Airline Business July 2013

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STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE ightglobal.com/ab
CHINA How Beijings new airport
will redraw the battle lines
GREEN SKIES Why airlines
must not delay investment
IT TRENDS Annual survey
shows spend is up again
INTERVIEW
BJRN
KJOS
His bold bid to
go the distance
with Norwegian
JULY 2013
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CONTENTS
fightglobal.com/ab July 2013
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Airline Business
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5
VOLUME 29 NUMBER 7
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STRATEGY FOR AIRLINE BOAROROOMS WORLOWIOE hightg|oba|.comlab
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GREEN SKlES Wh, s|r||nes
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JULY ED1S
HOW TO CONTACT US
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SPANISH PAIN
page 18
SHOWING APPLICATION
page 28
HOT TICKETS
page 36
AB INTERACTIVE
6 IATAs African adventure
BRIEFING
INTERNATIONAL
8 IATA Cape Town annual general meeting round-up
10 Airlines lift 2013 proft forecast
12 Industry titans clash on demand for ultra-large aircraft
AMERICAS
14 United keeps a lid on capacity growth
EUROPE
15 Turkish chief to remain at helm of expanding carrier
15 Air Berlin reshapes network to streamline operations
ASIA
16 AirAsia Japan parents may separate
AFRICA
17 AFRAA and IATA in drive to promote African safety
17 SA Express plans spin-offs beyond South Africa
SPECIAL REPORT
IT TRENDS
28 Growing IT A snapshot of the key fndings from the
Airline Business/SITA Airline IT Trends Survey
32 Heart of the issue Why IT departments are
being integrated into the centre of the airline
business structure
36 Hottest tickets in town Airlines have increasing
ways to ensure their seats and products are the most
in demand
39 Now its personal SITA chairman Paul Coby
looks at the lessons to be learnt from retail in
customising offers
FEATURES
FOCUS
40 Beijing airports How a new airport for Chinas
second city could redraw the map for airlines
44 Biofuels Airlines must invest in alternative fuel
production to truly make a difference
REGULARS
46 Market outlook Structural change needed for
improved performance in BRIC economies
49 Feedback Single solution
51 Feedback Nonstop service
52 Executives on the move
COMMENT
54 Is big still beautiful?
COVER STORY
20 Viking raider
Norwegians chief Bjrn Kjos follows
his European campaign with forays
into the long-haul market to Asia
and North America
Airline Business is published monthly by
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INTERNATIONAL
BPA
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page 40
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Self-funding programs
New revenue streams
Competitive market intelligence
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AIRLINE BUSINESS INTERACTIVE
6
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Airline Business
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July 2013
DOWNLOAD
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ightglobal.com/iLowCost13 or ightglobal.com/BottomLine
C
hief executives from the
worlds major airlines
gathered in Cape Town for
the 2013 IATA AGM in June.
The usual suspects made the
headlines this year, including
IATAs New Distribution Capabili-
ty, safety and the environment.
With regard to the latter, members
endorsed a key resolution present-
ing a single voice ahead of ICAOs
The AGMs CEO panel saw some lively debate, as usual
B
illy
P
ix
crucial assembly later this year. As
usual, the Airline Business team
was out in force, gathering all the
news and producing three daily
papers alongside a stream of on-
line news from the event.
Catch up with all the happen-
ings at this years AGM and
download the digital issues of
Airline Business Daily at:
ightglobal.com/IATA13
DAILY
SUNOAY J E JUNE ED1S
S
U
N
D
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3
INSIDE THIS ISSUE
Airbus closes in on A350 frst fight 3 IATA chairman Joyce on shifting landscape 6 Tyler outlines his Cape Town agenda 8 Why the pain still rains on Spain 14
IATA bids to change perceptions of NDC 18 The big challenge facing SAAs new boss 24 Big strides tackling African safety record 28 Taking the pulse of the industry 33 IATA Airline Business Daily is available online at: ightglobal.com/iata13
NEWS FR0M THE SSTH AGM, CAPE T0WN, S0UTH AFRlCA
Cape Crusader
IATAs touchdown in Cape Town marks its first AGM in Africa for two decades and director general Tony Tyler is leading the associations charge to help the continents airlines realise the regions huge growth potential. The Economist a few years ago referred to Africa, the lost continent, but now everyones talking about Africa, the future continent. The economies in Africa are really starting to go well and everyones excited about the growth potential of this continent, he says.
But improving the regions aviation safety standards must be a key priority if the airlines are to achieve their growth ambitions, he says. The fact of the matter is that African aviation can be right up there with world standards. But theres a lot of work to be done to make that happen. Tyler says the AGM provides a great opportunity to push forward and build the momentum in the complex process needed to achieve this. Full story page 8
IDN_020613_001 1
3 IATA chairman Joyce on shifting landscape 6 Tyler outlines his Cape Town agenda 8 Why the pain st
IATA bids to change perceptions of NDC 18 The big challenge facing SAA agenda 8 Why the pain stil
18
hallenge facing SAA
DAILY
OA J S JE ED1S
IATA Airline Business Daily is available online at: ightglobal.com/iata13
M
0
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Cocktail reception in pictures 5

Asia pain as freight recovery fails to take off 6
CSeries and A350 frst fights near 12
Low-cost takes steps in Africa 14
The IATA board line-up 16
IATAs retiring safety guru 20
African airlines alliance analysis 22
The Dreamliners return to fght 31
Franz: Lufthansa not pushed
into a commercial relationship
INSIDE THIS ISSUE
IATA is demonstrating how it can offer consumers transparency, more information and a greater choice of fares
with its New Distribution Capability here in Cape Town.
IATA head of business development passenger Yanik Hoyles says the demonstrator on display at the annual
general meeting shows what software companies, travel agents and travel management companies may be able
to do under the new standard.
A key feature on show is how a customer can access more information about seat types, in-fight amenities
and other parts of the passenger experience during the booking process. That includes the possibility of being
able to sort and choose fares based on the amenities on offer, while also allowing passengers to add on addition-
al products, such as in-fight wi-f, as part of the same process.
Its about transparency, choice and information for the consumer, says Hoyles. The more information you
give to customers, the more choice they have.
I can NDC clearly now
L
uIllansa las hoon ovaIualIng
vlolloi lo ailnoi vIll a GuII
aIiIIno, anu clIoI oxoculIvo CliIs-
lol Iianz las IoIl llo uooi oon
lo a ossIhIo Iuluio lIo-u.
As Luioo`s nolvoil caiiIois jos-
lIo Ioi osIlIon In llo clangIng
voiIu oiuoi, llo Goiman caiiIoi
nov slanus aIono as llo ono vIll-
oul any lIos lo llo hIg llioo GuII
caiiIois. AIi Iianco-KLM las
sIgnou a commoicIaI ailnoislI
vIll LlIlau AIivays, vlIIo Ono-
voiIu-hounu Qalai AIivays vIII
ailnoi vIll BiIlIsl AIivayslIhoiIa
aionl InloinalIonaI AIiIInos Giou
vlon Il joIns llo aIIIanco Ialoi llIs
yoai. LuIllansa cuiionlIy las no
IInl vIll any oI llo GuII caiiIois on
llo aIiIIno sIuo oI Ils husInoss.
Wo aio caioIuIIy ohsoivIng
lov llo voiIu Is movIng Ioivaiu
anu slaio llo vIov llal llo oIu
oicolIon llal llo GuII caiiIois
uovoIoIng lloIi nolvoil oxcIu-
sIvoIy on lloIi ovn Is mouIIyIng,
Lufthansa
keeps options
open on Gulf
carrier tie-up
Continued on page 3
2/6/13 18:41:43
Cocktail reception in pictures 5
ht recovery fails to take off 6
12
The IATA board line-up 16
IATAs retiring safety guru 20
African airlines alliance analysis 22
Dreamliners return to fght 31
INSIDE THIS ISSUE
DAILY TUESOAY J 4 JUNE ED1S

T
U
E
S
D
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IATA unveiled an improved industry outlook for 2013. But while a collective profit of $12.7 billion may sound a lot, director general Tony Tyler illustrated just how small airline margins are.
Last year airlines made about $2.50 for every passenger travelled thats about the price of a coffee. This year we might make $4 less than the cost of a sandwich in most places, he says. This is a tough industry.
See page 3 for full story
I
ATA momhois sIgnaIIou lloIi Inlonl nol lo
Ioso liaclIon In socuiIng a gIohaI uoaI Ioi avI-
alIon omIssIons hy onuoisIng a iosoIulIon io-
sonlIng a sIngIo voIco lo govoinmonls aloau oI
ICAO`s ciucIaI assomhIy Ialoi llIs yoai.
AII oyos aio on vlolloi govoinmonls can
ioacl a gIohaI uoaI on laclIIng omIssIons al
llo ICAO moolIng, aIloi llo Luiooan Com-
mIssIon agioou lo slo llo cIocl anu lom-
oiaiIIy susonu llo InloiconlInonlaI oIo-
monl oI Ils conliovoisIaI omIssIons liauIng
syslom. WIll so mucl iIuIng on sliIlIng a gIo-
haI uoaI In llIs vInuov, IATA uoIogalos
sliossou llo Imoilanco oI lalIng IoauoislI.
II vo uo nol gIvo guIuanco as an Inuus-
liy, llo IIloIIloou oI ICAO comIng lo a soIu-
lIon Is a lIny ono, vainou LuIllansa clIoI
oxoculIvo CliIslol Iianz uuiIng llo AGM
uohalo on llo Issuo. AIiIInos. lavo como logolloi lo iocom-
monu lo govoinmonls llo auolIon oI a sIngIo
mailol-hasou moclanIsm Ioi avIalIon anu
iovIuo suggoslIons on lov Il mIgll ho a-
IIou lo InuIvIuuaI caiiIois. Nov llo haII Is In
llo couil oI govoinmonls, auus IATA uIioc-
loi gonoiaI Tony TyIoi. TlIs Inuusliy agioo-
monl slouIu loI lo ioIIovo llo oIIlIcaI giIu-
Iocl on llIs Imoilanl Issuo anu gIvo
govoinmonls momonlum anu a sol oI looIs as
lloy conlInuo lloIi uIILcuIl uoIIhoialIons.
Emissions possible in Cape Town
IATA Airline Business Daily is available online at: ightglobal.com/iata13
#IATAagm
Airline chiefs fuel debate at AGM 5
American on track to seal merger in Q3 6
Air Berlin restructuring takes shape 9
Why passengers are the new smokers 10
Big jet demand under the spotlight 12
Oneworld begins rapid expansion 16
The new world order in the USA
25
Whats next for southern Africas carriers 28

INSIDE THIS ISSUE
No picnic
Tlo iosoIulIon iovIuos g a sol oI iIncIIos oI lov llo iocouuios Ioi a sIngIo mailo anu lov lo Inlogialo a sIngIo ail oI an ovoiaII aclago aclIovo llo ImIo
IDN_040613_001 1
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fightglobal.com/ab 8
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Airline Business
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July 2013
BRIEFING INTERNATIONAL
Legacy carriers ponder
Gulf tie-ups with caution
MAX KINGSLEY-JONES CAPE TOWN
As more network players manoeuvre to secure partnerships, Lufthansa is carefully
examining whether to follow the crowd while American/Oneworld says nothing is ruled out
W
hile much has changed
since airline leaders met at
the IATA AGM in Beijing a year
ago, probably nothing has been
more signicant than the way the
previously lukewarm network
carriers have embraced the Gulf
mega-carriers.
Emirates landmark co-opera-
tion deal with Qantas put the ball
in motion when they struck a
ground-breaking alliance in Sep-
tember 2012. That was one of a
series of changes which led to
Qatar Airways being accepted into
Oneworld and Etihad partnering
with formerly vocal critics Air
France-KLM and Air Canada. If
you cannot beat them, join them
seems to be the order of the day.
As Europes network carriers
jostle for position in the changing
world order, Lufthansa now stands
alone as having no link with one of
the big three Gulf carriers.
We are carefully observing
how the world is moving forward
France-KLM and Qatar/One-
world developments that oc-
curred in late 2012, Lufthansa
had a calm look at its own posi-
tion with regard to the Gulf play-
ers, says Franz. We did not feel
we had to act immediately.
Likewise, Oneworld chairman
and American Airlines president
Tom Horton also has an open
mind on Emirates. While One-
world member Qantass partner-
ship with the carrier has been
concluded outside of alliance,
Horton says nothing is off the
table with regards to a potential
tie-up between Oneworld and
the unaligned Dubai carrier.
We at American and Oneworld
are in constant talks with airlines
around the world and well pursue
ones that make sense to Oneworld
members, says Horton.
He adds that the tie-up was
Qantass decision. They had a
very unique challenge that they
had to resolve.
Franz: never say never to Gulf link
I
ATA will bring its annual gen-
eral meeting to Doha in 2014,
after announcing Qatar Airways
will host the event.
It will be the fourth time the
AGM has been held in the Middle
East, but the rst since 1997s
meeting in Jordanian capital
Amman. Plans to hold the 2011
event in Cairo ended with the Arab
Spring political disturbances.
Qatar Airways has been an in-
creasingly prominent player at
IATA, arguing strongly in 2011 for
greater board transparency ahead
of much of the restructuring of its
governance subsequently carried
out by director general Tony Tyler.
The airlines out-spoken chief
executive Akbar Al Baker has
served on the IATA board of gover-
nors since 2012.
Carriers hope the
emissions problem
can be resolved at
an international level
and share the view that the old
perception that the Gulf carriers
developing their network exclu-
sively on their own is modify-
ing, says Lufthansa chief execu-
tive Christoph Franz.
When it comes to an airline-to-
airline relationship, we are not
pushed into some kind of com-
mercial relationship at this mo-
ment. Maybe this is changing in
the future and it would not be wise
for Lufthansa to say not now and
never in the future, he adds.
In light of the Etihad/Air
Doha to host
AGM in 2014
NDC will not bypass
agents: Tyler
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Airline Business
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9
IATA delivered on one of its
central aims at the AGM:
agreeing on a resolution
presenting a unifed voice from
the sector to governments
ahead of the ICAOs crunch
assembly in September.
In endorsing a resolution on
aviations carbon-neutral growth
post-2020 at the AGM, IATA
members signalled their intent
not to lose traction in attempts
to secure a global deal for
aviation emissions.
All eyes are on whether
governments can reach a global
deal on tackling emissions at
the ICAO meeting, after the
European Commission agreed
to stop the clock and
temporarily suspend the
intercontinental element of its
controversial emissions trading
system. With so much riding on
striking a global deal in this
window, IATA delegates
stressed the importance of
taking leadership.
If we do not give guidance
as an industry, the likelihood of
ICAO coming to a solution is a
tiny one, warned Lufthansa
chief executive Christoph Franz
during the AGM debate on the
issue.
IAG chief executive Willie
Walsh added: Its vital this
AGM sends a message... that
we are determined to play our
part in sharing a solution to this
global problem.
The resolution covers
emissions growth post-2020
and includes a series of
principles which recognise early
moves, accommodates
fast-growing carriers and
market entrants in their initial
years of operation as well as
adopts an equitable balance for
determining individual carrier
responsibilities. Fundamentally,
the aim is to provide a common
voice from the sector to help
inform governments ahead of
the ICAO meeting.
For governments, fnding
agreement on market-based
mechanisms [MBMs] will not
be easy, says IATA director
general Tony Tyler. It was
diffcult enough for the airlines,
given the potential fnancial
implications. Bridging the very
different circumstances of fast
growing airlines in emerging
markets and those in more
mature markets required a
fexible approach and mutual
understanding. But
sustainability is aviations
license to grow.
With that understanding
and a frm focus on the future,
airlines found an historic
agreement. This industry
agreement should help to
relieve the political gridlock on
this important issue and give
governments momentum and
a set of tools as they continue
their diffcult deliberations,
he says.
See P44 for latest on biofuels
Airlines agree on one voice for global issues
GRAHAM DUNN CAPE TOWN
IATAs NDC ambitions
take big stride forward
A
mong various initiatives
being developed by IATA, the
one grabbing the most headlines
and which it was keenest to
address during the AGM was its
efforts to shake up the global dis-
tribution system sector.
IATAs New Distribution Capa-
bility (NDC) has been designed to
decommoditise airlines product
offerings and has been the topic
of much debate since director
general Tony Tyler outlined plans
for the new standard in his 2012
AGM speech in Beijing.
IATA used the AGM to host a
demonstration of the technology.
This isnt a product IATA will be
selling. Its an example of what
will be possible once these stand-
ards are developed and in use by
every airline, says Tyler.
The DG has been encouraged
by the qualied support IATA
has from some GDSs, but also
used the AGM to address some
criticisms of the initiative.
Frankly, some of our oppo-
nents are not telling the truth,
said Tyler in his AGM address.
NDC will not contravene priva-
cy laws. Nothing in the NDC
standard requires passengers to
supply personal information to
receive an offer. But it does pro-
vide the opportunity for custom-
ers to identify themselves if
they so choose to have their loy-
alty recognised by the airlines.
NDC will not bypass travel
agents. It will enable them to sell
all of what airlines have on offer.
And, NDC will not eliminate
comparison shopping. It will give
customers better information on
which to make decisions.
During the AGM, airlines reaf-
rmed their support for the NDC
initiative by endorsing a resolu-
tion outlining the aims of the
IATA project.
See P36 for more NDC analysis
Frankly, some
of our opponents
are not telling
the truth
P
ic
t
u
r
e
s
:

