and the recessive commerce. Because cheap flights sell themselves, but they are also the most vulnerable. Selling a product is a question about long-term relation. So better have or build a sales team with a personal reputation in their market. As they represent you.

Food For Thought. Please share yours 😉

28.09.2008 Aviation, Low Cost, Russia

From Russia With Love …

This 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!

05.08.2008 Low Cost

Low Cost 2009

Is 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…