Brexit gloom overstated for airlines

THE day after the Brexit referendum, it looked like all gloom and doom as the pound plummeted and the global stock market reeled. The share price of British low-cost carrier EasyJet went down 22 per cent. For their discernible dependence on the UK market, Ryanair and the International Airlines Group (IAG, which owns British Airways besides Iberia, Vueling and Aer Lingus) also suffered declines above 20 per cent. Even American carriers across the pond with the exception of domestic operators took a hit.

Reduced profits for the second half of the year are all but certain. IAG said it would not be able to match the 2015 level. EasyJet warned that fares may increase. Ryanair said it will cut back investment in the UK and focus instead on growth in the EU.

The immediate concern was that the weak sterling may mean British holidaymakers will now count their pennies before committing to an overseas vacation. UAE Director-general of the General Civil Aviation Authority, Saif Mohammed Al Suwadi, foresaw a decline of travel from the UK to the Gulf region, and this is not good news for Middle East carriers which are also benefitting from onward travel by the Brits to places in Asia and Australia. But consider what a weaker British pound could do for Britain to attract tourists into the UK. It may be more than just rephrasing the equation, and airlines including Singapore Airlines which fly to British destinations could benefit from the fallout.

So far the world’s reaction seems unduly lopsided in its view of the dire impact on the UK. Doomsayers are mistaken if they were waiting to see the UK punished indefinitely. At least for the airline industry, the gloom has been overstated. In fact, IAG believed that the UK vote to leave the EU would not have a long term material impact on its business. So too Ryanair which reassured its customers that it “will continue to offer the lowest fares in Europe and the UK.” British carrier Monarch Airlines said it is not raising fares and “will continue to remain competitive.”

Courtesy easyJet

Courtesy easyJet

It is easy to blame Brexit as the shock of the unexpected outcome takes its toll. Understandably, low-cost carriers such as EasyJet are more concerned about losing access to the single EU market, which has spurred their growth across a wider region. EasyJet for one has seen its profit increase manifold from GPD22.1m in 2000 to GPD548m in 2015, and its passenger load from 5.8m to 68.6m making it the second largest operator in Europe after Ryanair. Today it boasts a load factor above 90 per cent and operates from 24 bases across Europe. It may be one, being British, to lose the most if new regulations limit its operations or make it difficult for it to access its present markets. In truth, EasyJet is already facing what it described as “extremely challenging” conditions in the past two months with demand being affected by severe weather, airport issues and industrial strikes in France which resulted in flight disruptions.

Despite the harsh warning from EU leaders that Britain cannot expect to enjoy EU privileges post-Brexit, it is hard to believe that Open Skies which has come a long, long way globally will suffer a substantive setback. The UK could still negotiate access to the EU single market a la the model used by non-EU members Norway and Iceland if Britain then joins as a member of the European Economic Area (EEA). It must abide by EU rules but cannot participate in the Union’s decision-making.

The UK could also look at other models such as one adopted by Switzerland, which is not a member of the EEA but the European Free Trade Association, gaining access through a number of bilateral agreements though not for all sectors. Or, the post-Brexit negotiations could knock up a deal specific to the UK. Outside those jurisdictions, peculiar to the airline industry is the number of complex cross-border partnership agreements that have blurred regional lines.

Britain is a large market, so it is in the interest of all parties concerned to negotiate a win-win deal. The silver lining in the dark Brexit cloud is how commercial considerations will prevail over political deliberations. Politically driven regulatory restrictions will do neither the UK nor EU members any favour. It is in their interest to continue keeping the channels open for competition.

The resilience of the business in adjusting to change cannot be underestimated. Many people take comfort that the due process for any change may take up to two years. The real comfort is that implicitly, any change is unlikely to be unduly drastic or disruptive.

Optimism and more good news

IT’s been a long time coming, the optimism and good news that the industry badly misses as more airlines report better, even record, performances as fuel prices show no certainty of bottoming out. From Chicago to London, Singapore and Sydney, the mood is celebratory.

