2018 Skytrax airline awards: Largely the same winners

Top airlines remain largely the same ones as last year’s.

Yet again we note how the top ten airlines remained largely the same ones as last year’s. If you’re good, you’re good, so it seems, and consistency won the day.

Singapore Airlines (SIA) which was second last year switched places with last year’s winner Qatar Airways. All Nippon Airways (ANA) and Emirates Airlines held steady in 3rd and 4th position. Cathay Pacific moved down one rung to 6th,, exchanging places with EVA Air. Lufthansa held its 7th position. Garuda Indonesian followed Hainan Airlines up one notch to 8th and 9th position respectively. The only new entrant to the list was Thai Airways International, which actually only moved up one rung from 11th last year, edging out Etihad Airways as it fell from 8th to 15th position.

So much for the excitement as the winning airlines, going by the result of the survey, continued to please their customers who found no reason to think otherwise of them.

Unlike some high-brow surveys whose results lean heavily on the premium class, Skytrax does readings across all classes.

Best for First Class was SIA followed by Etihad and Air France. This used to be the realm of Asian and Middle-East carriers, and let it not be a surprise to see two European carriers in the ranking. Lufthansa took 4th place.

Best for Business Class was Qatar followed by SIA and ANA. You would imagine that if an airline is good in First, it should not be too far off in Business. However, Air France was not placed in the top ten list and Lufthansa ranked 8th.

Best for Premium Economy was Air New Zealand followed by Qantas and SIA. It looks like the Pacific airlines are pretty good with this product. Lufthansa and Air France ranked 4th and 5th.. There was an absence of Middle-east carriers because they didn’t believe in such a class. Qatar chief CEO Akbar Al Baker had said: “We won’t roll out premium economy… I don’t think there is room for premium economy in our region, and of course in Qatar Airways. We give you a premium economy seat with an economy class price.” Sounds familiar if you recall the early days when SIA too expressed the same skepticism. However, Emirates has said its new Airbus A380 expected to be delivered in 2020 will feature premium economy.

Courtesy Star Alliance

Best for Economy Class was Thai Airways followed by SIA and Qatar. This category was dominated by Asian carriers with the exception of Lufthansa in 9th position.

Only these six airlines were placed in all three categories of First, Business and Economy (excluding premium Economy since not all airlines offer this sub-class): ANA, Cathay, Emirates, Lufthansa, Qatar and SIA. You can then rest comforted that whatever class you travel with these airlines, you will be treated without discrimination.

But is the Skytrax survey a good guide in choosing which carrier to fly with? Generally people can agree on makes a good airline. What matters when you travel with an airline? For the long haul, seat comfort is an important feature. Inflight entertainment, if you look for some distraction and are not otherwise doing something else or trying to catch up on shuteye. A good meal, if you are not one who will not eat airline food no matter what (unfortunately this is not featured in the Skytrax survey). Cabin cleanliness, of course, and that includes the condition of the washrooms. How often do you see the crew give it a clean-up and spraying some kind of deodorant to try and make it as pleasant as it possibly can be? Above all, the service provided by the cabin crew, to be treated in a friendly manner and with respect. Not forgetting service on the ground in the event that you may need assistance, as when your bag is damaged or has not arrived with you.

Perhaps the ranking for some of these more specific services may be of some help:

Best Economy seat (First and Business should be way better anyway): 1st Japan Airlines, 2nd SIA and 3rd Thai Airways.

Best cabin crew: 1st Garuda, 2nd SIA and 3rd ANA.

Best inflight entertainment: 1st Emirates, 2nd SIA and 3rd Qatar.

Cleanest cabin: 1st ANA, 2nd EVA and 3rd Asiana Airlines.

Best airport service: 1st EVA, 2nd ANA and 3rd Cathay.

But, of course, you can’t expect a single airline to be best in all categories, but you get a pretty good idea of where they all stand, perhaps with exceptions.

What some airlines say about themselves

United Airlines used to “fly the friendly skies”, which have proven to be far from being so for competing airlines as more of them spread their wings. The sky may not be the limit after all. In 2010, United merged with Continental Airlines which has promised its customers: “We really move our tail for you.” Well, it’d better be, as no airline can afford to sit idle on the tarmac. The partnership realized a dream of United to “fly united”, professed through the depiction of two mating geese in the air.

BA to fly to serve
British Airways (BA) prides itself as “the world’s favourite airline”. But is it really, even when no one bothers to challenge the claim? Little wonder that Iberia Airlines, which has merged with BA, claims it is “one of the world’s best airlines”. There is no jostling with the dominant partner. The UK carrier says it swears by four words which have “always been at the heart of everything we do”: To Fly. To Serve. Isn’t that what is expected, you may ask. Trust the Brits to go nano on the language they own and to assume that foreigners do not quite understand the finer or deeper meaning of words as simple as “fly” and ”serve”. BA explains: “It’s what we do. It’s who we are.” Apparently those four words were painted on the tailfins of early aircraft and the pilots still wear them in the lining of their jackets and on the peaks of their hats. Do they even need to be reminded of their jobs? BA has said that will never change. It is after all British tradition.

