Air France to “boost” performance with new low-cost carrier

Legacy airlines in Europe have long been feeling the pinch from low-cost carriers such as Ryanair and Easyjet. Now it looks like Norwegian Air Shuttle and WOW Air are pushing them to look farther before they lose more ground.
Lufthansa already offers a low-cost trans-Atlantic option from Europe to Las Vegas, Orlando, Miami and Seattle in the United States.

The International Airlines Group which owns British Airways, Iberia, Aer Lingusm and Vueling has just added another low-cost carrier – Level – to its stable. Level, based in Barcelona, will fly to Los Angeles and Oakland in California USA, Punta Cana in the Dominican Republic, and Buenos Aires in Argentina. Fares start at the familiar €99 reminiscent of the Norwegian and WOW Air’s promotions.

Courtesy Air France

Following in their footsteps is Air France, which announces the formation of a new subsidiary low-cost airline – Boost as its working name – planned to commence operations in winter. The airline will fly from the main hubs of the Air France/KLM group to destinations in Italy, Spain and Turkey initially, and then farther to destinations in Asia. Norwegian is already flying to Bangkok and will in October connect London with Singapore.

But Boost will be taking on full-service airlines as well, such as the Middle East carriers of Emirates Airlines, Etihad Airways and Qatar Airways which are already ruffling the feathers of the regional big birds of Singapore Airlines and Cathay Pacific.

The developments point to a gradual convergence of the low-cost and full-service product perceived value wise. It’s the antithetical success of low-cost carriers pushing to bridge the gulf and the failure of legacy airlines not being able to maintain if not increase the differentiation. It looks like the European tug-of-war is pulling the legacy airlines towards the centre line.

What conclusions can you draw in an airlines survey?

SIA courtesy SIA

WE continue to be fascinated by rankings of the world`s best airlines, although the results of most surveys – take away some bias here and there – are quite predictable and almost similar across the board. The winners by and large boast excellent cabin service, great food, comprehensive in-flight entertainment and innumerable choices, more generous legroom than what their competitors offer, and frills such as complimentary champagne and brand name overnight kit. It is all about creature comforts. And the impressions are understandably almost always skewed by the luxuries of the upper classes.

Traveller magazine Conde Nast has just posted its list of the world’s best airlines, surveyed among some 128,000 readers. Of course this is not the definitive list of excellence to the detail, in the same way that no other list can be as definitive without considering factors such as the type of respondents involved, the scope of the survey and the criteria adopted, but there are nevertheless interesting conclusions to be drawn from them. So often it is more interesting to look at the omissions.

Long haul can impress or disappoint

Singapore Airlines (SIA) is a perennial favorite of Conde Nast readers, ranking top for 27 of 28 years. It is hardly surprising, which to be saying it seems even redundant. The airline has long earned the reputation as one of the world’s best airlines, and is frequently celebrated in other surveys as well. It was ranked second after Qatar Airways in the last Skytrax survey. It is hard to find a match that depicts consistency in excellence. The real clincher seems to be in its long haul operations – such flights that are likely to elicit the flaks when passengers are apt to become more stressed and demanding. Here is where SIA is able to make the difference by a well-trained crew that anticipates a passenger’s needs, always mindful the passenger’s comfort first and foremost in the service.

All the airlines in Conde Nast’s top ten are long haul operators, with the exception of Porter Airlines which is more a city shuttle that flies between Toronto in Canada and US destinations such as Boston, Charleston and Myrtle Beach.

While the long haul impresses, it can also take apart an airline’s reputation, which explains why some airlines are inundated with complaints about being handled like a can of sardines. Interestingly, the Conde Nast list of best American carriers is made up of short-haul operators to the exclusion of the big three of United Airlines, American Airlines and Delta Air Lines. Virgin America is ranked first followed by JetBlue, Hawaiian Airlines, Southwest Airlines and Alaska Airlines.

Dominance by Asian and Gulf Carriers

Again, it is not surprising that Conde Nast’s top ten ranks are dominated by Asian and Gulf carriers, which together were placed in not only in the top three ranks but also seven of the top ten positions. The Gulf big three of Emirates Airlines, Qatar Airways and Etihad Airways were second, third and fifth respectively. Qatar was tops in the earlier Skytrax survey, ahead of Emirates (5th) and Etihad (6th). Other Asian airlines in the Conde Nast list are Japan Airlines (6th), Korean Air (7th) and Cathay Pacific (10th). Both SIA and Cathay were also ranked among Skytrax’s top ten airlines.

