The US. Safe, but unfriendly destination?

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FOXTROTS

 

 

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

 

 

2008 April 28

The US. Safe, but unfriendly destination?

The US has decided that airlines must finger-print and pay the cost in time and money for all their departing international passengers. The cost will be great.

But there is nothing wrong with the US government deciding that airlines and their passengers must pay for security. Although we believe such work should be the responsibility and cost of the government, we accept the right of the government to decide otherwise.

(After all, otherwise police should charge pedestrians who walk down the same street as them – for their security. Everybody arrested, falsely or not, should be charged – money that is.)

Let the US pay the cost in other ways. The visitor bodies have already produced the statistics – 2mn fewer visitors in 2007 than they would have counted if they had matched world growth rates since 2001. With roughly US$1000 per visitor, excluding air fares, and that is US$2bn.

That is not big in the scale of things, so probably the country is ready and willing to accept that ‘cost’.

What will be the cost for this? The liberalised agreement between the US and the European Union would have produced additional traffic on the Atlantic – perhaps 15% more. How much now will be lost by passengers fed up with the additional security . (Reasonable or not, people also have the right to be fed up.)

Airlines should charge passengers for the cost of this extra work, plus a charge. If that comes to US$20 per passenger, so be it. Non-US airlines should simply switch more capacity to destinations for which it is easier to attract passengers.

Let the market do its work.

 

The Fox

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Alitalia and Air One. Two wrongs?

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FOXTROTS

 

 

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

 

 

2008 April 25

Alitalia and Air One. Two wrongs?

Italy’s second airline Air One has stopped providing its operating figures to AEA. As I have written on a few occasions in 2007, these figures showed serious problems at the airline – with load factors hovering around 50%.

 

In today’s cost environment, this indicates Air One was/is losing a lot of money. But as a private company, it can hide the figure.

 

This in itself might not be important; after all, it is a small company. But it is sort-of bidding to take over Alitalia, and so to show big losses would hardly encourage support for that move.

 

But what if Air One is successful – after all, incoming prime minister Silvio Berlusconi seems to prefer an Italian takeover, whatever the cost?

 

Two wrongs (Air One and Alitalia) do not make a right. The outcome seems certain to be state aid – most of which under EU rules is not allowed, but which happens anyway.

 

And then what? Alitalia has received (much) state aid before. But that has not made it an efficient airline.

 

The outcome appears likely to be a continuing lossmaking airline (presumably AO would be merged into Alitalia and that would be the surviving name) that will limp along losing passengers for another two years. Because passengers will abandon the airline for declining service levels and the fear that their flight will be grounded by union action or bankruptcy.

 

(Alitalia gained 1% more passengers in 2007, but so far this year has lost 7%. Spain’s Iberia, from a much smaller country, now fills more seats than Alitalia does. In so many ways, Alitalia is a failure.)

 

Then the events of the past 18 months (searching for a buyer, finding one) will be repeated.

 

There is a possibility, however, that Berlusconi will make the first U-turn in his leadership, and approve a foreign purchaser – albeit wrapped up in a way that indicates it is wink-wink really an Italian company that is leading the takeover with a few foreign partners.

 

If it is Aeroflot (one of the interested partners), this is an unknown. How do Russian companies operate in free-ish international markets that – in the case of airlines – require efficient management and skilled marketing techniques?

 

The Fox

Air Asia, Imex, Ivana & Donald Trump. Big lies, little lies.

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FOXTROTS

 

 

 

 

 

 

 

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

 

 

2008 April 22

Air Asia, Imex, Ivana & Donald Trump. Big lies, little lies.

 

 

 

 

 

Air Asia tells me that one of its core principles is – “transparency; we provide more that industry norms”. Lies. Not only has the airline stopped running figures for its divisions (Indonesia, Malaysia, Thailand), but it has restated some old figures by a big chunk – 1mn over one year.

 

 

 

 

 

 

Have others, not just us, noted that not all is growing well with the airline’s traffic growth in Indonesia and Thailand? And so decided to take the easy way out – hide the data.

 

Does this mean Air Asia has formally become a ‘mature’ airline – and realised the breathless enthusiasm of youth cannot always overcome all?

 

 

 

 

 

 

-At the Imex trade exhibition in Germany the organisers told us:

 

 

 

 

 

 

“The launch of the new Green Supplier Award has attracted an unprecedented number of applications.” But, ahem, if it is new, where did the precedent come from?

 

(Imex, by the way, still lists media attendees – like me – that have never registered and never been there. Helps the numbers, I presume.)

 

 

 

 

 

 

-JMJ, the company that is developing Ivana Trump’s plans for a hotel group, said the response it received from the announcement of planned hotels in Bahrain and Dubai was “one of the best ever in the Gulf”.

