Volume 11 issue 33 - september 2


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IBA Newswatch 02Sep11

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Volume 11 issue 33 - september 2

  1. 1. NEWSWATCH 2nd September 2011 Volume 11; Issue 33In this Issue: Which is the best alliance fit for MAS? Joining an airline alliance is a bit like joining an elite club  Which is the best alliance fit for where members get lots of privileges. MAS? Malaysia Airlines (MAS) journey to joining an alliance has been a trying one, starting with it being courted but it was  Boeing Poised for not interested, to a situation where it was in a dire need Dreamliner Era of a second chance. Now that it has it, it almost blew it.  Mideast airline There are three global airline alliances: Star Alliance, passenger traffic oneworld and the SkyTeam. Each is more than a decade increases in July old with its own history but, ironically, all had at one time  IndiGo begins or another been interested in MAS. international MAS was first approached to join Star Alliance in the late operations 1990s but it did not see the need then. Had it taken the  Kenya Airways opportunity, who knows what its fate would have been. purchases 10 This was before Singapore Airlines (SIA) joined the Embraer 190 with alliance. Even oneworld was keen then but somehow there an option for another 16 were issues and nothing materialised. Star Alliance has 27 members, covers 181 countries where  Boeing launches 21,000 departures take off daily, whereas SkyTeam has 14 new 737 MAX to members and oneworld only 12 members. take on A320neo For an airline, alliances offer travellers a seamless flight  IBA Group News experience from anywhere to everywhere. They help airlines save costs and for the globe-trotting high-fare paying corporate travellers who want the best seats in the sky, they provide connectivity and frequency. To be part of an alliance, an airline must be wanted, able to add and extract value and vice versa for the alliance. After the two courtships that did not go anywhere, MAS became financially troubled and had to be rescued. In the early 2000s, the desire to become part of an alliance emerged and hence it was a situation of need rather than being pursued. IBA Group Ltd. IBA House It set its eyes on SkyTeam as this alliance then did not 7 The Crescent Leatherhead, Surrey have a network partner in South-East Asia. Little did MAS KT22 8DY know that the major members of SkyTeam would not United Kingdom Tel: +44 (0) 1372 224488 welcome the national carrier. They did not see that MAS Fax: +44 (0) 1372 224489 could add any value to the alliance. www.ibagroup.com Things turned better in June this year when the then Page 1
  2. 2. NEWSWATCH 2nd September 2011 Volume 11; Issue 33MAS MD, Tengku Datuk Azmil Zahruddin, and team surprised themarket place with its entry into oneworld.It was a great moment for MAS as after nearly a decade ofsearching, MAS finally got invited to an alliance with Qantas asits sponsor.Both Qantas and BA are part of oneworld and so is Cathay IBA’s Comment:Pacific. “Airline alliancesThat aside, early last month the aviation industry saw a majorchange where two rivals MAS and AirAsia became partners to were useful toolscontain competition and the formers board was revamped. during theWhat was really surprising was two weeks ago when the new recent downturnteam in a conference call to analysts said “MAS was nowreconsidering the decision to join oneworld as it now believes as operatorsSkyTeam members have less over-lapping routes. wishing toWhat all this seems to suggest is that there are opportunities reduce capacitythat can be exploited. However, in near to no time after all theanalysts reports were floating around, MAS had to come out to and streamlineclarify the situation and it “reiterated that it would stick to route networksoneworld. were able toIf it was that simple to get into an alliance, then MAS should maintain ahave been part of an alliance years ago. For the benefit ofthose who think it is easy, they should go ahead and explore. marketingIncidentally, oneworld does not have a partner in the region presence inand MAS fits best into the plan unlike SkyTeam which will have markets theyGaruda as a member soon, and Star Alliance has both SIA andThai Airways as members. had exitedAlliances have become increasingly important and most global through interlineplayers are part of an alliance. Now even the mid to small agreements withplayers are being invited to join alliances. other carriers.”For a global carrier, MAS is pretty late in the game to enterone. To rock the boat or, in this case, the flight, should be – David Rusheunthinkable, unless of course there is an alternative plan.Had there been widespread understanding of how allianceswork and what an arduous decade of long search it had beenfor MAS to get into an alliance, perhaps all the repercussionscould have been avoided. It is really about a fine balancing act.Source: B.K. Sidhu, biz.thestar.com.my – 2nd September 2011 Page 2
