INTERVIEW GHAITH AL GHAITH Growing up fast with Flydubai

XXXXXX 2014STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDESTRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE

flightglobal.com/airlines

GULF How hubs are gearing up to handle local players’ expansion

US AIRPORTS Picking up the slack after cutbacks at majors

AFRICA Still waiting to fulfil its true potential

GHAITH AL GHAITHGrowing up fast with Flydubai

INTERVIEW

NOVEMBER 2015STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDESTRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE


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CONTENTS

flightglobal.com/airlines | Airline Business | 5

MERGER COMPLETE page 10

GROWTH OPPORTUNITY page 19

CAPACITY WOES page 32

SUCCESS STORY page 48

VOLUME 31 NUMBER 9

XXXXXX 2014STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDESTRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE


GULF How hubs are gearing up to handle local players’ expansion

US AIRPORTS Picking up the slack after cutbacks at majors

AFRICA Still waiting to fulfil its true potential

GHAITH AL GHAITHGrowing up fast with Flydubai

INTERVIEW

NOVEMBER 2015STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDESTRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE



AB INTERACTIVE6 Your number-one hub for fleet data

BRIEFINGINTERNATIONAL8 MRO costs put under the spotlight

AMERICAS10 Sun sets on US Airways brand

EUROPE12 Transaero’s future hangs in balance

13 Alitalia unfazed by rebuilding task

ASIA14 Troubles mount at Indonesia AirAsia

FINANCE19 Airlines gain despite mixed market

INSIGHT20 Labouring the point

SPECIAL REPORTAIRPORTS32 Runway revolt UK capacity debate continues, despite

Airports Commission’s backing for Heathrow expansion

34 On the rebound Mid-sized US airports are seeing a low-cost resurgence after being abandoned by majors

36 Terminal decline India’s main hubs may be full, but a large number of regional airports are underutilised

40 Airport group financials The Airline Business annual Top 100 airport group rankings

FEATURES42 Building blocks Gulf hubs are working to ensure their

network carriers have the infrastructure they need

46 Africa still to flower The continent’s carriers continue to face barriers to tap the region’s full potential

48 Old-school attitude The secrets behind the remarkable profitability of Copa Airlines

ANALYSIS51 Widebodies Twin-aisle tussle for dominant duo

52 The rules of playing the long game Air France needs to focus beyond simply cutting its way to profitability

55 Are we still enjoying the ride? Ascend’s Rob Morris examines the evolution of the current aviation cycle

FEEDBACK56 Going uber and beyond It is time for airlines to offer a

simple and seamless booking system

COMMENT58 When two worlds collide

November 2015

Airline Business is published monthly by Reed Business Information. © Reed Business Information Ltd 2015. ISSN 0268-7615 (Print) ISSN 2059-3449 (Online). Printed in the UK by William Gibbons and Sons Ltd.

Annual Subscription Rate: US$198/£124 Periodicals postage paid at Rahway, NJ. Postmaster send changes to Reed Business Information, c/o Mercury International Ltd, 365 Blair Road, Avenel, NJ 07001.

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COVER STORY22 Fast learner With Ghaith Al Ghaith at the helm,

Flydubai has established itself as a

worthy low-cost sibling to Emirates

and is eyeing growth opportunities

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NETWORK 2015

November 2015

YOUR NUMBER ONE HUB FOR FLEET DATA Flightglobal has launched its

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The free digital edition is compatible across all devices


Airlines have welcomed tenta-tive enquiries by the Euro-

pean Commission into poten-tially anti-competitive terms in maintenance contracts for certain engines and components.

European regulators have sent questionnaires to airlines and manufacturers to assess condi-tions in the equipment’s service agreements as part of a prelimi-nary investigation.

The Commission has not offi-cially announced the launch of a specific investigation, nor dis-closed a particular focus, but a competition spokesman says for the regulator says it is “closely monitoring competitive condi-tions as regards maintenance of engines and components for large commercial aircraft”.

German engine specialist MTU says the enquiry is aimed at determining “whether airlines are forced into anti-competitive contracts” and especially concen-trates on the support of CFM International CFM56 and Rolls-Royce Trent XWB engines.

The two powerplants are the sole engines available for the Boeing 737 and Airbus A350 respectively, though the CFM56 is additionally employed on the A320 narrowbody family in com-petition with the International Aero Engines V2500.

MTU has not received a ques-tionnaire because, the Munich-based manufacturer and mainte-nance specialist says, it is not participating in the Trent XWB programme and its CFM56 after-market service is conducted as an independent third-party mainte-nance repair and overhaul pro-vider without involvement of CFM parents General Electric and Snecma.

SEEKING RESPONSESEurope’s largest 737 operator, Ryanair, supports the Commis-sion’s enquiry and is among the airlines that have received a ques-tionnaire. The budget carrier acknowledges that there is suffi-cient competition for CFM56

BRIEFING INTERNATIONAL

MRO costs put under the spotlightEuropean regulators make preliminary enquiries into manufacturer maintenance contracts as airlines press for action

MICHAEL GUBISCH LONDON STEPHEN TRIMBLE WASHINGTON DC

Engine makers seek to recoup development costs via servicing

Lufth

ansa

Tec

hnik

“There is a need for freer access to

manufacturers’ data”

November 2015

maintenance in terms of the num-ber of repair specialists, as that engine is supported by a range of manufacturer-associated and independent third-party overhaul shops: “We don’t see a restriction in the number of MRO providers for the services we require.” Ryanair has a contract with GE for the maintenance of its engines.

However, the airline indicates that manufacturers’ restrictions on the provision of repair infor-mation to other aftermarket play-ers – such as third-party MRO providers or alternative spare part suppliers – is limiting com-petition. Ryanair argues that “there is a need for freer access to manufacturers’ data and the introduction of limitations on what may be classified [by manu-facturers] as intellectual prop-erty”. If such information was more widely accessible, Ryanair suggests, it would lead to lower maintenance costs.

This view is reflected by Icelan-dair vice-president technical oper-ations Jens Thordarson. Speaking at the MRO Europe conference in London in October, he said manu-facturers’ increasingly “domi-nant” aftermarket role risked “sti-fling innovation” in aircraft maintenance, because they are “not always the best” party to pro-vide maintenance services.

Air France-KLM, British Air-ways/Iberia parent IAG and Luf-thansa Group have received ques-

tionnaires too. All of these airlines support the investigation, though none would comment on specific issues. Air France-KLM says “the questions asked by the Commis-sion are the result of the growing concern” among airlines, while Lufthansa responds that it “wel-comes all efforts to ensure an open, competition-based market”.

Earlier this year, IAG chief executive Willie Walsh voiced concerns about rising mainte-nance costs during a panel debate at IATA’s annual general meeting in Miami. “We have to start

redressing this situation. The IATA board of governors was unanimous on the issue, and they are going to engage external legal counsel to start looking into this issue,” he says. “We need to start pushing back on our costs where they are driven by a limited num-ber of suppliers.”

Despite the airlines’ complaints about rising maintenance costs, Richard Brown, principal at con-sultancy ICF International, says the investigation caught many industry participants by surprise. As operators and lessors typically

negotiate large discounts for air-craft and engines during their ini-tial purchase, manufacturers recoup their investment in the equipment’s development through the sale of long-term aftermarket service contracts.

That model has been estab-lished for some time and if it was challenged, it would be unsus-tainable for manufacturers to grant discounts during the acqui-sition, suggests Brown: “Some-body has to pay for the technol-ogy.” He says airlines would face a dilemma over how their demands for technological advances and improved aircraft economics will be funded.

SHIFTING FOCUSGE Aviation’s financial results reflect the significance of aftermar-ket profits in the manufacturer’s business model. Although GE does not disclose aftermarket results for the aviation business, a former head of that division boasts on his LinkedIn profile that he led that business to post $7 billion in revenues and $3 billion in operat-ing profits in 2011. That results in an astounding 43% operating margin for GE’s aircraft engine aftermarket business that year.

But the aviation division over-all, which includes the aircraft electronics business formerly known as Smiths, reported only $3.5 billion in profit in 2011 on $18.9 billion in revenues, or a 19% margin. The aftermarket business alone accounted for 86% of GE Aviation’s annual operating profit in 2011. The rest of the busi-ness combined to generate an operating margin of nearly 4%.

GE and Rolls-Royce separately confirm they received question-naires and support the investiga-tion. The UK engine maker says that some 40 airlines and manufac-turers have been contacted by the Commission, but adds the investi-gation still is in the early stages.

GE says it will co-operate in “helping the [European Commis-sion] understand the dynamics of the aviation industry”. ■

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gies, is they are probably there.”The merger has cost more than

expected. American has recorded $1.71 billion in merger and inte-gration-related charges from Feb-ruary 2013 through to June 2015, its financial statements show. This is about $510 million more than their initial estimate.

However, this is partially out-weighed by the $309 million one-time gain from the sale of slots at Ronald Reagan Washington National airport under the settle-ment with the DOJ in exchange for approval of the merger.

“The costs are probably higher than they initially thought they would be but the reasons for it are all positive,” says Becker, pointing to the fact that American signed new labour agreements with its

major employee groups earlier than expected. “It’s good to have your labour agreements in place because you know what your costs are going to look like.”

The carrier’s pilots ratified a joint agreement in January and it reached a joint agreement with its flight attendants union in Decem-ber 2014. Both contracts included pay raises and five-year terms.

The verdict will remain out on the American-US Airways merger for at least a year, not least as there is further integration work to complete though 2016.

“Another way to look at it is if US Airways and American is a better company combined, but as a combined company the whole is better than the parts,” says Savan-thi Syth, an analyst at Raymond James. “Each brought something to the other, and it’s hard to argue with the results they’ve been able to put up even last year, when fuel was still high.” ■

Two-and-a-half years on from American Airlines and US

Airways announcing their engagement on Valentine’s Day in 2013, the latter formally gave up its maiden name after com-pleting its final flight under its brand in October.

The final US Airways-operated flight took place on 17 October, with American taking responsi-bility for all flights after combin-ing their booking systems.

“This is an extremely comple-mentary merger,” said Doug Parker, then-chief executive of US Airways and now chief executive of American, in announcing the news. “I’ve long been a proponent of industry consolidation. This is the last needed piece to rationalise the [US] airline industry.”

He and then-American chief Tom Horton outlined at least $1 billion in annual revenue syner-gies by the end of 2015 at a cost of about $1.2 billion on three years. Revenue synergies were subse-quently increased to $1.45 billion.

REVENUE REWARDSAmerican had only realised around a third of these synergies – about $480 million – as of May of this year, said president Scott Kirby that month.

The delay is almost entirely due to the migration of US Air-ways reservations to American’s

BRIEFING AMERICAS

Sun sets on US Airways brandAttentions focused on realising merger benefits after cutover in reservation systems signals full integration into American

EDWARD RUSSELL WASHINGTON DC

American expects a bright future after absorbing US Airways

Am

erica

n A

irlin

es

American’s stock price has jumped almost 80% since

merger announced

November 2015

The US Airways merger with

American Airlines completed a jour-

ney that has seen the carrier growth

through a series of mergers and

acquisitions to become part of the

largest airline group in the USA.

The carrier’s first significant

merger was announced in 1986

with Pacific Southwest Airlines and

completed in April 1988. The fol-

lowing year it completed a merger

with Piedmont Airlines.

USAir did make one lucrative ac-

quisition in the 1990s: the Trump

Shuttle. It acquired a 10% stake in

the carrier, which changed its name

to the USAir Shuttle in April 1992,

and acquired the airline outright in

1997 – the same year USAir

changed its name to US Airways.

While a merger move with

United Airlines broke down in

2000, the airline emerged from

Chapter 11 bankruptcy for a sec-

ond time via a merger with America

West Airlines in 2005.

US Airways’ final flight landed

on 17 October, the culmination of

the merger with American that be-

gan in February 2013.

Following merging paths

Sabre system, something that ini-tial integration timelines sug-gested would occur earlier.

Kirby said in July that many of the potential connectivity and fleet optimisation synergies could not be realised until after the res-ervations integration.

Another, largely unmentioned impact, was the US Department of Justice’s unexpected challenge to the American-US Airways deal in August 2013. This likely pushed back regulatory approval, and the subsequent integration, by about three to six months.

“It’s still early,” says Hunter

Keay, an analyst at Wolfe Research. “I think 2016 is going to be the year of the revenue syn-ergies, so we don’t know yet. It is pretty clear that they’ve created shareholder value through earn-ings growth.”

American Airlines’ stock price has increased over 80% to $44.46 per share at the close of business on 15 October from when the merger closed on 9 December 2013. The firm’s market capitalisa-tion has increased $23 billion to $29.4 billion during the period.

The company’s operating rev-enues increased nearly 5% to $10.8 billion in the second quar-ter compared with the combined results of the then-independent American and US Airways in the second quarter of 2013.

American’s operating margin has increased a more impressive eight-percentage points to 17.5% over the same period. However, this is partially buoyed by the ben-efits of low oil prices.

“I don’t even know what to think about revenue,” says Helane Becker, an analyst at Cowen. “The strong dollar has put pressure on [foreign exchange] and weakness in Latin America has put pressure on one of American’s biggest mar-kets… My sense, if you’re talking about $1 billion worth of syner-

UTair and Ural Airlines have also stepped in to assist with the car-riage of Transaero passengers.

Details emerged at the start of September of a planned deal

under which Aeroflot would acquire a majority holding in Transaero, which approved the deal “in the interests of the devel-opment of commercial aviation”. Transaero had been under intense financial pressure amid Russia’s

Plans to merge Russia’s two big-gest carriers hit the buffers in

September as a proposed deal for Aeroflot to acquire a 75% stake in Transaero fell through, leaving the struggling airline in limbo.

While Transaero has halted ticket sales and cancelled flights, Aeroflot and other carriers are helping operations last until mid-December at least.

Several lenders to Transaero have said they would pursue a bankruptcy petition against the operator, suggests Russia’s trans-port ministry. In an 8 October meeting of Russian civil aviation, airline and tourism representa-tives, transport minister Maksim Sokolov said attention needed to be paid to resolving issues centred on Transaero’s employees.

Aeroflot and other carriers are helping

operations last until mid-December

at least

BRIEFING EUROPE

Transaero’s future hangs in balanceRussian airlines lend support to cash-strapped carrier as merger deal with Aeroflot fails to take off

DAVID KAMINSKI-MORROW LONDON

Sokolov said that preparation was crucial as a number of banks and lenders have “already noti-fied their intention” to put for-ward a claim to have Transaero recognised as bankrupt. Aeroflot has been supporting Transaero services after the flag carrier agreed to provide operational management to the struggling air-line, although a proposal for Aer-oflot to take over Transaero has failed to gain momentum.

HELPING HANDOver the month from 7 September to 6 October, says Sokolov, Aero-flot carried 45,000 passengers for Transaero, whose total passenger numbers for the period reached 1.26 million. Russian operators including S7 Airlines, Orenair,

economic and currency woes, and posted a net loss of Rb8.6 bil-lion ($137 million) for the first half of the year.

Aeroflot’s board subsequently authorised its involvement in the restructuring of Transaero, includ-ing initiation of a corporate takeo-ver. The proposed deal included a Transaero shareholder offer to acquire 75%, plus one share, of its stock for a token sum of Rb1. The offer was open for 24 days.

But while Russia’s government initially backed a tie-up to bring most of Transaero’s ownership into Aeroflot Group, the deal fal-tered. Aeroflot has confirmed the offer period passed without Transaero submitting a proposal. The flag carrier since decided not to extend the deadline. ■

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Management at Alitalia and its 49% shareholder, Etihad

Airways, insist nothing has changed in the turnaround plan for the Italian carrier despite the departure of chief executive Sil-vano Cassano in September.

Rejuvenating the perennial loss-making Italian carrier marks probably the biggest challenge yet for Etihad in its equity alli-ance strategy.

Progress so far has been unspectacular. The Italian flag car-rier has begun rolling out new routes, making efficiency gains, revamping the product and unveiling a brand refresh. But losses continued in the first half, to the tune of €130 million ($148 million) – not helped by fire dis-ruption at the airline’s Rome Fiu-micino base and suspension of a profitable Venezuela route amid the South American nation’s con-tinued currency issues.

So when Cassano, picked a year ago as chief executive to run the revamped Alitalia, surpris-ingly quit the role in September, Etihad boss James Hogan and charismatic Alitalia chairman Luca di Montezemolo decided a public show of faith in the project was necessary. First staff, then

BRIEFING EUROPE

Alitalia unfazed by rebuilding taskExecutives fight back after surprise departure of chief executive insisting Italian carrier will still reach profit by 2017

GRAHAM DUNN ROME

Airline’s business plan will include completely refitting its aircraft

“We need to put a turbo on the

decision-making process”

November 2015

Oneworld member Finnair is leaning towards a short-haul

fleet renewal strategy that would involve using larger aircraft to fewer destinations.

The airline has been examin-ing its feeder operation in Hel-sinki Vantaa and whether it can support a doubling in the num-ber of daily connection banks from two to four at the airport.

Chief executive Pekka Vau-ramo says the carrier “needs to do a bit more work” on the bank structure but that it is likely to “stick” to a two-bank scheme. This structure is central to the airline’s European route-devel-

the media, were briefed not only on progress to date, but on plans to accelerate action. The main messages were twofold: there is no change in direction, and the carrier remains on track to make a profit in 2017.

“Cassano has resigned out of his own choice. His was a personal decision,” said Montezemolo. “But the resignation of Cassano does not mean we are starting from scratch. There is full continuity and full resolve in the company, including the top management.

“Our performance is in line with the business plan,” he adds. “For the first time since 2009, the load factor for the quarter exceeded 80%, and we can con-firm the objective of reaching profitability by 2017.

“It [the plan] is continuing and

we want even to speed it up. We need to put a turbo on the deci-sion-making process,” says the former Ferrari chief.

That acceleration includes roll-ing out investments in fleet, prod-uct and service levels over the coming months. There will be a complete refit of its fleet, includ-ing equipping narrowbody and long-haul aircraft with onboard wi-fi in time for the summer.

New or revamped lounges will be rolled out over the next year across Rome Fiumicino and the two Milan airports of Linate and Malpensa.

The carrier continues to reshape its network. The latest additions will be Santiago in Chile and Mexico City next sum-mer. “Over the last few months, Alitalia has opened more new routes than it has in the last few years,” notes di Montezemolo.

