Some airlines may not survive Covid-19

Anxiety is gripping the airline industry, the concern that some airlines may not survive Covid-19.

Particularly vulnerable are airlines laden with debt and are already struggling to stay afloat as well as small carriers which rely on seasonal traffic.

The dip in oil prices cannot make up for the drastic fall in demand for seats as people refrain from flying and as more countries impose travel restrictions and close their borders.

According to the International Air Transport Association (IATA), global airline revenue losses would rise above US113bn following the announcement of restrictions on travel from Europe into the United States.

Poland for one is suspending all international flights, and many other European countries are expected to take similar action to reduce travel.

Cathay Pacific has warned of financial losses ahead because of the coronavirus outbreak, adding to its woes of plunging profits in 2019 resulting from political unrest in Hong Kong.

Courtesy Getty Images

Korean Air has already sounded the alarm. The airline’s president Woo Kee-hong said: “If the situation continues for a longer period, we may reach the threshold where we cannot guarantee the company’s survival.”

Like many other airlines, Korean Air has suspended flights – as much as 80 per cent – and is asking staff to take voluntary leave. Ryanair may force staff to take unpaid leave.

Norwegian Air Shuttle CEO Jacob Schram said the airline has started talking to the unions about “temporary layoffs for flying crew members as well as employees on the ground in the offices.”

British Airways (BA) too is not ruling out cutting jobs. BA chief Alex Cruz said: “We can no longer sustain our current level of employment and jobs would be lost – perhaps for a short term, perhaps longer term.”

Uncertainty is the word. And that makes it all the more onerous for some airlines not knowing for how much longer they can afford keep their planes on the ground.

A bleak year for airlines

It looks quite certainly a bleak year for airlines as Covid-19 keeps people away from travelling. The outbreak has become more extensive than anticipated, short of being classified as pandemic by the World Health Organization.

Cutting capacity

Many airlines are cutting back or suspending services not only to destinations in China where the outbreak started but also across the world.

Among them are:

Courtesy Singapore Airlines

Singapore Airlines, which has cancelled almost 700 flights across its network through to May. Its low-cost subsidiary Scoot has cancelled all flights to China.

Cathay Pacific, which so far has seen flights reduced by more than 75 per cent till the end of March, with hints of more to be scrapped.

Qantas, which has reduced capacity to Hong Kong and suspended flights to Shanghai and Beijing. It is also reporting weak demand for seats on flights to Singapore and Japan as well. Capacity to Asian destinations will be reduced by 15 per cent until the end of May. Its low-cost subsidiary Jetstar is also adjusting capacity as a result of the weaker domestic market.

Air France, which has taken out flights to China until the end of March.

British Airways, which has cancelled not only flights to China but also more than 200 flights from London to destinations in the United States, Italy, France, Austria, Belgium, Germany and Ireland in the latter half of March.

Ryanair, which will cut up to 25% of flights in and out of Italy from 17 March to 8 April..Ryanair chief Michael O’Leary said: “There has been a notable drop in forward bookings towards the end of March, into early April.”

EasyJet, which is cancelling some flights because of “a significant softening of demand and load factors into and out of our Northern Italian bases”.

United Airlines, which has suspended flights to China and axed flights to South Korea, Japan and Singapore as demand across the Pacific has fallen by as much as 75 per cent. Delta Air Lines has also cancelled flights to China.

Air Canada, which has cancelled all flights from Toronto to Hong Kong until the end of April.

Middle-east airlines, which are affected by action taken by the Gulf authorities. Iran as the epicentre of the outbreak in the region has seen flights to its airports cancelled by neighbouring United Arab Emirates (UAE), Bahrain, Oman, Jordan, Kuwait, Iraq and Saudi Arabia.

Events cancelled

The threat of the disease spreading easily at public events has led to many of them being cancelled, which in turn will affect the airlines which would have enjoyed a boon in carriage numbers.

Courtesy United Airlines

United Airlines for one has scaled back additional flights between San Francisco/Newark and Barcelona planned for the Mobile World Congress which has been cancelled.

Now all eyes are on the 2020 Summer Olympics to be staged in Tokyo.

Business travel, as noted by British Airways chief Willie Walsh, has been affected by the cancellation of large conferences. Some large corporations are also restricting executive travel.

International cruises, which pose a similar threat following the outbreak of the disease on the Diamond Princess docked at Yokohama, have also suffered from reduced patronage or cancellations, and this in turn reduces feeds from airlines from across the globe to the ports of call.

