IAG – The ego needs grounding

International Airlines Group, through British Airways, has a pivotal position at Heathrow so its statements on the vexed issue of a third runway need to be taken seriously.

It certainly does not help if, in the space of just a few weeks, the CEO threatens to leave Heathrow if landing charges are increased heavily to pay for a new runway and then threatens to leave if a decision on building the runway is delayed. However, the most worrying thing about Willie Walsh’s recent outburst is not what he said, but how he said it.

“If the government continues to dither over a new runway, then I’ll move my business elsewhere.”

The “I” in IAG stands for “International” not “Willie”. IAG belongs to its shareholders, not Mr Walsh.

Like a politician, a successful CEO has a limited lifespan. Too long in the job and they begin to think they are indestructible and somehow above the company they lead. The very best CEO’s know when to call time. If he were to leave, or depart upstairs, now he would be going on a high.

If IAG has any strong non-Executive directors, they should talk to Mr Walsh now and remind him firmly that he speaks on behalf of the company, not himself, and his public statements must reflect that. A gentle hint that he has been in the job for rather a long time might also be appropriate.


When not to buy an air ticket

How do you know when an airline is going to have a Sale? Actually, much of the time it is quite easy because airlines hold special promotions at fairly predictable times (Black Friday, after Christmas and so on). However, they do have quite frequent bursts of activity throughout the year and these can take you by surprise.

Sales are actually quite difficult for an airline to handle because they are offering a discount on something with no fixed price. Fares increase as seats are sold so a fare offered at a 20% discount during a Sale could still cost more than the same fare a week ago when fewer seats had been sold. That would not look good.

One technique used by some airlines and hotel chains is to gently edge up the base-price in the week before a special promotion. The price will still increase as sales are made but the starting price has been increased. Then, on the day the “Amazing Sale” is announced, the base-price is reduced again. Some of the fares will be genuine bargains but not all will have quite the amazing reductions claimed.

If you are looking to buy flights for next summer and have been checking up on fares periodically to see when they might reduce, you might notice a sudden slight increase in the week before Christmas. Unless there is just one flight to the destination you are looking at, there is no need to panic. Not many people buy tickets in the week before Christmas so airlines and hotel chains can do their own seasonal decorations on prices – before they suddenly reduce them on Boxing Day.

Heathrow or Gatwick? At least someone has made their mind up!

Garuda have become the latest of many airlines to move from Gatwick to Heathrow. There is a well-established pattern for foreign airlines to test the waters on the UK market at Gatwick and then, as soon as they can get slots, move to Heathrow. Better transport, a wider and wealthier catchment area and connections all over Europe and the rest of the world make Heathrow the aim for any airline flying to the UK.

Gatwick appears to work well for budget and leisure flights but that is it. Even the airlines who are succeeding at Gatwick at the moment, do not want a second runway because they fear they will have to pay for it.

The logic for a third runway at Heathrow is overwhelming but what would happen if the government took the easy option and decided in favour of Gatwick? No airline would willingly give up their position at Heathrow. Reduced charges at Gatwick probably would not tempt them either since they do not at the moment. If existing airlines at Gatwick were faced with higher charges to pay for the runway they might be forced to move all or some of their flights to Stansted or even Luton.

The pull of Heathrow is so strong that the only way to break it would be to close the airport completely. Clearly that s not going to happen.

Garuda know what they are doing – we must hope the government does too.


Would you sleep with Donald Trump?

Well, not actually with him, but in one of his hotels. Or would you buy an apartment in one of his modestly-named blocks or join one of his golf clubs?

Leona Helmsley was famous for her tyrannical behaviour but she used this reputation to suggest that standards at her hotels were higher than at those with less demanding owners. She was brought down by failure to pay tax, rather than her unpleasant personality.

Donald Trump has done much the same thing. To put it crudely, people have assumed that such a big-mouth who boasts of his high standards, must run some pretty good properties. The businesses have had plenty of ups and downs but appear to be fairly well-regarded. His move on to the main political stage could be dangerous though.

The US is divided roughly 50/50 between Democrats and Republicans. By coming out as an extreme Republican he has therefore put 50% of his home market against him. However, it is worse than that because many Republicans also find his views objectionable. If he loses the Republican nomination and goes on to stand as an independent, he could destroy the party’s chances completely. That would make him an enemy to most Republicans as well! If your brand is your name, and that name is loathed by 90% or more of your market, things could get tricky.

