Cloudy ball gazing

I find it fascinating how the two major manufacturers occasionally come up with deviating opinions. A few months ago, Boeing revised their twenty-year forecast in a downward direction, reducing the number of newly delivered aircraft by 1%. If you think about it, this seems entirely plausible, given the severe impact of the current recession and the obvious fallout in terms of reductions in capacity.

However, Airbus is taking a different view. Their updated Global Market Forecast reveals a 3% increase in the numbers of aircraft expected to be delivered in the next twenty years. The reason for this characteristically upbeat message is that higher fuel prices will encourage airlines to bring forward their fleet replacement decisions in order to get the most efficient aircraft into operation at the earliest opportunity, and thereby reduce their fuel bills.

Now, that sounds all well and good. But fuel prices are impossible to predict with any accuracy whatsoever. We all feel that fuel price is going to rise, but by how much? One of the primary agencies forecasting fuel is the US Energy Information Administration, and their current forecast reveals that the price of oil per barrel could be anywhere between $50 and $200 by 2030. If future aircraft orders are indeed so closely linked to the price of oil, then predicting the number of aircraft deliveries in such a highly volatile situation is just not possible. You may as well just toss a coin.

It's a numbers game

I have yet to meet a forecaster who is prepared to admit that he got it wrong. Even the very best analysts can be wrong footed. The respected J P Morgan analyst Jamie Baker spoke of US airlines turning in a 2009 profit of $9.2bn back in January this year. Merrill Lynch were somewhat more pessimistic in calling a profit of a mere $2bn. Nine months later and Wall Street should be blushing a rich red. IATA is fond of reminding us of the doom and gloom in the industry, and is now talking of a global industry loss of $11bn for the year. Yes, it's easy to be wise after the event, but isn't it just a little worrying that our best economists failed to notice that the world was about to fall off the edge of a cliff?

Earlier this month UNCTAD (United Nations Conference on Trade and Development) predicted that global Gross Domestic Product would decline by 2.5% in 2009. To put that into perspective, that's another way of saying that the world will have lost economic activity equivalent to the size of India. Ouch.

We're in the wrong business, folks

The international firm of lawyers Norton Rose has quizzed 154 members of the aviation community around the globe about short-term prospects for the airline industry. The results confirm what we keep hearing from aviation pundits. Just over one half of the respondents believe that some sort of recovery will take root within the next 12 months, for example. However, the survey does throw up some worrisome opinions. A whopping 90% expect 'significant' deferrals or cancellations of aircraft orders until the end of 2010. And 58% of respondents consider that their organisations are ripe for some sort of cooperation or alliance agreement with a strategic partner in the next 12 to 18 months.

If you listen carefully, you may just be able to make out the unmistakeable sound of the smacking of lips. Well, no lawyer will deny that failure to execute a contract or structuring of partnership agreements are wonderful opportunities to make money when everyone else is hanging on by fingertips.

The fat of India

Spare a thought for India's airlines. They've had a hard time in the economic slowdown, with falling demand, excess capacity and increasingly angry employees.

Today, around 500 Jet Airways pilots called in sick to protest about the forced retirement of two pilots. Last year, in an effort to reduce a bloated work force and its costs, Jet Airways, which is India's largest private carrier, simply laid-off 1,900 cabin staff overnight - equivalent to 15% of the total staff. Within a day, there was a public outcry and even a threat from militants to prevent Jet Airways aircraft landing in Mumbai. Management backtracked and the staff were quickly reinstated.

But Air India did manage to dismiss 10 cabin crew last Christmas, for being overweight! They had been grounded the previous June for failing to meet the company's weight restrictions, but had been unable to slim down in order to keep their jobs.

And just the other week, 20,000 Air India staff staged a three-day hunger strike after the airline said it would delay the payment of wages.

Now let me get this straight. Jet Airways pilots are apparently all sick, and Air India's ground staff have been refusing to eat. So why was it so difficult for those 10 cabin crew to slim down?

Got to pick a pocket or two....

The long running spat between the US and EU over government subsidies to Boeing and Airbus looks ready to come to the boil yet again. Reports have emerged suggesting that the World Trade Organisation has informally declared Airbus as being the illegal recipient of billions of dollars of financial aid. The accusation is that preferential government loans amounted to an illegal subsidy. As a counterpunch, the WTO will doubtless be investigating Boeing subsidies. There is nothing particularly new in the accusations, which have been going on for many years. What makes the saga interesting is speculation on the possible dramatic effect on both Airbus and Boeing if money has to be repaid. Airbus is already unashamedly seeking European government aid to help launch the A350. I wonder whether the WTO has the temerity to impose sanctions that would have a material effect on the ability of the two major manufacturers to conduct their business?