B
illy
P
ix
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Airline Business
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July 2013
Proting from change
GRAHAM DUNN CAPE TOWN
Another raised industry outlook sees hope turning to conviction for sustained improvement
transforming their businesses.
Amid high aircraft delivery lev-
els, airlines have managed capac-
ity well enough to ensure aircraft
have never been fuller. IATA esti-
mates load factors will top 80%
for the rst time in 2012 at 80.3%
as trafc growth of 5.3% will out-
pace the extra 4.3% capacity
added to the market this year.
Executives at US carriers now
seen as almost the most protable
after IATA lifted its prots forecast
for the region by another $800 mil-
lion to $4.4 billion have encour-
aged many by putting a renewed
focus on returns. IAG chief Willie
Walsh noted these comments in
the airline groups recent results,
describing capacity discipline on
the transatlantic market as one of
the most positive features weve
seen in the last 24 months.
Tyler also highlights the
increased role of ancillary reve-
nues, which have moved from a
fraction of total revenue in 2007 to
about 5% today. We expect that
gure to grow signicantly again
this year, says Tyler. While a por-
tion of this reects revenue moved
out of the ticket price via unbun-
dling, it also represents where air-
lines are innovating and creating
new revenue streams.
IATA now sees revenues rising
to $711 billion in 2013 as passen-
ger numbers will top 3 billion for
the rst time. Business travel has
been one of the success stories
and I think that reects the emerg-
ing markets success in expanding
trade, says Pearce.
He also sees little sign of slow-
ing economic growth in China
impacting on travel demand.
Clearly the economics matter,
but frankly we have not seen any
sign of that [weakening demand]
in the domestic travel market.
Consumers still seem to want to
be travelling more, he says.
The sector which has affected
Asia carriers most is cargo, where
airlines are more exposed than
most. IATA was relatively less
optimistic over Asia-Pacic lift-
ing its forecast only $400 million
to $4.6 billion. While North Amer-
ican carriers are expected to make
the same money this year as they
did in 2010, Asian carriers will
make less than half the $11 billion
prot they generated that year.
Air cargo, despite a couple of
false dawns, has failed to recover.
Association of Asia Pacic Air-
lines director general Andrew
Herdman says the cargo market
has been stagnant for nearly three
years and an expected 2012
recovery failed to materialise.
2011-12 has been moribund and
that has taken everyone by sur-
prise, he says.
Pearce notes there are renewed
signs of increased business con-
dence, but it is too early to say if
that will prove sustainable or
another false dawn. We think this
year will be a better year, but not
quite as good as 2010, concludes
Pearce. Given the last 15 years,
that historically is not a bad per-
formance. But, as Tyler reminds:
It is still a very tough business.
B
illy
P
ix
I
f the mood was not exactly jubi-
lant in Cape Town, there was
certainly a feeling that for all the
economic challenges thrown
their way, airlines are faring
pretty well.
IATAs latest outlook raised its
forecast from March by another
$2 billion to $12.7 billion, the
fourth consecutive positive revi-
sion in its quarterly forecasts.
While director general Tony
Tyler points out these improve-
ments will still only take its prof-
its per passenger from the price of
a coffee to almost that of a sand-
wich $2.50 to $4 it is, by the
industrys poor returns track
record, a relatively positive result.
A $12.7 billion surplus would
mark only the third time collec-
tive prots have topped $10 bil-
lion in the past 15 years.
Some easing in conditions has
helped. A further fall in the cost
of oil the barrel price of Brent
Crude oil is now expected to aver-
age $108 for the year rather than
the near $112 of 2012 is helping
on its biggest costs pressure.
We are looking at some
decline, says IATA chief econo-
mist Brian Pearce. Some of the
factors behind that are we are
seeing increasing supply from
North America, while economic
growth is not as strong, so there
is some softness. Yet this is far
from the benign fuel price level
of the past, while economic
growth historically the key
driver of nancial performance
remains sluggish.
FINANCIAL BACKING
Pearce notes airlines have been
backed on the nancial markets
their share performance has been
outperforming the equity market
and increased business con-
dence evident in IATAs latest sur-
vey of airline chief nancial ofc-
ers. Thats pretty interesting
because if you look at the general
economic conditions, it still looks
pretty difcult, he says.
At the heart of the more opti-
mistic outlook is growing indus-
try condence that airlines are
Compare IATAs latest forecast
to that it gave in March at:
ightglobal.com/
marchforecast
Herdman: Moribund 2011-12
cargo market surprised everyone
ON THE UP
Prot forecast for
2013 lifted $2.1
billion from IATAs
March outlook
AMERICAN WAY
Forecast for regions
carriers up another
$800 million as
prots strengthen
$4.4bn
CABINS FILLING
Passenger load
factor set to top the
80% mark for the
rst time in 2013
SOURCE: IATA June forecast
0
1
2
3
4
5
$

b
i
l
l
i
o
n
North America Asia
Europe Middle East
Africa Latin America
PROFIT FORECAST BY REGION
80.3%
OIL SLIPS
Further fall in average
Brent crude oil barrel
price offers easing
of cost pain
$108
$12.7bn
Given the last 15
years, that $12.7
billion prot
historically is not a
bad performance
BRIAN PEARCE
Chief economist, IATA
www.boeing.com/boeingedge/materialservices
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|
Airline Business
|
July 2013
MAX KINGSLEY-JONES & DAVID KAMINSKI-MORROW CAPE TOWN
Despite sluggish sales, heavyweights remain faithful to their ultra-large types but still differ strongly on long-term demand view
Theres a lot of demand for
the A380, Leahy says. The big-
ger the aircraft, the longer the
sales campaign takes.
John Wojick, Boeings senior
vice-president for global sales,
says that while the US manufac-
turers view is that the 747-8/
A380 market is not huge, it will
continue to compete with its 747
derivative for at least another 10
years. Were committed to both
the 747-8I and -8F well into the
next decade, and youll see more
success in the coming months for
both versions, he says.
As competition around the
world continues to evolve, you
see hubs emerging in many dif-
ferent locations. That dynamic is
going to continue to evolve all
over the world and drives our
20-year forecast, which says yes,
there is demand for large aircraft
but its not as large as our com-
petitors forecast, he adds.
When you divide [Boeings
760 aircraft forecast], it is about
four airplanes a month. Were
building two 747s a month and
we think that is a sustainable
market in this size category.
Leahy insists that carriers will
need to turn to larger aircraft to
handle climbing passenger num-
bers at slot-constrained airports.
Airbus missed its 2012 A380
sales target of 30 aircraft by some
margin, securing just nine orders
and Leahy accepted that the
noise around the wing-crack
issue had hampered short-term
sales efforts. He said in Septem-
ber last year, Whenever you
have an issue like that it slows
down discussions. People who
are thinking about buying it say
they want the aircraft coming off
the line with the new wing.
Wing cracks are probably not
to blame for the lack of an Ameri-
can customer for the A380. Leahy
expects this to rectied, pointing
out that US passengers have been
exposed to the aircraft through
foreign operators. He adds that
US carriers will need the aircraft
if they want to be competitive,
especially on the Pacic.
However, Boeing maintains
that the drivers it says are reden-
ing the shape of airliner demand
are evidence of why the US mar-
ket has been moribund for the big
Airbus. Wojick points to the US
markets multiple hub system as
preventing Airbus from securing
a customer for the passenger
A380 variant there. Why are
there no A380 operators in the
USA? Because there are so many
multiple hubs. You can connect
passengers from anywhere in the
USA over probably 10 different
hubs to most international desti-
nations, he says.
The one certainty is that this
long-running row about the true
demand for large aircraft shows
no sign of abating.
Airbuss 20-year
market forecast for
ultra-large aircraft
1,710
stopped Boeings sales chief from
proclaiming (correctly, if some-
what disingenuously, given the
longer-term comparison), that the
747 is currently outselling the
A380. To 31 May, Boeing had
landed three new 747 orders in
2013 (all freighters for Cathay Pa-
cic), against zero for the A380.
Cancellations and deferrals
are probably to blame for Airbus
having some open delivery slots
in 2015, but Airbus sales chief
John Leahy insists that this avail-
ability is not evidence of a weak-
ening appetite for the type. He
maintains his target of 25 orders
this year, as Airbus embarks on a
new advertising campaign for
the aircraft.
To read an analysis on the
airline industrys appetite for
Boeings 747-8 visit:
ightglobal.com/747-8sales
Airbuss John Leahy is sticking to his sales target of 25 A380s this year
SOURCE: Flightglobal/manufacturer data
A380/747 GROSS ORDERS LAST FIVE YEARS
0
5
10
15
20
25
30
35
40
2013
*
2012 2011 2010 2009 2008
747 A380
12
9
33
36
16
3
*
to 31 May 2013
I
n the build-up to this years
Paris air show, proponents of
the ultra-large aircraft as the an-
swer to the worlds congestion
problems have been hoping to
witness a reawakening of sales for
the Airbus A380 and Boeing 747.
Both companies were talking
up their ultra-large aircraft at the
IATA annual general meeting in
Cape Town last month, but retain
very different views of long-term
market demand. Airbus remains
convinced that the ultra-large
aircraft market is as big as its
product offering, predicting
some 1,710 sales over the next
20 years. Boeings estimate is less
than half at 760 (both gures in-
clude freighters). However, sup-
porting evidence of high demand
in that size category has been
thin on the ground of late.
According to the manufactur-
ers own numbers, from the be-
ginning of 2012 (to the end of
May 2013), airlines have placed
just eight net orders for the A380
and 747. Gross orders over the
past 18 months stand at 19.
In the past ve years, 109 new
orders have been placed for
A380s and 747s. But cancella-
tions have meant the orderbooks
of the two quad-jets have grown
by just 75 aircraft. These are al-
most entirely A380 orders, as
nearly all the new 747 deals have
been offset by the cancellation of
existing contracts.
This poor net sales perform-
ance for the latest iteration of the
worlds rst jumbo jet has not
Clash of the titans rumbles on
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ir
b
u
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|
Airline Business
|
July 2013
BRIEFING AMERICAS
EDWARD RUSSELL HOUSTON
US carrier plans rapid expansion of 787 operations, but is set to keep overall feet growth at a minimum in the next fve years
For a full analysis of the 787s
return to service after the
battery issue, visit the FG Club:
ightglobal.com/FGclub
U
nited Airlines is looking to its
new Boeing 787 eet to give
it exibility to enable it to grow
during the coming years, should
economic growth warrant it.
A tight grip on capacity has
been central to improved prot-
ability by US carriers in recent
years, and United itself has cut
capacity in all but one of the past
seven years.
The Star Alliance carrier plans
to introduce 25 787s into its eet
by the end of 2015, but at
present, it expects little or no
growth in capacity during the
same period.
Really its the economic con-
ditions at the time and also what
we really like about the aircraft
is its so exible, says Ron Baur,
vice-president of eet at United.
Because of the range and the
operating costs, it gives us a lot
of exibility.
That exibility allows the air-
line to choose between replacing
older Boeing 767-200ERs and
767-300ERs, upgauging long-haul
F
ast growing Latin American
carriers Azul and Volaris have
both turned to initial public offer-
ings to help fund the next stage of
their development.
Brazils third-largest carrier
Azul aims to raise about R$1 bil-
lion ($470 million) from its IPO in
the USA, using the proceeds to
expand its eet, fund capital
expenditure for network expan-
sion, and repay debt. Azul will
offer shares on the So Paulo stock
exchange as well as in the USA.
The IPO signals the next phase
for the growing carrier, which
began operations in December
2008 with a eet of only ve
Embraer 190s and 195s. Azul now
operates 118 aircraft and growth
has been accelerated by its merger
with fellow Brazilian operator
Trip. The merger, approved in
March, added another 46 cities
to Azuls network.
We believe we have created a
robust network of protable
routes by stimulating demand
through frequent and affordable
air service, says Azul.
It argues the use of smaller air-
craft, unlike its competitors Gol
and TAM, and ensures it can
serve these markets protably.
We believe our main competi-
tors, with their larger aircraft, are
unable to generate sufcient
demand to serve most of our mar-
kets protably, it says.
Mexican carrier Volaris hopes
to raise up to $100 million through
its IPO, and plans to list on the
Mexican and New York stock
exchanges. Volaris aims to use the
IPO proceeds partly to fund air-
craft pre-delivery payments.
The IPO ling caps off years of
aggressive expansion by Volaris,
one of the Mexican carriers that
beneted from the demise of
Mexicana and other Mexican car-
riers in the years since Volaris
was launched.
Since we introduced our ULCC
[ultra low-cost carrier] business
model in 2006, eight airlines have
gone out of business in Mexico,
notes Volaris in its ling.
Indeed, Mexicanas demise has
proven to be especially benecial
for Volaris. Mexicana held the
lions share of the international
air trafc market out of Mexico
before it ceased operations in
August 2010. This was obvious in
the severe 42% year-on-year fall
in international trafc in Septem-
ber 2010, the rst month after
Mexicana exited the market.
However, regulators in the
USA and Mexico have since
granted their route authorities to
the remaining Mexican carriers
Aeromexico, Volaris and Interjet.
Volaris says it took over 15 routes
that were mostly operated by
Mexicana before the carrier
entered bankruptcy protection.
Latin low-cost units turn to IPOs to fund development
Boeing 757-200s or adding capac-
ity, he says.
The airline took delivery of
six 787s from September 2012
until January, before a US Fed-
eral Aviation Administration
grounding of the type halted
deliveries. This increased its
widebody eet by three to 159
during the period. The airline
resumed 787 ights in May.
United plans to add two more
787s and remove ve 767s for a
total widebody eet of 156 air-
craft by year-end. This will return
it to the same number of wide-
bodies as at the end of 2011.
These moves are in line with
the carriers capacity guidance.
During a May investor presenta-
tion, United chief nancial ofcer
John Rainey said it plans for a
nominal increase in ASMs of
about 1% annually and to keep
its eet count at for the next ve
years. One of the things were
U
n
it
e
d

