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.

Seizing the right moment: the rise of Low Cost Carrier Wizz

Wizz CEO Jozsef Varadi with  John Strickland

Wizz CEO Jozsef Varadi with John Strickland

When airline ‘Wizz” kid Jozsef Varadi woke his wife to tell her he’d been sounded out to take the hot seat as CEO for the struggling Hungarian national carrier Malev , she told him “You’d be really stupid to take it”.

With good reason: He’d left the world of highly profitable multinational Procter and Gamble where he’d worked since graduation – to become Malev’s CCO . Accepting the position of CEO in a highly political company like Malev must have seemed like an almighty risk.

And as Varadi disclosed to me in a keynote interview for the 2014 World Travel Market, he was not in the best frame of mind to consider it. He was out socialising when the Chairman called him to a midnight meeting “somewhere” in Budapest. “I told him I’m half drunk.” But the chairman insisted and the meeting went ahead.

Despite his wife’s initial doubts Varadi accepted the job at the next day. The rest is history. He went on to engineer a big turnaround for Malev before leaving for yet another challenge. That was the creation of Wizz and there’s no doubt that, at that time, Varadi and his colleagues saw opportunities in the east of Europe where others didn’t.

The key moment was in 2004 when 10 countries joined the EU, providing the essential catalyst to the birth of Wizz. This created a vast newly accessible market. It couldn’t have happened earlier given the fallout from 9/11 and if he’d left it till later, competitors would have exploited the opportunity. The airline took its first steps in the Polish market beginning services from Katowice Airport which he says was in the middle of nowhere and felt like a “a hut”. Then it had only around 200,000 passengers per year. Today the figure is more than two million, largely thanks to Wizz’s development.

The airline has expanded carefully. From the outset Varadi’s team saw it as a pan country model and today it serves 35 countries. But the company sticks to its strengths, linking the eastern European markets which it knows best, to Western Europe – and now as far east as Dubai. Economic growth rates in much of Eastern Europe are double those in the west.

Varadi looked to Boeing and Airbus as potential suppliers of aircraft but drew different responses. At Boeing he was met with a lack of interest. Or in his more colourful language: “They sent us to hell”! However Airbus did take the risk with the fledgling airline and today Wizz has more than 50 A320’s in its fleet with big orders outstanding including some larger A321’s which will have 230 seats.

Varadi and his team have the same zealous focus on costs that Ryanair is respected for. It has succeeded in a perilous climate where others have failed. Malev, Varadi’s old employer went bankrupt in 2012. A rival eastern European LCC, Sky Europe, lost its way and also went out of business.

The customer base which was routed in ethnic worker traffic is now much more diverse – with many small businesses and leisure travellers. Even the beleaguered UK supermarket Tesco puts its executives on Wizz. According to Varadi many other companies are waking up to the fact that flying business class on short haul flights amounts to paying for “the most expensive coffee in your life”.

Varadi has shown skill in riding the turbulence of rough economic and political times; not least the conflict in Ukraine, yet the business remains profitable. A planned IPO earlier this year was pulled when financial markets took a dive. A wise decision. It’s all about timing. Given the track record of the management team and its ability to make crucial judgements, I’d expect Wizz’s moment for a successful float to come at a carefully chosen time in the not too distant future. For above all, Varadi has clearly demonstrated his instinct for seizing the right moment.

See my full interview at the World Travel Market here.

Summer madness in the airline industry as the Farnborough season takes off?