Reduced profitability

Expectedly airlines are predicting reduced profitability although some of them are optimistic about the impact as not being as drastic as it seems.

Air France-KLM warned its earnings would be affected by as much as €200 million (US$224 million).

Qantas said the COVID-19 outbreak would cost the airline up to A$150m (US$99m).

Air New Zealand expects the impact to be in the range from NZ$35 million (US$22 million) to NZ$75 million as travel demand to Asia drops.

Finnair is expecting a significant drop in operating profit this year.

Airlines which rely heavily on Asian traffic are naturally more affected, even more so budget carriers such as AirAsia and its long-haul arm AirAsiaX. Particularly vulnerable are airlines which are struggling to stay afloat, such as Norwegian Air Shuttle, which is cutting back on long-haul operations, and Hong Kong Airlines, which is 45 per cent owned by Hainan Airlines of the HNA Group, which itself is facing a sell-off by the Chinese government.

Cost cutting

Besides reducing or cutting capacity, expectedly many airlines are looking at cutting cost.

EasyJet is looking into reducing administrative budgets, offering unpaid leave, and freezing recruitment, promotion and pay rises.

Singapore Airlines is implementing paycuts of 10 to 15 per cent for senior executive management. General staff will be offered a voluntary no-pay leave scheme.

Cathay Pacific is asking employees to take unpaid leave.

Courtesy Airbus

Perhaps the impact is most felt at Hong Kong Airlines which has slashed in-flight services to a bare minimum and dismissed staff, targeting 400 of them.

What’s next?

While the industry contnues to grapple with the prolonged saga of the B737 Max jet predicament, the coronavirus outbreak could not have come at a worse time on its heels. In both cases, it is the uncertainty that poses the biggest problem. Soem airlines are pessimistic that the threat will blow over by the end of March, which is unlikely, while others are more cautious in their forecast, looking at the end of May. It is this uncertainty that makes one wonder if any of them might not survive the wait.

Caution keeps B737 Max jet grounded

Courtesy Getty Images

Carriers which had been hopeful that the Boeing B737 Max jet would return to the skies as early as next month have deferred scheduled dates to operate the aircraft.

Earlier in August, Boeing CEO Dennis Mullenburg was hopeful that this would happen in the fourth quarter of the year and the airlines could look forward to capturing the peak holiday season traffic.

American Airlines which owns 24 of the Max jet is pushing the date to Dec 3. United Airlines with a fleet of 14 is moving it further down the road to Dec 19. It looks like both carriers are still hoping to cash in on what shall remain of the peak season including the Christmas holiday. But Southwest Airlines, the largest of the Max operators worldwide with 34 aircraft has moved the scheduled date to Jan 5 next year.

North of the border, Air Canada (which owns 24 Max jets) and Sunwing (with 4 aircraft) are not expecting the aircraft to be operational until next year. For Air Canada, it is Jan 8. And for Sunwing, even later in May. WestJet (with a fleet of 13 Max jets) too is not scheduling Max flights during the year-end holiday season, but said the company might consider an occasional flight to ease the demand should the ban be lifted then.

WestJet’s vice-president in charge of scheduling said: “It’s a little harder to unmix the cake at that point, but we would look at peak days, the Friday before Christmas (for example) where we can still sell seats and we’ll put the airplane back in.”

Elsewhere across the world, affected carriers remain non-committal on their plans. Other major operators until the jet was grounded include Norwegian Air Shuttle (18 aircraft), China Southern Airlines (16), TUI Group (15), China Eastern Airlines (14), Lion Air (14), FlyDubai (14), Turkish Airlines (12), and XiamenAir (10).

The B737 Max jet was grounded globally following two fatal incidents, one involving Indonesian carrier Lion Air in Oct last year and the other involving Ethiopian Airlines in Mar this year, both crashes claiming a total of 346 lives.

Quite naturally, carriers which own the Max jet are keen to see its early return to the skies. Many of them have cut back capacity to cope with the shortage of aircraft and are reporting losses as a consequence. United which took out 70 flights a day in its September schedule will see the number increased to 90 in December. Together, the three airlines – American, United and Southwest – have cancelled 30,000 flights. Delta Air Lines, however, stands to gain from these airlines’ disadvantage as it does not own any Max aircraft.

Budget carrier Norwegian Air Shuttle which plies the ultra-long haul is said to be on the brink of collapse, and the grounding of the B737 Max jet isn’t helping. According to former CEO Bjorn Kjos, the restriction has cost the airline US$58 million. Norwegian, which took the US by storm with its low fares, raising objection from American carriers, has cancelled numerous flights between Europe and the U.S.