Dominance by Asian and Gulf carriers means the stark exclusion of airlines of other regions. Only one European airline – Virgin Atlantic – was listed, and in fourth placing. One asks: Where are British Airways, Air France and Lufthansa although going further down the list you will find Swiss International Air Lines (17th) and Finnair (20th)?

That and the marked absence of US carriers demonstrate the superior service culture of Asian and Gulf carriers and their growing popularity that continue to put pressure on their rivals in the competition. The US big recently accused the Gulf big three of unfair competition supported by state subsidies. In truth, North American airlines are not inefficient, but they lack the soft pampering touches of their competitors. There is a host of pertinent questions. Can US carriers be as friendly or, to go one further, do better? And, ultimately, do they even see the need?

Luxury improves image

Etihad boasts the “residence” suite that comes with a bedroom, private bath with shower and lounge. That is for now the forerunner in the race for the ultimate luxury in the air, leaps ahead of SIA’s first class suites and all the other airlines’ flat bed allures. There are also the extras: Etihad provides a concierge service that will make a dinner reservation for you when you land, and some airlines offer door-to-airport limousine services. The slant towards premium classes is to be expected, for that is what makes news even as the perks are limited to a smaller but more lucrative market of the travelling population. If there is one airline that seems to be doing much more for coach than many others, it is Air New Zealand, which offers “Skycouch” in economy – seats that can be converted into a lie-flat double bed – but then again, this is limited to only three seats in the cabin, reminiscent of the days when EVA designates a small number of seats as the ill-defined premium economy before the subclass takes on an identity of its own today.

Comparison is the crux

In any survey, the crux is the comparison, particularly when they are all said to be providing good cabin service and excellent food amongst the creature comforts. The Conde Nast survey again surfaces the rivalry between SIA and Cathay Pacific in the top ten, favoring the former. Interestingly, Japan Airlines (6th) is ranked ahead of All Nippon Airways (11th), and Korean Air (7th) ahead of Asiana Airlines. That indicates a reversal of order that has been the reading of many past surveys, and may well portend how the competition may be trending.

In the case of Gulf carriers, the ranking rivalry among Emirates, Qatar and Etihad is very much a close call going by several international surveys. At the same time, we cannot ignore the inclusion of Turkish Airlines in Conde Nast’s top 20. Turkish was fourth in the Skytrax survey.

In the close rivalry between Qantas (15th) and Virgin Australia (19th), the former continues to enjoy an advantage over the latter.

What else matters? All the hype about going green as the world becomes increasingly conscious of the impact of climate change? That Korean Air prepares its food from humanely raised and organically grown produce. That El Al offers an iPad rental program. That Virgin Atlantic has a stand-up bar. That Qantas offers Select on Q-Eat that allows you to pre-order your meal. That Air New Zealand makes its safety presentation more entertaining than others. That British Airways allows you to log on to a movie as soon as you board and stay with it until the aircraft is docked at the gate on arrival. The list goes on. And one wonders.

This article was first published in Aspire Aviation.

US airlines vs Gulf carriers: Redefining Open Skies

THE new American mantra for aviation is fair skies, not open skies. With the rise of the Gulf carriers and their increased presence in the US, home carriers are banding to press the Department of Transportation (DOT) to review the long-standing Open Skies policy and the agreements executed thus far. Their grouse: Unfair competition because of large government subsidies received by Emirates Airlines, Etihad Airways and Qatar Airways that place US carriers at a disadvantage.

This is not a new argument presented by opposing airlines; even in the days of restrictive bilateral negotiations, it was a hurdle many airlines from the less developed countries in Asia faced as they expanded into the more lucrative markets of the western hemisphere. Their successes from delivering a product reputed for excellent customer service and operated on high productivity had been clouded by accusations of payouts by their home governments that enabled them to compete on cost.

Courtesy Airbus

Courtesy Airbus

Emirates president and CEO Tim Clark warned: “If you go down this minefield, you must ask yourself to what extent all the foreign carriers serving the US are subsidised. Take China, take Thailand, take Malaysia, take Japan, take New Zealand. I could go on forever.”

Mr Clark may have unwittingly in his defence roped in other carriers into the contentious ring. But the US is unlikely to be interested in the reference, at least not for now. Broad brush strokes do not work; just because one person is not censured does not guarantee immunity for another person in a similar situation. Having said that, this does not necessarily mean the US has a case. The issue is much more complex than that. For one thing, the success of the Gulf carriers makes them more noticeable.