The atmosphere at the Farnborough Air Show is always electric – with the excitement of new aircraft types and the buzz of new orders. Plane manufacturers set out their stalls and airlines cluster round like bees at the aviation industry’s honey pot. But this year is there a danger of a shopping frenzy?
Ahead of the Show I caught up with Boeing’s VP Marketing, Randy Tinseth, who was in London to reveal the company’s Commercial Market Outlook. I wondered what he might see in his crystal ball? In fact, what Boeing does see is a need for almost 37,000 new aircraft over the next 20 years. Whilst 42% are seen as replacement aircraft, 58%, ( 21,000 aircraft) are for growth.
Much is explained by the increased frequency in direct flights enabled by smaller long haul wide bodies such as Boeing’s 787 and Airbus’s A350 – and much too by the continued rise of short haul Low Cost Carriers and growing Asian markets.
Of course a forecast is a forecast and Boeing does “caution” very effectively. Only time will tell how well current projections match reality but at present there is certainly evidence that there may be storm clouds on the horizon for at least some of the industry’s airlines.
I recently debated with one European CEO as to how and if the market can absorb the slew of short haul capacity coming its way with massive orders from amongst others, Ryanair, easyJet, Norwegian and IAG.
We’ve already had profit warnings from Air France KLM and Lufthansa, both worrying about excess capacity across the North Atlantic.
Lufthansa has revealed a new strategy to tackle its woes including capacity cuts and plans to launch a mini Long Haul Low Cost from late next year.
This move to long haul LCC is in itself a broader development that seems to becoming fashionable: Norwegian has started its US flights from Gatwick, Canada’s Westjet is trying some modest forays into Europe and talking about adding wide body capacity. Airbus’s decision to launch the new A330 NEO with its lower capital and seat costs could encourage others to join in too.
Add this to the melting pot of the Gulf carrier’s who are in my view more coherent in their expansion plans and it seems to me that in some cases – though not all – the need for capacity discipline is in danger of being overlooked.
Regarding Boeings’ market outlook, the long-term trend is always upwards – but can the industry succeed in retaining and improving on its historic but fragile profitability?

It’s issues like these that make Farnborough such a fascinating place to be in the summer.

Low Cost Airlines: Tales of Arabian Flights


Adel Ali and John Strickland - ATM 2014Just back from Dubai, where I was impressed by how the arid desert landscape is nurturing some stunning success stories for low cost airlines in the region.

Take Air Arabia, now 10 years old. It’s Chief Executive Officer, Adel Ali, has been there from start. His inspiration for the airline came from understanding the potential monotony of crossing the desert for anyone in a rush.
There were then 600 weekly buses leaving the UAE (United Arab Emirates) for destinations around the Gulf and Adel recognized the boredom that the bus passengers can face. After the first kilometer the next 1,000 kilometers would be exactly the same. Endless sand punctuated with checkpoints. Nor was it cheap to take one of these buses. This simple understanding of the passenger market has repaid him in spades.

It was easier to get people off the buses with affordable flights, but harder to tempt passengers off rival carriers due to early misconceptions of low cost carriers. Never the less the airline filled 60% of seats within 2 months and broke even in its first year. It’s been a story of profit ever since – with the model extended to Morocco and Egypt and just this May, Ras Al Khaima in the UAE.

This is pretty impressive when you consider the airline has had to roll with the punches of the Arab spring, the tensions in Egypt and now in Ukraine. One solution has been to move aircraft around, exploiting new opportunities thus keeping the company profitable.

It’s worth remembering that not everyone in the Gulf is rich and there is a demand for low fares. Yet Adel has succeeded in creating a company that can attract passengers and manage finances. He successfully launched the airline on the stock market becoming the only quoted gulf carrier.

The CEO of the Saudi low cost carrier FlyNas has had different challenges to face. Raja Azmi arrived with vast experience in the successful Asian low cost air market, Air Asia, as well as long haul Air Asia X. However the Saudi market is different.
The national airline, Saudia has been protected and it was felt that there was not a level playing field – with the state airline benefiting from subsidised fuel. This, along with domestic fare capping, are 2 issues that need “sorting out”.

Under Raja ,FlyNas has evolved into a hybrid low cost carrier “plus”. It has high service standards and even a business class. Untypically for an LCC it has recently gone into long haul – a model that is not yet proven in the global market. However, FlyNas sees the opportunity to tap into the unique Saudi religious market. 5 million passengers travel by air to make the Umrah pilgrimage to Mecca and Raja expects to get a fair share of that on routes from the UK and Malaysia for example.

The key message coming out of this region was full of optimism, vision and energy. Not arid at all.