low cost regional airlines july 2011
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Low Cost Regional Airlines MagazineTRANSCRIPT
LOW COST& airline REGIONAL business
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Issue 1 | 2011
Technology gainsAndhowtoprofitfromthem
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PAYMENT SUPPLEMENT
Empowering the pilotsEurope remodelled A sky shopper’s paradise
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Volume 6 Issue 2 | July 2011
The Kingpin Tony Fernandes stays focused
Settlement solutions
LOW COST& airline REGIONAL business
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Low Cost & Regional Airline Business (ISSN 1755-1242) is published quarterly by Air Transport Publications Ltd, 16 Hampden Gurney Street, London W1H 5AL, United Kingdom, and is distributed in the US by Mercury Airfreight International Ltd, 365 Blair Road, Avenel, NJ 07001. Periodicals postage paid at Rahway, NJ. POSTMASTER: send US address changes to Low Cost & Regional Airline Business, c/o Mercury Airfreight International Ltd, 365 Blair Road, Avenel, NJ 07001.
© 2011 Air Transport Publications Ltd ISSN 1755-1242
Previously
Contents
4 Low Cost & Regional Airline Business www.lowcostandregional.com − July 2011
51 Ancillaryrevenues Fromseattosuperstore Airlineshaverealisedthere’salimittotheamount
theycanchargeforunbundledfees.Butasfullretailers,there’snoendtotheservicestheycanoffer.AlexandraLennanereports
56 Aircraft:secondarymarket Familyvalues Fromrecyclingintobeercanstonewleases,owners
ofageingaircrafthaveawiderangeofoptions.But,warnsKeithMwanalushi,someaircrafttypesarestrugglingtofindnewhomes
62 What’snew Marketinggoesfemale-friendly,Airsavingsgetspersonal,
flydubaidriesout,mobiletechnologymarksthefuture,andmore
64 Events
56
62
Coverimage:MyTeamLotusCovertiles:airberlin,airBaltic,OxfordAviationAcademyContentsimages:easyJet,AirAsia,DüsseldorfAirport,GualtieroBoffi,BAESystems,BudapestAirport
Airline Yearbook 2011Your little black book of industry contacts
www.airtransportpubs.com
StarPerunowoperates9BAe146s.TheLatinAmericanmarketisprovingreceptivetotheaircrafttypephoto: BAE Systems
www.lowcostandregional.com − July 201156 Low Cost & Regional Airline Business
Aircraft:secondarymarket
AnewleaseoflifeOlder turboprops are enjoying strong demand in niche markets. But their small jet cousins, and Boeing classics, are finding the going a bit tougher as fuel prices remain high, finds Keith Mwanalushi
Asanaircraftages,andisnolongerrequiredbyitsowner,thereareseveralroutestoretirement.Rightattheendof
thelineisrecycling–anewlifeasabeercan.Moreprofitably,anaircraftcanbestrippedforspareparts,or,betterstill,soldorleasedtoanotheroperator.Andofcourse,thevaluewilldependonage,demandandavailability.Butwithresidualvaluescurrentlylookingweakoncertaintypes,asfuelpricescontinuetorise,cleverremarketingandleasestrategieswillbecomemorecritical.
Leasinghasbecomeanincreasinglyattractiveoptionforaircraftoperatorsofallshapesandsizes.Currently,33%ofwestern-builtjetsareonoperatinglease.Thisisagrowingfigureexpectedtoleveloffatabout35%to40%overtime,accordingtoaviationconsultancyAscend.
Theturbopropsectorhasdemonstratedthestrongestresilienceintermsofvaluesduetothelackofsupply.AircraftremarketingspecialistAirstreamInternationalindicatesthatthemarketischallengingforregionaljets,butstrongerforturboprops,especiallytheDash-8range,andallvariantsoftheATRsanditseesimprovingopportunitiesforsmallertypes,suchastheSaab340,Dornier328andEmbraer120.
Byandlarge,theATRsseemtohavebettersecondaryprospects.OwenGeach,commercialdirectorattheInternationalBureauofAviation(IBA)observesthatthemanufacturerhasdoneasleekjobintermsofmarketing,financing,andsupportingcustomersofbothnewlydeliveredATRsandthoseonthesecondarymarket.
