The Global Re-shaping of Airlines?

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This topic contains 10 replies, has 6 voices, and was last updated by  Senator 30 Nov 2009
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  • Anonymous

    MarcusUK
    Participant

    Gulf Air, BMI, BA Going the same way…whilst the large cash & asset rich Airlines around the world, are buying up, consolidating, creating virtual monopolies?
    What do BT readers think & see?

    AF/KLM have consolidated, LCY they have 60% of slots, (VLM, Cityjet), Strong very secure modern base at LHR T4 for Skyteam now, Northwest into Delta, & all one big Airline group.
    Train travel has taken the CDG & BRU routes out of Airlines to be needed in the EU! Domestic routes are few here now in the UK.

    Same with LH in Eastern Europe, ( Swiss, Austrian, SAS BMI), also putting paid to competition with fares, like the Emirates news of flights from Germany being standardised on fare!

    The World order in Airlines to me, appears to be changing. U are either in a large group, plenty assets, cash, fleet renewals well underway (KLM have replaced 50% of the fleet in the last 7 yrs with more technological, efficient aircraft), Alliance consolidations.

    Massive growth was planned by Companies like Emirates now cut back. Etihad have taken Gulf Ai’rs custom in recent years, they are now failing. BA looks on a very bleak pathway.
    Yet Virgin Atlantic are steady n strong, with a very individual brand, & holding to their unique services. Are they our Symbol of The great British Airline / Global Company group now?
    The Virgin Group, now have fights across n round the world, with VAustralia starting flights to LAX & CPT very soon. They have become truly global.
    Even the best such as Singapore, are in serious troubles, Malaysian, Thai are in decline…

    Low cost operations in in Europe, Asia, Australia seem more stable.
    Is this the end of all but, principle key International Medium & long haul routes on Major Airlines?
    I feel a fundamental shift in Airlines around the world, like a tremor, but it is all coming to fruition now it seems.
    Have said for the last 18 months, that we shall see changes never been seen before, & the whole Airline industry will become the main globally alligned Companies.

    Its been a process in the making for 5 yrs now. But today with GF & BMI, the woes of BA, it’s here- it has happened!

    What are the thoughts, experiences of other BT readers & travellers?


    Senator
    Participant

    Mark,
    Some good thoughts and inside, perhaps a few things to consider…
    Everyone has different issue; depending on competitive landscape, value proposition and cost structure. However, there seem to be some general common denominators:

    LEGACY COST – All Western world airlines going through turmoil in the last decade or so have typically carried high levels of legacy cost. The US carries like UA, AA, DL, and NW had major legacy cost issues from old fleets, old labour contracts etc. Keep in mind AA is the only major US airline without Chapter 11 proceedings in the last two decades. In Europe KLM, AF, and LH did a good job early to remove cost. SK, BD, OS, BA masked their issues in a booming economy. Now, this has caught up to them.

    LOWER YIELDS – Clearly the revenue per available seat km has dropped over the years. Two personal examples to share; in 2002 I travelled extensively ARN-OSL and ARN-CPH on day trips. The cost of the flexible ticket (only option for a day trip at the time) was roughly €520 return. Today, the same flexible ticket with the same service onboard cost €340 roughly. Secondly, the trip from Scandinavia to Denver is the same in today’s currency as when I was a university student in 1993.

    LCC BUSINESS MODEL – While I am not a LCC traveller, clearly the competitive pressure caused by Ryanair and Easyjet on the aviation market is instrumental. There are two positives to the introduction of LCCs; (i) driven cost out of a cost intensive industry, (ii) given travel access to many more people across different social groups and income levels. However, there are three concerns with the Ryanair model; (i) as long as things are going well, life is good. However, don’t expect any service in case of operational hick-ups, (ii) the low prices are partially subsidised by tax payers. The use of city run airports in Sweden who lose money due to low fees are paid for by the tax payers in these cities, (iii) the ability to “trick” customers into believing they are travelling to Stockholm, Frankfurt, Brussels when clearly you are 100km away is appalling. My favourite is Copenhagen as you actually land in Malmö, Sweden!

    MIDDLE EAST AIRLINES – Gulf Air used to be the only airline in the region. Now, with every oil rich nation with population less than 4 million wants to own a national carrier with WW network, clearly there is not a big enough market here. While Emirates may be showing profitability, Qatar and Ethiad are owned by governments who have now interest if this is financially viable or not. It simple looks good to have a flag carrier

    NICHE PLAYERS – like most industries, being different or providing “niche” products/services/solutions will work. In the airline industry VS is one example, but think of Southwest, Air Asia, Ryanair etc.

    WHAT WILL HAPPEN – consolidation and new business models I presume. I wonder if business class in Europe will survive. The only reason why it still does I suspect those premium passengers with connecting flights want premium experience door to door. I predict in Europe three major groups; BA/IB, AF/KLM, LH Group. In the US, DL/NW is under way but we may see US, UA, CO versus AA with perhaps Alaska. The real issue is premium travel; will it ever come back to fund innovation in service.


