Boeing 737 Max - My visit to Seattle (December 2019)

We came to Seattle, a small group representing the industry, from different parts of the globe and embracing a broad of disciplines.  Amongst our number were pilots, cabin crew union reps, analysts, former regulators and accident investigators, consumer advocacy, writers and a nuclear physicist.  Invited by Boeing to engage and discuss with the company’s leadership on what it is doing to achieve the safe return to service of the Boeing 737 Max and more broadly to restore trust in its culture and business ethos.  This is my personal account and impressions of the visit. It is by nature subjective and I will focus primarily on the issues on which my experience allows me to provide an informed view and less so on the technicalities of piloting which others are better able to comment on.

Boeing is rightly in the spotlight following the two tragic Max crashes.  I reflected deeply, taking counsel from trusted colleagues, before accepting.  Everyone said “you must go” and I’m glad I did.  The accidents certainly shook my faith in Boeing and led me to question how it could have got itself into such a position and whether it had lost its exemplary focus on engineering prowess.

An intense programme was provided over a long day and a half, including commentary on the company’s actions, factory visits, simulator time and most importantly extensive opportunities for questioning of the leadership team.

Boeing’s chief pilot Craig Bomben spent most of the first day with us, presenting & providing time on the E Cab Max simulator in the evening, allowing pilots to experience both old and new software linked to the MCAS system, implicated in the two accidents.  Whilst much of his narrative addressed his own confidence in the proposed remedies for the Max (he piloted the aircraft’s first flight), he highlighted the need to collaborate and partner with other OEM’s at an industry level to learn lessons from these accidents and share best practise.  As a result of the accidents he sees Boeing’s own pilots now having a much greater role in human factors training and cockpit design.  Scenarios concerning pilot response times need to be rethought as they did not hold good in the two accidents. He acknowledged that some regulations are out dated and not now appropriate for modern aircraft and cautioned that “bubble wrapping” pilots with automation risks degrading skills.  

I was particularly keen to hear from and put questions to CEO Dennis Muilenburg.  In the 90 minutes that he spent with us, I gained a much stronger positive impression face to face, of genuine contrition, sincerity and willingness to take on board responsibility than had seemed apparent in media coverage.  He is an engineer by trade, with Boeing for 34 years.   “We want to get your help, advice, counsel and perspectives”, he told us.  He apologised repeatedly and acknowledged that Boeing had been “slow to step up to total responsibility…we are responsible”. He talked about his meetings with families of the deceased and how hearing their stories has inevitably left their mark deeply for him personally.  He acknowledged “fair criticism” and stated “we will never prioritise profits over safety”. He came to Boeing as an engineer believing in the mantra “connect, protect and explore the world “.  He spoke of how the fabric of company culture has changed, only time will tell, but in the months and years ahead, I need to see that it has. He certainly provided comprehensive evidence of what has been done so far and what will be done. Safety starts at Board Level and the company is focussed on the principal of “safe airplanes, safe system”.  A new integrated safety organisation has been established, led by Beth Pasztor, from whom we heard.  All engineering functions have been consolidated via the Chief Engineer rather than being fragmented across different programmes.  For the Max specifically, information is being added in manuals to reduce time spent by pilots diagnosing.  Investment is being made in 35 Max simulators in Seattle to assist with expected pilot training requirements.

Muilenburg was emphatic that Boeing has “no interest in putting unsafe planes in the air” and for me his necessary recognition that “we made some mistakes and assumptions in the design process which had worked for years” and his acknowledgement that “we have damaged confidence in the pilot community”, were highly important statements. He also sees that for the flight deck of the future there is a need to revisit design assumptions in high workload situations.  

Some pilots in the visiting group voiced a sense of betrayal, he took this on board “…we weren’t assertive enough early in the process, it is not our place to blame pilots“.

I put it to him that there are people in Boeing who have, by inference, blamed the pilots for these two accidents.  His response was clear, “we will not blame pilots, I have told the team”.  A clear leadership direction but it needs to be embedded firmly in company culture.   

I questioned him about the challenge of operating in a globally competitive market, dealing with hard-nosed airlines demanding ever keener deals on pricing and necessitating cost cutting. How does that stack up against safety culture? “I’m not gonna say we aren’t taking costs out, we are.” This will never be at the expense of safety he said, citing the 737 Max production rate cut as an example of how they are using the opportunity to improve processes.

I also asked him how he saw the regulatory challenge of getting the Max back flying again safely and what it might mean for future aircraft certification.  He sees the need for a global ungrounding, though he expects some time phasing and warns that “we don’t want to see a future of fragmentation, that’s bad for safety. We need a safety management system that is integrated, best practice”.  I’d concur with that.

