19 July 2008

Beware people bearing gifts - Amadeus new tools

OK - I love the obfuscation of the distribution business. It matches that of the rest of the Travel Industry.

So here is a new little missive from Amadeus that just makes me what to laugh. In fact when I first read this - I really did burst out laughing - my seat mates on Aladia thought I was nuts. Frederic is a nice chap but this is really an abuse of the truth!

I provide the release in its full courtesy of Professor Alex:

Open Quote:

Amadeus launches airline service fee tool - 16 Jul 2008

Amadeus has launched module one of its Airline Service Fees automated ticket pricing and fee collecting solution for multiple channels.

The first module enables carriers automatically to collect ticketing, credit card and miscellaneous fees in their direct sales channels, such as ticket offices, call centres and websites.

The second module, due to be rolled as part of the Amadeus Retailing Platform, will allow airlines to collect fees through travel agencies.

The company claims Amadeus Airline Service Fees will increase airlines’ revenues by eliminating human error, improve airlines’ fee management and make fee collection more transparent, as recommended by the European Union.

Frederic Spagnou, vice president of Amadeus’s Airline Business Group, said: ‘The EU recently highlighted the need for transparency in airline fee calculations.

‘The Amadeus Airline Service Fees solution was developed precisely to solve the issue, quoting a total price including all fees and displaying a complete breakdown of those fees to the final customer/traveller.’

The first module of Amadeus Airline Service Fees solution is now available to all airlines that have adopted the Amadeus Alta Reservation platform.

End Quote.

You be the judge!

OZ experiencing pain - The Duopoly are cutting

Both Qantas and Virgin Blue are experiencing a degree of pain in the economic downturn.

Qantas has announced plans to cut a further 1500 staff and ax both routes and ground aircraft. 767-200s are already gone, 18 737-400 Classics, and while that nicely painted Nalanji Dreaming 747-300 has long since gone the remaining 747-300s in the fleet are being grounded. Likely the JetConnect subsidiary in NZ will also get some cuts. Jetstar will see a slowing of growth. It has trimmed its growth to zero from 8% and will shut the US and London Call Centers. A savage cut will occur with 20% cuts in Admin and HQ staff.

For Virgin Blue soon to be Toll free (sic!) routes are being cut, staff laid off and I suspect some deliveries being deferred and aircraft being temporarily grounded. No word on their JV ultra low cost venture.

This is not just a problem for the USA folks

Fred Ried finds a home at Bombardier

After being dumped for political reasons - he can now have some fun with Flexjet

Farnborough Postscript - How did I get to 500+ orders

Someone has been questioning my math. So I will admit to fudging a little but here is the actual math, note that I have not added options:

Airbus Full orders: 256
Boeing Full Orders: 197
Bombardier C-Series: 30 (plus 30 Options)
Sukhoi Superjet 100: 49

Note I didn't include Turboprops nor the freighter conversions.
The fudging is from Boeing, whose orders for most of their big announcements were previously listed as being no-name customers specifically the Air China order for 45 planes - 737/777s.

Now will you believe me?



India - new tools for Cleartrip

Cleartrip is the solid #3 in the Indian market. Sandeep, Stuart, Hrush, Mart and the team in Mumbai have quietly been making the engine better and better over time.

Now they have finally (after nearly 3 years!!!) opened up the international market and perhaps they can start making some good money.

They say that imitation is the sincerest form of flattery - well then ClearTrip's graphs may be a knock off of the Skyscanner displays - but they are useful. I cannot verify the accuracy of the charts but it is a great tool. Why don't others do this sort of thing?

Anyway check it out.




18 July 2008

US Airlines Downgraded by Both Fitch and Moodys

I have just had a chance to read the Fitch Ratings report for the US Airlines. Perhaps I should have read it before I wrote my 500th Blog. It paints a sad picture. As I have previously reported on Moodys downgrade - I am going to concentrate on the Fitch Report issued on July 15th. BTW it is available for download from the Fitch ratings website:


Note you will have to register before you can reach it.