It is distant cousin Qantas that puts it better: “You’re the reason we fly”. It goes on to say: “While you might fly for many different reasons, we fly for one. You’re the reason we fly.” The attention shifts from the flyer of the airplane to the rider in the plane, and from the server to the person who is being served. Qantas clearly demonstrates a better understanding of marketing principles.

But Cathay Pacific Airways decided it might rephrase BA’s pride in reaching out to its customers when it rolled out a series of ads in 2011 under the banner: “People. They make an airline.” The campaign intended to showcase a team that would go the extra mile to assist someone, who, by implication, could be a customer. But when a scandal involving flying crew on board an aircraft began circulating on the internet, it had to curb its enthusiasm in extolling its staff.

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Does the crew make it a great way to fly? Yes, very much so. Yet no one makes a better case of the ambiguity than Singapore Airlines (SIA) whose tagline – “Singapore Girl, You’re a great way to fly” – has become a self-fulfilling prophecy of sorts. The sarong-clad stewardess has become synonymous with the airline and everything that it represents; its name might well be Singapore Girl. Feminist activists have derided it as being sexist, but it has done the airline wonders. However, the Singapore flag carrier’s latest ad campaign, which draws on the theme of “the lengths we go to” to demonstrate its commitment to the customer, pales by comparison to the early poetic catch phrases such as “You’re as young as you feel” and “It’s the journey, not the destination”. While SIA insists that the Singapore Girl remains the protagonist in its latest ads, sometimes you wonder if you need to go to that length to drive home the point. When the Singapore Girl smiles, enough is said.

Lufthansa tries to go one-up. It says, “There’s no better way to fly.” But don’t we want to know why, if not how? But listen to American Airlines: “We know why you fly. We’re American Airlines.” That sounds a bit too arrogant, doesn’t it? In the same vein, the Northwest Airlines tagline: “Northwest Airlines. Some people just know how to fly.” Maybe it is an American thing; modesty has no place on the world stage. Yet Delta Air Lines simply promises: “Delta gets you there.” We certainly hope so, as says Air New Zealand: “Being there is everything.” Southwest Airlines wants to be known as “a symbol of freedom”, whatever that means – another American thing?

By comparison, European airlines are more down to earth. Austrian Airlines is “the most friendly (sic) airline” and Virgin Atlantic “no ordinary airline.” Or, they are simply factual. Alitalia is “the wings of Italy” the way that EVA Air in Asia is “the wings of Taiwan” but not quite what Cathay Pacific claims to be “the heart of Asia.” Cut the French some slack about “making the sky the best place on Earth.” They have the airs. But when Swiss becomes “the most refreshing airline in the world”, it suggests a toothpaste-like struggle to impress anew. Sadly, speaking the truth may be detrimental to one’s fate, as when British Caledonian Airlines confessed before it was bought by BA: “We never forget you have a choice.”

Many of the airlines pay big bucks to have those words coined and put into their mouths. Yet does it matter what airlines say or how they say it when the test of the pudding is in the eating? Think it this way – it dresses the pudding to make it look more palatable. In advertising, it is referred to as “recall”. What happens after is reinforcement or disappointment. That is why SIA has for a long time become a great way to fly and BA, whether proven or not, the world’s favourite airline, but Austrian Airlines is forgettable as one of the world’s best airlines, an epithet that is universally applicable to one and many in fluid time. You do wonder though whether for some airlines, considering the cost of their words, what has been said may best be left unsaid.

Air Canada introduces premium economy: Is the trend finally catching on?

air caqnada

Photo courtesy Air Canada

IS the premium economy trend slowly catching on? Air Canada becomes the latest airline to announce its introduction as “a new class of travel”, starting with the Montreal-Paris non-stop in July 2013. New, perhaps for the Canadian carrier, but not quite globally.

EVA Air of Taiwan was one of the first carriers to introduce the premium economy, when it launched its operations in 1991. There was a limited number of seats, that boasted more legroom. Since then, a number of airlines have dabbled with the idea and more of them started to introduce an expanded “middle” class particularly when it became clear that the global financial ciriss has taken a toll on business (and first) class travel.

The concept has taken on an international dimension, with many major airlines pushing the trend. They include British Airways, Virgin Atlantic, Air France, United Airlines, American Airlines, Delta Airlines, Cathay Pacific Airways, Japan Airlines, All Nippon Airways, Qantas and Air New Zealand.

