Routes News Magazine, Issue 6, 2014 by routesnewsmagazine

routesnews

The world air service development magazine

Profit plans: Virgin America Airline interviews: Delta, Czech & Thomas Cook Analysis: Airline partnerships Airports: Las Vegas, Detroit & Sydney Issue 6 Volume 9 2013 www.routesonline.com

Q&A: Airlines for America Exclusives: New aircraft; new travel patterns

Foreword

s the iconic sign says – welcome to fabulous Las Vegas – and to this, biggestever edition of Routes News. We have gone far and wide to bring you exclusive reports, analyses, insights and interviews for this special event issue. And what fun we have had in the process: from juggling Virgin America chief executive David Cush’s being called up for jury duty on the day of his interview; to scrambling around the Labor Day break to schedule in time with Delta’s Glen Hauenstein in Atlanta; and negotiating a number of time zones for OAG’s exclusive report (page 76) on how new-generation aircraft are changing our travel patterns. We simply could not have done it without today’s communication tools – how else could I have caught up with InterVISTAS’s Arik De for his in-depth piece (page 68) on the role of airline partnerships in route negotiations but on Skype – complete with the fizz and bang of Melbourne’s coffee machines on my side; and the toot-toot of Mumbai’s traffic on his end. The entire route development community is gathered here in one of America’s most famous destinations and our host, the Las Vegas Convention and Visitors Authority, is promising an entertainment-filled event, as well as the very best business and networking opportunities. Make the most of the next three days – with more than 100 chief executives and tourism ministers in attendance,

Editorial

Acting Editor Lucy Siebert +61 432 770 828 lucy.siebert@routes-news.com Deputy Editor Piers Evans +44 (0)208 831 7508 piers.evans@routes-news.com Group Editor Joe Bates +44 (0)208 831 7507 joe@aviationmedia.aero

Sales this is the event that delivers the highest-level networking, along with its highly successful Face-to-Face meetings formula. World Routes is also taking place in the US for the first time, so make sure you make time to catch up with the Brand USA team, as they continue their efforts in marketing the whole of the USA. Finally, a big thank you to the Routes News team in London for all their efforts in pulling this issue together. We are here in Vegas, so come past Stand S26 and say hello face-to-face – no Skype calls, emails, flights or diary juggling required.

Acting Editor Lucy Siebert

R™ is a registered Trade Mark of UBM Aviation Routes and is used under licence. © Copyright 2013. The content of this publication is the copyright of UBM Aviation Routes Ltd and shall not be copied or stored in digital format without the written permission of the Copyright holder. Content is correct at time of printing. UBM Aviation Routes shall not be liable for any errors or omissions contained herein.

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Advertising Manager Rebecca Randall +44 (0)208 831 7513 rebecca.randall@routes-news.com Sales Manager David McCauley +44 (0)208 831 7515 david.mccauley@routes-news.com

Production

Design, Layout & Production Andrew Montgomery andrew.montgomery@routes-news.com Elaine Harris elaine.harris@routes-news.com Mark Draper mark@aviationmedia.aero Erica Cooper erica@aviationmedia.aero Website Jose Cuenca jose@aviationmedia.aero

Publisher

Jonathan Lee +44 (0)208 831 7563 jonathan@aviationmedia.aero Published by Aviation Business Media Ltd Sovereign House, 26-30 London Road Twickenham, TW1 3RW, UK T: +44 (0)208 831 7500 F: +44 (0)208 831 7501 The opinions and views expressed in Routes News are those of the authors and do not necessarily reflect any policy or position of UBM Aviation Routes or Aviation Media.

ROUTES NEWS 6, 2013

Contents 23 27 32

31 3 Foreword 12

World news

Cargo news

On the move

Airline one2one

John Kirby, senior director, domestic & international planning, Southwest.

A route in focus

The growing expat Irish community is one of the key drivers behind Aer Lingus’ North American expansion, explains spokesman Declan Kearney.

27 A route in focus Cathay Pacific’s sales director, Eastern USA, Sebastien Granier, talks about the new Newark service, and why social media will be key to marketing the new route.

www.routesonline.com

40 29

Airport one2one

Maaike van der Windt, Brisbane Airport Corporation’s aviation business development manager Australasia.

Trading legal blows

American Airlines and US Airways Group face a tough court battle with the Department of Justice in November over their proposed merger, reports Piers Evans.

Profit planning

Virgin America is aiming to make its first ever annual profit, but an equity partner will not play a part in that plan, CEO David Cush, tells Gary Noakes.

Brighter times

Delta is enjoying a stronger financial position, has embarked on some major product updates and has Asian expansion plans. Nicole Nelson sat down with chief revenue officer Glen Hauenstein to find out more about his strategy.

ROUTES NEWS 6, 2013

Contents

High roller

Las Vegas is one of the most exciting destinations in the world – and its airport plays a key role in facilitating tourism to the city, its director Rosemary Vassiliadis tells Alex Hannaford.

Changed outlook

Czech Airlines has undergone a year of major change – its chief executive explains the focus is now on optimising the network and delivering a profit, reports Martin Rivers.

In it to win it

Ahead of Brazil hosting the world’s biggest sporting events, the country’s aviation sector is undergoing wide-ranging changes, including an airport privatisation programme.

Radical rethink

Thomas Cook has seen a major reshaping of its business, including a number of significant changes to its airline and route network, reports Gary Noakes.

www.routesonline.com

Power partnerships

Airline partnerships and special relationships should be at the heart of airports’ and destinations’ route analyses, writes Arik De.

Mating season

Airlines have been forming new partnerships at a record pace over the past year – Lucy Siebert takes a closer look.

Eyes on the east

Sydney Airport CEO, Kerrie Mather, speaks exclusively to Routes News about taking a collaborative approach to air service development – Lucy Siebert reports.

Widebodies and blurred lines

In an exclusive report, OAG’s Mark Clarkson looks at how new aircraft types and the rise of the Middle Eastern carriers are shaping global route development.

ROUTES NEWS 6, 2013

Contents

86 92

114

104

86 Network-wide

114

How are airlines absorbing B787 and A330 aircraft into their fleets and networks? Richard Evans takes a closer look.

Hubs continue to go from strength to strength in the US, writes Ron Kuhlmann.

Open doors

Myanmar is proving to be Asia’s hottest destination, and a raft of new airport and tourism developments are planned, writes Simon Lewis.

Sweet tweets

Central point

118

Everyone together now?

ASEAN states are scheduled to open their skies in 2015 – but major stumbling blocks remain, writes Simon Lewis.

122 Star performer

The aviation Twittersphere has been abuzz about the Routesonline #AvGeek100 campaign, aimed at finding the world’s most influential airline tweeters.

China is set to become the world’s biggest outbound travel market and will continue to grow strongly in the next 12 months – Lucy Siebert reports.

130

Being social

Routes News takes a look at the latest innovative ways airlines and airports are using social media.

104 American revolution With Puerto Rico’s main gateway successfully privatised and an increasing number of airports adopting new business models, are times finally changing in the US for airport ownership? Joe Bates investigates.

www.routesonline.com

Striking it rich

Mozambique’s economy is booming on the back of extensive gas discoveries – Max Marx investigates what it means for air services.

136

Pacific power player

The little island of Guam has big tourism and aviation ambitions, reports Peta Tomlinson.

ROUTES NEWS 6, 2013

Contents

140

154

140

159

In it for the long-haul

Istanbul’s Sabiha Gökçen is after long-haul routes to Africa, East Asia and the Americas, reports Piers Evans.

The central issue

Central American countries are keen to grow their slice of the European tourism pie, but more direct air services look to be a long way off, writes Mark Smulian.

144 The role of aircraft in regional route development 163

Eastern crossroads

Peter Donaldson looks at how next generation aircraft are pushing new developments in regional route development.

Poland’s newest airport, Lublin, opened at the start of this year – Stuart Bowden reports on how the gateway has fared so far.

150

166

Corporate strategy

How much clout do companies hold when it comes to route development negotiations? Adam Coulter investigates.

154

Driving change

169

Routes update View from the top

Nick Calio, president and CEO, Airlines for America (A4A).

With the City of Detroit focusing on getting its finances back on track, its airport is set to play an even more vital role as an economic driver, writes Chris Beanland.

The HUB, your weekly, central source of information for everything related to Routes and Routesonline, is delivered to your inbox every Friday. It includes event updates, airline and airport profiles and news and analysis. Sign up to receive The HUB at www.routesonline.com/register/

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ROUTES NEWS 6, 2013

World news AIR INDIA MULLS DIRECT FLIGHTS TO AUSTRALIA Air India may fly direct to Melbourne and Sydney within months, if demand for its new triangular route proves to be strong. The new daily service, operated with a Dreamliner, links Delhi with both Sydney and Melbourne. The airline’s joint managing director, Syed Nasir Ali, said the new services had been met with “overwhelming” response. “As traffic grows, I hope that there will be a dedicated plane between Melbourne and Delhi. I am sure it will come.” Melbourne Airport’s chief executive Chris Woodruff said Melbourne and Sydney could each get a dedicated flight within months of the launch.

“I was originally talking to Air India a few years ago about a direct Delhi– Melbourne service and the numbers stack up, but I can understand Air India wants to mitigate the start-up risks by spreading it between the two big cities,” he told Routes News. “I think what will happen very soon though is that the demand from Melbourne will very quickly outstrip the demand from Sydney that they are going to have to delink them.” Woodruff’s comments echo those of Sydney Airport CEO, Kerrie Mather, who told Routes News that demand from Sydney for flights to India is already able to support a daily direct service.

Melbourne CEO, Chris Woodruff, hopes for a direct Delhi service soon.

EasyJet is extending its summer route map by debuting Gatwick–Bucharest, Manchester–Venice, Liverpool–Larnaca and Stansted–Sofia from March 30. Cath Lynn, group commercial director, said the airline sees Bucharest as a key “cultural hub” alongside its beach favourites.

ROUTES NEWS 6, 2013

Asia Atlantic Airlines has launched at Bangkok with flights to Tokyo Narita and Osaka operated by leased B767s. This comes as an easing in Japan’s visa restrictions is expected to trigger a surge in tourism from Thailand. The airline is a joint venture between Thailand’s Baiyoke hotel chain and Japan’s HIS Group.

NORWEGIAN’S LONG-HAUL ROLL OUT REACHES CALIFORNIA Norwegian’s network will soon include flights from Oslo to Los Angeles, San Francisco and Orlando. The new B787 services are due to operate from spring, following this summer’s launch of Dreamliner flights from Oslo to New York (JFK) and Bangkok. In November, the no-frills carrier will launch flights from Oslo, Stockholm and Copenhagen to Fort Lauderdale, Florida. After linking Oslo with Los Angeles, San Francisco and Orlando, Norwegian aims to also link those same destinations with Copenhagen and Stockholm. Norwegian CEO Bjorn Kjos forecast high demand for cheaper transatlantic flights. “There has been a fantastic reception of our long-haul routes to New York, Bangkok and Fort Lauderdale, so far. The cabin factor on our long-distance flights has been as much as 96% in the second quarter.” “The largest traffic flows currently run between Europe and the US,” he added. In addition to its long-haul expansion, Norwegian also has a record 222 narrowbody aircraft on order in a deal split between Boeing and Airbus.

Beijing Airport and Dublin’s DAA have partnered to share operational information and jointly pitch for routes between Beijing and Dublin. A single visa for the UK and Ireland is being piloted this year in an attempt to boost tourism from China.

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News CHENGDU British Airways, United and Qatar are among the foreign airlines now flying there.