Essentially we are back at the post 9/11 state and all the efforts at restructuring over the past nearly 7 years have been for nothing - driven by the high price of oil.

For the airlines they track here is their outlook. Only one carrier rises to an A and only two have a stable outlook.

Company IDR Outlook
AMR Corp. B− Stable
Continental Airlines, Inc. B− Stable
Delta Air Lines, Inc. B Negative
JetBlue Airways Corp. B− Negative
Southwest Airlines Co. A− Negative
UAL Corp. B− Negative
US Airways Group, Inc. CCC Negative

However the kicker is the final paragraph of their outlook which I reprint here:

Looking ahead to 2009, Fitch believes that unsustainable cash flow trends and eroding
liquidity positions will significantly raise the probability of a major carrier liquidation. Recent ratings actions reflect heightened industry liquidity concerns, and follow-on downgrades are likely if fuel and revenue trends show no sign of improvement. Prospects for successful restructuring in Chapter 11, already limited by reorganizations completed earlier in the decade, have now been undermined further by the tightness of global credit markets and lenders’ unwillingness to commit more capital to an industry that remains fundamentally flawed both in terms of structure and long-term cash flow generation potential.

Of the list it is clear who they think are the most vulnerable. However for now they are sugar coating it by increasing the pool size of the vulnerable carriers. There is a dire warning on at least one carrier:
"Fitch believes that LCC in particular among the largest carriers faces the greatest risk of a cash crisis in the early part of 2009." LCC is the stock code for US Airways a misnomer if ever there was one.

It should be noted that Fitch is still using traditional metrics. I have argued before that this is actually part of the problem and that the airlines (and correspondingly their trackers and watchers) should be using a new set of metrics to illustrate the health and effectiveness of their model.

Of the carrier group they monitor - only Continental has engaged in shoring up its position over the last few months. Clearly Fitch is going to be compelled to issue a report as soon as possible after Labor Day when they can review the positions of the US airlines and see not just the summer performance but also what other actions the airlines have made to shore up their financial positions.

Reflections on 500 Blog posts - THE USA Market Editoria

OK so we are celebrating 500 blog posts for The Professor. I was searching for something pithy to dive into. Professor Dingley sent me a suggestion but I will concentrate on one issue that I think affects the general health of the Aviation Travel and Tourism ecosystem in general. The USA market and the legacy airline playerss. So for the celebration of our 500th Blog here is my take.

We are experiencing a fundamental shift in the center of the Universe. The US market has reached a level of maturity where growth is no longer guaranteed. The stunning growth in China. India and the Middle East/North Africa markets coupled with the resurgence of markets such as even in old Europe need to be factored into the success or failure of the market sector and industry as a whole. The more jaded amongst us would say that the US market and its players are finally getting their comeuppance. However an isolationism type attitude will not benefit anyone. We live in a society and its attendant economy that is now inextricably linked. One commentator called it a “continuum” rather than a whole homogenous environment. These are still lessons that are lost on airlines and other businesses based in the USA. Clearly we have seen the fundamentally broken model of the US legacy/network carrier fail to fix itself following 9/11 and the billions in losses and aid that was poured into the market. A chance to right the wrongs under the then lenient terms of the US Chapter 11 rules was clearly – in hindsight – missed. Distribution saw the collapse of the US off-line travel agency model and the attendant fall in value of the GDS. Yet the strive to control the market vs addressing the broken internal model structure of these businesses seems to be the defining characteristic of the US legacy airlines. What makes Ryanair tick so profitably? What makes Southwest the world’s largest airline by passengers? What enables consistent profits at the Asian powerhouses of SQ and CX? Why cannot the US airlines achieve these fundamentally sound commercial bases of their operations? Rather than fundamentally changing the way they do business, the US airlines have shown themselves to be inept and instead only good at copying the characteristics of the successful players. It seems that Lemmings still rule.

