There is never that much revolutionary change in alliances. Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to. It made sense for JAL. The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful. I don’t expect much change, if any at all, this year.
The Middle East:
Emirates did what Emirates does: it ordered more aircraft. I did what I do: failed to see how they’ll use all those A380s and 777s. The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did. I don’t see any failures in the near future but I don’t see any airlines really blooming either. Success there is, as is true for most businesses there, fairly dependent upon oil prices.
India:
Nothing astonishing happened there but it was already pretty mucked up. It remains mucked up and will likely stay mucked up this year.
The Far East:
China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted. In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line. Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions. It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each. They don’t want that airliner any more than anyone else.
JAL has done OK for the year. They’ve made progress with their finances and they did make some hard choices. They did have to file for bankruptcy protection and no one should have been surprised about that. The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices. Frankly, more so than is characteristic of a Japanese company and they deserve credit and support. This airline isn’t fixed yet but it is on its way.
Oceania:
QANTAS got hit pretty bad by the Rolls Royce failure on its A380. United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so. Perhaps Jeff Smisek & Company will address that better this year. Delta and V Australia didn’t get to form an alliance and they’re trying again. Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).
South America:
LAN, in fact, did continue to succeed in South America. So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America. LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them. South American governments are more protective of their countries airlines that is the custom in other parts of the world.
Curiously, LATAM is now operating airlines in two different alliances: Oneworld and Star Alliance. While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances. This is an area where SkyTeam could do well for itself by gearing up for battle now.
Aerolineas Argentinas: Well, what can I say? Well, I’ll say exactly the same I did last year.
This disaster is much like the country itself. It won’t go away but it won’t perform either. No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership. They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth. But the Argentinian government also won’t let them go away. It is a matter of national pride.
LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well. Why? For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money. For another reason, LAN Argentina is owned by the LAN Group of Chile. Look up how Chileans and Argentinians feel about each other.
Colombia / Central America:
Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN.
Venezuela: Bah!
Europe:
British Airways accomplished a few things. They got into a royal battle with their flight crew that remains unresolved today in part by being petty. Their flight crew union, Unite, furthered that argument by being petty. BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.
Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible. The anti-trust agreement between Oneworld partners should also add to the bottom line. However, it’s time to settle this fight with Unite and it’s time for Unite to get real.
Lufthansa is moving along and did do something with their BMI purchase. I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates. Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.
They also still have their A340s and their plans to add the 747-8i. They got their first A380 and all I see is fat, fuel consuming airplanes. This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.
KLM/Air France: More of the same. I think this airline will need to make an order for new widebody aircraft soon. Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s. I do not see the 787 in Air France’s future.
Airlines will earn profits and even earn great profits throughout the world. Many will be “record breaking” but as much from inflation as a recovery. Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth. I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America. But we’ll see it happen in the United States, too.
I would dearly like to see the 787 enter into service with someone and I think we will see it do so. But Boeing has got to get a rein on itself. The failures in the 787 program are as much about poor management as they are about stretching technology. There is too much accountancy going on there and not enough visionary leading. It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all. But it is also time to start talking about what’s next.
The demands of the 787 program *will* decrease as will the demands from the 747-8 program. Will it be talk of a 737 replacement or an improvement to the 777? I think the airlines would like to talk about the 737 replacement and that seems sensible. Rather than play cautiously, reach again, I say. Push engine manufacturers to come up with something to raise the game and push technologies again. It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.
Airbus is going to muddle along denying any real problems with the A350 until the end of this year. Then we’ll hear about something delaying the entry into service date by a considerable amount. John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t. Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series. When do they earn money the proper business way?
It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well. Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.
I think we’re going to see another round of fees. Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight. I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.
But let’s hope we see an interesting and prosperous year in the airline industry.
Tim Clark says Emirates wants more range from Airbus and its A350-1000 than it presently offers and it expects more from Boeing’s 777-300ER, too. The airline is unsatisfied with the inability to serve ultra-long haul routes from Dubai with what it considers adequate payload. Adequate payload is carrying 350 passengers from Dubai to Los Angeles with a full cargo/baggage load in about 16.5 hours.
Frankly, that’s expecting a lot from even advanced technology. We’re getting there but the big problem is how much fuel you have to carry to achieve those distances with those loads. Those distances begin to require airliners to carry more fuel in order to carry more fuel for range and you can guess how quickly the diminishing returns show up on such a prospect.
Lighter but stronger aircraft can solve that but we’ve already seen what a challenge that can be with the 787. There is no doubt that the manufacturers will figure out how to do it somewhere along the line but my gut tells me that this isn’t a problem solved with a better wing or better engine. It’ll require re-thinking the large widebody airliner in a way that will require even better composites and other lightweight materials.
It takes time to develop and test those materials. It can take a lot of time to even figure out how to ramp up production on these exotic materials. We still haven’t seen 787 partners prove they can meet production demands for CFRP fuselage barrels. I think they can but the proof is in the pudding and we haven’t tasted the pudding yet.
My gut tells me we are at least 15 years away from producing a truly revolutionary widebody capable of carrying 40+ tons of payload for those ranges. We’ll get there and it’s time to start thinking about it but don’t look for such an aircraft in the next 10 years. It won’t be showing up.
Besides, it’s a relatively limited market and it’s become clear that the manufacturers need to turn their resources towards producing a better short haul, single aisle airliner. Frankly, that’s where the real money is at in the next 10 years.
The Seattle Times is reporting that Turkish Airlines has indicated its interest in both the Boeing 747-8i and Airbus A380. CEO Hamdi Topçu apparently has said they’ll decide before the year end on this order.
Such an order strikes me as hubris for this airline. Yes, they’ve done pretty well for the past few years and they aren’t a tiny airline but they aren’t so big that their network could possibly justify such a large aircraft in its fleet. Despite their entrance into the Star Alliance, they’re still a 2nd tier player at best. Even additional 777-300ER aircraft would cause me to raise my eyebrows questioning this.
Much of their success has been witnessed over the past 3 years and, on the outside, that would appear to make them attractive going forward. The truth is, as competition with European and Middle East carriers heats up, I think this erodes their growth. Furthermore, Turkey’s current political climate makes it somewhat less certain as a place to do business for the near future.
Bottom line: I don’t think they’ll actually order the aircraft and, if they do order such large aircraft, I don’t think they’ll actually take delivery.
It’s become more and more clear that airlines are going to likely have 3 or 4 basic categories of aircraft. First, the 100 to 135 seat category with a range that isn’t transcontinental but which allows a full load fly 3 to 3.5 hours maximum.
Second, the 150 to 210 category with a range that will include trans-continental routes. This was previously served by the 757 and 767 but has seen today’s 737 and Airbus 320 families take over.
Third, the 220 to 280 seat arena which includes flights ranging from trans-continental to trans-oceanic including both the Pacific and Atlantic oceans. We’ve seen the Airbus A330 and 767 and even the 777 in this area and that’ll continue for a bit longer too. But it will be owned by the 787, 777 and A350 soon enough.
