European Airline Productivity

CAPA provided (9th April) an analysis of the relative standings of 19 European airlines.
“European airline labour productivity: CAPA rankings”

http://centreforaviation.com/analysis/european-airline-labour-productivity-capa-rankings-104204

Couple that to today´s(11th April) article about British Airways capital expenditure……….

“Does British Airways’ 787 option conversion signal a return to a more expansionist capex policy?”

http://centreforaviation.com/analysis/does-british-airways-787-option-conversion-signal-a-return-to-a-more-expansionist-capex-policy-104464

………………and you see how BA has managed to keep its head above the water in the last twelve years.In the last paragraph it says…
“……..it seems that its conservative policy, focusing smaller sums on cabin refurbishment and product updates, rather than on new aircraft, met with some success over the past decade. It almost certainly also saved BA from bankruptcy.”

Except, Tom,it isn’t quite as simple as your last sentence.

BA has allowed it’s aircraft assets to depreciate and thus removed financing pressure, which is reflected in a healthier P&L than would other wise have been the case, in the eyes of CAPA saving the company from bankruptcy. In that context, a successful strategy.

Now, the crows are coming home to roost and allowing the fleet age to rise more is no longer a realistic option, as many aircraft near the end of their economic lives. BA was able to follow its strategy as it had a younger than average fleet age due to investments in the 1990s, but it is no longer the case and BA’s average fleet age is pretty high (this is not a safety issue, but it does mean that the costs of fueling and maintaining some less efficient aircraft is higher.)

It is not mentioned overtly in the report, but quick analysis shows that BA also ran down aircraft leases, which was a sensible course of action under this strategy, as it also removed pressure from the P&L, sweat the owned assets and reduce leasing opex.

So BA now must take the reins off capex and invest heavily to renew the fleet and this means they the company can no longer rely on low capex/associated costs.

Will the airline be able to re-vitalise itself to compete aggressively, after such a long period of cost cutting focus?

If you look on the CAPA website, you will find an interesting article anallysing airline employee productivity which contains some inconvenient truths for a number of airlines.

NIRscot

I didn’t read it that way, to be honest.

Wizz and Vueling fared better in some indicators, but Ryanair seemed to have the cost leadership position sewn up overall.

I agree about Flybe, but Ryanair are so big these days, that it’s hard to see anyone challenging them per se. (305 aircraft and more on the way.)

Of course, one of these days there could be a business environment change that impacts them severely, but I’ve thought that for 15 years and drawn a blank, so far 🙂

Anthony

Your second para is precisely the challenge I see for them.

It involves a considerable change in mindset and then competencies.

I hope it works, though, as I’d like to see the airline improve and use them more. At the moment, my reaction tends to be ‘oh no, I have to use BA’, where I’d like it to be ‘great, BA is a good outcome.’

@ FormerlyDoS – 12/04/2013 11:30 GMT

Dunno whether you’re an FT subscriber but if so, another very interesting article by Martin Wolf:

“Britain should not go back to the future”: The UK has been left an economy with a remarkably late-19th century look.

MW makes some extremely cogent points about the short-termism of the City which would prohibit funding the establishment of a company such as Rolls-Royce (that’s the aero-engines business rather than the carpentry and joinery one at Goodwood). Just how realistic are the City fund managers going to be about BA’s long-term capex requirements?

I’d love to see a breakdown of AF/KL into a separte sheet for Air France and for KLM. Information from within KLM suggests that Air France is in bad shape and weighed down by political influence from Paris. KLM seems to be what keeps them afloat.
Strange as during the merger process KLM was seen as the company that needed a strong partner. Have the Dutch been squandered by their management? A nice case after all these years together for some investigative journalist together with economists to assess the real value of mergers like this. The same case should be made for BA/IB in a couple of years time.