IRAN Why opportunity knocks for POND LIFE How capacity ALLIANCES Tie-ups mature but lessors after nation’s nuclear pact shapes up across Atlantic some old friends become foes

STRATEGY FOR BOARDROOMS WORLDWIDE SEPTEMBERXXXXXX 20152014

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viennaairport.com/closerto CONTENTS VOLUME 31 NUMBER 7

IRAN Why opportunity knocks for POND LIFE How capacity ALLIANCES Tie-ups mature but lessors after nation’s nuclear pact shapes up across Atlantic some old friends become foes AB INTERACTIVE STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE SEPTEMBERXXXXXX 20142015 6 Flightglobal fleet forecast flightglobal.com/airlines BRIEFING INTERNATIONAL 8 Neeleman taps Europe link for Azul AMERICAS 10 LATAM stands united in rebranding EUROPE 12 Costing out pan-European ambitions

INTERVIEW LUIS ASIA GALLEGO Halfway there in 13 IndiGo and Qatar flirt over tie-up his campaign to transform Iberia MIDDLE EAST & AFRICA 14 Changing of the guard again at SAA FINANCE LEADING LIGHTS 15 Deal clears path for Iran fleet renewal page 56 DISTRIBUTION COVER STORY 18 Sparks fly as Lufthansa takes direct action 20 SPANISH REVIVAL Iberia is already unrecognisable SPECIAL REPORT from the ‘zombie’ Luis Gallego took ALLIANCES over, but there will be no let-up in his 28 Alliance evolution Snapshot shows dynamics at play efforts to revamp the culture 30 After the gold rush Big three members battle tensions 36 Demanding conditions Transatlantic capacity is rising HOW TO CONTACT US [email protected] 38 Eastern opening Delta’s equity strategy in new territory OFFICE 40 Alliances Codeshare and partnership developments Phone +44 (0)208 652 3842 Airline Business editor Max Kingsley-Jones DEMANDING CONDITIONS Flightglobal premium news editor Graham Dunn FEATURES page 36 Flightglobal premium news managing editor Niall O’Keeffe 46 People watching How to better manage crew costs

SINGAPORE OFFICE Phone +65 6 780 4314 ANALYSIS Asia managing editor Greg Waldron 48 Airlines see past fuel gains Profits among European WASHINGTON OFFICE and US operators improved again in the second quarter Phone +1 703 836 8052 Americas managing editor Stephen Trimble 50 Airlines follow steady growth path Traffic among DISPLAY ADVERTISING ENQUIRIES the leading operators grew 6% in the first half of 2015 Phone +44 (0)208 652 3469 51 Will entrants widen narrow focus? Ascend’s Rob Key accounts manager Grace Hewitt Morris examines the competition facing the incumbents FLIGHTGLOBAL PUBLISHING MANAGEMENT Chief operating officer Philippa Edward 52 Discerning the GDP multiplier effect Cost base and Executive director content Max Kingsley-Jones fares are key in capacity decisions Publisher Stuart Burgess STANDING UNITED

SUBSCRIPTION ENQUIRIES FORUM page 10 Phone +44 (0)1444 445454 56 Leading lights Report from the Airline Strategy Awards Download our 2015 media planner at: Flightglobal.com/mediacentre 59 United seeks new balancing act Outgoing finance chief leaves the airline in better financial shape Airline Business is published monthly by Reed Business Information. © Reed Business Information Ltd 2015. FEEDBACK ISSN 0268-7615 (Print) ISSN 2059-3449 (Online). Printed in the UK by William Gibbons and Sons Ltd. 60 Social inception How airlines can tackle perceptions Annual Subscription Rate: US$198/£124 in the era of instant sharing Periodicals postage paid at Rahway, NJ. Postmaster send changes to Reed Business Information, c/o Mercury COMMENT International Ltd, 365 Blair Road, Avenel, NJ 07001. 62 Divided loyalties For a full listing of RBI magazines, BPA visit reedbusiness.com INTERNATIONAL PEOPLE WATCHING flightglobal.com/airlines page 46

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flightglobal.com/airlines September 2015 | Airline Business | 5 AIRLINE BUSINESS INTERACTIVE

I. EXECUTIVE SUMMARY TRENDS VI. FORECAST BYY REREGIONGII III. COMMERCIAL AIRLINER FLEET TRENDS

I

FORECAST BY REGION DS I EVENTS I EXECUTIVE SUMMARYH[SHFWHG WR EH RSHUDWLQJ LQ$VLD3DFLÀF DQG &KLQD ZKHUH COMMERCIAL AIRLINER FLEET TRENDS FRQWLQXHGKLJKHUWKDQDYHUDJHSDVVHQJHUWUDIÀFJURZWKUDWHV Africa The 2015 Flightglobal Fleet Forecast estimates that some (of 5% and 8% respectively) will see those regions remain the key drivers for growth and new aircraft demand in the next 20 II HISTORICAL FLEET DEVELOPMENT 40,955 new commercial jet and turboprop aircraft will be ANNUAL HISTORICAL AND FORECAST FLEET - AFRICA delivered into passenger and freighter airline service between years.

II 2015 and 2034. In addition to those new deliveries, a further 1,800 Airbus and Boeing are expected to remain the two largest 1,950 passenger aircraft are expected to be converted to II , 1,600 *OREDOÁHHWHYROXWLRQ freighter use over the 20-year period of the forecast. commercial aircraft original equipment manufacturers O (OEMs), between them delivering an estimated 85% by value 1,400 HW FLEET EVOLUTION MHWÁHHWKDV The total value of these new deliveries, estimated using of the world’s commercial jet aircraft through 2034. However, PASSENGER JET Flightglobal %RPEDUGLHU &RPDF (PEUDHU ,UNXW DQG 0LWVXELVKL DUH DOO of 1,200 KDVJURZQWRDOPRVWDQGLWVVKDUHRIWKHMHWÁHHWKDVh its share of Ascend’s 2015 Base Full-Life Values, is expected to total III risen from 60% to 64% in the past 10 years, with its share of around $2,830 billion. Base Values are used to estimate future H[SHFWHG WR FDSWXUH LQFUHDVLQJO\ VLJQLÀFDQW YROXPHV RI MHW 1,000 More than 90% of historical commercial jet airliner deliveries demand, between them accounting for at least $320 billion of seat capacity rising from 55% to 58%. delivery values since in our view these are a more pragmatic KDYH EHHQ IRU SDVVHQJHU VHUYLFH DQG WKH JOREDO ÁHHW LQ III he 800 HVWLPDWLRQ RI DFWXDO EXVLQHVV YDOXHV WKDQ WKH LQÁDWHG delivery value in the forecast period. operation, including those built in the Soviet Union and now RYHU\HDUV

No of aircraft ng III 7KHWZLQDLVOHÁHHWKDVJURZQE\SHU\HDURYHU\HDUVt manufacturer list prices often used in other forecasts. 600 the Commonwealth of Independent States, has grown by an %) in the pas Fleet Forecast The twin-aisle market remains the last duopoly in the5bn average of 2.9% per annum over the past 20 years (2.7% in to 3,770, with marginally increased growth (2.3%)n similar in the pastover 400 y Around 16,750 passenger jets and 2,380 passenger turboprops commercial aircraft sector today. Comac and Irkut are studyingrom the most recent decade). It was only in two years, 2001 and 10 years. The growth in seat capacity has beenigher similar capacit over t are expected to be removed from passenger service, with a joint 300-seater programme and there is a potential $55bnor. 200 2008, that the numbers of in-service aircraft did not increase 20 years but faster (2.5%) in the past 10, as higherhare of capacity the je of additional deliveries forecast for new 250-300 seaters from IV around 1,540 of the former and 415 of the latter converted EHFDXVHRISRVWFXWEDFNVDQGWKHJOREDOÀQDQFLDOFULVLV aircraft have been delivered. The twin-aisle shareDOWKRXJKLWKDV of the jet 0 O 2015 – 2034 the mid-2020s from the existing or new OEMs in the sector.over ÁHHWKDVIDOOHQIURPWRVLQFHDOWKRXJKLWKDVDWKLUGRIJOREDO to freighter service. A small minority of the remaining aircraft 1994 1998 UHVSHFWLYHO\ 7KH ÁHHW UHGXFWLRQ ZDV YHU\ VPDOO HDFK \HDU 2002 2006 2010 2014 2018 2022 2026 2030 2034034 HHW IV may be converted to other non-commercial roles, but the vast  d on  VRWKHÁHHWHVVHQWLDOO\VWD\HGVWDWLFEHIRUHJURZWK EHHQVWDEOHRYHUWKHSDVWÀYH\HDUV-XVWRYHUDWKLUGRIJOREDDLVOHÁ The turboprop niche is expected to be worth $60 billion ecteoverd Year VHDWFDSDFLW\LVQRZDFFRXQWHGIRUE\WKHWZLQDLVOHÁHHW

majority of the remainder is expected to be dismantled for IV resumed the following year. VSDUHSDUWVZKLFKZLOOVXSSRUWWKHUHPDLQLQJLQVHUYLFHÁHHW  the next 20 years. The majority of this value is focuseda rgeron JURZE\ the larger aircraft segments. The 70-seat sector, is expected Pax turboprop Pax regional jet 5HJLRQDO MHWV 5-V  KDYH VHHQ WKHLU ÁHHW JURZ E\  of Some 1,860 freighters will also be retired and in total, 71% of XHQWO\ Pax single-aisle Pax twin-aisle Freighter Consequently, there were a total of some 19,850 passenger rapid growth to account for at least $36bn of this opportunity, with a larger WKHFXUUHQWSDVVHQJHUDQGIUHLJKWHUÁHHWZLOOEHUHWLUHGGXULQJ nch a jet aircraft in service at the end of 2014. annually over 20 years to 3,400, driven by thes. rapid However, growth this of VHDW VHJPHQW KDYLQJ D SRWHQWLDO EQ &RQVHTXHQWO\ the 50-seaters in the mid-1990s to mid-2000s.e However,past 10 years this

the next 20 years. V we expect one or more manufacturers to eventually launch a FORECAST SUMMARY annual growth has slowed to only 1.2% in the past 10 years  Independent outlook of the situation, but is predicted to resume modest growth, with mostmost Growth rates have differed according to aircraft size, with RFXVKDVPRYHG  7KHJOREDOFRPPHUFLDODLUFUDIWÁHHWLQVHUYLFHLVH[SHFWHGWR product for this market. RIWKHIRFXVRQWKHSDVVHQJHUMHWÁHHW7KLVLVIRUHFDVWWRJURVWWRJURZZ DQGVWD\HGDOPRVWVWDWLFLQWKHSDVWÀYHDVIRFXVKDVPRYHGDVKDUHRI single-aisle jets seeing a higher growth rate in the past 10 V 7KH$IULFDQDLUOLQHÁHHWKDVJURZQE\DQQXDOO\RYHUWKH WRODUJHUVL]HVRI5-V$OWKRXJKWKHÁHHWKDVDVKDUHRId at global commercial passenger increase by 82% to 48,760 aircraft in 2034 including 40,940 E\  DQQXDOO\ WR UHDFK VRPH  DLUFUDIW E\ 7KH7KH years (3.3% annually) compared with the long-term trend has remaine past 20 years and is forecast to grow by a CAGR of 1.1% in

V total jet numbers, in terms of seat capacity, it has remained at passenger jets, 4,220 passenger turboprops and 3,600 DELIVERY VALUE ($BN) $IULFDQÁHHWLVIRUHFDVWWRUHPDLQDVPDOOSDUWRIWKHJOREDOKHJOREDO   7KLV UHÁHFWV WKH GHYHORSPHQW RI WKH ORZFRVW VHFWRU WKHQH[W\HDUVIURPDURXQGWR$ERXWRI and freighter aircraft market FRPPHUFLDO IUHLJKWHU DLUFUDIW %\ WKHQ  RI WKH ÁHHW DUH FORECAST 2015-2034 ÁHHWDWLQ which has extended beyond North America and Europe to 8% for 10 years. 2% 5% WKHÁHHWLVFXUUHQWO\XVHGLQWKHSDVVHQJHUPDUNHWDQG 4% $VLDWKH0LGGOH(DVWDQGQRZ$IULFD7KHVLQJOHDLVOHÁHHW (59.6) (135.3) IRU FDUU\LQJ FDUJR WKLV VKDUH LV IRUHFDVW WR FKDQJH WR  FORECAST 2015-2034 DELIVERIES (122.4) $IULFDLVIRUHFDVWWRWDNHGHOLYHU\RIVRPHQHZDLUFUDIWZDLUFUDIW

VI DQG  UHVSHFWLYHO\ E\  7KH ÁHHW KDV EHHQ VWDWLF LQ 2% 7% LQ WKH QH[W  \HDUV LQFOXGLQJ  SDVVHQJHU MHWVMHWV   PASSENGER JET AIRLINER FLEET TREND (833) (2,898) WKHSDVWÀYH\HDUVZLWKJURZWKVW\PLHGE\WKH1RUWK$IULFDQ SDVVHQJHUWXUERSURSVDQGIUHLJKWHUV7KLVUHSUHVHQWVRIQWVRI COMMERCIAL 11% 15% 18% VIV (4,364) (7,506) ANNUAL HISTORICAL AND FORECAST DELIVERIES - AFRICA

VI 20,000 12% 80

43% 18,000 s (1,219.9) 70 16,000 9%

46% VII 60 14,000 .3) 6%% (1,292.3) 12,000

50 VII

10,000 3%%

% growth in RPKs RPK in in growth growth % %

40 VII 62% 8,000 (25,354) Twin-aislele

No of aircraft 00% Turboprop 30 6,000 Freighterer Regional jet 4,000 Twin-aisle 20 31 Dec at service airline In -3%% Turboprop VIII Freighter Single-aisle 2,000 2014 2010 2012 Regional jet 10 2006 2008 0 2002 2004 2000 VIII 1996 1998 Single-aisle 0 1994

growth

VIII VIII VIII Global passenger traffic growth 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034034 Twin-aisle Single-aisle Year Regional jet 7 lt | onsult Pax turboprop Pax regional jet Pax single-aisle Pax twin-aisle Freighter Ascendworldwide.com Ascend Flightglobal Consultancy Source: Ascend Fleets from Flightglobal & IATA ncy | 17 Ascend Flightglobalal ConsultancyConsulta Ascend Flightglobal Consultancyncy | 63 JudyWatsonTracy FORECAST FORUM Airline executives will gather on 30 August-1 2015 FLEET FORECAST September at the Bellagio Las Vegas for the Boyd lightglobal’s latest annual The value of new deliveries is aircraft fleet in service is Group International Aviation long-term market forecast estimated using Ascend’s 2015 expected to increase by 82% to Forecast Summit. Speakers F predicts that almost 41,000 full-life base values which pro- 48,760 aircraft in 2034. include Spirit boss Ben commercial jets and turboprops vide a more realistic benchmark The forecast examines key Baldanza (above) as well as will be delivered over the next 20 than the inflated list prices often demand drivers and predictions the chief executives of years, worth over $2.8 trillion. used in forecasts. for deliveries by manufacturer JetBlue, Virgin America, and Produced by Flightglobal’s Ascend also evaluates the and annual fleet growth. An in- Frontier Airlines. consultancy arm Ascend, the retirement trend, estimating that depth commentary examines flightglobal.com report also examines the cargo around 19,000 jets and turbo- issues such as traffic growth, oil /ForecastSummit sector and forecasts that almost props will leave passenger ser- prices and aircraft financing. 2,000 passenger aircraft will be vice, some of which will be con- More on our forecast report FESTIVAL TIME converted to freighters over the verted for freighter use. and a summary download at: This year’s World Low-Cost 20-year period. Overall, the global commercial flightglobal.com/FleetForecast Airlines Congress is part of the Aviation Festival event taking place on 15-16 September at London’s LATIN LEADERS WEBINAR Business Design Centre. Airlines include Virgin HEAD TO ALTA America, Ryanair and KLM. MARKET DEVELOPMENTS Other events taking place Flightglobal consultancy include AirXperience, Aviation he movers and shakers Andres Conesa and IATA director arm Ascend holds its latest IT Show, Air Retail Show and from Latin America’s air- general Tony Tyler. commercial aviation Aviation Interiors. Tline industry will gather in Flightglobal is an official part- webinar on 8 September flightglobal.com/Festival San Juan, Puerto Rico, in Novem- ner of the event and the Airline (14:00 GMT), where our ber for the 12th annual ALTA Air- Business team will be on hand in leading consultants will line Leaders Forum. San Juan to cover all the news in examine the key This, the largest event of its three daily papers and online. developments in the industry DIGITAL type in the region, will take place flightglobal.com/ALTA and discuss the latest at the Sheraton Puerto Rico Hotel Flightglobal Fleet Forecast. and Casino on 15-17 November. Areas in the spotlight include ANDROID MOBILITY Hosted by ALTA executive direc- leasing markets and the rise The tablet edition of Airline tor Eduardo Iglesias, the forum in lessor ownership; aircraft Business is now compatible sets out to stimulate international values and lease rates; and with android mobile devices, dialogue to create a safer and the recovery of air freight. adding to existing more efficient air transport sector Our long-term appraisal compatibility offered with for the region. The event also cre- of airliner deliveries and iPads, desktops and laptops. ates a platform for networking retirements will examine Digital editions are available among members. whether demand can every month in tablet and Attendees include airline chair- justify the current and print replica format. Visit the men and senior executives as well planned production rates Airline Business online library as leaders from manufacturers, as well as the outlook for to download your free digital aviation-related organisations and main-deck freighters. editions by signing in at: local airline associations. Speak- For details on how to flightglobal.com/ ers include chief executives from register for free, visit:

AirlineBusiness several of the region’s major air- BillyPix flightglobal.com/webinar lines as well as ALTA president ALTA chief Iglesias hosts event

6 | Airline Business | September 2015 flightglobal.com/airlines Geneva Airport

A new pier dedicated to wide-body aircraft

Geneva is famous for its unique high-yield market: an ideal mix of business people, international delegates, expatriates, upmarket tourists and aɞuent local consumers 7o help airlines serve their customers eɝciently, reliably and comfortably, Genève Aéroport is launching a new pier dedicated to wide-body aircraft

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7his maMor investment reȵects our commitment to quality and service, international reputation and openness to the world

PDUNHWLQJ#JYDFK ZZZJYDFKEE BRIEFING INTERNATIONAL NeelemanGHIM-LAY YEO SÃO PAULO & WASHINGTON DC taps Europe link for Azul

Boss looks to close deal for stake in TAP Portugal as United and Star Alliance step up interest in Brazilian carrier

hile Brazil is increasingly ing in São Paulo in July as Avianca Wgripped by economic and Brazil formally joined Star, Pinto political challenges, fortunes are said TAP looks forward to the feed high at David Neeleman’s that Avianca Brazil will be able to fast-developing operator Azul. provide to TAP’s network. He says Interest in the carrier is strong, TAP and Avianca Brazil will with United Airlines investing in likely look at opportunities to Azul and Star Alliance courting codeshare in the future. the Brazilian operator. At the same While Neeleman’s plans for time Neeleman, who launched TAP include a close partnership Azul in 2008, has been looking with Azul, Pinto suggests “that’s further afield for the carrier by not a problem”, when asked about leading a consortium to acquire a the potential conflict since Azul 61% stake in another Star carrier, and Avianca Brazil are competi- TAP Portugal. tors. More partners in Brazil will In June Neeleman’s Atlantic “give more choices to customers”, Gateway consortium, which also he says.

includes Portuguese ground trans- Jane Shauck As for the codeshare with Gol, port entrepreneur Humberto Neeleman wants a European foothold for Azul via a stake in TAP Neeleman says that TAP will Pedrosa, won the race for TAP as retain that partnership “for now”, Portugual secured an investor at A350-900s in exchange for 14 Guarulhos and Rio de Janeiro. but Azul will receive priority for the second time of asking. In A330-900neos, which Neeleman TAP also flies nonstop between future Brazil-related co-operation. August Brazil’s competition reckons will better fit TAP’s future Manaus and Belem in Brazil. authority approved the acquisi- network plans. Neeleman also Neeleman believes there is UNITED FRONT tion of TAP Portugal and Neele- announced that TAP would ample potential for TAP to grow For its part Star Alliance sees man expects the deal to close at acquire 39 A321/A320neos. its network in North and South room for second Brazilian mem- the end of the third quarter. America, besides expanding in ber and has Azul in its sights. Neeleman’s involvement in BIG IN BRAZIL Europe and Africa. Of particular Links also tightened after Azul helping to turn around TAP will The acquisition of a stake in TAP interest is the US east coast. “A lot agreed to sell a 5% stake to Star let the Portuguese carrier and would help Neeleman’s Azul gain of cities along the eastern sea- carrier United Airlines for $100 Azul work together in numerous a foothold in Europe – a continent board have Portuguese immi- million. Initially focusing on a areas, he tells Airline Business. that may be a possibility for Azul’s grants. There are people who codeshare relationship and fre- These range from joint procure- network when the airline receives want to access not only Lisbon, quent flier agreement, further ment of aircraft to negotiating joint the first of its A350-900s in 2017. but also beyond the Lisbon hub to down the road, an immunised contracts for ground handling, TAP currently serves 12 cities cities in Europe,” he says. joint venture is “an option”, says fuel, airport and catering services in Brazil, data from Flightglobal’s TAP now serves only Miami Neeleman – especially when in Brazil among others, he says. schedules specialist Innovata and Newark Liberty in the USA, US-Brazil open skies are fully The two airlines already have shows. The airline’s “strong pres- while Azul operates to Orlando implemented from October. some fleet commonalities. TAP ence in Brazil” was a big reason and Fort Lauderdale – and plans Despite drawing closer to operates an all-Airbus fleet com- behind Neeleman’s interest in to add New York JFK in 2016. United, Neeleman says there are prising the A320 family, A330s acquiring a stake in the carrier, he Azul’s move comes as TAP gets no immediate plans to join the and A340s. Azul operates A330s says. TAP is the only airline oper- a new Brazilian partner through alliance – even though Star is on its US long-haul flights and has ating nonstop between Portugal Star Alliance’s new recruit Avi- known to be courting Azul. committed to the A320neo. and Brazil, offering more than 670 anca Brazil, on top of its existing “They are for sure,” says Neele- No sooner had Neeleman’s con- flights for July. Brazilian codeshare partner Gol. man. “There are no plans… we sortium been chosen as the win- The Portuguese carrier serves TAP Portugal chief executive don’t see a great need for that.” ■ ning bidder than plans for TAP’s 11 of the 12 cities nonstop from Fernando Pinto believes there is Read our 2014 cover interview fleet renewal were announced. Lisbon, and also operates from room for the airline to work with with David Neeleman at: TAP would drop its order for 12 Porto nonstop to both São Paulo several Brazilian carriers. Speak- flightglobal.com/interviews