CAMBRIDGE AIRPORT QATAR’S LATEST CHINA LINK Qatar Airways now flies to six cities in China, following its launch of services to Chengdu. Airline CEO Akbar Al Baker said: “With the launch of our sixth gateway to China, Qatar Airways has progressively developed our operations and business in the Asia-Pacific region”. “Chengdu is a thriving economic and tourism powerhouse, and we look forward to bringing more passengers from and to Chengdu, helping to further boost leisure and business travel in China.”

TOURISM OUTPACES 2013 FORECASTS International tourism outstripped forecasts in the first half of this year with a 5% rise, according to the UNWTO. The organisation had forecast the industry would grow between 3% and 4% in the first six months of the year, but tourist numbers grew faster to hit nearly 500 million. According to the UNWTO World Tourism Barometer, 494 million people made overnight trips during the first half of the year, up 25 million on the same period in 2012. Emerging economies led growth, notching up a 6% increase, compared with 4% in advanced economies. “The fact that international tourism grew above expectations confirms that travelling is now part of consumer patterns for an increasing number of

people in both emerging and advanced economies,” said UNWTO’s secretarygeneral, Taleb Rifai. Europe outperformed forecasts with a 5% uptrend, with Central and Eastern Europe up 10% and Southern and Mediterranean Europe up 6%. Meanwhile, Asia and the Pacific climbed 6%, with South East Asia up 12% and South Asia up 7%. But the Americas slipped below predictions by gaining only 2%, which the UNWTO attributed to a flat performance in South America and the Caribbean. North Africa continued to recover with 4% growth, while sub-Saharan destinations grew by 4%. Meanwhile, in the Middle East international arrivals leaped 13%, based on initial figures.

New flights with Darwin Airline to Amsterdam, Geneva, Milan and Paris.

LOT Hopes a shrinking network will mean better financial figures.

DUBAI WORLD CENTRAL Poised to open with Wizz and nasair flights.

TAKE OFF, NOT LEGAL WRANGLING American Airlines and US Airways to face Department for Justice over proposed merger.

FREIGHTER SALES Boeing figures hit post-2009 low in July.

JAKARTA AIRPORT Runway limit delays Garuda’s Gatwick service launch.

RYANAIR Surprise profit warning after summer heatwave.

United Airlines has applied to the US DOT to fly from San Francisco to Chengdu next June. Chengdu, the capital of Sichuan and fourth biggest city in China, has welcomed a flurry of new international carriers, including Qatar and British Airways. United aims to operate the route thrice-weekly with a B787.

www.routesonline.com

Emirates will fly to Taoyuan Airport in Taiwan from February with six flights a week operated by B777-300ER. The Dubai-based carrier has operated a cargo service to Taipei for 10 years and now aims to boost business and tourism with the flight, said Barry Brown, Emirates’ SVP commercial operations east.

ROUTES NEWS 6, 2013

News SWEDEN WELCOMES EMIRATES Emirates has touched down in Stockholm with new daily flights from Dubai. The route, operated by a B777-200LR aircraft in a three-class configuration, is a new direct route between Scandinavia and the UAE. “Stockholm is an important centre for business, industry and services in Scandinavia, with an average annual GDP growth of 3.5% forecast for the coming years,” said Emirates’ divisional senior vice president commercial operations, West, Hubert Frach. Left: Ewa Björling, Sweden’s Minister of Trade, along with Hubert Frach, Emirates’ divisional senior vice president commercial operations west, and Torborg Chetkovich, president and group CEO, Swedavia, celebrate the launch of Dubai–Stockholm.

QANTAS IN IMPROVING FINANCIAL HEALTH Qantas is back in the black, six months after inaugurating its partnership with Emirates. Qantas posted a net profit after tax of $5 million for the 2012/13 financial year after a loss of $245 million the year before. The airline warned conditions remain “challenging” and said it would continue to focus on its Asian network as it works to return its international business to financial health. While the international outlook remains challenging for the airline, it is early days for its new agreement with Emirates, and its domestic business continues to perform robustly. Separately, Qantas revealed it would launch a new seasonal route between Perth and Auckland, as well as upgrade one return Sydney–

Hong Kong flight to an A380, and up frequency to daily between Brisbane and Los Angeles. The airline said it would offer the new twice-weekly Perth–Auckland service between early December and the end of January, operating an A330 on the route. Meanwhile, it will up capacity to Hong Kong by placing an A380 on an additional rotation between Sydney and the Asian powerhouse. This will mean it operates A380s on five weekly return services to Hong Kong. This aircraft move on the Hong Kong route will allow it to increase frequency on Brisbane–Los Angeles to daily. In addition, Qantas will retime its Sydney–Christchurch service to connect with more international services at the Australian hub.

Istanbul Atatürk Airport is now linked with Chicago’s O’Hare and Midway airports under a ‘sister airports’ deal between the General Directorate of State Airports Authority of Turkey and Chicago’s Department of Aviation. The airports aim to explore business opportunities and share expertise.

All Nippon Airlines (ANA) has taken a 49% stake in Asian Wings Airways, the first foreign carrier to invest in an airline in Myanmar. Having invested $25 million, ANA is also aiming to improve AWA’s operational and on-time performance and support its overseas expansion.

www.routesonline.com

SWEET SMELL OF SUCCESS? ANA is rebranding its low-cost arm Vanilla Air, after its joint venture with AirAsia was dissolved. The Japanese carrier said Vanilla Air would from December ply leisure routes with two aircraft to popular resorts in the region. Despite a mature air travel market and a high propensity to travel, Japan has one of the lowest penetrations of low-cost carriers in the world. “We will begin with short-distance service, but want to expand the range to mid and long distances in line with ANA’s branding strategy,” said the airline’s president, Tomonori Ishii. AirAsia Japan, which was equally controlled by AirAsia and ANA, booked an operating loss of about 3.5 billion yen ($40 million) for the year to March.

Icelandair will fly four times a week between Reykjavik and Edmonton in Canada from March next year. The B757 flights will cater for an Icelandic diaspora in Alberta and are expected to help to drive tourism to Iceland, which has focused on the sector after its 2008 financial crash.

ROUTES NEWS 6, 2013

News SOUTHWEST BOSS AMONG WORLD ROUTES ATTENDEES

ETIHAD GIVES BACK IN YEMEN Etihad marked its new four-times weekly service to Sana’a, the capital of Yemen, by distributing 1,000 bags filled with stationery and school supplies to children at the Al Khair Public School and Um Habiba School, in collaboration with the UAE Red Crescent. Sana’a is serviced with a A320 aircraft. According to Etihad, more than 90,000 Yemeni nationals live in the UAE.

SOMALILAND OVERHAULS ITS AIRPORTS Somaliland, an autonomous region in Somalia, is revamping its air facilities as it attempts to attract new air services. Egal Airport at Hargeisa, the capital of the aspiring sovereign state, reopened in August after an overhaul backed by the Kuwait Fund. The gateway welcomed an Ethiopian Airlines B737 on September 1, the largest aircraft to touch down at the airport. Ahmed Dalal Farah, director general of the Ministry of Civil Aviation and Air Transport, said Somaliland had received interest from carriers about opening new links including from Kenya, Yemen, South Africa and the UAE. The Hargeisa runway is to be extended by a further 1.6km, while Berbera Airport, the region’s second international airport, is due to be revamped with a new terminal, along with improved screening and baggage handling.

Delta Air Lines wants slots at Tokyo’s Haneda Airport, claiming Japan is unfairly keeping foreign carriers at Narita. CEO Richard Anderson told a press conference in Tokyo that Japan is “engaging in protectionism”. Delta is after 25 slots at Haneda, which is being expanded.

www.routesonline.com

Mango, the low-cost subsidary of South African Airways, has launched its first scheduled international flight, with B737-800 services between Johannesburg and Zanzibar (ZNZ). The route started in September with a weekly flight, but an additional weekly service is expected by year-end.

Southwest chief operating officer, Bob Jordan, will be among the high-level speaker line-up at this year’s World Route Development Forum. Jordan, who will speak at the Strategy Summit, will be joined at World Routes by a record 100 tourism ministers and CEOs from the world’s airlines and airports. The World Routes Conference Programme includes the World Routes Strategy Summit, The World Tourism Summit, Invest & Manage Airports, Routes Talks and Route Exchange Airline Briefings. Confirmed speakers across the events include: Christoph Mueller, CEO of Aer Lingus; Estuardo Ortiz, CCO & executive VP of Avianca; Christopher Thompson, president and CEO of Brand USA; Roger Dow, CEO of the US Travel Association; Stephen Attenborough, commercial director of Virgin Galactic; and Lee McCabe, global head of travel, Facebook. Steve Sisolak, chair of the Board of County Commissioners for Clark County, Nevada, said World Routes would also be an opportunity for the region to show its attractions to decision-makers in the aviation sector.

British Airways is set to open the only direct flight between London and Austin. The carrier plans to operate a Dreamliner on the route between Heathrow and Austin Bergstrom from early March. The B787 aircraft is expected to appeal to travellers from high-tech industries in Texas’s Silicon Hills.

ROUTES NEWS 6, 2013

Cargo news ETHIOPIAN OPENS WEST AFRICAN CARGO HUB Ethiopian Cargo has opened a second cargo hub in Africa in Lomé, Togo, in partnership with ASKY Airlines. The new cargo hub started operations in September after the phase-in of a B737-400F. Having had a passenger operation at Lomé for three years, Ethiopian and ASKY are expanding to transport high-value and perishable goods to and from West and Central Africa. Tewolde Gebremariam, Ethiopian’s CEO, said the carrier was expanding its cargo network to make air cargo accessible to more African countries. “Africa is a large continent in land mass, economy and population and multiple hubs with multiple African airline partnerships are essential to ensure global standard air transport,” he said. “Over the last three years, in line with our Vision 2025 multiple hub strategy in Africa, we have successfully established a second passenger network hub in Lomé, in partnership with ASKY to better serve the West Africa community. We are now extending this successful partnership to the cargo business.” Ethiopian Cargo claims to be the largest cargo operator in Africa, flying to 25 cargo destinations globally with six freighters.

IAG CARGO KEEPS IT CONSTANT IAG Cargo has extended its constant climate network with five new stations in Latin America at: El Dorado, Bogota; Juan Santamaría, Costa Rica; Tocumen International, Panama; Simon Bolivar International, Venezuela; and La Aurora, Guatemala.

National Air Cargo has relocated its headquarters and airline offices from Willow Run Airport in Michigan to Orlando in Florida. In its freight operations, the group’s carrier National Airlines flies two B747-400s. Glen Joerger, the carrier’s president, said a switch from DC-8s to larger aircraft meant the carrier no longer needed offices near a runway.

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Boeing registered 13 freighter sales in July, its lowest tally since 2009. The order drought could reflect the world’s shrinking air cargo fleet, down 14% from a pre-recession peak according to the Air Cargo Management Group. Boeing sees the month’s poor figure as a blip and forecasts sales of 850 new freighters over the next two decades.

NEW CARGO CONNECTIONS FOR LIBYA Chapman Freeborn Airchartering is partnering with Air Libya to fly cargo in Libya with an Antonov An-26 freighter. Based at Tripoli’s Mitiga International Airport (MJI), the An-26 is now available for ad hoc charter flights within Libya or to the EU and North Africa. Chapman Freeborn aims to start scheduled services connecting Tripoli and Benghazi with Libya’s more remote locations, including oil fields in the south of the country. The An-26 offers a 5.5-ton payload and is suited to short and unpaved runways, said the charter specialist. Paul Drew, Chapman Freeborn’s project manager, said the service has been welcomed due to Libya’s limited options in air and sea freight. “Freight forwarders and energy industry clients will benefit from this co-operation, which offers professional, reliable services between the country’s key hubs and more remote locations,” he said.

