Weekly Issue 040111
Contents
Commentary by Bob Booth
Flight Control Waves
Waves from
Commentary by David Bentley
Waves from the Pacific
Waves from the
Financial Waves
Cargo Waves
Tourism Waves
Fuel Waves by Larry Weaver
Commentary
by Bob
Booth
It’s all about tourism
This has
been another busy week – with tourism leading the parade in terms of news from
around the world. In addition we see more code sharing, with airlines launching
new flights and creating more opportunities for tourism growth. But tourism is
the main feature in this week’s AirWaves. Reports
from around the world show that tourism is growing and expanding. Tourism,
whether VFR or straight visitors who are looking for vacation and shopping
opportunities, there is no question that tourism is a major factor in economic
development, from establishing jobs, creating more retail sale opportunities
and just generally investing significant amounts of money in their
destinations. Read all about it under the following headlines for news this
week.
Virgin
China Southern to launch flights
to Vancouver,
Copa Airlines announces 2011 expansion plans
Tourism Forum to Focus on Growth
and Development
Air
Stay tuned for more of this in the
week’s ahead.
Bob Booth
Flight Control Waves
The following from the January 24
issue of the IATA quarterly survey of airline business confidence is a ‘must read’. Whether you
agree with the survey or not, it is an interesting review of the International
Airline Association membership which participated in the survey.
Airline Business Confidence Index
- January 2011 (IATA Economics-released
·
Confidence
in profitability over the next 12 months remains positive, but has declined
since the October survey;
·
46%
of CFOs expect an increase in profits over the next 12 months, compared to 60%
in the October survey;
·
Confidence
in travel and cargo demand remains strong with 77% expecting increasing
passenger volumes and 60% increasing cargo volumes;
·
However,
airline CFOs now expect unit costs to increase significantly with the highest
net balance expecting an increase since the July 2008 survey;
·
In
addition confidence in the ability to raise yields has fallen from the levels
reached early last year, particularly for cargo where only 29% now expect an
increase;
·
Employment
intentions are rising, with 54% expecting to raise employment over the next 12
months, in response to expanding markets and capacity;
·
These
survey results are consistent with IATA's forecasts
for further expansion in 2011 but, due to higher fuel costs, a fall in profits
from $15.1bn in 2010 to $9.1bn in 2011.
Waves from
Commentary
by
David Bentley
B787 Dream-on-Liner could yet come
good. Someone
started a discussion on a LinkedIn group last week,
asking what would be the big trends in the airline
industry for the forthcoming five to 10 years. My attention was drawn to the
first group member comment, which was “Air carriers using the B787 to boost
regional flying (e.g. Thompson to fly from Bristol (UK) to
But my
point is that, amidst the recriminations, we’ve lost sight of what the B787 is for, that it was never intended to be in the first place (the fast
‘Sonic Cruiser’ was the preferred design for the new long haul Boeing aircraft
and it was customers’ post 9/11 concerns about operating costs and possibly
some foresight about the upcoming recession that forced a change of the plan)
and that the ultra big aircraft (A380) operating via hubs v. the smaller
aircraft operating direct thin routes (B787) debate seems now to have been
confined to the history books.
So what
is the B787 all about, assuming that there isn’t some critical design fault
involving carbon composites or something that means, God forbid, it will never
fly? Essentially it is a long range, mid size (210-290 passengers), wide body,
twin-engine jet. Concerns about ‘twin engine’ planes don’t really apply any
longer owing to the high performance levels of jet engines and ETOPs operations over water are commonplace (until one
ditches, of course, then standby for the media frenzy). It is said to consume
20% less fuel than the aircraft it effectively replaces, the ageing B767 (which
is still being built, believe it or not, the 1000th will be delivered to
Japan’s ANA next month - the airline that is also the launch customer for the
B787-8 and has the greatest number on order!), so is trendily eco-friendly. It
is assembled in the
There are
two variants, the base 210-seat model B787-8, which is now scheduled to come
into service at the back end of this year and which accounts for most of the
orders; and the stretched B787-9 (2013/14?) seating 250-290, for which Air New
Zealand is the launch customer. There was also the now shelved B787-3, a 290-310
seat (two-class) short-range version, which was cancelled in December last year
after ANA, the only customer, changed
its order. There is the potential for another model, the B787-10, with a
capacity of up to 310 seats, as a competitor to the Airbus A350-900, and a
freighter version though that is some way in the future. There is even the
chance a B787 could replace the B747-based VC-25 as ‘Air Force One’.
Boeing anticipated a market demand of 3,310 ‘units’ of
B787 over the period 2009-2028. Up to the end of 2010 there were 849 orders
(621 B787-8 and 226 B787-9), of which 2007 was the best year by far (369). It’s
been all downhill since. In 2009 there were (net) 59 cancellations; and four
last year. I don’t think that’s the end of it. Many airlines are fuming as
they’ve had to hang on to, or reintroduce, or lease at short notice (or all of
these) older types to make up for (or prepare for) the lack of B787 deliveries
and this has wrecked their advance planning. Another technical delay could
spell big trouble. The largest customer isn’t an airline but the now Steve
Udvar-Hazy-less ILFC (74 orders/options). Unless I’ve missed something his new
vehicle, Air Lease Corporation, has so far ordered none, and I’m still mulling
over what that might mean.
