Air Travel and Our Ageing Population

One of the most intriguing social and economic topics that will have a major impact on the future of most nations, regardless of geography, is the issue of an increasingly ageing population.

What is significant about this trend is that in the next twenty years the population over the age of 65 will at least double in most industrialised nations. These numbers are unprecedented in all of human history, and the demands and needs of this market segment will likely impact airport and airline operations.

While the population is ageing, it does not necessarily mean that they are doing so in quite the same way as previous generations.  Medical advances and social and financial drivers are keeping people fitter longer, extending their overall health and mobility well past that of previous generations. In many nations, the average retirement age for both men and women is rising and this can occasionally be linked to a change in the social contract between individuals, their company’s  retirement plan, and structured national social support for the aged.

One of the most likely impacts to airlines may be those who currently classify themselves in the “Low Cost Carrier” (LCC) category.  With a focus on quick turnaround times and often utilising second-tier airports from forward and aft exits on a hard stand, they stand to lose the most from a changing passenger demographic.  This is particularly true in the European sector of the airline business, as in the United States the prevalence of jet-bridges is more widespread.

Onboard the aircraft there may be a number of design changes that need to be considered to accommodate this new passenger demographic. 

These could include:

• The installation of new or additional moveable aisle armrests to facilitate access to seats, particularly in economy class
• The installation of new or additional power outlets on long haul aircraft to accommodate the use of a growing number of medically necessary devices (such as respiratory support devices, etc.)
• The addition of larger, more accessible lavatories on the aircraft.  With ongoing current security restrictions on passenger cabin movement, there may be a requirement for both forward and aft accommodation.
• The study of one-touch, or motorised, retractable tray tables and IFE devices in bulkhead seating.  Often these can be challenging for some passengers to deploy.

In addition to cabin changes, there may also be a number of changes recommended for In-Flight Entertainment (IFE) devices. These may include updates such as:

• The ability for the passenger to manipulate the font size of a subtitle on a safety video or entertainment programme
• The opportunity for a passenger to use their blue-tooth enabled hearing aid devices to interface with the IFE without the potentially invasive insertion of ear buds

Operationally, there are also a number of challenging issues for the industry in regards to a mobile ageing population. 

These could include:

• Safe accommodation and gate check delivery of a growing number of sophisticated mobility devices (such as “scooters”) to enable passenger the maximum of personal mobility without additional assistance. In association with this change, there may need to be an overall review of “checked luggage liability” associated with these high-value devices.
• For those who do not have access to personal mobility devices, there could be an increased demand of airline staff on the ground and in the air to support and assist customers through all aspects of their journey.

These are just a few of our thoughts on how this particular segment of the travelling public may influence the future of aircraft interiors, airport procedures and carrier policies.

If you would like to know more about this subject, or any other in our series, please feel free to contact us

Read our Travel offer

We can also recommend this link for The European Union Statistical Office

According to Eurostat, the EU’s statistical analysis unit, in the year 2060 over 30% of the entire population of the European Union will be over the age 65. In 2008, Eurostat reported the  same population was at 17.1%

.

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.

The AMR and Delta offers are, in our view, both unsolicited and ill-timed. JAL, and ETIC, have bigger issues to address than the questions of an alliance.

At TWC Avaition, we beleive that there are many alternatives still availbe for JAL, and it appears that Minister of Transport Meihara and the Opposition Demoncrats are doing all they can to keep the carrier operating.   Our view is that there would be more political will to legally restructure JAL and start fresh than allow a major change in foreign ownerships laws that woudl allow a firm to acquire even non-voting equity to the maximum allowed by current Japanese law.  Lets take a look at why that might be how this may play out.

Two Bidders, and empty lot number, and no Auctioneer

What a difference a week can make, not to mention a few billion US dollar bids.  The bids were not fully cash, mind you.  More a mix of revenue gurantees, non-voting equity stakes, and guranteed securities-backed access to cash.

So this week we see  both the Delta (DL) and American Airlines (AMR) unsolicited, and in some ways unwelcome, bidding war to attract JAL to/or remain loyal to an alllinace.

We liken it to watching two bidders at Sotheby’s waving their paddles and starting a bidding frenzy prior to the auctioneer ever taking his place.

Even though JAL had previously announced its intent to “put aside these discussions”, it seems that fine point has been overlooked by both these would be suitors.

The tone being played out this week has certinaly changed as well.   Far from the threats that American Airlines CEO Gerard Arpey was making last week, this week AA’s ASPAC MD has taken a more traditional Japanese approach in his public statments.  He said,  “if invited, we would like to [better] the current offer”.  A C+ for the change in tone and effort.

We would give also give the Delta CEO’s comments failing grade for claiming among other things that Delta (DL) are “No 1 to-and-from Japan”.   Simply Cringe-worthy and Ameri-centric.

A Ward of the State

The point that I think that most of us commentating on this from the outside are missing is that JAL has become for all intents and purposes a “ward of the state” via the Hatoyama’s Opposition Democrats placing it in the Enterprise Turnaround Initiative Corp (or just ETIC).  In the very near future, they will technically have the majority say of JAL’s operations up to an including the reorganization of its management team- right up to the CEO. 

