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The 2017 Aviation Festival in London drew in some of the industry’s biggest names, and they were happy to talk about some of the biggest topics too. LARA’s Mark Thomas and Kimberley Levey report.

Amongst the hottest discussion points was one that appears to be doing the rounds at all the major events so far this year – the continuing rise of the long-haul, low-fare market.

The festival’s opening keynote interviewee, Sir Tim Clark, president of Emirates, kicked off proceedings nicely by starkly warning legacy carriers that long-haul low-cost (LH-LC) carriers are simply a “matter of time”.

Particularly well-attended at the festival was the World Low-Cost Airlines Congress, and one of its keynote panels featured speakers from SpiceJet, Qantas International/JetStar, Norwegian Air Shuttle, U-FLY Alliance and Virgin Atlantic.

 

SpiceJet
SpiceJet chairman and managing director, Ajay Singh, revealed the Indian carrier is considering stepping into the LH-LC market – if the aircraft price is right. “India has 1.3 billion people, and just 30 million or so of them fly at the moment, so it’s a very under-penetrated market at present.”

With so many potential customers, the role of low-fare carriers in India is already dominant. According to Singh, approximately 80% of the Indian commercial aviation market is supplied by low-fare carriers. “Low-cost is 80% of the market. India is an extremely price-sensitive market – and we have a lot of people,” he pointed out.

Naturally, the carrier is therefore looking at giving its massive potential domestic market plenty of long-haul opportunities to tempt them to fly further. But only, Singh said, “…if we can get to a new base [price] with the B787-10s or the A350-1000s. If we can reach a price point that makes sense for us to deploy them, we will certainly do that. We are working with both aircraft makers at this time, Boeing and Airbus”.

He also pointed out that SpiceJet at present has no partners. “But as we look at long-haul, we will look to explore that.”

 

Norwegian
LH-LC pioneer Norwegian, of course, has already proven the business model. And chief financial officer, Tore Østby, was quick to dismiss one question that asked whether LH-LC was dependent on lower oil prices.

He reminded the audience that the airline’s owners “decided to launch when oil was more than $100 per barrel! We regard the airline industry as a growth industry. It’s a growth market, and we’re starting up new areas and driving the market”. He did admit, however, that it was “easier to grow it faster when the oil price is lower”.

Østby also highlighted the company’s ability to supply its own LH-LC routes, without having to rely upon alliances and partnerships. “We can feed ourselves from our own network. We can feed our own operations at Gatwick Airport, then we can look at the map and see who it is possible to co-operate with. But feeding is the way for us to fill up the last 10% of the aircraft – it’s not the basis for our business.”

Another panellist, Gareth Evans, CEO of Qantas International, also highlighted the other major Asian market emerging even larger than India – China. Evans, shortly due to become CEO of JetStar, pointed out that Qantas and JetStar can connect up to Asian networks fairly easily.

It does, for example, already fly into China from Singapore. “And we’re still working through what sort of model might work in China, so far mainly with JetStar. That model right now will work really well for us in the LH-LC perspective, but over time I’m sure it will evolve. It’s a huge market.”

 

Virgin Atlantic
Among other keynote interviewees at the aviation festival was Craig Kreeger, CEO of Virgin Atlantic, who was keen to accentuate the need for airlines to keep innovating, whether through alliances, joint ventures, new technologies or just smarter thinking.

On JVs, he highlighted benefits such as access to more customers, and the ability to give customers access to a broader network. “We’ve seen the benefits of that in our initiative with Delta, by working very closely together. And this year in particular, where the Pound has been weak, it’s meant we’ve needed more Americans to fill our airplanes. So having a really strong partner on the American side has really helped us.”

Going back a few years, Virgin was of course the first airline to introduce the economy seat-back video screen, a differentiator at the time but now a very basic element. Just days before the festival, the airline announced it would be the first European carrier to be fully Wi-Fi-enabled across its entire fleet. Virgin will use solutions from Panasonic on its Boeing 787s and Gogo on its Airbus aircraft and B747s.