If we examine the success of Boeing and Airbus – over 500 aircraft orders in 5 days at the just concluded Farnborough 2008, we can see that there is still a good model at one end of the value chain. Perhaps now they too need to get into the game and address some of the ills of the USA market. Both companies have sources to capital that in the past have been used to stimulate sales. Now perhaps they should go to the well again and find ways to help the US industry to re-equip. Average fleet age for the US legacy carriers is not looking too pretty. With the so called Boeing Lock up commitments made by CO, DL and AA still over 2/3rds of their life to run – perhaps this is a time to open up some competition and get the new planes into the US market. But this is not the only fundamental element that is broken. For example the responsible emissions policies and scarce resource policies are not there in the US market. I am not a fan of the heavy hand of regulation but aviation is by definition a regulated and scarce resource. Perish the thought that I would be supporting Bob Crandall’s re-regulation calls. It is clear that the Bush Administration’s policy on commercial passenger aviation will go down as one of the stunning failures of its tenancy of the recent past. The new administration whoever that maybe needs to rethink the ground rules for commercial aviation policy – and fast. Not least of which is to open up the US Market to international competition starting with full NAFTA unilaterally and a removal of the ownership regulations. Full Open Skies with 5/6/7/8/9 Freedoms would be too radical but for the downtrodden US based consumer – there needs to be better usage of resources and a better mechanism to stimulate competition.

So we are clear – I do not believe that oil is the core problem affecting the US Airlines market sector. Rather the failure of successive managements to address the facts that:

1. That oil is a resource – that it is scarce
2. There needs to be a full accounting for the environmental cost of the services
3. Airways and Airports are a scarce resource
4. Transportation is a critical part of the eco-system of commerce
5. That the structure of the airline pricing has to change to match the reality of the economics of airlines
6. The need to educate the consumer on how to purchase in that environment
7. And yes the ability to manage the complexity is well within the capability of airline managers, they are not victims here

I hope that everyone reading this will use the opportunity to reflect. A wise person once said “Plus Ca Change” lets hope the people who need to deal with this can wise up and provide a way out of here.
Right now I am not optimistic. But I have seen many people be resilient and recover from disastrous situations. There is a crisis in the industry but stop whining and start doing would be the right way to deal with it.

Best of luck to all concerned. I wonder what my 1000th post will be!


The Professor.

Day 5 and Farnborough Recap

Best Video…. The Amazing F22 demo on Monday. I really wanted to go but had family obligations.
And then look for the F22 Video on the home page.

Recaps of the week.

Boeing has booked firm orders for 197 aircraft worth USD23.1 billion at list prices in the first four days of the Farnborough Airshow. Airbus confirmed it has booked firm orders including 256 orders (247 firm and nine commitments) valued at USD38.7 billion at list prices during the first four days of the Farnborough Airshow.
The mega orders by Etihad and FlyDubai means that there is plenty of good news to go around. But there was a steady stream of orders from others as well.
Launch orders for the C-Series, Non-Russian orders for the Sukhoi Superjet 100s and the emergency of the Chinese and Japanese aviation manufacturers are all part of a signaling of the changing of the guard. The non-US, Non Europe Aviation trends were quite stunning. Russia. China and the Middle East clearly are in the ascendancy.

For the dive into the trends – as the chalets are packed up and put away for another 2 years we can reflect that the air transport raw material business is doing nicely thank you but still the operators just cannot seem to make a go of it. The economic health of the user community should be a big cause for alarm. Clearly Boeing and Airbus are thinking that that is not their problem – but perhaps it should be something that they take a more active role in.




Traffic for US Airlines Down again in June.

Traffic for US Down again in June.

US Airlines are in some cases not waiting for the September day for cutting back. Overall we are seeing pretty significant declines already. Of the big 6 US carriers even Southwest was down and only Northwest actually experienced an increase in traffic

US Airlines in June
Delta Airlines; USA
Latest report shows passengers down by -4.7%
Southwest Airlines; USA
Passenger numbers for the month are down by -0.8%
American Airlines; USA
Just reported: passenger numbers drop by -2.8%
Continental Airlines; USA
Just reported: passenger numbers drop by -0.7%
Northwest Airlines; USA
Just released: a passenger increase of 2%
United Airlines; USA
Latest report shows passengers down by -5%
US Airways; USA
Passenger numbers for the month are down by -5.5%

Of international carriers the big 3 EU based legacy carriers all experienced a collective decline in load factors and BA experienced an absolute decline in traffic:

Airline RPKs ASKs PLF Change (ppts)
Air France/KLM +2.6% +4.1% 81.5% -1.2 ppts
British Airways -3.7% +1.2% 76.7% -3.8 ppts
Lufthansa Passenger Airlines +5.8% +7.2% 81.1% +1.0 ppts
Sources: Airline reports

Correction LH was still up on the month.