There are noticable exceptions. Singapore Airlines introduced the class on non-stop flights between Singapore and Los Angeles but did away with it when it upgraded the flights to an all-business class configuration. Since then the airline has insisted that it has no plans to revisit the concept anywhere in its network. Some analysts think it may be a mistake for SIA to not go with the flow as it banks upon recovery of the business class traffic.

Noticeably too, one may wonder why there is no premium economy on Emirates Airlines which may have prided itself as providing an economy class that is as good as any other airline’s premium economy. In the same way, one may ask: Do you fly legacy economy or budget business class?

Indeed, what makes the premium economy any better than the normal economy? The early model was not that much visibly different, and that probably explained why it was slow in catching on.

Air Canada offers:

  • priority check-in with personalized service. It is not clear what “personalized service” entails, but priority check-in can assuage the nerves if the line for the normal economy means an inordinately long wait.
  • priority boarding. It means getting to your seat before others and assessing the overhead compartment for your hand luggage before space runs out.
  • priority baggage handling, which entails up to two free pieces of checked baggage and amonmg-the-first placement on the arrival belt. While Air Canada restricts free carriage to only one piece for economy, many other airlines such as Cathay, SIA and Emirates still allow up to two pieces (or equivalent). First on the arrival belt? There is no guranatee; much depends on what happens at the airport where you arrive. Reputable Asian airports such as Hong Kong and even Beijing are known for speedy delivery of arriving baggage even for economy, whereas many airports in the west have questionable standards even for priority-tagged baggage.
  • wider cabin seat with more recline and legroom. This has been the main selling point for premium economy, offering more comfort for the long-haul. Increasingly, airlines are competing on the comfort factor even for economy.
  • a larger screen for in-flight entertainment. This is a good-to-have but not critical feature, especially when you may prefer to squeeze in some hours of sleep and good only if the airline offers a wide range of programs.
  • power outlet at the seat for electronic gadgets. Many travellers are already powering their gadgets with portable battery.
  • premium meal service served on china dishware with complimentary wine and spirits. Does it really matter the kind of dishware? If you do not know, you get complimentary wine with meals in economy on Air Canada, perhaps not the premium brand.
  • hot towel service. No big deal. SIA hands out hot towels in economy as well.
  • a larger pillow. Some people do not need pillows. You can get two in economy if you are resourceful enough.
  • a handy amenity kit. Some airlines such as Qantas and Cathay boast brand-name amenity kits for their premium economy passengers. You will find even business class passengers leaving behind the kits on disembarkation.
  • earn higher mileage. This may be the best deal, depending on how generous is the specific airline’s frequent flyer program.

For the premium economy to sell, downgraders from business and upgraders from economy must be adequately tempted with visible advantages to make the trade-off vis-à-vis the cost, whether it is saving on the otherwise higher fare or paying the difference additionally. As the name suggests, premium economy is more an economy than a business class product. Thisa could be the reason why airlines such as SIA and Emirates probably prefer to market a superior economy and at the same time not be detracted from the truly premium product of the upper classes.

 But it may all be a case of nomenclature. The early days of the business class was really an upgrade of the economy status. Swissair (the predecessor of Swiss International) swore it would not bow to the fad, believing there was no room for a three-class configuration. But it did in the end. In the same way, today’s premium economy looks set to take on an exclusivity of its own, though it is unlikely to evovle to the same degree as the business class which, for some airlines, has in fact replaced the first class product. Quite on the contrary, carriers that susbcribe to the concept may be compelled to do even more for their business class to maintain an enviable difference.

Air Canada and WestJet shake up Canadian skies

THE usual lack of excitement in the Canadian aviation scene is about to change.

Air Canada launches budget carrier Rouge

Courtesy Air Canada

Courtesy Air Canada

Air Canada’s new low-cost carrier Rouge will take to the skies in July next year. It will start with two Boeing 767s and two Airbus A319s, flying initially from Toronto and Montreal to leisure destinations in Europe and the Caribbean, with plans to expand the fleet to 50 aircraft eventually and to also fly to destinations in Asia.

In a way, Air Canada is re-attempting to do what it failed to achieve with previous budget projects Tango and Zip. The appointment of former chief executive of Thomas Cook North America Michael Friisdahl with expertise in the leisure industry to head the new carrier may be a plus.

Cost is obviously the key driver of the strategy, and Air Canada expects cost savings to be derived 50/50 from lower wages and staff benefits and from the high-density aircraft configuration. Having an independent budget offshoot makes it easier to start with a lower base of staff costs and focus on the price-sensitive niche leisure market. There will be 20 per cent more seats on Rouge than the normal configuration.