Lufthansa Cargo has opted to sell two of its oldest 18 MD-11Fs as it starts to take delivery of an order for five B777Fs finalised in May 2011. The airline had earlier left open the possibility of using the new freighters to expand its fleet. Two B777Fs are slated to join Lufthansa Cargo’s fleet this autumn.

ROUTES NEWS 6, 2013

ON THE MOVE

John Weatherill (above) has joined WestJet as director, network and schedule planning. He was previously with InterVISTAS, where he worked for 13 years, most recently as executive vice president, route development. Cathay Pacific has seen change at the top, with chief executive John Slosar succeeding Christopher Pratt as chairman of the airline in March 2014. Slosar will also take over as chairman of John Swire & Sons (H.K.) Ltd, Swire Pacific Ltd, Swire Properties Ltd and Hong Kong Aircraft Engineering Co. Ltd, while current chief operating officer Ivan Chu will become chief executive. Pratt is retiring. Luciano Nunes has been appointed director of InterVISTAS’s new office in São Paulo. He has recently been working for Odebrecht Transport, analysing revenue opportunities at Brazilian airports. Kim Aguirre has been promoted to director of aviation at Mineta San José International Airport, taking over from Bill Sherry, who retired on September 27. Aguirre had previously overseen airport management and operations as deputy director of aviation. H McIntyre Gardner has been elected chairman at Spirit Airlines with the resignation of William Franke, who left along with Indigo principal John Wilson.

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Malcolm Johns (above) has been appointed CEO of Christchurch Airport from the start of 2014. Johns is chief executive of InterCity Group and deputy chair of Tourism New Zealand. Jim Boult announced in May that he would step down as airport CEO at the end of this year. Eduardo Iglesias has been appointed executive director of the Latin American and Caribbean Air Transport Association (ALTA), replacing Alex de Gunten. Iglesias has a wealth of aviation experience, having most recently served as legal vice president of Avianca. Pansy Ho has been appointed chairman of Jetstar Hong Kong, which is aiming to start services by the end of the year. Jeremy Moore has been appointed new business development manager at Cambridge International Airport. Moore has worked for the last seven years as sales manager at Air Mauritius.

Mike Medeiros (above) is heading Delta’s Seattle operations as the airline’s first vice president for Seattle. He moves to the role from the position of VP for global human resources and talent development. Denis Ilin has been appointed executive president of Russia’s AirBridgeCargo Airlines (ABC). He moves from Basic Element, a financial and industrial group where he was head of aviation. Andreas Deistler is now director marketing & business development for Fraport at King Abdulaziz International Airport in Jeddah, replacing David Field. Cardiff Airport has promoted Spencer Birns to director of aviation business development. He joined the airport in 2006 as head of aviation relations, having previously worked at Manchester Airport and for the tour operator My Travel.

AirAsia India has appointed Amit Singh as director of flight operations. Singh previously had senior positions at Air India, IndiGo and Scoot Air.

Massimo Marsili has been appointed chief commercial officer of Italian carrier Alitalia. He moves from the role of CEO and president of car rental company Avis Southern region.

Vueling’s CEO, Alex Cruz, has taken on the role of chairman as the carrier reorganises after its de-listing. The airline’s ex-chairman, Josep Piqué, is expected to maintain a close relationship with his replacement.

Dr Stefan Schulte is set to serve for an additional five years as the CEO of the Fraport Group, which has extended his contract until August 2019. He has led the airport group since September 2009.

ROUTES NEWS 6, 2013

What have been the most exciting recent developments at Southwest? Two growth stories stand out for me: AirTran’s international footprint is more than 30% larger since the closing of the acquisition in May 2011. And our work is well under way to develop an international terminal at Houston Hobby in 2015. Each of these developments inform continued international expansion for us once all service is transitioned to Southwest. We’ve also increased our network access to slot-restricted airports. We have added new service to Ronald Reagan Washington National (DCA) and La Guardia (LGA) from many of our key network cities, including Austin Bergstrom (AUS), Nashville International (BNA), Denver (DEN), Houston (HOU) and Lambert–St Louis (STL).

You are making a significant investment at Houston Hobby Airport – what is your strategy for the airport? Hobby is a long-term success story for Southwest Airlines. We’ve continued to invest domestically there with new routes to Boston, Ronald Reagan Washington National and LaGuardia. Geographically and demographically it is the perfect place for an international gateway to Mexico and Latin America.

Baltimore has been tipped as a future airport for international expansion for Southwest – can you tell us more? I can’t say too much other than we’ve been pleased with the results of our current international service in Baltimore, and see opportunities for future expansion. Baltimore/Washington International Thurgood Marshall Airport (BWI) is a convenient gateway for much of the

www.routesonline.com

How did you first get into aviation? I took a job at People Express Airlines in September 1983 when I was still in college, and got hooked.

Why do you enjoy working in route development?

NAME:

John Kirby

JOB TITLE: Senior director, domestic

& international planning, Southwest HOMETOWN: Kearny, RESIDENCE: Dallas,

New Jersey

Texas

Baltimore/Washington area, as well as the large population north of the airfield between Philadelphia and Baltimore.

How important is Las Vegas to Southwest? It is clearly one of our key cities, evidenced by only Midway (MDW) having more daily departures in our network. It is also one of the airports where we have invested in scheduling a significant number of our new 737-800s. The icing on the cake is the terrific partnership we enjoy with the airport and the Las Vegas Convention and Visitors Authority.

Has the competitive landscape eased somewhat in the US? This is a classic yes and no dynamic. Competition is alive and well, but it is more rational than in the past. Many challenges in the past decade were related to bankruptcy and higher, more volatile fuel prices. Some of those factors have become a constant and this has led to more pragmatic and fiscally responsible approaches to competition.

I think it is the strategy and completion element that is unique to network planning. There are so many factors that go into a successful service launch, or a corrective action plan. For planners, there is no greater joy than identifying a route opportunity, and seeing it come to successful fruition.

What was your experience of transitioning from AirTran to Southwest? The Southwest Family made it easy on me. The Culture here is legendary, and believe me, it is real and at the core of our success. I was warmly accepted here from day one, and I guess I’m doing a good job since my responsibility has increased twice since I joined the company!

Who do you most admire in the aviation business? I’ve been fortunate to work with so many industry leaders during my 30-year career. If I had to pick one, it would be Bob Fornaro, former CEO and president of AirTran Airways, with whom I’ve had the pleasure of working for 20 of the last 24 years at three major airlines (Northwest Airlines, US Airways and AirTran). Bob is always a tremendous source of business and airline industry knowledge. He taught me many things – how to not always consider just the obvious, and how to approach challenges from multiple perspectives.

ROUTES NEWS 6, 2013

A route

IN F

CUS

North America

The growing expat Irish community is one of the key drivers behind Aer Lingus’ North American expansion, says spokesman Declan Kearney. Why are you expanding your North American network in 2014? We’ve had considerable success in growing our transatlantic business in recent years. Most recently, we increased our 2013 summer capacity by 15% and saw passenger numbers grow more than that during the summer. Despite the relatively poor economic conditions in Ireland, demand has been growing for transatlantic travel. A number of factors have contributed to this: firstly, with the help of The Gathering tourism initiative by the Irish government, visitor numbers to Ireland are significantly up, with a large proportion coming from the US and Canada. Secondly, with recent emigration from Ireland, there has been significant movement of people between the two continents. Thirdly, we previously focused on point-to-point traffic, but over the past three years we have significantly grown the number of connections at Dublin, as Ireland is ideally located between North America and continental Europe to function as a connecting hub.

Why did you choose Toronto as your first Canadian city? It’s a big market and the links between Ireland and Toronto are significant. Toronto is the fifth largest city in North America and the Dublin–Toronto O&D market was the sixth largest Ireland to North American market in 2012, with almost 120,000 passengers. Nearly 26,000 Irish nationals emigrated to Canada in 2012, in addition to 24,000

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in 2011. The trend is set to continue, with over 10,000 Canadian visas being issued to Irish nationals in 2014. Some 60% of the Irish emigrant community has settled in Toronto, while the remainder is spread across Vancouver, Montreal, Ottawa, Calgary, Edmonton and Alberta. The 2011 Canadian census reported that 4.5 million people living in Canada claimed Irish ancestry, representing 14% of the total population.

What sort of connecting opportunities will there be at Toronto? Our interline partner will be announced soon and we aim to provide connections to eight key Canadian cities: Vancouver, Montreal, Saint Johns, Halifax, Edmonton, Calgary, Ottawa and Winnipeg.

Why have you decided to reintroduce San Francisco? This route has strong demand from business customers on a point-to-point basis. Trade between the Silicon Valley tech industry and Ireland is at an all-time high. A large number of the major US high-tech and pharma companies have their European headquarters in Ireland. Companies such as Apple, Google, Facebook, Intel, LinkedIn, Twitter and Yahoo have many executives who are frequent fliers between the two cities. Despite the high levels of time-sensitive, high yield demand, it will not be sufficient to fill an A330, but we’ve built a connecting network at Dublin in recent years and

the ability to sell the US West Coast to a combination of Irish, UK and European customers is key to our decision to return to the route. We also provide onward connectivity in the US via our partners and we intend to provide further connectivity from San Francisco to Phoenix, LA, San Diego, Las Vegas, Salt Lake City and Seattle.

What sort of impact on tourism to Ireland do you expect the new routes to have? For the 2013 summer, we increased our capacity on our transatlantic services by 15% and added to our network of connections within the US. For the latest statistical period March– May, overall visits to Ireland were up 8% year on year, while visits from North American residents are up by nearly 13%. Clearly, the provision of extra Aer Lingus capacity has had a significantly positive impact on Irish tourism and we expect our new routes to deliver further tourism benefits.

What sort of response have you had from Irish tour operators about the new routes? The response has been extremely positive and a number of key operators are looking at developing new tours for 2014 with San Francisco as a starting point. California offers an abundance of attractions for tours. There’s skiing at Lake Tahoe, the Californian wineries, Yosemite and the Sierra Nevadas, not to mention attractions further south such as Disneyland and Hollywood.

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A route

IN F

CUS

Newark

Cathay Pacific’s sales director, Eastern USA, Sebastien Granier, talks about the new Newark service, and why social media will be key to marketing the new route. How will the new Newark route fit in with your existing services to JFK? It will allow us to cover New York City from both major international airports, offering tremendous convenience and schedule flexibility.

Who is the Newark flight aimed at, compared with the JFK service? Business travellers make up a large portion of our NYC-area travellers, so we expect that to stay consistent, and there is also a great deal of leisure travel with many people from Asian communities returning home to visit family and friends. As a three-class cabin (business, premium economy and economy), we expect a good mix of business and leisure travel. We expect passengers to originate from New Jersey, as well as corporations in Philadelphia, Pennsylvania and the west side of Manhattan. Newark is also easily accessed from Wall Street and Chinatown.

How does Newark fit into the rest of your US network? Newark is a great complement to our existing four gateways (San Francisco, Los Angeles, Chicago and New York– JFK) and will allow Cathay Pacific to further expand on the East Coast. It is really an expansion of Cathay Pacific’s existing JFK services. We have an established reputation for service, product, and connections across Asia. In order to grow further in the New York area, we had to go across the Hudson River – there was a large market we

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weren’t tapping in New Jersey and Philadelphia. It’s about convenience and giving NYC-area residents more opportunities to fly with us.

What sort of demand is Cathay currently seeing for flights between Hong Kong and China and the US? There is strong demand. Finance, high-end retail, luxury goods and manufacturing industries are all fuelling demand.

