The original interview can be found on the AO site at:  http://airobserver.wordpress.com/2010/02/15/what-could-we-expect-for-airlines-in-2010-ao-interview-of-carter-stewart/

Posted on February 15, 2010. Filed under: AO Interviews |

First, I’d like to thank Carter for answering my questions, I’m glad we’ve managed to publish this Interview. This is part of my new desire to invit and interview more aviation profofessional. We discussed the globlal situation of airlines industry for 2010. Please, feel free to comment and add your point!  Carter Stewart is founder and chief consultant at TWC Aviation, and a managing director at the London-based consortium Constellation Aviation Limited. He found his passion for the airline industry in his youth, and learned the trade with a variety of management posts at  TWA, American Airlines, and Silverjet. He specializes in the commercial airline sector and has managed airline projects around the world including airline start-ups, developing strategic futures, and managing airline mergers and acquisitions.  He lives in London, United Kingdom, with his wife and spends 75% of this time as a “wing warrior”.

AO:  Let’s start with the global state of the aviation industry, what you do you foresee for airlines in 2010?
According to you, what will be the main trends and events? We have seen some positive moves on the U.S. front, as this past weekend we saw the news about the Department of Transport (DOT) clarifying its position on AA/BA, which can only be beneficial in levelling the playing field between alliances. I think that we have not seen the end of economic challenges around the world, specifically in U.S, Europe, and Gulf Region. As a result I think that airlines can expect to see continued pressure on both premium passenger numbers, and also on total traffic- and further airline failures in 2010 are likely. I also do not foresee successful launch of any new trans-Atlantic carriers in this environment, such as companies like Aer Fair or Scotland’s Nimbus look for start-up cash in a tight credit market. I also believe that we will see a widening gulf as more European carriers experiment with some degree of “un-bundling” of fares such as BA, and those who opt for the more legacy “single price” model like SWISS.

AO: I know that you’re particularly been following JAL’s situation. JAL is now cutting thousands of jobs, costs and routes as ANA is performing well. For a few months now, ANA has gone increasingly international, in other words, competing on JAL’s playground. Do you think Japan can support two major legacy airlines?
The short answer is a resounding yes.  I maintain that there are a number of common misconceptions about the Japanese economy, and about the fundamentals behind the JAL bankruptcy that needlessly cloud this issue. The Japanese Home Island economy does has some challenges ahead of it. Japan is still the second largest developed economy in the world, with their nearest neighbours, China, coming in a very close third place.  So, here you have two of the largest economies of the world, which are closely commercially linked and geographically close. That single fact alone offers Japanese and Korean carriers some enviable opportunities. JAL may be at a small competitive disadvantage as it restructures,  but it is important to remember that Japanese laws surrounding international aviation regulation are not at all liberal, and you only have to look as far as the new Japanese-U.S. bilateral to see how restrictive and conditional the Japanese regulatory environment is. As a result, the international Japanese market is not as vulnerable to the forces of foreign competition as some other word markets, and Japanese carriers will still have retain advantage in the very lucrative trans-Pacific market.

AO: The BA-Iberia merger will take place soon. Do you see any other bridge-building possibilities among European carriers in 2010?
Well, I think there is ample room for those European carriers who are not already owned by Lufthansa. On a more serious note, obviously, the U.S. part of the equation of AA/BA/IB and ATI was long overdue, now need to keep a close eye on what the EU decides to do with this matter.   Clearly, Iberia has not been spooked by BA’s pension deficit, and is moving forward. As for other potential possibilities, it is relatively common knowledge that Aer Lingus has been looking at a potential of “re-joining” an alliance to shore up its future fortunes, but there are obvious ownership roadblocks to that. Also, it remains to be seen how well the LCC markets will adapt in an environment where closer cooperation may work to their advantage.

AO: You know that my blog is more focused on the LCC market. What’s your point of view on Ryanair’s recent announcement of fare increase and what could it mean for the airline?
My personal take is that Ryanair can have no choice but to begin charging an increased fare, as they have exhausted all other obvious forms of gaining ancillary revenue. Clearly what they do well is actively manage fixed costs such as labour, which so often are the most difficult part of some carriers bottom line. Their fleet is young, but not as young as it once was, and this will slowly increase operating costs as well.  Overall, Ryanair faces a number of challenges as a business, not the least of which is pushing the limits of consumer tolerance for “un-bundling” and customer service. It will also be interesting to see what the Ryanair culture and product will be like once O’Leary steps aside, and the process of separating the brand from the man will be an interesting one.

AO: We recently observed a budding cooperation between two main Asian low cost airlines, do you think such an alliance could take place in Europe?
I do believe that there is a room for cooperation between LCC carriers, but the EU regulatory environment is not as easy or conducive to that cooperation as say the Asian market. There are many potential legal and regulatory hurdles that LCCs may encounter in the event that they seek closer cooperation. I think it more likely that we could see a carrier seeking to acquire another, but the idea of a traditional alliance would be potentially difficult. In my view, traditional alliances are generally about five interconnected goals:  code-sharing, schedule coordination, some form of revenue share, ground handling savings,  and enhancing passenger experiences (i.e. frequent flier programmes, lounges, etc). Given their tight margins, I don’t see any of the EU LCCs being willing to subject themselves to the pressures of a potential alliance in this current environment.