For some time now, Air Canada has been struggling with costs and red ink. It faces stiff competition from key rival WestJet and other leisure operators such as Transat A.T. and Sunwing that offer much lower fares. Increasingly, airlines are ditching a one-size-fits-all modus operandi for a separate and more focused niche market strategy.

WestJet launches regional carrier WestJet Encore

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

WestJet for one is launching a new regional carrier WestJet Encore in the second half next year. The new carrier will offer fares up to 50 per cent lower than normal for short hauls, in direct competition with Air Canada Express. WestJet CEO Gregg Saresky does not anticipate a price war, as he prefers to call it a process of “rational pricing”. It is ironical that short haul flights should cost as much as they are now. Mr Gregg told analysts at a recent briefing: “If you’ve ever tried to buy tickets for a short-haul journey in Canada, you’ve had to open your wallet and dig deep. Short-haul fares in Canada are very, very high.”

Apparently Air Canada president Calin Rovinescu had anticipated WestJet’s regional initiative. A price war it is that has begun and is expected to intensify. Both airlines are looking to expand their network to cover outlying business communities, for example, in the oil exploration region.

WestJet Saresky hoped that by lowering fares, travellers would fly more often and there would be new customers. He said: “When we lower the fares, it’s not carrying the same people at lower fares. It’s lowering the fares so that we can make the market expand.”

WestJet reported a stellar Q3 performance with profit increasing 80 per cent to C$70.6m (US$71.2m). Higher load factors more than made up for the rise in fuel prices. According to Mr Saresky, fuel makes up a third of WestJet’s operating expenses.

Air Canada WestJet plan premium economy

The premium economy concept has been somewhat of an uncertain development in the industry. Not many airlines are quick to embrace it, and Canadian carrers may be said to be latecomers in the game. But really the increased segmentation within the legacy configuration is a reflection of the uncertain demand for premium seats. Is the premium economy an enticement for upgrading, or a safety net to catch any fallout from the upper class – whether intra or inter-airline? At worst, it may be deemed hedging in an uncertain market; at best, a competitive edge in offering options and alternatives amidst the uncertainty.

Air Canada plans to introduce the new in-between class on its new Boeing 777s next year and on its 787 Dreamliners which are expected to join its fleet in 2014.Its Asian competitors such as Cathay Pacific Airways and EVA Air are already in the game. WestJet also has plans to introduce its version of the premium economy next year. Both Canadian airlines are eyeing the growing Canadian business travel market.

Travellers should benefit from an active competition between Air Canada and WestJet, but do not expect drastic differences. The two airlines are apt to stay close to each other’s range. The real competition will play out beyond Canadian borders when Air Canada commences Rouge operations. Budget long haul is not a tested concept although one-hop sun destinations are likely to prove popular. The good news is that analysts are optimistic about Rouge turning in a profit even in its first year. But will this be at the expense of the parent airline’s performance?

Singapore Airlines needs “recharge” to stay ahead

 Picture courtesy Singapore Airlines

SINGAPORE AIRLINES (SIA) used to boast a service that other airlines talked about. The airline is still very much venerated, though the competition has robbed it of some of its glitter.    

According to the latest Skytrax survey of 18.8 million passengers, SIA was ranked third in the world’s best airline category – after Qatar Airways that won for the second consecutive year, and Asiana Airlines. It is interesting how in the past three years, the three airlines have dominated the top three ranks with SIA slipping to third this year.

Dubai-based Qatar Airways wins on seats, especially the flat bed in business class, in-flight entertainment, good food, and warm, caring service. It appears to have usurped SIA’s position as the world’s best premium class operator – winning top accolades for its first class airline lounges, business class onboard catering and business class airline seat. SIA retains its top ranking for economy class.

Has the Singapore Girl shifted gears downward, pressured by the sluggish world economy and increased competition from low-cost carriers? Even then, it was pipped at the finishing line by Asiana as the best overall in Asia and for best economy class airline seat, by All Nippon Airways as the best overall across the Transpacific, and by Thai Airways International for best airport services. It was also absent in the top three ranks for the category “best airline staff in Asia”, which was won by EVA Air, Asiana and Malaysia Airlines in descending order.

Indeed, why is an airline like Asiana better than SIA? The same that has been said of Asiana (and for that matter, Qatar Airways) – good food, wide selection of in-flight entertainment, professional crew – could be said of SIA, although there are visible differences in other aspects such as seat legroom and comfort. Asiana has a seat pitch of 34 inches compared to SIA’s 32 inches.

Being a clear leader in the field for so many years in the past, SIA may be suffering an image problem, and that has largely to do with customer’s expectations. While it is true that the competition gap has narrowed, the unfortunate perception is that SIA’s erstwhile excellent service has deteriorated. A common comment is that SIA is no longer what it was. For example, the quality of meals is not as good, and its crew has become curt and less attentive – the change often seen as a result of cost-cutting measures at the expense of customer service and care.