Both the US Federal Aviation Administration (FAA) and Boeing have suffered some loss of credibility in the wake of the two crashes. Stories about Boeing’s shoddy work at is plants and allegations of FAA’s relegating its oversight role to the manufacturer had hit hard. FAA’s delayed action to ground the Max jet after a number of authorities across the globe had done so also called into question FAA’s leadership role in the field.

However, FAA may have learnt its lesson. Following meetings between Boeing and various industry players where disagreement on the readiness of the Max jet was apparent, FAA had said, “Our first priority is safety, and we have set no timeframe for when the work will be complete. Each government will make its own decision to return the aircraft to service, based on a thorough safety assessment.”

Europe’s aviation safety watchdog – the European Aviation Safety Agency (Easa) – for one will not rely entirely on a US verdict on whether the Max jet is safe to resume flying. It will instead additionally conduct its own tests on the plane before giving its final approval.

Transport Canada has insisted on the need for essential simulator training in early discussions when Boeing said it was not necessary since the Max jet was a variation of the B737 master model. The authority said it “will not lift the current flight restriction… until it is fully satisfied that all concerns have been addressed by the manufacturer and U.S. Federal Aviation Administration, and adequate flight crew procedures and training are in place.”

According to a report by the Wall Street Journal, multiple regulatory bodies around the world were not satisfied with Boeing’s briefing on the Max software update. They contended that Boeing “failed to provide technical details and answer specific questions about (the) modifications.” Boeing is expected to resubmit documents providing more details, and that these should be first approved by FAA before a follow-up meeting is convened. This in a way reminds FAA of its oversight role.

While affected airlines are looking forward to normalising their operations with the return of the B737 Max jet, what happens post-ban is another story. In fact, it may present a more difficult problem to handle than the technical aspects of the saga as the carriers try to win back the trust of travellers. If, indeed time is the healer, then taking the time to be absolutely convinced of the jet’s airworthiness before lifting the ban may be a good thing for the airlines.

2019 Skytrax World Airline Awards: Who are the real winners?

It’s that time of the year when the airline industry is abuzz with the Skytrax World Airline Awards announced recently at the Paris Air Show.

There are surveys and there are surveys, if you know what I mean. Skytrax, which launched its survey back in 1999 (according to its website) is generally viewed with some regard. It is said that more than 21 million respondents participated in the 2019 survey.

But what can we read of the results?

Which is the real winner: Qatar Airways or Singapore Airlines?

Qatar Airways switched places with last year winner Singapore Airlines (SIA) to be the world’s best airline.

As far back as 2010 until now, the two airlines have been ranked one behind the other in the top three spots, except in 2012 when Asiana came in second place between Qatar the winner and SIA in third position. In the ten year period, SIA came behind Qatar in eight years, except in 2010 when SIA was second and Qatar third, and last year when the Singapore carrier became the world’s best ahead of Qatar in second placing.

It looks like a tight race between Qatar and SIA for the top spot, and going by the survey results, Qatar has outranked SIA. It has become the first airline to have won the award five times, one more in the history of the awards.

But SIA is still ranked ahead of Qatar for first class and economy class.

In the first class category, Qatar is not even a close second to SIA in first placing but fifth behind Lufthansa, Air France and Etihad as well

In the economy class category, Japan Airlines is tops followed by SIA and Qatar in second and third placing respectively.

Besides SIA has the best premium economy in Asia, second only to Virgin Atlantic worldwide. But,of course, Qatar does not offer that class of travel.

Additionally SIA tops for cabin crew, and Qatar is farther down the list in 9th position.

But Qatar wins for business class, followed by ANA and SIA in second and third placing respectively. So it seems there is heavier weightage for this segment which has become probably the fiercest battleground for the airlines. First class included, it also suggests the halo effect of the premium product, but it is the business class that is the primary focus in today’s business.

It also attests to the impact of the recency factor. Qatar obviously impresses with its cubicle-like Qsuite that comes with its own door to provide maximum privacy. Quad configurations allow businessmen to engage in conference as if they were in a meeting room and families to share their own private space. And there is a double bed option.

Which brings up the importance of having to continually innovate and upgrade the product to stay ahead in the race.

The top ten listing: Consistency equals excellence

The ranking does not shift much from year to year. Besides Qatar and SIA, there are some familiar names: All Nippon Airways (3rd this year), Cathay Pacific (4th), Emirates (5th), EVA Air (6th) and Lufthansa (9th). So there is not much of a big deal as airlines switch places so long as they remain in the premier list.

