FOXTROTS

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

Foxtrots – leading the industry in a dance.

 

Double WYSKs – 1 Virgin Australia, 2 WTO and visas

WYSK = What You Should Know.

Virgin Australia businessplan bust

Forgot all those Chinese changes; look at Virgin Australia Group’s (VAG) traffic results. My analysis (always correct after I’ve tried all the others) is that its businessplan (BP) is bust – although many other airlines seem to be in the same position.

 

VAG’s BP, as I see it (VAG might not put it this way), is a FSA* domestically and internationally, via VA. And an NFA* domestically and internationally with VA’s fully-owned Tiger Australia.

 

The problem is that the standard FSA BP is hardly working anywhere. We believe the only way it can work (profitability; government-supported operations are easy) is if the group also has a LCA*.

 

VAG’s local rival, QAG (the Qantas group), has a LCA but is not operating it properly – so the BP does not work for QAG either. QAG’s has a few Jetstar subsidiaries – but some are NFA and LCA. In fact the LCA is on Australia-based international routes. But the airline should have different name and be more clearly a Qantas clone operating at lower costs. It could do worse the reviving the name of its misdirected closed subsidiary, Australian.

 

Back to VAG. In the first-half, VAG seat sales were +4% – but that hides +3% for VA domestic Australia, -7% for VA international, +15% for TA. The TA operation is near 20% of VAG total.

 

Clearly VA international is not working – the latest was the 5th-quarter running when it has fallen. This is what VAG needs to do:

-Convert VA international into a LCA and give it another name. Re-open Virgin Blue? Even if not a great name, it is not bad, and at least has some market value. VB should operate some international routes, but also some domestic Australia also, meaning that higher-cost VA pulls off some routes, or operates on peak 4/5 routes and/or at peak business-flight times.

-VA would become a clear FSA. That is almost the same as what many call a ‘premium’ airline, a term that has lost its original meaning. ‘Premium’ now means just full service – not necessarily business and first class, full meals, champagne, etc.

 

 

The WTO tells us:

-‘…visa facilitation [in the 10 Asean destinations] could create 333,000-654,000 new jobs in…three years…. [Asean can gain]… 6-10mn additional [visitors] from improved visa facilitation.’

 

Our takes on this:

 

-Meaningless because ‘visa facilitation’ means, in effect, ‘making visas available’. And so ‘improved’ VF means, sort of, ‘making visas more easily available’.

 

-Yet the prompt for these WTO comments was Indonesia’s decision to give visa-free access to nationals of 169 countries. ‘Visa-free’ and ‘visa facilitation’ are not the same.

 

-We are not very knowledgeable on employment data, but WTO’s data seems to mean an additional person is needed to handle 15-18 additional visitors. If we presume one visitor stays an average 10 days – each one of those new employees will have nothing to do for half the year. Back to the calculator we think.

 

-We are not quite sure how many WTO says are currently employed in Asean’s travel business – 30mn? Based on that, new employment would be 1-2%.

 

-That 6-10mn visitor figure came from a 2014 report, forecasting the additional ‘by 2016’ – which meant, presumably, thru-2015. Asean counted it had 89mn visitors in 2013.

 

(Our addition of DMO data to us shows 109mn visitors in 2015 – which is knocked down to 93mn if Malaysia and Thailand used the same methodology as Singapore, and up to 115mn if Singapore counted the same way as those other two.)

 

-WTO did not say, but we assume the 6-10mn would be over two years, 2014 and 2015; let’s say 3-5mn each year. That represents around 3-5% of the annual total.

 

 

*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.