ch-aviation interview: Martin Gauss, CEO Air Baltic

Three years ago Air Baltic posted record losses and was suspected to be the next Flag Carrier to fail. Today Air Baltic is one of the very few European success stories. Max Oldorf talked to Martin Gauss, former CEO at DBA (Deutsche BA) and Malev, now CEO at Air Baltic about what it takes to reanimate a dying airline.

Air Baltic – Airline Information

Air Baltic – Aircraft and Fleet List

Air Baltic – Recent News

Air Baltic – Airline Route Network

Air Baltic has recently been through a very rough patch culminating in a major restructuring program. How did it perform in 2013?
We are going to publish our [2013] results at the end of March. While we had originally anticipated a multi-million euro loss, it now appears our figures are going to be far better than expected.

Three years ago Air Baltic was in trouble and faced possible closure. What has changed since you joined the company?
Well back then, I was asked if I would like to take over the management of an airline in dire straits and if so, what would I do to rescue it. So, I presented four different restructuring options to the airline’s shareholder – the government of Latvia represented by the prime minister and his cabinet – and told them which one of the four turnaround plans I personally preferred and what each would cost. All four proposals varied both in terms of overheads and depth of cost-cutting measures. In the end, we settled on a plan – my own preferred option in fact – which although not the cheapest to implement, was not the hardest to undertake in terms of restructuring either. Once we had settled on a way forward, we brought in Boston Consulting to help us iron out the finer details. In addition, I also brought in people I could trust. In my opinion, it was the plan which could deliver the results the airline needed over the ensuing three years, and it has certainly paid off.

Given the chance, would you do it the same way all over again? For example, you abolished your business class at first only to reintroduce it later.
Like any restructuring plan, I had a checklist of sorts involving hundreds of tasks to be undertaken. However, it is only when you actually implement a policy that you sometimes discover that it would be best to maintain the status-quo. This was the case with our Business Class. Whereas the previous administration’s plan had focused on growth, ours concentrates on improving yields and therefore profitability which, I might add, we are learning to do rather successfully.

Air Baltic Boeing 737-500 taking off at Zurich Airport – © Tis Meyer / planepics.org

The Latvian government has poured a lot of money into the company. Are you afraid that the European Commission (EC) may force Air Baltic to pay back the subsidies as in the case of Hungary’s now defunct carrier, Malev? 
Malev was a completely different case. When I joined the airline, the EC had already investigated the case and a year prior to the closure, it was more or less clear that we would be forced to pay back the subsidies. However, despite strong operating results and a positive EBIT (Earnings Before Interest and Taxes), Malev would never have been able to repay the funds. It was then that I decided to leave the airline. In Air Baltic’s case, it is still not clear as to whether or not government has provided “state-aid” in the strictest sense.
When the airline needed a cash-injection, both the private shareholder and government (as the second shareholder) decided to increase its share capital. However, when it was discovered that the private shareholder was no longer able to provide the necessary funds, there resulted in two possible courses of action: either the capital drive be abandoned or government intervene on the private investor’s behalf. Given the gravity of the situation, the latter option was taken. It was then that the EC launched its investigation. Hopefully, the EC will agree with our position that government acted in a normal capacity as an ordinary investor but if not, the financial impact will be manageable. Quite honestly, I am confident about the outcome.

How sustainable is the actual turnaround plan? Comparatively speaking, what are the primary differences between your current approach and the old one?
Well, the old strategy focused primarily on boosting growth using very low fares to lure as many passengers as possible. The problem with that approach was that despite growth occurring, no one bothered to keep tab of the costs incurred to make said growth possible. This resulted in fares on some routes being either too low or too high.
In contrast, our current plan has focused on reducing capacity and altering our pricing structure. Over the last few years, we have terminated several loss making routes and enforced a benchmark that all new routes have to turn a profit within a year of their first launch.

How do you price your flights?
We use a system developed by Lufthansa. Essentially, our fares are priced according to routing and point-to-point. For example, if we can offer a convenient flight connection with a stop in Riga, then this route is priced separately. Furthermore, ancillary revenue is very important for us and makes up for a significant percentage of our total passenger revenue.

Picture from the past. Air Baltic’s Boeing 757-200 are now on dry-lease at Royal Flight – © Tis Meyer / planepics.org

Your two Boeing 757s are not currently used on the Air Baltic network. Will they return at some point in the near future?
Currently they are on sub-lease to Royal Flight and have been painted in their livery. Though Royal Flight does not use them, they are airworthy. However, while we are currently making a loss on the two B757s, the loss is less than if the two aircraft were in use on our network. The plan is for Royal Flight to lease the two jets from the lessor directly once our leasing contract expires.

Are you prepared for possible delays with the Bombardier CSeries?
As a stopgap, we have started to buy some of our current aircraft from their lessors – currently we own five Boeing 737-300s and 737-500s. So, should the C-Series experience delays, we will still be able to cover our operational needs using these five aircraft. In any case, we would ideally need 12 months notice over any possible delays. That would give us enough time to extend some lease contracts. However, I have to say that we have a very good relationship with Bombardier and, just a few weeks ago, they confirmed that they expect delivery of our first CS300 to go ahead as planned in 2015 with a further five due in 2016.

Are you planning to convert any of your C-Series options into orders?
I am not authorized to comment on our options, but I can say that with our current fleet consisting of only thirteen B737-300/500s and with ten CS300s on order, we do have plans to grow once we are profitable.We do not want to make any further cuts in the future.

Air Baltic Boeing 737 at Riga – © Air Baltic

You have recently introduced a free bus shuttle service from Riga to six cities in Estonia, Latvia and Lithuania. Who is footing the bill?
We are and no municipality or government subsidizes it. We use it to boost our presence in these regions as it makes travel much easier for our passengers. Only Air Baltic passengers can travel on these coach services and if the bus or the flight is delayed, we are responsible for finding an alternative flight connection or transport. We had a similar system at Malev and it worked well there.

Are you planning to expand your partnership with Etihad Airways? Whose idea was it initially?
It was our idea to approach Etihad and we are happy that it has worked out. We operate these flights using our service concept and branding while Etihad just adds their flight code.
When we started flights from Riga to Abu Dhabi in December, we did so without much preparation resulting in a lower level of uptake than would normally have been expected. But despite this, we persevered it in order to exploit the winter market. You see, in the beginning, most passengers travelled point-to-point but the number of those traveling beyond has risen rapidly.
All things taken into consideration, we are happy with the outcome. And Etihad is happy with the codeshare as well. One anomaly of the route is that for around two months during the summer it doesn’t really make sense to fly direct [to Abu Dhabi]. In light of this, we are currently evaluating whether to route the flight via one of Etihad’s European hubs – Amsterdam or Milan for instance – or to continue to fly direct during the period. As of this moment, we have wet-leased an Airbus A319 from CSA Czech Airlines for flights due to a lack of suitable aircraft in our own fleet. While the Boeing 737-300 could manage Riga – Abu Dhabi nonstop, the same cannot be said of the return leg given the strong headwinds. The arrival of the C-Series however should change all that.

Previously, Air Baltic offered international flights out of Vilnius. Are you planning to operate flights out Tallinn or Vilnius again at all?
Frankly speaking, both local carriers in Estonia and Lithuania face big challenges, but let us see where they go, as any decision taken on whether to begin these flights would hardly depend on the development of those two carriers. However, from our point of view, we still carry a lot of passengers from Lithuania and Estonia through our hub in Riga so there is potential on some routes. Furthermore, while we will only commence flights if we are certain they will turn a profit, we also have to make sure that no new routes negatively impact the number of passengers transiting via our Riga hub.

Air Baltic Bombardier Q400 at Oslo – © Tis Meyer / planepics.org

Ryanair and Wizzair are considering serving more central airports from Riga in the future. How would that impact your business?
Well, since nearly all our central routes are flown in competition to a low cost airline, any move to serve more central airports on their part will likely lead to added price pressure. But given that price pressure in Latvia is already very high, I expect us to manage it. On other [less central] routes, we mostly operate on a high-frequency basis using turboprop aircraft. An example of this is our routes to Oslo or Stockholm. Unlike low-cost carriers which can only offer a few weekly flights, we are able to offer multiple-daily frequencies thereby forcing business travelers to choose us. And even the higher per-seat costs associated with the Bombardier Q400 NextGen do not matter because we rotate aircraft types in according to demand.
An example would be our Riga to Tallinn and Riga to Munich services. If both flights are well booked, we deploy a Boeing 737 to both destinations. If only the Munich flight is satisfactorily booked, then we only send a Boeing to Munich. If neither flight is adequately filled, and we only have one Boeing 737 and one Q400 available, then the smaller aircraft is deployed on the longer route. Our fleet makeup allows us a lot of flexibility in terms of equipment choice and because of that, our overall costs are kept low.

Wizzair and Ryanair are both very active in Eastern Europe. Which carrier is more dangerous in your eyes?
Both carriers present challenges, but they do have their differences. For example, while Ryanair is a lot cheaper than Wizzair, it will abandon an unprofitable route a lot sooner than Wizzair will. But we shouldn’t focus too much on competing against them. Our real challenge will come from Russian airlines whose use of large B737s on Moscow – Riga flights will give them a much lower cost base. Moscow is a very important market for us but unfortunately the competition is now becoming more and more active.

In the long run, can Air Baltic continue to exist without a big partner airline?
Even with its current size, Air Baltic has been able to operate independently for a couple of years now. When I started, the first target the airline’s owners set me was to stop bleeding money. We have now reached that goal smartly using the resources available. But, what we wouldneed is an external partner to finance our CSeries order. Given that the contracts have excellent conditions, there might be interested parties. In any case, our current owner is unlikely to finance the aircraft so we will need a sale-and-lease-back plan or an external investor at some point.
So to answer your question, Air Baltic could, at some point, need a strong partner but before that can happen, the government has to decide what their future plans for the airline are and whether or not they want to sell it.

Martin Gauss with a Boeing 737 model – © Air Baltic

Mr. Gauss, we’re told you’ve been given the nickname “Firefighter” as a result of all your previous experience with restructuring loss-making carriers. Is this true?
(Laughs) I’m afraid so. But I haven’t adopted it…

Do you ever have the desire to go and work for a robust and sustainable airline?
No not really. My private life is perfectly suited to the role of a “firefighter”. You see, my family and most of my friends live in Munich and I have a well organized social life there that can be handled with limited effort. That’s why I commute a lot between the two cities (Riga and Munich).
I cannot imagine permanently moving with my family to another city let alone a country. Actually at the moment, because the turnaround at Air Baltic has worked out, I find myself thinking about what’s next up to come. I am not the type to sit around and grow old in a specific company and I have no problems with leaving a company once my work there is finished. I was at DBA (Deutsche BA) for 12 years until things turned around. After it was sold, I moved on with no regrets.

