Tag Archives: easyjet

The pope’s mobile is on the clock

 

Hickory Dickory dock, the pope ran up the clock,

The clock struck one, and hit his bum, Hickory Dickory dock.

An old rhyme slightly adjusted and gives light to a joke that mattered, it is old and it goes like:

Q: Why does the pope kiss the ground when he arrives?
A: You’ve never flown with Alitalia have you?

That is where we are, the clock is counting down; Alitalia is on its last legs and merely has two weeks left. As sources report that EasyJet pulled out of the race and even as Delta is still on board, someone needs to be found for the remaining 40% and that is the hard ball, consider on how much of an issue Alitalia is when people like Warren Buffett and Bill Gates will not take a shine to it, it might be too harsh to call Alitalia a money pit, but that is what is amounts too. The flight market is close to saturated, even as we all needed to fly (quite literally) 20 years ago, the companies started to figure out not to give their profits to the airlines. On a global scale close to 9750 planes were in the air last year at any given time, transporting up to 1.3 million people. The operative part is ‘at any given time‘, so how much travel is required nowadays? In 1998 I was flying close to 21 weeks that year, giving trainings and doing consultancy round the clock, at times living from a suitcase with added support from my laptop giving IT trainings and software training. I circled the planet twice that year, from Amsterdam, New York, Atlanta, Sydney, Singapore, Istanbul, via Munich and back to Amsterdam. I thought it was great and as long as the profits were outshining the costs, my bosses kept on sending me to more locations, it was all fine by me. These days are over, even as we see more and more airports expanding to ‘facilitate’ for more passengers, we see a dangerous curve, Stockholm Arlanda is expanding to facilitate for 40 million visitors a year. The numbers give us that the top 25 carriers facilitated for 13,718,655 passengers and if they are all tourists, that would be fine, yet the business side is not adding up. You see 15 out of the 25 had a decrease the went up to 27.3%, the lowest 10 were below 4.5%, still they were all still decreases and the largest increase came from Riga, Latvia.

Now consider that on the other side, on the airline side, apart from the element where we see that Alitalia had no operating profit between 2009 and 2015 with added low points of well over minus a quarter of a billion, the setup of airlines seems to be too odd.

I do get it, a nations having a national airline is a matter of pride, we get it, but at what cost? The airline has about 100 planes as part of the mainline fleet and the cost of doing business is just too high, there is no decent chance that whomever owns the airline might do so, so that they can say that they own an airline, it seems the weirdest of reasons, but from the financial view that is as much as we are going to get and the bad news is not done at this point.

You see, the work I used to do can be done remotely more and more, when 5G is totally here, we can see the shift where the classes can be given remotely with a phantom screen and with the presentations running in the background, the speed will enable us to give individual service to all the participants in up to three locations at the same time, almost like remotely run classroom software with camera’s in all locations. At that point we will see even less traffic required implying that the business classes on these flights will be close to a thing of the past.

The more immediate and difficult part is that none of this is the fault of Alitalia. Yes, we can look at the scandals and the past sting operations, yet the foundation is not that, it is the need of people to travel. In that light the traveller will be the one using their local airline (like many would), some will select airlines for their service and there we see groups of people seeking flights by Singapore Airlines, Cathay Pacific Airways and Emirates. So these airlines are also poaching local travellers as they have shown and proven themselves to be a cut above the others. When it comes to business and tourist Italy, we see decline of both and falling harder, yet Italy is still the destination to several countries, namely Germany, France, UK and US as the largest four. These four add up to 23%; the rest is from all over. So, what makes me the specialist? I am not; I am merely using common sense. 100 planes, in an age where their power is tourism and we are going into the summer season, but that setting is a stage that represents merely 18 weeks out of 52, the numbers and the economy do not support the fleet, or so it seems.

when we consider that Rome Leonardo da Vinci-Fiumicino supported 42,995,119 passengers last year, there is a decent case that I am seeing it wrong, but that is from all airlines, beside Alitalia, we see Air India, Emirates, Turkish Airlines, United, Etihad Airways, Thai Airways, Asiana Airlines, Qatar Airways, Cathay Pacific, Air China, Lufthansa, Ethiopian Airlines, Finnair, British Airways, SWISS, EL AL Israel Airlines, Air France, Saudia, Ukraine International, Jet Airways, Air Canada, Egypt Air, KLM, Kuwait Airways, Brussels Airlines, Aeroflot, Korean Air, China Airlines, Singapore Airlines, China Southern, Iran Air, all flying to Rome, now we see a different picture, even as the airport needs the space and growth, we see no decent numbers on how the Alitalia flights are doing, some sources were giving me ‘No Data‘ and that is fair enough, but it makes a much stronger case that unless there is someone with deep pockets that Alitalia is on its last legs and in its final stage of a mere two week notice until it shuts down. Planes would be auctioned off and the lot to be repackaged for other management styles. And I do believe that the end is not in sight, Alitalia is not the only one in such a sordid state of affairs. I believe that the business case of airlines should have changed a long time ago, and it will get worse soon enough, as the oil price goes up, so do the prices of flights. You see the one element we seem to ignore is not the drop in non-tourist passengers. It is the fact that one barrel of crude oil only facilitates for up to 4 gallons of jet fuel, the turnaround is that high, 42 gallons can only make 4 gallons of jet fuel, after that it boils down to gasoline, diesel and other items, so when the barrel goes up in price, the impact is seen quite fast. Consider that a flight from Rome to New York takes 9 hours and 40 minutes (or 2,088,000 seconds), now consider that a 747 needs 1 gallon a second, so if the oil goes up by $1, the maximum cost of a flight would go up by 2 million times the price increase and we can only get 4 gallons bet crude oil barrel making it an optional increase of $500K per flight (which is not completely true as diesel and gasoline would need to bear part of those costs too, but with only 4 gallons to the barrel, jet fuel would take the hardest hit).

