Standing room only on this flight

Those of us who go to the theatre often enough will be familair with the term “Standing Room Only” (SRO). But SRO on a flight?

Budget airline Viva Colombia has just that in mind. Its founder and CEO William Shaw told The Miami Herald: “There are people out there right now researching whether you can fly standing up. We’re very interested inanything that makes travel less expensive.” So, wey not? After all, he said, “Who cares if you don;t have an in-flight entertainment system for a one-hour flight? Or that you don;t get peanuts?”

This thought isn’t new. As far back as 2010, Ryanair flaoted the idea. (See Standing room only up in the air, July 23, 2010) Actually, instead of standing upright as in a bus, passengers will have “vertical seats” to leab against, complete with seatbelts and a small cushion to support the lopwer back – which is said to be good for people with back problems.

Ryanair chief Michael O’Leary was of the opinion that people flying very short hauls (say, up to two hours) wouldn’t mind standing all the way if the fare was that dirt cheap. Then he was thinking of fitting only the rear of the aircraft with vertical seats as a choice.

Vertical seats, otherwise known as saddle seats. Courtesy Airbus.

In fact Airbus put forth the concept in 2003 with the hope that it might be implemented by 2010. Now the South American carrier based in Medellin, Colombia, is reviving the idea. Guess what, the low-cost operator is partly owned by the founders of Ryanair.

Still, the question that hangs in the air is when and if it happens the regulators will approve the operations as safe-worthy.

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Emirates’ Airbus order cancellation raises questions

Courtesy Airbus

Courtesy Airbus


THE cancellation of an order for 70 Airbus A350 aircraft amounting to US$16 billion (based on 2007 list prices) by Emirates Airlines has turned the focus on the Airbus company. In an obvious attempt to play down the drama, Airbus chief operating officer (customers) John Leahy said: “It is not the world’s greatest news.” That did not check Airbus shares from falling 3.7 per cent and engine maker Rolls-Royce by 1.7 per cent on the back of Emirates’ decision. Mr Leahy even brushed it aside as if it was something to be expected, adding that Emirates president Tim Clark “does change his mind from time to time.”

In truth, airlines do change their mind about aircraft orders. In 2012, Qantas cancelled orders for 35 Boeing Dreamliner jets worth US$8 billion following a net loss of US$256 million – its first annual loss since 1995 when it was privatised – and expected lower growth requirements. The Australian flag carrier is keeping its fleet options open. Qantas CEO Alan Joyce said: “We will maintain complete flexibility over the fleet.” He explained: “In this business there is always potential for great headwinds and tailwinds… there is no intention that every aircraft is guaranteed to come or that it’s not going to come.”

Only very recently did budget carrier Tigerair – which is 40-per-cent owned by Singapore Airlines – also cancel orders for nine Airbus A320 aircraft in light of perceived overcapacity in the region of its operations.

But a decision by Emirates which is not in the same financial straits as Qantas and Tigerair must raise questions even as Mr Leahy insisted that he was “not particularly worried at all.” To suggest that it was a whim of Mr Clark was quite unwarranted. But Airbus did express its disappointment. Apparently, Emirates’ decision followed ongoing discussions between the two parties as the airline reviewed its fleet requirement. In fact, Emirates has ordered an additional 50 A380 aircraft.

Courtesy Airbus

Courtesy Airbus

So, naturally, we ask the big “Why?” and speculate on the ramifications of that decision.

Is Emirates dissatisfied with the aircraft model?

Allegedly Emirates is unhappy with particularly the performance of the A350-1000 model, which makes up 20 of the 70 aircraft orders, the others being the A350-900 model. Even as Airbus said Rolls-Royce was working on the upgrade, the writing was already on the wall when in November 2012, Mr Clark told Aviation Week that Emirates’ order for the aircraft was in limbo, and that the A350-900 “is starting to look a bit marginal to us because of its size.” That provided another perspective to the issue – one of suitability. Mr Clark explained: “Gauge is the way we grow, you cannot get any more aircraft into the Dubai hub.”

Has Emirates over-estimated its growth capacity?

