When Thierry Antinori announced he wasn't going to take the top slot at Austrian Airways - there was shock across the Lufthansa hierarchy.
A senior manager not filling his anointed role. But darn it the guy was a Frenchman... Sacre Blue!
Now the true nature is revealed. Thierry a savvy airline man - will be joining Emirates as one of the rapidly expanding airline's top management. His formal position will be Head of Sales. Lufthansa will be the loser for letting a canny manager who has proved his stripes go.
For those who are expecting business as usual from Emirates - I can assure you that EK will not be following anyone's path.
Consider that fair warning. Take notice here folks
This summer the airlines have shown a strong demand from the leisure sector. This has significantly reduced the availability of cheap seats and dramatically raised the pricing - at least in theory.
In practice that oh so subtle move towards ancillary revenues is beginning to pay off. Judging by Q2 profit announcements - the carriers doing not so well are few and far between. The ancillaries are powering many carriers - particularly the US and LCCs to greater profitability.
The weakest areas?
Asia Pacific with both JAL and ANA reporting losses is a prime example. But Chinese carriers are doing very nicely thank you.
And then there are BA and LH. LH has several carriers it is doing a good job on to reform. SN, OS, LX, BD. The core LH mainline we believe is doing better but a long way to go yet. LH still refuses to move at Ancillaries preferring to call itself a Premium Carrier. But still it has hedged its bets with control of German Wings. BA on the other hand is more of a basket case and Heathrow is increasingly becoming irrelevant. While the village of Sipson might be celebrating, the Gnomes of Whitehall must be fretting about how to avoid losing market share of International Traffic.
IF you take a peak at who has what - you have to think that the order books from Farnborough went largely to the lessors. Many of these guys must be betting that the US airlines will need to order new kit soon. But the long haul planes hardly took in any orders. Still 32+58 A380s flying around in EKs colours should scare the pants of just about any network planner.
Today (June 27th) the world’s newest airport opens. Dubai World Central-Al Maktoum International. Last week Dubai World had its first test flight. An Emirates 777 Freighter conducted the first flight of a commercial type operation into the new facility.
The statistics are staggering:
Phase 1 of the airport will feature one A380 capable runway, 64 remote stands, one cargo terminal with annual capacity for 250,000 tonnes of cargo and a passenger terminal building designed to accommodate five million passengers per year.
When completed, Dubai World Central-Al Maktoum International will be the largest airport in the world with five runways, four terminal buildings and capacity for 160 million passengers and 12 million tonnes of cargo.
In the short term Dubai World Central-Al Maktoum International will increase the airport capacity of Dubai to accommodate the 48% increase in cargo volumes from 1.9 million to the 3 million tonnes anticipated by 2015.
In the long term it will serve as a multi-modal logistics hub for 12 million tonnes of freight and a global gateway for the 150 million passengers per annum that are expected to pass through Dubai by 2030.
So now you know how EK is going to support the ground portion of that nice fat order of planes becomes obvious.
But don’t expect things to be smooth sailing. A number of airlines are getting restless and so too are their governments. If EK starts to capture significant traffic then we can expect governments to also get involved. Already we are hearing noises from the French. The new UK government should be paying a lot of attention to their actions. With the 3rd runway cancelled at LHR, the 2nd runways at LGW and STN non-starters for a long while, that just means the UK’s loss will be Dubai’s gain.
It was a mega surprise of a mega order. But scratch beneath the surface and you start to see that the EK order is rational.
No doubt EK got a sweetheart of a deal. But have a look at the numbers. EK’s current fleet sits at 141 aircraft. It has almost the same number (168) on order through the end of 2017. By my calculation that is 84 months. Effectively 2 aircraft a month without a surge in capacity would seem to be a prudent process. Some of those aircraft will undoubtedly replace earlier models. The A350s will add growth as well as replace the A340s, the A330s and some smaller 777s. The 777-300ERs will be churning out replacing the earlier models as well as growth. The A380s can be used to replace smaller double dip flights but that strategy doesn’t necessarily play well. Frequency always trumps size for the passenger.
So what of the other possibilities – The GCC market is not necessarily built on the best economics. EK does seem to make money – its fellows in the region don’t fare as well. For Airbus they can now point to a full order book for the biggest pax plane and that can actually help them cover more sales. It’s a big blow to Boeing who thought that they could persuade the Dubai based carrier to load up on the 787-I. Bang there goes that market. It also means that Boeing will be trying to get a substantial sale to a GCC carrier. Saudi Arabian must be on the cards as their trump airline given their size and previous propensity for the aircraft and the fact that they don’t have the A380 on their order books.
