Tuesday, October 31, 2017

Gulfstream G650 (c/n 6279) N279GA tbr M-AAAL

Departs from and returns to Long Beach Airport (LGB/KLGB) as "GLF37" as it performs a pre-delivery test flight on October 30, 2017.

(Photos by Michael Carter)

Gulfstream G650 (c/n 6300) N630GD tbr N476V

Arrives at Long Beach Airport (LGB/KLGB) as "GLF50" from the factory at Savannah-Hilton Head International Airport (SAV/KSAV) on October 30, 2017.

(Photos by Michael Carter)

Gulfstream G650(ER) (c/n 6109) N650TY, ex-N326JD

Short final to Rwy 30 at Long Beach Airport (LGB/KLGB) on October 30, 2017 as it arrives from Anchorage-Ted Stevens International Airport (ANC/PANC.

(Photos by Michael Carter)

Drop in China-Taiwan Traffic Pressures China Airlines

A dwindling number of mainland Chinese tourists traveling to Taiwan has prompted the island nation’s flag carrier, China Airlines, to shift its attention to new markets. Speaking at the October 24-25 Association of Asia Pacific Airlines (AAPA) Assembly of Presidents in Taipei, CAL president Hsieh Su-Chien outlined his strategy to react to cross-straits tensions and a resulting 47 percent drop in passenger numbers between mainland China and Taiwan. During the same period, group traffic declined by 58 percent.

To counter the decline, CAL transferred most of its capacity originally planned for cross-straits services to Northeast and Southeast Asia in a bid to compete in both direct travel to or transit through Taiwan. He cited strong demand from Korea, and Taiwanese traffic to Japan has reached 5 million passengers annually.

“Our plans for key markets include continuing to aggressively develop the Southeast Asia market in support of the government’s New Southward Policy and maintaining the pressure in Northeast Asia,” he said. “We will also leverage our North America network and increase direct flights to all European destinations, resume London services and add more frequency to Southeast Asia, Northeast Asia and Australia.”

CAL took delivery of its first Airbus A350 almost a year ago, and has turned much of its focus toward Europe, where its services have averaged a load factor of some 90 percent. It plans to fly nonstop to London starting December 1. CAL senior vice president Steve Chang added that CAL maintains only a 22 percent market share to Europe, leaving 78 percent available for capture. Starting December 1, CAL plans to enter the so-called Kangaroo Route, flying direct to Sydney twice daily, and thereby using Taipei as a gateway to London. CAL expects eventually to establish a daily flight from Taipei to Auckland via Brisbane.

Perhaps counter intuitively, Chang revealed that the rise of mainline Chinese carriers has had minimal effect on CAL operations. “The business models are quite different, and they have strong demand from their domestic market,” he said. “There is some competition but there is more cooperation with these airlines...Since we are a SkyTeam alliance member with China Southern and China Eastern, we have numerous codeshares with them and complement each other’s strengths. Cooperation is very vibrant. There is little impact on the international routes, and passengers flying from Taiwan transiting to the U.S. and Europe via China is very little.”

Separately, new codeshare agreements with Philippines Airlines and Japan Airlines have increased passenger traffic on associated routes by some 8 to 15 percent.

Hsieh said CAL continues to evaluate its narrow-body aircraft options between the Airbus A320neo/A321neo or the Boeing 737 Max 8/9/10, and will make a decision based on pricing options for the engines and fleet requirements. CAL became an Airbus aircraft maintenance supplier in June, and offers MRO services for A320s to A350s.

(Chen Chuanren - AINOnline News)

PrivateFly: Charter Customers Edge Younger, Spend More

Charter aircraft users are “edging younger” and spending more, according to a third-quarter report issued late last week by air charter broker PrivateFly. In fact, the quarter was its busiest ever, with private jet travel activity in August up 1.3 percent from 2008 levels for the first time since the Great Recession, it said.

In analyzing its data during the quarter, PrivateFly found that the average age of private jet customers is now 38 years, while children under 16 years old account for nearly one in five passengers. Not surprisingly, it found that 72 percent of passengers are male. Loads averaged 4.6 passengers per flight and only 3 percent had pets on board, the broker said.

Meanwhile, PrivateFly observed that charter confidence is rising, with an average flight spend 17 percent higher year-over-year across all aircraft groups. Per-flight spending for both turboprop twins and large-cabin jets soared by 35 percent, to an average of $9,940 and $53,030, respectively. Ultra-long-range jets commanded the most at $76,010 per flight, up 10 percent from a year ago. The average light jet flight cost $13,820, up 19 percent year-over-year, while that for midsize jet rose just 3 percent, to $22,080.

Light jets were the most booked category, which was reflected by the fact that eight of the 10 most popular aircraft types were in this segment—the Cessna Citation II, Bravo, CJ2, CJ3 and Mustang; Embraer Phenom 100 and 300; and Bombardier Learjet 75.

August 5 was PrivateFly’s single busiest day for takeoffs in the third quarter, with 11 a.m. on a Saturday the most popular takeoff time and day during the three-month period.

(Chad Trautvetter - AINOnline News)

FAA Bulletin Clarifies Runway Status Light Procedures

The FAA has issued Safety Alert for Pilots (SAFO) 17011 to ensure pilots and airport personnel are aware of the correct procedures concerning runway status lights (RWSLs), a fully automated system intended to prevent runway collisions. It cited several instances in which pilots have ignored the illuminated red in-pavement lights when issued a clearance to cross or take off from that runway.

Installed at nearly 20 of the nation’s busiest airports, RWSLs integrate airport lighting equipment with approach and surface surveillance radar systems to provide aircraft crews and vehicle drivers a visual signal indicating when it is unsafe to enter or cross a runway and begin or continue a takeoff. Illuminated RWSLs mean aircraft or vehicles must stop or remain stopped and their operators should contact ATC for further direction. The RWSL system operates independently of ATC and “controllers do not have any indication of when the…lights are illuminated.”

According to the pilot reference guide for RWSLs, whenever a pilot observes the red lights of the runway entrance lights, that pilot should stop at the hold line or along the taxiway path and remain stopped. The pilot should then contact ATC for resolution if the clearance is in conflict with the lights. Under no circumstances should pilots proceed without both an ATC clearance and visual confirmation that runway status lights are not illuminated.

(Gordon Gilbert - AINOnline News)

Airbus looks to 700 deliveries by year-end; A320neos to fall short

Airbus Commercial Aircraft recorded an EBIT (adjusted) of €591 million ($697.4 million) in the third quarter of 2017, up 4.2% compared to €567 million in 3Q 2016.

The Toulouse-based manufacturer said that while the A350 industrial ramp-up continues to make progress—with the program on track to meet its monthly production rate of 10 aircraft by the end of 2018—the A320neo family ramp-up continues to prove challenging following engine delivery issues through the year.

As of Sept. 30, Airbus had delivered 454 commercial aircraft year to-date—350 single-aisle A320 family aircraft, 45 A330 family aircraft, 50 A350 XWBs and nine A380s. In its full-year 2017 guidance, Airbus said it expects to deliver more than 700 commercial aircraft, “which depends on engine manufacturers meeting commitments.”

In its third-quarter financial statement issued Oct. 31, Airbus noted that at the beginning of the year the company had projected deliveries of nearly 200 A320neo family aircraft for full-year 2017. As of Sept. 30, 90 A320neo family aircraft had been delivered (82 A320neos and eight A321neos) to 19 customers. Airbus acknowledged its A320neo deliveries “are now expected to be slightly below that target … [attributable] to engine availability issues and allocation between the OEM and spare pools.” The A320neo family backlog, as of Sept. 30, stands at 5,202 aircraft—3,673 A320neos, 1,478 A321neos and 51 A319neos.

