The state of the industry globally has recently been described as woeful with decline in global passenger forecast carryings next 12 months likely to be in the 5% territory and cargo volume decline at 13%.
Premium cabin passenger revenue and cargo revenues are the big losers over the last 6 months and forecast to continue at least in the short term. A cumulative industry $4 billion forecast loss for 2009 on top of a $8 billion loss for 2008.
New aircraft deliveries from the major manufacturers will fall from a recent high of 1100 units annually to below 800 over the next 2 years.
Regionally the airline picture varies with Far Eastern markets taking the biggest hit , but with Europe less so. The U.S is matching volume decline with capacity reduction and thus profit performance treading water and the Middle East market showing small revenue improvements.
It is rare to see an annual 10% return on investment for this industry and the cumulative profits banked over several years are easily lost in a 12 month period. The old joke that the only way to make a small fortune in this industry is to start with a large one becomes embarrassingly accurate!
How much less pain could have been felt if the fuel buyers had not hedged at the ridiculously high 2008 prices . Sometimes the airline industry is too clever for its own good!
As in life though , problems for some will be an opportunity for others .
There is no doubt that no one involved in the industry is escaping pain. The strategists would far rather focus on continued measured expansion than being moved away from their comfort zones to delivering survival strategy. Some will fail in that delivery.
However, some have business models more adaptable and less exposed in the changing market. Some are showing an extra eagerness to appeal to the customer, manoeuvring to capture new volumes, eying the availability of aircraft delivery positions deferred by others, identifying new opportunities.
Who will see opportunity and pick up the new aircraft delivery slots deferred by others? Who will take those opportunities and emerge from the downturn relatively stronger and sharper? Who will suffer the business cardiac arrest that although not killing them now, will leave them so weakened they limp along and finally keel over just when the green shoots of recovery are seen ?
Who are the names in your minds eye?
Showing posts with label friday avaiation blog. Show all posts
Showing posts with label friday avaiation blog. Show all posts
Friday, 10 April 2009
Friday, 6 February 2009
Heathrow third runway- a strange twist in the tail !
Having delayed the decision but finally announced conditional approval for the concept of the additional runway at Heathrow in January , the carbon emission issue once again rears its head after less than a month to threaten necessary expansion at other UK airports.
It appears now that in combination with the use of the established runways at Heathrow , a 3 runway operation at Heathrow is likely to use the UK 's agreed air transport carbon maximum almost completely by mid century. If not re examined and clarified, this would then limit use and expansion of all other airports nationally.
What a position UK government has got itself into !
Conditional approval was announced in the face of much backbench disapproval for the concept in addition to 'green'' objections. And now the approval is potentially alienating the rest of the country who overwhelmingly support the wish to use local departure points . These regional airports have their own detailed expansion plans . In fact regional airport expansion has been very much encouraged by this very government whose detailed papers and forecasts up to 2030 highlighted the enormous local benefits attached to regional air transport operations and the need to develop them further. Whose existence and success brings much local prosperity, and arguably provides a 'greener' air transport solution. This by encouraging air travel from local points requiring much less surface travel delivery distances and by reducing the need for much carbon producing surface transport volumes required to deliver customers to the hub near Hounslow. So how much of this regional asset is now threatened and how much regional customer convenience is ignored in order to maintain Heathrow as a showcase global hub?
Is this a case of another embarrassing gaff with government just not thinking it through? It confirms once again that when it comes to air transport, government really has NOT got its act together .
Tasked to manage the country ? I'm not sure I can trust them with the skill to put a hook up in my garage !!
What do you think ??
It appears now that in combination with the use of the established runways at Heathrow , a 3 runway operation at Heathrow is likely to use the UK 's agreed air transport carbon maximum almost completely by mid century. If not re examined and clarified, this would then limit use and expansion of all other airports nationally.
What a position UK government has got itself into !