Finally, the very large aircraft on trunk routes that demand high capacity and high-ish frequency. The 777-300ER, 747 (-400 and -8i) and A380 are the players here. In the future, we’ll see more of the 777-300ER and A380 than the 747-8i and I think Boeing will have to come up with an aircraft that fits this area better both in economies as well as seat range.
Nothing much has changed except that the models from Boeing and Airbus are getting freshened or replaced and their ceding the 100 to 135 seat market to Bombardier and Embraer. The regional jet manufacturers are invading Boeing and Airbus territory and that’s brought along an interesting development.
We can ignore the Comac efforts to date. Their plans for a 150+ seat aircraft are just that, in my opinion, plans. You don’t enter that arena without a lot of experience building something smaller and generally without experience being a partner on similar efforts for a while. Those aircraft won’t fly, pun intended.
With a couple of exceptions, regional airlines are bringing those new 100 to 135 seat aircraft with them instead of that flying remaining with the majors. Scope clauses continue to get revised to include larger aircraft and instead of major airlines adopting new equipment to serve those routes, they’re ceding that area largely to their regional airline partners.
The why involves what it always involves: labor costs. They can have it flown cheaper by someone else and earn more money. As that scope increases, however, I do wonder why you would continue to contract that out to an independent airline instead of owning it and its revenue stream. Why wouldn’t you want to vertically integrate and own that lower cost structure as well as control the service product?
Instead, we see SuperLegacies prepared to sell off their regional airlines and pretty cheaply at that. Even new-ish ones with pretty low labor costs.
At some point, these regional airlines are going to see that they can operate their own networks and while they may choose to remain partnered with majors, they’ll also see they can take on more of the risk and much more of the profit available.
Yes, it’s been tried already a couple of times and while those efforts sputtered at the 50 seat jet level, they won’t necessarily sputter using 90 to 110 seat jets that are coming on line. Republic may be the first to do it successfully by buying brands and working to build an integrated network while continuing to service partnerships with major airlines, time will tell. If they are successful, will they one day leave their partnerships with the majors and become a force to content with on their own?
And where does that leave the SuperLegacies in the future? Will they continue to walk away from the bottom end of flying when it comes to capacity? Will they continue to cede that work to partner airlines while working to build their long haul flying? Can they afford to cede that much control on what, today, feeds their networks for that long haul flying?
Lufthansa has announced a 48 plane order and while that isn’t all that remarkable compared to many aircraft orders these days, it’s an order that highlights two emerging developments in the airline world. The Lufthansa order is for all Airbus equipment and it isn’t all for Lufthansa.
Some of this order is for its SWISS subsidiary (A320 family and A330), its Germanwings subsidiary (A320 family) and Lufthansa is getting more of the A320 and A330 family for itself. The Airbus family concept is clearly allowing Lufthansa to take advantage of greater buying power as well as greater flexilibility amongs its various operations.
Lufthansa can shift equipment to various subsidiary operations as demands change and can reconfigure that requipment relatively easy to meet the requirements of each subsidiary. While many already knew and predicted this behaviour, it’s really remarkable in that its now become kind of matter of fact for an airline like Lufthansa.
This isn’t something Boeing really offers. Not yet. Boeing offers its 737 family, yes. But it doesn’t have that type transition flexibility between a narrowbody family and a medium range/ long haul widebody family. Not quite.
The 787 and 777 will offer reduced transition times between the two types and that’s a good thing. But there is no such animal between the 737 and its bigger siblings. In addition, there is no real such thing between the 787/777 and the new 747-8i either.
Boeing builds a great airliner and arguably they build a more cost efficient airliner in many respects when considering the aircraft and the trip itself. What Boeing hasn’t yet instituted is a product line that is friendly across all kinds of operations that a large airline might have.
It’s a core strength of Airbus and, frankly, a differentiator that, I think, will prove itself more and more valuable over the next two decades.
The 737 replacement is a good place to start. This will be a family of aircraft designed to meet the needs of airlines from about 150 seats up to 220 seats where the 787 will take over. The 787 is advanced enough that making the 737 a baby 787, operationally speaking, could offer some additional value to airlines in the coming years.
US Airlines haven’t exactly gone for this kind of family concept. Not yet. Northwest and United Airlines and US Airways all bought Airbus but they bought them without intending to realize the family concept from narrowbody to widebody. I think that will change. As we see SuperLegacy airlines develop, I think we’ll see a desire to harmonize more, not less over time. More on that tomorrow.
A few days ago, I found THIS little news story about Thomson Airways and what they may choose to do with their 787 aircraft as they come online into their fleet. Briefly, Thomson says they may choose to introduce a direct, non-stop flight from the United Kingdom to Hawaii. Thomson is the third largest UK airline and focuses primarily on the leisure market.
It interests me because it is more evidence of the direction I think airlines will take as they bring into their fleets aircraft that are more and more capable of long, thin routes. The Boeing 787 and Airbus A350 will be those aircraft primarily although this new direction really started with the 777-200LR.
It is also why I think ultra-large, long range aircraft have a limited market going forward. Aircraft such as the A380 and 747-8i have the capacity to carry 400+ people over distances as long as 8000 nautical miles. However, what has never been fully acknowledged is that previous large capacity aircraft, primarily the 747-400, were used as much for the range, if not more, than their total capacity.
As airlines begin to explore more and more direct routes that by-pass traditional hubs, the efficacy of using an aircraft to transport 400+ people from hub to hub begins to wane. Airlines such as Delta Airlines are already using the 777-200LR to fly routes such as Atlanta-South Africa and American Airlines (and others) are using the 777-200ER to fly routes from North America to India direct. Those routes previously had stops in Europe or North Africa. Emirates, the largest user of the A380 and who will by far have the largest fleet of A380s, has a model based on their mega-hub in Dubai. The question is, is it better for a North American passenger to fly to Chicago, New York City or Atlanta and then take a direct flight to their destination or is it better to fly to Emirates’ hub and then onward on another long haul flight to their destination.
I think the former is the more likely model, particularly for the United States and Europe. Witness the announcement that Continental plans to fly their first 787s to Auckland, New Zealand and Africa from Houston. Routes that previously never existed and which previously required a stop in Los Angeles or New York or a European hub.
That doesn’t mean the A380 and/or the 747-8i doesn’t have a place in the market place. To the contrary, I think we’ll see aircraft such those on extremely dense routes of medium distance that are hub to hub as well as capital city to capital city. The first, most logical route is NYC to London but there are others as well. For instance, California to Japan is another great use for them. Australia to the United States is another logical use as long as the competitors on those routes remain relatively few. That could change as more airlines obtain the 787.
At the end of the day, both the Airbus A350 and 787 (and the 777 for some time to come) will be the real players in long haul fleets over the next 20 years. It’s notable that the 787 is the first long haul widebody aircraft that has the flexibility and economics to become attractive to forming a Low Cost Carrier that flies international routes.