“[Our] strong backlog and a healthy market environment continue to support our commercial aircraft production ramp-up plans,” Airbus CEO Tom Enders said. “We confirm our outlook even though this year’s delivery schedule is extremely back-loaded, largely due to the well-known engine problems plaguing our A320neo family.”

Pratt & Whitney’s PW1100G geared turbofan (GTF) engine competes with CFM International’s LEAP-1A as the power source on Airbus’ A320neo family aircraft. In April, Pratt began a fleet-wide retrofit of its PW1100G GTF engines, installing a more durable air seal designed to combat issues known to be linked to 28 premature engine removals.

Third-quarter revenue for the Commercial Aircraft division was €10.9 billion, up 3.9% on the 3Q 2016 figure of €10.5 billion.

Net profit figures were given only for the overall Airbus Group, which includes military aircraft, helicopters and space activities. For the 2017 third quarter, Airbus’ net income totaled €348 million, a nearly sevenfold increase over €50 million in total net income for the 2016 September quarter, “mainly driven by positive foreign exchange effects,” Airbus said. The company’s total adjusted EBIT for the quarter was €697 million, down 4.4% year-over-year (YOY), “reflecting a stable performance at Commercial Aircraft as the unfavorable delivery and phasing impact, transition pricing and ramp-up costs were offset by R&D tailwind and progress on the A350 industrial ramp-up.”

The company offered a full-year 2017 guidance of mid-single-digit percentage growth—before mergers and acquisition—in adjusted EBIT. As of nine months into 2017, the company’s adjusted EBIT stands at €1.8 billion, down 25.4% compared to €2.4 billion for the same period last year.

As the basis for its 2017 guidance, Airbus said it expected the world economy and air traffic to grow in line with prevailing independent forecasts, which assume no major disruptions.

For the first nine months of 2017, Airbus received 271 net commercial aircraft orders, compared to 380 in the same period last year. 2017’s order intake to Sept. 30 totaled €50.8 billion, compared to €73.2 billion for the same period in 2016. The company’s total commercial aircraft order backlog comprised 6,691 aircraft at the end of September.

(Mark Nensel - ATWOnline News)

Hong Kong Express names new president

HNA Group LCC Hong Kong Express has named a senior executive from its sister carrier Hong Kong Airlines as its new president. Li Dianchun took over the new role Oct. 31. He was previously CCO of Hong Kong Airlines, which is also a member of HNA Group.

Former HK Express head Andrew Cowen was replaced in October after a wave of negative publicity surrounding the cancellation of 18 flights over a peak holiday period. The cancellations were partly caused by staff shortages that were reportedly related to a labor dispute.

HK Express stressed that among Li’s priorities in his new role will be “strengthening communication between staff and management, as well as enhancing management efficiency and operational stability.”

He will be responsible for day-to-day management of the LCC, working closely with Zhong Guosong, who was promoted to executive chairman of HK Express recently.

(Adrian Schofield - Aviation Daily / ATWOnline News)

LOT to take first leased 737 MAX 8 in December

LOT’s first 737 MAX on the assembly line.
(LOT Polish Airlines)

LOT Polish Airlines expects to receive its first leased Boeing 737 MAX 8 in early December and launch scheduled services on the Warsaw-London Heathrow route in the same month.

In October 2016, LOT agreed to lease up to 11 737 MAX 8s from US lessor Air Lease Corp. for delivery from 2017-2020.

A second MAX will begin operations from Warsaw to destinations including London and Madrid from early January 2018. Three more aircraft will be delivered next year; the sixth of the type has been scheduled for May 2019.

The 186-seat aircraft, powered by CFM LEAP-1B engines, is configured in a three-class layout featuring business, premium economy and economy class.

LOT said the new aircraft type uses 15% less fuel compared to the current 737NG variants and a noise reduction of up to 40% compared with other aircraft in this class.

LOT also operates three retrofitted Boeing 737-400s, as well as four 737-800NGs, which were added to the fleet during the 2017 summer season. 

(Kurt Hofmann - ATWOnline News)

Russia’s UTair Aviation rebrands to ‘Utair’


Russia’s Utair Aviation unveiled a new corporate identity on a Boeing 737-800 at Moscow Vnukovo Airport Oct. 31. The new design, which features a lower-cased “t” in Utair, was developed by Friends Moscow agency.

Utair plans to rebrand the whole fleet before the end of 2018, in addition to its website, mobile app and crew uniform.

According to Utair Passenger Airline president Pavel Permyakov, the carrier’s service components will change in the near future, although details have not been disclosed. Developing Utair’s Moscow Vnukovo base will remain a priority, according to Permyakov.

The number of daily flights from Vnukovo grew 15% year-over-year in 2017. The carrier also has bases at Tyumen’s Roshchino and Surgut international airports.

Utair Aviation is the main part (60%) of Utair Group. The group also includes Utair Helicopter Service, TC Technic, Utair Engineering, and Utair South Africa, among others.

From January-September 2017, Utair carried 5.5 million passengers, up 9.8% year-over-year.

(Polina Montag-Girmes - ATWOnline News)

China’s big three reports 3Q profits up on market demand growth

China’s big three carriers—Air China, China Eastern Airlines and China Southern Airlines—have all reported third-quarter profit increases as a result of continuous market demand growth.

Beijing-based Air China earned a third-quarter net income of CNY5 billion ($752 million), up 31.3% over a net profit of CNY3.8 billion in the year-ago quarter. Operating revenue rose 9.1% year-over-year (YOY) to CNY34.8 billion against a 9.1% YOY increase in operating expenses of CNY25 billion.

For the first nine months of 2017, Air China’s net profit also increased 14.6% YOY to CNY8.3 billion. Operating revenue during the period also grew 8.8% YOY to CNY93 billion while operating costs increased 13.4% to CNY72.9 billion.

Shanghai-based China Eastern posted a third-quarter net profit of CNY3.6 billion, up 3.2% over a net income of CNY3.5 billion in the year-ago quarter. Operating revenue rose 1.3% YOY to CNY29.5 billion against a 3.9% increase in operating expenses to CNY23 billion.

For the first nine months of 2017, China Eastern posted a net income of CNY8 billion, up 18% YOY. Operating revenue for the period rose 2.8% YOY to CNY77.5 billion while expenses increased 9.6% to CNY65.6 billion.

Guangzhou-based China Southern reported a third-quarter net profit of CNY4.3 billion, up 30% over a net income of CNY3.3 billion in the year-ago quarter. Operating revenue grew 9.8% YOY to CNY35.8 billion against a 10.2% increase in operating expenses to CNY28.1 billion.

For the first nine months of 2017, China Southern’s net income rose 9.5% YOY to CNY7.1 billion. Operating revenue for the period increased 11% YOY to CNY96.1 billion while operating expenses grew 16.2% YOY to CNY81 billion.

Traffic figures were not released.

(Katie Cantle - ATWOnline News)

American orders 10 more Embraer E175s

American Airlines has placed a firm order for 10 additional Embraer E175s valued at $457 million at list prices.

The order adds to an original order for 60 E175s placed by Dallas/Fort Worth-based American in 2013 and one for four more placed earlier this year. American has now ordered 74 total E175s from Embraer and still has 76 more E175 options it could exercise.

Deliveries of the latest 10 E175s ordered will start in 2018 and be concluded by mid-2019. Wholly owned American regional subsidiary Envoy Air will operate the 10 aircraft under the American Eagle brand.

American’s E175s are configured with 76 seats: 12 in business class, 20 in premium economy and 44 in economy.

“This repeat order demonstrates the confidence that the airline has in Embraer and in the E175,” Embraer Commercial Aviation VP-North America sales and marketing Charlie Hillis said in a statement.

Embraer noted that E175 sales in North America since 2013 have now surpassed 390 units.