How to sum up the time he spent with us? Sincere, focussed, in his words “humble…room to improve and we want your advice”.    

We heard from Beth Pasztor, Boeing’s new VP Product and Services Safety. I was pleased to learn she’s another engineer “lifer”, with 34 years service.  She worked on the 747-400 programme and the challenges its new central maintenance computer presented.  I told her that while she was doing that, I was coming up with numbers for a compensation claim from BA for delayed delivery of our first 400’s!  I was very encouraged listening to and speaking with her.  She is there to provide an independent voice and to foster both anonymous and named reporting, encouraging employees to speak up with confidence, on anything they believe to be detrimental to safety.  I asked her if she is confident that this can really happen and whether employees can feel free of “undue pressure” not to report problems or to comply?  She highlighted that this is about management style, refreshing the focus and checking the culture.  It’s also important that new employees, who may not have witnessed accidents and setbacks, benefit from the experience of those that have.  She highlighted that while there must be a safety culture, it also needs to be a just culture where people feel they can speak up. She also talked of the need for the industry to come together holistically on safety. I found her both authoritative and highly credible.  Current and future Boeing management must walk the talk, not only supporting the organisation that she has been tasked with leading, but giving it teeth too.

Reflecting more broadly on safety culture, we visited Boeing’s Safety Promotion Centre at their Everett plant.  This exhibit has existed for around three years and is primarily focussed on an internal audience.  It was inspired by a similar centre established by JAL after the fatal crash of one of its 747’s in 1985.  It tells the story of how aviation safety has evolved through the decades and how lessons are learned from every accident, it is led by Boeing’s chief accident investigator, Richard Anderson.  There is a poignant tribute to the lives lost in the two Max accidents and Muilenburg wants to ensure that every single Boeing employee visits the centre.    

While Boeing is in the hands of regulators as to when, assumedly, the Max returns to service, we heard from Mike Fleming, Vice President of Commercial Services for Boeing Global Services who is leading the complex task of doing so.

With around 800 aircraft either manufactured, delivered, preserved or stored, RTS (return to service) has to be managed on a tail by tail basis.  Boeing knows the condition of every single Max aircraft worldwide and under what conditions they have been stored or preserved and consequently what is required to de preserve each one for RTS.  While the company hopes that RTS will be early in the New Year, it recognises that even after a regulatory green light, it will take “multiple quarters” and a ramping up in deliveries to achieve this for the entire global fleet.  A dedicated Operations Centre has been set up in Seal Beach California to provide 24/7 engineering and supply chain support along with a communications team to manage inevitable media interest.  Boeing teams are working with each individual aircraft to ensure everything possible is done for a smooth return.  The world will be watching.       

The challenge of restoring travelling customers confidence and trust both in the Max and in the company is not underestimated by Boeing and how exactly this can be achieved is very intangible.  For sure, the work has to start by winning back the hearts and minds of the world’s pilots and cabin crew.   Several of their number were active members of the group and they have to be 100% confident.  Talking to some of them on the visit, these two days in Seattle provided a good first step. Personally I am pleased Boeing reached out to engage, without limiting discussion or prescribing what they hoped the outcome would be.  It will be the first of many steps.  I was encouraged to see the recognition of mistakes and the need to own responsibility coming right from the top, there is no other way.  I was heartened to see that engineering skill is immersed at the core of Boeing’s leadership team, that its importance is being consolidated and to see that real efforts are being made to ensure all employees are comfortable to speak out on safety concerns.     

The 346 lives lost in the two Max accidents can never be brought back, the tragedies must never be forgotten but looking forward Boeing has to re-establish trust through its actions.  Both it and the wider industry must be willing to collaborate and share the learnings which these events bring and to accept the need to challenge, adapt and change accepted methodologies in design, production, operational processes and training where it is clear that this will strengthen the industry’s safety imperative.

Arabian skies. Air Arabia continues to soar

Air Arabia celebrated its 15th anniversary in 2018.  It’s been an amazing success story of trail blazing the LCC model in the Gulf.

At the helm from the start has been Bahraini CEO Adel Ali, who I’ve known since we were considerably younger!  In the late 1980’s I was a network planner for British Airways and Adel was responsible for the airline’s sales and marketing in Bahrain and a regular visitor to Heathrow to lobby for more capacity.  He jokes that his career has gone downhill from selling Concorde seats (yes, BA used the aircraft to Bahrain for a while) through the glory days of Gulf Air to LCCs!