A
ir
lin
e
s
Range and operating costs make 787 a flexible choice for United
doing at United is trying to have a
measured, metred replacement of
our eet, he says.
The airline forecasts capacity
shrinking by 0.75% to 1.75% this
year, compared with 2012.
However, capacity growth is
not entirely out of the question.
Brian Znotins, vice-president of
network at United, says the 787s
will be used largely as replace-
ment aircraft if the economy is
stagnant, but could be used for
expansion if the economy picks
up. [We] have a lot of aircraft
coming off lease over the period,
he says. This creates options.
The US economy is expected
to grow by 1.4% in 2013, 3.4% in
2014 and an average of 3.6%
annually during the following
four years, according to a report
by the non-partisan US Congres-
sional Budget Ofce.
BRAZILIAN SNAPSHOT
Azul Volaris
Fleet 118 x ATR/E-190/195 42 x A320 family
Revenues $4bn $904m
Prot ($171m)
*
$29m
**
Pax 14m 11.7m
Notes: Azul data includes Trip.
*
Net proft.
**
Op proft. SOURCE: Flightglobal Pro.
CHIM-LAY-YEO SINGAPORE
United keeps capacity in check
BRIEFING EUROPE
July 2013
|
Airline Business
|
15 fightglobal.com/ab
AirAsia Japan parents
may divorce
PAGE 16
Turkish chief vows to nish the job
DAVID KAMINSKI-MORROW CAPE TOWN ALEX THOMAS LONDON
Kotil insists he will stay in the post as long as necessary to fulfl contract for up to 117 Airbus A320s and 95 Boeing 737s
T
he German carriers chief
believes the airline is pursu-
ing a valid business model,
despite heavy losses.
Air Berlin chief executive Wolf-
gang Prock-Schauer, appointed to
head the airline ve months ago,
insists the business model is
right, but it needs much more
focus. He also warns that share-
holder Etihad Airways, which has
a 29% stake in the German opera-
tor, cannot be viewed as a nan-
cial safety net. Etihad has engaged
in initiatives to help stabilise the
carrier and support its restructur-
ing programme, which has been
dubbed Turbine.
Prock-Schauer told Airline
Business during the IATA AGM
in Cape Town that Air Berlin has
tried to serve too many destina-
tions and operate too many crew
bases in Germany.
He says the airline has cut 20%
of its routes over the past year in
favour of increasing frequencies
on stronger sectors.
The restructuring effort is
streamlining the carriers opera-
tion, which expanded through
various diverse activities, includ-
ing the takeover of low-cost opera-
tor DBA and holiday airline LTU.
Air Berlin is reshaping its net-
work to capitalise on its One-
world membership and the alli-
ance with Etihad, which enables
it to channel Asia passengers via
Abu Dhabi. Prock-Schauer insists
there will be no conict between
its dual Gulf partnerships when
Qatar Airways becomes a mem-
ber of Oneworld later this year.
Etihad, which is unallied, is an
excellent co-operation partner for
us, he says, adding that the air-
lines combined status as share-
holder and partner is ideal.
Were in very close discus-
sions with them, he states. Eti-
had is playing a role in address-
ing Air Berlins eet requirements
and is taking surplus pilots from
the German carrier.
While the investment from Eti-
had has been crucial to the carriers
restructuring, Prock-Schauer says
there is a very clear message that
the Middle Eastern operator cannot
act as a nancial safeguard for a
loss-making operator. We have to
survive on our own, he says.
T
emel Kotil is intending to
remain at the helm of the rap-
idly expanding Turkish Airlines
as long as necessary to oversee its
extensive eet revamp.
The airline has contracted for
up to 117 Airbus A320s and 95
Boeing 737s, agreements which
include re-engined versions of
both types, a eet plan which
extends to 2021.
Reports suggested he had been
suspended in the fallout over
claims the airline had tried to ban
crew from wearing bright lipstick.
The airline and Kotil strongly
deny this.
Kotil, in Cape Town for the IATA
AGM, said he took responsibility
for the eet renewal as well as the
contracted aircraft, and that he
plans to see the deliveries through.
He added that he has an open
employment contract and will stay
in his post as long as necessary.
Turkish Airlines has backed
away from plans to order even
larger aircraft such as the Airbus
A380 or Boeing 747-8 because,
Kotil says, it still has outstanding
orders for A330s and 777s.
Its maybe not the right time to
talk about additional long-haul,
he says. Kotil is condent that
the recent political unrest in Tur-
key will be temporary and will
not affect the airlines business
in the long term, adding that he
believes good things always
come after bad.
He says the Star Alliance carri-
ers employees are also shunning
strike action called by their union
over pay and previous sackings.
While the strike, which started
on 15 May, was still ofcially
ongoing in mid-June, Kotil says
that Turkish recently raised salary
levels by 8.1% for all employees
and everybody is back at work.
He says that out of over 15,000
Turkish Airlines employees, only
around 200 went on strike, so
the employees didnt follow it.
He says no pilots were involved
and only a small percentage of its
6,000 cabin crew.
New focus key to Air Berlin turnaround hopes
DAVID KAMINSKI-MORROW CAPE TOWN
Amount of routes cut
in past year in favour
of higher frequencies
20%
Kotil is condent
that the political
unrest will not
affect business
Kotil: not
the right
time to talk
about more
long-haul
equipment
0pen ycur FkFF ccpy cf
AirIine usiness Interactive magazine
|n assoc|at|on w|th ClM lnternat|ona|
INTLRACTIVL MACAZINL
Low-cost
airline special
Available now at ightglobal.com/iLowCost13
|
Airline Business
|
July 2013
BRIEFING ASIA
AirAsia Japan parents may divorce
MAVIS TOH SINGAPORE
While Peach and Jetstar Japan take shape, the Narita-based low-cost ventures spluttering start is causing a rethink
Read our interactive low-cost
carriers special at:
ightglobal.com/ilowcost13
Disagreements over
the LCC stem from
different operating styles
JAPANESE LCC SNAPSHOT
Shareholders Base Fleet
AirAsia Japan
ANA (67%),
AirAsia (33%)
Tokyo Narita 4 x A320
Peach
ANA (39%), First
Eastern, INCJ
Osaka Kansai 8 x A320
Jetstar Japan
JAL (42%),
Jetstar (42%)
Tokyo Narita, Osaka
Kansai
12 x A320
Source: Flightglobal Pro
L
ess than a year after the launch
of their Japanese low-cost car-
rier joint venture, AirAsia and All
Nippon Airways are on the brink
of dissolving their partnership.
The partners formed AirAsia
Japan in August last year. But the
two one a traditional full-service
Japanese operator and the other
Asias most protable low-cost
business seem unable to recon-
cile differences in operating styles.
AirAsia has even come out to
say that the partners have a dif-
ference of opinion in manage-
ment, most critically on the
points of how to operate a low-
cost business and operating out of
Narita. The joint-venture carrier
has also not been able to manage
costs, and it does not rule out a
dissolution, it adds.
CONFLICTING IDEALS
Keeping costs low is key for
LCCs, and something that AirAsia
prides itself as being able to do
well. Chances are it is struggling
to change the ways of legacy car-
rier ANA, especially as AirAsia
Japans management team, in-
cluding its chief executive and
chief nancial ofcer, comprise
mainly of ANA staff, analysts say.
ANA has a 51% stake in the LCC.
Operating out of Narita airport
can also be problematic, especial-
ly for an LCC. Narita is one of the
worlds most expensive airports
and besides slot constraints, there
is also a night curfew, which
greatly limits aircraft utilisation
a key for LCCs to keep costs low.
ANA however remains ada-
mant about having a low-cost op-
eration at Narita, not because it
needs AirAsia Japan to act as a
feeder to its full-service opera-
tions, but because it believes more
LCCs will y there, and it wants
to have the rst mover advantage.
Chinas Spring Airlines, for
one, is awaiting approval from
the Japanese authorities for a
local air operators certicate, and
plans to y out of Narita.
AirAsias global strategy has
been to operate out of secondary
airports, so operating out of Nari-
ta doesnt t, says Ravi Mada-
varam, aerospace consultant at
Frost & Sullivan.
He adds that since ANA has a
38.6% stake in Peach Aviation,
which is based at Kansai Interna-
tional Airports dedicated low-cost
terminal, it is reluctant to have an-
other operation there. The latter
has signicant strengths as a budg-
et carrier base: it is open 24h with
no slot constraints, and has cheap-
er landing and parking charges.
What AirAsia Japan can look
forward to is Naritas commitment
to build a low-cost terminal, set for
a March 2015 completion. Whether
the carrier will still be around, with
its parents willing to let it bleed
until then, is another story.
AirAsia Japan recorded a net
loss of ringgit (M$) 67 million
($21.4 million) in the quarter
ended March 2013. Its domestic
and international load factors
stood at a disappointing 63.9%
and 61.9% respectively.
In a bid to boost load factors, it
brought forward the launch of its
second hub at Nagoya airport in
March, but it seems that the carrier
is still behind Peach and Jetstar
Japan. Both carriers have been able
to keep load factors above the 70%
mark Peach recorded 78.9% in
scal year 2012, while Jetstar Ja-
pans May gure was 75.8%.
Peach has a good stretch of
market to South Korea, Taiwan
and Hong Kong and this is impor-
tant as it brings inbound interna-
tional trafc, which often brings
higher yields than domestic op-
erations to its network, and com-
pensate it for the competition in
the domestic markets, says Rich-
ard Wu, a senior lecturer at Uni-
versity of New South Wales
school of aviation.
Jetstar Japan is playing a simi-
lar card that while it extends its
domestic network, it also con-
nects with Jetstar Asia and Jetstar
on international routes. AirAsia
is not responding quickly enough
in network expansion.
AirAsia Japan operates a eet of
four Airbus A320s to four domes-
tic destinations and Seoul. It com-
petes on routes from Narita to
Fukuoka, Sapporo and Okinawa
with carriers such as Jetstar Japan,
ANA, JAL Express and Skymark.
Innovata schedules show that
AirAsia Japan operates seven, 14
and 21 weekly ights to Okinawa,
Fukuoka and Sapporo respective-
ly, far fewer than the 20, 27 and 40
weekly ights offered by Jetstar
Japan on the same routes. Besides
its peers, it also has to compete
with tier two carriers such as Sky-
mark, Air Do and StarFlyer.
Jetstar Japan has 12 A320s and
plans to grow its eet to 20 by end-
2013. While it started operations
out of Narita last July, it also swift-
ly set up a second base at Kansai.
Analysts however say that the car-
rier has been offering promotions
to attract more passengers.
Peach has a brand that the Japa-
nese are familiar with and a eet of
eight A320s. ANAs challenge,
therefore, is to get its strategy right.
Having two airline subsidiar-
ies for ANA is one too many. This
has or will lead to brand dilu-
tion and also increase its costs,
suggests Madavaram.
The joint-venture
carrier has also
not been able to
manage costs
A
ir
b
u
s
fightglobal.com/ab
The Abuja Declaration, which
was endorsed by all the African
heads of states in January,
requires all African airlines to be
IOSA-compliant by the end of
running free courses that IATA is
funding and AFRAA is hosting so
that airlines can be enlightened
about how they can go about their
IOSA audit, Chingosho says.
The safety drive should also
not necessarily force airlines to
invest in more modern aircraft, as
safety is not determined by age if
the aircraft are properly main-
tained. But if you have an old
aircraft, the maintenance costs
can be very high, he says.
AFRAA identies two coun-
tries that consistently drag down
Africas safety standards: the
Democratic Republic of Congo
and Sudan. Chingosho says these
two countries account for 50%
of Africas accidents every year,
but points out that they have
both been involved in conicts
and there is also the issue of
trade sanctions. You need secu-
rity to create an environment for
safe operations, he says. And
we believe sanctions should not
apply to airlines, as their passen-
gers often comprise many differ-
ent nationalities.
July 2013
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Airline Business
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17
BRIEFING AFRICA
Associations link up to help carriers meet 2015 IOSA certifcation deadline in line with Abuja Declaration
For more news and analysis
from the IATA annual general
meeting in Cape Town, visit:
ightglobal.com/iata13
AFRAA, IATA in African safety drive
I
ATA and the African Airlines
Association (AFRAA) have
joined forces to bring the conti-
nents air safety record in line
with global standards. And
AFRAA is condent that with a
little help from IATA, all the con-
tinents airlines will be able to
meet the 2015 deadline to
achieve the IATA operational
safety audit certication.
Last year, IATA members did
not suffer a single Western-built
jet hull loss. But while the safety
standards of Africas IOSA regis-
tered carriers is up with the best,
the continents safety statistics
still dont look too good because
its the other airlines that are not
on the IOSA registry, says IATA
director general Tony Tyler.
He adds that improving safety
must be the priority if Africas air-
lines are to reap the rewards of
the continents growth.
S
A Express is undertaking a
major strategic review with
its sister carriers, South African
Airways and Mango, which
should see it set up a West Afri-
can operation and take on a major
eet revamp.
We are looking to duplicate
the hub operation we have in
South Africa in other parts of the
continent, SA Express chief ex-
ecutive Inati Ntshanga says.
These will be set up as spin-offs
in conjunction with local part-
ners, and West Africa is likely to
be the location of the rst hub.
He adds that talks are under-
way with potential partners and
that the operation could begin in
a year or so. The operation will
serve as a feeder network for
SAA, which will operate the
trunk routes between hubs.
SA Express eet comprises 10
Bombardier CRJ200s, three
CRJ700s and nine Q400
turboprops.
It is currently engaged in an
evaluation of various 70 to 90-seat
jets to replace its 50-seat CRJs, and
met with the Canadian manufac-
turer along with Embraer, Mitsubi-
shi and Sukhoi at the Paris air show
in June. We need around 14 air-
craft and would like deliveries to
start in 2015-16, Ntshanga says.
IATA director general Tony Tyler has
attacked the EUs list of banned air-
lines, labelling it absurd for its lack
of transparency and consistency.
While he grants that the inten-
tion of the blacklist is honourable,
Tyler argues: The way they are
going about it is unhelpful.
The list came into effect in
2006 and covers operators and
in some cases entire countries
that are banned from operating in
the EUs airspace as a result of
safety concerns.
The issue has been particularly
in focus during the annual general
meeting in Cape Town, as a
number of carriers and countries
from Africa are subject to the ban.
That includes some IATA members
that have successfully passed the
IATA operational safety audit certi-
fcation process but remain sub-
ject to the ban as a result of
concerns over their home nations
safety oversight.
The problem with the EU
banned list is that there is no trans-
parency and no standard for it,
Tyler said at the IATA annual gen-
eral meeting in Cape Town. So a
carrier never really knows why it has
gone on the banned list and, more
importantly, it doesnt know what
its got to do to get off it.
Whats needed is a clear ad-
herence to international, globally
agreed standards and not the ap-
plication of opaque procedures
that dont leave anybody clear
about what are the problems and
how to fx [them], he says.
Tyler sees red over EU blacklist
Share of Africas
annual accidents
Democratic Republic
of Congo and Sudan
50%
Some airlines
could potentially
lose their AOCs in
January 2016
ELIJAH CHINGOSHO
Secretary general, AFRAA
2015 to qualify for an air opera-
tor certicate.
It means potentially that by
January 2016, without IOSA, air-
lines could lose their air operator
certicates, AFRAA secretary
general Elijah Chingosho told Air-
line Business at the IATA annual
general meeting in Cape Town.
Chingosho says the two asso-
ciations are working together to
assist those airlines that are cur-
rently non-compliant to prepare
for the IOSA audits through a
series of workshops.
Weve also jointly held a
workshop with CEOs of airlines
not in IOSA, so they understand
what is required and appreciate
that safety is an investment and
not a cost, he says. Im con-
dent the 2015 deadline can be
achieved.
AFRAA believes that the costs
should not be high. We are also
SA Express plots move to create local spin-offs
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Airline Business
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July 2013
INSIGHT SPAIN
THE PAIN IN SPAIN
KERRY REALS LONDON NIALL OKEEFFE BARCELONA
The spotlight is on IAG as it restructures loss-making Iberia and adds Vueling as
a new family member, while airlines across the country shrink and consolidate
A
ir
b
u
s
B
illy
P
ix
S
pains airline market has
been forced to consolidate
by the countrys ailing eco-
nomic situation, and players have
been combining, shrinking or, in
the case of Spanair, disappearing
altogether. All eyes are now on
International Airlines Group as it
seeks to restructure struggling
Spanish ag carrier Iberia,
strengthen its budget arm Iberia
Express and extract benets from
its latest acquisition, Vueling.
The extent of the task ahead for
IAG in attempting to return Iberia
to protability could clearly be
seen in the groups rst quarter -
nancial results, where operating
losses deepened to 278 million
($368 million), of which 202
million was associated with Ibe-
ria. An exceptional charge of
311 million, primarily related to
Iberias restructuring costs, was
included in the results.
The transformation plan will
see the loss of 3,141 jobs, a 15%
capacity cut and an 11% average
salary reduction. An additional
4% salary cut has been applied
and will remain in place if pro-
ductivity talks fail to produce the
required results.
The airline was crippled earlier
this year by 10 days of strike ac-
tion, which had a net impact of
29 million, and tense negotia-
tions are continuing with Span-
Vuelings focus remains on its El Prat hub, with an eye on network growth
ish pilots union SEPLA. The
key is getting meaningful im-
provements in labour costs and
its not clear theyre going to get
there with the pilots, says Espir-
ito Santo analyst Gerald Khoo.
Its not clear how much can be
imposed on them.
GROUP CONSOLIDATION
IAG chief executive Willie Walsh
points out that there are other
options available to us, noting
that the group could potentially
restructure under new Spanish
labour laws. We would do this if
we had to, he says.
On the capacity front, Iberia is
not the only carrier to be making
signicant reductions in the
Spanish market. Capacity at Ma-
drid Barajas Airport fell by 9% in
2012 compared with the previous
year and Walsh says that we
were only a part of that.
The Spanish market is affect-
ed by low demand due to the eco-
nomic crisis and high airport
charges, which have increased
very much in the last couple of
years. This has forced airlines to
make very signicant capacity
cuts, says Iberia director corpo-
rate affairs Manuel Lpez Col-
menarejo, adding that it is too
early to say if there is still over-
capacity or not.
Khoo believes further rationali-
sation is needed in the country.
There has been consolidation in
the Spanish market with the col-
lapse of Spanair, and Iberia and
EasyJet have been cutting capaci-
ty, but there is some sense that
maybe there needs to be a bit
more rationalisation, he says.
Were not in a position where
anyone feels comfortable. Khoo
adds that existing players are get-
ting smaller and you could argue
that someone else could pass by
the wayside.
One of the big questions over
the Spanish airline market is
how IAG will assimilate Barcelo-
na-based low-cost carrier Vueling
into its family. The group earlier
this year acquired an additional
44.66% stake in Vueling, bring-
ing its total share of the airline to
90.51%. IAG plans to keep
Vueling as a standalone business
and Walsh says he will allow
[Vueling] to continue doing what
theyve done so well. However,
he adds that where we can
identify areas to work together
we will do.
Vueling chief executive Alex
Cruz who reports directly to
Walsh under the post-acquisition
structure says: I dont expect a
tremendous amount of IAG-in-
duced change, certainly in the
short to medium term, He has
been encouraged by all the com-
ments that the leadership of IAG
has been making, and does not
foresee any interference with
his airlines processes or culture.
Rather, he expects the new parent
will provide support to make
Vueling a better airline.
Referring to IAG-owned Iberia,
Cruz comments: A tremendous
amount of effort, time and atten-
tion, is being put on restructuring
an airline that requires restructur-
There will be a
reduction in
Iberias short- and
medium-haul
WILLIE WALSH
Chief executive, IAG
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Airline Business
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19
R
e
x

F
e
a
t
u
r
e
s
ing. Cruzs blunt assessment is
that the traditional legacy airline
model no longer works in the
short and medium haul.
GROWTH STRATEGIES
Espirito Santos Khoo does not be-
lieve IAGs acquisition of Vueling
will have a signicant short-term
impact because they already
viewed themselves as part of the
same family. While he expects
that well see a modest degree of
migration of Iberias [point-to-
point ying] into Vueling where
theres a lower cost base, he
stresses that the key issue is to
make sure Vueling remains low-
cost and successful.
The key challenge for IAG is
to extract some benet from
owning Vueling over and above
just owning it as a standalone
entity, without cannibalising the
mainline, says Khoo. Its very
likely Vueling will remain a stan-
dalone entity with its own air
operators certicate. If not, it be-
comes Iberia and loses its dis-
tinctiveness.
Another option for Iberia to
make its short- and medium-haul
operation protable could be to
transfer more of these routes to its
low-cost arm Iberia Express,
which launched operations in
March 2012. However, as Khoo
points out, the problem with
outsourcing to Iberia Express is
there is a limitation under the ar-
bitration agreement on how big
Iberia Express can get.
Walsh views this as a tempo-
rary setback, with restrictions
set to end in 2014, and it is clear
he intends to play hardball: Ibe-
ria Express has been a fantastic
success and in the absence of
being able to expand there will be
a reduction in the activity of Ibe-
rias short- and medium-haul, he
says, adding that IAG is trying to
overturn the restrictions. Ma-
drid-based Iberia Express oper-
ates a eet of 14 Airbus A320s. Its
former chief executive, Luis Gal-
lego, has since been promoted to
lead Iberia, following the sudden
departure of previous Iberia chief
Rafael Snchez-Lozano.
In terms of long-haul capacity
cuts under Iberias transformation
plan, Lpez Colmenarejo says:
The plan includes strengthening
the most strategic and protable
routes and dropping loss-makers.
This means we are boosting serv-
ices to some long-haul destina-
tions such as Brazil, Mexico, Cen-
tral America, Chile and Ecuador,
and we have suspended routes
dominated by holiday trafc,
where Iberia competes on unfa-
vourable terms with other airlines.
These include Santo Domingo
and Havana, while San Juan de
Puerto Rico is now offered via
Miami and Montevideo via Bue-
nos Aires and Sao Paulo.
Returning to the Spanish do-
mestic market and excluding
Iberia, Iberia Express and
Vueling, few players remain fol-
lowing the demise of Spanair
early last year. Those still stand-
ing include Iberias regional fran-
chise partner Air Nostrum, Air
Europa and newcomer Volotea.
Vuelings Cruz does not view
any of these carriers as a threat.
He believes Air Nostrum needs
to dene what its role is in terms
of connectivity because there are
players with lower costs and big-
ger aircraft appearing in their
markets. And as for Air Europa
and Volotea: There are several
airlines we religiously monitor
every month and Volotea and Air
Europa are not on the radar.
Volotea launched operations
out of Venice in Italy, despite
being a Spanish airline estab-
lished by Vueling co-founders
Carlos Muoz and Lzaro Ros.
Another telling sign of what
Khoo describes as a lacklustre
domestic demand picture in
Spain is the fact that Vuelings
future growth plans centre main-
ly on the international market,
with 90% of the carriers growth
this year being outside of Spain.
This year we will also increase
routes that dont touch Spain
this is what we want to do, says
Cruz. He adds that the carrier will
continue to grow its four interna-
tional bases in Amsterdam, Paris,
Rome and Florence, and will
look for other bases. The main
source markets for any additional
foreign bases will be the Benelux
countries, France and Italy.
Vueling will continue to focus
on its Barcelona El Prat hub, where
Cruz says 18% of its trafc is made
up of connecting passengers. As
for its regional strategy: We see
ourselves with a role of connecting
regional Spain internationally.
IBERIAN PUSH
Meanwhile, Iberia will keep plug-
ging away at its restructuring plan
in the hope that it can one day
drag itself back into the black.
The aim [for Iberia] is to again be-
come a protable airline, as it was
from 1996 to 2008, to consolidate
its leadership between Europe and
Latin America, and to be per-
ceived by customers as a reliable,
innovative and competitive air-
line, says Lpez Colmenarejo.
Whether it can achieve these
goals will be the question on eve-
rybodys lips. The rst question
on everyones mind is what on
Earth will happen with Iberia,
says Khoo. Its going to be inter-
esting to see how things develop
over the next 12 to 24 months.
B
illy
P
ix
I dont expect a
tremendous
amount of IAG-
induced change
ALEX CRUZ
Chief executive, Vueling
Read an analysis of how unit
revenues are central to Iberias
recovery ightglobal.com/
iberiarecovery
|
Airline Business
|
July 2013
INTERVIEW BJRN KJOS
T
hey span the worlds of music, lit-
erature, philosophy, science and
sport. They include such lumi-
naries as Henrik Ibsen and Edvard
Munch. But the array of heroes
adorning Norwegians aircraft tails tells a tale
not just of national pride, but of Nordic kin-
ship, too: in a nod to the neighbours, they
include the odd Swede (Greta Garbo) and
Dane (Hans Christian Andersen).
But the character of the patriotically named
airline is changing: what was once a local story
is becoming not just continental, but also global.
Dramatic notice of the carriers intentions has
been served. In January 2012, it placed an eye-
popping order for 222 aircraft, split between
Boeing and Airbus: 100 737 Max narrowbodies,
22 737-800s and 100 A320neos. This summer,
the carrier commenced long-haul services from
Oslo to New York and Bangkok, using A340s for
interim lift. Now, it is poised to put into service
its rst of eight 787s. Nor are the low-cost air-
lines ambitions conned to far-ung destina-
tions and the latest in airliner technology: in an
ongoing campaign to cut costs and maximise ef-
ciency, it has shown that it is not prepared to
let parochial concerns stop it from locating
crews or registering aircraft outside Norway.
I think we have to learn to compete with
everyone, says Bjrn Kjos, the former ghter
pilot, spy novelist and lawyer who bought into
a revamped Norwegian Air Shuttle 20 years
ago and has been at its helm for a decade. In
the future, you will compete with everyone.
Obviously, our stronghold has been the Nordic
countries, but on the leisure market, its having
a good product and good price... If you have a
low cost then you are of course able to le low
prices. Its as simple as that.
On the day Airline Business caught up with
Kjos, Norwegian revealed plans to make the
Spanish destination of Fuerteventura its 15th
direct route from its newly opened base at Lon-
don Gatwick. The day before, it had added
ights from three German cities to its new
Spanish bases at Alicante, Gran Canaria, Mala-
ga and Tenerife, making clear its commitment
to being a pan-European carrier as well as a
Scandinavian and long-haul one. But does hav-
ing a brand name that ties it to a particular na-
tion present a challenge? Everything connect-
ed to Scandinavia is normally very good
quality, says Kjos, but he adds: Looking at
the leisure market, especially if you go long-
haul, there will always be changes in the pat-
fightglobal.com/ab
What was once a local
story is becoming
global. Dramatic notice of
the carriers intentions
has been served
July 2013
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Airline Business
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21
REPORT
NIALL OKEEFFE
OSLO
PHOTOGRAPHY
JAMES ROBBINS
BILLYPIX.COM
After driving Norwegian on an aggressive growth path
across Europe, chief executive Bjrn Kjos is beginning
his most ambitious assault yet with the launch of
long-haul ights to Asia and North America
VIKING
RAIDER
INTERVIEW BJRN KJOS
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Airline Business
|
July 2013
cause it will decrease our average cost level.
And theyre seeing it working now. So theyre
seeing that were not going to exchange them,
we need them all and we need more people
but you cannot compete with Norwegian crews
ying between Spain and Germany. That has to
be either Spanish or German crews.
The Spanish market being one where lei-
sure travel is the growth driver, a particular
focus on cost is required, says Kjos: We have
a different product than Ryanair, but we can
compete with Ryanair not necessarily on
Spain out of Norway, but we can denitely
compete with Ryanair when [we] y out of the
Spanish bases... If you cannot compete with
everyone, you should stay out.
EYE ON IRELAND
Towards a goal of operational exibility, Nor-
wegian has looked at registering aircraft in
Ireland. Flying a Norwegian-registered aircraft
into Norway, resting its crew there and ying
them out again is not permitted, notes Kjos,
who delivers a blunt verdict of the regulation:
Its a stupid rule. I dont think you will nd
that in another country in the world.
Competition faced by Norwegian naturally
varies by route and market EasyJet, Vueling
and Germanwings between Spain and Ger-
many; EasyJet and Ryanair between Spain
and the UK; SAS and Ryanair in and out of
Scandinavia but, broadly, Kjos considers
SAS and Ryanair the main rivals. As to how
market dynamics will change in the next dec-
ade, the critical mass of aircraft will in-
crease, he predicts: You have to y new air-
craft because its too expensive to y old
aircraft, and, secondly, you have to have a
mass of around maybe 100 aircraft or more, so
you wont see newcomers, and you will see a
lot of small airlines disappear.
Kjos foresees consolidation around four or
ve larger low-cost operators and some of the
big legacy carriers like British Airways,
Lufthansa, Air France-KLM. He adds: Many
of the legacy carriers will not be able to survive
the future, because, rst of all, the competition
is too tough, but secondly, you havent even
started to see the competition from the Far
East. Asian airlines the carriers you will
meet in the future can be far more competi-
tive than most of the European long-haul carri-
ers are today, and big opportunities are offered
by the likely inux of Asian tourists to Europe:
This is one of the reasons why we set up the
crew bases in Asia: thats because that is where
tern where people y in the future. Speci-
cally, he predicts, more people will y from
Asia to Europe than in the opposite direction,
raising a question: If you have a good brand in
Europe, what is this worth in Asia?
By Kjoss reckoning, the internet provides
global visibility on low fares, and this will dic-
tate the competitive dynamic in future: In
our digital world, people will go: do you have
a good price? Maybe theyll look at the air-
craft... but then theyll look at what area of the
world you come from if you come from Eu-
rope and Scandinavia, it means that you will
normally have a good quality and then its
price, price, price. Because people will always
nd cheap tickets in our digital world.
Norwegians strategy for attaining the low
costs required for low fares is based partly on
embracing the newest airliners, for which
huge gains in fuel efciency are promised. Its
decision to split an order between Max and
Neo aircraft was aimed at ensuring a steady
ow of clean-burning narrowbodies into its
eet. We couldnt get enough Maxes in the
early years, because its limited, whats avail-
able, says Kjos.
A
rrival of Norwegians rst Max
is scheduled for the third quar-
ter of 2017. Even though we
will be launch customer, they
will still not be up to speed in
production before 18, 19, he says. We need
new aircraft before that, and the Neo is avail-
able. And the Neo is a very good aircraft.
Thus, the required volume of aircraft dictates
that the advantages of commonality can be
traded off: Obviously, it would have been
easier for us to go with the Boeings, but the
Boeing wasnt available in that scale, and then
its a matter of pure mathematics. Even though
Im a pilot I dont care what the different air-
craft look like! Theyre both very good.
It is not just from more efcient airliners
that Norwegian is seeking cost savings. Set-
ting up bases in the UK and Spain, as opposed
to pricey Scandinavia, gives us stability of
costs, says Kjos: Its lower-paid crews, and
everything is cheap.
UNION OPPOSITION
Inevitably such outsourcing has met with union
opposition. Many feared that they would be
out of their jobs, says Kjos, but we try to ex-
plain: this we have to do in order to grow, and it
will benet you, it will safeguard your jobs be-
NORWEGIAN AT A GLANCE
Operating revenue ($m) 2012 2,223
Change $ 17.5%
Change local 22.1%
Operating margin 3.1%
Net margin 3.6%
Year-end 31 Dec 2012
AB 2011 Financial ranking 62
AB 2011 Traffc ranking 73