(Aaron Karp - ATWOnline News)

Mint flights soon to be majority of JetBlue transcon capacity

Mint-configured Airbus A321 aircraft will make up the majority of JetBlue Airways’ transcontinental capacity for the first time in November, a sign of the premium offering’s ongoing success.

New York-based JetBlue introduced lie-flat Mint business-class seats on the New York JFK-Los Angeles route in 2014 on an A321 configured with 16 Mint seats. It is rapidly adding the product to more routes, with JFK-San Diego the most recent addition. Transcontinental Mint flights, originally designated for the New York JFK market, have expanded to Boston and Fort Lauderdale, Florida.

“Mint continues to exceed our expectations,” JetBlue president and CEO Robin Hayes told analysts and reporters last week. “Mint demonstrates that there is clearly a customer segment looking for a higher quality offering at a lower price. Next month Mint flying will, for the first time, account for the majority of transcontinental capacity.”

Seat miles flown on Mint aircraft—configured with 159 total seats, including the 16 Mint seats, versus 200 seats on a non-Mint JetBlue A321—will rise 60% year-over-year (YOY) in the fourth quarter, according to JetBlue EVP-commercial and planning Marty St. George.

Flights between Fort Lauderdale and both Los Angeles and San Francisco were on Mint aircraft in the 2017 third quarter, but not in the 2016 third quarter, providing a useful YOY comparison. “West coast [Mint] flights from Fort Lauderdale are exceeding our expectations with [third-quarter] RASM gains of 12% YOY,” St. George said. He noted that Mint aircraft will comprise 16% of JetBlue’s total capacity in the fourth quarter, up from 11% in the 2016 fourth quarter.

JetBlue is scheduled to take delivery of 11 A321s in 2018, and is maintaining flexibility in terms of how many will be Mint configured, CFO Steve Priest said. “The first three A321s are scheduled to be Mint aircraft,” he explained. “The following three are scheduled to be delivered in our [200-seat] configuration. We expect the remaining five to be [non-Mint, 200-seat aircraft], but retain flexibility to choose a configuration that provides the greatest margin benefit.” 

(Aaron Karp - ATWOnline News)

American Airlines to close St. Louis pilot base

American Airlines plans to close its St. Louis pilot base in 2018, as it retires its remaining MD-80 fleet.

In a letter sent to pilots, the Dallas/Fort Worth-based carrier said it has made the “difficult” decision to close the St. Louis base in September 2018. The 180 St. Louis pilots will not lose their jobs, but will be reassigned to other bases, spokesman Matt Miller said. The existing flight-attendant base, line-maintenance facility and customer-service positions at the airport will remain, and operations at St. Louis will not decrease, he added. American operates about 40 daily flights in St. Louis.

The carrier has been retiring its MD-80 fleet over the past several years. Miller said 46 remain in the fleet, and these are being phased out over the next year. When the St. Louis pilot base closes, 26 MD-80s will be in the fleet. These aircraft are slated for retirement at the end of 2019.

American acquired a hub at St. Louis when it merged with TWA in 2001. American closed the hub shortly afterward, but maintained the pilot base. The affected pilots worked previously for TWA.

“A sufficient number of positions exist in other crew bases and, of course, transfers will take place according to the joint collective bargaining agreement,” the carrier said in its letter. 

(Madhu Unnikrishnan - Aviation Daily / ATWOnline News)

Volaris posts $40 million 3Q net profit despite natural disasters

Mexico City-based ultra LCC Volaris posted its first quarterly profit of 2017, reporting MXN731 million ($40.2 million) in third-quarter net income, down 27.6% from MXN1 billion in 3Q 2016.

“Demand and traffic patterns, despite a competitive fare environment, had been sequentially improving, but in September, natural disasters in Mexico and in the region temporarily interrupted such recovery,” Volaris CEO Enrique Beltranena said.

In September, the airline faced hurricanes Irma and Maria, plus two tropical storms in the Pacific, and two earthquakes that affected 11 Mexican states. Volaris canceled 50 flights in eight airports during the period, which triggered a decline in bookings, the airline said.

The airline posted third-quarter revenues of MXN6.6 billion, down 2.2% year-over-year, with non-ticket revenue increasing 18.6% to MXN1.8 billion, or 27% of Volaris’ total operating revenue. Non-ticket revenue included checked bag fees on international flights, ancillary-product combination packages and commission revenue form travel-related products, including hotel selection as a purchasing process option, cruise packages and car rentals.

Volaris’ operating expenses for the quarter increased 4.6% to MXN5.9 billion as sales and marketing, labor and fuel costs all rose significantly YOY (up 22.8%, 15.1%, and 7.9%, respectively). The resulting operating profit for the quarter came to MXN634 million, down 39.2% YOY, with an operation margin of 9.6%, down 5.9 points YOY.

Passenger traffic increased 7.9% YOY to 4.1 billion RPMs on 10.1% capacity growth for the quarter to 4.8 billion ASMs, producing an 86.2% passenger load factor, down 1.7 points YOY.

Yield declined 15% YOY to 6.4 US cents. TRASM was down 11.2% YOY to 7.6 cents. Non-ticket revenue per passenger increased 12.8% YOY to MXN434. CASM excluding fuel was down 6.2% YOY to 4.9 cents.

During the quarter, the airline launched two new international routes (Mexico City-San Antonio, Texas; and Mexico City-San Jose, Costa Rica) and incorporated its second Airbus A320neo into its all-Airbus fleet of 67 aircraft.

On Sept. 21, the US Department of Transportation granted approval for Volaris’ subsidiary Volaris Costa Rica to operate flights from Central America to the US, subject to operations and maintenance certifications from FAA.

“[In the third-quarter] we continued to drive non-ticket revenue growth, managed capacity prudently and reinforced our cost control discipline, reversing the negative cost trend,” Beltranena said. “These actions positions Volaris with a defendable and resilient business model in a challenging environment.”

At nine months, Volaris is showing a MXN1.2 billion net loss for the year, compared to its MXN2.5 billion net profit for the comparable period in 2016. 

(Mark Nensel - ATWOnline News)

Russia suspends AOC for VIM Airlines

Russian authorities have temporarily suspended the air operator’s certificate (AOC) for VIM Airlines, TASS agency reported, quoting Minister of Transport Maxim Sokolov. He clarified the AOC had not been canceled and could be restored.

VIM ceased scheduled operations because of financial problems; however, part of its fleet and team helped to keep flight operations going in October. Some passengers were transported by other carriers.

A special headquarters chaired by Russian authorities oversaw the process.

Some carriers have already announced they will replace VIM on several routes. 

(Polina Montag-Girmes - ATWOnline News)

EasyJet finalizes $42 million deal for airberlin assets

UK-based LCC easyJet has signed an agreement to take on 25 airberlin Airbus A320 leases and some of the German leisure airline’s Berlin Tegel slots for €40 million ($42 million), strengthening its position in Berlin.

The deal, which was announced Oct. 30, is subject to regulatory approvals and is expected to close in December 2017. EasyJet said the €40 million investment excludes potential startup and transitional operating costs.

In addition, easyJet has launched a recruitment campaign to attract around 1,000 of airberlin’s pilots and cabin crew, who will be recruited over the coming months. These crews will be employed on local German contracts under collective labor agreements negotiated with German union Verdi.

“This will enable easyJet to operate the leading short-haul network at Tegel connecting passengers to and from destinations across Germany and the rest of Europe. This is in addition to easyJet’s existing base at Berlin Schönefeld and would mean that easyJet would be the leading airline in Berlin,” easyJet said in a statement.

An easyJet supervisory board member recently told ATW: “If the deal is finalized as planned, easyJet will get a market share in Berlin of 60%,” the source said. The LCC plans to launch German domestic flights from Berlin to Stuttgart, Dusseldorf and Munich.