Hesays:“Traditionallythemarkethasbeenverytight,thereareonlyahandfulofATRsthatareeffectivelyonthemarket.Theytend
togetplacedmorequicklythanotheraircraftinthecompetingsector.”HepointsoutthatevenwithKingfisherAirlinesreturning30aircraftthemarketwillstillbeabletoabsorbthatsortofquantity.“ThatgivesyouanideaoftheresilienceoftheATRs.
“Intermsofretirementageresidualvalue,agoodpointtomakeisthattheATR42alsomakesforagoodfreighterconversioncandidate.Sothereiseffectivelyathirdmarketafteritsprimaryandsecondarymarket.”
ATRspareparts,particularlyengines,propellersandlandinggearalsoenjoyasecondwind.“Again,it’satightmarket,primarilymanufacturercontrolled,”saysGeach.“Thereareonlyafewsuppliers,soATRmaterialsellsquickly.”
GeachsawthisrecentlywiththesaleofAlitaliamaterial.“Weendedupinaverycompetitiveauctionwithtwoorthreebidderspayingmanymillionsofdollars
Sheridan:seeingincreasedinterestphoto: Bombardier
58 Low Cost & Regional Airline Business www.lowcostandregional.com − July 2011
Aircraft:secondarymarket Aircraft:secondarymarket
foranATR42sparespackage.Iwouldsayitisthemostsought-afterregionalaircraftintermsofspareparts.”
UK-basedSkyworldAviationspecialisesinaircraftremarketingandairlinefleetmanagement.ManagingdirectorChrisBeerhasalsoobservedthetrend.“TheSaab340,ATR42/72andDash8marketsareallshowingmovementdespitethemoderatelyhighavailability.ThehighnumberofoperatorsoftheATRproducthassustainedthemarketsoweseetheATR42andATR72asshowingthegreatestpotentialforremarketing.DuetothevolumeofATRsproduced,whicharelargelystillinoperation,thepricinghasremainedatarelativelyconsistentlevel.”
TheSaab340firstflewin1983,butdecliningsalesforcedproductiontoendin1998.Skyworldhasconcludedover100Saab340transactions.
“Wehaveseensomeolderregionalturboprops,especiallytheSaab340As,moveintoalternativecargoroles.About25%oftheoriginalSaab340Afleetarenowcargoconvertedandaremainlyoperatingincentral/easternEuropeandtheCaribbeanarea,”addsBeer.Hefurthernotesthatthereisagrowingmovementofolderturboprops,particularlySaabs,intoareasoutsideofEuropeandNorthAmericaasmarketsopenglobally.
PresidentandCEOofSaabAircraftLeasing,MichaelMagnusson,agrees.“Wearegettinginterestfromsomenewplaceswehavenotdonebusinessbefore.Inthelastyear,wehaveplacedaircraftinMongoliaandThailandforexample.Atthesametime,westillhaveinterestfromNorthAmerica.”
Magnussonaddsthatthelowercapitalcostandlackofnewaircrafthascreatedsteadydemandfor30to50seaters.“Themarketsthatcansupportaswitchfromturbopropstoregionaljetshavealreadydoneso,whichmeanstheroutesthatarestillflownbyturbopropsareonlyeconomicallyfeasiblewithturboprops,andevenmoresowithoilat$100perbarrel.WeareworkingtoextendthelifeoftheSaab340from60,000hoursto75,000.It’salreadyat90,000cycles.”
BeersaysthattheSaab340BmodelhasnothadthesamecargointerestastheAmodel,mainlyduetothecapitalcostbeingsignificantlyhigher.“Bycomparisonthere
havebeenrelativelyfewsaletransactionsinvolvingtheBmodelduringthelastfewyears,andonlyoneSaab340Bhasundergoneacargoconversion.”
BeeraddsthatcurrentvaluesoftheAmodelliebetween$1.25millionand$1.60million,thelowerfigurebeingarunoutnon-Europeanoperatedaircraft.Bmodelsarestillachievingpricesofbetween$1.75millionand$2.5million.
RegionalExpressAirlines(Rex)ofAustraliahasleased25Saab340B-plusaircraftinthelargestleasedealforthetype.The‘B-plus’versionhasaredesignedextendedwingtoincreaseflightperformanceandfuelefficiency.Thesehavebeenputintoserviceasof2010.Withthedeliveryofthese340B-pluses,someoftheolderaircrafthavebeenphasedoutofthefleet,includingallSaab340As.