Conditional approval was announced in the face of much backbench disapproval for the concept in addition to 'green'' objections. And now the approval is potentially alienating the rest of the country who overwhelmingly support the wish to use local departure points . These regional airports have their own detailed expansion plans . In fact regional airport expansion has been very much encouraged by this very government whose detailed papers and forecasts up to 2030 highlighted the enormous local benefits attached to regional air transport operations and the need to develop them further. Whose existence and success brings much local prosperity, and arguably provides a 'greener' air transport solution. This by encouraging air travel from local points requiring much less surface travel delivery distances and by reducing the need for much carbon producing surface transport volumes required to deliver customers to the hub near Hounslow. So how much of this regional asset is now threatened and how much regional customer convenience is ignored in order to maintain Heathrow as a showcase global hub?
Is this a case of another embarrassing gaff with government just not thinking it through? It confirms once again that when it comes to air transport, government really has NOT got its act together .
Tasked to manage the country ? I'm not sure I can trust them with the skill to put a hook up in my garage !!
What do you think ??
Friday, 23 January 2009
A time to use your talent or waste your talent?
This is not the first economic downturn experienced by the aviation industry.
As with any industry effective control of costs is paramount in terms not only of survival but in anticipating the return to positive growth.
The industry seeks to control and minimise expenditure in order to maintain some level of direction towards profitability. Of course many costs are contractually fixed and thus attention is focused on those variable areas, inevitably including employee costs highlighted particularly by the bean counters.
But are these employee 'costs' or would they be better described as 'talent assetts'. For sure there are areas of employment that directly relate to the health of the business . More passengers can mean more check in agents, more cabin crew, more pilots etc and vice versa. But recent press has highlighted disproportionately large staff reductions relative to declining business volumes. Were these positions so fundamental in the good times?
A reduction in passenger and cargo throughput may require a measured adjustment of workforce. But some see it as an opportunity to contract out functionality with fixed costs being replaced by variable.- why now? If it is such a good business practice, why not do it in times of positive growth?
Who is driving this strategy? HR or the accountants? Are the blind leading the blind?Experience suggests that many making the decisions are least qualified to judge the resultant impact on the business.
Often loosing the skills base and contracting out function to a third party who will have to learn your business whilst being charged with the only interaction with your customer base can be a dangerous place to be . Keeping skills within the workforce, particularly those supporting the customer interaction - airport functionality marketing/sales and telesales functionality inclusive at least maintains the quality of interaction everyone strived so hard to keep high during the good times.
So for those planning such cuts, is the lack of short term cost strain worth the long term talent drain. Cost reduction in terms of employment costs but with the associated increase in third party contract costs will often lead to poorer customer service, allowing your revenue streams to be 'controlled' by a third party whose task after all is to look after their own business first and the principals second.
Caution is advised - the saving of costs for 10 staff for a one year economic glitch will be lost in revenue many times over in the subsequent years once the issue fades and is replaced by more positive economic trends. The loss of talent can be permanent .
So should the current focus be more talent retention and less cost containment?
What do you think?
As with any industry effective control of costs is paramount in terms not only of survival but in anticipating the return to positive growth.
The industry seeks to control and minimise expenditure in order to maintain some level of direction towards profitability. Of course many costs are contractually fixed and thus attention is focused on those variable areas, inevitably including employee costs highlighted particularly by the bean counters.
But are these employee 'costs' or would they be better described as 'talent assetts'. For sure there are areas of employment that directly relate to the health of the business . More passengers can mean more check in agents, more cabin crew, more pilots etc and vice versa. But recent press has highlighted disproportionately large staff reductions relative to declining business volumes. Were these positions so fundamental in the good times?
Does business not have the courage to resolve staff level issues other than in times of business downturn - thus the downturn becomes the excuse rather than the cause for some proportion of staff reduction!
So what is aviation trying to achieve -the survival and improvement of the business as a medium term strategy or just a short term cost cutting exercise - the 2 options are often less than compatible.