Despite your hand in the business’s turnaround, one often only hears the name “Hans Rudolf Woehrl” mentioned in relation to the successful restructuring and sale of DBA to Air Berlin. How do you feel about that?
I am absolutely fine with that. Woehrl took a risk in buying the company under his name. He then took an even bigger risk in appointing Peter Wojahn and me as directors. Lastly, his biggest risk was selling the company – us included – to Air Berlin. All in all, it’s the owner who takes the risks and makes the decisions and therefore it is he who deserves the credit. In that case, it was Hans Rudolf Woehrl and I personally have no problem getting less recognition than he for my own work. Normally if you do a good job the recognition comes from that and in all honesty, I actually prefer not being in the spotlight as it then means I can still enjoy my private life.

Air Baltic Boeing 737 at the maintenance hangar – © Air Baltic

So that pretty much means becoming the new CEO of Lufthansa wouldn’t be that appealing to you?
I always answer this question with the old saying – “Stick to what you know best.” In fact, it is a completely different task altogether. To master such a job, you would have to be as qualified as Carsten Spohr is. He has been at Lufthansa and its subsidiaries for many years and knows its structures very well. He is also at the perfect age for it and has a network that he can rely on. So from my point, he is the perfect man for this job and to bring in another airline manager to replace him should only be done so as a Plan B. While I don’t know Carsten Spohr very well, when I look at what he brings to the table, and considering the rough patch Lufthansa is going through, he is the perfect choice and I wish him the best of luck and success.

So you cannot imagine yourself running a big multinational company?
I don’t think anyone sees me as the boss of a multinational company. They more likely see me as the guy that gets the job done. But never say never. Up until today, whenever I have left an old job, I have had no clue what is next to come.

How do you live with that uncertainty and do you sometimes wish you could be in a completely different industry sector?
Actually I cope with it very well. I have never been afraid of not finding another job. In fact, it was always the opposite and even though I am 45, I still have a few years of work left in me.
Regarding your second question, I would be very glad if one day I could compare how my knowledge of turning around airlines, when applied to other industries, performs against that of those industry’s professionals. For example, within the automotive industry, would an airline manager achieve the same or better results there because the airline industry is so competitive, or would he fail because in actual fact, the automotive industry is the tougher market to survive in? That’s a question that would really interest me but up until now no one, unfortunately, has come to me and asked if I would like to take on an automotive company. (laughs).

Picture from the past (2006) DBA (Deutsche BA) Boeing 737-300 at Hamburg – © Tis Meyer / planepics.org

Where do you see yourself in five years?
I haven’t really thought about that just yet. In my private life certainly, but when it comes to work, I would simply like to have an interesting job. Thanks to the DBA deal, I am very fortunate in that I can operate independently and thus focus on my own success. That’s probably why I am only attracted to jobs where I see the possibility of my success shining through and if I could see myself being successful [in that role]. That will always be the key driver in my choice of what I do next. I probably see myself as being more successful than the shareholder in that current situation does. That’s how it was at Woehrl/DBA, at Malev and at Air Baltic; they thought it would be impossible to change the status quo given the political and economic situation. But I have to admit that it has been a completely different experience at Air Baltic compared to DBA. Back then, for example, there wasn’t any social media at all so it was a completely different ball game.

Our final question is one we got on Facebook: Do you have any plans to resume the Dublin route?
Well, as long as Ryanair serves the route it makes no sense for us to relaunch our Dublin services. However, we have just opened Riga-Aberdeen which keeps our aircraft busy. So while Dublin is a leisure and workers route only, Aberdeen is an oil route that connects with Baku (in Azerbaijan). Aberdeen only makes sense because we serve Baku as well.

Thank you for the interview!

Air Baltic – Airline Information

Air Baltic – Aircraft and Fleet List

Air Baltic – Recent News

Air Baltic – Airline Route Network

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ch-aviation interview: Kwaku Antwi-Boasiako, CCO Antrak Air

In this issue of ch-aviation interviews we are meeting Antrak Air, a domestic airline from Ghana. The airline uses ATR72-500 aircraft and has been operating for over 10 years now in an environment where most airlines only last for a short period. Niels Trubbach talked with Antrak Air Chief Commercial Officer Kwaku Antwi-Boasiako.

Antrak Air – Airline Information

Antrak Air – Aircraft and Fleet List

Antrak Air – Recent News

Antrak Air – Airline Route Network

Is a turboprop aircraft the right aircraft in Ghana? You are operating turboprop aircraft while your competitors mostly use jet aircraft.
Antrak and Fly540 both operate the ATR 72-500 aircraft. Modern turboprops (like the ATR 72-500 & ATR 72-600) combine fuel efficiency and generally lower operational cost with jetliner cabin comfort. Given the short sectors that we operate in Ghana (longest 75 minutes for Tamale), modern turboprop seems to be the appropriate aircraft for domestic operations. That is even more significant given the high cost of aviation fuel in Ghana. That said, it is conceivable that future market conditions will require a rethink.

On the other side: Can your competitors reach higher fares through their jet aircraft?
That is so, jet operators charge higher fares and that is understandable due to relatively higher cost of operations. In the end, it comes down to market share and maximization of profit. We are happy with our current market share and hopefully, once we switch to dry lease, we can lower our costs and operate more efficiently and profitably.

Looking at the development of the market. How was the situation when you started?
Prior to September 2003 when Antrak and CiTylinK both started domestic operations, there were basically no scheduled air transport services for the general public.

What were the main challenges during the start-up process?
Unlike today that it is relatively easier to acquire an Air Carriers Licence (ACL) and an Air Operator Certificate (AOC), it took the better part of 2 years for the authorities to grant Antrak its licence to operate. That was the biggest challenge. The other major challenge was to convince the public about the safety of air travel, given the fatal accident 3 years earlier that involved an aircraft operated by the Ghana Air Force. Then also, given the general economic conditions at the time, the fares seemed high for many ordinary travellers, though the fares were not much higher than they are for peak flights today.

Over the last decade the economy in Africa has changed a lot. What were the most important steps for the development of your airline and the market overall?
Growth in the Ghanaian economy, particularly with the discovery and commercial production of oil, started the growth in the aviation sector, particularly for the business community. Antrak and CiTylinK both took advantage of the environment and opened up new routes and schedules, especially on the Accra-Takoradi sector. That led to some growth in passenger throughput between 2010 and 2011, largely from corporate clientel but also some reasonable patronage from the general public. For the general public though, it is fair to say that the liberalization policy of the Ghana Civil Aviation Authority that led to the entry of Starbow and Fly540 in late 2011, should be credited with generating the major boost to the development of the domestic aviation market, especially on the Accra-Kumasi route, from the last quarter of 2011 to date.

In the recent years new airlines have started operations in Ghana. Is the market growing as fast as the capacity does or is the capacity growing faster than the market, resulting in lower fares?
Most observers would agree that there is over-capacity in the market, and operators have rightly been worried. Overcapacity has led to intense competition that has led to low fares. The current size of the market (778,466 passenger throughput in 2013) is not big enough for the 4 active airlines. The authorities have announced that no new licences will be issued for domestic operations for the time being.

To understand the market: Who is the standard air passenger within Ghana?
At the moment, given the low fares, almost everybody is a standard air passenger. You have the regular business travellers from the mining, oil and gas, financial services, and other business sectors, government and other public officials, individual traders, students (especially in tertiary institutions), foreign tourists, NGO workers and individuals travelling over the weekend for funerals and other family engagements.

Aside of other airline companies, who do you compete against? How high is the fare difference to for instance bus services? Do you see an increasing number of passengers, that are willing to pay more for flight ticket instead using a bus?
Aside of other airlines, there are bus operators. The average airfare is about 4 times a bus fare to the same destination, while air travel is 5 times faster. There is very high safety risk with road transportation, including high rate of fatal accidents (about 2,000 deaths per annum), armed highway robbery and poor quality of road infrastructure. It is fair to say that if the general economic conditions improve such that a larger pool of middle class is created, air transport and road transport will not really be in competition. They will rather complement each other.

Looking at your competitors. How do you differ in service and fares?
In terms of service, Antrak provides better frequency and network coverage than our competitors. We also provide lowest fares on the market.

In Europe the amount of airport taxes, flight control, governmental taxes etc often make up for the largest part of the air fare. How is the situation in Ghana?
For domestic aviation, airport tax is GHS5 (just over US$2 by current exchange rate). In January 2014 however, VAT Act 2013 (Act 870) came into effect that imposes 17.5% tax on domestic air transportation. None of the domestic airlines has started charging the VAT. A petition is being sent to government by all domestic airlines, to exempt domestic air transportation from the new VAT. We also pay for air navigation but that cost does not feature directly on air tickets.

All scheduled domestic airlines in Ghana have an online booking system. How many passengers use it?
I can’t tell for the other airlines. For Antrak at the moment, less than 10% of bookings are done online. This is due to challenges we have had integrating a payment gateway. Once the technical challenge is addressed by the middle of February, we expect more online bookings. We also expect to roll out our mobile booking application by March 2014, which will also increase online booking traffic.

How are airline tickets usually bought in Ghana? What payment methods are used?

Apart from online bookings, there are bookings via travel agents. We also have corporate clients who have their own online access to manage their own ticketing. Then we have airline airport and town offices where passengers walk in to make reservations. Payment is largely done by cash, but there are VISA and MasterCard point of sale terminals as well. Also, airlines have relationship with some local banks where passengers with reservations can make payment and have their tickets issued.

You currently offer flights from Accra to four domestic destinations? Do you intend to extend your domestic network? Could domestic flights between other cities, that does not touch Accra, make sense?
Antrak have plans to operate from Accra to Wa in the Upper West Region in 2014. We also plan to launch a new Kumasi-Takoradi route this year, as well as resume our Kumasi-Tamale operation that was launched in 2013 but had to be suspended due to lack of aircraft capacity.

Have you any plans to fly international routes?
We plan to start regional operations in 2014

The mass of international carriers in the region are flying to several destinations on a low frequency basis and with a lot of stops. Why don´t there is a hub concept with daily flights? Does passengers prefer airlines from their country?
There is no doubt the sub-region requires a lot more airlines with high frequency, point-to-point stops. We at Antrak see that as an opportunity to get into regional operations, after consolidating our domestic operations. I have no evidence to suggest that passengers prefer airlines from their country.

