EasyJet to shake up market

Courtesy EasyJet

EasyJet “will shake up the market,” said the low-cost carrier’s chief commercial officer Peter Duffy. The airline operating out of London Gatwick has entered into an arrangement with Norwegian Air Shuttle and WestJet to allow booking of connecting flights to Singapore and destinations in North America that include New York, Los Angeles, Orlando and Toronto on its website.

This is another indication of how LCCs are no longer content with just the so-called niche market as they enter into the arena of the big boys. Such connections are usually forged among legacy airlines competing with each other, an advantage compared to stand-alone LCCs confined to point-to-point traffic. So EasyJet’s initiative – said to be the first global airline connections service by a European low fares carrier – is set to change the rules of the game.

Already Norwegian, encouraged by the prospect of an increased number of passengers through the partnership that will help it expand its wings, is talking about the possibility of linking up with Ryanair. EasyJet also said the tripartite arrangement will expand to include more airlines.

The agreement is not completely an LCC club as it includes WestJet, Canada’s second largest airline after Air Canada. This is breaking new ground, challenging the advantage enjoyed by legacy airlines which are supported by subsidiary or joint-venture LCCs, among them Lufthansa/Eurowings, British Airways/Level/Vueling, Qantas/JetStar, and Singapore Airlines/Scoot.

It is interesting how the modus operandi of the LCC keeps evolving, and consumers stand to benefit from the increased competition. For now, EasyJet customers connecting partner flights will have to collect their bags in transit, to be handled via the Gatwick Connects desk in the baggage reclaim area. No reason why this will not improve in time.

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Brexit gloom overstated for airlines

THE day after the Brexit referendum, it looked like all gloom and doom as the pound plummeted and the global stock market reeled. The share price of British low-cost carrier EasyJet went down 22 per cent. For their discernible dependence on the UK market, Ryanair and the International Airlines Group (IAG, which owns British Airways besides Iberia, Vueling and Aer Lingus) also suffered declines above 20 per cent. Even American carriers across the pond with the exception of domestic operators took a hit.

Reduced profits for the second half of the year are all but certain. IAG said it would not be able to match the 2015 level. EasyJet warned that fares may increase. Ryanair said it will cut back investment in the UK and focus instead on growth in the EU.

The immediate concern was that the weak sterling may mean British holidaymakers will now count their pennies before committing to an overseas vacation. UAE Director-general of the General Civil Aviation Authority, Saif Mohammed Al Suwadi, foresaw a decline of travel from the UK to the Gulf region, and this is not good news for Middle East carriers which are also benefitting from onward travel by the Brits to places in Asia and Australia. But consider what a weaker British pound could do for Britain to attract tourists into the UK. It may be more than just rephrasing the equation, and airlines including Singapore Airlines which fly to British destinations could benefit from the fallout.

So far the world’s reaction seems unduly lopsided in its view of the dire impact on the UK. Doomsayers are mistaken if they were waiting to see the UK punished indefinitely. At least for the airline industry, the gloom has been overstated. In fact, IAG believed that the UK vote to leave the EU would not have a long term material impact on its business. So too Ryanair which reassured its customers that it “will continue to offer the lowest fares in Europe and the UK.” British carrier Monarch Airlines said it is not raising fares and “will continue to remain competitive.”

Courtesy easyJet

Courtesy easyJet

It is easy to blame Brexit as the shock of the unexpected outcome takes its toll. Understandably, low-cost carriers such as EasyJet are more concerned about losing access to the single EU market, which has spurred their growth across a wider region. EasyJet for one has seen its profit increase manifold from GPD22.1m in 2000 to GPD548m in 2015, and its passenger load from 5.8m to 68.6m making it the second largest operator in Europe after Ryanair. Today it boasts a load factor above 90 per cent and operates from 24 bases across Europe. It may be one, being British, to lose the most if new regulations limit its operations or make it difficult for it to access its present markets. In truth, EasyJet is already facing what it described as “extremely challenging” conditions in the past two months with demand being affected by severe weather, airport issues and industrial strikes in France which resulted in flight disruptions.