Is this industry like many others in the western world exhibiting elements of 'shorttermism''. Listening to a economic issue being developed into media driven crisis. Giving too little thought to the needs in 12 months as green shoots start to re- appear. A quick fix to reduce the responsibility for employing and the associated HR issues that attach.A reduction in passenger and cargo throughput may require a measured adjustment of workforce. But some see it as an opportunity to contract out functionality with fixed costs being replaced by variable.- why now? If it is such a good business practice, why not do it in times of positive growth?
Who is driving this strategy? HR or the accountants? Are the blind leading the blind?Experience suggests that many making the decisions are least qualified to judge the resultant impact on the business.
Often loosing the skills base and contracting out function to a third party who will have to learn your business whilst being charged with the only interaction with your customer base can be a dangerous place to be . Keeping skills within the workforce, particularly those supporting the customer interaction - airport functionality marketing/sales and telesales functionality inclusive at least maintains the quality of interaction everyone strived so hard to keep high during the good times.
So for those planning such cuts, is the lack of short term cost strain worth the long term talent drain. Cost reduction in terms of employment costs but with the associated increase in third party contract costs will often lead to poorer customer service, allowing your revenue streams to be 'controlled' by a third party whose task after all is to look after their own business first and the principals second.
Caution is advised - the saving of costs for 10 staff for a one year economic glitch will be lost in revenue many times over in the subsequent years once the issue fades and is replaced by more positive economic trends. The loss of talent can be permanent .
So should the current focus be more talent retention and less cost containment?
What do you think?
Friday, 19 December 2008
The government dilema- green or growth in air transport?
The green lobby have the future survival of the globe on their minds and have successfully lobbied governments to take action.
The air transport industry is a fundamental within the global economy -Without it, global commerce would not exist in its present form. Aviation globally is a huge employer both directly and indirectly. If constrained as an industry, employment prospects of the many millions who support the needs of the billions who travel for leisure and business would be in doubt. Like it or not, air travel is something that needs to continue to develop to support the many facets of the global economy.
Carbon emission reductions at ground level can be achieved. The technology already exists to deliver emission reductions across the major contributors of greenhouse gasses. In the area of consumer and industrial electricity supply, power generation will be less dependent on fossil fuel burning. Road transport emission reductions will appear over the next generation as road vehicles move towards fuel cell and multi fuel types . However it is likely that aviation will benefit last in any large scale term from alternate energy technology - certainly in the area of large air transport equipment . Thus the industry will remain the black sheep for the 'greens' . Air transport must find a way to live and prosper under this shadow.
One could argue that the development of runways in the UK regions has a major green benefit. Runway development away from the southern airfields will encourage airlines to increase service at these major regional conurbations. As these passenger volumes migrate back to these more convenient departure points, the reduction of millions of ground journeys for people who travel from the regions to the dominant southern airfields would have great net benefit for the carbon emissions issue.
This argument of course does little for our colleagues over at Waterside who have set out their stall over recent years to become 'London Airways'' relying now almost totally on the concept of a single UK city departure point . BA now has to defend the only piece of land it stands on from new predators at Heathrow resulting from USA route open skies concessions and major global carriers willing and able to acquire UK operators with valuable Heathrow slots . Having essentially abandoned regional operation in favour of more lucrative London based long haul operations, they have allowed many 'Johnny Foreigner' airlines who perhaps have a little more faith in the UK regions or a little more strategic foresight to rampage all over its back yard.
Perhaps the 'greens' should take a more considered approach to the issue- rather than objecting to everything - a little thought would identify that the industry can in fact make its contribution without draconian interference and they could perhaps even support some of the initiatives .
So what is the solution? As a famous lady once said - ''This is no time to wobble''. Aviation despite its carbon enemy title will need to continue its development, in turn supporting global commerce.