Hogan, who is also Alitalia vice-chairman, points to the groundwork done in using tech-nology to improve revenues at the airline. “We didn’t have the analytics in Alitalia 12 months ago. They are now in place… and what we are seeing is, the RASK in the third quarter of this year is starting to accelerate.” ■

Finnair thinks big on short-haul fleet renewalDAVID KAMINSKI-MORROW HELSINKI

opment and fleet plans.Finnair has been looking at

the possibility of increasing the number of destinations, which would involve acquiring a larger number of smaller aircraft.

But it is leaning instead towards an alternative strategy, whereby the airline would acquire larger aircraft and oper-ate to fewer destinations. This would concentrate on gaining a greater market share in a reduced number of markets.

Finnair’s mainline short-haul fleet comprises Airbus A320-family jets but the carrier has a subsidiary, Nordic

Regional Airlines, which origi-nated as a joint venture with Flybe before Finnair took com-plete ownership earlier this year.

Nordic Regional Airlines operates Embraer jets and ATR turboprops on thin routes.

Finnair has been planning to sell a 60% share of the airline to two potential investors but the parties have yet to finalise an agreement.

Vauramo says the sides have been analysing changing regional traffic patterns, with the future feeder bank structure at Helsinki a key aspect of the assessment. He expects the car-

rier to have a clearer idea of its short-haul strategy by the end of the year.

Vauramo spoke in Helsinki ahead of a service to London Heathrow using the carrier’s ini-tial Airbus A350-900, a week after the airline became the first European airline to take delivery of the type.

He says the airline is broadly pleased with the aircraft’s intro-duction, especially given that it has received one of the early A350 airframes. Vauramo says there is “some rework” that needs to be carried out on the air-craft, but “nothing exhaustive”. ■

Gra

ham

Dun

n/Fl

ight

glob

al


BRIEFING ASIA

Troubles mount at Indonesia AirAsiaThe money-losing Indonesian unit faces continued headwinds, with an AirAsia X merger suggested as a long-term solution

MAVIS TOH SINGAPORE

AirAsia’s Indonesian arm is cutting its fleet to move out of the red

Airbus

Indonesia AirAsia’s (IAA) 2015 flight path has been turbulent,

with persistent losses and regula-tory pressures after the crash of flight QZ8501 last December.

This worsened when the carrier was issued a 30 September dead-line to address its negative equity situation by Indonesia’s director general of civil aviation. Failure to do so could have resulted in a sus-pension of operations.

As a solution to IAA’s financial woes, AirAsia Berhad in October announced that it had subscribed to RP2.05 trillion- ($140.7 mil-lion) worth of perpetual capital securities issued by the loss-mak-ing associate. This will help IAA attain a positive equity position.

A longer-term solution could be a merger between IAA and its long-haul sister carrier Indonesia AirA-sia X (IAAX), which does not have the problem of negative equity as it has been in operation for less than a year. Nevertheless, a merger could be key to its survival because its small fleet runs foul of Indone-sia’s minimum aircraft rule, which could result in the loss of its busi-ness licence. IAAX has just two Airbus A330s in service, but the rule requires scheduled operators to have a minimum of 10 aircraft.

A merger, therefore, would allow both carriers to solve their respective issues. However, IAA appears to have warded off the negative equity problem, for now, and has been noncommittal on how it intends to deal with Indone-sia’s shifting regulatory environ-ment. Should a merger between the two carriers fail to materialise,

IAAX’s future is far from certain.IAA managed to turn a net

profit of RP1.7 billion in the third quarter of 2014 by cutting unprof-itable routes, putting an end to three previous quarters of losses. But this was before it lost an Air-bus A320 on a flight from Sura-baya to Singapore immediately prior to the New Year.

In the last three quarters since, IAA has bled. In the quarter ended 30 June, the carrier’s reve-nue dipped 16% to RP1.27 tril-lion from the same period last year, and its net loss ballooned to

RP486.4 billion, from RP340.3 billion the previous year. ASKs rose 2% while RPKs dropped 4%, causing load factors to dip five points to 73%.

“They are bleeding heavily, and even the group doesn’t have that much money to support them going forward. They don’t plan to add aircraft and they can’t match Lion’s growth. When that happens your market share will trend downwards. If this continues, you have to evaluate and ask yourself what kind of scale you have to compete,” says Alliance DBS Research analyst Tan Kee Hoong.

IAA has not grown over the last year, holding at a fleet of 29 A320s since the loss of QZ8501. Even before the crash of 2014, it had struggled to gain market share against local players such as Lion Air, Garuda Indonesia, and their subsidiaries.

FlightMaps Analytics shows

that its market share, in terms of seat capacity on services out of Indonesia, has fallen over the last three years. This is from 6.4% in October 2013 to 5.6% in October 2014 and 4% this October. It comes in seventh, falling behind Lion Air (33.6%), Garuda (20.8%), Citilink (9.7%), Sriwi-jaya (8.2%), Wings Air (5.2%) and Batik Air (5%).

It is not doing any better on domestic routes, with its market share in terms of seat capacity coming down from an already weak grip of 4.3% in October 2013 to 3.7% last October and just 2.4% this year.

YEAR-END AIMSAirAsia has said its target is for the Indonesian unit to return to profitability in the third and fourth quarters, and to break even by the end of the year. It will do so by removing four A320s from the fleet, looking to other cost-reduction measures, and placing a greater emphasis on building international traffic.

But IAA needs to do a lot more to come close to being a threat to Garuda and Lion. The operating environment in Indonesia will remain challenging, with a large number of players in the field and constant regulatory changes.

“I don’t think they can turn a profit within this year or next, unless they do something dras-tic,” says Tan. ■

November 2015

For more on the impact of the IAA crash on AirAsia, see:

flightglobal.com/IAA

Even before the crash, it struggled to gain market share

against local players

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The acquisition of Avolon and AWAS could strengthen Bohai’s influence within the global avia-tion industry, particularly in terms of the manufacturers, as this would bring together air-lines, leasing and ground han-dling within the one group.

Such a mega lessor could alter the way the market buys aircraft. No doubt, it would benefit from attractive pricing from the OEMs, a saving that could likely be passed onto the lessees.

Are we seeing the first signs of a sort of low-cost lessor, brought about by access to cheap funds, scale and therefore enhanced bar-gaining power with the manufac-turers? Is leasing aircraft about to get a lot cheaper for airlines?

increased by 5.9% in August, while the sector’s load factor climbed to 84.7% – a 17 percent-age point increase over the indus-try’s performance a decade ago, according to IATA. And, for the first time on record, IATA antici-pates airline sector returns will cover the cost of capital this year.

Strong industry profits are often a good indicator of solid demand for future aircraft orders, and this positive sentiment is doubtless helping to fuel Bohai’s expansion into the aircraft-leasing sector.

The Chinese lessor, which is majority-owned by HNA Group, is rumoured to be in talks to add Dublin-based AWAS to its aero-space stronghold. Bohai recently disclosed its acquisition of Avo-lon, also Dublin-based, in a $7.6 billion deal. It appears likely that Avolon is to be merged with its existing leasing entity, Hong Kong Aviation Capital.

These lessor purchases are also being fuelled by China’s devalua-tion of the yuan – a move that is pushing Chinese companies into US dollar cash streams.

Global airlines should consider themselves very lucky right

now. Their feelings of general good health and optimism do not span all industries, particularly in the emerging markets – which are a tale of two cities at present.

On the one hand, embattled mining giant Glencore is on a sell-ing spree to shore up cash to pay down $50 billion in debt due to growing worries over exposure to a slowing Chinese economy and a sharp fall in commodity prices.

Meanwhile, China’s Bohai Leasing – also facing concerns of a worsening Chinese outlook and emerging-markets rout – is on a buying spree with fresh talks under way to add another lessor to its huge, growing aerospace plat-form. So, how is this duality, in the same market, possible?

FUNDINGGlencore exists in the global real economy and has been adversely hit by the commodity downturn. But it has been funded by cheap debt. This carries steep amortisa-tion that will challenge service in the face of falling commodity prices. Bohai Leasing, however, operates mainly in the airline industry, which also has access to cheap debt – but instead of facing a slump, is having a record year.

While Brazilian airlines in par-ticular are under pressure from a weak real, economic downturn in Brazil, and currency devaluations in most South American coun-tries. Brazil’s economy is expected to contract this year and next, with inflation estimates inching upwards in both periods.

The sector as a whole, however, remains in good shape. Airline capacity, as measured by ASKs,

BRIEFING FINANCE

Airlines gain despite mixed marketChallenges in emerging countries may help lower lease costs for carriers already accessing cheap money and low fuel prices

LAURA MUELLER PRAGUE & LONDON

China’s Bohai is growing despite the economic issues at home

Imagi

neC

hin

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The acquisition of Avolon and AWAS could strengthen Bohai’s influence

November 2015

To read more about the growth of Asian lessors, go to:

flightglobal.com/eastlessors

AerCap and GECAS currently dominate aviation leasing, with committed balance sheets in excess of $45 billion each – but a large majority of delegates at the recent ISTAT Europe conference in Prague expected additional mega-lessors to emerge.

GROWING MARKETIn a poll, 37% of voters predicted that the number of aviation leas-ing players of the size of AerCap and GECAS would increase to four by 2025, while a quarter envisage five or more. Only 15% believe the market will stay the same with two superpowers.

But while low interest rates and low fuel prices help make airlines feel confident, it is important to not lose perspective at this time. This is a boom and bust industry, so airlines should brace for their share of headaches.

A key difference, compared with Glencore, is that airlines and lessors can reduce capacity fast if the operating environment starts to look more challenging. The sec-tor’s ability to manage excess capacity properly will determine its ability to raise capital effi-ciently during the next downturn.

Already there are signs of con-cern in the widebody market, as more Boeing 777s and Airbus A330s become available from the likes of Singapore Airlines, Emir-ates and Malaysia Airlines. But for now there is no reason to panic, the bullish forecast remains, and the flow of capital funds looks set to continue for airlines and their lessors. ■

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restructuring has been achieved. Iberia, for example, has now returned to growth only after the airline secured significant labour savings 18 months ago – secured during high unemployment in the Spanish job market.

More recently, new pilot agree-ments have given Scandinavia’s SAS Group a foundation on which to expand its long-haul fleet. The group says it intends to increase the long-haul fleet by three aircraft following the con-clusion of simplified collective agreements across its pilot corps.

SAS Group says the agreements reduce complexity and provide a “higher degree of scope to adapt operations to customer demand”.

The company will be able to generate annual savings of SKr100

INSIGHT EUROPE

November 2015

Many Europe legacy carriers are continuing to face major battles to secure cost savings and productivity gains in a bid to compete on with both long-haul and short-haul rivals

LABOURING THE POINTREPORTGRAHAM DUNN & OLIVER CLARKLONDON

Air France-KLM executives have borne the brunt of staff anger

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While labour issues are never far away with legacy carri-

ers, the sight of airline executives being manhandled and having the shirts ripped from their backs shows how emotive the subject is at European carriers right now.

It underlines that labour, and resetting the cost base, are the biggest battle facing Europe’s net-work carriers as they continue to be squeezed by ambitious carriers to the East on long-haul and low-cost rivals on short-haul.

While many are facing issues, the headlines are dominated by Lufthansa, which is facing strike action from pilots, and Air France, which has just detailed major cuts after failing to secure a productivity deal. The disputes at both stretch back over a year.

“I can’t promise any short-term solution,” Lufthansa chairman and chief executive Carsten Spohr told Airline Business a year ago. “What we have to do is balance short-term problems for our customer, for our operations, for our image, versus long-term sustainability of our structure. It is necessary to make these restructurings. There is no room for wrong compromises.”

The German carrier has not taken the short way out. Although strike action from pilots was put on hold earlier this year, arbitra-tion efforts failed to broker a peace and fresh strikes loomed until it secured a court order to end threatened rolling stoppages.

Its Franco-Dutch counterpart – which sealed an immediately implemented productivity deal with staff at KLM in September – has been forced to implement an alternative restructuring plan at Air France.

Air France-KLM says its execu-tive board “considers it essential to introduce an alternative plan”, and has unanimously agreed to carry out measures that will result

in “a reduction of Air France’s activity in 2016 and 2017”.

This, the SkyTeam carrier argues, is necessary “to guaran-tee the company’s future and its economic objectives”. Manage-ment had targeted reaching an accord with pilot unions by the end of September this year, but failed to secure a productivity deal with unions.

The carrier presented plans, including the loss of 2,900 jobs, to unions on 5 October. This was met with angry protests and scenes, culminating in two executives making their escape with workers ripping the shirts from their backs.

Air France subsequently drafted in the French prime minister’s dep-uty chief of staff, Gilles Gateau, to take control of its human resources

and labour-relations department amid ongoing tensions with its employee groups.

Fresh talks may yet limit the number of jobs to be cut: group chief Alexandre de Juniac has indicated that around 1,000 cuts covering 2016 would go ahead, but the cuts for 2017 were dependent on negotiations.

CAPACITY CUTSIf enforced, the plans would involve Air France cutting its long-haul capacity by 10% over the next two years and contribut-ing to an overall 2% cut in Air France-KLM passenger capacity by 2017, as opposed to the origi-nally planned growth of 3%.

Many European network carri-ers have put growth on hold until

flightglobal.com/airlines | Airline Business | 21November 2015

million ($12 million), it says, and create the prerequisites to proceed with the long-haul expansion. In August, the company announced plans to add new long-haul routes to Los Angeles and Miami.

Another carrier, Lufthansa unit Austrian Airlines, is also return-ing to growth after an extended period of restructuring.

The carrier aims to boost sales by 10% over the next two years as it launches new products, extends its network and completes the

notion of service” in a bid for dif-ferentiation from competitors.

Unable to compete with the low-cost carriers on price, Brus-sels Airlines has “really been able to segment the market” by offer-ing four products on European routes, Gustin contends. These have clearly positioned the car-rier in the market, he says.

Meanwhile, Europe’s big-three network-carrier groups have all turned again to lower-cost short-haul operations and show intent to expand out of their home mar-kets. IAG established Madrid-based Iberia Express, while Vueling not only gives it a strong presence in Barcelona, but also in Brussels and Rome. Lufthansa is further developing German-wings, under the rebranded Eurowings operations, which includes setting up its first base outside of Germany, in Vienna.

Air France also planned to expand its Transavia leisure oper-ations beyond the French and Dutch markets. It pulled the plug on this as part of last year’s deal to end a damaging pilots’ strike, but the topic resurfaced over the sum-mer with de Juniac saying talks were urgently required to boost establishing Transavia as a Euro-pean low-cost carrier.

LOW-COST PARTNERSFor their part, low-cost carriers – fresh from a strong summer that has seen EasyJet, Ryanair and Wizz Air lift their profit expecta-tions – are increasingly being talked of a possible feeder of traf-fic to network carriers, albeit on an informal basis.

EasyJet chief executive Caro-lyn McCall plays down the pros-pect of any formal co-operation, but notes that passengers infor-mally do so already through self-connect initiatives run at two of its key airports, London Gatwick and Milan Malpensa.

“There would have to be a big financial prize for us to do that. What I have said is we use Gatwick Connect, we work with Via Milano in Milan, so we have been talking a bit about how we can do that easily and less formally,” she says.

“If we can feed long-haul carri-ers easily and effectively then we are obviously going to do that, and they aren’t going to be fussy about who they work with – they want the feed. But I don’t believe that interlining or codesharing is the way we would go. We think it would be complex, and our sys-tems that we have at the moment, we have got a lot to do on the technology side and we are changing quite a lot about our technology, so we wouldn’t want to that right now.

“There is no financial prize to doing codesharing and interlin-ing today,” she says.

Even the softer-around-the-edges Ryanair has been linked to possible co-operation, though its chief commercial officer David O’Brien, says it is open to co-oper-ation, but it would have to avoid extra cost and be on non-exclusive basis. Similarly, it would not take on responsibility for the long-haul leg under controversial EU pas-senger compensation regulations.

“I see point-to-point airlines definitely feeding some of the larger European network carriers, like Lufthansa being fed by EasyJet, us feeding some others, or maybe Lufthansa, and I can see new opportunistic hubs spring-ing out of nowhere like [London] Stansted, Bergamo or Charleroi,” says O’Brien.

“The question really for a leg-acy carrier is should it persist with the idea it can build a short-haul model to compete with the lower-cost model, which is beginning to look like a lot like their own short-haul anyway. I’d suggest not,” he says. ■

absorption of regional carrier Tyro-lean Airways into its operations.

“The restructuring carried out over the past [few] years has made us fit again for the rough aviation market,” said the then-chief exec-utive of Austrian, Jaan Albrecht.

Unions have signed off a wage deal for the cockpit and cabin crew of Tyrolean, all of whom were transferred to Austrian on 1 April. The airline subsequently approved a fleet renewal under which it is to buy 17 used Embraer 195s to replace a fleet of Fokker 70 and 100 jets.

LONG ROAD TO SHORT CUTSMuch of the attention on restruc-turing covers short-haul, where evolving low-cost carriers have moved increasingly into net-work-carrier territory, both geo-graphically and through increased service levels – particu-larly those forced to retrench.

Several European network carri-ers have had to adapt in the face of the arrival of low-cost carriers into their home bases: Vueling and Ryanair both launched operations at the Brussels and Rome Fiumi-cino bases of Brussels Airlines and Alitalia, while the Irish carrier has also piled pressure on Aegean Air-lines and TAP Portugal with its Athens and Lisbon services.

Brussels Airlines is “more than surviving” the low-cost threat at its home base, argues its chief executive Bernard Gustin, noting that the airline is growing profit-ably after adopting a hybrid busi-ness model.

Gustin says that despite what he calls heavy competition from low-cost rivals Ryanair and Vueling, the Belgian carrier has lifted capacity by 15% and reduced costs by a similar margin.

The carrier has achieved this by adopting a model intended to “reconcile attractive fares with a low-cost approach but with a

“There is no financial prize to

doing codesharing and interlining

today”CAROLYN MCCALL

Chief executive, EasyJet

flightglobal.com/airlines22 | Airline Business | November 2015

INTERVIEW GHAITH AL GHAITH


With Ghaith Al Ghaith at the helm since launch in 2009, Flydubai has quickly established itself as a worthy low-cost sibling to Emirates and is eyeing new growth opportunities

November 2015

REPORTMURDO MORRISON DUBAI

PHOTOGRAPHYIAN BILLINGHURSTBILLYPIX.COM

FASTLEARNER

“Our philosophy is that we fly to places that aren’t properly served, linking

the region to Dubai”

The two airlines may share a chair-man and mentor – Sheikh Ahmed bin Saeed Al Maktoum – and an owner in the Dubai government, but there the links more or less

stop. And that is the way chief executive Ghaith Al Ghaith likes it. Persuaded by

Sheikh Ahmed to helm the low-cost start-up in 2008, after a 22-year

Emirates Airline career, Al Ghaith has built a consist-

ently profitable busi-ness with its own

management

team and staff, a distinct brand identity and a fleet of 50 Boeing 737-800s – the last of which arrived in recent weeks to complete an order placed at the 2008 Farnborough air show.

