Air New Zealand tops again

Courtesy Air New Zealand

AirlineRatings.com has named Air New Zealand as the world’s best airline for 2018. Other airlines that make the top ten in descending order are Qantas, Singapore Airlines (SIA), Virgin Australia, Virgin Atlantic, Etihad Airways, All Nippon Airways (ANA), Korean Air, Cathay Pacific and Japan Airlines.

According to the editorial team, airlines must achieve a seven-star safety rating (developed in consultation with the International Civil Aviation Organization) and demonstrate leadership in innovation for passenger comfort to be named in the top ten.

The evaluation team also looks at customer feedback on sites that include CN Traveller.com which perhaps explain little surprise in both AirlineRatings and Conde Nast Travel naming Air New Zealand as their favourite. (See What defines a best airline? Oct 19, 2017) Four airlines, namely SIA, Virgin Australia, Virgin Atlantic and Cathay Pacific are ranked in the top ten of both lists. These look like consistently global favourites.

Notable absences from the AirlineRatings list are Middle east carriers Qatar Airways and Emirates Airlines. While these airlines scored for service in other surveys, they may have lost the lead in product innovation for which most of the airlines ranked by AirlineRatings are commended. Virgin Australia’s new business class is said to be “turning heads” and Etihad is said to provide a “magnificent product throughout the cabins.” Looking ahead, Air New Zealand will feel the pressure from Qantas and SIA for the top spot. (See Singapore Airlines steps up to reclaim past glory, Nov 3, 2017) In the same survey, Qantas is selected for best lounges and best catering services, and SIA for best first class and best cabin crew.

For those who think best airline surveys are often skewed by the halo effect of service provided in the upper classes, AirlineRatings has named Korean Air as best economy airline.

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What defines a best airline?

What defines a best airline, considering the different surveys that rank them? Conde Nast Travel has just released its readers’ choice of the best in 2017, and it is no surprise the list is made up of Asian, Middle East, European and SW Pacific carriers.

Courtesy Air New Zealand

Of course, it depends on the readership, but recognizing that, it also points to what really makes these airlines stand out. It is clear that the premium class service weighs heavily – the seat comfort and the fine food.

Etihad Airways (ranked #16) offers “the future of first-class comfort: a three-room “residence” with a bedroom, private bath with shower, and lounge.” Emirates (#4) offers “posh perks for premium fliers – cocktail lounges, in-flight showers… part of the reason it scores so high among travellers.” And the suites on Singapore Airlines (#3) offer “a pair of fully flat recliners that can be combined into a double bed.”

Mention is made of the premium economy class in almost all the ranked airlines” KLM (#20), Lufthansa (#19), Japan Airlines (#17), All Nippon Airways (#13), Qantas (#12), Cathay Pacific (#10), Virgin Atlantic (#7), Virgin Australia (#6), Singapore Airlines (#3) and Air New Zealand (#1).

So it may appear to be the voice of the premium travellers that is being heard. Maybe coach travellers aren’t too concerned about the ranking, more driven by price and less frilly factors, although to be fair, the Conde Nast report did mention of at least one airline, i.e. Etihad Airways (#16), not ignoring “those sitting in the back.” While many travellers may resign to the belief that the economy class is about the same across the industry, it is reasonable to assume that an airline that strives to please its customers in the front cabins will most probably carry that culture or at least part of it to the rear.

Although you may draw consensus across many of the surveys, it is best best to treat each one of them in isolation. It is more meaningful to try and draw intra conclusions within the findings of the particular survey.

You will note in the Conde Nast findings, there is an absence of American (including Canadian) carriers, never mind that of African and South American carriers.

Asiana Airlines (#8) is ranked ahead of Korean Air (#11).

All Nippon Airways (#13) is ranked ahead of Japan Airlines (#17). V

Virgin Australia (#6) is ranked ahead of Qantas (#12).

The order of the “Big 3” Gulf carriers is as follows: Qatar Airways (#2), Emirates (#4) and Etihad Airways (#16).

Of European carriers, there is the conspicuous absence of the big names of British Airways (compare Virgin Atlantic #7) and Air France, and the pleasant surprise of Aegean Airlines (#9) while SWISS seems to be regaining its erstwhile status years ago as being the industry standard.

The best belongs to Air New Zealand as the quiet achiever.

Ultimately, the results also depend on the group of respondents whose experiences may be limited to certain airlines.

Other airlines ranked in the top 20 of the Conde Nast survey: Finnair (#14), Turkish Airlines (#15), EVA Air (#18).

Chinese conglomerates beat SIA in Virgin Australia acquisition

Courtesy GETTY IMAGES

Courtesy GETTY IMAGES

IN a separate article I wrote about Singapore Airlines’ interest in taking up Air New Zealand’s stake in Virgin Australia, its concern being that “if it did not step into the void left by Air NZ, it might op[en the door to a competitor” (What price for SIA in its pursuit of a Virgin bride? TODAY, Apr 27, 2016), I mentioned the likelihood of Chinese carriers making that move. And so it has come to pass.