Note, however, Mr Clark is not saying Emirates is similarly subsidised by the UAE government. On the contrary, he insisted the airline did not receive any, rejecting the report produced by the American carriers that the three named Gulf carriers received US$42 billion in subsidies. Mr Clark said: “The requirement from the government of Dubai has been and remains the same. There will be no support for your operations, you will be required to make money.”

All the arguments for and against in the debate – depending on which side of the wall you stand – seem to centre on the issue of government subsidies, complicated by political affiliation and extending beyond support for the airlines to other related businesses including the funding of home airport development that is viewed as directly benefitting them. Where do you draw the line when ownership of several projects is traced to a common designator? In many countries, airport development is undertaken by the government as a national project and the facilities are viewed as common to all users.

Refuting the American accusation, Gulf carriers are pointing out how American carriers have also received government support. All the major airlines have sought refuge in the bankruptcy laws at some point. There were government bailouts after the 911 attacks. In some ways the US aviation policy is protectionist: The domestic market is not widely open to foreign carriers, and the government’s approval of consolidation to create mega entities only serve to limit competition. Etihad chief executive James Hogan countered that American carriers have been granted antitrust immunity (ATI) to protect lucrative transatlantic routes operated jointly with European carriers: American Airlines with British Airways, Delta Airlines with Air France, and United Airlines with Lufthansa. Mr Hogan said: “I think this is a protectionist move to protect the ATI routes across the Atlantic; that’s the irony.
Etihad courtesy etihad

The debate must bring us back to the genesis of Open Skies. For more than twenty years, the US has been championing open and greater competition that has resulted in lower airfares and more choices for travellers of airlines and destinations. US airlines themselves have supported the push, benefitting from new markets outside the US. Since 1992, the US has signed more than 100 open skies agreements. But the playing field is changing as global competition intensifies with the growth of more successful foreign carriers reaching into the heart of the US. It is fair to expect a customary review when circumstances change, but any compromise on the principle of competition may be a step back.

Mr Clark warned that the agenda of the American carriers is threatening “the bedrock of the modern day aviation system. By challenging open skies, you are not just challenging the aero-political situation, you are challenging the very essence of economic liberalization the US has championed for decades.” He expressed hope that the US administration “will not stand for this nonsense.” The American carriers on the other hand insisted that they “welcome robust competition provided the playing field is level. A reopening of those open-skies agreements is the first step and the right step to ensure competition is preserved and enhanced.”

The crux of the matter appears to be what constitutes a level playing field. Will a revised Open Skies policy be qualified by an attempt to box it in? The thrust of the policy has been competition, but makes true competition? Is the US being anti-competition in opposing the entry of Norwegian Air Shuttle, even with nary a hint of government subsidy? As Mr Clark warned, “Once you talk about fair skies, you enter into a quagmire of definition, and you have to be very careful how you go.” Indeed, is there such a thing as truly fair skies? Even as more countries have declared their support of liberalisation, many of them are still protective of their turf, rightly or wrongly. A case in point: Singapore Airlines (SIA) has tried and failed to gain access across the Pacific from London Heathrow to the US east coast, and across the Pacific from Sydney to the US west coast. Yet other airlines that came lately were granted those rights, which is anomalous to the often cited fear of overcapacity that would hurt the industry.

In 2011, Emirates tussled with Canada which rejected its application to operate more flights to Toronto. The Canadian government was concerned that UAE carriers (including Etihad which was also applying for access to Canada) would enjoy an unfair advantage over Air Canada in tapping into its international traffic, the outcome of which would be the loss of Canadian jobs; the unfair advantage was similarly pinned down to subsidies Emirates received from the UAE government. In apparent retaliation, the UAE evicted Canada from its military base near Dubai and imposed a hefty visa fee for visiting Canadians. It is so easy for what is a commercial matter to be politicised, adding to its complexity.

The industry is divided. An organization known as Americans for Fair Skies is campaigning in support of the US government. It says: “This is an important first step towards restoring fairness to our skies and stopping the largest trade violation in history.” Outside the US, not surprisingly, Lufthansa had openly stated its support of the US carriers. When Carsten Spohr assumed appointment to helm the German carrier, he expressed concerns about encroachment by Gulf carriers in Europe and set himself the task of tackling that issue. Interestingly even Etihad, an affected party to the dispute, actually “applauds” the US government “for setting up a transparent process to deal fairly and responsibly with the claims. Etihad Airways is committed to setting the record straight regarding these unsubstantiated allegations.” While Emirates argues in defence, Etihad is issuing DOT a challenge.