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8 | Airline Business | September 2015 flightglobal.com/airlines

BRIEFING AMERICAS

GHIM-LAY YEO SÃO PAULO LATAM stands united in rebranding Parent defends timing of decision to launch single identity for LAN and TAM as region endures tough economic conditions

ATAM Airlines Group says Lits new single branding is an essential milestone in its journey The livery will debut to becoming a unified airline, on the group’s while justifying the investment aircraft in the first during a time of weakness in half of 2016 Latin American economies. The group, which controls LAN Airlines and TAM, ex- pects to spend at least $40 mil- brand is a child that needs to be lion rolling out the new brand- born. When you raise a child, ing across aircraft, airports and you want them to be better than uniforms, among others, and you,” he says. will invest more in related ex- penditures like marketing and COLOUR COMBINATION advertising. LATAM says the new logo incor- LATAM declines to disclose porates the colour indigo as it the total it expects to spend uni- was the “best of both worlds” be- fying under a single brand. tween TAM’s red and LAN’s blue. The livery will debut on the The livery will be applied to its group’s aircraft in the first half of fleet of more than 300 aircraft as

2016, with the branding rolled out LATAM they come through maintenance. gradually across the fleet over the Rebranding followed “heated discussions”, says Amaro – pictured “We are doing it in an intelligent next three years. (second left) with (left to right) Cadier, Sender and Cueto way,” says Cadier. “We will keep on investing in Cadier says the group’s first our business [despite the eco- ports financial earnings on a for opportunities.” Airbus A350, to be operated by nomic difficulties],” says LATAM joint basis, it still operates The airline expects to launch a TAM and expected to be deliv- chief executive Enrique Cueto. under separate brands in the new website for ticketing in 2016, ered by year-end, will feature “The idea behind a single brand different countries. at LATAM.com, as it works to the TAM livery rather than the is to be recognised by our passen- bring both LAN and TAM on to new branding. gers as a single carrier.” MORE COMPETITIVE the same reservations system pro- “We have a window in which Latin American countries have LATAM chief marketing officer vided by Sabre. TAM currently any change to the livery has to be faced slowing economic growth Jerome Cadier says the airline uses Amadeus. Cadier says that done 12 to 18 months in ad- and currency devaluation during group would be less competi- all the airlines should be on vance,” he says. recent months. Brazil, which tive if it continued operating Sabre by 2017. Meanwhile TAM chief execu- LATAM subsidiary TAM oper- with two brands. He acknowl- LATAM president Mauricio tive Claudia Sender says the air- ates in, has been hit the hardest. edges that the airline would Amaro acknowledges that the line is pushing ahead with plans LAN and TAM closed their prefer unveiling the new brand- creation of a new branding was for a new hub in the Brazilian merger in 2012, creating Latin ing during better economic con- not easy, as the process involved northeast, despite scaling back on America’s biggest airline group, ditions in the region, but adds: “heated discussions” from both domestic capacity. She says it with local subsidiaries in seven “Changes are not only for good sides and each brand had will serve as a gateway between countries. While the group re- times. We see this time as a time evoked strong emotions. “A new South America and Europe. ■ Avianca seeks chief as Villegas says ‘adios’ vianca’s chief executive through the end of 2015 as the from a Colombian financial AFabio Villegas will leave the airline seeks a successor. institution association, and had airline with effect from 2016, Villegas joined Avianca in also previously worked for the after more than a decade with the 2005 as president, shortly after Colombian government. Bogota-based carrier. the airline emerged from Chap- Villegas was named chief The Star Alliance carrier says ter 11 bankruptcy protection. executive of Avianca in 2010 Villegas is planning to pursue The airline was then undergo- and subsequently led the air- other professional interests, ing restructuring after German line through its merger with without elaborating on his Efromovich’s Synergy Group Central American airline group likely next moves. purchased a majority stake in Taca, which closed in 2010 to

He will continue to work in the carrier. form one of Latin America’s BillyPix his current positions at Avianca Villegas came to the airline largest airlines. ■ Villegas: Next move unclear

10 | Airline Business | September 2015 flightglobal.com/airlines

BRIEFING EUROPE

MICHAEL GUBISCH LONDON Costing out pan-European ambitions Network carriers Air -KLM and Lufthansa eye expansion of their low-cost arms in battle for short-haul sustainability

ir France-KLM and Luf- while Eurowings and sister Athansa are taking further carrier Austrian Airlines have unit steps to build pan-European costs “comparable” to EasyJet’s. operations through their low- Lufthansa has also indicated it cost brands as they continue could deploy Eurowings on routes attempts to restructure their from its main hubs. Eurowings costs on the highly competitive does not operate from Frankfurt short-haul sector. and Munich, but Menne says the The SkyTeam carrier is revisit- possibility of flights from ing its plans to develop its Munich “cannot be excluded”, leisure unit Transavia outside of albeit that there are no “short- its home markets of France and term plans” for such a move. the while Lufthansa in August established a new WHEN IN subsidiary in Austria to build up Transavia and Eurowings have pan-European operations for some ground to make up if they budget unit Eurowings. are to close the gap behind pan- Air France-KLM Group ini- European duo EasyJet and

tially proposed expanding lei- Sipa/Rex Shutterstock Ryanair. Closer behind is IAG sure arm Transavia as a pan- Air France-KLM is keen to push Transavia beyond its home market unit , Europe’s fourth larg- European low-cost carrier with est low-cost operator by passenger bases outside France and the Transavia base outside France name ceasing to be a customer- number, which has already Netherlands last summer. But it and the Netherlands is to be facing brand. expanded with bases beyond its prompted a two-week strike by opened during the summer of The first of these bases is home market – most notably at the Air France pilots in September 2016. However, he declines to being established in Vienna Italian capital, Rome. 2014. Management eventually specify potential locations or and was incorporated in But Vueling chief executive droped the proposal in order to the number of such bases. August as Eurowings Europe. Alex Cruz does not foresee any end the walkout – which the Subsequent fresh setbacks in The unit will “serve as the “Rome-style” base openings for airline said had been responsi- talks reported in the French starting point for further the Spanish low-cost carrier in the ble for a €500 million ($633 mil- media suggest there is some way growth”, says Lufthansa. next couple of years. lion) drag on EBITDA – and to go on the issue yet. A first Airbus A320 is to be agreed to pursue a “made-in- Transavia led Air France-KLM based in the Austrian capital this France” solution for Transavia’s expansion over the summer, winter, with a second to follow operations in the country. capacity increasing almost 8%, next March. Eurowings will serve Eurowings is However, Air France-KLM while overall group capacity was , London Stansted, envisaged as the chief executive Alexandre de capped at under 2%. Majorca and Rome from Vienna. third-largest budget Juniac on revealing wider first Transavia’s passenger numbers Lufthansa management has airline in Europe half group losses, said pilot union increased nearly 9% during the for some time said growth SNPL – which represents two- second quarter and almost 10% initiatives will be directed to thirds of Air France pilots – sig- across the first half of 2015. subsidiaries such as Eurowings nalled at the end of June that it However, Transavia’s operat- for as long as there is no reduc- Cruz says the Barcelona-based would be willing discuss a poten- ing loss widened 17% to €75 tion in costs at Lufthansa’s carrier does not intend to make tial expansion of Transavia out- million. Air France-KLM attrib- operation. any “multiple aircraft base side its two home countries. utes this mainly to seasonal ca- The group expects increased investment[s]” but could “open De Junaic argues such discus- pacity changes at Transavia’s pressure from EasyJet and up tactically another airport or sions are “urgently” required to Dutch operation, which is being Ryanair in the autumn as the two two” in Europe using single air- “boost” the establishment of restructured from its leisure car- low-cost carriers grow their craft, as it has done previously at Transavia as a European low- rier role to a budget model. operations in . Amsterdam and . cost carrier outside its home Group finance chief Simone Vueling opened its Rome Fiu- market. He adds that the first SPREADING ITS WINGS Menne says Germanwings’ micino airport base in March Under Lufthansa’s group performance over the past 2012, and Cruz says routes there strategy, Eurowings is envisaged two-and-a-half years shows the are “trading well”. The carrier is as becoming Europe’s third- success of the unit’s hybrid busi- “seeing improvement on unit 9% largest low-cost carrier after ness model. The group says Ger- revenues on the routes”, espe- EasyJet and Ryanair, establishing manwings will finish this year in cially on domestic services to Increase in several bases across the conti- profit for the first time. southern , he adds. ■ Transavia second nent. This will see Eurowings However, she says German- Read more on low-cost carriers quarter passengers merged with its existing low-cost wings’ unit costs are higher than via our premium news service: unit Germanwings, the latter those of EasyJet and Ryanair, flightglobal.com/dashboard

12 | Airline Business | September 2015 flightglobal.com/airlines BRIEFING ASIA IndiGoAARON CHONG SINGAPORE and Qatar flirt over tie-up

Partnership talks as India’s largest low-cost airline prepares IPO prompt speculation that Gulf carrier could invest

he potential tie-up under dis- do 5%. We would always take a Tcussion between IndiGo and bigger share.” could enable the Gulf carrier to gain a strong foot- LACKING CODESHARE hold in India and access to sig- The analysts add that a partner- nificant local traffic flows via the ship with IndiGo will also further country’s largest low-cost air- expand Qatar’s Airways’ reach line. into India, since it does not have IndiGo has long been in Qatar a codeshare partner in the region. Airways’ sights, with chief exec- FlightMaps Analytics from utive Akbar Al Baker saying last Flightglobal’s Innovata sched- year that he was “very interested ules specialist shows Qatar Air- to talk” to the Indian carrier ways flies to 12 cities in the sub- about some form of partnership. continent from Doha. IndiGo, Speculation about a tie-up has however, does not operate ser-

been growing since Qatar Air- Airbus vices to Qatar’s Doha base, but ways recently dismissed talk of IndiGo flies to Dubai and Muscat, but doesn’t serve Doha rather to Dubai and Muscat from plans to acquire a stake in Indi- 11 cities in India. Go’s local rival SpiceJet and tion filed a draft IPO prospectus, took a 10% stake in IAG earlier Chih believes such a partner- stated that IndiGo was the sole disclosing plans to raise Rs12.7 this year. Unlike Etihad, Qatar is ship would likely benefit Qatar Indian carrier it was talking to. billion ($78 million) through the also likely to be “more conserva- more, as it could make Doha However IndiGo, which is in sale of 30.1 million shares. tive” with its investment, and “the gateway to the West” by lev- the midst of launching an IPO, any acquisition will likely start eraging IndiGo’s passengers orig- called reports of a stake sale to RIVAL ADVANTAGE small in order to “test waters”, inating from India’s Tier 2 cities. Qatar Airways “completely The consistently profitable Hui says. Hui, however, warns of a baseless”, clarifying that it was IndiGo is an attractive option for Rajiv Chih, director of aero- potential stumbling block: “It only in preliminary discussions Qatar Airways, given its consist- space and defence at Pricewater- will be difficult to work with about “potential marketing ent performance in recent years houseCoopers, says IndiGo’s pri- connectivity between these two arrangements”. while other Indian carriers have ority is, however, getting listed, airlines, as one is a premium car- Analysts say such open flirta- struggled. Gulf rival Etihad Air- which will also drive up the rier and one is a budget carrier.” tion between the two carriers ways has already gone down the value of the airline. Amid the Qatar speculation, could result in them getting inti- acquisition path to gain access to “At present, the IPO is of fore- SpiceJet also rebuffed talks of a mate, although chances are this the Indian market, taking a 24% most importance to IndiGo and stake sale but says it is open will only happen after IndiGo stake in Jet Airways, and the two would value [it] at $4 billion, to raising funds via an issue of completes its listing. In early July, carriers have been working six-and-a-half times the market new shares. Chief financial IndiGo parent InterGlobe Avia- closely to align their networks. value of its nearest competitor officer Kiran Koteshwar tells “IndiGo is a lucrative airline Jet Airways, and 18 times that of Airline Business that any finan- after posting six straight years of SpiceJet,” he elaborates. He is of cial movement by the airline profit, while majority of the the view, however, that Qatar will most likely “be an issue of 12 Indian carriers made losses,” will aim to take a 49% stake in fresh equity”. ■ says Michael Hui, an analyst at Indigo, since it will want to have Cities served by Flightglobal’s Ascend consul- a significant say in the airline. The home of Airline Business Qatar Airways on tancy. This corroborates a recent on the web is on the Airline Indian sub-continent He adds that Qatar could also media report quoting Al Baker as Channel of flightglobal.com: be on a “shopping spree” after it saying: “We don’t go and just flightglobal.com/airlines

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flightglobal.com/airlines September 2015 | Airline Business | 13 BRIEFING MIDDLE EAST & AFRICA Changing of the guard again at SAA Acting chief Nico Bezuidenhout returns to Mango after implementing action plan but long-term investment questions remain

ith no clarity around any understood to be in an acting cial problems grew critical, ing flights between Abu Dhabi, Wstrategy for an outside capacity.” Bezuidenhout added which put the airline back on a India and South Africa. SAA investor at South African Air- the acting SAA role to his exist- firm enough footing for it to final- pulled its own Johannesburg- ways, acting chief executive Nico ing position as the head of Mango ise its financial results and secure Mumbai service in April as part Bezuidenhout has returned to his for the second time in as many an additional finance ministry of its network overhaul. position at the helm of low-cost guarantee of R6.48 billion ($565 But SAA has also been linked subsidiary Mango. He has been million). SAA is aiming to return with Emirates, with whom it replaced by the flag carrier’s to an EBIT profit in the next year already has a codeshare. Local general manager of human SAA has extensive and generate a bottom-line profit media reports suggested that in resources, Thuli Mpshe, also in codeshares with in the next five years. June it pulled out of plans at the the acting role. Etihad and now a Further ahead an investment last minute to sign a partnership The Star Alliance carrier says deal with Jet Airways partner could be an option to deal with Emirates. The two car- the decision was taken “follow- ensure long-term sustainability of riers have said only talks have ing consultation between the the airline, with the Gulf carriers taken place within the context of boards of directors at both SAA closely linked with interest in the their existing partnership. and Mango”, and that it was years in November 2014 in the southern African market. Another South African carrier, based on “internal operational wake of a board investigation into , which operates British requirements within the entire Monwabisi Kalawe for alleged ETIHAD OR EMIRATES? Airways franchise flights and SAA group”. misconduct. Kalawe resigned SAA has extensive codeshares budget operation Kulula, earlier It adds: “He [Bezuidenhout] from his post in April. with Etihad and in August this summer secured an airline led the implementation of the Bezuidenhout immediately signed a codeshare agreement investor after China’s HNA 90-day action plan at SAA and embarked on a 90-day plan to with Jet Airways – in which Eti- Group acquired a 6.2% stake in his deployment there was always stem losses as the carrier’s finan- had holds a 24% stake – cover- the airline. ■

14 | Airline Business | September 2015 flightglobal.com/airlines BRIEFING FINANCE

LAURA MUELLER LONDON Deal clears path for Iran fleet renewal Following nuclear pact, analysts see leasing as most likely route for airlines looking to replace their ageing inventories

here’s no doubt huge poten- could “almost force” Iranian air- Ttial exists for manufacturers lines towards used aircraft, sug- to sell a large number of aircraft gests another lessor. into Iran following the recent “These airlines need aircraft nuclear agreement between six sooner rather than later, so I can’t nations – but exactly what the really see how they can hold out, fleet will look like and how it will even though the lifting of the be financed is still being ham- sanctions will take time. It will mered out by the sector. most certainly have to be used Iran is littered with aircraft at aircraft, unless some slot-swap- the end of their useful lives, as ping goes on.” US and European sanctions – Airbus declined to comment

some in place since the Islamic Shutterstock Image Broker/Rex on what the agreement with the Revolution in 1979 – have pre- has the largest jet fleet, the bulk of which are Airbuses six nations would mean for Iran’s vented the nation from purchas- aviation sector, saying: “It has yet ing aircraft and spare parts. county needs to spend about $20 of the aircraft that need to be re- to be formalised and implement- However, the pact that Iran, billion on purchasing 400-500 placed and estimating demand ed. Once this takes place, we will the USA, Germany, France, the aircraft over the next decade to for 300 aircraft, Morris calculates evaluate what commercial impli- UK, China and Russia signed on rejuvenate the ageing fleet. that the financing required for cations it has in strict compliance 14 July in Vienna would lift However, Ascend’s head of those aircraft, based on 2015 de- with the accord.” these sanctions – including consultancy Rob Morris suggests livery pricing, will be in the re- Boeing likewise declined to those preventing the sale of that this may be an overestima- gion of $18 billion. comment on the implications. commercial aircraft – in return tion of around 100-200 units. Regardless of the aircraft type for a halt to Tehran’s nuclear “The replacement challenge is selected, some financiers believe weapons programme. evident with largely the whole fleet leasing is the natural choice for The 160 western-built jets fly- required to be replaced in the next The most logical Iranian airlines. ing with Iranian airlines have an 10 years, and with some element of step is for the “I don’t see direct orders, as I average age of around 23 years, growth,” he says. “I’d hesitate to region to ramp up imagine second- and third-tier les- Flightglobal’s Ascend Fleets da- agree that there is demand for 400 almost overnight sors – and those that are not pub- tabase shows. This compares aircraft in the next decade, but lic – would be very eager to put with an average age of 10 years probably agree that it could be in planes to work in Iran,” says one. for the 20,500 commercial jets the [vicinity of] 300 or so.” Leasing is the best method of that are in airline passenger ser- Demand in Iran, which is in- The forecast shows the mix of acquiring aircraft when “the vice globally. cluded in the Middle East region regional aircraft, single-aisles and odds are stacked against you, as Leading operators include Iran in Ascend’s Flightglobal Fleet twin-aisles remaining the same as in the case of Iran”, notes a Eu- Air, and Forecast long-term outook, is in the current fleet. That results ropean banker. He adds: “Leas- Mahan Air, which between them “probably masked” by growth in demand for around 80 regional ing is the first option when you operate more than half of the from the Gulf states, adds Morris. aircraft, 130 single-aisles and 90 need modern equipment, you country’s jet fleet. By applying generic delivery twin-aisles, says Morris. have to be quick, your credit is Iranian officials have said the values for the seating capacities He assumes average delivery not bankable, your capital base pricing of $30 million for region- and funding capabilities are IRANIAN AIRLINES – JET FLEETS al aircraft, $50 million for single- thin, and you have no access to Airbus Boeing Others Fleet total aisles and $110 million for twin- export credit support.” Mahan Air 29 2 15 46 aisles “on the basis that there However, the idea that leas- 13 5 10 28 will be a healthy slug of A330s ing will be the preferred option Iran Aseman Airlines 4 3714 in there”. in Iran is disputed by an airline 59 -14 fleet planning source, who in- Qeshm Airlines 5-712OUT WITH THE OLD sists that buying the aircraft will The most logical step, an operat- be a priority. - 7310 ing lessor argues, would be for “Outright purchases mean Iran Airtours -9 - 9 the region to “opt for vintage air- the airlines control the aircraft 261 9 craft and a bunch of spare parts, long term should the positive ATA Air 26 - 8and ramp up almost overnight”. sentiment erode in the future,” - 5- 5The lessor dismisses the pros- the source says. Iranian Naft Airlines - -3 3pect of a wave of new aircraft “This is extremely important Atrak Air 2-- 2orders “anytime soon” – for Boe- as they have been flying certain GRAND TOTAL 62 52 46 160 ing at least. aircraft since the Islamic Revo- NOTE: Data sorted largest to smallest for western-built passenger jet fleets in service Long lead-times for in-demand lution, and they don’t want to SOURCE: Flightglobal's Ascend Fleets database aircraft such as 787s and A350s be caught out again. ■ flightglobal.com/airlines September 2015 | Airline Business | 15 NOW’S THE PERFECT TIME TO EXTEND YOUR SUCCESS.