The Emirati national recalls: “When His Highness approached me to say they were thinking about a low-cost carrier and was I in-terested, I asked: ‘Will it be Emirates lite?’ He replied: ‘It will be nothing to do with Emirates, it will be a separate company. You will have the support you need, but once you are set up, you are on your own.’” Sheikh Ahmed was also determined the new baby would have its own character and not simply


copy other low-cost carriers. “He was asked what airline Flydubai would be most like,” remembers Al Ghaith. “His answer was: ‘It will be most like Flydubai.’”

Flydubai’s growth has been rapid. The air-line flies to 94 cities – 59 of which did not pre-viously have a direct link to Dubai. It intro-duced 27 routes in 2014 and will bring on another 19 this year. Its biggest markets are Saudi Arabia, with 14 destinations, and Africa, where Flydubai serves 12 points. Also popular are Russia – Novosibirsk and Nizhniy Novgorod were set to become its ninth and tenth routes there in October – as well as east-ern Europe, and the Indian subcontinent. “Our philosophy is that we fly to places that aren’t properly served, linking the region to Dubai,” notes Al Ghaith.

Fleet growth certainly has not stopped with the arrival of the 50th aircraft. At the Dubai air show in 2013, Flydubai announced a follow-on commitment for up to 100 737 Max 8s and a further 11 -800s, with the first of the current-generation models arriving in May next year, and the Max deliveries running from 2017 to 2023 – many to replace existing aircraft. Like Emirates, Flydubai has been open about its fi-nances, declaring its third consecutive net profit of Dha250 million ($68 million) in 2014 on revenues of Dhs4.4 billion. It transported 7.25 million passengers.

Further evidence of Flydubai’s auton-omy comes in its network planning. Against expectation perhaps, there is no “Dubai plc” masterplan with Flydubai executives and their

Emirates counterparts jointly evaluating if cit-ies would be best served with an Emirates widebody or Flydubai 737, or both. “Our route strategy is totally independent,” Al Ghaith insists. “We don’t sit down with them and plan our routes.” Despite this, some 36 cities served by Flydubai also have an Emirates connection (we took a Flydubai flight to Muscat that touched down just ahead of an Emirates Airbus A330).

Although Flydubai does interline with Emirates, and other airlines, the location of its Terminal 2 base on the northern side of DXB often does not make that terribly practical. However, around a quarter of Flydubai’s pas-sengers transit through the airport, mostly on other Flydubai services (our return flight from Muscat, for instance, was packed with pil-grims on their way to the Hajj in Saudi Arabia). Flydubai occupies about half the one-storey, low-cost terminal, which, although smart and recently expanded, is functional:


November 2015

FLYDUBAI AT A GLANCE

Operating revenue $m 2014 1,198

Change $ 19.0%

Change local 18.9%

Operating margin n/a

Net margin 5.7%

Year-end 31 Dec 2014

AB 2014 financial ranking 95

AB 2014 traffic ranking n/a

RPK growth (2014)* 9.5%

ASK growth (2014)* 9.3%

Load factor (2014)* 74.0%

NOTE: *estimates

EYE ON THE BALL

Ghaith Al Ghaith is a big fan of Arsenal

football club and tries to catch matches at

the Emirates Stadium whenever he is in

London. For him, the methods of Arsene

Wenger – the English Premier League’s

longest-serving manager – are the epitome

of good leadership. The cultured Frenchman

– nicknamed Le Professeur – manages with

patience and intelligence, has a deep

knowledge of the game and coaching, builds

a strong team and is able to motivate

players to get the best out of them, says Al

Ghaith. The Flydubai chief executive says of

his own management style: “I think I could

stay at home and everything would go on

running perfectly. That’s what makes me

most proud – the fact that we are developing

great people that I can delegate to. If the

airline is only successful because of one

person, that is not a great position to be in.”

there are remote stands rather than airbridges.From late October, Flydubai was due to in-

troduce 70 flights a week – to seven destina-tions in the Middle East and north Asia – from Dubai’s second airport, Dubai World Central (DWC), also known as Al Maktoum International. All the routes are already served from DXB, and will continue to be. However, this has led to speculation that the carrier is preparing to relocate its entire opera-tion from the crowded but relentlessly ex-panding DXB to the new airport – earmarked to become the world’s busiest hub by the 2030s but currently still home to only a hand-ful of passenger airlines.

Al Ghaith insists that is still very much to be decided, although he is clear that Flydubai’s footprint at the new airport can only get larger. Speaking from his DXB-based office, he adds: “DWC is the airport for greater capacity, while capacity here is becoming re-stricted. We will grow at DWC as quickly as the business requires, but we won’t commit to timescales. We are constantly reviewing the situation. DXB is always going to be a chal-lenge with just the two runways. DWC is the new frontier. That is where the new opportu-nities will be and that’s where we will grow.”

Dubai Airports – the government-owned body that runs DXB and DWC – has said that persuading some DXB tenants to move to the new airport could be one solution to the con-gestion problems at DXB as Emirates contin-ues to pile-on capacity. So far, cargo opera-tions, an increasing proportion of business aviation traffic and a few airlines have shifted to DWC. With a wholescale move by Emirates to DWC unlikely until at least 2025, a reloca-tion by Flydubai, along with some secondary carriers, would do much to relieve pressure on what has become the world’s busiest inter-national airport.

Flydubai was not the first low-cost airline in the Gulf. That honour belongs to Air Arabia, its near neighbour in the next-door United Arab Emirates emirate of Sharjah, and founded some six years earlier. Sharjah air-port is less than 30min drive from DXB and the two carriers’ networks overlap extensively – although both serve several exclusive routes. The airlines have similarities, includ-ing a highly-utilised, modern, one-type fleet (Airbus A320s in the case of Air Arabia) and an onboard food and beverage retail service. Many customers clearly do a head-to-head comparison when booking.

However, shortly after launch, Flydubai began adding more frills than its more conven-tionally low-cost carrier rival – including a

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A DIFFERENT SCALE ALTOGETHER.

Singapore Airshow 2016 will welcome France

as the Feature Country in the fifth edition of the

show, scheduled to take place from 16 to 21

February 2016, at the Changi Exhibition Centre.

The Feature Country series, which made its

debut at the 2014 Airshow, was developed as

a permanent feature to enable the companies

exhibiting within the pavilion to leverage on

the Singapore Airshow as a strategic platform;

lending support to businesses of the Feature

Country and enabling them to tap the opportu-

nities in the Asia Pacific region and beyond.

The French Pavilion will be located at a

prominent spot within the exhibition hall. Par-

ticipating exhibitors will have access to a dedi-

cated “Deminar” area – a demonstration and

seminar area for research institutes and uni-

versities to showcase their latest technolo-

gies and innovations. In addition, business

meetings between the French Pavilion exhibi-

tors and VIP delegations will also be specially

facilitated.

“Being a Feature Country at the Singapore

Airshow 2016 gives us the unique platform to

bring together our latest and best aviation tech-

nologies to meet the growing appetite for inno-

vation in the Asia Pacific aviation sector, trans-

lating into real business deals for our French

companies,” said Emeric D’Arcimoles, the

Paris Air Show Chairman and Chairman of the

France will take the spotlight as “feature country” at Singapore

Hosted Buyers Programme offers new partnership opportunities

For more information on the event,

visit www.singaporeairshow.com

or scan here:

Flightglobal is proud to support Singapore Airshow 2016Find us at stand no. P103

SPONSORED UPDATE

Buyers seeking specific products and solutions at Singapore Airshow 2016 can now leverage on the Hosted Buyers business matching programme to source new contacts and explore new ventures.

Accorded with a complimentary 4-day Hosted Buyer Pass and exclusive hospi-tality arrangements during the trade days, each eligible buyer will enjoy a hassle-free business meeting experience as pre-sched-uled meetings are facilitated with exhibi-tors that match their requirements.

For more information about the Hosted

Buyers Programme, please visit www.

singaporeairshow.com/hosted-buyers-

programme or contact Ms Tan Kai Li at

[email protected] or +65 6595

6125.

International Committee of Groupement des in-

dustries françaises aéronautiques et spatiales.

The French aerospace, defence and securi-

ty industry is worth 47.9 billion Euros, and

specifically, out of which 30.4 billion Euros is

contributed by exports. This shows that

France is well-placed to leverage its Feature

Country platform to bring its latest innovations

to the region’s top decision-makers converging

at Singapore Airshow 2016.

This comes at an opportune time in the

Asia Pacific aviation industry, where the com-

mercial aerospace sector is expected to set

new records for aircraft production in 2015,

off the back of the accelerated replacement

cycle of obsolete aircraft and growing passen-

ger travel demand in the Asia Pacific region.

Countries in the region are also increasing de-

fence spending to equip their militaries with

modern defence platforms and technologies.

Reflecting this growth is the continued ex-

pansion of reach and impact of each new edi-

tion of Singapore Airshow. The 2016 show is

already 80 per cent committed, with special-

ised spaces like the Aerospace Emerging

Technologies Zone, the Training and Simula-

tion Zone and the introduction of the Business

Aviation Zone, to further spawn business de-

velopment opportunities.

For more information about the Feature Country programme, please contact Ms Chong Kam Lin at [email protected] or +65 6595 6124.

REGISTER NOW & STAND

TO WIN COMPLIMENTARY

HOTEL STAY* IN

OUR LUCKY DRAW!

Submit your registration

by 30 November 2015 and enjoy

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*Terms and conditions apply.


business class cabin and seat-back entertain-ment, which all but seven of its oldest aircraft now offer. There is also a business class lounge at DXB’s Terminal 2. So has Flydubai evolved into more of a hybrid? It is not a suggestion Al Ghaith denies. “We had to react and change,” he says. Citing Russian leisure travellers as an example, he adds: “It is not a case of one prod-uct fitting all. Our customers require segmenta-tion and there is nothing wrong with that.”

The 8.9in seat-back entertainment screens, with an extensive menu of free and paid-for programmes, were introduced in 2010. Three years later, Flydubai brought in its business class product via a retrofit programme on its existing aircraft, with three rows of four 42in-pitch, 21in-wide seats (its economy seats come with a 29in pitch) and 12in touch screens. A ticket includes complimentary food service and IFE. A loyalty programme is being looked at, possibly for 2016. However, Al Ghaith insists it will only be introduced if “it doesn’t add a cost burden”.

Although the launch team on Flydubai was largely seconded from Emirates, the vast majority of its roughly 3,000 current staff – including some 600 pilots –

have joined since launch. Recruiting and training employees quickly has been critical, but Dubai’s lure has helped. “It is one of our great advantages,” says Ghaith. “We can always persuade people that this is a great place to live and work or to bring up children. It’s a massive enabler for us.” Flydubai cabin crews have “the highest level of customer ser-vice” he adds, “because it is part of our brand and part of the brand of Dubai”.

One of the biggest challenges for Flydubai remains traffic rights. Because of the UAE’s unique federal set-up, with two rival “flag-carriers” – Emirates and Etihad – and two competing low-cost airlines, countries tend to ration flights into certain airports as part of bi-lateral agreements with the national govern-ment. “In this part of the world, markets are not always open,” says Al Ghaith, citing India and Pakistan, as well as some Middle Eastern nations, as examples where Flydubai would be happy to increase its route frequencies.

Al Ghaith is clear about what removing these political obstacles would mean for Flydubai. “Tomorrow, if the dynamics of the bilaterals become more clear, we could dou-ble in size,” he says. “We now have our 50th aircraft and our next milestone is 75 aircraft by 2020, or maybe before. Then a fleet of 100 is not too far away, but we may reach a point


November 2015

EARLY ADOPTER

Ghaith Al Ghaith was among the first bright

young Emiratis to join a fledgling airline few

had heard of – Emirates – in 1986, under

expats lured largely from the UK. After a

degree in business administration at the

University of Arizona – an experience he

says “gave me a chance to learn about

other cultures” – he returned to his home

city to join the “only international company

in Dubai at the time”. For ambitious,

foreign-educated Emiratis, the only

alternative was in the civil service or state

oil company, but Al Ghaith says he was

excited about putting Dubai on the map. It

was the start of a 22-year career with the

airline, during which he held positions

including executive vice-president for

commercial operations worldwide and,

“learned everything I know”.

Dubai three decades ago was a Gulf

backwater – a trading port with ambitions to

become a centre for tourism and

investment, but without the oil and political

clout of UAE capital Abu Dhabi, or the

business credentials of Bahrain. Among the

Emirati community everyone knew almost

everyone. “I grew up in the same

neighbourhood as Sheikh Ahmed,” says Al

Ghaith. The young manager was posted to

London in the early 1990s to run the then

modest UK and Ireland operation. “There

was one Emirates flight a day,” he says. It

was a hard sell to bring people to Dubai on

vacation, let alone to work, he notes. With

eight Emirates flights a day into the UK

capital alone, seven on Airbus A380s,

things have certainly changed.

– maybe around 75 – where we would need a break in the bilateral regime. Our only con-straint is traffic rights. If we had the rights we could reach a fleet of 100 easily.”

The subcontinent – with service sector workers commuting to the Gulf and entrepre-neurs keen to trade – represents an opportu-nity not yet fully tapped. Neighbouring Iran represents “huge potential” as it emerges from international isolation and opens its economy to the West, maintains Al Ghaith. In terms of tourism, business development and guest worker traffic, Africa too is a major market, he says. However, regional conflict has taken its toll on Flydubai’s network, with three routes to Syria recently withdrawn, as well as two destinations in troubled eastern Ukraine.

The 737 Max aircraft could offer Flydubai a chance to stretch its route network. The air-line’s current furthest routes are to Prague in the Czech Republic and Chittagong in Bangladesh, with about a 5h duration. How-ever, Al Ghaith insists “it is not our objective to go after longer routes”. Instead, the main benefit from the new-generation Boeings will be to “give us a huge plus on operational cost. The fuel price may be more digestible, but the Max gives us a 15% saving.” With a policy of keeping its 737s for around eight years, the new aircraft will also “keep the fleet young”, says Al Ghaith.

Like Western low-cost airlines, Flydubai has a simple, all-in-one website on which flights and services can be purchased. Al Ghaith would like to migrate more ticket transactions online – more than half of flights are sold through travel agents, mainly because of low internet use in some of the key markets the carrier serves. “We want to get to a posi-tion where the majority of sales are done on flydubai.com, but in reality, we still need that diversification of channels,” he admits.

As Flydubai continues its ascent, and more than six years into the job, Al Ghaith remains passionate about Dubai’s second airline. “It’s very exciting – the most exciting thing any-body could do,” he enthuses. Being part of the Emirates experience for over two decades and seeing it transformed from fledgling to one of the world’s blue-chip aviation brands cannot have been without its highlights too? “My time with Emirates was my rock,” Al Ghaith says. “Everything I know, I learned at Emir-ates.” But these days his focus is very much on its fast-growing sibling. ■

All Airline Business cover interviews, along with videos, can be viewed in our digital editions:

flightglobal.com/AirlineBusiness


SPECIAL REPORT AIRPORTS

Heath

row

The UK Airports Commission’s backing for a third London Heathrow runway has failed to put an end to the capacity debate, as government indecision and fierce opposition continue. In the USA, mid-sized airports are finding new life after route culls by major carriers, while in India regional airports are being vastly underused

CONTENTS

32 Runway revolt UK capacity debate rumbles on, despite Airports Commission’s backing for third London Heathrow runway

34 On the rebound Mid-sized US airports are seeing a low-cost resurgence after being abandoned by the major airlines

36 Terminal decline India’s main hubs may be full, but a large number of regional airports are underused or standing empty

40 Airport group financials Airline Business has put together its annual Top 100 airport

group rankings

November 2015

All our special reports are available online at :


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a faster, cheaper, simpler, cleaner and more deliverable solution to the UK’s capacity needs and we believe our scheme not only delivers what the UK needs in terms of future economic development, but also global connectivity. Since the Airports Commission’s report was published, we have been maintaining our pub-lic profile, through our campaign, but also dis-

secting what we thought was an incorrect assessment in the Commission’s report about the basics of our case.

“For example, when you look at the growth assumptions at the airport, we will actually handle close to 41 million passengers this year. The Commission said we wouldn’t be doing that until the middle of the next decade – they are 10 years out,” he says.

Olivier Jankovec, director general of airport trade body ACI Europe, believes the debate is shifting: “It is something Gatwick has been try-ing to do, to shift the debate to delivery rather than comparing the merits of the impact of one or other solution. With the debate shifting towards delivery, it is becoming more political. But that is unavoidable because it is always

The Airports Commission report backing expansion at Heathrow should have settled the thorny issue of UK capacity but with politicians wavering, doubts persist

AIRPORTS EUROPE

RUNWAYREVOLT

REPORTOLIVER CLARK LONDON

Abig decision is looming for the UK which will have wider con-sequences for all of Europe: Whether and where to build a new runway for London.

Despite its unequivocal backing for runway three at London Heathrow, the Airports Commission appears to have failed to put an end to the airport expansion debate in the UK.

Given the lengthy debate and stalled pro-gress in resolving how to tackle runway capac-ity needs, that will come as little surprise. Even as the commission delivered its final report on 1 July, concluding Heathrow should expand – albeit with a night flight ban and ruling out a fourth runway – Gatwick’s chief executive Stewart Wingate refused to concede, insisting the south London airport was still “very much in the race”.

No doubt taking heart from the govern-ment’s ambiguous message it plans to examine the report’s conclusions and issue a reaction by the end of the year, Gatwick published a critique of the report, describing its “flawed” methodology and questioning assumptions made by the Howard Davies-led commission. Gatwick has also renewed its campaign to win backing for a second runway.

“We continue to make the case for our sec-ond runway because we truly believe it is the best and most deliverable option,” chief com-mercial officer Guy Stephenson tells Airline Business. “Leaving aside the Airports Commission’s recommendation, our case is for

“Our case is for a faster, cheaper, simpler, cleaner more deliverable solution”

GUY STEPHENSONChief commercial officer, Gatwick airport

November 2015

going to be a political decision.” For Paul Kehoe, chief executive of Birmingham International airport, the political dimension could prove to be a major hurdle for Heath-row’s expansion plans.