    Airpocket
    Participant

    Gentlemen, I’m not entirely convinced that MH are going to experience problems. From what I gather from my sources, business is good and MH often turn out the be the default carrier to Oz/NZ if SQ isn’t available.Certainly, flights between India and Malaysia seem to be flying at capacity.
    As for BA, only time will tell but I really doubt VS is much of a threat to BA. Has anyone recently either experienced VS or seen the reviews they garner on Skytrax? As a family, we consciously avoid flying VS. We would much rather transit through AMS or Dubai than fly VS.I bet SQ are rueing the day they decided to take a stake in VS.
    As for GF, well, where did it all go wrong?


    MarcusUK
    Participant

    Very Interesting analysis. Many thanks.
    i agree with the points raised clearly.

    Etihad kicked out Gulf Air from AUH & really created something unique there with much investment, they are a truly great airline to fly. Sad for GF, they did this once before then slotted back in some major routes.

    BMI have been advertising lower fare discounts new schemes FF reviews, only 1-2 weeks later to be axing even busy routes like LHR -AMS.
    I see KLM every couple weeks, flights LHR -AMS arc chocker, BUT, 10 rows of business class are pushed back to 2-3 now, with most BTs in economy, compared to a year go.
    I have to say, i am very pleased to be retaining my gold card for KLM /Skyteam with these times ahead. The real meaningful perks are through this when flying now, but they get 30+ flights of loyalty from me at least.

    I think that seating & service for Business has little time left in Europe.
    AF sound as though they know this with the fares re-structure next year. Perhaps flexibility n perks will make higher fares, but lets face it, little in seating differences on board these days, KLM is the same all through. the days of any Business seats in short haul are limited.

    I had discussions with the SQ Australian /NSW Manager when there some weeks ago, much happening there also with denser regional business seats being installed on Australian routes, the lounges are sparce for food & drinks, small things on board easily noticed, smaller meals, No desserts only ice cream scooped from a plastic box, one meal cut on overnight flights!
    The small things with little cost are being removed even on long haul travel, yet they were the finer touches.

    Malaysian i am afraid have lost huge business to AirAsia /X. Most of their domestic routes have gone, services have been cut, & flights are on old aircraft looking n feeling very tired. I have been very loyal to them, & wonderful service, but like Thai, they are in decline.
    Low cost Medium & long haul are another factor in Asia but not so strong to make challenges in the EU.

    Virgin Atlantic i do see, are a truly Global Airline, you can circle the globe on their aircraft now, with South Africa – Australia coming on line too soon. VAustralia have new 773 aircraft ready, & VirginBlue is very strong now in Australia. With SQ they are cash & asset rich, secured.

    There is a market which airlines have tried to catch with some of the premium economy cabins. But set at a price for LHR-SYD for eg 3 years ago for a business cabin. £1600 could get you a return, this is now £2,400+ unless you get a seat sale. Premium is at the £14000+ level.

    The savvy traveller, paying for their own ticket, wanting n willing to pay more, wont pay the current business class rates, but they will pay more. Premium economy does not offer much for the 2-3 x fare. Lower yields they might bring, but to capture this market, would be wise. On the SQ A380 returns i did LHR – SYD last few months, 70% of the cabin in Business were not flying for business clearly.

    I also see as Thai have done, LH are suspending 1st class cabins on some routes. I think airlines need to change the perception of business class on long haul, even the name does not match these days!

    Here they could innovate & capture great loyalty.

    Very turbulent times ahead in the coming months i feel, these aspects are the tip of the iceberg of the medium to long term damage to Airlines of the global economy.
    Then all the associated industries, Boeing, Airbus, also…
    Perhaps the very future of FF programs also is a liability that will also be brought into question, but like it or not, our miles are getting less able to be spent, harder to earn, & routes & options are declining…


    VintageKrug
    Participant

    http://www.cartoonstock.com/newscartoons/cartoonists/lfo/lowres/lfon12l.jpg

    ….someone round here would be seriously rich!

    Mark

    some really interesting thoughts but I’d really like to take issue with your lauding of Virgin.

    I have to take my hat off to them – or rather to Branson – because increasingly they are a triumph of style over substance backed by a PR machine that must be the envy of other airlines.

    Good luck to them for being able to pull that particular trick off but the reality is that their oustanding PR machine ( otherwise known as Sir Richard) is disguisng a struggling group.

    The reality is:

    *Route cuts

    ( Mumbai, Chicago, reduction from 2 daily to 1 HKG – LHR to mention just a few)

    *Failures

    (Virgin Nigeria)

    *A far from “global” airline

    In reality the Virgin name is a series of franchises tagged onto local business ( and this has nothing to do with local “foreign national” ownership rules)

    Had a very good example recently when flying MEL – SYD on Virgin Blue in Y, with a direct connection SYD – LHR in J.