Government will not wish to see the UK economy decline in relative global importance and thus will need to achieve compromise solution allowing this continued development of airports and air transport expansion whilst achieving a politically correct carbon emissions reduction. Not forgetting that even the most pessimistic observers identify an air transport carbon contribution of around 5% of the total UK, it will be able to achieve its targets for total reductions in spite of all the hot air blowing in the direction of air transport and its relatively small carbon footprint. The fact that government has again deferred the decision regarding a third runway for Heathrow indicates it has not got its aviation act together .
But the air transport community in part has itself to blame, by allowing its critics to occupy the high ground. Airlines and airports have to defend themselves in the public domain. There are positive stories to tell but so far, the industry has failed to deliver a successful pro air transport lobby. The industry already has bodies who can speak with a strong single voice. But major travel industry and air transport groups like GMTC and BAR UK have played a defensive bat in countering accusations rather than going on the attack with a pro-active campaign delivering the positive facts to government and public. A coordinated lobbying exercise will be required to overcome and correct the misunderstandings that the anti aviation lobby put forward. So far too little pro aviation information and too piecemeal . It's time to go on the offensive with a coordinated message delivering positive and factual information about its plans and achievements in the carbon reduction project.
Maybe then government and aviation will stop trading blows and realise a more collaborative approach will deliver better solutions.
What are your views?
25 years ago - A paper airline exercise was starting to become more than paper with the result that within 12 months an airline with an unusual (for an airline) name appeared and so did a scantily clad lady on the side of its aircraft . The airline was allowed to successfully develop itself with a strong brand and product against established major carriers. Were the strategists and marketeers at those competitive carriers asleep on the job?? The then chief executive of BA was later alleged to suggest he couldn't take seriously any competitor whose MD wore a pullover rather than a tie - Not his best ever character analysis !
The air transport industry is a fundamental within the global economy -Without it, global commerce would not exist in its present form. Aviation globally is a huge employer both directly and indirectly. If constrained as an industry, employment prospects of the many millions who support the needs of the billions who travel for leisure and business would be in doubt. Like it or not, air travel is something that needs to continue to develop to support the many facets of the global economy.
Carbon emission reductions at ground level can be achieved. The technology already exists to deliver emission reductions across the major contributors of greenhouse gasses. In the area of consumer and industrial electricity supply, power generation will be less dependent on fossil fuel burning. Road transport emission reductions will appear over the next generation as road vehicles move towards fuel cell and multi fuel types . However it is likely that aviation will benefit last in any large scale term from alternate energy technology - certainly in the area of large air transport equipment . Thus the industry will remain the black sheep for the 'greens' . Air transport must find a way to live and prosper under this shadow.
One could argue that the development of runways in the UK regions has a major green benefit. Runway development away from the southern airfields will encourage airlines to increase service at these major regional conurbations. As these passenger volumes migrate back to these more convenient departure points, the reduction of millions of ground journeys for people who travel from the regions to the dominant southern airfields would have great net benefit for the carbon emissions issue.
This argument of course does little for our colleagues over at Waterside who have set out their stall over recent years to become 'London Airways'' relying now almost totally on the concept of a single UK city departure point . BA now has to defend the only piece of land it stands on from new predators at Heathrow resulting from USA route open skies concessions and major global carriers willing and able to acquire UK operators with valuable Heathrow slots . Having essentially abandoned regional operation in favour of more lucrative London based long haul operations, they have allowed many 'Johnny Foreigner' airlines who perhaps have a little more faith in the UK regions or a little more strategic foresight to rampage all over its back yard.
Perhaps the 'greens' should take a more considered approach to the issue- rather than objecting to everything - a little thought would identify that the industry can in fact make its contribution without draconian interference and they could perhaps even support some of the initiatives .
So what is the solution? As a famous lady once said - ''This is no time to wobble''. Aviation despite its carbon enemy title will need to continue its development, in turn supporting global commerce.