What connecting opportunities will passengers have at Newark with your partners? There will be connectivity with our oneworld partner, American Airlines, as well as interline partner, JetBlue, but we expect that most passengers will be from the local area.

How important is Dragonair feed for your trans-Pacific services? Dragonair is a very important part of the strategy. With an early morning arrival into Hong Kong (6am), the Newark flight offers excellent connections to Cathay and Dragonair flights across Asia. Using HKIA as connecting hub and the extensive and growing network of Dragonair will ensure the success of Cathay Pacific from Newark to beyond HKG destinations.

What role will cargo play in the Newark route? Cargo is always an important part of the equation. New Jersey and Pennsylvania

have a lot of pharmaceutical corporations for example, and these would be ideal clients for the new route.

How did you use social media in the run-up to the Newark route announcement? Social media played – and will continue to play – a big role in the Newark route announcement. In the days leading up to the announcement, we used Facebook as a vehicle to build buzz by playing a game of “guess the US city” that we would be announcing. We asked the public to hashtag their response #CXnewroute for a chance to win a Cathay Pacific model airplane. It generated a great deal of interest and speculation over a 48-hour period. We expect to rely heavily on social media as an effective means of communicating our Newark launch news – from fare sales, to sharing photos and information about this new route.

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What are the latest additions to the Brisbane network? Domestically, Virgin Australia added Moranbah, Bundaberg and Mount Isa in FY13. Internationally, Hawaiian Airlines added Honolulu at the end of 2012. In 2013, Fiji Airways made its first scheduled A330 flight to Australia into Brisbane. Philippine Airlines commenced Manila–Darwin–Brisbane services. Qantas increased frequency of its Hong Kong service, and will increase to daily Los Angeles later this year. Malaysia Airlines increased its services to Kuala Lumpur to daily. More recently, Garuda Indonesia launched a daily Denpasar (Bali) service.

What are the recent changes to the route network team structure at Brisbane? Two new roles have been established, with Ben James being appointed to the aviation business development manager international role, and I was appointed to the aviation business development manager Australasia role. Splitting the regions allows us to focus equally on our domestic and international partners within specified areas. Andrew Brodie heads up our team in the newly created position of general manager, airline and commercial businesses.

What is the make-up of Brisbane’s domestic route network? We have 42 domestic destinations that are served by eight domestic carriers; 25 of our domestic destinations are intrastate. Five of our top 10 city pairs are intrastate routes within Queensland (in terms of passengers). Qantas (including Qantas Link and Jetstar) and Virgin Australia (including Tiger) groups

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Internationally, we don’t have any LCCs, but we are working closely with a few low-cost airlines to look for opportunities.

How significant is China Southern’s daily seasonal service?

NAME: Maaike van der Windt COMPANY: Brisbane Airport Corporation JOB TITLE: Aviation business development manager Australasia HOMETOWN: Amsterdam, Holland

dominate the Brisbane domestic market and other domestic carriers have a combined share of less than 1%.

How have the recent changes in the Australian airline landscape affected your domestic network? Tigerair’s presence at Brisbane is less than before it was grounded; but we are confident it will grow its presence here in the future. Virgin Australia has added six new destinations in the past two years and QantasLink has benefited from Queensland’s ‘mining boom’ and has grown significantly in the past couple of years.

What role do low-cost carriers play at the airport? Both Jetstar and Tigerair operate out of Brisbane’s Domestic Terminal.

China Southern has been servicing Brisbane for three years from Guangzhou. The new daily services will provide greater choice and convenience for passengers. China is now the third biggest inbound market to Brisbane, with over 200,000 passengers a year, and this is growing rapidly, at nearly 20% last year.

Which international routes are you particularly keen to see launched? We would love to add Shanghai, Tokyo, Vietnam, Jakarta, Manila and Vancouver.

How long have you worked at Brisbane Airport? I have been with Brisbane Airport Corporation for over five years. Previously, I worked as business performance manager within the Strategic Planning group and was responsible for capacity planning of key airport assets as well as overseeing the airport’s market research programme and Business Intelligence team. Before coming to Brisbane, I worked for Amsterdam Schiphol.

If you didn’t work in aviation, what else would you be doing? I would love to work in the wine industry. I went to the wine academy in Holland and studied wines for two years.

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Trading legal blows American Airlines and US Airways Group face a tough court battle with the Department of Justice in November over their proposed merger, reports Piers Evans.

ll eyes will be on the US airline industry on November 25 when American Airlines and US Airways get their day in court with the Department of Justice (DOJ). The airlines had been pushing for a pre-Christmas trial date after the DOJ, along with a number of states, made a complaint about their proposed $11 billion merger. The DOJ is concerned the tie-up between two of the biggest airlines in the country will negatively impact competition in the marketplace and increase airfares. The November date is earlier than the DOJ was hoping for, and legal teams on both sides will be scrambling to prepare for what could be one of the biggest trials relating to aviation in the country. In an August statement, the airlines said: “We are confident in our case and eager to get to court. We are pleased to have a trial date that will enable us to resolve this litigation in a reasonable time frame.” Justice Department spokesman Peter Carr said in a statement: “We appreciate the court’s careful consideration of the scheduling issues and will be ready to present our case.” While the airlines will be buoyed by the November date hearing, anti-trust experts have warned they are facing a tough fight.

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Jonathan Lewis, an anti-trust lawyer based in Washington, told Routes News the government could be holding the aces. “The government is suing to block the transaction, and that is what they want as a result in the case,” he said. The DOJ has produced a technical analysis that shows an impact on 1,034 routes as a result of the merger, and has also quoted comments from airline executives. “It’s going to be difficult for executives at the two companies to walk away from their words – this is going to be a very difficult complaint,” said Lewis. He said American Airlines and US Airways Group are likely to try to show there is sufficient competition in the mature US market that would ensure they cannot dominate markets. “One thing the airlines will likely attempt to show is that the smaller players have been nipping at their heels, and are likely to step up to prevent fare hikes,” Lewis said. “They will be looking for examples where they attempted to raise fares, or fees, but couldn’t because of the smaller players.” Jeremy Robinson, head of competition law at Kennedys Aviation, forecasts “an interesting battle”. In his view, the case will hinge on whether the merger would substantially

IN NUMBERS AMERICAN ê 273 domestic and international destinations ê 51 countries/territories served ê Total daily departures: more than 3,500 HUBS ê Chicago O’Hare ê Dallas/Fort Worth ê John F Kennedy ê Los Angeles ê Miami US AIRWAYS ê2 06 domestic and international destinations ê 32 countries/territories served êT otal daily departures: more than 3,000 HUBS ê Charlotte Douglas ê Philadelphia ê Phoenix Sky Harbor ê Ronald Reagan Washington

lessen competition for commercial air travel throughout the US. “I expect the carriers will try to show that the threat of entry to defeat anticompetitive behaviour is very high, and that the merger would give rise to specific efficiencies from which US consumers would benefit,” he told Routes News.

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Profit planning Virgin America is aiming to make its first ever annual profit, but an equity partner will not play a part in that plan, CEO David Cush, tells Gary Noakes.

efore David Cush left American Airlines, he could spot fellow employees flying on staff business quite easily – they were the only ones in first class wearing suits and ties. Things are a little more relaxed there now, but more so at his current employer, Virgin America, where the dress code is distinctly more casual. Cush’s own mindset, after six years with Virgin, is probably more optimistic too, as the airline is on course to make its first annual profit since it was established in 2007. Cush’s optimism as chief executive is buoyed by the airline’s first ever second quarter net profit of $8.8 million in April, May and June, compared with a year-on-year loss of $31.7 million in 2012. One quarter’s profit does not always signal a full year in the black, but Cush lists a 7.5% operating margin, a strong summer and good forward bookings from business travellers as reasons for his confidence and even talks of an IPO in the next few years. “Our expectation is that we will have our first net profit in this year,” he says, although, naturally, he adds the standard airline boss caveat that “lots of things can impact that”. He is unabashed by the airline’s financial performance so far, pointing to its rapid route opening rate and its fleet expansion, both of which are now in an enforced hiatus. “A lot of the reason we have not made a profit is the rapid growth we have gone through, but people have proven that they are willing to pay for the quality of our airline, so we generate a

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revenue premium to the rest of the industry. Our problem has been that we had 30% to 50% of our energy in markets that were not mature.” The airline’s extended start-up has prompted the current period of consolidation and some negotiations with investors, including the financing of $150 million of debt in 2011. In May this year, another $290 million of debt was eliminated in return for future stock purchasing rights and an additional $75 million raised. He is sanguine despite these apparent setbacks, however. “We are in an uncharacteristic growth low.

Convincing investors of the soundness of this model will hinge more on the bottom line than the theory. Cush’s hope is for a public offering if the ink stays black. “We have plenty of liquidity. We are still looking at the second quarter next year or some point in 2015.” However, he concedes: “We have to get a very clear path to say that this will be a consistently profitable airline in the future.” Taking the airline public will enable easier aircraft financing, he believes. The company is keen on a diverse shareholding – its main 75% stake is held by VAI Partners, a consortium of

We are allowing the network to mature, that’s why we are swinging from loss to profit. Very simply, by not taking any aircraft, we are not starting any new routes We are allowing the network to mature, that’s why we are swinging from loss to profit. Very simply, by not taking any aircraft, we are not starting any new routes,” he says, forecasting that growth will be at a more manageable 8% a year, not the previous 35%. “That will offset the losses caused by going into new markets.”

US-based investors with four partners, while the Virgin Group holds the remainder. Despite this, Cush bluntly dismisses the notion of attracting an outside investor, including Abu Dhabi’s Etihad, which owns a 19.9% stake in Virgin Australia. “I don’t see us having a strategic investor at this time,” he states.

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Virgin America

Atlanta as places that the airline “will eventually have to go to”, but says he is comfortable with Virgin’s offering to the business traveller as it is. “We are in eight of the top 10 business markets from Los Angeles and seven of the top 10 from San Francisco. I am quite satisfied with the way the network looks now.”

Corporate customers

Network consolidation As for the expansion hiatus, Cush says there is still a “reasonable chance” that one or two new cities will be introduced to the network in 2014. He adds that his demands from prospective airports are “modest”. “We don’t do beauty contests, we decide usually on a shortlist of maybe two. Usually we get co-operative marketing and landing fee forgiveness for 12 months.” Before any airport operators think of making overtures, it is worth illustrating just how far Virgin America has been reined in. It has a fleet of 53 Airbus A320s but took just one new aircraft

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early this year and there will be no others in 2013. Contrast that with the 2010–2012 period, when it took 24 new aircraft, almost doubling its fleet size. A second phase order was cut from 30 to 10, with five A320s being delivered in 2015 and another five in 2016. An order for 30 A320neos has also been deferred to 2020. Cush adds, however, that he will lease aircraft in the intervening period if needed. The pause in aircraft deliveries means any new routes in the immediate future would mean diverting capacity from existing services. If there is any expansion, he names Houston and

Like all start-up airlines, Virgin America at first got most of its revenue from leisure passengers, but Cush says business travellers now make up “a little over 50%” of revenue. “It’s a big swing from where we were when we started. Our first couple of years were probably closer to 80% leisure.” The onboard product has doubtless been a big enticement to corporate budgets that will stretch to it, but others, notably American Airlines and JetBlue, are investing again, for example putting flat beds in first class on transcontinental fleets, meaning that Virgin’s USP is slowly being eroded. Cush’s retort is that it is continually reinvesting, with further undisclosed innovations next year, which is likely to mean that it will also fit beds in the premium cabin. Virgin has already spent several million dollars on upgraded Wi-Fi throughout the fleet in September. Cush believes he has shown other carriers “a different path to price-only” and says rivals are “only adapting to Virgin’s environment.” Price will still remain king for some consumers, however, and sometimes Cush has to fight on it just like any other airline, particularly on new routes. “When we went into Newark, the average fare dropped by 30%, partially our doing, but particularly the competitive response – United went

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Virgin has been able to leverage its brand in the market to attract business travellers who appreciate its high-tech touches and service offering.

from eight a day to 16. It was a throwback to the old airline playbook.” His business model is his secret weapon, he insists. “Newark is already profitable for us because our costs are so much lower than United’s.” He goes on to explain how Virgin has essentially taken the Southwest Airlines model – a single fleet type, non-unionised workforce and point-to-point flying – and, unlike Southwest, easyJet and others, invested some of the savings in the onboard product and landing fees at prime airports. “The additional money we spend on things like food and IFE is a really small amount of the overall expenses,” he claims.