When Air Arabia was first established, the Low Cost model was unknown in the region and there was scepticism about its viability. Conventional wisdom suggested that there was little price sensitive demand for LCC services in the Middle East, in reality the market has proved to be no different to anywhere else.  Air Arabia has long since proved the sceptics wrong.

Adel and his team set up the airline in just 6 months, as a “copy paste” of the best bits from established LCC’s (he points out the skill isn’t so much in copying, but in pasting successfully!)  The Sharjah home base in the UAE benefits from a large catchment (including its proximity to Dubai) and many expats with a demand to travel home.  Indeed the customer base is very diverse, from wealthy families to students and from small businesses to leisure and worker traffic.  Adel speaks of how his airline has liberated many people from tortuous 30-40 hour bus journeys on hot summer days in the region, by offering affordable prices ( the local bus company took him to court for stealing business!) and revolutionising their lives with affordable air travel.  The airline’s development has provided a massive economic stimulus, contributing 7% to Sharjah’s GDP.

By applying the core LCC disciplines of low pricing, ancillary sales and high utilisation of a single aircraft fleet, the A320, Air Arabia has been successful in delivering consistently high profitability.  This has been achieved as an independent privately owned company, the only one to be stock market quoted in the region.  Adel emphasises the need to “focus on the business as a business” and to manage costs, highlighting that “you are never in control of what you charge the customer” and acknowledging that there is “loyalty to airlines as long as their prices are good”.    

Under his leadership, the airline has managed to navigate the many complexities and challenges of its region including geo political tensions and a desire by some governments to interfere in the running of airlines.

Air Arabia has gone on to grow beyond Sharjah, establishing joint venture operations in Morocco and Egypt, with local partners as 51% shareholders.  Local certification is required in each case, adding an element of complexity, however results have justified this.  Morocco is a “star performer” and now has 10 aircraft while Egypt, which was capped until recently at just one aircraft due to the country’s political problems, has added two more aircraft.  “Now is the time for growth” says Adel.  A similar venture was abandoned in Jordan when conditions did not prove conducive to success.   “I hope they get better treatment than us” he says of Ryanair’s recent moves into the Jordanian market.  Back in the UAE Air Arabia also stepped in to establish a standalone operation in Ras al Khaimah after the failure of the Emirate’s local airline.

Today Air Arabia’s network extends into Europe as well as to Africa, India and Asia, including initial steps into China where it has some unused route rights.  For now it remains loyal to its Airbus fleet, recently taking delivery of its first A321 NEO’s which provides both increased capacity (an additional 50 seats) and greater range.  The new aircraft opens the door to further new route opportunities, including Kuala Lumpur which was announced recently.  However Adel acknowledges a substantial order for around 100 aircraft is likely to be placed soon and he is open to proposals from both Airbus and Boeing.  One to watch, especially as regional jets could become part of the mix for growth markets.  It sounds like Air Arabia will continue to soar.

Watch my interview with Adel Ali.        

Emirates - Taking a new direction

Emirates recently posted a 69% drop in profits for 2018 on the back of higher fuel prices and increased competition but it is still very much an airline in the premier league.  I caught up with President Sir Tim Clark at the recent Arabian Travel Market and questioned him on his current business priorities.

Geo political challenges abound, with Sir Tim seeing the EU “European Project” threatened by the ongoing Brexit uncertainties.  Reaching a conclusion in the US-China trade tensions “is important”, though this doesn’t appear likely any time soon.  Meanwhile sensitivities remain with regards to the US “Big Three” complaints against the Gulf carriers.  Sir Tim was forthright in stating that Emirates has made no undertaking not to launch any more Fifth Freedom routes, aside from its existing Athens and Milan services to New York, even though it has no immediate plans for more.      

On the fleet side of things, Emirates has long been the trail blazer for the Airbus A380 and the big recent news was the announcement of a reduction in its outstanding orders for the ultra large aircraft.  In effect, this news marked the death knell to future production of this very passenger popular aircraft. Sir Tim says ruefully, that the composition of airline Boards has changed in recent years with a more risk averse mentality which has worked against the aircraft.  Interestingly, part of his rationale in reducing outstanding orders was that it has become harder to defend deploying ’90’s engine technology as environmental concerns grow.   He makes the point however that when the time does eventually come for the A380 to bow out it will create a massive problem for capacity constrained airports in the absence of an equally large replacement aircraft.  He illustrates this with the example of Heathrow, where currently Emirates operates 6 daily A380’s.  Taking account of the near 30% drop in capacity of the yet to be delivered Boeing 777-9 (512 seats down to 370) and building in market growth, Emirates would need to significantly grow frequency or fly much larger aircraft, neither of which will be an option! As it is with large orders now in for large twin jets, Sir Tim says network size and shape is currently under the microscope, looking ahead for the next 13 years or so.