RPK Growth (2012) 16.8%
ASK Growth (2012) 18.0%
Load Factor (2012) 78.5%
BROUGHT TO BOOK
Moonlighting as a writer, Bjrn Kjos authored
a spy novel titled The Murmansk Affair, and he
has since switched his attention from fction
to fact. He has been putting the fnishing
touches to a tome that tells the story of his
time with Norwegian.
This follows publication of Jacob Trumpys
airline biography Hyt Spill (High Stakes),
which was unauthorised, notes Kjos: He
was only guessing on some things, and the
most interesting things he doesnt know
about and nobody knows about. His own
book will have the true story, he adds.
Unexpected twists and turns have defned
Kjoss career: for years after he joined
Norwegian, he was technically on a leave of
absence from being a partner in a law frm,
but that has fnally concluded. Im out! he
says. Id forgot everything...
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Airline Business
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23
the ow will originate in the future.
History is littered with failed attempts at
low-cost long-haul operation Eos, Silverjet,
Maxjet and Oasis Hong Kong Airlines among
them but by Kjoss reckoning, new airliner
technology has radically changed the game. I
think the A350 and the 787 are the only ones
that you can y low-cost long-haul with, be-
cause they are so much lower on operating
cost, he says. We looked into it with older
types of aircraft like the 767, A340, and the g-
ures wouldnt add up at all. The A330 may be
economical for ights shorter than eight hours,
but not for Norwegians 11-hour Oslo-Bangkok
service. The A340, meanwhile, is way too
high cost per seat-kilometre in order to com-
pete, and you cannot run a low-cost with an
all-747 which would explain Oasis Hong
Kongs demise. We wouldnt even think about
setting it up with those types of aircraft.
Kjos seems unconvinced by the notion that
the dynamics of long-haul and short-haul differ
fundamentally: We can run short-haul prota-
bly. Most of the legacy carriers cannot run short-
haul protably or just about none of them so
why shouldnt we run long-haul protably? To
me, long-haul is three hours longer than a short-
haul. We use the same infrastructure we use
everything that we have developed and paid for
by the short-haul. The only thing thats different
is the airframe and the crews. We have crews
based in Asia and not in Europe... The airport,
whether its in Dubai as we y to or New
York, its just about the same.
P
art of what makes the 787 a totally
different ballgame, in Kjoss view,
is the GoldCare arrangement under
which the airframer takes charge of
maintenance to reduce initial cost
and complexity for the airline: That, we will
see in the future: airlines wont do their own
maintenance operation because its too costly.
You cannot even be close to competing with the
cost that Boeing can run it for, because there is a
huge eet that they can look after. The impact
of delays to Boeings Dreamliner was reduced
by Norwegians decision to pursue a soft launch
of its long-haul services, says Kjos: We can sub-
stitute two Dreamliners [for] two A340s, but if it
had gone on for a longer time, we would have
needed three A340s to substitute for two Dream-
liners. You can see the cost saving... You cruise
at much lower speed, you need more mainte-
nance time on the ground. It adds up. Thats
why it is a game changer, the 787. Norwegian
will initially assign its rst 787 to European
routes for a month, ying it from Oslo to Ali-
cante, Barcelona, London, Malaga and Nice.
Of the challenges facing low-cost airlines,
none keeps the Norwegian chief awake at
night, he jovially insists. But its an extremely
interesting game and its extremely challeng-
ing, also, he acknowledges. The most dif-
cult thing is that its today decided how you are
going to look like in ve years time: how you
operate and the eet you operate, maybe in
what areas you operate, how you compete.
Planning so far ahead requires you to build
yourself a view of how are people ying in the
future, he adds. His theory? It will be totally
different in 10 years. For consumers, Kjoss
outlook is a happy one: It will be cheap to y
in the future. Youll probably see long-haul
ights down the road for maybe half the price
you have today... Is it that amazing to say, look
for twice the price when you y twice as long?
It shouldnt be. Leading the revolution in
fares will be carriers with maybe less than
half the cost of airlines that you see today.
LONG-HAUL SHIFT
Kjos expects a lot of players in the short-haul
market to follow the example of Norwegian
and AirAsia X by going long-haul. I would be
surprised if Ryanair wont, he says al-
though at a subsequent results brieng, the
Irish budget carriers deputy chief Howard
Millar says that any long-haul venture wont
be Ryanair and wont involve Ryanair man-
agement. Of US carriers, meanwhile, Kjos
sees JetBlue and Southwest as highly likely
to embrace long-haul.
Provision of onboard wi- included in the
ticket price sets Norwegian apart from the
hardline no-frills brigade as do the 32 seats
it is allocating to a premium economy class in
its Dreamliners. Kjos sets out a vision of tech-
nological advances making rising service lev-
els possible for low-cost airlines. It will be a
normal thing that you will supply to the pas-
sengers, for instance, their IFE, he says. On
the long-haul you will have the possibility [to]
bring your own food if you dont want to pay.
[But with] the new modern IFE, you will have
your own kiosk punching for a gin and
tonic, or punching for a sandwich, or punch-
ing for a beer. And you will put in your credit
card, so it will be like a bar and they will come
and serve you what you have ordered.
This ts with a strategy of technology-ena-
bled dynamic packaging offering passen-
PICKING A FIGHTER
Pure mathematics may dictate Bjrn Kjoss
choices when it comes to ordering airliners
but the former pilot is emphatic when he
names his favourite aircraft of all.
As a fghter pilot with the Norwegian air
force, Kjos few the Lockheed F-104. It was a
fantastic airplane the best ever built! he
says. It was a diffcult airplane to fy at low
speed you shouldnt put inexperienced
people on an F-104 but otherwise it was a
fantastic airplane to fy.
During the eight years he spent fying
military jets, Kjos couldnt think of any other
life, he recalls. But just as a hobby, he
took a law course while stationed at Bod air
base, and it led to a change of career.
Along the way, he nearly ended up
working for an airline that Norwegian is now a
nemesis to. But Scandinavian Airlines, which
was in need of pilots, required him to take
tests on a day when he had a legal exam
scheduled. Faced with a binary choice, Kjos
made a selection that led to a stint as an
assistant judge.
Kjos remembers courtroom life with
fondness. Its an intellectual game, he
says. Its a competition, and I loved it.
Obviously there was always the risk of losing.
Likewise, airline leadership is no career for
the risk-averse, and Kjos still draws on
lessons from his air force days. As he puts it:
One thing you learn about when you fy
fghters is: stay away from the risk, and dont
enter a risk zone, and if you have to enter it,
know where the risks are.
fightglobal.com/ab
INTERVIEW BJRN KJOS
July 2013
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Airline Business
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25
gers a living charter operation where you put
your own things together, be it hotel book-
ings or car rental.
Kjos notes a problem faced by airlines that
struggled to compete in the past: they didnt
have the websites, their tickets werent avail-
able like they are in our digital world people
couldnt even nd them. So, its a totally dif-
ferent world we are living in.
D
espite his airlines exponential
growth track and his own dra-
matic career history, Kjos
chooses to occupy a modestly
sized ofce at Norwegians simi-
larly functional headquarters in Lysaker, a
business district on Oslos western fringes. It
is a at structure; it will always be a at struc-
ture, he conrms. You have to have a at
structure in order to really be in touch with
everything that goes on, and you have to have
very advanced IT systems... I have to have an
overview of all thats going on, and then you
need to delegate everybody has to be respon-
sible for their own things. They can always
run it better than I can. And if they cannot run
it better than I can, then they have to nd
something else to do. Thats why I need them.
Because theyre better than me!
Of his leadership style, he offers a simple
analysis: You have to be yourself, because you
cannot change yourself. At least I cannot! But to
run an airline, its not something that you do on
your own. A football analogy is drawn: Even
though you have a captain, you need all the
players... and they have to have different types
of quality in order to be a winning team.
To be a winning team, of course, Norwegian
must face down fearsome competitors in the
shape of Ryanair and EasyJet. Discussing the
Irish behemoth, Kjos argues that higher service
levels can compensate for a gap in cost: We y
to main airports, of course, and I think we have
a better product. We cannot reach the cost level
that Ryanair has [but] the people that we y are
inclined to pay a little more for the type of serv-
ices that we add into our product.
As for EasyJet, Kjos sees Norwegian standing
toe-to-toe with the UK carrier: We will not
close the gap on Ryanair on the cost side, but
we should denitely be able to y on lower
cost than EasyJet out of the different areas. His
reasoning is based on seat counts: EasyJets
A319s are 156-seaters, while Norwegian ies
186-seat 737-800s. The Carolyn McCall-led car-
rier has a eet almost three times the size of
Norwegians 212 aircraft versus 75, as shown
by Flightglobals Ascend Online database in
mid-June but Kjos argues that today we are
just about the same cost level as EasyJet, but we
denitely have a much lower cost level out of
the bases outside Norway.
New threats must be engaged by Norwegian
as it welcomes the 787 to its eet and extends
its long-haul foray: There will be a lot of air-
lines trying to protect their own turf, and try-
ing to prevent airlines from selling cheap tick-
ets. Thats what we experienced in Norwegian
when we started up, and that you will have to
anticipate that we will meet in the long-haul
sector as well. But Kjos nds hope in a his-
torical precedent: Its easy to enter into mar-
kets where you have high-priced markets as
you used to have in Europe, but luckily, today,
everybody can nd cheap tickets thanks to
Ryanair, Norwegian and EasyJet.
Clearly, Kjoss task has evolved beyond rec-
ognition since his rst year with the airline,
when, he recalls, the challenge was how to
save Norwegian because it could easily have
gone down the drain. Now, the carrier ies
on some 330 routes, employs about 3,000 peo-
ple, and has more than 270 aircraft on order
As comebacks go, its almost heroic.
To read an analysis of how an expanding
Norwegian will ft into Europe, visit:
ightglobal.com/Norwegianexpansion
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IT spend in the airline industry is shown by the Airline
Business/SITA Airline IT Trends Survey to be once again
on the rise, as technology becomes increasingly integral
to every aspect of carriers businesses. Mobile is seen as a
key area of investment as airlines get to grips with an
ever-growing number of distribution channels
SPECIAL REPORT
IT TRENDS
fightglobal.com/airlines
July 2013
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Airline Business
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27
CONTENTS
All our special reports
are available online at
ightglobal.com/
airlines
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28 Growing IT A snapshot of the key fndings
from the Airline Business/SITA Airline IT
Trends Survey
32 Heart of the issue Why IT departments
are being integrated into the centre of the
airline business structure
36 Hottest tickets in town Airlines have
increasing ways to ensure their seats
and products are the most in demand
39 Now its personal SITA chairman Paul
Coby looks at the lessons to be learnt
from retail in customising offers
fightglobal.com/ab
IT TRENDS SNAPSHOT
28
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Airline Business
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July 2013
GROWING IT
Celebrating its 15th year, the Airline Business/SITA Airline IT Trends Survey
shows airlines are looking to capitalise on possibilities offered by the increased
use of new consumer technologies, with expenditure up across the industry
2013 AIRLINE IT TRENDS
SURVEY SUMMARY
The Airline Business/SITA Airline IT
Trends Survey has tracked IT
developments and strategic
thinking in the industry for 15
years. Respondents in the
benchmark study represent more
than half of global airline
passenger traffc. You can
download the executive summary
of this years survey now at the IT
zone (ightglobal.com/ITzone)
and the full report will be available
for purchase later this summer at
ightglobal.com
AIP TPAN5P0PT INDU5TPY IN5I6RT5

