IAG levels up

Courtesy Level

International Airlines Group (IAG) which also owns British Airways, Iberia and Aer Lingus is expanding the scope of its new low-cost carrier Level. Originally intended to be a long-haul budget operator, it will now also offer short-haul services from Austria.

The Europeans may not be aware of how Scoot, set up as a budget carrier by Singapore Airlines (SIA) for the long-haul, soon took on the short-haul as well and ended up assimilating its short-haul budget sibling Tigerair. (See After the merger of Scoot and Tigerair, will it be Singaproe Airlines and SilkAir next? Aug 29, 2017)

While IAG’s move is motivated by the competition with rivals such as Ryanair and EasdyJet, we note that IAG already owns a short-haul bydget carrier namely Vueling which operates out of Barcelona, which is also the springboard for Level’s long-haul. Will this lead to intra-competition? But, of course, there is only so much one may suggest of the comparison between IAG and SIA since Europe is a much bigger arena than Singapore.

In the bigger picture, IAG’s new focus on budget travel yet again testifies to the thriving low-end market and the competition that it poses to legacy airlines. (See Ryanair affirms market for budget travel, May 22, 2018) Level, which commenced operations last year, was intended to check the aggression of other low-cost long-haul operators such as Norwegian Air Shuttle and WowAir. Interestingly, IAG tried but failed to acquire Norwegian, and expanding Level may be a strategy to boost its viability in a wider market, foster brand familiarity and promote intra-connectivity.

IAG chief executive Willie Walsh said: “We are launching this new short-haul subsidiary to provide Austrian consumers with more flight choices across Europe. These flights will be branded as Level to build upon the huge success of our new long-haul low-cost operation.”

Read between the lines.

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Ryanair affirms market for budget travel

courtesy PA

Despite problems with pilot rosters last year that led to cancellation of flights, Ryanair has reported record annual profits for the full year ending March 31, 2018. Profits after tax rose 10 per cent to €1.45 billion (US$1.71 billion).

The results yet again affirm the strength of the budget market even as the global economy continues to improve. The improved economy should favour legacy airlines as they begin to give more attention to their premium product. However, the competition continues to be a thorn at their side, and legacy airlines are also offering basic economy without the full entitlements of normal economy.

Ryanair chief Michael O’Leary warned though that not all budget carriers can survive the future as oil prices rise. The outlook for 2018/19, he said, would be “on the pessimistic side of cautious.” In an interview with CNBC, he added: “Those airlines that couldn’t make money when oil was at $40 a barrel last year, I don;t think will survive this winter when oil remains at these elevated levels.”

It is tough competition. Many budget carriers have come and gone, and the last few years have been good to them as the fuel price holds steady, leading to the growth of budget long-haul as well. Their ability (and willingness) to offer lower airfares than legacy carriers make them attractive alternatives – the key reason why passenger numbers for Ryanair increased by 9 per cent to 130 million last year. But the Irish carrier is paring down its expectation to only 7 per cent increase this year. The good news for customers is that fares are likely to remain unchanged.

And as legacy airlines (and their subsidiaries) in Europe undergo what looks like an annual affliction of industrial strikes by staff, Ryanair is there to fill the gap and rake in the hay.

A Brief History of Singapore Airlines Going Forward

Courtesy Bloomberg

The history of Singapore Airlines (SIA) dates back to the incorporation of Malayan Airways on May 1, 1947. The airline changed its name to Malaysia Airways in line with the formation of Malaysia in 1963. The entity splits into SIA and Malaysian Airlines System in 1972, seven years after Singapore left the Malaysian federation and became a nation in its own right. Then on SIA expanded quickly and became one of the world’s top airlines.

SIA established Tradewinds in 1975 as a regional carrier catering mainly to the leisure market. This was SilkAir’s predecessor as the airline looked beyond into the business segment and assumed its new identity in 1976. With the growth of budget travel, SIA partnered leading budget carrier Ryanair to set up Tiger Airways which commenced services in September 2004. Tiger underwent several changes over the years, performing below expectations. In the meantime SIA set up Scoot, a fully-owned budget subsidiary said to be targeting the medium (and now long-haul) while Tiger focused on the short-haul. The line soon blurred, and by the end of 2016, Tiger was assimilated into Scoot.

As SIA expanded as it grew, so did it reconsolidate by contracting as the aviation landscape shifted. The demise of Tiger was imminent when Scoot was formed, not only to extend the range of the budget operations but also to recapture ground lost by Tiger. The intra-competition that followed did not make much sense. The costly lesson from Tiger is that it can be hard to repair a badly tarnished image and easier to start a new slate.

Now, from four down to three, will there be further restructuring of the SIA stable?

Courtesy AFP

According to OAG, an air travel intelligence agency based in the UK, Scoot has overtaken SilkAir in the number of seats offered. The budget airline is also about a third as big as SIA in the economy market. And it is growing at a faster rate than its regional sibling. Besides, parent SIA looks set to refocus on premium travel, a move that some analysts believe to favour the expansion of Scoot, particularly when the line between budget and legacy airlines begins to blur across the industry.

This does not augur well for a carrier like SilkAir operating in the middle of the field. Since its inception, the so-called regional carrier has been operating in the shadow of the parent airline and continues to do so despite recent efforts to change that image. Does this forebode a merger between SilkAir and Scoot, going forward, although the former has time and again insisted it is not a budget airline? Can Scoot on the other hand be more than a budget carrier?

What’s in a name anyway? So says the Bard, a rose by any other name would smell as sweet.