That part counts too and as such tourist numbers would go down to some degree, especially from America. These are all still mere elements in the hardship calculations, but the elements are starting to add up, more optional other choices, more localised incentives and less options for Alitalia, that is the sad reality for Alitalia. As far as I was able to see, the press (the non-Italian press) did not take a look at these elements. Even as the BBC did look at one element “At the time the Irish airline was struggling to contain the fallout from a pilot shortage, which led to the cancellation of flights for about 700,000 passengers“, the abundance of competition, as well as the dangers of fuel changes were not looked at. Yet there are other sources, Bloomberg (at https://www.bloomberg.com/news/articles/2019-03-18/easyjet-drops-from-alitalia-bidding-in-setback-to-government) gave us a month ago that Delta is “exploring ways to work with Ferrovie dello Stato and maintain our partnership with Alitalia in the future“, yet I am not convince that they are in it with their heart and soul. Merely a stage where their accountants can optionally see plans for the Alitalia infrastructure and options to give Delta a streamline boost and let Delta grow in other ways accepting Alitalia to some degree for some time, yet how that ‘for some time‘ develops will remain an unknown. Part of it is seen with “Delta would take a 10 percent stake, which would double within four years if certain business goals are met“, yet these business goals are not really heralded by any party. In that regard Lufthansa was open and clear by stating that Alitalia needs to shed 40% of the workforce and that is where the cost of the Delta business goals are likely to be seen as well and that 40% will remain part of the problem. The Italian government would had to euthanise 40% of the workforce in a time when it could not afford to do so and that is the issue to the larger extent. If that knife is thrust hard and deep Alitalia might be around on April 30th, yet at present that is not a given, the pressured parties are not willing to get to that point until the 11th hour and at that point it might just be too late, because in the end the airline is not the only player, the airports will try to make sure that their part of the equation remains safe and there are plenty of airlines offering to ferry people to these locations making the equation unbalanced and unrealistic for the bookkeepers of Alitalia, a sad story for an airline that only recently made it to its 10th year.

 

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Saturation in Denial

Last week the Guardian published one of the weirder stories. It’s from Lisa O’Carroll and Gwyn Topham with the title ‘Ryanair ‘will have to suspend UK flights’ without early Brexit aviation deal‘ (at https://www.theguardian.com/business/2017/apr/06/ryanair-uk-flights-brexit-deal-wto), why do we care?

The subtitle is a little more interesting, but for very different reasons, so when you see ‘Falling back on WTO rules without a bilateral arrangement would be ‘disastrous’, says airline’s finance chief‘, you need to look beyond the claim given.

Why is this funny?

When you see the quote “Ryanair has warned it will have to halt flights from the UK for “weeks or months” if Theresa May does not seal an early bilateral Brexit deal on international aviation“, we need not worry, we can howl with laughter at the implied push for stress, both Lisa O’Carroll and Gwyn Topham should know better! You see, when you go to www.skyscanner.com.au, and I seek a flight from London to Amsterdam, I get flight offered from $198, for a return. Now, the issue is not the price, the issue is that between the 9th and 10th of April, I get offered 1295 results, stretching 130 pages of flights over a period of 24 hours. Now, we can agree that this does not apply for all locations. For example flights to Munich will only give 934 results and Stockholm gives me 981 options. So basically, there are more options to get from London to either Amsterdam, Munich or Stockholm, than there are trains from London to Birmingham! Now, it is a fair call that this place is filled with Ashton Villa fans, so why would you want to go there, but the direct issue is given. When we see the quote “Ryanair’s UK flights were only 2% of its business, said Sorahan“, so why on earth are we wasting time on a non-issue? Especially when the quote “He said: “We could still operate within that 1960s bilateral agreement” which established mutual flying rights between the Netherlands the UK” is found down the line. It is actually Pieter Elbers, the chief executive of Dutch national carrier KLM, who gives us value with: “It’s a worry. The instability and uncertainty is not good for business. However, it’s premature to go into this will or won’t happen“, which is actually right on course. Any action now is just premature for now and this visibility for Michael O’Leary whilst this is 2% of a saturated business is a bit out of whack on the best of days. A small outdated statistic is: “On a typical July day there are around 30,000 flights across European airspace“, 30,000 flights! Now we can agree that in July plenty of people get on a plane for an annual vacation, yet consider that we are talking about 8-12 million people per day (a wild guess in action). So when we consider Ryanair giving us grief over his 2% fleet, he should perhaps take a gander towards other shores?