Still – the EK order was definitely an eye opener. I wonder if anyone on Atlanta, Singapore, London, or Frankfurt or indeed any other major home city for the world’s airlines are thinking along the same lines. They should be. And did I say anything about Cargo? I think we can bet that a portion of those planes will be Cargo specific thus reviving the A380F that was cancelled by Fedex and UPS earlier.
There is an interesting rumour doing the rounds - that Emirates will plonk down a chunk of cash and snap up 2 years worth of A380 production. Normally I dont harbour many rumours but this one is just interesting.
The one order is scheduled for Farnborough the other for Berlin.
There is another rumour floating around that QR will try and one up them by announcing a Major C Series order for their startup Regional LCC.
Now both of these are CLEARLY SPECULATIVE.... I have them from very mixed sources. I would put credence in the A380 order for a smaller number with some additional delivery positions.
As for the C Series. Well it would make sense - a 100 seater LCC plane in the GCC would be about right.
The headline this morning may seem quite dramatic. Here is the coverage from ATWonline:
Emirates fiscal-year profit soars to $1.1 billion
Emirates Group reported net income of AED4.2 billion ($1.14 billion) for its fiscal year ended March 31, a substantial increase over a AED1.49 billion profit in 2008-09, marking its 22nd consecutive profitable year despite what it described as "a year fraught with worldwide market instability and economic uncertainty."
So this morning there are a lot of happy people in Dubai and smiles all round in that nice new building that is their HQ.
I was in Dubai for the Annual Arabian Travel Mart last week and I spent some time speaking to many people from the business, who live in the region and Dubai itself. While ATM was - shall we say a bit quiet - I don't have the numbers but as a seasoned show goer - it was quieter than I expected.
There has been a significant downsizing. Perhaps not of the total economy but definitely of people's expectations. The two ex-pat communities are both notably chastened by the bursting of the bubble. There is still a correction on-going. There are wonderful anecdotal tales of people whose job it is to move the tower crane so it looks like the building is still being built. What is not anecdotal are the canceled and delayed projects. Even the closely controlled newspapers are full or projects where the boosters are denying that they have been canceled. But suffice to say the boom curve is a lot flatter and a lot further out. Next month will see another mini-exodus of expats at the end of the school year. Some broken dreams will be realized.
Out at "The World" the essence of extravagance - there is but one lone property occupied. It looks a little forlorn but I am sure its owner is very happy.
For the travel marketplace - this will take some time to smooth out. There is an excessive amount of inventory that needs to catch up to the travellers. Strangely enough Dubai and Las Vegas share a lot more of issues than they might think.
However overall I am impressed with the way they have dealt with the bust. The taxi drivers sound a little happier (always a good sign). And the flagship of what the airline means to the rest of the world is giving them pride again. The price was heavy and will continue to be so. How much and exactly what form is unknown to all but a few.
The largest customer of the Airbus Behemoth has announced it is taking a breather in A380 deliveries at the end of 2010.
Whether this is a function of the troubles in the Emirate of Dubai is to be seen – however there is one thing for sure – EK is now a pawn in a larger game. The reverberation of the collapse of the Dubai bubble is going to be felt in Toulouse and it is unlikely that Seattle will escape unharmed either.
There is more than the initial list of casualties in the current Dubai World troubles. The issue is going to be the pipeline of future commitments. Consider this – the UAE’s order book of aircraft has been predicated on cheap cash backed by AAA securities. With Dubai’s ability to continue to sustain such ratings it means that there is going to be a significant rise in the cost of money to EK and probably to other entities such as Dubai Aerospace and its various leasing arms. Looking at the disproportionate amount of orders outstanding it will have a long term impact.
Oh yes and another thing – because EK is a healthy business the chances are that it will become a pawn and possibly become collateral for some of the real estate debts is not an unrealistic possibility. In turn this could bring down EK's high value.
Hmm – seems there is going to be tough times all round. The GCC is going to reverberate with this for some time.
Latest viewing of the production numbers for both Boeing show that both AirFramers are taking a prudent look at their production schedules.
While Airbus announced a production cut rate from 36-34 aircraft it is still maintaining that the new China facility will ramp up to 4 aircraft per month. Not much in the big picture of things when there are thousands of aircraft on back order.
However as can be seen orders can and do have a habit of evaporating. If we look at the current production environment, it is interesting to look at what is actually rolling off the line.
For the Seattle based (but Chicago HQ'd Boeing its product line is down to just 2 families. It has 767s in essentially trickle mode to support the supposed tanker contract to come, 787s are still a long way off from production mode, 747s are waiting the delivery of the first round of 747-8/9s so that leaves the 777 and 737 stalwarts. For Airbus - A380s have never ramped up, and don't look like doing so any time soon. It is essentially a hand built aircraft with the possibility of the Toulouse line sending a few straight to the desert. 330/340 line is just ticking along benefiting from the failure to deliver the 787 but the 340 is unlikely to make old bones and will quietly sunset despite the recent delivery of the 1000th in the line joint twin/four line. Airbus is being very careful with its narrow body line. Despite the disruptions last year - strike at Boeing and industrial action of the Power8 union opposition - we are seeing continued restraint.