Day 3 and 4 at Franborough

Sorry I wasn’t able to comment on yesterday’s so I am combining it with today’s news.
Airbus dominates with orders for A320s leading the way. Including the first initial orders for A320 P2F freighters.

Airbus seems to be on track for reaching Mr Leahy’s prediction of a large number of orders. At the same time the opening up of the A320 Freighter program got off to a roaring start with infrastructure deals being signed between Airbus and Russian Aerospace firms. At the same time the first orders came from a Dutch leasing company.

Not to be outdone – the Russians are continuing to make some headway. They have signed a deal to allow license production of the TU204 in Iran. This should give the USA some pause for thought as it will mean that Iran is going to get access to some pretty sophisticated technology. For the TU204 program this gives it a new lease on life.

On the military front the Russian Air Force looks like it will one day have a RAPTOR competitor. The Herc production line now has a lifeline of its own in the form of an order from the USAF for C130Js. Not such lifeline yet for the C17.

The political noise on GREEN continues with the EC receiving a slam from Airbus’s CEO. You have to admit this is all great theatre but I still don’t see the industry making much sense about what it is going to do about a reasonable alternative to reduce carbon emissions. My position is clear. Research, Modify, Reduce and eliminate if at all possible. But that is not very specific. I am still thinking about this issue.

15 July 2008

Midwest - Unwanted and Unloved

Pity Midwest – the Kleenex airline was the subject of a huge battle last year won by Northwest and TPG. What a difference a few quarters makes. Now they are being forced to cut back 40% using a business plan developed by Seabury. And Unloved? Northwest is far too interested in its relationship to Delta.

Air Tran is probably thanking its lucky stars that they were not the successful party in the bidding war.

In the mean time - Midwest looks like it could become another bit of roadkill.



So you think you have problems - RyanAir and London Underground issues

On Saturday London Underground fried approximately 250,000 users "Oyster Cards" these are the proximity chip based frequent traveller cards for riding the underground (Metro) in London.


But there are not alone. Ryanair seems to be suffering still from the lagging effects of the migration to Navitaire's New Skies product. Shame on the Navitaire guys for still not fixing the system.

This is from the Ryanair.com website:

Please click the select and continue button below, in order to view a breakdown of the inclusive taxes, fees & charges associated with your flights. We regret, due to system performance issues, we have been unable to display the tax inclusive fare box on this page, since 25/06/2008. We are currently working with our suppliers, including Navitaire to resolve these problems and hope to restore the tax, fees & charges inclusive display shortly.

Oh dear.....


The wierd and the wonderful from Farnborough Day 2

Boeing and Airbus may be lulled into thinking that the A320/737 market is sewed up between them. Well chaps waiting till 2015 for delivery of the next gen aircraft may not be such a wise thing.

Boeing says "It is pleased with powerplant progress", Airbus is looking for significant upgrades to the A320 but no new major improvements = translation we are not going to start work on this in earnest until we have some time to think about it.

Others are not waiting. The very anemic looking low end of both manufacturers products (A318 and B737-600) are heavy and not that efficient. As we have seen the long legs of the 737-700 may not be good enough for the type of market it serves where its bigger siblings 737-800 and -900 are really coming on strong. So Bombardier is covering the low end of this market with its new higher end C-Series aircraft. Now comes word of a new entrant today - The Russian MS-21 which will seat 150-210 seats. Designed specifically for the replacement of the TU154, TU204 as well as western types 737 classics and NGs and A320s - this could give the Western types a run for their money.

Moral of the story - dont sit on your hands too long.