The HNA Aviation Group which owns China’s fast growing Hainan Airlines (the fourth largest in the country) was the first to move in, acquiring 13 per cent of Virgin Australia with plans to increasing its stake to almost 20 per cent. Virgin chief executive John Borghetti welcome the acquisition as “a big coup” that “sets us up for very, very good growth going forward in that very lucrative inbound but also outbound, traffic between Australia and China.”

Indeed, there has been a healthy growth in traffic between Australia and China in recent years. According to Mr Borghetti, more than one million Chinese travelers visited Australia in 2015 and this number is expected to grow to 1.5 million by 2020. Clearly HNA sees the potential and the opportunity could not have come a better time.

Now a second Chinese conglomerate Nanshan Group hopes to reap the benefit of increased tourism in Australia. The firm has bought a 20-per-cent stake in Virgin Australia from Air New Zealand. Air NZ chairman Tony Carter said: “We believe Nanshan Group will be a very strong, positive and complimentary shareholder for Virgin Australia. The sale will allow Air New Zealand to focus on its own growth opportunities, while still continuing its long-standing alliance with Virgin Australia on the trans-Tasman network.”

Both HNA Aviation Group and Nanshan Group will now join SIA and Etihad Airways as co-partners in the Australian carrier. While Etihad has not expressed any interest in buying off Air NZ, SIA appears once again to have lost the lead in a game that started out as the Singapore carrier’s to play.

Another Virgin on the rocks

Courtesy Virgin Australia

Courtesy Virgin Australia

THE name Virgin is ringing in the air. Following on the heels of Alaska Airlines paying US$2.6 billion for Virgin America, wrenching the bid from rival JetBlue Airways, Singapore Airlines (SIA) announced it has increased its stake in Virgin Australia form 22.91 per cent to 23.11 per cent at a cost of A$3.18 million (US$2.39 million). SIA has approval from Australia’s Foreign Investment Review Board to increase its stake to 25.9 per cent.

Air New Zealand, the largest shareholder of Virgin Australia with a stake of 25.89 per cent, said it was considering an exit to focus on other growth areas. If SIA takes up its full allotment, it will be a larger partner than Etihad Airways, which owns about 24 per cent of the Australian carrier. The Virgin Group holds only a stake of about 10 per cent. There is speculation that SIA is poised to go higher, subject to approval from the relevant Australian authorities.

History repeats itself. SIA’s relationship with the Virgin Group goes as far back as 1999 when the Singapore carrier made headline news buying 49 per cent of Virgin Atlantic at a cost of £600m (US$844 million). What then appeared to be a coup turned out not be a lemon, which after years of lacklustre performance, was sold to Delta Airlines at a hefty loss in 2014 for £224m.

Yet the circumstances today might be a little different. SIA feels more pressured to secure its Australian market against national carrier Qantas. Together with the other partners, SIA is a contributor to an A$425 million loan to Virgin Australia to keep it above waters. While Virgin’s trans-Pacific flights to the US would accomplish a dream long in the making for SIA, it is not as imperative as it was then when it had hoped Virgin Atlantic would augment its trans-Atlantic foray into the US east coast. It could be worse if Air New Zealand’s stake in the Australian carrier falls into the hands of competing rivals that may threaten SIA’s wider market beyond Australia.

SIA paid dearly for the increases take in Virgin Australia at 46.72 cents per share which is well above the current price of 35.5 cents. So it is said that Alaska Airlines too paid a high price to take over Virgin America, which will enlarge Alaska’s west coast market and give it access to the east coast. Virgin chief Richard Branson proudly admitted: “They paid a high price for a great brand.” Indeed, Virgin America, voted consistently as the country’s best airlines in the past four years, could add to Alaska which itself is known for providing consistently good service at reasonable fares. Somehow Virgin Australia has tried hard but with not as much success as expected to bite off Qantas’ 80 per cent market share. How much more can SIA contribute, noting the struggle of erstwhile Tigerair Australia?

SIA and Virgin are reputable brand names. While there is a chance that they can build on each other’s strength, there is no guarantee that the chemistry will work twice as well.

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.

Virgin Australia outperforms Qantas

Photo: Facebook

Photo: Facebook

Virgin Australia’s statement on its half-year result (Jul-Dec 2013) issued soon after Qantas posted a dismal half-year performance could irk Qantas chief Alan Joyce, as if Virgin CEO John Borghetti was rubbing salt into an open wound. It was definitely not intended that way, but the way that performance reports go, Virgin’s statement is as much about Virgin as it is about its major competitor, which is not mentioned by name.