No one wants to take any large quantities of aircraft. Indeed Ryanair who has been taking them at quite a lick (6 in the space of 4 weeks earlier this year) August saw them taking none. A large number of them are heading out on lease and to be parked by the time the end of October comes around.
So no one is being bullish till late 2010 more likely 2011. Actually Boeing's troubles with the 787 could not have occurred at a better time. That said - the production ramp for the new mid size twin will be slow. When the market picks up in 2011 - Boeing will not be able to meet the demand. Airbus on the other hand will be able to with A330s becoming the flavor of the month. With EK indicating a big interest in a large order as their new "off peak" craft - others better start polishing their cheque books.
The cyclical nature seems to be working again but just look at that back log. Makes you wonder.
The Professor is currently on a round the world roadshow trip for one of our clients. In doing so - I have been engaging in a social experiment of doing the entire trip in coach. As I chose BA/QF's low RTW fare - I am experiencing the joys of coach travel much of it on Qantas.
Qantas is an airline in transition. It is moving from a pure legacy carrier and under Joyce aiming to remake its future as a feisty HVC - Hybrid Value Carrier. Let me assure you there are no sacred cows anywhere inside Qantas now (perhaps a sacred 'Roo though!!!)
The business strategy under the Dixon era regime seemed to be almost Microsoft like - Embrace and Extend. Betting on the ability to support multiple brands and multiple business models shoring up the uber Brand.
The new guy - another Irishman - Joyce seems to have understood that the GFC is not going to let that model be sustained. So he has started the arduous process of remaking the airline from the inside out. Bringing with him some of his key Lieutenants from Jetstar - he is determined to lower the cost base and at the same time to enhance the organization to adopt new thinking. This type of behavior would not be possible under the old regime - it is still not without risk given the testy nature of the relations with the Unions. Australian Labour relations are not the easiest to deal with. So delicate would be the description of the negotiations that have to be undertaken. But we can expect to see a brighter smarter definitely more agile QF.
The corridors in Mascott (QF's HQ area) are getting more like ghost towns. Whole departments have been axed or merged. Gardening leave has been ordered for many. Indeed outsourcing the IT area to IBM will put many of that team out to grass for a long time.
Joyce is not mincing any words or so his actions are demonstrating. He is determined to make the mainline airline viable in the face of low cost competition and encroachment from external sources. The traditional battle for maintaining the status quo - and thus ensuring QF's protected position seem to be regarded as lost. Now the airline must compete on its product and conventional market tools. The last vestige of the Flying Kangeroo as a matter of public pride and therefore worthy of public protection has vanished. It can only be a matter of time before the Pacific really opens up. Contrast this with the debate over a possible bail out of BA in the UK.
So QF's protected world is now open. The threats come from local (Virgin Australia group with its 4 airlines), Traditional advisaries - SQ and CX etc, The occassional foray into the Oz market by the US airlines - Delta being the latest one this month to start the service. But perhaps one of the most threatening is the encroachment by the GCC airlines - Qatar, Etihad and of course Emirates that has seen that airline rise to being a major carrier on the Trans Tasman routes.
Today's news shows that QF is now not prepared to tolerate Boeing's BS on the 787. Cancelling part of the 787 order is a major psycholigical blow to the program. Nothing earth threatening but definitely a kick in the teeth. Given the severity of the problem in the 787 program - they are looking at a significant additional delay in deliveries to the early customers. Scuttlebutt says that the redesign could add many many months of delay to the program. This puts another issue BACK on the table with the weight/performance. QF was hoping for the ability to operate SYD-LHR nonstop. That is not going to be on the cards for a while in my opinion.
So watch out world. If Joyce gets his way - QF will emerge from the current crisis a much better animal.
The big 4 I am talking about are the Travel Management (aka Corp Travel) agencies. The driving force is the ownership by Emirates Airlines sister company DNATA Travel and BCD in HR Group. DNATA Travel based in Dubai recently disclosed that it raised to 20.15 percent from 19.99 percent its ownership of HR Group (the former Hogg Robinson) shares, following by the disclosure of a 3 percentage point increase in ownership by BCD Travel, the privately held Dutch owned TMC, to more than 19 percent.
Interesting I would say. Not a huge increase and still could be just a happenstance - but still fun to speculate on.
There may be a clue as to whether FlyDubai will be late or not. It also may be a clue to the long term projections from Emirates. If you read this little piece you will see why...