Commenting on the current Boeing 737 Max grounding he highlighted that there are limits to the number of times that derivatives of existing airframes can be effective, pointing the finger at both sides of the Atlantic in saying so.  He nevertheless describes Boeing as “game changers”.         

Touching on commercial partnerships, Sir Tim still sees significant advantage in its collaboration with Qantas which has been renewed for another 5 years. Emirates still gets the benefit of much Australia-UK/Europe traffic being funnelled via Dubai, especially with reduced Qantas capacity on Heathrow, following the introduction of the nonstop 787 Perth service (replacing an A380).  Qantas gets the benefit of using more of its metal in developing Asian markets.  The  cooperation with Dubai’s other airline, Fly Dubai continues to roll out, offering many more itinerary opportunities for customers as well as providing new efficiencies on the planning of schedules and capacity deployment for both airlines.

A really interesting product step by Emirates, is the introduction late next year, of a premium economy cabin.  The airline has been reluctant to make such a move until now.  It’s increasingly becoming a lucrative cabin for many airlines, allowing them to tap into customers who can’t afford the step to business class but who are prepared to pay a margin over economy, for some extra comfort and service.  Sir Tim has himself evaluated, using virtual reality goggles, a number of design options and believes it will provide a good trade up revenue stream from economy rather than a trade down from business.  The challenge for roll out is reaching a critical mass,  having enough aircraft fitted out, to maintain a consistent product offer on initial routes.

We covered a lot of ground and it’s clear that there is plenty on Sir Tim’s plate.  As ever Emirates stands ready to take a new direction. 

Saudia set to soar

Jaan Albrecht, CEO Saudia

Jaan Albrecht, CEO Saudia

The Saudi Arabian market is changing. Relatively closed for a long time, it’s beginning to open to increased competition. There’s evidence of dynamic new energy in the market. Unlike neighbouring States, Saudi Arabia has a substantial local population of 33m people; this underpins a large point to point market which is ripe for growth and supported by 27 airports in the country.

I spoke with new Saudia CEO, Jaan Albrecht, who’s been brought in to provide some “outside in” leadership based on his own substantial industry experience.

Saudia was established in 1945 and is now in its 73rd year. Until recently the airline has been in the shadow of the Gulf “Big Three” but is beginning to awaken, taking on its own profile and sense of purpose.

Last year Saudia carried a record 32m passengers and is a key part of Saudi Arabia’s “Vision 2030” initiative, to diversify the economy away from its reliance on oil.

The large home market provides a solid base of customers for Saudia. Added to this is the number of Saudi nationals living abroad, especially in Europe and the USA. This means there is much less dependence on transfer traffic than is seen in other Gulf markets.

“I would not like to overplay the sixth freedom opportunity, says Albrecht , it’s not the same business model that we pursue in Saudia”. He talks of the “unique positioning of Saudia “…with its strong positions for both Islamic tourism and for labour traffic, neither of which relies on sixth freedom traffic”.

Saudia operates two hubs, one in Jeddah, which supports the religious Hajj and Umra traffic visiting Mecca and a second in Riyadh, home of much Government traffic. The airline is poised to tap into a growing religious tourism market as millions of additional visas are issued for visits to Mecca. Hajj guests flying on Saudia were up 40% last year ahead of the visa expansion.

Fleet renewal is well underway with substantial orders coming through including more Boeing 777s and 787’s and additional Airbus A320’s. 32 new aircraft were delivered in 2017 alone and the fleet is expected to reach 200 aircraft by 2020.

The new Jeddah airport will open this year which will provide a much needed boost to currently very congested capacity and support Saudia’s growing activity.

There is a renewed focus on the customer too, Albrecht told me. “State of the art aircraft, investment in the fleet, in the on board service, investment in the overall experience for the customer will continue to be one of the priorities” according to Albrecht. “This is a proud company with 72 years of experience” he says. Saudia’s performance looks set to soar.

In my next blog I’ll look at the other big Saudi story, the growth of the LCC segment.

Emirates and IAG - Chalk and Cheese of the Airline Business


Sir Tim Clark and Willie Walsh at WTM 2016

I had a rare opportunity to interview 2 of the airline world’s most successful leaders, President of Emirates, Sir Tim Clark and CEO of IAG, Willie Walsh, on stage together at the World Travel Market.

Like chalk and cheese in many respects, Emirates is in its 31st year, whilst IAG is only 5 years old.  Emirates is an established brand whilst IAG is better known outside the airline world for its successful constituent airlines, British Airways, Iberia, Aer Lingus and Vueling. As a  holding company delivering profits, not achieving notoriety, is its game.  In this it has excelled when compared to the lacklustre performance of its peers, Air France KLM and Lufthansa.