  3. 3. NEWSWATCH 2nd September 2011 Volume 11; Issue 33 Boeing Poised for Dreamliner Era"The 787 is about to take the world by storm," said BB&Tanalyst Carter Leake, in a recent report. "Boeing is about totransition from what has been one of its darkest periods towhat we believe will be its best-ever decade."Over the past few years, Boeings newest aircraft has beenregularly described as a "game changer" in hundreds ofdiscussions about its potential, even as the wait for deliverybecame longer and longer and even as pessimism regarding theaircraft dominated. IBA’s Comment:Today, concerns over how long it will take for Boeing to make “With a net totalmoney on the aircraft - a computation obscured by complex of 11 ordersaccounting - lingers. Some experts estimate that developmentcosts, once estimated at $5 billion, could in fact be triple that, placed sincemeaning Boeing will probably have to sell hundreds of aircraft January 2011,to cover them. including 26Originally scheduled for first delivery in May 2008 - this datewas announced in 2003 and remained operative until early cancellations in2007, according to a Seattle Times timeline - the 787 2011, the keyDreamliner at last has a firm date for first delivery. On Sept. objective for26, Boeing will hand over an aircraft to Japanese carrier ANA. Boeing must beTheoretically, the 787 news cycle will soon turn positive,benefitting share prices. On the optimism scale, nothing beats to secure somethe introduction of a new aircraft, long awaited by the entire bulk orders forworld. Just recall how perceptions began to change when theAirbus A380 made its first flight. the aircraft in787 launch customer ANA, moving to extend the benefit, has the next yearscheduled a series of firsts with the plane. The first flight with and build on thepaying passengers will be a special charter between Tokyo positive pressNarita and Hong Kong, scheduled for Oct. 26. The firstscheduled service will occur Nov. 1, with four domestic flights - the first flight- a Haneda-Okayama round-trip followed by a Haneda- will bring.”Hiroshima round-trip. – David RusheThen comes service on the first international route, Haneda-Beijing in December, followed by the first long-haulinternational route, Haneda-Frankfurt in January 2012. Thatflight will be operated as part of a joint venture with StarAlliance partner Lufthansa, assuring connecting traffic at bothends of the route.Boeing shares began 2011 at $66.15 and are flat for the year,after reaching a high of $80.65 in May. Leake has a target price Page 3
  4. 4. NEWSWATCH 2nd September 2011 Volume 11; Issue 33of $92."We encourage investors to view the 787s tortuous path totoday as a very wide, technological moat that Boeing hascrossed - and Airbus has not," Leake wrote. He challengedsuggestions that billions in unforeseen costs, combined withdeep discounts on early sales, will preclude Boeing from makingmoney on the program. “We encourageOne reason, he said, is that many customers may switch fromthe initial model, the 787-8, to later stretched models, the investors to view787-9 and the 787-10. "In such a win-win transaction, the the 787scustomer gets a bigger airplane and Boeing makes a higher tortuous path tomargin; but more importantly, the deeply-discounted airplaneposition can now be sold at a higher price to a new customer," today as a veryhe said. wide,Boeing has not identified its other 2011 deliveries. Early in technological2012, United(UAL) will become the first U.S. airline to takedelivery of the 787. United and Continental, now merged, had moat that Boeingeach ordered 25 aircraft. has crossed - andBefore the merger, Continental announced that its first 787 Airbus has not”would fly between Houston and Auckland, New Zealand, but it - Carter Leakeis unclear whether that will be the first route for the combinedairline. Assembly of the first United 787 began in Everett lastmonth.Avondale Partners airline analyst Bob McAdoo said the routedemonstrates the value of the 787. "It used to be that the ruleof thumb was that the farther you wanted to go, the bigger theairplane had to be, because it had to carry more fuel," McAdoosaid."The 787 allows you to go a long way on a relatively thin route,like Houston-New Zealand, or West Coast-Saigon," he said. "Itallows you to go non-stop to smaller destinations, withouthaving to connect in Japan."Source: Ted Reed, thestreet.com – 1st September 2011 Page 4