Big Mess at Ryanair

Courtesy Getty Images

The world’s biggest budget airline has found itself floundering in a big mess. An apaprent mistake in leave schedulign of pilots as it claimed has led the airline to cancel 2,100 flights over six weeks until November – 40 to 50 flights a day. That means inconveniencing some some 300,000 customers who would receive or had already received emails informing them of the cancellations.

Ryanair said it would arrange alternative flights or refund the fares. Under the European Passenger Rights legislation, passengers are entitled to compensation for flight cancellations. Ryanair estimates it will cost the carrier 20m euros (US$24m).

The unpredented slew of cancellations may also subject Ryanair to penalties imposed by the authorities. Italy’s competition regulator – Italian Competition and Market Authority – has started a probe into the matter, on whether the cancellations could have been prevented. It is hard to believe that Ryanair had nto anticipated the problem and, if found guilty, could be fined as much as 5m euros.

Ryanair chose to cancel flights first at its busiest airports so that it would be eassier to arrange alternative flights. But, of course, in the mess of events, this has a knock-on effect.

Ryanair chief Michael O’Leary denied the airline was experieicning a shortage of pilots, even as many as 140 of them have left to join new rival Norwegian Air Shuttle. Mr O’Leary insisted it was because the airline had “messed up” the rosters which left it without enough pilots to operate all the scheduled flights.

One thing for sure, Ryanair will certainly feel the heat of the competition brought on by Norwegian and other carriers such as EasyJet, if advanced bookings for October at 70 per cent comapred to September at 90 per cent are any indications.

Will this mess cause Ryanair any further loss of customers in the future? The airline has a dotted history of going from zero customer service to attempting improving that aspect in the face of rising competition. Much depends on how it handles the current crisis. In a price sensitive market, people’s memories tend to be short while most people are actually more forgiving than expected under the circumstances. The real threat for Ryanair remains the competition particularly if the rivals are seen to be more reliable.

Does Air Berlin’s demise signal end of the road for budget carriers?

Courtesy Reuters

Air Berlin is folding up its wings, caused by falling pasxsenger numbers. Last month alone saw a dip of 25 per cent compared to July last year. Its biggest shareholder, Gulf carrier Etihad Airways which owns a 29.2 per cent stake, is not forthcoming with the needed financial support.

Does Air Berlin’s demise signal the end of the road for unaffiliated budget carriers, many of whom are benefitting from the currtent low price of jet fuel? Or that it is at least a forewarning of a more difficult time ahead for them in the continuing battle between them and legacy airlines which are at the same time supported by their own budget offhsoots?

That’s what Ryanair fears, accusing the German government and national carrier Lufthansa of conspiring to carve up Air Berlin. Ryanair said: “This manufactured insolvency is clearly beign set up to allow Lufthansa to take over a debt-free Air Berlin which will be in breach of all known German and EU competition rules.” A Lufthansa-led monopoly, it said, would drive up domestic fares.

How then will the game play out after Air Berlin?

Ryanair’s apprehension as a competitor is real. Air Berlin’s exit will mean a stronger Lufthansa and its budget offshoot Eurowings. Yet already Lufthansa is a dominant player with 76 per cent of its capacity focused on the German market. The Lufthansa Group posted record earnings for the first six months of 2017, increasing revenue by 12.7 per cent to €17 billion and net profit by 56.6 per cent to €672 million. Eurowings and other airlines in the Group including Austrian Airlines, Brussels Airlines and Swiss Interantional Airlines, also posted positive results. So as a group, Lufthansa has quite some msucle to flex in Europe, and the vacuum left by Air Berlin is likely to be filled by Eurowings.

On the other hand, it may be countered that competition is all but dead since airlines such as Ryanair and EasyJet also have access to the German market. However, comparatively, their market share is small; Germany represents only 7 per cent of Ryanair’s capacity and 9 per cent of EasyJet’s. There is possibility that Air berlin’s demise may mean more demand for seats on these carriers, if not opening up the market for more competition. Hence the German government has denied Ryanair’s accusation that it had breached anti-trust rules.

Clearly the competition will intensify, whether it is a battle between legacy airlines and unaffiliated low-cost carriers or one between budget airlines themselves is not any more a matter of note. The competition has levelled, with budget carriers attempting to do more and legacy airlines even adjusting down to match. Legacy airlines including Lufthansa, British Airways and Air France are fighting back, and the old strategy of doing it through a subsidiary equivalent is receivign a revival. Besides Lufthansa, British Airways (as part of the International Airlines Group which is already supported by Spanish low-cost carrier Vueling) has introduced Level, and Air France annoucned plans to launch Joon which, however, it says, is not a low-cost carrier.

The competition does not stay the same for long in the aviation business. Little surprise that Etihad has decided to step back from its acquisition spree.

Travelling across Europe in summer: Expect flight delays

Travelling across Europe during the summer can be a nightmare should anything happen to disrupt the flow of the peak traffic. It may be worse this summer, and travellers should expect delays. Already there are stories of a number people who have missed their flights.

British Airways, Ryanair and EasyJet have advised their customers to allow plenty of time to get through the airport because of enhanced immigration checks. Ryanair suggests that customers arrive at least three hours before departure time.

The European Commission said this is “the price of security”. It is not something most people want to argue about for their safety. New measures to check potential terrorist threats have been introduced, but it looks like some airports are not ready for the implementation. Passengers complained about inadequate border control booths and staff to handle the usual surge in summer travel.

The summer months in the past had also experienced disruptions caused by industrial action. For now, strike action by security workers at Barcelona Airport every Friday, Sunday and Monday since August 4 to last throughout the season has added to the woes of travellers. Let’s hope other disgruntled airport staff and airline crew do not see this as an opportune time to join them.

It may make sense to put off travel to outside the peak months, but for many people this just isn’t possible because of work, school and other commitments.

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.