Size matters in the air

Courtesy Getty Images

Ryanair chief Michael O’Leary predicted that “within the next four to five years you are seeing the emergence of four or five large European airline groups.” He even named the airlines, Ryanair among them in a mix of full-service and low-cost operators: Lufthansa, IAG (International Airlines Group which owns British Airways, Iberia, Aer Lingus, Vueling and Level), Air France-KLM and, probably, Easyjet.

This sentiment has been opined before by others at a time when mergers, assimilations and acquisitions across the industry were trending as competition broke barriers of entry and intensified, and so-called safe niche markets became every player’s game.

Air France-KLM as the name suggests is a merger of the two European airlines in 2004. Rival British Airways (BA) viewed it as a step in the expected direction, predicting further consolidation within Europe. And in 2011 IAG came into being when BA and Iberia merged. BA chief executive Willie Walsh said at the time that the merger would enable the airline to compete effectively with low-cost carriers.

So there came a time when budget carriers began to pose a threat to full-service airlines, with Ryanair leading the pack. Many of the legacy airlines today have adopted the budget model of charging for ancillaries, and introducing a basic economy class to keep cost-conscious travellers from switching. However, many low-cost carriers have become victims of the competition – the reason why Mr O’Leary named only one other carrier, EasyJet, as a probable survivor.

EasyJet, founded in 1995 and headquartered in London Luton, UK, is Ryanair’s closest rival which has grown and spread its wings across Europe. It too has made a number of acquisitions which include Swiss TEA-Basle and Go.
Elsewhere around the world, the vibes are not unfamiliar, New in the circuit is Air Canada’s interest in Sunwing and Cathay Pacific’s interest in Air Hong Kong Express, And where acquisitions and mergers are not on the plate, airlines are working to form alliances that are more than mere code-sharing. Qantas did it in 2013 with its tie-up with Emirates, and now Malaysia Airlines and Japan Airlines have applied for waiver of government restrictions to form an alliance that will enable easier connections between the two carriers.

It looks like size matters in the air.

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Qantas is changing the game

Courtesy Getty Images

After the successful launch of the non-stop Perth-to-London flight in March, Qantas is now working on plans to introduce a non-stop Sydney-to-London flight, which is expected to take a little more than 20 hours. Boeing and Airbus have been invited to retrofit an aircraft that will fly the distance, and Qantas CEO Alan Joyce expected a launch by 2020.

This is set to be a game changer, continuing the momentum set by the Perth non-stop which, according to the Australian flag carrier, is performing well, and in fact, exceeding expectations. Mr Joyce himself said early signs were positive, and that the new route “is the highest rating service on our network.”

The task now is how to make the ultra-long haul comfortable enough to influence the pattern of travel and get non-believers on board. According to the Independent, a Twitter poll with over 1,200 responses showed that 40 per cent would prefer a non-stop flight, 30 per cent would want a break in the journey, and the remaining 30 per cent said it would depend on the fare.

“We’re challenging ourselves to think outside the box,” said Mr Joyce. “Would you have the space used for other activities – exercise, bar, creche, sleeping areas and berths?”

Maybe think, along the line of a cruise?

One suggestion put forth was converting the plane’s cargo hold into sleeping pods.

With more non-stop ultra-long haul flights from Australia – Perth now, Sydney next and most likely Melbourne to follow suit – to London and possibly other European destinations such as Paris and Athens (and further down the road to key destinations in Africa and the Americas as well), how will this affect the competition?

The Kangaroo Route has been a lucrative route for Qantas and rivals that include Singapore Airlines (SIA) and Middle East carriers, notably Emirates Airlines (despite its alliance with Qantas), Etihad Airways and Qatar Airways, flying via their home airports. Even Cathay Pacific may be counted as a veritable competitor.

However, these airlines are themselves also operating the ultra-long haul, so they are not unaware of how the game may be changing. Take, for example, the Middle East: Emirates, Etihad and Qatar are all operating non-stop to Los Angeles, albeit from their different home airports of Dubai, Abu Dhabi and Doha respectively, in close proximity, and this is besides Saudi Arabian Airlines (Saudia) flying from Jeddah. Both Emirates and Qatar are also flying non-stop to Auckland.

Asian rivals Cathay Pacific and Philippines airlines both fly non-stop from New York to Hong Kong and Manila respectively, and will soon be joined by SIA connecting the Big Apple with Singapore. Cathay and Philippines are also competing on the non-stop option from Toronto, while SIA and United Airlines are taking on each other flying non-stop between San Francisco and Singapore.

Perhaps to the relief of Qantas, British Airways (BA) has expressed no interest in mounting non-stop flights between Australia and the UK. In fact, over the years, BA has reduced its interest in Australia, currently operating only one service from London to Sydney via Singapore.

