EasyJet to shake up market

Courtesy EasyJet

EasyJet “will shake up the market,” said the low-cost carrier’s chief commercial officer Peter Duffy. The airline operating out of London Gatwick has entered into an arrangement with Norwegian Air Shuttle and WestJet to allow booking of connecting flights to Singapore and destinations in North America that include New York, Los Angeles, Orlando and Toronto on its website.

This is another indication of how LCCs are no longer content with just the so-called niche market as they enter into the arena of the big boys. Such connections are usually forged among legacy airlines competing with each other, an advantage compared to stand-alone LCCs confined to point-to-point traffic. So EasyJet’s initiative – said to be the first global airline connections service by a European low fares carrier – is set to change the rules of the game.

Already Norwegian, encouraged by the prospect of an increased number of passengers through the partnership that will help it expand its wings, is talking about the possibility of linking up with Ryanair. EasyJet also said the tripartite arrangement will expand to include more airlines.

The agreement is not completely an LCC club as it includes WestJet, Canada’s second largest airline after Air Canada. This is breaking new ground, challenging the advantage enjoyed by legacy airlines which are supported by subsidiary or joint-venture LCCs, among them Lufthansa/Eurowings, British Airways/Level/Vueling, Qantas/JetStar, and Singapore Airlines/Scoot.

It is interesting how the modus operandi of the LCC keeps evolving, and consumers stand to benefit from the increased competition. For now, EasyJet customers connecting partner flights will have to collect their bags in transit, to be handled via the Gatwick Connects desk in the baggage reclaim area. No reason why this will not improve in time.

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Enter the ultra-budget airline

Courtesy NewLeaf

Courtesy NewLeaf

LESS than a month after Canada’s latest carrier Airlines revealed plans to offer ultra-low fares operating from its base in Winnipeg to six cities within the country, namely Abbotsford, Halifax, Hamilton, Kelowna, Regina, and Saskatoon, it announced it was “temporarily postponing service” and would refund all transactions already made. The first service was to be launched in February.

Newleaf’s fate now rests in the hands of the Canadian Transportation Agency (CTA) which is reviewing the carrier’s aviation licence. Apparently Newleaf was selling seats through a charter arrangement with Kelowna-based Flair Airlines Ltd which held the CTA operating licence. The question is whether the indirect Newleaf should itself be holding a licence directly.

Newleaf CEO Jim Young’s reaction was one of optimism. He said: “We welcome a regulatory system in which businesses like ours can thrive in Canada as they do in other countries.”

That aside, the ultra-budget airline that is sometimes referred to as a discount airline is not an entirely new phenomenon. In his somewhat premature announcement of the launch of the airline, Young said: “Lower landing fees mean we have savings we can pass on to you.” The key word is “affordability”. According to him, “Ultra low-cost carriers are some of the most financially successful airlines in the world today.”

Young may be referring to operators such as Iceland’s WOW Air and the longer haul Norwegian Air Shuttle. WOW Air, for example, is offering US$99 fares connecting Boston and San Francisco in the US with the Icelandic capital Reykjavik. It is next looking at connecting with Montreal and Toronto in Canada.

While you might remind Young of how as many airlines so-called budget too have come and gone, Newleaf is already expressing interest to expand its operations to other destinations within Canada and in the United States.

Young, who was at one time CEO of Frontier Airlines, explained: “By unbundling the entire service you get to choose what you want.” That basically is the budget model, and one that is further trimmed down on costs. As an example, he cited how NewLeaf would be able to save money in part because it does not offer its seats on any third-party travel websites, which charge airlines a fee to post and make sales there. Considering the nature of its operations, that makes economic sense. After all, Young did not see Canada’s two other major carriers – Air Canada and Westjet – as Newleaf’s competitors. He said: “If I had a competitor, it would be the airlines that Canadians are driving across the border for.” He was referring to Canada’s loss of market share to US airlines such as Allegiant Air operating out of airports south of the border, close enough for Canadians to drive across to take advantage of the lower fares.

Young added: “We’re looking to create a new market and stimulate people who aren’t flying today. What I’m going after are people that will make the three-and-a-half hour drive in the middle of winter to go to Grand Forks because they’ve got to get to some place warm or can’t afford to fly from here.”

That argument about developing new market has been the slogan of many a budget upstart, and which has contributed to the success of some of them to go where the full service airlines would not go. Newleaf is therefore targeting a limited but niche leisure market on the back of a strategy that focuses on second-tier airports. It can count on that as a strength to drive its growth, particularly at a time when it could take advantage of the current low fuel costs. Too many no-frill operators in the past had been hit badly by soaring oil prices. The challenge for Newleaf will come when other upstarts similarly motivated jump into the same arena, or when one of the legacy airlines decide that the market has grown big enough for them to join the competition most probably through a subsidiary offshoot such as Rouge, the budget arm of Air Canada.