You now have been operative for several years. What are the main problems and difficulties for the airline business in your region and what are the advantages?
Looking at Ghana’s domestic aviation industry, the key difficulties have been poor airport infrastructure, weak financial backbone of operators, high cost of aviation fuel, high dependency on imported equipment, spares and technical expertise as well as small market size due to weak economy. Regionally, the potential is still huge, though some national governments are still reluctant to fully comply with the open-skies policy of the African Union as enshrined in the Yamoussoukro Decision. For instance, some Ghanaian domestic airlines are still struggling to obtain permit to operate from Accra to Lagos. The main advantage we have in the region is that the market is still untapped and there are great opportunities for airlines like Antrak to succeed within the region. Antrak have a permit to operate to Lagos, and that will be our first regional destination.

What do you think is the reason, why you are flying successfully in so many years?
Over the past 10 years since Antrak began operations, the company has gone through difficult times as a result of a combination of some of the above factors. Its success in Ghana is largely attributed to the vision, business acumen and resourcefulness of the Owner and Chairman, Alhaji Asoma Banda, with the support of hardworking staff. Strategically, Antrak has been looking way into the future when most of the above challenges, if not all, would have been surmounted, to give a platform where it can flourish as an indigenous Ghanaian airline operating to all continents and providing a service that matches the best in the world. This is the driving vision and passion that challenge Antrak to ride whatever storm we face and to ensure that we are able to take the company to the next level, beginning from 2014.

Looking in the future. What do you think the market will develop like in the next years and in which ways will you have to change your business model?
The market in Ghana and the sub-region has the potential to grow on average 7-10% per annum over the next decade. There is likely to be more and more local operators involved. Local operators will raise their quality and safety standards and provide high frequency point-to-point services across the region. We are likely to have local giants that will compete strongly against the likes of BA, KLM and Delta on the key European and North American routes, while certain key Middle East and Asian routes will become more competitive. Antrak will be there in the mix and we are clear in our mind what business model will get us there.

Thank you for the interview!

Antrak Air – Airline Information

Antrak Air – Aircraft and Fleet List

Antrak Air – Recent News

Antrak Air – Airline Route Network

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ch-aviation pro – New Features

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ch-aviation interview: Richard Kongsteien, VP Widerøe

Widerøe´s Flyveselskap, styled as Widerøe, is one of the most unique regional airlines in the world. Through the decades, the Norwegian airline has developed a strong commuter network in the country, subsidized by the government. Currently the Widerøe fleet consists of 41 Dash 8-100/200/300/400 aircraft. Furthermore Widerøe also operates a few international flights from Norway to Denmark, Sweden and the United Kingdom.

During the recent decade, Widerøe has been fully owned by SAS Scandinavian Airlines. In 2013 cash-stricken SAS Scandinavian Airlines sold a 80 percent stake in profit-making Widerøe to a group of investors.

Niels Trubbach talked with Richard Kongsteien, Vice President, about the future development of the airline as an independent company.

Widerøe - Airline Information

Widerøe - Aircraft and Fleet List

Widerøe - Recent News

Widerøe - Airline Route Network

Wideroe has just been sold to a new owner – who are they?
They are a Norwegian investor group consisting of two large transport companies – Fjord1 and Torghattan – both of which mainly operate public ferry and bus services. At present, SAS Scandinavian Airlines maintains a 20% stake in Widerøe.

With the change in ownership, do you anticipate any accompanying changes to your business model and strategy?
The new owner has no intention of changing our business model. As it stands, we are profitable and performing very well in fact. However, our biggest challenge is learning to stand on our own two feet. When we were a part of SAS Scandinavian Airlines, we were integrated into their processes – IT in particular. Now that we are independent, we have to learn how to be self-sufficient. In retrospect, our time under SAS was very beneficial because SAS professionalized our operations. All in all, we are sad to leave.

Through its feeder service, Widerøe provided SAS Scandinavian Airlines with a respectable number of passengers on domestic flights as well as on international flights. Will you continue to cooperate with SAS?
We will keep the agreement with SAS and Star Alliance. While we would be free to compete, we have no plans to do so. For example, in Norway we continue to cooperate with SAS in the 80-seats-and-less market. SAS however continues to operate all other services.

©: Widerøe Dash 8-300 at Tromsø – Tis Meyer / planepics.org

SAS Scandinavian Airlines has switched to a system of one-way fares. Do you offer the same or only return fares?
In most processes we have tried to be very similar to SAS, but in some respects we still differ. We have the same system as SAS in one-way fares.

UK-based BMI Regional plans to start Tromsoe (TOS) to Stavanger (SVG) via Harstad/Narvik (EVE) flights. Do you think they will be successful?
We fly the Tromsoe (TOS) to Stavanger (SVG) route too, albeit with Dash 8-Q400 instead of the faster Embraer jet. With time a critical factor in the oil industry, and given the high yields, you do not need high load factors to be profitable. In light of this, we currently have no plans to change either our services or pricing on this route.

Your commuter business mostly operates under Public Service Obligation (PSO) contracts. How big are the subsidies on those commuter flights?
It varies a lot. On some routes the subsidy can constitute a fair share of the revenue, while on other routes it is zero.

©: Widerøe Dash 8-100 at Hammerfest - Tis Meyer / planepics.org

In 2012, DAT – Danish Air Transport won a major contract to operate flights to Lofoten. However, Widerøe managed to force a new tender and subsequently won the contract. How was this possible? In the past, we saw a lot of carriers operating domestic Norwegian PSO routes. You now are the sole PSO operator in Norway. Why could the others not survive?
Norway is a tough environment. Operations are difficult and costs high. Most of the other carriers over-calculated their fares and passenger numbers and at the same time under-estimated their operational overheads. As a result, they didn’t last long. Widerøe has always managed to keep costs low and concentrated on being reliable.

Well, the aircraft they planned to use was simply not suitable for the route in that it was incapable of landing under certain conditions. On the basis of that, we protested and won.

Are there any plans to build more airports in Norway?
There are plans to build a major airport capable of handling large aircraft in the region of Nordland. It would replace the regional airports of Mosjøen, Sandnessjøen and Mo i Rana. The three smaller airports are STOL-airports and are currently part of our network. There are, however, no plans for additional commuter airports.

©: Honningsvåg Airport - Tis Meyer / planepics.org

In Narvik they are planning to build a bridge that would reduce the travel time from Narvik to Harstad/Narvik Airport to 40 minutes. But, as a consequence, Narvik Airport, which is located very close to downtown Narvik, is expected to close. What is your take on this?The Norwegian government is in the process of building a new, albeit costly, road network. How do you perceive this development and does road transport have an impact on your passenger loads?
In Norway, the number of remote regions with a small airport is growing. You see, air transport connectivity is very important for remote areas – If you close the airport, you essentially „close“ society. In fact, regions without an airport see their economies shrink which then impacts negatively on the size of their populations. So, while you need a good road network, the car will never be able to compete with the airplane on most routes because the airplane is always faster.

We currently serve both Narvik and Harstad/Narvik so we will probably lose some passengers as a result. But, the closure of Narvik Airport and the construction of the bridge will be benficial in the longrun because after all, a 40-minute commute is not so bad. In the greater scheme of things, it is simply not efficient to keep two airports, that are in such close proximity to one another, operational.

A lot of aircraft night-stop at remote airports so they can operate flights to major transfer airports and cities in the early morning. Their crews mostly overnight in a hotel. Have you considered basing your crews out of smaller airports instead?
Well, our planning and dispatching schedule is very challenging. We do, however, night-stop at 18 of our 34 served airports. So, establishing homebases there would be ideal for our crews and would save us a lot of money on hotel bills and the like. But, owing to economic and operational reasons, it is not possible for us to do so at this stage.

©: Widerøe Dash 8-100 at Oslo - Tis Meyer / planepics.org

Your commuter flights are largely denominated by Bombardier Q100, Q200 and Q300 series aircraft. But, in light of your impending fleet renewal plans and that the ATR42-600 would prove unsuitable given its operational constraints, how do you intend to proceed?
We’ve been researching new aircraft and have been pleasantly surprised by some of the options available to us. Presently, our current fleet is undergoing an upgrade which will extend its operational liftspan with 40‘000 cycles. We’re also replacing some of our aircraft with equivalent lower-cycle aircraft. As such, our current fleet of 100, Q200 and Q300s has around 10 to 15 years left on the clock.

Your airline suffers a lot of cancellations. What is the reason for this?
We currently have a no-cancellation rate of 96 percent. But, among the reasons are the Dash 8-100’s very low dispatch rate – a very big concern to us. Another important reason for the high number of cancellations is the absense of maintenance facilities at some remote airports. As a result, we have to ferry technicians and equipment to the airport before we can even begin to repair the aircraft. As you can imagine, this is very time consuming. Even minor technical problems that can be quickly fixed can cause cancellations and/or huge delays. So to remedy the situation, we now have three reserve aircraft on standby which has helped us reduce the number of cancellations in comparison to say, Summer 2012 when we did not have so much reserve capacity.

Where is your fleet maintenance done?
We currently do all our fleet maintenance in-house in Bodø (BOO) and Sandefjord (TRF) where our facilities are well organized and competitive. We are also outsourcing some of our maintenance.

©: Widerøe Dash 8-200 approaching Leknes - Tis Meyer / planepics.org

Do you have any plans to go international and maybe launch operations in other countries?
Prior to our sale to the new owners, we were the only regional SAS subsidiary. In terms of international expansion, we have been looking at it, but currently we have no plans to launch operations outside Norway; Sweden and Denmark included. Demand for regional air transport in these countries is not as high as in Norway. And in Sweden, for example,the market is served by NextJet and other regional carriers that cooperate with SAS. Also ACMI operators have filled the gaps for SAS.

What kind of airline was Widerøe in the beginning and how did it survive the following decades?
Widerøe was founded by Vigo Widerøe in 1934. It was run by a group of pioneers who envisioned connecting Norwegian cities via aircraft. It was a lot of hard work to keep the airline running and they nearly always struggled financially. However, by one means or another, Vigo Widerøe always managed to find funding. When in the 1960s Håkon Kyllingmark became Norway’s Minister of Transport he, together with Vigo Widerøe, planned the country’s first scheduled commuter network with Widerøe to fly to the new airports. So, after they had selected the aircraft, they constructed dozens of suitable airports with 800-meter long runways. Current regional airports were originally one-man operations in the early days; a single employee was responsible for the tower and after the aircraft had landed, was responsible for ground-operations. When finished, he would head back to the tower to direct the aircraft for departure. Over the following decades we have obviously increased capacity and improved operations.

Where do you see your airline in a few years time?
Widerøe will face several challenges over the coming years with the most burning issue likely to be that of fleet renewal. And we intend to maintain our role as Norway’s leading regional operator.

Thank you for the interview!

Widerøe - Airline Information

Widerøe - Aircraft and Fleet List

Widerøe - Recent News

Widerøe - Airline Route Network

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ch-aviation interview: Trade Air

Founded in 1994, Trade Air has become a well-known player within the European charter market. Currently the Croatian airline operates two Fokker 100 aircraft and has recently begun scheduled domestic services with a wet-leased Embraer 120.