“With a government that probably doesn’t want a third runway – ‘no ifs, no buts, no third runway’ said [prime minister David] Cameron. The chancellor probably does [want to expand Heathrow] but you’ve got: Boris Johnson – no Heathrow; the shadow chancellor John McDonnell – no Heathrow; [Labour leader Jeremy] Corbyn – anti-Heathrow; Sadiq Khan, Labour mayoral candidate – no Heathrow third runway; and the Tory mayoral candidate [Zac Goldsmith] – no Heathrow,” he says.

TOUGH CALL“It is a really tough call and, more importantly, [IAG chief executive] Willie Walsh has said: ‘I am not going to pay for it’,” Kehoe adds. Walsh, whose IAG group includes Heathrow’s biggest operator British Airways, has raised concerns over the cost of all three London expansion options, believing they will lead to increased landing fees.

Nevertheless, Heathrow remains upbeat.Andrew Macmillan, director of strategy for

Heathrow, says the Airports Commission had been “absolutely clear and unambiguous” in its support for Heathrow’s expansion and has produced a “well-articulated” report, adding “this is a once -in-a-generation opportunity [for Heathrow] to become a 21st century airport”.


As policymakers worry about noise and air pollution from any London expansion, Dublin could be poised to take full advantage

AN

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To read our analysis of how London Heathrow has lost ground to other hubs, visit:

flightglobal.com/Heathrowsqueeze

Macmillan says with the aid of a government development consent order, planning permis-sion for the runway could be gained within three to four years and could be operational in 2025. But a critical battleground has emerged around pollution, both noise and emissions, around Gatwick and Heathrow.

Macmillan says the “vast majority” of NOx emissions at Heathrow come from motor vehi-cles and says progress is being made to reduce the number of private vehicles and increase passenger usage of public transport, a process he believes will be accelerated by Crossrail.

Without going into the thorny issue of finance, the airport executive notes Heathrow has traditionally raised private investment for the £11-12 billion ($17-18 billion) it has spent in the last decade on infrastructure by issuing bonds in the open market, and Macmillan says he is “very confident we can raise the money” for the estimated £14-18 billion third runway.

ALTERNATIVEA possible alternative to Heathrow’s future development could come from an unexpected source – Dublin airport.

Traffic has rebounded at the Irish capital after the heavy falls following the economic crisis as Aer Lingus has rebuilt from the gate-way, and from Ryanair’s return to growth from Dublin after Ireland scrapped its travel tax.

But it is IAG’s tie up with Dublin-based Aer Lingus that might open up new opportunities for the airport. “A lot of the IAG discussion is

about growing Aer Lingus, and in particular enabling it to continue growth plans it had but with a firmer financial footing the group will provide,” says Dublin Airport managing direc-tor Vincent Harrison. “Obviously the backdrop of a lot of airport congestion in the UK gives us a lot of opportunity for continuing to grow that connecting base”.

A return to traffic growth – passenger num-bers are almost back to pre-financial crisis lev-els – means a second Dublin runway is back on the agenda.

Airport operator DAA is “examining the various options” regarding delivery of a sec-ond, parallel, runway at Dublin airport. “We have had a second runway on the planning horizon for decades,” says Harrison, adding: “Dublin has had the land safeguarded and has had the outline plans in place to construct a runway in the same location for many years and that has enabled us to have a general plan-ning environment where there aren’t many residential areas or the sort of urban build-up around the airport you see in other cities.”

Harrison says in recent years the airport has been “focused very much on connecting pas-sengers through Dublin, in particular with Aer Lingus and working together to demonstrate a connecting product”.

The airport’s US pre-clearance facility, allowing departing passengers to clear customs before arrival, has been a major boon, he adds.

The case for a second runway could be made more compelling by the IAG-Aer Lingus

tie up. Walsh has stated Ireland is a “very attractive market, not just point-to-point, but across connections with [our] Latin network and transatlantic,” and says there are opportu-nities for IAG to connect more passengers through the Irish gateway. The airport boss says footing the bill is “never going to be as simple as a question of airlines financing a run-way or not”. He also notes Ireland has an “established regulatory model” for funding such a project. DAA chief executive Kevin Toland is more explicit about the advantages of expanding Dublin, rather than a UK airport.

“I think it is fair to say it’s a very different mathematical equation than a UK runway, it’s a fraction of the cost. It’s very different not wanting to pay out £8-10 billion in the UK, to the magnitude we have in Ireland,” he says.

For ACI Europe’s Jankovec, the critical ques-tion is whether the UK government has the “political courage” to make a decision.

“The process in the UK over 20 years has been a failure. That’s clear,” he says. “Now they came up with yet another process with the Airports Commission and that was meant to come to a decision. It is up to the government to decide and I hope a decision is taken because the worst [scenario] would be not hav-ing any decision. It is a test in terms of the political courage of the government.” ■


After being ditched as hubs by the US majors following consolidation, mid-sized airports are bouncing back and attracting new suitors in the form of low-cost carriers

AIRPORTS AMERICAS

ON THEREBOUND

REPORTEDWARD RUSSELL WASHINGTON DC

Pass through Cleveland Hopkins International airport and you can breeze through security, get a local brew from friendly staff at a pub in the concourse and then sit with a

view of idled jet bridges at the shuttered off concourse D.

A former United Airlines hub, the airport saw a significant drop in passenger numbers in the months after the Chicago-based carrier axed many of its routes in 2014. These cuts prompted the closure of concourse D and turned concourse C into a ghost town for much of the day.

But Cleveland has quickly turned lemons into lemonade. Frontier Airlines, JetBlue Airways and Spirit Airlines have all added new services to the airport and other mainline carriers have expanded, resulting in an in-crease in passenger numbers in May, com-pared with last year.

“Consultants tell me that this is the strong-est rebound from a de-hubbing of any air-port,” says airport director Ricky Smith. “The rebound has been very strong – the market

November 2015

3.4% Increase in seats at

Cincinnati in first five months of 2015

DISCONTINUED UNITED ROUTES FROM CLEVELAND ADDED BY OTHER AIRLINES (MARCH 2014 - AUGUST 2015)Airline Route

American Airlines Phoenix

Delta Air Lines Hartford, Raleigh/Durham

Frontier Airlines Atlanta, Fort Myers, Las Vegas, Orlando, Raleigh/Durham, Seattle/Tacoma, Tampa

JetBlue Airways Boston, Orlando

Southwest Airlines Las Vegas, Phoenix

Spirit Airlines Atlanta, Boston, Dallas/Fort Worth, Fort Lauderdale, Las Vegas, Los Angeles, Myrtle Beach, Orlando

SOURCE: Innovata – part of Flightglobal

their seats since 2007 and a lot of that demand is still there,” says Lukas Johnson, vice-presi-dent of network and pricing at Allegiant. “There’s some gaps in the market that we think we can serve.”

Cincinnati/Northern Kentucky Internation-al airport has become the Las Vegas-based car-rier’s fastest growing origination city since it entered the market in February 2014, he says. It now offers 35 weekly flights from the air-port to 11 destinations, on both a seasonal and year-round basis.

NAMING BASESAllegiant’s expansion in Cincinnati has helped drive the 2.8% increase in passenger traffic and 3.4% increase in seats at the airport during the first five months of 2015, airport data and Cap-stats show. The airline recently named Cincinnati as one of its three new mid-conti-nent bases, with plans to domicile three Airbus

has been very responsive.”While up in May, passenger traffic and seat

capacity dropped during the first five months of 2015 – albeit at a significantly slower pace than a year ago. Traffic was down 5.9% to 3.1 million and seats were down 2.2%, airport and Capstats data show.

Smith says Cleveland can support non-stop service to 20 of the more than 40 mar-kets eliminated by United. Other carriers have launched service to 19 of these, with only Kansas City still lacking service, though he notes that this may change in the coming months.

Former hub airports across the US Midwest are in the midst of a renaissance. Low-cost carriers, including Allegiant Air, Frontier and Spirit, are adding new routes and opening bases in former mid-size cities like Cleveland, Cincinnati and Memphis.

“Mid-size markets have lost over 15% of


Spirit Airlines has added several discontinued United routes from Cleveland Hopkins, including Atlanta, Las Vegas and Orlando

JetBlue launched Cleveland services in April this year

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A319s there from January 2016. Asheville Regional and Pittsburgh International airports will house the other two bases.

Allegiant will offer new point-to-point mar-kets in addition to its bread-and-butter leisure routes from the new bases – for example Las Vegas and Orlando Sanford, says Johnson. Point-to-point routes – like Austin-Memphis and New Orleans-Cincinnati – will often be in markets with no nonstop service and bi-direc-tional traffic, he adds.

Frontier also sees opportunity in mid-size markets. “We’re looking for growth opportu-nities outside of Denver that have high-yield and high-cost combination that we can get ac-cess to,” said Barry Biffle, president of the Denver-based carrier, in February.

Mid-size markets work for it when it “can pair with enough other markets”, he added.

In Cincinnati, Frontier has more than tri-pled the number of seats it offers in the mar-ket over the first five months of this year, Cap-stats shows. Simply losing a hub is not enough for an airport to land new service or a base from a low-cost carrier. Passenger de-mand must exist and barriers to entry need to be low to attract them.

“Don’t put up roadblocks,” says Johnson, when asked what airports can do to attract Alle-giant. This includes encouraging travellers to use the new service and making it easy to access terminal and gate space.

Airports take a variety of approaches to this. They range from no incentives, in Mem-

phis, to start-up cost relief and marketing sup-port in Cleveland, and full revenue guaran-tees in other cities.

“If I’ve got to buy air service, it’s not going to do me or the airline any good when my subsi-dy runs out,” says Scott Brockman, chief exec-utive of Memphis International airport. The airport focuses its air service development ef-forts on cities where it knows there is long-standing local demand, he adds.

MEMPHIS MOVESSince Delta pulled down the former Northwest Airlines hub in Memphis, Allegiant has added new service to a number of cities in Florida and to Las Vegas.

American has added service to Philadelphia with New York LaGuardia coming in November and Southwest Airlines to Dallas Love Field.

“We’re trying to build a diverse portfolio of airlines,” says Will Livsey, senior manager of air service research and development in Memphis. “It’s about really trying to fill the void for everybody.”

Cleveland offers incentives to reduce start-up costs and will market new routes in the re-gion, says Smith. However, he also emphasis-es the need to focus on routes where local demand exists.

“We know Cleveland can be a profitable en-vironment [for airlines], it’s just the cost of mobilising,” he says. “They establish their loyal following in the marketplace and it be-comes a lot easier to sustain themselves.”

Frontier continues to operate in markets where the incentives it received from the air-port have expired, and Spirit is talking about further expansion despite its incentive pack-age expiring in September, says Smith.

No airline is likely to turn down incentives as airports around the country compete for new air service. But they have also proven willing to quickly axe service that is not profitable, with both Allegiant and Frontier prepared to pull out of markets before flights even begin.

It all comes down to local demand – figur-ing out what routes a market can support itself and getting airlines to fly them.

“Rebuilding this service after a closure of a hub, it’s a marathon – not a sprint,” says Brockman. “We’re in this rebuilding Memphis’s hub, as opposed to Delta’s hub or Northwest’s hub.” ■


The Indian government’s drive to revitalise the

nation’s ‘ghost’ facilities has not won universal

praise from carriers

AIRPORTS ASIA

TERMINAL DECLINE

REPORTAARON CHONG & MAVIS TOH SINGAPORE

Rex

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Mention India and scenes of colour, contrasted with masses of human chaos spring to mind. Empty air-ports do not.

While the country’s main hub airports are often bursting at the seams, there is also a sizeable number of undertilised aerodromes, some of which are simply standing empty.

Located in less well-known cities or town-ships, such Tier II or III regional airports have been termed by the local media as “ghost air-ports” – facilities that are fully operational, but without any passenger activity.

Last year, the Narendra Modi government outlined plans to develop 200 low-cost air-ports in smaller towns and cities across India over the next 20 years.

According to the Airports Authority of India (AAI), the country currently has 18 in-ternational airports, of which 12 are under its care. The remaining six airports – Delhi, Nagpur, Mumbai, Hyderabad, Bengaluru, and Kochi – are privately owned. AAI also oper-ates 44 domestic airports.

On its website, it also lists 33 “non-opera-tional” airports. They include Kishangarh, Palanpur, Satna, Panna and Tezu.

Rajiv Chih, director of aerospace and de-fence at PricewaterhouseCoopers, says poor government planning is a major reason for these unutilised airports.

DECISIONS “The government should have carried out a market survey from airlines and the town-ship, before making decisions. If it makes business sense for the airline, then yes, build the airport. It is not a good idea for an airline to fly to a under-demand destination. Unfor-tunately, national carrier Air India is already stretched flying to various (under-demand) states in the Northeast.”

“The small airportslack basic facilities

like hangars”RAJIV CHIH

Director, aerospace and defence, PwC

November 2015

and costs of providing such services”. Low-cost carrier SpiceJet says that while it is keen to connect to the lesser-known airports, see-ing the opportunities of an untapped market, certain regulations have held it back.

“We see a large section of railway passen-gers from these sectors who can be shifted to air travel. But various taxes on fuel and air-port charges make it difficult for us to offer even lower fares that will attract railway pas-sengers,” explains the airline.

REFUELLINGBesides reducing airport fees and taxes on fuel, SpiceJet says there is also a need for more refuelling facilities at these airports.

These improvements, SpiceJet believes, will help the airline to stimulate demand in remote regions.

Citing the high number of non-operational airports in the country and the presence of close to 400 airstrips, the carrier says it sees no need for more airports to be built. Rather, “proper policies” should be put in place to fully utilise these existing aerodromes.

New entrant Vistara, meanwhile, rules out expanding its network to connect with these underutilised airports.

The Singapore Airlines and Tata Sons joint-venture says its network expansion, among other things, is dependent on “customers’ de-mand” and “commercial viability”.

While it believes that incentives alone “will not suffice in providing connectivity in these regions”, it agrees that subsidised land-ing, parking, as well as aeronautical charges, will make these routes more “appealing and commercially viable” for airlines.

In contrast, India’s metro airports are most often overcrowded.

Analysts say the situation is “reaching satu-ration”, with traffic growing at an annual compound growth of 7%, resulting in delays

Chih adds that most Tier II and III airports lack even the basic facilities to support their airline counterparts.

“The small ones lack basic facilities like hangars. This causes aircraft and helicopters to be parked out in the open. Most of these airports also do not have adequate night-land-ing capabilities, thus constricting the timings available for general aviation aircraft.”

Besides poor planning, Amber Dubey, head of aerospace and defence at KPMG in India, attributes the rise in the number of “ghost air-ports” to various factors including political pressure to set up such facilities in the hinter-land, lack of direct subsidies for airlines flying to these destinations, as well as the low capita income of the population.

Dubey says the government has placed “undue onus” on domestic carriers to fulfill regional connectivity obligations “without due consideration of operational constraints

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and cancellations. Delhi and Mumbai are the country’s biggest airports, both handling more than 35 million passengers last year. Over-crowding is prevalent at these metro airports as they are often land-constrained without room for further expansions.

These congested airports also put a strain on airlines, says Vistara: “If the infrastructure is poor or inadequate, such as non-availability of check-in counters, lesser office space, crowded baggage areas, limited availability of x-ray machines and manpower for screening passengers and baggage, and lack of aero-bridges, it adversely impacts the operational efficiency of airlines.”

To help airlines improve their on-time per-formance and aircraft utilisation, Vistara sug-gests that airport operators improve designs of exit ways and build more taxiways.

Managing director of Airbus India, Srinivasan Dwarakanath (Dwaraka) lauds the government for expanding into regional air-port development. “There is a correlation be-tween growth in the overall country and its regional areas. Things are looking positive [for the Indian aviation industry], but infrastruc-ture has to grow and improve in accordance with the number of airlines and planes.”

With the entry of AirAsia India, Air Pegasus, Air Costa and Trujet, among the growing list of new players, analysts also believe that these

AIRPORTS ASIA

Bengaluru’s Kempegowda International is looking

at ways to expand its terminal capacity to cope

with the surprise growth the airport is experienc-

ing. President of airport operations Hari Marar

says growth has “gone beyond what we’ve antici-

pated”. While the airport projected 12-13% an-

nual growth, it saw a 30% jump in passenger

numbers over the last 12 months.

Marar says the entrance of low-cost carriers

AirAsia India, Air Costa and Air Pegasus has driv-

en growth over the year. Lower fuel prices have

also allowed airlines to “test the elasticity of pric-

ing more”, further stimulating demand.

SECURITYThe airport is planning to add security and immi-

gration counters as well bring in more traffic at

non-peak hours, to accommodate more passen-

gers in the same terminal space. With these ad-

justments, Marar is confident the airport will be

able to handle 26 million passengers annually,

up from its current 20 million capacity.

There are also plans for a new terminal, the

design of which is ongoing, in Bengaluru. Marar

says the airport will award the package for earth-

works very shortly, and that construction of the

terminal, together with that of a third runway,

should begin by end-2016. The target is for both

runway and terminal to be operational in 2020.

“To build terminal 2, it will take a minimum of

four years, and in these four years we can’t afford

to lose traffic,” says Marar. “Our biggest chal-

lenge is to ensure capacity keeps pace with the

growth of demand.” When completed, the new

terminal will have the capacity to handle 35 mil-

lion passengers annually.

Meanwhile Cochin International airport is look-

ing at acquiring other Indian airports as a way of

diversifying its business.

The Cochin International airport operator is

targeting airports in Tier II and Tier III Indian cities,

with capacities of less than 10 million, the air-

port’s deputy general manager of finance, Lenny

Sebastian, tells Airline Business.“We want to look for projects which are finan-

cially within our reach,” he says. Sebastian adds

that Cochin International, which started opera-

tions in 1999, is the first private airport in India.

The southern Indian airport is opening a new

terminal next May, adding 15 million to its exist-

ing 8 million capacity. Last year, the airport han-

dled 6.4 million passengers, a 19% growth from

the previous year.

ARRIVAL OF LOW-COST CARRIERS AND CHEAP OIL FUELS DEMAND

Kempegowda International, in Bengaluru

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airlines and airports is essential,” says Dubey.KPMG suggests the government provides

“viability gap funding” (VGF) for three to five years. The VGF can be funded by a 2% levy on domestic and international tickets sold in India, and state governments have also pro-posed underwriting a number of seats, it adds.

