Consistency defines Skytrax best airlines

The 2017 Skytrax list of the top ten airlines is as in previous years hardly changed of note. Only two airlines dropped out of the list – Turkish Airlines and Qantas, making way for Garuda which was listed in 2015 and 2014, and Hainan Airlines which in 2014 was commended for clean cabins and amenities in business class.

Courtesy Qatar Airways

year’s champion Emirates Airlines went down to fourth place, followed by Cathay in fifth, making way for All Nippon Airways (ANA) in third.

This speaks of the consistency that makes these airlines the travellers’ perennial favourites. SIA has long been reputed for premium service and emulated by the Middle East carriers making them fierce competitors in the field.

However, it is more interesting to look at the movements into and out of the top ten list. Turkish Airlines which was included in the last three years dropped to 12th position this year, and Qantas moved further down from 9th last year to 15th this year. What is most noticeably absent is Asiana Airlines, which was voted the best in 2010 and continued to be one of the best since then until last year when it dropped to 11th and this year ranks 20th. If the Skytrax ranking is anything to go by, then Asiana should be concerned, perhaps not as much about the quality of its service as being surpassed by the competition.

On a more positive note, Hainan Airlines becomes the first China carrier to be ranked in the top ten, and Garuda re-entered the list boosted by its best cabin crew win.

Not surprisingly, the top ten list is dominated by Asian carriers with the exception of Lufthansa. Just a dash shy of that honour and ranked 11th is Thai Airways International.

No US airline has made it to the top ten, and don’t bother asking if they were really concerned,

Cathay Pacific axes 800 jobs: Is this the answer?

TIMES are hard for legacy airlines, it seems, when major airlines such as Singapore Airlines (SIA) and Cathay Pacific are beset with economic woes.

Courtesy Cathay Pacific

SIA announced a plan to transform the airline after reporting a last quarter loss of $S41 million (US$ 29 million) (see SIA’s transformation is long overdue, 27 May 2017). Cathay, losing HK$585 million (US$103 million) in 2016 – its first annual loss in eight years – is set to cut 800 jobs. Both airlines cited intense competition, mainly from the big three Middle East carriers of Emirates Airlines, Etihad Airways and Qatar Airways, and carriers from China. Cathay additionally suffer substantial fuel hedging losses.

Invariably cost cutting is almost every airline’s clarion call to try to get back into the black. It helps, of course, and such an exercise can eliminate wastage and improve productivity when in good times the airline has lost the discipline. However, more may be needed to be done if the issues are structural and operational. It calls for a deeper review of product, procedures and processes, and marketing strategies against a changing aviation landscape that renders old successes irrelevant and demands new innovative approaches.

Like SIA, Cathay is caught in a price-sensitive market where competitors have been able to provide comparable services at lower fare, and that’s not talking about low-cost carriers (LCCs) alone. Cathay risks losing its position as the gateway airline at the door of the huge China market as more carriers from the mainland commence direct services to destinations beyond China and offer connections out of Shanghai and Beijing. Also, partnerships between China carriers and other airlines are also threaten to cut Cathay out of the game.

Some analysts think Cathay is disadvantaged by the absence of budget arms, unlike SIA which is supported by Scoot and Tigerair. The solution really is not for Cathay to go budget, but to make that difference between flying low-cost and flying full-service in its favour.

SIA’s transformation is long overdue

Courtesy Bloomberg

Singapore Airlines (SIA) announced it will be taking “bold radical measures” in a major business transformation plan after the parent airline incurred a fourth-quarter operating loss of S$41 million (US$30 million). SilkAir and Budget Aviation Holdings (Scoot and Tiger Airways) reported lower profits for the same quarter: the former down 19 per cent to S$27 million and the latter more than 50 per cent to S$22 million.

Full-year operating profit for SIA was S$386 million, a decline of S$99 million or 20 per cent year-on-year. For SilkAir it was a fall of 11 per cent and for Scoot and Tiger a combined drop of 60 per cent.

SIA chief executive officer Goh Choon Phong said: “The transformation is not just about how we can cut cost but also how we can generate more revenue for the group, how we can improve our processes more efficiently, …so that we can be lot more competitive going forward.”

If anyone is surprised at all, it is not because it is happening but that it has taken so long coming. The writing has been on the wall since the global financial crisis when the airline suffered a loss of S$38.6 million in FY 2008/09, and from then onward the margin has averaged less than three per cent compared to seven per cent in the five years leading to it.

