IAG Boost for Boeing

Courtesy Boeing

British Airways owner IAG made a bold decision at the Paris Air Show when it announced a tentative order of 200 Boeing B737 MAX jet. It must have surprised quite a number of industry folk to come so soon after the fatal Lion Air and Ethiopian Airlines incidents, and that the aircraft is still being grounded. After all, Boeing CEO Dennis Mullenberg had said participation at the Paris Air Show for Boeing was not about getting new aircraft orders but to restore confidence in the MAX jet. IAG’s support has certainly given Boeing that much needed boost.

Now, is IAG being too hasty at a time when many people are still not comfortable about thinking of flying the MAX as it stays grounded? Clearly the European airline group which also operates Iberia, Aer Lingus and budget carriers Vueling and Level is convinced the time will come, and when it does, IAG partners are ready ahead of others. It is not as if the aircraft will be delivered to IAG’s doorsteps the following morning. And with that conviction, now may be an excellent time to cut a good deal when Boeing is hungry to regain customers’ favour.

It would be a tad too altruistic to think IAG’s decision was a deliberate move for the benefit of the airline community, so as to keep the competition between Boeing and Airbus alive. As it is, Airbus which announced a new version of the A321 at the Paris Air Show, is not hiding its disappointment over the IAG-Boeing deal, noting that IAG had not issued a formal tender and staring Airbus’ interest in bidding for the order.

“We would like a chance to compete for that business,” Airbus chief commercial officer Christian Scherer told reporters at the show.

Now, given the boost by IAG, Boeing said it was in talks with a number of other airlines for sales of its MAX jet. It needed to keep up the momentum.

The big question still remains as to when the MAX jet will get off the ground. IAG may be right that time heals, and many travellers will eventually get back to flying the MAX jet whether out of necessity or expedience. Obviously the traveller doesn’t figure in the equation. After all, how many people are actually finicky about the make of the aircraft that they are flying? There will be some, but will the number be material enough to make the airlines think twice?

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.

British Airways is becoming more “budget” than Ryanair

Courtesy Getty Images

NOT too long ago, British Airways (BA) did away with complimentary meals on short flights. (See No more free meals for BA short haul, Jan 16, 2017) Now, in yet another move to operate like a budget carrier, it is squeezing in more seats in its planes and that means less legroom.

According to some media reports, BA seat space will be the same as budget carrier Easyjet, even less than Ryanair.

A BA spokesman said the initiative would keep the fare low. But, of course, that’s to be expected. Air travellers will do better to recognise the new BA as belonging to the same category of low end operators when they are booking flights. And, sadly for BA, it can only mean it is facing tough competition.

BA’s partner airlines – Iberia, Vueling and Aer Lingus – under the International Airlines Group (IAG) are also offering the same seat space.

And, if you’re thinking of complaining about any aspect of BA’s service, think again. There is a £25 fee. If it makes you feel any better, that applies to Easyjet as well. Just don’t make the mistake of expecting more from a legacy-but-no-longer-full-service airline!

Budget and transatlantic competition heat up

Courtesy Vueling Airlines

Courtesy Vueling Airlines

International Airlines Group (IAG) announced plans to commence low-cost transatlantic flights from Barcelona to the United States by budget carrier Vueling. IAG also owns British Airways (BA), Iberia and Aer Lingus.

Legacy airlines (and airline groups) are increasingly recognizing the competition posed by budget carriers, and it is not new that some of them have set up budget operations such as Lufthansa’s Eurowings, Qantas’ Jetstar, and Singapore Airlines’ Scoot. In the US, the Big Three airlines of American, United and Delta are introducing no-frills fares on normal services to compete with low-cost counterparts such as Southwest, JetBlue and Frontier.

Where the competition is most felt is the transatlantic sector, which has seen a surge of cheap fares offered by operators such as Norwegian Air Shuttle and Iceland’s WOW Air, discomforting both US and European counterparts.

WOW Air is well-known for its $99 fare for travel between the US and Europe – destinations such as Copenhagen, Stockholm, Edinburgh and Bristol – with a free stopover in Reykjavik. It has begun enticing US Westcoasters with fares as low as $65.

Norwegian also offers $99 fares with promotional offers as low as $69.

Budget doyen Ryanair has long announced its ambition to also ply the transatlantic routes.