To support infrastructure developments, Dubey says the regional airports’ non-aero-nautical assets can also be monetised to gen-erate cash flows, as successfully demonstrat-ed by larger airports.

“But if that too doesn’t work, it is better to lock up the airport and to redeploy staff to other airports.” ■

regional carriers will eventually bring connec-tivity to the under-served regions.

The real challenge, however, lies in making these regional airports sustainably viable. Analysts say the issue has to be tackled on two fronts: supporting the development of low-cost airports and supporting airlines’ operations there to ensure the airports’ sustainability.

TAXES“Skewed policies, high fixed cost of opera-tions and a multitude of taxes have made this a high-cost and high-risk industry.

“In order to make the regional airports via-ble and profitable, a collaboration between

TOP 10 INDIAN AIRPORTS BY PASSENGER NUMBERS: 2014

CIty Airport Passengers

New Delhi Delhi Indira Gandhi International 39.8m

Mumbai Mumbai Chhatrapati Shivaji International 35.0m

Bengaluru Kempegowda International airport, Bengaluru 14.5m

Chennai Chennai International 13.9m

Kolkata Kolkata Netaji Subhas Chandra Bose 10.7m

Hyderabad Hyderabad Rajiv Gandhi International 9.8m

Kochi Cochin International 6.1m

Ahmedabad Ahmedabad Sardar Vallabhbhai Patel International 4.8m

Dabolim Goa International 4.5m

Thiruvananthapuram Trivandrum International 3.2m

SOURCE: Flightglobal/ACI

flightglobal.com/ab40 | Airline Business |

AIRPORTS RANKINGS

AIRPORT GROUP FINANCIALSDATA COMPILED BY JAMES MELLON OF FLIGHTGLOBAL DATA RESEARCH ANALYSIS BY FLIGHTGLOBAL INSIGHT

TOP 100 AIRPORT GROUPS BY REVENUE: 2014

Ranking Airports operator Country Main Revenue Op result ($m) Op margin (%) Net result ($m) Period 2014 (2013) airport(s) $ million Change (%) 2014 2014 2013 2014 2013 to end

1 (2) Heathrow Airport Holdings UK LHR 4,425 14.3 1,646.0 37.2 39.4 172.7 472.6 Dec 14

2 (1) Aena Aeropuertos Spain MAD 4,172 7.1 1,386.4 33.2 25.3 630.9 793.2 Dec 14

3 (3) Aeroports de Paris France CDG 3,679 0.5 962.2 26.2 23.7 531.2 401.5 Dec 14

4 (4) Fraport Germany FRA 3,156 -0.1 636.4 20.2 18.5 331.9 313.3 Dec 14

5 (5) Port Authority of New York & New Jersey USA JFK 2,479 6.8 855.9 34.5 36.8 544.0 493.3 Dec 14

6 (7) Hong Kong International Airport Hong Kong HKG 2,111 10.6 1,147.0 54.3 51.9 937.6 831.2 Mar 15

7 (8) Schiphol Group Netherlands AMS 1,943 7.2 531.3 27.3 22.4 360.6 306.8 Dec 14

8 (6) Narita International Airport Corporation Japan NRT 1,834 -7.6 349.3 19.0 20.0 177.4 198.4 Mar 15

9 (9) Avinor Norway OSL 1,674 -0.8 361.7 21.6 16.2 219.5 150.6 Dec 14

10 (12) Incheon International Airport Company South Korea ICN 1,664 8.1 826.4 49.7 47.9 585.9 430.8 Dec 14

11 (10) Changi Airport Group Singapore SIN 1,661 -0.5 43.7 710.5 Mar 15

12 (11) Munich Airport Germany MUC 1,582 0.4 349.3 22.1 21.8 131.8 131.1 Dec 14

13 (13) Japan Airport Terminal Japan HND 1,566 7.0 89.2 5.7 4.2 60.0 29.6 Mar 15

14 (16) Airports Authority of India India CCU 1,514 12.8 455.1 30.1 30.9 319.4 236.8 Mar 15

15 (18) New Kansai International Airport Company Japan KIX 1,388 10.0 399.5 28.8 25.7 176.8 238.2 Mar 15

16 (19) State Airports Authority (Turkey) Turkey AYT 1,381 13.7 601.3 43.5 39.9 419.4 413.2 Dec 14

17 (20) TAV Airports Turkey IST 1,296 7.9 422.9 32.6 30.5 281.7 176.4 Dec 14

18 (14) Infraero Brazil GRU 1,267 -10.8 -324.3 -25.6 -44.1 -882.2 -1,269.1 Dec 14

19 (21) Beijing Capital International Airport Group China PEK 1,241 5.5 387.8 31.2 31.6 225.4 216.4 Dec 14

20 (15) Airports of Thailand Thailand BKK 1,230 -9.9 472.1 38.4 50.9 379.1 535.6 Sep 14

21 (23) Manchester Airports Group UK MAN 1,185 10.7 228.1 19.2 15.7 110.1 173.6 Mar 15

22 (29) Aeroporti di Roma Italy FCO 1,061 14.1 324.2 30.6 29.3 172.7 110.6 Dec 14

23 (25) Flughafen Zürich Switzerland ZRH 1,048 -0.7 569.3 54.3 54.0 223.9 148.3 Dec 14

24 (24) Southern Cross Airports Holdings Australia SYD 1,043 -1.9 625.4 60.0 61.2 -233.2 5.1 Dec 14

25 (22) Greater Toronto Airports Authority Canada YYZ 1,041 -3.1 380.6 36.6 35.8 -53.8 6.8 Dec 14

26 (27) Los Angeles World Airports USA LAX 1,039 9.7 192.7 18.5 12.9 258.7 199.4 Jun 14

27 (27) Gatwick Airport UK LGW 1,024 8.1 251.7 24.6 24.1 93.4 91.7 Mar 15

28 (17) Malaysia Airports Holdings Malaysia KUL 1,018 -21.1 124.7 12.2 15.2 227.7 119.0 Dec 14

29 (30) Chicago Department of Aviation USA ORD 1,015 13.7 125.8 12.4 12.0 -70.2 -50.5 Dec 14

30 (33) Shanghai Airport Authority China PVG 932 9.8 455.4 48.9 37.9 340.3 304.9 Dec 14

31 (32) SEA Group Italy MXP 903 5.2 171.0 18.9 16.7 100.4 73.3 Dec 14

32 (34) Guangzhou Baiyun International Airport China CAN 896 7.0 251.1 28.0 25.1 176.3 145.7 Dec 14

33 (26) GMR Airports India DEL 892 -9.9 -1.2 240.7 Mar 15

34 (31) Miami Dade County Aviation Department USA MIA 884 2.4 -67.8 -7.7 -10.8 -67.8 -92.8 Sep 14

35 (36) Swedavia Sweden ARN 850 5.9 203.0 23.9 18.1 133.8 76.9 Dec 14

36 (35) Flughafen Wien Austria VIE 831 0.5 157.9 19.0 18.0 108.0 97.4 Dec 14

37 (37) San Francisco International Airport USA SFD 771 6.2 145.0 18.8 23.0 -58.6 -23.3 Jun 14

38 (40) DAA Ireland DUB 749 12.6 67.6 9.0 12.3 25.4 50.7 Dec 14

39 (38) Metropolitan Washington Airports Authority USA IAD 722 -0.1 92.5 12.8 12.8 -184.3 -30.0 Dec 14

39 (45) Korea Airports Corporation South Korea CJU 722 15.9 203.3 28.2 22.0 164.4 117.4 Dec 14

41 (41) Denver Department of Aviation USA DEN 711 7.4 114.4 16.1 6.8 105.4 -10.9 Dec 14

42 (39) Airports Company South Africa South Africa JNB 698 -0.1 340.7 48.8 45.4 140.8 168.0 Mar 15

43 (43) ANA - Aeroportos de Portugal Portugal LIS 688 4.4 218.5 31.8 22.4 66.7 24.7 Dec 14

44 (44) Copenhagen Airports Denmark CPH 684 5.2 258.3 37.8 37.7 169.5 174.0 Dec 14

45 (46) Brussels Airport Belgium BRU 652 11.8 240.8 36.9 37.6 75.1 63.1 Dec 14

46 (41) Australia Pacific Airports Australia MEL 651 -1.7 486.6 74.7 73.5 166.4 210.6 Jun 14

47 (47) Dallas/Fort Worth International Airport USA DFW 625 8.3 -43.0 -6.9 -10.4 -134.9 -139.7 Sep 14

48 (50) Aeropuertos Argentina 2000 Argentina EZE 569 5.8 198.4 34.9 28.0 66.5 26.0 Dec 14

49 (48) Dusseldorf Airport Germany DUS 561 -1.8 12.2 56.6 45.9 Dec 14

50 (52) Massport USA BOS 535 8.3 226.2 42.3 43.0 Jun 14

The latest Airline Business top 100 airport group rankings, providing a financial snapshot of the sector, shows collective revenue growth of 4% in 2014 among leading operators as combined revenues totalled $83 billion

November 2015

flightglobal.com/ab | Airline Business | 41November 2015

TOP 100 AIRPORT FINANCIAL RESULTS EIGHT-YEAR RECORD

Measure 2014 2014 2013 2012 2011 2010 2009 2008 2007

Revenues ($m) and change (%) 83,126 4.0% 5.3% 1.6% 9.4% 9.1% -4.9% 8.4% 18.7%

Op result ($m) and margin (%) 21,239 25.6% 22.9% 21.2% 19.1% 17.2% 14.0% 18.2% 20.3%

NOTES: Top 100 for latest year only. The composition of the ranking may change in individual years. The margin figures are based on those airports for which profit data was available.

TOP 100 AIRPORT GROUPS BY REVENUE: 2014

Ranking Airports operator Country Main Revenue Op result ($m) Op margin (%) Net result ($m) Period 2014 (2013) airport(s) $ million Change (%) 2014 2014 2013 2014 2013 to end

51 (49) Brisbane Airport Corporation Australia BNE 516 -4.3 374.0 72.5 72.7 72.5 179.4 Jun 14

=52 (51) Clark County Department of Aviation USA LAS 507 2.0 74.8 14.8 12.2 -57.9 -32.7 Jun 14

=52 (54) Taoyuan International Airport Corp Taiwan TPE 507 6.7 Dec 14

54 (53) City of Atlanta Department of Aviation USA ATL 496 1.2 14.1 2.8 10.1 84.9 118.7 Jun 14

55 (63) Shenzhen Airport China SZX 482 16.1 55.9 11.6 26.9 44.8 82.5 Dec 14

56 (56) Office National des Aeroports Morocco CMN 463 5.5 138.1 29.8 25.2 80.3 68.4 Dec 14

57 (57) Houston Airport System USA IAH 452 4.4 -5.3 -1.2 -2.3 -32.3 -34.8 Jun 14

58 (55) Central Japan International Airport Japan NGO 445 -2.8 51.2 11.5 11.8 24.9 33.1 Mar 15

59 (59) ASUR Aeropuertos Del Sureste Mexico CUN 440 4.0 236.5 53.8 52.8 170.9 178.5 Dec 14

60 (66) Geneva Airport Switzerland GVA 439 7.9 103.3 23.5 25.9 96.1 99.1 Dec 14

61 (61) Vancouver Airport Authority Canada YVR 420 0.2 158.8 37.8 40.0 91.8 95.0 Dec 14

62 (58) Aeroports de Montreal Canada YUL 419 -2.8 -4.0 -1.0 1.2 Dec 14

63 (72) Athens International Airport Greece ATH 416 14.9 269.0 64.7 60.1 167.0 124.9 Dec 14

=64 (60) Finavia Finland HEL 415 -1.7 51.1 12.3 8.3 -4.5 9.1 Dec 14

=64 (67) Grupo Aeroportuario del Pacifico Mexico GDL 415 2.2 206.9 49.9 45.4 167.8 174.6 Dec 14

66 (68) Angkasa Pura II Indonesia GCK 410 3.0 118.5 28.9 30.0 92.5 97.7 Dec 14

67 (64) Port of Seattle USA SEA 406 -1.9 51.8 12.8 14.8 79.2 64.7 Dec 14

=68 (62) Perth Airport Australia PER 399 -4.1 10.6 2.7 93.5 6.5 272.7 Jun 14

=68 (69) Greater Orlando Aviation Authority USA MCO 399 4.7 60.6 15.2 12.7 58.5 67.7 Sep 14

70 (71) Auckland International Airport New Zealand AKL 395 7.3 290.3 73.5 67.5 179.1 145.8 Jun 14

71 (83) Angkasa Pura I Indonesia DPS 386 33.1 99.2 25.7 22.6 78.2 61.0 Dec 14

72 (65) Flughafen Berlin Brandenburg Germany SXF 381 -6.6 -219.4 -57.6 -57.7 -225.8 -241.6 Dec 14

73 (70) Flughafen Koln-Bonn Germany CGN 369 -1.6 12.0 3.3 1.4 4.0 1.4 Dec 14

74 (75) Hamburg Airport Germany HAM 358 5.9 53.0 49.6 Dec 14

75 (76) Budapest Airport Hungary BUD 350 6.7 163.0 46.6 44.5 -116.0 -24.7 Dec 14

76 (77) Wayne County Airport Authority USA DTW 340 6.6 -37.7 -11.1 -12.0 -55.6 -63.5 Sep 14

77 (73) Calgary Airport Authority Canada YYC 331 -2.4 79.8 24.1 29.0 42.2 193.3 Dec 14

78 (78) City of Phoenix Aviation Department USA PHX 326 6.5 -80.8 -24.8 -28.7 -19.1 -38.5 Jun 14

79 (73) State of Hawaii DOT - Airports Division USA HNL 317 -6.5 70.2 22.1 33.4 64.3 97.0 Jun 14

80 (82) Philadelphia International USA PHL 315 8.2 -20.0 -6.3 -4.6 -57.5 -65.2 Jun 14

81 (80) Stuttgart Airport Germany STR 311 4.0 53.5 17.2 13.8 39.3 31.7 Dec 14

82 (85) Northern Capital Gateway Russia LED 309 11.2 Dec 14

83 (81) Aeroports de la Cote d'Azur France NCE 305 3.0 132.3 43.4 41.2 28.5 22.1 Dec 14

84 (84) Metropolitan Airports Commission USA MSP 298 4.2 13.2 4.4 3.9 4.9 18.2 Dec 14

85 (79) Maryland Aviation Administration USA BWI 289 -4.3 100.2 34.7 43.7 Jun 14

86 (86) Operadora Mexicana de Aeropuertos Mexico MTY 256 7.6 111.2 43.4 39.5 76.8 93.4 Dec 14

87 (87) Polish Airports State Enterpriseest Poland WAW 250 11.1 14.0 -100.4 Dec 14

88 (89) Xiamen International Airport China XMN 219 7.4 102.0 46.6 49.1 74.3 71.6 Dec 14

89 (93) Edinburgh Airport UK EDI 215 16.8 70.1 32.6 27.4 27.2 35.9 Dec 14

90 (88) Aeroports de Lyon France LYS 208 -1.4 70.1 33.7 32.4 14.6 10.4 Dec 14

=91 (91) Port of Portland USA PDX 199 6.4 11.1 5.6 4.5 20.3 6.0 Jun 14

=91 (90) SAVE Group Italy VCE 199 3.1 58.4 29.3 30.3 36.4 34.4 Dec 14

93 (98) San Diego County Regional Airport USA SAN 196 10.7 -18.3 -9.3 5.1 -4.0 50.1 Jun 14

94 (95) Hillsborough County Aviation Authority USA TPA 195 7.7 -8.1 -4.2 -6.9 -31.3 -42.5 Sep 14

=95 (92) Broward County Aviation Department USA FLL 194 4.9 5.8 3.0 0.4 -2.2 3.2 Sep 14

=95 (95) Birmingham Airport Holdings Limited UK BHX 194 7.2 49.1 25.3 24.6 16.8 19.9 Mar 15

97 (98) Edmonton Airports Canada YEG 186 5.1 -12.7 -14.2 -22.0 Dec 14

98 (97) Charlotte Douglas International Airport USA CLT 185 3.9 46.0 24.9 29.2 72.6 66.8 Jun 14

99 (94) Hannover Airport Germany HAJ 182 -0.5 2.8 1.5 -2.5 2.6 -4.8 Dec 14

100 (100) Sacramento County Airport System USA SMF 159 -0.3 19.4 12.2 8.6 -20.6 -25.1 Jun 14

TOTALS 83,126 4.0 21,239 25.6 25.2 9,213 10,119 NOTE: EstAirline Business estimate based on traffic and historic data used for indicative purposes; Strong currency effect impacts change figure in US dollar for several groups.


FOCUS GULF

November 2015

REPORTMURDO MORRISON ABU DHABI & DUBAIMAX KINGSLEY-JONES LONDON

Emira

tes

BUILDING BLOCKSThe Gulf gateways are working flat out to ensure their airport infrastructure can handle the growth strategies of the region’s global network carriers

As the Gulf’s aviation sector gears up for its biennial air-show extravaganza in Dubai during November, the signs are that this year’s event will be rela-

tively low-key event after some of the mega-order announcements of the recent past.

Deals announced at recent Dubai shows, as well as at the other big aerospace exhibi-tions around the world, have seen the order-books of the Gulf’s three global network car-riers balloon to almost 670 aircraft, worth over $220 billion at today’s prices. Indeed rather than buying more metal, right now the region’s airlines are focusing on ensuring

their airport infrastructure has sufficient capacity to cope with the growth these new aircraft with deliver.

CAPACITY SQUEEZEDubai is trying to squeeze more capacity out of what is now the world’s busiest international gateway Dubai International (DXB), before its multi-runway Dubai World Central (DWC) replacement comes fully on stream in the mid-2020s. Such is the growth of Emirates that existing plans by Dubai Airports to restrict DXB’s capacity to 90 million have already been scrapped as it looks for innovative ways to accommodate nine-figure passenger numbers

within a relatively tight piece of land.Down the road from Dubai in Abu Dhabi,

the UAE capital is close to transforming its airport with the completion of its giant Mid-field terminal to serve as Etihad’s shiny new hub. In neighbouring Qatar, Doha’s new Hamad International is barely a year into operation but already embarking on an expan-sion that will raise is capability to almost 70 million passengers annually by 2020.

