Tag Archives: Airline Management

Follow your own Sheep, Airline Style

You do wonder what sort of credentials you need to run an Airline, it is very difficult, in fact it is one of the worse sort of businesses to do business, there are so many factors in the fact that can send you broke on a weekly basis, some can be the changeable climate of the traveling public, others are anything from hijackings to tsunamis, fuel shortages, volcanos, snow, pilot and ground staff strikes, computer catastrophic failures, bad press, engine explosions or the worse of all, the loss of aircraft, passengers and crew.

Airlines as a whole don’t make money, losing it is easy, making it is very difficult, so why do you want to be in this business, because it is glamorous, well maybe yes to a point, some call it the “bus service in the air”, which is a fair comment in todays highly regulated on time service environment, but there is something in that fact as flying is a still a wonderous thing to do even for people who hate it, nothing is more amazing than the fact you can circle half the globe and land within minutes of the scheduled timetable, and within the hours of a 24hour day, Sydney to London, in the time of only one day of your life, and for only $2000.00 is in anyone’s terms  a great deal.

With all these issues to face everyday you would want to minimize your losses by selecting routes that are profitable and useable, but there is a strange fact that sometimes in doing this, all reason goes out of the window, take for instance New Zealand.

Now New Zealand is a pretty country that is somewhere in the low South Pacific Ocean and at last count there was 4,315,800 people residing there, and of that  1,110, 456 of them visited Australia, and from Australia they have in the fact that 1,115,285 of them then returned the favour by going over there.

So that would seem like a pretty big market, plenty for everyone to have a slice of the travelling cake, however if you are in an airline management position this would seem to be a rainbow gold mine just waiting to be dug.

It is but a strange thing happened, for such a small country airlines have been swapping and changing around to the point that it is a lottery to seem which one will be ready for you at the airport when you get there!

Almost all have been non New Zealand Airlines and mostly come from big brother Australia, long forgotten Ansett ruled the roost for years with a massive 30% share of the cake, then Qantas in some form or the other took over the debris when the airline was grounded in 2001 and being renamed Qantas New Zealand, in 2003 Qantas created their successful LCC (low Cost Carrier) offshoot Jetstar which commenced New Zealand operations on the 1 December 2005  to Christchuch (CHC) and on the 10 June 2009 Jetstar commenced domestic New Zealand flights between Auckland, Wellington, Christchurch and Queenstown.

New Zealand has it’s own national airline called Air New Zealand which by all cases in the last decade has been a total basketcase, New Zealand as a market that is so very small for a large legacy carrier that has 6 Boeing 747-400’s always parked under the window, but under the stewardship of Rob Fyfe who was appointed in 2005 the airline has become the one to watch and now covers 27 domestic destinations and 26 international destinations, making money in a creative way which much like Singapore Airlines in Singapore, and in doing so out go the big thirsty B747’s and in come B777’s which are more suited to long thin routes, in other words good management.

Another upstart that tasted the New Zealand gold rush is Virgin Blue, based in Brisbane (BNE) , started in 2000, it had the good fortune in that Ansett dissolved right in front of them and created a market almost overnight, a LCC that was on the hunt soon dominated the Australian low-cost market and in 2003 a subsidiary of Virgin blue, Pacific Blue was heading over the Tasman Sea wanting some of the ready cash.

But in most cases you always found yourself on a Virgin Blue aircraft as the fleet was rotated around to cover the only few Pacific Blue Boeing 737’s flying, and Virgin then thought “well we are over there so why don’t we do domestic New Zealand as well”, well why not, it’s a free world.

So if you wanted a flight from Aussieland to Kiwi Land, then the choice is large, Qantas, Jetstar, Virgin Blue, Pacific Blue and not forgetting Air New Zealand, now on top of all that it is because New Zealand is where it is then most international carriers will terminate their service in either Auckland (AKL) or Christchurch (CHC), and in most case many have 5th freedoms of the air rights, which means that “they have the right to fly between two foreign countries during flights while the flight originates or ends in one’s own country”, so you can sway your way down to Sydney Airport, drop $210.00 into a Emirates passenger ticket and then rumble right along and taste the space and giantness of their double decker bus, the A380, well they are getting 90 of them so why not drop a few on the Trans Tasman route and pick a few shekels moving Australia to New Zealand or vice- versa, 460 seats is a lot to fill, Melbourne’s the same, In Brisbane you can jump on a Singapore Airlines Jet and swan over in style, and not on a cramped B737 or Airbus A320.