    Was booked on 2 separate tickets and when I asked for my bags to be through checked to LHR – had already checked in online for both flights – I was told:

    ” We are two completely separate airlines – we have nothing to do with them. You will have to collect your bags in Sydney and re-check them”

    Mark, I believe you are based in Sydney so will understand that that actually means picking up your bags, existing the terminal, and taking a bus (or the train) over to the International Terminal a very long way away

    Hardly the response of a “truly global airline”

    Would be very interested to hear of any one who has tried, for example, to get luggage checked all the way through / boarding passes issued ,on the “global Virgin network” if they were flying (just an example)

    MEL – SYD on Virgin Blue
    SYD – LAX on V Australia
    LAX – NYC on Virgin America

    And yet this is something that I can get everytime if I do 3 sectors on QF/ BA /AA

    Seems to me to be a triumph of hype over reality

    Maybe I would have better luck if I had been connecting from a V Australia to DL, which brings me to my next point

    *Hypocracy.

    The “champion of the common people” Branson rails against BA / AA or BA / IB whilst at the same time launching a crusade to bring more competition to US – Australia routes with V Australia.

    And then, less than 3 months later, applies for Anti Trust immunity to code share with DL across the Pacific – breathtaking!

    *Poor service standards in reality

    Again this is where the PR machine and “image” triumph over reality

    Another poster has mentioned the consistently poor reviews that VS gets on Skytrak and their Upper Class product is really showing its age.

    In addition it is my understanding that the policy in Y on V Australia flightS is “first alcoholic drink free, aftter that you pay”

    Now I could be wrong – and am sure someone will correct me if I am – but I wonder what the outcry would have been and how many column inches would have been filled if BA had introduced a similar policy?

    Once again you have to take your hat off to the PR Machine

    * Delivery on promises

    Again linked to the PR machine, but we could all come up with a long list of promises that Branson has made that has never materialised ( a Double Beb on VS anyone?)

    *Opactity on the true financial picture

    Several independant analysts commented on the “innovative” nature of the last set of VS accounts

    Nor do I think Branson could call upon SQ if things goT really difficult – it is an open secret that SQs 49% stake is worth much less now than what theY paid for it, and an equally open secret that they would exit the investment if they could get anywhere near what they paid for it

    Now the next statement might surprise you – I actually like and admire Virgin as an airline

    Back in the days when BA’s idea of a Business Class seat was a 38 inch seat pitch armchair, VS forced them to raise their game with a 50 inch pitch and I moved my travel to them as a result.

    ( Just as BA’s flat bed forced Virgin into the “herringbone” flat bed later on)

    Think their UK based lounges are fantastic ( but out stations a lot less so)

    I think they provide healthy competion to keep BA on their toes (something that no other national carrier does to LH and AF) and still fly them every now and then

    But I get annoyed by the “Virgin can do no wrong ” attitude, largely fueled by that PR machine when the reality is, as pointed out above, really rather different


    Airpocket
    Participant

    Good to see that savvy travellers aren’t falling for VS’s marketing hype.


    ScottWilson
    Participant

    The should be no delusions that VS is doing well. SQ has been trying to offload its ownership of VS for sometime now. The simple truth is that Virgin Atlantic makes a small profit, it does not and has not made an investor grade return on capital. Virgin Blue was purely an opportunity born of the collapse of the very badly managed Ansett (a collapse spurred on by Qantas encouraging the then business unfriendly NZ government to veto Singapore Airlines from investing in what was then the Air NZ/Ansett group).

    Branson is good at marketing image, but then is more than happy to run a monopoly with government money, such as the subsidised West Coast Main Line railway franchise in the UK (again with a substantial minority shareholder in the form of Stagecoach).

    VS is a minnow that largely kept cash positive due to London based financial and management services traffic in Upper Class, and is being hit hard like BA is, but with less of the legacy cost structures and outrageous pension liabilities.

    However, it is no great success story. It is the flagship of Branson’s business empire because it is an airline, not because it brings in great amounts of money.

    Before the recession, the only investor grade full service airlines in the world were Lufthansa and Qantas, both primarily because they have nearly all of the business traffic in their home markets.


    MarcusUK
    Participant

    Take on Board your experiences & comments on Virgin.
    I am Not based in Australia but have a business in Sydney, so it means i travel there twice a year at least for a few months. I am here in London.

    Virgin Blue (low cost), in Australia, are in the mode, not going to check baggage through, as Easyjet would’nt do here in the EU, they are a separate Company that simply don’t have that facility in Contracts. Point to Point only. It is the same with Jet star, owned by Qantas, but they will not check you through for International flights.

    I hear &^ see many who travel VS & I can only say that their experiences have been varied but overall on the positive side. The innovations in Upper Class in early days, The ClubHouses, Limousine service, curbside check in, private security lanes (LHR)..premium economy, .these are rare to say the least, amongst other Airlines.

    I make the point that VS have services on their own Aircraft, that run side by side around the world. Gone are the days where an Airline would be in that sense truly global. They have a very strong hold in Australia as Virgin Blue, & V Australia is building up, Phuket, LAX, CPT, some new routes. You can still fly the globe on the Virgin Group.

    Always interesting to see the “Down Under” perspective of the Airlines, as well as Asia & Emirates, that are the main routes for my trips.

    But the point is more of the global re-structurering that was made, seems to have strayed off…?


    Senator
    Participant

    I believe Sir Richard Branson once said; “The airline industry; the business that makes billionaires into millionaires”. Perhaps the best remark and fitting in today’s climate

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