Emirates Airline president Sir Tim Clark envisages the Dubai flag carrier eventually operating upwards of 500 aircraft and serving over 240 destinations when it hopes to be able to tap the almost unlimited growth that DWC


should offer around a decade from now. Clark says there are at least 100 cities “on our radar” that the carrier can’t serve today because of the constraints of its current DXB hub.

DWC began handling passenger services in 2012 when its first terminal facility opened and several airlines set up operations includ-ing Wizz Air, Qatar Airways and Gulf Air. Even Emirates’ sister airline Flydubai offers 70 flights a week from there, to cities it also serves from DXB.

Despite a planned extension to the DWC terminal to take capacity to 26 million by 2017, it must grow another sixfold at least to

Two years ago at the 2013 Dubai air show,

Emirates, Etihad Airways and Qatar Airways

between them placed commitments for over

450 aircraft – a mix of launch orders for the

Boeing 777X along with deals for 787s and

Airbus A380s, A320s and A350s. But such a

large sales tally looks unlikely to be matched

in 2015.

Local carrier Emirates can usually be relied

on to deliver some big orders at the show. But

the signs are that the show may come too soon

for two potential deals the airline is negotiating.

A380 ADVOCATEThe Dubai airline has been a strong proponent

of the A380 and would buy a re-engined version

is should Airbus decide to create one. But the

airline’s president Sir Tim Clark rules out a com-

mitment at the show for more A380s as he

thinks it unlikely Airbus will be ready to launch at

the air show.

“If [Airbus] does develop it, it would be of in-

terest to everybody, and I’d like to see them sell

more A380s,” he says.

Clark also talks down another potential

Dubai deal, saying the airline will not choose

between the Airbus A350-900 and the Boeing

787-10 until next year. “It will be in 2016 – but

when, I don’t know – and it will be one or the

other,” he adds.

Qatar Airways is also never slow in coming

forward during the big air shows to place orders,

but the airline’s group chief executive Akbar Al

Baker says he has no deals in the offing and

expects Dubai to be quiet by comparison to pre-

vious events.

Etihad Airways placed major placed orders at

the Dubai two years ago – signing for 25 Boeing

777Xs, 30 Boeing 787-10s and one 777

Freighter along with 50 A350s, 36 A320neos

and an A330-200 Freighter. But chief executive

James Hogan has no plans to order more air-

craft at the forthcoming Dubai air show.

“We have the orderbook of aircraft that we

need and over that period of time we have the

capability to feed those aircraft not only into

Alitalia, but into Air Berlin and Air Serbia,”

Hogan says.

BIG DUBAI DEALS DOUBTFUL THIS TIME

“Dubai World Central has a gestation of 10 years,

so moving Emirates there before 2025 is remote”

PAUL GRIFFITHSChief executive, Dubai Airports

Bill

yPix

2025 delivering a capacity of 120 million pas-sengers, Clark expects the Emirates fleet will not grow beyond 280-300 units. The need to keep growing DXB until DWC can accommo-date Emirates leaves Dubai Airports with a quandary. DXB became the world’s number one for international passengers in 2013, with numbers exceeding 70 million. Since then the figure has increased to “just shy of 80 million” – three-quarters of it Emirates and Flydubai. Even though freight traffic and most business aviation traffic has been relocated to DWC, demand for space and slots threatens to out-strip what Griffiths and his team can provide.

“Growth has exceeded expectations. Every time we re-forecast, we revise up,” he says. “Everyone wants a slice of Dubai capacity”. Passenger numbers are in line to reach 100 mil-lion by 2020 – with a further 26 million using DWC – and Griffiths admits: “We’re scratching our heads to see how we can accommodate that. Our throughput is unprecedented. Per square metre of airfield, our throughput is of a different order of magnitude to most airports.”

One solution would be to persuade more of the second- and third-tier airlines – many of which use DXB’s low-cost terminal two – to follow Flydubai’s example and relocate at least some of their flights to DWC.

Once Emirates can transfer to Dubai’s new

cater for Emirates in its entirety. “DWC has a gestation of 10 years, so moving

Emirates there before 2025 is remote,” says Dubai Airports chief executive Paul Griffiths.

WIDEBODY FLEETEmirates currently operates 240 widebodies on over 140 routes, and in its last financial year carried around 50 million passengers. Flightglobal’s Fleets Analzyer database shows Emirates has firm orders for almost 270 wide-bodies, including 73 more A380s on top of the 67 already delivered.

Until the first phase of DWC is complete in

Qata

r Airw

ays

Doha’s new Hamad International airport only opened last year but is already beginning its next growth phase


FOCUS GULF

November 2015

airport, “that will then open the physical con-straint we have on the hub today and the air-line will be able to go in to its second phase of growth”, says Clark. “There’s nothing to stop us doubling in size, to be frank.”

He says that the second phase of DWC’s expansion will raise its capacity to 250 million. At that point, Clark expects, “the foreign carrier community” will move across from DXB.

While Dubai wrestles with its hub transi-tion strategy, Abu Dhabi has been busy creat-ing a new hub at the existing international airport, with the construction of the new Mid-field terminal between the two runways. Due to open at the end of 2017, the 65-gate termi-nal – eight of which are A380-compatible – will more than double capacity at the airport to 45 million passengers.

Etihad, which currently operates just over

GULF NETWORK CARRIER ORDERS

Aircraft type Backlog Delivery

EmiratesAirbus A380-800 73 CurrentBoeing 777-300ER 45 CurrentBoeing 777-8X 35 2022Boeing 777-9X 115 2020Total (value) 268 ($105.5bn)Etihad AirwaysAirbus A320 family 2 CurrentAirbus A320neo family 26 2020Airbus A330-200F 1 CurrentAirbus A350-900 40 Q3 2016Airbus A350-1000 22 2020Airbus A380-800 6 CurrentBoeing 777F 1 CurrentBoeing 777-8X 8 2020Boeing 777-9X 17 2020Boeing 787-9 36 CurrentBoeing 787-10 30 Q4 2018Total (value) 189 ($55.0bn)Qatar AirwaysAirbus A320neo family 50 Q4 2015Airbus A330-200F 2 CurrentAirbus A350-900 39 CurrentAirbus A350-1000 37 2017Airbus A380-800 4 CurrentBoeing 777F 8 CurrentBoeing 777-300ER 5 CurrentBoeing 777-8X 10 2022Boeing 777-9X 50 2020Boeing 787-8 7 CurrentTotal (value) 212 ($62.4bn)Grand total (value) 669 ($222.9bn)Data for firm orders (Oct 2015). Values based on 2015 manufacturer list prices. SOURCE: Flightglobal’s Fleets Analyzer database

ADAC

Emira

tes

Abu Dhabi’s Midfield terminal, which opens in 2017, will have 65 gates

110 aircraft, carried almost 15 million passen-gers in 2014, which was 22% ahead of its 2013 tally. Fleets Analyzer shows the airline has 189 aircraft on order – although some of these air-craft may yet be destined for its partner airlines.

ALL CHANGEThe Midfield terminal’s six-storey building will serve as a hub for Etihad and its partners, with other airlines moving to the existing ter-minals one and three, which will be con-nected by a road tunnel. The architecture of the 65m-high edifice is impressive, with a curved roof suspended on arches giving the impression that it is floating, and each of the four piers with its own colour scheme. Sulaiman Siksik, chief project officer for ADAC, describes it as “one of the most com-plex buildings ever designed”.

The main purpose of the Midfield terminal is to impart a seamless experience to Etihad’s passengers, particularly those on premium tickets, says Siksik. There will be up to eight lounges as well as an airside hotel. As with the other Gulf connectors, the majority of Eti-had passengers are transiting, and the airline

Dubai’s existing airport is struggling to accommodate Emirates’ growth


There seems to be no end in sight to the dispute

between the Gulf airlines and the US major

carriers over open-skies and some $42 billion in

state subsidies that Emirates, Etihad and Qatar

Airways are alleged to have benefited from.

The Gulf carriers remain resolute in their

belief that the accusations are unfounded,

and Emirates Airline president Sir Tim Clark

doubts that the USA will enforce any

restrictions because of the “enormous

reverberations” it would have in global trade

and international relations.

EMIRATES EXPANDINGClark pledges to increase Emirates’ US services

– which generate 10% of revenue – despite the

opposition of the big-three US airlines, which

are lobbying their national government to revise

existing bilaterals with the UAE and Qatar on the

grounds that their national airlines are being

unfairly subsidised.

Dismissing the US majors’ claims as “pot

calling the kettle black”, Clark says: “Our

plans are very much to do with expansion. We

are looking at more points.”

Likening the spat to a “game of tennis”

with both sides trading submissions and

counter-submissions, Clark says any move to

restrict access by the US authorities would be

tantamount to “revolution”.

He adds: “If the worst comes to the worst

– and I don’t for a minute think it will – the

amount of unravelling of global political

structures would be incredible. I am hoping

that sense will prevail.”

Qatar Airways Group chief executive Akbar Al

Baker dismisses the US carriers complaints,

saying that data provided to the US government

proves they are groundless.

“With the filings that we have made to the

US authorities in response to their

requisitions, it is very clear that there is no

harm done by Gulf carriers to any of the

American carriers – [harm] which they have

difficulty proving,” he says.

IMPEDING PROGRESSAnd Al Baker believes the US carriers are

actually being egged on in their actions by some

of the big European airlines.

“Lufthansa and Air France-KLM are trying

to impede the progress of Qatar Airways in

Europe, as well as our ‘friends’ Emirates and

Etihad, because they cannot stand up to

competition,” he says.

“American carriers are lobbied by the

Lufthansa/Air France-KLM grouping while

they have anti-trust immunity over the

Atlantic by which they can fix prices

detrimental to the interest of passengers.

They don’t want Qatar Airways and the other

Gulf carriers to offer superior products at

prices that are good value for money to the

consumer,” he adds.

Al Baker believes that there is “very clear

evidence of collusion” against the Gulf

carriers between European and US carriers.

“Otherwise, why should an American carrier

make a representation to the EU to block Gulf

carriers?” he asks.

US/GULF OPEN-SKIES ROW RUMBLES ON

is committing to a minimum connecting time of 45min between gates. Long-term plans include the addition of a satellite terminal.

In Doha, Hamad International is getting into its stride, although Qatar Airways Group chief executive Akbar Al Baker – who includes the airport within his empire – admits there are still “teething problems”. The development, 4km from Doha’s old inter-national airport, opened in mid-2014 with the entire passenger airline operation moving across in a matter of weeks to the new airport.

A second phase, about to begin, will add capacity, with new concourses taking pas-senger numbers from almost 29 million last year – including the first six months when the old Doha International was open – to beyond 35 million this year, says Al Baker, with Qatar Airways accounting for around

30 million of that number. The extension – designed by UK architect Sir Norman Foster – will take capacity to almost 70 million by the end of the decade.

As its new hub brings on new capacity, so Qatar Airways continues to grow. The airline, which currently flies around 160 airliners, carried just over 24 million passengers in its last financial year. It holds firm orders for over 200 airliners, and currently serves over 155 destinations. “Within the next two years we should hit the 200-destinations mark,” says Al Baker, who already has a clear view as to how he will be deploying his new aircraft and airport capacity. ■

To catch up on all the news and views from this year’s Dubai air show, visit: flightglobal.com/Dubai


negotiation approach would allow an African country without its own national or designated carrier to designate a neighbour’s airline to fly on its behalf. The Ethiopian boss warns that with just three or four major African airlines across the continent, the market is not mature enough yet to consider consolidation along the lines seen in Europe and North America.

“We have to get ready [by ensuring] that any carrier can operate within Africa without any restrictions so that the intra-African connectiv-ity can develop to support the economic growth,” GebreMariam says.

He adds this should ensure that African air-lines are able to establish themselves finan-cially: “By then, we will have very strong global carriers in Africa which are able to compete with the rest of the world.”

Ethiopian Airlines has been fast expanding

FOCUS AFRICA

November 2015

Despite numerous liberalisation initiatives, the continent’s carriers continue to face barriers to tap the region’s full potential and results remain mixed

AFRICA STILL TO FLOWER

REPORTOLIVER CLARK, GRAHAM DUNN& MAX KINGSLEY-JONES DURBAN

FlyS

afai

r

Acommon theme across the Afri-can air transport sector over the past two decades has been calls to unlock its growth potential through opening up its skies.

But various efforts to reignite the stalled im-plementation of African liberalisation, as en-visaged under the Yamoussoukro Decision, have made little headway. Small wonder that as World Routes made its debut on the African stage in Durban in September, the lack of pro-gress continued to dominate the agenda.

Speaking at the Strategy Summit held dur-ing the event, World Travel & Tourism Council president and chief executive David Scowsill underscored the continent’s potential, noting African tourism’s annual forecast growth of 4.9% in the next decade. That is the same rate as Asia-Pacific, the industry benchmark for growth, and above the world average of 3.9%.

“The world has been mostly focused on Asia as the fastest-growing region, but our fig-ures clearly demonstrate that Africa is ripe for investment and development in travel and tourism,” says Scowsill.

He says that to realise the potential the conti-nent offers for travel and tourism, African countries must collectively focus on areas in-cluding expansion of investment in tourism infrastructure, security, common visas and, most importantly, improved connectivity and liberalisation policies.

“The single biggest opportunity for Africa is to fully liberalise its air travel,” says Scowsill.

South Africa’s tourism minister, Derek Hanekom, notes: “Six of the world’s 10 fastest-growing economies are located in Africa, mak-ing the continent the next frontier of global economic development.”

OUT OF AFRICABut he points to the limited intra-African con-nectivity. “This is reflected in the schedules of our national airlines, who tend to fly fre-quently to destinations outside the continent, especially Europe, with far fewer flights to African destinations. Poor [intra-African] con-nectivity is costly.”

While he says restrictive aviation policies in the region are changing, Hanekom believes the pace of change “does not match the desire and readiness” for trade and investment from Afri-can countries themselves.

Ethiopian Airlines chief executive Tewolde GebreMariam urges the African Union to maintain its drive to liberalise the continent’s air transport system and adopt a Europe-style approach to bilateral negotiations. He says the continent’s African Airlines Association has been working with the African Union on two major initiatives this year.

“The first one is full implementation of the YD [Yamoussoukro Decision liberalisation framework] which is to open up African skies for African carriers. But this isn’t going to be enough. We’ve told the African Union that it should act as a bloc, like the European Union.”

GebreMariam says adopting a similar bloc- FlySafair launched flightslast October


and is relatively healthily placed. Profits have risen each year since 2011. The airline has more than doubled passenger numbers to in excess of six million since 2008 and re-vamped its fleet. The introduction of new air-craft, including 13 Boeing 787s, has taken the average age of its fleet to around seven years, Flightglobal’s Fleet Analyzer shows.

But its fortunes have not been matched at sub-Saharan Africa’s other two biggest carri-ers, Kenya Airways and South African Air-ways. The latter two carriers continue to work through restructuring. While that is familiar territory for SAA, which has posted losses over the last four years, Kenya Airways had been modestly profitable until 2012 before running into financial troubles.

However, all the while, the potential of the market in Africa is not lost on others. Notably, European operators – and, more recently, Gulf carriers – have made significant inroads into the African market.

Analysis of Innovata schedules shows the extent to which European and Gulf carriers have developed a presence in the region. Six of the 10 biggest airlines by seats in Septem-ber between Africa and Europe are from the latter. These figures include North Africa, where Morocco, for example, has open skies in place with the European Union.

Gulf carriers – notably Emirates – hold sway on routes between Africa and the Middle East. The big three Gulf carriers, together with Emir-ates’ low-cost sister Flydubai, account for just

over half the seat capacity in the market.African carriers do, though, hold a stronger

position in the formative Africa-Asia market, with Ethiopian Airlines and Kenya Airways accounting for more than half the capacity. But this market remains far smaller, covering just 40 routes, compared with nearly 300 Africa-Middle East connections and more than 1,000 routes linking the continent to Europe. And

with strong Chinese investment in Africa, Air China’s launch in October of flights from Bei-jing to Johannesburg could be the first of many.

Air China will replace its Star Alliance partner SAA on the Beijing-Johannesburg route – the latter having dropped its loss-making flight earlier this year as part of its network overhaul. SAA will codeshare on the new Air China flights, similar to the ap-proach it took on its Mumbai service.

SAA is instead focusing on intra-African connectivity. However, the development of in-tra-African services is made more complex by the lack of open skies in the continent. This not only hits network carrier ambitions, but also adds complexity in expanding low-cost carrier

November 2015

SAA continues to battle to turn

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“The African Union should act as a bloc, like the

European Union”TEWOLDE GEBREMARIAM

Chief executive, Ethiopian Airlines

brands beyond single markets. Carriers such as Fastjet are having to stitch together separate op-erations, bringing complexity and costly de-lays into launching into new markets.

CROWDED MARKETAll of which leaves the region’s airlines st-struggling to fulfil their potential. That is com-pounded by market factors, including overca-pacity in some markets and economic woes – evident in recent financial updates from Comair and Fastjet.

The South African carrier, which operates British Airways franchise flights as well as low-cost brand Kulula, says gains from lower fuel costs were all but wiped out by the arrival of two new competitors and “very aggressive – but more-than-likely unsustainable – pricing”.

Skywise and FlySafair entered the South Af-rica market in the last year, notably on the Cape Town-Johannesburg route. That has al-ready created challenges, not least for Skywise which grounded flights briefly in October. ”It takes a while for a private airline to build long-term trust,” it said, after resuming flights.

Boss of rival low-cost unit Mango – and, until recently, acting chief executive of its par-ent SAA – Nico Bezuidenhout acknowledges the economic and competitive challenges. But he believes his airline – which will disclose an-other profit for its year just completed – is posi-tioned to ride out the storm as it has done pre-viously. “The economy is not very strong at the moment,” he says, before adding that, in such a climate, “I’m happy to be sitting on the load factors I’m sitting on.”

Fastjet, meanwhile, on top of delays in launching new units, cites economic issues for deeper-than-expected losses this year. “African currencies have lost considerable value against the US dollar which, combined with a world-wide reduction in commodity prices, has caused an economic downturn in Tanzania and Zambia,” says chief executive Ed Winter.