IHE AIPLINE II
IPEN5 5bPE
2013
VERBATIM COMMENTS
Major IT successes
Maturing our mobility offerings
Implementation of customer-
focused business intelligence
tools
IT reorganisation, IT people
consolidation
In-ight communication, baggage
handling, hub operations
Enterprise resource planning,
implementation and integration
to alliance
Being able to increase revenue
generation opportunities in the
current economic situation
Developing new distribution
channel (mobile)
Reducing operating costs
Major IT failures
Core systems upgrade projects
were delayed
Did not invest enough in
breakthrough innovation
projects for the company
Unable to do single view of
customers enterprise-wide
The big one was not being able
to attract the needed talent fast
enough particularly those with
both domain and IT
competence, which is becoming
harder to source
Mobile e-commerce
implementation
Deployment of crew
technologies
Future IT challenges
Providing custom features and
functionality compared with
the other big airlines that our
customers also interact with
IT takes leadership role as
expected by our chairman
Complexity of business and
collaboration across teams
and locations
To inuence the business to
think and act more strategically
about IT and investments in
systems
Business IT alignment, adapting
IT to the growing business
We are becoming more and
more customer-focused
airports need convincing to do
the same, and when they do
realise the need to do this, it
cannot be at any cost
July 2013
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29
100%
INVESTING IN BUSINESS INTELLIGENCE
Most airlines (61%) are planning major investment
programmes in business intelligence (BI) over the next
three years, while the other 39% are planning pilots
Percentage of airlines with BI technical infrastructure
already fully accomplished stands at 19% and airlines
have made most progress centralising or integrating
and leveraging BI infrastructure across the business
units, geographies and departments. However, only a
handful currently have a good methodology to measure
the return on investment of BI and 22% have yet to
make any progress in this area
98%
COMMITTING RESOURCES TO PASSENGER SERVICES
DELIVERED VIA MOBILE DEVICES
A total of 66% of airlines will have major mobile projects under way
in the next three years, while 32% will be undertaking R&D work
The majority of airlines (61%) offer check-in via mobile apps and
this is set to grow to 90% over the next three years. Just over half
provide fight status notifcations, with the fgure expected to rise to
95% by the end of 2016. In the same period, 83% are set to offer
mobile boarding passes via their own apps and 62% via third-party
travel apps such as Apple Passbook
Ticket sales via mobile apps are in their infancy right now, but chief
information offcers forecast they will grow to 10% of total sales by
2016. The next three years will also see total ancillary sales via
mobile apps rise to 10%
2.35%
Total planned IT&T investment as a percentage of revenue in 2013
AIRLINE SPEND ON IT IS UP FOR A SECOND CONSECUTIVE YEAR
Operational and capital budgets this year have improved on actual
investment fgures in 2012, when airlines spent 2.10% of their
revenues on IT&T
The majority of IT bosses, at 58%, are enjoying an increase in
planned IT&T spend in dollar terms this year. The same proportion
achieved a rise in actual spend in 2012, compared with 2011.
Looking to 2014, the mood is more cautious, with 53% expecting
spend to rise
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IT TRENDS STRATEGY
32
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HEART OF
THE ISSUE
As new technological developments affect every aspect of
how carriers are run, IT departments are being integrated
into the centre of the airline business structure
The power of mobile,
business intelligence
and cloud services will
all play a critical role
NIGEL PICKFORD
Director, marketing operations, SITA
REPORT
GILLIAN JENNER
LONDON
I
f one word sums up the driving principle
behind really astute airline IT strategies, it
is transformation. Today, however, there
is no longer an expectation that technol-
ogy delivers solutions. Instead, the mind-
set is one where transformation is ongoing.
Both the challenge and the opportunity lies
in the consumerisation of technology. In many
parts of the world, fast-changing, smart tech-
nology is becoming an integral part of con-
sumers lives and whether they are passengers
or employees, they expect a similar experi-
ence when they interact with their airline.
Innovative airline chief information ofc-
ers and their boardroom peers are therefore
positioning their IT teams as service organi-
sations that could be engines of change
because they are fully integrated into the air-
line business. The ultimate scenario is one
where the IT specialists fully understand and
are working to meet the goals of their airline
business community and the business man-
agers are taking ownership of technology.
Take these airlines from around the world
Fiji Airways, Aer Lingus, JetBlue Airways
and American Airlines. They are at different
points on this evolutionary journey. There
are some broad similarities in their ambitions
and in challenges they are tackling: moderni-
sation, empowering and engaging customers
and staff, developing and harnessing talent,
delivering competitive difference and value.
However, the unifying link in their strategies
and stories is the shared vision of ITs trans-
formative role for their airlines.
Technology has always been at the heart of
the industry since the early days in the 1950s
of perforated tape and teleprinters transmitting
data between airlines and airports around the
world. Much has changed since then, but what
is really different now is how passengers use
technology in their everyday lives and how
that forms their expectations of service from
airlines, says Nigel Pickford, director, market-
ing operations and market insight, at SITA.
Passengers are now setting the standard
that drives an airlines IT strategy in a big way.
There is an increasing number of airline cus-
tomer touch points social, smartphone, tab-
let, laptop, home, on board that all demand
attention. Customer-facing IT impacts passen-
ger satisfaction, which impacts loyalty and up-
sell opportunities. Internally too, IT is increas-
ingly important to ensure operational
efciency. The power of mobile, business
intelligence and cloud services will all play a
critical role in these dimensions.
This is an environment that demands a
versatile, agile and integrated technology
backbone, so its no surprise that 49% of air-
lines, according to the Airline Business/SITA
2013 Airline IT Trends Survey, are planning
major investment programmes to upgrade
their core passenger management systems
over the next three years, and another 17%
have earmarked resources for research and
design projects.
Fiji Airways is three years into a turnaround
programme that has seen the South Pacic
network carrier restructure its route network,
bringing in new aircraft to deliver greater fuel
efciency and frequency on long-haul routes
and rebranding to a more authentic Fijian
identity. Behind the scenes, the former Air
Pacic has moved away from dependening on
Qantas for critical systems such as inventory
and revenue management to an Amadeus
Alta passenger service system.
Describing the systems from three years ago
as piecemeal or spaghetti, as well as being
massively underutilised, airline programme
director Mike Moore says the strategy of
S
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fightglobal.com/ab
This is true customer service and ques-
tioning old paradigms, she says. After all,
check-in is a process which does not really
add value to the customer.
For the last year, since he moved from Vir-
gin America to Aer Lingus where he is chief
technology ofcer, Ravindra Simhambhatla
has also been focused on modernising tech-
nology. The value carrier has reached the
point where it makes more sense to buy an
off-the-shelf PSS than build more functional-
ity into the system developed in-house over
40 years ago.
The whole world is changing around us;
how consumers, or what we call guests, meet
e-commerce. A lot of e- and m [mobile]-com-
merce is consumer-generated demand
[rather] than supplier push. According to
IATA, next year we will see in excess of 3 bil-
lion air travellers worldwide, generating
hundreds of billions in revenue, so no one
wants to miss that boat. It is time to modern-
ise, to adopt new technology like [the] cloud,
modernise upfront infrastructure and our
application stack.
July 2013
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33
Share of airlines already
implementing the use of
electronic ightbags
42%
rationalisation, reducing complexity and
improving reliability have been key successes.
Once the heavy lifting of rationalisation and
updating is complete, then the strategy needs
to focus on adding value to the organisation,
being an enabler, rather than an obstacle. In
particular, looking for opportunities to exploit
technology for business change, for example,
electronic documentation.
CUSTOMER FOCUS
The challenge now is to move away from
using just 15-20% of application functional-
ity to look at how existing tools can deliver
more and to get people in the business to take
more ownership. My target for 12 months
from now is that IT is respected for its contri-
bution in demonstrating measurable business
improvement, says Moore, adding that the
solution is encouraging IT to ask why? It is
not accepting at face value that the solution
of a problem needs something new imple-
mented. Encouraging the role of super-user,
demystifying IT and moving to a model
where the business owner is expected to be
the functional expert.
When IT moves beyond simply automat-
ing existing processes and starts to challenge
the status quo, it creates opportunities for real
differentiation. Ursula Silling, chief execu-
tive of XXL Solutions, points to the Swiss
International Air Lines initiative to allow
customers to select automated check-in when
they book, so they get their boarding pass the
day before their ight.
We have to mobilise, give data to people,
push data to our people when they need it
and the same focus for our yers, so our team
mates and our guests can make good
informed decisions about how they conduct
business within or with us, he says.
INCREMENTAL STEPS
Aer Lingus is taking an incremental approach
to providing data via mobile devices to pilots,
ight crew and ground ops to understand
acceptance rates and what mobile brings to
the table. The airline reects the groundswell
of desire across the industry to empower staff
via mobile-based services on tablets.
According to the IT Trends Survey, 42%
have already implemented electronic ight-
bags, while 36% are providing cabin crew
services via tablets and 27% ground opera-
tions via the same route. By the end of 2016,
this will have risen to over 70%, along with
crew rostering/communications and aircraft
maintenance/engineering.
Simhambhatlas vision is that not only is
IT a service organisation for the rest of the
business, it is also a revenue enabler. The
true benet of IT is the ability to monetise
product on the retail shelves, he says. About
83% of Aer Linguss intake is via the online
channel, so we are already doing something
right, and his target is to build an equivalent
level of services on the mobile platform that
can generate a channel of general airline rev-
enue. However, his vision for monetisation is
even more ambitious.
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The Airline Strategy Awards will take place
on Sunday 14 July in the magnicent location
of The Honourable Society of Lincolns Inn.
This invitation-only event is attended by a select
group of airline executives, industry professionals
and international media. Again, it promises to be
an excellent opportunity for senior air transport
executives to exchange views in a relaxed setting as
they gather to celebrate management excellence.
A limited number of places have been reserved
for purchase by those who wish to join us for this
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To nd out more about the event or availability
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To read about the latest developments in
airport IT strategy go to:
ightglobal.com/airportITstrategy
And the benets? We have a faster time
to market process for our solutions, which
are also tailored for our crew members and
customers. This helps drive revenue growth
and operational excellence.
The challenge for the airline that prides
itself for having IT in our DNA is attracting
the right talent in the highly competitive
New York IT space. Getting the right talent,
especially in the mobile and advanced com-
puting elds, is a signicant challenge for
us, admits Sundaram. The solution is to
actively network with other companies and
work with our partners to ll gaps, trying to
globalise our talent footprint, rather than
only being local. We have a good talent man-
agement team in place at JetBlue that drives
home-grown talent. We like to retain and
promote from within to build our team
where possible.
The goal for IT strategy at US full-service
carrier American Airlines is to place cus-
tomers at the heart of everything it does, to
be connected to them throughout their jour-
ney and to be as efcient as possible in the
way it serves them. Successes over the past
year have included equipping ight attend-
ants, pilots and maintenance technicians
with tablets to give them more information
and control. Passengers also have more self-
determination via a mobile app giving
access to ight information, check-in, board-
ing and seat selection as well as the ability
to self-tag checked luggage using tags from a
self-service kiosk.
The challenge for American and others is
to keep up with consumers whose daily lives
are lled with technology. Weve found that
our customers and employees alike are
accustomed to having the latest technology
and the most user-friendly systems in their
personal lives, but also want to immediately
be able to use that technology to interact
with American, says Patrick OKeeffe, vice-
president, airline operations technology.
This is an ongoing challenge to ensure
American remains relevant both for our cus-
tomers and employees as new technologies
are introduced.
CROWD SOURCING
A number of airlines are turning to crowd-
sourcing to add an extra sparkle to their tech-
nical innovations. At the end of 2012, JetBlue
launched its ThinkUp campaign to integrate
customer feedback into product development
by asking customers for ideas on what its
new tablet experience should look like. In
June this year, American hosted an interna-
tional, company-wide hackathon to share
creative and progressive ideas. Every
employee not just those in technology can
contribute, says OKeeffe. Were having
developers, designers, domain experts, and
anyone with a cool idea come up with fun,
useful apps that can help everyone across
the company. Fostering internal creativity
is what drives external innovation.
Harnessing feedback from staff and cus-
tomers is nothing new. Supermarket chain
Tesco has been engaged in this activity for
years. Yet simple as it sounds, it can be
tricky for airlines to pull off successfully.
Silling points out that the hierarchical
structures in some airlines make it difcult
to give up power. It requires determination
and drive, and cultural change to focus on
people and customers yet the win can be
enormous leveraging people skills, invest-
ing in the right areas, crowdsourcing
using employees and customers to develop
new approaches.
So what next for airlines on the transfor-
mational path? The future is one where
organisations are atter and more focused on
achievement. As much as real-time cus-
tomer feedback is crucial for the develop-
ment of a good customer experience and cus-
tomer loyalty, human resource management
and performance evaluation need to change
and include ongoing feedback, and social
goals to develop more dynamic teams
rather than a once-a-year top-down process,
says Silling.
IT is not sustainable as a separate depart-
ment any more as it cannot deliver enough
value, but rather becomes a bottleneck. It
needs to be much more integrated into the
organisation and be present in almost every
department and every person, starting
with the CEO and the board members,
[needs] at least a basic understanding of
information technology.
IT TRENDS STRATEGY
July 2013
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35
The airline is set to launch high-speed in-
cabin connectivity across its European net-
work by the middle of the year (using
LiveTVs Ka-band) and Simhambhatla sees
opportunities to enable revenue, beyond sim-
ply payment for access, by forging partner-
ships across the value chain. Once we have
uninterrupted wi- on board we can serve up
apps for our partners, we can serve up desti-
nation apps. Thats the true monetisation.
And we can tie it in with in-ight entertain-
ment and sell ads to the IFE space.
Mobile is creating an opportunity to differ-
entiate at later stages in the passenger jour-
ney, observes Pickford. And this is reected
in industry plans for services via smart
phones. Presently, only 12% of airlines
charge baggage fees and 10% sell other serv-
ices such as parking, car hire and hotels,
according to the Trends Survey. Over the
next three years these services are set to be
offered by 84% and 74% respectively.
In a world where most consumers buy
tickets based on the price, ancillary services,
mobile services and innovative technology
solutions become opportunities for an airline
to differentiate its brand, says Pickford.
New innovative services such as wi- on
board, movies/games streamed to iPads,
mobile customer interaction, baggage status,
mobile boarding are all enabled by innovative
technology solutions and provide the basis for
airlines to differentiate their service.
EVOLVING CREATIVITY
Across the Atlantic, JetBlues IT strategy also
aims to drive customer and crew engagement
as well as empowerment through mobility
and self-service. The low-cost carrier is
focused on driving top-line revenue growth
through technology and underpinning it with
a exible IT foundation. However, take a
closer look at the exible IT foundation and
you will see some canny ideas at work.
We have focused on three areas. First,
right-sizing our outsourcing by moving more
work into the company has been a critical fac-
tor in our recent success. Second, we have
balanced our contractor-to-crew-member
ratio. We now focus more on hiring our own
talent for long-term success. Third, we
changed our thinking from out-of-the-box to
custom solutions for the airline. Custom solu-
tions will drive our top-line and bottom-line
success, explains executive vice-president
and chief information ofcer Eash Sundaram.
Fostering internal
creativity is what drives
external innovation
PATRICK OKEEFFE
Vice-president, airline operations technology,
American Airlines
Percentage of airlines
expected to charge bag fees
within the next three years
84%
fightglobal.com/ab
O
ver the last year, the most
important development in air-
line distribution is the intro-
duction of yet another three-let-
ter acronym NDC New
Distribution Capability.
Detailed explanations are available else-
where, as are the arguments for, against and
those in neutrality. Put simply, NDC is a set of
technology standards which will give airlines
the ability to distribute all their content
through third parties while retaining control
over how it is presented. However, a number
of technical and commercial factors need to
be aligned for everything to work smoothly.
THE TRIGGER
The NDC initiative was ofcially announced
in July 2012 and many stakeholders felt dis-
enfranchised by the discussions which had
taken place before the July announcement,
with some thinking IATA and its airline mem-
bers had already made the decision for the
entire industry.
Since then, IATA has launched a determined
effort to address concerns and myths surround-
ing NDC, however, some of the arguments have
become quite heated on both sides.
At its recent AGM in Cape Town, IATA is-
sued further documentation address some of
the major concerns expressed by opponents of
the initiative. Some parties think the latest
change is insufcient, while others have been
more forthcoming. The response from the glo-
bal distribution systems (GDSs) is worth noting,
IT TRENDS DISTRIBUTION
36
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July 2013
Developments in distribution mean airlines have
ever increasing ways to ensure their seats and
products are the most in demand from consumers,
but not all the new channels are here to stay
REPORT
MARTIN COWEN
LONDON
A number
of developments in
consumer-facing
distribution of airline
inventory are worth noting
HOTTEST
TICKETS
IN TOWN
as Travelport, Sabre and Amadeus are arguably
the most exposed to the changes that NDC is
trying to bring about.
Amadeus says in a short blog post that the
update addresses virtually all of the concerns
raised by Amadeus in dialogue with IATA
during the last year, specically...the key is-
sues of backward compatibility, data owner-
ship, the binding nature of [the original pro-
posal], and privacy issues.
And while it still is not clear what this will
mean in practice, we welcome this change in
approach and position, it adds.
Travelport has also responded to the update
saying: Travelport is pleased that IATA seems
to be taking into account industry feedback
and the serious concerns that its original ap-
proach was anti-competitive, anti-consumer
and did not enable transparency or compari-
son shopping.
We hope IATA will in the very near fu-
ture elaborate on the brief statement with a
more concrete revised NDC proposal that is
in everyones best interest. We will continue
to participate in the development of IATA
NDC to the extent that we are allowed and
invited to do so.
Sabre is equally neutral. We would also
like to see Resolution 787 amended to reect
comments made at the recent AGM, it says.
It is also keen to point out that Sabre was al-
ready offering airlines many of the features
promised by NDC.