American carriers were the first to celebrate. The US big three– American Airlines, United Airlines and Delta Air Lines – all reported record recovery last year, and are reintroducing snacks on domestic services (instead of lowering the fuel surcharge) as a way of giving back to their customers. (As the price of crude oil plummets, fuel surcharge holds sway, Jan 23 2016)

This article takes a look at four major airlines in three other different regions (Australia, Europe and Asia) that recently posted their report cards, and see how they measure up to the mood.

Courtesy Bloomberg

Courtesy Bloomberg

Qantas

The good run continues with Australian flag carrier Qantas’ record performance for the first half of its current financial year (Jun-Dec 2015). The airline reported an underlying profit before tax of A$921 million (US$685 million), which is A$554 million more than last year’s first half. Revenue was up 5 per cent. Chief executive officer Alan Joyce announced that every part of the Qantas Group contributed strongly to the result, with record profits reported by Qantas Domestic and the Jetstar Group.

Qantas Domestic reported earnings of A$387 million, compared to A$227 million last year, maintaining a strong market share of 80 per cent. The Jetstar Group’s earnings were A$262 million, compared to A$81 million last year. Revenue for the Australian market went up 10 per cent, and for the first time, Jetstar Japan contributed positively to the profit of the Asian network since its start-up in 2012.

Qantas International which used to be the bleeding arm of the Qantas Group reported earnings of A$279 million, compared to $59 million last year. This was its best performance since before the global financial crisis. The airline has benefitted from the weak Australian dollar which has helped boost inbound tourism for Australia. Qantas’ cornerstone alliance partnership with Emirates, American Airlines and China Eastern has strategically strengthened its global network, overcoming an apparent geographical disadvantage of its home base in a far corner of the world.

All this, Mr Joyce would be the first to tell anyone, is not a matter of luck or necessarily a given in today’s more favourable economic climate. He said: “This record result reflects a stronger, leaner, more agile Qantas. Without a focus on revenue, costs and balance sheet strength, today’s result would not have been possible. Both globally and domestically, the aviation industry is intensely competitive. That’s why it’s so important that we maintain our cost discipline, invest to grow revenue, and continue innovating with new ventures and technology.”

Give credit where it’s due. Sceptics may finally admit that Mr Joyce’s “transformation program” is not only bearing fruit but producing a good crop and reshaping Qantas into a more agile and innovative business. “Our transformation program has allowed us to save significant costs,” said Mr Joyce. “It’s never been a simple cost cutting agenda.”

Qantas expects to increase domestic capacity by 2 per cent, international by 9 per cent and Jetstar International by 12 per cent in the second half, averaging 5 per cent for the full year for the Group.

Courtesy Bloomberg

Courtesy Bloomberg

International Airlines Group

At the other end of the Kangaroo route is the unmatched success of the International Airlines Group (IAG) of which British Airways is a partner along with Iberia, Vueling and, more recently, Aer Lingus. IAG’s profits increased by almost 65 per cent to €1.8bn (US$1.98 billion) in 2015, which IAG chief Willie Walsh said had “undoubtedly been a good year”. The Group carried 88.3 million passengers last year, an increase of 14 per cent, overtaking Lufthansa to become second only to Air France-KLM in Europe.

In very much the same way that Mr Joyce was able to turn round the loss-making international division of Qantas, Mr Walsh could pride himself as the man who steered Iberia into profitability following its merger with BA in 2011. The Spanish carrier underwent a painful restructuring but it has paid off. . Unlike Qantas which prefers commercial alliances, IAG adopts a more aggressive strategy of acquisitions. The consortium of BA, Iberia and Aer Lingus stands the Group in good stead to grow trans-Atlantic traffic which forms the largest part of its business.