Hainan Airlines (7th) is making good progress, moving up one notch every year since 2017. Qantas (8th) is less consistent, moving in and out of the top ten list, Thai Airways retained its 10th spot for a second year.

It is no surprise that the list continues to be dominated by Asian carriers which are generally reputed for service. You only need to look at the winners for best cabin crew: Besides SIA, the list is made up of Garuda Indonesia, ANA, Thai Airways, EVA Air, Cathay Pacific, Hainan Airlines, Japan Airlines and China Airlines. With the exception of Qatar, no other airline outside Asia is listed.

If you to look to find out how the United States carriers are performing, scroll down the extended list of the 100 best and you will see JetBlue Airways (40th), Delta Air Lines (41st), Southwest Airlines (47th), Alaska Airlines (54th), United Airlines (68th) and American Airlines (74th).

Home and regional rivalry

Rivalry between major home airlines or among competing regional carriers is often closely watched.

Air Canada, placed 31st ahead of rival WestJet at 55th can boast it is the best in North America. That’s how you can work the survey results to your advantage.

ANA (3rd) has consistently outdone arch rival JAL (11th). In fact, ANA has been the favoured airline in the past decade till now. It has Japan’s best airline staff and best cabin crew. Across Asia, it provides the best business class. Internationally, it provides the best airport services and business class onboard catering.

Asiana (28th) is favoured over Korean Air (35th ).

The big three Gulf carriers are ranked Qatar first, followed by Emirates (5th) and Etihad (29th).

Among the European carriers, Lufthansa (9th) leads the field, followed by Swiss International Air Lines (13th), Austrian Airlines (15th), KLM (18th), British Airways (19th), Virgin Atlantic (21st), Aeroflot (22nd), Air France (23rd), Iberia (26th) and Finnair (32nd).

What about low-cost carriers?

Worthy of note is how some budget carriers are ranked not far behind legacy airlines. AirAsia (20th) is best among cohorts. EasyJet (37th) and Norwegian Air Shuttle (39th) are not far behind the big guys in Europe. Among US carriers, Southwest Airlines (47th) is third after JetBlue (40th) and Delta (41st).

Also, pedigree parents do not necessarily produce top-ranked offshoots. Placed farther down the list are SIA’s subsidiary Scoot (64th) and the two Jetstar subsidiaries of Qantas – Jetstar Airways (53rd) and Jetstar Asia (81st). So too may be said of so-called regional arms. Cathay Pacific’s Cathay Dragon is ranked 33rd, but SIA’s SilkAir is way down at 62nd.

Pioneer of the modern budget model Ryanair is ranked 59th.

Down the slippery road of decline: Aisana Airlines and Etihad Airways

If it is difficult to stay at the top, it is easy to slip down the slippery road of decline. Asiana and Etihad are two examples.

Asiana was ranked world’s best airline in 2010 and became a familiar name in the top ten list up to 2014, after which its ranking kept falling: 11th (2015), 16th (2016), 20th (2017), 24th (2018) and 28th (2019). Its erstwhile glory has been whittled down to being just best cabin crew in South Korea.

Etihad did reasonably well for eight years until 2018 when it was ranked 15th, and a year later suffered a dramatic decline to the 29th spot. That, despite beating Qatar to be this year’s best first class in the Middle East.

As I stated at the onset that there are surveys and there are surveys. Some are not specifically targeted , whether its interest is business or leisure for example. There is always an element of subjectivity and bias in the composition and weightage, and this renders no one reading as being definitive. At best, we can read across several creditable surveys to know with some conviction how the airlines really measure against each other.

Read also:

https://www.todayonline.com/commentary/can-singapore-airlines-overtake-qatar-worlds-best-airline

Is the Boeing Max ready to fly?

Courtesy Boeing

Airlines looking forward to fly their fleet of Boeing B737 Max 8 aircraft have just got their planned schedules jiggered up by the Federal Aviation Administration (FAA)’s announcement that it may take up to a year before the jet is cleared again for commercial flights.

According to the BBC, FAA chief Daniel Elwell said: “If it takes a year to find everything we need to give us the confidence to lift the (grounding) order so be it.”

It may be read that underlying this is the FAA’s understanding that time is needed to regain the world’s trust – in both the aircraft and the FAA as regulator. While Boeing seems ready to sign off the improved jet, saying it has finished updating the pertinent flight-control software, FAA in an apparent redeeming move following censure of its lax oversight is assuming control as the final authority to certify the jet’s safety.