EasyJet said it will make announcements on the new routes and services to be flown to and from Tegel in due course. The LCC will operate a reduced timetable at Tegel during the winter season, but plans to operate a full schedule from the summer season 2018.

Bankrupt German carrier airberlin operated its last flight Oct. 27 from Munich to Berlin Tegel. The final Airbus A320 flight carried 178 passengers. Airberlin filed for bankruptcy Aug. 15 after 29.2% shareholder Etihad Airways withdrew financial support. Several thousand employees are expected to be laid off as airberlin enters formal bankruptcy proceedings Nov. 1.

(Kurt Hofmann - ATWOnline News)

Denver airport expansion gets bigger; 39 gates to be added

Denver International Airport officials have increased the number of gates they plan to add in an upcoming expansion, saying they're needed to handle a growing number of airlines and routes.

Airport officials had planned to add 26 gates but now look to build 39 by 2021. The project will cost up to $1.5 billion, The Denver Post reports .

"The airlines are all growing," airport spokeswoman Stacey Stegman said. "Almost every single airline wants to grow in Denver."

They include the airport's busiest airlines -- United, Southwest and Frontier -- as well as carriers with a smaller presence there, Stegman said.

Airport officials also plan a $1.8 billion terminal overhaul in cooperation with private companies.

More than 58 million travelers passed through the airport last year. The airport was designed to accommodate 50 million travelers a year when it opened in 1995.

The upcoming projects will enable as many as 80 million travelers annually. Airport officials have submitted four proposed design and construction contracts to the Denver City Council ahead of a hearing Wednesday. The contracts will likely get heavy scrutiny.

"We're fortunate the airport was designed specifically for this type of expansion. But what I look forward to determining is whether this is the time and the price," Councilman Kevin Flynn said.

(USA Today - Today In The Sky / The Associated Press)

The Fat Years for U.S. Airlines Are Coming to an End

Costs are rising for the major U.S. carriers, and Wall Street is nervous.

America’s passenger carriers have discovered that it’s getting more expensive to run an airline these days.

While summertime profits were fine, and travel demand remains robust, a number of airlines are facing higher bills from a variety of factors: labor contracts, significant airport renovation projects, technology spending, and fleet upgrades. The increase in expenses is creeping into 2018 and threatens to spoil higher revenues just as executives are crowing about how they will keep fares up for the holidays.

Note the absence of the usual culprit in these matters—fuel. While it’s pricier today relative to 2016, jet fuel expenses still represent roughly the same burden for all carriers (though spot prices have gained 24 percent over the past year). That’s one reason investors typically exclude fuel from the industry’s standard spending measure, cost per available seat mile.

The real issue causing investor angst is how much nonfuel costs will increase in 2018. As of April, the industry’s four largest players were all operating under new contracts with their pilots and flight attendants.

The higher expenses from these pacts had been viewed as largely a cost event for 2017, said Joseph DeNardi, an equity analyst with Stifel & Co. “I think the expectation was that once you got through this year, where costs are elevated, the trend should improve next year,” he said. But that hasn’t been the case, a fact DeNardi said has been a “disappointment” for Wall Street.

Higher costs hinder airlines’ ability to boost profits, even if fuel costs were to remain stable and passenger revenue rebound from higher ticket prices. Investors knocked 12 percent off of United Continental Holdings shares on Oct. 19, in part because executives declined to offer any insight about the company’s cost or growth outlook for next year.

“We are … deep in the middle of this stuff,” United Chief Executive Oscar Munoz said on his now famously testy call with analysts, explaining that his team was taking “a very different approach” to its planning for 2018 and required more patience from investors.

A similar scenario—with accompanying stock declines—played out at American, Alaska Air Group Inc., JetBlue Airways Corp., and Southwest Airlines Co.—all of which are facing cost pressures in the coming year. The five carriers are closely managing their capacity growth in 2018 and expressed optimism that a spate of fare skirmishes is drawing to a close.

Nevertheless, the Standard & Poor’s Airlines Index of five major carriers has declined by almost 9 percent since Oct. 12, when Delta Air Lines Inc. kicked off the latest round of quarterly reports. The index is headed for its second down year of the past three.

“The reality is that legacy carriers still have very high costs, and consolidation didn’t really improve the cost structure,” Spirit Airlines Inc. CEO Bob Fornaro told analysts Oct. 26 on a quarterly earnings call. “It improved the networks, but the costs are going higher.” For its part, Spirit is facing higher compensation expenses for its 1,500 pilots, who have been negotiating a new contract for more than two years. Spirit’s shares have dropped by 36 percent this year.

JetBlue is in the same position, while Alaska Air is in binding arbitration with pilots as it seeks a joint contract to cover work groups at both Alaska and its new Virgin brand. The Seattle-based airline has also had trouble this year finding enough pilots for its regional carrier, Horizon Air, which led to reduced flying.

“In an industry that took so much away from its employees … of course once they were earning billions of dollars in net profits again they were going to have to give some of that back,” said Seth Kaplan, managing director of trade journal Airline Weekly.

Beyond labor, much of this anticipated spending is company specific: Alaska is deep in the expensive throes of its merger with Virgin America; Southwest is shelling out for U.S. certification to begin flying its Boeing 737s to Hawaii; and United is attempting a technology overhaul of its revenue management while also flying additional high-cost, 50-seat regional jets to feed its hubs.

Major airport renovations are also occurring nationwide, including large projects in New Orleans, Los Angeles, Orlando, New York, and Seattle. Such civic investments translate to higher costs for airlines (and passengers).

“It has become evident for most carriers that cost control is tougher as broader inflation is taking its toll,” Morgan Stanley analyst Rajeev Lalwani said in a note Friday. Unit costs excluding fuel likely will be up 1 to 2 points next year, vs. expectations of unchanged to up 1 percent, he said.

In a bid to cut overhead, American, the world's largest carrier, has launched a push dubbed Project One Airline to squeeze $1 billion from its operations by 2021, including an expected $200 million next year. “We are just getting started on these initiatives,” Chief Financial Officer Derek Kerr told analysts last week.

Airlines’ financial performance shows that the industry remains intensely competitive and less able to pass along higher costs to consumers, said John Heimlich, chief economist at Airlines for America, the industry’s trade group. “The fact that costs are outpacing revenues and margins are on the decline speaks to the soft pricing environment and serves as a strong indicator that [the] market is working,” he said in an email.

To a large extent, airlines are asking investors to have faith that revenues can outpace any cost expansion. But in a period when some base fares have dipped as low as $10, that request could be too much.

“I think there’s maybe some [investor] recognition that you can more certainly control your costs than your revenues,” Kaplan said. “But the labor environment is what it is.”

(Justin Bachman - Bloomberg News)

United Is Near a Deal to Acquire Used Airbus Jetliners

United Continental Holdings Inc. wants to acquire as many as 40 used Airbus jets, seeking a thrifty way to bolster short-distance service as the airline struggles to get costs under control.

The carrier is looking at A319 and A320 single-aisle aircraft, the Chicago chapter of the United pilots union said in an Oct. 10 memo to its members. A deal for 30 to 40 of the jets is “imminent,” according to the memo. The ultimate agreement could be for fewer.

Planes operated by U.K. budget carrier EasyJet are a possible source of the aircraft, people familiar with the matter said. Most of the planes would be A319s, said one of the people, who asked not to be named because the information is confidential. EasyJet, which declined to comment, has its own plans to take over leases on A320s from Air Berlin Plc, which is being liquidated.

he search for used planes underscores United’s efforts to reduce expenses as it seeks to regain investor confidence in its turnaround plan. Shareholders punished the Chicago-based carrier earlier this month after an earnings call in which management failed to establish how it would contend with rising costs and improve profit margins to the level of industry leader Delta Air Lines.

