13 September 2008

Eurosharks betting whose next - The Irish know!

Saturday's Frivolity

While I am 100% Belgian as Professor Sabena, I am still of decidedly mixed heritage. A large part of me is of course Irish. How else could I possibly claim to be a Belgian?

One of my fellow ex-pat Irishmen - Professor Stuart kindly sent me a great link. So no longer do you have to consider that I am the source of doom and gloom - now you can bet at a great website called PaddyPower.com.

A clear disclaimer here - I do not advocate or support gambling in any way. Whether its legal or not - its a bad habit.

However PaddyPower is giving odds on the next airline to go bankrupt.

Here is the link:


No prizes that punters think Alitalia is going next at 6-4. SkyEurope is right behind at 5-2. The next group is also unsurprising: Spanair followed by Air Berlin at 10-1.

I shall be tracking these and if I see any interesting movement - I will let you know.

I think they are missing several - like Air Union, SkyExpress and a whole host of African Airlines.

12 September 2008

Easyjet to cut jobs, close Dortmund?

This has not been a great day for British Aviation, Travel and Tourism.

Easyjet on the same day as BA's big job cut announcement - has said it will ax a small portion of its admin staff. About 8-10% (of admin - 4-5% approx of total) will go meaning about 60 people who are in non-customer facing jobs mostly admin at the Luton HQ.

Dortmund is almost certain to go now - it was speculated earlier but given the current situation its a gonna.

The UK seems to be badly hit by its precipitous currency fall. General dissatisfaction and nervousness with Gordon Brown's administration and policies has crept into the currency market battering the pound with an over 10% drop this year against the dollar and the euro.

A lot of people stopped travelling this year as a result.

Not much to cheer about here

Euro Shark Tail - Episode 3, SAS Flounders, LH Circles

SAS Shares were suspended in afternoon trading as a sharp run up in the stock price after a rumour started circulating that LH was interested and discussing a tie up.

Wow! the corporate development department must be burning the midnight oil in Frankfurt over the past few weeks.

To recap... they have expressed interests in:

Alitalia and/or AirOne
Brussels Airlines
SAS (which would also give them a foot print in Spain through the ailing Spanair).
TUI or Thomas Cook vs various tie up options with their investment in German Wings

SAS has been back on the ropes this past year. Again failing to capitalize on the strength of their business over the last boomlet, they have been hard hit with high costs of fuel and labour. They have failed to shed the loss making Spanair. At the same time they will need to focus on their core business. Norwegian Air Shuttle has been eating SK's lunch in Norway that has spread its reach across some of the most profitable commuter routes in the world.

It seems ironic that after all the attention on US based consolidation at the beginning of this year, we now see the focus on European consolidation.

Again I will ask - is anyone in Brussels paying attention?

XL Group Collapses affecting more than 1/4 million

Today XL Group including a variety of travel sellers and the airline abruptly shut down after failing to secure funding.

We reported on the struggles several weeks ago when Zoom also went out of business.

According to the UK's regulatory body - the CAA, the collapse will affect 85,000 people currently due to depart today or already on their trips. A further 200,000 forward bookings are also affected.

The 4 airlines in the group (UK, Ireland, Germany and France moved about 4 million passengers in 2007. So this is a large chunk of traffic that has been carved out of the UK specialist travel niche.

Its pretty nasty out there.

BA to dump 1400 Managers

The British Press report today that British Airways will offer severance packages to 1400 managers across their system.

Leaving aside the fact that they have 1400 managers that they can cut, this obviously indicates a company that (hopefully) wisely will seek to streamline its bloated organization structure.

I have always equated BA to Microsoft Software. Its big, its bloated, but you can't live without it. However over the years its importance comparatively speaking has been diminished. Its passenger shares have fallen in most of its markets. Turmoil at the top has resulted in what used to be called Continental disease. Where employees would in-fight, customer service plummeted and the prime role of the staff went from providing a service to working almost exclusively to retain their jobs. Well congrats to Willie for figuring that out. However why has it taken him so long to do that?

Willie's reign at the top has not been a happy one. BA is now blaming the fall of the pound against the dollar for its ills while pointing to its staff costs as "Employee costs are now second only to fuel costs." A BA spokesman was quoted in today's Daily Mail.

Before the run up in fuel prices they (labour costs) were the largest cost percentage in BA's P&L, so what is "now" about that?

After reporting huge profits over the last few years even through first quarter of this year, BA's decision to cut costs does seem to be a little too late. They should have invested for the down times more carefully.