Our approach embraces what both travel
suppliers and buyers want for suppliers, the
ability to differentiate products and deepen
customer loyalty, and for buyers, transparen-
cy, choice and privacy. We blend existing
technology standards with new and emerging
ones that preserve anonymous shopping and
fare transparency for travellers.
Live pilots using NDC will be up and run-
ning and on display at IATAs World Passenger
Symposium in Dublin this October. The ow
of white papers and conference appearances
continue unabated and once the pilots have
been analysed, there will be further debate.
Elsewhere, the GDSs have been busy with
fightglobal.com/ab
biggest growth potential.
At the same time, Travelsky itself is also
embracing overseas partners. OpenJaw Tech-
nology recently announced a strategic alliance
with Travelsky, giving Chinese domestic air-
lines the chance to use its t-retailing platform
to improve ancillary sales.
HRG, one of the four biggest travel manage-
ment companies in the world, is now work-
ing closely with Travelsky, having struck a
ve-year deal which gives it access to
BlueSky, the dedicated corporate platform
within Travelsky.
Beyond the GDSs, a number of develop-
ments in consumer-facing distribution of air-
line inventory are worth noting. Arguably
the biggest story here is a non-development,
namely the slow and painful evolution of
Google Flight Search. It remains a work in
progress, even in the USA where, in theory at
least, it should be much stronger than it is.
July 2013
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37
product launches, full content agreements and
legal battles. Travelport has been working on its
merchandising platform which allows carriers
to connect to it using an application program-
ming interface (API) enabling travel agents to
compare and book all airlines on the same
screen. EasyJet, Jet2.com and Norwegian have
signed up so far.
Amadeus is also courting low-cost carriers
and continues to work with top-tier airlines.
Around 80% of Amadeus bookings world-
wide are with airlines where a content agree-
ment is in place, and the signing of a deal with
IAG, parent of British Airways and Iberia, was
heralded as a success.
Sabre has implemented the second tranche
of its billion-dollar technology tie-up with Eti-
had Airways. The signicance of its distribu-
tion deals with European train companies
Trenitalia and SNCF will become clear in the
medium term.
Another milestone this year for Sabre was
the settling of its disputes with American
Airlines. Again, speculation over the small
print of how the deal was settled continues,
driven by the admission in their joint state-
ment that American will receive a monetary
payment from Sabre.
Another focus for the GDSs this year has
been China. For some time its airline distribu-
tion market has been monopolised by Travel-
sky, essentially a state-owned GDS. In Octo-
ber, the Chinese authorities announced that
foreign GDSs can work with Chinese travel
agents who want to sell international ights.
This relaxation of the rules will not extend to
allowing airlines to use the GDS technology to
distribute content for the domestic market.
Although commercial agreements as a re-
sult of this are still some way off, the GDSs
are hopeful of getting a foothold with their
core products in the market arguably with the
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signed a deal with EasyJet which will result in
Thomas Cook holidaymakers ying off for
their two weeks in the sun on an EasyJet ight.
Thomas Cooks reasoning makes perfect sense
if it can operate more protably chartering
seats on other carriers than operating its own
ights it will.
Ancillary revenues continue to grow in im-
portance for airlines, with full service carriers
as dependent on these as the low-cost carriers.
IdeaWorks Review of Ancillary Revenue Re-
sults 2012 reveals that airlines earned $27bn
from non-seat sales last year, nearly 20%
higher than 2011 and more than double the
amount reported in its 2009 report.
United Airlines, Delta Air Lines and Ameri-
can Airlines remain the top three carriers in
terms of total ancillary revenues, with Air
France-KLM and Korean Air entering the top
10 this year. Spirit Airways tops the league for
ancillary revenue as a percentage of total rev-
enue 38% coming from extras, which is a
big increase on last year when it topped this
table with 32%.
The most successful airline in terms of an-
cillary revenue per passenger was Qantas. The
Australian carrier however differs from most
others in that its primary source of extra reve-
nue is through its frequent yer programme
rather than assigned seats, extra bags or ad-
vance boarding.
The last 12 months in distribution may
have been dominated by NDC, and it is likely
that it will continue to be front-of-mind. It is
controversial, dramatic, game-changing and
global. When has a set of industry standards
ever been this interesting?
In Europe the development is even slower.
This March, Google launched an internation-
al version of the product into the UK, France,
Italy, Spain and the Netherlands. The rst
European version has been built using ITA
Software, the tech business Google bought to
power the US version of Google Flight
Search. ITA has a limited presence in Eu-
rope, and speculation persists about whether
Google needs to buy a strong European-fo-
cused vertical search business to deliver its
European ambitions.
The $700 million paid by Google in 2010 for
ITA Software was one of Googles largest ever
purchases at the time. ITA, as well as having the
proprietary search technology also had a pas-
senger service system (PSS) business. It has one
customer, Cape Air, a regional carrier in the USA
with around 650,000 passengers a year which it
signed up in 2012. This February the ITA Soft-
ware by Google blog published a case study out-
lining the success of the rst year of the deal.
However, around six weeks later, Google
announced that it is pulling out of the PSS
business in order to focus on other travel so-
lutions for users and partners such as Google
Flight Search and Hotel Finder. It will con-
tinue to work with Cape Air but is not look-
ing for new PSS clients. It is not known why
Google made a decision to drop its interest in
PSS just over a year after signing its rst cli-
ent, or how serious it was about PSS in the
rst place.
GAME RIVALRY
Googles $700 million ITA deal was put into
perspective late last year when Priceline, the
worlds largest OTA (online travel agency),
paid $1.8 billion for Kayak, the US-based in-
ternationally-active travel search business
which has been a useful source of trafc for
airline web sites since 2004. Kayak had been
widely tipped as the ideal partner or purchase
for Google Flight Search.
Pricelines success is mainly a result of its
booking.com business. It is widely accepted
in technology circles that booking.com estab-
lished global leadership thanks to the way it
was able to use Googles paid-for and natural
search products better than its competitors. At
the time of the Kayak purchase, Priceline in-
sisted that it would run Kayak as an inde-
pendent business unit while helping it to
grow globally. If that help includes sharing
booking.coms knowledge of how to use
search, the next couple of years for ight com-
parison shopping will be interesting.
Kayak is also an example of a travel busi-
ness using mobile in an innovative and prot-
able way. Other vertical search businesses
such as Skyscanner are also using mobile and
apps in particular, to generate leads for its air-
line advertisers. The Skyscanner app is one of
the most popular in the App Store with well
over 20 million downloads. Kayak itself has a
IT TRENDS DISTRIBUTION
38
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July 2013
number of apps and has even a dedicated app
for Amazons Kindle Fire.
Overall, the potential of mobile as a sales
and distribution channel for airlines remains
strong. There is still some reticence among
travellers to use mobiles to buy higher-priced
tickets, but short-haul bookings are gaining
traction all the time. However, the primary
function of mobile within the airline industry
is for itinerary management functions gate
alerts, mobile check-in, seat selection.
The rise of the mobile, which now includes
tablets and smart phones, is being driven in ma-
ture markets by corporate travellers. The higher-
margin, big ticket, front-of-the-plane travellers
are a signicant revenue source for airlines, but
the status quo here is changing too.
There has been a lot of talk on the confer-
ence circuit about unmanaged business travel.
Allowing employees to book their travel inde-
pendently of the travel management company
or preferred corporate supplier might make
sense for the travellers, but causes all sorts of
headaches behind the scenes for nance and
security departments in particular.
It is unclear to what extent this is a genuine
shift in how business travel operates. In the
leisure travel arena, a quiet announcement by
Europes second largest tour operator, Thomas
Cook, needs amplifying. Last September it
Read about how IATA is trying to change
industry perceptions of NDC by visiting:
ightglobal.com/NDC
Transparency was the name of the game at the IATA AGM in Cape Town, where delegates
were able to try out a demonstrator to understand what NDC will mean for consumers
The price paid by Priceline
for Kayak, a travel search
business and useful source
of trafc for airline web sites
$1.8bn
B
illy
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IT TRENDS FEEDBACK
Airlines should look to examples set by the retail industry in creating highly
customised offers for their target audiences, says SITA chairman Paul Coby
It is also about
up-selling and cross-
selling; something
airlines have not
been so adept at
PAUL COBY
Chairman, SITA
sell appropriately to their target audi-
ence. A guideline for each airline could
be to nd its retail twin, with a similar
customer prole, and then behave like
that retailer in targeting customers.
New generation passenger systems,
big data analytics, business intelligence
and cloud computing allow airlines to
behave more like retailers. The new gen-
eration of passenger systems can enable
them to manage many different chan-
nels of engagement for customer lap-
tops, smartphones, tablets and kiosks.
These systems can handle huge vol-
umes of tailored requests, ensuring that
personalised data follows passengers
across channels. The idea is to build
customer proles in real time, including
data on sales history, segment, trips, etc.
There are new technologies that will
enable airlines to capture masses of cus-
tomer data from multiple sources, going
beyond passengers in frequent yer pro-
grammes and using big data analytics
for digital trails, creating personalised
offers for a wider range of customers. Of
course, businesses have to be careful
about abiding by the laws of countries
they operate in and ensuring they have
appropriate customer permissions.
While most retailers focus on that
wider view of how customers interact
with their brand, many airlines are still
very transactional. Big data can join up
the dots to create a holistic view of
individual customers for airlines and in
turn strengthen customer relationships.
Thanks to the processing power of cloud
technology, airlines can build passenger
proles to offer highly customised expe-
riences for those who want them. That
can lead to the creation of dynamic
offers like tailored holiday packages and
relevant unbundled services, presented
instantly online to customers.
The pervasiveness of smart mobile
devices increases the potential for more
customisation. Passengers on their jour-
neys can be given offers depending on
their locations, using geo-location tech-
nology. Retailing can be contextual and
location-aware, so personalised offers
can be received on the go, like products
related to a passengers whereabouts in
the airport or those related to their ights
or destinations. About 83% of airlines
will use mobile channels to generate
ancillary revenues in the next few years,
according to the 2012 Airline Business/
SITA Airline IT Trends Survey.
In getting customers to use their web-
sites, airlines have a fundamental
advantage. Activities like advanced pas-
senger information or the opportunity
to change an allocated seat, can be
restricted to the airline website to
ensure online trafc from passengers.
Hence, airlines can direct passengers to
their websites even if they bought their
tickets from an online travel agent.
Airlines can use these opportunities
to offer passengers products and serv-
ices, taking advantage of interaction
with known customers on smart-
phones, tablets, laptops or kiosks
before and throughout the journey.
Applying retail lessons will enable
them to do this to the
fullest, resulting in a
potentially big boost for
ancillary revenues.
Airlines have led the
world in making person-
alised offers to custom-
ers through frequent
yer programmes, they invented brand
loyalty after all. The ability to personal-
ise and get to know customers better is
an all-important part of deepening cus-
tomer relationships and further explor-
ing opportunities to sell more services.
Today, highly personalised selling is
something the retail industry is focused
on, best exemplied by Amazon.
Retail seeks to understand what peo-
ple buy and how they shop, therefore,
retailers are developing their ability to
target customers. Showing someone a
product aligned to their personal tastes
is obviously more likely to make them
buy. Recommendations about what to
buy are central to that approach, as is
showing related products and offers.
However, it is not just about selling a
product, it is also about up-selling and
cross-selling; something airlines tradi-
tionally have not been so adept at. Air-
lines have many passengers to deal
with, holding passenger data across
multiple siloed databases and systems.
However, new and evolving technolo-
gies are increasing the possibility of per-
sonalised interactions, not just with fre-
quent yers, but with every passenger.
Industry estimates put global airline
ancillary revenues at only 5% in 2012.
There could be signicant opportunities
to raise this gure by taking a more per-
sonalised omni-channel approach to
customer retailing. Passengers who feel
understood and valued at a personal
level are more likely to be receptive to
up-selling and cross-selling, and be
more loyal to a brand.
In the jargon of todays technology
industry, this is retail enablement. It
means that airlines take a more pro-
active retail-based approach to customer
engagement rather than see themselves
as facilitators of peoples movement.
Like each airline, each retailer is dif-
ferent. Each needs to understand how to
NOW ITS PERSONAL
Paul Coby is chairman
of SITA and a former
CIO at British Airways.
Read his previous
columns at:
ightglobal.com/
ITzone
fightglobal.com/ab
As air routes around the airport have be-
come congested and ight delays top the list of
passenger complaints, the Beijing government,
after ve years of deliberation, recently decided
to build a second airport to serve Chinas sec-
ond largest city by population.
The new airport will cost 70 billion yuan
($11.26 billion) and will be located in the
southern suburbs of the city, 68km (42 miles)
from the current airport. Construction will
start in 2014 and upon completion in 2018,
the new airport will have at least six runways
and handle 45 million passengers a year,
TWO BETTER
THAN ONE
China air transport specialist Jane Pan considers how a second airport in Beijing might
alter the competitive landscape for airlines in Chinas second largest city
40
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FOCUS BEIJING AIRPORTS
REPORT
JANE PAN
VANCOUVER
B
eijing has long enjoyed the title of
the most lucrative air travel mar-
ket in China. Apart from being a
major domestic economic centre,
the Chinese capital has attracted
three-quarters of the worlds 500 largest com-
panies by revenue, according to its commis-
sion of commerce. With the citys population
exceeding 20 million, Beijing Capital Interna-
tional airport has faced increasing pressure to
meet growing demand. The airport has again
reached its full capacity, only ve years after
adding a third terminal.
reaching 72 million by 2025.
In another 10 years, Beijing will be served
by two similarly sized airports, with com-
bined trafc gures of around 150 million
passengers a year. There is little doubt that the
multi-airport system will dramatically change
the Beijing market, triggering a new round of
airline competition.
For many years, the Beijing market has
been under the rm control of Air China,
the hub airline of Beijing Capital Interna-
tional, largely as a result of the slot shortage
at the airport.
fightglobal.com/ab
tional market. As shown in its newly re-
leased 2012 annual report, international ASK
rose by 23% year on year, compared with 9%
domestically, while international RPK in-
creased by 24% year on year versus growth
of 7% domestically.
China Southerns Beijing hub has had great
difculty in opening up the market since its
establishment in 2007, because of the strong
competition from Air China and limited slot
availability. The 60 aircraft based there is less
than the number at its Urumqi hub which
only opened in 2010.
But China Southern has never moved away
from its dual-hub strategy, consistently
emphasising Beijing as its core market. It
should not come as a surprise given that China
Southern signed a co-operative agreement in
2011 with the Da Xing district government in
Beijing, which oversees the area the second air-
port will be built in, even a year before the sec-
ond airport proposal was approved.
Getting the support of the local government
is the essential element of China Southerns
Beijing strategy and it has been speculated
that the airline will put over 200 aircraft in the
second airport within the next 10 years.
If so, China Southern would be able to take
full advantage of its extensive domestic net-
work to connect Beijing with many of its 150
Chinese destinations with enhanced frequen-
cies, becoming the strongest competitor
against Air China in Beijing.
More importantly, it would give China
Southern a balanced international route
portfolio, with many long-haul ights, espe-
cially to North America, being able to start
from Beijing.
China Eastern, unlike China Southern,
does not have long-established operations in
Beijing. The airline has made little progress
in the capital for years, again because of the
competition and slot constraint issues. In its
home market, China Eastern acquired Shang-
hai Airlines in 2010, enhancing its hub posi-
tion and preventing Air China from expand-
ing in Shanghai.
But Air China has recently added capacity
to its Shanghai branch and established the
cargo joint venture in Shanghai with Cathay
Pacic, re-emphasising its focus on Shang-
hai. The approval of the second airport in
Beijing has come at an opportune moment,
not only because China Eastern has felt an
increasing need to accelerate development in
Beijing, but also because it now owns China
July 2013
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Airline Business
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41
The dominant position has been further
strengthened after Terminal 3 opened in 2008,
at which Air China accounts for nearly 75%
of operations. The airline now controls nearly
45% of ights at the airport, compared with
18% for China Southern, 14% for China East-
ern, and 12% for Hainan Airlines.
The hub effect is not only protable for Air
China, but allows it to successfully block ri-
vals, especially China Southern and China
Eastern, from expanding.
But the second airport is about to break this
long-established market equilibrium. Air Chi-
nas rivals have wasted no time preparing
themselves for the coming market opportuni-
ties in Beijing.
FREEDOM FLIGHTS
With a new airport, China Southern would be
able to achieve a breakthrough in its
Guangzhou-Beijing dual-hub development.
Guangzhou has been a huge success, especial-
ly in using sixth freedom rights.
The largest player in the China-Australia
market, the SkyTeam carrier has extended the
Canton route to connect Australia and Europe
and opened a Guangzhou-London route in
June 2012.
Its growth in sixth freedom trafc was
from 17,000 in 2009 to 346,000 in 2012, mak-
ing the airline an active player in the interna-
United Airlines, a subsidiary of the former
Shanghai Airlines.
The small airline is the sole user of Beijing
Nanyuan airport, a civil-military combined
airport located in the area designated for
building the second airport.
China Easterns market strategy in Beijing is
straightforward merging its Hebei branch
with China United Airlines to develop a strong-
er network covering the southern part of Bei-
jing and Hebei province, to capture new travel
demand stimulated by the second airport.
The merger was completed at the end of
2012, with 23 aircraft serving both Nanyuan
in Beijing and Shijiazhuang in Hebei, and the
aircraft number is set to double in two years.
The strategy is expected to deliver three
benets to China Eastern. Firstly, the airline
can avoid face-to-face competition with Air
China by focusing on a new market far away
from Beijing Capital airport.
Secondly, the stronger China United would
be more capable of capturing the travel de-
mand generated by building the second air-
port, and the fact that the airport will not be
ready until 2018 would also give the airline
time to establish a strong market presence.
Nanyuan airport will also be closed when
the second airport enters service, by which
time all China Uniteds operations will move
there. As the sole user of Nanyuan, China
United could face favourable conditions when
moving into the new airport.
OPPORTUNITY
The countrys fourth largest carrier, Hainan
Airlines, has not yet revealed its plans but it
would certainly not ignore an opportunity to
further expand in Beijing. The airline has
transformed itself over the past ve years,
doubling its eet and growing its frequent
yer members tenfold. Noticeably, most of its
growth, especially internationally, has been
achieved in Beijing, although the primary