United executives are pursuing “a plane they already have in their fleet,” said George Ferguson, an analyst at Bloomberg Intelligence. “They can add them cheaply and there is no additional cost for spare parts or to train pilots and mechanics.”

It isn’t clear how United would configure the used planes or where they would fly. The carrier’s existing A319s seat 128 passengers and its A320s carry 150. They are used primarily on domestic routes.

The current market value for 30 decade-old A319s is about $480 million, while 30 A320s of the same vintage is roughly $690 million, according to consulting firm Avitas. Either would be a substantial discount to the total list price of $2.7 billion to $3 billion, even after taking customary discounts into account. The pilots memo didn’t mention whether the planes would be purchased or leased. Delivery could be over several years.

Discounter Playbook

United Chief Financial Officer Andrew Levy, a former operating chief at discount airline Allegiant, has been a zealous advocate for tapping the used-jet market, saying over the summer that the practice would be “an important part of our fleet strategy.” United has acquired used planes before, agreeing to add second-hand aircraft from China in late 2015.

The planes could give United a relatively inexpensive way to increase service in the busy summer period or other peak times while keeping capital expenses under control, said aviation consultant Bob Mann.

“Andrew Levy is a former Allegiant Air guy, and Allegiant lives on used airplanes,” Mann said. “It’s a rational thought process. It hasn’t been used that much by the major carriers.”

Read more: Airlines are hungry for hand-me-down jets

United declined to comment on specific plane-acquisition plans. “We have made clear that we are going to explore the used market to acquire additional aircraft as part of our overall fleet strategy,” the company said by email.

Peak Periods

United probably sees the aircraft as a way to provide additional seats during busy periods, such as the summer and holidays, Mann said. During most of the year the planes would be in light duty, flying about four hours a day or getting used as spares. They would be pressed into service for as much as 12 hours a day during periods of high demand.

“It’s a cheap way of bringing in peak capacity,” Mann said.

U.S. airlines, the world’s most profitable, have been among the largest consumers of used narrow-body jets made economical as low fuel prices damp the need for cost-savings from more-efficient new aircraft.

This is a “great market for jet sellers” as demand remains strong for used single-aisle planes despite a recent spate of airline failures, said Gary Liebowitz, an analyst at Wells Fargo & Co. “With interest rates low and financing widely available, midlife narrow-body values appear to have increased lately,” Liebowitz said in an Oct. 30 report.

United has pinched pennies on its fleet in other ways, as well. In September, the carrier delayed the first deliveries of new twin-aisle Airbus A350 jets until 2022 instead of 2018. Last November, it deferred delivery on 61 Boeing Co. 737 and upgraded the order to a more fuel-efficient version of the workhorse narrow-body jet. The company said it expected to save $1.6 billion in capital expenses from the move.

(Michael Sasso, Julie Johnsson, and Benjamin D Katz - Bloomberg News)

Sunday, October 29, 2017

This Budget Airline Is Buying Seaplanes to Reach Areas Others Can't


The next sales pitch for one of the world’s fastest-growing airlines may turn out to be: No runway? No problem!

SpiceJet, an Indian budget carrier that’s seen its stock zoom 899 percent in three years, wants to open up the third-biggest aviation market even more. That means targeting the billion Indians who’ve never flown before, either because they can’t afford it or because they don’t live near a functioning airport.

The airline is in talks with Japan’s Setouchi Holdings Inc. to buy about 100 amphibious Kodiak planes that can land anywhere, including on water, gravel or in an open field. The deal, valued at about $400 million, would help SpiceJet capitalize on Prime Minister Narendra Modi’s ambitious plan to connect the vast nation by air without waiting for billions of dollars in upgrades to colonial-era infrastructure.

“Airports are in short supply in India,” SpiceJet Chairman Ajay Singh said. “Lots of the growth in India is happening in small markets, but those small markets have little or no connectivity. So we are looking for a solution where we can get flights to places where no airports exist.”

While negotiations continue, Hiroshima-based Setouchi plans to conduct a demonstration water landing in November, said Go Okazaki, an executive managing director in the overseas business division. He couldn’t estimate when the deal would close.

(Airport Authority of India)

India’s airlines handled 100 million domestic passengers last year, making it the No. 3 market behind China and the U.S. To handle growth, India will need at least 2,100 new planes worth $290 billion in the next 20 years, Boeing estimates.

Modi unveiled a plan in 2015 to bring aviation to the remotest parts of the world’s seventh-biggest land mass. The government program subsidizes airfares while offering free landing and parking to airlines. Modi envisages domestic ticket sales quintupling in the next decade to half a billion units.

About 97 percent of India’s 1.3 billion people have never been on an airplane, according to SpiceJet. But there’s a problem finding places to pick up and drop off those passengers.

Only about 75 of the 450 areas designated by the Indian government as an airport or airstrip currently handle commercial flights. That exacerbates the stress on major airports in New Delhi, Mumbai and Bengaluru, where hardly any landing slots are available.

Infrastructure at most of those dormant airports -- runways, control towers, terminals and maintenance sheds -- has suffered decades of neglect, making the sites unusable.

That’s where SpiceJet’s amphibious strategy comes in. The Kodiak aircraft, which can seat either 10 or 14 people, is capable of taking off or landing on a 300-meter strip of water or land, and has a range of 1,000 kilometers (621 miles.) That’s about the distance between Mumbai and Bengaluru.

The sales agreement could be finalized in as soon as three months, SpiceJet said. The planes, made by Sandpoint, Idaho-based Quest Aircraft Co., could allow SpiceJet to land at as many as 300 of India’s currently unused airports, Okazaki said.

“The basic logic for this is that in India, we need last-mile connectivity,” Singh said. “The amphibian plane opens up a lot of areas, creates a lot of flexibility.”

They also would save a lot of time for Mihin Rosie, who regularly travels from her job in southern India to her hometown in the far eastern state of Arunachal Pradesh, bordering Tibet and Myanmar.

Rosie, 29, now flies from Bengaluru to Guwahati, takes a train to Ziro and then rides a bus or car to her family in Hapoli -- an 18-hour expedition. Air service between Guwahati and Hapoli could save her 15 hours, she said.
Lake Town

The Kodiak planes also could be deployed to tourist sites such as the western lake-town of Udaipur, where the airport is far away from the main city, Singh said.

“High-end tourists use amphibious aircraft at exotic locations all over the world,” said Amber Dubey, a New Delhi-based partner and India head of aerospace and defense at KPMG. “There’s no reason why it can’t be successful in India.”

Still, hurdles remain before SpiceJet can start scheduling amphibious flights.

The government doesn’t allow single-engine aircraft to fly commercially because of safety concerns, and any airline trying to operate amphibious aircraft likely will face opposition from environmental groups, local communities and nongovernmental organizations, Dubey said.

“We’ve taken this idea to the government, and the government seems to be very enthusiastic,” Singh said.
Landing Sites

India’s aviation regulators are studying whether to allow such planes into the commercial fleet and are reviewing a list of about 20 proposed landing sites, a government official said, asking not to be identified because of government rules. Decisions are likely by year’s end, the official said.

India’s aviation secretary, R.N. Choubey, didn’t respond to a request for comment.

Singh’s relentless optimism helped him bring SpiceJet back from the brink of extinction in 2014 after it defaulted on a $2.2 million fuel bill. Since then, shares have outperformed the Bloomberg World Airlines Index, pushing SpiceJet’s market valuation to 86.65 billion rupees ($1.3 billion).

A potential deal with closely held Setouchi Holdings will cap a recent spending spree by SpiceJet. In September, Bombardier Commercial Aircraft said it concluded a firm purchase agreement with SpiceJet for as many as 50 Q400 turboprop airliners, valued at $1.7 billion.

The Gurgaon-based airline also began an order contest that month between Boeing and Airbus for wide-body aircraft, indicating it plans to offer discounted long-distance flights to markets including Europe, Singh told Bloomberg TV on Sept. 7.