Despite the harsh warning from EU leaders that Britain cannot expect to enjoy EU privileges post-Brexit, it is hard to believe that Open Skies which has come a long, long way globally will suffer a substantive setback. The UK could still negotiate access to the EU single market a la the model used by non-EU members Norway and Iceland if Britain then joins as a member of the European Economic Area (EEA). It must abide by EU rules but cannot participate in the Union’s decision-making.

The UK could also look at other models such as one adopted by Switzerland, which is not a member of the EEA but the European Free Trade Association, gaining access through a number of bilateral agreements though not for all sectors. Or, the post-Brexit negotiations could knock up a deal specific to the UK. Outside those jurisdictions, peculiar to the airline industry is the number of complex cross-border partnership agreements that have blurred regional lines.

Britain is a large market, so it is in the interest of all parties concerned to negotiate a win-win deal. The silver lining in the dark Brexit cloud is how commercial considerations will prevail over political deliberations. Politically driven regulatory restrictions will do neither the UK nor EU members any favour. It is in their interest to continue keeping the channels open for competition.

The resilience of the business in adjusting to change cannot be underestimated. Many people take comfort that the due process for any change may take up to two years. The real comfort is that implicitly, any change is unlikely to be unduly drastic or disruptive.

Easyjet makes hay while the sun goes down on Air France

Courtesy Easyjet

Courtesy Easyjet

Air France caneelled 248 flights midweek when French air traffic controllers went on strike for two days.  Easyjet moves in to fill the gap, offering alternative options and operating “rescue” flights with bigger planes to accommodate affected passengers. More strikes are anticipated to follow.

On previous occasions when legacy airlines such as Air France and Lufthansa workers went on strike, budget carriers such as EasyJet and Ryanair benefited from the fallout. Unfortunately this time for Ryanair, its flights too were affected by the industrial action.

The situation opens a window for Easyjet to not only reap a windfall but also gain loyalty from new switchovers. It is the best advertisement it can splash, being the good guy rallying to come to the aid of stranded passengers, as when an Easyjet spokesman said: “Easyjet recognises that there are a number of passengers across the network who have been affected by these cancellations and still require flights as soon as possible.”

So when the sun goes down on Air France, EasyJet makes hay.

Is budget long haul but a pipe dream?

Courtesy PA

Courtesy PA


Only days after announcing plans to launch transatlantic flights in five years, Ryanair retracted its position, abandoning the plans. In a statement, it said it “has not considered or approved any transatlantic project and does not intend to do so.” This ran contrary to the earlier announced approval by its board to mount budget flights between various European and US cities. Why the sudden turnaround?

The budget long haul challenge continues to entice entrepreneurs who dare go where others fear to tread. We hark back to the days when Sir Freddie Laker pioneered the low-cost model and Laker Airways took to the sky in 1977 flying between London Gatwick and New York’s JFK Airport. It went bankrupt in 1982.

Others have tried and failed. Most notable among them, Oasis Hong Kong Airlines that operated scheduled non-stop services from Hong Kong to both London Gatwick and Vancouver International Airport. Voted “World’s Leading New Airline” at the Annual Travel Awards 2007, Oasis folded its wings a year later, ending a three-year run. It went down the same path as Canada’s Harmony Airways which started services within North America in 2001, then mounted a service to Manchester in UK and announced plans to expand into Asia. It collapsed in 2007, a lesson that might have come too late for Oasis.

AirAsia X, which is an offshoot of Asia’s largest budget carrier AirAsia, commenced services in 2007, flying from Kuala Lumpur in Malaysia to the Gold Coast in Australia. It was a tactical move to build up Australian traffic feed into its subsequent services to London and Paris. Three years seem to be as long as such services could last. In 2012 AirAsia X withdrew its services to both European destinations, along with others including Delhi, Mumbai, Abu Dhabi, Tianjin (China) and Christchurch. It cited high fuel prices and taxes, and a weak market. But AirAsia X is keeping the dream alive with plans to reintroduce services to London and Paris, and adding other new destinations such as Sapporo in Japan. As recent as the end of last year, AirAsia chairman Tony Fernandes announced that “reopening of KL-London is definitely on the card.”

Courtesy Norwegian Air Shuttle

Courtesy Norwegian Air Shuttle

The latest foray into that arena is Oslo-based Norwegian Air Shuttle, which began services in 2013 to the US and Bangkok in Thailand. It has plans to also fly to Hong Kong and India. The airline, which has been profitable before flying long-haul, is reporting losses and blamed it on the costs of expansion and disputes with US regulators and competitors who aren’t too welcoming of its intrusion.

