European carriers blame eurozone meltdown for poor results but it’s really about bad management
Only a few days after Ryanair reported record profits, Air France KLM, Lufthansa and Iberia, are reporting troubled times.
Air France is combining Brit Air, Regional and Airlinair, which serve secondary and even tertiary cities, into a single unit, and says, somewhat opaquely that a leisure arm will be established around discount unit Transavia while Air France’s own short-haul brand will introduce a new no-frills class.
After flying two sectors on Air France in recent days, and vowing to take the not-so-fast but nevertheless superb rail alternative next time, introducing low-frills sounds pretty ominous given the observed standards.
The airline is also requesting a 20% efficiency saving from its unions, to be agreed by the end of June before everyone goes on holiday for two months. (Or so it seems.)
Within in hours of this Lufthansa, which just doesn’t seem to understand that Ryanair is actually more convenient than it is for many EU travellers, announced steep job losses in its management cadres, and Iberia demanded sharp productivity rises from its pilots in particular.
While Europe’s airlines need to make many changes to ensure they navigate the new dangerous economic situation their corporate and leisure customers are in, they use rhetoric that seems peculiarly like that of Qantas and Ansett about the time Virgin Blue and Impulse began to stir things up in 2000.
It’s still deckchairs on the Titanic time on the continent. There will be a major airline sinking or two to come before broad and substantive changes come not just to the European carriers, but Europe.
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Isnt Ryanairs profits largely from its aircraft trading business ?
Their financial details are here
http://www.ryanair.com/doc/investor/2012/q2_2012_doc.pdf
Im not a financial person but I note they include ancillary revenues which are 20% of passenger revenue, and of course the very low interest rates have helped lease costs and interest costs on aircraft
Looks like a pretty genuine “airline” P&L to me.
Revenue almost totally generated by passenger traffic. Do not know where ghostwhowalksnz gets his idea inferring that revenue primarily generated by aircraft trading.
Bl…dy good half year result of 543 million Euro. Look at these figures.
Operating margin 24%
Operating profit 19%
Revenues up 24 %
Av Load factor 85%
Revenues up due + 12% increase passengers
Average revenue per passenger up 13% (higher fares)
Ancillaries Rev up 15% to 486 M Euro
Fuel up 37% but well hedged all of 2012 and part of 2013
Has 3 billion Euro cash in the bank.
Pretty impressive by any means even if it is a lack lustre product. And this result while most of Europe in severe recession.
Puts most airlines around the world to shame.
Plenty of people in Australia with the same mindset as the large legacy carriers Europe (first and foremost the staff at Qantas – Pilots, flight attendants, engineers, ground staff. They and many others refuse to recognise that the global aviation market has massively changed; changed forever)
The ‘ghostwhowalksnz’ makes a comment about “ancillaries revenue” as if it was not genuine airline revenue. It certainly is genuine airline revenue.
For the low cost carriers who have a stripped down a la carte fare structure (unbundled model) it is the revenue they derive from baggage fees (pay to check-in a bag), paid seating (pay for an advance seat allocation and even more for e/exit row), excess baggage, inflight meals, inflight duty free, booking change fees etc etc etc. Would also include revenues earned their from their co-branded credit card.
LCCs have low headline prices and depend on improving their yields by charging customers a hefty fee if they change their booking; they charge you if you speak to a live person, and they charge for baggage check-in, charge you for check-in at the airport if you do not check-in online beforehand, charge credit card service fees, and so on and so forth. They charge for anything that moves, even headsets and blankets. Frontier Airlines in the US even charges you to take hand baggage on board.
Ryan Air’s cost per available seat mile probably around 40% lower than their legacy carrier competitors. Bear in mind that it is also primarily a short haul carrier and that is much more expensive to run (cost per ASM or ASK) than long haul. Fuel burn higher as less cruise, more aircraft cycles etc
The comment about profits from aircraft trading was based on older information.
But do you really think its ‘good’ management for pilots and cabin crew to be only paid for hours worked while the plane is in the air, but be responsible for cleaning the cabin during the 25 min turnaround.
As well the very low Irish tax rate for companies would help a lot, and all its employees are considered to work on Irish aircraft, despite working at bases all over Europe, and they dont pay any of the social obligations that other european employers must meet.