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German carrier holds its ground as it prepares to implement controversial GDS booking charge in the face of continued opposition from the corporate world

hree months since Lufthansa mover,” Schindler adds. “But we And there are those who con- Tdisclosed its surprise move are only a first mover on the net- tend the carrier is capitalising on reigniting efforts to tackle its distri- work carrier side – the LCCs the current strength of the airline bution costs, the Star Alliance car- already did [this].” sector to disrupt the traditional rier is pressing ahead with the One of Lufthansa’s complaints distribution chain. introduction of a charge on tickets about the existing GDS channels Lufthansa’s move to establish booked through GDSs which con- is that they do not enable airlines an agency portal, through which tinues to cause consternation in the to sell and personalise all options bookings can be made by the corporate travel sector. across the travel journey. TMC without incurring the tax, The German carrier will from has done little to appease corpo- the start of September add a €16 rations. Buyers and TMCs argue ($18) fee to all fares booked on Some believe the this does not allow comparison- the Amadeus, Sabre and Travel- scheme is a tactic shopping, ticket changes, refunds port GDSs. and a long-list of other standard Lufthansa is no stranger to to drive down fees GDS capabilities. forcing the pace of change in dis- paid to GDSs A number of major corpora- tribution after a lengthy wrangle tions across Europe and North followed its move to transfer America have already instructed booking fees to travel agents in their TMCs to direct bookings to 2008, before a new full-content This coincides with Lufthan- alternative airlines. While a agreement with Amadeus was sa’s roll-out of a new branded source from one major independ- brokered in 2010. concept for economy class on ent TMC based in the City of Lon- Now the Star Alliance carrier, short-haul flights, split into three don says the volume of segments which generates around 70% of bundled packages offering differ- it is booking on Lufthansa Group its bookings through the GDSs, is ent levels of service options. carriers is already plummeting. again pushing for change in the “It’s about having the freedom model. “We think we can do it. It of what we sell where, like other EXPLANATIONS WANTED might be a rocky road,” said industries have. GDSs are not While consternation about the up against predicted volumes Christian Schindler, Lufthansa’s completely offering all the capa- implications of the levy continues and negotiated rates with all pre- regional director for the UK and bilities. We’ve had to drive that to flower, the resentment levelled ferred suppliers. This surcharge Ireland, during a media roundta- change. We pay a higher price, at the German airline hitherto has has the potential to add millions ble in July. but we don’t get the service we been equally strong about the man- to the bill.” “We assume the industry will need,” argues Schindler. ner in which it was introduced – The Institute of Travel and move forward and we want to be That addresses the other key especially given that corporate Meetings – a professional body a mover. complaint from Lufthansa: cost. travel brings the airline its highest that represents travel buyers and With the GDS channel, “the cost yielding customers. managers in the UK and Ireland EARLY STAGES is much higher than other chan- The global travel procurement – also wrote to Lufthansa, urging “The reaction has been very nels”, says Schindler. “From our it to scrap, or at least delay, the diverse and a very emotional side, we want to put them on an plan. Simone Buckley, the organ- reaction,” he acknowledges, but equal footing.” isation’s chief, wants the airline’s adds: “We have had very produc- The €16 figure is the extra €16 bosses to engage with customers tive talks as well. Talks are ongo- amount Lufthansa calculates Lufthansa’s fee on and partners to map out a mutu- ing with the TMCs [travel man- bookings made through the GDS all fares booked on ally beneficial strategy. agement companies], the GDSs cost the operator. “Travel buyers appreciate a and the big companies that are But emotions continue to run GDS systems company’s right to manage its using our services. high in the global corporate travel own affairs and develop its own “It’s all early stages. The emo- community. Many industry lead- commercial strategy, but the bla- tional part is fading away and we ers believe the scheme is a tactic to director of a major Swiss invest- tant disregard for their interests are talking about business. cut segment fees paid to the GDSs, ment bank – one of Lufthansa’s in relation to this matter has left “The financial analysts said despite the fact that airlines like biggest customers – revealed he many people angry,” she says. this is the right thing to do. From Lufthansa generate most of their has since written to Lufthansa “It is beyond disappointing an outside point of view we are revenue from the channel. Others chief executive Carsten Spohr that the Lufthansa Group treats doing the right thing. believe it is an attempt to wrestle demanding an explanation. “I its loyal high-yield customers in “We are aware it’s a bold move. back control of customer data by was shocked when I heard,” he the same way as one-time book- It’s always a bold move as a first forcing them to book directly. admits. “Our budgets are drawn ers in the leisure sector.”

18 | Airline Business | September 2015 flightglobal.com/airlines Lufthansa intends to roll out the charge during September

intermediaries. Kurt Ekert, chief commercial officer at Travelport, told Airline Business: “We repre- sent [Lufthansa’s] most profitable channel of distribution. Direct distributions cost is making booking through the channel more punitive for its most valua- ble, highest yielding customers. “The strategy eliminates choice and hampers comparison-shop- ping,” he says. “But by agreeing to use our merchandising tech- nology, the airline is embracing the channel on one side, but mak- ing it more punitive to use on the other. It doesn’t make sense.” Lufthansa acknowledges the importance of the GDS to its busi- ness. “Seventy percent of our tickets are sold by GDS – we don’t want to change that,” says Schindler. “We want to work with the GDS and TMCs. They offer a variety of services we will

Lufthansa not offer. We are very open to what comes from the other end. In July the European Travel The President of the American We are talking to the GDSs con- Agents Association went down a We assume the Antitrust Institute, Diana Moss, tinuously [and] they will be our legal avenue by filing a com- industry will move argues that the current strength of partners in the future. plaint against the Lufthansa the sector has given airline chiefs “We are convinced distribu- Group with the European com- forward and we the power and confidence to push tion costs can be lower than they petition regualtors. want to be a mover through bold changes. are today with the GDSs. This is a The group argues the charge “These types of tools and tech- great opportunity to lower the breaches the computer reserva- niques we are currently seeing costs and increase the options for tions system code of conduct in would never have survived years the booker,” he argues. addition to other EC statutes. managed-travel community, Luf- ago and would be thrown out of “We don’t have time to wait Time will tell if Europe’s manda- thansa Group would, of course, the market, but now these ideas are and wait: the demand [for per- rins feel Lufthansa is abusing its create substantial collateral dam- gaining traction,” she says. sonalisation] from the traveller is dominant position. age and not just transfer costs, but “[It] is another move by an air- there today. Cost and technology Across the Atlantic, the Busi- create new costs within the indus- line to frustrate the industry, price both need to move,” he adds. ness Travel Coalition – Washing- try by effectively insisting on its discriminate, and hamper compe- Thus far no other airlines have ton-based lobby group – formed direct-connect strategy for its con- tition and control. This could be followed Luthansa’s lead in intro- the Air Channel Choice. The new tracted customers,” he says. very detrimental in forms of higher ducing a fee on GDS bookings, pressure group is being positioned Mitchell and his US associates prices and less availability.” though Lufthansa group finance as a broad coalition of global stake- made their voices heard at the chief Simon Menne says she holders promoting travel distribu- recent Global Business Travel TWIST IN THE TALE expected others to follow. As tion system choice for travel agen- Association convention in Perhaps the most ironic twist in September arrives plenty will be cies and customers. Orlando. In addition to a protest this saga to date was Lufthansa’s watching to see how Lufthansa’s Its chairman Kevin Mitchell networking drinks party – where announcement in late July that it move plays out. ■ says the charge would have nega- beverages could only be purchased had reached an agreement with tive worldwide implications for with €16 vouchers – a discussion Travelport GDS to use its content Read more on LCCs’ the competitive structure of the group was organised to evaluate and branding technology, which multi-channel approach at: industry. “In the process of seeking the potential consequences of the allows airlines to better sell prod- flightglobal.com/ to extract more revenue from the direct distribution cost. ucts and services through travel LCCdistribution flightglobal.com/airlines September 2015 | Airline Business | 19 INTERVIEW LUIS GALLEGO

REPORT OLIVER CLARK

PHOTOGRAPHY TOM CAMPBELL SPANISH REVIVAL Iberia is already unrecognisable from the ‘zombie’ Luis Gallego took over in 2013, but there will be no let-up in his efforts to revamp the corporate culture

20 | Airline Business | September 2015 flightglobal.com/airlines ou don’t have to go further than the way of thinking of the organisation,” Gal- Iberia’s Madrid headquarters to lego tells Airline Business. “We need an organi- “We were almost dying... get a sense of the new direction in sation [that is] leaner: we are developing new Y which chief executive Luis Gal- processes, we are still doing the restructuring We launched the lego is seeking to take the airline. of a lot of areas.” transformation plan to After more than 40 years at its old Campos While he says the Spanish carrier is only at stop the bleeding” Velazquez base and with offices spread across the “middle of the path” of its restructuring four other locations around the city, the IAG- efforts, there can be no doubt that it has come owned Spanish flag carrier made the decision a long way since Gallego took the helm in disappear altogether were not unfounded. to move to the sleek towers of Madrid’s MV49 March 2013. Back then Iberia was haemor- He explains Iberia’s 2012 response thus: business park in 2013. rhaging some €1 million ($1.1 million) a day. “We launched the transformation plan to stop Not only do the modern facilities of MV49 Efforts to restructure the company and down- the bleeding.” The target was a turnaround in provide the 88-year-old airline with some- size operations were stalled amid deadlocked profitability of at least €600 million from 2012 thing of a facelift – the building is equipped talks with unions, and relations between the levels, to bring Iberia up to IAG’s target of a with an onsite padel tennis court, for one two sides were at an all-time low. A €351 mil- 12% margin by 2015. To accomplish this, thing – the move allowed Iberia to consoli- lion loss was posted for 2012. tough targets were set – including 4,500 date its staff at one location, making opera- It is difficult to understate the parlous redundancies, removal of 25 aircraft from the tions more efficient and cutting costs. nature of Iberia’s finances during this period, fleet and a 15% cut to the network. Such a pragmatic approach to mod- which Gallego recalls as a time that the airline Gallego acknowledges that efforts to ernisation is emblematic of what Gal- was “in a very difficult situation: we were restructure the company were in motion lego sees as his role at Iberia: to alter almost dying”. He describes Iberia as having before he became chief executive, and says the carrier’s ethos. “We are changing been like a “zombie” and says fears it could the main challenge when he arrived lay in

flightglobal.com/airlines September 2015 | Airline Business | 21 INTERVIEW LUIS GALLEGO

winning the unions over to IAG’s plans. the right direction, and it’s a message of hope “We had a big gap in our costs with our to everybody”, Gallego says. competitors,” he notes. His blunt message to While being a member of IAG has helped unions: “We change Iberia or we kill Iberia.” Iberia in its turnaround thanks to efficiencies After that, “it took more than one year to – for example, in procurement and fleet reach an agreement”, Gallego recalls. “We had orders – an outsider may wonder how much difficult moments but we were convinced that freedom each airline has to choose its own if it we wanted a future for Iberia we needed path, given the strategic goals handed down to have an agreement, so at the end it was a by chief executive Willie Walsh and his team. question of [the unions] understanding that However, Gallego denies that he feels con- we wanted the best for Iberia.” stricted by membership of IAG. “Really we The breakthrough came in February 2014, are in a group where operators have a lot of when Iberia agreed new productivity pacts – freedom, because we have a holding company including voluntary redundancy programmes but the operators are responsible,” he says. “It up to 2017 – with cabin crew unions CCOO, is a group where you can do a lot of things as CTA Vuelo, SITCPLA and UGT, and with an operator that you cannot do in other pilot union SEPLA. groups in the industry, so to be honest I don’t A month later, the airline closed a labour see the group as a restriction – I see the group deal with ground staff unions, bringing to an as an opportunity.” end a volatile period of labour relations. The SPORTY GAMES Having sealed the productivity deal with benefits of those agreements were quickly felt. ground staff unions, Iberia was able to enter Losses were reduced to €166 million in As he was born in the Spanish capital, it and win a round of tenders to provide ser- 2013 and transformed into a €50 million oper- was inevitable Luis Gallego would have to vices at Spanish airports in May. Gallego sees ating profit before exceptional items in 2014 choose between the city’s bitterly rivalrous this as the start of a new period of profitability – a result that helped to lift IAG’s profits 80% football clubs Real and Atletico. He plumped for its ground handling division. to €1.39 billion that year. for Real – but also harbours an allegiance to He also has high hopes for Iberia’s MRO With transformation complete, Iberia has a less well-known team. division, which he says has an opportunity to moved to the next phase in its restructuring “Since I was a child, I was a supporter of provide services not “only to Iberia, but to the programme, dubbed the “plan de futuro”. Read Madrid... but I spent my life in Getafe rest of the group because with the things we – that is a village to the south of Madrid we are doing in Iberia [with] the four businesses he plan includes 32 initiatives bro- can see from these windows,” says Gallego, that we have – line maintenance, heavy main- ken down into five pillars, which pointing into the distance from the Iberia tenance, components and engines – we can be Gallego describes thus: “First is to offices. “So I was a supporter of Getafe and a provider of reference to the group”. Thave a solid revenue base; second also of Read Madrid, as Getafe was not in The closure of labour agreements with staff is to have simplicity and flexibil- the premier league. also allowed Iberia to begin growing its net- ity; the third one is to have a sustainable, com- “So usually on Sundays I went first in the work again after a period of retrenchment. petitive model; fourth, [for] the businesses morning to see Getafe and then in the Gallego describes the carrier’s route devel- that are not the airline – like the maintenance afternoon I would see Real Madrid.” opment strategy as a “blank sheet of paper”. and [ground] handling – we need them to Though he loves watching football, This is not to suggest that there is no strategy, help the result of the company and we need Gallego concedes he is “very bad” at playing but to emphasise that Iberia is being open- them profitable… and the last pillar is the cul- himself and prefers padel – a racquet game minded in its approach to new opportunities. tural change.” that has taken by storm. Following the decision by IAG to firm up a Gallego says the airline has in place “all the number of Airbus A330-200 and A350-900 measures” required to reduce costs as part of a orders on the back of Iberia’s strong financial restructuring process set to run from 2017 to performance, the carrier is now undertaking IBERIA AT A GLANCE 2020. He foresees Iberia making profits “in “profitability studies” into possible routes to line” with those of IAG sister carriers British Operating revenue $m 2014 5,626 cities including Tokyo, Doha, Johannesburg, Airways and Vueling in 2016. Change $ -0.1% Toronto, Guadalajara, Managua, San Juan in The carrier is still hopeful that 1,427 peo- Change local 0.8% Puerto Rico, Brasilia and Asuncion. ple will leave the company. Gallego says pro- The Latin American markets are at the core Operating margin 1.2% gress has been made, with 230 pilots having of Iberia’s business and Gallego says that, Net margin n/a agreed to voluntary redundancy out of a com- even during the difficult days, the carrier Year-end 31 Dec 2014 pany target of 244. He says the carrier is now remained a “market leader” in traffic between seeking 1,183 ground staff to accept redun- AB 2014 financial ranking n/a South America and Europe – a position he is dancy “in order to have the right ratio of peo- AB 2014 traffic ranking 37 determined to maintain and enhance. ple to aircraft that we need for Iberia”. RPK growth (2014) 2.9% From its Madrid Barajas hub, Iberia now Iberia’s decision to now start hiring new ASK growth (2014) 3.6% operates to 19 destinations in Latin America, pilots after a 11-year hiatus is “a message that Load factor (2014) 78.6% spanning most of the region’s biggest cities. things are improving, that we are moving in Iberia marked its return to the Cuban market

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in June after a two-year hiatus, with a five- network, its short-haul operations have fol- times-weekly service to Havana. Other destina- lowed a very different path. tions that have returned to the network include At the end of 2011, approximately two- Montevideo and Santo Domingo. thirds of the carrier’s losses were related to the On 3 July, the carrier began serving the short and medium-haul business, with low- Colombian cities of Cali and Medellin for the cost rivals such as Ryanair and EasyJet mak- first time – underscoring the point that Iberia is ing inroads into Iberia’s core markets. seeking to go where growth is. “We have started This prompted Iberia to establish its own Havana again: why? Mainly because now we standalone carrier on the low-cost model in have the right cost structure, because we also 2012 – – with a fleet of four have an agreement with pilots,” says Gallego. A320s in a two-class configuration on services “If the route goes well, we will increase the to feed Iberia’s Madrid hub. capacity in the future in the same way we have Gallego knows Iberia Express inside out, done for example in Santo Domingo.” To having been appointed as its first chief execu- cement the carrier’s position in the market, tive. Indeed, he already had the low-cost Gallego is looking at a joint venture with One- ethos in his blood (see box). world partner LATAM covering routes on the “In 2011, Iberia took the decision to launch South Atlantic market, on similar lines to the Iberia Express – and the idea of Iberia Express venture on the North Atlantic that Iberia oper- was first of all to feed Iberia in the hub, ates with and BA. CLICK AND GROW because Iberia could not have the right cost “What we are doing also is try to see if a structure to do that,” Gallego says. “It was also new JV can make sense for Iberia, for example Luis Gallego’s career was propelled by the to take [advantage of] the opportunity and in the South Atlantic where, as we said rise of the low-cost carrier concept in Spain. experience that we have, because a big part of before, we are the leaders in that market and After a stint with the Spanish air force, the thinking that developed [at] Iberia Express some alliances there can help with the profit- Gallego worked at airline , telecoms came from Vueling where we were develop- ability of the routes,” says Gallego, who also company Indra and, between 1997 and ing a point-to-point operation in Barcelona. sees opportunities to make Madrid a connect- 2006, in several positions with Iberia “We considered that Iberia Express could ing point for traffic between South America franchise partner . also be an important tool to develop the point- and Europe and onwards to Asia and Africa. But it was with the founding of in to-point operation in Madrid... and we consider Barcelona in 2006 that Gallego began to that Iberia had enough experience in the low- allego says Iberia is also analysing carve out a niche for himself. He was cost world to develop a company with the right “if Asia can make any sense for appointed chief operating officer of the cost structure, and that was Iberia Express.” us”, noting traffic flows between airline under chief executive Alex Cruz, What makes the carrier successful is its cost G Asia and South America that marking the beginning of a partnership that and management structures. Gallego says Ibe- could be directed through Madrid. would see the two men’s careers ria Express’s costs are in the range of €0.04 per To support its long-haul expansion, Iberia intertwined from then on. ASK excluding fuel: a similar to will receive the first of eight A330-200s at the With the decision by Clickair and Vueling, EasyJet and Norwegian. It was also end of the year. The carrier has a further five low-cost carrier Vueling to merge in 2009, “key”, he says, to ensure that the company A330-200s and 16 A350-900s on order, with Gallego and Cruz shifted their roles over to could develop “without influence from the the first due for delivery in 2018. These aircraft the Barcelona-based carrier, which became parent company... Otherwise you are going to will be used to replace 16 A340s in the airline’s the sole brand, and continued to expand end up with the cost of the parent company”. long-haul fleet. the business. Hence, Iberia Express has a standalone With IAG having signed a letter of intent for In November 2011, a new challenge management structure and is physically sepa- 12 Boeing 787-9s, could Iberia be in line to presented itself when Gallego was chosen rated from Iberia, being based at Madrid’s receive Dreamliners? Gallego stresses that “at by IAG to become chief executive of its new Barajas airport rather than MV49. some moment we will say what we are going operation Iberia Express, where he applied Today, it has a fleet of 20 A320s and is to do with them”, but for the time being there what he had learnt at Vueling. expanding its network to destinations not pre- are no plans for additional aircraft. “When we developed Iberia Express the viously served by its parent – but while the The Spanish carrier is currently mulling concept was the same, we wanted to budget arm is doing well, Gallego rules out the whether to follow BA in introducing a pre- develop a company we wanted the cost idea of it taking on a similar role to IAG sister mium economy product on its long-haul fleet. structure to be similar to the one we had at carrier Vueling. Iberia Express will remain a “What we are evaluating [is] whether the Vueling, and that’s the cost structure they feeder for the mainline business. premium makes sense, but we are analysing have now,” he says. Iberia may only be in the middle of its in which fleet because perhaps it is not good The success of Iberia Express helped restructuring effort, but all the indications are for all of them... For example, maybe we will propel Gallego to his promotion to chief that the carrier is on the right track. ■ need more densified aircraft to compete in executive of Iberia, where his close other destinations,” says Gallego. partnership with Cruz continues within the Watch our interview with Luis Gallego, along While Iberia has managed to restructure its IAG fold. with videos of other airline leaders, at: businesses and return to growing its long-haul flightglobal.com/interviews

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SPECIAL REPORT ALLIANCES

CONTENTS

28 Alliance evolution Our snapshot shows 38 Eastern opening Delta’s investment in the dynamics at play across the groupings China Eastern took its equity partnership 30 After the gold rush The big three are strategy into new territory striving to overcome members’ tensions 40 Alliances and joint ventures Our annual 36 Demanding conditions Transatlantic review details the latest airline codeshare capacity is rising despite yield pressures and partnership developments Design Pics Inc/Rex Shutterstock

Approaching two decades after their inception, the global alliances have reached a maturity, meaning their development now is less about recruitment and more around enhancing value for their members – no easy task, given the combination of widely differing models and the All our special reports are available online at : sometimes contradictory nature of airline partnerships flightglobal.com/airlines flightglobal.com/airlines September 2015 | Airline Business | 27 ALLIANCES SNAPSHOT ALLIANCE EVOLUTION

As the big three groupings mature so the pace of Joint venture recruitment has slowed, with just one new member with in the last 12 months, amid deepening relationships – and tensions – with non-aligned airlines

EMIRATES

Planned joint venture with Qantas

Set to rejoin CHINA EASTERN following acquisition by IAG 15 MEMBERS

AZUL

QATAR AIRWAYS Equity and codeshare deal with United, while ETIHAD owner Neeleman has acquired stake in TAP. Equity and codeshare Being courted by Star deal with . To sell Aer Lingus stake Acquired stake after IAG deal in IAG, but has threatened to leave Oneworld over Gulf carrier subsidy row

28 | Airline Business | September 2015 flightglobal.com/airlines Joint venture with Delta

VIRGIN AUSTRALIA Joint venture with shareholder Delta

Equity and codeshare deal with Virgin Australia VIRGIN ATLANTIC

ETIHAD SKYTEAM 20 MEMBERS

Codeshare with Air France-KLM, acquisition of stake in Alitalia

GOL

QANTAS

Partnerships with shareholders Delta and Air France-KLM Planned joint venture with China Eastern