Intermsofgeneralavailability,SkyworldAviationhasobservedthatduringtheeconomicdownturnin2009/10,availabilityofregionalaircraftbecamesignificantlyhigher,whichinducedanoveralldropinpriceacrossregionaltypes.Beerstressesthatoverthelastsixmonthsorso,thisavailabilityhasbeguntotightenupasthelowerpricinghasattractednewentrantsintothemarket.
“Thereisstillhighavailabilityofaircraftacrosstheboardbutthereiscontinuingdemandwhichwasdifferentfromayearago,andthisisresultinginahighturnoverofaircraftonthemarket.Fromourownexperienceduringthelastfewmonths,weareseeingmorecredible
enquiriesandfewerbrokerscomeintotheoffice,particularlyfromless-establishedoperatorsindevelopingmarkets,”saysBeer.
IBA’sGeachseesthegreatestchallengeinthe50-seatregionaljetmarket.HepointstotheBombardierCRJ100/200asbeingavailableinmasswithcomparativelyfewsales,withmanybeingsoldoffforteardown.“IwouldincludetheERJ145inthatbracket–notsomanyopportunities,plentyofaircraftavailableandatoughtimecertainlyforthemanufacturersandownersofthoseaircraft.”
GeachgivesexamplesofLOTPolishAirlines,whichputitsERJ145portfolioupforsale,aswellasabout25ex-AlitaliaaircraftthatareparkedinFrancewaitingtogointoserviceintheUkraine.“Asubstantialportionoftheworldfleetiscurrentlyparkedoroutofservice,andthatobviouslyhasanimpactonbothleaseratesandvalues.”
RobSheridan,vicepresident,assetmanagementatBombardierCommercialAircraftnotsurprisingly,hasadifferentview.“Infact,we’reseeinganincreasedlevelof
Withmorethan1,630CRJsstillinservice,sparesfortheCRJ200areplentifulphoto: Bombardier
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Aircraft:secondarymarket
interestforallpre-ownedCRJmodelsfromtraditionalandemergingsectorsoftheaviationindustryaroundtheglobe.Thereareover1,630CRJaircraftinservicetodaysofromapartscommonalityperspective,it’sabigsellingfeature.”
Headds:“Fromalessor’spointofview,CRJaircraftareattractivebecausetheycanbeusedtoexplorebreakthroughmarketsorusedinapplicationsinairlineservices,corporate/shuttleconversionsandpackagefreightersversions.”
EarlierthisyearAirNamibiabegantotakedeliveryofthefirstofthreeERJ-135s.TheremarketedERJsareleasedfromtheEmbraerECCleasingcompany,replacinganageingbutpopularfleetoffourBeechcraft1900Ds.
Asairlinesexpecttoseesustainedhigherfuelpricesthismaytipthebalancebetweencapitalcostandoperatingcostsinfavourofoperatingneweraircraft–aphilosophythathasworkedforLCCssuchasRyanair.
RobMorris,vicepresidentmarketingandanalysisatBAESystemsAssetManagement,agreesthathigherfuelpricescanalterthecostbalanceofanaircraftbetweenfixedandvariable,baseduponfuelburn,buthealsohighlightsotherissuestoconsider.“Asforthepointatwhichthebalancetipsbetweenfixedandvariable,thisisofcoursedependentupontheaircrafttypeandnetworkperformance.”
Toillustratehispoint,Morrisnotesthatin2008,abarrelofcrudeoilwassky-highat$375.Withjetfuelpricesat$3.67pergallon,anAvroRJ85operating2,000hoursperyearona500kmsectorwasabletodemonstratea$65,000permonthoperatingcostadvantageoverthesamesizedEmbraerE190.Withallthingsbeingequal,hiscalculationshowedthatatthetime,jetfuelpriceswouldneedtoreach$11.1pergallonforthecapitalcostadvantageoftheRJ85tobeoverturnedinfavourofthefuelburnadvantageofthenewerEmbraer.
“Soasyoucansee,Itakeissuewiththestatementthatthebalancehasnowbeentipped,”saysMorris.“WeareconstantlyanalysingtheperformanceofourownportfolioofBAe146andAvroRJagainstcompetingaircrafttypes.”
