Industry / Competition
By Vivek Mayasandra, Globalizer.co
26 November 2012 | In the highly competitive aviation industry, airlines have to think differently to evolve and grow. The challenge has been especially strong for European carriers, whose base in the economically troubled Eurozone, coupled with strong competition from low-cost carriers and Gulf-based airlines, has required them to look to new markets for opportunities. As the global economic center of gravity is shifting from Europe and the USA towards Asia, with subsequent increases in income, many European carriers are looking East for growth.
Finnair’s Asia strategy
Along with megacarriers Air France-KLM and Lufthansa, Finnair is one of the most prominent players in the Europe to Asia market. The airline has built a niche strategy around “Asia’s growing market, the best flight connections and cost-competitiveness” and has invested significantly into expansion in the region and into developing its Helsinki base into a prime transit hub.
According to the Center for Aviation (CAPA), Finnair has a near 7 percent capacity share of one-way seats between South Korea and Western Europe, a 10 percent share of Japan to Western Europe (ahead of British Airways), and an approximate 6 percent share of the China to Western Europe.
By virtue of geography, Helsinki’s location makes it the closest European Union gateway for flights between Europe and Asia. Finnair has leveraged this fact by promoting its Helsinki hub as a transit hub for travellers between its 40 European and 11 Asian gateways. According to CAPA, Finnair in the second quarter of 2012 deployed about 51 percent of its capacity (in ASKs) on routes to Asia, and this segment represented 43 percent of passenger revenues.
According to the airline, some 40 million passengers travel between Europe and Asia annually, and about half of these passengers fly non-stop from a major hub like London Heathrow, Frankfurt and Paris Charles de Gaulle with the other half connecting via an intermediate airport in Europe or the Middle East. Finnair strives to be among the three largest operators in traffic between Europe and Asia involving transfers during the trip.
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18 October 2011 | China Southern on 14 October became the first Chinese airline to receive the A380, when Airbus handed over the first of five superjumbo ordered by the Chinese carrier. The double-decker planes will spearhead the state-controlled company’s drive to more than double the percentage of capacity deployed on overseas routes to 35 percent by 2015, said Yang Bo, the head of its planning department. “Flying A380s will put us in a completely different league. We hope to use the planes to build a good brand image and to raise our profile overseas.”
China Southern has already boosted international capacity with 33 percent this year as it aims to develop Guangzhou airport in Guangdong province – China’s biggest region by economic output – into a global hub rivaling Hong Kong, which is located less than 200 kilometers (125 miles) away. China Southern plans to boost its total fleet to 645 aircraft by 2015 from 425 today. Says Si Xianmin, Chairman of China Southern, “The economics offered by the A380 will undoubtedly improve our competitiveness on international routes and it is the perfect asset to help China Southern Airlines achieve its goal of becoming a leading global carrier.”
Qantas is already noticing the increased competition from China Southern, as the Chinese airline has significantly grown its Australia services as part of its intercontinental push. Similar drives in Europe and North America will follow, partly to offset competition from high-speed trains on domestic routes in China. China Southern Airlines’ focus on domestic flights made it Asia’s largest carrier by passengers. As Qantas CEO Alan Joyce tells Bloomberg, “The Chinese carriers are in an amazing position. They have got the scale that will make them huge and I think they will be a big challenge for the Middle Eastern carriers as well as the Asian carriers.”
‘Pearl of the Skies’
China Southern has selected a three-cabin configuration for its new A380 flagship, which it has dubbed ‘Pearl of the Skies’. The airline’s superjumbo has 506 seats in total: Eight ‘Platinum’ suites in First Class, 70 lie-flat Business Class seats and 428 seats in Economy. The eight First Class suites are located at the front of the lower deck in a 1-2-1 layout and look like the ‘closed’ version of the Acumen/Countour First Class seat, an ‘open’ version of which is also installed on Korean Air’s A380’s. Read full article »
By Vivek Mayasandra, Take Flight Project
13 October 2011 | As the global economy dynamically changes, all major airlines are focusing on the rapidly growing middle class and business markets of the BRICs and the ‘Next 11’ as a new source of growth. According to Boeing’s latest outlook, these emerging economies will collectively occupy over 60 percent of passenger flows by the year 2030.
Last month we discussed how Emirates is capitalizing on new passenger flows, for example connecting Asia with Africa and with Latin America via its Dubai hub. A good showcase of the challenge that the rise of Emirates is posing to European legacy carriers is India, since the subcontinent is the second largest market for both British Airways (50 weekly flights to 5 destinations in India) and Lufthansa (52 weekly flights to 7 destinations), after the United States.
