Aviation Strategy Issue No: 18 April 1999 Brussels: business as usual? he resignation en masse of the European Commission has been Analysis Ttaken phlegmatically at DG4 and DG7. Neil Kinnock and Karel van Miert, officially ex-commissioners despite not being blamed by the Brussels: European parliament’s report, are observed to be going about their business as usual? 1 daily business. Nevertheless, this dramatic development has come at a difficult Startling time for European aviation policy (but when isn’t it?). The DGs now capacity statistics 2-4 lack proper leadership, maybe for the rest of the year, and at the end of 1999 van Miert is likely to disappear completely from the EC while New Air: Kinnock hopes to be reinstated in something grander than Transport. the mega new entrant 5-6 Two major issues are dangling. The first issue is that no final decisions have been made on any of Consolidation pace the transatlantic alliances. And, the UK High Court has just arrived at increases for Europe’s a decision which would appear to contradict the EC’s alliance compe- charter airlines 7-9 tition policy: in a judgement in a case concerning an exchange of slots plus a compensatory payment between British Airways and KLM uk, the court in effect ruled that the sale and purchase of slots was a per- Briefing fectly legal activity. The BA/AA alliance, of course, foundered on the Canadian Airlines - EC’s insistence that British Airways could not sell the 267 slots it had a new beginning? 10-13 been asked to dispose of. BA and AA cannot immediately resume their full alliance negotia- Greek new entrants - tions as bilateral talks between the two countries are bogged down. The well capitalised, US continues to reiterate the principles associated with its model open but too many? 14-17 skies agreement and complain about slot constraints at both Heathrow and Gatwick. The UK continues to push discussion of Fly America, cab- otage, and foreign ownership - items which are, according to the US, Management beyond discussion because they will require legislative mandate. Airline web sites - The question now becomes: will the new EC use the European still fairly primitive 18-19 Court to overrule the British decision, or will it accept the commercial reality of the situation and consider the possibility that slot trading 20-21 might lead to more efficient allocation of scarce resources at congest- Macro-trends ed airports? 22-23 The second issue concerns the deterioration of EU/US relations Micro-trends following the proposed European regulation that will ban the importa- tion of hushkitted Chapter 2 aircraft into the EU, even though they comply with Chapter 3 noise standards. This removes a major market for hushed and cargo-converted 727s from the US. It appears that the Council of Ministers has no choice but to pass the regulation for the technical reason that the European parliament made no amendments to the EC’s proposal. Aviation Economics The US house of representatives is retaliating by writing a bill that James House, LG, would remove Concorde’s waiver to operate at noise levels higher 22/24 Corsham Street than US maximum standards - in effect banning the aircraft from US operations. Needless to say, this would be a serious blow for British London N1 6DR Airways and Air France. Tel: +44 (0) 171 490 5215 The hushkitting argument threatens to develop into another Fax: +44 (0) 171 490 5218 banana war between the US and the EU - one that a fully active EC e-mail: [email protected] would be expected to defuse. Aviation Strategy Analysis Startling capacity statistics vercapacity is rearing its ugly head ous route regions, as detailed in the follow- Aviation Oagain. In the February issue of Aviation ing pages. Strategy Strategy (pages 3-5), we started to puzzle is published 12 over where all the scheduled deliveries in North Atlantic times a year by 1999 could be going. Now an original analy- Aviation sis by James Halstead, the highly-rated air- This is the critical region for the profitabil- Economics on the first of line analyst at Credit Indosuez Cheuvreux, ity of the Euro-majors. ASKs are forecast to each month reveals some disturbingly high capacity increase by 11.4%. This is not too far out of growth rates, well above the most optimistic line with last year’s traffic growth rates - 8% Editors: demand predictions. for AEA carriers and around 12% for the US Keith McMullan The analysis is based on manipulation Majors - but nobody should