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.

Why AA/BA Antitrust Immunity Makes More Sense now than ever…

Art © TWC 2009

The History 

When American Airlines (AA) and British Airways (BA) filed for antitrust immunity in 2002 there was little hope that an agreement could be reached with the US and EU Regulatory authorities. New entrants into the EU-US market were prohibited, and AA and BA were opposing businesses nearing an effective monopoly hold on daily departures between Heathrow and the US.

In 2007, the first phase of the new EU-US Open Skies accord was reached. Since then several new entrants have started flights in this lucrative market. This agreement has allowed these new market entrants to fundamentally change the competitive landscape at Heathrow and other airports throughout the EU. Ultimately the passengers now have a wider choice of carriers, service levels, and new non-stop destinations than ever before. As a result, consumers on both sides of the Atlantic should urge their lawmakers to approve the AA/BA application for immunity.

The Opposition from Virgin 

In spite of these competitive changes some consumer groups, and competitors such as Virgin Atlantic (VS), vehemently oppose the proposal. Virgin Atlantic claim that if the deal were to be approved that AA/BA would have a “stranglehold on London Heathrow-US services, and be able to coordinate schedules enough to inflate demand, and as a result also inflate fares. While the anti-trust immunity would arguably have some impact on frequency and schedule as the two carriers coordinate, in the end consumer demand and pressure from new competitors will keep fares in check and provide passengers an alternative choice of carriers on a scale not previously available.

The Politics

Since the implementation of the Open Skies agreement, we have seen many carriers such as Air France, Delta, and US Airways, and Northwest begin to challenge the established carriers in the Heathrow-US market. While the economic downturn has temporarily scaled down the expansion efforts of some like Air France, these are an example of the healthy competition that comes from open markets.  Since then Congressman Orbester has made his protectionist position clear via US HR 831, while UK Transport Minister Hoon Geoff Hoon stopped short of threats to dissolve the current EU-US open skies agreement as he reinforced European calls for further liberalisation in stage two talks during a speech to the International Aviation Club in Washington two weeks ago.
 
Hoon indicated that if no second-stage agreement is reached next year, either party has the right to withdraw traffic rights secured under phase one – an option highlighted by previous UK transport officials but not by Hoon. It was the stance of his predecessor Ruth Kelley the former Transport Minister.

During the meeting of aviation professionals Hoon said that “[we] should stay clear of retaliation,”. “I have no doubt the United States should not be afraid of opening up its aviation business to further competition.”

In our opinion it is entirely likely that with the European and Local elections in June, and current turmoil over UK domestic policy issues such as MP’s expenses, and the recent defeat in the House on the issue of Gurkha’s, it is possible that this Labour Government, and its ministers, will not be present around the final negotiating table.
 
In his speech Hoon indicated that protectionism offers cold comfort in an economic downturn. That same day United States Congressman James Oberstar (D-MN) was receiving an award for “service to aviation’ while at the same time being the main architect of H.R. 831 calling for limited the power of the DoJ and calling for tougher reviews, restrictions, and rollbacks on airline alliances and

immunity.  

What is the rest of the world doing? 

In a related story, Canada raised it’s foreign-ownership limits this week to just short of 50%, while Inida continues to liberlise it’s foreign ownership criteria.
 
Another concern for the UK, and EU, is the US reaction to including commercial flights in the EU carbon emissions scheme, which we at TWC have lobbied against. 

The New Threat at Heathrow

There is also a serious potential contender in the London-US market. BMI (BD) and their majority owner Lufthansa have been raising their profile to business travelers over the past few months As Heathrow’s second largest airline could direct links to US be far off? Lufthansa’s recent increase in its BMI stake is further evidence of the emerging strength and competition in the Heathrow market by the Star Alliance, who already operate with antitrust immunity.

The past few years have also seen some important experimentation with trans-Atlantic links between other London airports, such as Stansted and Luton, with mixed results. Fairly radical change came at Gatwick as a near mass exodus of carriers shifted their Gatwick operations to Heathrow soon after the final agreement on Open Skies was in place. Virgin Atlantic also has a unique opportunity to redefine the overall London-US airport experience as it leads a consortium proposing the purchase of Gatwick Airport from the British Aviation Authority (BAA). If it succeeds in its bid, they will have the opportunity to potentially shift consumer preference away from Heathrow with a superior airport experience.

The Upshot

We agree that consolidation is no silver bullet, and it will not solve any carriers problems overnight.   That said, we feel that there is no cogent argument for opposing the AA/BA request for the same immunity that has been granted many other alliances in the EU and US already. We believe that its approval will level the playing field between the airline alliances, increase competitive pressures, and ultimately benefit consumers as a result.

