Archive For February 22, 2012

Ancillary Revenue – the airline revenue drug

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Travelers hate them – fees for everything. Change your mind? That will be $50 please. Got bags? A fee. Spirit even charges for carry on bags. Is there no end to the nickle and diming?  The short answer is no. (more…)

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Bombardier at Wings Club and on Mad Money

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Pierre Beaudoin, Bombardier CEO, discusses the company’s $55 billion backlog and his take on the transportation business. Watch the video to see CNBC’s Mad Money full interview.

Earlier in the day Mr Beaudoin spoke at The Wings Club in NYC.

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More on engine selections – 787

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The previous post on the neo engine competition got us thinkign about another tough battle. On the 787 the battle is between the GEnx and the Rolls-Royce Trent 1000. (more…)

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neo Fueled Engine Race

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[UPDATE – The table and blog updated]

Besides seeing its neo sales continue to grow – perhaps not as fast this year as last – Airbus created a race for the two engine firms.  The stakes are huge. Both CFM and P&W need to build and maintain momentum.   (more…)

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Singapore Show Orders

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This show follows the usual pattern – orders get announced for maximum media coverage.  And the orders are big. Boeing started with a massive order – it’s biggest ever – Lion Air of Indonesia finalized a firm order for 201 737 MAXs and 29 Next-Generation 737-900ERs. The agreement, first announced last November, includes options for an additional 150 airplanes. Lion is launch customer for the MAX-9. With orders for 230 airplanes valued at $22.4 billion (list prices), the deal is the largest commercial airplane order ever in Boeing’s history by both dollar value and total number of airplanes.

Not to be outdone, Airbus also made an order announcement. ALAFCO Aviation Lease And Finance Company, a Kuwait-based international aircraft leasing company, finalized a purchase order for 35 A320neo Family aircraft bringing its total backlog for the type to 85.  The firm contract is an increase from the previous agreement signed at the 2011 Dubai Airshow for 50 A320neo aircraft.The 2011 neo order included P&W GTF engines so we assume the same applies to the new order as well.

Then another unexpected order popped up. BOC Aviation said it has ordered 20 C919s. There has been little news from COMAC and the C9191 for a while.  And keeping the order game going, Bombardier announced and order for five Q400s.  This follows news last week of an order for up to 24 CRJ1000s. Interestingly the customers have not been announced though the assumption is that the CRJs are going to Garuda.

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EU state-owned airlines under pressure

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EU economic news is playing out with devastating effect among the region’s airlines. Five EU airlines have collapse in the last few months. Air Alps, Czech Connect, Cirrus, Spanair and Malév.

More are at risk – Aer Lingus, TAP and LOT.  State airline support within the EU is waning.  Many of these airlines are old names in the business – Malév was in business for 66 years. Malév said that as its suppliers lost confidence they demanded to be paid in cash. The nature of the airline business is that they run like supermarkets.  They charge for supplies but can never pay cash.  Once suppliers demand cash, no airline can survive for long.

The collapse of these EU airlines offers an opportunity for the arriviste of the industry. Specifically this would be cash-rich airlines in the Gulf clamoring for more EU slot access. If they were to own an EU airline the slot problem would diminish considerably. Hence the clever move by Etihad buying into airBerlin. Airlines in China might also consider this, but aviation relations between the EU and China are frosty at this writing.

State owned airlines are an anachronism.  Airlines are too risky and no longer offer “jobs for pals” within the EU; and this is the case in most countries these days. Airlines cannot survive if they have too many employees.  To qualify this, take the example of a successful airline – in 2010 Southwest handled 2,513 passengers per employee.  By comparison Delta handled 1,369 and American 1,315.  The following chart provides another measure of how airlines continually try to squeeze more out their people.

Both US and EU airlines have been aiming at increased efficiency.  The dotted green line (using right axis) shows by how much the US airlines have been able to get their labor force to work harder than the EU airline labor force. The delta between US and EU airlines is quite remarkable. A number of US airlines recently started to show profits.  The chart, obviously, does not show the pain suffered by staff who lost their jobs.

The EU airlines still on brink face trying times – weaker demand; poor capitalization and robust and aggressive LCCs. Within the US we have seen Chapter 11 help the legacy airlines cut their costs to become competitive with the likes of Southwest.

US and EU airlines provide great lessons – the race to lower costs never ends. State support only delays the inevitable; it is a band aid that offers no cure to the fundamental illness of too much cost.  We will see additional failures in the EU this year, as several other carriers continue to struggle, and LCCs swoop in to take the most profitable routes when they fail.

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