While home-based US airlines are protesting the entry of Norwegian, European airlines are taking a more active approach to compete head-on. IAG will be able to advantage Vueling with the network of partner airlines. Eurowings is already operating nonstop from Cologne and Bonn to the US, and it has plans to add more destinations.

In a price-sensitive market for as long as the current situation holds, budget carriers may be driving the trend. Legacy airlines will be challenged to make their advertised difference in product worth the additional dollars in fares, at the same time keeping their budget rivals at bay in a two-prong approach to the competition.

International Airlines Group soars

British Airways PlcIT was a week of good news. Following Qantas’ stellar turnaround, the International Airlines Group (IAG) which owns British Airways (BA), Iberia and Vueling posted soaring pre-tax profits of €828 million (US$89.8 million) for the year ending 31 December 2014.

However, while Qantas swings like a yo-yo, plagued by uncertainty of its action in spite of its vaunted transformation programme, BA has demonstrated a steadier course in progressing all three partners towards profitability. (See Qantas’ stellar turnaround: To whom is the credit due? Mar 6, 2015)

IAG’s success was attributed largely to the turnaround of Spanish airline Iberia which IAG CEO Willie Walsh said “remarkable, both financially nd operationally.” Stringent cost-cutting measures that had resulted in 4000 job redundancies since 2011 and the use of more efficient aircraft have worked. The target was for Iberia to break even in 2014, and it had done better than that, posting an operating profit of €50 million, compared with an operating loss of €166 million last year and, as a result, almost doubling IAG’s operating profits to more than €1 billion.

BA posted an operating profit of €1.2 billion compared to last year’s €762 million. Low-cost partner Vueling posted an operating profit of €141 million.

IAG has raised its forecast for 2015 by 20 per cent. However, it said all three airlines in its conglomerate are facing stiff competition, particularly from low-cost carriers, across Europe.

Happy days are here again

“Happy days are here again, The skies above are clear again…” So goes the popular hit song by Ager and Yellen featured in the 1930 movie Chasing Rainbows. In aviation parlance, we might say “blue skies”.

Courtesy Bloomberg

Courtesy Bloomberg

US airlines are reporting strong improved results even as there continue to be concerns about increased competition and new threats such as the Ebola scare. American Airlines for one, based in Dallas Fort Worth that claimed the life of the first Ebola victim in the country and where two caretakers were subsequently found to be infected, where the first detected Ebola victim, reported a net income of US$942 million in the third quarter. This was an improvement of over 85 per cent on the combined incomes of American and US Airways before their merger in December 2013. The airline expects the demand for seats to grow in spite of a temporary drop in bookings following the news of the Ebola fallout.

Other airlines are similarly upbeat about their bottom lines, and a boost in capacity is expected.

Courtesy Qantas

Courtesy Qantas

At the other end of the world, Qantas chief executive Alan Joyce has expressed confidence that the flying kangaroo is back on course to deliver its first pre-tax profit this year (Q1 Jul-Sep) after its biggest annual loss of A$2.8 billion (US$2.6 billion) in the last financial year. In particular, according to Mr Joyce, yields for its loss-making international arm had been positive for six consecutive months.  Me Joyce said: “Preliminary figures indicate that the group has made an underlying profit before tax for the first half of the financial year.”

In Europe, while Air France and Lufthansa are struggling with industrial action that has caused the airlines millions of euros, low-cost carrier easyJet reported benefitting by as much as £5m (US$5.35m) from the disruption. (see Easyjet rides on Air France’s troubles, Oct 8. 2014). That aside, demand across Europe has been reportedly buoyant in recent times. In August, International Airlines Group (IAG) which owns British Airways, Iberia and Vueling reported a pre-tax profit of 155 million euros (US$207 million) compared with a loss of 177 million the previous year.

Courtesy Cathay Pacific

Courtesy Cathay Pacific

Major airlines in Asia are also expected to also post improved results. Cathay Pacific for one posted an impressive first half net profit (Jan to Jun) of HK$347 million (US$44.8 million) compared to a profit of HK$24 million a year ago. Of course, Cathay chairman John Slosar warned against increased competition, which “makes it difficult to maintain yields.”

For all that the airlines had been quick to blame their previous poor performances on high fuel costs, they may now drink to the falling fuel prices.