If there is then a saturated market it is New Zealand, with only two major ports (AKL/CHC), and as sheep following sheep its getting seriously crowded parking in Auckland with empty planes, so what happens, they lose mountains of money, and it becomes a poker game of who will hold out till the last, all of them holding their breath, fares go to bucket levels, almost coming down to stealing passengers at airports trying to board the competition, and it goes on for years, upping the frequency or adding even more ports (Gold Coast, Cairns) to get a leg over the others…..

So who gave up first…..Virgin Blue/Pacific Blue, “what the hell it’s not worth it”, so they decided that we will put our precious resources somewhere else…and that is?

Perth (PER), the resource boom of shipping the whole of Western Australia to either China or Japan is in full swing and a market just waiting to be exploited, did they learn from losing all that cash in New Zealand, “hell no”, as “thar’s gold in those W.A. Hills”

Virgin Blue decided to ship people over to W.A. wholesale, by buying a couple of large Airbus A330’s and going business class too.

Qantas not to be out done looks around and realises that Jetstar has few loose A332’s available and  so puts them on the same route, Jetstar meanwhile is a regular customer at Perth, so is Singapore  Airlines offshoot Tiger (one Dollar seats) Airlines, Strategic Airlines is also based there, Skywest too, in fact there is 12 domestic airlines based in Perth, and how many people live there?

1,659,000, less than New Zealand, in fact far less than New Zealand, oh and there are a few 5th Rights Carriers passing through there too, suicide!

And on it goes, Sheep following Sheep, Perth has not even been on the map for decades, if you wanted to fly there it cost less to fly to Hong Kong, Japan even, in fact the cheapest way was to fly to Singapore and backtrack to Perth, those were the days, going international to fly to a domestic port?

Soon it will be dollar dazzlers, free meals, face painting to fill empty seats…Suicide.

So here we go, which one will pull out first, Qantas, Nah!, Jetstar, Nah!, Virgin Blue, Nah! too much at stake, Tiger..well maybe but their numbers are low anyway.

So it’s going to be a blood bath, and coming to an airport near you.

Say, there is a good traffic going down to Antarctica, could be on a winner there, seasonal is the only problem, “could you land an Airbus A330 on the ice?”

Sheep following Sheep, Oh by the way Tiger Airlines are going to do a new route……going over the Tasman to New Zealand….

……”oh for Christ’s sake”

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Ryanair. who is more mad, O’leary or his passengers

ryanair_O’Leary

Ryanair the Irish based LCC has grown 323.4% in the last 10 years which is brilliant stuff in any business never mind the airline business, but I want to believe I really do but something really nags me about the Irish Airline, the sheer gall of its CEO elf Michael O’Leary even makes (look at it!..) Richard Branson look amateurish in his stunts and no doubt it works in getting bums on seats.

His latest “crock o crap” is that if passenger would stand up (IATA would have a heart attack) they can fly free?..brilliant PR stuff and an amazing 66% of passengers said they would?…..for 2 hours on a bumpy plane would you stand in the aisle to get to Romania?

Mr O’Leary already has standing passengers anyway in the fact that (one) you have to pay to use his toilet, (two) he has pulled them all out for more seats and left only one to use!, so his standing passengers is really a queue to go to the loo, plus the fact that if you have a aisle seat there is a good chance that standing by your face waiting to use such facility is some older male person with a personal  bladder problem is holding his crotch to stop the dribble going down his legs…I would want to fly free for that view and in a seat please!

besides this ludicrous situation Michael O’Leary charges you for everything except smiling (including the cabin crew) and crying which you do once all the charges are laid out, another latest idea is for you to take all your hand luggage (no checked luggage, so what does he carry in the hold?) and put it in a holding area when you board or collect when you deplane, can you picture a large Indian Family with all their excess baggage carrying it up stairs and carrying it off again including sacks and trunks and “god knows what”, god help us.