There are several reports out now that Emirates Airlines is going to announce an order for 30 Boeing 777 aircraft at this year’s Farnborough International Airshow in the United Kingdom this week. I’m sure that this will further strike fear in the hearts of airline executives and I’ll repeat THIS response. Just because they order it doesn’t mean they’ll know what to do with it when the time comes.
Another interesting piece of news is that Air France has invited Airbus and Boeing to respond with a proposal for supplying as many as 100 widebody aircraft over the next decade. The assumption is a mix of both the Airbus A350 and Boeing 787. I suspect conventional wisdom will give Airbus the upper hand (we are talking about Air France based in France where Airbus aircraft like the A350 will be made and where the French insist on buying local) but I like Boeing chances for this. Boeing could win this order by offering a mix of 787 and 777 aircraft with GE engines. Air France already has a large fleet of 777 aircraft, experience with the GE engines and may well be attracted by the expected quick and relatively cheap transition for pilots to move between the two aircraft.
Steven Udvar Hazy has his new company, Air Lease Company, and reportedly will be at Farnborough on the hunt for building his new portfolio of lease aircraft. While money is starting to flow back into the lease business, I do wonder if the game hasn’t changed since the early 2000’s. Airlines have seen the benefits of owning their aircraft because in bad times, they can leverage those aircraft for more operating capital in those bad times. In addition, I don’t think Airbus and Boeing are in the mood to offer huge discounts to the lessors anymore. If Michael O’Leary of Ryanair can’t get a deal for 200+ aircraft, why should we think lessors will?
Randy Tinseth, VP of Marketing for Boeing, will be releasing Boeing’s most recent current market outlook at Farnborough and it’s quite a positive one. Boeing sees a need for 30,900 new aircraft between now and 2029 of which they expect 21,000 to be single aisle airliners. They’re forecast is based on a growth rate of 5+% per year in the airline industry and that’s based growth rates since 1978 deregulation in the US (which have averaged 5% per year.)
What’s interesting to me is that they see the regional jet share of that outlook as being significantly less than in the past. I think that depends on what you call a regional jet. If you’re speaking of 50 or less seats, I agree. If we’re talking about 75 to 110 seats, I’m not sure I do agree. Indeed, I think that the 90 to 130 seat market is going to be very hot and I think that Boeing and Airbus ceding that market is a mistake. Even car manufacturers have discovered that it’s wise to cultivate customers at the entry level as opposed to waiting 20 years for them to be able to afford your product.
Finally, I understand that Boeing’s 787, ZA003, has landed in the UK and that marks its first appearance in Europe. FleetBuzzEditorial.Com got some photos of the 787 landing at Farnborough which can be seen HERE. I still really dislike the demo interior they’ve installed in that aircraft.
The Boeing 787’s introduction to a fleet is something that anyone who follows the aviation industry has been looking forward to. It was greatly disappointing that it did not meet its first flight schedule originally but anyone who follows this business was hardly surprised.
What was a bit surprising was a 2+ year delay in that first flight. However, Boeing was pushing its limits when it came to both technology and vendors. In many cases, both were factors in various delays. Boeing was right to push its limits, however. If Boeing expected to be an aviation leader, it needed to stretch itself and it quite rightly did so in this project. In addition, it was right to push its outsourcing as well. Boeing had already experienced good partnerships in outsourcing other airliners production work such as on the 777.
Even with all that has happened over the past 3 years in the 787 program, I still think Boeing was right to push its technology development for this aircraft. It remains a revolution for aircraft and continues to promise a great deal for airlines who use it.
However, perhaps Boeing pushed its vendor outsourcing too much. Actually, we knew they did when they purchased some vendor operations for the 787 outright. I think that, perhaps, Boeing didn’t have as much knowledge about outsourcing as it thought it did. It was, perhaps, viewed more like outsourcing on defense projects where such projects are often pushing the limits in every direction and commercial viability isn’t necessarily a key driver and meeting requirements is.
The latest announced delay finally frustrates me. The vague references to instrumentation and the fact that “test programs” experience unknowns just doesn’t fly anymore. As someone who works for a major aerospace and defense company, I’ve seen good programs and I’ve seen bad. This one is starting to stink from an execution point of view.
The truth is, a lot of risk could have been reduced in the test program using time before the first flight to ensure systems were extra mature. To a degree, it’s clear that was done in some areas and completely neglected in others. Issues with the horizontal stabilizer and how it was manufactured and/or installed should have been identified before first flight. There was so much time to staff and plan the flight test program, it should be going *faster* than its schedule, not slower.
In short, I don’t think Boeing has done nearly enough to reduce risk on this program. They keep getting surprised by things that just point to a too lean program and not enough investment in retiring risk. Airlines have a right to be frustrated at this point. Boeing has yet to have gotten their production up to anything above low rate initial production and its delays to allow manufacturers to catch up is shameful at this point.
Those partners have had 3 years to figure out how to ramp up production and prevent traveled work from happening. Having to “pause” the production to prevent traveled work at this point ought to be resulting in at least a few project managers getting fired. At this point, the only thing that should potentially delay entry into service is flight test revealing a near catastrophic development found only in real flight test. Seriously, all the systems should have an exceptional maturity and all the vendors and manufacturers should be capable of spinning up production beyond 2 to 2.5 aircraft per month.
Lean is good but this program’s project planning and execution stinks of being run on the absolute best case scenarios with very little provision for managing risk and retiring risk along the various waypoints of development in a sensible and, more importantly, responsible manner.
This aircraft will be a successful one. I firmly believe it remains a game changer for airlines. However, I’m left with a sense that Boeing continues to treat this program as “just another program” instead of treating it with a sense of urgency and acting as if its future depends on it.
The fact that there is as little outcry over these latest announcements demonstrates just how little this industry has come to expect from Boeing and this program when it comes to doing what Boeing says it is going to do.
When Emirates announced its latest purchase of 30+ more A380 aircraft, a lot of carriers took notice, particularly in Europe. The planned capacity increases that Emirates has put into place for the next 7 years is nothing short of baffling to most and it has made many airline CEOs wonder what they’re missing.
Emirates operates on a model of being “hubbed” in the perfect place from traffic between Europe and India, Asia and Australia. They compete with other international carriers on service and they compete with everyone with frequency and convenience. Currently, many of those flights from Europe to those destinations require a fuel stop and Emirates uses Dubai for that fuel stop which allows them a big advantage on X things: fuel is cheap, landing and taking off is cheap, Dubai is “on the way” to most of those destinations and isn’t much of a diversion for them, and they’re able to utilize their aircraft much more than some on a per day basis.
That’s a powerful advantage. Emirates has also kept many of the largest European governments (economies) from protesting much at all by being a huge customer of Airbus. It’s very difficult for those governments to bite the hand that feeds their aerospace industry. It’s notable that neither Canada nor the US have felt nearly as accomodating towards Emirates (and other UAE carriers) when it comes to access to their markets and in the case of the US, this is despite the fact that Emirates has also been a pretty good customer of Boeing’s.