SIA cited intense competition that is affecting its fortune. Lower fuel costs that contracted by S$780 million (down 17.2 per cent) didn’t help. Capacity reduction trailed the reduction in passenger carriage, and passenger load factor as a result dipped lower to 79.0 per cent.

While details of the transformation are yet to be announced, it will do SIA well to recognise that the aviation landscape has changed dramatically over the years and will continue to shift. Competition in the business is a given, and we cannot help but recall how the fledgling airline from a tiny nation leapfrogged its more experienced rivals in its early days to become the world’s best airline and one of the most profitable in the industry. No doubt the competition has intensified, but the salient point here is that it can never be business as usual.

What then has changed?

Low-cost carriers are growing at a faster rate than full-service airlines and are now competing in the same market, and while SIA may have answered that threat with setting up its own budget subsidiaries, the parent airline is not guaranteed it is spared. Until the merger of Scoot and Tiger under one umbrella, there had been much intra-competition. And while the subsidiaries compete with other low-cost carriers, the concern should be that they are not growing at the expense of the parent airline. That calls for clearly defined product and route differentiation such that they are not substitutes at lower fares.

Low-cost carriers are also venturing into the long-haul, aided by the current low fuel price and technologically advanced and more fuel-efficient aircraft. The launch of Norwegian Air Shuttle’s service between Singapore and London in October at drastically lower fares poses a challenge to SIA on one of its most lucrative routes.

The market is becoming increasingly more price sensitive since the global financial crisis, and that favours the low-cost model of paying for only what a passenger needs. Dwindling may be the days when one is more willing to pay a higher fare for SIA’s reputable in-flight service as other carriers improve their products and services, often the reason cited for the competition laid on by the big three Middle East airlines of Emirates Airlines, Etihad Airways and Qatar Airways.

These rivals are also offering a slew of connections out of their home bases and reduced layover times which are the forte of the SIA network. The growing importance of airports such as Dubai and Hong Kong as regional gateways may disadvantage not only Changi Airport but also SIA in the competition against airlines such as Emirates and Cathay Pacific. In 2013, Qantas shifted its hub on the Kangaroo Route from Singapore to Dubai, and is now planning to build a hub out of Perth for the same route. SIA will have to heed the geographical shift that may affect the air traveller’s preference for an alternative route.

Along with this is also the increased number of non-stop services between destinations, particularly out of the huge, growing Chinese market. This may eliminate the need for travellers to fly SIA to connect out of Singapore, say from Shanghai to Sydney when there are direct alternatives offered by Qantas and China Eastern Airlines. It has thus become all the more imperative for SIA and Changi to work even closer together.

Well and good that SIA is constantly looking at improving cost efficiency and productivity. But more has to be done. As Mr Goh had said, it calls for a “comprehensive review on whatever we are doing and how we can better position ourselves for growth.”

The key word is “transformation”, in the same way that Qantas chief executive Alan Joyce went about restructuring the Australian flag carrier following the airline’s hefty losses four years ago. Drastic measures were introduced that include the split between international and domestic operations for greater autonomy and accountability, and concrete targets were set over a specific timeline. The continuing programme seems to have worked for Qantas as it bucks the trend reporting record profits while other airlines such as Cathay are hurting.

SIA will have to look beyond its own strengths at the strengths of others. It has thrived on the reputation of its premium product, but that has taken a toll as business travellers downgrade to cheaper options. Although that business segment is slowly recovering, other airlines have moved ahead to introduce innovative options, such as the premium economy which Cathay revitalised as a class of its own and which SIA was slow in embracing, reminiscent of how SIA too did not foresee the increased competition posed by low-cost carriers. It is a pity that SIA, once a leader in innovation, has lost much of that edge.

Timing is everything in this business to cash in on early bird advantages, but this is not made easy by abrupt geopolitical changes and new aviation rules and the long lead time in product innovation and implementation. All said, SIA may begin by looking at what worked for it in the past and ask why it is no longer relevant.

US & UK ban laptops on board: Will this become the security standard?

Courtesy Emirates

SOON after the United States bars passengers on foreign airlines taking off at ten airports in Africa and the Middle East from carrying electronic devices larger than a cellphone, the United Kingdom announced a similar ban although the list of airlines and airports may be different.