Emirates has ploughed its own furrow which has suited Clark, a former network planner, just fine and allowed him to truly craft the airline to his own, highly successful, specification. According to him the airline is an “organic animal”  which since the beginning  “… needed to have direct control over exactly what we wanted to do, when we wanted to do it and where we wanted to do it” he explains.

IAG on the other hand, is an industry consolidator and has been able to draw upon Walsh’s cool head (he’s a former pilot) and track record in facing up to challenges.  Under his leadership the Group is focussed on achieving synergies and efficiencies whilst “keeping the best of the individual brands” he says.  Each member airline is accountable for its own profitability.

We got stuck into several weighty issues.   The subject of airline alliances seemed a natural discussion point given Emirates’ very deliberate avoidance of membership.  Clark wryly notes that they emerged in the early 80’s but the “bedrock of alliance thinking has been challenged in recent years”

Walsh sees them as still having a role for now, but questions “… whether they will continue to have value in the future.”  He points to the rise of joint ventures whilst Clark highlights the shift of airline business models, particularly the challenge to orthodoxy posed by the rise of long haul LCC carriers.

Both men see this emerging business model as becoming more importance but very much dependent on a liberal air service environment.  Clark is concerned about a move away from liberalism and the emergence of “fortresses” which could cause the model to fail due to simple lack of market access.  Walsh notes the challenge Norwegian has faced to achieve full access to the US market (now granted).

As for the financials, it’s not good enough just to be called Long Haul LCC.  “The label means nothing. I measure success by profitability.” says Walsh.  The key will be whether an airline “exceeds its cost of capital on a sustainable basis”. He admires Bjorn Kjos and Norwegian but says “he is yet to crack the profitability bit”.  Clark sees high volume, high density being the key to success (e.g. an 800 seat A380).

Meanwhile Walsh asserts that Aer Lingus “…is the lowest cost producer of Trans Atlantic flying & is very profitable”.  Add to that the plans to densify seating on some BA 777’s and fly head to head on Norwegian routes at Gatwick and there are some  interesting skirmishes ahead for sure!

We had to have a bit of an aircraft chat.  Knowing that Sir Tim Clark is a real believer in the Airbus A380, I wanted to know what the 2 industry giants thought was the aircraft’s future?  He has tried in vain to convince Airbus to commit to a new upgraded version of the aircraft and remains convinced that increasing runway capacity pressures at so many hub airports will dictate that airlines think again about ultra large aircraft.  He feels that some airline boards have become risk averse.

Walsh could make a case for a couple of A380’s in Iberia, maybe one in Aer Lingus.  That type of thinking wouldn’t make sense if the airlines weren’t part of a group he says.  He likes the aircraft and   “If the price was right we are prepared to look at more A380’s…Airbus offer great aircraft…at terrible, really expensive prices!” he told me, grinning broadly.

Turning to airports, both men are vigorous in their views that they have to become more efficient in their provision of new infrastructure. Walsh has gone into bat on what he regards as excessive costs for the planned new runway at Heathrow.  Clark argues that attempting to “extract the cost of expansion out of the existing client basis” is not the right way to do it, stating that  “…if airports can’t extract value from the…passengers  going through…then you really shouldn’t be in the business in the first place”.

There’s certainly mutual admiration between the two leaders with Clark describing IAG’s achievements as “quite spectacular” whilst Walsh looks “with envy at what Tim has achieved.  Despite their success both airlines have faced a challenging year with Emirates profits down over 75% and IAG issuing a profit warning.  Challenges may be meat and drink to these two industry leaders, but with 2017 shaping up to be equally tough, they are likely to have a lot on their plates.  They’ll need to draw upon every bit of their experience to keep these two very different airline groups on track and in the black.

Qatar Airways Al Baker: watching like a hawk

Akbar Al Baker - 1Akbar Al Baker was on great form when I met with him at the recent Arabian Travel Market in Dubai. Our discussion was wide ranging and appropriately for a part of the world which is a home to falconry, his eagle eyed attention to detail is impressive.

On aircraft, Airbus is in the firing line. Al Baker has been vocal in his frustrations about teething problems with the A320 NEO. He’s refusing to accept any deliveries. There’s criticism too for the A350, already in Qatar’s fleet, Airbus “is losing steam on solving problems”. He also highlights the challenge presented by the number of common sub suppliers for Boeing and Airbus. When there are supply chain problems, the knock on impact can be significant for both manufacturers.