Government will not wish to see the UK economy decline in relative global importance and thus will need to achieve compromise solution allowing this continued development of airports and air transport expansion whilst achieving a politically correct carbon emissions reduction. Not forgetting that even the most pessimistic observers identify an air transport carbon contribution of around 5% of the total UK, it will be able to achieve its targets for total reductions in spite of all the hot air blowing in the direction of air transport and its relatively small carbon footprint. The fact that government has again deferred the decision regarding a third runway for Heathrow indicates it has not got its aviation act together .
But the air transport community in part has itself to blame, by allowing its critics to occupy the high ground. Airlines and airports have to defend themselves in the public domain. There are positive stories to tell but so far, the industry has failed to deliver a successful pro air transport lobby. The industry already has bodies who can speak with a strong single voice. But major travel industry and air transport groups like GMTC and BAR UK have played a defensive bat in countering accusations rather than going on the attack with a pro-active campaign delivering the positive facts to government and public. A coordinated lobbying exercise will be required to overcome and correct the misunderstandings that the anti aviation lobby put forward. So far too little pro aviation information and too piecemeal . It's time to go on the offensive with a coordinated message delivering positive and factual information about its plans and achievements in the carbon reduction project.
Maybe then government and aviation will stop trading blows and realise a more collaborative approach will deliver better solutions.
What are your views?
25 years ago - A paper airline exercise was starting to become more than paper with the result that within 12 months an airline with an unusual (for an airline) name appeared and so did a scantily clad lady on the side of its aircraft . The airline was allowed to successfully develop itself with a strong brand and product against established major carriers. Were the strategists and marketeers at those competitive carriers asleep on the job?? The then chief executive of BA was later alleged to suggest he couldn't take seriously any competitor whose MD wore a pullover rather than a tie - Not his best ever character analysis !
Friday, 12 December 2008
Long Haul Low Cost Operations - Is there a future for legacy carriers?
Five years ago a low cost, no frills, airline (loco) strategy only worked on sector lengths less than two hours, or so the "experts" would have us believe. The perception was that the customer would tolerate a reduction in product quality as long as he or she wasn't subjected to it for too long .
Customers, it was felt, would be prepared to forego the niceties of legacy carriers ground and in- flight services in return for a ''better value for money'' seat.
'A window seat sir ? Certainly - if you can run faster than the rest to the gate!!'
Five years on and the reality is that the European customer base has more than embraced the loco model, with low cost carriers outsizing their country full service legacy carrier counterparts in terms of fleet size, passenger numbers and now profit - and all within the space of a ten year business cycle. Not only has the low cost model transported tens of millions of passengers and delivered value for money tariffs , it has done so on very young aircraft fleets and from departure and arrival airports more convenient for millions of travellers - not to mention delivering a level of punctuality many legacy operations would currently envy.
The legacy carriers have failed to defend themselves against the upstart airlines with the result that some full service European routes have already disappeared and many other Euro legacy routes are now under some pressure.
And with all this to respond to , the loco model is now starting to appear on the long haul horizon.
Where do the full service carriers go? On the revenue side - economy class volumes (and their core revenues) are migrating to loco services. High yield volumes are being squeezed by corporate accountants eager to please their shareholders and reduce 'non essential' travel costs during the global downturn. Many city corporates have introduced a 'no business class' travel policy over the last quarter.
On the cost side - the legacy carriers have a heavy cost base around their necks-operating from high cost hub airports- hand-cuffed by employee contracts some with their core elements created a generation ago, these relatively high cost bases inherited in part over 20 or 30 years.
Life's a bitch !
But is it all doom and gloom for the traditional airline model? Well its not doom yet but it could be, depending upon the reaction of those threatened.
The travelling public have warmed to the low cost model. Low cost carriers will further develop but as European new route opportunities start to saturate they will cast their gaze over a wider potential audience. The low cost carriers have already proved that from an air transport marketing perspective that they can 'think well outside the box' and deliver a successful business strategy.