All of that scares the hell out of European international carriers. Emirates also claims that these carriers are discovering that it takes an A380 to compete with an A380. And then they went all in with their latest A380 order. It’s very tough for those airlines to sit at the table and wonder if they can afford to go all in.
I don’t think it takes an A380 to compete with an A380. I think it takes an A380 to compete with an A380 on a few trunk routes and I think Emirates’ model crumbles with the 777LR, 787 and A350 for much of the destinations it serves.
Right now, I think there is an attraction to the A380 on those routes for 2 reasons. First, it’s the latest and greatest in long range aircraft. Second, it has the freshest service product installed as a function of it being introduced by airlines for only the past 2 years. Over time, the “newness” of the aircraft will go away (just as it did with other new aircraft introduced) and the service product will be matched by others on other aircraft.
Right now, a lot of those legacy international carriers that are so worried are trying to compete with Emirates using 20 year old 747-400 aircraft with a service product that is, in many cases, a generation out of date. If it isn’t a 747-400, it’s a 777-200/300 with a service product that was “copied” from the 747. See where I’m going here?
Since we don’t have much visibility into the real financial picture of Emirates, a lot of analysis of them is speculative. We don’t know where their financing comes from and at what terms. We don’t know what their fuel prices are and we don’t know what their labor costs are either.
That said, I don’t believe it is impossible to compete effectively with Emirates now and particularly in the future. I believe those long, high capacity trunk routes that Emirates works so well are going to fracture with the next generation of jets.
It’s already possible to use a 777LR to reach all of Asia from Europe and the 777-300ER will serve 90+% of Asia and do it point to point. While Europe has traditionally been the transit point between Africa and the Americas, that’s already changing. US airlines are now serving Africa more and more with smaller equipment that fits those long, thin routes pretty well. South American airlines are initiating services to several parts of Africa with similar equipment. and it only gets better as the 787 comes on line.
So Emirates may capture some traffic for a while from the US but it is unlikely to dominate particularly in the future. The magic routes to Singapore, Indonesia, Australia and New Zealand are likely to remain an Emirates strength but take note that those same international carriers in Europe who are freaked out right now are also now taking delivery of their own A380s. Air France has them, Lufthansa just took delivery of its first and British Airways has them on order. They will have the aircraft to compete with Emirates.
Frankly, I don’t understand why someone such as British Airways doesn’t explore setting up a Dubai base to compete directly with Emirates. Or any of the others, for that matter.
Regardless, this belief that huge trunk routes will remain is, in my opinion, false. Those trunk routes will fracture into more and more “point to point” routes that are longer and thinner than ever before and the airlines serving those will be the preferred airlines for that travel. People just don’t like connections when they can go non-stop. If they can’t go non-stop, they still prefer the fewest connections. It’s the time saver and saving time is why we fly.
Frankly, I can see Emirates becoming a bigger player in its region of the Middle East/India/Northern Africa/South East Asia but I see them contracting over the next 15 to 20 years on those trunk routes provided those other international carriers step up and get to work on their fleet and service planning.
There isn’t anything magical about Emirates and despite their potential advantages from being Dubai owned and based, that doesn’t make them the carrier that can’t be beat. It takes work, investment and planning but it can be done.
The last thing those airlines want is their own governments becoming more restrictive of access to markets. It’s a world where that game is tit for tat and that works to no one’s advantage. They can all survive and prosper with the right combination of leadership, management, planning and investment.
Two days ago, Emirates announced an additional $11 Billion order for 32 more A380 aircraft. If all of its orders are delivered, this means a fleet of 90 A380 aircraft by 2017 or just 7 years from now. It’s an impressive order and no airline enthusiast can deny that such a fleet is kind of exciting. But it doesn’t make sense. for either Emirates or Airbus.
This certainly allows Airbus to plunge ahead for a while longer manufacturing the A380 but it really doesn’t put them any further ahead on earning any real profit from the airliner when you consider the deferrals and (potential) cancellations from other airlines. In addition, this adds risk to their orderbook rather than reduces it because this indicates a growing dependency on just one airline for this aircraft.
Several airlines have the A380 and most indications are that while they can make money with it, it isn’t a game changer for the airlines. As the world of airline routes continues to fracture due to aircraft like the A330, 777 and now the 787 and A350, more and more flying is becoming “point to point” in the international world. There are a relatively few routes that can support the A380.
Even the largest 747 fleet operators such as British Airways and JAL have made moves to start replacing their largest aircraft with Boeing 777 aircraft on most routes. Yes, British Airways has orders for the A380 but one has to question how many they can support even on their busiest routes such as London-NYC or London-Australia.
If British Airways (at one time they had over 50 747 aircraft) can’t support a large fleet of 747s anymore, how can Emirates do so? Emirates doesn’t have magic working for it. They don’t know something that others don’t. They do have some cost advantages on fuel and labor but as time goes by, even those advantages narrow considerably. So how does Emirates justify a fleet of 90 A380 aircraft?
They don’t. A fleet of 90 A380s means ownership of that aircraft for the next 30 years at minimum. 30 years of operating such aircraft is a long time and let’s not lose sight of the fact that there isn’t exactly hot demand for used jumbos these days. Even relatively new(ish) 747s are now being retired into a life as cargo aircraft as 777s replace them.
Further, Airbus and Boeing aren’t a bunch of huckleberries when it comes to forecasting their markets. In fact, their forecasts tend to agree in most areas except the concept of the super Jumbo. Boeing doesn’t see that market growing and has chosen to focus on serving the fat middle section of the widebody market (220 to 350 seats) with their 787/777 family.
Perhaps Emirates will prove me (and others) wrong. But I’d bet large money against them at this point.
The Dallas Morning News Aviation Blog has this post HERE about analysts beginning to like the idea of a merger between American Airlines and US Airways. This marriage occurred to me back in April and you can read my post HERE. Eric Torbensen at the Dallas Morning News thinks it is a terrible idea and I disagree.
The real reason to perhaps not do a merger between these two airlines is that American Airlines is terrible at mergers. Their employees don’t embrace them and their executive corps approaches them like predators. As a result, mergers at AA tend to be plain “consumption” rather than growth or partnership.
Now, if they could embrace a merger, I believe one such as this could be good for them. First, a merger like this wouldn’t definitely not be sexy. The sexy merger partners are now fully occupied and, frankly, there was perhaps just one that really would have qualified as sexy and doable for AA and that was Northwest Airlines. They’re gone. But just because an AA / US Airways marriage isn’t the sexiest thing on the planet and just because it doesn’t necessarily bring the gains that another partner would have provided doesn’t mean that it doesn’t make financial sense.
This one could. Look at the route maps first. US Airways offers a hub presence in two areas of the United States where AA is actually a bit weak. Phoenix is a nice hub in the web and while it isn’t the strongest hub in the country, it does pretty well. Yes, Southwest is there but guess what? AA knows how to compete with Southwest.