MorrisalsoexplainsthattheBAe146andAvroRJfleetinoperationhasdeclinedbyabout15%overthepastcoupleofyears,tosomeextentduetofuelprices,andinparticularthecurrentuncertaintyalliedwiththememoryofthehighpricesseenin2008.“Thisisnotatrendweexpecttocontinueinthenearandmediumterm.Despitethisapparenttrendwehavecontinuedtoseesalessuccessfortheaircraftthroughthepastcoupleofyears.”
FiguresfromBAeshowthatthecompanymade44aircrafttransactionsin2009,whichincluded29BAe146/RJaircraft.Thisfigureshotupto52transactionslastyear,ofwhich41werejets.“Ithinkthisillustratesthatwecancontinuetofindplacementsfortheaircraft,bothleaseandsale,acrossanumberofmarketsectors.”
Naturally,thefutureperformanceoftheBAeassetmanagementbusinesswilllargelydependontheFortressInvestmentGroupthatisexpectedtobuythebusinessbythethirdquarterof2011.
ThecascadeeffectofairlineupgradestonewergenerationBoeing737swillseeanumberof737classicscomeontothemarketoverthenexttwoyears,accordingtoIBA.“Wearealreadyseeingtheimpactofthat,”saysGeach.“Ayearago,a12-yearold737wouldhavesoldforaround$8to$9million.Weareawareofoneidenticalexampleinvolvinga12-yearold737,wherethesellerwasstrugglingtogetmorethan$4million,literallyinthespaceofayear.Duetomarketliquidity,thedemandandhencetheofferpricefora737classichasfallendramatically.”
Ascendhassimilarfigures.PaulSheridan,headofriskadvisory,emphasisesthatcurrentmarketvaluesforearly737sandAirbusA320sarelow,typicallybetween$4and$8million,butallbelow$10million.Morethan10%ofthefleetisnowinstorage.
“It’shardtofindmanypositivethingstosayaboutthemarketfortheseaircraft.Withhighoilpricesinthebackofeveryfleetplanner’smind,thecostofacquiringanyclassicaircraftwillhavetobelowtooffsetthehigheroperatingcosts.WesawthesamethinghappenwiththeMD-80s.Therearestillover2,000737andA320classicsin
The A320 saga
European cargo airline West Atlantic was the launch operator for the A320 P2F. An initial three aircraft were expected to be leased from AerCap with deliveries over the coming three years. However, with the recent announcement to terminate the A320/A321 freighter conversion programme by Airbus and its partners, conversion focus will likely return to the 737 classics and A310s. According to Airbus, recent market developments, including the success of the upcoming A320neo, have resulted in more demand for A320 passenger aircraft and less for freighter versions in this category.
Geach:seeschallengesforsmalljetsphoto: IBA
SAAirlinkhasrolledoveritsearlierfleetoffourBAe146-200sinfavourofnewerRJ185ssourcedfromBAESystemsphoto: BAE Systems
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Low Cost & Regional Airline Business 61July 2011 − www.lowcostandregional.com
Aircraft:secondarymarket
servicearoundtheworldhowever,sotheywon’tbedisappearingovernight,”hesays.
Yettherearelimitedopportunitiestoplaceoldertypesinlocationsthatwouldhavepreviouslysnappedthemup–suchasBrazil,Russia,ChinaandAfrica.Theseregionsnowhaveagerestrictionsinplacethatrangebetween12and20years,significantlyaffectingdemand.
Theindustryhasalsowitnessedsomenewer737sgoingontothesecondarymarketpartlyduetothefleetstrategiesofairlinessuchasRyanair.Geachsays:“WiththelikesofRyanairthereisaveryclevergame.Theyordered737-800sinmass,negotiatedsubstantialdiscounts,possibly40%onthelistpricefromBoeing,andjustacoupleofyearslatertheyarenowsellingtheseaircraftandprobablyexpectingtogetnotfarfromwhattheypaidforthem.”
BAESystemscompletedanewleaseforsixRJ100swithSwisslatelastyear,andtheairlinewilloperatethetype-20initsfleet–untilthearrivaloftheBombardierCSeriesin2016photo: BAE Systems