For many African carriers the outlook re-mains tough. Chris Zweigenthal, chief execu-tive of the Airlines Association of Southern Africa, says that having overcome the social and economic impact of the West African Ebola outbreak, and with lower fuel prices for most, 2015 should be a bumper year for air-lines. “But it’s not going according to plan,” he says. “Economic uncertainty characterised by labour disputes, electricity shortages, weak-ened currencies in some markets, a rampant US dollar in others such as Zimbabwe and, more recently, the downturn in China’s for-tunes have pushed those of the airlines and of the region back over the horizon.” ■


Heilbron is focused on defending margins

so Copa has been incredibly focused and dis-ciplined, investing its time and resources op-timising and refining its chosen model, as op-posed to permutating it.

The business is built around making its strategic hub at Tocumen International airport in Panama City a money-making machine. By providing the most efficient north-south con-nections for thin origin/destination markets, Copa has been able to extract premium yields while keeping its aircraft full. The hub-and-spoke strategy has been critical to ensuring maximum utilisation of the carrier’s limited fleet while aggregating traffic to and from des-tinations through Panama.

A former senior executive says: “The air-line was built on leveraging a hub in a strate-gic location with good weather and leveraging the capabilities of the Boeing 737.” Apart from a modestly successful foray into Colom-bia through the acquisition of AeroRepublica, largely to gain access to the large domestic Colombian air market, Copa has stayed the course with this strategy.

“At Copa, it’s not enough that a new initia-tive clears economic hurdles. Heilbron and his top leadership must also agree that it has the bandwidth to take on any new initiative, and to deliver it with the degree of focus that it deserves,” says the former executive.

“Copa isn’t about the new brilliant idea; it’s about laser-like focus on execution. We spent a lot of time talking people ‘off the ledge’ as they put forward ideas that were off-plan. In-stead, we applied our efforts on taking on-time performance from 65% to consistently 85-92% and completion rate from 97% to consistently 99.4-99.6%.”

Copa Airlines could have easily been rele-gated to secondary carrier status by virtue of its small, almost non-existent domestic air market, but it chose to “go big” instead.

PRAGMATISMThe airline quickly recognised that it could not, and would not, compete against much larger airlines from the USA, Central America, Brazil and Latin America on trunk routes. So it elected instead to create an efficient Latin

FOCUS LEADERSHIP

November 2015

Continuing their study of the industry’s top players, Spencer Stuart’s Michael Bell and LEK Consulting’s John Thomas examine the secrets behind the remarkable sustained profitability of Panama’s national carrier, Copa Airlines

OLD-SCHOOL ATTITUDE

If there’s ever been a highly successful air-line that preferred to “stay off the radar screen”, it’s Copa Airlines. The consist-ently profitable Panama-based carrier has steadily and quietly refined its “Hub of the

Americas” strategy for more than two dec-ades, posting extraordinary returns for its shareholders – first the Motta family and then the public markets at large, after its successful initial public offering in 2005.

Copa has achieved sustained and increas-ing profitability year-over-year as it delivered net profit margins well above the industry av-erage. The airline currently ranks in the top seven globally in terms of operating margin and has posted net margins of 13-16% over the past decade, a remarkable achievement in the financially-challenged airline industry.

Despite its public ownership, Copa adopts a low profile. Highly respected chief execu-tive Pedro Heilbron prefers to focus on return-ing Copa to industry-leading margins in the face of strong economic headwinds and slug-gish traffic in key markets, but former execu-tives close to its business model, approach and culture have provided insights.

A careful review reveals that Copa Airlines strongly adheres to the five tenets we have identified, leveraging their combination to produce impressive results.

According to one former executive, “at Copa, 80% is just saying ‘no’.” While many other airlines have strayed from their core business model and paid the price for doing


America and Caribbean hub where none exist-ed before and where potential competitors were limited by airport operating limitations.

By facilitating traffic efficiently between the likes of Belize and Manaus, Copa has ef-fectively changed the airline industry in the region while saving business and leisure fly-ers countless hours.

It has also worked hard to ensure strong ex-ternal alignment behind its strategy. As the na-tional carrier and a major source of job creation as one of the largest private employers in the country with almost 6,000 local staff, Copa has the strong support of its government.

Besides, the airline has worked closely with Panama’s airport authority on the sub-stantial enlargement of the airport’s infra-structure to permit the airline to continue with its hub-based expansion. At Tocumen, Copa has a seat on the board of the semi- autonomous airport corporation, with excel-lent co-operation between the two parties.

One dimension on which Copa is truly world class stems from the top. Simply put, Copa is a frugal airline that counts its pen-

nies, taking strong measures to avoid unnec-essary spending. Its tremendous cost disci-pline is exemplified in all facets of the business, including vendor negotiations and management, asset deployment and internal resource allocation.

Until recently, the airline deployed a sin-gle-type fleet, kept wages under strict control, and shunned extravagant spending in its cor-porate office. So much so that Copa can hon-estly be considered one of the few high-yield/low-cost airlines in the world. It leverages its presence in a second-world country to keep its costs below those of larger rivals while de-livering a first-world product.

STABLE AND VISIONARY LEADERSHIPEverything about Copa defines stability. Its chairman and major shareholder, the iconic Panamanian businessman Stanley Motta of the Motta Group, has been on the board for almost three decades. Heilbron has been pres-ident and chief executive for the past 25 years which, by all accounts, must be an airline in-dustry record.

And Heilbron’s leadership team is almost as equally loyal with chief operating officer Dan Gunn and chief financial officer Jose Montero having been with at the airline for the past 17 and 15 years, respectively. And until he was lured away in 2014 to become president of Viva Group, Joe Mohan had led Copa’s commercial function for 14 years.

The members of the Copa leadership team

know each other, and their playbook, very well. They share, and are committed to, a common vision they themselves have helped shape, implement and refine.

And there are some other benefits of long tenure. “By virtue of having worked together for so long, many of the members of the top team are the best of friends and, as a result, the focus shifts to working and winning together as a true team,” says one former executive.

By keeping its business model and process-es simple, Copa is able to ensure that its or-ganisation, at all levels, understands and is fully aligned behind the business model.

Employees watch their chief executive and top leadership team carefully and take their cues accordingly. They know what is valued – a heads-down focus on the task at hand, at-tention to detail, fact-based analysis and deci-sion making, and the day-in, day-out delivery of quality service.

Whether written or not, all employees fol-low an evergreen set of principles: avoid com-plexity, focus on execution and stay true to a proven way to run the company. At the top of the enterprise, the emphasis is on ensuring the best collective solution and alignment, not, as one former executive says, on “outsmarting each other as the smartest guys in the room”.

Through its no-nonsense approach and on-going communication with its employee base, the airline has attained a high degree of em-ployee loyalty. It has twice been named one of the 10 best employers overall in Latin America by the magazine América-Economía, while also being recognised by Fortune magazine as one of the top 10 companies for leadership in Latin America. The Airline Strategy Awards, organised by Airline Business and Spencer Stuart, have twice recognised Heilbron for his excellence in leadership, while FlightStats ac-knowledged Copa’s attention to operational detail, touting the carrier in its 2014 rankings as “the top on-time airline in Latin America” with an annual on-time performance of 90.3%.

By applying all these five elements critical to sustained airline profitability, Copa has achieved world-class returns, year-in, year-out. Copa demonstrates the good old-fash-ioned approach to airline leadership – noth-ing flashy but a cohesive and disciplined plan to implement all five elements critical to sus-tained airline profitability. ■

November 2015

Copa has

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13-16%Copa Airlines

net margins over the past decarde

John Thomas is a managing director and partner at LEK Consulting, a global strategy firm which advises a range of clients on key strategic issues. Michael Bell and Thierry Lindenau are consultants within the aviation, aerospace and defence practice of executive search consulting firm Spencer Stuart

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ANALYSIS WIDEBODIES

November 2015

For more on our forecast report, and to download a summary: flightglobal.com/products/FleetForecast

FlightglobalFleet Forecast2015 – 2034

Independent outlook of theglobal commercial passengerand freighter aircraft market

Ascendworldwide.com

Ascend analyst Henk Ombelet examines how Flightglobal’s long-term forecast sees demand for widebodies shifting to larger aircraft

Twin-aisle tussle for dominant duo

This year’s Flightglobal Fleet Forecast predicts the deliv-ery of 7,500 new twin-aisle

passenger jets over the next 20 years, worth an estimated $1.2 tril-lion in 2015 delivery value. The twin-aisles account for 45% of the total value of passenger jet deliver-ies over the period, even though it is only just under 20% in terms of actual aircraft delivered.

The sheer magnitude of the investment involved, both for air-lines and manufacturers, and the substantial recent and future development of new aircraft types make the sector a heavily watched segment of the industry.

The twin-aisle market, even more than the single-aisle sector, is a clear duopoly. The only air-craft on offer are manufactured by Airbus and Boeing, and while the Chinese and Russian govern-ments have signed agreements to study a joint product in the mar-ket, it does not appear likely any such aircraft, even if it did appear within the timeframe of this fore-cast, is going to make a big differ-ence to the two incumbents.

LEADERThe current fleet of twin-aisles accounts for 18% of the total in-service passenger jet fleet. All but a handful of these are now Airbus or Boeing jets, with the latter hav-ing a 60% market share. There will be a small shift towards Airbus but Boeing will remain the market leader, with at least a 55% share. With the Airbus A350 having gone into service right at the beginning of 2015, there were no fewer than 10 different types active, dominated by the Airbus A330 and Boeing 777.

This is set to reduce as older types are retired and by the end of the forecast period, the Boeing 787 and the A350 – as well as the 777 and A330, boosted by their respective newer versions – become the aircraft of choice, with the Airbus A380 playing a smaller role at the top end.

The shift to larger aircraft does potentially leave a gap at the bot-tom end, where the largest single-aisles do not quite measure up in terms of seats and range. This segment was traditionally occu-pied by the Boeing 757 and 767-200. The Airbus A321neo and its LR version are encroach-ing on 757 territory, but cannot quite make all the missions the 757 is operated on. Boeing has

indicated it is studying a “middle of market” aircraft, but has not yet committed. If it plumps for a seven-abreast twin-aisle, it will have a tough task matching, if not improving, the seat economics of the A321neo. It will also have the capital investment for a virtually new design and the need to earn that back faced with price com-petition from Airbus. Or we might see a competitor emerge from among the crop of ambi-tious single-aisle manufacturers looking to extend their reach. ■

seat mile costs of the larger air-craft. At the same time they have been replacing the four-engine 747-400 with more efficient and newer twin-engined aircraft, pri-marily the 777-300ER. We expect the 777X, including the 400-seat -9X to continue this trend. No less than 72% of all twin-aisle deliveries over the next 20 years will be 300- to 450-seat aircraft.

The large number of deliveries is also driven by the innovation in this competitive sector. The recent drop in fuel prices notwithstand-ing, airlines and manufacturers have been focusing increasingly on reducing operating costs, while at the same time improving pay-load/range and passenger comfort. This means the previous-genera-tion aircraft are becoming obsolete more quickly, and the useful eco-nomic life of twin-aisle types is presently shorter than that for sin-gle-aisles. Conversions to cargo aircraft have also dropped with the cargo market depressed, and high cabin refitting costs do not make for an easy transition of second-hand aircraft between airlines.

Although there may only be five main types, this hides a sig-nificant shift in the size of the air-craft operated. The small to mid-dle segment, with fewer than 300 seats, sees its share drop from 37% to 22% of the fleet in 2034 as the large Boeing 767 fleet reduces and the focus shifts from the 787-8 to the larger 787-9/10.

The large segment (with the Boeing 747 and the A380) also dwindles from 12% to 7.5% as

747s leave service and the A380 has a limited market appeal. It is the middle to large segments – roughly between 300 and 450 seats – where most of the growth will take place. Airlines have been trading up from the smaller aircraft, attracted by the lower

The only aircraft on offer are

manufactured by Airbus and Boeing

A3807%

77721%

A330 11%

747 <1%

A350 26%

Non-specified 5%

WIDEBODY DELIVERY MARKET SHARE – 2015-2034

SOURCE: Flightglobal Fleet Forecast 2015-2034

787 30%

Proportion of today’s passenger jet fleet that are twin-aisles

18%

rth28.1

Africa

1.1%

SOURCE: Flightglobal Ascend????

7,500Total deliveries


ARAB AIRLINES (AACO MEMBERS): AUGUST*

Passenger traffic RPK Capacity Load factorsmillion change change percent change

Intra Arab world** 6,258 1.4% 1.8% 58.7% -0.2

With Other Regions 45,828 11.5% 12.5% 74.6% -0.7

TOTAL MONTH 52,086 10.2% 10.8% 72.3% -0.4YEAR-TO-DATE 357,906 8.8% 13.3% 67.0% -2.8NOTES: *Estimates. **Includes domestic. SOURCE: Arab Air Carriers Organisation.

EUROPEAN MAJORS (AEA MEMBERS) TRAFFIC: AUGUST

Region Pax traffic RPK Capacity Load factors Freight FTKmillions change change percent change million change

Domestic 3,665 9.7% 10.3% 80.3% -0.4 3 4.3%

Intra-Europe 19,182 5.9% 5.1% 82.8% 0.6 59 5.5%

North Atlantic 15,840 5.7% 5.1% 89.7% 0.5 589 -1.1%

Mid Atlantic 3,663 0.4% -0.1% 88.7% 0.4 97 -13.1%

South Atlantic 3,733 0.1% -0.7% 86.0% 0.7 145 2.7%

Far East/Australia 15,605 7.3% 5.2% 91.3% 1.7 986 0.5%

Sub Saharan Africa 4,816 3.0% 3.4% 85.1% -0.4 179 -0.7%

N.Africa/M.East 3,650 10.0% 9.5% 84.3% 0.4 77 6.5%

TOTAL MONTH 70,196 5.7% 4.9% 86.7% 0.7 2,267 1.6%YEAR-TO-DATE 496,496 4.1% 4.0% 80.9% 0.1 18,715 -0.2%SOURCE: Association of European Airlines

52 | Airline Business |

To stand a chance of having a sustainable future, Air France needs to focus beyond simply cutting its way to profitability

The rules of playing the long game

Any form of business strat-egy must be coherent, credible and capable of

implementation. The manage-ment must also be able to provide satisfactory answers to four key questions: why, why now, how, and how much?

In the case of Air France, how-ever, the most pertinent ques-tions at this difficult time are: how much more, and how quickly, can the business shrink? Where will the necessary, profit-able growth arise? And how is the company expected to break out of what appears to be a vicious downward spiral?

Setting the financial targets for any business is the reasonably easy part of the process. Although benchmarking perfor-mance against competitors and market leaders is seen as an important step, the reality is that a considerable focus in any exer-cise of this type is on identifying the reasons for the differences in

JET KEROSENE SPOT PRICES

Month Fuel price Change over period¢/US gal 1 month 1 year

Oct 247.4 -9.2% -16.3%

Nov 232.7 -5.9% -20.3%

Dec 186.8 -19.7% -38.2%

Av.14 272.1 -8.1%Jan 154.0 -17.6% -47.9%

Feb 178.7 16.0% -39.9%

Mar 167.5 -6.2% -42.1%

Apr 172.6 3.0% -40.6%

May 186.1 7.8% -35.8%

Jun 178.4 -4.1% -38.9%

Jul 158.8 -11.0% -44.7%

Aug 140.5 -11.5% -50.5%

Sep 142.2 1.2% -47.8%

NOTES: Prices are world average = median of Europe/Singapore cargo and US pipeline spot prices in US¢/gallon.

SOURCE: ICIS

performance between the com-pany under review and its refer-ence or peer group.

The real challenge, however, having established a plan, is in the implementation – and, in particular, the ability of manage-ment not only to manage the change, but also to ensure that it is accomplished with the mini-mum impact on the day-to-day operation of the business. Change in any business is neither instant nor costless, but the one certainty is that on a realistic basis of cal-culation, the returns must out-weigh the costs.

At various times in the past, we have commented on the pro-gress of the much-vaunted Per-form 2020 turnaround pro-gramme at Air France-KLM, and expressed concerns that it was too little, too late. Increasingly, the turnaround plan for Air France has the characteristics of one that might best be described as “shrink to survive”. Yet this strategy should have a follow-on stage that includes growth from a base where the economics of the business have been reset, and that also provides a very clear demonstration that the pain asso-ciated with transformation has been worthwhile.

LONG-TERM FUTURESimply restoring a business to profitability is not the same thing as ensuring that the business is financially sustainable over the long term. Businesses cannot cut their way to sustainable profita-bility – it is revenue growth that is also required.

The latest developments at Air France, particularly the unprece-dented physical attacks on man-agement, have brought a number of issues into sharp focus. In a company statement setting out the revised plans, management announced a 10% reduction in capacity, which will be achieved by cutting 14 aircraft from the long-haul fleet through not replacing retired aircraft.

At an Air France-KLM group level, there is set to be a 5% swing in previous capacity plans for the 2015-17 period – where instead of growth of 3%, the out-come is likely to be a decline of 2% – as the continuing failure to reach new agreements on pro-ductivity has resulted in manage-ment being forced to restructure, or shrink, its long-haul business.

But what is unclear is how much this will cost in terms of additional restructuring charges.

There is no doubt that a style of management that might have been best described as “because I say so”, and without a need for further discussion, has been replaced. The key element of management is aligning the goals of employees with the company’s objectives, with communication and understanding being particu-larly important here.

What is not clear in the case of Air France is whether the inabil-ity to reach an agreement is the

ANALYSIS MARKET OUTLOOK

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result of an unwillingness of the unions to accept the need for change, or the adoption of a posi-tion that might be described as “shan’t and won’t”.

Although most bargaining models include a “conflict-con-flict” outcome – and where, at times, change at some airlines has only been achieved through a process of precipice management – there should be no doubt that such situations can only benefit competitors and, if anything, would also increase the need for further change.

CLIMATE CHANGEThere is little doubt that for the management of Air France, achieving a change in the current behaviour is fundamental. Here, so-called “hearts and minds” exercises are of particular impor-tance. Indeed, an Air France press release has stated the deter-mination of management to “implement the adaptation meas-ures to ensure the long-term future of Air France, and to allow it to finance its growth”.