IAG expects similar growth next year, targeting an operating profit of €3.2bn

Courtesy Airbus

Courtesy Airbus

Singapore Airlines

In Asia
, Singapore Airlines (SIA) Group reported a third quarter (Oct-Dec 2015) profit of S$275 million (US$200 million), 35 per cent higher than that of last year’s third quarter. However Group revenue declined by 4 per cent to S3.9 billion because of lower passenger yields and the continuing lacklustre performance of its cargo operations. Parent airline SIA faces stiff competition from Middle East carriers, and its subsidiaries SilkAir, Scoot and Tigerair are not spared the rivalry from regional budget carriers. Still it is good news that falling oil prices had resulted in a reduction of the fuel costs by S$354 million, a drop of more than 40 per cent.

Characteristically diffident and not as confident as either Qantas or BA, SIA said it expects travel demand to remain volatile, citing the increased competition and the pressure that it will continue to exert on yields and loads. But all three airline groups have experienced increased loads, driven by discounted fares as a result of of intense competition and made possible by the lower fuel costs. According to International Air Transport Association (IATA), breakeven load factors are highest in Europe because of low yields from the open competition and high regulatory costs, yet the region is achieving the second highest load factor after North America and generating solid growth.

It is going to be a rosier 2016. IATA forecast air travel to grow 6.9 per cent, the best since 2010 and well above the 5.5 per cent of the past 20 years. Demand is fueled by stronger economic growth and made attractive by lower fares. It is unlikely that the oil price will rise and airlines may even expect smaller fuel bills, making up 20 per cent of an airline’s total operating costs compared to what it used to be at 40 per cent. This will be further enhanced by the acquisition of new aircraft that are more fuel efficient.

In this connection, SIA has something to crow about as it took delivery last week of the first of 63 Airbus A350 firm orders after a long wait of 10 years. The first tranche of ten aircraft which it hopes to take complete delivery by the end of the year have a seat configuration of 42 business, 24 premium economy and 187 economy. An ultra-long range version of the model will be used to resume SIA’s non-stop services from Singapore to Los Angeles and New York in 2017. The modified A350 is said to be more fuel efficient than the A340 previously used. It will be configured premium-bias.

SIA chief executive officer Goh Choon Phong said: “The A350 will be a game-changer for us, allowing for flights to more long-haul destinations on a non-stop basis, which will help us boost our network competitiveness and further develop the important Singapore hub.”

Opinions are divided as to whether SIA has moved a little too slowly and as a result is playing catch up when once it used to lead the field. By all indications of the good times finally rolling back for the industry, it is not too late to leapfrog the competition to make up for lost time. SIA is banking on the rejuvenation of the demand for premium travel, the product it has always been reputed for.

The IATA forecast points to weak markets in South America and Africa – two regions that are of little interest to SIA – but continuing robust growth for North America which has been a key market for SIA since it commenced operations thereBut the competition will be tough, particularly from Middle East carriers tapping traffic in Asia-Pacific and redirecting it through their Gulf hubs. Already United Airlines has announced its launch of a non-stop flight between San Francisco and Singapore in June this year, ahead of SIA. (United Airliens steals a march on Singapore Airlines, Feb 15 2016)

According to IATA, consumers will see a substantial increase in the value they derive from air transport this year. Indeed, air travellers will benefit from the optimism as airlines become more inclined to improve their product, and the increased competition will likely see the airlines introducing more creature comforts beyond the snacks and peanuts. Qantas for one is upgrading its airport lounge at London Heathrow as part of a program to create a flagship global lounge at important destinations started three years ago. Hong Kong, Singapore and Los Angeles are already enjoying the new facility. Qantas is also developing across its domestic network an industry-leading wi-fi service that has the ability to deliver the same speeds in flight that people expect on the ground.

Mr Joyce said: “Our record performance is the platform to keep investing in the experiences that matter to our customers and take Qantas’ service to new levels.”

Courtesy Airbus

Courtesy Airbus

Thai Airways International

Positive signs of the times are best presented by the performance of Thai Airways which posted a quarterly profit of 5.1 billion (US$141.7 million) baht ending Dec 31, 2015 reversing a loss-making trend. This compared to a 6.4 billion baht a year ago, and softened the full year’s loss to 13.05 billion baht, 16 per cent lower than 15.57 billion baht last year, partly attributed to a decrease in fuel costs of 20 per cent. The airline introduced a program “to stop the bleeding” last year aimed at introducing cost-saving measures, cutting unprofitable routes and down-sizing the fleet.