The focus is so much on Airbus that it has become convenient to not ask any question that may suggest that Emirates’ decision is driven by more an internal than an external situation, or at least in part due to it. It is almost unthinkable in light of Emirates’ sterling performance when it posted a 43-per-cent increase in profit to Dh3.3 billion (US) for financial year 2013-14. According to Emirates chairman and chief executive officer Shaikh Ahmad Bin Saeed Al Maktoum, the airline’s profit margin was more than double that of the industry, the result of flying 44.5 million passengers – up 13 per cent – and close to a 80-per-cent load factor. It was a year of expansion as the airline increased its capacity for both passenger and cargo, and as it added new destinations across the globe.

By all accounts it does not look like Emirates is about to stop expanding, or even slowing down, despite the revised forecast by the International Air Transport Association (IATA) that showed astagnation in profitability for the industry in Africa and a dip for all the other regions with the exception of North America. Of course, the state of the industry does not necessarily reflect the fortune of Emirates, which in the past year has experienced healthy growth in all the regions that it operates. Still, the question must be asked: Has Emirates over-estimated its growth capacity, noting too the limitations of Dubai Airport? To be sure, the airline will continue to expand, having announced plans to add five new routes to Abuja, Brussels, Chicago, Kano and Oslo, but perhaps at a slower rate. It could be in this context that Shaikh Ahmad recognized the need for “efficient new aircraft” amongst other things to sustain profitability,

Will Emirates’ decision affect other airlines’ orders?

Courtesy Airbus

Courtesy Airbus

Emirates’ decision raises questions on the impact it may have on other airlines with similar orders, more notably the Gulf carriers namely Etihad Airways (with an order for 40 A350-900s + 22 A350-1000s) and Qatar Airways (43 + 37). Besides Etihad and Qatar, airlines that have placed orders include Air France-KLM (25 A350-900s), Aer Lingus (9 A350-900s + 9 A350-1000s), Aeroflot (14 + 22), Air China (10 + 10), AirAsia X (10 + 10), Asiana Airlines (12 +10), Cathay Pacific (20 + 26) and Japan Airlines (18 + 13). But Mr Leahy of Airbus was confident that other airlines would take up the slots vacated by Emirates. He maintained that there would “no hole in production” and therefore no impact financially since the first deliveries were only planned for 2019 and spanned out to 2034.

Is Emirates setting the stage for heightened competition between Airbus and Boeing?

This is not a new story about the rivalry between Airbus and Boeing, but more a reminder of it. It is all the more significant when Emirates is the world’s largest operator of the Boeing 777 and Airbus A380 in a fleet of 217 aircraft. In 2013-14, it received 24 new aircraft including 16 A380s, six Boeing 777-300ERs and two Boeing 777Fs. If there is a customer that both manufacturers want to please most, it has to be Emirates. Airbus is unlikely to let Emirates’ concerns go unattended even though the latter had cancelled its order; that will become history. For Airbus, it is more than just about losing an order. More importantly, it is about the competition with Boeing. Clearly, he who pays the piper calls the tune.

It was by the size of Emirates’ order a big deal after all, and Emirates is one of the world’s leading airlines. Mr Tim Clark may well have the last laugh.

Boeing blues

Three months after the grounding of the B787-Dreamliner and while Boeing struggles to resolve the issue to get the plane back up in the sky, a new problem has landed on its lap – this time, concerning the B737 jets. The US Federal Aviation Administration has issued an airworthiness directive for more than 1,000 B737 planes operating in its airspace (which also applies in Canada) to be inspected for faulty tail pins that may have prematurely corroded, causing pilots to lose control of the plane.

The FAA said: “We are issuing this AD to prevent premature failure of the attach pins, which could cause reduced structural integrity of the horizontal stabilizer to fuselage attachment, resulting in loss of control of the airplane.”

It is a precautionary move, but likely a costly one for the airlines that have a large number of the B737 jets in their fleet, such as WestJet Airlines of Canada. Since the B737 is a short to medium-range aircraft, it is likely that regional airlines including cargo operators are likely to be the most affected. But safety is not something that you can or want to downplay in the business of flying.

This could not have come at a worse time upon the heel of a Lion Air crash into the waters, short landing at Bali’s Ngurah Rai International Airport in Indonesia just this week. Fortunately all passengers survived. There was no connection between the incident and FAA’s directive – the way that the grounding of the B787-Dreamliner was consequent upon sparks aboard a Japan Airlines plane initially suspected to be caused by the lithium-ion battery pack – and investigators have yet to establish the cause. It might even be extraneous to Boeing. Lion Air, which is Indonesia’s second largest airline and one of the fastest growing in the region, is banned from operating within the US and European Union over safety concerns.