While alluding to growth, the more telling comment to pick up on – and perhaps pose as a ques-tion – is: what might the long-term future for Air France look like, and why? It might get to a point where it is necessary to think the unthinkable and to ask whether Air France even has a

US MAJOR PASSENGER YIELD: A4A AIRFARE REPORT

Route 2015Unit Feb Mar Apr May Jun Jul Aug

Domestic ¢/RPK 10.50 10.91 10.65 10.32 10.54 10.47 9.94

change -0.8% 0.6% -1.9% -3.6% -5.5% -3.5% -6.8%

North Atlantic¢/RPK 9.48 9.19 8.80 8.97 9.61 9.28 8.55

change 3.7% 0.2% -0.3% -5.1% -6.4% -6.1% -8.5%

ASIA-PACIFIC AIRLINES (AAPA MEMBERS) INTERNATIONAL TRAFFIC

Month Passenger traffic RPK Capacity Load factors Freight FTKmillion change change percent change million change

Jun 80,960 6.6% 6.1% 77.8% 0.3 5,348 -0.5%

Jul 88,918 8.6% 6.2% 80.9% 1.8 5,358 -2.2%

Aug 91,781 8.2% 5.7% 83.0% 1.9 5,291 -0.3%

YEAR-TO-DATE 665,050 8.2% 6.4% 78.8% 1.3 42,757 3.5%SOURCE: Association of Asia Pacific Airlines.

LATIN AMERICAN AIRLINES (ALTA MEMBERS): AUGUST

Pax traffic RPK Capacity Load factors FreightRegion million change change percent change million change

Total Intra-LatAm* 16,646 4.5% 5.1% 78.7% -0.5 113 -22.6%

Total Other Int’l 7,988 9.8% 9.4% 85.1% 0.3 267 -1.2%

TOTAL SYSTEM 24,634 6.1% 6.4% 80.6% -0.2 380 -8.7%YEAR-TO-DATE 187,857 6.4% 5.7% 79.9% 0.5 3,110 -7.5%NOTE: *Domestic and International flights. SOURCE: ALTA

US MAJORS (A4A MEMBERS) PASSENGER STATISTICS: AUGUST*

Region Pax traffic RPK Capacity Load factors Freight FTK*

million change change percent change million change

Domestic USA 76,368 5.2% 5.2% 87.5% 0.0 1,520 1.4%

North Atlantic 19,371 2.0% 3.3% 85.6% -1.1 837 -8.5%

Latin America 11,963 6.0% 4.3% 85.4% 1.4 189 -3.5%

Trans Pacific 11,040 4.2% 3.4% 87.8% 0.7 944 -6.5%

All international 42,374 3.7% 3.6% 86.1% 0.1 1,970 -7.1%

TOTAL MONTH 118,741 4.7% 4.6% 87.0% 0.0 3,490 -3.5%YEAR-TO-DATE 843,073 3.7% 3.9% 84.2% -0.2 23,923 0.0%NOTE: *Freight data is July as August n/a. SOURCE: Airlines for America.

| Airline Business | 53

long-term future as a financially sustainable business.

While the financial crisis of almost a decade ago resulted in a view that some of the banks were too big to fail, this is not the case for most businesses. Size is

clearly no guarantee of financial success for a whole raft of rea-sons – particularly if you have failed to adjust sufficiently to changes in the economic and competitive environment as they have become evident.

Indeed, the bigger you are and the slower your response to the new commercial realities, the more difficult, expensive and uncertain the outcome of any change programme becomes.

Air France is by no means the only airline at which manage-ment is facing the challenges associated with making struc-tural change. Given the current economic outlook, the number of managements in this group will only increase. After all, this remains a business where the only constant is change. ■

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AACO

Size is clearly no guarantee of

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Africa

Asia-Pacific

Europe

Latin America

Middle East

North

A

merica

ANALYSIS MARKET OUTLOOK

November 2015

Capacity Snapshot

Focus on: Middle East

Africa

Asia-Pacific

Europe

Latin America

Middle East

North

A

merica

36.3bn ASKs/wk 4.8% YoY

EuropeAsia-Pacific

Africa

Asia-Pacific

Europe

Latin America

Middle East

North

A

merica



North America

Africa

Asia-Pacific

Europe

Latin America

Middle East

North

A

merica


Latin America

Africa

Asia-Pacific

Europe

Latin America

Middle East

North

A

merica


Africa

Africa

Asia-Pacific

Europe

Latin America

Middle East

North

A

merica

A monthly breakdown of airline capacity across the different regions using data from Flightglobal’s schedules specialist Innovata, illustrating the fastest-growing regional markets

On top of big increases

between the Middle East and

North America by Gulf carriers

Emirates (+37%) and Etihad

(+28%), Air Canada more than

doubled its capacity between

the two regions by launching

Toronto–Dubai and raising its

flights to Tel Aviv.

Contributing to the 15% year-

on-year ASK rise, airports within

Iran, Iraq and Oman have all

seen significant jumps in intra-

region flights. The 183 flights

between Iran and the UAE is

almost twice the number of

November 2014.

NOTE: Data is based on one week of schedules data, November 2015 against November 2014. Figures reflect airlines operating nonstop unrestricted scheduled passenger services

November Capacity:

154.3bn ASKs/wk 6.5%vs Nov 2014

Weekly capacity ASK

Region Millions Change

Asia-Pacific 3,971 10%

Europe 2,837 9%

Intra-region 1,586 15%

North America 1,175 22%

Africa 931 2%

Latin America 118 15%


India and Pakistan

have each seen more

than 150 additional

flights from the Middle

East compared with

November 2014,

corresponding to 11%

and 21% ASK increases

respectively. Partners Jet

Airways and Etihad

formed the majority of

the Indian increase whilst

Pakistan’s was spread

between PIA, Flydubai,

Airblue and Air Arabia.


ANALYSIS CYCLE

November 2015

For more analysis, download Ascend’s quarterly analysis report: flightglobal.com/ViewPoint

Rob Morris, consultancy chief at Flightglobal’s analytical arm Ascend, examines the evolution of the current aviation cycle

Are we still enjoying the ride?

History warns us that when the ratio of airline deliver-ies to the installed fleet

rises above 8%, the aviation in-dustry risks tipping into overca-pacity. Are we close to that point?

As the graph below shows, air-liner deliveries have averaged 6-8% since the beginning of the 1990s. This year, the figure will be around 7.2% and we expect this to pass 8% by 2018. Based on past experience, such levels could indicate that numbers of aircraft in service is outstripping demand, and the buoyant Asia-Pacific market could be where the first danger signs emerge.

So, where in the cycle are we exactly, seven years after the global banking crisis last jolted confidence and put the brakes on airliner orders? Ascend has ana-lysed where our enduringly cyclical industry is today with a look at four separate but related cycles – the global economy, which drives aviation demand, which in turn spurs aviation sup-ply, both of which determine air-craft values.

GROWTH FORECASTSRegarding global economic activ-ity, forecasts of GDP growth (based on Economist Intelligence Unit data) have slipped since last year, partly as a result of strug-gling economies in Latin Amer-ica, particularly Brazil. While

peak which – with hindsight – looks like an overheated market. Ascend does not have concerns that we are heading to such a posi-tion this time.

So, to summarise, the aviation demand cycle continues to appear strong. Fuel prices are helping, but we will continue to watch for signs of weakening demand in each region and we do have concerns about the OEMs’ increasing production rates. Things can turn very quickly and, if they do, the mar-ket will have to move to adjust capacity and deal with a surplus of supply over demand – and that can only have a negative impact on asset values. ■

ble, sales are simply at a pause while the manufacturers work to deliver aircraft on order. We are not seeing major cancellations or deferrals either – cancellations have tended to be the result of minor adjustments rather than customer failures.

The aviation supply cycle too appears broadly positive. Over the long-term around four in ten new aircraft have being used for fleet replacement. However, for the past five years, the proportion has been around half. This year to date, the metric is below 20%, close to the historic lows seen mid- or late-cycle. However, our forecast 8% level of deliveries to installed fleet causes us to rank this as amber on our scorecard.

HISTORIC HIGHIn terms of aircraft utilisation, hours flown are at a near historic high. But the trend is flattening. This is one of the first indicators to watch, as airlines constrain capacity as a precursor to caution when it comes to spending on new equipment.

Finally, turning to the values cycle, Ascend’s most recent values update in July assesses that half the global fleet has a base value below market value. Given the technol-ogy replacement phase we are moving into, we may be close to the peak of the market value cycle. We certainly do not expect to move any further towards the July 2008

China is harder to read, there is growth momentum in the Euro area and the USA and UK. If we were to grade our outlook green, amber or red, we would place GDP currently at amber and trending into the red. Seven years into the cycle, there are more neg-ative signs than we might expect at this stage.

That said, demand for air travel and airliners remains strong. Global passenger traffic is robust, with IATA figures for the first half of 2015 showing traffic growth of 6.3% over 2014, with – encouragingly – capacity grow-ing more slowly (at 5.9%). Even

in Asia-Pacific, where there is a risk of capacity outstripping demand – traffic growth remains ahead of the numbers of aircraft and flights being added. The demand cycle has not peaked yet.

When it comes to orders, lev-els, though high, are below the volumes seen in recent years. However, we should be careful not to see this as a weakening of demand. With backlogs at record high levels and few slots availa-

Cancellations have been the result of

adjustments rather than failures

SOURCE: Flightglobal’s Ascend Values database

Cumulative % of aircraft type/variants/vintages

Current Market Value/Base Value (%)

50% OF TODAY’S JET FLEET HAS CURRENT MARKET VALUE GREATERBASE VALUE

0

10

20

30

40

50

60

70

80

90

100

1501401301201101009080706050

July 2008

July 2010

Today

SOURCE: Flightglobal’s Fleets Analyzer database/Flightglobal Fleet Forecast 2015-2034

Passenger airliner deliveries Deliveries as % of fleet in service

DELIVERIES AS PROPORTION OF GLOBAL FLEET

0250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

24232221201918171615141312111009080706050403020100999897969594939291900

1

2

3

4

5

6

7

8

9

10

In this issueThe aviation cycle: are we still enjoying the ride?

Mixed signals for values and lease rates

Europe’s long-haul route development

41,000 more aircraft required in next 20 years

In for the long haul

The latest commentary and analysis from Ascend Flightglobal Consultancy

Issue 483rd Quarter 2015


A little-known fact about Uber is every driver rates the passenger. Rat-ings are a two-way street, and travel-lers are already used to the system. If airlines adopt it as well, cabin crew can potentially rate at least the fre-quent fliers, and perhaps they can be rewarded to encourage certain behav-iours, like boarding early. The possi-bilities are endless.

Uber is valued at over $50 billion. Most large airlines can only dream of getting there. Great customer service and the fluid rating system are only part of Uber’s success, however. The core reason is the simplicity of its app, which drives adoption. The app does just one thing – call a car on the click of a button – and does it very well. Air-lines can learn a thing or two.

JETBLUEMost airlines try to squeeze multiple features, like the five-step traditional booking process, into their apps. That is like trying to drive a Ferrari on a dirt road – you just won’t get the traction.

Some, like Japan Airlines, have launched more than 10 apps, each doing one thing. That still wouldn’t work – after all, how many apps is the traveler expected install, and then use, during travel?

JetBlue is a good example of an air-line with an app that works well – the home screen dynamically changes during different stages of travel and the passenger is able to focus on just one thing at a time.

Uber has changed what travelers ex-pect from an engagement with a com-pany – they want the experience to be seamless and simple. Airlines have a long way to go, but those who get there will be way ahead of the competition. ■

When I recently took an Uber taxi ride in Dubai, the driver in-sisted on dropping me

on the other side of the street, which meant taking a detour and then a U-turn. Due to traffic, I was late for my appointment, and wasn’t pleased with the driver.

As I stepped out, the Uber app prompted me to rate the driver. I only gave him two stars out of five. A cou-ple of hours later, as I summoned an-other Uber driver to return to my hotel, an email had popped into my inbox from Uber.

I was surprised to read that not only had Uber apologised, it had calculated the average fare for my ride, deter-mined I had overpaid and refunded me the difference!

The irony was that I had not expect-ed the feedback to be acted upon, and certainly not to be refunded so quickly. It was a Eureka moment for me, the aviation consultant.

Receiving good customer service from airlines is at best an inconsistent experience for frequent flyers like me. Getting refunds is often a nightmare. When I send an airline feedback proac-tively, I often get an automated re-sponse that I should expect a reply within seven days. When you think about other companies travellers inter-act with – like Uber – airlines seem to be living in the Jurassic period.

APP APPROACHI often hear airline executives wish that they could run their business like Amazon. But I’d like to argue that if they do that, they would at best be playing catch-up. If they want to get ahead of the pack, they need to think like Uber, or AirBnB – both apps huge-ly popular with travellers.

One of the core tenets of Uber is that every driver is rated. On AirBnB, those who stay rate every accommodation and the hosts too. Travellers have been

GOING UBER AND BEYOND

FORUM FEEDBACK

It is time for airlines to learn from the most popular apps and offer a simple and seamless booking system, says SimpliFlying chief executive Shashank Nigam

flightglobal.com/AirlineBusiness

The home of Airline Business on the web

is the airlines

channel of

flightglobal.com:Shashank Nigam is the CEO of SimpliFlying, one of the largest airline marketing strategy firms, which has worked with over 60 airlines and airports: [email protected]

“If airlines want to get ahead of the

pack, they need to think like Uber, or

AirBnB”SHASHANK NIGAM

Chief executive, SimpliFlying

Sim

pliF

lyin

g

used to ratings for a long time – no-body books a hotel now without visit-ing TripAdvisor first.

It is strange that very few airlines offer a way for travellers to provide real-time feedback about staff, let alone act upon it. KLM recently launched a feed-back application that allows its services to be rated on the day of travel, but suf-fered a backlash on forums like FlyerTalk for “stalking” travellers. While the features need to be ironed out, KLM deserves credit for taking a step in the right direction.

Imagine the power of ratings for each crew on every flight, sent to the airline in real time. Airline managers can identify problems before they be-come serious issues, and even com-mend staff that go above and beyond. In Uber’s case, drivers who constantly receive less than a four-star rating are summoned, and then often removed from service.

November 2015

flightglobal.com/airlines November 2015 I Airline Business I 57


As the row between the US majors and the Gulf carri-ers rumbles on, it is still unclear how it will end.

Each side disputes the other’s accusations regarding subsidies and capacity dumping, and the Gulf airlines remain resolute in their assumption that they are innocent as they continue to arrange expansion across the North Atlantic.

A collision between two such giant objects, each with massive gravitational pulls, is likely to have huge global conse-quences. The US majors lit the fuse on the dispute, but what is their endgame?

That open-skies deregulation has been very good for everybody – air-lines and consumers – is beyond dis-pute. And it is irreversible.

Emirates Airline chief Sir Tim Clark hopes that sense will prevail, but in the unlikely event that the dispute can-not reach a resolution, he says “the amount of unravelling of global politi-cal structures would be incredible”.

The subject of the US versus the Gulf carriers came up during the World Routes event in Durban, taking place in September, where World Travel and Tourism Council boss David Scowsill pointed out that the row is typical of the sort of conflict that exists between government depart-ments. The transportation department will have one view. The commerce department will have another view, he said, predicting that it will end up hav-ing to be refereed by the US president.

Scowsill has suggested that when such a conflict erupts, the country’s premier must be clear about policy. “Do you support foreign carriers or don’t you? Foreign carriers need clar-ity. National carriers need clarity,” he says. “And the investment that airlines and airports require for the future needs that forward-looking visibility over that 20-year timeframe.”

In the wake of the 9/11 terrorist attacks, the US lost $600 billion after the

WHEN TWO WORLDS COLLIDE

COMMENT

The clash of the US and Gulf carriers has wider consequences across the industry, and neither side is showing any intention of stepping away. So it could take some decisive action from the Oval Office before both sides can move on

“A collision between two such huge

objects with massive gravitational pulls is likely to have

global consequences. But what is the US

carriers’ endgame?”

Ikon Im

age

s/R

ex

Shutt

ers

tock

November 2015

DATE IN DUBAI Flightglobal brings you all the news

from this year’s Dubai air show,

which takes place on 8-12

November. We are producing daily

papers throughout the event that can

be viewed online, along with all the

big stories as they happen, at:

flightglobal.com/Dubai

The home of Airline Business on the web is on the Airlines Channel of flightglobal.com:


US state department clamped down on visas as the US commerce department was trying to attract more tourism busi-ness. “So the president had to get involved to sort out the dispute between ministries,” says Scowsill.

Airline associations often lobby for the so-called “level playing field”. But has there ever really been one? Many privatised national carriers were state-owned not so long ago. And they fly from infrastructure created with govern-ment support back in the days of Lock-heed Constellations and Boeing 707s.

But it is a delicate path the associa-tions must tread. See how the Associa-tion of European Airlines has found itself

being torn apart as key members leave: namely the part-Etihad-owned Air Berlin and Alitalia, along with British Airways and Iberia – part of IAG, in which Qatar Airways holds a stake.

Air Berlin boss Stefan Pichler told delegates at the recent European Regions Airline Association meeting that its AEA membership had been ter-minated “due to a conflict of interest in regard to… competition and protection-ism. We could no longer adopt the posi-tion of the AEA because it was a posi-tion of minorities.”

Needless to say, the AEA is dis-mayed by such accusations.

Pichler has previously accused the AEA of “allowing itself to be driven by airlines which desperately try to erect a new wall around Europe”.

It is probably no coincidence that Qatar Airways Group chief executive Akbar Al Baker believes that two prom-inent AEA members, Lufthansa and Air France-KLM, have been egging on their US partners in the dispute “because they cannot stand up to competition”.

IATA director general Tony Tyler, who steps down next June, was under pressure to take a position in the dis-pute at this year’s AGM in Miami. He dodged the row by saying IATA “is not a place where airlines come to further or air their aeropolitical differences”.

The industry waits with bated breath to see who the association should very soon name as Tyler’s successor. Who-ever it is, they will have some immedi-ate challenges to deal with to ensure IATA can remain a happy ship. ■

Airbus

DEPARTURES

0 9 : 1 0 P A R I S T 4 9 4 6 1 0 9 : 5 0 M A D R I D F 2 4 5 2 7

0 9 : 2 5 N E W Y O R K N 3 8 3 7 2 0 9 : 5 5 M I L A N H 1 2 8 3 1

0 9 : 3 0 M O S C O W R 8 4 5 2 9 1 0 : 1 0 B A R C E L O N A G 4 3 6 8 2

0 9 : 3 5 B E R L I N V 2 9 0 1 8 1 0 : 1 5 P A L M A L 1 3 8 9 2

0 9 : 4 0 A M S T E R D A M B 1 3 6 8 2 1 0 : 2 0 I S T A N B U L F 7 2 7 5 6

0 9 : 4 5 R O M E Q 5 5 6 4 6 1 0 : 2 5 N A I R O B I D 8 7 8 2 9

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Documents

INTERVIEW GHAITH AL GHAITH Growing up fast with Flydubai