Plagued by political problems at home and safety concerns based on the findings of the International Civil Aviation Organization (ICAO), Thai Airways has been struggling to stay afloat amidst increased competition from regional carriers. It is to be expected that stronger-muscled airlines such as Qantas, British Airways and SIA are likely to rise faster with improved economic conditions, but when things are beginning to look up for the more troubled carriers while noting that in good times as in bad the fortunes of various airlines can be widely diverse, the industry can at last be a little more confidently optimistic.

International Airlines Group partnership works

Courtesy British Airways

Courtesy British Airways

The success of International Airlines Group (IAG) in the last two to three years is proof that its strategic partnership works. The group, made up originally of British Airways (BA) and Spanish carrier Iberia and subsequently Vueling which is a budget operator, was joined by Aer Lingus in August this year.

Excluding Aer Lingus, IAG posted a pre-tax profit for Q3 (Jul to Sep) of €1.1bn (US$1.2bn), an increase of 48% from last year. Chief executive Willie Walsh said: “We’re reporting strong quarter results with a positive contribution from all of our airlines.” Encouraged by a better Q3 than Q2, the group is confident that its operating profits for the full year could be as high as €2.3bn, reaffirming its previous forecast of over €2.2bn but looking more optimistically at a higher number. Operating profits for the first nine months were €1.8bn.

Compared to Europe’s largest partnership airline Air France-KLM which continued to report deepening losses (its Q2 loss of €79m was larger than that of €11m a year ago) even as fuel costs held steady in the lower range, IAG on the other hand is gaining new strengths. If the weakening euro has affected Air France-KLM adversely, so has it affected IAG, particularly for BA as the major partner of IAG. But the state of the currency can work both ways, whether positively or negatively, depending on the specific market. In fact Air France-KLM, as does IAG, stands to gain from operations outside continental EU, particularly the United States.

It would be pretentious to suggest that there is a formulaic – even more pretentious of an inherent – magic in the IAG partnership that contributes to its success. Partnerships are forged for several reasons, and not few of them were motivated by political, even personal, reasons. Invariably the investment is almost always about synergy, or premised upon the potential for synergy. The IAG proposal was not without reservations and scepticism among analysts. The merger was completed in January 2011. In its second year, IAG plunged from a profit of €527m to a loss of €997m, prompting chief executive Willie Walsh to admit that it might have been better to delay but not scuttle the marriage as he remained convinced of its benefits.

Walsh said: “This is an important step in the process towards creating one of the world’s global airlines that will be better equipped to compete with other major airlines and participate in future industry consolidation.”

Give credit to Walsh for his vision and leadership. As the industry moved into mega alliances, BA too needed to expand and extend beyond its traditional borders, and when the industry not long after was dragged down by a global economic meltdown, the increased pressure of competition in a reduced market demanded an urgent shift to focus on cost efficiency to try and retain market share. Anti-merger Iberia supporters expressed concern that the Spanish carrier would be swallowed up by the larger British carrier. While Walsh reiterated that Ibe5ria would retain its identity, he did not mince his words when he mentioned how Iberia was lagging behind BA and was in a “fight for survival”.

In fact, the circumstances turned out to be a blessing in disguise for Iberia, which was buffered by BA for the stringent cost-cutting measures that followed and whose action was legitimized by the dire straits it found itself rather than risk going bust altogether. It was a good match, both airlines operating few overlapping routes. And as Walsh noted, “It combines BA’s strength position on the mature North Atlantic market with Iberia’s strong position in the fast growing South Atlantic market.” It was a Walsh tour de force, the kind of business intrepidity that Air France-KLM was not prepared to flaunt, perhaps wisely, when faced with the prospect of increasing its stake in the beleaguered Italian carrier Alitalia. The mega frenzy can lead to costly makeovers and adjustments, draining resources of the parent. Clearly IAG was not a passive investment for BA, unlike the lacklustre partnership between Singapore Airline (SIA) and Virgin Atlantic while it lasted before SIA sold it to Delta Air Lines at a loss.