Dubai’s Roads and Transport Authority has formally announced this week that it plans to postpone the construction of the 49 kilometre so called ‘Purple Line’ rail link between the current Dubai International Airport and the upcoming Al Maktoum International Airport until there is "adequate demand."
Such a delay would definitely mean that Emirates is ratcheting back its growth or it is intending to move all of its traffic to the new airport. Given that they just spent a squillion dollars on the new Terminal 3 and quite a while building it - i doubt they are going to be rushing into things.
So if you are hoping to connect between the 2 new airports when the new one opens... better hire a helicopter or sit in traffic for quite some while.
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
OK so Emirates is using the term "indulgence" to describe their premium classes on the upper deck of the new A380 services which start DXB-JFK on August 1st - that's next week.
Outdoing Singapore Air - EK will offer a premium service which initially looked rather tame - but the actual pictures (and from sneak peaks comments from a few who have actually been on the ship) this is going to be one humdinger of a service.
The Biz Class cabins are none too shabby either. You get your very own minibar at your seat.
The clear water in product differentiation of the Middle East Carriers from the rest of the world is going to be growing.
Thank you Emirates for bringing back a little of the opulence to the process of travel. Now if I can only figure out a way to wangle a seat on one of these puppies.
The world's newest LCC got its naming rights today and like its surrogate parent Emirates - it promises to change the way we see airline offerings in this case LCCs.
It is expected that FlyDubai will launch its first flights "by mid-2009." FlyDubai will initially focus on regional flights within the GCC area and surrounding countries. Its operations will be completely "separate from Emirates Airline and Group."
Ghaith al Ghaith, the designated Chief Executive of FlyDubai said since the government announced the formation of Dubai's new low cost airline in March, "We are recruiting for key positions, evaluating aircraft options and routes, working out our pricing and distribution strategy, and putting in place the structure and operational resources for the business."
Watch for some key announcements in the coming weeks about the first routes - FlyDubai will potentially cover a market of "2 billion people". Wow that's one heck of a lot. So I am assuming that we are talking a focus on Regional as they stated and this screams India as the prime target. So I am going to suggest that the market is India and the MENA area as the geographic focus. However that is pure speculation on my part so don't read anything else into it! It does tell us who they see as competition, namely it is Air Arabia and Jazeera as key targets.
Best of luck guys. Lets hope you are true to the model! It could really make a huge change in the flows of traffic. If I was sitting in the LCCs of India as well as Air Arabia and Jazeera - I would be pretty nervous.
In September EK said it wanted to extend the Sri Lankan management contract for another 5 years and also up its stake in the airline.
However a spat ensued in November when the airline's ops people refused to bump revenue passengers for all President Mahinda Rajapakse's entourage. The President responded by suspending the work permit of the UK National (Peter Hill) who was the airline's CEO appointed by Emirates.
Now the other show drops and EK is first exiting the management contract and has also put its 44% share up for sale. This is EK's only investment in a foreign airline ever.
Given that Tourism represents the only major form of foreign direct income and the airline is vital to the national interest it seems somewhat short-sighted of the country's rulers to have acted in this manner.
Under EK's management the airline has made significant gains and retained a stable operating environment despite loosing half the fleet to a Tamil Tigers rebel air attack in 2001. The constant threat of hostile operations must have been a big drain on the management team. With the situation now worsening again EK must be thinking themselves lucky.
Disclaimer - this blog entry is pure speculation on our part. However we believe the numbers to be accurate for the aircraft concerned.
For some time we have been trying to assess the likely impact to Airbus customer airlines for the delays. We now believe that the offer is pretty clear. It is a 5% free off IF a further aircraft is purchased. Rather a kind of buy one get one free to the affected airlines. We know that Virgin has opted to take a delay with a small compensation. However for the major players this translates into bolstering the order book. As a result We estimate that a total of 18 aircraft will be added to the production order book as a result of this special offer. Not quite compensation for the cancellations of the Freighter version of which 20 were ordered but then cancelled by UPS and Fedex.
T2 estimates that the current order book changes (prior to the Paris Airshow) will be as follows: EK +4 (announced), AF +2 (announced) QF +8 (of which 2 will be compensation - announced), We believe that ILFC and SQ will announce 2 additional orders each. LH will add 3 with one a piece going to KE, TG and MH. A possibility exists that QR and EY will vie to order at least one a piece. However it is wrapped up into whether the orders for A350s will be made permenant. We dont think the (at least 1) private A380 will actually be taking up the twofer deal. Total cost at book value to Airbus in these special deals will be over 2.2 Billion Euros.
Airbus is planning some blockbuster announcements for Paris. Some of those orders will be part of these deals we believe. Boeing will be low key as they have been having a lot of basking in the sun at Airbus' expense of late.