VIRGIN AUSTRALIA

Partnerships with shareholders SIA and Air New Zealand

STAR ALLIANCE 28 MEMBERS

AVIANCA BRAZIL

Joined July 2015

flightglobal.com/airlines September 2015 | Airline Business | 29 ALLIANCES STRATEGY

REPORT GRAHAM DUNN LONDON MICHAEL GUBISCH WARSAW GREG WALDRON SINGAPORE AFTER THE GOLD RUSH After almost two decades of partner recruitment and expansion, the big three alliances are striving to ensure value for members, aiming to overcome the tensions inherent in having such diverse business models working together

hen Avianca Brazil joined member in Brazil – the emphasis has moved lines. All have codeshares and partnerships the ranks of Star Alliance from recruitment to deepening relationships. with airlines across the alliances, with Bang- in late July it was the first There is no “theoretical limit” to the num- kok Airways, for example, saying it prefers to W new addition to one of the ber of members, Star Alliance chief Mark remain independent to enjoy the freedom to three major groupings Schwab told Airline Business as executives work with any carrier it desires. since Air India joined the same alliance a gathered for the alliance’s board meeting in The fundamental question facing the big year ago. Warsaw in June. But 18 years after its founda- three alliances in the region is not the addi- This illustrates the maturity of the alliances tion, the alliance has reached a mature phase tion of new carriers, of which there a few after the recent growth spurts at both One- and its “focus is shifting from building a net- qualified candidates, but providing value for world and SkyTeam. Between 2011 and 2014 work to building value”, says Schwab. existing members. Given the ownership pro- there were 19 new members – although that This is echoed by his counterparts at One- files of major carriers in the region, it is clear includes two which switched camps – among world and SkyTeam. alliances have reached a certain status quo in the three alliances. By comparison, this year Asia-Pacific. Avianca Brazil could be the only new addi- TAPPING ASIA “Once an airline is in an alliance, it takes tion to an alliance, depending on how quickly Much of the recent recruitment activity – rep- something pretty big to make them want to Aer Lingus rejoins Oneworld should IAG resenting almost half of the new alliance leave it,” says IATA chief executive Tony complete its acquisition of the Irish carrier. members over the last five years – has been Tyler. “One thing that can cause this is owner- Beyond that, none of the alliances have new focused on Asia. But with the alliance entries ship changes, which can push them to change members pending. of SriLankan Airlines and Air India to One- Getting on for two decades and 63 live world and Star Alliance respectively in 2014, members – and five ex-members – since their more or less all of the flag carriers in the “Alliances have to inception, the alliances predominantly have region have found a home in one of the accommodate growth most of their battlegrounds covered. Much of camps. what recent activity there has been was Outliers include Philippine Airlines, Paki- at different paces” driven by consolidation. For example, US stan International Airlines, Biman Bangla- GIORGIO CALLEGARI Airways and TAM switched to Oneworld fol- desh and North Korea’s Air Koryo. In theory, Deputy general director, Aeroflot lowing their respective mergers, and TAM’s Myanmar could one day produce a large move prompted Star to seek Avianca Brazil to flag carrier, but for the time being its airline alliances, and we have seen a bit of that, but help fill the void in Brazil. sector is highly fragmented. Cambodia has no that is not a major issue in Asia because own- Others, such as last summer’s revived major airline to speak of, and Lao Airlines is a ership is pretty stable owing to government recruitment by Star of Air India, addressed modest operation. involvement in the industry. Alliances will some of the few remaining holes for the alli- High-profile, non-flag outliers with no alli- continue increasing their presence here and ances. While some gaps remain – Star, for ance affiliation include Thailand’s Bangkok keep driving competition.” example, continues to see room for a further Airways, Virgin Australia and Hainan Air- Michael Wisbrun, managing director of

30 | Airline Business | September 2015 flightglobal.com/airlines Rex Features

SkyTeam and becoming chairman of the Korean Air and Vietnam Airlines. Air China, Shenzhen Airlines, Air India, Air group, notes that in a world where consolida- Oneworld has enjoyed strong growth in the New Zealand, All Nippon Airways, Asiana tion of airlines across national borders is often region as well. The alliance’s cornerstone in Airlines, EVA Air, Thai Airways and Singa- restricted by law, alliances offer “the next best the region is Cathay Pacific Airways, and it pore Airlines. thing to consolidation”, as they provide scope added in 2013 and SriLan- “Airline alliances were driven by the need for carriers to enjoy economies of scale. He kan last year. to reach a broader market, while constrained estimates that codeshare growth among air- “With that hectic period of growth behind by the limits of the airline regulatory frame- lines outpaces organic growth on a scale of us, and with fewer significant unaligned air- work,” says Joanna Lu, head of the Asian arm three to one. lines remaining as potential recruits, our of Flightglobal’s Ascend advisory service. “It is far more effective to expand your focus for the past year has been on generating “They were initially most effective as mar- reach through codeshares than through your more revenues for our member airlines,” says keting alliances rather than a means of cost own fleet,” Wisbrun says. “For the Chinese Oneworld chief executive Bruce Ashby. reduction. A key benefit was offering a carriers, it makes a lot of sense to partner Star Alliance’s Asia-Pacific line-up features broader network to customers, meaning in with carriers overseas, rather than grow many cases better connections through key organically. Bringing capacity to a place is alliance hubs. The hubs offering the best con- one thing, but you need a market on the nections will gain the biggest share of con- other side to fill this capacity in a decent, 63 necting traffic. A recent study we conducted profitable way.” for a major Asian airport implies that alli- SkyTeam’s roster includes two of China’s Number of ‘live’ members in ances have greater impact for hub airports top three airlines, China Eastern and China the three major global rather than for airlines.” Southern. Its other Asian carriers include Tai- airline alliances Smaller airlines have pointed to the costs of wan’s China Airlines, Garuda Indonesia, joining an alliance as a disincentive, and there flightglobal.com/airlines September 2015 | Airline Business | 31 ALLIANCES STRATEGY

is the sheer scale of work involved in signing associate memberships – under which Star forms, where it makes sense, is another up. Lu reels off an imposing list of items carri- recruited Adria Airways, Blue 1 and opportunity,” Schwab adds. ers need to deal with when joining an alliance. Airlines, while SkyTeam added Rival alliance Oneworld offers affiliate These include agreements around ticketing, and Kenya Airways – before absorbing the membership to carriers linked to its major baggage, joint fares and reciprocal airports. carriers as full members. Both are now study- members, such as Iberia Express and Cathay Other items include blocked-space relation- ing an affiliate option. Pacific’s Dragonair unit. More recently, Bang- ships, computer reservations systems, joint “We continue to explore this idea – are kok Airways’ flights have been added to its ventures, joint sales offices, e-commerce joint there smaller regional carriers that we could round-the-world fare offering. ventures, frequent flyer programme alliances, plug into the ends of our network without Wisbrun says that its “SkyTeam Connect” traffic/revenue pooling, and codesharing. having them become full members of Star programme is still in a development phase, And if the recent experiences of SriLankan Alliance?” says Star’s Schwab. but will be aimed at allowing for easier con- and Malaysia Airlines are anything to go by, nections with member carriers. alliance membership is by no means a rem- “We are discussing with, for instance, Gol,” edy for all challenges. Although improved “For Chinese carriers, it he says. “It makes sense for Gol, which is co- revenue was one of SriLankan’s reasons for makes sense to partner operating with 13 members of SkyTeam to joining Oneworld, it is still losing money. with carriers overseas” make operational connections with SkyTeam As for Malaysia Airlines, it was haemor- technology.” rhaging cash even before the disasters of MICHAEL WISBRUN SkyTeam carriers Air France and Delta MH370 in March 2014 and MH17 four Managing director, SkyTeam have deep partnerships with the Brazilian months later. A few weeks before MH370 van- carrier, while Korean Air is the latest ished it reported that its annual net loss for While those airlines involved would be SkyTeam member to codeshare with it. That 2013 tripled to MYR1 billion ($263 million). required to have IATA operational safety could allow for easier rebooking in the case of Exactly 12 months before this, company exec- audit (IOSA) registration and undergo a Star a flight disruption, and access to the alliance’s utives had described its 2012 entry into One- safety audit, they would not be required to other airport services. world as the “dawn of a new era”. offer the full range of the alliance’s services. Wisbrun says that as a low-cost carrier, “An airline’s profitability is based on its Schwab says that markets such as Aus- SkyTeam Connect would mean that the car- local position,” says SkyTeam’s Wisburn. “If tralia, parts of South America and Africa are rier would not have to be a part of the other they are getting attacked locally, they have to the major geographies where such a model working groups and meet requirements of full find their own solution. There is no one rec- could help to plug gaps not covered by its pre- membership. Similarly, smaller Chinese car- ipe for dealing with this situation.” sent roster of 28 carriers. riers could also join the platform, allowing the That second tier could be opened to low- alliance to fill smaller gaps between its mem- AFFILIATE SCHEMES cost and regional carriers, as well as those ber carriers there. With the key battlegrounds covered, the alli- affiliated to its members. ances are turning their attention to plugging “Many of the full service carriers are mov- SMALL GAINS smaller gaps across the globe. Both Star Alli- ing a lot of their regional services on to differ- The question of whether alliance membership ance and SkyTeam initially ran regional or ent platforms, and connecting those plat- delivers equal value for both large and small carriers is “a good one”, acknowledges Rick- ard Gustafson, chief executive of long-time Star member SAS Group. Alliances are especially important for small carriers as they provide access to global net- works, but while such carriers represent “no downside” for large members, traffic on the “global highways” of long-haul travel is largely determined by a sub-group of airlines within Star forming individual partnerships, says Gustafson. He still believes Star provides “significant” benefits for all members, but sees a need for the alliance to “reinvent” itself in line with the shift from establishing a global network and seamless travel for passengers to sharing more resources and data between airlines. Elsewhere in Star, EgyptAir chief Sameh El-Hefny sees no conflict in having a two-tier system. Large alliance members need to have exclusive privileges, he argues, and the

Star Aliiance smaller members still gain “lots of benefits” Star has welcomed just one member annually over the last three years from participating in the alliance, including

32 | Airline Business | September 2015 flightglobal.com/airlines access to shared facilities, such as London NEW GLOBAL ALLIANCE MEMBERS – LAST FIVE YEARS Heathrow’s Terminal 2, and more attractive frequent-flyer programmes. In any case, joint Star Alliance SkyTeam Oneworld ventures between airlines tend to reflect not 2015 (1) Avianca Brazil – – carrier size but geographical location, argues 2014 (5) Air India Garuda Indonesia TAM*, US Airways*, El-Hefny. SriLankan Airlines For Lufthansa Group chief Carsten Spohr, 2013 (3) Eva Air – Qatar Aiways, Malaysia Airlines joint ventures are “a further step toward con- 2012 (8) AviancaTaca, Copa, Saudia, MEA, Aerolineas Air Berlin solidation” – which, he says, is “urgently” Ethiopian, Shenzhen Airlines Argentinas, Xiamen Airlines required. In Spohr’s view, the future develop- 2011 (2) – China Airlines, China – ment of airline alliances will be a factor both Eastern Airlines * of the number of airlines competing in the Switched from Star Alliance following merger with Oneworld member. SOURCE: Flightglobal marketplace – particularly in Europe – and of differences in airlines’ corporate make-up. another airline – Mikosz supports the consoli- to be “cornered” by American, “then there is “Alliances provide no protection from con- dation argument too. “We [as an industry] no purpose to be in an alliance”. solidation,” he says, albeit that “perhaps they should consolidate,” he says, as today’s frag- American for its part says it is working with slow it down” for small operators. Consolida- mented airline landscape “is not helpful in Qatar to find a solution for the airline’s gate tion has not taken place yet because, Spohr the long term”. needs at JFK. “The times that Qatar has asserts, airlines “do not adhere to the law of Mikosz also sees a need for “a new bal- requested for gates conflict with the times we business economics”. While some carriers ance” between general airline alliances and use our gates, and a solution will take some time compete on a purely commercial basis, others joint ventures among select members. to work out,” it says, adding it has turned down depend on state support. SkyTeam and Oneworld face similar bal- similar requests from other partner airlines. Spohr accepts that joint ventures are avail- ancing acts between the larger members, If nothing else, it illustrates the difficulty air- able primarily to large carriers. But he con- which have established joint ventures in key lines will have in separating the spiralling sub- tends that such tie-ups create neither disad- markets, and the smaller operators within the sidy battle from the wider operational picture. vantages nor benefits for small alliance group. “Tensions” within airline alliances over members. how to deal with rapidly expanding carriers Sebastian Mikosz, chief executive of Polish WIDENING GULF need to be addressed or members “will look flag carrier LOT, takes a different view, how- Similarly further adding tension to harmony for alternatives”, warns Aeroflot’s deputy ever. He sees joint ventures as “very problem- within the alliances is the divided positions general director for strategy and alliances atic” because they create sub-organisations in the industry over the expanding Gulf carri- Giorgio Callegari. with a mutually shared business that is ers. Etihad and Emirates – avowed non-alli- “Alliances have to be flexible enough to “much closer” than is typical within an alli- ance members – have key relationships with accommodate airlines growing at different ance framework. alliance carriers, while Qatar Airways has paces and, as a result of that, airlines that In July LOT detailed an expansion strat- been a Oneworld member since 2013. are making different kinds of investments,” egy, centred on long-haul growth, to be pur- The latter provides the most high-profile he says. sued when a state-funded restructuring pro- challenge, given that its alliance partner The Russian carrier, a SkyTeam member gramme concludes at the end of 2015, American Airlines is one of the three US car- since 2006, has previously pressed for an freeing the carrier from European Commis- riers at the heart of the dispute with the Gulf easing of restrictions on deals with airlines sion-imposed capacity restrictions. Now, carriers over subsidies. from other alliances, and in 2013 hired US LOT must find an investor – or raise capital Already Qatar’s outspoken chief executive consultancy Oliver Wyman to make a com- through share issuance – to fund a planned Akbar Al Baker has raised the spectre of quit- parative study of benefits from operating doubling of the fleet. ting the grouping over the row. within SkyTeam and collaborating with out- Mikosz says LOT benefits from access to sider airlines. Star’s network, the alliance’s terminal facili- “If alliances are too dependent on protect- ties and, crucially, its brand – which, he “Alliances provide no ing the incumbent carriers, that’s where we admits, is much more globally recognised protection from have an issue, because instead of representing than that of LOT. But the advantages for the consolidation” progress they represent a straitjacket.” carrier have so far been “at a much lower level The three alliances have different positions than they should be”, he adds. CARSTEN SPOHR on carriers working with non-alliance – or He believes LOT must play “a more active Chief executive, Lufthansa Group competing alliance – members, with One- role” within Star including through efforts to world appearing the most relaxed. Schwab build joint ventures with other members. “If we find that we can’t find a settlement to though says Star has also “liberalised” some of Shortly after the Star board meeting in War- this issue, than yes, we will exit Oneworld,” regulations around how carriers interact with saw, LOT unveiled formative co-operation Al Baker said during the Paris air show. non-aligned carriers or those in rival alliances. plans with Star partner Turkish Airlines as a He suggests that American was “blocking “There are genuine commercial needs in first move towards a future joint venture. inventory” on passenger booking systems and certain sectors in certain parts of the world And as LOT requires external investment preventing gate access for Qatar at New York that cannot be solved within the alliance fam- to pursue its growth strategy – ideally from JFK airport, and argues if his carrier continues ily,” he says. ■ flightglobal.com/airlines September 2015 | Airline Business | 33 www.rolls-royce.com/trent1000

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REPORT EDWARD RUSSELL WASHINGTON DC DEMANDING CONDITIONS Overall airline capacity across the Atlantic remains on the rise despite pressures on yields, exacerbated for US carriers by the weakness of European currencies against the strong dollar

he question of demand continues its Star Alliance joint venture partners Luf- senger revenue per available seat mile to envelope the transatlantic mar- thansa and United. (PRASM), Delta Air Lines an 11.5% decrease ket this year, as airlines add capac- When asked to explain the reason for sig- and United Airlines a 6.4% decline in the sec- Tity despite weaker results in the nificant international capacity additions, the ond quarter. first half. Montreal-based Star Alliance carrier’s senior “In core European markets, we saw Carriers are piling on seats between North director of network planning Mark Galardo improved US point-of-sale demand, but this America and Europe, with capacity increas- said in late 2014: “We’re trying to make-up for was more than offset by a reduced point-of-sale ing 5.9% to 13.1 million in the third quarter lost ground,” referring to the restructuring demand in Europe and the effect of the weaker and 7.4% to 10.4 million in the fourth quarter and labour woes that Air Canada faced during euro,” says Ed Bastian, president of Delta. compared with a year ago, Capstats data the past decade. shows. The third quarter roughly coincides He argued that with costs decreasing faster DELTA CONNECTIONS with the IATA summer schedule, widely seen than yields, the carrier can profitably absorb The SkyTeam carrier is scheduled to increase as peak season across the Atlantic. the rapid growth. seat capacity by 9.6% in the third quarter and Airlines have added a number of new 8.1% in the fourth quarter, Capstats shows. markets. Air Canada and its low-cost subsid- However, executives have repeatedly said the iary Air Canada Rouge launched new ser- “We’re seeing a little bit airline will reduce growth in the market from vices and increased frequencies from their of a mix of pressure on September so the actual number of additional Montreal and Toronto hubs to Amsterdam, yield and load factor” seats is likely to be less. Athens, Barcelona, Paris and Venice; Air Delta’s partners are growing as well. Joint France and KLM added new flights to CRAIG KREEGER seat capacity with Air France, Alitalia, KLM Edmonton and Vancouver; Delta Air Lines Chief executive, Virgin Atlantic and Virgin Atlantic Airways, with whom it entered the Philadelphia-London Heathrow operates transatlantic joint ventures, will market and American Airlines retaliated Making up for lost ground or not, the com- increase 7.6% in the third quarter and 9.1% with additional frequencies; while United bined pressure of capacity growth and the in the fourth quarter. Airlines added new seasonal routes to Dub- strong US dollar is taking a toll on industry London-based Virgin Atlantic is leading lin, Newcastle, Rome and Venice. yields across the Atlantic. the growth. The carrier has been redeploying The euro was down almost around a fifth aircraft and adding flights to the USA and CANADIAN EXPANSION against the US dollar at €1.10 to $1 in early Delta hubs since the two launched their Air Canada is one of the faster growing carri- August compared with a year earlier, while immunised partnership in January 2014, cre- ers in the market. It is scheduled to fly 10.9% the pound was down 7.7% at £1.55 to $1 on ating a more formidable competitor to the more seats across the Atlantic in the third the same day. American- joint business. quarter and 8% more seats in the fourth quar- The currency situation has driven declines “We’re seeing a little bit of a mix of pres- ter compared with the same periods in 2014, in passenger unit revenues at the US carriers. sure on yield and load factor although the Capstats shows. This far outpaces growth at American Airlines reported a 9.3% fall in pas- summer generally is a great period for us,”

36 | Airline Business | September 2015 flightglobal.com/airlines Reaching out: Delta’s partner, Virgin Atlantic, is leading transatlantic growth Rex Shutterstock said Craig Kreeger, chief executive of Virgin TRANSATLANTIC SEAT CAPACITY THIRD AND FOURTH QUARTERS 2015 Atlantic, on the transatlantic market in June. “I’d describe [the revenue environment] as Q3 2015 Q4 2015 Seats Change % Seats Change % kind of flattish.” American, British Airways, and Iberia 3.1m 0.6 2.5m 3.9 However, he added that low fuel prices more than outweigh the flattish demand in Air France, Alitalia, Delta Air Lines, 3.9m 7.6 2.9m 9.1 KLM and Virgin Atlantic the market and are likely to drive profits at Air Canada, Lufthansa and United Airlines 3.5m 6.0 2.5m 2.7 the airline. British Airways and Iberia parent INDUSTRY TOTAL 13.9m 5.9 10.4m 7.4 IAG also saw a flat demand environment dur- ing the first half of the year. As a result, it is SOURCE: Capstats, covers transatlantic JV operations, Delta has separate JVs with Virgin and with Air France-KLM & Alitalia one of the more disciplined groups in the market with BA seat capacity down 2.7% in work and range of product in the market and, an airlines and aerospace analyst at Stifel. the third quarter and down 1.2% in the fourth from October, all of the joint business part- “My expectation is capacity will be down into quarter, Capstats shows. ners’ operations will be consolidated in either the winter season.” Iberia’s seat capacity is set to decrease 7.8% Terminal 3 or Terminal 5 at London Heath- in the third quarter and increase 2.5% in the row, further easing things for travellers. CUTS AHEAD fourth quarter. Still, the strong transatlantic capacity European carriers are driving much of the growth this year echoes the weaknesses that growth while US carriers are more disciplined, FRESH DELIVERY was seen by many in 2014. That year, Air he says, adding that airlines are varying – or “We’re taking delivery of a lot of new aircraft France-KLM and Lufthansa both lowered peaking – capacity more between the high and we’re pointing a lot of that new product profit targets due in part to their own capacity demand summer season and the lower demand across the Atlantic,” says Sean Doyle, execu- additions and those of competitors across the winter this year. While almost every carrier cuts tive vice-president of the Americas at the Atlantic. Other airlines also reported weaker capacity from summer to winter, some are peak- Oneworld carrier. demand conditions. ing more than others. Delta and United will both For example, BA has deployed its new Air- “Capacity growth on the Atlantic has make larger cuts to fourth quarter transatlantic bus A380s on flights to Los Angeles, San picked back up quite a bit,” says Joe DeNardi, seat capacity compared with third quarter Francisco and Washington Dulles and new capacity this year versus 2014. Boeing 787s to Austin, Newark and Toronto “The great thing about our network and our in recent years. “Capacity growth on the fleet is its flexibility,” says Jim Compton, chief Doyle is confident about BA’s strength in Atlantic has picked back revenue officer of Star Alliance carrier United. the London-New York market, even as Delta “So what you’re seeing in the transatlantic is and Virgin Atlantic have mounted a co-ordi- up quite a bit” that fleet flexibility going up, allowing us to nated effort to capture share. He says Ameri- JOE DENARDI gauge appropriately to the demand we expect can and BA offer the “most compelling” net- Aerospace analyst, Stifel in the fourth quarter.” ■ flightglobal.com/airlines September 2015 | Airline Business | 37 ALLIANCES CHINA