India is also Emirates’ largest operational market with 185 flights a week to 10 destinations. Says Orhan Abbas, vice president India and Nepal at Emirates, “The Indian market is a very important one for us as Indians have overtaken the British as the single largest tourist group on Emirates.” In the 2010-2011 fiscal year, Emirates’ revenues from India grew 24 per cent to USD1.7 billion, while traffic grew with 10 per cent.
Emirates’ aggressive approach has resulted in significant market shares on international flight routes from India; the airline currently holds 35 per cent on routes from India to Britain, 40 per cent to France, 20 per cent to Germany, and 31 per cent to New York. The airline’s low prices and large network in India make it an attractive option, and on the popular route between India and North America, Gulf airlines such as Emirates are virtually the only practical option for travellers from second-tier Indian cities. A passenger from New York on the way to, for example, Thiruvananthapuram, has to connect twice when flying via Europe (e.g, at Frankfurt and at Delhi), compared to a single connection at Dubai.
Besides the large number of Indians working in the Gulf states, “one of the reasons for Emirates’ success is that so many Indians love transiting via Dubai,’’ says Madhav Oza of Blue Star Travels, one of the biggest travel consolidators in Mumbai. “The shopping, easy visas and simply the familiarity with the city often makes them choose it over colder and more congested European hubs like Frankfurt, Paris or Brussels,” he says.
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By Vivek Mayasandra, Take Flight Project
16 September 2011 | Over recent years, Gulf-based carriers Emirates, Qatar Airways and Etihad have dazzled the global airline industry with their aircraft orders, premium services and rapid expansion. Besides targetting traditional routes such as Europe – Australasia, Emirates, the leader of Gulf aviation growth, has aggressively capitalized on new passenger flows, connecting Asia with Africa and with Latin America via its Dubai hub – markets which will collectively occupy over 60 percent of passenger flows by the year 2030, according to Boeing’s latest market forecast.
As Emirates states in its latest annual report: “The future of our industry is being written not only in long-established air routes, but also in places like China, India and Africa – markets where the demand for air transport, both passenger and cargo, is growing at an incredible rate.” [...] “Our strategic hub in Dubai plays a key role in establishing new trade routes by linking emerging markets to more developed ones, such as connecting Moscow to Durban, Beijing to Luanda or Hyderabad to Sao Paulo.”
This focus has enabled Emirates to position and brand itself to a newly global customer base – and more importantly – develop solutions in service, dining and entertainment for a wide array of diverse passenger tastes.
In the air, Emirates’ diverse cabin crew is indicative of its global focus – the airline employs cabin crew from more than 130 nationalities. This lets Emirates typically staff their flights with speakers of Arabic, English and the local language of the flight’s destination. Being an Gulf-based carrier, Emirates’ crew are also trained for a variety of Arab and Muslim cultural situations – from being taken to mosques, learning how to serve the traditionally Arab meal of coffee and dates, to properly serving veiled Muslim passengers.
13 July 2011 | The advantages of high-speed rail have been well documented. Compared with flying, travelling by fast train offers city-center to city-center connections, no need for checked baggage, or repeated queuing for security and boarding. Also, trains are not prone to delays caused by bad weather, slow baggage handling, crowded runways and air traffic. Research has shown that business travellers are willing to travel to destinations by rail for up to 4 hours, while leisure travellers are even prepared to use trains for journeys of up to 6 hours.
In an effort to make rail travel even more attractive for business travellers, high-speed rail operators in China and Japan have recently introduced airline-like business class cabins on their latest fast trains.
Beijing – Shanghai ‘Harmony Express’
China is in the process of building the world’s largest high-speed network in record time, with rapid passenger lines already criss-crossing much of the country. The recently opened Beijing to Shanghai high-speed railway is the latest portion of a network the government hopes will stretch 45,000 km (27,960 miles) by the end of 2015. Construction of the 1,318 kilometre (819 mile) high-speed rail connection between Beijing and Shanghai began in April 2008 and track laying was completed only 2,5 years later in November 2010. The USD33 billion rail line has been operating on a trial basis since mid-May and was officially opened at the end of June 2011.
Besides second and first class cars, the Beijing – Shanghai Harmony Express features a business class car with 24 lie-down seats with a nearly full recline. Each seat is equipped with a foldable LCD TV, a tray table, socket and reading lamp. Travellers are waited on by uniformed stewardesses and even the galley area and restroom have been upgraded.