expect 1998 Nick Moreno of the major airlines’ published schedules increases to be repeated this year as from the Official Airline Guide, crunched by economies on both sides of the Atlantic Subscription Back Data (however, the interpretation of weaken. enquiries: Nick Moreno the results in this article is essentially that There is a huge contrast in the strate- Tel: +44 (0) 171 of Aviation Strategy). gies of the Euro-majors. British Airways has 490 5215 This is the first time that it has been emphasised its restrained strategy possible to look in detail at capacity a year (capacity growth of 4.5%) based on down- Copyright: ahead, as opposed to just a couple of sizing from 747s to 777s, although its US Aviation Economics months. Care was All rights reserved taken to exclude dou- TOTAL FORECAST LONG-HAUL ble counting caused CAPACITY GROWTH IN 1999 Aviation by codeshare and RANKED BY RANKED BY MARKET SHARE CAPACITY GROWTH Economics block booking agree- Registered No: Forecast Approx. Forecast Approx. 2967706 (England) ments. change market change market Of course, there is in ASKs share in ASKs share 1999/98 1999 1999/98 1999 Registered Office: absolutely no guaran- British Airways 2.7 8.5% American 42.5 4.2% James House, LG tee that the services United 4.5 7.1% Continental 37.3 2.7% 22/24 Corsham St being advertised for JAL 6.7 5.9% Iberia 27.7 2.1% London N1 6DR Lufthansa 18.8 5.9% ANA 21.1 2.2% VAT No: 701780947 the summer season Air France 11.2 5.0% Alitalia 19.5 2.0% and beyond will actu- Northwest -2.6 4.6% Lufthansa 18.8 5.9% Printed by: Printflow ally materialise. In Delta 18.8 4.3% Delta 18.8 4.3% ISSN 1463-9254 American 42.5 4.2% Thai Int. 17.1 1.6% fact, it is likely that the KLM 0.0 3.7% Swissair 15.9 2.0% The opinions expressed in airlines will have to SIA 8.0 3.0% Aeroflot 12.6 1.2% this publication do not nec- moderate their plans. Continental 37.3 2.7% Air France 11.2 5.0% essarily reflect the opinions Virgin 7.2 2.3% Qantas 9.8 2.0% of the editors, publisher or Otherwise, the contributors. Every effort is Korean 6.2 2.2% Cathay Pacific 8.2 2.1% made to ensure that the uneasy state of price ANA 21.1 2.2% SIA 8.0 3.0% information contained in this discipline that now Cathay Pacific 8.2 2.1% Virgin 7.2 2.3% publication is accurate, but Iberia 27.7 2.1% JAL 6.7 5.9% no legal reponsibility is prevails will disinte- accepted for any errors or Qantas 9.8 2.0% Korean 6.2 2.2% omissions. grate. Swissair 15.9 2.0% United 4.5 7.1% In summary, its Alitalia 19.5 2.0% British Airways 2.7 8.5% The contents of this publica- Thai Int. 17.1 1.6% China Airlines 1.4 1.2% tion, either in whole or in appears that overall part, may not be copied, Air Canada -4.4 1.5% KLM 0.0 3.7% stored or reproduced in any capacity growth in Canadian -1.1 1.4% Canadian -1.1 1.4% format, printed or electronic, 1999 will be around 9% China Airlines 1.4 1.2% Northwest -2.6 4.6% without the written consent Aeroflot 12.6 1.2% Air Canada -4.4 1.5% of the publisher. - but with wide varia- TOTAL 8.9 8.9 tion between the vari- April 1999 2 Aviation Strategy Analysis partner American is still growing at well into strategies and injected with private capital, double digits and now equal third in terms are going for fast growth on the Atlantic, of size on the Atlantic. British Airways is Alitalia is adding 34% to its capacity, Sabena obviously frustrated by the failure to con- 28% and Iberia 41%. summate its full alliance with American, but as a result it still enjoys the regulatory pro- Europe-Asia tection of Bermuda 2; it can afford to cut capacity growth with minimum risk to mar- By contrast, most airline are being very ket share. cautious on Asia-Pacific routes, with British Lufthansa by contrast, now operating in Airways, Swissair and Virgin actually cutting an open skies environment, is going for a capacity, so that overall capacity growth is higher risk expansion policy (capacity estimated at about 3%. Traffic growth on this growth of 20%), adding destinations and fre- route region was about 4% last year for the quencies as well as converting 747-400 AEA carriers. Combis to full passenger configuration. Its Again though Lufthansa is being expan- strategy is officially described as “catching- sionist, pushing up capacity by nearly 14% up” after years of expanding at about half the (and bringing its share of this market up to rate of British Airways. Its partner United is equal that of BA), while its regional partner growing at a similar rate.