Still we haven’t mentioned that you are treated like herded cattle, abused, hustled around and mostly bumped to another flight and for all of this we smile gracefully and pay up and grit our teeth, so why do we put up with it all…because it is a cheap fare……..compared to what…walking, and worse is that other carriers see this as a trendsetter and want to use this despicable model for their own uses.

So for me it just doesn’t add up, I don’t get it, and there are two reasons (one) Michael O’Leary can get away with murder, because (two) his passengers are bloody idiots for putting up with so much for so long and let him get away with murder, yes we complain and get angry at airports because our wallets have been stripped and there is nowhere to sit (except on the cold floor), we are hungry (no food now, remember that), we are late, and tired…and what do we do, “we’ll fly Ryanair again because it won’t be as bad next time”..doh!

But is the penny about to drop as Ryanair’s latest three month net income is 20 million euros lower, you could say that the economic crisis is the cause, however the airline’s strategy is to find niche airports all over Europe and fill them with a service, and to do so at such an alarming rate that passengers take up the service just because it is there and pay such a low price for doing so, the mayors of such destinations will of course welcome the tourists with open arms and give Mr O’Leary a lot of freedom in costs and infrastructure just to put his wheels on their tarmac that even their own established airlines would benefit from more, but the reason other LCC carriers don’t land here is these destinations are a bit obscure and in time a flood becomes a trickle once the gloss wears off, for Mr O’Leary he just does a better special (lower fares) and fills the planes (goats in the hold?), but you can only go down so far and has Ryanair gone to far in its quest for European domination in having too many slight routes going to too many destinations with not having too many load filling routes with good yield, or the opposite were as on any route that is popular to even take out toilets for seats means that the margins are so slight that every seat counts, even the toilet seat.. it has to be a model for problems if the load factors even drop a smidgen.

And to my unease, it feels like a very on the line, week to week survival stuff, but like an Irish magician Micheal O’Leary just creates an illusion of perfection while frantically cutting or finding another way of getting more cash from his customers, its a bit like a Madoff Ponzi scheme for airlines.

But why do people put up with this?

with the economic crisis I am hoping that some reasoning will come back and people will stop thinking that the cheapest fare is the only benchmark for travelling on an airline because it getting ridiculous to the point of stupidity, passengers should reward airlines that give good service, don’t over book them, allow a fair amount of baggage, have fair airport space and seating, are on time and have good equipment (planes), pay a little more and get a better travelling experience, good airlines will breath a sigh of relief too as their margins will be better to give you a better deal and employ a few more staff, that would be a better service, certainly better than Ryanair but until then if the option is there… then take the train, at least you can use the toilet….for free.



How Long Can This Go On….Low Airfares

Sale Case

The losses are huge, big, enormous and it has hit every corner of the Travel Market and still it hurts, for the airlines it is Judgement day but for how long?

When Singapore Airlines are doing European specials you know life is bad, People will pay a premium to fly the smile high club so what hope is there for anyone else, British Airways have quickly dropped their premium route fare to nothing just to survive with an AUS$1444.00 fare SYD/LON, so Qantas will have to match that and these three airlines have been the big hitters on this route for decades so for them to drop it has to be the very last resort.

For Qantas their other Premium route SYD/LAX (los Angeles), has been decimated by V Australia’s close to as possible $1000.00 return fares, with United chopping fares as well for market share its going to be banging heads on the table in the offices at Mascot and not before time.

And suddenly as a break into a new market, Delta has already dealt in a sword in the ground deal of  AUD$982.00 from Syd with Air New Zealand’s counter offer of AUD $889.00 (including taxes) from Coolangatta is near as damn soil cheap as you can get.

This is a snapshot of just one aviation market in Oceania/Asia and it is being repeated though out many other markets in every part of the globe, the good side is that it has leveled fares that were overpriced on monopolised routes, Qantas’s SYD/LAX route fare $2000.00 was quite simply Sheriff of Nottingham territory and to have it halved showed the bonuses that flowed though the doors of the Geoff Dixon era, economic crisis or not that still had to happen.

So we are in the shit, so to speak and the few cashed up travellers are having a boom time, it can’t last and it won’t but it will not be all bad news.