“Once local communities support seaplane operations and the benefits become visible, we may see seaplanes take off all over the vast Indian coastline,” Dubey said. “It’s a revolution waiting to happen.”

(Anurag Kotoky - Bloomberg News)

United Airlines Launches LAX - Singapore Nonstop Service

United Airlines has launched flights from its Los Angeles hub to Singapore – a 14,000km journey that takes 17 hours, 55 minutes on the outbound leg and 15 hours, 15 minutes on the way back.

The once-daily route is operated as "UA37" departing at 21:25 pst utilizing a Boeing 787-9 Dreamliner configured with 252 seats in a three-class layout (116 in Economy, 88 in Economy Plus and 48 in Business). The inaugural service took off on 27th October.

Singapore Airlines (SIA) stopped nonstop trans-pacific flights to Los Angeles in 2013 after deciding to retire its four-engine Airbus A340-500s. It halted nonstop trans-arctic flights from Singapore to New York at the same time, though both destinations are still served with stopovers.

The 13,600km San Francisco-Singapore route is already served once daily by both carriers, with United deploying a 787-9 and SIA using an A350-900.

SIA has disclosed plans to resume serving New York and Los Angeles nonstop in 2018, when it takes delivery of its first A350-900ULR – an ultra-long-range variant of the next-generation aircraft. SIA plans to configure that aircraft with 94 seats in Premium Economy and 68 in Business.

The previous record-holder for the longest flight from the US was Qantas, Australia’s flag-carrier, which flies 13,800km nonstop between Dallas and Sydney.

(Martin Rivers - Forbes)

Southwest mulls inter-island Hawaii flights

Southwest Airlines is giving “serious consideration” to operating inter-island flights in Hawaii, chairman and CEO Gary Kelly said.

Inter-island flying is one of the many issues being examined by Dallas-based Southwest as it prepares to launch service between the continental US and Hawaii next year, Kelly told analysts and reporters during the company’s third-quarter earnings call. Kelly said launching Hawaii service is the “big-ticket item” for Southwest in 2018.

The airline has not offered details of the service, other than it plans to start selling tickets next year. Kelly noted that Southwest internally is still working through “a lot of questions” about its planned Hawaii service, including exactly when it will start. “It feels like first quarter [2018] we might be in a position where we’re prepared to reveal details,” he said.

JP Morgan airline analyst Jamie Baker suggested during the earnings call that Southwest could use the Boeing 737 MAX 8 aircraft it will fly to Hawaii to operate flights between islands before flying back to the US mainland. “It looks to me like you’d have adequate time to do some inter-island turns,” Baker said.

“Yes, there’s nothing that would rule it out,” Kelly responded, adding that inter-island flying “is an item of interest that customers in Hawaii have and the state of Hawaii has.”

Kelly said Southwest executives are “intrigued” by inter-island flights. “Step one, of course, is getting from California to Hawaii but … we’ll have serious consideration for inter-island flights,” he said. “Even if we don’t do that initially, it’s something that we would obviously continue to consider over time.”

(Aaron Karp - ATWOnline News)

Hawaiian Holdings Stock Craters Again on the Latest Southwest Airlines News

Hawaiian Holdings Stock Performance data by YCharts.

Last December, shares of Hawaiian Holdings hit an all-time high above $60, up from less than $6 as recently as 2013.

Since then, the Hawaiian Airlines parent has delivered a string of solid earnings reports. Yet investors have become increasingly worried about an uptick in competition that's coming in 2018. United Continental will increase its capacity to Hawaii significantly starting just before the end of this year, while Southwest Airlines hopes to start flying to Hawaii next year. As a result, Hawaiian Holdings stock has been in freefall.

On Thursday, Hawaiian Holdings shares plunged another 6% -- this time over fears that Southwest will enter the Hawaii inter-island market in addition to flying between the West Coast and Hawaii. This sell-off represents a great buying opportunity for long-term investors.

Hawaiian Airlines has the tools to win in the West Coast market

As I have noted previously, investors are underestimating Hawaiian Airlines' ability to fight back and win in the face of rising competition in the West Coast-Hawaii market, which accounts for about half of its revenue.

First, Hawaiian Airlines will soon finish retrofitting the last of its A330s with lie-flat seats in first class. None of its competitors offer an equivalent luxury product on West Coast-Hawaii flights.

Second, by late 2018, more than 30% of the seats in Hawaiian's fleet for West Coast-Hawaii flights will be in first class or the extra-legroom economy section. By contrast, Southwest Airlines doesn't have a dedicated extra-legroom offering.

Third, Hawaiian Airlines' new A321neo fleet will allow the carrier to more precisely match capacity to demand in its West Coast markets.

Despite these tools, Hawaiian Airlines' unit revenue will surely decline on some routes as competition ramps up. That's just a natural part of the supply-demand balance. Nevertheless, Hawaiian Airlines should be able to continue earning solid margins in those markets.

An even bigger threat?

The reason behind the most recent swoon in Hawaiian Holdings stock was a question about inter-island service that came up on Southwest Airlines' earnings call.

Airline analyst Jamie Baker asked management if it would be feasible to operate inter-island flights in Hawaii. CEO Gary Kelly responded that there were no operational constraints that would prevent Southwest from doing so. Kelly went on to say that flying between the islands isn't a top priority, but is something the company would consider at some point.

Based on this exchange, it's clear that Southwest Airlines has no firm plans to fly inter-island routes in the near future. However, if Southwest did enter this market, that would represent a much bigger threat to Hawaiian Airlines than the carrier's upcoming launch in the West Coast-Hawaii market.

Whereas Hawaiian already faces robust competition on most of its West Coast routes, it has roughly 90% market share in Hawaii. Furthermore, Southwest's cost advantages are most potent on short-haul routes. That could set the stage for a powerful "Southwest Effect" -- big declines in fares accompanied by a surge in traffic -- within the inter-island market.

Hawaiian Airlines has time

Concerns about growth by United and Southwest in the West Coast-Hawaii market will probably turn out to be much ado about nothing. By contrast, the prospect of having Southwest Airlines enter the inter-island market is a legitimate threat to Hawaiian Airlines. The carrier hasn't faced a serious competitor in its home market since Aloha Airlines went out of business in early 2008.

That said, Hawaiian Holdings stock currently trades for just six times the company's estimated 2017 earnings. Investors are already pricing in a significant decline in Hawaiian's profit margin.

Furthermore, Hawaiian Airlines will have time to meet the threats it faces and adjust to them. It will probably take until late 2018 for Southwest Airlines to launch its first Hawaii flights, because of various regulatory hurdles. Starting an inter-island operation would have to wait until even later. And Southwest has numerous competing expansion opportunities, which will limit the pace of its growth in Hawaii.

Even in the inter-island market, Hawaiian Airlines would be in a strong position to respond to Southwest's growth. Most of its inter-island fleet of Boeing 717 jets will be fully paid off within two years. That will give Hawaiian the flexibility to protect its profitability by downsizing its inter-island operation or by replacing its 717s with newer jets to improve its cost structure if necessary.

In short, it's true that Hawaiian Airlines could face some profit pressure because of rising competition in the next few years. However, investors have overreacted to this threat. With Hawaiian Holdings stock trading at a bargain valuation, this could be a great time to buy.

(Adam Levine-Weinberg - The Motley Fool)

Air Berlin Bids Farewell After Four Decades And A Failed Gulf Marriage

Munich, Germany - October 27: A man stands in the open door of Air Berlin flight AB6210 before departing for Berlin at Munich International Airport on October 27, 2017 near Munich, Germany, and waves an Air Berlin flag. Flight AB6210 is the last Air Berlin flight to fly as the company ceases operations today following its recent bankruptcy. Lufthansa is taking over a large portion of the flights and EasyJet is in negotiations. The company began operating in 1979 as an American charter airline out of Cold War-era West Berlin. 
(Photo by Andreas Gebert/Getty Images)

Air Berlin has operated its final flight – a one-hour ten-minute hop from Munich to Berlin – after white-knight Etihad Airways withdrew its financial support in August and the German carrier was forced into insolvency.