Photo: Reuters/Stringer Indonesia

Photo: Reuters/Stringer Indonesia

But what came across as frightfully familiar was how the fuselage of the Lion Air plane broke apart, recalling similar mishaps experienced by four other airlines that include Continental Airlines in 2008, American Airlines in 2009, Aires Airlines (Colombia) in 2010 and Caribbean Airlines in 2011. Mind you, the B737 has been around since the 1960s and is a favourite plane for regional flights. It is in fact the best selling jet in the history of aviation.

Boeing will have much to do to repair its image. The aircraft business is dominated by two players – Boeing itself and Airbus, and the competition is such that for the bigger jets, the decision to buy which make and model usually comes down to either one of them. Aircraft orders can span several years, and timing is important.

Then, of course, as things settle, there is the looming question of compensation for downtime if Boeing is found to be contributory to its customer airlines losing out on opportunities. At least one airline – Qatar Airways – affected by the grounding of the B787-Dreamliner has publicly announced it will seek compensation from Boeing. Qatar chairman Akbar Al Baker said: “Definitely we will demand compensation. We are not buying airplanes from them to put in a museum.”

Lion Air roars

Picture courtesy Boeing

Picture courtesy Boeing

LION AIR is roaring and living up to its name. Indonesia’s privately-owned airline – the second largest in the country – is making news with two recent record-breaking plane orders. It has just placed an order for 234 Airbus jets worth 18.4 billion euros (US$24 billion), following up on an order of 230 Boeing aircraft worth US$22.4 billion last year.

The two orders would place Lion Air, which currently has a fleet of 92 aircraft, among the world’s top 10 by number of aircraft. This is an impressive leap forward considering that the airline is banned from flying within both the European Union and the US because of safety concerns. Lion Air operates a large domestic network, capturing 45 per cent of the Indonesian market, and to Asian destinations. Outside the region, it operates to Saudi Arabia, ferrying mainly labour traffic.

But with the growing Indonesian air travel market at a predicated 20 per cent per annum and the impending liberalisation of the Asean (Association of Southeast Asian Nations) skies by 2015, Lion Air is pitching early to be a regional dominant player. It looks set to jostle with Malaysian AirAsia – the regional’s largest budget operator – and has recently inked a deal with Malaysia’s National Aerospace and Defense Industries (Nadi) to set up an airline based in Malaysia (Malindo Airways) in tit-for-tat reaction to AirAsia’s expansion into Indonesia.  (See Malindo Airways to challenge Airasia, Sep 19, 2012)

Lion Air was founded in 1999 by two brothers Kusnan and Rusdi Kirana. Already their ambition has outpaced the dream of many of their rivals, and may even be putting pressure on the national agenda to accommodate their expansion plan.

Plunging Cathay profits: What went wrong?

Photo courtesy Cathay Pacific Airways

Photo courtesy Cathay Pacific Airways

WITH Cathay Pacific Airways – one of the world’s leading airlines – announcing an 83-per-cent plunge in annual profit, one must begin to wonder what went wrong.

Almost five years since the onset of the global economic crisis, the fortunes of the airlines can be best alluded to the unpredictable movements of the yo-yo. It was only at the end of last year that the International Air Transport Association (Iata) could with some confidence finally revise its profit forecasts upwards instead of downwards: from US$4.1 billion to US$6.1 billion for 2012, and from US$7.5 billion to US$l4 billion for the current year.

Could Cathay be an exception to the rule? For all the hype about product improvement all round including the new Premium Economy class and a new regional business class, the Hong Kong-based airline posted a net profit of HK$916 million (US$118 million), down from HK$5.5 billion a year ago.

Cathay has attributed its poorer performance to a number of factors.

First, higher fuel costs. Cathay reported that throughout much of 2012, fuel prices were at sustained high levels and the Cathay Group’s fuel costs increased by 0.8 per cent compared to 2011. What’s new anyway, when this should similarly affect all airlines across the industry? Yet, in spite of that, some airlines such as Japan Airlines are reporting improved performances. The volatility of the fuel price has been an easy target to blame no matter what degree its impact is on performance. It may not apply to Cathay, but in fact the average jet fuel price had been falling from Sep to Dec 2012 before rising again.

