THE INSIDE WORD

Same company, different brands and better seats

Swiss has just announced that it is to fit a revolutionary new flatbed in its Business cabins from the spring of 2009. The big selling point of the seat is that it appears to overcome the problem that all airline seats which turn into beds have. If you sit in an armchair at home and then try sitting on your bed, you will find the armchair is much softer than the bed. Airlines have really struggled with this issue because it is impossible to make one unit that is soft enough to be comfortable as a chair and firm enough to give a good night’s sleep. The result is normally an uneasy compromise, with the seat being rather on the hard side. The design company employed by Swiss claims to have solved this problem: its new seat allows you to pump air into it to make it harder or softer, depending on whether you want to sleep or sit. We have no idea whether this will work in practice – sometimes these ‘revolutionary’ ideas can be abject failures. However, the new beds do have some other definite advantages in that they are genuinely lie-flat (as opposed to angled) and rather bigger than some currently in use.

When the airline announced the new beds, Swiss was careful to use the opportunity to differentiate itself from its owner, Lufthansa. The ownership of Swiss by Lufthansa appears to have been a major success. The smaller airline has gained massive economies of scale in such things as frequent-flyer programmes, purchasing and marketing on a worldwide basis, while at the same time maintaining its own individual identity and, indeed, being encouraged to develop its own unique products. While Swiss was too diplomatic to say this, the new beds are far superior to anything Lufthansa has, or plans to have. Indeed, though Lufthansa’s Business service has improved somewhat in the last few years, it is still towards the lower end of what one would expect from a major airline (at the end of the year, the airline will decide whether to fit proper flatbeds in Business Class). Swiss is very open about wishing to be regarded as a premium airline (as the old Swissair was). Lufthansa is happy to encourage this, even if it loses a handful of passengers, because it is taking the profit, whichever airline the passenger uses.

Air France has also made a great success out of its effective takeover of KLM. Economic synergies have been developed but the passenger retains a choice between two airlines that remain quite different in many ways. Contrast this sophisticated European approach with what happens in the States: Delta and Northwest are about to merge (effectively, Northwest will disappear). There will be a loss of identity, huge wrangling between unions and affected employees and, almost certainly, a loss of market share. The Europeans appear to have mastered the art of adding two and two together and getting four and a half. The Americans seem unable to get past the stage where two plus two equals three.

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FlyOpenSkies

If you want to travel between Orly and New York on BA’s new subsidiary, you can book tickets either via the BA website or at www.flyopenskies.com. We were intrigued to see the pricing levels for this service because they are working, partly, on a codeshare basis with the French Business-only airline L’Avion. The two airlines actually have markedly different products. L’Avion has armchair seats, a good level of food and service and fairly basic entertainment. OpenSkies has a much more sophisticated, state-of-the-art Business product with proper flatbeds, it also has a Premium Economy cabin, which is better than almost any other Premium Economy service, as well as a small, and rather select, Economy cabin. You cannot codeshare two products that are so different and it seems, for the moment at least, neither airline is seriously attempting to do so. OpenSkies’ prices for Business are roughly the same as discounted Paris–London–New York Business fares, while L’Avion’s promotional fares are much lower.

http://us.lavion.com/

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The budgets and the agents

Nowadays, nearly all airlines want you to book direct on their website. This particularly applies to the budget airlines, all of whom have avoided selling tickets through agents. It is still possible to buy tickets on a budget airline from an agent but there will always be an extra charge, of £5 or so, for the doubtful pleasure of using an intermediary. Ryanair even went one stage further. It threatened legal action against agents who were selling its tickets with an added mark-up because it said the increased fares made Ryanair appear more expensive than it was, and this amounted to defamation. We would be surprised if any of the major online agents are still selling Ryanair tickets, and we have a feeling that, sooner or later, the other budgets will follow with a complete ban on agency sales (other than for professional Business travel management companies).

The reason the budgets dislike agency sales so much is not the quaint idea that they make their fares look expensive. Budget airlines are more and more dependent on ancillary sales to cover their costs. They may actually make a loss on the sale of the seat but stand to make a profit if the customer then buys hotels, car hire, insurance or whatever from the site. Anyone buying tickets on an agency site will not buy other items from the airline’s site; so the airline could lose money. It is actually quite difficult for airlines to stop agents re-selling tickets, with an added mark-up, but the tougher times for budget airlines will make it likely that they will be forced to take some sort of action. Fairly soon, the only place to buy budget airline tickets will be direct from the airline. This will have an impact on package operators who sell budget flights.

Scheduled airlines are nowhere near as dependent on sales of additional products, but we can be fairly sure they will do everything they can to push the sale of all simple point-to-point return tickets on to their own sites.