On a smaller scale, a collection of current and former Airbus senior executives have been publicly named as having benefitted financially from the sale of shares immediately prior to the first announcement of A380 development delays. The final ruling on penalties is still some way off, but French investigators are recommending fines that run into millions of dollars.

"I can raise no money by vile means," said Shakespeare.

With A Little Help From My Friends

I had a delightful chat yesterday with Southwest Airlines' irrepressible specialist and spokesperson in charge of social media, Christi Day. In case you do not already know, Southwest is one of the few airlines (along with JetBlue and Virgin America) to have capitalised on the Twitter phenomenon. Southwest has over half a million followers and anything between four and six thousand new followers sign up every day. Christi told me that Southwest's customers are very receptive to this form of communication.

So why, may I humbly ask, does easyJet boast a total number of Twitter followers of around 1300? That represents 0.003% of annual passengers carried - a drop in the ocean. Don't get me wrong; the person in easyJet managing social media is certainly doing a great job, but it's hard to believe that US and European customers are so different in terms of how they would like to communicate with their airlines. The difference in the numbers does suggest that making social media work does not happen automatically and, listening to Christi, Southwest Airlines have dedicated the right amount of resources to make it work. Christi believes that it's all part of the new rhythm of life and that within five years, using social media like Facebook and Twitter will be second nature for all us. The message for airlines? Get cracking and jump on that bandwagon while you can. Having a social media strategy is fast becoming a competitive necessity.

Wheels that turn a full circle

Frontier Airlines is reportedly scrapping a barely two-year old A318. Yet, in the last week Airbus proudly announced the delivery of the 4000th A320 family member. The fanfare did not mention that a disappointing 68 of those 4000 aircraft are A318s, according to the Airbus website.

At least British Airways has not given up on the A318. The airline plans to launch a new A318 service from London City to New York on 29 September. BA has come up with a nice little marketing touch for the new service. They have decided to resurrect the old Concorde flight number "BA001". This sacrilege is the aviation equivalent of Britney Spears releasing "Yesterday" as a single.

There is one thing that British Airways will never be able to resurrect. And that, of course, is Concorde's speed. The A318 will chug its way over the Atlantic Ocean by way of a technical stop to take on fuel in Shannon. Plus ça change?

Will the train take the strain...?

The UK has a suspiciously pro-rail Secretary of State for Transport in the Cabinet. His name is Lord Adonis and he wants to spend ₤20 billion on a new high-speed rail line from London to Scotland. The good Lord is a kind of Lord Beeching in reverse, if you like. (For readers born after 1963, Beeching was the man who closed down large chunks of Britain's rail network). Some aviation pundits have said over the last week that a high speed rail line would be bad news for the nation's airlines. I disagree. They may whinge a bit, but secretly I suspect that they will be relieved to see the domestic travel market become rooted to the rails. The payback is that lots of domestic airport slots will be freed up for more lucrative long-haul services. This is what happened when the Channel Tunnel rail link opened up, leading to the collapse of the London to Paris air market. So why wouldn't the same thing happen again?

But rail projects of this magnitude can only succeed if their supporters, and critically, their financiers, are in it for the long haul. But, as we all know, political cycles are somewhat - shall we say - frequent. So, Lord Adonis ought to get his skates on and wrap everything up before an election throws him out of a job. I'd say he has until Christmas.

Requiem for SkyEurope

Today, SkyEurope, unable to pay its bills and saddled with significant debt, suspended all operations. How sad to see another airline bite the dust. Passengers are unlikely to receive compensation I would guess, given the depth of SkyEurope's financial difficulties. But the writing has been on the wall for most of 2009 and, despite attempts to restructure, the inevitable has happened. It is typical of our industry to see an airline cling onto the edge of the cliff in the vain hope that, by some magic, things will suddenly change.

SkyEurope suffered the ignominy of seeing large chunks of their fleet repossessed by the lessor, and were forced to seek bankruptcy protection earlier this year. Things went from bad to worse as the market ebbed away and the debts mounted. In fact, they never made a profit in their seven-year history. SkyEurope will nevertheless be remembered for some rather racy aircraft liveries and for being the first airline to announce that it would actually pay passengers to fly with them. Yes, a couple of years ago they actually offered 'negative fares' of about minus 44 cents; plus all the taxes of course! This tactic may have grabbed the headlines, but it did smack of desperation.