What is more of a concern is the reason for the decline in the fuel price, as explained by Iata chief Tony Tyler: “The reduction in fuel prices is a great thing for the airline industry but they are coming down because of concerns over world economic activity. If the world enters an economic slump, that will be even worse for the industry than the higher fuel price was on its own.”

Second, a drop in demand for corporate travel. This is a more cogent argument as the industry continues to be hard hit by the economic stagnation or slow recovery if at all it is happening, particularly in Europe and the United States. Cathay, which banks on its premium product, is naturally affected more than other airlines that thrive on the low-end traffic.

In a statement issued by the airline, Cathay chairman Christopher Pratt said: “Premium class yields were affected by travel restrictions imposed by corporations.”

Again, this is not a new lesson gleaned only yesterday but widely recognized during the global financial crisis which all but favours cheaper alternatives. Cathay is not alone in this predicament; rivals such as Singapore Airlines (SIA) and Qantas face the same threat.

In a counter-move, Cathay introduced the premium economy class to retain downgraders and attract those who are prepared to pay a little more but not that much more to upgrade to enjoy the frills of an in-between class. It is tempting to conclude that this strategy – perhaps to the relief of SIA which has until now snubbed the idea – is not working judging by the results posted by Cathay, but its full impact is yet to be realised. If the global economy continues to weigh down, it may well prove to be Cathay’s lifeline.

That brings us to the third point as to what went wrong then. Cathay attributes it to increased competition. Mr Pratt said: “An increasingly competitive environment added to the difficulties.” That may be true, but when an airline such as Cathay which is among the world’s most successful carriers resigns to that, it comes across as being somewhat less plausible and lame, and smacks of something amiss.

Competition is a given in this industry. So what has Cathay done or is doing to check the competition? To be fair, it has done much more than most airlines. It has rolled out new product improvements and improved its in-flight service. The airline is ranked consistently among the industry’s favourites, particularly its business class, by air travellers. By all account, its strategy should place it in the forefront of the competition, so what is missing that it should ascribe its falling performance to increased competition? If there’s such a thing as a success formula to suit different environments, has it got the equation not quite right?

Fourth, the weak cargo demand in major markets, particularly from Asia to Europe. No doubt this has affected Cathay’s overall profitability. If it is any consolation, close rival SIA is also similarly afflicted. There are no clear signs that the situation will improve substantially in the near term. In light of the weaker outlook, Cathay has cancelled an order for eight Boeing 777-200 freighters but instead placed an order for three Boeing 747-8 freighters which will carry 16 per cent more revenue-producing freight than predecessor Boeing 747-400. Cathay chief executive John Slosar said the larger airplane would result in fuel savings for the revamped fleet.   

Fifth, high operating costs, especially of the long haul routes that according to Mr Pratt were dominated by “older, less fuel-efficient Boeing 747-400 and Airbus A340-300 aircraft”. Last year, the company announced plans to accelerate retirement of the less fuel-efficient 747-400 as it continues with the fleet upgrading programme for both airlines in its fold – Cathay and Dragonair. In January, Cathay ordered 10 Airbus A350-1000 and converted 16 of its existing order for A350-900 to the larger A350-1000. These 350-seaters will ply high-density routes which include non-stop flights to Europe and North America.

The future should look rosier. Mr Slosar said: “This is an important strategic development for Cathay Pacific. The A350-1000 aircraft will bring us world-beating fuel efficiency.” 

Last, incommensurate cost-cutting measures that include offering unpaid leave to crew and reducing capacity on some routes which unfortunately, according to Mr Pratt, “were not enough to offset in full the effects of high fuel prices and weak revenues.”

And we have come one full circle. So what makes one airline more likely to succeed than another when almost every one of them alike ascribes its failed performance to the same factors?

Mr Pratt said: “Our core strengths remain the same ever: a superb team, a strong international network, exceptional standards of customer service, a strong relationship with Air China and our position in Hong Kong. These will help to ensure the success of the Cathay Pacific Group in the long term.”

Sounds familiar, you may say, except for specific references applicable only to Cathay.