The cheap fares are there because most Airlines are over productive with too many planes and the staff that runs them, as the airlines shred older inefficient aircraft they will create a newer tighter business, staff will go because you are not going to go and pickup and then go back to normal when the economy picks up again, today you need to be lean and efficient, and a good old shake out of the mattress will help the restructuring of almost every aspect of the Aviation Business so you can now throw out the old model and send in with the new as for the first time in its history except with a few bumps aviation is faced without its stunning growth year after year and so like any other business it will have to adapt to the current climate changes.

The cheap fares will last this year  but for the rest it should settle back down again which means many fares will rise as they have too because.

1. Airline restructuring will be completed.

2. Airlines are not public services they have to make money, break even at least.

That is the bad news…the good news is they won’t go nowhere near the old prices or will again, this is the new new for the business so SYD/LON should level out at AUS$1600-$1800 and SYD/LAX about AUS$1200 – $1300 which is still brilliant value, most domestic traffic will not push those AUS$1 a seat deals t0o hard and put on an average of AUS$20 per ticket price per sector, really low LCC (Low Cost Carriers) will have to improve their bottom lines as the likes of Ryanair (I’ll charge you), Easyjet et all, will not find profit in expansive growth anymore and will have to fall to the realities of the a real business model, and this is all in cattle class as even more changes will come in business class, but these prices do still depend on very stable Fuel costs going into 2010, if they rise then so will the fares by another 5% to 10%.

The only growth area will be in the International LCC (Low Cost Carriers), many have already failed in this new dimension to travel, but some pioneers are paving the trail like AirAsia and Jestar International but once the model is proven many others will quickly come abroad but don’t expect really stupid low international fares here, they will be cheaper than normal route fares but these carriers will want to survive and there is a boundary limit to how far down you can go down with fares as international travel is a completely different model to domestic and short haul travel (European) as you need infrastructure and personal at the other end of the route.

Another factor if it comes to pass is that many countries like Australia are being pressured to drop or reduce their heavy outbound and inbound airport taxes to encourage more traffic, and its these expensive government add-ons that can really make a biggest difference to an airfare price,and that is even domestically and should be curtailed as why should be the airlines that always have to shoulder the costs, these little termites are in many countries a bigger cancer than anything in a good tourism market and if the governments are scared of lost revenue then that is not the case as visitors will still spend more in the country if they are not robbed at the entry point.

..At the moment fares are too cheap and unsustainable and how long they will last is not very long, my guess is the Christmas/New Year 09 period and will not be as severely discounted going into 2010 as they were in 2009 and maybe a few excellent specials will still crop up in the traditionally really low periods, say March and Oct/Nov next year, so with an economic crisis or not airlines will not survive unless they do so, there is also a chance they could even rise sooner to stop the bleeding quicker and once one large influential carrier does so the rest will quickly follow, so the real push from next year for your dollar will be in super economy class with more leg room and better service and higher profitable fares for the carrier, the deals will be there but they will expect you to pay more for them so you win and you lose at the same time.

So if your going to fly on the cheap then fly now..and book quickly because fares will rise, but not enough to break your credit card limit…….

Updated 18th Nov 2009…..
I noted in the above issue that the fare to Europe would be AUS$1600.00 – $1800.00, the recent Fares for early 2010 are AUS$1685.00, and will be basically around AUS$1750.00 late 2010, but we are having the problem of very high fares coming  (USA/European Summer) to try to pull back some profit see current issue Airline passengers are back-so lets get back to work, as this is a cash in to pull back profit it won’t work except maybe in the early (May/June 2010) period, but it will scare more away than bring passengers back into their seats….

It hurts, It really hurts…where…there in business Class

business-class

As the first few months of the new economic year slides by the hurt is coming, early January is always a “I don’t care” month as the wining and dining of the festive new year is still in the blood, but come February and the festivities have been replaced by the stark reality of well everything.

Airports are crowded still but the numbers are well down as they should be, but people generally are getting on with their lives, the Airlines living on the edge have already long gone (XL and co) and the majors have already mothballed inefficient aircraft and layed off excess staff, for many it will be a relief as the frantic building and capacity numbers level off for a short while, Airlines will moan, but times like these are generally good not bad, excess can be bad for business, efficiency very good, the industry was always good at getting both right.