Kreeger commented: “We have to continue to find ways to innovate. Our space requires us to keep moving.” He did add, however, that the days of a 400-seater aircraft having Wi-Fi capable of allowing all its passengers to be streaming at the same time as “not anywhere near yet”.

 

KLM
On the second day of the conference KLM’s CEO, Pieter Elbers, focused on the topic of digital investment in his opening address, discussing three key elements for the airline – where the customers are, balancing digital and human interaction, and helping employees to do what they do best.

Elbers said: “Being where customers are sounds simple but is drastically different from what we used to do.” The airline has made use of Facebook Messenger, WeChat, Twitter and WhatsApp to communicate with passengers, with Elbers calling data “an enabler for personalisation”.

 

Flybe
Flybe CEO, Christine Ourmieres, also spoke at the event, describing the airline as an “original carrier, one of the first UK domestic airlines”. She added, however, that it is “difficult to put us in the box of low-cost carriers”, although it does need to keep costs low.

For most routes Flybe doesn’t compete with LCCs, she said. The carrier is the only turboprop operator into Heathrow because the airport adapted costs for the airline, which she believes is partly due to a “willingness from Heathrow for more regional connectivity” and partly because of pressure for Heathrow to be more connected.

On how the airline is moving forward, Ourmieres said that “for the first time we are in control of our capacity,” and that it was making sure it flies to the best possible places, and not just more routes that aren’t profitable.

Ourmieres also commented during a panel discussion that Flybe is continuing to lobby for the abolishment of APD (Air Passenger Duty), as domestic flights are essentially being taxed twice. Trains aren’t taxed, she pointed out.

 

Pictured: Day 1’s first World Low-Cost Congress panel session featured (left to right): Craig Kreeger, CEO Virgin Atlantic, Tore Østby, COO Norwegian, Steven Greenway, CEO U-FLY Alliance, Ajay Singh, chairman SpiceJet, and Gareth Evans, CEO Qantas International.

 

KLM UK Engineering has extended its maintenance services to include Australia’s CASA (Civil Aviation Safety Authority) Part 145 approval.

The regional aircraft and narrowbody MRO specialist, a member of the AFI KLM E&M network, says it has extended its services to meet growing demands from its customer base. The company works on aircraft including the Embraer 170/190, BAe 146/Avro RJ, Fokker 70/100, Boeing 737 and Airbus A320 families.

This latest offering complements KLM UK’s existing portfolio at its base maintenance facility, it added.

Peter van der Horst, managing director, said: “We currently hold EASA Part 145, FAA and many other worldwide approvals and we are delighted to be adding CASA Part 145 to our extensive portfolio. We will continue to offer a competitive rate, high-quality product and short turnaround times to this new market.  We have a wealth of experience delivering heavy maintenance services and it will enable us to broaden our customer base to new regions.”

Services at its base at Norwich Airport include base maintenance, line maintenance, component sales, technical training and disassembly of the various aircraft types.

 

Brazil’s Embraer says that in flight and other tests for its E190-E2 and E195-E2, the aircraft type dubbed ‘The Profit Hunter’, is exceeding targets. LARA’s US correspondent, Kathryn B. Creedy, got a bird’s-eye view State-side before it flew the nest.

Embraer says the E190-E2 has added more than 200 nautical miles’ range on hot-and-high take-offs for important airports such as Denver, US as well as improving its short-field take-off capability for key airports like London City in the UK. The new short-field performance increases range by more than 100 nautical miles, says the company, while its E195-E2 range has been boosted by 150 nm to 2,600 nm.

These were two key messages that emerged from a pre-Paris Air Show media day held by Embraer as it celebrated the 20th anniversary of the E-Jet.

But Commercial Aviation CEO John Slattery also provided a great story for the debut of its newly painted E195-E2 that it showed off to journalists, and he teared up as he was telling it.