Max Oldorf talked with Managing Director, Captain Marko Cvijin and Sanja Ples, Marketing and Sales Director about the current state of the charter market, future fleet renewal plans and their new scheduled services in Croatia.

Trade Air - Airline Information

Trade Air – Aircraft and Fleet List

Trade Air – Recent News

Trade Air has been in the charter market since 1994. In your opinion, what have been the most significant changes in the market between then and now?
Marko Cvijin: Well, we started off in 1994 as a cargo carrier for DHL. Then, in 2005, we entered the passenger market with the arrival of our first Fokker. Since then, the passenger charter market has changed dramatically. One period in particular, the Downturn in 2008, had an enormous impact on the industry and its effects are still being felt to this day. Overall, I would say we survived the downturn because we own our planes and are debt-free.

©: Trade Air Fokker 100 at Zurich – Tis Meyer / planepics.org

 

What are passenger charter market conditions like right now?
Marko Cvijin: It is very different from 2005/6 when we started. In retrospect, that was a good time to have entered the market. In terms of current market conditions, the situation is improving and I think the worst is behind us.

Croatia joined the European Union (EU) in July 2013. Has anything changed for you since then?
Marko Cvijin: Yes it has. Prior to joining the EU, we had to apply for traffic rights when operating regional charter flights. Some countries, such as Spain, Sweden and France, were particularly difficult to gain entry into because they protected their domestic carriers. However, since our entry into the EU, that red-tape has now been removed and we are now seeing a rise in charter inquiries. Seeing as we operate 99% of our flights outside Croatia, we consider ourselves to be global Croatian carrier.

You are a Fokker 100 operator and you yourself are a Fokker 100 pilot. What do you like about the type?
Marko Cvijin: From a pilot´s perspective, the aircraft is very easy to fly. It can use short runways and has a very good range. From an operator’s perspective, well, maintenance costs could be lower and from a commercial perspective it lacks some 100 to 200 miles of range; range that we would like to have in order to perform flights from Moscow to Western Europe. Our biggest issues are maintenance costs even though we do most of the maintenance work (up to the C checks) by ourselves. In terms of fuel burn, it is not the most economical aircraft. But that’s okay – all in all it is a good aircraft.

Trade Air Fokker 100 cabin
©: Trade Air Fokker 100 Cabin – Trade Air

 

If you had to replace your Fokker 100s, what aircraft would you choose as a replacement?
Marko Cvijin: We would go for something like a Boeing 737 or an Airbus 320. The Embraer E-Jet is still too expensive and therefore its capital expenditure would be too high for our needs. All in all, we would not continue with another 100-seater aircraft.

Any plans to expand the fleet?
Marko Cvijin: We are currently looking at bigger aircraft with both greater capacity and range – possibly an Airbus A320. We are still in the early stages where we are just looking at what the market has to offer. We have not yet made a decision.

Charter operators like yours face seasonal demand, expiring contracts and various other uncertainties. What measures do you take to keep your costs down?
Marko Cvijin: Well our capital investment is relatively low so therefore, we aren’t burdened with heavy debts. In this business, one has to minimize one’s staff overheads while at the same time maintaining a flexible team capable of working under those circumstances. We’ve been able to achieve this by maintaining two types of staff: full-time employees and seasonal contract workers. Even though we don’t offer pay2fly contracts, finding good staff hasn’t proven difficult. In fact, all our cockpit crews are contract pilots from Spain, Italy etc.

In 2013, you had a wet-lease agreement with Ghana’s CiTylinK which collapsed resulting in you withdrawing your aircraft (an F100). Did you take any knocks as a result?
Sanja Ples: Oh no, disappointments are part of this business. The main thing is to get good securities and deposits from the client. As a rule of thumb, you always have to evaluate any risk when entering a new agreement – with start-ups in particular. So to answer your question, other than a terminated contract, we did not incur any losses due to CiTylinK’s demise. We were able to recover all the funds we were owed.

You recently won a tender from the Croatian government to operate Osijek to Zagreb flights. Were there any other bidders?
Sanja Ples: It´s actually two routes: Osijek – Zagreb and during the summer season, Rijeka-Split-Dubrovnik – Rijeka. While there were other interested parties, in the end, only ourselves and Croatia Airlines met the tender’s requirements and were eligible to operate the flights. We bid for five routes in total and won two of them.

©: Sun Adria operated by Trade Air – Trade Air

 

Have you encountered any difficulties entering the scheduled services market given that you have been a charter operator for the last 19 years?
Sanja Ples: We have been lucky in that the government has supported us by deciding to reopen this route (Osijek – Zagreb) which, until now, has been inoperative for 26 years. However, it is still a completely new project to us and of course there are going to be some difficulties. For example, one of the requirements [of the tender] was that we use an aircraft with at least 30 seats. We therefore had to wet-lease an Embraer 120 aircraft. Also the new sales and distribution system proved very challenging to us.

Which sales channels do you mainly use to sell tickets on those routes?
Sanja Ples: A proportion of the tickets will be sold through Croatia Airlines’ webpage while the rest will be sold through our own internet booking portal, once it is up and running. We plan to continue cooperating with Croatia Airlines so long as it draws in customers and benefits us financially.

As you mentioned, your flights are currently sold through Croatia Airlines’ site who also bid for the routes. Did Zagreb force them to sell your tickets?
Sanja Ples: No. Given their business interest in selling our tickets, we moved to conclude a marketing and code-share agreement in order to start the service as soon as possible. In all, we have a very good relationship with them and they are very important for the development of the Croatian aviation market as a whole. In fact, they are like a big mother to all of us. They have the people and the experience and are willing to develop the market. However, as already mentioned, we do plan to start our own sales in the next couple of months.

The route is a Public Service Obligation (PSO) maintained by the Croatian government. How long will the contract run for and are there any plans to extend this PSO to other routes?
Sanja Ples: At the moment, there are no plans to expand PSO routes in Croatia. The current contract is set to run until the end of the summer 2016.

©: Inflight on Trade Air’s Fokker 100 –  Trade Air

 

Looking to the future, where do you see Trade Air two years from now?
Marko Cvijin: I see Trade Air as a small airline, and we intend to maintain the status-quo. Over the next two years, we would like to gradually roll out our fleet renewal program though how far we get hinges on many different variables. In general, we would like to remain small – we do not have any plans to grow the fleet above five or six aircraft. We have adopted a conservative approach to these types of investments and do not want them take us into the red. The fact that we do not have any outstanding bank loans is still one of our biggest advantages. As already mentioned, it was this that saved us during the crises of recent years.

Thank you for the interview!

Trade Air - Airline Information

Trade Air – Aircraft and Fleet List

Trade Air – Recent News

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LCCs using GDSs and Codeshares

LCCs using GDSs and Codeshares – A Study on the increasing complexity of the LCC business model….

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Authors: Thomas Jaeger (ch-aviation) thomas.jaeger@ch-aviation.ch, Niels Trubbach (ch-aviation) niels.trubbach@ch-aviation.ch, Hanna Schaal (PROLOGIS) hanna.schaal@prologis.aero and Bogdan Delicostea (PROLOGIS) delicostea@prologis.aero

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LCCs using GDSs and Codeshares

To download the following analysis as a PDF file click here.

The first low-cost carriers (LCCs) took an easy approach: They made the product ‘flight’ available to the most price-sensitive customers by following Porter’s generic strategy of cost leadership.(Porter, M. E. (1985)) But in order to continue to grow and operate profitably in a saturated market, many budget airlines have perceptibly changed their strategies by increasing complexity over the last few years. PROLOGIS and ch-aviation analyzed the trend of carriers following a low-cost approach to (1) add indirect distribution and (2) extend their networks through partnerships to gain access to new customer groups.

ADDING COMPLEXITY

The basic business model of a low-cost carrier is to operate with the lowest possible costs. Sales through indirect distribution, frequent flyer programs, partnerships and other measures aimed at increasing revenue are thus not allowed for with the pure LCC model. These factors simply raise complexity costs. Interlining, for instance, generates extra revenue, but is associated with high processing costs due to complex rules and regulations. Nevertheless, in recent years, more and more LCCs have changed their strategies and started adding these ‘cost drivers’ with carriers like Brazil’s Gol or Germany’s germanwings now codesharing and interlining with various local and overseas partners. And even Michael O’Leary just announced his plans to take a new strategic route with Ryanair by “[…] rolling out a product specifically tailored for business travelers […].”(Berry, M. (2013)) Currently, the Irish carrier is still one of the few remaining so-called ultra-low-cost carriers (ULCCs) alongside Lion Air, AirAsia, IndiGo, Cebu Pacific Air, Spicejet, Wizz Air or Spirit Airlines as the world’s major ULCC players – a model that is today more predominant in emerging markets like Asia.

TOWARDS A HYBRID APPROACH

Due to the increasing hypercompetitive pressure in the short- and medium-haul markets of Europe, North America and Asia, many airlines that originally followed a low-cost approach were forced to develop their business model during the 2000s to continue to grow and operate profitably. At the same time, many legacies cut their services and simplified their fare structures to address more price-sensitive customers. In search of additional revenue and higher yields, LCCs started addressing passengers who were willing and able to pay higher fares, i.e. corporate customers.(Holloway, S. (2008), p. 345) Those passengers require better services, higher on-time performance, better flight connections and centrally located airports. The hybrid carrier was born. Vueling and Norwegian, for example, are no longer traditional low-cost airlines and can rather be referred to as hybrid carriers instead.

It’s not always straightforward to separate LCCs from hybrid carriers. A hybrid carrier can be described by combining low operational costs with enhanced distribution processes, which, in most cases, allow bookings via Global Distribution Systems (GDSs). Southwest was one of the first carriers to apply this kind of business model. The idea of offering different bundled fare products is a very important innovation introduced by hybrids. This can be a “saver package” consisting of the flight only or a “premium package” including preferred boarding, seat selection, enhanced check-in options, food and beverages as well as other amenities. Furthermore, many hybrid carriers offer connecting flights (e.g. Southwest and jetBlue in the US, Norwegian, Vueling, Pegasus and germanwings in Europe). And the connections are not just limited to the airline’s own flights. Hybrids also started investing in interline and codeshare partnerships.