Legacy airlines across the world have become increasingly wary of the growth of the budget carriers, particularly after the 2008 global economic crisis when air travel trended downwards to cheaper fares. Budget carriers are now competing in the same market, not only for seats in the traditional economy class but also for travellers who want some perks but at lower fares as they introduce their version of business class. North American domestic operations by the major airlines are already adopting the budget model to charge for meals and baggage among a slew of chargeable.

The temptation of growing bigger than intended is always present. This unbridled ambition has led to the downfall of many operators in aviation history, perhaps the reason why the doyen of the budget model Ryanair remains undecided whether it should launch long haul services across the Atlantic, and why some discount carriers such as Allegiant have stayed small. Will Newleaf, when granted the licence to operate, given its ambition to expand far and wide, go down this same road?

Perhaps not, as it would appear that the current budget model exemplified by carriers such as Ryanair and easyJet is not trim enough, and if lower cost will stimulate demand, there is room for Newleaf to grow. Yet one begins to wonder how much lower you can go.

This article was first published in Aspire Aviation.

Boeing blues

Three months after the grounding of the B787-Dreamliner and while Boeing struggles to resolve the issue to get the plane back up in the sky, a new problem has landed on its lap – this time, concerning the B737 jets. The US Federal Aviation Administration has issued an airworthiness directive for more than 1,000 B737 planes operating in its airspace (which also applies in Canada) to be inspected for faulty tail pins that may have prematurely corroded, causing pilots to lose control of the plane.

The FAA said: “We are issuing this AD to prevent premature failure of the attach pins, which could cause reduced structural integrity of the horizontal stabilizer to fuselage attachment, resulting in loss of control of the airplane.”

It is a precautionary move, but likely a costly one for the airlines that have a large number of the B737 jets in their fleet, such as WestJet Airlines of Canada. Since the B737 is a short to medium-range aircraft, it is likely that regional airlines including cargo operators are likely to be the most affected. But safety is not something that you can or want to downplay in the business of flying.

This could not have come at a worse time upon the heel of a Lion Air crash into the waters, short landing at Bali’s Ngurah Rai International Airport in Indonesia just this week. Fortunately all passengers survived. There was no connection between the incident and FAA’s directive – the way that the grounding of the B787-Dreamliner was consequent upon sparks aboard a Japan Airlines plane initially suspected to be caused by the lithium-ion battery pack – and investigators have yet to establish the cause. It might even be extraneous to Boeing. Lion Air, which is Indonesia’s second largest airline and one of the fastest growing in the region, is banned from operating within the US and European Union over safety concerns.

Photo: Reuters/Stringer Indonesia

Photo: Reuters/Stringer Indonesia

But what came across as frightfully familiar was how the fuselage of the Lion Air plane broke apart, recalling similar mishaps experienced by four other airlines that include Continental Airlines in 2008, American Airlines in 2009, Aires Airlines (Colombia) in 2010 and Caribbean Airlines in 2011. Mind you, the B737 has been around since the 1960s and is a favourite plane for regional flights. It is in fact the best selling jet in the history of aviation.

Boeing will have much to do to repair its image. The aircraft business is dominated by two players – Boeing itself and Airbus, and the competition is such that for the bigger jets, the decision to buy which make and model usually comes down to either one of them. Aircraft orders can span several years, and timing is important.

Then, of course, as things settle, there is the looming question of compensation for downtime if Boeing is found to be contributory to its customer airlines losing out on opportunities. At least one airline – Qatar Airways – affected by the grounding of the B787-Dreamliner has publicly announced it will seek compensation from Boeing. Qatar chairman Akbar Al Baker said: “Definitely we will demand compensation. We are not buying airplanes from them to put in a museum.”

Porter Airlines to challenge Air Canada and WestJet

CANADA’s short-haul operator of two-hour flights, Porter Airlines, looks set to compete with the country’s largest two airlines – Air Canada and WestJet – for the longer haul across Canada and beyond to the United States and the Caribbean. Likely destinations include Los Angeles in the US and Vancouver, Edmonton, Calgary and Winnipeg in Canada, to be reached from its present base in Toronto – Billy Bishop Toronto City Airport.

Porter chief executive Robert Dekuce said: “It’s now time to spread our wings and look at some destinations that are little further out.”

Porter plans to acquire new and bigger jets – 12 Bombardier CS100 with options for 18 more – which are more powerful, quieter and have a longer range than its current fleet of turbo-props. The order cost C$2.29 billion (US$2.26 billion), and the first of these aircraft will only be available in 2017.