Charlotte is a nice Southeastern US hub that pvovides coverage in area that AA hasn’t gotten much traction. AA tried having a hub in Raleigh (didn’t work) and has, from time to time, tried to expand Nashville. It has Miami but that really is more of an international gateway city than it is a domestic hub. So AA has presence in some weak(ish) focus cities for the SE that the Charlotte hub could change for them.
So, in terms of a domestic network, it works. It really is quite complementary to AA’s existing system.
There is some compatibility between the executive leadership of the two companies. Doug Parker is a former AA manager, for example (and his wife still is an AA flight attendant) and some of the other executive staff has roots in AA as well. Some that don’t are from Northwest and the cultures between Northwest and American Airlines aren’t dissimilar either.
But let’s talk about the romantic international part of this. No, US Airways doesn’t offer much to AA that it doesn’t already have. It’s US Airways weakest area. But it isn’t a money loser and there are some hidden benefits. American can probably either A) redirect feed for those flights to one of their existing gateway cities or B) bolster the US Airways international product and make the US Airways international flights a bit more of a competitor. The smart team would do both.
There is another benefit: A more diversified fleet. There is some overlap between the two companies (737, 757 and 767 equipment but the US Airways mainstay aircraft are Airbus aircraft now. The A320 series aircraft could be useful to redeploy onto AA routes currently being served by the MD-80 fleet. The Airbus A330 equipment could be redeployed to AA routes requiring a little more capacity than a 767 but which aren’t in need of a 777’s size or range.
Finally, such a merger would offer Oneworld domestic coverage in areas of the US where it is definitely weak. The Oneworld alliance leans on AA only in the US and the other two alliances were bolstered by at least 2 airlines domestically. This is a great opportunity to improve the Oneworld alliance.
There is value in such a marriage. The problem is, the people who know how to do this kind of marriage and make it work are at US Airways, not AA. Doug Parker and Company understand the value of a union like this and know that you embrace the partners strength and use it. Gerard Arpey and Company come from a school that is more about being a predator and consuming your competition without really embracing them as partners. Since AA is so much larger than US Airways, it’s Arpey who would lead such a merger and I don’t think he’s the right one.
Actually, I think Doug Parker could do fantastic things for AA. If he can succeed with US Airway’s assets and weaknesses, he very likely could do wonders for an airline like AA with its resources. But the AA board would have to want him and despite the recent flare ups against Arpey from analysts, Gerard Arpey still holds the full confidence of AA’s board of directos. He isn’t going anywhere anytime soon.
No, seriously, where is it? This is an aircraft that conversations began on in 2004. It’s 2010 and I still don’t really know much about the aircraft despite being a keen industry observer.
Mind you, I’ve heard the range promises and the seat costs promises but I haven’t seen the meat. In fact, isn’t it a bit distressing that this aircraft is cloaked in so much secrecy that we still don’t know its final definition? The few facts we have heard have actually originated from the few airlines that have ordered the aircraft in numbers. Those facts haven’t been entirely good either.
When Emirates starts talking about how the 777-300 still has an advantage, you might have a problem. This is an airline that loves to play the two majors off each other. Ordinarily, I’d expect Emirates to be trying to goad Boeing into building something new or something revised.
Still, it’s time to start talking about this aircraft in more detail rather than with John Leahy’s rosy marketing promises. It’s time to start hearing more about its real capabilities and how it will compete in the real world with the 787 and 777. Right now, I really don’t know much at all and that really makes me question whether an entry into service for 2013 is even remotely possible at this point.
The Dallas Morning News Aviation Blog has THIS story about Delta possibly deferring or cancelling its (inherited from Northwest) 787 orders for 18 aircraft (and 50 additional options.) And this kind of makes sense to me.
Northwest probably did need those 787 aircraft for its trans-pacific routes. Its 747 fleet was adequate for some routes but others just couldn’t stand a 747 and Northwest doesn’t have any 777 aircraft. The combined fleet of Delta and Northwest is a different matter, however.
If anything, I think Delta might have one long haul aircraft type too many. That said, they have 767 (Delta) and A330 (Northwest) aircraft for medium haul routes and configured so that each is nearly ideal for passenger density. They have the 777 (Delta) and the 747 (Northwest) for long haul, high density routes as well. Frankly, I think Delta might be better off adding the 777-300 to its fleet and retiring the 747 but that isn’t their plan. They are refurbishing the 747 aircraft and extending leases on them. Clearly Delta sees a profitable use for them at this time.
The 787 isn’t going to be a trans-Atlantic aircraft. Certainly not on the first routes for any airline. A new(ish) build 767-300 or A330-300 can do those routes just as economically. The 787 is better suited to routes like NYC to Tokyo or LA to Sydney or Atlanta to Rio de Janeiro or even the US to India. Delta has the right sized aircraft for those routes.
Delta can probably sell those orders profitably at this point. There are a number of airlines who don’t have new(ish) 767s or A330s and there are several more who need to downsize from a 747 or 777 on long haul routes. Airlines such as Continental and AA come to mind.
Mind you, the enthusiast in me wishes all US airlines flew the latest and great aircraft. The practical side of me says we’ll probably only see Continental take up its orders on schedule and even AA will likely take its time adding the 787.
FlightGlobal has THIS story about Boeing considering a wing extension to improve the aerodynamic efficiency of the Boeing 777 and improve load and range. How the 777 will sell against the Airbus A350 in development is a question everyone is asking these days even though the A350’s specifications and real performance definitions are, at best, still a bit murky.
Although the A350 is definitely a competitor to the 777, engine thrust is really what reveals may be happening here. So far, Airbus has been unable to grow its engine range into thrust ranges that approach what the 777 has with the GE90 engines. Airbus remains at about 93Klbs of thrust from Rolls Royce and its two larger aircraft versions, the -900 and -1000 are, for the moment, have Rolls Royce as a sole source for engines.
Already airlines who are operating the 777 and who have ordered the A350 have said that the 777 will still have a significant payload advantage over the A350. Payload advantages can translate into carrying more passengers, more cargo or more range. In other words, the 777, on first glance, remains a very viable aircraft and with performance improvements, looks to remain so.
But what happens if Airbus is able to convince an engine maker to grow its thrust range into the 105K to 115K thrust range of the GE90? That would probably mean a commitment to some kind of new engine from Rolls-Royce or a stunning reversal of position from GE on supply a version of the GE90 to Airbus. Nonetheless, it’s a hard to ignore how such a development would change the viability of the 777 overnight.
Incremental performance improvements are common on airliners and Boeing knows it can grow the distance between the two aircraft with these improvements but only if Airbus is denied a 100K+ thrust engine. Since Rolls Royce has had quite some time to recoup investment on its large Trent engines and time to spend on research and development, I would not discount the possibility that they’ll commit to such an engine in the future but probably only if they retain some sort of exclusivity.
I think the extended wing, engine performance improvements and other tweaks will keep the 777 in the sales game for the next 4 to 6 years but if Boeing wants to retain supremacy, it’s time to start asking what the follow on successor to the 777 might look like.