What does it offer airlines? Its big attraction is its
cost-effective range, being able to fly at least 7650 nautical miles (8805 statute miles or 14,200 km),
with a maximum of 8,500 nautical miles (9780 statute miles or
15,750 km). This puts it almost in the same class as the bigger B777-200LR
(9380 nautical miles), which holds the world record for the longest nonstop
flight by a commercial airliner, and the A340-500, its predecessor as the
record holder (8650 nautical miles). The various A350s, which are scheduled to
come into service from 2013 (and might even beat the B787 yet), will have
ranges from 8,000 to 8,300 nautical miles.
The aircraft type that the B787 was supposed to compete
psychologically with to win hearts and minds (big hub plane v. small direct
plane), the A380, has managed to establish itself after its own grim series of
delays, mainly thanks to the huge order placed last year by Emirates (90),
though it might have come to a sticky end had Qantas flight QF32 ditched
somewhere off Singapore last November instead of struggling into Changi with
one engine hanging off. In doing so it has created a clear lead for the ultra
large aircraft/hubs strategy and, in Europe at least, that is where the growth
has been in the last 12 months, rather than at the secondary level regional
airports that dominated growth charts for the previous decade. But the
economics of the B787 open up all manner of possibilities for its deployment.
Boeing projected its use on routes directly between second-tier global cities
with populations of up to five million, avoiding the mega hubs. I once saw a
Boeing presentation which identified such unlikely B787 routes as Minneapolis –
Shenzhen (in China, in case you didn’t know), Vienna – Lagos and Perth –
Calcutta (or other such similarly ridiculous permutations, I can’t recall them
precisely) and they are as fanciful now as they were then in my opinion.
On the other hand, and the LinkedIn correspondent hit the
nail on the head when he envisaged a flight from a small British airport
directly to Hawaii, think what it could do for the charter business. Hawaii is
within range, as is much of Latin America, South Africa and large parts of
Asia. I’ve been arguing for some time that Joe Public here is fed up with ‘low
cost’ and just wants some or other catalyst to point him in another direction.
The B787’s economics, comfort, environmental kudos and, most importantly,
range, open up possibilities for exactly this sort of route. No coincidence, I
think, that one of the very first orders – for six - was placed by a
far-sighted British tour operator/charter airline, First Choice, which is now
part of the German TUI group, which itself has 13 on order in total. Another
forward-thinking UK charter airline, Monarch, has six on order and Virgin
Atlantic, which I suspect would like to spread its risk beyond the expensive
London airports, irrespective of whether or not it is sold on, and which
carries a lot of high net worth vacationers on its own up-market packages, has
ordered 15 B787-9s.
But ‘low cost’ could benefit as well. Numerous airlines
have tried and failed to establish long haul low cost routes and only AirAsia
X, which doesn’t buy Boeing at the moment, and Jetstar, which has 15 B787 orders to be used
partly on international long-haul (Europe and US West Coast
expansion), have has demonstrably succeeded to any degree. This aircraft
is just about perfect for the task. So far only Air Berlin (which is
shape-shifting into a hybrid carrier anyway) of the major European LCCs has
placed an order, (and it does fly some very long routes), but I suspect quite a
few of ILFC’s order could find their way to the LCCs. The acid test will be if
Michael O’Leary does go ahead with his projected long haul budget airline (and
it looks like it will be O’Leary, rather than Ryanair per se that will lead
that initiative) and look to the B787 to satisfy his needs. If he does, the
dreaming will be over.
David Bentley is Joint Managing
Director of Big Pond Aviation, a British-Canadian air transport research and
consulting company and who has been an industry media
commentator and analyst for much of the last decade. During this time he has
researched and written 12 management reports on a variety of subjects including
airport privatization and financing; low cost airports, airport security and
airline financing. www.bigpondaviation.com.
(Please see the banner advertisement).
Viking
The Greek
airline plans to start Viking Middle East Airline in partnership with German
and Iraki investors. The startup will share the risk
and rewards with Viking Hellas Airlines existing flights from
Virgin
The
UK-based airline, Virgin Atlantic Airways has signed a blanket code share
agreement with Air New
Waves from the
Pacific
Based on
the Open Skies agreement signed with
Saudi Arabian Airlines to launch
new service to China
The new
service will be launched with three-weekly flights between
The United Arab Emirates and
Mauritania sign new Air Services Agreement
The new
Air Services Agreement (ASA) signed by the two countries is designed to boost
international trade. The agreement provides for unrestricted passenger and
cargo access to airlines between the two countries, as well as fifth freedom
traffic rights on intermediate and beyond points of the operators choice
without restriction. Viva Air Service Agreements – stay tuned.