Industry consolidation Nevertheless, he has to contend with the resurgent legacy carriers that are now in profit and with the threat of the

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American Airlines/US Airways merger on the horizon, should it be permitted. As American’s former senior vice president, global sales, he will not be drawn on the specifics of the tie-up between his ex-employer and US Airways, but backs the Department of Justice intervention in the proposed deal. Virgin has been the victim of the competitive structure that has been allowed to prevail, he adds. “We see that every day in the market.” He believes the regulators have had second thoughts about permitting previous mergers. “You can’t turn back time. I think their view is that this [American Airlines and US Airways] will contribute to the thing they see as being already wrong, i.e. this is more of the same and, yes, maybe we should not have allowed it.” Despite this view, Cush does not see the legacy carriers as being too much of

a threat to him in the domestic market, pointing out that their focus is on international routes, unlike Virgin’s. “I’m not sure we are going to see a lot of expansion within the US, with the exception of the low-costs like JetBlue, Spirit and Allegiant.” He adds that despite the territory marking on Virgin’s new routes by incumbents “the days of having six to eight airlines all chasing each other in market share wars seem to be behind us”. Instead, he believes the industry is learning to respond in more constructive ways when it is earning money, like investing in product and returning money to shareholders. There is, however, usually a spanner in the works, often of the industry’s own making to contend with, as any veteran like Cush will tell you. He jokes: “We have always found a way to screw it up. We will have to see if it happens this time.”

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A LAND LIKE NO OTHER Strengthening and enhancing relationships and partnerships across the travel and aviation industry is a key focus for Brand USA as it continues to roll out its brand campaign in its major global markets.

ollowing a landmark year that saw Brand USA, the first co-operative destination marketing organisation for the entire United States, roll out its brand campaign in some of its biggest markets, the organisation is striding ahead with its expansion in key global markets. This will create a presence for Brand USA in markets that represent 93% of inbound travel to the USA, while also strengthening partnerships and relationships across the industry, including those in aviation. For the first time, the USA has a single dedicated organisation promoting inbound travel, and with the vast majority of visitors to the US arriving by airplane, aviation is a key part of Brand USA’s efforts. Brand USA has a major presence at World Routes, as official tourism sponsor of the event. In addition, Alfredo Gonzalez has been appointed senior vice president global partnership development, and Air

Team USA has been created. This is aimed at strengthening and broadening relationships between Brand USA and the aviation industry. This year at World Routes, Brand USA will be hosting a ‘destination lounge’, where airlines, airports or destinations that are attending the event for the first time can seek advice, support and guidance ahead of their meetings. In addition to its major presence at World Routes, Brand USA is continuing to develop innovative marketing programmes across a series of platforms that build on its series of inititiatives during the past year.

USA live entertainment Consumer-focused sports and entertainment sponsorships and partnerships leverage USA outbound travel providers from around the world to expand their USA product offerings by utilising iconic USA brands and entertainment experiences. These feature

the best in class theatrical productions, concerts and professional sports.

NFL: Announced during the kick-off of the 2013 football season, Brand USA has partnered as the official travel and tourism sponsor of the NFL, promoting travel to the USA at NFL-sponsored events in the UK, Germany and Canada.

Cirque du Soleil: Unveiled at the US Travel Association’s IPW, this innovative partnership leverages Cirque du Soleil’s creative assets, along with its loyal customer following, to generate excitement among international visitors about travelling to the USA. World Baseball Classic: Through this tournament, Brand USA received broadcast, social media, event and in-stadium marketing opportunities. The tournament featured the world’s best players, representing 16 countries and territories during 39 games played in Japan, Taiwan, Puerto Rico and the United States during March. Fifty percent of the participating teams are from countries that are in top-tier inbound markets. ESPN: This partnership allows Brand USA to deliver advertising and special interest content to sports fans across the UK and Europe via broadcast sponsorship and on respective proprietary websites, ESPNAmerica.com

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GLOBAL REACH Brand USA works within 18 pre-assigned global regions, encompassing 40 countries. In total, travel from these countries makes up 93% of inbound traffic to the United States.

Sponsored statement INTERNATIONAL REPRESENTATION: ermany & Austria: Brandmasters G UK & Ireland: Black Diamond South Korea & Japan: Avia Reps Coming Soon: Latin America, Canada & France China: Avia Reps Taiwan & Hong Kong: Connect Worldwide India: Sartha Marketing Australia & New Zealand: Gate 7

and DiscoverAmerica.com. The content profiles sports and tourism in all 50 states – with interactive features on the sites to engage consumers from these markets and inspire travel to the United States.

USA Discovery Program: This online learning tool for the travel trade in the United Kingdom and Ireland was launched to inspire and train travel agents and tour operators to “sell this land like never before”. There are now plans to roll this out to other global markets, with the tool aiming to: •G row the user’s knowledge of the USA as a holiday destination •R einvigorate the user to sell more holidays to the USA • P rovide a social platform for the user to learn about the USA • I ncrease the pool of USA travel agent specialists via accreditation • P rovide a platform for USA-based partners to present to UK/Irish sales staff •R ekindle tour operator and agent passion to promote travel to the USA •D irect the user to current agent campaigns and trade with opportunities • P rovide the travel trade opportunities to receive accreditation on both regional/ geography as well as holiday experiences.

www.thebrandusa.com

Extreme Frontiers: USA Brand USA partnered with the popular UK television series to feature extreme adventures across the United States. • T he crew travelled 8,000 miles across 20 states for eight weeks • T he series is scheduled to air in late 2013 in four one-hour TV segments on Channel 5 • A nticipated viewership to reach more than 100 million globally.

STA Travel The organisation signed a global deal with STA Travel worth $4 million over the next two years. This includes: • A digital campaign that was launched in July 2013 and is driven across a number of social media and digital platforms on college campuses and throughout STA •G lobal retail stores: Three participants from the UK, Northern and Central Europe, Asia, Australasia and/or South Africa will qualify to win a road trip to the USA.

• A dedicated youth marketing campaign was launched – a first for Brand USA.

MegaFam This was the largest travel familiarisation trip ever launched in the USA. Plans are afoot to host similar trips for the travel trade from markets where Brand USA has international representation. • T he first familiarisation trip was held in May this year, with 100 travel agents from Ireland and the United Kingdom participating in seven simultaneous itineraries (on the West Coast/ California, the Pacific Northwest, the West, the Upper Midwest, the Southeast/Texas and the Northeast) • T his is the largest simultaneous/ multiple itinerary familiarisation tour ever launched in the USA • T he MegaFam was promoted through Brand USA’s media partnership with TTG •B ookings through British Airways Holidays have increased 24% to date as a result of the promotions leading up to the MegaFam.

What is Brand USA? Brand USA plays a unique role as the United States’ first co-operative destination marketing organisation. It focuses on delivering programmes and platforms that increase awareness and enhance the image of the USA among worldwide travellers in order to influence intent to travel to the United States.

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TEAM EFFORT The aviation industry is central to Brand USA’s mandate, explains Alfredo Gonzalez, senior vice president global partnership development. How does Brand USA work with airlines and airports?

What are Brand USA’s key projects?

Brand USA is working with the aviation community through co-operative partnerships that are developed to increase seat sales and ultimately visitation to the US. Through these co-operative partnerships, Brand USA works directly with domestic and international airports as well as local tourism authorities to maximise airline efficiency for flights to and from the USA. Brand USA has also become the official tourism partner for Routes 2013 – providing a platform for Brand USA to meet directly with airports and airlines to discuss routes to new destinations.

Brand USA’s primary focus is the expansion of our global representation network and enhancing our coverage within the 18 pre-assigned global regions that cover 40 countries. Airlines are key components in being able to connect these new units with the United States and Brand USA is working to identify key opportunities to develop mutually beneficial partnerships.

Why has Brand USA thrown its weight behind World Routes this year, including being the lead sponsor for the Tourism Summit? I’ve attended Routes events since 2002 and recognise the importance of

THE TOURISM SUMMIT Brand USA is lead sponsor for the inaugural World Tourism Summit at World Routes 2013, held in partnership with the Pacific Asia Travel Association (PATA), the International Coalition of Tourism Partners (ICTP) and TTG on October 6–8. Brand USA’s president and CEO, Christopher Thompson (left), will be speaking on Monday October 7 at 09:00, ‘Brand USA: Programs, Partnerships and Progress’, and participating in the panel discussion titled ‘The Golden Triangle – Tourism, Airports & Airlines’ on Sunday October 6 at 16:30.

aviation and airlines and their importance in growing inbound international visitation through airline route development. This year at World Routes, Brand USA will showcase the incredible diversity this country has to offer and the relevance of the airports to the communities they serve.

What role does tourism play in the USA economy? Tourism is the United States’ number one services export. In fact, in 2012 the United States welcomed 67 million international visitors, spending $168 billion and supporting 1.8 million jobs (directly and indirectly). In addition, tourism represents 2.8% of GDP;

Highlights The USA’s tourism marketing arm is promising delegates at World Routes an unforgettable time in Las Vegas. Brand USA is sponsoring lunch on Monday October 7 in the Networking Village, where delegates can make new contacts.

Find out more: www.thebrandusa.com 38

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Sponsored statement What support can Brand USA offer to airlines looking at new routes and markets?

$129 billion in federal, state and local tax revenue; $2 trillion in travel and tourism total sales; and $855.4 billion direct plus $1.1 trillion through other industries. The industry also supports jobs across the nation, with 14.6 million jobs being supported by travel (one in eight); 7.7 million direct plus 6.9 million in other industries; and it is in the top 10 employers in 48 states and DC.

With the exception of our border countries Mexico and Canada, all international travellers to the US fly, making aviation a key component in the nation’s strategic development. Brand USA’s new initiative, Air Team USA, was created to allow US suppliers to reach the airline industry through co-operative partnerships. Brand USA’s Air Team USA develops co-operative opportunities to engage our tour operators, travel agents and consumers with programmes that increase seat sales and ultimately visitation to the USA. It also works directly with domestic and international airports and local tourism authorities to maximise airline efficiency for flights to

and from the USA. Under the Air Team USA banner, US suppliers have the opportunity to participate in international aviation events like World Route Development Forum, which may have otherwise been cost-prohibitive.

What are some recent successes you have had in supporting new airline routes to the USA? We have made significant progress on a number of fronts, including Norwegian Airlines announcing service to New York from Scandinavia in 2014. Talks are ongoing with United about routes to hub cities in the US from Asia and we have started talking with Australian carrier Qantas and also Hawaiian about new flights for the New Zealand and Australian markets. Plus, we are working with TAME Ecuadorian Airlines for new service from Quito, Ecuador to JFK in New York.

THE TEAM AT WORLD ROUTES • Alfredo Gonzalez, senior vice president, global partnership development. Alfredo is charged with expanding Brand USA’s international representation network and travel trade outreach, as well as developing co-operative partnership programmes with international trade and media partners.