DEVELOPING COUNTRIES: LCCs REMAIN LCCs

Whilst for LCCs in Europe, Northern America, Australia and other mature economies, the hybridization trend is obvious; other regions of the world seem unaffected by these changes so far. In India, for example, there are still two clear airline models: low-cost and full-service. The country has five major low-cost carriers: IndiGo, GoAir, SpiceJet, Jet Konnect and Air India Express, while Jet Airways and Air India are serving the legacy market. Together, the LCCs hold a domestic capacity share of 62% – one of the highest numbers worldwide. The reason why a trend towards a hybrid model cannot be observed so far is that, in the developing markets, there are basically only two types of customer groups: (1) Travelers who are both willing and able to afford flights with very high service standards and (2) travelers who can hardly afford low-cost flights and are much more price-sensitive. In general, the percentage of the population that does not travel at all by air remains high in developing countries. Yet, it will be interesting to follow the air traffic development in these markets over the next few years. India, for example, is assumed to become the third largest aviation market by 2020. (Ministry of Civil Aviation, India (2013))

GAINING ADDITONAL REVENUE

Today, it is oftentimes simply the prospect of higher profit that convinces LCCs to become more hybrid. Expanding distribution channels to GDSs and entering into interline and codeshare partnerships with other airlines are two important drivers for hybrid carriers to gain additional revenue, next to ancillary sales. While the first of these two drivers is taken in order to be able to sell higher priced fares, the second enables airlines to increase demand on specific routes and gain access to new markets.

LCCs in the global distribution game

GDSs have been the interface between traditional agencies with physical sales offices and airlines for several decades. Amadeus, Galileo/Apollo and Worldspan (the latter two owned by Travelport) as well as Sabre are some of the largest systems. Due to high booking fees, carriers sticking to the original LCC model have traditionally avoided this means of indirect distribution. However, it is quite common for business travelers to organize their bookings through travel agencies, which, in turn, use GDSs to query flight schedules and fare information to finally make seat reservations.(GAO – U.S. General Accounting Office. (2003)) Thus, in order to gain access to this less price-sensitive customer segment at the sales level, hybrids have adopted GDS distribution. When easyJet started addressing the corporate customer segment, it added GDS sales (via Amadeus and Galileo) as the first carrier that was originally classified as a pure LCC in 2007.(Holloway, S. (2008), p. 345) The above mentioned “big three” of the GDS market have since battled to attract more and more LCC business. At around the same time as easyJet began using GDS distribution, it was AirTran that started integration via XML with Sabre. A win-win innovation at first, this rapidly became a popular solution for airlines interested in having GDS presence without the costs this usually incurs. Amadeus took this even further in 2011 with the launch of their ePower product: On a web interface designed for travel agents, it brings together both the legacy, ATPCO connected airlines and the low-cost, XML connected players. In April 2013, they were followed by Travelport with their “Merchandising solution platform.” From the position of being shunned upon by LCCs, GDSs are becoming day-one partners for new entrants, as the example of Volotea and Amadeus showed (Jorre, A. (2013)) starting in April 2012.

During the last decade, we have seen a boom in airline bookings made directly over the Internet. Nevertheless, the last few years have shown that the trend is reversing and GDSs are recovering some of that lost share. Enhancements to the distribution flow (like easyJet did recently with Amadeus to allow for better ancillary integration) clearly show that the providers are working on overhauling their infrastructure, coming up with better price offers to LCCs and more advanced products. In the meantime, the entire industry is waiting to see whether IATA’s New Distribution Capability (NDC) program will gain sufficient momentum.

Analyzing today’s GDS distribution

How many LCCs or hybrid carriers are actually using the GDS as a sales channel today? In the second decade of the 2000s, it was assumed that nearly 50% of all budget carriers were already using GDS distribution. (Holloway, S. (2008), p. 356) PROLOGIS and ch-aviation analyzed today’s GDS distribution landscape based onch-aviation data from November 2013 and found out that about 61% of all LCCs and hybrid carriers distribute their seats through at least one GDS (see Figure 3). When classifying LCCs and hybrids, we excluded all types of regional carriers, which left us with a total of 90 LCCs/hybrids of which 55 have a GDS connection.

Collaborating LCCs and hybrids: A trend towards interline and codeshare agreements?

Just as GDSs have been part of the legacy carriers’ sales strategy for a long time, so have interline and codeshare agreements. If an interline agreement is in place between two airlines, they accept tickets issued by the other airline and/or allow the other carrier to issue tickets for its own flights. (Beaver, A. (2005), p. 203f.) When it comes to codeshare agreements, the marketing aspect is added. In its very basic model, a flight operated by carrier X can be marketed by its codesharing partner Y. While carrier X, labeled as the ‘operating carrier’, offers the flight under its two letter designator code and flight number, carrier Y, labeled as the ‘marketing carrier’, also markets the flight with its own carrier information. The ‘ticketing carrier’ who issues the ticket (thus also known as the ‘issuing carrier’) can vary from the ‘operating’ and ‘marketing’ carrier. Carriers can enhance their customer reach and expand their customer offerings through both interline and codeshare agreements. (Steer Davies Gleave (2007))

An analysis of the codeshare development

PROLOGIS and ch-aviation analyzed the development of collaborating low cost and hybrid airlines over the last ten years to learn whether the assumption of an increasing trend towards joint ticket distribution of budget carriers can be confirmed by market data. We decided to use codeshare data, because, unlike interline agreements, codeshare agreements can easily be captured based on schedule data. The codeshare information was taken from Innovata and ch-aviation data that included the weekly capacities for September 2003, September 2008 and September 2013. We took all worldwide codeshares between a LCC/hybrid carrier and both another LCC/hybrid or scheduled carrier under consideration in our analysis. Again, we omitted all regional airlines from this carrier classification. This resulted in a search for codeshare agreements amongst 46 LCCs/hybrids in 2003, 84 in 2008 and 90 in 2013.

Based on the absolute numbers, the trend towards codesharing LCCs/hybrids has increased significantly: While only six LCCs/hybrids had codeshare agreements with other airlines in September 2003 (Flybe., SkyEurope, Virgin Blue, Virgin Express, Volare and Zip Air), exactly ten years later, the number has increased by more than fourfold to up to 26. Despite the fact that the number of LCCs/hybrids on the market has approximately doubled over the last decade, we can still observe a relative increase of codesharing LCCs/hybrids by about 16% from 13% (2003) to almost 29% (2013) (see Table 1).


It is interesting to notice that, in relative figures, the share of codesharing airlines dropped by about 1% between 2003 and 2008 for all LCCs/hybrids. Hence, according to our study results, the trend towards increasing LCC/hybrid codeshares can be traced back to only the years between 2008 and today (about 17%).

Marketing versus Operating Carriers

Do LCCs/hybrids use codeshares mainly to increase passenger numbers on their own offered routes – i.e. by acting as the operating carrier or do they also apply the idea of extending their network by booking passengers on their partners’ routes – i.e. by acting as the marketing carrier? Looking at absolute airline numbers, our analysis results show that in 2003, 2008 and 2013, there were more LCCs/hybrids acting as operating carriers than as marketing carriers (see Figure 4). Today (Sept. 2013), there are ten LCCs/hybrids who only act as operating carriers (Eastar Jet, germanwings, jetBlue, Jetstar Airways, Jetstar Asia Airways, Jetstar Japan, Mango, Norwegian, Transavia and Vueling). Most of these airlines are subsidiaries of or partly owned by major scheduled legacy carriers with which they have codeshare agreements, themselves being the operating carrier. One exception is Eastar Jet who carries customers of fellow South Korean LCC T’way Air. T’way Air along with Lion Air are, in turn, the only budget airlines that solely act as marketing carriers (based on our carrier classification). The other 15 carriers have both agreements as marketing and operating carriers.

When we examine the codeshare capacity in September 2003, however, we see that the weekly seats offered by marketing carriers (162,399 seats/week) exceeded the number offered by operating carriers (155,232) at the time. In 2008, though, the distribution had changed with a capacity of 233,705 seats/week offered by marketing carriers and 347,684 seats/week offered by operating carriers. Today, the capacity by operating carriers (4,423,588) exceeds the marketing carriers’ (3,051,959) by almost 1.4 million seats/week (see Figure 5).

The effects on Passenger Service System (PSS) selection

More than half of today’s 90 LCCs/hybrids are served by only two PSS vendors: 42 are hosted by Navitaire and 10 by Sabre, according to the ch-aviation airline IT vendor database. The PSSs Hitit, IBS, ISA, Mercator, Radixx, Results, SITA, Travelsky and Videcom are used by at least two LCCs/hybrids from the ch-aviation database. The level of readiness for bilateral interline and codeshare agreements by these smaller PSS providers varies. Thus, carriers interested in becoming more hybrid must sometimes migrate to another PSS solution as part of their strategy change.

CONCLUSION AND OUTLOOK

Our study results show that there indeed seems to be a trend away from the original LCC approach of simplicity towards more complexity. In this study, we focused on GDS distribution and codeshare agreements, which in Europe, North America and Australia seem to belong to LCCs and hybrid carriers just the same as to legacies nowadays. Of course, these two factors are not the only ones indicating that LCCs have started to make their business models more complex. Ancillary sales would definitely be yet another factor to take into consideration. Nevertheless, this is a complex topic on its own which will be discussed by PROLOGIS in a new study to be published in the spring of 2014.

We mentioned earlier how difficult it is to distinguish between an LCC and a hybrid carrier. But isn’t it also becoming more and more difficult to distinguish between a hybrid and a network carrier? With the once merely price-focused airlines adding more services, using GDS distribution and partnering with competitors, on the one hand, and the traditional legacy carriers simplifying their business strategies and trying to address more price-sensitive customers on the other, it is harder to keep them clearly apart. Our study provides a reason to believe that the originally distinct carrier models are increasingly converging. This applies for both their internal organization and their processes: The outlined developments towards indirect distribution and interline agreements, for example, significantly affect the revenue accounting processes of these LCCs and hybrid carriers – another interesting topic to be discussed in one of our papers that will be published next year. Today, positioning yourself ‘in the middle’ of Porter’s cost and differentiation strategy seems to be a favored and perhaps even successful approach for airlines – as long as one does not get ‘stuck’, but rather remains flexible to be prepared to move on within the ever changing aviation industry.

 

Bibliography

Beaver, A. (2005). A dictonary of travel and tourism terminology. Oxon, UK: CABI Publishing.

Berry, F. (2013). Reuters.com. http://www.reuters.com/article/2013/11/21/ryanair-tickets-idUSL5N0J63YJ20131121; accessed: 27 November, 2013.

GAO – U.S. General Accounting Office. (2003). http://www.gao.gov/assets/240/239238.html; accessed: 17 September, 2013.

Holloway, S. (2008). Straight and Level – Practical Airline Economies. Surrey, England: Ashgate Publishing Limited.

Jorre, A. (2013). Amadeus.com. http://www.amadeus.com/blog/08/10/how-amadeus-helped-start-up-low-cost-carrier-volotea-stimulate-new-demand-from-day-one/; accessed: 14 November, 2013.