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Jet2’s extras

Budget airlines are desperate to create and sell different add-ons to increase their ticket revenue. Priority boarding (available with Ryanair and easyJet) has prompted a lot of adverse comment, largely because of the many occasions when it does not work, or gives very little advantage. Our feeling is that if the budgets really want to sell some form of superior service they have got to try to create a package that offers more and makes better economic sense. Jet2 seems to have achieved this.

Jet2 Plus will be available on most of the airline’s flights over two hours. It costs about £28 for UK departures and £25 for return flights and includes lounge access, priority check-in, special security lanes, seats at the front of the aircraft and a meal and drink on board. Lounge access is normally sold at about £18; so this package offers very good value (but do note that some of the elements of the deal, such as the special security lanes, may not be available at all airports). We think this is an unbeatable package and it is highly recommended at the price.

It is worth adding that Jet2 has subtly changed its business mix over the last eighteen months. It has developed a holiday and travel agency unit and now aims to sell a large number of seats as part of packages. Some business destinations have quietly been dropped or reduced in favour of twice-weekly flights to holiday resorts – effectively, charter flights in all but name. The airline recently announced ‘a new service’ from Leeds/Bradford to New York but this is just a handful of departures for Christmas shopping trips being marketed by the agency. In fact, it looks as if all the airline’s new routes are being developed largely for the holiday trade and in conjunction with its agency. Airlines that are linked to successful holiday companies have a much stronger chance of survival: Globespan would be in a sorry state purely as an airline but it is part of a highly profitable tour operator, and even Virgin Atlantic has had to depend far more than it would like to admit on ticket sales and profits from its very successful Virgin Holidays brand.

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How much does a suitcase weigh?

The Hungarian airline Malév has just increased its standard weight allowance in Economy from 20 kilos to 23 kilos. The downside to this is that it will charge for anything above this weight and not waive charges for a few kilos, as it might have done in the past. Interestingly, Malév claims it has done a study of the weight of a ‘typical’ case and thinks that the new allowance of 23 kilos is more suitable since it has many cases checked in which weigh around the 21-kilo mark. The airline feels that a fully packed, standard modern case is likely to weigh just under 23 kilos.

While we have not done any scientific tests, this does seem correct. Unless you are carrying gold bars, it is quite hard to get much more than 23 kilos into a normal case. BA took a lot of stick for altering its luggage allowances but it is worth bearing in mind that its allowance begins at one case of 23 kilos, which makes it one of the most generous. Many airlines stick to 20 kilos, and this can be very tight. It is worth shopping around to check the specific weight allowance for the airline, class and route you are travelling. Those extra three kilos can make a surprising difference.

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Globespan and safety

The news that the boss of Globespan is being prosecuted for breaches of safety, and faces an unlimited fine if found guilty, is not a huge surprise. The CAA alleges that last year the airline allowed a 757 to fly from Liverpool to the US with faulty equipment. Last year, we were the first publication to warn of the problems Globespan was creating for itself with its overly complicated timetable and limited resources. The extent of the debacle exceeded even our worst estimates. While we would not suggest that every airline that keeps to its timetable is necessarily a safe airline, it is certainly true that airlines that have chaotic operations may have safety problems as well.

The CAA should have acted much faster to investigate Globespan last spring, when the serious deficiencies in its operations became apparent. It looks as if it only really started looking at the airline in detail after the main summer season and when the airline had already clocked up countless negative newspaper stories. Even more embarrassing from the CAA’s point of view is that it appears foreign safety authorities were warning the CAA of the airline’s problems. This is very bad because if the Americans, in particular, get the impression that their British colleagues are not doing enough to monitor their own airlines then it can have serious repercussions on all British airlines. In the autumn, the CAA finally went to town on Globespan. Some heads rolled and there were new appointments, including a new head of operations.

We are certain that the CAA is now breathing very heavily down the neck of the airline. Had it wanted to, the CAA could have withdrawn Globespan’s operating licence during the winter, but it did not. There are still signs that the airline is overscheduling its aircraft and some delays are likely this summer, but we imagine the situation will be better and the airline will operate in a manner approved by the CAA.

None of this reflects well on the CAA. It took far too long to get on to the problems of the airline and allowed matters to get out of hand, but it has now finally woken up. Whatever the result of the legal case, we regard it as rather a face-saving exercise by the CAA and it is not really a reflection on the airline today.

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Regional airlines – are we all being short-changed?

One morning in May, the pilots of Lufthansa’s regional subsidiary, Cityline, held a three-hour strike. It is quite unusual for German pilots to go on strike, but the circumstances are interesting. Lufthansa’s mainline pilots were given a pay increase in two stages of 2.5% last year and 3% this year. In the same two-year period, the regional pilots were offered slightly less than 2.5%.