IAG bounced back into profitability in 2013, posting a profit of €227m, which more than tripled a year later to €828m. The question now is how much stronger can IAG get with Aer Lingus coming on board. The Irish flag carrier made an operating profit of €45m from the day it joined IAG.

Courtesy PA

Courtesy PA

It was not surprising that Aer Lingus felt the same initial reservation as Iberia when approached by IAG, but the successful integration of the Spanish carrier did much to allay the concern. Aer Lingus would too retain its independent identity. The good news for IAG was that Aer Lingus was joining as a profitable partner with expanded operations across the Atlantic. Wrenching the Irish carrier from Ryanair in a possible takeover by the budget carrier was a feat for BA through IAG, literally putting a lid on the competition as low-cost carriers across Europe continue to challenge the legacy market. Air France-KLM for one is feeling the pinch.

Adding Aer Lingus to IAG provides numerous opportunities for synergy and extensive connectivity to Ireland (as far as BA is concerned), particularly as landing slots for expansion at London Heathrow become a scarcity. Walsh, a former chief of Aer Lingus, said connecting Heathrow and Dublin would be a priority and assured the continuation of Aer Lingus’ profitable regional routes. The Irish government is cherishing the hope that Dublin would assume new importance as a hub for trans-Atlantic operations.

For Aer Lingus, tapping into the bigger IAG network would help fuel its growth. Internationally, IAG partners would be better positioned to meet the competition from other airlines, particularly Middle East carriers such as Emirates and Etihad Airways. European carriers such as Air France-KLM and Lufthansa are struggling to stave off competition by Gulf carriers, which recently were also criticized by US carriers United, American and Delta of unfair competition supported by state subsidies.

Interestingly, Qatar Airways already has a 10% stake in IAG. Qatar chief executive Akbar Al Baker saw it as “an excellent opportunity to further develop our westwards strategy,” linking the airline with two major European hubs and strong transatlantic networks. Qatar has a strong network eastwards, from the Middle East across India to Asia and Australia, and this largely complements the IAG network. The question now is how much more of IAG will Qatar eventually own as the group, additionally with a strong American Airlines alliance, looks poised to grow stronger.

This article was first published in Aspire Aviation.

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.

Qatar Airways nets a prized catch, expanding westwards

IT may seem somewhat crazy, but it is definitely not surprising in today’s aviation landscape of fast changing and crisscrossed relationships, some of them making most unlikely bedfellows. The ends justify the means.

Courtesy British Airways

Courtesy British Airways

Qatar Airways has acquired a 10% stake in International Airlines Group (IAG), better known as the owner of British Airways (BA) and Iberia. IAG also owns Spanish budget carrier Vueling. The act of acquisition itself by the cash-rich Middle East carrier does not surprise. Qatar lags behind rival Etihad Airways in this respect; Etihad already owns Alitalia (49%), Air Serbia (49%), Air Serbia (49%), Air Seychelles (40%), Etihad Regional (formerly Darwin Airlines) (33.3%), Air Berlin (29.21%), Jet Airways (24%), Virgin Australia (10%) and Aer Lingus (2.987%).

But coming lately, Qatar has bagged a prized acquisition, considering IAG’s bases at two major European hubs, in particular London Heathrow, and the strong transatlantic networks of BA and Iberia. Qatar chief executive Akbar Al Baker said: “IAG represents an excellent opportunity to further develop our westwards strategy.” It should be a strong partnership. Together, their networks cover Europe, North and South America, Africa, the Middle East, India and Southeast Asia.

In 2013 Qatar became a member of OneWorld, becoming the only one of the big three Gulf carriers to join a global airline alliance. More than an apparent Qatari interest in things British, this was a step forward to forge a closer relationship with BA. Qatar said it may increase its stake in IAG for which it paid £1.15 billion (US$1.73 billion). However, EU regulations have placed a cap on non-EU ownership at 49%.