Conversely, not everyone in the US is supporting the US carriers’ pressure on its administration to review its Open Skies policy, if not specifically the agreements executed with the Gulf carriers. US airlines may feel the pinch of competition by foreign carriers, but US airports are welcoming of the increased traffic that those carriers bring. Then there are consumer groups who are benefitting from lower airfares, better service and wider consumer choice. Business Travel Coalition chairman Kevin Mitchell wrote in a letter to the government: “Now that US airlines have secured antitrust immunity, industry consolidation and concomitantly rising airfares and ancillary fees, and are achieving record unprecedented profits, some carriers shamelessly seek to close off US markets to competition from foreign carriers.” JetBlue chief executive Robin Hayes for one is not joining the protesters.

Mr Clark would remind the US government how Gulf carriers have contributed to not only the growth of traffic but also providing access to markets not previously served by any US carrier. An example was the connection between Seattle and Hyderabab in India via Dubai. He said: “Look at where these people are going and ask yourself where was Delta, where was Untied, where was American when the world was becoming more globalized?”

While DOT said it would address the concerns raised by the US carriers, its spokesman Brian Farber qualified that the administration “remains committed to the open skies policy which has greatly benefitted the travelling public, the US aviation industry, American cities and the broader US economy through increased travel and trade, and job growth.” There will be wide ramifications, no doubt. Open Skies is not just about a specific airline’s bottom line. In defending the case for Gulf carriers, Mr Hogan had said: “We make no apologies for offering new competitive choice for travellers. Open skies should be about customer choice.” But is it really, one wonders, in practice?

It is unlikely that the US government will turn the Open Skies policy topsy turvy and go for a clean slate, renegotiating the agreements with the Gulf carriers. One can anticipate new restrictions in the road ahead, and tweaks where ambiguity permits. Its impact will be global. Some European parties are already watching closely moves by Gulf carriers to gain a bigger slice of the European pie, not just the competition in offering seats but also in the bold acquisition of stakes in European carriers. In Australia, Etihad is a co-owner of Virgin Australia. Emirates operates a mega alliance with Qantas. It would be interesting if the Australian government grants Emirates, but not SIA, rights to fly transpacific from its ports.

Unbeknownst to many, there may be a price to pay for success. The Gulf carriers may have become victims of their own successes, in the same way that it is once said of SIA in its heyday.

This article was first published in Aspire Aviation.

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.

Ryanair gives better service, gets better results

Courtesy PA

Courtesy PA


LAST month Ryanair raised its profit forecast by 20 per cent. Following a healthy November performance with passenger numbers bumping up to 6.36 million people for the year thus far, Ryanair is expecting even better results of the full year’s profit. The budget carrier has raised its forecast yet again to between €810m and €830m (US$100b-US$1.03b) from the last revision of €750m-€770m.

Interestingly, Ryanair said the good results were in part attributed to improved customer service. (See A humbler and more caring Ryanair, May 22 2014) This is an achievement considering the carrier’s past notoriety for bad service. What we miss however is Ryanair chief Michael O’Leary’s propensity to make aviation news with controversial statements, something which Mr O`Leary had himself admitted, referring to his high profile, as not doing Ryanair a favour.

But good for Ryanair, that together with competitor easyJet, are sending out signals to legacy airlines that the market is not exclusively theirs. With a reasonable level of service added to low cost, budget carriers have become veritable competitors. As an added attraction, Ryanair has reduced check-in baggage fees and now allows passengers to book their seats in advance.

With full-service airlines such as Air France and Lufthansa being prone to industrial strikes, the dice are rolling in favour of the likes of Ryanair and easyJet.

With full-service airlines such as Air France and Lufthansa being prone to industrial strikes, the dice are rolling in favour of the likes of Ryanair and easyJet.

Jetstar Hong Kong’s long and costly wait to fly

Courtesy Jetstar

Courtesy Jetstar


Twenty-one months after Qantas announced the birth of its fifth Jetstar venture in March 2012, initially in partnership with China Eastern Airlines, the airline (Jetstar Hong Kong) has yet to receive approval from the Hong Kong authorities to fly. No doubt it is a costly affair waiting, with three remaining Airbus A320 aircraft sitting in Toulouse after six of the orders have since been sold. But prime mover Qantas is confident that Jetstar HK will eventually take to the sky, expecting its case to be heard some time next year although no firm date has been set.

Qantas chief executive Alan Joyce said: “We are confident that Jetstar Hong Kong’s case is solid for the approvals. The process has taken longer than anyone expected, it’s taken longer than any jurisdiction hat we’ve seen in the world, but this is going to be a good business venture which we believe will make good profits.”