Einblick in die Luftfahrtindustrie:
Warum die Immunität gegen kartellrechtliche Wettbewerbsbeschränkungen für AA/BA Sinn macht

Art © TWC 2009

Als American Airlines (AA) und British Airways (BA) im Jahr 2002 die Immunität gegen kartellrechtliche Wettbewerbsbeschränkungen („Antitrust Immunity”) beantragten, bestand wenig Hoffnung, dass sich die Regulierungsbehörden der USA und der EU auf ein Abkommen einigen würden. Neuzugänge auf den EU-US-Markt waren nicht zulässig, und die Fluggesellschaften AA und BA waren in Bezug auf die aktuelle Monopolstellung im Bereich täglicher Flugverbindungen zwischen Heathrow und den USA zudem harte Gegenspieler.

 2007 trat die erste Phase des neuen „Open Skies“-Abkommens zwischen der EU und den USA in Kraft. Seitdem bieten eine Reihe neuer Fluggesellschaften auf diesem lukrativen Markt Flugverbindungen an. Dank des Abkommens gelang es den neuen Anbietern, die Konkurrenzlage in Heathrow und auf anderen Flughäfen innerhalb der EU grundlegend zu verändern. Für die Fluggäste bedeutete dieser Wandel ein umfangreicheres Angebot an Fluglinien, ein höheres Serviceniveau und weitaus mehr Nonstop-Flüge als je zuvor. Verbraucher auf beiden Seiten des Atlantiks sollten ihre Gesetzgeber daher dazu auffordern, dem Antrag von AA und BA auf Immunität stattzugeben.

 Doch trotz dieser wettbewerbsfördernden Neuerung lehnen einige Verbrauchergruppen und Mitbewerber wie Virgin Atlantic (VS) das Abkommen entschieden ab. Virgin Atlantic kritisiert, dass AA und BA im Fall einer Genehmigung der Immunität den Flugverkehr zwischen London Heathrow und den USA fest im Würgegriff halten würden und somit eine uneingeschränkte Kontrolle über die Flugpläne hätten, sodass die Nachfrage und, damit verbunden, auch die Flugpreise in die Höhe getrieben werden könnten. Obgleich die „Antitrust”-Immunität sich bedingt durch die Koordination der beiden Fluglinien durchaus positiv auf die Flugfrequenz auswirken könnte, würden die Flugpreise aufgrund der Nachfrage von Seiten der Verbraucher und des Konkurrenzdrucks durch neue Mitbewerber letztendlich reglementiert werden. Die Immunität gegen kartellrechtliche Wettbewerbsbeschränkungen bedeutet für Fluggäste daher ein alternatives Angebot an Fluglinien, das in einem vergleichbaren Mass zuvor nicht zur Verfügung stand.

 Seit der Implementierung des „Open Skies“-Abkommens lässt sich beobachten, dass zahlreiche Fluggesellschaften wie Air France, Delta, US Airways und Northwest Airlines die etablierten Fluglinien auf dem Heathrow-US-Markt nahezu herausfordern. Obgleich der Wirtschaftsabschwung die Entwicklungsbemühungen mancher Fluglinien wie etwa der Air France vorübergehend eingeschränkt hat, ist dies ein gutes Beispiel für die gesunde Konkurrenz, die ein offener Markt bewirken kann.

Unter den potenziellen Anwärtern auf dem London-US-Markt befindet sich im Übrigen auch ein ernst zu nehmender Kandidat. Die Fluggesellschaft BMI (BD) hat ihr Profil im Verlauf der letzten Monate mehr und mehr auf Geschäftsreisende ausgerichtet. Für die zweitgrösste Luftlinie in Heathrow macht eine direkte Verbindung in die USA sicherlich Sinn. Die jüngste Übernahme zusätzlicher BMI-Anteile durch Lufthansa ist auf dem Heathrow-Markt ein weiterer Beweis für die wachsende Stärke und Konkurrenz der Star Alliance, die bereits Immunität gegen kartellrechtliche Wettbewerbsbeschränkungen geniesst.

In den letzten Jahren haben eine Reihe anderer Londoner Flughäfen, wie Stansted und Luton, mit unterschiedlichen Ergebnissen mit transatlantischen Flugverbindungen experimentiert. Gatwick erlebte einen vergleichsweise radikalen Wandel, als zahlreiche Fluglinien unmittelbar im Anschluss an die Gewährung des „Open Skies“-Abkommens ihre Geschäftstätigkeiten grösstenteils von Gatwick nach Heathrow verlegten. Virgin Atlantic hat die einmalige Gelegenheit, die globale Stellung der Flugverbindung „London-USA“ insgesamt neu zu definieren, denn die Fluggesellschaft steht an der Spitze eines Konsortiums, das die Übernahme des Flughafens Gatwick durch die britische Luftfahrtbehörde (BAA) plant. Sollte dieser Plan umgesetzt werden, wäre dies die ideale Gelegenheit, Fluggäste von Heathrow abzuziehen und ihnen in Gatwick ein besseres Flughafenerlebnis zu offerieren.