It seems that the ultra-long haul aims at narrowing the rivalry on key routes where point-to-point traffic is the target, and is perhaps also an attempt to claim native rights, cutting out third parties jumping on the bandwagon. The question is whether there is adequate traffic to justify the operations.

The fortunes of some airlines may shift, so too those of some airports which rely on transit traffic with no real attraction other than being a convenient stop en route. One only needs to look back at how Bahrain Airport quickly lost its status when new technologically advanced aircraft able to fly a longer distance without refuelling emerged on the horizon.

Dubai International and Singapore Changi are two popular hubs on the Kangaroo Route. How will their fortunes change?

Yes, they may lose some traffic with Qantas flying direct from Perth, Sydney and Melbourne, but all is not lost so long as there continues to be up to 70 per cent of travellers who are yet convinced the ultra-long haul is the way to fly. The airlines themselves understand the dynamics, hence the dual strategy, offering the options. Qantas may reduce some flights, but it is unlikely to completely stop flying via Dubai or Singapore. Similarly, SUA will not cease making a stop at an Asian port just because it has introduced non-stop flights to Los Angeles and San Francisco.

Again, if one sees how Dubai International does what Bahrain could not do, reviving the importance of a Middle East hub with convenient connections to Europe and Africa, no less owing to the vast network of Emirates, and how Changi has enticed transit and transfer passengers with being more than just another airport, one can be hopeful of their future. They may even flourish as important regional hubs, feeding traffic from and into the ultra-long haul flights.

And don’t forget, non-stop flights cost more. People spend their dollar in different ways.

Much Ado About China’s Geography

Since the United States (USA) have recognized the one-China policy (following a resolution of the United Nations in the early 1970s that legitimized the sole representation of the People’s Republic of China), it would appear groundless, even against logic, that it should protest the Chinese demand for US carriers to reflect Taiwan as a Chinese territory (this applies also to the autonomous regions of Hong Kong and Macau) on their websites.

While many airlines including British Airways, Air France, Lufthansa and Singapore Airlines have reflected the change in their booking itnerfaces to comply with the ruling, US carriers – United Airlines, American Airlines and Delta Air Lines – have yet to agree, apparently at the urging of the Trump administration. But China is not budging while extending the deadline from May 25 to July 25, at the same time rejecting the US request to discuss the issue.

It may be said that there’s a fine line between politics and business, that it is difficult to separate the two. Yet it seems only expected that any company that wishes to engage in business with a country should respect its sovereignty. A way out – even if it means turning a blind eye – is to recognize the independence of business operations, that the decision of the airlines concerned is purely commercial.

So it is with Qantas, which has decided to comply with Beijing’s request after the initial resistance. As with the USA, the Australian government, while embracing the one-China policy, was critical of the Chinese ruling, but conceded that how Qantas structured its website was a matter for the company. Australian Foreign Minister Julie Bishop said: “Private companies should be free to conduct their usual business operations free from political pressure of governments.”

So, will US carriers comply or be prepared to stop flying to China?

Why would IAG be interested in acquiring Norwegian Air Shuttle?

Courtesy Norwegian Air Shuttle

The International Airlines Group (IAG)’s interest in acquiring a stake in Norwegian Air Shuttle reflects the rising threat of the budget long-haul. Norwegian is among the few budget carriers that have broken the barriers to take budget operations beyond the limits of the 4-hour convention.

The competition is felt especially on the trans-Atlantic routes, where Norwegian and WOW air have made waves and which in turn have spawned budget offshoots by European legacy airlines, among them Lufthansa’s Eurowings, Air France’s Joon and British Airways (BA)’s Level as well as caused some carriers on both sides of the pond to introduce basic economy fare on their flights.

In fact, IAG which owns BA, Iberia and Aer Lingus, already has a Spanish budget arm known as Vueling. Yet why would it be interested in acquiring Norwegian?

Let’s face it: A legacy airline’s budget offshoot is understandably never quite like an independent budget operator. Otherwise the like of Level should have no fear of the competition posed by the like of Norwegian. Unfortunately the influence of the parent airline, however unintended, may be hard to disguise, and this could be the hitch.

Apparently IAG had already acquired a minority 4.6% stake in Norwegian. And if IAG seeks to increase its interest in the budget long-haul carrier, it may be seen as an attempt to “normalize” the playing field by the rules of the big guys. It would be a dent in the competition, if not eliminating a threat, at least limiting its influence.

Basic economy set to become the norm as more airlines adopt budget model

TO face off competition from low-cost carriers, more legacy airlines are rebranding their economy class. Basic economy, as different from the normal economy, looks set to be the mode of travel for many of its customers.

This has been introduced for quite some time now in the United States, and by other carriers for the long haul including Cathay Pacific nad Singapore Airlines. In some way, many other carriers are already taking steps in the same direction as they begin to adopt the budget model of charging additionally for services now considered as ancillaries, such as checked baggage, seat selection and meals.