The Marriott family has always been careful to make it clear that their religion is a private matter and that business is business. People may regard Mormons as weird, scary or just harmless eccentrics but the Marriott chain has carefully distanced itself from the religion. Marriott was one of the first US companies to become actively “gay friendly” when many regarded the Church as quite the opposite. The sincerity of this posturing is open to doubt but it is likely that more people avoid Marriott hotels because of an aversion to their trademark vivid carpets than the religion of the founders.

Donald Trump has not made any attempt to separate business and politics. The profitability of a hotel depends on the last handful of rooms being sold every night. If these last few guests decided to stay away, things could get very tricky indeed. That could be much worse for Mr Trump than political defeat.

Stelios’ Greatest Hit

If you ever pick up a copy of The Stage you are bound to be see some small ads announcing that a famous comedy double-act of the 1990′s are looking forward to starring in pantomime in Crewe this winter or one of the big pop groups of the period thanking the staff at the Embassy Theatre in Skegness for their recent sell-out Sunday show. Readers of the financial press might have found the same sense of vaguely melancholic nostalgia in a series of ads run by Stelios.

“Twenty years ago Stelios created easyJet” trumpets the ad.

It then lists some of the other brands of the easy group including easyhotel, easybus, easygym, easyoffice, easyfoodstore and easymoney and asks any company interested in joining the success and licensing one of their brands to contact them.

Any entrepreneur who starts a multitude of new companies will have plenty of failures but, other than easyhotel and easybus, which are really very modest companies indeed, easyJet remains Stelios’ one and only big hit.

The ad boasts that Stelios remains the airline’s largest shareholder but that is hardly the whole story. He did a great job in getting the airline off the ground originally and was wise enough to employ some good people around him to get the nuts and bolts right. When it got to a certain size though, the company started to flounder and it has only really achieved genuine stability and growth since Stelios left. And since he left, he has been a loud critic of the management. There seems to have been a never-ending game of Stelios threatening that he would sell shares if the Board went ahead with some plans, the Board ignoring him, Stelios selling shares and the airline’s profits and share price increasing.

Maybe the easy brand has some huge new project up its sleeve that will once again propel it to stardom. Until then, I am pretty sure Stelios and his family can live very comfortably off the profits of his one big hit.

An Irish happy ending

When IAG first announced their interest in buying Aer Lingus we said this was a marriage made in heaven.

Aer Lingus had done well to put itself on a sounder base and was able to ride through the Irish economic troubles relatively unscathed. However, going forward, the airline was just too small to survive on its own. Furthermore, there were not many possible saviours around.

For IAG, Aer Lingus was attractive because of its base in Dublin and established routes to the US which will allow it to funnel traffic from Europe through Dublin, as well as take Irish passengers overseas via Madrid and Heathrow.

The Irish government could rid itself of a potential liability – and get some cash as well. And the staff of the airline would have a much more secure future in an airline group that is growing.

As we said at the time, it was just too good to happen. Something was bound to get in the way. Yet, one by one, the obstacles were overcome.

The unions might not have been hugely supportive (it is, after all, their job to look for any negatives) but they did not attempt to wreck the deal.

Irish politicians who could have been difficult about surrendering the Irish flag-carrier to foreigners (and partly British foreigners at that) were won over by the logic of the deal combined with the fear of what they would do with the airline if IAG walked away.

Finally, Ryanair, who had a large minority stake in the airline and could have proved very obstructive, gave in and agreed to sell their shares. They were even quite nice about it and wished Aer Lingus all the best in the future. Being Ryanair they could not resist a dig and commented that their original plan to buy Aer Lingus had been to give them a stake in the middle-market but since their “being nice” campaign had been so successful, they no longer felt they needed a more up-market brand. Of course, they have been able to cash in a holding for a good price and avoid the huge expense of further litigation. Even Ryanair can, on occasions, see when a fight is no longer worth the effort.

Business does not normally do happy endings but this genuinely seems like one where all parties win.

Staying put

Anyone on holiday at the Riu Bellevue Park Hotel in Sousse last week had a terrible experience. If they were lucky enough to escape with their lives, they would have been anxious to get out of Tunisia as quickly as possible. Those staying in nearby hotels must have had similar thoughts – get home as quickly as you can.