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More images at Australian Business Traveller
5 May 2011 | We have reported before on the plans by Australian hybrid low-cost airline Virgin Blue to reposition itself as a more direct competitor to Qantas and double its share of Australia’s corporate travel market from 10 to 20 percent. Virgin Blue has just officially unveiled its new name – Virgin Australia – and new livery. The rebranding completes 10-year old Virgin Blue’s revamp into a ‘no-frills chic’ airline. Says Virgin Australia CEO John Borghetti, “We will still offer low airfares, keeping the competition in the sky high.”
Virgin Blue and its associate airlines—V Australia and Pacific Blue—will be rebranded Virgin Australia after the Virgin Group reached an agreement with Singapore Airlines (SIA) regarding the use of the Virgin name on international services to/from Australia. As part of its acquisition of a 49 percent steke in Virgin Atlantic back in 2000, SIA was given a veto on the use of the Virgin brand in the Asia-Pacific region outside of Australia, forcing Virgin Blue to brand its international operations Pacific Blue for regional services and V Australia for long-haul operations. Virgin Australia (tagline “Now You Are Flying”) will replace the domestic Virgin Blue brand immediately and international brands V Australia and Pacific Blue by the end of 2011.
B737-800 Sky Interior
Virgin Austalia also showcased the widebody and narrow-body versions of its new product on an Airbus A330 and Boeing 737. The new makeover, both exterior and interior, is styled after the carrier’s U.S. sister airline Virgin America.
Virgin Austalia ‘s newest 737-800 comes in Boeing’s new Sky Interior, which features mood lighting, larger overhead lockers and sculpted sidewalls designed to provide a feeling of spaciousness. Virgin Australia’s 737-800 also debuts a new business class cabin with eight leather seats with a 37-inch seat pitch. A purple plexiglass dividing panel, also found on Virgin America’s jets, separates the business and economy sections and the LED lighting will be purple and white. The new Boeing 737-800 interiors will be rolled out across the majority of Virgin Australia’s current domestic fleet by the end of the year. Virgin Australia also said it will announce an innovative entertainment option shortly, which suggests it may be looking at iPads or similar devices.
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1 March 2011 | In a bid to become a more powerful, direct competitor to Qantas, Australia’s Virgin Blue is transforming itself from a cheerful low-cost carrier into a full-service business and leisure airline with a low cost base. With the remake, Virgin Blue wants to double its share of Australia’s corporate travel market from 10 to 20 percent and cut its reliance on leisure travel in the process, as competition from other low-cost airlines, such as Jetstar (part of Qantas) and Tiger (50% owned by Singapore Airlines), is driving down leisure fares. Virgin Blue’s earlier attempts to target the business market, with for example a premium economy class, has left the airline somewhat stuck in the middle.
As part of what Virgin Blue has dubbed a ‘Game Change Program’, the airline has recently announced a series of initiatives that seriously upgrades its product. As Australian Business Traveller nicely summarizes it: “There’s a seismic shift happening at Virgin Blue. A new name, new logo and new brand. New planes with new livery. New business class seats, new cabins and new lounges. New routes. New alliances with partner airlines. New uniforms”. The catalyst for the changes at Virgin Blue has been the appointment in May 2010 of John Borghetti, formerly Qantas’ executive general manager.
First of all, Virgin Blue will reveil a new brand name by June 2011, which is expected to be either Virgin Australia or V Australia. The airline’s creative director Hans Hulsbosch recently told The Australian that while the Virgin brand would continue to anchor the airline, Blue would no longer be part of the brand. Research has found that as Virgin moved to capture the business-class market, its brand was being held back by perceptions among business travelers that it was purely a budget airline. Furthermore, Virgin Blue wants to consolidate its fragmented brands – Virgin Blue, Pacific Blue, Polynesian Blue and V Australia – which is the result of an agreement between Virgin Atlantic and Singapore Airlines (which owns 49 percent of Virgin Atlantic) that prevents the Virgin brand being used outside Australia.
Virgin Blue’s new uniforms perhaps best illustrates the airline’s transformation from a cheerful low-cost airline into a full-service carrier targetting business travellers. Created by Project Runway Australia winner Juli Grbac, the new red, silver and purple unifoms are remarkably reminiscent of Virgin Atlantic’s chic and classy style, and replace Virgin Blue’s current more casual outfit.
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24 November 2010 | Turkish Airlines (THY), Europe’s fourth biggest airline and one of the fastest growing airlines in the world, has seen passengers soar as a result of an aggressive strategy to turn Istanbul’s Atatürk Airport into a hub for passengers between Europe, Asia and Africa. One third of THY’s passengers currently transits and the airline plans to double this in the near future. The airline operates direct flights to 128 international and 39 domestic destinations.