A few faux pas

Along with the departure of some key execs, perhaps DL and AA will also pack their bags for home

I would urge everyone to take a breath and to look at the JAL from a Japanese viewpoint vs. the more propagated stories being put out by the more western press on this issue.   Both JAL and the Japanese government are well aware of the losses JAL will continue to sustain- but they do not view foreign equity investment or guarantees that contain covenants to places like Haneda or skirt current Japanese equity law by being non-voting and revenue guarantees as a viable solution. 

In our analysis the entire reason why intial, and solicited talks with JAL,  initially fell apart wast the prescence of  Macquarie Bank in the role as a potential funding source.   This was, in our opinion, a grossly misplayed hand by all involved.    Macquarie is at best a controversial prescence in many nations, at least in aviation circles.  This is due to their airport dealings in both Australia and in the Haneda financing chain.  So, as AMR steps away to find new backing to go along with their own 2.5M USD warchest, TPG was hastily invited to the party after the initial JAL rebuff.   Then came SkyTeams non-US based chequebook. 

JAL’s biggest shareholder bails

Then the Tokyu Corporation, JALs largest shareholder (a real-estate and rail company) carefully announced its intent and began unloaded shares as a result of seeing JAL as no longer part of their “strategy”.   

The Minister Speaks and New Laws are on the way

JAL's Narita Lounge, where customers go about their business

It is also this formal move that has also gave cover to Minister of Transport Maehara the freedom to carefully craft a statement to a Diet commission where he was mis-translated by western sources.  What he actually said was, “We have carefully considered all possibilities, and we have ruled nothing out, including court supervised protection and restructuring”.   As you are well aware Japanese nuance is often mis-translated, and that as a general rule Japanese Gov’t Ministers do not misspeak.  They are careful, and deliberate.

In addition, should JAL fail to reach the required pension cutbacks- new laws are already being prepared in the background of the Diet by several ministers to override the tradition provision requiring a 2/3 majority agreement to change a pensions terms- again further referenced by the above article.  Bear in mind, these people came to power on the promise of corporate reform- and even with great Union support.

Suspicion and the “Tempest in a Teapot”

Make no mistake- we believe that these offers are a tempest in a teapot, and moreover the Japanese and JAL care about keeping JAL flying- and keeping it Japanese.   They are also as I understand it a bit “troubled” by a perceived incongruity in the offers on the table and the behaviour of DL in particular.  They do not appear understand how their partners AF/KLM could be looking for 1000+ redundancies- but yet still seeking a deal with them.  This is not something that the Japanese understand at a deeper level, and it also could make them believe that their partner(s) are unworthy of their trust.   What would happen if the tables were turned, they ask themselves.   Would my partner not come to my aid lie a kieretsu partner would.

What the West fails to undertand about kieretsu

JAL is a vertical kieretsu- which includes things like JAL catering, JAL Asia Airways, JAL Hotels Group, and many other ancillary businesses- including being the second largest shareholder of Haneda.  You will have note by now that one of the chief characteristics of a kieretsu is their secrecy in terms of deals done behind closed doors- and companies pooling resources to help one another for the common good.

 The Cultural Context

JAL's domestic network make it truly "too essential to fail"

You may find the following paragraph is perhaps un-important but I offer it as history.  Contextually you are already aware that Japan, while outwardly friendly, is in the pains of a major internal cultural upheaval.  The veneers that have been allowed to exist for generations about family units, company loyalty, and thoughts around the keiretsu are still quite strong. Social contracts are being violated about pensions, company loyalty to employees, and even the very core ideas of family.   In many ways it is not unlike the late 1950’s-1970 America- with its resulting seismic social shifts.  Although we think  these adjustments to approach and culture may be a more difficult process due to the deeply ingrained nature of their own identity.  Something, which, is worthy of a great deal of respect. 

So what’s next for JAL

A painful, and public, time of ETIC being in the cockpit and boardroom.   Resignations of senior staff as required by their inability to effect change.   Fundamental Japanese laws changing as the relate to unions pensions, and a goverment that needs to look tough on such old-style business practices.  We will see a streamlining of operations, and even potential use of Haneda for more international flying- but not the US- rather the rest of Asia.  

While they are at it, they may have to look at the now strained relationships with their OneWorld partner, and see if the trust is still there.   I hope it is. as I think OneWorld is the right answer for JAL short of an all Asia alliance, of which there is no obvious answer.

The author, Carter Stewart, is a full time airline analyst and strategist at TWC Aviation Consulting- and is based in London.

At the time of this article, the author did not have any shareholdings or active contracts with any of the companies covered in the scope of the work.

Copyright TWC Aviation 2009  – TWC Aviation 2009

Photo Credits:  C. Stewart, Copyright 2009

Overview

No one has JAL by the tail, except the Japanese Government

Overview

No one has JAL by the tail, except perhaps The Japanese Government

No bidder had Japan Air Lines (JAL) by the tail, but the Japanese Government, through ETIC,  is centainly firmly now at the helm and in the boardroom.

In our view the AMR and Delta offers are both unsolicited and ill-timed. JAL, and ETIC, have bigger issues to address than the question of an alliance.

The simple fact is that JAL is a quality brand, and an essential link to the Japanese Home Island which in our analysis cannot be allowed to fail.  Japan Air lines accounts for the majority of the key domestic capacity in Japan.