• Carroll Rheem, vice president, research & analytics, leads Brand USA’s intelligence function, which serves as the foundation for global marketing strategy, as well as the company’s performance metrics.

www.thebrandusa.com

• Tiffany Waddell, national sales manager, is responsible for developing and maintaining relationships with assigned Brand USA partners and overseeing the execution and maintenance of all related partnership commitments and contributions to ensure the seamless execution and maintenance of programme partnerships. • Karyn Gruenberg, vice president partnerships programs, establishes strategic alliances with leading organisations that benefit from the power of travel by creating strong partnerships and meaningful, value-driven programmes that generate growth and drive business results.

VISIT US

Brand USA has a Hosted Networking Stand at World Routes located at Booth 10. Come past and learn first-hand about the endless possibilities available through the nation’s destination marketing organisation.

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Brighter times Delta is enjoying a stronger financial position, has embarked on some major product updates and has Asian expansion plans. Nicole Nelson sat down with chief revenue officer Glen Hauenstein to find out more about his strategy.

s the newly appointed chief revenue officer of Delta Air Lines, Glen Hauenstein has been depicted as personable, funny, gregarious and eccentric in a good way – all character traits which have, in addition to being brilliantly cerebral, elevated him through the ranks of a number of airlines’ executive suites over the course of his career. Hauenstein could also be described as modest and mannerly from his perch overlooking the Delta-dominant airfield operations at Hartsfield-Jackson International in the spacious Atlanta headquarters office he has occupied

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since 2005. With responsibilities that include network planning, revenue management and marketing, Hauenstein’s leadership has brought Delta improved revenue performance that has outpaced the industry, as well as a profitable global network. When called by his colleagues as the “mastermind” of Delta’s recent series of strategic network partnerships and mergers, Hauenstein immediately deferred to his “great team”. But after a moment’s hesitation, he changed his mind and accepted the respectful praise. “I’ll take credit, thanks,” Hauenstein says. “My mother always says when

somebody gives you a compliment, just say thank you.” The New Jersey native may find himself attracting more compliments, as he is in a prime position to receive kudos for a number of transactions that include June’s acquisition of a 49% minority stake in Virgin Atlantic. The deal marks “one of the last lynchpins we had to solve,” according to Hauenstein. It is also the next step towards a full joint venture between the two carriers and an enhanced foothold for Delta in the European market. Historically, two US airlines had designations to fly to Heathrow, starting

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with Pan Am and TWA – routes that were later acquired by American and United. When Open Skies was finally granted between the US and the UK in 2008, Delta was no longer prohibited from flying to the coveted UK airport, although a capacity issue remained (and still does) at one of the most heavily slot-controlled airports in the world. “While we appreciated the government’s opening up of the skies, we were faced with the dilemma of having a far inferior portfolio of slots – zero to start with,” Hauenstein says, recalling the airline’s mission to embark on a process to acquire slots. In addition to leasing several long-term slots from SkyTeam partners Air France and KLM, Delta acquired under-utilised slots on temporary loan from other carriers. However, Delta was still coming up short in its efforts at Heathrow. “Heathrow represents 35% of the entire US–Europe market, and we weren’t satisfied with the level of service that we were able to achieve on our own,” Hauenstein says. “Our desire to be competitive – and, in some cases, superior to our competitors at United and American – did not reside in a self-help option. So, we looked into other options to enhance our positions in Heathrow, and it became obvious to us that one thing that we could do was to work with Virgin Atlantic to produce what we think would be a superior product in the US–UK marketplace.”

Product alignment While the coming together of the two airlines has many benefits, commentators have questioned the disparity between the carriers’ product offerings. However, Hauenstein says that when Delta’s entire widebody fleet

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It became obvious to us that one thing that we could do was to work with Virgin Atlantic to produce what we think would be a superior product in the US–UK marketplace upgrade is finished in summer 2014, the new Delta product will stand up to any global competitor. “We think our product stands, surveys indicate that we are far above the competitive setting in the category of Virgin in terms of business,” Hauenstein says. “I think that this is a great marriage.” Hauenstein says the level of customer service that Delta and Virgin Atlantic are committed to providing is doled out with different slants. “We do it with more of an American spin, and they do it with a more British spin, with different flares, different

highlights and different lowlights,” Hauenstein says. “Versus the primary competitors in the marketplace, I think we both beat them hands down.” In the initial phase of the deal, one of the key things Delta has focused on is providing an adequate service pattern between New York and Heathrow, which is the largest trans-Atlantic business market by a factor of two to three. Delta’s previous tally of three flights a day made it difficult for it to compete with British Airways and American’s combined up to 13 daily flights on the JFK to Heathrow routing. By combining schedules and

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Delta

working with its partners to provide separation in that schedule, Delta can now provide seven daily flights from JFK to Heathrow, and he claims its service offering is superior to competitors. “We have a better product because we have a competitive schedule and because we are the largest carrier in New York City,” Hauenstein says, noting that Delta’s Big Apple operations are roughly twice the size of American’s. “Our goal is to have ‘one-stop shopping’ in New York, and have the best of everything: the best services to Asia, the best services to Europe through our friends at KLM, the best services to London through Virgin, the best services to interior points in Brazil through our partnership at GOL, the best access to Mexico through our partnership with Air Mexico, and the best domestic network, by far, between LaGuardia and Kennedy.” Hauenstein is banking on Delta’s augmented New York offerings – including the recent $160 million renovation and expansion of its facilities at LaGuardia and a $1.2 billion enhancement and expansion of Delta’s Terminal 4 facilities at JFK – to generate a preferred carrier status throughout the region. The historic expansion at LaGuardia alone added 100 flights and 30 new destinations to the Delta line-up. “Our whole New York strategy is to be able to offer a comprehensive offering, so that you don’t need to go outside our network unless you want to,” Hauenstein says. “It is always about consumer choice, so the two things you have to do is to have the scope and the depth, and then have the product on top of that. We have worked very hard on the scope and the depth, and now we have been working very hard in the last couple of years on

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Glen Hauenstein joined Delta in August 2005 where he has overseen the transformation of its network from primarily a domestic one to one with major international reach. Since he joined the airline, it has added more than 70 destinations to its worldwide network, including the first non-stop service to Africa by a US carrier for nearly 20 years. Before joining Delta he was vice general director-chief commercial officer and chief operating officer of Alitalia from 2003–2005. He has also held senior positions at Continental.

elevating the product. I think by all research we’re making great progress. “We need to keep going and we have a lot of great new projects on the boards for 2013 and beyond, but if you look at any kind of key metrics, we are leading the three major US airlines in terms of how customers perceive us,” he adds.

Global network strength These perceptions don’t stop Stateside, with Hauenstein claiming key positioning in markets abroad. From his Atlanta office, he casually mentions he was in São Paulo the previous week meeting with strategic partner GOL Linhas Aéreas Inteligentes. Delta’s codeshare agreement with GOL is designed to offer a US–Brazil network that is unrivalled by any other US flag carrier. “GOL is a great carrier with an incredibly extensive domestic route network,” Hauenstein says. We are now going to fly to a lot of the secondary and tertiary cities in Latin America that have

large, growing populations and larger growing economic presence. We will be partnering with them to continue to expand our presence in Latin America. If we were to say what are our two most important geographies, it is going to be South America and Asia, particularly China and Brazil.” Hauenstein says Delta sees the future in China with more than one billion people and the world’s secondlargest economy. “We have some really great strategic partners in China, and having two of the three major carriers in China as partners is a huge advantage,” Hauenstein says. Routes have also been recently established on roads less travelled, with Delta stepping up as the first major US airline to operate non-stop service between the United States and Africa since Pan Am suspended flights in the 1980s. “We were very pleased to be the first carrier in 20 years to re-enter non-stop service from the US to the African continent,” Hauenstein says, noting Delta is approaching its seventh year of serving Johannesburg, South Africa, and Accra, Ghana, from its Atlanta and JFK hubs respectively. “We think Africa is another continent that holds a lot of promise, and although the base is quite small relative to the other geographies, it is growing at a relatively rapid pace. We are proud to be the number one US carrier to Africa, and we’ll continue to look for opportunities to expand our services there.”

In the black The cumulative effect of all of the above is an airline that is in the black, with strong results compared with the not too distant past. In 2013, Delta posted its

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Reasonable growth rates and delivering shareholder value are now front and centre for Delta, says Hauenstein.

best first-quarter profit in more than a decade and revenue rose 1% to $8.5 billion. “Relative to ourselves, we’re doing better, but relative to what we need to achieve to be a stable industry, we’re just scratching the surface,” Hauenstein cautions. “US airlines have been through a very difficult time, and all through restructuring we really weren’t able to invest in what we needed to invest in – the products and services that customers want from us. We’re starting to get to where we need to be, but as an industry we have a way to go to return our cost to capital, and to return capital to shareholders. We’re high-fiving each other on some of the thinnest margins of any business in the world.” Although paper-thin margins are nothing new to the industry, Hauenstein says there has to be a paradigm change. “In order to be sustainable, there has to be a new norm, or else we’ll just wind up in the same cycle,” Hauenstein says. “I think that industry consolidation is one of the key drivers of that.” Delta is no stranger to consolidation, with trickle-down effects from the 2008 Northwest acquisition still ongoing. “Mergers are never easy,” Hauenstein says. “Airlines are service companies – we are providers of transportation, but

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we are also technology companies, and sophisticated technology at that, so integrating those technologies is difficult during any merger.” He adds that the most recent adjustment in a long line of modifications was the September de-hubbing of Memphis, the south eastern port in the former Northwest network. “The size, scale, scope and the product advantages of Atlanta, with bigger airplanes, and more frequency, kept people flying over Atlanta, versus Memphis, so it made no sense for us to keep continuing to provide all that connectivity in a hub that was a higher cost production and a lower quality of service,” Hauenstein says. “Towns or cities may think we are being punitive to them, but really in the end, airlines get in trouble when they don’t respond to their consumers, and they thrive when they do.” Which brings us to capacity. “We are starting our capacity planning from a very different perspective from what we did years ago,” Hauenstein says. “When we look at the relationship to GDP, we look not only at the domestic, but by region and by country, and we try not to get out too far ahead or too far behind what we think those forecasts are going to be.”

Hauenstein says the most recent manifestation would be in Europe, where there has been an economic recession for several years, yet airline profits in the continent have held up nicely. “We can’t be blind to what is going on in the world, and say we want to grow in Europe, when the economies are receding. We have to follow where the money is, and again that goes back to understanding our customers’ needs and providing what they’re willing to pay us for, not trying to get out front and grab market share, or destroy shareholder value. We are very focused on shareholder value, and we’re very focused on growing at a reasonable rate, that is commensurate with where economies are growing.” With what he calls a “marriage made in heaven” between Delta and Virgin Atlantic, Hauenstein’s recent coup is expected to be a boost on both sides of the pond. “Around 90% of the business traffic that is going from the US to the UK is going to Heathrow,” Hauenstein says. “You think about the Virgin brand, the Virgin distribution in the UK, and you tie that with the Delta brand in the United States, and the Delta distribution network in the United States, and I think you will get something that’s very powerful,” he concludes.