The Professor is travelling and may not be able to post for next 3 days

So still some excitement at Farnborough to come. I shall be watching the wires for you so I can comment



Update on Farnborough Day 1

Two interesting points of note.

1. The Etihad order including options was over 200 aircraft of which the bulk were wide bodies. The total order using list prices would make the EY order the largest in Aviation history by dollar value. A Bubble? Well you be the judge

2. The FlyDubai order included the option to convert to 737-900ERs. That provides the ability to fly to most of Europe. However we believe that the bulk of the flying will be with in the region and a tilt towards Indian Subcontinent. Thus clearly Air Arabia and Jazeera are now in the cross hairs of the Dubai based airline.



Saudi Arabian drifts towards Airbus

SV has been a previous purchaser of Airbus planes with the A300 in the 1980s. However of late it has been sticking true to the US partnership by buying Boeing (777) and Boeing MD (MD90s and MD11s). However today it signaled a new direction by ordering A330-300s 8 of them.

So now they are clearly moving towards an Airbus anchored fleet with a further 32 A320s previously ordered which will no doubt anchor their local and regional destinations replacing the MD90s and the Embraers operation commuter flights.

Virgin Blue a takeover target as Toll exits?

Virgin Group is now the largest single shareholder in the Australian formerly LCC now major network carrier. Toll Holdings has finally ended it ownership position leaving Branson with a small holding and the rest in institutional and public hands.

But after all the shenanigans over its ownership, Virgin Blue might finally be a target of a takeover. Given the tortuous history of airline ownership in Australia, we can always expect the unexpected.

So lets see who emerges as a potential winner. Perhaps SQ might finally realize its vision of a Tranpac carrier by acquiring the Oz based carrier. But then I am merely speculating. But it would be nice to see Tiger and VB together with Tiger being the Uber LCC brand instead of Air Asia. What do you think?



14 July 2008

Germany - a Duopoly no longer, but not quite

The long awaited deal between Condor and Air Berlin has finally foundered on the rocks of the German competition authority. But in true German fashion (remember these are the guys who actually fined one company for LOWERING prices), the result is a strengthening of Lufthansa's hand.

A new third force company comprising GermanWings/Eurowings and TUI's air assets will emerge as an independent LCC group. Clearly not totally independent but independent in spirit anyway.

Frankly this still makes me scratch my head and wonder if Germany as a nation would ever pass the US RICO act.



Etihad splits Giant Order - nod to Airbus

Etihad has split its expected giant order between the leading players.

Airbus gets the nod with 20 A320s, 25 A350s and 10 A380s. Boeing gets hardly the consolation prize with a good order of its own for 35 787s and 10 777s.

Not bad guys... I guess Etihad doesn't have to worry about the cash flow in this picture.

PS sorry for the typos (July 19)

Crisis Crisis - what Crisis - Farnborough Day1

So its the end of the first day of Farnborough and courtesy of Airline Business I was able to attend the Airline Business Strategy Awards last night. An illustrious affair and thanks to the Reed Business Folks for the kind invitation.

So firstly a few words on the Awards. Each of the recipients were decidedly worthy.

So congrats to LH, SQ, SK, EY, AK, BE, JQ for their performance which has now been truly recognized. Perhaps the toughest one went to SK for their technology award. SK has a particularly hard row to hoe. Congrats chaps.

So the buzz at the event at Lincoln's Inn was the state of the industry. My esteemed colleagues at Table 24 were all bristling with ideas of what to do as experts. But perhaps the mood overall was more subdued. The industry is in a crisis of that there can be no doubt - or can there?

From today's wires - FlyDubai plumbed for Boeing and the 737-800 with a fat order for 50. I doubt they got quite the deal that Mr O'Leary got in 2001 but still it was a pretty mind boggling order nonetheless. The betting on the FlightGlobal website was a higher order book for Airbus - the respondents voted by about 2:1. Given this order can we still be sure.

The C series from Bombardier finally got off the board and into the order books with a first order from Lufthansa. This makes them a launch customer on 2 aircraft coming up soon - the 747-8 Passenger and the C-Series.