Yet the temptation to prove that the budget long haul formula can work is irresistible to many a visionary, to whom we must give credit for their derring-do. In a price sensitive market, it should work but it seems not for the long haul as the short haul. It is widely accepted that beyond four hours, at most five, passengers have different needs and their demands begin to change inversely to cost. For one thing they are likely to carry more bags and could do with some pampering to break the monotony of the journey. Harmony Airways boasted low-cost with full service, and Oasis Airlines too tweaked the Spartan low-cost model to include some element of that. But running an extremely lean outfit in an unpredictable environment of volatile fuel prices, uncertain travel demand, potential flight delays and cancellations, and unforeseen natural disruptions among other things, is a big challenge.

There are other factors such as aircraft utilization with quick turnrounds, fleet support in the event of delays and cancellations, and competition. Legacy airlines can no longer afford to ignore budget carriers as niche players outside their turf for the short haul, as they spawn offshoots to check the competition. Air France-KLM and Lufthansa introduced Transavia and Germanwings respectively to compete with the likes of Ryanair and easyJet. Australian flag Qantas carrier has its Jetstar brand. Even Singapore Airlines reputed for premium service is adding yet another budget carrier, Scoot, to its fold, the new carrier literally sharing the same arena with older sibling Tigerair although it is pitched as a medium-range operator. So if the competition heats up, you bet the big boys will flex their muscles.

It is so tempting for an airline such as Ryanair as it succeeds and grows to look for new opportunities. That it did not work for others in the past does not necessarily dictate the formula cannot work for Ryanair, which has succeeded in the short haul where many others too had failed. Others such as AirAsia and Norwegian Shuttle which have gone ahead are still testing the ground. Apparently Ryanair is treading carefully as it has been seven years since it first expressed the desire to cross the big pond in 2008. In the earlier announcement before it changed its mind, it said, quite rightly so, it would be “dependent on attaining viable long-haul aircraft”. Consider how when the oil price soars, budget carriers are the hardest hit. It will take another four to five years in Ryanair’s estimate for such an aircraft to emerge. The airline’s spokesman revealed that it was talking to plane manufacturers. So, again, the question: why the turnabout?

Is the answer close to what easyJet chief Carolyn McColl said about sticking to what it does best? Ms McColl reportedly told the BBC: “We have no intention to do long haul because we think it’s a different kind of business.” It would be too high a risk to change its short-haul strategy. But Ryanair chief Michael O’Leary is known for suggesting game-changing ideas, as revolutionary as “standing room only” flights and charging for the use of the aircraft loo, and for setting trends in the industry such as charging for printing a boarding pass at the airport, so we wait to be surprised.

Interestingly, a new “ultra low cost” concept is rearing its head. While an airline such as Qatar Airways is demonstrating that there is almost no limit to dressing up a premium product with its latest offering of a private cabin furnished like a hotel suite, a new airline in Canada, Jetlines, has big plans to offer rock-bottom airfares said to be below 40 per cent what rivals Air Canada and WestJet are charging. Jetlines chief David Solloway said the airline is ready to take to the sky. He cited Ryanair, easyJet and Allegiant Air as models. “The model of buying a seat and a seatbelt and only paying for goods and services each passenger may choose individually,” he said, “is known all over the world and is the fastest growing segment in the airline industry.”

Apparently some five million Canadians cross borders to board flights out of neighbouring US airports because of ultra low fares offered by US airlines such as Allegiant Air. Mr Solloway hopes to stem the outflow by offering not only very low fares but also the convenience of flying from the home base. The question is: How low can you go? So much for nomenclature. The only thing certain about Mr Solloway’s proposal is that Jetlines will be much cheaper than other Canadian carriers. He probably already knows that the leaner the model, the stricter is the demand on discipline and efficiency. And the best bet for survival is flying into secondary airports rather than the main hubs, though this is somewhat tricky considering customer preferences. You fly where customers want to go. Apparently Mr Solloway has done his homework. He said: “If you’re asking the question whether Canada could have a third airline, the answer is no. But if you ask whether Canada can support an ultra low-cost, low fare airline, the answer is overwhelmingly yes.”