This pattern is quite common. Both Air France’s Irish subsidiary, CityJet, and Swiss’s regional operation are frequently short of pilots, owing to the difficulty in attracting pilots at the pay levels offered, and have to cancel flights (it has been a common occurrence for Swiss to have up to four of its regional jets grounded each day because of pilot shortages). British Airways sold its regional subsidiary to Flybe last year but maintained a small rump of the operation for flights from London City Airport – these pilots have not had a pay increase in three years, whereas mainline BA pilots have had regular increases at, or slightly above, the rate of inflation.

The large airlines in Europe and the States have had a habit of buying regional airlines to trade under their name and offer a feeder service into the main hubs. In theory, this works well for everyone. The passenger is able to get an integrated service, the large carriers gain traffic and the regional airlines get financial stability. Pilot unions at the main airlines have always been adamant that there should be strict demarcation between ‘mainline’ and ‘regional’ because they do not want to lose their work to aircraft and crews at lower costs. Airlines have to agree to limit the size of aircraft used on regional services and/or restrict the routes flown. This can lead to some strange situations: when CityJet flies the largest of its RJ100s, it has to leave three seats vacant because it has agreed not to fly regional aircraft above a certain capacity.

The airlines claim they have to keep costs low on regional routes to make them economical, but the mathematics of this argument are open to doubt. They are using loss-making regional routes to feed passengers into profitable longhaul routes. It all depends on how they allocate the costs and profit.

The concern is that passengers pay the same for the regional flights as they do for mainline flights but they get much less. Catering is an obvious issue: compare the meal served between Heathrow and Frankfurt on Lufthansa in Business with the grim cold snack served on Cityline’s flights from London City or Birmingham. In a way, crew pay is of no interest to a passenger. If staff want to work for an airline, then they choose to accept the pay or work elsewhere. The problem is that big airlines cannot afford strikes on their main network and tend to look after their staff quite well. They are much less concerned about occasional strikes on regional operations. Nor do they appear to mind cancelling flights if they cannot get enough pilots.

Passengers pay the same fare, however, and so maybe we should be more aggressive in expecting the airlines to offer reliable services on their regional networks and to pay their staff a rate that will achieve this.

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Ramadan

It is worth noting that Ramadan this year will begin on 1st September and last for a month. Tour operators and agents can be rather lax at informing customers of this and it can have an important bearing on your stay since, depending on the country, some hotel restaurants and bars will be closed during the day and eating or drinking in the open will be discouraged. September is a good month to visit Egypt and the Emirates; so, if you bear this in mind, you may get a slightly better deal on hotels since they often face lower occupancy in this period.

On another issue, we should also point out that the Foreign Office has just downgraded the security status of the UAE because it believes that “terrorists may be planning attacks” even though it then states that most tourists and businessmen will have a trouble-free stay.

www.fco.gov.uk

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Airline finances and scaremongering

There is no question that the airline industry faces a very tough few months. The finances of many airlines will be pressed. We have been fairly outspoken about airlines we think have problems and will continue to highlight those we feel should be avoided. However, the current gloomy climate is bringing out the worst in some people and encouraging a few ridiculous stories. We highlight the offensive remarks of Ryanair about other airlines in this month’s ‘Rogues’ Gallery’feature, but the following story about the Australian airline VirginBlue is an unfortunate sign of the times. J P Morgan’s Australian branch produced one of its regular reports on Virgin Blue and, as is quite normal with broker’s stock analyses, it listed three possible ways for the company to progress. These are normally the nightmare scenario, the likely scenario and the lucky-streak scenario. The nightmare scenario was that if the company could not raise its prices by 10% in real terms over the next ten years it would be forced to close. The report actually concluded with the suggestion that the share price would increase.

It could be that the way J P Morgan publicised the report is partly to blame, but the result was that a perfectly innocuous and sensible report ended up in the Australian press as “Virgin must increase fares by 10% or go bust”. A few newspapers did give the more detailed story but most just stuck with the headline, and it was this that got passed on to news organisations around the world. Rising prices and airlines in trouble are good copy so it is no surprise that the ‘story’ was taken up by many newspapers. The London Evening Standard had a one-paragraph piece with the headline “VirginBlue must lift fares to survive” and then quoted two sentences from the ‘nightmare scenario’, with no mention of the more likely options. Completely wrong and simply dreadful journalism, but unless you know the facts the story is credible enough and many people will have taken it at face value.

Incidentally,while the cost of fuel is a very serious concern for all airlines, we are not aware of any airline that has gone bankrupt in the last six months because of this. All the ones that closed had seriously flawed businesses and would have disappeared or been sold sooner or later. Fuel might have been a contributory effect but was not the root cause.

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