According to Bloomberg, Mr Elwell added at a meeting with representation from across the globe, “If there is a crisis in confidence, we hope this will help to show the world that the world still talks together about aviation safety issues.”

In Boeing’s favour, some airlines have voiced their support of the Max. Understandably so, particularly if the airline owns a sizeable fleet of the jet. American Airlines (AA) for one is confident of an “absolute fix” but CEO Doug Parker was also quick to add, “But…it’s not for us to decide whether or not the aircraft flies. It needs to be safe for everyone.” The airline, which has a fleet of 24 Max jets, has cancelled thousands of flights and has now cancelled Max schedules through mid-August.

Another airline which has pledged its commitment to Boeing is Singapore Airlines (SIA). The airline is pledging its commitment to purchase 39 Dreamliner jets and its re-commitment for a previous order of 30 planes. Although this is not related to the Max aircraft of which its subsidiary SilkAir has six of them, it gives Boeing a boost of confidence after reports of shoddy production and poor oversight at the Boeing plant in North Charleston surfaced, and following grounding of some Dreamliner jets because of problems with the Rolls Royce Trent engine fitted to the aircraft.

Read also:

https://www.todayonline.com/commentary/grounding-boeing-max-and-dreamliner-planes-how-can-singapores-airlines-reassure-customers

It’s good to have friends, indeed. But while it’s not yet known if airlines such as AA and SIA have sought or will seek compensation from Boeing, others which have made known their intention include Norwegian Air Shuttle, Ryanair and the big three Chinese carriers of Air China, China Eastern Airlines and China Southern Airlines. A strongly worded report from the Chinese Global Times newspaper said: “We must use punishment and tell the Americans their practice of using concealment and fraud to extract benefits from others, while benefiting themselves, is unfair.”

Max Jet Grounding: Airlines feel the pinch

With no certainty as to when the grounding of the B737 Max 8 aircraft will be be lifted, airlines are feeling the pinch.

The ban took effect soon after the crash of a jet operated by Ethiopian Airlines in March which happened five months after the crash of a Lion Air jet under similar circumstances.

Boeing is developing a software fix to the anti-stall system known as the Manoeuvring Characteristics Augmentation System (MCAS). It had hoped to implement this by May; this now looks unlikely.

Courtesy Boeing

Southwest Airlines, which is the biggest Max operator with a fleet of 34 jets, is extending Max cancellations through to August 5, and American Airlines with a fleet of 25 jets to August 19. Other airlines such as Air Canada which had expected to resume Max operations in July will have to follow suit.

Southwest which cancelled more than 10,000 flights reported a loss of US$200 million in revenue during the first quarter.

American Airlines, cancelling 155 flights a day, expected earnings to be hit by some US$350 million.

In a worse situation is Norwegian Air Shuttle which said its first quarter losses had widened to 1.49 billion kroners (US$172 million) from 46 million kroners a year ago. This is not helping the carrier’s plans to return to profitability as it has been forced to rebook passengers on other flights and rent alternative aircraft to maintain its schedule. Chief executive Bjoern Kjos expects the grounding to last till the end of August.

Now the question remains as to whether passengers will take readily to flying again the Max jet. More than 50 per cent of Americans had said they would not, even with the fix in place. It is not enough for Boeing to convince its airline customers. The bigger challenge lies in restoring the trust of the airline’s customers.

Southwest CEO Gary Kelly had said while Southwest is an “all-Boeing carrier”, it didn’t mean the airline would use the 737s in “perpetuity”.

More Boeing woes: Singapore Airlines grounds B787 jets

Courtesy Singapore Airlines

Singapore Airlines (SIA) has grounded two of its eight Boeing 787-10 jets which are found to have premature blade deterioration. The aircraft with an average age of only 1.11 years are fitted with Rolls-Royce Trent 1000 engines.

In truth this is not a new issue. Other airlines such as British Airways, Virgin Atlantic and Norwegian Air Shuttle have also grounded their affected aircraft. As of late February, Rolls-Royce said 35 787s across the industry were grounded due to engine blades corroding or cracking prematurely. It aimed to reduce the number to 10 by the end of the year.

While grounding an aircraft can be costly, airlines are not taking chances. In the present cliamte following the fatal crashes of two B737 Max 8 jets operated by Lion Air and Ethiopian Airways, the mood must be one of caution. Being open as SIA did, helps to reassure customers of the diligence the airline gives to its maintenance program.

A for Boeing, although the issue relates to the Rolls-Royce engine, it couldn’t have come at a worse time.