REPORT EDWARD RUSSELL WASHINGTON DC

Delta’s stake in China Eastern EASTERN took its equity partnership strategy into new territory, becoming the first overseas carrier to invest in one of the OPENING big Chinese airlines

elta Air Lines is taking its grow- Becker sees “further upside” from the deal over ing equity partnership model to the $100 million benefit Delta anticipates from China with an investment in its the restructuring of its Asia-Pacific network. D SkyTeam partner China Eastern “The investment will give Delta access to Airlines, improving both carri- another connecting hub in Asia and enhance ers’ positions across the Pacific. Delta’s Asia-Pacific strategy,” she says. This follows nearly two years of comments on the importance of China to the Atlanta- NEW GATEWAY based carrier’s Asia strategy by chief execu- Delta began restructuring its Asia network tive Richard Anderson and other executives. around a new gateway at Seattle-Tacoma Inter- “In a decade, it would be to replicate national airport in 2013. It has launched new the joint venture structures we have in Europe services to Hong Kong, Shanghai Pudong, and move them to China,” Anderson said in Seoul Incheon and Tokyo Haneda (discontin- October 2013. He has repeated the sentiment ued from 30 September) from the gateway and multiple times since. reduced flying to Japan and its Tokyo Narita While not a joint venture – that requires open hub, including axing its Seattle-Osaka service. skies between the USA and China – the $450 The aim is to increase direct flights into million investment in Shanghai-based China Asia from the USA and reduce the reliance on Eastern includes an expanded codeshare part- Tokyo Narita as a connecting hub. nership, a new joint corporate sales office for the “We now have a very detailed plan together market and joint investment in new products over the next decade to grow Shanghai into a

and technology. The carriers became co-located Delta Air Lines strong hub,” Anderson says. “China Eastern and in terminal 1 at Shanghai Pudong International Delta gains a connecting hub in Asia Delta [will] share flying across the Pacific, Delta airport in April, a move aimed at easing connec- does the domestic flying in the USA for the part- tivity between their networks. domestic routes in the USA, 43 in China and nership and, of course, China Eastern does all of Delta chief revenue officer Glen Hauenstein seven transpacific routes. the flying in China beyond Shanghai.” said in January that the airline connects on The investment and codeshare expansion Delta already has stakes in Aeromexico, its average 200 passengers daily between its net- will improve the airlines’ position in the SkyTeam partner, as well as Gol and Virgin work and China Eastern over Shanghai. dynamic US-China market. Delta had a 10.5% Atlantic Airways. The US carrier has taken its Delta and China Eastern have filed a joint share and China Eastern a 15.1% share of seats partnership with Virgin one step further with an notice with the US Department of Transporta- between the two countries in July, Innovata immunised joint venture between the USA and tion to expand their codeshare. Delta will FlightMaps Analytics shows. This places them UK, and is seeking a similar partnership with place its code on China Eastern’s flights fifth and third, respectively, in the market. Aeromexico, pending regulatory approval. between Nanjing and Los Angeles, as well as Their combined market share of 25.6% is Delta’s planned investment will net it 10% of between its gateways in China – Beijing and second to only the partnership of market lead- China Eastern’s H shares on the Hong Kong Shanghai Pudong – and six Chinese cities ers Air China and United Airlines. stock exchange, equal to a 3.55% stake. It will including Guiyang, Tianjin and Zhengzhou. Airlines have rapidly expanded in the US- also gain an observer seat on China Eastern’s China market in recent years. Seat capacity board of directors. It marks the first overseas WINNING CODE was up 30% this July compared with a year stake in a Chinese state-owned carrier. China Eastern will place its code on Delta’s new ago and nearly 63% since July 2013, Innovata But the US carrier’s interest in participating flights between Shanghai and Los Angeles, as shows. Every airline has added new routes and in the restructuring plan for Japan’s Skymark well as on all Delta flights from its US gateways flights since 2013. This includes Delta flights Airlines came to nothing, after creditors voted – Los Angeles, New York JFK and San Francisco from Los Angeles and Seattle to Shanghai, and in favour of Star Alliance carrier ANA Holdings. – to 15 US cities including Austin, Denver and China Eastern flights linking Nanjing to Los It is a further sign of an increased invest- Raleigh-Durham. Angeles and Shanghai to San Francisco. ment appetite among the highly profitable US This will complement Delta and China The investment will likely be a boon to Delta carriers, which also saw United Airlines take Eastern’s existing codeshare that covers 30 in Asia. Cowen Securities analyst Helane a small stake in Brazilian partner Azul. ■

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:RUOG5RXWHV+RVW ALLIANCES SURVEY DATAALLIANCES COMPILED BY FLIGHTGLOBAL INSIGHT ANALYSIS AND BY GRAHAM DUNN JOINT & FLIGHTGLOBAL INSIGHT VENTURES

Our annual review of the industry's groupings details new codeshares, joint venture developments and partnership news for members of the three main global alliances, as well as those for the most active non-aligned carriers

STAR ALLIANCE STAR HOPES TO MAKE IT THIRD TIME LUCKY IN BRAZIL

Star Alliance, still the largest of the global keen on Azul as a member. Azul is the alliances, is the only one of the groupings to third-largest Brazilian domestic carrier in have added a new member in the last 12 terms of market share, followed by Avianca months, with the addition of Avianca Brazil in Brazil, which has a 9% share. “The alliance late July. has always maintained the position that the Brazil, the largest domestic market in the market is large enough to sustain two region, had become a high priority again after members,” says Schwab. the loss of TAM, which switched allegiances “We have had ongoing discussions with to Oneworld last year after its merger with their team,” he says, but he notes that Azul LAN – a long-term member of Oneworld. TAM has been “extremely busy” of late and that had itself marked Star’s second Brazilian the grouping wants to wait for “the dust to

partner after the demise of . Star Alliance settle” before resuming talks. Azul founder The São Paulo-based carrier will add 15 Third time around: Avianca Brazil fills a and chief executive David Neeleman has just new destinations in Brazil to Star’s network, gap left by TAM, but Azul interest remains bought a stake in TAP Portugal, while another on top of the 12 its members already serve. Star partner, United Airlines, has bought a Sister carrier Avianca is already a Star 24 destinations, predominantly in Brazil. The share in Azul. member. “We are back again where we carrier, which operates 41 aircraft, serves Neeleman told Airline Business in July that belong,” says Star Alliance chief executive only Bogota outside its home country. the airline had not decided if it wanted to join Mark Schwab. While the airline re-establishes Star’s Star, although he acknowledged that the Avianca Brazil has over 200 daily flights to presence in Brazil, the grouping is also still alliance had been actively pursuing the carrier.

ADRIA AIRWAYS AIR INDIA Codeshares: 31 EGYPTAIR Member since: 2004 Member since: 2014 Partners/stakes: Lufthansa Group Member since: 2008 Codeshares: 11 Codeshares: 14 carrier and part of its transatlantic Codeshares: 19 New: Air India New: Adria Airways and Japanese JVs ETHIOPIAN AIRLINES AEGEAN AIRLINES AIR NEW ZEALAND AVIANCA Member since: 2009 Member since: 2010 Member since: 1999 Member since: 2012 Codeshares: 22 Codeshares: 14 Codeshares: 21 Codeshares: 12 New: Aegean Airlines New: Air Serbia, Ethiopian Airlines Partners/stakes: Joint venture on Partners/stakes: Part of wider Trans-Tasman routes with Virgin group since TACA merger EVA AIR AIR CANADA Australia, in which it now owns 26%. Member since: 2013 Member since: 1997 Planned JV with Air China AVIANCA BRAZIL Codeshares: 10 Codeshares: 26 Member since: 2015 New: Turkish Airlines New: Germanwings ALL NIPPON AIRWAYS Codeshares: 1 Partners/stakes: Joint venture Member since: 1999 LOT POLISH AIRLINES with United Airlines on USA-Canada Codeshares: 30 BRUSSELS AIRLINES Member since: 2003 flights and with Lufthansa and Ceased: Qatar Airways Member since: 2009 Codeshares: 18 United on flights to Europe Partners/stakes: JV now on cargo Codeshares: 27 New: Air Serbia, Croatia Airlines and passenger flights with United Partners/stakes: Lufthansa Group Partners/stakes: Signed LoI on AIR CHINA on Japan-US routes, and Lufthansa carrier and part of its transtlantic possible JV with Turkish Airlines Member since: 2007 carriers to Europe. Stake in Peach JV with United Airlines Codeshares: 30 Aviation; control of Vanilla Air LUFTHANSA New: Air Serbia, Swiss COPA AIRLINES Member since: 1997 Ceased: US Airways ASIANA AIRLINES Member since: 2012 Codeshares: 30 Partners/stakes: Holds 30% of Member since: 2003 Codeshares: 8 Partners/stakes: Group includes plus majority stakes Codeshares: 26 New: TAP Portugal Austrian, Germanwings, Swiss, in Dalian Airlines (80%), and New: Copa, SriLankan Airlines Eurowings, as well as part-owned Shenzhen Airlines (51%), as well as Partners/stakes: Air Busan (46% ) CROATIA AIRLINES Air Dolomiti and Brussels Airlines. 31% in Tibet Airlines. Planning joint Member since: 2004 Sold JetBlue stake. JVs with group ventures with Lufthansa and Air AUSTRIAN Codeshares: 13 partners from Europe to North New Zealand Member since: 2000 New: KLM, LOT, Singapore Airlines America with Air Canada and

40 | Airline Business | September 2015 flightglobal.com/airlines United Airlines and to Japan with ANA; working on JV with GLOBAL ALLIANCES IN NUMBERS Air China ALLIANCES: MARKET SHARE SCANDINAVIAN AIRLINES Member since: 1997 Codeshares: 24 Non-aligned New: Etihad AirwaysEN 36.2% Ceased: Aeroflot Oneworld 19.0% SHENZHEN AIRLINES Member since: 2012 Codeshares: 12 Partners/stakes: 63.8% Part of Air China group, 80% stake in Kunming Alliance traffic share

SINGAPORE AIRLINES Member since: 2000 Codeshares: 26 SkyTeam New: Star Alliance 20.8% Croatia AirlinesEN 24.0% Partners/stakes: Partnership with Virgin Australia, in which it has 22%. Tigerair stake raised to 56% NOTES: Based on RPKs for 2014 Top 200 passenger rankings and alliance members outside top 150 SOUTH AFRICAN AIRWAYS Member since: 2006 Codeshares: 23 STAR ALLIANCE SWISS INT'L AIR LINES Member since: 2006 Revenue $196bn Codeshares: 24 Operating profit $8.9bn New: Air China Partners/stakes: Lufthansa Group Net profit $3.7bn carrier and part of its transatlantic and Japanese JVs SKYTEAM TAP PORTUGAL Member since: 2005 Revenue Codeshares: $156bn 25 $4.2bn New: Copa Airlines Operating profit Partners/stakes: Consortium led Net profit $0.5bn by Azul owner David Neeleman is acquiring 61% ONEWORLD THAI AIRWAYS Member since: 1997 Codeshares: 23 $148bn New: Oman Air Operating profit $4.0bn Partners/stakes: Nok Air (49%) Net profit $2.1bn

TURKISH AIRLINES SOURCE: Airline Business World Airline Rankings Member since: 2008 Codeshares: 36 New: EVA Air, Philippines Airlines ALLIANCE NETWORKS WEEKLY SCHEDULED OPERATIONS Partners/stakes: Signed LoI on Weekly global operations September 2015 possible joint venture with LOT Destinations Countries Frequencies Capacity (ASK) Total Duplicates Served (’000) (bn) Share UNITED AIRLINES Star Alliance 1,213 470 192 133 38.8 23.5% Member since: 1997 Oneworld 954 355 154 95 28.5 17.3% Codeshares: 30 SkyTeam 1,037 347 177 116 31.3 19.0% Partners/stakes: Joint venture TOTAL ALLIANCES 98.6 59.9% with Air Canada/Lufthansa Group NOTES: Analysis based on weekly Innovata schedules for 14-20 September 2015. ASK = Available seat-kilometre. 1 mile = 1.609km. on transatlantic, ANA on Japan, Air Share is of total nonstop scheduled capacity offered. Destinations are airports served Canada on Canadian flights. Taken small stake and partnering Azul flightglobal.com/airlines September 2015 | Airline Business | 41 ALLIANCES SURVEY

SKYTEAM CANTARUTTI TAKES ON CEO ROLE AT CONSOLIDATING SKYTEAM

After a recent partner recruitment drive swelled co-operating with 13 members of SkyTeam, to its ranks to 20 member airlines and as it make operational connections with SkyTeam marks its 15th anniversary, the focus for technology.” SkyTeam carriers Air France and SkyTeam has shifted to the next stage of the Delta both have deep partnerships with the grouping’s development. Brazilian carrier, while Korean Air is the latest Garuda Indonesia, which joined SkyTeam in SkyTeam operator to codeshare with it. March 2014, is the only new airline addition That could allow for easier rebooking in the over the last two years. case of a flight disruption, as well as access to But the alliance is working on an affiliate the alliance’s other airport services. programme that would allow airlines on the Wisbrun says that for a low-cost carrier, periphery of the alliance to access parts of its SkyTeam Connect would mean that the airline technology platform. would not have to be a part of the other SkyTeam chief executive Michael Wisbrun, working groups and requirements of full who replaces Leo van Wijk as chairman of the membership. grouping this November, says that the Delta Air Lines executive Perry Cantarutti will SkyTeam Connect programme is still in a succeed Wisbrun as SkyTeam Team chief development phase but will aim to allow for executive. Cantarutti is Delta’s senior

easier connections with member carriers. vice-president for Europe, the Middle East and Skyteam “We are discussing with, for instance, Gol,” Africa. He joins the alliance management team Top job: Delta’s Cantarutti becomes CEO he says. “It makes sense for Gol, which is during September. as Wisbrun takes SkyTeam chairman role

AEROFLOT Partners/stakes: Etihad owns DELTA AIR LINES France and Alitalia, is part of Member since: 2006 49% stake. Transatlantic joint Member since: 2000 transatlantic JV with Delta. Holds Codeshares: 27 venture partner with Air France, Codeshares: 20 a minority stake in Kenya Airways. New: Garuda Indonesia KLM and Delta. Seeking to New: Shanghai AIrlines Wide-ranging codeshare with Ceased: SAS renegotiate JV covering Franco- Partners/stakes: Holds 49% Etihad Italian routes with former key shareholding in Virgin Atlantic AEROLINEAS ARGENTINAS stakeholder AIr France-KLM Airways, with which it operates KOREAN AIR Member since: 2012 a UK-USA route JV. Transatlantic Member since: 2000 Codeshares: 8 CHINA AIRLINES JV with Air France, KLM and Codeshares: 33 New: Etihad Airways, Korean Air Member since: 2011 Alitalia. Minority stakeholder and New: Aerolíneas Argentinas, AIr Codeshares: 17 partner with Aeromexico and Gol. Europa, American Airlines, Gol AEROMEXICO New: Bangkok Airways JV with Virgin Australia on Partners/stakes: Holds a 44% Member since: 2000 USA-Australia flights. Planned stake in Czech Airlines Codeshares: 13 CHINA EASTERN AIRLINES stake and partnership with Partners/stakes: Plans to launch Member since: 2011 China Eastern MIDDLE EAST AIRLINES JV on US-Mexican routes with Codeshares: 23 Member since: 2012 minority stakeholder Delta in 2016 New: Virgin America GARUDA INDONESIA Codeshares: 10 Partners/stakes: Majority stakes in Member since: 2014 AIR EUROPA Shanghai Airlines and China Codeshares: 24 SAUDIA Member since: 2007 Eastern Airlines Wuhan, and 33% of New: Aeroflot, Bangkok Airways, Member since: 2012 Codeshares: 15 still-to-launch Jetstar Hong Kong. Hong Kong Airlines, Oman Air Codeshares: 8 New: Korean Air Seeking JV with Qantas on Australia- China. Planned link-up with Delta, KENYA AIRWAYS TAROM AIR FRANCE which is set to take a stake Member since: 2007 Member since: 2010 Member since: 2007 Codeshares: 16 Codeshares: 13 Codeshares: 51 CHINA SOUTHERN AIRLINES Ceased: TAAG Angola Partners/stakes: Part of Air Member since: 2007 Partners/stakes: KLM holds 27% VIETNAM AIRLINES France-KLM Group. With KLM and Codeshares: 20 stake in the airline; Kenya Airways Member since: 2010 Alitalia, is part of transatlantic JV Ceased: Malaysia Airlines hold 49% stake in Tanzanian Codeshares: 21 with Delta. Stake has dwindled in Partners/stakes: Holds a 39% regional carrier Precision Air Partners/stakes: Holds a 70% Alitalia, which is renegotiating the stake in Sichuan Airlines and stake in Vietnamese low-cost JV JV on Franco-Italian routes. Holds majority stake in Xiamen Airlines KLM Jetstar Pacific small stake in Gol. Extensive Member since: 2000 codeshare with Etihad CZECH AIRLINES Codeshares: 46 XIAMEN AIRLINES Member since: 2001 New: Croatia Airlines, Oman Air Member since: 2012 ALITALIA Codeshares: 20 Partners/stakes: Part of Air Codeshares: 10 Member since: 2001 Partners/stakes: Korean Air owns France-KLM Group, which has JV Partners/stakes: Majority-owned Codeshares: 32 44% stake, Travel Service 34% with Alitalia. Together with Air by China Southern Airlines

42 | Airline Business | September 2015 flightglobal.com/airlines ONEWORLD AER LINGUS SET FOR SECOND ONEWORLD

After its busiest period of expansion, it has have the Irish airline enter Oneworld and its been a quiet year for Oneworld, with no new transatlantic joint venture – with Oneworld additions. But a familiar face, in the shape of partners American Airlines and Finnair – if its Aer Lingus, is set to return. takeover bid succeeds. Oneworld membership was boosted with the It would be familiar ground for Aer Lingus, arrival between October 2013 and April 2014 which was one of the earliest members of of Qatar Airways, former Star Alliance pair US Oneworld, having joined the grouping in 2000. Airways and TAM, and SriLankan Airlines. But the airline quit the alliance in April 2007 to Oneworld membership stands at 15 after US pursue its own low-fare strategy and form new Airways was integrated into American Airlines. partnerships with other carriers. US Airways and TAM switched camps as a Should it rejoin Oneworld, Aer Lingus – result of their mergers with Oneworld members already the only airline to leave one of the global American Airlines and LAN, respectively. Now alliances to become independent of its own another carrier, Aer Lingus, seems to be volition – would become the first airline to rejoin following a similar path. IAG, the parent of the same grouping. Oneworld carriers British Airways and Iberia, is Etihad Airways had also moved to include the closing in on its acquisition of Aer Lingus after Irish carrier as part of its equity-alliance

securing shareholder support and conditional ShutterstockImageBroker/Rex partnership strategy, acquiring a 4% stake in Aer approval from European regulators for the deal. Coming home? Aer Lingus set to rejoin Lingus. But Etihad has said it will sell this stake IAG plans to retain Aer Lingus’s brand and Oneworld eight years after leaving if IAG gains control of the Irish operator.