China Southern to launch flights
to Vancouver,
The new
service will be launched three-times weekly on
Finnair and Qantas to begin code sharing from Helsinki to Sydney
Finnair
is launching nonstop flights to
Waves from the
Is the
headline in the January 19th issue of MercoPress
South Atlantic News Agency, which reports the Brazilian Labour
Ministry’s figures for the year 2010, which are a record.
The number surpassed the 1.61 million formal jobs generated in 2007, which was
the previous high until now. Labour Minister Carlos Lupi said that with December’s results included, 15.04 new
formal jobs were generated in the country during the eight year presidency of
Luis Ignacio Lula da Silva, who left office on
Pluna to launch its eighth destination in
Copa Airlines announces 2011 expansion plans
The
Panama-based subsidiary of Copa Holdings,
Peruvian exports increased 28% in
2010
Peru seeking Qatar and Emirates to
launch flights to Lima
Peruvian
government officials are working on getting Qatar Airways and Emirates to serve
Financial Waves
Southwest Airlines reports fourth
quarter Profit rose 13%
Net
income increased to $131 million in Q4 2010 – from $116 million, for a 13% rise
over the same month in 2009. Excluding one-time costs, the airline had a profit
of 15 cents a share, meeting the average of 14 analyst estimates complied by
Bloomberg. Southwest, which is acquiring AirTran
Holdings, Inc., has said its policy of not charging for checked baggage has
helped win passengers from rivals. Traffic gained 10% in the quarter, boosting
sales 15% to $3.1 billion. CEO Gary Kelly said in a statement; “Booking and
revenue trends suggest similar year-over-year improvements in January versus
December 2010. Bookings in place for the remainder of the first quarter are
also strong.” Viva Southwest Airlines,
the world’s largest low-fare airline. Stay tuned.
The
president of the Chinese airline, Wang Zhenghua
announced that the net profit in 2010 was six times larger than the previous
year. Revenues were up 62% to 490 million euros in 2010. The airline – founded
in 2004, operates a fleet of 21 A320s and serves more than 50 domestic
destinations and two regional and international routes. Viva Spring Airlines –
stay tuned.
Cargo Waves
Miami-Dade Aviation Department
reports 2010 cargo up 18.79%
With
total freight handled at MIA in 2010 at 1,991,609 short tons, cargo in the year
was up 18.79%. Top five cargo airlines at MIA were Swiss International (up
25.16%), LAN Ecuador (up 32.14%), IBC Airways (up 3.79%), Cargolux
Airlines (up 18.13%) and Estafeta Carga
Aerea (up 26.80%). Cargo drives the economy, or vice
versa – stay tuned.
Tourism Waves
According
to Max Villar, regional director for the
Tourism Forum to Focus on Growth
and Development
Is the
headline in the January 21st article in MercoPess
South Atlantic News Agency which discusses the Global Tourism Forum Andorra
2011 on
An all
time high of 3.5 million visitors in 2010, 14% ahead of previous record year of
2008. The arrival of new LCCs like EasyJet helped to move the tourism business up. Tel Aviv
broke a record too with passenger volume rising 10% y/y to nearly 12 million passengers.
Tourism drives – stay tuned.
The long
awaited first airport to apply the rules for US authorities to approve the
entry of US tourists to
According
to
Air Jamaica re-launches its brand
following acquisition by Caribbean Airlines
In a party
in
Fuel Waves
by Larry
Weaver
Last
week we were talking about proved reserves and forecast production
capabilities, primarily for the OPEC countries. There has been some action in
the non-OPEC, non-Government owned petroleum companies in recent weeks that
could affect future forecasts.
One
of the most interesting points in the PFC report was that while in 2005 there
were only two non-Western energy companies, Gazprom
OAO of Russia and PetroChina Co. in the top 10 now
there are five with such companies as Petrobras of
Brazil pushing above old time giant Shell. This trend is expanding with Saudi Aramco bringing in Aramco and
looking to bring the Chinese Government company Sinopec
to replace the U.S. Based ConocoPhillips in a large
export refinery in
These
Western companies are not out of the picture yet, however. As the Rosneft deal with Rosneft pointed
out, the expertise of these companies is still extremely valuable. Reportedly
the Russian Government value of the oil of Rosneft
currently has a break-even point of $110 per bbl due to their less than ideal
expertise. The hope is that the BP connection will allow them to reduce this
cost to where it will be economically valuable to
On
the current scene, due to rumors and comments from Saudi Arabia about the
possibility of additional production, prices for crude have slid from over $90
per bbl level to $85 per bbl although there has been some increases in pricing
today. It appears we are back in that oscillating range from $80 per bbl to $90
per bbl.
Larry Weaver is an Aviation Fuel consultant headquartered in Tampa,
Texaco international Quality Control Manual. He has provided training and consulting in quality control and
product handling to Petroleos de Venezuela, the
National Science Foundation and his expertise to various other private companies.
Dellem has provided worldwide Fuel Acquisition and
Management services to airlines for over twenty-five years and has managed in
excess of 25 million gallons of fuel per month for Dellem's
clients. Contact:
lweaver@dellem.com or airwaves@avnewsinc.com Att: Larry Weaver