  5. 5. NEWSWATCH 2nd September 2011 Volume 11; Issue 33 Mideast airline passenger traffic increases in JulyThe Middle East carriers posted a 9.7 per cent increase inpassenger traffic in July, outstripping the 8.9 per cent capacityincrease, the International Air Transport Association (IATA) saidon Thursday in its latest analysis.The Geneva-based aviation body added that the load factor forthe regions carriers for the month was 81.4 per cent. Summermonths of June and July are usually a busy travel period forMiddle East residents. “InternationalGlobally, the international air passenger traffic increased 5.9per cent in July year-on-year, as freight traffic fell 0.4 per cent passengerowing to weakness in the Asia-Pacific region following the markets,earthquake and tsunami in Japan, according to the report. according to the"Passenger travel bucked the gloomy economic outlook with a5.9 per cent increase in July. This increase was likely based on IATA statistics,the much more optimistic economic outlook that marked the grew by 7.3 perbeginning of the year," Tony Tyler, IATAs newly-appointedDirector General and CEO, said in a statement. cent comparedHe added that with business and consumer confidence now with July 2010,tanking, sluggishness in international trade, and high fuel and remainedprices, the "expectation is for a weaker end to the year". "We stronger onare already seeing this in the shrinking air freight markets," hesaid. average thanInternational passenger markets, according to the IATA domesticstatistics, grew by 7.3 per cent compared with July 2010, and markets whichremained stronger on average than domestic markets whichshowed weaker growth of 3.5 per cent year over year. showed weakerLatin American carriers were the strongest performers with a growth of 3.510.3 per cent increase over July 2010, supported by "strong per cent yearregional economies and liberalised markets". over year.”IATA said in its report that compared to pre-recession levels ofearly 2008, international passenger traffic has "expanded by 12per cent"."Had the industry continued to grow at the pre-recession paceof eight per cent, international markets would have been about14 per cent higher than todays levels and a quarter higher thanpre-recession level. This confirms that the global financial crisishas cost airlines about two full years of growth," the aviationbody stated. Page 5
  6. 6. NEWSWATCH 2nd September 2011 Volume 11; Issue 33"July is the peak in the annual cycle for passenger traffic. Thisyear was no exception. Even if the industrys performance couldbe classified as stronger than expected, we do face headwindsas we look towards the end of the year," said Tyler, adding thatsome industry challenges are government related."Governments should not compromise aviations role as aneconomic catalyst for the short-term revenue gain of gratuitoustaxation — particularly when economies remain weak," saidTyler, citing the recent downsizing of Air Berlin as an exampleof the high cost of the German departure tax on the economy,jobs and communities.The Middle East carriers showed the strongest gains of 8.4 percent in July 2011s freight traffic performance compared to thesame period a year earlier, IATA said.Asia-Pacific carriers continued to show the weakest freightperformance with a 3.6 per cent decline year-on-year.Source: Shweta Jain, gulfnews.com – 1st September 2011 IndiGo begins international operationsLow-cost carrier IndiGo on Thursday launched its maideninternational flight from the national capital to Dubai,becoming only the fourth Indian low-cost carrier to operateoverseas services. “The airline got"Dubai is a key market for us and holds a lot of promise. We the permissionhope to provide the much needed avenue for countless Indiansand overseas travellers," IndiGo President Aditya Ghosh said. to fly overseas"IndiGo will operate daily direct flight services between Dubai- after it fulfilledDelhi and Delhi-Dubai at an affordable return fare of Rs 9,999 the regulatoryinclusive of all taxes," the firm said in a statement. requirements ofThe airline added that it plans to operate Mumbai-Dubai- five years ofMumbai flight from October 2. operations and aThe airline got the permission to fly overseas after it fulfilledthe regulatory requirements of five years of operations and a fleet of at leastfleet of at least 20 aircraft. 20 aircraft.”It is the fourth low-cost carrier after Air India Express, JetLiteand SpiceJet to be given the permission to run overseasservices. Page 6
