New year, new counts

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FOXTROTS

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

Foxtrots – leading the industry in a dance.

 

Two big airline groups in Europe have changed the operational data they publish, starting January. Perhaps surprisingly, the result is an improvement for transparency. A third, Alitalia, remains obscure.

 

Air France and KLM split!

Sorry, I mean split their figures; they are still (an unhappy?) one.

For some time I have complained that the two produced only combined data. Using other data, it appeared that KL was growing faster and that AF was in more trouble that those combined totals indicated.

Today I have only January figures, and given the terrorist attacks in Paris last November, not too much should be read into the counts. For the record, though, seat sales on AF were -0.6% and those on KL +8.2%.

Perhaps more interesting is relative size. KL is 57% the size of AF (including Hop, excluding Transavia). The last year for which I have separated data – 2011 – KL was 49% the size of AF.

 

The Lufthansa group reveals Eurowings.

I am not sure how to interpret Eurowings data. The airline is such a jumble of types (FSA/LCA/NFA [full-service/low-cost/no-frills airline], charter, summer-sun, full-year, etc).

Perhaps a key figure is its (big) size. In seat sales it is 25% the size of Lufthansa, 90% the size of Swiss, and 50% bigger than Austrian!

In ASKs and RPKs it is not so impressive comparatively, but its growth is – +35% and +49%. That is because EW is now operating longhaul as well. I doubt profits will show such growth.

 

Alitalia hides.

Despite being partly state-owned*, Alitalia still publishes no operational data. The latest information on its website is from 2013.

Its secrecy will be supported by 49%-owner Etihad, and the other 51% owners probably also prefer that weak results are not made public. I expect data will start to be published when traffic starts to grow.

*Actually owned by nominally private interests under the CAI umbrella, but all close to the state.

 

The Fox

Remember, I’ll be famous after I’m dead.

Etihad to take over Air Malta? Joining the debate.

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FOXTROTS

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

Foxtrots – leading the industry in a dance.

 

Etihad to take over Air Malta? Joining the debate.

An excerpt from our monthly Travel Business Analyst newsletter.

 

In June 2014, I gave my advice on what state-owned Air Malta needed to do to survive. With speculation that Etihad┼ is about to buy 49%, my comments are relevant again.

 

These are Air Malta’s choices, in no particular order:

 

  1. No change.

 

I am reminded of that well-known phrase in The Leopard – “for things to remain the same, things will have to change”. Slightly different for AM in that most things that affect the airline are changing.

 

AM is a small airline surrounded by NFAs* in the (real) open-skies of the European Union. In this business environment it is hard for AM to make profits as an FSA*; in fact, it is probably not possible.

 

Ryanair, Europe’s biggest airline (of all types), in particular, is entering AM’s only space – Malta. Not only will this continue, but Ryan will open more routes to/from Malta, and be joined by at least Easyjet. And possibly by also Vueling, which is becoming more like a Europe-wide NFA, and not just a Spain-based part of the IAG group (Aer Lingus, British, Iberia).

 

In the past one option would have been for AM to get government support – subsidies. Broadly, this is no longer possible in the EU, although some airlines – such as Alitalia – seem to get around the rules. But Italy is a big country, Malta is not, and so the EU can more easily force Malta to follow the rules. As it did with Cyprus Airways, now shut down.

 

  1. Transform into an LCA*.

 

As the definitions at the end of this report indicate, an LCA can work best (perhaps only) when the airline has an FSA parent. But even if AM can lower its costs, so lower its fares, those fares will still likely be higher than those of NFAs. And travellers – despite what they might say to researchers about wanting ‘comfort’, will buy a no-frills fare to save even $20.

 

So, transform into an NFA? See next.

 

  1. NFA. Another route is for Air Malta to become an NFA, such as Ireland’s Aer Lingus. Not the hybrid way – such as Air Berlin, which operates as FSA, NFA, and charter airline – and interestingly is 29% owned by Etihad.

 

AL has had the toughest task – the same homebase as the strongest NFA in Europe, Ryanair. In profits, AL has not done well (losing US$106mn in 2014, but now part of the IAG Group). In traffic, AL’s 2014 seat sales grew 2% compared with Ryan’s 6%, and in 2015 about +4% compared with Ryan’s +17%.

 

But if AM does try to become a NFA, it will still face competition from at least Ryan on many of its routes (Ryan avoids NFA competition when it can). In which case, AM will lose because Ryan has a more powerful sales machine.

 

  1. Link up with a bigger airline. The disadvantage is that the bigger partner would likely decide many of the operational patterns.

 

If that bigger airline is Etihad, we are not sure 1, what is the advantage for AM, and 2, what advantage will Etihad get for its 49%? There is a presumption that Etihad brings operational efficiency-ergo-profits to its new associates. So far, however, this is not the case. Air Berlin is still losing traffic, India’s Jet Airways is up and down, Australia’s Virgin Australia is finding business tough.

 

Perhaps the closest to AM to follow is Air Seychelles – also based on a small island group and driven by leisure traffic – and owned 40% by Etihad since 2012. AS has been profitable for three years 2012-4 – US$3.2mn +6.7% in 2014. It sold 412k seats in 2014 and about 20% more in 2015.

 

AM cannot feed much traffic into Etihad, because its main market (Malta) is too small. But given the AS example, AM would certainly start a route to Abu Dhabi; AM stopped its own Dubai route in 2001, in September, although the 9/11 attacks in the US were not the reason.

 

  1. Another option is for AM to become something-like a mini-Emirates. Just as Dubai is an inter-regional hub, so then Malta could become an intra-regional hub. This way, it would operate flights Lyon-Cairo, Manchester-Tripoli, Barcelona-Amman, Prague-Marrakech, Madrid-Cyprus. All via Malta on Air Malta. Start slowly and build up.

 

I have some track record on this. During a long-ago conversation with the late Maurice Flanagan, founding CEO of Emirates, I suggested that he should make the airline a one-stop-shop between secondary points in Europe into Asia. I have no idea if that was already the plan for his airline, or whether he more-or-less implemented my idea.

 

 

Etihad calls itself the airline of the UAE. It is not; it is the airline of Abu Dhabi, one (albeit the richest) emirate in the 7-emirate UAE. In the same way, and despite its name, Emirates is not UAE’s airline, but Dubai’s.

 

*Notes:

-FSA = full-service-airline. Offering first/business/economy, travel agency bookings, meals/bookings/baggage/cancellations included, etc. As its name indicates – full service.

-LCA = low-cost-airline. (Not a no-frills-airline; see next.) An FSA but with lower operating costs – cheaper longer-hours flight-deck crew, younger/new longer-hours cabin crew, tighter cost control (twinned 3-star hotel rooms, for instance), fewer fare types, which may have first and business cabins, and which allows bookings through travel agencies etc. If relevant, usually similar to the parent airline, but a different name, and competition against parent airline allowed.

-NFA = no-frills-airline. We believe that among the many essential elements that make a successful NFA are: market freedom in terms of routes and aircraft choice; single aircraft type; where relevant, competition against parent airline allowed; fares that are extremely low when booked at least three months in advance, say US$25; one fare at one time (no wholesale rates, travel agency commissions, etc); no refunds; no service frills; single economy-class cabin; no seat selection; two toilets for 150-seat aircraft; 25-minute turnaround time; cabin crew do daytime cabin cleaning; name and flight change charged at least US$25 each; no trade shows; plenty of consumer advertising and promotion; and much more.

 

 

The Fox

Remember, I’ll be famous after I’m dead.

 

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