Boeing has the 787 back on the right track and while they’ve got some work to do in getting the 787-9 and the speculated 787-10 into production, that has become straightforward engineering now. The 747-8 has come into its own test program and since that is an incremental re-development of the 747, there isn’t much there that isn’t straightforward engineering as well.
The 737 successor is by all accounts something to be deferred for development until late in this decade. Instead, it will receive a new engine almost certainly which will require some changes to the existing design but nothing that would warrant calling it a new aircraft. Instead, such an aircraft will be much like a 747-8 development.
That means there is potentially a 5 to 6 year gap there in which a new development program can take place before the 737 development must start in earnest. I rather think that’s the moment of opportunity for Boeing to go forward with that new large wide body replacement aircraft. It will push the company, certainly, but that development, particularly with what they’ve learned in developing the 787, would almost certainly dominate the markets for 20 or more years if they were to make the commitment.
American Airlines and British Airways won tentative US government anti-trust approval to cooperate closely with each other on routes and pricing. Iberia Airlines, Finnair and Royal Jordanian are also a part of this package. The one caveat from the Department of Transportation is that the “partnership” yield 4 slot pairs at London Heathrow airport to other airline(s) that might provide service between Heathrow and the United States.
This partnership is still contingent upon EU approval but I suspect the EU will grant it as well.
Is this good for the consumer? Well, in the long run I suspect so. There is plenty of competition between the US and Europe in general and frankly I suspect travel to London Heathrow hasn’t been this competitive ever already. In this case, I think we’ll see some capacity reduction between AA and BA on those US-London flights and that might well be justified. There may be a few non-stop routes that see fares rise some but overall the general population of the US and the UK will likely find fares pretty reasonable or even unchanged in most respects.
This will be a huge plus for OneWorld members in that they’ll be able to find better coordinated schedules for a variety of destinations throughout Europe and the US. And it should put OneWorld on much more equal footing with both the StarAlliance and Sky Team.
Of course, Richard Branson finds it all outrageous but, then, if you follow Richard Branson and Virgin Atlantic, you knew that he would already, didn’t you. (I do think Richard Branson has finally cried wolf one too many times and no longer gets the credibility he might once have had. One thing is sure, it’s time for VA to start looking for a partnership.)
Both BA and AA might moan and grown over giving up 4 slot pairs at Heathrow but both know that 1) those pairs will yield a tidy sum in a sale and 2) they’ll still have plenty of maneuvering room to make lots of money.
I doubt very much either airlines’ unions will be happy about this though. AA pilots will worry about a reduction of flying on their part which, in my opinion, is only a worry if they continue to fight new ultra-long haul services that AA could use their aircraft on. This is a real concern given this agreement’s potential to free up 777 aircraft to fly to new destinations.
The real win for OneWorld will be gaining anti-trust immunity with JAL for trans-Pacific services. With that agreement and this one, OneWorld gets the opportunity to compete with the other two alliances on pretty good footing and they haven’t had that in quite a while. Both agreements would also make it more attractive for other airlines to join OneWorld now.
I would not be surprised if this development doesn’t suddenly make it a bit more attractive for OneWorld to approach US Airways about joining. US Airways would make for a very complimentary addition to OneWorld and it would allow them to leave an alliance where they are quite literally relegated to secondary status on all fronts. In OneWorld, US Airways could offer good domestic service to the other partners and cooperate well on both trans-Pacific as well as trans-Atlantic services.
Several airline journalists and bloggers have posted their reactions to Air New Zealand’s new coach seating that has the possiblity of becoming a kind of 2 or 2.5 person “couch”.
I have to say that unlike all the other reactions I’ve read (very positive), I’m wholly unimpressed. Granted, I wasn’t there to “experience” it but from the photos the seat cushions themselves look awfully thin for true comfort. Despite the models looking like they’re luxuriating in comfort, that does not look like a comfortable way to relax even on an airplane.
Yea! Premium seating got even better for customers of New Zealand. (I’m being sarcastic) Economy customers got introduced to 10 across seating on their 777s. Bleagh. Economy purchasers can now spend even more money to lounge on something that, frankly, isn’t lie flat and doesn’t really look comfortable at least for taller, bigger or older people. I’d rather have more seat pitch and, yes, the real economy seating on the 777s will have 33 inches seat pitch (and let’s not get carried away celebrating) but I just don’t see the real advantage to the couch seating. I wish I did but I don’t.
What this airline world needs is a better seat for domestic 1 to 4 hour travel with a bit more than 31″ of pitch. Let’s celebrate and dance when we see that from a mainline carrier in the United States. Heck, Airtran has a comfortable en0ugh seat that with just 2 more inches of seat pitch, I’d be dancing in celebration of them. Same for Southwest.
I want to see some seating innovations for the typical customer actually get implemented.
And that isn’t exactly breaking news, is it? Everyone knew it was coming and now it has happened. Japan Air Lines must now face the music, reorganize and find a way to survive.
It isn’t as if they were a shining example of profitability over the years. Indeed, it was yet another airline formed as a national flag carrier that was ultimately privatized and which ultimately went into deeper and deeper debt. Its cousins are airlines like Alitalia and Olympic, not British Airways and American Airlines.
The blame lies in the company culture and by that I mean it went too long in a regulated and semi-regulated environment and then got set free into the competitive winds of the world with a crew of executives that never knew any real competition. Its one positive attribute was its service level which by most accounts was impeccable.
There has been a lot of criticism for the CEO, Haruka Nishimatsu, over the past few weeks. Particularly when it was announced that he was ultimately going to be replaced by Kazuo Inamori, founder of the Kyocera Group. I wrote about that announcement HERE. Tonight I remembered a video that was passed around among many airline enthusiasts as a kind of great example of what an airline CEO should be. Mr. Nishimatsu is shown riding a bus, eating in the general cafeteria of the company and generally being one of the people. I remember many people posting on other blogs about him earning just $90,000 in salary after cutting all his perks when he had to slash budgets and staff at JAL. (See below)
Let’s remember that this guy at least tried to do the right thing which is quite unlike many in this business at times.
So, what’s next? Well, JAL has to layoff thousands of employees, reduce costs at every level, probably purchase some new aircraft and find a way to claw itself back into profitability. That’s a tough thing to do even in good times.
I’ve some doubt about their choice of CEO to do it with. This is a man who plans to work for no salary and put in “3 or 4 days” a week as well as choose a second-in-command from the current airline ranks. Huh? Really?
What JAL needs is a seasoned airline executive who has extensive experience in competitive environments and who understands what it means to run both a national and international airline. There are plenty of those around in this world but, yes, it does potentially mean hiring someone who isn’t Japanese to run the airline. Or at least to lead the airline out of its current problems.
There is some precedent for this. Nissan’s CEO is Carlos Ghosn, a Lebanese-Brazilian man who came to Nissan from, of all places, Renault. He made enemies until he surprised everyone by bringing Nissan back to profitability. If they can’t stand to hire outside of Japan, then they would do well to find someone at ANA to take over.