One year on since the launch of the US carrier complaints alleging Gulf carrier subsidies, we had to air the subject. Qatar has issued a weighty rebuttal and Al Baker is assertive in his defence of Qatar’s U.S. Expansion. He points out that mayors from 12 US cities, hungry for Qatar services, have visited him.

Whilst current Qatar US services show respectable load factors, Delta has pooh poohed the chances of success for the airline’s new Atlanta service. Al Baker however, is vehemently clear that his airline’s strategy is to build traffic for long term network contribution. He fires back that if Delta’s CEO believes Qatar will “chicken out” in the event of weak load factors in the first year or so of operations, he must be “smelling glue”.

With regard to potential investments & acquisitions, Al Baker is looking for “rising stars”. Although thwarted for now from investing in India’s profitable LCC Indigo, he would still welcome an opportunity. In Europe he sees Meridiana as offering huge potential to develop into a successful stand alone airline, not merely as a feeder carrier. The big caveat to investment is to achieve acceptance of initial job cuts from the workforce. Without that it’s no go. In Africa he sees the latent potential of Royal Air Maroc’s Casablanca hub with its wide African network and links to US cities and Brazil. He believes there’s been a lack of investment and focus, that the hub is underutilised and has lacked proper marketing up to now.

Qatar’s jewel is its stake in IAG which Al Baker describes as the “most successful” airline group today. It is very happy with its investment, not least for the dividend payment it has received and Al Baker told me in our discussion that it has raised its shareholding from 9 to around 12%. *(this was at the end of April 2016, since further increased to 15%).
Akbar Al Baker ATM

I asked about the appointment of IATA’s new Director General Alexander de Juniac, a man who as President and CEO of Air France KLM, is not known for his Gulf carrier sympathies. As one of IATA’s Board of Governors, Al Baker grilled him in the interview process on precisely this topic. After tough questioning, he accepted Juniac’s word that his anti Gulf carrier mantra was a corporate and not a personal view. He believes that IATA has selected “the right man for job” but, that as boss of IATA, the DG has to represent the entire airline community. Al Baker says he will be watching him “like a hawk” and when Akbar says that, it’s precisely what he means.

Brexit - A step backward for airlines

Does the topic of Brexit have anything to do with aviation? Actually, quite a lot.ryanair-aircraft

Some readers may not recall (or may not believe!) that there was a time when an airline couldn’t just put a fare on sale in Europe; it had to get Government approval.  Not just from one government but two, (at both ends of the route in question).  A national “flag carrier” could object and prevent a price from being offered in the market.   Today, thanks to EU wide liberalisation, all airlines owned in the EU are free to price as they wish.  Imagine a supermarket having to wait maybe a week or so to be told what price it can charge for a product!

Today we take it for granted that we can fly all over Europe easily & cheaply. This wasn’t the case even 20 years ago. Easy to forget that in the past the right to fly between one member state and another was limited to “flag carriers” from each country and maybe one other airline from either side.  There were far fewer and much more expensive air services available then than is the case today.

It’s thanks to the “Open Skies” regime agreed by member states that all this has changed.

This key European agreement broke down historic barriers and opened up competition, permitting airlines, majority owned within the EU, to fly anywhere they like within the EU. Choice of airlines and destinations has increased massively and fares have fallen dramatically. Low Cost Airlines in particular have made good use of Open Skies. Air travel has been democratised.  More people can afford to fly to go on holiday, to visit family and to do business.

Spelled out, before Open Skies, an Irish airline like Ryanair (which now flies over 100m people annually all over Europe) couldn’t have flown between two countries if Ireland wasn’t the destination or origin. Similarly so for easyJet if the UK wasn’t the origin or destination.

Sure, there are frustrations of excess bureaucracy, over regulation in non safety areas and slow progress on air traffic control improvements. But it’s better for the industry to work together to tackle this within the EU rather than to go back to the bad old fragmented days of one to one “bilateral” government negotiations.

EasyJetThere is also an increasing value to air transport in being part of the bigger negotiating block which Europe provides when negotiating other liberal air service agreements with the rising economic players of the 21st Century world.

There is more work to be done but Brexit would be a seriously retrograde step.  It would be turning back the clock on progress made and bring bigger risks and uncertainties which the airline industry doesn’t need right now.  You don’t know what you’ve got ’til it’s gone.

Rising to the Challenge: Christoph Mueller take the helm at Malaysia Airlines (MAS)

Christoph Mueller -CEO Malaysia Airlines WTM 2015 - CropIt’s only a matter of months since Christoph Mueller took up the reigns as CEO of Malaysia Airlines (MAS) and he’s wasted no time getting to work on the many challenges. I talked to him at the recent World Travel Market.