The perception is not helped by comparisons with other airlines. Both SIA and Asiana crews are said to be professional, but the former robotic and lacking warmth while the latter more cheerful, engaging and treating every passenger with respect Because of the high expectations, customers are less forgiving of SIA for perceived service lapses, as when the choice of meals runs out or where there is a lack of reading material on board. Dissatisfied customers cite value for money for their displeasure, since apparently they pay a premium to travel SIA when they could travel for less on other airlines.

To be fair, there are still many good things said about SIA, such as clean cabins, a generous drink menu and constant topping up, free toiletry items that are not offered on other airlines, good punctuality record and quick transfer assistance. Many of its customers still maintain it is a good way to fly – maybe not as great – but would qualify their testimony with a “but”: the cabin is clean but looks old and tired; still a good airline, but others are catching up or doing better; food and service are acceptable but not outstanding; overall still good but over the years the standard has fallen; will continue to fly SIA but it must improve.

It would appear SIA largely still meets its customers’ expectations. But more of the same is obviously not good enough to stave off the competition when new, emerging winners are exceeding their customers’ expectations. What SIA needs are new initiatives that will generate excitement, bring back the romance of travel and leapfrog it back into the forefront.

In the same way that Changi Airport is constantly re-making itself, SIA too needs a “recharge”. There is after all a dependency relationship between airport and airline, as it is not unusual that winning airports go hand-in-hand with winning airlines, if you consider the case of Changi Airport and SIA, Seoul’s Incheon International Airport and Asiana, and Hong Kong International Air port and Cathay Pacific Airways. They make similar demands of each other to excel, driven by a common national or provincial service culture.

Loyal fans of SIA are sending the airline a timely message: do not be just another airline. As one American traveller remarked, he did not want to have the feeling that he was flying on another American airline.

Air Canada goes budget

AS the popular folk ballad ‘Blowing in the Wind’ goes, “When will they ever learn?” In announcing plans to consider launching a long-haul budget carrier, has Air Canada not learnt from the failure of Hong Kong-based Oasis Airlines, which commenced operations first between Hong Kong and London in 2006 and then between Hong Kong and Vancouver in 2007 only to fold up its wings in 2008?

So also is it said that fools rush in where angels fear to tread, but can Air Canada do it any differently in order to succeed where other hopefuls had so quickly failed?

Besides Oasis Airlines, Air Canada could have also considered very carefully the case of defunct fellow carrier Harmony Airways, which started as HMY Airways in 2002 and was renamed in 2004, operating to various destinations within Canada and beyond to the United States, Mexico and United Kingdom. The airline received favourable customer feedback and was eyeing the growing China market, but that was to be an unrealized dream when it ceased operations in 2007.

Harmony Airways preferred to be called a niche player than a low-cost carrier as it took pride in providing good service and serving hot meals on board. But it was hurt by soaring fuel prices in a highly competitive environment. It did not have the muscles to stand up against the larger carriers like Air Canada and WestJet. According to spokesman Peter Bruecking at the time, Harmony Airways had banked its future on gaining access to the China market, but delays in agreement between the two countries inevitably forced it to reshape its course, hence its demise.

Perhaps it was this very disappointment expressed by Harmony Airways then that has given new hope to Air Canada today as both China and Canada relax the rules for more Chinese travellers and carriers to enter Canada. Vancouver International Airport (YVR) has been working hard to promote itself as the gateway to North America and not just Canada. As admitted by President of the airport authorities Larry Berg, “Much of Vancouver Airport Authority’s focus in attracting new routes, passengers and airlines over the past number of years has been on Asia, given the growth potential of markets in the region.”

Three major airlines from China, namely Air China, China Eastern Airlines and China Southern Airlines, are already operating to Vancouver. A fourth airline, Sichuan Airlines, will inaugurate services on 22 Jun. YVR is also well served by other Asian carriers such as Cathay Pacific, China Airlines (Taiwan), EVA Air, Japan Airlines, Korean Air and Philippines Airlines.

How well the new Air Canada carrier will fare against the competition is a real poser, especially when the parent airline itself is highly prone to industrial disruptions and not as highly regarded for service as some of its competitors. However, as a low-cost operator, the new carrier will understandably compete on price, but considering the low fares charged by some of the established carriers, the differential may not be adequately compensatory for the deprivation of creature comforts on a long-haul flight.

Yet again, this raises the question as to whether the budget long-haul is a viable proposition, having seen the dissolution of Oasis Airlines and, lest you cite AirAsia X otherwise, you will note that the Malaysian carrier has ceased its long-haul operations from its home base in Kuala Lumpur to London, Paris and Christchurch, and is refocusing on shorter runs.