Long haul low cost operations, as has been witnessed in the European short haul theatre could have a critical effect on the legacy carriers' plans and strategies.
Will the traditional carriers be forced to abandon the economy traveller and re-trench into low density business only operations or will some have the courage and skill to think outside the box and develop new products to take on the locos . How many carriers will stick their heads in the sand and hope it all goes away? Will those in charge of future strategy be able to think beyond the traditional model?
There are those who believe they have only 2 years to develop a plan - after that they are beyond the point of no return
Who will stick their heads in the sand?
What do you think?
20 years ago- The Association of European Airlines was forecasting a combined annual profit for the year for its european members of $1 billion.
Air Europe -one of the first carriers in the UK and Europe to show 'low cost'' tendencies and in many respects ahead of its time was riding high with good customer acceptance and profits. Expanding out of its traditional Mediterranean markets into European scheduled services and with long haul aspirations, little could they have forecast that within 2 years, a combination of gulf war related market contraction and competitor 'marketing' activities would bring it to its knees.
Customers, it was felt, would be prepared to forego the niceties of legacy carriers ground and in- flight services in return for a ''better value for money'' seat.
'A window seat sir ? Certainly - if you can run faster than the rest to the gate!!'
Five years on and the reality is that the European customer base has more than embraced the loco model, with low cost carriers outsizing their country full service legacy carrier counterparts in terms of fleet size, passenger numbers and now profit - and all within the space of a ten year business cycle. Not only has the low cost model transported tens of millions of passengers and delivered value for money tariffs , it has done so on very young aircraft fleets and from departure and arrival airports more convenient for millions of travellers - not to mention delivering a level of punctuality many legacy operations would currently envy.
The legacy carriers have failed to defend themselves against the upstart airlines with the result that some full service European routes have already disappeared and many other Euro legacy routes are now under some pressure.
And with all this to respond to , the loco model is now starting to appear on the long haul horizon.
Where do the full service carriers go? On the revenue side - economy class volumes (and their core revenues) are migrating to loco services. High yield volumes are being squeezed by corporate accountants eager to please their shareholders and reduce 'non essential' travel costs during the global downturn. Many city corporates have introduced a 'no business class' travel policy over the last quarter.
On the cost side - the legacy carriers have a heavy cost base around their necks-operating from high cost hub airports- hand-cuffed by employee contracts some with their core elements created a generation ago, these relatively high cost bases inherited in part over 20 or 30 years.
Life's a bitch !
But is it all doom and gloom for the traditional airline model? Well its not doom yet but it could be, depending upon the reaction of those threatened.
The travelling public have warmed to the low cost model. Low cost carriers will further develop but as European new route opportunities start to saturate they will cast their gaze over a wider potential audience. The low cost carriers have already proved that from an air transport marketing perspective that they can 'think well outside the box' and deliver a successful business strategy.
Long haul low cost operations, as has been witnessed in the European short haul theatre could have a critical effect on the legacy carriers' plans and strategies.
Will the traditional carriers be forced to abandon the economy traveller and re-trench into low density business only operations or will some have the courage and skill to think outside the box and develop new products to take on the locos . How many carriers will stick their heads in the sand and hope it all goes away? Will those in charge of future strategy be able to think beyond the traditional model?
There are those who believe they have only 2 years to develop a plan - after that they are beyond the point of no return
Who will stick their heads in the sand?
What do you think?
20 years ago- The Association of European Airlines was forecasting a combined annual profit for the year for its european members of $1 billion.
Air Europe -one of the first carriers in the UK and Europe to show 'low cost'' tendencies and in many respects ahead of its time was riding high with good customer acceptance and profits. Expanding out of its traditional Mediterranean markets into European scheduled services and with long haul aspirations, little could they have forecast that within 2 years, a combination of gulf war related market contraction and competitor 'marketing' activities would bring it to its knees.
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