The Not Quite So Strange Case of Qantas

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.

Cheers

BA AA IB - last chance? Maybe, Maybe Not...

The guns are drawn the submissions are in and the old protagonists are lined up ready for the great shoot out at the Heathrow Coral.
Could this be the last chance for the BAAABI alliance to get its long sought anti-trust alliance approval?
In my humble opinion - there is no certainty one way or the other.

So lets do a quick review.

BA+IB. This has gone nowhere lately due to the GFC and the impact on the premium business market especially LHR-NYC. IB is feeling the pain but perhaps to a lesser extent that BA how is publicly wearing its hair shirt with Willie Walsh being surprisingly open about the extent of the impact on the former UK Flag Carrier. With the pound's fall against the Euro the value proposition would be hard to make in pure financial terms. Therefore I believe that this part of the deal is dead for now.

The Star and DL/AF alliances have powered ahead and built a considerable legal and commercial framework for Transatlantic service. While the product doesn't match the commercial model yet - and it will take some time to do so - these make a compelling case for equal consideration for BA and AA.

Virgin's unaligned status is perhaps the biggest fly in the ointment for the proposed tie up. Sir Richard is vociferous in his opposition. He knows full well that should the alliance be approved then his position as an independent will become almost if not actually untenable.

On the regulatory front - the Regulators have bowed to airline pressure and suspended some key anti-competitive measures such as the use it or lose it rule at major EU airports.

So will it happen?

My personal opinion is that judging from recent approvals under the current incumbent of the EC's Transportation Czar that their will be tacit approval. However not so fast. The EC has launched investigations into the LH dominance while at the same time approving LH's acquisition of BD. There is no rush on anyone's part at the moment. The sea of red ink - with IATA screaming BASTA - will likely be $9 billion this year. There really is no urgency to get this done. The impatience of BA and AA even if Transportation gives them approval will have to wait for significant anti competitive investigation that frankly could take years.

Like I said at the beginning - this has yet to run its course and while another battle with the old gunslingers shooting at each other doesn't mean the end is in sight.

I think we can rest easy in our beds knowing that there will not be any major casualties and even if someone does get wounded - they are going to get up and fight another day. Wyatt Arpy and Doc Walsh are not going to be the heroes, not today anyway.

Cheers

Virgin Bails on Gatwick

Virgin group is going to bail out of its attempt to be one of the buyers for London Gatwick. Not even Branson’s magic can raise the sort of funds necessary… however as BAA’s parent Ferrovial struggles to restructure its debt – VS may be playing a waiting game… Virgin Atlantic reportedly (30-Dec-08) cancelled its bid for London Gatwick International Airport after failing to secure sufficient financial backing. Two consortia, led by Hochtief AirPort and Citigroup, are left in the bidding process and early offers are expected to be posted in Jan-09.

Meanwhile more carriers are bailing on LGW - perhaps easyjet might be a good buyer or Stelios himself.

Cheers

Bidets and Airplanes make a good mix?

I have restrained myself from writing this entry for over 6 months since I first heard that Boeing had put Bidet's on the options list for the 787. Originally I understood it was just for the BBJ version of the aircraft. But no lesser authority than the WSJ: http://online.wsj.com/article/SB118411594813562792-search.html?KEYWORDS=bidet&COLLECTION=wsjie/6month
has confirmed that yes this has in fact been ADOPTED by the two Japanese airlines ANA (launch customer) and JAL. It only remains for Virgin (pardon the pun) to adopt this for it to become a standard accoutrement of all operators.

So all manner of concepts spring to mind. So here are just a few potential PA announcements for you to consider:

1. Use in Turbulence - "Please return to your seat and refrain from using the Bidet while the Seatbelt sign is illuminated"
2. Prior to Landing - "Please return your Tray Tables and Seatbacks to their full and upright positions and refrain from leaving the Bidet on during landing
3. After Boarding before take off - " This aircraft is equipped with escape path Bidets please read the pamphlet in your seat back and familiarize your self with this feature.
4. The return of the gender specific announcement - "Male passengers are requested to kindly remove their shoes before using the Bidet and your accurate aim is highly appreciated

we have a series of illustrations to go with this but as this may be viewed by sensitive folks we will refrain from publishing them

Cheers

Timothy

For Airbus - what is the compensation for the delay of the Whaleliner?

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.

Stay tuned. This could be fun

Cheers

Timothy