  7. 7. NEWSWATCH 2nd September 2011 Volume 11; Issue 33According to officials of civil aviation watchdog, theDirectorate General for Civil Aviation (DGCA), IndiGosinternational rights will allow operations from many cities inIndia to Singapore, Bangkok, Dubai and Muscat, to begin with.The budget airline had stunned the Indian aviation space inJanuary when it announced a $15 billion deal with theEuropean aircraft manufacturer Airbus for buying 180 A320aircraft.Source: hindustantimes.com – 1st September 2011 Kenya Airways purchases 10 Embraer 190 with an option for another 16Kenya’s Airways (KQ), the east African country national carrierannounced it has signed a contract for the acquisition of 10Embraer 190 jets in a deal that includes the purchase rights for “The Embraer16 jets from the company. 190 fleet will beThe new deal with the Brazilian giant manufacturer of in ensuringcommercial jets Embraer is expected to counter delays by Kenya airwaysBoeing that have seen the airline go slow on its expansionprogram. becomes theThe deal is also expected to increase the airlines control of leading carriervarious routes in the continent as part of its 10 year plan that on thewill see KQ double its fleet and expand to more capital cities continent,around Africa. interlinking“The Embraer 190 fleet will be in ensuring Kenya airwaysbecomes the leading carrier on the continent, interlinking African cities,African cities, and through our Nairobi hub, connecting Africa and through ourto the world,” said Titus Naikuni, Managing Director Kenya Nairobi hub,Airways. connectingThe Embraer jet option could also be a cost cutting measureespecially with the volatility of oil prices with the cost per trip Africa to theof the aeroplane 20-30% more efficient than the classic Boeing world”737. - Titus NaikuniThis is a factor that has made the Embraer a favourite ofdeveloping countries which operate 130 aircraft on 17 African Page 7
  8. 8. NEWSWATCH 2nd September 2011 Volume 11; Issue 33countries among them Egypt, Libya, Kenya and Nigeria.“The signing of this deal is our confirmation that our E-jets areinstrumental in the growth of the airline industry in Sub-Saharan Africa” said Mathieu Duquesnoy, the Embraer Vicepresident for Middle East and Africa markets.The acquisition of the jets however come with challenges forKQ such as the availability of pilots and accessibility of servicecentres being that the only major centre in the continent is inEgypt.Although the deal value is unknown, it is estimated to be worthbetween 3 and 4bn dollars going by the market value. The 10Embraer 190 jets are expected in Q3 of 2012 ahead of thedelivery of 5 Boeing dreamliners set for Q4 of 2013.Source: en.mercopress.com – 31st August 2011 Boeing launches new 737 MAX to take on A320neoBoeing on Tuesday launched an upgraded version of its popular737 plane powered by a more fuel-efficient engine, citingstrong demand from airlines. “The re-enginedBoeing said the new line, dubbed the 737 MAX, will use CFM 737 will allowInternationals LEAP-1B engines optimized for the single-aisle737, the worlds best-selling commercial aircraft. Boeing toBoeings board of directors has approved the new line based on continue toorder commitments for 496 airplanes from five airlines and "a deliver the moststrong business case," the company said in a statement. fuel-efficient,The first deliveries are scheduled in 2017. most capable"The re-engined 737 will allow Boeing to continue to deliver themost fuel-efficient, most capable airplane with the lowest airplane withoperating costs in the single-aisle market," Jim Albaugh, the lowestpresident and chief executive of Boeing Commercial Airplanes, operating costssaid in the statement. in the single-"Customers tell us they want to improve profitability and fuelefficiency while reducing their environmental footprint," said aisle market”Albaugh. "This solution meets all three of those needs." - Jim AlbaughAlbaugh said that Boeing was working with its customers to Page 8