AIR BERLIN American Airlines and European Partners/stakes: Part of JV with QATAR AIRWAYS Member since: 2012 partners Finnair and Iberia; Joint American Airlines on flights to the Member since: 2013 Codeshares: 22 venture on Japanese routes with USA, and with British Airways and Codeshares: 15 New: Bulgaria Air, Jet Airways and Finnair Finnair on European services New: Partners/stakes: Etihad holds a Partners/stakes: Acquired a 29% stake in the airline and Air CATHAY PACIFIC LAN AIRLINES near 10% stake in British Airways Berlin codeshares with a number Member since: 1998 Member since: 2000 and Iberia parent IAG in early of Etihad’s main partners Codeshares: 19 Codeshares: 12 2015 New: Flybe New: Interjet AMERICAN AIRLINES Partners/stakes: Part-owned Partners/stakes: The merger with ROYAL JORDANIAN Member since: 1998 (30%) by Star Alliance carrier Air TAM to create LATAM Airlines Member since: 2007 Codeshares: 33 China. Cathay owns Oneworld Group also saw the Brazilian Codeshares: 13 New: Interjet, Korean Air, SriLankan affiliate Dragonair carrier join it in Oneworld in New: Qatar Airways Airlines March 2014. Has unveiled plans Partners/stakes: A merger FINNAIR to operate with TAM under single with US Airways, which brought Member since: 2000 LATAM brand Member since: 2010 the latter carrier into Oneworld in Codeshares: 21 Codeshares: 21 April 2014, has now been Partners/stakes: Part of American MALAYSIA AIRLINES New: Air Moldova, Montenegro completed and the carriers Airlines, British Airways and Iberia’s Member since: 2012 Airlines have been operating under a transatlantic JV, and BA’s joint Codeshares: 29 single AOC since April. venture with Japan Airlines on Ceased: China Southern SRILANKAN AIRLINES Transatlantic joint venture with routes from Europe to Japan Member since: 2014 British Airways, Finnair and Iberia QANTAS Codeshares: 13 in April. JV on Pacific flights with IBERIA Member since: 1998 New: American Airlines, Jetstar Japan Airlines. Expanding Member since: 2000 Codeshares: 25 Asia partnership with Qantas on Codeshares: 27 New: JetStar Japan Australian-USA flights. Recent New: AirBaltic, Interjet, TAM Partners/stakes: Launched TAM codeshare deal with SkyTeam Partners/stakes: Part of IAG along wide-ranging partneship with Member since: 2014 member Korean Air with British Airways and Vueling; Emirates in April 2013, ending Codeshares: 13 operates immunised transatlantic Kangaroo route joint venture with New: Iberia, JAL, Passaredo BRITISH AIRWAYS JV with American Airlines and British Airways. Is expanding its Partners/stakes: The merger with Member since: 1998 European partners British Airways partnership with American LAN to create LATAM Airlines Codeshares: 20 and Finnair Airlines on Australian-USA flights Group also saw the Brazilian Partners/stakes: Is part of IAG, and is also seeking authority for carrier leave Star Alliance after along with Iberia and Vueling, and JAPAN AIRLINES JV with China Eastern on four years to join rival Oneworld. potentially soon Aer Lingus. Member since: 2007 Australia-China flights. Its Jetstar Parent LATAM has unveiled plans Operates an immunised Codeshares: 28 low-cost unit is involved in a to operate with LAM and TAM transatlantic joint venture with New: TAM number of carriers in the region under single LATAM brand flightglobal.com/airlines September 2015 | Airline Business | 43

ALLIANCES SURVEY

NON-ALIGNED ETIHAD FINDS STRUCTURE FOR PARTNERS

After its busy period of acquiring airline stakes in support of its equity-alliance partnership strategy, Etihad has put the focus on deepening co-operation across its partners. In unveiling the Etihad Airways Partners concept last October, the boss of the Abu Dhabi carrier, James Hogan said the initiative will create “synergies and efficiencies for participating airlines on the one side, and enhanced network choice, service and frequent-flyer benefits for the consumer on the

other”. He argues that Etihad Airways Partners Etihad differs from legacy airline alliances by offering Joined-up thinking: Etihad aims to maximise co-operation through its partner initiative benefits beyond pure commercial co-operation. Etihad Airways Partners consists of Etihad, former Air France executive Bruno Matheu to the Irish carrier. Air Berlin, Air Serbia, Air Seychelles, India’s Jet the new position of chief operating officer Despite the recent capture of Avianca Brazil, Airways and Darwin Airline, which operates as equity partners, last December. Star Alliance continues to eye Brazilian Etihad Regional. However, Etihad says any The airline has not added to its ranks, operator Azul to boost its presence in that airline can become an Etihad Airways Partners though it did in January lift its stake in Virgin market. Oneworld already has TAM in its camp member even if it is part of an existing alliance. Australia to 24% using “creep provisions” following the latter’s merger with LAN, while Alongside its equity partners, it has a struck a provided for in Australia’s corporation laws. SkyTeam has a close relationship with Brazilian series of codeshare deal as part of its efforts Star Alliance carriers Air New Zealand and operator Gol. Air France and Delta Air Lines to rapidly gain scale. Singapore Airlines hold 26% and 22% stakes both have small investments in Gol, while The new brand included “standardised respectively in the Australian carrier. Korean is the latest to codeshare with it. mileage and tier benefits across all partners, Of the non-aligned carriers, only Aer Lingus meanwhile is hoping to no blackout periods and priority services”, is on course to join an alliance – or in its case reach a preliminary decision on alliance adds Etihad. rejoin – as it is set to be reacquainted with membership by the end of this year, as it That was supported by the appointment of Oneworld once IAG completes acquisition of reinforces its preference for Oneworld.

ALASKA AIRLINES Partners/stakes: Close ties with including Jetstar Japan and Jetstar VIRGIN AUSTRALIA SkyTeam partners – Air France-KLM Hong Kong Codeshares: 13 Codeshares: 10 and Delta both hold small stakes Partners/stakes: JV with 26% EMIRATES TRANSAERO shareholder Air New Zealand on Codeshares: 16 HAINAN AIRLINES Codeshares: 9 trans-Tasman flights. Operates in New: Bangkok Airways, Flybe Codeshares: 11 New: Ural Airlines partnership with Singapore Partners/stakes: Joint venture Partners/stakes: Part of HNA Airlines, which holds a 22% stake; with Qantas on flights between Group, which also has stakes in VIRGIN ATLANTIC operates a partnership with Etihad Australia and Europe via Dubai China’s Lucky Air (68%), Aigle Azur Codeshares: 8 Airways, which holds a 24% (48%) and now Comair (6%) Partners/stakes: SkyTeam carrier shareholding. Also operates a JV ETIHAD AIRWAYS Delta holds a 49% stake in the partnership on US routes with Codeshares: 46 JET AIRWAYS airline, with which it operates a JV Delta Air Lines New: Aerolíneas Argentinas, Hong Codeshares: 20 covering routes between the UK Kong Airlines, SAS New: Air Berlin, Air Seychelles, and USA. This is separate from WESTJET Partners/stakes: Its equity alliance Bangkok Airways Delta’s transatlantic JV with Air Codeshares: 13 strategy includes stakes in Air Partners/stakes: Wide-ranging France-KLM and Alitalia New: Philippines AirlinesNA Seychelles (40%), Air Berlin (29%), co-operation with Etihad and its Virgin Australia (24%), Air Serbia, partners, after the Gulf carrier (49%), Etihad Regional (33%), Jet acquired a 24% stake in the airline SURVEY NOTES Airways (24%) and most recently This year's Airline Business alliance survey features codeshare, joint Alitalia (49%), though will sell 4% JETBLUE venture and partnership highlights for all the global alliance members, as Aer Lingus stake. Wide-ranging Codeshares: 11 well as partnership activity for selected non-aligned carriers. Total number partnerships across these airlines, New: Royal Air Maroc of codeshares are listed for each carrier. New and ceased codeshares while co-operating with carriers from Partners/stakes: Lufthansa sold highlight some of the main changes since August 2014, but is not an the global alliances, including Air its 19% stake in JetBlue exhaustive list of all changes. Partner/stakes details do not necessarily France, KLM and Air Canada cover all those owned by the airline, but focus on key relationships and JETSTAR joint ventures. Information is sourced from survey returns, company GOL Codeshares: 4 information and Flightglobal. A full listing of codeshares is available to Codeshares: 10 Partners/stakes: Qantas unit has subscribers on Flightglobal’s dashboard. For more on this premium news New Korean Air developed several JV carriers, service, visit: flightglobal.com/dashboard flightglobal.com/airlines September 2015 | Airline Business | 45 FOCUS CREW MANAGEMENT

PEOPLE WATCHING With budget overruns a potentially significant issue for airline management teams, LEK Consulting’s John Thomas examines ways that crew costs can be better managed

ost airline chief executives, rupted pairings are small, the actual cost ■ Post-processing system limitations chief financial officers and could be very high because both the origi- Given the complexity of the typical collective chief operating officers nal crew and the covering crew have to be bargaining agreements, crew payroll is either M believe crew costs (cockpit paid, potentially at overtime rates. In one handled by a pre-programmed “black box” or, and cabin crew), which typi- example, an airline spent approximately at some airlines, calculated manually. Yet this cally can account for up to 18% of their cost $2 million annually for company (non- process, which incorporates no effective base regardless of business model, are low- union) business. checks and balances, is biased against the air- ered through the use of crew scheduling opti- line; an underpaid crew member makes sure misers. Although optimisers do increase crew ■ Crew behaviour it is corrected, whereas overpayments go efficiency, airlines still experience crew cost As crew members earn seniority and gain uncorrected. Compounding the error are the overruns. Lacking understanding of the root flexibility in scheduling, they are able to additional personnel costs for the staff needed cause of overruns, airlines often fail to take “game the system”, taking advantage of loop- to respond to and act on crew inquiries over effective corrective actions, thereby missing holes that can dramatically increase their pay pay discrepancies. Our analysis across air- their targeted budget for crew costs. while offering no added benefit to the airline. lines indicates that manual mistakes alone This exposure takes many forms: Although legal, such practices drive up over- can account for an increase in crew cost of all crew costs unnecessarily and confound approximately 5% for a mid-size airline. ■ Management actions and behaviour crew optimisers, which create the pairings Automated crew planning systems may con- before crew members bid for their schedule. ■ Compensation design versus reality struct a number of pairings that appear optimal Because crew payroll doesn’t perform a pro- Given the highly complex nature of crew and legal on paper, but in fact provide little ductivity/effectiveness audit, airlines rarely compensation, many airlines design their pro- buffer to absorb disruptions. Some airlines pre- discover these abuses. For the typical mid- grammes or union agreements to “intuit” the fer longer pairings (approximately six days) most efficient and effective structure of crew versus shorter pairings (approximately two compensation plans. However, reality does days), as the former may offer a lower cost, Manual mistakes not match the conditions present when the according to the optimiser. In reality, though, can increase crew compensation plan was designed. And the certain scheduling practices leave little room costs by about 5% for optimisers adjust according to the current set for error and often result in crew costs that are of rules and pay – they don’t say when certain significantly higher than the budget permits. a mid-size airline conditions in the plan are unduly driving up The delay in recognising the crew cost overrun overall compensation. also leads to an ineffective feedback loop, In addition, without knowing the potential repeating the same poor pairings and schedul- size airline, this could lead to some pilots cost of its actions, the crew planning group ing practices month after month. earning up to and in excess of double their must often make a number of policy decisions Furthermore, scheduling of additional base pay by gaming the system. Add it all up by the seat of its pants, such as the following: crew activities, such as internal meetings, and it can equal $4 million to $6 million per ■ Optimal level of reserves versus overtime trainings and check rides/initial operating year in additional crew cost for a typical mid- ■ Level of reserves required in order to cover experience, often disrupts pairings. While size airline with little or no increase in flying irregular operations management may think the number of dis- hours or productivity. ■ Optimal mix of long and short pairings

46 | Airline Business | September 2015 flightglobal.com/airlines Image Broker/Rex Shutterstock Image Broker/Rex

■ Optimal length of pairings versus potential likely experiencing now, they simply must stand potential work rule changes during for broken pairings devote more resources to understanding the labour negotiations and reduce total crew cost. ■ Potential cost savings of longer pairings ver- root cause of these cost overruns. Airline crew There are specialised vendors (not suppliers sus increased cost to cover broken pairings planning and scheduling systems often are of the current crew optimiser systems) that ■ Part 117 (and its global equivalent) duty focused on publishing the next month’s pair- effectively help airlines reduce their crew costs hour-related challenges ings and on matching bids to pairings. through tackling this problem. One such vendor ■ Trade-off between out-and-back crew rota- They often fail to spend enough time and that has worked successfully with LEK Consult- tion versus “fly around the network” crew resources on analysing the effect of their policy ing is Rainmaker Technologies, which offers a rotation practices decisions, not to mention the cause of cost crew analytics and crew pay rules engine. ■ Keeping cabin and cockpit crews together overruns. The incremental costs of suboptimal On a recent deployment, the Rainmaker versus optimising crews separately crewing should motivate airlines to conduct suite was able to identify and support the deeper analysis and acquire advanced analyti- implementation of improved reserve utilisa- All in all, few airlines have the right tools to cal tools. Better tools would not only allow tion/productivity and reduced related pre- accurately forecast crew costs. Given the mag- them to optimise their policies, but also build mium through improved modelling of both nitude of crew cost overruns airlines are in proper buffers, pay crew correctly, under- operational and crewing demands and proac- tively manage pairing length/mix to mitigate the impact of crew “self-rostering” by dropping trips for leave or sick leave during peak months. It also supports a significant reduction in training and line-check-related disruptions. Immediate savings for a mid-sized carrier based on its existing performance was roughly $4 million per annum. The C-suite may treat these products and services as yet another “optimiser”, but in real- ity, the current process of optimise-bid-award- modify-fly-pay is sub-optimal. It neither affords the airline feedback nor provides an effective tool for analysing the root cause of cost overruns. Applying analytical tools allows airlines to avoid creating expensive pairings, identify and potentially prevent expensive abuses of the system, and determine and avoid the costs of various management actions. ■

Max Kingsley-Jones/Flightglobal John Thomas is managing director and regional head Many systems focus on the next month’s pairings and matching bids to those pairings for Asia-Pacific at LEK Consulting flightglobal.com/airlines September 2015 | Airline Business | 47 ANALYSIS Q2 RESULTS

GRAHAM DUNN & MICHAEL GUBISCH LONDON Airlines see past fuel gains Profits among European and US operators improved again in the second quarter as the lower oil price cut their costs, but on both sides of the Atlantic carriers are taking action to safeguard their fortunes

here was a familiar ring to a stronger performance at Luf- results as North American thansa Group, which increased Tand European carriers dis- its adjusted operating profit more closed profits during the second- than 50% to €635 million ($696 quarter earnings season. million) in the second quarter. Amid an environment of Revenue climbed 9% to €8.39 sharply lower fuel costs, airlines billion as, finance chief Simone on both sides of the Atlantic have Menne says, its passenger air- largely been able to improve prof- lines “gained extra momentum in its. But while US carriers’ profit the second quarter”. But she run continues almost unabated, adds: “The fall in fuel costs is much of the talk from Europe’s largely responsible for the pressured network carriers is of improvement in our results.” not allowing lower fuel expendi- That leads her to sound a note tures to mask the requirement to of caution: “We assume that the

restructure their cost base. PRM/Sipa/Rex Shutterstock price level for airline tickets will Second-quarter operating prof- De Juniac: Will reduce Air France long-haul network if no savings not recover. We will therefore its covering a dozen North Amer- continue to work consistently on ican carriers topped $8 billion in from lower fuel costs, which for market, but it’s not getting any the three months ending June US carriers are not tempered by worse,” says Scott Kirby, presi- 2015. That is more than $2.5 bil- exchange losses resulting from dent of the Oneworld carrier. lion higher than in the same stage the stronger US dollar. Delta for United Airlines executives No improvement in in 2014. Collective net profits example, which lifted operating made a similar statement with the US domestic were more than $2 billion higher revenue 1%, cut its operating the carrier’s result, saying domes- market, but its not at $5.7 billion. costs 9% in the quarter, including tic demand had levelled off from getting worse American Airlines, Delta Air a 40% drop in fuel expenses. the drop it experienced during Lines, Southwest Airlines and But the weaker demand envi- the first half of the year. United Airlines all posted operat- ronment has prompted North ing profits in excess of $1 billion American carriers to scale back EUROPEAN CONCERNS the competitive focus of the Luf- and combined generated profits capacity growth planned for the While overall European carriers thansa Group.” of almost $7 billion. second half. enjoyed improved financial for- Menne adds that the increases This was achieved despite col- American Airlines, for exam- tunes in the second quarter of the were partly attributable to lective revenue among North ple, sees no increased domestic calendar year, airline executives “weak” results in 2014 and that it American carriers falling more demand improvement in the at the region’s network carriers will be difficult to maintain the than 1% compared with the sec- third quarter, after passenger unit were largely stressing the need performance during the second ond quarter last year amid revenue fell 5% in the second for more cost savings. half of the year. weaker passenger yields. quarter. “We don’t see any The improved profits among Competition is likely to This was offset by the gains improvement in the domestic European carriers in part reflects increase especially in the short- haul arena from September as EasyJet and Ryanair expand their US MAJOR AIRLINE GROUP FINANCIAL RESULTS APRIL-JUNE QUARTER 2015 operations in Germany, while for Group/airline Revenues Operating result ($m) Operating margin Net result ($m) Lufthansa’s long-haul business 2015 change 2015 2014 2015 2014 2015 2014 the benefit of favourable currency Alaska Air Group 1,437 4.5% 372 263 25.9% 19.1% 234 165 effects will lessen, says Menne. Allegiant Travel Company 322 10.9% 93 56 28.8% 19.4% 54 33 Unit revenue rose 2.8% during American Airlines Group 10,827 -4.6% 1,921 1,399 17.7% 12.3% 1,704 864 the first six months, especially on Delta Air Lines 10,707 0.8% 2,474 1,579 23.1% 14.9% 1,485 801 the back of strong performance Hawaiian Holdings 571 -0.8% 91 52 16.0% 9.0% 49 27 on routes to North America. But JetBlue Airways 1,612 8.0% 282 141 17.5% 9.4% 152 230 without exchange-rate effects, Republic Airways Holdings 338 -1.6% 38 63 11.2% 18.4% 4 20 unit revenue declined 4.1% dur- SkyWest inc 788 -3.4% 70 13 8.9% 1.6% 31 -15 ing the January-June period. Lufthansa Group has con- Southwest Airlines 5,111 2.0% 1,085 775 21.2% 15.5% 608 465 firmed its full-year outlook. It Spirit Airlines 553 10.8% 122 105 22.1% 21.1% 77 65 foresees an adjusted operating United Continental 9,914 -4.0% 1,445 906 14.6% 8.8% 1,193 789 profit of more than €1.5 billion Virgin America 401 0.5% 68 47 16.9% 11.8% 65 37 “before strike costs”. TOTAL 42,582 -1.2% 8,061 5,400 18.9% 12.5% 5,657 3,482 Air France-KLM Group mean-

48 | Airline Business | September 2015 flightglobal.com/airlines while is to implement new cost- EUROPEAN AIRLINE GROUP FINANCIAL RESULTS APRIL-JUNE QUARTER 2015 saving measures immediately after its latest financial figures Group/airline Revenues Operating result ($m) Operating margins Net result ($m) 2015 change 2015 2014 2015 2014 2015 2014 showed operating profit down a Aer Lingus 521 7.1% 38 43 7.4% 8.8% fifth for the quarter. These meas- ures will include cutting routes Air Berlin 1,190 -6.6% -18 -8 -1.5% -0.6% -42 10 and restricting winter capacity. Air France-KLM 7,382 3.0% 206 264 2.8% 3.7% -86 -12 It sees savings on fuel expendi- IAG 6,285 11.2% 589 422 9.4% 7.5% 398 311 ture offset by unit revenue pres- Icelandair Group 294 -1.2% 50 45 17.1% 15.2% 22 22 sures and the negative effects of Lufthansa Group 9,326 8.9% 626 448 6.7% 5.2% 588 192 currency exchange, in a repeat of Norwegian 759 16.2% 166 73 21.9% 11.2% 42 17 what happened in the first half. Ryanair 1,837 10.5% 320 258 17.5% 15.5% 272 219 This “more challenging reve- TOTAL 27,593 7.1% 1,978 1,546 7.2% 6.0% 1,195 758 nue environment”, it adds, has spurred the company to acceler- EUROPEAN AIRLINE GROUP HALF-YEAR FINANCIAL RESULTS JANUARY-JUNE 2015 ate implementation of its Perform Group/airline Revenues Operating result ($m) Operating margins Net result ($m) 2020 turnaround programme. 2015 change 2015 2014 2015 2014 2015 2014 A “significant” proportion of Aer Lingus 830 7.4% -15 -11 -1.9% -1.4% -14 -14 Air France’s long-haul network is Air France-KLM 13,639 2.4% -257 -230 -1.9% -1.7% -706 -686 not profitable, says group chief IAG 11,491 11.6% 615 255 5.4% 2.5% 368 106 executive Alexandre de Juniac. If Lufthansa Group 17,038 8.5% 477 215 2.8% 1.4% 1,058 -88 negotiations with unions cannot TOTAL 42,998 7.2% 820 230 1.9% 0.6% 706 -681 be concluded by the end of Sep- NOTE: Results are for airline groups including non-aviation businesses. All figures are in us dollars exchanged at average ratefor period. tember, he says, “we have to SOURCE: Flightglobal reduce significantly the long-haul network at Air France”. The carrier’s economic perfor- Pierre-Francois Riolacci says any performance over the third quar- mance is “not sustainable in the savings would be realised only if ter and the full year. long term”, adds Air France chief the agreements were imple- Aer Lingus says it experienced We assume the Frederic Gagey. mented during the second half. “adverse effects” from unfavour- price level for Air France-KLM is accelerat- British Airways and Iberia par- able currency exchange but airline tickets will ing its Perform 2020 restructuring ent IAG turned in a second-quarter expects these to “moderate” in not recover plan. While cost savings were operating profit of €530 million the second half, as higher propor- previously to be realised over a ($580 million), a rise of almost tions of US dollar revenues five-year period, that schedule 40%. This allowed the group to emerge. “Both short- and long- has been shortened to three years more than double operating profit haul capacity are set to expand but we have been prudent in for both carriers, says de Juniac. for the half-year to €555 million. into the peak season, and we are terms of the risks we were willing Gagey says Air France will At constant currency, revenue very satisfied with forward yield to expose the business to in return to growth only if targeted for the quarter was down by and load-factor profiles at this exploiting that opportunity. cost reductions are implemented. 1.2%, with passenger unit reve- time,” says chief executive Ste- “I think those two dynamics But if this is achieved soon, he nue down 6.6%. Non-fuel unit phen Kavanagh. fundamentally change as we indicates, the carrier could start costs fell by 6.9% and fuel unit He adds that he is “very confi- grow more confident in our abil- growing again in 2016 or 2017. costs by 12%. dent” that the Irish carrier can ity to grow.” Its sister carrier KLM reached IAG chief executive Willie achieve a 10-14% operating IAG at the end of July again labour agreements for pilots, Walsh says the figures show the profit margin target set by IAG if extended the deadline for Aer flight attendants and ground per- company is continuing to “take successfully acquired by the UK- Lingus shareholders to accept its sonnel during the first half of this cost out of the business”. based airline group. takeover offer, adding that the year. But group finance chief He says IAG is “on track” to “Our margins have been con- 90% acceptance condition has reach its full-year targets. It has sistent, but they haven’t seen a been waived. Shareholders repre- maintained its expectations of a step change,” says Kavanagh. senting almost 62.5% of Aer Lin- full-year operating profit exceed- “Now what gives us the confi- gus share capital had accepted $6.9bn ing €2.2 billion. dence is that we can continue to IAG’s offer as of 30 July. ■ First-half operating losses grow the top line, but in the past Q2 operating profits deepened at IAG’s planned new we have been constrained by See Flightglobal’s dashboard among four biggest recruit, Aer Lingus. But the car- costs related to our scale of activ- for full coverage of the US and US carriers rier insists it is “well-positioned” ity. We haven’t been constrained European earnings season: to deliver improved operating in terms of network opportunity, flightglobal.com/dashboard flightglobal.com/airlines September 2015 | Airline Business | 49 ANALYSIS TRAFFIC