Ministry of Civil Aviation, India (2013). Press Information Bureau, Government of India. Press Information Bureau, Government of India; accessed: 22 November, 2013.

Porter, M. E. (1985). Competitve Advantage: Creating and Sustaining Superior Performance. New York, USA: The Free Press.

Steer Davies Gleave. (2007). ec.europa.eu. European Commission: http://ec.europa.eu/competition/sectors/transport/reports/airlinecodeshare.pdf; accessed: 14 November, 2013.

To download the analysis as a PDF file click here.

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About Prologis and ch-aviation

ch-aviation is managed by a team of passionate aviation professionals from Switzerland, Germany and Austria. Since 1998 www.ch-aviation.ch offers a wide range of tools and search options targeted at aviation industry professionals to get access to:

the most extensive and up to date airline knowledge base in the world. It provides comprehensive weekly news updates covering global airline industry developments with a focus on:

- strategic network and fleet developments,

- airline start-ups and bankruptcies as well as mergers, acquisitions and strategic partnerships.

- Weekly Airline Route Network Update systematically track network changes of over 700 airlines worldwide.

ch-aviation also tracks more than 37.500 individual aircraft, in excess of 5.500 airports and airlines with access to worldwide airline schedules and route networks.

PROLOGIS ranks as one of the world’s leading management consultancies that specialize in the aviation industry thanks to its more than 15 years of experience and over 45 airline customers served.

With an average of 7 years of practical experience working for airlines, airports and ground handling companies, the PROLOGIS consultants are recognized experts on the following topics:

-          Distribution & Revenue Management

-          Ground Operations & Airport Processes

-          Revenue Accounting

-          Network Planning & Scheduling

-          IT Services (System Migration, Evaluation and Implementation)

-          Financial Controlling and Data Warehousing

Thanks to the many international projects on behalf of network, regional, low-cost and charter airlines from more than 30 different countries, PROLOGIS offers best practices and integrate these into their customers’ existing structures and cultures. Whether it’s strategies, processes or systems, the PROLOGIS team works together closely with the customers to find the best possible solutions for the challenges at hand.  

__________________________________________________________________________________________

Copyright @ 2013 PROLOGIS AG & ch-aviation GmbH

All rights reserved. This study or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.

 

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ch-aviation interview: Ewan Smith, CEO Air Rarotonga

Air Rarotonga is operating on some of the most beautiful islands in Oceania. The Cook Islands. The small airline is active since 1978 and currently operates four aircraft. Three Embraer 110 and one Saab 340A.

ch-aviation talked with CEO Ewan Smith about the Cook Islands aviation sector, Air Rarotonga’s product & strategy and a possible fleet renewal.

Air Rarotonga – Airline Information

Air Rarotonga – Aircraft and Fleet List

Air Rarotonga – Recent News

Air Rarotonga – Airline Route Network

Air Rarotonga has been operational since 1978. What kind of airline was it in its formative years?
It was a small airline. When we started, we mainly transported locals and cargo with about 3000 to 4000 passengers during our first year. We used to operate scheduled flights with some charters as well. Our main route was, and still is, Rarotonga to Aitutaki which we flew with a single five-seated Cessna 337. In our early years, tourism was still in its infancy but with the opening of the first hotel in Aitutaki in 1980, passenger traffic rose and so we soon added a Piper Chieftain. In 1990 our first Embraer 110 Bandeirante was introduced.

©: Rarotonga Airport – Martial Saugy / ch-aviation

 

What were your main challenges during the start-up phase?
Isolation and distance from the mainland were major problems. As there were no facilities, you had to do everything by yourself, including maintenance. While we were able to finance the initial stages of operations with our own money, we soon needed more. However, being an aviation company located in the middle of the Pacific ocean, it was difficult to find a bank that would lend us money. Financing and business proved to be very tough in those days.

How did you, as a founder, get the idea of starting an airline company?
I came to Rarotonga in 1973 as a pilot when I was 22 years old. In that same year, Rarotonga International Airport opened following which, Air New Zealand set up a carrier called Cook Islands Airways which flew a single Britten-Norman Islander. I was a pilot for that airline. Then, together with a Cook Islands Airways aircraft engineer and a local business partner, I got the idea of setting up our own airline. And we did it and became successful. In 1991 we acquired Cook Islands Airways as the market could not support two carriers.

If you compare 1978 and 2013, what are the most significant differences?
The acquisition of our first Embraer 110 Bandeirante in 1990 was a major step forward for us. At that time, we carried 40,000 passengers per year though that number has since risen to 70,000. Growth has been largely made possible by the rise of the islands‘ tourism industry, especially in Aitutaki. Further market growth allowed us to acquire an even bigger aircraft – a Saab 340 – which arrived in 2000. In the early years, sales were largely regional but it has become more international overtime. Another important event was our code-share agreement with Air New Zealand on Aitutaki-Rarotonga flights signed in 2005. That was also when we implemented our online booking system.

©: Air Rarotonga Saab 340A – Martial Saugy / ch-aviation

 

In 2010, a new carrier, Kia Orana Air, was set up and planned to compete with Air Rarotonga on the same routes, albeit with lower fares. However, operations never materialized and in 2012, the start-up announced it would abandon its launch plans. Were you surprised when that happened?
From the very beginning, I did not think it would work because you can‘t operate high-cost aircraft in a high-cost environment and charge low fares. To boot, the promoter had no business experience either. So, simply put, Kia Orana Air just could not make the economics work.Another point to consider is that the market is not big enough for two carriers. Two smaller carriers that have to operate their own booking engines, among other things, have higher costs. We, however, have a big advantage in that we already have those facilities at hand. Also, had Kia Orana Air started operations, there would have been a price-war on the all-important Rarotonga – Aitutaki route which would have forced us to drop some marginal routes in order to concentrate on Rarotonga-Aitutaki, our main revenue source. But, I did not expect Kia Orana Air to ever find enough funding and thus launch.

You are currently only flying commuter routes. Do you get a subsidy from the government?
Until now there have been no subsidies from the government. As it is very difficult to viably operate routes to small remote islands with just 200 inhabitants, we either just break even or operate at a loss there. If we are to continue serving those routes in future, government will have to subsidize our services.

The airports you fly to are mostly served only a few times a week. Do they see major subsidies from the government? Is Rarotonga Airport profit-making?
In reality, they are just basic airstrips situated on small islands – they have no facilities and it does not cost that much to operate them. Rarotonga Airport however, is run by the government, has a „business plan“ and is self-sustaining to an extent.

Do you see competition with ferry companies?
Most of the islands are very secluded and have only a few inhabitants so ferries don’t present a threat to us there. In the northern archipelago group, some people travel by ship, but the majority prefer to fly with us.

Are there major seasonal differences in the passenger numbers?
Yes there are. Our high season is from June to October while our low season, particularly for tourism, is from January to February/March. You have to consider that as the Christmas season has come and gone, the locals have already spent most of their money and so they prefer to save what they have left instead of using it to fly.

©: Passenger boarding aircraft at Rarotonga Airport – Kevin Paavola

 

How high is your average fare?
The average fare is around NZD190-200 (around EUR 120/USD 160/GBP 100). We also sell a limited number of USD99 fares. Our fares, on average, do differ slightly between the high and low season, but the differences are not that significant.

Can you give us a break down of your passenger numbers in terms of private, leisure and business?
Approximately 75 percent of our passengers travel from Rarotonga to Aitutaki, most of whom are leisure passengers. Around 50,000 of our 70,000 passengers are visitors. The remaining passengers travel mostly for private needs. Business traffic is very small.

Is air cargo important for you?
We currently carry around 700 tonnes a year. It is very directional in that it is limited to flights to the island only. As there is almost nothing produced on the islands, there are almost no exports and therefore no need for inbound flights from the smaller islands to Rarotonga to have any cargo capacity at all. All in all, cargo makes up eight percent of our total revenue.

What kind of on-board service do you offer?
On the Saab 340, operated on the Aitutaki-Rarotonga route, we offer a light refreshment, hot and cold beverages and a bar service with alcoholic drinks. On our flights to the other islands, there is no on-board service as the EMB110 has no flight attendant.

Currently we don’t have an on-board magazine as it isn‘t worth producing one for such a small number of passengers. Around five or six years ago, we did offer something similar- a local tourism publication called „Escape Magazine“ which we supported with advertisements and featured as our in-flight magazine.

©: Inflight on Air Rarotonga’s Saab340 A –  Martial Saugy / ch-aviation

 

Have you ever considered operating routes to mainland New Zealand and Australia, currently operated by Air New Zealand and Virgin?
For three years during the eighties, we operated flights from Rarotonga to Auckland using a chartered Douglas DC-8. The revenue generated from those flights was „okay“ but we dropped them and decided to stick to domestic services. The resumption of those flights is not in our current plan seeing as the market is very well served by Air New Zealand and Virgin Australia. Air New Zealand and Air Rarotonga have a code-share agreement on the flights between Rarotonga and Aitutaki.

Do you have plans to extend the code-share agreement with Air New Zealand to other routes?
Not at this stage. If you go on Air New Zealand’s site, you can book flights from all their destinations to Aitutaki. The other islands, however, are of no interest to tourists. But, for the small group of people from the other islands who need an onward flight from Rarotonga, it is easier to buy two tickets. As such, it would be expensive for both us and Air New Zealand to extend the code-share in light of such limited demand.

Your fleet currently consists of a Saab 340 and three Embraer 110 Bandeirante. Where do you fly them for major maintenance work?
We do all maintenance for the Embraer 110 Bandeirante, except engine overhauls, here in Rarotonga. Engines are sent to Pratt and Whitney for major maintenance. For our Saab 340, we have an agreement with General Electric regarding the engines while all other major maintenance work is done by Air Nelson in New Zealand.

©: Embraer EMB-110 maintenance – Kevin Paavola

 

The aircraft in your fleet are not the youngest. Do you have plans to replace them?
Not yet. We recently replaced the engines on our Embraer 110 Bandeirante with brand new ones. That should allow us to operate this aircraft until 2020 at least. We have the option to replace our Saab 340 with a Saab 340B. The Saab might be used until 2025. Another option is to replace it earlier with an ATR 42. Currently we own our whole fleet but leasing is a future fleet strategy option.

You have a single Saab 340 in your fleet. But, would it not be more economically viable to operate the Embraer 110 Bandeirante (15-21 seater) for twice as long as opposed to operating a single Saab 340 (34-seater)?
It is economical to have a single Saab 340 because, for our flights from Rarotonga to Aitutaki, the 34-seater is exactly what we need. Also, our maintenance contract with Air Nelson makes it possible to operate this aircraft very efficiently. We currently have 13 pilots, six of whom are type-rated for both aircraft. The others are rated to fly either the Bandeirante or the Saab 340 only.