But is that wise?

On this occasion, the terrorists were either amateurs or maybe did not want to inflict the maximum possible damage, knowing they had already done enough to destroy Tunisia’s tourism business. Had they really wanted to cause carnage, a bomb or mass shooting at Sousse airport on Saturday would surely have done the trick. Even if security at the airport had been beefed up, with hundreds of people queuing desperately for flights out of the country, there would have been plenty of opportunity.

When a country is hit by terrorism, it is a completely understandable reaction to try to leave as quickly as possible. Terrorists know that and they know that airports are difficult to protect, particularly when they are struggling to cope with a huge influx of desperate travellers.

Staying put, at least until the dust settles, is often the safest option.

Will the magic work on TAP?

It takes a brave man to buy the troubled Portuguese airline, TAP. The government’s sale of 61% of the airline only attracted two viable bidders and a consortium led by the Brazilian-American, David Neeleman, won.

Mr Neeleman is an optimist, as he clearly needs to be in view of the challenges faced by TAP. The airline has all the problems of a traditional, small scheduled airline combined with the specific problems of Portugal, notably a bad economy and a truculent workforce. However, the airline is not without its selling-points. They have a unique network from Lisbon to almost every major city in Brazil. For many Brazilians, it is easier to fly to Europe with TAP and change in Lisbon than it is to risk the excitement of changing in Sao Paulo. As the owner and founder of Brazil’s Azul Airlines, he clearly hopes to build on this and link the two airlines to make TAP the dominant force between Brazil and Europe.

Passengers might currently choose to fly with TAP because it is more convenient or because it is cheaper but they will rarely choose to fly with them because they are nicer. TAP customer-facing staff tend to combine the traditional surliness of Southern Europeans working for a state institution with the reserved (or, some would say, rather miserable) nature of the Portuguese. Making money as a full-service carrier does not just depends on routes and prices. To get over that waver-thin dividing line between profit and loss, an airline has to ensure that enough people fly with them out of choice – simply because they are a good airline to fly with.

This is where Mr Neeleman comes in. He made his name as the original boss of jetBlue in the US. That airline became hugely popular with passengers because it brought high standards together with friendly customer service. Group hugs with the flight crew and cabin staff before flights were encouraged and staff were told to “have fun” flying. The happy working atmosphere rubbed off on passengers and jetBlue succeeded when most had expected it to fail.

Converting the sullen staff of TAP to this “have a nice day” culture will be difficult but we must hope it works. Europe needs its strong airlines to withstand the overseas competition. At least now they have a small chance.


Route News Stop Press

• AeroMexico is cancelling its Mexico City–Rio de Janeiro service on 21st June.

• Air China launches a thrice-weekly Beijing–Montreal service on 29th September.

• Austrian is coming back to Manchester with the launch of a daily service from Vienna on 10th September.

• Brussels Airlines is cancelling its service to Nairobi from 25th October.

• Copa Airlines is launching a daily Panama City–San Francisco service on 27th September.

• Emirates will introduce a daily Dubai–Bologna service on 3rd November.

• South African Airways will be replacing Dakar with Accra as intermediate stop on four of its seven weekly flights between Johannesburg and Washington Dulles from 1st August.

• TACV Cabo Verde Airlines will launch weekly services to Natal and Joao Pessoa this autumn.


Learning to fly

Young pilots get a pretty harsh deal nowadays. Instead of generous airlines paying to train them, they have to fund their own studies at pilot-schools that work jointly with airlines, who then recruit them on low salaries to fly with passengers whilst still undergoing some training. Some older pilots complain the new, more computer-based, training courses are not as effective as the old ways of learning by flying small aircraft, and they disapprove of a system that lets airlines get young pilots on the cheap. 

The system can lead to abuse and it is hard not to disapprove of some airlines that charge young pilots a fee for “employing” them to fly for their first thousand hours of commercial flying. Not all airlines are so bad though. It is worth having a look at www.theaviatorblog.com/blog – it’s written by James May, a new easyJet pilot. The blog has followed James through his student days and has now ended with his first posting to the easyJet base in Berlin. Unlike many such blogs, it is actually well-written and gives a very good view of the training given. Those First Officers might look worryingly fresh-faced but they do know what they are doing.