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HIGH ROLLER

Las Vegas is one of the most exciting destinations in the world – and its airport plays a key role in facilitating tourism to the city, as its director Rosemary Vassiliadis tells Alex Hannaford.

t may have seemed like an easy step up the ladder: from deputy director to director – but when you’re responsible for one of the busiest airports in the world; your predecessor was in the role for 16 years; and you’re taking the helm at an airport that has seen massive amounts of construction over the past few years despite a gloomy economy, that step doesn’t look so small any more. From 1997, Rosemary Vassiliadis was the Clark County Department of Aviation’s deputy director until, in June this year, she took over at McCarran International in Las Vegas from Randall Walker, who retired. Last year McCarran

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served more than 41 million passengers. “It’s a huge step,” Vassiliadis says. “And I have very big shoes to fill.” She says her role is both challenging and daunting. A decade of construction has sought to address growing passenger numbers. The current taxiway has been lengthened and new taxiways added. And then there was Terminal 3. “The actual T3 project took six years,” Vassiliadis says. Just as the project launched, though, the economy took a dive and she says it was a big decision to continue with construction. “It was difficult. We were very cautious, but we’d already broken ground and we decided to go ahead.

It turned out to be the best decision we made. T3 opened last year and now we’re cautiously optimistic.” Having focused on expansion for the past 16 years, Vassiliadis says the airport will now concentrate on operations and on expanding its route network to Asia.

Route network A total of 31 airlines currently use McCarran, the most popular being the low-cost domestic carrier Southwest Airlines, followed by Delta, United and then American. Asked what her philosophy is about keeping the airlines happy and attracting

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McCarran is one of only two airports in the US that has gaming in the building.

more carriers, Vassiliadis says it’s having a sound financial base. “We don’t want to have spikes in rates and charges from year to year because its hard for airlines to adjust to that. Each year we have a budget meeting and we present our airlines with a multi-year plan.” Currently, Korean Airlines provides McCarran’s only non-stop service from Asia and so the focus is on getting more trans-Pacific routes – primarily to Japan and China, as Asian O&D has grown 32% in the past three years. Domestically, the most popular routes at McCarran are to and from Los Angeles, San Francisco, New York and Chicago. For international travel, the airport sees a lot of traffic to and from Canada – particularly Toronto, Calgary, Edmonton and Vancouver; then it’s Mexico City, and the United Kingdom from both Heathrow and Gatwick. McCarran has also seen a number of new airlines coming in from Europe and Latin America. However, it has prioritised a collaborative approach and at the onset of the recession became heavily

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involved in its partnership with the Las Vegas Convention and Visitors Authority, which put greater focus on new international airline service. McCarran has also offered an incentive programme for a couple of years, in which landing fees are waived on all operations in excess of what the airline provided in the same month of the prior year. Additionally, the Las Vegas Convention and Visitors Authority has a programme that offers co-operative marketing funds to support new services, especially international ones. In addition to passenger traffic, McCarran also handles around 200 million pounds of cargo a year, and while that may pale in comparison with some other large airports, Vassiliadis says the legacy carriers have found it to be profitable, and they see some interesting consignments go through. “Because of the conventions we have, we see exotic animals, electronic stuff for the Consumer Electronics Show (CES), classic autos, fresh fish and flowers that the hotels use.”

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Improving the customer experience is a focus for airport director Rosemary Vassiliadis.

Before joining the Clark County Department of Aviation, Vassiliadis was director of finance for Clark County, which encompasses Las Vegas – valuable experience when it came to running an airport business some years later. Certain Clark County departments operated as enterprise funds, Vassiliadis explains, and so were supported entirely from user fees, not tax dollars. Likewise, the budget McCarran operates on comprises rates and airline charges. “Then we try to maximise revenues with food and beverages, specialty shops, parking and rental car fees,” she says. In addition, Vassiliadis says McCarran is one of only two airports in the US that has gaming in the building – something that can provide a sizeable additional source of revenue, particularly as gaming is one of the main reasons most people head to Las Vegas. Today, Vassiliadis says, the airport’s revenue is around 50% airline and 50% non-airline.

Customer focus One of her other main priorities is customer service and the end-user

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experience. Although Vassiliadis laughs when she says she drums this into her “poor staff” everyday, she points out that McCarran is a major Origin and Destination (O&D) airport. Her customers use every facet of McCarran, unlike other, bigger airports, where they are often just passing through. “Atlanta, for example, is a much busier airport, but 65% of people are connecting so they don’t use ticketing, they don’t use the roadway system or parking,” Vassiliadis says. “Around 80% of our customers use everything.” So she is determined to make the experience better. “Brand it a little bit. We are part of the experience,” Vassiliadis says.

Vegas style This idea of offering a little of the destination in the airport is something that Vassiliadis says Austin Bergstrom airport in Texas does very well – with its independently owned shopping and restaurant concessions that reflect the smaller, independent businesses that are a flavour of the city, and musicians

playing on a stage to greet travellers when they arrive. When the Transport Security Administration (TSA) first introduced ‘tip screens’ explaining the procedure to get through security (no sharp objects, limits on fluids, shoes removed, etc), Vassiliadis says McCarran did it “the Vegas way”. “We didn’t have a film of a TSA agent explaining the procedure. We had Vegas celebrities and personalities. And we’ll be updating those to reflect who’s currently playing on the strip.” Travelling can be a stressful experience and it’s touches like these, she says, that help to keep people’s anxiety levels down. In addition to gambling, Las Vegas also has the largest single-level convention centre on the planet – with more than three million square feet of events space, which is the site for this year’s World Route Development Forum. In February, the Las Vegas Convention and Visitors Authority approved the first phase of a $2.5 billion overhaul of the centre – the first major expansion in more than a decade.

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Las Vegas McCarran

The UK is McCarran’s largest international market, with direct flights from both Virgin Atlantic and British Airways.

Vassiliadis says that from a destination point of view, no other city can offer the experiences that Vegas can. “You can still get a very reasonable room rate; you can still get value here,” she says. And she says the airport is busy because the city’s constant reinvention ensures tourists keep visiting – and then coming back. “There are so many different types of shows – not just headliners any more. We have smaller, more intimate venues too. As for shopping, we have boutiques to malls. And then there’s the dining that has been its biggest hit after gaming. “All the top chefs come here,” she says. “People still come to Las Vegas with a vacation mentality. They’re going to splurge a little more, treat themselves to that fancy dinner,” she adds. However, the vacation mentality also comes with some challenges for the airport. The majority of people using McCarran are what she terms “unseasoned vacationers”. “They travel once a year and so their anxiety levels are a little higher.” Because of this, Vassiliadis says it’s important for her staff to make sure they create a smooth travelling experience. She insists on providing clean, working restrooms, making sure that the concessions are open at the right times and are well stocked, and that there is

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merchandise and souvenirs available. “If they had a good time but didn’t have time to go shopping in Vegas, they can shop here and that’s what we want. So we provide the latest products, displayed in an inviting way. That’s customer service. If there’s a torn piece of carpet, replace it. We also work hard with the airlines to ensure ticketing lanes and booths are open with sufficient time for people to check in and get to their gate. The nature of the unseasoned passenger is they have to get to the hold room area. Once they see it, they’re fine and they go wandering.” There has also been growth over the past five years in international air travellers, and Vassiliadis says McCarran “now has a beautiful facility to process them through”. She says it’s interesting to look at the difference in habits of the international passenger. The British, for example, come to the airport three to four hours ahead of time. “We had people sitting in the lobby with oversized luggage. So we said: let’s get a sit-down Starbucks in the unsecured area. “If they want to come three hours ahead, we can’t stop them, so let’s make it easier for them. We certainly don’t want to be a deterrent.

“Customer service encompasses every part of our operation. How do we do that? Staff. Getting my staff to have ownership. Then the results are going to show.”

Room for expansion Because McCarran is located near the famous Las Vegas Strip and therefore has only limited space available for expansion, in the early 2000s, Clark County bought 6,500 acres of land about 30 miles southwest of the current airport and embarked on ambitious plans to develop it as a relief airport called Ivanpah Valley. This was put on hold in 2010 in the economic downturn, but Vassiliadis says the land is being retained and preserved for future commercialisation. “You never know,” she says. “With the flexibility T3 gives us at McCarran in terms of kerb space, parking, ticketing and baggage claim, we’ll be satisfied for now, but if this town ever has huge growth again like it did in the 2000s, the resorts will expand south.” That’s when they may need Ivanpah. Vassiliadis says it makes sense to look to the hotels and whether they’re expanding to determine what the airport should do. “We want to be ready,” she says. “And it would be prudent of me to keep that site.”

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Changed outlook Czech Airlines has undergone a year of major change – its chief executive explains the focus is now on optimising the network and delivering a profit, reports Martin Rivers.

ate last year, CSA Czech Airlines was among the scores of central and eastern European carriers desperately seeking the lifeline of foreign direct investment. As is often the case in the airline industry, a lot can change in a year. At that time, Miroslav Dvorak, chief executive of parent company Czech Aeroholding, told local press there was a 70% chance the airline would fail in its hunt for a strategic investor. But in March, Korean Air made good on an early expression of interest and agreed to purchase 44% of CSA. The loss-making Czech flag carrier has since re-entered the long-haul market with an Airbus A330 leased from its new partner. Christophe Viatte, executive director for network and revenue management, told Routes News earlier this year “there are now ongoing discussions on strategic planning with Korean Air and we do have regular meetings in Seoul; however, for the time being, there is no final decision on future fleet size and network expansion”.

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Chief executive Philippe Moreels.

While growth is not on the agenda for now – CSA halved its fleet over the past three years under a restructuring programme – chief executive Philippe Moreels believes the airline has redefined its “strategic raison d’être” and secured its long-term future. “Back around the end of 2009, Czech Airlines was on its knees and basically close to collapsing,” he tells Routes News. “The airline had no cash – despite receiving state aid of €100 million, which was all gone by then – and the

government decided that it wanted a change in management.” Prague Airport was also being considered for privatisation at the time. With 60% of its turnover coming from Czech Airlines, Moreels says the gateway’s €3 billion valuation was “very optimistic”. He should know. The chief executive is a former board member of Slovakia’s first private bank, Tatra banka, and has held positions at the Czech Republic’s CSOB as well as Unilever and Standard Chartered. His 25 years of experience in finance was a key reason Czech Aeroholding brought him in to turn around CSA. “So Czech Airlines was not only a problem for the state, but also a problem for the airport,” Moreels continues. “In 2009, while I was working at CSOB, Dvorak gave me a call and said, ‘How about doing something different?’ I was dealing with a lot of crises in the banking sector, so I thought the airline industry would be a little bit less crisis-prone, or a little bit more interesting. Well, it certainly has been interesting!”

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Czech Airlines

Strategic plan With a new management team in place, the airline and the airport collaboratively laid out two strategic priorities. The first was to restructure CSA – whose losses peaked at around $200 million in 2009 – and the second was “to look for a strategic raison d’être” for both companies. After being unified with the state’s other aviation assets under Czech Aeroholding, the flag carrier and its hub began looking east to find a new role for Czech aviation. Moreels explains that, when restructuring a loss-making airline, a common mistake made by management is presuming the “end-game” is posting your first positive net result. “This is nonsense. The problem is not solved,” he insists. “Making a small profit in the airline industry just means you are going to die in the next crisis. It’s only crisis after crisis.”