Here is not to say everything is now hunky dory, its not and not by a long run, it will drop deeper yet, and numbers will drop steadily more and more as the year goes on and still more Airlines will fail or merge, but again the system will be better and stronger for it and there will be real winners and losers, LCC carriers are already seeing benefits, the good ones that is, but prices are very low and margins are very small, but bums on seats are constant and people are still moving around and fuel is cheap, so that is good new for all, Long Haul LCC’s are moving up as well for Air Asia is going along as if nothing is happening around them and more and more markets will open to these models as the industry gets lower and lower, good LCC’s are certainly going into good boom times and more and more so as the economies go south.

For the everyone else they have a huge stinking lead weight around their necks…Business Class, I touched upon this situation in my Journal “The New Bloody Battlefield” back in October 2008, now it is more than that, it is the game changer.

Problem is Business Class was the central core of most Airline’s (Mainly Legacy Carriers) profit centres, but in trying to reap as much as they could from the bounty harvest there was really not much price or service difference between either First and Business class, and the gap between them and the rest of us just got wider and wider.

Another if bigger problem is for the last few years is that most Airlines have pored mzillions into this class, almost all front line carriers have reseated and redecorated this area as if there was no tomorrow, now they are well up a stream without a paddle and very expensive hardware to sell to the same people who can’t afford it anymore,

Super Economy was put in to fill the gap between Cattle Class and the high nobs and it does work very well, but the Airlines don’t really want to push it that much (but they do now), One it pulls down the executives from Business so that was a really big no no. two they take up to much space were as they could in the same space put in extra tourist rows for more bodies (and more Money), so that was a really bad idea too, but now the game has changed around and the Airlines are in a real tiddle of what to do, but the reality is they have no options, Super Economy has to work, problem is what will happen to business class?…..If you are paying today $5000.00 for a Business class seat and you can afford it then the extra $1000.00 for first as this is not a stretch, otherwise everyone in Business is going to go down to Super Economy to save big dollars, so what do you do, do you pull out your Business Class and replace them with Super Economy like Air New Zealand and (up the service and cost) a little, or severely discount your Business class seats (and services) to stop the drift, in other words closer to Super Economy than first.

Another problem with Business is Frequent Flyer Points (FFP) discount the seats, and everyone wants (loves) the freebies, if you are flying Super Economy and if Business is close in price then go for the upgrade or if you fly Business and carrying chunks of FFP’s then why not go Super Economy free to Las Vegas…

So to trends..no doubt a shift in deep price changes for Business Class has to come and quickly, a lot of freebies will go and just as quickly, so the differences between Business and Super Economy will have to be small(er), mostly the lounges and food, more likely baggage, it would be a good move, someone that flys Super Economy regular now would pay an extra $500.00 to fly business for the extras and the Airlines would stop the drift and prestige of regular business clients going really down market and sitting at the back.

FFP’s are going to be tightened to the point of worthless, extras(which cost little) will be the order of the day for repeat business not free air miles, every seat has to earn now, as the loss of high business traffic income will really hurt the bottom line, the trick will be to be flexible in the fact that Super Economy and Business Class will be almost the same thing, it will be the extras and cap pulling that will change the price, also if you have more business traffic then Super Economy can fill the need and vise-versa, overfill from Super Economy can go up to Business with no loss on either.

But Business Classers don’t expect the grande flourish of attention of yester yore, Airlines and Airports will cut services to the bone to save costs, even First will notice a few cost cutting differences, It is going to hurt Airlines more than you think dropping the price of this lucrative income stream, they will cry loudly as they sweep their pen through the old prices, British Airways and certainly Qantas will have people jumping out of windows at the loss of income..

But what of the redecorating, its is more closer to First than Business in concept so the distance down now from Business to Super Economy is more distinct than ever, the Airlines that skimped a little on the drapes my now have an advantage in flexibility than the more up market redo’s don’t have, so what do you do make it First Class?, or pull out the flashy hardware and put in  something more middle ground, expensive…yes both ways…it will be interesting to watch what they do, otherwise the beautiful seats will be empty, in the short term some upgrades are going to have some very happy clients that will certainly get more of a bang for their buck than they ever dreamed of.