If the Japanese government and JAL’s board want to be serious about recovery, they need someone who is the best, not someone who is politically safe.
JAL will likely rid itself of its 747 fleet in favor of a 777 / 787 fleet for its international operations. It is time for those Airbus A300 aircraft to go too. It will have to eliminate stupid routes like flying from New York City to Rio de Janeiro. Their focus on First Class and Business Class will have to be realigned. (An amazing portion of some of their international aircraft is dedicated to these two classes leaving only a small portion for Economy Class.)
But I have to say that I think this is going to turn much uglier before it gets better. I think JAL will flounder and I think the Japanese government will continue to pump money into it (and, in a way, they kind of have to since they provide the only competition to speak of for ANA.)
“We believe it is important to secure customer convenience by the injection of public funding. However, we are also highly concerned that the fair and competitive environment would not be secured under the financial support and injection of public funding.”
That kind of criticism is rare in Japan but ANA has had to fight for its success since its inception. They have a point but strangely even I find such a statement a bit tacky on this day.
Everyone says it is Delta and SkyTeam who will lure JAL away from the Oneworld alliance. I must say, given all the talk, I’m beginning to be swayed. However, I remain skeptical that they can enter into the SkyTeam alliance, particularly with Delta, without their being some anti-trust issues on the part of both governments. If they are leaning that way, I believe it is because someone in the Japanese government is leading them to believe there will be no issues. I do not think that that will be the case in the United States, however. One look at the criticisms of the AA/BA/Iberia anti-trust case and you’ll see what I mean.
There have been a few attempts to create long haul, low cost carriers over the past several decades. Laker Airways and People Express were two examples of that from years past. Neither succeeded in the long run due to competition but also because long haul flights are a different creature.
Now I’m beginning to think someone could do it. It would require a few very special adjustments to make it successful and those adjustments would be a real challenge to accomodate but, yes, I think someone could do it.
Michael O’Leary of Ryanair has talked of doing this but his concept, at least how he has laid it out, is fraught with peril since it is based on a Ryanair strategy.
Long haul flights really only work between two large population centers because they do depend a lot on airport infrastructure and originating traffic in those areas. They are international and that requires airports that can accomodate customs and immigration facilities and airports that have runways that are long enough for long haul aircraft.
They also can’t depart and arrive at just any time. Not to be attractive anyway. So schedules are much more important and frequency isn’t necessarily the key as much as finding routes that offer high aircraft utilization.
Until recently, they also required really large aircraft such as the 747 or DC-10/MD-11 to lower the costs per available seat. Filling those aircraft day in and day out is difficult on a point to point basis if you don’t have really large population centers to feed those aircraft.
Things have kind of changed though. For one, there are aircraft that might be suited to such operations which offer very low CASM (cost available seat mile) but which aren’t so big that they become difficult to fill. I’m thinking of the Boeing 787 and 777 and the Airbus A330 and A350.
These aircraft are capable of long haul flight, offer enough capacity and the kind of operating costs that might just make such a venture possible. In particular, the 787-8 and A330 make this look real attractive.
The one twist that I think you would need is partnerships to feed these flights at major cities that would serve as the departure points for such flights. In the past, I would be skeptical of this being possible. Now, not so much. Southwest Airlines is forging partnerships with LCC carriers in Canada and Mexico (WestJet and Volaris) and its just the kind of partnership that a long haul LCC venture could use.
Imagine an LCC carrier using the A330 or 787-8 flying routes such as DFW-London or Chicago-London or NYC-London. Or even Portland, OR to Amsterdam or Denver to Germany. Maybe even Salt Lake City to Japan.
The best aircraft would be the 787-8. It would accomodate medium to long haul flights perfectly with low enough CASMs for virtually any city pair. Its expected to be more low maintenance than any other aircraft of its kind. It could become the 737 of long haul quite easily.
If you had partnerships with LCC carriers on both sides to feed connecting traffic (something else that Southwest has done a time or two with its relationships with ATA and Icelandair (which was actually an interline agreement), you might be able to do it.
Imagine Southwest Airlines feeding such an LCC in places such as Denver, Baltimore, Pittsburgh, Portland or Seattle and Ryanair feeding such a venture at airports such as Dublin, London-Standsted or Frankfurt-Hahn. Or, perhaps, Airtran feeding such an airline from Atlanta to Rio de Janeiro with Azul providing the feed in Brazil.
This new LCC would have to be the “codeshare” on the domestic/regional flights and its own entity on the long haul international portion. Domestic/regional partners would benefit from the additional regional traffic but really should not be selling tickets from Kansas City to Rio de Janeiro via Atlanta. It goes against their models. These partnerships should be about each sticking to their models but providing some interlining between the two.
Oddly enough, I see airlines in two parts of the world being able to do this. The United States would be ideal because a US based long haul LCC carrier can reach around the world from the US borders. The other area would be one based in the Middle East such as Dubai which could also reach around the world.
With Open Skies agreements falling into place left and right, the right aircraft being available now and LCC IT infrastructures becoming flexible enough to enter into this kind of partnership, it might just be possible in the near future.
There is a huge battle taking place over who gets to have Japan Air Lines (JAL) business. The financially struggling airline has suddenly become a hot property and American Airlines (OneWorld) and Delta Airlines (SkyTeam) are fighting over JAL like it’s a supermodel. Both airlines are offering hugely attractive financial packages to JAL and I suspect the poor airline has no idea of who to nod their head towards.
Ultimately, I think JAL will stay in Oneworld. There is more at stake here than what is offered as a financial rescue package. Japan is still a very nationalistic country and keeping the identify of what is, for most purposes, its flag carrier will be important. It has a solid relationship with Oneworld and American Airlines and compared to the risk of joining with SkyTeam and the possibility of being a second tier player in that relationship, JAL has a safer bet with Oneworld.
In addition, I don’t think JAL can afford to wait for anti-trust immunity to act with airline partners and it won’t have to by staying with Oneworld.
The Middle East:
I continue to think that the major international airlines (Emirates, Qatar, Etihad) of the Middle East are more at risk than they claim. Yes, they’ve experienced phenomal growth and, yes, they continue to purchase aircraft like a 5 year old buys candy but what’s next for them and their route systems?
The Middle East doesn’t offer a good connecting point for North or South America. Airlines in North America can reach their markets non-stop with existing aircraft and why would a passenger choose to connect via an airport in the UAE (United Arab Emirates) when they can fly non-stop at a competitive price. Better service product won’t attract these customers.
There is very little business between South America and Africa, India, The Middle East or Southeast Asia and, so, South America isn’t a place that could serve as a growth area for those airlines.
Emirates, Qatar and Etihad have succeeded by offering a hub between Europe and the Middle East, India, Southeast Asia and (to some extent) Australia/New Zealand. However, even European airlines are adding longer range aircraft and are able to reach each of those destinations non-stop more and more with the exception of Australia and New Zealand.