Your airline has operated successfully for 35 years now – not many regional airlines have survived for such a long time. What do you see as the keys to your success?
I think the key to survival in our environment is concentrating on maintenance, safety and
reliability. It is much easier to sell tickets for an airline that has a reputation for being safe and on-time. In a lot of countries, it is just assumed that airlines are safe – not so in the Pacific islands region.

©: Departing on Saab340 A – Kevin Paavola

 

Who are the shareholders of your airline?
When we founded the airline there were three of us: a local business partner, another Cook Island Airways employee and I. Today, I am the one only of the original three that is still a shareholder in Air Rarotonga. While there are still three of us, the other two have now been replaced by a flight operator and a local accountant.

Where do you see your airline in a few years time?
One of our challenges is our future fleet strategy. We plan to replace the Saab 340 with the larger ATR 42 on the Rarotonga to Aitutaki route, once demand is high enough. A rise in the number of hotels rooms and travelers will make it a possibility soon, we hope. Furthermore, regarding the previous discussion on subsidies, it is very important that the government soon set up a subsidization fund for flights to the smaller, more remote, islands. We won’t be able to operate these flights in the future if that doesn’t happen. Another issue we have to consider is the future ownership of the airline. One possibility includes selling Air Rarotonga to its employees, but, we’re in no rush to decide just yet.

Thank you for the interview!

Air Rarotonga – Airline Information

Air Rarotonga – Aircraft and Fleet List

Air Rarotonga – Recent News

Air Rarotonga – Airline Route Network

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ch-aviation interview: Peter Davies, CEO Air Malta

Air Malta, the sole Maltese airline offering scheduled flights, has made major losses in the recent years. The fully state-owned carrier is currently undergoing a big restructuring process.

ch-aviation had the possibility to meet Peter Davies, CEO at Air Malta and to talk with him about the restructuring process and the future of the airline.

Air Malta – Airline Information

Air Malta – Aircraft and Fleet List

Air Malta – Recent News

Air Malta – Airline Route Network

When did you start to work at Air Malta and what have you done before?
I joined Air Malta in March 2011. I have worked in the airline business for the last 40 years and previously I served as CEO for Air Southwest in the UK, Caribbean Airlines in Trinidad & Tobago and for SN Brussels Airlines in Belgium.

What has changed since then?
When I came to Air Malta the situation was very serious. The airline was struggling hard financially and a number of processes were broken with Air Malta in a fight for survival.
In 2011 the airline made a loss of 30 million Euros.
The restructuring plan was a critical element to start the turnaround process. We were in a position where aid was required from government and the government needed the European Commission’s approval.
We went through an exhaustive process to make sure that the five year business plan we presented was robust and achievable. Our objective was very clear: for the airline not only to survive but also to achieve sustainable profitability.
European Law states that a government can only ask for state aid once in 10 years. We needed to make sure that the restructuring plan would succeed. It was essential that our plans were thorough and credible..
Air Malta is now on course to achieve break-even this year after restructuring efforts helped it narrow losses in the year to 30 March 2013 to around €15 million.
By next year we expect to be profit-making.

What are the main aspects your the cost savings program?
My first priority was to streamline the organisation and reduce costs. We have modernized the management and since we were highly over staffed, we needed to reduce our work force by 450 people.
We needed to become more efficient. Other costs including supplier contracts were not in line with industry standards and had to be revised.
The second priority was to review processes and procedures across the areas of the airline which were outdated and not in line with the requirements of an airline the size of Air Malta.
We also needed to improve our revenue position. We now have extra income through ancillary revenue like seat reservation, charges for seats with extra legroom and similar. The airline did not offer all of these services before.
In parallel to these changes we embarked on an internal ‘cultural revolution’, to support the big changes that we were doing. To be a true agent of change, you need to disrupt the ways you do things.
We are making progress on all fronts and the national pride in Air Malta is being regained.

Was there a lot of resistance by the employees? 
It was not easy but we had to tell them the truth. We had to be honest to them. The airline would have shut down completely if we had not reduced the number of employees.
We wanted to pull them through instead of pushing them through. We organized meetings, kept employees informed of developments and offered schemes for voluntary and early retirement.
Overall the process was smooth and not one single day was lost due to a strike action.

You are wholly owned by the Maltese government and they are financing your restructuring process. Is there any danger that the European Commission forces you to pay back the subsidies?
We don´t have to pay-back these funds as long as we stick to the restructuring plan. The European Commission has given us the green light to move forward.

What were the main goals of the rebranding one year ago? Is it justifiable that a struggling carrier spends a lot of money on a new design?
The Air Malta brand was tired. The previous livery was created over 20 years ago and we needed to be re-positioned for the 21st century. But, more importantly, since a lot of our business is leisure based, we have to promote Malta overseas. Our branding now focuses on the destination and the airline now aims to become the ambassador and the guide for the Maltese Archipelago.
Malta is a fantastic country full of colour and vibrancy. We have to sell this. Our rebranding represents the culture, the heritage, the colours and the sense of pride of the people who work and live in Malta far more effectively. Through our new livery we are flying ‘The Pride of Malta’. We have repainted most of the fleet in the new brand and it was exceptionally well received in Malta and overseas.

©: Air Malta – Cedric Galea Pirotta

 

You currently still have ten aircraft and around 1000 employees. That means a lot of employees for each aircraft?
We used to employ over 1200 full time staff. This number has gone down to around 800. During the summer months we are now employing temporary staff to handle the increased workload.
We are continuing to work on improving our processes. When we are profit-making again we plan to expand and we would require more staff.

Your business is very seasonal. Do you plan to store aircraft in the winter season?
Malta also attracts a lot of tourists during the winter. That is a real advantage for us. Of course the number of passengers and flights is lower than in the summer period so we need less capacity. One aircraft has been leased to Sky Airline in Chile for three months each winter for a number of years now. We also do all heavy maintenance checks in winter. That means that only eight of our ten aircraft are flying on our network during the winter season.

You currently have a fleet mix of A319 and A320. Would it be easier to reduce your fleet to just one aircraft type?
That would make no difference for us. The Airbus A319 and Airbus A320 are actually part of the same family of aircraft so there is no problem regarding maintenance, equipment, facilities and crews.

It is quite a long distance from Malta to the UK. Why didn´t you buy the Airbus A321?
It has a much better performance per seat, especially on long routes. We have the option to introduce the Airbus A321 and it would be a great opportunity for us,especially on our routes to Frankfurt, London Heathrow and Brussels.

What are your most important markets?
The UK is the most important market for us. Other important markets include Germany, Italy, France, Switzerland and Russia.

Ryanair is a big competitor for you as well as Monarch. They are both flying on the very popular UK routes. Have you reduced frequencies and routes in the UK market because of their strength?

As part of the restructuring plan we had to reduce capacity on our profitable routes. This was part of the ‘compensatory measures’ we needed to take to be granted approval for the plan by the European Commission.

All in all, how much has total leisure air traffic and your position changed on Malta in the recent years?
The number of visitors has grown considerably and Malta is experiencing record numbers of visitors as well as the air traffic. Our passenger volume today is the same compared with our results a few years ago so we did not lose passengers due to the entrance of low-cost carriers but of course we lost market share.
Our yield is increasing due to the introduction of ancillary revenue. Malta Airport currently handles 3.5 million passengers a year and the number grows by five to six percent per annum.

Another market is the regional market with routes to Italy. Italy is in a big financial crisis. Do you see a big decline in passenger numbers?
Two years ago the number of passengers between Malta and Italy decreased but the market is now growing again. Malta and Italy have very close relations and there are also a lot of holidaymakers traveling on our flights between the countries.
We offer services to Catania, Rome and Milan and we also operate flights between Catania and Munich. Sicily is a very popular route since the two islands offer different attractions and there is significant travel between both islands…

How high is the percentage of business travelers?
10 to 15 percent of our passengers are traveling for business reasons. The percentage of business travelers is varying a lot on our routes. For example on our flights to and from London Heathrow we carry 20 to 30 percent business travelers.

Are you offering a business class product?
We offer a full-service business class on flights to selected destinations like London Heathrow, Amsterdam and Frankfurt. We have different configurations on our flights.

Malta Airport has announced to waive landing charges during the winter period? This might be really good for you because you are flying all-year-round?
We have been in negotiations with the airport operator to establish this charge policy. It is of course a positive step for us.

Will you operate more flights to destinations in North Africa like Libya, which is known for high yields in connection with your broad European network?
We have commenced flights to Libya recently and the yield is encouraging. This summer we also operated services to Algiers. We have plans to extend our network in the area and we are currently looking at Tunis, Casablanca and Cairo.
We also have the opportunity to commence flights to the Middle East or to the Sub-Sahara region. Flights to destinations in countries like Niger, Chad or Mali are not planned.

Do you know why Hi Fly has applied for traffic rights from Malta to New York?
No we don’t.

©: Air Malta – Kurt Arrigo

 

Where do you see Air Malta in a few years?
First we need to be profit-making again. That is our main goal for the future.
Our future also depends on how the country sees itself. We have plans to take advantage of the location of Malta for transfer flights to the regions I already mentioned earlier.
We have no intentions to join an alliance.

Thank you for the interview!

Air Malta – Airline Information

Air Malta – Aircraft and Fleet List

Air Malta – Recent News

Air Malta – Airline Route Network

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ch-aviation interview: Transaero – Dimitriy Stolyarov

An interview with Transaero Deputy General Director Dimitriy Stolyarov.

Transaero is the second largest airline in Russia. Privately owned the airline currently operates 95 aircraft with orders in place for the Airbus A380 and the Boeing Dreamliner. In this interview Transaero’s Deputy General Director Dimitriy Stolyarov talks about the challenges running an airline in Russia, the Russian aircraft manufacturers and Transaero’s first Airbus A380 destinations.

This interview was originally published in German by Austrian Aviation Net.

Transaero Deputy General Director Dimitriy Stolyarov ©: Jan Gruber

 

ch-aviation: Transaero is the only operator of the Boeing 747 in Russia. You have also ordered the Airbus A380. What have you done to prepare for its delivery?

Stolyarov: We expect the first A380 to be delivered to the airline in 2015 and I‘m really proud that Transaero will be the first, and so far the only, Russian operator of this type of aircraft. We were also the first Boeing 747 operators in Russia. Our team has already made a lot of efforts to prepare for a successful launch of the A380 services, including crew training.

 

ch-aviation: Have you already made plans as to which destinations will be served by the A380?

Stolyarov: We will operate the A380 on routes with high passenger density. So, it will be used on routes to leisure destinations such as Thailand, Spain or even the United Arab Emirates. We will also operate the A380 on domestic routes including those from Moscow to Vladivostok.