Tomorrow will be another day with a big order expected from both EY and QR. Lets see what they do....



New international accounting rules to impact FF Programs?

New rules have been instituted by those most imaginative of people (aka Accountants). These new rules from the International Accounting Standards Board, which have just come into effect, mean that the cost of frequent flyer rewards should be valued at ‘the amount for which the award credits could be sold separately’.

I seem to recall that this has been attempted before by the US Accounting standards group and also by the US tax authorities. In both cases it was pushed back for obvious reasons. There are only two ways to deal with this – either at the recipient end or the “pusher” end. In both cases it’s a bad thing to do and stupid.

However lest anyone think that I suffer from a lack of imagination, here is a scenario that gets some bite to it. The airlines decide this is a great opportunity to get rid of FF programs once and for all. With liability sitting out there to the tune of approx 10 trillion miles at a value of between 10 and 20 cents a mile with this in the hands of nearly 200 million people… doesn’t make sense. Accountants are always looking for stuff for them to do, they still mourn the creation of the proletarian spreadsheet software, so if they cant get what they want in direct employment then they will figure out a way to encourage a tax. As a certain Shakespearian character said “ a pox on you!”

Euro MPs target Hidden Airline Costs - perhaps they need to dig deeper.

MEPs (yes those nice people who clock in to claim their allowances of Friday) are at it again.

This time there is something useful in what they are doing. They want to challenge the pricing schemes of the website displays of airlines and travel operators to get them to show ALL the prices and all charges.

To some extent this is a problem that the EC has created. By complicating charges they are indeed creating and exacerbating the problem. The EC should perhaps look inwardly and examine how the charges are created so that Airlines and travel service providers could have a simpler way to calculate taxes and fees that they need to.

When that is done then lets throw the book at them. However if the USA model is anything to go by then the future does not look bright.

Additionally we see inconsistency of charges by the airlines. BA for example is far more aggressive in collecting taxes than say Delta.

if you would like to see that there are discrepancies - look no further a comparison of charges on the US airline shopping sites like Orbitz.

So before the MEPs get the knickers in a twist - perhaps they should look at the causes and address some of them



UK Catches Up In Online Searching Profile - with a Twist

A recent study of UK Online Vacation (OK then Holiday) searches shows that the UK has a similar profile to the USA. However much like the USA the dissatisfaction with the process and the lack of trust in the information is showing through.

Firstly some hard numbers from Foolproof the agency who conducted the survey:

Of the respondents, 28% said they would go to Expedia and 20% to lastminute.com (travelocity) for information, compared to 11% for Thomson and 8% for Thomas Cook. So clearly Opodo is not on the UK radar in significant form and Orbitz has no presence. eBookers also failed to make a showing which shows how much the brand has deteriorated. Further the study went on to point out that "When researching holidays or short breaks the most popular sites that shoppers intended to visit were ones that offered information on their intended destination (48%), online only travel agents like Expedia and lastminute.com (48%), low cost airlines (42%), price comparison sites (40%) and sites that offer customer reviews like TripAdvisor (39%)."

The conclusions from the study cannot necessarily be held as true. Foolproof concludes that the High Street brands have a chance to reclaim their position. I disagree. 2 main reasons.

1. The name change from Lunn Poly to Thomson for the retail outlets and the vast reduction in footprint of all 4 major brand groupings (now just 2) has led to a reduced brand footprint to compare. Further the confusion of the TUI vs Thomson brands has diminished their ability to make headway against the 2 leading online brands.
2. The product offerings from the former retail brands do not provide enough differentiation to return to them.

However there should be some hope for either a resurgence of the traditional brands or the emergence of new brands because the product offering of all current players is so poor. This should give some hope to the zero content players such as meta searchers and social/UGC sites such as trip advisor et al.

There is a clearer message from the study. Provide better value as a source for information if you want to sell more. The next stage however will be a return to the product owners - just like there is in the USA. Here the LCCs will continue to power ahead with greater value. Now if Ryanair and Easyjet could only do a better job on their hotels and other products.