 

But how would JMJ know what level of response others received? Even for the hotel that her ex-husband, Donald, plans for the same town. That’s humbug – at best.

 

 

The Fox

 

 

 

Jetstar Asia. Another try.

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FOXTROTS

 

 

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

 

 

2008 April 21

Jetstar Asia. Another try.

After the Qantas group bought the rest of Singapore-based Jetstar Asia (JA) in 2007, change seems certain. The starting-point is basic.

 

Alan Joyce, head of the Australia-based Jetstar group, always a Qantas subsidiary, says JA lost US$21mn in 2006. The only slight comfort is that its local competitor, Singapore Airlines’ subsidiary Tiger Airways, is losing slightly more – US$25mn – according to Joyce.

 

Joyce says that it is difficult for JA to make profits with only six aircraft. And which probably indicates that JA will add routes and aircraft in the coming months. However, he also says that he is interested in franchising JA in Asia. (As Malaysia-based Air Asia has done in Indonesia and Thailand.)

 

JA had effectively merged with another Singapore-based airline, Valuair – even though it had a different business model.

 

(Some of this history was foreseen. We have always maintained that JA and Valuair are failed/profitless operations, that the ‘merger’ would not work, and that Qantas would buy the balance of JA. We also note that when JA was launched, Joyce claimed that he/Jetstar had given JA some operating advice. We still do not know what advice, and whether JA followed this advice. Joyce no longer talks of this.)

 

But Jetstar is stuck with the Valuair brand – in the “short term”, according to Joyce. Ironically, Valuair dropped its only Australia route, to Singapore, shortly before Qantas took over.

 

Also Qantas has announced plans to buy 30% of Pacific Airlines, based in Ho Chi Minh City, Vietnam. This airline is due to take the Jetstar name eventually, maybe in one year, says Joyce. Another key owner of Pacific is Saigon Tourism, which also owns substantial parts of the travel business in HCMC.

 

 

The Fox

Rambling on. Through Millennium, Oasis, Sofitel.

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FOXTROTS

 

 

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

 

 

2008 April 19

Rambling on. Through Millennium, Oasis, Sofitel.

Continuing my ramble through the travel business, often an odd business.

 

I don’t like to boast…ok, I like to boast…but I was right. Most of us are good with hindsight (“I knew it wouldn’t work out”), but occasionally we have said that in advance.

 

Firstly, with Hong Kong’s Oasis Airlines. To me, the original plan was sound – partly because we had some initial input. That was to operate from Hong Kong into Berlin, and then connect to Easyjet – which had just launched a hub there – which would give route coverage to the important parts of Europe.

 

This would have required some special negotiations, because Easyjet (and most other sensible low-fare-airlines) do not work with transit passengers. But it was easy to organise – Oasis customers would pay, say, US$10 to transfer their bags at Berlin to an agreed Easyjet collection point to be retagged. If there was a delay to the Oasis flight and passengers missed their connecting flight, Easyjet would put them on the next flight, with a negotiated ‘late fee’ to be paid by Oasis. Any overnights etc would be at customer-cost (there are some low-cost hotels near Berlin’s Schoenefeld airport) – and they would be so advised in advance.

 

Whatever, that didn’t happen. If it was ever part of a business plan, it was thrown out, and Oasis launched its flights over Hong Kong-London Gatwick. There is nothing wrong with that, but Oasis, in effect, seems to have got worried about low yields before it started flying.

 

And so it started varying the product. No longer a simple buy-and-fly price, but business-class, travel agencies, tour-operators, advance-purchase, and so on. In the LFA business – ask Floyd Andrews (he ran PSA, whose ideas Southwest copied) – you gotta keep it simple. Because simple is cheap.

 

We were specific: “We think this plan will not work,” we said in July 2007, about nine months before Oasis came to the same conclusion.

 

Then there is Richard Hartman, who has just joined Millennium & Copthorne as CEO. In August 2007, we said Hartman would not stay long in his retirement from InterContinental – “we expect him to take another senior role in the hotel business”. Based partly on the quality of the work he had done at Intercon and at Sheraton before that.

 

That said, that CEO role at M&C is a revolving door. The last six incumbents have lasted an average six months, despite being well-known names from high positions in other groups (including Hilton and Hyatt).

 

So I guess this is the time to make another prediction as to when Hartman will move on? Knowing his character, and that of his boss (both strong and proud), this does not seem likely to be long – perhaps less than a year.

 

Finally, I note that Sofitel wants to move up the scale – to sort-of Mandarin-Oriental level. That looks tough, not least because most people assume Sofitel is a software company for telephones…

 

 

The Fox

A ramble. Through Jetstar, Jury’s, Millennium, Oasis, Sofitel.

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FOXTROTS

 

 

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

 

 

2008 April 17

A ramble. Through Jetstar, Jury’s, Millennium, Oasis, Sofitel.