Qantas posted a loss of A$252 million (US$225 million) (See Qantas’ dismal performance: The singer or the song? Mar 3, 2014). Virgin too posted a loss of A$83.7 million after tax. But while while Qantas lamented a deepening loss from a loss of A$91.million of the previous year, Virgin was quick to point out that it outperformed its rival on the key measures of growth in Total Group Revenue, Domestic Yield, International Yield and Group Revenues Load Factor. What matters is that Qantas did worse but Virgin did better. Mr Borghetti said that despite the tough economic conditions that affected the industry and the increased capacity that impacted the Australian domestic market, Virgin continued to improve its proportion of domestic revenue from the corporate and government segment. He added: “We remain on track with our consistent strategy and have delivered on all the first-half targets.” So it looked like Virgin’s five-year Game Change Program is working, while doubts have already begun to cloud Qantas’ five-year transformation plan.

The mood was different in both camps. Mr Joyce reiterated an old call: “We must change.” He announced plans to cut 5,000 jobs as one way to reduce costs by A$2 billion in three years. Mr Borghetti paid tribute to his staff, but added: “We have also identified several additional cost saving initiatives over and above this program, to be implemented over the next three years.” If there was any subtle difference in the approach of both men at the helm, it would appear that for one of them the strategy was not working as expected and for the other, it would continue to build upon its successes.

During the first half of the current financial year, Virgin focused on consolidating its position as an effective competitor in all key market segments while not expecting the full impact of the initiatives that it had introduced. The result was capacity growth of 1.4% and an increase in total group revenue of 5.6%. On-time performance (OTP) improved, with Virgin outperforming Qantas in the month of Jan 2014. The pride of Virgin during the review period must be that of winning the accolade of Domestic Business Travel Airline of the Year for 2013 for the first time. So much it was for Qantas claiming to be the preferred choice of Australians because of its domination of the domestic market, raising the question as to whether the preference is slowly shifting.

An interesting development is the improved operating performance of Tigerair Australia since Virgin acquired a 60%-stake in the ailing budget carrier. Tigerair’s aircraft utilization improved 12.7%. Load factor went up 4.7 points to 88.0% through maintaining a low cost base and delivering improvements to OTP, which achieved 80.4% in Dec 2013. It seemed Virgin was able to do whatever Tigerair and erstwhile majority shareholder Singapore Airlines (SIA) could not do. Mr Borghetti said: “The goal is to ensure Tigerair Australia remains an effective and sustainable competitor in Australia’s budget travel market segment.” The carrier is launching a base in Brisbane to address what Mr Borghetti thought is an underserved market. Perhaps Jetstar might now heed the challenge, especially after the group has posted its first loss.

Already observers are criticizing Mr Joyce for the lack of directions in the months to follow. But for Virgin, Mr Borghetti said the airline would focus on optimising the business for consistent and sustainable performance through “accelerating efficiency and productivity initiatives” and through “leveraging the scale of our alliance partners.” He really got Mr Joyce’s goat there, particularly when Mr Borghetti reported a positive cash flow and his rival would be quick to point out the unfair support provided by investments of foreign partners, long time a sore point and the contention that the restriction imposed on Qantas on foreign ownership has disadvantaged the flag carrier.

Virgin may turn out to the turtle in the race. While it is ambitious to spread its wings internationally, its strategy of first consolidating its home strengths and expanding its network through codeshare partners such as Air New Zealand, Etihad Airways, SIA and Delta Air Lines is probably a wise move, particularly in the context of present times when the airline industry is still on the mend.

Virgin Atlantic exits Australian market, not a surprise

Courtesy Virgin Atlantic

Courtesy Virgin Atlantic

IS anyone at all surprised that Virgin Atlantic is ceasing its operations between Sydney and Hong Kong come May 5?

Virgin issued a statement to say that “the route is no longer considered profitable” due to “increasing costs and a challenging economic environment.” CEO Craig Kreeger added that “external factors such as increasing costs and a weakening Australian dollar have affected our profitability.”

Virgin has never quite made it in this part of the world and prefers to focus on the direct traffic from London Heathrow to Hong Kong and Tokyo Narita. Even Singapore Changi and Bangkok Suvarnabhumi as stopover hubs present no real attraction. For onward traffic the competition is tough. Out of Hong Kong, Qantas and Cathay Pacific dominate. Virgin is also feeling the pinch with more passengers flying London to Australia direct on the back of the Qantas-Emirates alliance instead of routing through Hong Kong.

Exiting the Australian market may pose more a concern to Australian tourism as demand lags capacity. As for Virgin, there is speculation that the void may be filled by Virgin Australia which would find it more efficient operating the medium-range Airbus A330. Even then the Australian carrier prefers to be cautious, weighing the advantages of code-sharing with partners that include Singapore Airlines, Etihad Airways and Air New Zealand for international operations while it works at its domestic market.