While US carriers are trying to stop the thrust of Norwegian Air Shuttle, the same question may be asked of the budget long haul: Is there a market, if not ready but potential, for the business? There has to be something out there for the many enterprising founders since Freddie Laker to wager their millions. Yet as they came and went all too soon, something seemed to be missing in the formula. Or is the budget long haul but a pipe dream?

This article was first published in Aspire Aviation.

A conscionable call as oil price plummets: Will airlines reduce airfares?

AS the oil price plummets – some 55 per cent since June last year – the question topmost in the mind of the consumer must be: Will airlines reduce airfares?

Many of them have chosen to be silent on the subject, the excuse being that the historical volatility of the market is such that the trend can turn any time. But it has taken a while, and long enough for some conviction from the airlines, now that analysts are convinced that the cost of fuel is likely to stay low for at least another year.

Travellers on American carriers can stop wishing to share in the bounty, even as US carriers are reporting hefty savings as a consequence. Southwest Airlines estimated it would save US$1.7 billion on fuel in the current year, and Delta Air Lines more than US$2.0 billion. Other airlines that include Untied Airlines and Alaska Airlines are forecasting similar cost reductions. But, say the airlines, fare reduction is not on the card. Instead, shareholders will reap the benefits while the airlines themselves see this as a well deserved windfall and respite to recoup past losses and pare down debts.

Courtesy Getty Images

Courtesy Getty Images

United Airlines spokesperson Megan McCarthy delivered the cold reality of the business when she said: “It has been our position all along that fares are not cost-driven. They are demand-driven.”

That, we all know, is the simple economics of the law of supply and demand. So consumers have themselves to blame. Airlines are enjoying near-full loads that there is no incentive for them to want to lower the fare. In Europe, even budget carriers such as easyJet and Ryanair are looking forward to even higher profits from not only savings on fuel costs but also higher fares. So McCarthy was darn right there. But airlines too have learnt to make the formula work better for them, ceteris paribus, as they reduce capacity particularly in the US with merged operations to hold up demand and maintain airfares.

The consumer’s best hope lies in competition as how it should work in the liberal world, but with consolidation which has seen the merger of big entities in the US, raising questions about the assumed competition itself. Today four airline companies control more than 80 per cent of the US market. Little wonder how US carriers have collectively signalled that airfares will not fall in response to the falling fuel cost.

Where competition does not work, the consumer can hope that some conscionable authority will be able to address the fair fare issue. On that second score, you might fault McCarthy for turning a blind eye, but United, like any other, would contend with some validity that it cannot be both operator and watchdog. Company with conscience is a preacher’s prerogative, more idealistic than operative.

Still, the likes of United may be reminded that back in the days not too long ago when the fuel price reached giddy heights, airlines were raising fuel surcharges as many as four times within a year. Strange as it sounds, they have always maintained that the surcharge is not part of the fare, but not as far as the consumer is concerned. Even so, the corollary must apply as the fuel price dips. No lesser a person than Toby Tyler, director general of the International Air Transport Association (Iata), has said that airline fuel surcharges should begin falling as the drop in oil price works its way through the aviation fuel system. Tyler said: “In many cases, airlines operates now with a basic fare and a fuel surcharge of some kind and the fuel surcharge in many airlines is directly linked to the price they’re paying for fuel.”

Courtesy Airbus

Courtesy Airbus

But it looks like it is not happening quite as quickly as Mr Tyler was convinced that it would when he said in October last year: “You’ll see the fuel surcharge very quickly come down.” Still, better late than never. Better somewhere else if not in the United States. Japan Airlines (JAL) announced lower fuel surcharges for international flights from February 1, recognizing the genesis of introducing such levies back in February 2005 in response to rises in the cost of fuel. Now that is one conscionable airline. JAL said it would revise the surcharge, whether upward or downward, if the fuel price fluctuates further. Fair enough. American and other carriers waiting on the sideline, take note.

Qatar Airlines has also announced it will reduce the fuel surcharge although it has not committed to a date for implementation.