base of the airline is on Hainan Island. The
airline ew to only three international desti-
nations before 2007, but has added nearly 20
Beijing Capital airport is dominated by Air
China and is at full capacity, despite the
recent addition of a new terminal. A new
airport will open up competition for access
to Chinas sprawling capital city
There is little doubt that
the multi-airport system
will dramatically change
the Beijing market
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FOCUS BEIJING AIRPORTS
Read our interview with Spring Airlines
chairman Wang Zhenghua at:
ightglobal.com/wang
since then, including Seattle, Toronto, Zurich,
and Abu Dhabi.
Almost all of its international routes start
from Beijing. The airlines interest in the Bei-
jing market was clearly shown in 2010 when
it established Capital Airlines based in the
citys airport, focusing on business aviation.
Lately, the carrier has started the nations rst
all-business service between Shenzhen and
Beijing to capture high-yield business trafc
on this lucrative route. Its cultivation of the
Beijing market has given Hainan a considerable
competitive advantage and it will only grow
stronger with the new airport.
Also eying the opportunities a new airport
will provide are Chinas low-cost airlines
which have long been excluded from the Bei-
jing market, particularly Spring Airlines. It
runs only one daily ight between Shanghai
and Beijing, arriving in Beijing at 23:40 and
departing to Shanghai at 06:00 the next day.
The low frequency and the poor time slot
make it impossible for Spring to develop in
Beijing. But the second airport could again
bring exciting opportunities.
Air China has not yet revealed its own
plans for the multi-airport system, but may
choose to stay in Beijing Capital, using slots
freed by other airlines moving to the second
airport to continue expanding its operations
there.
It is likely the Star Alliance carrier will not
wish to replicate the experiences of China East-
ern, which operates via a dual hub in Shanghai.
There the multi-airport system in which Hong-
qiao airport provides domestic ights, while the
more remote Pudong airport focuses primarily
on international service, has added cost and
complexity to China Easterns operations.
Another reason for Air China to want to re-
main at Beijing Capital airport is its location
on the east side of the city, a mature market
covering most of the business and tourist at-
tractions. High-yield business passengers in
the area are likely to continue to use the airport
because access to it is quicker and more con-
venient. The 72-hour visa-free stay policy, ef-
fective from January 2013 has also provided
Air China with new opportunities.
The scheme, facilitated by the well-devel-
oped ground transportation system connect-
ing the airport to the city, will help Air China
attract more passengers to transit via the hub.
The airline has shown great interest in the
new market, recently releasing tourism prod-
ucts with domestic travel operators to boost
transit passenger numbers.
But Air China will nd it more and more
difcult to maintain a dominant position in
the Beijing market. The second airport will
spur economic growth in the southern part of
the city, generating new travel demand.
TRAVEL DEMAND
If the two airports are similar, it is reasona-
ble to believe that passengers in the south-
ern city would choose the new airport for
travel. More importantly, the new airport
will compete with Beijing International air-
port for existing passengers in the overlap-
ping catchment areas.
Based on recent research, the new airport is
likely to attract 41% of passengers from com-
peting markets. This research takes into con-
sideration the 37km railway that will be built
to link it to downtown Beijing, allowing pas-
sengers to reach the city centre in 30 minutes.
More than 70 foreign airlines that y to
Beijing Capital will also benet from the addi-
tional capacity. In 2010, the airport handled
1,500 daily ights on average, of which 22%
were international services. But foreign airlines
have found it increasingly difcult to add ights
or launch services because of slot constraints.
American Airlines, for example, delayed the
start of its service between Beijing and Chicago
as a result of difculties in securing an operat-
ing slot in Beijing. Congestion is also part of the
reason that many foreign airlines have started
to look at secondary Chinese cities.
British Airways, for example, plans to start
a service between London and fast-growing
Chengdu, in southwest China.
Apart from generating new slots, the sec-
ond airport in Beijing will also allow the
member airlines of SkyTeam and Star Alli-
ance to deepen co-operation with their Chi-
nese partners in Beijing. With Xiamen Air-
lines newly on board, SkyTeam now has three
Chinese airlines covering Guangzhou, Shang-
hai, and Xiamen, while Star Alliance recently
added Shenzhen Airlines and now covers
Beijing and Shenzhen in China.
If Air China stays at Beijing Capital and
China Southern and China Eastern move to the
second airport, the two airline alliances would
be able to use enhanced airport resources to in-
tegrate their operations with greater efciency.
That would leave Oneworld in a more difcult
position in mainland China, as so far it has not
recruited a Chinese airline.
Although the second airport in Beijing will
become a reality in just a few years, how it
would affect airline competition in Beijing re-
mains unclear. Multi-airport systems are still
relatively new in Asian countries and are most-
ly government-regulated. How government
policy would inuence the trafc and airline
allocation between two airports in Beijing re-
mains to be seen.
In addition, the balance between commer-
cial and military airspace use remains an un-
solved problem in Beijing and the new airport,
which may have a runway dedicated to mili-
tary use, will still face the challenges of civil
and military airspace co-ordination.
SOURCE: Flightglobal Pro
BEIJING CAPITAL: AIRCRAFT MOVEMENTS (1,000s)
0
100
200
300
400
500
600
2004 2005 2006 2007 2008 2009 2010 2011 2012
SOURCE: Flightglobal Pro
BEIJING CAPITAL: ANNUAL PASSENGER TRAFFIC (m)
0
10
20
30
40
50
60
70
80
90
2004 2005 2006 2007 2008 2009 2010 2011 2012
Beijing Capitals Terminal 3 opened in 2008
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FUELLING
THE FUTURE
Powering commercial ights with biofuels creates good
PR, but to genuinely make a difference, airlines must put
their money where their mouths are to ensure there is
the necessary investment in production ventures
44
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Airline Business
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July 2013
FOCUS BIOFUELS
REPORT
KERRY REALS
LONDON
I
n the words of British Airways head of en-
vironment Jonathon Counsell: Until the
industry can reduce [its] carbon dioxide
[emissions], it cant grow. This is about the
aviation industry earning its licence to grow.
To prove this point, BA has joined forces
with Washington DC-based sustainable ener-
gy company Solena Fuels to build a commer-
cial-scale plant in East London which will
convert household waste into 50,000t of jet
fuel a year. BA has pledged to buy all of the
fuel, representing a $500 million investment
over 10 years, to power its London City ights
and has taken an undisclosed equity stake in
the venture. The fuel will be blended with
kerosene up to the 50% limit permitted by
certifying body ASTM International.
The project, called GreenSky London,
will provide 2% of BAs total annual fuel re-
quirement and will full all of our fuel re-
quirements at London City Airport, says
Counsell. The plant which will also pro-
duce 50,000t of biodiesel, some of which will
be used to power BAs ground operations is
scheduled to open in mid-2015.
While the fuel produced is primarily des-
tined for BAs London City operations, Counsell
says the airline is keeping exible on whether
to use some of it for its London Heathrow and
Gatwick operations. Theres an opportunity to
bring fuel to Heathrow and Gatwick by truck,
he says, adding that it will be possible in future
to use a pipeline from a renery close to the
plant to transport the fuel straight to Heathrow.
The aim of GreenSky London, says Coun-
sell, is to demonstrate that we can produce
commercial volumes of alternative fuel eco-
nomically. But BA does not plan to stop
there: It is our full intention to replicate this
and build further plants in the UK. Counsell
is encouraging other airlines to follow suit,
pointing out that while signing uptake agree-
ments for alternative fuels is important, to
get investor condence, we need to take an
equity stake. We believed this was a good
enough proposal to take a risk.
Air France has taken a similar approach
in its partnership with the French govern-
ment-funded research organisation CEA,
which aims to convert forestry waste into
15,000t of jet fuel a year by 2018. Under the
project, dubbed Syndise, Air France has
agreed to take around 3,000t of fuel annual-
ly, but its investment goes further than this.
Were investing more than only a pur-
chase agreement we also have shares in this
company, says Air France environmental
affairs manager Sabrina Bringtown. While
3,000t represents a mere fraction of Air
France-KLMs total annual fuel consumption
of 9 million tonnes, Bringtown points out that
were at the beginning of this story and we
must start somewhere.
WORKING TOGETHER
Bringtown believes that airlines need to work
together to accelerate the growth of the edg-
ling aviation biofuels market through such
groups as Sustainable Aviation Fuel Users
Group (SAFUG), of which Air France is a
member alongside 22 other airlines.
There were eight airline members [in
SAFUG] in 2008. Today, there are 23 airlines
representing 32% of world aviation fuel de- R
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mand, so we hope we can have a certain in-
uence, says Bringtown. In the effort to
ght climate change, the whole industry must
be mobilised. Doing an airline-by-airline ef-
fort would not be sufcient.
Across the Atlantic, United Airlines has
also been throwing its weight behind various
biofuel projects. The carrier has signed letters
of intent with a number of alternative fuel
producers to negotiate the purchase of up to
50 million gallons of aviation biofuel.
As weve signed letters of intent, we have
progressed our relationships with some of
those companies even further, says United
Airlines managing director global environ-
mental affairs and sustainability Jimmy Sa-
martzis. He added that the carrier is very
involved with several of our partners in
building commercially-viable biofuel plants.
Youll start seeing commercial-scale plants
in 2014 in the US, says Samartzis.
LONG-TERM VIEW
Each of these plants will likely produce 10, 15
or 20 million gallons of jet fuel a year, so youd
need quite a few of them, but the more plants
that come online, the cheaper the fuel will be-
come. As you see plants coming to fruition in
2014 and 2015 the expectation is that as a con-
sumer well be buying fuel at cost-competitive
pricing with kerosene, says Samartzis.
The majority of Uniteds discussions have
been with California-based Solazyme, which
produces jet fuel derived from algae, but it
also has agreements with Solena, Gevo and
AltAir Fuels, among others.
Airlines need to be willing to take a risk
and not look for immediate benets when it
comes to aiding the progress of aviation bio-
fuels, according to Samartzis. Airlines need
to be aware of the risk-reward model and
show willingness to be exible, he says.
Everyone has to give a bit more, take more
risk and accept less reward initially.
July 2013
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Airline Business
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45
Lufthansa, which in 2011 became the rst
airline to operate regular scheduled biofuel
ights through its six-month burnFAIR trial,
has also put its money where its mouth is.
Last year, the German carrier signed a col-
laborative agreement with Australias Algae-
Tec to build a large-scale algae-derived jet
fuel facility in Europe. Lufthansa agreed to
arrange 100% of the funding for the project
and take at least half of the fuel produced.
Virgin Atlantic is another airline which
has committed to buying an undisclosed
amount of alternative jet fuel through its
agreement with LanzaTech, although the UK
carrier has not gone as far as making a nan-
cial investment in the company. Virgin made
the headlines in 2011 when it partnered the
New Zealand-based company, which cap-
tures vented gases from heavy industrial
plants such as steel mills to generate fuel-
grade ethanol through a gas-to-liquid proc-
ess. The ethanol is converted into synthetic
jet fuel by Swedish BioFuels.
When the venture was announced, Virgin
said it hoped to start using fuel produced by
LanzaTech to support demonstration ights
out of China by the rst quarter of 2013. How-
ever, as alcohol-to-jet fuels have yet to be cer-
ticated by ASTM International, this is tak-
ing longer than anticipated, says the airlines
head of sustainability Emma Harvey.
Nevertheless, it is condent the fuels will
be certicated over the next year and Lan-
zaTechs Shanghai plant will be capable of
producing enough fuel for all our ights out
of China at a 50:50 blend with kerosene, with
some left over, says Harvey. Were talking
about signicant commercial volumes.
Once the Shanghai plant gets off the
ground, Virgin is keen to progress to the UK
with LanzaTech and build a similar facility
to support its London Heathrow operations.
Harvey says the carrier would like this to
happen as soon as possible. She points out
that as the buying half of the equation, air-
lines need to make clear that if [biofuel] is
available well buy it.
ENVIRONMENTAL TARGETS
The aviation industry set out its environmental
targets a few years ago, which included achiev-
ing carbon neutral growth from 2020, reducing
emissions by 1.5% annually in the run-up to
2020, and halving emissions by 2050 com-
pared with 2005 levels. Air Frances Bringtown
says it is evident we wont be able to achieve
this without biofuels. This view is supported
by BAs Counsell.
According to Counsell, the use of biofuels in
aviation will be a fairly shallow adoption
curve to begin with. As Samartzis points out:
United alone consumes 4 billion gallons of jet
fuel a year so its hard to say well transition a
signicant portion of that to alternative fuels
in ve or even 10 years.
Flightpath 2020, a joint venture between the
European Commission, European airlines and
biofuel producers, aims to produce 2 million
tonnes of alternative aviation fuel in Europe by
2020. This represents 2-4% of total European
jet fuel so its a gentle ramp-up, says Counsell.
Projecting out to 2050, there are varying
opinions on the role biofuels will play. UK-
based Sustainable Aviation believes that biofu-
els will account for 18% of the UKs jet fuel con-
sumption. The EU has a more ambitious target
of 40% of total European jet fuel consumption.
There will be a slow ramp-up but once it
gains momentum it will climb to 20-40% and
play a signicant role, says Counsell. What is
clear is that airlines will need to play a key
part to advance the cause of biofuels. As Unit-
eds Samartzis puts it: If we dont act today,
we wont see results a decade from now.
In the effort to ght
climate change, the
whole industry must
be mobilised
SABRINA BRINGTOWN
Environmental affairs manager, Air France
To read about a collaborative biofuel
production initiative in Europe visit:
ightglobal.com/ITAKA
ANALYSIS MARKET OUTLOOK
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Airline Business
|
July 2013
CHRIS TARRY
CTAIRA
ANALYSIS BY
FLIGHTGLOBAL
INSIGHT
Slowdown in the BRICs and low GDP growth again means performance improvement must come from structural change
PLANNED CAPACITY GROWTH BETWEEN REGIONS INNOVATA SCHEDULE DATA: JULY
Regions Region/ Weekly capacity ASK Weekly frequency Weekly seats offered
subregion Million Change Total Change no. Thousands Change
North America Total West Europe 12,108 2.8% 6,834 +106 1,802 2.4%
North America Total Asia 6,038 6.4% 2,043 +191 589 6.8%
North America Caribbean 1,631 2.9% 5,505 +84 788 1.5%
Central 1,715 8.6% 6,153 +333 805 6.8%
South America 1,954 15.2% 1,804 +199 362 14.3%
Total Latin America 5,300 9.0% 13,462 +616 1,954 5.8%
West Europe East Asia 4,517 0.6% 1,764 +42 512 0.9%
Southeast Asia 2,601 -1.6% 786 -10 269 -0.9%
South Asia 1,257 0.6% 690 +13 190 1.3%
Total Asia 8,375 -0.1% 3,240 +45 970 0.5%
West Europe Latin America 4,558 3.4% 1,839 +31 546 3.2%
West Europe Middle East 4,071 2.1% 4,600 +214 1,046 2.4%
Asia Middle East 5,431 13.0% 5,915 +673 1,400 14.0%
TOTAL SELECTION 45,880 4.5% 37,933 +1,876 8,307 5.1%
WORLD 151,216 5.2% 647,272 +16,413 85,959 4.4%
NOTES: Data is based on schedules for 15-21 July 2013 against 16-22 July 2012 extracted from SRS Analyser. Figures refect airlines operating
nonstop unrestricted scheduled passenger services. East Asia = China, Hong Kong, Japan, the Koreas, Macau, Mongolia and Taiwan.
South Asia = Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Southeast Asia = Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Central America = Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico,
Nicaragua and Panama. South America = All countries south of Central America. North America = Continental USA and Canada only. Middle East =
Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.
I
ATAs headline for its latest fore-
cast performance improving
despite conditions is most
descriptive and reinforces the view
that the key to prosperity for most
airlines is structural improvement.
As ever, forecasts reect the
outcome of a number of moving
parts. This latest view from the
Association, while reecting a
slightly higher rate of growth in
passenger numbers, also shows a
small improvement in yield and
a widening gap between the fore-
cast load factor achieved and
break-even.
The outcome of these changes
was an increase of some $1.6 bil-
lion in operating prot to $23.9 bil-
lion and an increase in net prot of
$2.1 billion to $12.7 billion.
Although GDP in 2013 is in the
order of 3% at a global level and
will be closer to 4% in 2014, for
the developed world growth is
expected to be little more than
1% in 2013 and 2% in 2014.
GROWING PAINS
Elsewhere there are increasing con-
cerns, not only about growth rates
within the BRIC countries (Brazil,
Russia, India and China) generally,
but also about interdependencies
between these countries.
While differences in forecast
and actual growth are nothing
new, and with economic output in
2017-18 for some likely to be no
greater than in 2007-08, the issue
is that we are seeing the new eco-
nomic norm. For many airlines
there has neither been, nor is there
likely to be, a cyclical pull or
upswing in the near term to boost
trafc, revenue and, most impor-
tantly, cash generation.
Getting an appropriate cost base
which is the lowest possible for
the markets you want to compete
in and where there is the greatest
gap between cost and revenue is
important. However it is the reve-
nue itself and changes in that rev-
enue that are the real keys to
achieve prosperity.
Here the need, given the general
absence of widespread positive
economic forces, is to drive as
much revenue as possible from
better mix and increased volumes
across the best possible cost base.
In this respect the consequences of
a better balance between supply
and demand in a number of key
markets has also been seen, provid-
ing evidence that the rules of eco-
nomics apply to airlines just as
much as to any other business.
On one hand, there is increas-
ingly widespread evidence of air-
line management recognising there
will be no real boost from GDP,
while on the other hand there is
more to be done to improve the op-
erating economics of the business,
where fundamental and structural
change in internal and external re-
lationships may be needed.
It may be an issue of evaluating
and, most importantly, imple-
menting best practice not only
from across the industry, but also
from other industries. Despite
benets from structural improve-
ment showing in improving fore-
casts against a still challenging
background, the need is not only
to deliver more but also to ensure
these benets are permanent and,
at the simplest level, that they are
not given away when economic
conditions become more favour-
able; which also will reect the
balance of negotiating power.
In previous columns we have
highlighted the need for longer-es-
tablished airlines to move produc-
tion systems closer to those of more
recent airlines. The necessary con-
ditions for success are likely to in-
clude a strong brand, competitive
network and market reach in terms
of effective access to the most prof-
itable customer base, which in part
is related to the network.
An effective revenue manage-
ment system and efcient asset
management model delivering the
best cost of ownership are also re-
quired. Other than in the asset
management model, most other
factors are best described as intan-
gible, but these will determine the
real success of the business subject
to being able to having a cost-ef-
fective production system.
Outsourcing is nothing new in
the airline industry and is widely
used by both newer entrants and
legacy airlines. At the simplest
level the need is to ensure an in-
ternal monopoly supplier is not
replaced by an external one.
There are a number of other is-
sues that emerge, in particular
Likely GDP growth in
the developed world
during 2014
2%
JET KEROSENE SPOT PRICES
Month Fuel price Change over period
/US gal 1 month 1 year
June 268.7 -10.6% -12.7%
July 287.4 7.0% -8.5%
Aug 315.1 9.7% 4.3%
Sep 321.7 2.1% 7.7%
Oct 314.5 -2.2% 5.1%
Nov 301.4 -4.2% -2.7%
Dec 300.0 -0.4% 1.9%
Av. 12 307.5 1.5%
Jan 311.1 3.7% 1.1%
Feb 324.2 4.2% 1.1%
Mar 297.7 -8.2% -9.4%
Apr 281.0 -5.6% -13.1%
May 278.8 -1.5% -7.9%
NOTES: Prices are world average = median
of Europe/Singapore cargo and US pipeline
spot prices in US/gallon.
SOURCE: ICIS.
Making lemonade from lemons
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Airline Business
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47
-5
0
5
10
15
20
Apr Mar Feb Jan Dec Nov Oct Sep
G
r
o
w
t
h