Courtesy Facebook

Courtesy Facebook/Porter Airlines

However, the plan is contingent upon approval by the federal government, the City of Toronto and the Toronto Port Authority to allow the new jets to land and take-off at Billy Bishop. This means extending the airport’s main runway by 168 metres at each end. Additionally, the terminal would have to be expanded to accommodate the new aircraft, and the increased frequencies and loads.

Air Canada and WestJet are enjoying good loads on the main trunk routes, and there is certainly room for increased competition which will provide air travellers with more options.

As for Air Canada, according to spokesman Peter Fitzpatrick, the national airline is seeking access to Billy Bishop as well. Further investments by the authorities should be premised upon opening its doors to other airlines as well.

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?

Canadian airlines report improved loads

CANADA’s largest two airlines – Air Canada and WestJet Airlines – reported better loads in June compared to a year ago.

Air Canada’s load factor rose to 85.6 per cent from 84.2 per cent a year ago when the airline suffered a strike by customer service agents. However, the improvement was also due to the increased passenger traffic by 1.5 per cent while at the same time the airline had trimmed capacity by 0.1 per cent.

In the same vein, WestJet’s improved load factor from 75.7 per cent to 79.0 per cent was the result of passenger traffic increase by 6.7 per cent outpacing capacity increase by 2.3 per cent.

Adjusting supply to better reflect the market’s demand has been a strategy that many airlines usually resort to in a sluggish market. As the industry continues to face uncertainty globally, the real stability test is in the months to come after the summer peak travel season. However, WestJet president and CEO Gregg Saretsky expressed confidence of the positive trend continuing. He said: “Advanced bookings for July and August remain strong.”

Air Canada president and chief executive Calin Rovinescu too was confident about the airline achieving its first profit in years, although the airline last reported a net loss for the quarter ending March 31 of C$210 million (US$207 million), which was 11 times higher than the C$19 million loss in 2011. He said the record load factor for June was the result of a “strategy to manage capacity to ensure high efficiency.” Indeed, the keyword is “efficiency”. Hopefully Air Canada’s labour problems are a thing of the past.

Canada’s regional carrier Porter Airlines, however, saw its June load factor dropping from 64.6 per cent to 62.0 per cent, but the airline maintained that the numbers “met our expectations”. This was because the higher number last year benefitted from a strike by workers at Air Canada. Also, while traffic grew 4.1 per cent, capacity went up higher by 8.5 per cent.

But all is not rosy for charter airline Air Transat, which posted a second quarterly loss of C$26.2 million. This would reduce the operator’s hope of returning to profitability this year, as the company’s president Jean-Marc Eustache admitted: “It doesn’t look like it’s happening, is it?” Mr Eustache is now eyeing Asia as the European market continues to lose its lustre. This would be in competition with Air Canada, which has already announced plans for a low-cost carrier to the region. But Mr Eustache insisted that Air Transat is a tour operator, not an airline.

Canada moves to protect passengers’ rights

THE obligations of airlines to compensate passengers for disrupted and cancelled flights has long been an elusive subject, and definitely one clouded with fuzzy arguments that make it difficult to implement any clear solutions or remedial action.

The Canadian Transport Agency is making another go at protecting passengers’ rights, saying that in the event of an overbooked, delayed or cancelled flight, passengers should be given the option of a full refund and a free trip home if the occurrence jiggles up their travel plans. Airlines may be required to book stranded passengers on the first available flight, even if it means on a competitor’s flight.

The screws have been made tighter in that passengers would be entitled to a full refund compared to the past practice of airlines reimbursing only the unused portion of the itinerary. Of course, there is the exclusion caveat of disruptions caused by circumstances outside the airlines’ control such as inclement weather and security issues.

CTA’s regulation would affect Canadian airlines, namely Air Canada, Westjet and Air Transat. The agency had already in the past made it a necessary condition for their operations to visibly display their obligations such that passengers are aware of their rights.

As experienced by the European Union (EU) for some years now, implementation is going to be a challenge. The EU has threatened to resort to legal action against airlines that do not comply with its rules. For example, EU rules require that passengers must be reimbursed for hotel accommodation and meals for the whole period that they are stranded but some airlines will only pay for 24 hours.

Airlines are unhappy with the rules, expressing concern that there is no limit to what they have to pay out. This has resulted in a backlog of claims that for some airlines accumulated for as many as 500 flights. In the end, passengers are no better off than they were, in a continuing and enervating battle whose sign of victory, if any, constantly eludes them. For both parties, fortunately for the airlines and unfortunately for their customers, time is the great healer.

But it remains a worthy pursuit, purely in the name of fair play.