Courtesy flyertalk

Courtesy flyertalk

Australian airlines are among the first to drop airfares in response to the falling oil price. Two forces are at work: competition and the authority. Nowhere else in the world is there more bitter rivalry than that between the two Australian carriers of Qantas and Virgin Australia. Virgin took the lead, and Qantas followed suit. Virgin said it would not get rid of the fuel surcharge altogether, but incorporate it into the fares; however it is packaged, the bottom line should see a reduction. Virgin said the “reductions reflect the benefits of the decline in global oil prices” following monitoring over recent months and “in anticipation that fuel costs will continue to remain at lower levels than the record highs seen in recent years.”

At the same time, the Australian government is putting pressure on the airlines to respond to the drop in fuel costs. Rod Sims, chairman of the Australian Competition and Consumer Commission (ACCC) said: “It is not against the law to introduce a surcharge – what is against the law is to mislead customers.” The ACCC announced it was investigating the matter. In a statement that it released, it said: “The ACCC has confirmed that it is considering whether representations made by airlines imposing fuel surcharges, following the fall in wholesale aviation fuel prices, are misleading. Under the Competition and Consumer Act 2010 businesses must not make misleading, deceptive or false representations about the price of goods or services. This includes when making representations about the reasons for rising fuel costs.”

In this connection, Qantas said: “The bottom line for consumers is that Qantas fares already in the market are some of the cheapest in years. Fuel surcharges are already included in the advertised price and those fares remain extremely competitive.”

The issue is not about the fares already being the cheapest in the market but rather whether they should be even cheaper as a result of lower fuel costs that have saved the airlines millions to billions of dollars.

Meantime the British government is studying the need for intervention. British Airways circumvents the issue with no clear commitment, saying it has launched several sale initiatives. Virgin Atlantic said it has reduced the fuel surcharge before last Christmas and will “continue to monitor the situation and fuel surcharges under review to make them as affordable as possible.”

Courtesy Delta Airlines

Courtesy Delta Airlines

It is a world of ironies. The consumer may as well confront the hard truths about the market. The door does not always swing both ways. As the global economy improves, the demand for seats picks up. And when demand exceeds supply, the game belongs to the airlines so much so that Delta CEO Richard Anderson has suggested to passengers who are looking at reduced fares to “shop around”. He said: “The marketplace is incredibly competitive, and there are always differences in fares.” The consumer can only hope that competition is well and alive without the need for state intervention. If Anderson had come across as being somewhat arrogant, he probably knew he could afford it. But heed his advice anyway.

This article was first published in Aspire Aviation.

easyJet soars

Courtesy easyJet

Courtesy easyJet


It is a dream come true for easyJet, which in October revised its full year pre-tax profit upwards to between £575m (US$899m) and £580m, previously expected to be between £545m and £570m. (See easyJet rides on Air France’s troubles, Oct 8, 2014)  The budget carrier announced profits of £581m for the year ending September 30, an increase of 21.5 per cent from last year’s £478m.

The good results arose from:

  1. Acquisition of additional slots at Gatwick Airport from rival airline Flybe;
  1. A 7-per-cent increase in traffic to 64.8m passengers carried, filling up 91 per cent of seats available’ and
  1. Cheaper fuel.

Going forward, easyJet expects positive results particularly in light of fuel prices continuing to dip. (See Falling fuel prices do not necessarily lead to lower airfare, Nov 13, 2014) the airline has not ruled out likely fare increases.

The success of the likes of easyJet and Ryanair reflects the competition that budget carriers pose to legacy airlines. (See Ryanair attributes success to its business model, 6 Nov 2014) Air France and Lufthansa, for example, are trying to give more punch to their version of low-cost travel via Transavia and Germanwings respectively. (See Budget phobia grips European airlines, Oct 22, 2014) Why should the experienced full-service airlines be concerned?

easyJet chief executive Carolyn McCall told the BBC: “When people sample us, when they try for the first time, they tend not to go back to legacy airlines.”

The lure of low fares is a starting point, and when budget carriers begin to focus a little more on service and what travellers genuinely want, therein lies the threat for the traditional airlines. Ryanair for one has said it was changing its image to be a more caring airline. (See A humbler and more caring Ryanair, May 22, 2014) For the short haul, budget carriers have finally shown that they can crack the legacy airlines’ dominance. They may not be able to afford the full complements of the big boys, but what they are offering is a value proposition, the strategy of balancing what travellers would pay or forgo for what they offer.