Personally I welcome the idea, it will be more fair than, the them (Rich, First, Business) and the rest of us, they have been lauded and fettled over for years like spoilt rich kids that mostly don’t even pay for their own seats or services, while the rest of us who actually pay for the things (seats) have had services reduced to towel throwing and cups of water and treated as extra cargo (it is a known fact that some Airlines note Economy as Human Cargo!), but we do fill your planes and put profit on your plates, now we are important again to warrant at least some quality services or just plain old fashioned service.

We may even now because the prices are even close to reasonable again pick and fly again in Business Class, now that will be a turnaround, the people who worked and saved their own money getting service……It has to be better…. or I’ll put it on the Visa…oh I forgot, I can’t do that anymore…So just save your money then.

Its a Tough Game..

Who would want to be an Airline CEO these days, every day you come into the office there is another major disaster, and coming from any angle you are prepared for and from places you never dreamed of.

Your faced with dwindling passenger numbers, scared off by prison like security checks, higher prices, bad weather, overcrowded airports, extra baggage charges, check-in equipment failures, Staff in warrior mode wanting more pay for less work, benefits, overstressed and you have to cut their numbers to keep your head just above the water, Airports always in redevelopment, shifting flights from gate to gate just to get your slot, getting in and then out on time, then they have the nerve to increase your already extortionist landing charges to the point of you choking badly on your coffee to pay for it all..

Air Traffic controllers so stressed out they either just walk away, go on strike or do themselves in, either jumping off the tower, or walking out onto a runway in front of a fully loaded 747..

Repairing your equipment is a pain too, your in-house engineers are short staffed and underpaid, OE (Original Equipment) parts are expensive and secondhand or reconditioned parts are well …..dangerous, So you send your equipment offshore, your $600 an hour consultant recommends it..sloppy work and you have no control on were your parts are sourced, but it is cheaper, remember your consultant said so..

Some of your planes are well past 25 years old, they creak, leak, some smell, some are cracking, you are taking tons of parts out of the older ones to keep the others flying, Pilots tell you they are “Flying Junk shithouses”, you say “they are original and reliable and solidly built!”.. and payed for.

Buy new?…3 year waiting list and to buy one new 737-500, you could have a fleet of 737-300’s but who wants those, they are thirsty, noisy and due for their expensive D Check, now.. Wall Street now goes into severe backwards meltdown, and your chances of getting any finance period is limited to replacing your engine starter cart..but only one, for now…sorry.

There is still that plane yard in Arizona?, but it is full of 25 year old planes just like the ones you now own.

Islamabad erupts, Hotel disappears with half of your passengers due to fly out next day, cancel  Islamabad indefinitely.. No make that the whole of Pakistan indefinitely.

and then we get to your fuel problem?

Your hedged Aviation Fuel at 80c a barrel, lasted 3 months, but you put your Fuel surcharges up straight away to keep the cash coming in, but only to $1.20 a barrel, but it went too a $1.60 a barrel, and you are now going broke at 5 million dollars a day, so you hedge again at $1.30 a barrel and the price plummets to 70c a barrel, now you are going broke at 7 million dollars a day, were as only just 2 months ago you had a slight wonderful profit.

worse now your passenger numbers are freefalling, shareholders phone you daily (sometimes hourly) with their plummeting share price, A slight equipment fault is picked up in the media, then they highlight for weeks and weeks on end on national television every small problem you have from running out of paper cups to slight routine maintenance, and that airlines like you are the total major cause of covering the planet with every toxic gas discovered by man and some that are not, laying blame for irresponsible airlines for accelerating the global disaster, killing cows, crops, old people, young people, fish stocks and laying waste to once fertile lands like Libya, and in doing so brilliantly scaring off any of the very few passengers you still have left wanting to fly……

oh and Mrs Diana Hackford-James on Flight 342 in Seat 12A has lost her bag?

It’s in, Istanbul?……………Istanbul!

We don’t even fly to Istanbul!

Good Job those windows are double glazed, I tried though, I ran at them, but they didn’t break..Tomorrow will be better?……..A new day!, what else could happen…I am still insured for the unthinkable, Shit they too went bellyup with the Investment banks…..damn.

George W Bush, nah he’s got no job soon either, maybe he could get a job running an airline, being President couldn’t be harder than running an airline…could it?