Flight AB6210 departed Munich at 20:35 GMT on Friday 27th October, landing at Berlin’s Tegel Airport at 21:45 following a farewell tour over the city. About 1,600 staff members and aviation enthusiasts watched the airline’s final landing from a viewing platform, Reuters reports, while several hundred more staff welcomed passengers on the runway apron.

Social media users also commemorated the historic flight by posting memories of the 39-year-old company under the hashtags #ber4evr and #dankeairberlin.

Air Berlin was founded in 1978 by former Pam Am pilot Kim Lundgren. The US-registered company exploited Cold War-era rules that reserved flying rights from West Berlin for American, French and British carriers. Its initial focus on Spanish charter holidays paved the way for transatlantic expansion in the 1980s and scheduled flying in the 1990s – putting it on a collision course with Europe's emerging low-cost carriers.

Etihad, the state-owned flag-carrier of Abu Dhabi, came to its rescue as an investor in December 2011 after years of mounting losses.

But the Gulf carrier pulled the plug this summer, abandoning a non-organic growth strategy led by former chief executive James Hogan. As I reported in April 2016, Etihad's management were masking heavy losses at Group level through creative accountancy that incorporated sales revenue from overseas investments while turning a blind eye to concomitant losses.

That smokescreen collapsed in July, when Etihad admitted a $1.87 billion loss for 2016 and began offloading stakes in three European partners: Air Berlin, Alitalia and Darwin Airline. Strategy chief Hogan and finance chief James Rigney had already been dismissed by this stage.

Of the €3 billion ($3.5 billion) that Air Berlin has lost since its flotation in 2006, more than €2 billion was racked up after Etihad acquired its 29% stake.

Etihad’s focus on driving traffic through its Abu Dhabi hub distracted Air Berlin from more pressing existential threats during the partnership. Chief among the headwinds were rising competition from the new breed of low-cost carriers in Europe, and lingering inefficiencies from Air Berlin’s own airline-investment strategy. The German carrier had acquired stakes in Austria’s Niki, Germany’s LGW, Turkey’s Izair and Switzerland’s Belair.

Insolvency proceedings have so far seen Lufthansa, Germany’s flag-carrier, bid for 81 of Air Berlin’s 140 planes, including the entire fleets of Niki and LGW. If approved by competition regulators, the acquisition will pave the way for expansion of Eurowings, Lufthansa’s low-cost division.

Another low-cost carrier, EasyJet, has agreed to take over responsibility for 25 of Air Berlin's leased aircraft.

(Martin Rivers - Forbes)

Saturday, October 28, 2017

Former American CEO to airlines and passengers: Get real

If you think relationships with passengers and airline employees are becoming increasingly contentious, former American Airlines CEO Bob Crandall says don’t expect detente anytime soon.

There’s always been friction, but it’s been aggravated by airline cost-cutting pressures and unrealistic expectations by passengers, Crandall said in an interview Wednesday evening.

“We had a big campaign at one time: ‘You Are American Airlines,’ with campaign buttons trying to make the point to the flight attendant or the agent that, ‘Unless you do your job properly, people are not going to think well of the company.’

“Does that always work? No,” said Crandall, who at 81, lives with his wife, Jan, in Florida and Massachusetts and keeps busy doing “a lot of this and that.” By that he means serving as chairman and a director of Celestica Inc. and working with several companies including Gogo.Passengers feel they’re getting short shrift, Crandall said, but their frugality is largely to blame.

“Customers have insisted that the one thing that’s more valuable than anything else is the cheapest possible ticket. Well, if you want the cheapest possible ticket, you’re gonna have the smallest possible seat and the least possible facilities, because that’s how I get my costs down,” said Crandall, who still thinks like a CEO.

Bob Crandall, former CEO of American Airlines, left, and Doug Parker, CEO of American Airlines converse at the SMU Cox School of Business Crum Auditorium, photographed on Wednesday, October 25, 2017.
(Louis DeLuca - Staff Photographer / The Dallas Morning News) 
It’s time for the major carriers to get real, too, he said.

“The big airlines, in their own interests, should simply decline to compete with the very lowball guys who want to carry people for $29. They should say, ‘To hell with that. Go ride with them.’ But there’s only so much business you can afford not to take,” he said.

“So as long as the customer continues to prove by his or her own actions that they’re always going to buy the cheapest ticket, they’re always going to get a crappy service. That’s the way it is. Nothing’s going to be done about it.”

Gotta love a guy who doesn’t mince words.
(Cheryl Hall - The Dallas Morning News)

This airline CEO is challenging Airbus and Boeing to step up their game


Qantas CEO Alan Joyce oversaw the airline's return to profitability with record profits in 2016 and 2017.

In August, Joyce challenged Airbus and Boeing to develop a new ultra-long-range jet to connect Australia with Europe and North America.

For now, Joyce sees the new Boeing 787 Dreamliner as a catalyst for future growth, but there's still a role for the A380.

Qantas is not looking to replace it regional fleet at the moment but it is observing the market.

Joyce believes his airline's sterling safety record can be attributed to its willingness to put safety before money.


Qantas Group CEO Alan Joyce is one of the most accomplished and controversial airline chief executives in the business. Since taking over the top job at Qantas in 2008, the charismatic Irishman has been the catalyst behind the Australian national carrier's return to profitability.

In 2016, Qantas Group reported a profit of more than $1.2 billion, the highest in the company's 97-year history. In 2017, Qantas followed up with the second most profitable year in company history, reporting more than $1 billion in profits.

This marked a drastic turnaround from just a few years earlier in 2014 when Qantas lost more than $2.8 billion.

What followed was drastic series of restructuring measures instituted by Joyce and his team. This included splitting up Qantas' domestic and international business as well as a reduction in staff, and capacity. Low oil prices also helped the turnaround along.

In August, Joyce and Qantas issued a challenge to Airbus and Boeing called Project Sunrise. The initiative asked the two aviation giants to develop a special ultra-long distance airliner by 2022. One that will be capable of not only flying non-stop between its hubs in the Southeast of Australia and destinations such as London, Paris, and New York but do so profitably with a full payload.

If successful, Qantas could cut the travel time to New York by up three hours and travel to London by as much as four hours.

Recently, Joyce sat down with Business Insider on board his airline's first Boeing 787-9 Dreamliner. The conversation touched upon Qantas' new fleet of Dreamliners, the future of its Airbus A380, Qantas' interest in the Bombardier C Series, and the airline's safety record.

The Boeing 787-9 Dreamliner versus the Airbus A380

"One of the big advantages of the Dreamliner is that it gives us a range of destinations we couldn't have done before," Joyce said. "It gives you better economics because it's 20% more fuel efficient and with a lot lower maintenance cost given the new technology. That means there are routes we could have done before with distance, but couldn't do economically that now come onto the radar screen."

"For Qantas, it also starts overcoming the tyranny of distance we have," Joyce added.

And the differences in economics between the Dreamliner and Qantas' previous flagship, the Airbus A380 Superjumbo are stark.

According to Joyce, he can fly two 236-seat Dreamliners for less than the cost of a single 486-seat A380, which entered the Qantas fleet in 2008.

"If we were to fly two 787s tail-to-tail, the per-seat cost would be less than the A380," the Qantas CEO said.

And the Dreamliner's lower operating cost goes beyond its fuel-sipping demeanor; itself an important attribute due to the fact that long-haul flights are far more sensitive to fuel efficiency.