GRAHAM DUNN LONDON Airlines follow steady growth path Passenger traffic among the leading operators grew 6% in the first half of 2015, with European and US network carriers keeping capacity tight but above-average expansion among low-cost and Asia-Pacific operators

assenger traffic among TGOCKPU TGNCVKXGN[ UNQY CPF #OKF RTGUUWTG QP [KGNFU VJG JGNRGF EQNNGEVKXG 'WTQRGCP NQCF leading airlines increased DGNQY KPFWUVT[ NGXGNU 0QTVJ OCLQT 75 ECTTKGTU JCXG GCUGF HCEVQTUTKUGHTCEVKQPCNN[VQs P 5.9% in the first half, sus- #OGTKECP ECTTKGTU EQNNGEVKXGN[ DCEM VJG VJTQVVNG QP ITQYVJ HQT CICKP GZENWFKPI 'CU[,GV CPF taining recent steady growth. KPETGCUGFVTCHƂED[QXGTVJG VJGUGEQPFJCNH 4[CPCKTYJKEJJCXGJKIJGTNQCF 6JGENKODKPVTCHƂECUOGCU- ƂTUVUKZOQPVJUQHVJG[GCT1PN[ HCEVQTU 4[CPCKT DCEM KP GZRCP- WTGFD[42-UHQTCTQWPFNGCF- VJG TGNCVKXGN[ UOCNNGT #NNGIKCPV MIXED PICTURE UKQPOQFGCHVGTFGNKXGTKGUDGICP KPIECTTKGTUFWTKPIVJGƂTUVJCNH #KT 5RKTKV #KTNKPGU CPF #NCUMC 'WTQRGCPECTTKGTUNKHVGFECRCEKV[ NCUV YKPVGT QH KVU PGY -U QWVRCEGF VJG GZVTC  QH #KTNKPGU KPETGCUGF ECRCEKV[ D[ D[sCNOQUVVJGUCOGEQNNGE- KPETGCUGFRCUUGPIGTUD[CƂHVJ ECRCEKV[VJGUGCKTNKPGUCFFGF#U FQWDNGFKIKVU VKXGTCVGCUVJGKT0QTVJ#OGTKECP 2CUUGPIGT VTCHƂE COQPI #UKC- C TGUWNV EQNNGEVKXG NQCF HCEVQTU $WV VTCHƂE ITQYVJ COQPI EQWPVGTRCTVU CNDGKV GZENWFKPI 2CEKƂEECTTKGTUKPETGCUGFCNOQUV TQUGCNOQUVCJCNHRQKPVVQ 0QTVJ#OGTKECPECTTKGTUHCKNGFVQ UQOG QH VJG HCUVGT-ITQYKPI NQY- QXGTVJGƂTUVJCNH6JKUQWV- 9JKNGVJGUJCEMNGUJCXGDGGP MGGRRCEGYKVJCFFKVKQPCNECRCE- EQUVECTTKGTUHQTYJKEJ42-FCVCKU RCEGF VJG GZVTC  ECRCEKV[ NQQUGPGFCNKVVNGKP0QTVJ#OGT- KV[ NGCFKPI VQ C PGCT JCNH-RQKPV WPCXCKNCDNG2CUUGPIGTVTCHƂEQWV- CFFGFJGNRKPINKHVNQCFHCEVQTUD[ KEC ECRCEKV[ CPF VTCHƂE ITQYVJ FTQRKPNQCFHCEVQTUVQ RCEGF VJG GZVTC ECRCEKV[ 6JKU OQTGVJCPCRQKPVVQ■

NORTH AMERICAN AIRLINES FIRST-HALF TRAFFIC LATIN AMERICAN AIRLINES FIRST-HALF TRAFFIC

Traffic (RPK) Capacity (ASK) Load factor Traffic (RPK) Capacity (ASK) Load factor Airline Million Change % Million Change % Percent Change Airline Million Change % Million Change % Percent Change Air Canada 51,136 9.7 61,895 9.3 82.6 0.3 Aeromexico 15,468 11.9 19,729 12.7 78.4 -0.6 23,581 9.1 27,886 11.2 84.6 -1.6 Avianca Holdings 19,541 26.1 24,944 26.1 78.3 0.0 Allegiant Air 7,238 9.4 8,393 11.7 86.2 -1.9 Copa Airlines 12,955 2.8 17,365 7.1 74.6 -3.1 American Airlines 155,238 -0.8 189,498 0.0 81.9 -0.6 Gol Linhas Aereas 20,167 10.4 26,096 8.1 77.3 1.6 Delta Air Lines 162,455 3.1 193,927 4.2 83.8 -0.9 LAN Airlines 9,769 7.7 11,528 7.6 84.7 0.0 Hawaiian Airlines 11,164 4.7 13,952 4.5 80.0 0.2 TAM Linhas Aereas 29,592 1.6 36,268 1.8 81.6 -0.2 JetBlue Airways 32,329 9.8 38,062 8.5 84.9 1.0 Volaris 8,364 13.0 10,257 12.5 81.5 0.3 Republic Airways 8,953 -0.7 11,454 0.5 78.2 -1.0 TOTAL 115,856 9.5 146,187 9.8 79.3 -0.2 SkyWest Airlines 23,630 -4.9 28,751 -4.6 82.2 -0.3 NOTES: Jan-Jun 2015; SOURCE: Flightglobal Southwest Airlines 91,262 7.5 110,657 6.5 82.5 0.8 ASIA-PACIFIC AIRLINES FIRST-HALF TRAFFIC Spirit Airlines 13,675 24.8 15,998 27.6 85.5 -1.9 United Continental 142,427 1.2 172,441 2.1 82.6 -0.7 Traffic (RPK) Capacity (ASK) Load factor Virgin America 8,009 1.2 9,685 0.7 82.7 0.4 Airline Million Change % Million Change % Percent Change Air China 82,176 9.5 102,881 10.5 79.9 -0.7 WestJet 17,320 4.0 21,678 6.0 79.9 -1.5 Air India TOTAL 748,417 3.4 904,277 3.9 82.8 -0.4 18,831 7.3 24,700 5.9 76.2 1.0 NOTES: Jan-jun 2015, American Airlines includes US Airways; SOURCE: Flightglobal Air New Zealand 15,535 12.2 18,440 11.6 84.2 0.4 AirAsia 27,808 7.6 35,675 8.2 77.9 -0.4 EUROPEAN AIRLINES FIRST-HALF TRAFFIC All Nippon Airways 36,170 6.1 53,884 3.1 67.1 1.9 Traffic (RPK) Capacity (ASK) Load factor Cathay Pacific 59,836 9.4 69,689 6.4 85.9 2.3 Airline Million Change % Million Change % Percent Change China Airlines 18,287 3.7 23,384 4.3 78.2 -0.4 Aer Lingus 7,702 5.9 9,833 3.0 78.3 2.2 China Eastern 69,221 12.6 86,107 11.9 80.4 0.4 Aeroflot 34,165 9.6 44,416 9.0 76.9 0.4 China Southern 91,306 17.1 112,935 14.8 80.8 1.6 Air Berlin 22,035 -3.0 26,627 -3.7 82.8 0.6 Eva Air 16,982 16.3 20,802 13.5 81.6 2.0 Air Europa 10,768 4.9 13,081 5.1 82.3 -0.2 IndiGo 16,819 35.6 19,681 23.1 85.5 7.9 Air France-KLM 112,368 0.3 134,055 0.3 83.8 0.0 Japan Airlines 27,714 16.2 38,474 16.6 72.0 -0.3 Austrian 8,267 -3.0 11,013 0.0 75.1 -2.3 Jet Airways 19,103 21.3 22,460 13.5 85.1 5.5 British Airways 68,225 2.8 85,872 2.4 79.4 0.3 Singapore Airlines 44,657 -3.1 58,612 -1.7 76.2 -1.1 Finnair 12,212 1.1 15,536 1.7 78.6 -0.5 Thai Airways Int’l 29,745 9.7 40,875 0.9 72.8 5.8 Iberia 22,359 12.1 28,200 10.0 79.3 1.5 TOTAL 574,190 10.9 728,599 9.0 78.8 1.3 Lufthansa 76,581 5.0 98,053 3.9 78.1 0.8 NOTES: Jan-Jun 2015, AirAsia is group traffic figure; SOURCE: Flightglobal Norwegian 19,352 14.8 22,976 7.2 84.2 5.5 SAS 15,455 -5.0 21,156 -2.6 73.1 -1.9 EUROPEAN LOW-COST CARRIERS FIRST-HALF TRAFFIC Swiss 17,775 4.2 21,890 4.8 81.2 -0.5 Airline Pax: Jan-Jun 2015 Pax: Jan-Jun 2014 Change % Turkish Airlines 55,202 8.2 71,087 10.1 77.7 -1.4 EasyJet 33.1m 31.3m 5.6 Vueling Airlines 10,291 14.2 13,171 15.5 78.1 -0.9 Ryanair 46.5m 38.5m 20.8 TOTAL 492,757 4.0 616,966 3.8 79.9 0.2 TOTAL 79.5 69.8 14.0 NOTES: Jan-jun 2015; SOURCE: Flightglobal SOURCE: Flightglobal

50 | Airline Business | September 2015 flightglobal.com/airlines ANALYSIS SINGLE-AISLES Will entrants widen narrow focus?

Ascend consultancy head Rob Morris examines the competition facing the single-aisle incumbents over the next 20 years

his year’s Flightglobal Fleet increases, potentially to 60 air- Forecast predicts the deliv- SINGLE-AISLE DELIVERY MARKET SHARE 2015-2034 craft per month from each of the T ery of 41,000 new commer- Ascend???? Flightglobal E: 9,137 two current duopolists, would cial turboprop and jet aircraft 9,806 737 Max require more fundamental A320neo 36% over the next 20 years, worth an 39% changes in these assumptions for estimated $2.83 trillion in 2015 increments in supply to be justi- delivery values. More than 60% fied. Retirements of the existing of those deliveries and almost fleet would have to be higher, 50% of that value is expected to aircraft productivity (read effi- be in single-aisle aircraft types, ciency) would have to decline, which explains why this sector of or traffic would have to grow at the market remains of much in- 25,348 faster rates than hypothesised. terest to the industry today. 1,808 With Airbus and Boeing’s 767 Total deliveries MC-21 737NG ubiquitous A320 and 737 fami- 3% 7% lies about to see next generation 60 variants entering service in the next couple of years, plus the Basic assumptions Bombardier CSeries, Comac must change to C919 and Irkut MC-21 also fi- 1,254 justify this rate nally becoming operational re- C919 1,320

alities, the sector seems set for 5% A320ceo

1.1% 5% real change over the next few A 1,256 Or alternatively, that supply years. But what is the real shape CSeries would be absorbed by demand of that change? 5% which the forecast currently allo- SOURCE: Flightglobal Fleet Forecast 2015-2034 cates to production programmes DUOPOLY DOMINANCE of the single-aisle entrants, Airbus and Boeing enjoy a manu- thereby weakening the market facturing duopoly in the single- C919 and MC-21 are between 20 years – which itself services imperative and reducing market aisle sector today that has them predicted to deliver over average traffic of around 5% as penetration for those aircraft. endured since the latter’s acquisi- 3,200 aircraft. But while these load factors continue to grow tion of McDonnell Douglas in programmes will each see out- globally, albeit at slightly slower DEMAND CYCLE 1997. Close to 11,500 A320 and put volumes averaging around rates than seen previously – Finally, the Fleet Forecast is a 737 family aircraft have been 60 aircraft a year through their together with productivity hikes long-term trend forecast, with no delivered to airline operators production runs, Airbus and driven by increasing aircraft attempt to predict the enduring globally since that duopoly was Boeing are talking about increas- size, sector length and utilisa- global economic cycle which created, resulting in a single-aisle ing their production beyond cur- tion, the highest production rate itself will impact aviation, creat- fleet of around 13,000 aircraft in rent committed plans to each foreseen in the single-aisle sector ing its own demand and supply airline passenger service at the produce that number of aircraft for any single manufacturer is 50 cycle. We are now seven years end of last year. Despite the every month. aircraft per month. into the current cycle which entrance of new manufacturers, Airbus is committed to commenced with the downturn little is expected to change, with increasing production from the in 2008. Every cycle is of course more than 85% of the total deliv- The CSeries, C919 current 42 aircraft per month to different but previous cycles eries predicted through 2034 still 50 per month by the first quarter have typically lasted seven to 10 expected to come from Airbus and MC-21 are of 2017, while Boeing is commit- years. So the risk of some soften- and Boeing. predicted to deliver ted to driving its rates from 42 to ing of demand over the next few With today’s fleets dominated over 3,200 aircraft 47 by that time and further to 52 years must increase as the cycle by those two manufacturers, this aircraft per month in 2018. At endures, perhaps coinciding will result in Airbus and Boeing face value, the final Boeing rate with those single-aisle rate still accounting for close to 90% increase appears unjustified by increases from the two incum- of the fleet of single-aisle passen- However, the forecast suggests the Fleet Forecast, but it would bent manufacturers, bringing ger aircraft in service at the end that demand would not be suffi- only need a minor change in obvious consequences for the of 2034. So does this mean that cient to justify such production some forecast assumption – mar- single-aisle markets. ■ the upstart manufacturers will rate increases. Under the base ket growth, retirement rates or see commercial failure for their case scenario, assuming global productivity adjustments – to For more on our forecast report, programmes? Success is of passenger capacity growth of absorb the slightly higher pro- and to download a summary: course relative and the CSeries, 4.8% per annum over the next duction rate. However, further flightglobal.com/FleetForecast flightglobal.com/airlines September 2015 | Airline Business | 51 ANALYSIS MARKET OUTLOOK 2.7% 2.3% 5.0% World GDP growth forecast for 2015, GDP growth expected for the USA, versus Russia’s GDP set to contract, versus down from 3.3% predicted a year ago an earlier 3.0% forecast by PwC a 1.5% rise forecast by PwC last year

Discerning the GDP multiplier effect As a conduit for the economy’s impact on underlying travel demand, cost base and fares are key in capacity decisions

CHRIS TARRY response to reduced forecasts PLANNED CAPACITY GROWTH – NORTH ATLANTIC: SEPTEMBER CTAIRA for 2015 GDP growth compared Airline Weekly capacity ASK Weekly frequency Weekly seats offered ANALYSIS BY with when capacity plans were FLIGHTGLOBAL being decided – and more spe- million change total change no. thousands change INSIGHT cific reactions, for example in Delta Air Lines 1,516 4.8% 928 +24 228 4.5% the case of United Airlines, United Airlines 1,379 3.2% 929 -1 205 2.8% with further reductions in the British Airways 1,309 -3.6% 691 -34 192 -5.2% US “energy markets”. Lufthansa 1,280 3.7% 512 +2 174 3.6% s attention turns to sum- This column often focuses on Air Canada 874 9.0% 509 +60 141 9.4% mer 2016 schedules and the importance of traffic value American Airlines 867 10.1% 546 +56 128 9.8% A the slot co-ordination rather than volume alone, and Air France 743 -0.4% 316 +4 109 -1.5% process for the season, it is how less capacity will generally Virgin Atlantic 681 21.6% 304 +62 100 21.9% timely to examine the likely result in more in terms of the fi- US Airways 578 10.7% 364 +29 91 11.2% operating environment and how nancial outcome. This was a KLM 448 -1.6% 210 -4 63 -2.5% economic expectations are point underlined by United TOTAL MARKET 12,975 5.4% 7,159 +344 1,923 5.1% changing, as well as the likely chief executive Jeff Smisek as implications involved. the most recent results were re- In recent results we have seen leased, when he said that man- ble – and secondly on how vantage is essentially self-in- a number of airlines – particu- agement would “continue to much further they might fall, flicted damage. larly the US majors – reduce take the necessary capacity and which in turn will be deter- The reality is that there is a their already modest capacity network decisions to deliver mined by the airline’s cost base, high-level link between GDP plans to reflect actual and ex- value to our shareholders”. even allowing for adjustment and underlying travel demand pected economic develop- lags. A race to the bottom that (even though it is a revealed re- ments. These include a general TRAFFIC MULTIPLIER fails to result in a structural ad- lationship). More accurately Moving a little further north, we JET KEROSENE SPOT PRICES have also seen the WestJet chief executive Gregg Saretsky ap- Month Fuel price Change over period pear to question the link be- Traffic growth trend ¢/US gal 1 month 1 year tween GDP and traffic, while Aug 283.8 -1.1% -5.8% 20 analysts seem to take the view Sep 272.6 -3.9% -8.7% that the airline is adding too Oct 247.4 -9.2% -16.3% much capacity. 15 Nov 232.7 -5.9% -20.3% It is differences in view that Dec 186.8 -19.7% -38.2% make a market for any compa- Av.14 272.1 -8.1% ny’s shares, but it must be recog- 10 Jan 154.0 -17.6% -47.9% nised that the supposed GDP/ Feb 178.7 16.0% -39.9% traffic multiplier does not have Mar 167.5 -6.2% -42.1% a constant value along the fare 5 Growth rates (%) Apr 172.6 3.0% -40.6% curve, and that for any given May 186.1 7.8% -35.8% rate of GDP growth, an airline Jun 178.4 -4.1% -38.9% offering lower fares will demon- 0 strate a higher multiplier. The Nov Dec Jan Feb Mar Apr May Jun Jul 158.8 -11.0% -44.7% extent to which this is “struc- NOTES: Prices are world average = median of Europe/Singapore cargo and US pipeline turally different” and sustaina- spot prices in US¢/gallon. ble depends first, of course, on SOURCE: ICIS whether such fares are profita-

52 | Airline Business | September 2015 flightglobal.com/airlines PLANNED CAPACITY GROWTH BETWEEN REGIONS – INNOVATA SCHEDULE DATA: SEPTEMBER

Regions Region/ Weekly capacity ASK Weekly frequency Weekly seats offered subregion million change total change no. thousands change North America Total West Europe 12,975 5.4% 7,159 +344 1,923 5.1% North America Total Asia 7,190 8.4% 2,373 +181 689 8.5% North America Caribbean 1,198 1.8% 3,880 -4 571 2.1% Central 1,525 11.0% 5,138 +370 695 10.1% South America 1,993 8.7% 1,757 +149 358 9.9% Total Latin Am 4,715 7.6% 10,775 +515 1,624 7.1% West Europe East Asia 5,131 6.5% 2,014 +123 585 6.9% Southeast Asia 2,599 -0.9% 803 -4 267 -0.9% (2.3% versus 3.0%), China South Asia 1,276 -2.2% 702 -28 196 -0.9% (7.0% versus 7.3%), Russia Total Asia 9,006 3.0% 3,519 +91 1,049 3.3% (-5.0% versus 1.5%) and Brazil West Europe Latin America 4,663 3.0% 1,828 +52 552 2.9% (-0.9% versus 2.5%). However, since these fore- West Europe Middle East 5,182 10.8% 5,499 +514 1,329 11.5% casts were released in July Asia Middle East 6,807 11.5% 7,345 +957 1,756 13.5% there have been a number of TOTAL SELECTION 50,538 6.7% 38,498 +2,654 8,922 7.9% purchasing manager surveys; WORLD 164,594 6.6% 665,651 +24,724 93,368 6.1% those most recently published NOTES: Data is based on schedules for 14-20 September 2015 against 8-14 September 2014 extracted from SRS Analyser. Figures reflect airlines operating nonstop unrestricted scheduled passenger services. East Asia = China, Hong Kong, Japan, the Koreas, Macau, Mongolia and Taiwan. South by Markit and JP Morgan “sig- Asia = Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Southeast Asia = Brunei, Cambodia, Indonesia, Laos, nal a rate of global growth of 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 = approximately 2% per annum” Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen. and suggest the greatest impact will be felt in some of the GDP should be seen as a proxy order of 2.8% for 2014 and 3.3% emerging markets. for a range of other economic for 2015. In the event, the out- Clearly there is downside risk factors that should feature in come for 2014 was in line with the GDP should be to some of the key economies traffic forecasting models. forecast but, as we move through seen as a proxy for for the remainder of 2015. It is There is also a need to get be- 2015, forecasts have been cut back a range of other inevitable that economic fore- hind the high-level figures to and the current expectation is for economic factors casts for 2016 will also be re- examine local circumstances this year to have an outcome clos- duced from the current levels, and take a close look at longer- er to 2.7%. This reflects the effect where the expectation was that term trends. A myopic view al- of a number of movements in dif- there would be a bounce-back to ways has the potential to dam- ferent directions at a country level 2015 and August 2014 as the the rates of growth that were age the business by missing out compared with the forecasts made comparator), which demon- previously forecast. on something. a year ago. strate no change for the euro- However, given the role that ex- Twelve months ago, when the zone (1.5% versus 1.4%) and an perience and behaviour play in capacity decisions for the current GREATEST IMPACT increase for India (7.5% versus conditioning expectations the risk summer season were being con- For these purposes, we have 6.6%). Among those where the is that although the current fore- sidered, the consensus forecast for taken the forecasts from PwC’s current forecast is now lower casts will be cut, the resulting world GDP growth was in the Global Economy Watch (July than a year ago are the USA outcomes may be over-pessimistic