All said, Asia is still the Holy Grail that most airlines are after. Interestingly, when Air Canada chief executive officer Calin Rovinescu first mooted the idea of a budget carrier, he was thinking of Europe, But with the economic crisis hanging over Europe, the priority shifted to tapping the potential of Asian destinations instead.

Unfortunately, geographically, Air Canada is not as fortuitously positioned as, say, Qantas, to penetrate the region, which leaves it to either dress up or dress down its operations and to rely on sustaining the flow of long-distance traffic between Asia and North America. That is why China, with its growing nouveau riche, is an attraction. Yet, unlike Qantas, which believes the demographics favour a regional premium carrier (however, understandably so considering the proximity of Australia), Air Canada intends to go low-cost to attract the masses.

Almost paradoxically too, when the Harper government of Canada has been courting businesses in China to connect with Canada, and its successes would boost traffic between the two countries.

 It may be said that Air Canada has been somewhat slow in latching on to the frenzy of budget travel beyond its national borders. Mr Rovinescu has said the launch of a budget carrier is a top priority. In a speech to shareholders, he said: “We need to participate in this segment of the market in one manner or another.”

A more interesting development in the plans allegedly is for Air Canada to eventually operate only domestic flights and flights to the United States, Mexico and the Caribbean. All other flights beyond these countries will be handled by the new budget carrier in which Air Canada will participate as a partner. When that happens, Air Canada will have completed its transformation from full-service to budget status, since its domestic and regional flights are already largely no-frilled. O Canada, can you see that day coming?

Airlines face new challenges

THE real question is not whether the airlines would survive another recession so soon after the 2008/2009 global economic meltdown. In an industry dominated by national players whose fate goes beyond commercial considerations, willy-nilly the majority of them will pull through, perhaps struggle to stay afloat, and emerge badly bruised.

While experts generally do not foresee a trough as deep as the previous one, the signs aren’t all that encouraging with recent reports of the American economy still floundering, the debt of Greece widening, no letting up of the political unrest in the Middle East, the prospect of the China market contracting, Japan still reeling from the aftermath of natural disasters, stocks across the world plunging, and a sinking oil price that ironically should and yet not completely be good news for the airlines.

According to the International Air Transport Association (IATA), airlines are reporting better than expected passenger demand, but profitability has not kept pace. In a simple profit and loss equation, it can only mean higher costs or lower yield, and for some airlines, perhaps the growth of capacity outpacing the demand. In its latest forecast, IATA expects lower profit for 2012 in a very tough environment, projecting it to fall to US$4.9 billion from US$6.9 billion expected this year even as passenger demand grows by 4.6 per cent compared to 5.9 per cent for the current year.

But it is not all gloom and doom according to IATA Director General and CEO Tony Tyler, who said: “Relatively stronger economic growth will help Asia-Pacific airlines to maintain their 2012 profits close to 2011 levels at $2.3 billion. The rest of the industry will see declining profitability. And the worst hit is expected to be Europe where the economic crisis means the industry is only expected to return a combined profit of $300 million. A long slow struggle lies ahead.”

Indeed, it will be a long, rocky road to recovery for most, if not all, airlines, if the world economy continues to slow down, moving backward as it moves forward. The prolonged volatility of the global market only serves to confirm the lessons of the previous downturn – lest they have been forgotten – and to provide an opportune respite for the airlines to re-strategize, at least for those who have wised up to know that going forward, it cannot be business as usual.

Market shifts

The market has definitely sifted downward. It is worth reiterating how during the 2008/09 financial crisis, the demand for air travel fell and people who must fly were looking at cheaper fares, which explained the flourish of budget carriers and the misfortune of major carriers which thrived on the premium market particularly when corporations downgraded executive travel. We have witnessed how the aviation landscape quickly became dotted with budget upstarts, particularly in Asia-Pacific (understandably so since it is comparatively a new phenomenon here than in Europe and the United States), and more recently how full-service airlines themselves are setting up budget subsidiaries and joint ventures to protect their turf in light of the competition posed by independent carriers and be where the business is heading.

The most anticipated entry into this arena is probably Singapore Airlines (SIA)’s fully-owned yet-to-be-named budget subsidiary which is expected to commence operations in 2012. SIA has indicated that the new offshoot will not be used on routes below the 4-hour duration normally operated by the traditional budget model, as it is eyeing the more lucrative North Asian markets such as Korea. SIA is pushing the evolution of the budget model from a mere no-frills entity in a segregated market to a viable competitor in the total air travel business – something that has already happened in Europe and the US and preceded by budget long haul flights such as the operations of AirAsia under the AirAsia X banner from Kuala Lumpur to Paris and London.