Thanks to Professor John for the lead on this one.

11 September 2008

Airline Blogs - just say no!

Professor Mike sent me the Technorati list for September with their ranking of corporate blogs.

On there are Delta (#15) and Southwest #8.

Frankly I would be embarrassed to put my name to them. So here is a word to the wise. Misquoting Thumper...

"if you don't have anything to say - then don't say anything."


Yes Mr Clark - that nasty drop is a trend

In the August 13th TravelPort Investor Call for analysts, Jeff Clark CEO pointed out a worrying drop in bookings for the first week of month of August.

Yesterday ARC released their monthly stats for August. Ouch. 13.61% drop.

So to be clear ARC measures cash sales and transactions. Never mind the cash at this juncture let's look at what really matters - transactions.

Total transactions were off. So far this year (January through August) we have had Year on Year falls every month except for February (which had an extra day) and April (with a rise of just .10%). So we can say that every month has been down.

This shows that the predictions of a drop off in the order of 10-15% in passengers begining September 1 is right. For once the airline planners got it right. For the GDS this is a pretty calamitous drop. Even with Travelport's international transaction stream - there is no way for their bookings to continue without a significant downward drop.

I realize that I am picking on Travelport here - nothing personal chaps - it is only because you have hard numbers. Neither Amadeus nor Sabre have those publicly available. Their numbers are likely to be just as bad for their GDS businesses.

I still maintain that the impact of the downturn is likely to hit the GDSs a little harder than the overall market.

So next quarter's numbers should be interesting.


UAUA gets battered - this time its not a rumour

United's stock has fallen since monday. Today it passed below a 25% drop on the week.

So again for conspiracy theorists - it could be that the false story may have been deliberate rather than a random act of - er - kindness.


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Ouch the US passenger reductions come early

The US numbers for August do not look healthy.

We are already seeing the first wave of passenger reductions even before the capacity cuts hit.

Here are the numbers for the 7 big boys, all of them including Southwest are down.

Delta Airlines; USA -6%

Southwest Airlines; USA -6.6%

American Airlines; USA -4.2%

Continental Airlines; USA -1.4%

United Airlines; USA -5.4%

Northwest Airlines; USA -1.7%

US Airways; USA -5.9%

Not good chaps


Smaller sharks still need to feed, new sharks vacancy?

So if there is to be a consolidation then in the normal light of day you expect stronger players to eat weaker ones. For many years this type of activity was off limits to Government owned carriers or even quasi-state owned entities. Seems like this isn't the case any more.

So we have THY acquiring what passes for the Bosnian state carrier - BH Airlines. Air Malawi is being acquired by Comair - erroneously described as a subsidiary of BA - while they have BA partial ownership the team in JNB would be quite miffed if they felt they were regarded as a BA Sub. We also have the Spanish Government asking Iberia to take over Spanair before it collapses completely. We have Air Baltic puffing itself up and saying they would perhaps acquire SAS... Either way - SAS will divest its shareholding in the Latvian based carrier.

And then finally we have a great quote from Tom Horton (not the fast food chain in Canada that is TIM Horton...) on consolidation:

"... I think the entire global airline industry has more consolidation in its future...The airplanes that we're grounding are older generation planes. They burn 35% more fuel per seat than the new generation planes. So, when you ground those planes, it would be very difficult to bring them back, not just in operations cost but also in maintenance infrastructure. So, I would characterize those as permanent capacity reductions,"

Interestingly enough I would challenge that assertion. At pre-$140pp oil pricing SH&E did a study that showed the economics of a 737-700 vs a MD80 on a per seat basis crosses around $105pp. Now with the large number of MD80s AA is shedding and not many people are buying that will drive down the cost of the hardware making that number effectively favor the older plane.

I will say again - I believe the time is right for new entrants in many markets. Finding financing however is another story. The US capacity reductions have created wholesale opportunities in the 100 seater market across the board. You have many markets where a plane of the size of a 737-500 would be ideal in sectors of about 1-1.5 hours where prices have skyrocketed.

Shocking News, Italian Government discovers....

This is for the category marked ROFL.

This is a direct quote from The Economic Minister for the Italian Government who seemed to be genuinely surprised that no one on the planet was interested in purchasing the liabilities of Alitalia:

"Had there been someone available to do it [purchase the liabilities]. They would have come forward, they can still come forward. Unfortunately, no one wants to do it," Giulio Tremonti, Economy Minister. Source: Dow Jones, 10-Sep-08.

