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.

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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.

Air Canada and WestJet shake up Canadian skies

THE usual lack of excitement in the Canadian aviation scene is about to change.

Air Canada launches budget carrier Rouge

Courtesy Air Canada

Courtesy Air Canada

Air Canada’s new low-cost carrier Rouge will take to the skies in July next year. It will start with two Boeing 767s and two Airbus A319s, flying initially from Toronto and Montreal to leisure destinations in Europe and the Caribbean, with plans to expand the fleet to 50 aircraft eventually and to also fly to destinations in Asia.

In a way, Air Canada is re-attempting to do what it failed to achieve with previous budget projects Tango and Zip. The appointment of former chief executive of Thomas Cook North America Michael Friisdahl with expertise in the leisure industry to head the new carrier may be a plus.

Cost is obviously the key driver of the strategy, and Air Canada expects cost savings to be derived 50/50 from lower wages and staff benefits and from the high-density aircraft configuration. Having an independent budget offshoot makes it easier to start with a lower base of staff costs and focus on the price-sensitive niche leisure market. There will be 20 per cent more seats on Rouge than the normal configuration.

For some time now, Air Canada has been struggling with costs and red ink. It faces stiff competition from key rival WestJet and other leisure operators such as Transat A.T. and Sunwing that offer much lower fares. Increasingly, airlines are ditching a one-size-fits-all modus operandi for a separate and more focused niche market strategy.

WestJet launches regional carrier WestJet Encore

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

WestJet for one is launching a new regional carrier WestJet Encore in the second half next year. The new carrier will offer fares up to 50 per cent lower than normal for short hauls, in direct competition with Air Canada Express. WestJet CEO Gregg Saresky does not anticipate a price war, as he prefers to call it a process of “rational pricing”. It is ironical that short haul flights should cost as much as they are now. Mr Gregg told analysts at a recent briefing: “If you’ve ever tried to buy tickets for a short-haul journey in Canada, you’ve had to open your wallet and dig deep. Short-haul fares in Canada are very, very high.”

Apparently Air Canada president Calin Rovinescu had anticipated WestJet’s regional initiative. A price war it is that has begun and is expected to intensify. Both airlines are looking to expand their network to cover outlying business communities, for example, in the oil exploration region.

WestJet Saresky hoped that by lowering fares, travellers would fly more often and there would be new customers. He said: “When we lower the fares, it’s not carrying the same people at lower fares. It’s lowering the fares so that we can make the market expand.”

WestJet reported a stellar Q3 performance with profit increasing 80 per cent to C$70.6m (US$71.2m). Higher load factors more than made up for the rise in fuel prices. According to Mr Saresky, fuel makes up a third of WestJet’s operating expenses.

Air Canada WestJet plan premium economy

The premium economy concept has been somewhat of an uncertain development in the industry. Not many airlines are quick to embrace it, and Canadian carrers may be said to be latecomers in the game. But really the increased segmentation within the legacy configuration is a reflection of the uncertain demand for premium seats. Is the premium economy an enticement for upgrading, or a safety net to catch any fallout from the upper class – whether intra or inter-airline? At worst, it may be deemed hedging in an uncertain market; at best, a competitive edge in offering options and alternatives amidst the uncertainty.

Air Canada plans to introduce the new in-between class on its new Boeing 777s next year and on its 787 Dreamliners which are expected to join its fleet in 2014.Its Asian competitors such as Cathay Pacific Airways and EVA Air are already in the game. WestJet also has plans to introduce its version of the premium economy next year. Both Canadian airlines are eyeing the growing Canadian business travel market.

Travellers should benefit from an active competition between Air Canada and WestJet, but do not expect drastic differences. The two airlines are apt to stay close to each other’s range. The real competition will play out beyond Canadian borders when Air Canada commences Rouge operations. Budget long haul is not a tested concept although one-hop sun destinations are likely to prove popular. The good news is that analysts are optimistic about Rouge turning in a profit even in its first year. But will this be at the expense of the parent airline’s performance?