Pressure on European Union to rethink carbon trading scheme

AN apparent move by China to block Airbus deals in retaliation against the European Union`s implementation of the carbon emissions trading scheme to all airlines operating to and from the EU territory has given gumption to Airbus to plead for a rethink by the authorities. The Airbus petition has the support of six European airlines, namely British Airways, Virgin Atlantic, Lufthansa, Air France, Air Berlin and Iberia.

China has already banned its airlines from participating in the scheme – which poses a headache for the EU which has so far shown no willingness to concede although the implementation date was January 1. While the EU could prevent Chinese carriers from landing within its territory, such action would have political ramifications.

The United States is also opposed to the scheme and some other countries too have voiced their displeasure but would comply.

Australian flag carrier Qantas along with compatriot Virgin Australia have already announced a carbon surcharge to be added to the ticket fare, perhaps also largely in preparation for a similar carbon trading scheme to be implemented in Australia by July.

Singapore Airlines chief executive Goh Choon Phong said: `We will comply but we don`t think it is an equitable measure.”

The external protest is now boosted by pressure from within. Airbus and its supporters are citing possible job losses. Airbus chief executive Thomas Enders said: “The measure is threatening more than 1,000 jobs (at Airbus) and another thousand through the supply chain.”

Does the EU have a Plan B or will the issue go the way of reciprocity the way that freedoms of the air have been negotiated? The unfavourable current economic conditions might provide the EU with an excuse – if it needed one – to placate some key trade partners without conceding its objective. But it is slippery ground. To get back up again may be as difficult, especially when the renewed call for a global solution through an international agency is bound to be plagued with differences that can only stall the process.

Doing nothing is an option, as the EU waits and sees.

US and EU cross swords on carbon emissions

COME January 1, 2012 all airlines that land or take off from any point within the European Union will be subject to the carbon emissions trading scheme (ETS).

The United States has objected to the scheme, perhaps a little too late even though the US House of Representatives had two months ago directed the US transport secretary to prohibit US carriers from participating in the plan. That is now seen as a veiled threat with little bite, with no real option for US carriers. A spokesman for EU Climate Change commissioner Connie Hedegaard said the EU would not bow to pressure from the US. Sauce for the gander is sauce for the goose. It is to be seen what the US would do next, with the latest threat from an official no less than Secretary of State Hilary Clinton warning that the US would respond with “appropriate action” if the scheme went ahead but stopping short of saying what action.

Naturally the US is concerned about its carriers being disadvantaged by the EU ruling and would prefer the matter to come under the ambit of the International Civil Aviation Organization (ICAO). But ICAO has done little to develop or promote concerted alternatives, let alone efforts by some airplane manufacturers and individual airlines demonstrating their green commitment.

The US has argued that the ETS is an infringement of the Open Skies agreement, but that has been refuted by the EU, which has rebutted that it is a regulation implemented within EU territory, in all likelihood no different by comparison how other countries have also imposed certain local charges within their own jurisdiction. The International Air Transport Association (IATA) is lending support to the US’s argument, saying it is “extra-territorial”, hence an infringement n the rights of airlines flying in international airspace.

IATA also claimed that the EU initiative is a tax on carbon emissions, and this breaks international conventions. But spokesman Isaac Valero Ladron of the EU Commission refuted that argument, saying: “This is not a tax, it’s pollution saving.” How much more is this a tax than, say, the fuel surcharge that permits airlines to unilaterally pass on additional fuel costs to their customers with no considerations of efficiency? At its very best, though punitive, the ETS is supposed to motivate airlines to be more fuel-efficient in their operations.

Canada, China and other countries in Asia and Africa – practically almost the rest of the world – have also expressed their disapproval of the EU’s regulation. So far Australia is the only country outside the EU that may be following in its footstep by the middle of next year. For now, there are concerns that the EU ruling may lead to a trade war, which Airbus and some national carriers are keen to avoid, urging the EU to modify its plans. Airbus chief Tom Enders said it was “madness to risk retaliation” from these countries.

There may be compromises yet the EU has indicated it may consider exemption for airlines whose countries are implementing similar ETS plans, suggesting reciprocity. But Mr Ladron made it clear that “we (EU) don’t work on the basis of threats, but on discussions.” ICAO may be wishing it had long ago started working on an acceptable global system.