The ban will affect items such as laptops, tablets, e-readers, cameras, printers, electronic games and portable DVD players. However, these articles may be carried in checked baggage.

Affected airlines and airports

The US restriction affects nine airlines: EgyptAir, Kuwait Airways, Royal Air Maroc, Royal Jordanian Airlines, Saudi Arabian Airlines, Turkish Airlines, and the Gulf big three of Emirates, Etihad Airways and Qatar Airways. The airports affected are sited in Amman (Jordan), Cairo (Egypt), Casablanca (Morocco), Doha (Qatar), Dubai and Abu Dhabi (United Arab Emirates), Istanbul (Turkey), Jeddah and Riyadh (Saudi Arabia), and Kuwait City (Kuwait). It is estimated about 50 flights daily would be affected.

The British ban affects 14 airlines arriving from Egypt, Jordan, Lebanon,Saudi Arabia, Tunisia and Turkey. While the US ruling exempts US carriers flying from the listed airports, the British restriction applies as well to home-based airlines British Airways and EasyJet.

Why the restrictions?

The reason for the bans is of course one of security, aimed at preventing terrorist attacks on commercial airlines. The US Department of Homeland Security said: “Terrorist groups continue to target commercial aviation and are aggressively pursuing innovative methods to undertake their attacks, to include smuggling explosive devices in various consumer items.”

The British government said it recognised the inconvenience these measures may cause but “our top priority will always be to maintain the safety of British nationals.”

Few air travellers, if any, will take issue with enhanced security measures since it means a safe flight. Any averse reaction is to be expected, as when full-body x-ray and search became mandatory at US airports. The inordinately long wait to clear security at US airports has since then become an accepted practice.

However, it will do well not to ignore the arguments put forth by experts who may not yet be fully convinced. Technology experts have questioned the premises which in their mind appear to be at odds with basic computer science.

What goes with the ban?

The ban on laptops means no one will be able to work during a flight, something that businessmen and women will sorely miss. Keeping yourself or your kids entertained with electronic games of your personal selection will be a thing of the past if you do not like what the airline offers in its system. What about that novel you thought you might at last be reading during the long journey, having loaded it in your e-book?

Sure, you can pack these (and your camera) in your checked baggage to loaded in the aircraft hold, but it defeats the purpose if they are intended for use during the flight. Also, if these are expensive equipment, passengers are often reluctant to pack them in checked baggage for fear of losing them or having them damaged. Some observers are predicting a rise in incidents of theft in the baggage holding area and cargo hold, and airlines will be confronted with the messy business of handling claims. Apparently baggage theft skyrocketed when Britain imposed a similar ban in 2006.

Laptops, tablets, cellphones and cameras are among the items that are already being subjected to additional security checks before they are cleared as carry-ons. It can only point to the suspicion that the current procedures are not robust enough.

Looking at the bigger picture, some experts fear the ban seems lopsided. First, if a laptop as an example may be used as an incendiary device, it is equally dangerous in the cabin as it is stowed in the baggage hold. Second, the ban targets named originating airports, but a terrorist suspect could always connect a flight from a presumed safe airport or fly on a presumed safe airline. Third, in the case of the US, to make exceptions for flights originating in the US is turning a blind eye to the possibility that mischief could also be traced to a home source.

Some airlines may benefit from the ban

It looks like an unexpected turn of events for the US big three of American Airlines, Delta Air Lines and United Airlines in their quest to get the US government to act against the perceived unfair competition by the Gulf big three (Emirates, Etihad and Qatar). The ban may well benefit the American trio as travellers are likely to want to travel with their electronic devices on board than to have them stowed in the baggage hold. A pertinent question would be how the US carriers would ensure the devices brought on board are safe the way that other carriers may not be able to do so?

Similarly, in the case of the UK ruling which covers also budget carriers, legacy airlines will have the edge if, unlike budget carriers, they do not charge for checked baggage. Easyjet, for example, will be challenged to think up an innovative approach to this issue.

And will airlines across the industry introduce loans of security-screened laptops on board for a fee?

The future

Although the ban is said to be temporary (as indicated by the US), will there be a change of mind to make it permanent, like the ban on liquid obtained before security clearance? Amuse yourself about a future when all you are allowed to bring on board are the clothes you are wearing and a wallet. Everything else needed or desired for the journey as determined by the authorities and the airlines may be purchased after take-off.