10 September 2008

Tanker Wars Episode 5 - The Empire Strikes Back - Contract Cancelled

"So if we can't win then no-one can."

Clearly responding to intense pressure from some quarters, The Pentagon announced today that they are suspending the contract until after the next election.

There is one clear winner and one clear loser in this.

The winner is the Boeing Company. The loser is the American Armed Forces.

Some people I hope should be ashamed of themselves. It seems that politics as usual is the norm in defense contracts.

09 September 2008

The Sharks are Circling - European Consolidation

The survival of the fittest - law of the jungle - the metaphors could just keep right on coming. So now we have a fairly interesting game shaping up in the master consolidation of European carriers that seems to be going on.

The story so far has the bigger players, lets call them the sharks, being identified for us by Mr O'Leary. They are:

AF/KLM group
British Airways

The fresh prey consists of the following:

Brussels Airlines

Just for fun there are several other players who want to play in the field. S7 (the former Sibir or Siberian Airlines), Aeroflot (who is denying everything), Turkish THY, and Virgin Atlantic for god measure.

At this point nothing can be taken for granted and now all bets are on. So clearly the stakes are going to rise. What do we know for sure? Nothing!!!

However if you are a gambler - here are some easy bets.

BA gets IB. Actually that is the only easy bet.

Here are the other bets:

LH should get Austrian but is being greedy and going after SN as well. They do have a call on BD.

AF/KL is the likely leader in the AZ battle but that one is far from over. Surprisingly they are keeping quiet about SN.

LH and BA are both making noises about AZ just to piss off AF.
SU is keeping its powder dry but Putin's long term goals have resulted in a semi serious bid for AZ before. SU will have enough trouble keeping the rest of the Russian domestic carriers afloat though. S7, TK,AF/KL are all making a run at OS - just to tweak LH's nose. VS wants BD, which is also coveted by BA.

The correct natural order of things should be LH gets OS. AF/KL are welcome to AZ, BD should stay independent, and the interlopers should probably stay out of it.

And just for good measure - there are other players who need a partnership of some sort. SK is in trouble for example.

So where is the European Commission in all of this? Remember that they approved AF/KL but disallowed EI to be acquired by Ryanair. And also remember that the current EC commissioner for Transport is - an Italian. So don't expect much out of Brussels.

This is guaranteed to play for a while and will be messy. If you are a conspiracy theorist - then perhaps you can think that there is some backroom with lots of smoke that has a few players deciding on the future air map for Europe.

Hang on for the wild ride folks....

Virgin's V Australia sets up Independent Travel Agency Clearing

The wheels of the IATA BSP machine clearly rolled too slowly for Virgin Blue's new long haul subsidiary V Australia. So rather than sit on their behinds - those sassy Aussies decided to set up their own facility in Australia where most of their revenue will originate for the early flights.

The new VSP - V Australia Settlement Plan will be available almost immediately. Given the strength of Virgin Blue's brands in the market: Virgin Blue, Pacific Blue, V Australia and the proposed joint venture with Air Asia and you have to wonder whethr this is the writing on the wall for the BSP facility in Australia.

This is a good issue to examine. The direct costs of BSP have for a long time been rather small. However both ARC and the variou BSP's have raised charges to a point where not just the direct costs but the total cost of maintaining a BSP facility becomes less attractive. Indeed we have seen airlines like LCC Spirit in the USA exit all together. In the age of Google Checkout and eBay's Paypal, you have to ask what value does this form of financial fulfilment bring?

I firmly believe that an airline should be looking hard at the cost of BSP/ARC infrastructure if it is to reduce total costs. Remember chaps its not about cost cutting it is about simplification and cost removal. Perhaps IATA should consider some of its own medicine in "Simplifying the Business".


08 September 2008

Here it is - in all its glory - NEW EC CRS Regulations


This is where you will find the current regulations as proposed and adopted last week. However it is still subject to final ratification. But unlikely to change at this point.



So let me get this straight... Alitalia Unions want to strke

OK - there is sanity and then there is pure lunacy.

Alitalia Unions must be clearly insane. They are deciding if they will strike. So with less than 50 million euros in the bank (it may be less than 30 million) according to their CEO, the Unions want to strike.

Hello is anyone home?

So far a solution for bypassing the EU regulations seems to have been found; the creditors are baying for blood, the government passed a special bankruptcy law and the Unions still want to strike.

Only in Italy.


The Professor

PS thanks to Professor Alex for suggestions on this article.