Insgesamt sind wir der Meinung, dass es kein triftiges Argument dafür gibt, sich dem Antrag von AA/BA für die gleiche Immunität, die bereits zahlreichen anderen Allianzen in der EU und in den USA gewährt wurde, entgegenzustellen. Wir glauben, dass die Erteilung der Immunität die Wettbewerbsbedingungen zwischen den einzelnen Airline-Allianzen ausgleichen und den Konkurrenzdruck erhöhen kann, was für die Verbraucher letzten Endes von Vorteil ist.

Haftungsausschluss: Die geäusserten Meinungen beruhen auf der laufenden Analyse des TWC-Teams und unterliegen unseren Nutzungsbedingungen. Der Autor ist zur Zeit der Erstellung dieses Artikels mit den in diesem Bericht genannten Unternehmen weder vertraglich noch durch Aktien oder Sicherheiten verbunden. Diese Analyse/dieser Bericht dient ausschliesslich Informationszwecken.

Art © TWC 2009

Lorsque American Airlines (AA) et British Airways (BA) ont déposé une demande d’immunité antitrust en 2002, l’espoir était mince qu’un accord puisse être conclu avec les autorités chargées de la réglementation aux USA et dans l’Union Européenne. Les nouveaux venus sur le marché UE-USA étaient interdits, et AA et BA étaient des sociétés concurrentes approchant un monopole effectif détenu sur les départs quotidiens entre Heathrow et les USA.

Au bout du compte, les passagers ont désormais un choix plus vaste que jamais de transporteurs, de niveaux de services et de nouvelles destinations sans escale. En conséquence, les clients des deux côtés de l’Atlantique devraient inciter leurs législateurs à approuver la demande d’immunité d’AA/BA.

Malgré ces changements concurrentiels, certains groupes de consommateurs et des concurrents tels que Virgin Atlantic (VA) se sont opposés avec véhémence à cette proposition. Virgin Atlantic prétend que si l’accord devait être approuvé, AA/BA auraient une mainmise sur les services Londres Heathrow-US, et pourraient suffisamment coordonner leurs plages horaires pour augmenter la demande, et donc les tarifs. Alors que l’immunité antitrust aurait, sans aucun doute, un certain impact sur la fréquence et les horaires que coordonneraient les deux transporteurs, au bout du compte, la demande des consommateurs et la pression des nouveaux concurrents permettrait de surveiller les tarifs et de fournir un choix alternatif de compagnies aériennes aux passagers à une échelle auparavant indisponible.

Depuis la mise en œuvre de l’accord Open Skies, nous avons vu de nombreuses compagnies telles qu’Air France, Delta, US Airways et Northwest commencer à défier les compagnies établies sur le marché Heathrow-USA. Alors que le ralentissement économique a temporairement réduit les efforts d’expansion de certaines compagnies comme Air France, ils sont l’exemple d’une concurrence saine découlant des marchés ouverts.

De plus, il existe un sérieux candidat potentiel sur le marché Londres-USA. BMI (BD) a redoré son blason auprès des passagers professionnels durant les derniers mois. En tant que seconde compagnie aérienne d’Heathrow, établir des liaisons directes vers les USA serait-il si lointain pour elle? La récente augmentation par Lufthansa de sa participation dans BMI est une autre preuve de la force et de la concurrence émergentes de Star Alliance qui travaille déjà sur le marché d’Heathrow en bénéficiant de l’immunité antitrust.

Ces dernières années ont également vu d’importantes expérimentations avec les liaisons transatlantiques entre d’autres aéroports londoniens tels Stansted et Luton, avec des résultats mitigés. Un changement tout à fait radical s’est produit à Gatwick lorsque des compagnies ont transféré, sous la forme d’un quasi-exode, leurs opérations de Gatwick à Heathrow peu après la mise en place de l’accord final sur Open Skies. Virgin Atlantic a également une opportunité unique de redéfinir l’expérience aéroportuaire Londres-USA puisqu’elle dirige un consortium qui propose de racheter l’aéroport de Gatwick à la British Aviation Authority (BAA). Si son offre est acceptée, la société aura l’occasion de faire préférer un autre aéroport qu’Heathrow à ses clients, grâce à une expérience aéroportuaire supérieure.

Globalement, nous pensons qu’il n’existe aucun argument convaincant pour s’opposer à la demande d’AA/BA pour la même immunité qui a déjà été accordée à de nombreuses autres alliances dans l’UE et aux USA. Nous pensons que son approbation permettra aux alliances des compagnies aériennes de lutter à armes égales, augmentera les pressions et au bout du compte, bénéficiera aux consommateurs.

Clause de non-responsabilité : les opinions exprimées reposent sur l’analyse continue de l’équipe de TWC et sont soumises à nos Conditions d’utilisation. L’auteur ne possède pas de contrats actifs, d’actions ou de titres dans l’une des sociétés mentionnées dans ce rapport au moment de la rédaction de cet article.  Cette analyse/ce rapport sont uniquement rédigés à titre informatif.