Interestingly, India’s Kingfisher Airlines has decided to exit the budget market – closing down Kingfisher Red – and focus on full-service operations. In spite of India’s booming low-cost traffic which has increased to 50 per cent of the country’s total traffic from 39 per cent two years ago, Kingfisher CEO Sanjay Aggarwal’s decision not to “compete in the low-cost segment” may be a case of foresight of an impending saturation of the no-frills market. He said: “Capacity induction of the LCCs (low cost carriers) has outpaced the demand growth in the domestic market. The induction of so many aircraft in the low cost segment will potentially lead to substantial overcapacity and a price war with declining yields.” But the vacuum vacated by Kingfisher Red is likely to be quickly filled by rivals and new upstarts.

The corollary is one of opportunities offering better returns in a reviving albeit slowly reviving full-service market while others shift their focus away from it. Mr Aggarwal said: “While there are currently five airlines participating in the low-cost carrier segment, there are only three full-service carriers. We believe that competition will be far more intense in the low-fare space than in the full service space.” He was optimistic that full-service yields would far outweigh additional costs on things like global distribution and in-flight catering.

Yet, as the competition flattens across the broad aviation terrain, nomenclature will become less important, even redundant. The demarcation between budget and full-service is beginning to blur. The competition will be decided by the consumer’s perception of value, whether budget or full-service, and less so by image.

The future of premium travel

Just because the market has shifted downward, it would be wrong to assume that premium travel is heading for oblivion. Major airlines such as Singapore Airlines, Cathay Pacific Airways and British Airways (BA) have reported the numbers clawing back. The premium market will continue to constitute an important aspect of the business, considering that, as in the case of SIA, the revenue generated by class has traditionally been 40/60 premium/economy against 16/84 premium/economy by seats offered.

But as the competition becomes heightened by budget carriers shifting upwards, again flattening the playing field and putting pressure on the kind of margins that full-service airlines once enjoyed, full-service airlines face a new challenge of marketing not only intra-airline but also inter-airline class distinction, whatever the nomenclature. The rebranded Virgin Australia, going international, is eyeing the business market. Qantas’ subsidiary Jetstar has long introduced business class. EasyJet of the United Kingdom reported healthy bottom lines derived from the introduction of business class travel.

It may be back to the generic two-class configuration of upper (call it First, Business or whatever) and lower (economy or coach) as more airlines begin to downsize or eliminate First when it becomes more economically profitable to market Business (which could well be First in status) as the upper class difference. Some airlines have done away with First in their configuration, including SIA on certain sectors. Cathay in introducing Premium Economy is making the same move selectively. The in-between class which, as its name suggests is a better Economy package aimed at netting down-graders and luring borderline up-graders, has long been experimented by other airlines including early pioneer EVA Air in a limited way, Air Zealand with its Skycouch and BA with its World Traveller. It has yet to achieve shaker status, and Cathay faces the challenge of unravelling the magic that would make it so.

Geographical positioning

While the rest of the world churns in economic turmoil, Asia has emerged as aviation’s Holy Grail. In the words of Qantas chief Alan Joyce, the Australian flag carrier would “increase our focus on the world’s fastest growing aviation region” to avert an Australian “tragedy”. Qantas had earlier declared setting up a budget joint-venture with Japan Airlines (and Mitsubishi Corporation) and plans for an Asia wide-premium service to be based most likely in either Singapore or Kuala Lumpur. Not to be left out, Virgin Australia is also looking at opportunities in the region. SIA’s new budget subsidiary to reach Asian ports beyond the 4-hour flight time is perhaps also a correctional move to balance its exposure to markets in Europe and the US, which during the financial crisis until now have weighed down its profitability. It is understandable when Europe and the Americas generate 40 per cent of the revenue by routes.

Soothsayers are so overwhelmed by the huge potential of China and India that any possible contraction of the regional economy is unthinkable. But when it happens, it will be a different game. Sufficient to say that survival in aviation competition is a gold rush mentality.

Alliances in times of need

Especially in times of need, having friends helps indeed. Alliances help extend an airline’s reach and improve its visibility, provide transparent transfers between airlines and better flight meshing for the partners’ customers, strengthen the concerned airline’s competitive edge, and garner benefits for the partners in shared costs and opportunities. The recently announced SIA/Virgin Australia alliance would provide seamless transfers between SIA and Virgin flights and allows SIA access to Australian ports outside its network – a move that causes rival Qantas some concern, or, to quote Virgin Australia CEO John Borghetti, “a nightmare for Qantas international operations”. Virgin Australia has been busy shopping to ink strategic partnerships with airlines across the globe.

During the last financial crisis, many airlines were compelled to cut services and exit some routes. It made economic sense to co-operate to utilize excess capacity. Qantas is said to be working out possible extensive code-share arrangements with OneWorld partner BA to exit some stations served by both airlines. Some analysts think this would be a costly mistake for Qantas, which would lose visibility and control over the traffic it feeds into BA. The downside of alliances of this nature is that airlines soon begin to lose their individual distinctness and identity; weaker carriers may be advantaged by leaning on the good name of their more reputable partners, but the latter are less likely to relish the association.