Capacity growth trend Freight growth trend

20 25 20 15 15 10 10 5 0 5 -5 Growth rates (%) Growth rates (%) -10 0 -15 Nov Dec Jan Feb Mar Apr May Jun Nov Dec Jan Feb Mar Apr May Jun

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AIRLINE | AIRPORT | SCHEDULES | NETWORK | FLEET ANALYSIS MARKET OUTLOOK

US MAJORS (A4A MEMBERS) PASSENGER STATISTICS: JUNE*

Region Pax traffic RPK Capacity Load factors Freight FTK* million change change percent change million change Domestic USA 75,176 5.2% 5.3% 87.7% -0.1 1,451 -1.9% 6.6% North Atlantic 18,427 0.7% 2.6% 85.3% -1.6 812 -9.7% Overall capacity growth forecast for global airlines in summer 2015, in terms of ASKs Latin America 11,157 3.9% 1.5% 81.6% 1.9 197 -4.6% Trans Pacific 10,296 2.0% 1.3% 87.0% 0.6 924 -4.0% All international 39,880 1.9% 2.0% 84.7% 0.0 1,933 -6.5% TOTAL MONTH 115,055 4.0% 4.1% 86.6% 0.0 3,384 -4.6% in some cases – which will tend YEAR-TO-DATE 601,385 3.1% 3.7% 83.0% -0.4 17,036 0.8% to reinforce the associated NOTE: *Freight data is May as June n/a. SOURCE: Airlines for America. uncertainty. It is inevitable that What, then, of the changes economic forecasts US MAJOR PASSENGER YIELD: A4A AIRFARE REPORT that have taken place in airline for 2016 will also Route 2014 2015 capacity? For summer 2015, the be reduced Unit Dec Jan Feb Mar Apr May Jun schedules from DIIO SRS Ana- Domestic ¢/RPK 10.71 10.34 10.50 10.91 10.65 10.32 10.54 lyser suggest that overall there change -2.5% 0.6% -0.8% 0.6% -1.9% -3.6% -5.5% will be 3.4% more flights, 5.7% North Atlantic¢/RPK 8.71 9.37 9.48 9.19 8.80 8.97 9.61 more seats and 6.6% more the cost base of an airline and change 2.1% 3.6% 3.7% 0.2% -0.3% -5.1% -6.4% ASKs – with larger aircraft fly- the fares it is able to profitably ing longer distances. offer that will determine the ap- ASIA-PACIFIC AIRLINES (AAPA MEMBERS) INTERNATIONAL TRAFFIC For the forthcoming winter parent GDP multiplier. Month Passenger traffic RPK Capacity Load factors Freight FTK season, it appears that the trend Recently, fuel has fallen back million change change percent change million change will continue, with 4.8% more to levels last seen at the start of April 80,588 8.2% 5.7% 78.1% 1.8 5,384 3.7% flights, 5.4% more seats and the year, and this (depending May 80,870 9.6% 6.7% 76.3% 2.0 5,460 2.9% 6.5% more ASKs scheduled. on the speed at which the ben- Jun 80,960 6.6% 6.1% 77.8% 0.3 5,348 -0.5% While the summer 2015 out- efit flows through) enables fares YEAR-TO-DATE 484,351 8.1% 6.5% 77.7% 1.1 32,108 5.2% come appears “within limits”, to be more competitive if that is SOURCE: Association of Asia Pacific Airlines. we would expect the actual out- necessary. come for winter to reflect slower However, now is perhaps the LATIN AMERICAN AIRLINES (ALTA MEMBERS): JUNE and lower growth than indicat- time for airlines to retain as Pax traffic RPK Capacity Load factors Freight ed at present. much of the benefit from lower Region million change change percent change million change fuel as they can and, given how Total Intra-LatAm* 15,029 3.3% 3.6% 76.2% -0.2 127 -2.1% BACK TO BASE economics work, adjust capaci- Total Other Int’l 7,154 8.9% 7.9% 84.4% 0.8 255 -4.1% But there are two other factors ty rather than adapting prices to TOTAL SYSTEM 22,183 5.1% 4.9% 78.7% 0.2 381 -3.4% to consider, which will bring us a weaker underlying demand back to where we started. It is environment. ■ YEAR-TO-DATE 136,787 5.9% 5.2% 79.2% 0.5 2,342 -7.5% NOTE: *Domestic and International flights. SOURCE: Associacion LatinoAmericana de Transporte Aereo. EUROPEAN MAJORS (AEA MEMBERS) TRAFFIC: JUNE

Region Pax traffic RPK Capacity Load factors Freight FTK millions change change percent change million change ANALYSIS ON TAP Domestic 3,563 5.9% 8.4% 78.3% -1.8 3 6.0% Keep up to date on market Intra-Europe 17,643 4.6% 5.2% 80.2% -0.5 60 4.8% data with analysis and special North Atlantic 14,860 5.3% 5.4% 88.6% -0.1 609 2.6% reports on the Flightglobal Mid Atlantic 3,281 4.7% 2.6% 88.5% 1.8 98 -12.6% dashboard. Subscribers can South Atlantic 3,547 1.3% 1.2% 85.5% 0.1 214 -2.7% access regular monthly Far East/Australia 13,642 7.5% 5.2% 84.9% 1.8 1,001 -1.8% analysis of key markets, Sub Saharan Africa 4,063 1.8% 2.8% 77.9% -0.7 218 -7.5% including a range of region- N.Africa/M.East 2,772 -3.3% 1.2% 74.7% -3.5 85 7.5% specific airline capacity, traffic TOTAL MONTH 63,392 4.7% 4.7% 83.2% 0.0 2,410 0.3% and fleet data summaries. YEAR-TO-DATE 357,235 3.3% 3.6% 79.0% -0.2 14,159 -0.8% There is also analysis of key SOURCE: Association of European Airlines trends across the airline, route development, finance, ARAB AIRLINES (AACO MEMBERS): JUNE* manufacturing and maintenance sectors. For more information on Passenger traffic RPK Capacity Load factors Subscribers can download the Flightglobal dashboard and million change change percent change Flightglobal Insight’s industry its premium news visit: Intra Arab world** 5,340 -7.3% 3.1% 53.4% -6.0 reports. These include the flightglobal.com/dashboard With Other Regions 38,694 11.4% 15.9% 68.5% -2.7 various Airline Business special Find out about Flightglobal TOTAL MONTH 44,035 8.7% 13.8% 66.2% -3.0 reports, together with our other Insight’s report portfolio at: YEAR-TO-DATE 261,315 8.7% 13.4% 66.9% -2.9 annual surveys. flightglobal.com/Insight NOTES: *Estimates. **Includes domestic. SOURCE: Arab Air Carriers Organisation. flightglobal.com/airlines September 2015 | Airline Business | 55 STRATEGY AWARDS

Airline Business editor Max Kingsley-Jones (front-left) with this year’s winners LEADING LIGHTS The industry’s top executives and carriers were recognised at this year’s Airline Strategy Awards

enior executives joined Airline carrier IndiGo, along with Christoph Mueller Business at Middle Temple in for steering the turnaround at Aer Lingus. Mu- London on 12 July, to recognise eller, who has moved on to head Malaysia Air- Sthe industry’s top leaders at this lines, was joined by his successor, Stephen year’s Airline Strategy Awards. Kavanagh, who was part of the Aer Lingus This year marked the 14th running of this an- leadership team during the restructuring and is nual event, which is organised by Airline Busi- now chief executive at the carrier. ness and executive search firm Spencer Stuart. The Airline Business Award recognised Following the welcome reception, guests Alex Cruz for his advances in the European took their seats in the exquisite surroundings low-cost arena at the helm of IAG unit Vueling. for dinner and the awards ceremony, where Other 2015 winners include American Air- IAG chief executive Willie Walsh was present- lines, Virgin America and Gol, who were rec- ed with the Executive Leadership award. This ognised for leadership in finance, marketing was in recognition of leading IAG to a string of and the environment, respectively. ■ successes, including the restructuring and turnaround at Iberia. More about the winners, along with pictures Other executives recognised for their leader- and a video from the event, at: ship included Aditya Ghosh of Indian low-cost strategyawards.com

(Main and below): The awards were once again held in the impressive surroundings of Middle Temple BillyPix

56 | Airline Business | September 2015 flightglobal.com/airlines (Clockwise from top right): Willie Walsh of IAG accepts Executive Leadership Award from SITA’s Dave Bakker; Spencer Stuart’s Thierry Lindenau presents Regional Leadership Award to Christoph Mueller in recognition of turning around Aer Lingus; IndiGo’s Aditya Ghosh picks up Low-Cost Leadership Award from Neil Siddons of CFM; Spencer Stuart’s Michael Bell collects Technology, Environment and Operations Award on behalf of Gol from Sabre’s Jeremy Sykes; Tampa International Airport’s Joe Lopano hands award for Marketing to Stuart Dinnis of Virgin America; Flightglobal’s Terry Dawson presents Finance Award to Tom Weir of American Airlines; Aer Lingus past and present: former CEO Christoph Mueller celebrates with successor Stephen Kavanagh; Vueling’s Alex Cruz receives Airline Business Award from DFW airport’s John Ackerman flightglobal.com/airlines September 2015 | Airline Business | 57 In association with: NEW GENERATION OF AIRLINE PASSENGER SYSTEMS Royal Garden Hotel, London, 29th - 30th September 2015

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EDWARD RUSSELL WASHINGTON DC UNITED SEEKS NEW BALANCING ACT Outgoing finance chief John Rainey has strived for the right mix when investing US carrier’s new-found cash and leaves the airline in better financial shape than when he took control of the coffers

nited Airlines loses a for the role. An airline veteran, he Utrusted leader with the is well known in the finance departure of its chief finan- community for managing the car- cial officer John Rainey to PayPal. rier’s debt raising activity in Well liked on Wall Street, ana- recent years, including many of lysts considered him frank and as its EETC issues. he emphasised a balanced While Laderman considered a approach to the Chicago-based very capable financial leader, carrier’s post-merger balance some on Wall Street see Rainey’s sheet, reducing debt, returning departure as an opportunity for value to shareholders and mak- new blood at United. ing much-needed investments in “UAL has an opportunity to the company. bring in a true airline outsider “We’ve been an industry, and a with a solid reputation and no company, that has been way too cultural baggage who can bring heavily levered for way too long,” fresh, out-of-the-box ideas to said Rainey in an interview in his UAL as UAL searches for innova- Chicago office with Airline Busi- tive ways to close the margin gap ness in June, two months before relative to peers,” writes Hunter

his departure to PayPal. “We United Keay, an analyst at Wolfe need to improve our balance Rainey (left) is succeeded by Laderman on an interim basis Research, in a report. sheet; we also need to invest in Keay highlights United’s our business, which means buy- lever, you can effectively do that After debt reduction, United is “methodical” approach to share ing airplanes; and I need to return by borrowing less money on the using that cash for share repur- repurchases as an opportunity for cash to shareholders as well.” incremental aircraft that you’re chases and capital expenditures. the new finance chief to make Under his tutelage, United purchasing,” says Rainey. The It will wrap up a $1 billion share some investor-friendly improve- reduced its long-term debt and airline can also pay cash for new repurchase programme in the ments. capital lease obligations by 7.1% to deliveries, as it did for some of third quarter and has already $10.5 billion at the end of June the 25 aircraft it took during the embarked on a new $3 billion compared with March 2012 before second quarter. programme that will run through he took over the chief financial He also leaves United with to the end of 2017. United’s market role. Its underfunded pension obli- ample liquidity. It had $6.34 bil- The carrier’s share price capitalisation has gations also fell during his tenure. lion in liquidity at the end of increased more than three-fold to grown by $15bn over June, including $4.99 billion in $58.32 at closing on 3 August, the last three years REPAYING DEBT cash, cash equivalents and short- day before Rainey’s departure Rainey focused on repaying high term investments and $1.35 bil- was announced, from the same interest rate debt, while continu- lion available under its revolving day in 2012. This jump increased ing to raise low coupon secured credit facility. its market capitalisation by more Rainey, who joined Continen- debt, for example in the enhanced “Our target liquidity balance is than $15 billion to $22 billion. tal Airlines in 1998 and came to equipment trust certificate (EETC) between $5 and $6 billion,” he United through the merger of the market, for new aircraft. says. “[Since the merger] the NEW INVESTMENTS two carriers in 2010, leaves the “In this business, it makes composition has changed so that United invested more than $6.2 company in undeniably better sense, given how capital inten- we’ve got a lower cash balance, billion in its business, including in financial shape than when he sive we are, to borrow money to which is actually a good thing new aircraft, updated interiors and joined the c-suite. buy airplanes,” he says. “We can because we’ve still got an ade- technology upgrades, during his “There are a lot of investors, I go out and borrow money at a 3% quate level to run the business, tenure. In June, it announced plans believe, that are still skeptical interest rate, for example, at but we’re utilising that cash for a $100 million investment in because of our checkered past, investment grade ratings to bor- where we can get a return.” Brazilian carrier Azul and a $30 and deservedly so,” he says. row money for aircraft. That’s a million investment in biofuel pro- “If we can demonstrate prudent use of capital.” ducer Fulcrum BioEnergy – some through an economic cycle that Rainey leaves United with lit- of its first outside the company. we can still earn our cost of capi- tle of the high-coupon debt he $6.34bn Gerry Laderman, previously tal and not have to go out and targeted, giving his successor senior vice-president of finance borrow a bunch of money at high fewer levers to pull in further United’s liquidity and treasurer, has stepped into interest rates because we’re dis- deleveraging the carrier’s bal- at the end of the interim chief financial officer tressed, I believe that’s when ance sheet. June 2015 role at United as it considers both we’ll see the earnings multiples “If you want to continue to de- internal and external candidates really begin to expand.” ■ flightglobal.com/airlines September 2015 | Airline Business | 59 FORUM FEEDBACK SOCIAL INCEPTION SimpliFlying chief executive Shashank Nigam examines how airlines can tackle perceptions in the era of instant sharing

In the age of social diverting to a remote island off the media, perceptions coast of Alaska. Ethan Williams was SimpliFlying can spread like wild- following the crew’s instructions dili- fire – whether they are gently, by putting on the life jacket for right or wrong. Airline executives a potential water landing, practicing today have the responsibility to bring the brace position and reading the reality to the fore, often taking to the evacuation guide. same mediums that are being used by At the same time, he had his iPhone passengers. video camera turned on and he later Three recent incidents highlight the posted a video on YouTube, which was vulnerability of airlines, as well as professionally edited and clipped to how the situations can be turned in focus on the most important parts of their favour. the emergency landing. The video had Jason Taylor was at the gate at Nash- over half a million views in the days ville airport on 7 August when, sud- that followed, and was featured on denly, a bright flash caught his eye. A news outlets around the world. Delta Air Lines flight being operated “Often, the first Many viewers noted how profes- by Skywest, on pushback, was on fire! person to post the sional the crew were and Cathay was Jason tweeted a photo with his smart- praised for taking good care of the pas- phone, clearly stating that “the fire is incident becomes an sengers while they waited to be trans- out and the airplane looked ok”. accidental airline ferred to Los Angeles. He also copied Nashville ABC’s spokesperson” The airline was also active on its Twitter handle. Within minutes, he social media channels; clarifying facts was being bombarded with requests SHASHANK NIGAM with journalists and calming con- from news channels and journalists Chief executive, SimpliFlying cerned relatives. from all over the world for the rights to Perceptions spread. Reality Matters. use the photos he took of the event on And information spreads instantly their networks. taken a seat on his EasyJet flight. He through social media. Often, it is the saw a maintenance worker applying first person to post the incident online REALITY CHECK tape around the edges of an engine and who becomes an accidental spokesper- The reality was a little different. Phil tweeted a photo saying: “Always wor- son for the airline. Contingency man- Cobucci was comfortably seated inside rying when EasyJet is duct-taping the agement and crisis planning depart- the affected aircraft, and all he felt was plane together.” ments at airlines need to learn how a sudden stop. The Captain then came perceptions spread. on the loudspeaker and said there had RESPONSE MATTERS Every airline operation centre been a misfire and everything was This time though, the airline was on should have a live Flightradar24 and under control. That was the reality. Yet the ball and immediately replied to a Twitter feed display. Communica- perception on the outside was com- Adam that this was just “paintwork tions staff should be trained in the pletely different. and nothing structural”. Despite the new ways on how to leverage the Some news outlets sensationalised clarification, Adam was re-tweeted accidental spokesperson, as well as the fire to boost ratings, while others over 1,200 times! straighten out the facts. stated that things were under control While it is common for incidents to Airlines must take lessons from within seconds. Throughout the day be captured and shared when the events like these, rather than wait for though, both Delta and Skywest were plane is on the ground, it is increas- something to happen quiet on Twitter about the incident – a ingly becoming a cool thing to take a to them. It’s no use dig- The home of Airline missed opportunity for quick brand selfie with an oxygen mask on! But a ging a well when you ■ Business on the web recovery by sharing the reality from a recent video, taken during a diversion, are thirsty, is it? is the airlines credible source, like the Captain or the shows the extent to which this phe- Shashank Nigam is the CEO of SimpliFlying, channel of airline’s safety chief. nomenon has evolved. one of the largest airline marketing strategy Flightglobal.com: Across the Atlantic, a couple of Cathay Pacific flight 884 from Hong firms, which has worked with over 60 airlines flightglobal.com/ months earlier, Adam Wood had just Kong to Los Angeles on 29 July was and airports: [email protected] AirlineBusiness

60 | Airline Business | September 2015 flightglobal.com/airlines flightglobal.com/airlines September 2015 I Airline Business I61 COMMENT DIVIDED LOYALTIES The dynamics in play across the world of alliances and partnerships are testing allegiances, with the revolving-door strategies resulting from new tie-ups, aeropolitical rows, and mergers and acquisitions

hould Aer Lingus join when he described what IATA chief British Airways and Iberia Tony Tyler had called “underlying ten- in Oneworld as expected sions” at the AGM as “measuring 7.3 following its acquisition on the Richter scale”. S Isopix/Rex Shutterstock by IAG, it will become the Through their own action or the first airline to walk in, walk out and response of rivals, the big Gulf players then rejoin the same alliance. are shifting dynamics. Who would have It is the latest in a series of partner- thought Alitalia, seemingly back on its ship moves across the industry that knees 18 months ago, would be bold underlines the schizophrenic nature of Few could have enough to seek to rebalance a partner- airline relationships, as competition ship agreement on Franco-Italian routes and economic realities push carriers to anticipated the sight struck at a time when its SkyTeam part- take a more brutal approach to their of five rival rock stars ner Air France-KLM held all the cards? partnerships. As has never been so evi- from across the All of this applies further strains to dent before, airline partners can be relationships within the three big friend and foe, and increasingly it European airline global alliances, where joint ventures seems, are seldom one or the other. spectrum on the have taken centre stage. So, within the Oneworld camp Qan- same podium The global alliances, by their very tas ditched its long-standing partnership nature a surrogate for consolidation, with British Airways on the Kangaroo showing each other have always been seen as a stepping route to team up with Emirates, but is a whole lotta love stone, rather than an endgame in itself. deepening its partnership with BA part- But the blocks to global consolidation ner American Airlines. The Texas air- – which necessitated the creation of line, of course, is part of the triumvirate spat would help trigger a reform of alliances in the first place – largely of US majors challenging the expansion Europe’s lobbying groups – not to men- remain. For this reason, the global of the Gulf mega-carriers. And one of tion the even more unlikely sight of groupings will stay central for some them – Qatar Airways – has recently five rival “rock stars” from across the time, but will not be a constraint to air- taken a stake in the parent of American’s region’s airline spectrum showing line partnerships. Restrictions around vital transatlantic partner, BA. All of each other a “whole lotta love”. co-operation with non- or competing them sit together in Oneworld. Well, it happened in June when Wil- alliance members are easing, and affili- The dynamics of these relationships lie Walsh, Alexandre de Juniac, ate membership to account for differ- mean that American Airlines boss Carsten Spohr, Michael O’Leary and ent types of partner is in the works. Doug Parker – who was left as the Carolyn McCall gathered on the same As the attempted joint venture frontman for the US position during podium at Brussels airport to highlight between Oneworld’s Qantas and IATA’s AGM in Miami – finds himself their common ground. SkyTeam’s China Eastern further under- hitting out at Gulf-carrier US expan- And few now can avoid the ripples. lines, competitive realities mean airline sion one day, then discussing further But the rapid expansion of the Gulf strategies will go where they need to. To co-operation with Oneworld partners carriers is developing into a major fault this end, the current structure of alli- including Qatar Airways the next. line. As ever, Emirates boss Tim Clark ances may help shape future airline part- And Parker’s is a far from isolated summed up the situation eloquently nerships, but it will not dictate them. ■ situation. Delta Air Lines’ SkyTeam co- founder, Air France, voices concerns around the subsidy issue while dis- DESTINATION DUBAI cussing further co-operation with Flightglobal will have this year’s codeshare partner Etihad. And Luf- Dubai air show covered online and in thansa vocally backs the view from the print. The show takes place on 8-12 The home of Airline US majors while counting what many November where Flightglobal will be Business on the web is on the Airlines describe as “the fourth Gulf carrier”, producing four issues of Flight Daily Channel of Turkish Airlines, as a partner. News and reporting developments flightglobal.com: The ripples keep coming. Few from the event online at: flightglobal.com/ could have predicted that the subsidy flightglobal.com/Dubai airlines

62 | Airline Business | September 2015 flightglobal.com/airlines TOMORROW’S AIRCRAFT INTERIORS INDUSTRY IN THE MAKING

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