 

ch-aviation: Can you break your passenger traffic down for us in terms of domestic and international traffic?

Solyarov: We currently focus on the international market. About 80 percent of our passenger traffic accounts for international routes and 20% for domestic services.

 

ch-aviation: Who are your main competitors in Russia?

Stolyarov: As we currently serve 190 routes, we have multi-national competition, not just Russian. Aviation is an international business, so the airline competes with different airlines at each particular airport we serve.

 

ch-aviation: Transaero has been a longtime Boeing operator. But, with the introduction of the Airbus A380 you will suddenly begin operating Airbus aircraft for the first time. How does your Airbus A320neo order tie into this?

Stolyarov: Well, currently 95% of aircraft in our fleet are Boeing. However, we’ve considered other alternatives and offers in the market. The airline has required a new aircraft to be ordered and we’ve decided to order the Airbus aircraft. Airbus has made a very good offer, and this is certainly not a deviation in our development.

But, while it makes no difference to passengers whether they travel onboard a new Boeing or Airbus aircraft, there is a marked change for the pilots, who will now have to get accustomed to the Airbus side-stick. And, since we’re set on operating the Airbus A380, it makes sense to introduce the new Airbus A320neo alongside it.

 

ch-aviation: You talk about a good offer from Airbus. Does that mean that pricing was a critical facet of the deal?

Stolyarov: Of course price is important. We’ve agreed on good terms and have got a good offer from Airbus.

 

ch-aviation: Transaero operates three Tupolev 214s in addition to two Tupolev 204 freighters. What is your experience with the aircraft?

Stolyarov: It’s possible to compare the Tupolev 214 with the Boeing 757: Their length, capacity and range are all nearly the same. These aircraft are absolutely safe and meet to the highest international safety requirements. Our Tu-214 aircraft’s interiors were entirely produced in Germany, so from this point of view, there is no difference between the two types. In terms of fuel consumption, the 757 is a bit more efficient.

 

ch-aviation: Do you intend to order further TU-214s?

Stolyarov: We ordered ten Tupolev 214, however the serial production of this type has been stopped.

 

 
Transaero Tupolev Tu-214 ©: Jan Gruber

 

ch-aviation: It seems bizarre that a manufacturer would cease production despite having existing orders…

Stolyarov: If Tupolev had received 100 orders, they would have continued the production. There were simply not enough orders.

 

ch-aviation: Russian aircraft are currently not very popular in Russia not to mention other countries. What, in your opinion, is the biggest obstacle Russian aircraft manufacturers face?

Stolyarov: That’s a very complex question to answer. During the years of the Soviet planned economy, there was no competition among Russian aircraft manufacturers. Aircraft were produced according to a centralised plan, not according to demand. With the fall of communism and the transition to a Free Market economy, however, the manufacturers found they were unable to compete. The production rates were very low and their aircraft were considered outdated and too costly to maintain. As it stands, the Russian aviation industry is slowly learning to become more competitive internationally following years of isolation. This can only come through experience.

 

ch-aviation: The Sukhoi Superjet is a new development from Russia. How many aircraft have you ordered?

Stolyarov: We have six orders with options for a further ten.

 

ch-aviation: The Sukhoi Superjet is comparable to the Embraer 190 and the Bombardier CRJ-1000. Why did you decide to order the Sukhoi Superjet?

Stolyarov: Transaero Airlines is mainly focused on long-haul flights. Through acquisition of the Sukhoi Superjet aircraft the airline has demonstrated its support to the Russian aircraft industry. We currently have no plans to fly regional routes, but we plan to operate the Sukhoi Superjets on short-haul routes, such as from Moscow to St. Petersburg or Kaliningrad. The Embraer 190, in my opinion, is more suited to regional routes.

 

ch-aviation: When will you take delivery of your first Sukhoi Superjet?

Stolyarov: In 2015, or more feasibly in 2016.

 

ch-aviation: Your latest financial results, published a few weeks ago, are really impressive. You are profitable and your revenue has seen strong growth. What makes you so successful?

Stolyrov: The market in Russia is currently growing exceptionally fast. While the global market has a growth rate of four to five percent per year, in Russia we have seen 15 to 17 percent per year. Transaero is ahead of that curve growing around 20 to 25 percent per year. We are very cost-efficient;our fares are based on our costs which we monitor very accurately.

 

 
Transaero Boeing B747-400 at the MRO facility in Moscow Vnukovo ©: Jan Gruber

 

ch-aviation: How are the fuel prices developing in Russia? Is fuel an important cost factor for Transaero?

Stolyarov: Like anywhere else, fuel costs are one of the most important factors to consider in the airline business. Last year the price of jet fuel increased by 20 percent and, unfortunately, it keeps on rising. The price of jet fuel at some Russian airports is actually much higher than at airports abroad.

 

ch-aviation: So does that mean that you are trying to refuel outside Russia?

Stolyarov: In Moscow we have three major international airports where we have the possibility of choosing between jet fuel suppliers. That is to say, the prices charged are internationally competitive. However, at some Russian airports where a single fuel supplier has a monopoly, we can do nothing except pay what they charge. In some cases our airplanes are refueling in stock.

 

ch-aviation: What is the reason why foreign-made aircraft, like Airbus or Boeing, are registered either in Ireland or in Bermuda?

Stolyarov: To begin with, when the first foreign-made aircraft were delivered to Russia, the authorities did not have enough qualified technical personnel to validate their airworthiness. Another point to consider is that Russia is not a signatory to the Cape Town Protocol. Legally-speaking, aircraft here are considered as real estate and are registered and taxed as such.

As a result, leasing companies and aircraft owners have tightened delivery terms applicable to aircraft delivered to Russia. Since international leasing firms do not recognize the Russian aircraft registry or the Russian regulatory authority as being in accordance with Chapter 83 of the Chicago Convention, Russia was forced to sign agreements with both Ireland and Bermuda. The supervision of aircraft is thus split between the two authorities.

Presently, nearly all aircraft manufactured outside Russia but flying in Russia are registered in either Bermuda or Ireland.

 

ch-aviation: How much higher would the costs be to register an aircraft in Russia?

Stolyarov: Costs don‘t matter. Since the registry is not acceptable by the European and US aviation communities of leasing companies, should an aircraft be registered in Russia for even a few months, international authorities would then list that aircraft as uncontrolled. Its records would be interrupted and its value would subsequently depreciate.

While Ireland and Bermuda are both deemed to be “off-shore”, this is in fact a misnomer. The authorities in both countries are very professional and carry out their inspections very stringently.

 

ch-aviation: Russia has an interesting law: airlines have to offer free catering. Is that true?

Stolyarov: That is correct. But there are more like that. Russian carriers have to refund the full flight fare if the passenger cancels his booking 24 hours before departure. Furthermore, passengers are entitled to have free luggage allowance on all flights by law. If a flight is cancelled, airlines have to pay for their taxi, accommodation and food. So as you can plainly see, low-cost carriers have no real chance to exist in Russia working in accordance with these laws.

 

ch-aviation: In Europe it´s common not to get served hot food in economy class. Germanwings and other carriers like WizzAir or easyJet fly to Russia and only offer food for sale. Is the law only valid for Russian carriers?

Stolyarov: Only for Russian airlines.

 

ch-aviation: Your first class is called Imperial Class. What is special about your premium product?

Stolyarov: Imperial Class took quite some years to develop and is constantly being improved. During the economic crisis of 2008/2009, we noticed a trend that people, who used to fly with private jets, were now booking scheduled flights and therefore required a high level of service.

Interior in Imperial Class consists of full-flatbed seats. Every passenger gets their own pajamas and bed linen. Catering is taken care of by Cafe Pushkin; the selection of beverages is lavish and diverse.  Every passenger has a personal manager. Furthermore, the tableware is manufactured by a famous company from St. Petersburg. Every Imperial Class passenger has a limousine service from the city to the airport and vice versa. There is a free airport lounge too. Our feedback has been really good.

 

ch-aviation: How much is an Imperial Class fare, say from Moscow to New York?

Stolyarov: About USD3000 one-way.

 

ch-aviation: Is there high demand for the Imperial Class product?

Stolyarov: The load factors have been really good; feedback as well. On several flights, the class is usually fully booked though the average load factor is 78 percent. A lot of passengers are accustomed to travelling in comfort and are willing and able to pay for it.

 

 
Transaero Imperial Class ©: Jan Gruber

 

ch-aviation: What is the average load factor on Transaero flights generally?

Stolyarov: We have an average load factor of more than 80 percent.

 

ch-aviation: You mentioned that Transaero mainly flies international routes. Was  it originally planned that way when Transaero was founded?

Stolyarov: Transaero was founded on September 30, 1990. Our first flight from Moscow to Tel Aviv took place on November 5, 1991. We always planned to fly international routes for the most part, and our domestic network has only really been developed over the last four years, as before it was not considered important.

 

ch-aviation: Moscow has three major international airports, as you have already told us. Transaero started out from Sheremetyevo and later developed Domodedovo as well. Now a lot of flights also operate out of Vnukovo. Why?

Stolyarov: Transaero uses all three airports though lately we have focused on increasing our presence at Vnukovo. As Domodedovo is not developing as fast as we are, there is not enough capacity there. Vnukovo Terminal A has proven excellent for us, and the airport has enough capacity to boot.

 

ch-aviation: When Russian government aircraft operate into and out of Vnukovo, operations there can grind to a halt for a short while. Has that impacted on your operations?

Stolyarov: Operations really only get interrupted when the President or Prime Minister travel. But neither of them flies that often anyway. Nevertheless, you are correct in that sometimes this does cause minor delays.

 

ch-aviation: Vladimir Putin recently suggested the abolishment of the visa requirement for Russians visiting the European Union and vice versa. Would that improve the Russian-European relations?

Stolyarov: Around 60 countries have abolished their visa requirement for Russia and vice versa. As a result, tourism in those countries, like Turkey, Egypt and China, has increased. The UAE have significantly simplified the visa application procedure. I often meet ambassadors from countries like Italy, Spain, Bulgaria and Greece and I know how happy they would be if the visa requirement was abolished. They could generate a lot of money with additional Russian tourists. While Russia is the biggest country in the world, all embassies are located in Moscow – only a few countries have consulates in cities with more than one million citizens. People in other cities/towns have to travel to Moscow to get a visa before they can travel.  Being very inconvenient, a lot of travelers decide not to visit Europe but instead go to the visa free countries.

 

ch-aviation: Can you imagine why the European Union is so hesitant in that matter?

Stolyarov: I have no idea.

 

ch-aviation: When will you introduce your first Boeing 747-8?

Stolyarov: In 2015.

 

ch-aviation: Thank you for the interview!

This interview was originally published in German by Austrian Aviation Net.

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