If you detect any hint of frustration at the lumbering approval process, you may be right. Yet could you blame Mr Joyce for running out of patience? Indeed it is surprising that Hong Kong as a thriving air hub is taking so long to reach a decision.

Cathay’s objection

Courtesy AIRBUS

Courtesy AIRBUS

It is widely believed that Cathay Pacific’s objection to Jetstar HK is in no small way attributive to the delay. Cathay remained confident that the Hong Kong authorities would not rule in favour of the budget carrier, the argument being that it is foreign controlled, effectively from Australia. That runs contrary to Hong Kong law. In a move to make the carrier more Hong Kong in character, Qantas and China Eastern inducted a third local partner, Shun Tak, whose managing director Pansy Ho assumed appointment as Jetstar HK chairman. Shun Tak would have the majority 51 per cent shareholder voting rights, reducing that of the other partners to 24.5 per cent each. Presumably the authorities will now have to decide whether that is enough, notwithstanding Mr Joyce now saying that the new airline is more local than Hong Kong’s other airlines.

But is there a bigger issue than one about ownership, which by its legality should be indisputable? Right from the beginning, Cathay has made its objection heard, arguing that such a business model does not have a place in Hong Kong. While many of its rivals such as Singapore Airlines (SIA) and Japan Airlines besides Qantas have spawned budget offshoots, Cathay has pooh-poohed the idea. Cathay may deny it, but its opposition to Jetstar HK is an issue of competition. Though in name a budget carrier, Jetstar HK backed by strong parents with international connections will compete with not only Dragonair but also Cathay, the same pressure that other mainstream airlines such as SIA, Air France and Lufthansa are already experiencing. The likes of Ryanair and easyJet in Europe, Southwest and JetBlue in the United States, and AirAsia and Jetstar in Asia are the new threat to the legacy business as the global economy continues to flounder. The market has become that less clearly demarcated.

Is there a case for Jetstar HK?

To say that budget carriers cannot thrive in Hong Kong is a supposition without much experiential evidence to support it. With the large China market at its doorstep, the potential cannot be overplayed. By comparison, the growth of budget traffic outstrips that of full service traffic in Singapore; the low-cost business makes up 30 per cent of Changi’s throughput. It is higher in Indonesia and India. Asia in particular has seen an increased number of budget carriers in recent years to cater to the growing number of travellers responding to the offer of affordable fares. It is no exception that Cathay together with Dragonair which account for almost half the seats sold out of Hong Kong will want to protect their dominant market share.

So, are Hong Kong air travellers worse off than their counterparts in the region, being denied cheaper alternatives? Jetstar group chief executive Jayne Hrdlicka would like to think so. She said: “The travelling public in Hong Jong have clearly signalled that they are fed up with paying high fares relative to their colleagues around the region.” That at best is an assumption, though not entirely baseless. At the same time it does not mean Cathay and Dragonair will immediately lose chunks of their business to Jetstar.

The onus on Jetstar HK is to show that its entry will not diminish the market size but will instead generate an increase in demand for seats, something that all airport authorities like to hear. Almost always that is the wistful thinking that goads airports to open their doors to more carriers. Then there are the arguments for competition to grow the airport. Hong Kong cannot be the air hub it is today without the competition.

Qantas CEO Alan Joyce/Photo courtesy bloomberg.com

Qantas CEO Alan Joyce/Photo courtesy bloomberg.com

Lest anyone thinks that Jetstar HK would not survive the competition even if given the go-ahead, Mr Joyce cited the success of Singapore-based Jetstar Asia, which had been profitable in the four years before last year. Even though it lost S$40m (US$32m) last year, it outperformed SIA’s Tigerair which lost S$200m. The losses were the result of market overcapacity. However, with Tigerair cutting back, Mr Joyce said: “We see a path through for that business to go back into profit like it was in the previous four years. I’m comfortable it will get there.” Now, is not excess capacity the very apprehension of Cathay and Dragonair? Indeed, many airlines are returning to profitability on the back of reduced capacity, the short supply helping to hold up airfares. It is equally valid to ask if Hong Kong as a major regional hub airport is already facing that issue.

At some point Jetstar HK partners will have to reflect on the worthiness of waiting indefinitely for the sanction to fly. No pun intended, if you think of sanction’s other meaning of being punitive. Questions are being asked if Qantas was putting in money chasing a rainbow that seems too far out of reach. And one is apt to ask too: Is the prolonged delay intended to allow time to resolve the issue, one possibility being a stillbirth?

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.