During 2010, THY has grown its fleet from 133 to 153 aircraft, added 15 new destinations and increased passenger numbers to 31 million (up from 25 million in 2009). In the first 9 months of 2010, THY’s revenues grew by 39 percent, passengers carried increased by 18 percent, and its load factor rose 3.4 points to 74.2 percent, despite the substantial capacity increase. THY says it aims to grow 15 to 20 percent annually in the coming years, just as it has for the past seven, and is on track to become Europe’s third-biggest full-service airline by passenger numbers soon, overtaking British Airways.
Doubling number of flights within 5 years
Turkish Airlines will increase its fleet to 196 aircraft within the next five years, as part of an order of 105 aircraft. With the new aircraft, the airline targets to double the number of flights it operates by 2015 and to become one of the 10 biggest carriers worldwide. Says THY’s CEO Temel Kotil. “The company grew twofold in recent years. Now we aim at competing with companies such as Luftansa and Air France. My personal aim is to raise the number of flights to 10,000 and make THY a world leader.” CEO Kotil also stated the Star Alliance carrier would focus on organic growth to boost market share, however THY is also looking to invest in other carriers, such as Serbia’s JAT Airways or LOT Polish Airlines. It already owns a 49% stake in B&H Airlines.
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3 September 2010 | In a bid to become a more potent, direct competitor to Qantas, Australia’s Virgin Blue is planning to transform from a cheap and cheerful low-cost carrier to a serious business and leisure airline that has low costs. With the remake Virgin Blue wants to double its share of Australia’s domestic corporate travel market from 10 percent, cut its reliance on leisure travel in the process and limit investments in its network by creating international alliances. The carrier is targeting business flyers as competition from low-cost airlines Jetstar (part of Qantas) and Tiger (50% owned by Singapore Airlines) is driving down leisure fares. The catalyst for the changes at Virgin Blue has been the appointment in May 2010 of John Borghetti, formerly Qantas’ executive general manager.
The Virgin Blue Group has a number of substantial issues to resolve. The first one is consolidating its four disparate brands: Domestic carrier Virgin Blue, short-haul international airlines Pacific Blue and Polynesian Blue and long-haul carrier V Australia. Virgin just hired Hans Hulsbosch, who designed the Qantas flying Kangaroo logo, as creative director for the airline. While it is unlikely the Virgin Blue brand will be abandoned, it is possible a number of the sub-brands such as V-Australia and Polynesian Blue will be scrapped. An agreement between Virgin Atlantic and its 49% stakeholder Singapore Airlines however prevents the Virgin name from being used outside Australia.
The second challenge is to position Virgin Blue for a head-to-head battle with Qantas for a significant stake in the Australian business passenger market. As of May 2011, Virgin Blue will introduce A330s on domestic trans-continental trunk routes such as Sydney to Melbourne, Brisbane and Perth. The A330s will have a separate business class cabin (details have yet to be announced), which may also bring a bit of V Australia’s ‘boutique experience’ to Virgin Blue. To compete with Qantas’ Business class cabin, Virgin Blue launched Premium Economy seating in 2007. It was not successful, however, because there was no clear distinction with the rest of the cabin, and it left Virgin Blue somewhat stuck in the middle. Read full article »
9 August 2010 | So far, the only region where the low-cost, long-haul business model has truly taken off has been the Asia-Pacific. In Europe, airberlin is currently the sole low-cost carrier to have established a long-haul operation, operating 13 A330s (it also ordered 15 B787s). The airline uses its extensive domestic network to feed its long-haul flights from Dusseldorf to New York, LA, San Francisco, Vancouver, Dubai, Beijing, and holiday destinations in the Caribbean, Africa and Thailand. Airberlin also just entered the Oneworld alliance and, amongst others, will codeshare with American Airlines to feed/connect its passengers in the USA. Ryanair has been hinting to start trans-atlantic routes with a separate company (rumoured to be named Ryanair Atlantic), but has shelved these plans until 2015.
Now, two airlines in Scandinavia aim to take advantage of the Nordic region’s geographic location between North America and Asia (as Finnair successfully does with its ‘Via Helsinki’ hub). Norwegian, the fourth-largest low-cost carrier in Europe has plans to established up to 20 long-haul routes from Scandinavia to Asia and the USA, capitalizing on its large regional network. The airline plans to start operations in 2011, in time for summer season, and eventually may order up to 15 widebodies, possibly B787’s. Norwegian has listed New York and Bangkok as initial destinations and has also mentioned Miami, the American west coast, New Delhi and Beijing. Flights will mainly be from its Oslo-hub, but also from Copenhagen and Stockholm. Norwegian plans to operate a 2-class configuration, with prices from Euro 200/400 return in Economy/Business to New York.