2014 was a terrible year for MAS with the loss of two of its aircraft. Mueller acknowledges that this has touched the workforce dramatically at a personal level and on top of this he’s had to administer some tough medicine with 6000 staff losing their posts. This should have been done better he says, job losses took too long, causing uncertainty and anxiety among staff.

Given the urgency of the MAS turnaround situation, certain prerequisites in leadership style are required, explains Mueller. A degree of autocracy (little time to consult with the team), an ability to take quick decisions on the 80/20 principal, against considerable uncertainty are all essential.

Costs are inevitably the key area of attention. Along with manpower, a myriad of expense allowances are being rationalised, as is an overly diverse supplier base. MAS finds itself in a highly competitive market with significant overcapacity in the Asia Pacific market driving low prices to deliver “consumer heaven” but “a nightmare for airlines”. Mueller’s aim is therefore to have one of the lowest unit costs in Asia making MAS fit enough to take on even the region’s leading LCC’s. Competition is a fact of life & he is unphased by the Gulf carriers or ongoing complaints about their activities. Indeed he’s just concluded a broad code share agreement with Emirates. Referencing the complaints, he draws comparison with the glory days of US carrier Pan Am with its global network & reminisces on plans, during his time with Lufthansa, to use Sharjah in the UAE as a key cargo hub.

Reshaping the network is a cornerstone of his turnaround strategy, it’s design dates back 15 years, focussed too much on low fare transfer traffic, particularly that in the highly contested “Kangaroo route” between Australia and Europe. Surprisingly perhaps, Mueller says he didn’t find a network that was shaped purely for political need, if anything it didn’t even match Malaysia’s key trade flows. London will be the only direct European destination remaining whilst several notable global cities will be confined to history. According to Mueller the fleet is well suited to the task in hand, London consumes 4 of the 6 Airbus A380s maintaining a double daily service, with spare capacity being offered in the charter market (not ideal admittedly). The Boeing 777 is, of course, a versatile long haul work horse.

He sees other reasons to be optimistic. Malaysia’s GDP is growing at 5% per annum; per capita incomes are the second highest in the region. In a part of the world where many competing airports are capacity strapped, Malaysian’s home airport, Kuala Lumpur International with 3 runways capable of independent use, has room for growth. “The sharpest strategic differentiator” over the medium term says Mueller. The one World Alliance membership is “under leveraged” and along with the new Emirates code share, Mueller is on the lookout for other partnership or joint venture opportunities. No question, the journey on which MAS is embarking on is a challenging one but Christoph Mueller, industry trouble shooter, looks to be well up for the fight.

Watch my interview with CEO Christoph Mueller at WTM 2015.

Clash of the Titans: American airlines versus the Gulf carriers

Tim Clark at ATM 2015The big guns of the airline industry are lining up for what could be one of the biggest battles in recent aviation history. On the US side: American, Delta and United. On the Gulf side: Emirates, Etihad and Qatar Airways. The Americans launched the first salvo with a 54 page report supported by over a 1,000 pages of evidence claiming to show that the Gulf carriers have benefited from more than $40bn in allegedly “unfair” subsidies.

On the other side, Etihad has countered by publishing a number of reports claiming that the US “Big Three” have received subsidies themselves in excess of $70bn.

The stakes are high. Sir Tim Clark has said that he would resign were it to be proved that Emirates has received subsidies.

In an interview with me at Dubai’s Arabian Travel Market he was confident that Emirates can “deal a sledgehammer to that report”. The airline has now produced a response in excess of 200 pages, plus supporting evidence. It methodically tackles the allegations made against Emirates and questions the soundness and reasoning of the US document.

Willie Walsh, CEO of IAG, is alone amongst European legacy airlines in dismissing the US claims out of hand.

He has offered support and admiration for the Gulf carriers since long before Qatar Airways became a shareholder in the Group . In its own submission to the US Department of Transport concerning the complaints, IAG highlights the fact that ” There can be few major carriers in the world that have not previously benefited from State support of its business in one form or another”.

I’ve personally witnessed the development of the Gulf carriers over the last 30 years and seen how effective they have become in tapping into the growth markets of the 21st century making good use of the long range capability of their modern fleets.

Whilst the American & European carriers are less well placed geographically to do so, in my view, some have equally been less inclined to seek out new opportunities . There are certainly numerous government funded airlines around the world who have done precious little to demonstrate the same entrepreneurial spirit shown by the Gulf carriers.

On the other hand it has been admirable to watch the US Big Three as they’ve turned themselves around into successful airlines, finally delivering sustainable levels of profitability when just a few years back you might have called them basket cases. It would however be disingenuous to say that this has been achieved without any government financial assistance.