This all follows with two more quotes “Brexit has already forced other airlines such as EasyJet into moving aircraft to enable continuity of business” and “Sorahan said Ryanair had planned to grow by about 15% in the UK last year but had instead posted growth of about 6%” The first part gives strength to the statement by KLM executive Pieter Elbers, ‘it’s premature‘ which gives us that some executives like those in EasyJet have a bigger grasp on their continuity of a bonus, than a sound approach towards a saturated market. The second one gives us that Ryanair missed its forecast by nearly 10%, so is this really about some Brexit deal, or is this about an airline that missed its target by 10%, from a 2% group. I am even amazed that this is on the radar of Neil Sorahan. When we consider the Financial Times last year, we see (at https://www.ft.com/content/f337fb7f-b4ba-3ad8-b50b-c698dd7a2adb), where we see “Revenue was €6.54bn, up 16 per cent on the year and only a nudge below analysts’s forecasts of €6.55bn” as well as “Ryanair said it expected net income in the current financial year to increase 13 per cent to between €1.38bn and €1.43bn“, which was off by 50%, so as Brexit was not in the referendum at that point, we get a slightly different view. There is no doubt that there will be a few issues in the post-Brexit era, yet to immediately go into ‘panic mode‘ by halting flights seems like an overreaction, especially as there are 1294 alternatives.

Saturation, when you can no longer absorb or dissolve!

Market saturation is a weird point. I remember meetings in the 90’s where I was part of a group of Americans and they were unable to fathom the term ‘market saturation‘, they regarded it as some fictional state of mind. The question becomes, are the airlines in a state of saturation? Now, consider the question how many of the 30,000 flights are actually an issue, especially with the fact that Ryanair has a mere 2% vested in the UK flights? Now we get that we have to look at it from the other side of the table. 10% of its fleet operates from one of 19 UK airports, so we get that there is a possible issue in the future. Now consider that Ryanair is a commercial operation that requires to have profit, which means it needs to keep its cost as low as possible. Which is a fair goal to have and when you are working a low cost range, you are definitely worried on what Brexit will bring, yet at present, it remains a premature act. Still the underlying score remains a valid one, what does a company do in a saturated market? Well, apparently they whine against journalists. OK, that is not really fair! I admit that, but jumping the shark at this point as politicians are still trying to get their bearings in a place where the facilitation of profit is the major taco to content towards, against whatever natural confrontational issue gets in the way.

That was a mouthful, so let me take a moment to set that in its right perspective. The EEC, EU, or EC; whatever name you want to give that bunny, it seems that the bulk of all European governments are focussed on profit in a place that has a stagnating economy. The problem from my point of view is that profit in a stagnating economy tends to limit those pursuing it to a spreadsheet life merely focussing on next quarter. In this economy the essential need will be to set an agenda towards the next 10 years, not the next quarter. The stock market, the speculators and forecasters state. They are setting the tone for panic modes and sour feelings, even as Ryanair is still moving forward. So, even as Ryanair is trying to get a stronger handle on its ‘Always Getting Better‘ programme, it needs to remain flexible to stay afloat (or flying). In this, they will soon feel a pressure going towards dashboards and short term reporting instead of growing a big data collective where they will enable themselves to get ahead of their main competitors. For that they need visionaries, not reactionists. In that Brexit will fuel the need for reactionists in panic mode, whilst the larger players need to do the exact opposite, take the possible hits they might get and after that move forward stronger, because if Brexit is any indication, the European mainland side will be hitting a recession shelf that is not unlike the 2008 events, but will take longer to overcome. In this several parties have been trying to postpose these events, yet the more postponing we see, the larger the effect will be when it hits and the longer it will last.

Again in this side we will see another emerging wave. The wave of saturation will reflect onto corporations and they will give us new waves of redundancies, where the groups of less significance will collapse opening up options for the flexible larger players, when that happens, those who do not have the data collections in place will lose out on several percentage points of margin in their commercial options. The size and scope cannot be predicted, anyone who claims to do so will not be worthy of your time in this. The fact that these systems have been delayed by a large amount of players will set them back and whilst they start fighting to get ‘something’ in place in the 11th hour does not mean that they remain a player, it merely means that they have invested in a system too late. In this I do believe that if we see a serious approach to their ‘Always Getting Better‘ programme, they could have some benefits, yet that can only be stated with any certainty if we compare what their main competitors offer against what is currently in place. Brexit has nothing to do with that, it is optionally pushing some players to up their game, we must accept that there is a reality that some industries will feel the impact of Brexit, the extent cannot be stated and should not be speculated on, the best solution is to be vigilant and see what improvements can be installed to increase the value of their company and the services that they provide. Big data is only one element and it is not a prophet on a pedestal, it is a tool that allows options if the company has certain levels of flexibility, whether that market is saturated or not, focussing on an event that the people want is not productive.

 

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