  9. 9. NEWSWATCH 2nd September 2011 Volume 11; Issue 33finalize sales agreements. The company did not identify thefive airlines.Boeing last month announced it would build a re-engined 737when American Airlines split a record order for 460 aircraftbetween Boeing and Europes Airbus, breaking the Boeingslong-time monopoly on the AA fleet. IBA’s Comment:American Airlines parent AMR Corp. said on July 20 it would buy200 Boeing 737s and 260 Airbus A320 jets. “It will beBoth the US aerospace and defence giant and France-based interesting toAirbus are selling more fuel-efficient versions of their popular see which othersingle-aisle passenger jets as part of the deal, valued at $US38billion at list prices. carriers haveAmerican said it planned to order 100 of the re-engined 737s committed toand will buy 130 of the Airbus A320neos. the 496 aircraftBoeings decision to offer its best-selling 737 with a new engine, Boeing refers to.rather than building an all-new aircraft, was seen as forced by IBA wouldthe competition from the Airbus A320neo.The A320neo also includes an option for its own version of the welcome anyLEAP-X engine from CFM International. suggestions fromBoeing, whose medium-haul 737 has won more than 9,000 Newswatchorders since it was introduced in 1967, has been under intense readers.”pressure since Airbus launched the upgraded and more fuel-efficient A320neo series in December 2010. – David RusheThe A320neo, available from 2015, has chalked up more than1,200 orders or options since then.Still under development, the Leap-X engine is being made byCFM International, a joint venture between General Electric ofthe United States and Frances Snecma.Source: AFP, smh.com.au – 31st August 2011 Page 9
  10. 10. NEWSWATCH 2nd September 2011 Volume 11; Issue 33 IBA Group News Press Releases & Presentations can be viewed in the News & Views section of our website, www.ibagroup.comConference Dates18th – 20th September 2011 – ISTAT Europe 2011, 18th European Conference, Barcelona - Phil Seymour will be speaking,James Uniacke and Adrian Lee will be attending26th – 28th September 2011 – SpeedNews 12th Annual Aviation Industry Suppliers Conference in Toulouse - IBA is asponsor and Ben Jacques will be speaking28th – 30th September 2011 – ERA General Assembly, Rome – Ben Jacques will be speaking and Adrian Lee will beattending5th – 6th October 2011 – UBM Aviation, Aircraft & Engine Finance & Leasing USA Conference, Chicago – Phil Seymourwill be speaking31st October – 2nd November 2011 – Euromoney Asia Pacific School of International Aviation Finance, Hong Kong –Stuart Hatcher will be presenting3rd – 4th November – 12th Annual Asia Pacific AirFinance Conference – IBA will be speaking1st – 2nd December 2011 – Aviation Investors Summit, London – Phil Seymour and Owen Geach will be speaking24th – 26th January 2012 – Euromoney 14th Annual International Aviation Finance Conference, Dublin – IBA is sponsoringand will be speakingCountry Visits- Owen Geach and Steve Fisk will be in Tokyo from 25th to 30th September 2011 - Please contact Owen Geach if youwould like to arrange a meeting: owen.geach@ibagroup.com Phil Seymour’s Notes on the WeekAn array of news this week and it shows the wide range of activity in our global business. - Some new airlines include Lead Air (Israel)and Jetisfaction (Germany), Helitt (Spain) - Airlines losing money include Aegean (Greece), Turkish Airlines - Airlines making money include Atlantic Airways (Faros), SkyWest (Australia)In short it seems that the smaller regional operators are managing their markets better than those in theinternational arena, perhaps thats obvious if there is less competition?I have had to bear the brunt of many a joke this week about arsenal massive 8-2 loss to Manchester United. With mypositive spin I was of course quite pleased as it pushed Mr Wenger into buying some players.Maybe Arsenal should play in a league of its own, less competition?Phil Publications – 2011 Editions Please contact marketing@ibagroup.com for more information.Aircraft Values Book Published in February 2011 & August 2011 £660 per yearLease Rate Digest Published in February 2011 & August 2011 £360 per yearEngine Values Book Published in April 2011 £650 per yearMaintenance Cost Journal Published Quarterly £200 per year “Newswatch” is a free weekly round-up collated by IBA Group Ltd. Go to our website to find the last year editions of Newswatch archived. To either SUBSCRIBE or UNSUBSCRIBE to this newsletter, please send an email to marketing@ibagroup.com with your request.The items in this document do not necessarily represent the opinion of IBA, and is intended to be for information purposes only. Therefore, IBA assumes no responsibility or legal liability for any action taken, or not taken, by the addressee, or by any other party, with regard to the information and views contained. As a leading independent aviation consultancy, IBA Group Ltd. offers technical advice, commercial business solutions & asset valuations for our worldwide client base. Compiled & Edited by Alice Gondry www.ibagroup.com Tel: +44 (0)1372 224488 Fax: +44 (0)1372 224489 Page 10