For now, some airlines may mull over the use or disuse of a happy passenger working on his or her laptop in their ads.

Ultra-long flights: The competition heats up

Courtesy Qatar Airways

Courtesy Qatar Airways

Qatar Airways has clinched the honour of operating the longest non-stop commercial flight when it commenced operations from Doha to Auckland on February 6. The inaugural flight, using a Boeing 777-200LR aircraft, clocked 16 hours and 23 minutes for a distance of 14,535 km.

Qatar edged out rival Emirates Airlines which also operates to Auckland but from Dubai, and Air India which interestingly flew over a longer distance of 15,127 km from New Delhi to San Francisco across the Pacific (rather than the Atlantic) but advantaged by tailwinds clocked a shorter flying time.

Ultra-long flights are a boon to travellers, particularly corporate executives, who want to skip long transit stopovers or the hassle of connections. But there are others who prefer an intermediate stop to stretch their legs. They work excellently for end-to-end traffic where there is demand between these destinations. But airlines will find it does not make economic sense to connect two points for the sake of flying the distance. One may ask, in the case of Qatar’s new launch, is there adequate traffic between Doha and Auckland – the same question that would have been posed to Emirates?

Clearly Qatar is thinking network connections – not catering to just traffic from Auckland but to encourage travel beyond Doha to Africa, Europe and the Americas, in much the same way that Emirates has built a viable Dubai hub for connecting traffic challenging long-standing hubs such as Singapore Changi. Qantas, which has traditionally used Changi as the hop from Australia to Europe vv has contributed to the growth of Dubai to which it has shifted its hub operations. Now Qantas is rethinking its strategy to make Perth the hub when new technology enables the flying kangaroo to one-hop from London to Perth vv.

The competition has heated up in recent years with more airlines mounting such ultra-long flights. The strategy goes beyond tapping end-point, particularly home, markets, pointing to the importance of developing strong home and secondary hubs, and onward network connections. The squeeze on the competition may ironically persuade more airlines to intercross their networks to make ends meet.

Air New Zealand leads the pack

Courtesy Air New Zealand

Courtesy Air New Zealand

Air New Zealand is the world’s best airline according to AirlineRatings.com based on criteria that include fleet age, safety, profitability and leadership in innovation for passenger comfort. The agency’s Airline Excellence Awards program which lists the winning airlines is endorsed by the International Civil Aviation Organization.

Many travellers would recognize ANZ for its attention-grabbing in-flight safety video that takes them into Middle Earth, the kind of out-of-the-aircraft features that a few other airlines have tried to imitate but fared only poorly. AirlineRatings.com Editor-in-Chief Geoffrey Thomas said: “Air New Zealand came out number one in virtually all of our audit criteria, which is an exceptional performance.” The airline was favoured for its record-breaking financial performance, award-winning in-flight innovations, operational safety, environmental leadership and motivation of its staff.

Skycouch: Picture courtesy Air New Zealand

Skycouch: Picture courtesy Air New Zealand

But, of course, there are surveys and there are surveys that publish their own lists of favourites. Some airlines such as Singapore Airlines (SIA) and Cathay Pacific have a ubiquitous presence, and there also notable absences. This is where it is most telling, bearing in mind that the ranking is dependent on several factors such as the excellence-defining criteria and the population surveyed.

The other nine airlines ranked behind ANZ in the top ten list by AirlineRatings.com are in descending order: Qantas, SIA, Cathay, Virgin Atlantic, British Airways (BA), Etihad, All Nippon Airways, EVA Air and Lufthansa.

It is interesting to note that the top two airlines come from the remote Southwest Pacific. Qantas has in recent years been working on upgrading its product offerings, winning accolades for catering and airport lounges. Not surprisingly, innovation along with good service seem to be the driving winning streak going down the list – SIA and Cathay for their premium economy and revamped business classes, Virgin for its cabin ambience and friendly crew, BA for its leadership in in-flight entertainment, and Etihad for its equally impressive service in front and at the back of the aircraft.

Notable absences in the list are US carriers (no surprise there) and two of the big three Middle-East carriers (Emirates and Qatar).