Courtesy Qatar Airways

Courtesy Qatar Airways

Quite unlike Etihad, which has entered the arena as a white knight in many cases, Qatar is buying into one of Europe’s more profitable outfits. Clearly it is a strategic move. While European carriers are becoming wary of Gulf carriers making inroads in the EU market, the competition is at the same time a race among the big three Middle East carriers themselves- Qatar, Etihad and Emirates Airlines. This has become all the more prominent in recent years as they out-compete each other within their region and seek aggressively to push out their geographical boundaries, leveraging on the success of home bases such as Dubai, Abu Dhabi and Doha as hubs for international traffic connecting Asia Pacific, Europe, Africa and the Americas.

The rivalry for supremacy is clear in a jibe made by Mr Al Baker on the race to top the chart for extreme luxury in the air, something that carriers outside the Gulf are less disposed to think about at the same level. He said: “We always raise the bar for our dear friends around the area to try to copy us.” (The big deal about extreme luxury, Jan 19, 2015)

Courtesy PA

Courtesy PA


The timing could not have been better for Qatar as IAG looks likely to succeed in a new takeover bid of Irish carrier Aer Lingus after two failed attempts previously. This would gain IAG more take-off and landing slots at Heathrow. What is interesting is the composition of Aer Lingus partners, which include Ryanair (29.8%) and Etihad. Any opposition to the deal is likely to come from the Irish government which owns 25% of Aer Lingus, but it may be a price well worth paying for the crucial air links between cities in Ireland and Heathrow as the world’s largest hub (until topped by Dubai recently) and beyond. Ryanair has itself attempted unsuccessfully to take over Aer Lingus and objected vehemently to IAG’s proposal in the past for reasons that are not difficult to see. IAG’s chief executive officer Willie Walsh and Ryanair’s chief Michael O’Leary are not exactly the best of friends. But if money talks, the latest offer of €1.3billion (US$1.47 billion) by IAG may well carry the day.

Airline relationships in today’s industry are more complex, if not blatantly promiscuous. While global alliances offer the broad framework for cooperation, it is not uncommon to find rival airlines connected in some way through a third party. The numerous cross-border codeshare arrangements are testimony to the multi-faceted connections. Less than half the world’s airlines belong to any of the three global alliances: Star (27 members), SkyTeam (20 members), and OneWorld (15 members). Although many major carriers are already members, there are notable exclusions such Virgin Atlantic (although CEO Richard Branson who made an about turn in 2012 announcing Virgin might join one of the alliances soon) and the other two of the big three Gulf carriers Emirates and Etihad. While Aer Lingus itself is unaffiliated, and so are part owners Ryanair and Etihad, IAG’s influence cannot be precluded although it has said Aer Lingus would continue to operate independently.

It is best to adopt a detached view of the business. Alliance membership may but not necessarily suggest a like-mindedness that brings friends to the same table. There is no reason why friends and foes alike may not put their money in a common proposition that will help further their respective positions. OneWorld membership may have eased Qatar’s way into the IAG stable, making it easier for Mr Walsh to be “delighted to have Qatar Airways as a long term supportive shareholder.” Not sure if he would be any less delighted if it had been Emirates or Etihad. But for Qatar, as part owner of IAG which is set to take over Aer Lingus, it is stealing a march on rival Etihad.

This article was first published in Aspire Aviation.

Ryanair attributes success to its business model

Courtesy PA

Courtesy PA

FOLLOWING the good results announced by rival easyJet (See easyJet rides on Air France’s troubles, Oct 8, 2014), Ryanair too has good news for its shareholders. The budget carrier reported a half-year net profit of €795m (US$998m), an increase of 32 per cent compared to last year’s performance. While passenger numbers rose by 4 per cent, the “slightly higher” summer fares were also contributory to the good result.

Consequently Ryanair has revised its forecast for full-year profit upwards from €650m to between €750m and €770m. Although passenger numbers are likely to continue to grow, the carrier expects the first half-year to make up for lower winter fares which would flatten the profitability curve somewhat.