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9 June 2010 | Dubai-based Emirates has signed a deal to buy 32 additional A380 aircraft in an order with a list price of USD11.5 billion. This brings the airline’s total A380 order to 90 aircrafts, nearly 40 percent of worldwide orders for the superjumbo. Emirates president Tim Clark said that all 90 A380s will be operating at the same time in the future, as “The first A380 aircraft we ordered will be retired from the fleet in 2020, and the last of this order will be delivered in 2017.”
The central location of the Gulf Region on the world map lets aircraft access almost every destination non-stop, as 85 percent of the world’s population is located within a 8,500 km range from the Gulf. Governments in the region have been developing their carriers over the past decades to help diversify their economies and reduce dependence on oil revenues. The so-called ‘Gulf Gullivers’ are increasingly redirecting passenger flows from Europe, Asia and the Americas through their hubs, making them serious competitors for established airlines.
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11 January 2010 | The rise and rise of Emirates (Dubai), Etihad (Abu Dhabi) and Qatar Airways has been well documented. These so-called ‘Gulf Gullivers’ have placed multi billion-dollar aircraft orders, expanding their airports and developing their tourism infrastructure, with the aim to turn the geographically ideally situated Gulf region into the world’s aviation hub. Some of the ingredients of their model: high frequencies to major urban destinations, target large metropolitan areas without direct connections (for example, Manchester, Birmingham in the UK, Düsseldorf, Hamburg in Germany) so passengers can bypass busy hubs in their region and transfer at the carrier’s 24/7 Gulf hubs, and large investments in their premium services.
The past year, major airlines in Europe, North-America, and Asia-Pacific have put their brakes on fleet expansion amid significant drops in passenger volumes and yields. Nevertheless, Emirates, Etihad Airways and Qatar Airways have continued their aggressive fleet and network growth, introducing more than 30 new widebodies between them during 2009. Middle East airlines saw passenger grow 11.2 percent in 2009 according to IATA. By contrast, passenger demand dropped 5 percent in Europe and 5.6 percent in the Norh America, as well as in Asia Pacific. And plans remain bullish: With a new wave of aircraft coming, most notably Emirates and Qatar Airways are now turning their attention to other European metropolitan catchment areas and to Japan.
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7 January 2010 | Looking forward to what will be another challenging year for the airline industry, here are 10 quote that sum up what’s on the horizon for 2010. From increased awareness of security to legacy-low cost convergence, the real-time web and business as unusual.
1. The State of the Airline Industry. “Following a decline of 4.1% in 2009, passenger traffic is expected to grow by 4.5% in 2010. A total of 2.28 billion people are expected to fly in 2010. Industry revenues are expected to rise 4.9% to USD478 billion in 2010. However, revenues remain 11% below the peak of USD535 billion in 2008 and 6% below 2007 when passenger traffic was at similar levels to what is expected in 2010. Airlines will remain firmly in the red in 2010 with USD5.6 billion in losses. In 2009, passenger yields plummeted by 12% (the world’s airlines will lose USD11.0 billion in 2009) […] and are not expected to improve. This is being driven by two factors: excess capacity in the market and reduced corporate travel budgets. […] For 2010, some key statistics are moving in the right direction. Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3%. But fuel costs are rising and yields are a continuing disaster. […] The industry is structurally out of balance. The precipitous fall in yields will likely never be fully recovered” (IATA Industrial Forecast 2010).
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31 December 2009 | As 2009 has come to an end, here’s our take on some of the most interesting quotes of the past year. Together they give a nice indication of the major trends currently shaping in the airline industry. Happy New Year!
1. Customer Experience. “They [legacy carriers] basically should get out a clean white sheet of paper and start again. Most of them are beyond repair. They got far too big and have management groups that don’t care about customer service. The experience the traveling public gets on those other carriers is pretty dire. […] If I was them, I’d start a new airline. I just don’t see how they can rescue their current airlines.” – Virgin CEO Richard Branson on what legacy carriers could learn from Virgin America (in Advertising Age).
2. The New Normal. BA’s CEO, Willie Walsh, recently observed a “structural shift” was occurring, noting “it may be that demand in the highest-yielding, fully-flexible premium business market will never recover to the levels we were seeing in 2007. […] That is a sobering message for all traditional airlines. Premium travel has been central to the viability of their business model for a very long time”. – What to do with a broken airline model? (Centre for Pacific Aviation).
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