A ramble through the travel business, often an odd business.

 

I was recently flying again on Jetstar Asia between Singapore and Hong Kong. As it has been about one year since I was last onboard, I was surprised to find that some things have not changed.

 

Both flights were late (maintaining its record; I have never flown a Jetstar flight over this route that has been on time). Today airlines generally have a foolproof excuse to give passengers – the incoming flight was late. Of course that flight might have been late because the engines didn’t work, or passengers were slow to board, or whatever.

 

Based on my experience, I would guess that many Jetstar flights are late because of poor boarding procedures. This is partly because seats are assigned. Passengers on competitor Air Asia rush/run to board to get the best seats. On Jetstar, why hurry; you already have your seat. But also because Jetstar does not board by rows – back of plane first.

 

Jetstar must be real dumb not to have learned that in its three lossmaking years of business.

 

Talking of dumb, there’s Quinlan Private, an eponymous investment company. Well I suppose they have done a few smart things as well. But the dumb ones are in my business – travel.

 

The first was some time ago – and which I have already chronicled. Spending a fortune to create a ‘group’ name for a clutch of hotels including the famous Claridges in London. Of course, Quinlan should have chosen ‘Claridges’, but it paid someone to come up with ‘Maybourne’. If you have never heard of it, you prove my point.

 

Quinlan recently bought Jurys Inn from Jurys Doyle – which is now separately owned. Why did Quinlan buy JI? After all, Q is in the luxury hotel business; in addition to Maybourne it owns three Four Seasons hotels. Buying Jurys Doyle might have made more sense, but why buy a little budget-hotel operation when that is not your expertise?

 

It even crossed my mind that Q made a mistake – it thought it was buying Jurys Doyle!

 

Well, if it was a conscious business decision, then it was a dumb one. That seems to have been proven now Q calls Jurys Inn a “premium budget” operation. That is dumb and dumber. I guess Q probably wants to say that its hotels are good even if they are cheap. But then Q is in the wrong business. Budget is budget. If you start smartening that up, it ain’t budget.

 

I cannot see where this will end. Probably a sale in about a year?

 

But then why appoint Barbara Cassani as chairman of Jurys Inn? She is a high-cost item because of her profile – running a low-fares-airline, Go, and then being involved in London’s Olympic bid. But…

 

She failed at Go. The airline, launched by British Airways, did not make money, and was bought by Easyjet to take it out of the market. Admittedly, the main fault was with BA not Cassani. BA lost direction; after it launched Go, it decided that it did not want to move into the budget airline business, so it sold. (Bizarrely, BA went on to repeat the error, creating another budget airline – DBA – which it also eventually sold!)

 

After the Go sale, Cassani moved on to the Olympic bid, but was moved, possibly because someone thought that it would not be good to have an American – even if efficient – pushing what is a nationalist bid, to host the Olympics.

 

So does running a failed budget airline qualifies you to run a budget hotel? To me, Quinlan just seems to have got it wrong. Is this a company that has made $1mn profit – because it started with $10mn?

 

My rambles on Millennium, Oasis, and Sofitel will follow later.

 

 

 

The Fox

China. Freeing skies, sort of.

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FOXTROTS  

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning.  Foxtrots – leading the industry in a dance. 

 

2008 April 04

China. Freeing skies, sort of.

China plans to open its domestic skies by 2010. This being China, it is not clear in what way. More to the point, probably nobody knows – even those who will be administering it. That is how it works in China. 

Most observers call the current aviation environment a ‘monopoly’ with Beijing-based Air China, Shanghai-based China Eastern, and Guangzhou-based China Southern. That is either a simplification, or wrong. 

The Civil Aviation Administration of China once operated the air operating divisions in the country. That was a monopoly. It then created ‘airlines’ from those operating divisions – including today’s big three. CAAC still controls (or tries to control) what those three can and cannot do, and so that could be considered a monopoly. But that is the same for the FAA and Department of Transportation in the US. Is there an airline monopoly there? 

In any case, three airlines could form a cartel, but not a monopoly. Yet even a cartel is not the correct definition either because the three (and no other airline in China) do not have control over product (flights and routes) or prices. That is with the CAAC. 

In addition there are many other airlines – most notably Hainan Airlines and Shanghai Airlines – which challenge the big three. 

Most likely the liberalising change will be formalising what is happening by stealth – still a common way of progress in China. That would mean more and new airlines operating on different routes. Such as Hainan-based Hainan Airlines over Beijing-Europe, and even Guangzhou-based China Southern Beijing-Hong Kong. 

CAAC will probably also ease its control of air fares. It will nevertheless attempt to maintain some control, but on past practice that will fail, which should mean an open aviation market in the country – apart from licensing airlines.  

The Fox

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