Guilty as charged... Professor spreads false story

OK - lesson learned today. The UAUA story was false. So apologies to United. Stock is back up to over $11. Shoot I should have bought it at 1 cent!!!!

Someone made a killing....

Anyway - I shall be more careful in future. It did pass my litmus test of independent verification (and obviously from the stock price).



UA Shares back to trading still down 27%

The shares were suspended on the rumour. Now they are back on the floor but have fallen 27% at time of writing. A hurried press conference has been arranged and UA will no doubt reveal tell us all.

UPDATE: UA stock suspended

The UAUA stock has been suspended.

United's management has issued a strong denial that the bankruptcy filing is completely untrue.

I guess someone was really pissed off with the carrier.

However it is beset with problems far greater than perhaps other airlines. We have noted that UA and US are the two most vulnerable carriers among the US majors. Pilot unrest is also part of the problem.




According to Yahoo Finance the last trade for UAUA - United Airline's stock symbol for its parent was ONE CENT

Rumours are flying that UA will file for bankruptcy today

Sabre announces SabreSonic CSS - Unbundled Pricing

Those students of PSS systems will know that the world has been turning pretty fast these days.

With the exit of Lufthansa Systems after it cancelled its next generation product FACE, the market is concentrated into a few players. For a quick roundup here are the major players. A disclaimer - there are other systems out there - I am selectively providing a view on only the most numerous.

For the major providers - Amadeus is clearly the leader in sales in its next-gen ALTEA system, although the core inventory product is the venerable BABS host that Amadeus acquired from British Airways (but hush don't tell anyone I told you that!). With so many airlines signed up - it is hard to see how they can deliver so many carriers. Sabre has been noted to have discussed alternatives with Unisys (and its AirCore system that was to have been the basis for LSY's FACE product). Unisys is acknowledging only 2 customers - ANA and HahnAir. Navitaire's NewSkies (to replace the HPUX based OpenSkies system) is clearly pitched at the low cost market, it lacks many features required in a full service system. SITA's approach has been to adopt a development incremental to its Atlanta hosted system now renamed Horizon. One other major new player is ITA Software who is developing Polaris for Air Canada that wont see the light of day till 2009. EDS has sunset Atraxis that it acquired from SwissAir and is instead continuuing its path of developing SHARES the former Continental system. Which leaves us with Sabre.

Sabre seems to have abandoned hope of a true next gen system and instead will leverage its existing investment with incremental products. Today the first major announcement is or the SabreSonic CSS.

One key characteristic seems to be the focus on the actual consumer independently of the channel of distribution. The product will allow differentiated pricing by channel and by flight type. Of course the ability of the GDS and the ancillary behind the scenes systems (such as OAG and ATPCO or Innovata) to accommodate this remains to be seen. Still its a step in the right direction. It clearly signals Sabre's intention to remain competitive in the marketplace. However they face a big uphill battle for share.

Our view at T2Impact is that there needs to be more done in adapting a commercial model that addresses the airlines needs in today's (and future) economic climate. True Distribution Management Control systems remain elusive and hard to implement with these systems. Many carriers therefore are adopting a wait and see attitude. However that exposes them to difficulties as they struggle to manage ever increasing complexity of distribution with their creaking older systems.

A successful environment demands attention and focus. This is not something you should be outsourcing to a third party. The development of new distribution systems that acknowledge a complex web based world forces a re-think in distribution management and true PSS solutions.

If this is interesting to you give me a call


07 September 2008

Are the job cuts enough?

According to the USA ATA - Airline Transport Association. They are about to shed 8% capacity and 36,000 jobs.

According to our estimates at T2 - the numbers are much higher with a capacity reduction of more than 10%. We have already determined that some airlines (such as United) have not announced enough personnel cuts to account for the reduction is capacity.

Ultimately we believe before the end of 2009 the capacity cuts could well be in excess of double this number. This would then lead to a reduction of almost double this number in staffing. A further round of off-shoring could occur particularly to Mexico. India has increased in costs to a point where off-shoring more functions are less likely there, indeed there is a trend away from this with Lufthansa for example ending one of its JVs in the sub-continent.

Food for thought



EK forced to cancel A380 Roundtrip pair

Emirates doesn't seem to be having that much luck with its new flagship planes.

On Friday the New York flight (the only pair operating the A380 service at present) was forced to cancel as the plane was removed from service.

With its second aircraft delayed by some time - it would appear that the adoption rate for Emirates will be slower than even the more pessimistic estimates stated.

For now they are operating a 777-300ER as a substitute.

Let's hope the showers are back in operation fully next week