In addition, each of those airlines is bankrolled to some extent with oil profits and the uncertainty of those profits and the uncertainty of other investments in the Middle East has to raise the risk for that continued bankrolling. I don’t see any of these airlines failing in the next year but I do see them perhaps deferring orders and re-organising their fleets.
India:
What a catastrophe! No airline in India will do well for now and there has to be some consolidation in this market in the near future. Kingfisher and Jet Airways are both excellent candidates for takeovers and, perhaps, they are excellent candidates for each other. Kingfisher bet on Airbus by ordering A330 and A340 aircraft first. Their A330 fleet doesn’t quite have the range it really needs to expand outside of its current markets and the A340 was a terrible choice for long range flights. So much so, it got rid of the aircraft on order.
Now, Kingfisher has a few A350 and a few A380 aircraft on order for deliveries starting in 2014. While it could desperately stand to have the A350 now, I don’t see how it can wait until 2014 for the aircraft. I also seriously doubt it will ever take up the A380 both because of cost and an inability to fill the aircraft enough for regular flights.
Jet Airways also has a great service product but bought too big of an aircraft for the routes it needed to compete on. Jet Airways purchased the 777-300ER when it really needed the 777-200ER/LR for the international routes it proposed to serve. Now 4 of the aircraft are leased to Turkish Airlines and 3 are going to Royal Brunei leaving just 3 for Jet Airways.
Both Kingfisher and Jet Airways have a great service product and good networks across India and neighboring countries. They would be better served by merging and using one brand for their national service and another for their international services. Kingfisher for India and Jet Airways for international service.
The Far East:
China has a lot of problems coming to roost with the inevitable decline in their economy which is heavily dependent on North America and Europe. Look for some consolidation in this market. I do think that Chinese airlines face potential issues from government mandates to purchase indignenous aircraft being developed now. There is little chance that the aircraft being built will be competitive internally or externally. At least for this first round of development.
While JAL is suffering and ANA (All Nippon Airlines) isn’t performing that great at present, I see no major changes in the Japanese markets. This is an area that will bounce back but only after a long fight. The same is true for Korea.
Oceania:
Australia will be interesting to watch. I’m tempted to guess that the status quo will remain in most cases. The competition between the US and Australia only continues to grow more fierce and something has to give. I still think that United Airlines may well be the airline to withdraw from this market and only because of the rather unique market relationship formed between Delta and V Australia (and Virgin Blue).
QANTAS will continue to own a large piece of all air travel from its home nation and they could be helped along with some deliveries of the 787. At some point, QANTAS must grow and growth means a lot of long and thin routes to be added.
South America:
I don’t think there will be any major news from this continent over the next year. LAN will continue to succeed by operating smart and honest. Brazilian airlines will continue to fight things out but there is enough international business for each of them and their real threat comes from Azul on a domestic basis.
Look for Azul to consider adding a larger aircraft to its fleet and don’t count Boeing out on that deal. It would be easier for David Neeleman to add the Boeing 737 to his fleet in Brazil because he could outsource maintenance more easily.
Aerolineas Argentinas: Well, what can I say? This disaster is much like the country itself. It won’t go away but it won’t perform either. No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership. They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth. But the Argentinian government also won’t let them go away. It is a matter of national pride.
LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well. Why? For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money. For another reason, LAN Argentina is owned by the LAN Group of Chile. Look up how Chileans and Argentinians feel about each other.
Colombia and Venezuela:
Avianca Airlines has joined hands with Grupo Taca and I suspect that will be a good thing for both airlines. Avianca could benefit by the exellent managment of Grupo Taca and Grupo Taca could benefit from greater access to South American markets. Its almost certain that the two will harmonize their fleets and service products for greater economies while maintaing the two identies for greater acceptance throughout Central and South America.
Venezuela: All airlines erode further due to the increasing interference of the Venezuelan government and, more specifically, Hugo Chavez. I lost hope for Venezuela’s airline industry when they forced Conviasa (in partnerhsip with Iran Air and originally using an Iran Air 747-SP) into a route between Caracas and Tehran with an intermediate stop in Damascus. This is the ultimate in “this route makes no sense.” If the government can do that, then they’ll do other things to damage the industry.
Europe:
The European continent’s airlines are hunkered down just as much as the US based airlines. There isn’t much to be expected in Europe for the next 12 months but let’s look at it anyway.
British Airways is kind of the American Airlines of the UK. They’ll always somehow manage to survive and generally pretty well. They have their own labour troubles but, again, they seem to be capable winning these for now. British Airways needs to cut costs a bit more so I wouldn’t be surprised at some order deferrals and/or hastening the exit of the 747-400.
The one airline I continue to wonder about in Europe is Lufthansa. While they have a good service product and an excellent reputation, they also seem to have some weaknesses. Lufthansa continues to purchase weaker sisters in Europe such as SWISS, Brussels Airlines, Austrian Airlines, Lauda Air and, now, BMI.
20 years ago, this would seem reasonable in that European countries were pretty nationalistic. Now, not so much. Yes, there are some pockets of nationalism that exist but I wonder at maintaining so many different brands, fleets and networks now. It would seem that the brands could be pared down to 2 or 3 mainline airlines and 3 to 5 regional airlines. BMI wasn’t an airline that was succeeding in any great way and what does Lufthansa get for their purchase? I see little of value. I don’t know that BMI gets Lufthansa an entry into the UK that is of any more value than the Lufthansa brand itself.
I also wonder about their fleet. They have a large fleet of A340 aircraft serving medium to long haul routes and that cannot be very efficient or profit enhancing. Yet, Lufthansa has made no real move to correct this problem. Their one major aircraft order in the past several years was for the four engined 747-8i. They have no orders for the 787 (although Boeing would no doubt happily accomodate them with early delivery positions) nor the A350 (and I’m certain Airbus ould love to add them to the order book as well.)
This puts Lufthansa into competition with British Airways who has moved towards operating more twin engine, long haul aircraft (777 and 787) as well as KLM/Air France (777). Yes, they do own some A330 aircraft but their true long haul equipment is the A340 and 747.
KLM / Air France: Not much here. I don’t see an order for aircraft coming from them unless Airbus magically announces a GE engine for the A350-1000. Otherwise, I seem them holding their cards close to their vest and waiting to see what happens in Europe.
The BA/Iberia merger: I never saw the attraction myself. It’s a low rent copy of the KLM/Air France union and I suspect there are many issues to resolve before the two really combine. Personally, I think the odds of this merger actually taking place is, at best, 50/50.
Their alliance with AA over the Atlantic will continue to be a strong issue for the US Justice Department. The BA/AA strength on the US/UK routes and the the IB/AA strenght on the US/Spain routes is really a bit too much. I think the DoT/FAA is willing to let this alliance go forward but I think the DoJ is going to speak loudly and force a request for concessions. Concessions that I think, this time, BA and AA may meet with some negotiation.