"Obviously the maintenance and fuel costs are good on the 787, but we also have a deal with our pilots to give ourselves 30% more productivity on the airplane," Joyce said. "It's the same deal with the cabin crews and our engineers. That means the economics are a lot better than the A380."

Joyce believes the Dreamliner offers the airline more flexibility and lower financial risk especially on routes with inconsistent or seasonal demand.

The future of the Superjumbo

However, that doesn't mean the A380 is no longer useful.

"The A380 still has a role on airports that have slot restrictions (where you can't add a second flight) or where the scheduling windows work for (a single flight) like out of Los Angeles," he said.

In addition, the A380 could be used to get more people in and out of airports in China and Japan that are becoming more and more congested.

With that said don't expect Qantas to order any more of the Airbus double deckers.

"We still see a need for our 12 A380s, but the 787 is certainly the growth vehicle in the future," Joyce said.

"I think at the moment, we can see the economic benefits of the 787 on certain routes over the A380 and this is with low fuel prices," he explained. "Four-engine aircraft become very expensive during high fuel price periods. You find people moving to twin-engine jets all the time because that really benefits the economics."

"So I think, at the moment, nobody is ordering more of the A380s. The people that have them like the aircraft and we do, but we have 12 of them and we don't need anymore," the Qantas CEO said.

The Bombardier C Series potential

Qantas is one of the few operators of the of the 717-200, the last 100-seat jet produced by Boeing. However, that plane went out of production more than a decade ago. So with Airbus' equity acquisition of the next generation Bombardier C Series program, we were curious whether Qantas would be interested. The answer: Maybe in the future, but not now.

The Boeing 717-200 is one of the mainstays of the Qantas regional fleet.

"They're brilliant aircraft. Anyone who has them wants more of them," Joyce said of the Boeing. "We also have Fokker F100s we use on low-utilization routes. So we're not in any rush to replace either of those fleets. They're going to have some time before it goes there. "

Qantas is, however, watching the market.

"But we are keen observers of what's happening," he added. "The C Series is a potential replacement, but there are also other vehicles out there. Embraer has something and Mitsubishi are developing an airplane that can potentially get there. So we don't have to make a call today, but we like there's competition in that space."

Qantas' safety record

Even for those who are casually acquainted with the Qantas brand, one thing stands above all else and that's safety. To many Qantas is like the Volvo of airlines. After all, no two brands in the world have done a better job at selling safety to its customers.

For Qantas, its reputation is built on the fact that the airline hasn't lost a plane in the jet age; as Dustin Hoffman's character so emphatically reminded Tom Cruise and moviegoers in the 1988 film "Rain Man."

Joyce believes the airline's reputation for safety is ingrained into the company's DNA.

"It is top of mind in everything that we do from the management down to the engineers, pilots, and cabin crew," he told us.

When he holds management meetings, the first thing the team will go over is every single safety issue that has come up since the last time they met.

Another contributing factor is Qantas' willingness to put safety above money.

"I can see in our history that we have made decisions that cost us a lot of money, but from the safety point of view were absolutely the right thing to do," Joyce added.

In 2010, a Roll-Royce engine powering a fully-loaded Airbus A380 exploded shortly after departing Singapore. Qantas grounded its entire flagship A380 fleet.

"We grounded the aircraft and it cost us a couple of hundred million dollars because we were convinced it wasn't safe to operate until Rolls-Royce figured out what the problem was and there was a fix for it," Joyce said. "Safety is so important to us, it's top of mind, it's part of our brand, it's part of our obligation to the traveling public, and we regard it so seriously that we would never compromise on that.

(Benjamin Zhang - Business Insider)

Boeing Has a Secret Weapon for Competing With the Airbus A321

When Boeing launched the 737 MAX 10 earlier this year, many aerospace pundits panned it as a poor man's Airbus A321. Nevertheless, the 737 MAX 10 won hundreds of orders and commitments at the 2017 Paris Air Show, including an important order conversion from U.S. airline giant United Continental.


In fact, Boeing has a secret weapon that has helped it win all of United's new narrow-body aircraft orders recently: a "most-favored customer clause" granted by Airbus to American Airlines. This clause could give Boeing a huge advantage in competing for an upcoming aircraft order from Delta Air Lines.

The origin of this secret weapon

Back in 2011, Airbus scored a major coup when American Airlines ordered 260 A320-family jets, after years as an all-Boeing airline. Indeed, it was this impending order that forced Boeing to create the 737 MAX to hang on to a portion of American's business.

American Airlines' then-parent AMR was in financial distress at the time, which limited its bargaining power. As a result, while Airbus offered the company substantial help in financing the deal, it didn't need to provide as big a discount as would be typical for an order of that size.

However, there was one catch: a most-favored customer clause. According to Scott Kirby -- who is currently the president of United Continental, but held the same role at American Airlines until August 2016 -- Airbus agreed that if it gave another airline more favorable pricing, it would refund the difference to American Airlines. This is limiting Airbus' ability to match the pricing that Boeing can offer to key customers.

The details are murky

At an employee meeting earlier this month, Kirby indicated that while United is interested in buying narrow-body planes from Airbus, the latter can't provide a competitive price right now. That's why United has 161 orders for the 737 MAX family and none for the A320neo family.

Some aerospace analysts were puzzled by this statement. After all, Airbus has sold thousands of A320neo family planes since announcing the American Airlines deal. It has also sold over 100 A321s to Delta Air Lines (American's other main rival) at bargain prices. Furthermore, it seems odd that Airbus would have agreed to terms that might seriously impair its sales efforts.

One possibility is that the most-favored customer clause only applies to new-engine aircraft rather than the current-generation planes that Delta has bought recently. It also could apply only to U.S. carriers -- and perhaps even just U.S. legacy carriers. The one detail that Kirby confirmed is that the most-favored customer clause expires eventually. (He didn't say when.)

This is a huge advantage for Boeing

To the extent that the most-favored customer clause is applicable, it's a big stumbling block for Airbus. Of course, Airbus could always just give another customer whatever discount is needed to close the deal and pay American the refund it would be entitled to. However, this could severely damage its profitability.

For example, suppose Boeing and Airbus are competing for a 100-plane order and Boeing offers a price that would allow it (or Airbus) to make a $5 million profit per plane. Let's also suppose that this price is $5 million less than the pricing Airbus had offered American Airlines on its outstanding deal for 100 A320neo-family planes. If Airbus were to match Boeing's price, the $5 million per-plane profit it would make from the new deal would be completely offset by having to give American an additional $5 million discount on each of the 100 planes it has on order.


Given that the Airbus and Boeing narrow-body families are both sold out for years, there's no incentive for Airbus to sign any deal that would trigger refunds to American Airlines.

A mystery solved?

Boeing has feuded with Delta Air Lines repeatedly in recent years. In 2015, Delta's management took great pains to highlight falling resale values for Boeing 777 jets. In 2016, Delta canceled an order for 18 Dreamliners. During the past year, Boeing has been working to block a deal for Delta to acquire 75 CS100 aircraft from Bombardier. And over the past three years, Delta has orchestrated a campaign to limit the expansion of Emirates, Qatar Airways, and Etihad Airways -- three of Boeing's most valuable customers.

In light of this acrimony, many pundits have assumed that Delta has no interest in doing business with Boeing right now. This isn't just a theoretical issue: Delta hopes to order about 75 next-generation narrow-body planes within the next few months.

However, Delta's management has consistently maintained that its various disputes with Boeing don't affect the likelihood that it will order planes from the U.S. aerospace giant. Now, we may know why. Delta Air Lines has a reputation for being very savvy about getting the best deal possible. There's a good chance that Boeing will win this competition by offering a price for its 737 MAX that Airbus won't be able to match.

(Adam Levine-Weinberg - The Motley Fool)