The plaintiffs are the big boys of world aviation, not some playground weaklings. It’s perhaps no surprise that the US Department of Justice recently launched an enquiry into whether they might have it a little too cosy in their own domestic market.

Sadly, I don’t see any winners in the trajectory that this complaint may take, only losers, not least the travelling public. It could be that a real Pandora’s box has been opened. There are wider ramifications too for trade and employment with the Gulf carriers being key customers for Boeing aircraft. Reduced competition and choice seem the only certain outcome if the complaint reaches its natural conclusion.

The Gulf carriers have not surprisingly responded with force. It would be preferable if a way can be found to put hostilities aside and get back to the real business of competing in the market. Regrettably, at the present time this doesn’t look likely.


Related to the subject:

See my interviews with:

Also, my article in Harvard Journal of Middle Eastern Politics and Policy.


Are the stars aligning for Virgin Atlantic & CEO Craig Kreeger?

Craig Kreeger and John Strickland at WTM 2014 - Crop


It’s hard to believe that when Virgin Atlantic took flight just over thirty years ago in 1984 it operated just one Boeing 747 on one route from London Gatwick to New York Newark. Whereas today it operates a wide body fleet approaching 40 aircraft on a network embracing the North Atlantic, Africa, the Gulf and Asia.

However it has by no means been a fairy tale rags to riches story: In recent years the company has seen meagre profitability at best – and heavy losses at worst. The new man at the helm, CEO Craig Kreeger faces tough challenges if he is to turn the business around.

Virgin’s network diversity has been part of the problem with its presence in some markets too thin to support profitability. Once daily frequencies in markets like London to Sydney or Tokyo were not enough amid intense competition. The lack of short haul feed at Virgin’s main Heathrow base has been another challenge made worse when British Midland was acquired by IAG. Virgin failed to overcome this problem by setting up its own Little Red domestic operation which it will abandon next year.

On top of this, the now ended shareholding by Singapore Airlines wasn’t a match made in heaven and Virgin’s fleet still includes a sizable chunk of older fuel guzzling Boeing 747’s and Airbus A340’s. The once proud marketing slogan “four engines for long haul” is now outdated in a world of efficient long haul twins such as the 777 And A330.

Craig Kreeger has his work cut out but the stars may be aligning in his favour. I’ve met him a number of times and I interviewed him for the recent World Travel Market. He’s a man of much experience, capable of drawing on this for calm reflection. He believes he has “the coolest job in the industry”.

Kreeger arrived at the airline not long after Virgin had promulgated its new shareholder relationship with Delta (49%), that looks a lot more coherent than the old partnership with Singapore Airlines. There are advantages for both Virgin and Delta, playing to their respective strengths in Heathrow and the US market. And it seems certain that having an American national as CEO will assist Virgin in navigating any cultural difference with its Trans Atlantic shareholder cousins.

Kreeger has already tackled some thorny issues including slimming and restructuring his management team and closing a number of Virgin’s thinner routes to refocus on its core strength, the Atlantic market from which the airline takes its name.

He is down to earth and doesn’t see room to simply “fall in love with the stuff you do” – saying he has little time for airlines that talk about strategic routes. “Strategic, actually, is a euphemism for loses a lot of money”. This approach makes a lot of sense, allowing both airlines to better exploit their market position out of Heathrow and to reap Delta’s massive US domestic presence to feed the Trans Atlantic services. This also deftly overcomes the failure of Little Red. With Delta as a partner, Virgin is now much less reliant on feed from UK domestic points.

Kreeger shows an entrepreneurial flair, believing there is a need to take calculated risks and learn positive lessons from failure. He wants to encourage a spirit of innovation and forward planning.

Virgin’s fleet is well into the renewal phase with a growing number of twin Airbus A330’s already in service and the first of the next generation Boeing 787-9’s recently received. These will significantly improve the cost base and operating dynamics.

With a new shareholder, new CEO and new fleet, there’s much good news for Virgin Atlantic. But with its base in London the airline still has to face up to the capacity gridlock which grips the UK’s southeast.

Bringing an American perspective, Kreeger sees it as “…an amazing failing of the UK to this point, to recognise the role that aviation can play, in developing tourism and business linkages…to some extent it’s taken for granted”.787 Jan 2015 - Virgin Atlantic

He believes that the UK needs a single large hub at Heathrow but sees any possibility of a new runway there being at best, in the distant future, joking that “I’m hoping actually to just be alive”.

The next set of financial results will show what progress Kreeger and Virgin Atlantic have made so far. Who knows what’s in the stars but at least the skies now look clear enough for Virgin to see the light.