r
a
t
e
s

(
%
)
Trafc growth trend
-5
0
5
10
15
20
G
r
o
w
t
h

r
a
t
e
s

(
%
)
Capacity growth trend
-15
-10
-5
0
5
10
G
r
o
w
t
h

r
a
t
e
s

(
%
)
Freight growth trend
A4A AEA AAPA ALTA AACO
US MAJORS (A4A MEMBERS) PASSENGER STATISTICS: APRIL
Region Pax trafc RPK Capacity Load factors Freight FTK
Million Change change Percent Change Million Change
Domestic USA 62,774 0.5% 1.7% 83.3% -1.0 1,395 2.3%
North Atlantic 13,492 -3.6% 0.0% 79.4% -3.0 818 -1.0%
Latin America 9,385 4.3% 5.8% 80.2% -1.2 194 -3.3%
Trans Pacic 7,928 -0.2% -1.3% 78.4% 0.9 953 2.3%
All international 30,806 -0.4% 1.3% 79.4% -1.4 1,965 0.3%
TOTAL MONTH 93,580 0.2% 1.6% 82.0% -1.1 3,360 1.1%
YEAR-TO-DATE 357,465 1.1% -0.1% 81.5% 1.0 13,174 -1.5%
SOURCE: Airlines for America.
PLANNED CAPACITY GROWTH NORTH ATLANTIC: JULY
Airline Weekly capacity ASK Weekly frequency Weekly seats offered
Million Change Total Change no. Thousands Change
Delta Air Lines 1,593 4.5% 990 +32 239 4.8%
United Airlines 1,361 -0.8% 962 -17 204 -1.9%
British Airways 1,261 2.5% 701 +46 187 2.0%
Lufthansa 1,130 3.6% 498 +16 153 2.7%
American Airlines 813 -2.0% 518 -40 121 -3.9%
Air France 785 6.2% 342 +14 116 6.6%
Air Canada 672 2.6% 422 +2 109 2.5%
Virgin Atlantic 605 -1.0% 264 +8 88 -0.3%
US Airways 540 2.5% 350 +10 84 2.7%
Air Transat 509 -8.3% 272 -24 82 -7.8%
TOTAL MARKET 12,108 2.8% 6,834 +106 1,802 2.4%
US MAJOR PASSENGER YIELD: A4A AIRFARE REPORT
Route 2012 2013
Unit Oct Nov Dec Jan Feb Mar Apr
Domestic /RPK 10.22 10.25 10.01 10.11 10.35 10.86 10.38
Change 3.7% -0.2% 1.0% 1.5% 1.3% 0.7% -2.5%
North Atlantic/RPK 8.52 8.90 8.30 8.99 9.21 9.14 8.77
Change -1.2% 2.7% 3.0% 5.3% 6.8% 5.5% 3.9%
ASIA-PACIFIC AIRLINES (AAPA MEMBERS) INTERNATIONAL TRAFFIC
Month Passenger trafc RPK Capacity Load factors Freight FTK
Million Change change Percent Change Million Change
February 61,833 6.4% 3.6% 77.5% 2.0 3,972 -13.2%
March 67,668 5.4% 2.9% 79.3% 1.8 5,246 -3.1%
April 64,389 2.5% 4.1% 76.8% -1.2 4,758 -0.8%
YEAR-TO-DATE 261,601 3.6% 2.9% 77.9% 0.5 18,440 -3.3%
SOURCE: Association of Asia Pacifc Airlines.
what more could be achieved if
the traditional you sell/we
buy relationship was replaced
by a series of real risk-sharing
partnerships between airlines
and those providing what might
best be described as internal
services most of which involve
labour as well as non-airline spe-
cic processes. The issue is not
the extent of the potential that ex-
ists as it appears signicant, but
one of implementation and here
the partners will inevitably have
to play their role too.
Returning to IATA, partnership
and collaboration was one of the
key themes of this years AGM,
although the focus was more on
the traditional suppliers: manu-
facturers, lessors, air navigation
service providers, airports and
GDS providers.
However it is also clear that
this group of suppliers and those
who are able to provide internal
services, offer the opportunity
and key to airlines achieving
meaningful and permanent
structural change in their pro-
duction systems. This would ef-
fectively be the airline equivalent
of Toyotas lean manufacturing sys-
tem and would likely bring com-
mensurate benets.
AWAITING
NEW DATA
AWAITING
NEW DATA
ARAB AIRLINES (AACO MEMBERS): APRIL
*
Passenger trafc RPK Capacity Load factors
Million Change change Percent Change
Intra Arab world
**
3,888 9.2% 16.2% 50.8% -3.3
With other regions 30,240 10.1% 12.7% 70.6% -1.7
TOTAL MONTH 34,091 9.8% 13.2% 67.5% -2.1
YEAR-TO-DATE 137,827 12.7% 13.2% 69.3% -0.3
NOTES:
*
Estimates.
**
Includes domestic. SOURCE: Arab Air Carriers Organisation.
EUROPEAN MAJORS (AEA MEMBERS) TRAFFIC: APRIL
Region Pax trafc RPK Capacity Load factors Freight FTK
Millions Change change Percent Change Million Change
Domestic 3,822 -5.0% -4.9% 70.1% -0.1 5 -2.4%
Intra-Europe 17,447 1.5% 2.0% 74.9% -0.4 67 10.6%
North Atlantic 17,636 2.5% 4.7% 83.3% -1.8 789 1.0%
Mid Atlantic 4,692 -5.1% -1.7% 82.6% -3.0 158 -3.7%
South Atlantic 4,885 1.8% 1.7% 82.5% 0.1 219 14.0%
Far East/Australia 13,725 1.5% 1.7% 80.1% -0.2 1,126 0.1%
Sub-Saharan Africa 4,825 -1.0% -0.3% 76.3% -0.6 231 -2.2%
N.Africa/M.East 3,637 3.4% 6.8% 74.5% -2.4 106 3.7%
TOTAL MONTH 70,695 0.8% 1.9% 78.6% -0.8 2,740 1.7%
YEAR-TO-DATE 262,384 1.8% 0.2% 77.7% 1.2 10,437 -1.5%
SOURCE: Association of European Airlines.
LATIN AMERICAN AIRLINES (ALTA MEMBERS): APRIL
Pax trafc RPK Capacity Load factors Freight
Region Million Change change Percent Change Million Change
Total intra-LatAm
*
12,947 3.9% 5.7% 72.5% -1.3 136 12.8%
Total other intl 5,629 1.8% 5.9% 79.2% -3.2 309 6.3%
TOTAL SYSTEM 18,576 3.3% 5.8% 74.4% -1.8 444 8.2%
YEAR-TO-DATE 78,745 6.4% 5.5% 75.9% 0.6 1,653 2.4%
NOTE:
*
Domestic and International fights. SOURCE: Associacion LatinoAmericana de
Transporte Aereo.
NOTE: ALTA data for September not available.
Partnership and
collaboration was a
key theme of this
years IATA AGM
fightglobal.com/ab
Asia-Pacifc carriers have found it tough going amid the sluggish economy, rising fuel prices and slack cargo demand
GREG WALDRON SINGAPORE
Tigers stumble as headwinds bite
48
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July 2013
ANALYSIS ASIA
A
sia-Pacic carriers had a
disappointing rst three
months of 2013, posting
bigger operating losses with
higher and substantial net losses,
mainly weighed down by weak-
ness in Korean Air.
Nine major Asia-Pacic net-
work carriers with scal rst
quarters ending 31 March gener-
ated a cumulative operating loss
of $34 million, compared with a
loss of $6 million in 2012. They
also posted a net loss of $158
million, compared with last
years rst quarter net prot of
$98 million.
Cumulative revenues, howev-
er, rose by 2.8% to $19 billion in
the rst quarter, led by China
Southern with $3.8 billion.
The two carriers most respon-
sible for the weak operating and
net prots were China Eastern
Airlines and Korean Air.
China Easterns operating loss
widened to $117 million from
$31 million in 2012. It also posted
a rst quarter net loss of $27 mil-
lion, compared with a net prot
of $29 million in 2012.
Korean Air posted a rst quarter
ASIA-PACIFIC AIRLINE GROUP FINANCIAL RESULTS (JANUARY-MARCH 2013)
Airline Group Revenues ($m) Operating result ($m) Operating margins Net results ($m)
2013 change 2013 2012 2013 2012 2013 2012
Air China 3,653 -0.8% 34 30 0.9% 0.8% 41 42
China Eastern Airlines 3,322 6.9% -117 -31 -3.5% -1.0% -27 29
China Southern 3,790 -0.5% -7 52 -0.2% 1.4% 9 51
EVA Air 979 0.5% -2 -18 -0.2% -1.9% -26 -20
Hainan Airlines Group 1,172 3.2% 27 32 2.3% 2.8% 30 28
Korean Air 2,587 -1.6% -129 -105 -5.0% -4.0% -286 -74
Malaysia Airlines 1,145 13.8% -53 -99 -4.7% -9.9% -90 -55
PIA 255 -5.4% -58 -51 -22.6% -18.9% -88 -80
Thai Airways 2,134 11.8% 271 184 12.7% 9.6% 280 177
Total 19,037 2.8% -34 -6 -0.2% 0.0% -158 98
SOURCE: Flightglobal Pro. Notes: Results are for airline groups including non-aviation businesses. All fgures are in US dollars exchanged at average rate for period.
All changes given in local currency terms and previous year net profts at constant current rates. China Eastern and China Southerns results are based on Chinese GAAP.
ASIA-PACIFIC AIRLINE GROUP FINANCIAL RESULTS (FULL YEAR APRIL 2012 MARCH 2013)
Airline Group Group revenue ($m) Operating result ($m) Operating margins Net results ($m)
2013 change 2012 2011 2012 2011 2012 2011
ANA Group 17,818 5.1% 1,247 1,165 7.0% 6.9% 518 338
Japan Airlines Group 14,878 2.8% 2,344 2,461 15.8% 17.0% 2,061 2,241
Singapore Airlines 12,169 1.6% 185 230 1.5% 1.9% 305 271
operating loss of $129 million,
compared with a loss of $105 mil-
lion a year earlier. Its net losses
widened signicantly to $286 mil-
lion from $74 million in 2012.
In the rst quarter, Korean Air
recorded a 13% drop in cargo
trafc compared with the year be-
fore. This was a result of a 12%
year-on-year decrease in South
Korean outbound trafc and an
18% drop in transit trafc.
SLOWER REBOUND
Fiscal year 2012 for All Nippon
Airways and Japan Airlines both
ended on 31 March. ANAs oper-
ating prot rose by 7% to $1.2 bil-
lion and its net prot rose by 53%
to $518 billion, with revenues ris-
ing by 5.1% to $17.8 billion.
ANA chief executive Shin-
ichiro Ito says that despite the
challenging global economy, the
airline performed strongly in
FY2012: We were successful in
attracting more passengers, both
at home and abroad, and in re-
sponding to changes in the air-
line environment, including the
expansion of airport capacity in
the Tokyo metropolitan area,
further airline liberalisation and
the entry of low-cost carriers to
the market.
As for JAL, its 2012 operating
prot fell by 5% to $2.3 billion,
while its net prot fell by 8% to
$2 billion.
JAL says that although post-
quake restoration continued to
drive the Japanese economy in
the scal year, the rebound was
blunted by a slowdown in the
global economy.
The entry of low-cost carriers
into the market and erce compe-
tition among legacy carriers re-
sulted in an increase in supply of
capacity.
In addition to rising fuel pric-
es, the Japanese yen weakened
and triggered a rise in fuel costs.
As such, the JAL group nds it-
self in a tough operating environ-
ment, it says.
WORRIES AHEAD
During scal year 2012-13 ending
31 March, operating prot at Sin-
gapore Airlines fell by 20% to
$185 million, while its net prots
rose by 13% to $305 million.
During the same period, SIAs
capacity as measured in ASKs
rose by 4.3%, while trafc as
measured in RPKs rose by 6.8%.
This pushed its load factor 1.9
percentage points higher to
79.3% for the year.
SilkAirs ASKs rose by 20%
during the year, but its RPKs grew
by only 17%. Consequently, its
load factor for the year fell by 2.1
percentage points to 73.6%.
SIA warns that the global eco-
nomic outlook will remain chal-
lenging and singles out cargo as a
challenging area: Yields are like-
ly to remain under pressure amid
weak economic sentiment and
revenues will be further diluted if
key revenue-generating curren-
cies continue to depreciate
against the Singapore dollar.
The cargo business faces an
additional issue of overcapacity
in the market, which will add
pressure on loads and yields.
Furthermore, fuel prices remain
persistently high.
Hear IATAs view on the
problems for Asias carriers
posed by the cargo industry:
ightglobal.com/IATAcargo
FORUM FEEDBACK
|
Airline Business
|
49
SINGLE SOLUTION
Integrated tailored passenger service systems are not only customer friendly
but allow airlines to collect the data to effectively develop and sell their
products, says Julia Sattel, senior vice president airline IT at Amadeus
Tailoring means
the system evolves
in line with an
airlines needs
JULIA SATTEL
Senior vice-president,
airline IT, Amadeus
Read how low-cost
carriers are starting
to distribute through
the GDSs:
ightglobal.com/
low-costGDSs
In 2013, the most suc-
cessful airlines are
those that can simulta-
neously build on posi-
tive, customer relationships, transition
to new markets, and capitalise on new
revenue streams. However, this can
only be achieved through commercial
agility and integrated yet exible IT
systems that place the customer at the
very heart of an airlines operations, in-
stead of putting the system rst.
Modern and integrated passenger
service systems (PSS) are customer-
centric, collecting and containing the
data that helps airlines to merchandise
effectively and develop new product
offerings. In the past, legacy systems
were built around a limited passenger
name record (PNR), which held the
customer name and basic ight infor-
mation based on seat allocation.
Such systems not only sufced but
thrived, and yet this was when a seat
on a ight was effectively the only
product that airlines were selling. Air-
lines also struggled to keep product
and customer information up to date
and synchronised with other internal
systems, as well as with travel agents
and airlines across the world.
Today airlines are constantly devel-
oping products to enhance passenger
experience. Integrated PSS systems
can hold any number of products and
customer data, such as journey history,
frequent yer information, and cus-
tomer preferences. This means that
products or services purchased can be
added to customer records and airlines
can analyse the data to create new
products that address changing pas-
senger requirements.
Travellers are demanding increas-
ingly high quality services. The airline
industry has changed, and airlines sys-
tems must be optimised to respond.
Much of what airlines do checking in
passengers, and loading fuel and lug-
gage is similar and shared. For this
reason, a common IT platform meets
Amadeus is a provider of IT solutions to the
global tourism and travel industry. For more
details on its products and services
visit amadeus.com
these common needs. That is not to say
each airlines system is the same. Each
airline tailors its platform to its require-
ments through business rules, which
can be managed without the involve-
ment of the PSS supplier. Removing
this step makes an airline considerably
more agile and exible, and competitive
differentiation is achieved by moulding
the system to the business strategy.
Tailoring the PSS system through
business rules also means that the sys-
tem evolves in line with an airlines
needs, in a rapidly changing commer-
cial environment. With this in mind,
airlines can try out new approaches,
ideas and operational innovations easi-
ly by introducing and testing new busi-
ness rules. In addition, if an airline
wants to add a completely new func-
tionality to the system, it can work with
the PSS provider to develop this and
if they want to ensure that they alone
benet from the new functionality, ex-
clusivity agreements mean it is not au-
tomatically made available to the wider
community of common airlines.
Next-generation PSS systems also
allow airlines to move away from often
costly in-house platforms, while freeing
up valuable IT resources. Alternatively,
airlines have the option to build their
own system by integrating products
from a number of different technology
providers. However, the burden of inte-
grating these systems falls upon the air-
line itself.
In contrast the outsourced next-gen-
eration PSS model enables airlines to
bypass the workload to integrate multi-
ple systems. Adopting a single system
means that operations can be handled
from a consistent, secure data source.
What this also means is that any is-
sues are immediately traced and man-
aged. If an airline has integrated multi-
ple systems from multiple providers,
the airline itself ultimately needs to
identify who is responsible for ad-
dressing the issue, and then subse-
quently co-ordinate the interactions of
various different suppliers a slower
approach that can be labour intensive
for the airline to say the least.
While a PSS system does clearly re-
quire IT investment, this is only one
side of the coin. The decision must be
made on the basis of a solid business
case. IT has proven its ability to be a
driver of growth, protability and
transformation. A PSS IT investment
allows the airline to make cost savings
from the point of implementation.
Internal studies at Amadeus show
that some airlines have been able to
make fuel savings by using the ight
management module of Alta Depar-
ture Control. A customer-centric sys-
tem, tailored to an airlines needs is
clearly a vital asset, and if airlines truly
wish to adopt such a modern and cus-
tomer-centric approach, to merchan-
dise more effectively and develop new
revenues in tandem,
they should actively
consider an integrated
PSS system.
A
m
a
d
e
u
s
FORUM FEEDBACK
|
Airline Business
|
51
call customers 10min before arrival.
Others have an application showing the
taxis position at any time.
Airlines could think more proactively
in similar ways, for example, by giving
better information in the last 90min be-
fore departure, advising customers about
opportunities to relax or shop, or recon-
rming that their luggage is on board,
and so on. Instead, airlines seem to focus
on negative information, and communi-
cate what customers are not allowed to
do on the ight. As a result, they have to
wait until arrival to nd out their lug-
gage has not arrived, for example.
Another key is to introduce customer
feedback opportunities, and use an au-
tomated process to categorise and send
feedback to relevant departments to fol-
low up and make further improve-
ments. Ideally, customers will be asked
for a simple satisfaction rating at the
end of their journey, based on the net
promoter score or similar methodology.
Eurostar does this via SMS.
Once the website has been set as a
starting point, solutions can be extended
to other touch points including call cen-
tres and mobile. Staff will benet as they
will nd information easily, and they
will contribute customer questions to
the site, hence improving quality and
sales opportunities.
With an omni-channel strategy, air-
lines can achieve rst class service for
their customers, as if their best sales and
customer service agents were present all
the time. The ultimate goal is reduced
customer effort the less time they need
to get what they want, the happier they
will be and the more likely they will be
repeat customers and
brand advocates. Take
off on your omni-chan-
nel journey now.
Read Ursula Sillings
thoughts on how
personalisation is
shaping ancillaries at
ightglobal.com/
cashboosters
As airlines and passengers fnd new ways to engage with each other, an omni-channel
strategy will ensure a consistent level of service across all points of contact
NONSTOP SERVICE
The less time
customers need to
spend to get what
they want, the
happier they will be
URSULA SILLING
Founder,
XXL Solutions
answers to their questions. This can be
done by creating a single repository and
adding native language capabilities to
the search engine. It adds a human ele-
ment as customers can post questions
they would ask a sales or customer serv-
ice agent, and the system will under-
stand often better and faster than a
human, with 24/7 access.
Looking at examples of natural search
processes, we entered best offers in
the search tool of a major European air-
line and received no results. Entering
latest offers gave an example of over-
booking and offered compensation in
such a case. No ight offers or other
deals were shown or referred to in both
cases a missed opportunity in times
where airlines desperately need to gain
any customer already in the shop.
The omni-channel approach could be
employed by offering online chat oppor-
tunities to ask questions, with increased
human intervention at critical points,
for example at the airport. Taxi compa-
nies have realised that customers are
very concerned about whether the
booked taxi will arrive on time. Some
have reacted by instructing drivers to
Ursula Silling is the founder of XXL Solutions,
a company helping airlines, airports and others
in a number of areas including aviation retail
strategy. Find out more about its consultancy
and training services at xxlsolutions.us or
email customerservice@xxlsolutions.us
Have you ever found
your ight being de-
layed and the airline
staff have no further de-
tails? Then, when you browse the web
or call customer service, you are able to
obtain precise information? Similar dis-
connections between different commu-
nication channels are not an exception,
and can lead to frustration and distrust
with customers and staff alike.
In todays omni-channel world, an or-
ganisation has a lot more touch points to
reach customers and staff to inform
about products, pricing, special offers,
customer service, and company and
brand-related information. So how can
airlines avoid inconsistencies and de-
velop an omni-channel strategy to turn
demanding consumers into loyal ones?
In various research projects that we
have conducted with airlines, the
number one customer need when de-
ciding on a ight was having adequate
information. PhocusWright, in their re-
cent research about travellers appetite
for ancillary services, reconrmed these
results. In terms of deciding which web-
sites to visit, ease of use was the number
one criteria more important than
price. In particular, they wished to see
overall prices being displayed and for
relevant information to be easily found.
The starting point of any strategy
should be to ensure that information is
transparent and consistent at all cus-
tomer touch points. This means under-
standing customers need for informa-
tion during the journey and presenting
it simply and consistently from where
they start dreaming, to the booking,
landing and beyond.
Web usability tests and focus groups
can lead to huge improvements. Typi-
cally, the introduction of a search func-
tion on the website and a knowledge
management solution will help ensure
customers can nd any additional in-
formation they are looking for easily.
The knowledge management solution
will ensure that customers get relevant
government approval.
Toomey was Australian carrier
Qantas Airways chief nancial
ofcer before taking the helm of
Air New Zealand. He left the car-
rier in 2001 after less than a year.
He subsequently became chief
of Papua New Guineas local car-
rier, Airlines PNG, in 2009.
Kardassis, who was head since
October 2009, resigned on 5 June
with chief operating ofcer
Hameed Ali taking charge tempo-
rarily. He rst served as Jet chief
between 1994 and 1999, returning
in 2008 as senior advisor initially.
MIDDLE EAST
BOUTEILLER RESIGNS
FROM SAUDIS NASAIR
Nasairs chief executive Franois
Bouteiller has resigned.
At press time, the Saudi carrier
would not conrm the identity of
his successor, rumoured to be
former AirAsia nance chief Raja
Azmi. Before joining Nasair,
Bouteiller co-founded Geneva-
based short-haul airline Flybaboo.
Prior to leaving, Bouteiller
implied that his successor is
unlikely to face an immediate rise
in domestic competition. Citing
the extremely slow pace of regu-
latory reform and inadequate
infrastructure, he says Saudi liber-
alisation is unrealistic in 2013.
EUROPE
THREE FOR ONE AT
MONARCH AIRLINES
UK carrier Monarch Airlines has
created three new directorships
as part of a management reshufe.
Marisa Blasco is the new
director of revenue and network
development, Tim Williamson
director of customer experience
and marketing, and Adrian Tighe
director of commercial partner-
ships and business development.
Monarch says the new posi-
tions replace the role of commer-
cial director previously held by
Jochen Schnadt and cover some
additional responsibilities.
Browse our extensive library of
interviews with airline leaders,
including videos, at:
ightglobal.com/interviews
FORUM APPOINTMENTS
|
Airline Business
|
July 2013
Parker: Happy with the new team
EXECUTIVES ON THE MOVE
IN BRIEF
love our business.
American and US Airways are
in the process of getting US
Department of Justice antitrust
approval for their merger, which
they expect to receive near the
end of the third quarter.
Dan Garton, president and
chief executive of Americans sis-
ter carrier American Eagle Air-
lines, will leave.
Edward Russell Washington DC
BIFFLE NEW BOSS AT
VIVACOLOMBIA
Former Spirit Airlines marketing
chief Barry Bife has become
chief executive of Colombian
low-cost carrier VivaColombia.
Bife joined Spirit in 2005 prior
to which he worked at US Air-
ways and American Eagle Air-
lines. Bife was a key gure
behind Spirits transformation
into an ultra low-cost carrier, as
the airline expanded its network
steadily and grew its ancillary
revenue portfolio in recent years.
Im honoured and extremely
excited to join VivaColombia.
South America presents one of
the greatest opportunities in the
world from a LCC perspective,
says Bife.
ASIA-PACIFIC
TOOMEY APPOINTED
JET CHIEF
Indias Jet Airways has named
former Air New Zealand chief
Gary Toomey as chief executive
following the sudden departure of
Nikos Kardassis.
The airlines chairman Naresh
Goyal thanks Kardassis for his
signicant contribution to Jet,
particularly in
the develop-
ment of our
international
network, lay-
ing the foun-
dation for our
future expan-
sion. Goyal
describes Toomey as having
extensive experience in domes-
tic and international airline man-
agement and the right credentials
and skills to take Jet forward.
His appointment is subject to
Goyal: right skills
AMERICAS
AMERICAN AIRLINES
GROUP ALIGNS TEAM
American Airlines and US Air-
ways have named the new execu-
tive team of American Airlines
Group, subject to regulatory
approval, with employees of the
latter dominating the line-up.
Appointments to the new com-
pany from Arizona-based US Air-
ways include Scott Kirby as presi-
dent, Elise Eberwein as executive
vice-president of people and com-
munications, Robert Isom as chief
operating ofcer, Steve Johnson as
executive vice-president of corpo-
rate affairs and Derek Kerr as chief
nancial ofcer.
Chief integration ofcer Bev
Goulet, chief information ofcer
Maya Leibman and senior vice-
president of government affairs
Will Ris will come from Fort
Worth-based American.
Isom will also act as chief exec-
utive of the US Airways subsidi-
ary following the merger, until
the two airlines are integrated.
Doug Parker, US Airways chair-
man and chief executive, was
named chief executive of the new
group when they announced
plans to merge on 14 February,
while Tom Horton, American
chairman and chief executive,
will be chairman.
I could not be happier about
this team, says Parker. They
are an intelligent, results-ori-
ented and energetic group who
enjoy working collaboratively.
They are experienced airline
executives who understand and
Australian regional carrier
Brindabella Airlines has
chosen Paul Schtz as its
new chief executive. He
previously headed Irish
regional carrier Aer Arann and
replaces Ian Vanderbeek.
Fabian Lombardo is the new
chief commercial offcer of
Aerolineas Argentinas. He
replaces Juan Pablo Lafosse
who had been a key individual
under chief executive Mariano
Recalde when he took over
the Aerolineas management
a few months after its
nationalisation in 2009.
Dubai-based cargo carrier
Coyne Airways has appointed
John Batten as managing
director from September.
Batten has served as
executive vice-president
global cargo at Swissport
Cargo Services for fve years
and also worked with Qatar
Airways as senior vice-presi-
dent of cargo worldwide.
A newly-created role of chief
commercial offcer at Virgin
Australia has been flled by
Judith Crompton.
Aigle Azur has appointed
former Air Tahiti Nui chief
Cdric Pastour as general
manager. He will report to the
French airlines chairman,
Arezki Idjerouidene.
International Lease Finance
Senior vice-president and
head of Asia-Pacifc David
Nixon has left the company.
Appointed in January 2012,
as the leasing company
established offces in
Singapore and Beijing, Nixon
was previously ILFCs head
of transactions.
Bill Meredith has been made
the new director of project
management at Hawaiian
Airlines, while Jan Gouveia is
managing director of training
and development, a newly
created role.
COMMENT
|
Airline Business
|
July 2013
The home of Airline
Business on the web
is on the Airlines
Channel of
fightglobal.com:
ightglobal.com/ab
A
s the British Airways
Airbus A380 took centre
stage in the skies above
Le Bourget at this years
Paris air show, it sig-
nalled the start of a new era for the
worlds largest Boeing 747 operator.
The UK airline, which has 52 of the
original jumbo in service, will intro-
duce the big bus this summer. It has
always been a big proponent of the
747, and the acquisition of the Airbus
very large aircraft (VLA) by BA to serve
dense long-haul routes from its For-
tress Heathrow hub was a no-brainer.
But any thoughts Airbus had of
landing a big deal from BA for a one-to-
one replacement of its 747 eet appear
somewhat unrealistic, given recent
comments by the airlines manage-
ment. Willie Walsh, chief executive of
BA parent IAG, said he thought a eet
of 12 A380s was a good size.
News that a global network carrier
operating from the worlds busiest and
most slot-constrained international air-
port probably doesnt need more than
12 A380s (or for that matter any Boeing
747-8s) must have furrowed a few
brows in Toulouse. BA, despite its
Heathrow constraints, will focus on big
twins for the bulk of its 747 replace-
ment needs.
And the VLA jury is still out at
another long-standing 747 supporter
Cathay Pacic. The Hong Kong carrier
hopes to conclude its study of the
ultra-large aircraft sector this year,
before deciding whether it needs some-
thing bigger than the Boeing 777-
300ER (ie with more than 400 seats).
And that A380/747-8 campaign if
it comes will be grabbed with both
hands by Airbus and Boeing. For it has
been a difcult couple of years for sales
teams tasked with signing up new cus-
tomers for these behemoths.
Since the beginning of 2012 up
until the Paris air show airlines have
placed only eight net orders for the
A380 and 747. Airbus signed its latest
new customers: If you decide you
want an A380, you want it soon, said
chief operating ofcer customers, John
Leahy, in our recent cover interview.
I need to get the backlog down a lit-
tle bit to get the slots available in a rela-
tively short period of time, and were
in the process of doing that.
Airbus is uninching in its belief
that long-term VLA demand is huge
1,710 units to be precise. And it is
working at out to prove it has called
the market right.
The emphasis in its advertising is
usually on the customer experience
which is one of the A380s undeniable
strengths. But the latest campaign also
makes a big play of its ability to max-
imise revenue earning. And it is prob-
ably no coincidence that Airbus is now
pushing higher seat counts. The chal-
lenge, of course, can be lling them.
Boeing remains committed for
another decade at least to its 747, but
is tempering its ambitions. Sales chief
John Wojick sees the current output of
two 747s a month (both passenger and
freighter variants) as a sustainable
level. That ts with Boeings forecast,
which is less than half its rivals. Air-
bus, by contrast, would dearly love to
build four A380s a month.
With long-term trafc growth fore-
cast at about 5% a year, both these big
jets must have a role as mass people-
movers, plying the airways between
the worlds mega-hubs. The crucial
question and one that will continue
to be hotly debated is just how big
will that niche be?
new customer for the A380 a year ago,
when Transaero placed an order for
four aircraft. Since the 747-8 was
launched in 2005, Boeing has
announced only four airline customers
for the passenger variant Lufthansa,
Air China, Arik Air and Korean Air.
Toulouse is playing down the reve-
lation that it has some open A380
delivery slots in 2015 presumably
the result of delivery deferrals. In fact
its top salesman blames the lack of
early availability for the struggle to nd
IS BIG STILL BEAUTIFUL?
Airbus thinks so, but Boeing is not quite so sure. One thing is certain if the market
for very large aircraft is as big as some predict, it has been dormant for long enough
Its been a
difcult couple of
years for the sales
teams in Toulouse
and Seattle tasked
with signing up
new customers for
these behemoths
AEA LAUNCHES AGM EVENT
We have teamed up with the
Association of European Airlines as
it opens up its AGM to the wider
market for the frst time. For more
about this new event, which will be
Europes most important aviation
conference, contact: edward.
macnaughton@ightglobal.com
M
a
x

K
in
g
s
le
y
-J
o
n
e
s
/
F
lig
h
t
g
lo
b
a
l
950+ E-JETS. 65 AIRLINES. 47 COUNTRIES.
fmbraerCommerc|alAv|at|oo.com
The newly enhanced E175. Its the result of our commitment to continuous improvement
of our E-Jets family. This ongoing optimization of an already successful platform is our way
of ensuring best-in-class performance gets even better. Lower fuel burn, longer service
intervals, lower noise levels, upgraded avionics, and an even more rened cabin combine
to keep us well ahead of any competitor which means the E175 history of success is a
story to be continued.
Continuous
improvement.
Continued.

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