Many survey rankings are skewed by the weight they place on service in the premium classes. However, Mr Thomas of AirlineRatings.com said: “We are looking for leadership and airlines that innovate to make a real difference to the passenger experience particularly in economy class.” Considering that the majority of travellers are seated in coach, it is time that airlines crowned with the halo of excellence pay more attention at the back of the aircraft, for this may well make the difference as the competition intensifies. And, it is where the differentiation becomes even more challenging. Perhaps too, this could be the reason why Emirates and Qatar, known for their lavish premium service, did not make it to the top ten of the list.

Cathay Pacific losing grip of China card

Courtesy Cathay Pacific

Courtesy Cathay Pacific

Cathay Pacific reported plunging profits of 82 per cent for half-year results up to 30 June. Revenue fell 9.2 per cent to HK$45.68 billion (US$569 million). For an airline that had boasted record margins in previous reports, it demonstrates the volatility of the airline business today in spite of the continuing low fuel prices.

While Cathay chairman John Slosar put the blame on competition and the slowdown of the China economy – what’s new, indeed? – it is worthy of note that Cathay also suffered hedging losses in the spot market. Many airlines are apt to extol their ability to gain from fuel hedging but will remain reticent when the reading goes awry.

Mr Slosar said: “The operating environment in the first half of 2016 was affected by economic fragility and intense competition.” Apparently premium economy, which since its introduction has been Cathay’s pride, and the long hauls were not performing to expectations, confronted by competition from Middle East carriers Emirates Airlines, Qatar Airways and Etihad Airways, and from China carriers such as Air China and China Eastern which are offering direct flights thus doing away with the need for Chinese travellers to fly through Hong Kong.

Competition from foreign carriers in a reciprocally open market is to be expected, and which may be augmented by those carriers offering an improved product. Cathay’s main woe is probably the falling China market on two counts: the reduced demand for premium travel and the diversion away from Hong Kong as the gateway to the region. Cathay and Hong Kong International Airport have benefitted from the growing China market, but while it was able to prevent Qantas from setting up Jetstar Hong Kong, it can do little to stem the growth of China carriers.

Courtesy Singapore Airlines

Courtesy Singapore Airlines

It would be more meaningful to compare Cathay’s performance with its major regional competitors. Singapore Airlines (SIA) reported Q1 (Apr-Jun) profit of S$197 million (US$144 million) (up from S$108 million) while the other carriers in the Group – SilkAir, Scoot and Tigerair – also did better on the back of lower fuel prices. But group revenue declined by 2.1 per cent because of lower contribution by parent airline SIA. In July passenger load was down 1.2 per cent (1.676 million from 1.697 million), and the load factor by 2.2 pts at 82.4 per cent from 84.6 per cent. Except for East Asia (with flat performance), all other regions suffered declining loads.

This may be indicative of the global economic trend. Like Cathay, SIA’s fortune has shifted from the longer haul to the regional routes. Europe suffered the highest decline (4.5 pts) followed by Americas (3.1 pts). The picture will become clearer when it reports Q2 (making up the first half year) results. According to Mr Slosar of Cathay, the business outlook “remains challenging”.

Courtesy APP

Courtesy APP

However, it is good news downunder as Qantas reported record profit of A$1.53 billion (US$1.15 billion) for the year ending June 2016, up 57 per cent – the best result in its 95-year history. Qantas Domestic, Qantas International and the Jetstar Group all reported record results: the domestic market chalked up a record A$820 million, up A$191 million, and the international division A$722 million, up A$374 million. The Qantas Transformation program seemed to have continued working its magic to “reshape the Group’s base and ability to generate revenue” according to its report. CEO Alan Joyce said: “Transformation has made us a more agile business.” And, unlike Cathay, effective fuel hedging saw the Group secure an A$664 million benefit from lower global fuel prices, leaving us to wonder what Cathay would say to that.

It is once again a feather in Mr Joyce’s cap. He added: “The Qantas Group expects to continue its strong financial performance in the first half of financial year 2017, in a more competitive revenue environment. We are focused on preserving high operating margins through the delivery of the Qantas Transformation program, careful capacity management, and the benefit of low fuel prices locked in through our hedging.” He believed the long-term outlook for the Group to be positive.

The contrasting fortunes of airlines may prompt one to ask how in the end that as much attribution of an airline’s performance is attributed to global influences, so too as much is balanced by its self-discipline in adjusting to the vicissitudes of the times, its astuteness in seizing shifting opportunities and, of course, its ability to read global and regional trends as unpredictable as they are.