Courtesy British Airways

British Airways, which has since done away with complementary in-flight meals and is implementing non-reclining seats in the economy cabin, has announced it will be offering basic economy for the long haul from April 2018. Passengers will not be able to pre-select seats at the time pf booking, and checked baggage is subject to a fee. The fare is expected to be some 10 to 20 per cent less than the normal economy.

It goes to show how the threat by low-cost operators isn’t something that legacy airlines can dismiss as easily as it was once thought as they continue to feel the squeeze of the competition.

Over the years, the class configuration of air travel has evolved from a single luxury class to a two-class of first and economy to a three-class division to include a business class, which, when first introduced, was dismissed as redundant by then successful airlines such as Swissair.

In the same way, the budget model was viewed by legacy airlines as a non-threat because they catered to a different market, which today proves to be not entirely the case.

The blip in the global economy that caused a decline in the demand for premium travel led to a new economy subclass of premium economy, which again was initially scoffed by some airlines including Singapore Airlines, which today is aggressively promoting it. Premium economy is increasingly taking on an identity of its own, and may well be considered a fourth class in its own right, squeezed between business and economy, in the gamut of classes.

Now comes basic economy, and you wonder where the normal economy is heading.

Legacy airlines go the budget way

It’s yet another sign of how legacy airlines are feeling the heat of the competition posed by budget carriers.

Courtesy Getty Images

British Airways (BA) will operate planes for the short haul with seats in economy that cannot recline. The airline said the seats will be “pre-reclined at a comfortable angle”. Affected flights up to four hours include runs from Heathrow to Rome, Madrid and Paris.

BA which already ceased providing complimentary booze and meals for the short haul last year admitted to the pressure. It said the move will allow the airline to “be more competitive” as it will then be able to “offer more low fares”.

Many legacy airlines are already adopting the “pay for what you want” model of budget carriers, charging for extras such as checked luggage and seat selection at booking.

The big three US carriers of American, United and Delta have introduced “basic economy” fares which will board such ticket holders last with seat assignment only at boarding. There may be other restrictions.

Asian rivals Cathay Pacific and Singapore Airlines (SIA) are also moving in the same direction. Cathay’s economy supersaver and SIA’s economy lite do not permit seat selection at booking and do not accrue full mileage perks. SIA is also charging additionally a credit card service fee for tickets purchased out of certain ports. (See Same class, different fare conditions, Jan 5, 2018)

While legacy airlines are finding ways to cut costs to offer lower fares, this can be a double-edged sword that only serves to narrow the gap between them and budget carriers. What price, therefore, the differentiation? But, good news for travellers not too fussy about brands.

Benefits come with a price, so British Airways is boarding cheap fares last

Gate boarding procedures vary across the industry, from an open system of “anyone can board at any time” to specific policies that assign the order of who get on first. This only becomes an issue with economy passengers as premium classes as has been their privilege may board on their own time.

Because of limited overhead bin space, economy passengers may compete to board early. Traditionally most airlines board passengers from the rear so as to avoid bottlenecks in the aisle. The idea is to hasten the process that may cause a delay in take-off if it becomes problematic. From the perspective of efficiency, that seems to make a lot of sense.

Courtesy British Airways

That, until some airlines hit on the opportunity to make boarding a benefit to be purchased in a bucket of ancilliary charges. Now British Airways (BA) has announced that it will board passengers who have paid cheaper economy fares last. BA said the new procedures aim to “speed up the process and make it simpler for customers to understand.” Really? That’s a hard pill to swallow.

BA’s defence is that this is already a procedure practised by some other carriers. Yes, US carriers such as the Big Three of American, United and Delta have introduced basic economy fares – their version of budget fare to counter the no-frills competition – which do just that besides other non-entitlements such as no seat assignment until boarding at the gate.

But there is one difference – passengers are made aware of that sub-class before they amke the choice. However, most airlines sell different fares for the same economy seats, designed to help them sell the seats. One wonders if you purchase a ticket during a promotion period and become committed to flying maybe a year later, will you now be penalised for not paying a higher fare that is usually the case closer to the date of the flight? It is only fair that customers know and understand what they are paying for.

Of course, BA’s new procedures have already raised a lot of ire among its customers. Some of them feel that while they may have purchased cheap fares, they do not deserve to be made to feel cheap or to be treated as such. Oh well, as some people may say, you have the choice. Or, take it with a pinch of salt as Banjobob@scottishcringe says: “Nothing quite like a British class system to let you know your place!” Or, punch back with a new challenge, as Martin Lovatt wrote on Twitter: “I wonder if disembarkation will be in the reverse order then?” Now, that will be quite a task managing the process in economy based on fare.