That’s how the aviation landscape has changed consequent to the financial crisis. When you book on a preferred airline but end up flying on another, brand – and the loyalty that comes with it – no longer is an important consideration. Airlines will have to rethink the game as to what now has become more important to the discerning customer and how they can individually preserve their good name and retain customer loyalty.

The irony of a falling fuel price

During the 2008/2009 crisis, the soaring fuel price had often been cited as a key contributor to the woes befallen upon the airlines which until today still warn that this will continue to be a concern in light of the unabated political unrest in the Middle East. Ironically, the unanticipated fall in fuel prices following on the heel of the crisis caused many airlines million-dollar hedging losses. In its current five-year-plan, Qantas did not rule out more rounds of a fuel surcharge hike but recognized there was a limit to how much more an airline could resort to such a measure. The fuel price has fallen from the erstwhile high; by all indications, it should be good news, but if this is a sign of the worsening economic downturn, it does not forebode well for the industry.

Cost and the discerning customer

Most – if not all – airlines reacted to the last crisis by trimming costs. Looking back, rationalizing for consolation, we might attribute the setback to a period of forced correction whereby airlines became conscious of waste, unconscionable runaway costs, and frivolous and unnecessary expenses. At the same time, the customer became more discerning, discriminating and driven by a greater awareness of value relative to his or her needs and propensity for excesses as well as the availability of alternatives.

It was a stitch that might have come too late for the unfortunate few which did not have the strong books of SIA or a ready life-line from white knights. Going forward, the cut would be deeper if airlines forget the lessons learnt in the event of a recurrence of similar or worse circumstances. The new challenge is to seek out cost-savings that go beyond the elimination of an olive in a martini through more efficient equipment and methods of operation without sacrificing service standards, such benefits that will also favour the customer directly.

The pressure of environmental concerns

Whether or not the economic situation improves, there will be added challenges posed by developments in other world arenas. The pressure on airlines to go green will increase. Conscious of this, SIA recently announced its membership of the Sustainable Aviation Fuel Users Group (SAFUG) which pledges to accelerate the development and commercialization of sustainable aviation biofuels. But if airlines – which contribute about 3 per cent of the world’s total carbon dioxide emissions – choose not to heed the call to help the environment, the authorities may regulate to bring them in line.

The writing is on the wall. UK Energy and Climate Change Minister Greg Barker said: “The aviation industry, in the same way as other industries, needs to play its part in reducing emissions.”

The European Union (EU) has plans to include any airline landing or taking off on EU territory in its emission trading scheme, which is being challenged by North American airlines. In response to the American argument that this was a violation of the Open Skies Agreement, European Court of Justice Advocate General Juliane Kokott said: “The inclusion in the EU emissions trading scheme of flights of all airlines from and to European airports is compatible with the principle of fair and equal opportunity laid down in the Open Skies Agreement.” She added: “Indeed, it is precisely that inclusion that establishes equally of opportunity in competition, as airlines holding the nationality of a third country would otherwise obtain an unjustified competitive advantage over their European competitors if the EU legislature had excluded them from the EU emissions trading scheme.”

Australia is the latest country to pass a bill for the controversial carbon tax, to be paid by polluters for each tonne of carbon dioxide emission. Slated for implementation on July 1, 2012, the tax will evolve into an emissions trading scheme in three years like the one in Europe. Airlines then can expect to face the same fate.

Will the defaulted airlines willy-nilly pass on the “penalty” costs to their customers or will this force them to become more efficient? It is not that simple in a competitive environment. The discerning customer is not likely to want to pay a second fuel surcharge, this time for a carrier’s inefficiency.

The cry for innovation

Necessity is the mother of invention. New engines designed to reduce fuel use has been the driving force at aircraft manufacturing facilities, with Airbus and Boeing claiming to be leaders in the field as they rolled out the A380 and B787 Dreamliner respectively. Qantas has just placed a US$9.5 billion order for 110 Airbus aircraft – 32 A320s and 78 A329neos, no doubt to be expected following announcement of its Asian expansion plans. The next-generation A320 neo is said to be 15 per cent more fuel efficient than the original A320.

More than just innovation in the field of hardware, the industry is badly in need of new sparks ine way the business is executed. The problem with the nature of the industry is that ideas often take too long to be realized or implemented while the impact of external events can happen in a flash.

Foggy skies ahead

All said, it’s still foggy skies ahead. Between SIA and Kingfisher as representative of the initiatives across the aviation landscape, it may even be said many of us are far more clueless than we claim to be about what the future holds as we await the next revised forecast by IATA.