Ryanair chief executive Michael O’Leary said: “The strong H1 results demonstrate our business model is performing.”

This only exacerbates the concern of legacy airlines about the market within Europe shifting in favor of low-cost carriers. Air France and Lufthansa are trying to compete with the likes of Ryanair and easyJet through their respective budget offshoots: Transavia (Air France) and Germanwings (Lufthansa). The International Airlines Group (IAC) which also owns British Airways and Iberia Airlines have successfully turned round budget subsidiary Vueling Airlines.

However, as many budget operators too have come and gone. The issue may be one of staying true to the “no frills” model in a price sensitive market for the short haul. Monarch Airlines which is cutting 700 jobs as well as the pay of employees of up to 30 per cent is ending long-haul operations to concentrate on scheduled short-haul European leisure routes.

Beyond five or six hours of travel time, passenger demands change drastically and the market becomes less price sensitive. But that has not stopped pioneering airlines such as Norwegian xxx to boldly go where others fear to tread, noting the number of failures that include Hong Kong’s Oasis Airlines. (See Norwegian venture into budget long-haul raises the same viability question, Jun 18, 2013) Ryanair too talked about doing a Freddie Laker, but that would mean tweaking the “business model”. What works for the short-haul may not necessarily guarantee success for the long-haul.

Recovery in Europe will benefit Asia Pacific carriers

IT looks like the good times are finally rolling back. Or so, at least in Europe.

Courtesy British Airways

Courtesy British Airways

The International Airlines Group (IAG) which owns British Airways, Iberia and budget carrier Vueling swings back into the black with a profit of 527m euros (US$728m) in 2013 compared to the loss of 613m euros last year. Mr Walsh said: “In 2013, we strengthened the group by acquiring Vueling, embarking on Iberia’s transformation and enhancing British Airways’ revenue performance.”

Although Iberia incurred a loss, it made “huge progress” according to Mr Walsh. He said: “Recent pay and productivity agreements between Iberia and its pilot and cabin crew unions are key to reducing the airline’s costs further and providing the foundation for profitable growth.”

Courtesy SkyTeam Cargo

Courtesy SkyTeam Cargo

It is also good news for Air France/KLM which posted a profit of 130m euros in 2013, reversing the loss of 1.22bn euros in 2012 attributed to stringent cost and staff reductions. Chief executive Alexandre du Janiac said: “We are clearly benefiting from the successful implementation of new working conditions and of the industrial plans adopted in all our businesses.”

However, things aren’t as rosy in Asia Pacific although Asia is supposed to be the most promising region for growth.

Courtesy Qantas

Courtesy Qantas

Qantas posted a loss of A$252 million (US$225) for the first half-year (Jul-Dec 2013), deepening the loss of A$91 million incurred last year. At the same time it announced axing 5,000 jobs as part of a three-year plan to reduce costs by A$2 billion. (See Qantas’ dismal performance: The Singer or the song, Mar 3, 2013) It looks like the Australian flag carrier is some steps behind Air France/KLM, but in reality it has embarked on a transformation program for some three years now. Qantas continues to struggle to avert what Mr Joyce once referred to as an Australian “tragedy”. He said: “We have already made tough decisions and nobody should doubt that there are more ahead.”

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Singapore Airlines (SIA)’s profit for Q3 (Oct-Dec 2013) plunged 65 per cent from S$142.5m (US$112.4m) to S$50.1m the previous year. Unlike Vueling in the case of IAG, budget carrier Tiger Airlines, of which SIA owns 40 per cent, was a dent in the group’s profit, contributing to a loss of S$40.8m from associated companies. The parent airline’s profit, however, improved S$43m year-on-year, from $87m to S$130m. Looking ahead, SIA continues to be wary of the aggressive competition that it faces. It will be interesting to see how it will fare for the full year ending Mar 31.

One or two birds may not a season make. There is a silver lining in the grey cloud over Asia-Pacific as Europe recovers, especially for long haul carriers that include Qantas and SIA.