The company wanted to illustrate how it felt about the E2’s competitiveness and decided the face of an eagle was the perfect image for the aircraft it has dubbed ‘The Profit Hunter’. To get there, however, would have meant spending US$100,000 on a decal – a no-go for something called a profit hunter!

Turns out, however, there was someone closer to hand who could do it – and he worked in Embraer’s paint shop. “Yes, yes,” said Slattery, recalling the conversation when the worker volunteered. “We know, you work in the paint shop.”

“No, but I’m an artist,” said the 40-year-old man, who has never flown but will be introduced to the world in Paris. “I can do it for you.”

For 20 nights, from midnight to dawn, he and an assistant painted the aircraft – by hand – in preparation for its flying Paris premiere 19–21 June. The company has provided the video below highlighting their work (see below).

 

 

Slattery went on to give out solid statistics for the E-Jets family including an order book of 1,749 and deliveries to date of 1,317, leaving a healthy 450-unit backlog. But he also noted that the company enjoys a 61% market share as of March in the 70- to 130-seat jet segment. “The more important metric is not orders; it is deliveries,” Slattery said, adding that incumbent operator footprint is a better metric of market penetration because it speaks not only to a company’s future success but also of aircraft acceptance, which affects residual values.

Slattery also said the company is targeting low-fare carriers for growth with its narrow-body offering, calling the wisdom of a single-type fleet a fallacy and “complete nonsense”. His point is that ULCCs and LCCs must grow beyond the high-volume metro areas where they compete with mainlines.

“The opportunity for them to broaden their footprint with the E2 is enormous,” he said. “The economics speak for themselves. When an airline gets to a critical mass, they will need to expand their footprint and for that they will need smaller equipment. There are a lot of markets for that size of aircraft. I think it is limitless. These are markets they couldn’t reach before. The E-Jets are a profitable match to complement bigger aircraft such as the A320 and the B737. Matching the size of the aircraft to demand gives us a new paradigm as airlines migrate to larger aircraft they can complement them with a smaller, more efficient aircraft one that beats both the 737 and A320 in Skytrax reviews for customer experience.”

Right-sizing aircraft

He noted second and tertiary markets have higher yields as well as a need for right-sizing the aircraft. The smaller aircraft mean increased frequency, and could thus compete better in some of the markets now being served by other regional jets and turboprops. “This is about the cash flow generated by an aircraft,” he said. “Everyone focuses on return on invested capital (ROIC) and cost per available seat mile (CASM) but that is the wrong way to think about it. This is about right-sizing for the mission. It is about generating more profit to the bottom line.”

And he is hoping those words will resonate with more operators of older and smaller Boeing and Airbus equipment who are likely to shed more than 2400 aircraft. “With the new fuel economy and technology, those aircraft are rapidly becoming uncompetitive,” he said.

Indeed, he sees four roles for the E175 and E190/195s, including a natural evolution from smaller aircraft, the ability to offer premium seating in the US regional market, a bridge offering majors and LCCs additional flexibility with a smaller narrowbody and, finally, as a replacement for long-haul turboprops in 300 nm-plus segments. The company is also pushing the fact that it is a four-abreast configuration, eradicating middle seats.

In response to a question about JetBlue’s deliberations on the E190 and complaints the costs are higher than the Airbus A320, Slattery said he agreed. But, he added, what they don’t say is that the revenue per seat mile is 40% higher as well.

Comparisons

Of course, Slattery had to lay on the comparison charts between its small narrowbodies – the E190-E2 versus the Bombardier CS100, and the E195-E2 against the CS 300, B737 and the A319neo, which should provide interesting fodder for discussions along the chalet line.

He also noted the CRJ fuselage fits neatly inside that of the EJets. He, however, acknowledged that high crew costs accounted for the difference and if crew costs were equal there would be no difference.

The company has four aircraft in its E190-E2 flight test programme with an additional E195-E2 having joined the programme. A second E195 will join later this year. So far, they have logged more than 940 flight test hours and 2,160 ground test hours, and expect the E190-E2 certification in the first half of 2018. More than 53% of the programme has been completed.