Easyjet rides on Air France’s troubles

Courtesy AFP

Courtesy AFP


AIR FRANCE should feel chastened by Easyjet’s jubilant admission that the strike by French pilots had brought it a windfall. The industrial action has boosted the budget carrier’s revenue by about £5m (US$5.35m), raising hope of the financial year ending September 30 achieving better pre-tax profit of between £575m and £580m, previously expected to be between £545m and £570m. This will be Easyjet’s fourth consecutive year of record profits.

The Air France/SNPL (Syndicat National des Pilotes de Ligne) dispute may be said to be fulfilling a prophecy that the French flag carrier feared. The issue at heart was Air France’s plan to expand budget subsidiary Transavia’s network across Europe with regional hubs established at airports outside France, and this raised its pilots’ concern about transfers to Transavia and being paid lower wages and hired on less favourable terms as regulated by the country where they are based.

For Air France, growing Transavia a strategy to better compete with the likes of Easyjet and Ryanair, which together with the growing number of low-cost operators, have taken a big chunk of the business away from legacy carriers. Inevitably it must weigh in the factor of cost, a sizeable part of it is wage-related. Perhaps there is a strong reason here why independent full-fledged budget carriers such as Easyjet and Ryanair tend to fare better than upstarts spawned by established full-service airlines.

Lufthansa faces the same problem, when its pilots went on strike in protest against the airline’s cost-cutting plan to introduce new low-cost units to improve its competitive edge. This led to a dispute over retirement benefits for pilots, resulting in strikes in August and September that affected operations at Frankfurt and Munich, disrupting flights to major destinations such as New York, Washington D.C., Boston, Chicago, Los Angeles, Dallas and Atlanta in the United States, and to gateway airports in Asia including Singapore and Tokyo.

Needless to say, the single most critical focus of any budget carrier is cost even as it means a necessary sacrifice of service, the lack of which may somewhat be compensated by the customer’s pre-flight low expectations. Most of the other factors may be said to be universal applications to all airlines, though in varying degrees how they impact on the bottom-line. A cheaper fuel bill will go a long way to boost the carrier’s viability, compared to how on the other hand the higher cost of fuel is more likely to bear a heavier toll on a budget carrier than a legacy airline. Easyjet said it expected its fuel bill for the next financial year to decrease by about £50m, and that is a huge plus.

One may argue that Easyjet’s windfall from the Air France strikes might be a fortuitous once-off event, with more passengers switching to Easyjet in light of the disruption. The question remains as to whether the switch will continue to trend even after complete normalcy returns to Air France. It is more than just a foot in the door for the competitor but a clear signal to the likes of Air France as to where the competition is heading in Europe.

Easyjet CEO Carolyn McCall has added a new spin to what the low-cost model means in a recent interview with BBT (Buying Business Travel, Jun 18, 2014): “It means we have new engines, high fuel efficiency. Our plane utilisation, turn-time and load factors are very high. We use our assets really well. We use our assets really well. We don’t have fancy offices, we have a hanger – open plan offices, and we share space with plane maintenance. It’s very important to us, we’’ never lose sight of it – without that low-cost model, we wouldn’t be able to do the low fares.”

Even if Air France finds that a little stretched, it must recognize the close call, especially when  budget carriers begin paying more if only some attention to customer service, albeit their own differentiated brand. Even Ryanair chief Michael  O’Leary said his airline, noted for its bad service, needed to stop “unnecessarily pissing people off.”

In the end it is all about efficiency as defined by the cost-benefit relationship. Easyjet attributed its success to increased efficiency, which made up for increases in airport charges and other related operating costs. Forward  booking for the next six months has improved, with more than 25 per cent of capacity sold. The plane is achieving a 90-per-cent load. But the industry is far from being stabilized, with new concerns over political unrest in Eastern Europe, the Middle East and Africa, and the Ebola scare.

In summary, Ms McCall said: “We have to understand the economics.” But, of course, with one caveat that neither Air France nor Easyjet can refute: It is the customer that decides, full-service or low-cost. In a way, Easyjet seems to understand what its customers want. One asks, Does Air France, noting how the aviation landscape has changed? If expanding Transavia’s operations is a positive move, has Air France the gumption = and right formula – to press on and succeed?

This article was first published in Aspire Aviation.