And would it be good management to have destinations quite a distance from the city they describe. 158km from Paris and 125 km from Frankfurt as well as Ryanair being subsidised to use some of these airports in the middle of nowhere.
These subsidies are estimated to be 700 mill euros. A nice little booster for ancillary revenue. When a airport like Strasbourg was ordered to stop paying subsidies, after much huffing and puffing they just moved their destination to just across the border to Germany
AS for customer communications is this good management -
“Not only is he hard on authorities, but also on customers and competitors, not hesitating to use the F word to address them: “You’re not getting a refund so **** off”
Very detailed overview of Ryanairs business model and marketing and financial background can be found here
http://www.air-scoop.com/pdf/Ryanair-business-model_Air-Scoop_2011.pdf
As a consumer, taxpayer and shareholder I am heartily sick of businesses who spread the blame around instead of recognising that the environment they operate in is constantly changing and that the primary role of managers is to make the business adapt to those changes.
Frankly, I don’t think that anyone has really understood the true impact of the LCCs (including the LCCs themselves). There is a fundamental shift going on in purchasing behaviour, but I also think it is short-sighted to just focus on the low-cost end.
I say this as someone who is reasonably cashed up for the first time, and am happy to pay for premium service. But I’m not happy to pay premium prices for LCC service – I would rather pay LCC price for LCC service as at least I know what I’m getting into.
As a minor aside, I have flown Air France a few times on long haul flights between Paris and Asia and I can only say that the business class is pretty good – better than Qantas and a number of ME airlines. However, my personal favourite is Swiss in terms of making a passenger feel truly welcome, in the air and on the ground, in both economy and business classes. Even when paying out of my own pocket, I would readily choose Swiss instead of Easyjet.
Air France economy though to Asia (Sing) on a 777 very cramped indeed; like Jetstar seating on a QF flight; if only QF could get daily traffic rights to Paris.
While it proves nothing in the bigger picture, Air France didn’t get my checked bag onto the Emirates flight out of CDG yesterday, so on arriving at Sydney airport this morning the Emirates agent in customs told me they had three hours between flights but didn’t succeed.
AF also had over three hours to transfer my bag on arriving inbound a week earlier.
So I was ‘got’ coming and going. Next time, the train from from CDG to TLS each way.
As Ben Beverage stated above, Ryan Air a pretty “lack lustre” product.
The so-called “subsidies” that Ryan Air gets is no where near 700 million Euros. And these so called subsidies in most cases are simply that the secondary airports do not gouge the LCCs that fly into them the massive fees that apply at primary airports.
I also think that customers these days are no longer under allusions where the secondary airports are. They are in fact in many cases often conveniently located to where they actually want to go.
I guess what he was trying to say is that these new carriers (well some of them, like Ryan Air) are very profitable and have a cost base that makes it almost impossible for legacy carriers to compete with.
As such they are really hurting the legacy carriers. When added to the hurt of the ME carriers hub and spoke operations on long haul operations it is not a particularly good situation that the European carriers find themselves in. Something has got to give.
They cannot go on bleeding as they currently are. But will it happen?
Take for example the Iberian Airlines situation. Spain’s economy is in a terrible situation. Iberian pilots are among the least productive in the world. Yet they go on strike in the middle of all this as the company endeavours to bring in some reforms and to establish a lost cost arm to compete with the LCCs that are harming them so much. The pilots are not prepared to give up anything and also want to transfer their high costs and lack of productivity to the new LCC arm of Iberia and are striking to get their way.
Seems to remind me of that story about the goose that laid golden eggs.
I agree that the LCC product is not for everyone (certainly not for me) but one has to recognise the massive change they are forcing on global aviation; particularly in the short haul sector markets.
And because of them the number of people travelling by air has expanded exponentially
Southwest Airlines of US (the mother of the LCC model) is now the l”argest carrier in the USA” (when measured by number of passengers carried) and growing. Soon to expand internationally (mainly Central and South America, Carribean and Canada) on back of their Air Trans acquisition.
There are many in the airline business that are indulging themselves in wishful thinking.
P.S. someone in blog mentioned flight attendants on Ryan Air cleaning cabins on turnarounds. This is the case with Virgin Australia, Jetstar, Tiger, Southwest Airlines etc etc
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