The Paris crowds will be looking out for this eagle when it swoops in to land.

 

Aviation security, both in the air and on the ground, is a landscape changing rapidly due to a growing variety of threats including terrorism and cybercrime.

Because of this, the industry and those that work within it must continue to work to try and stay one step ahead. But, delegates at the European Regions Airline Association (ERA)’s regional airline conference were told, in some aspects it would almost be better to rip it all up and start again.

In a panel session discussing whether aviation security is the industry’s number one challenge faced today, Matthew Finn of security consultancy AUGMENTIQ focused on how prepared delegates and their businesses were for unexpected security threats. With 29 regional airlines represented amongst the record number of attendees this year (nearly 240), it’s a big issue.

Finn highlighted the industry’s “reactive culture” that has evolved over the last 40 or 50 years in response to incidents. “This characterises our response as an industry, because we’re always fighting last year’s war,” he said.

When it comes to aviation security, it’s not great. Let’s be really honest about that. If we didn’t have aviation security today, would we really design what currently exists? Or would we design something different and better? My belief is that we would design something different and better. The system we have in place today has just been patched together year after year, event after event, layered on, bolted on. It’s not holistic, it doesn’t incorporate the best of our assets, the best of our talents, and it certainly doesn’t do all the things you would expect it to do.

Matthew Finn, Managing Director, AUGMENTIQ

Finn went on to advocate that if the industry had the opportunity to start with a blank sheet of paper it would design something “much different and much better” than what it has today.

Rather than just equipment, however, he continued by stressing that culture was the single most important thing in an organisation, as it is where security thinking starts. “Security is rarely a board level issue. It’s often put to one side or they will talk about finances or targets or corporate mergers and acquisitions but they are not talking about security. And yet – if we’re honest – if there is a compromise of security, the business might be over and you might not have another opportunity to rethink.”

Another speaker, David Trembaczowski-Ryder, head of aviation security at ACI Europe, looked at airport security priorities in light of last year’s terrorist attacks on Brussels and Istanbul Ataturk airports. Trembaczowski-Ryder said the industry must stay one step ahead, rather than being mostly reactive as it is now. “Instead of always reacting to the last known threat, airports, with manufacturers and regulators, are looking to be more proactive and introduce future proof technology and processes that counter current known threats and as yet unknown threats,” he said.

Trembaczowski-Ryder went onto highlight the security considerations for smaller regional airports, especially related to EDS (Explosive Detection Systems) for hold baggage, and the potential – due to impending EU legislation – to have to upgrade their EDS Standard 2 machines by 2020 or possibly 2022 with Standard 3 machines.

“But with an EDS Standard 3 machine costing more than €1 million each, we estimate for the whole of Europe (some 500 airports) it would cost €10–15 billion to upgrade to EDS Standard 3 for whole baggage screening. That’s a nonsense for small airports, which shouldn’t have to do that. They should keep their EDS Standard 2 machines.”

ACI is pushing with industry partners to get the legislation changed so that the smaller regional airports don’t have to upgrade to the new kit.

Tim Grant of MedAir highlighted amongst many things the simple importance of local knowledge for individuals working in the aviation industry – the ability to do things like notice when something is different or out of the ordinary. “This is only possible when you know what the ordinary looks like,” he said.

The Day One proceedings had been kicked off earlier by Boet Kreiken, president of the ERA and MD of KLM Cityhopper. He highlighted Europe’s current turbulent times including the Brexit process and the UK’s triggering of Article 50, as well as various upcoming elections within several key European countries.

He reminded delegates: “To run an airline is not cheap, so we’d better fill it up with the right sectors, the right markets, the right frequencies and destinations. Using new distribution techniques and policies, and of course using the most efficient aircraft, engines and systems around. We have to be very vigilant in this difficult game of capacity and supply.”

Mark Thomas, LARA editor – ERA Regional Airline Conference, Copenhagen, Denmark.