Network challenges Like much of central and eastern Europe, the Czech Republic is in a quandary when defining its aviation sector. Mega-hubs in western Europe attract the lion’s share of connecting

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traffic, while residual flows are hoovered up by Vienna. Meanwhile, point-to-point traffic is dominated by the low-cost carriers, namely Ryanair and easyJet. Mindful of this, Hungary and Slovakia have both abandoned their flag carriers, while Poland and Romania are trying to find investors for theirs. For Moreels, there was never any question of transforming Prague into a mega-hub to rival London or Frankfurt. Instead, his team set about identifying a niche that larger gateways cannot provide. “The mega-hubs try to connect everything to everything, but that comes at a cost,” he notes. “It’s huge, it’s congested, it takes a long time to transfer. If you’re not the home carrier, then you’re not really special.” Describing transferring between flights in the mega-hubs as “painful”, Moreels says he homed in on Asian traffic flows. Prague’s geographical location makes it an ideal springboard for most of Europe, while robust origin-and-destination footfall among business travellers and tourists ensures regional connectivity. “I don’t like the word hub. I prefer base or gateway,” he explains. “If you have a clearly identified flow of traffic –

which we do have with Japan and Korean coming through Prague to Europe – then having a specialised gateway or mini-hub is actually a better alternative. You are going to be treated well; connecting times will be very short; if anything happens you get special treatment. It’s a better transfer experience for passengers.” He highlights how signage at Prague Airport is now in four languages – Czech, Russian, English and Korean. The Czech Republic and Slovakia are also bases for Korean manufacturers Hyundai and Kia, but it was the “mini-hub” proposition that ultimately won over Korean. Linking up the networks at either end of the Prague–Seoul trunk route is now a top priority. Korean has already placed its code on 17 CSA-operated services to Europe, including six in Germany. “Geographically, if you want to fly to anywhere in Germany, except Frankfurt, it’s actually better to transfer through Prague,” Moreels notes. On the Asian side, CSA has placed its code on 15 Korean-operated services through Seoul, focusing on Japan (seven routes), Vietnam (three routes) and Malaysia (two routes). Codeshares are also in place for Bangkok, Guam and Koror in Palau. Asked about the scope for further co-operation, Moreels insists codesharing will remain the priority for now. “We will increase frequencies, connect more and add more codes,” he says, adding that obtaining regulatory approval for Chinese codeshares can be a lengthy process. In Europe, CSA’s regional footprint is unlikely to undergo any “dramatic” changes. Some destinations on the peripheries of the continent may be axed, although Russia and the Commonwealth of Independent States will remain focal points. Network planners will also review possible new connections, particularly in

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The airline would like an additional A330 to serve more Asian destinations.

When you love the planes too much, it’s hard to make difficult decisions like reducing the fleet Germany. “We might open some new ones where we see traffic coming from Korea,” Moreels says. “There are cities where we wouldn’t fly alone, but if we can combine Korean, Russian and local traffic, then it starts making sense.” Prior to Korean’s investment, CSA had struck a partnership with Abu Dhabi’s Etihad Airways, which now holds a 49% stake in Air Serbia. The agreement with Etihad will remain in place “for the moment”, with the Gulf hub providing effective onward connections to the Middle East, Africa and parts of Asia.

Range of partnerships Indeed, maintaining a diverse range of partnerships is pivotal to the airline’s strategy. Alongside two dozen codeshare agreements, CSA is seeking to “co-operate opportunistically” with any partners that can “share the burden or the pleasure of flying, depending on how you view it”. Moreels cites the example of CSA’s wet-lease agreement with Air Corsica, which gives the Czech flag carrier an extra ATR 72 for most of the year. CSA also partners with Darwin Airline on routes to Switzerland and Florence.

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Co-operation is even taking place in the domestic market. CSA agreed to codeshare with long-standing rival Travel Services over the summer, although it limited the agreement to sixth-freedom routes. Pointing to a sea change in relations between the Czech rivals, Moreels says: “We used to fight each other and to sue each other all the time. At last, common sense prevailed, and we decided this doesn’t really make sense.” CSA will still compete with Travel Services’ SmartWings brand, he insists, but there are few overlaps between the two networks because “they’re focused on the bikini destinations, and we’re focused on the briefcase destinations”. Turning to the fleet, Moreels says he will “definitely want at least a second A330 to concentrate on Asia”. CSA and Korean collectively operate seven weekly flights on the Prague–Seoul route, and he sees clear potential for growth. The existing fleet comprises three ATR 42s, four ATR 72s, nine A319s, six A320s and one A330. An order for seven more A320s was placed by previous management during what Moreels calls the “irrational, exuberant times”. But he believes the current narrowbody fleet is

“more than enough”. Deflecting a question about possible cancellations, he says: “It’s too early to say whether there would be changes. I’m interested in more long-haul planes and fewer short-haul planes. It’s a contract we inherited, and I’m considering all options.” The chief executive’s scepticism about “mega orders” is evident in his wider assessment of the European market. “When you look at the number of firm narrowbody deliveries scheduled for the next two, three years. This is going to be murder. This is going to be blood all over the place,” he warns. “This industry hasn’t been through its worst problems yet, it’s absolute overkill. Europe is stagnating.” With such an ominous outlook, CSA will keep growth firmly on the back burner while it seeks a return to profitability. Moreels admits he finds the airline industry a “crazy business”, but he says bringing in an outsider was the right move by Czech Aeroholding. “When you love the planes too much, it’s hard to make difficult decisions like reducing the fleet,” he notes. Asked what the future holds – whether he will return to banking, or stay in the airline industry – Moreels sidesteps the question with his inimitable candour. “I’m not a financial guy at heart, because I think banks messed it up wonderfully in recent years,” he says. “I’m more ashamed to have been a banker. But for me it’s more about the challenge, and getting it done. I want to finish what I started. I’m not a banker anymore, but I’m not an airline guy yet.”

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BRAZIL

L SPECIA

IN IT TO

WIN IT

Ahead of Brazil hosting the world’s biggest sporting events, the country’s aviation sector is undergoing wide-ranging changes, writes David Appleby.

ith the FIFA World Cup and the Olympic Games just around the corner, Brazil is embarking on three years of excitement. This is one of the most important eras in the country’s history, which should see it establishing itself as a major power on the global economic stage. In terms of aviation, the good times have already begun. With record levels of air seat capacity, more Brazilians than ever before are opting to take to the skies instead of travelling the long and winding roads of the vast South American country. The growth in air passenger numbers, along with the emergence of a more competitive yet streamlined airline industry, as well as a lucrative airport concession programme, is propelling the modernisation of Brazil’s aviation industry. The airport concession scheme has seen state airport administrators Infraero take a minority stake in some of the country’s principal gateways, opening these up to private investment for up to 30 years. Airports including Natal, Brasilia, São Paulo’s Guarulhos and Viracopos-Campinas have already been snapped up by concessionaires. Meanwhile, Rio de Janeiro’s Galeao and Belo Horizonte’s Confins will be in the hands of new concessionaires within the next 12 to 18 months as the opening of the formal bidding process on these two airports approaches. Some commentators have pointed out that the Brazilian government has done rather well out of its concessionary operator deals, with the auctions for the first wave of airport concessions generating well over 300% above the

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industry, which will help to fast-track the transformation of its major airports at a time when the world’s eyes are watching the country’s every move. At the end of the last decade, Brazil experienced staggering economic growth, mainly due to a surge in the

initial asking prices. Questions have been asked about whether the winners of the concessions will ever really see a substantial return on their investments over the 30-year term. Despite these question marks, Brazil will benefit from private sector involvement in its aviation

Brazilian total seat capacity, 2013–2008 160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0

YTD2013

YTD2012

YTD2011

YTD2010

YTD2009

YTD2008

Source: World Bank Data.

Brazil economic record, 2008–2012 10

-2

2008

2009

2010

2011

2012

Source: IATA AirportIS Data.

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Brazil capacity share YTD, Aug 2013

Avianca Brazil – 5.72% Azul – 19.15% Webjet – 1.40% GOL – 39.03% Passaredo – 0.97% TAM – 33.73% Source: IATA AirportIS Data.

Brazil capacity share YTD, Aug 2012 TAM – 35.10% Avianca Brazil – 4.30% Azul – 9.85% Trip – 7% Webjet – 5.39% GOL – 37.48% Passaredo – 1.16% Source: IATA AirportIS Data.

mining industry and demand from booming Asian markets. This growth propelled Brazil into the top seven of the economic global ‘league table’ and created a new middle class of over 25 million people, who sparked a rise in demand for air travel. Low-cost carrier Azul was one airline born during this period of incredible growth and the carrier has since played a key role in the transformation of the country’s aviation industry. Azul has also found itself, along with the rest of the Brazilian aviation industry, the focus of investors from all over the world. In 2008, the Brazilian airline industry was dominated by TAM and GOL, which between them offered 85% of the entire seat capacity of domestic commercial air travel in Brazil. Many other airlines existed, such as Air Minas, TAF and Total, but none of these were any real threat to the GOL-TAM monopoly.

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By 2013, the landscape had changed dramatically. Indeed, seat capacity has grown by over 60% and there are now just five airlines in the market. Of these five carriers, four dominate, between them providing 97% of domestic seat capacity share. Azul, which was established by former JetBlue founder David Neeleman, has adopted a unique approach by creating a base at the alternative São Paulo airport, São Paulo Campinas Viracopos International. Here the airline has succeeded in not only attracting leisure travellers from the city of São Paulo and the interior state of the same name, but has also managed to entice many corporate travellers, thanks to the airline’s attractive fare structure, reliability, service offering, high frequencies to key regional markets and an onboard product that includes live TV. This, together with its efficient EMB-190 and 195 aircraft, has seen

Azul’s presence in the market grow considerably, particularly following its merger with former competitor TRIP Linhas Aereas. While Azul is riding high on its success of recent years, its home base VCP airport is now in the hands of a new team that has ambitious plans that could change the entire airport landscape for the low-cost carrier. The development plans could also impact the gateway’s position as one of the leading Latin American airports for air cargo. In late 2012, a consortium called Aeroportos Brasil Viracopos (ABV), made up of UTC Participações SA, TPI – Triunfo Participações e Investimentos SA and Egis Airport Operation, won the bid for a 30-year concession of Viracopos-Campinas. A brand new passenger terminal is currently being built at the airport, which has a master plan that includes a projection of more than 80 million passengers per year by 2042, with a four-runway operation. This would position it as the largest airport in Latin America for both international passengers and cargo – a major transformation for the gateway airport. Currently, from a passenger perspective, the airport is dominated by LCC Azul, with just one international service provided by TAP from Lisbon, three times a week (increasing to weekly, once the new terminal is complete).

About the author David Appleby is UBM Routes and ASM’s director of Latin America & The Caribbean. He has wide-ranging airline experience and is a specialist in Latin America, based in Xalapa, Veracruz, Mexico. He can be contacted at: David.Appleby@ubm.com

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Transformation plan Luiz Alberto Kuster, CEO of ABV, shares his vision for turning São Paulo’s Campinas Viracopos airport into the leading gateway in the region.

anagement at São Paulo Campinas Viracopos has big plans to convert the airport from a domestic gateway to a major international passenger and cargo hub.

How is ABV comprised and how did you win the bidding process for the airport? The concessionaire Aeroportos Brasil Viracopos (ABV) was the winner of last year’s auction, with the deal for the concession contract to administer São Paulo Campinas Viracopos International Airport being signed on June 14, 2012 in Brasilia. This was part of the Brazilian government’s drive to share the modernisation of the country’s airports with private investors. Aeroportos Brasil Viracopos now holds the concession to administrate São Paulo Campinas Viracopos International Airport and will do so for the next 30 years. The concessionaire has 51% private capital, divided among UTC Participações SA (45%), TPI – Triunfo Participações e Investimentos SA (45%) and Egis Airport Operation (10%); and 49% of capital from Infraero.

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Why should commercial airlines choose Viracopos as the new gateway to São Paulo and Brazil? We feel that the new terminal will attract more airlines, as the Viracopos catchment area represents the second highest GDP in the country, and is also the second biggest region for the issuance of air tickets in the country. We have the best transport links, with four major motorways running through the region, and the region is also the leader in technology and education, with the best universities in the country. Finally, São Paulo Campinas Viracopos International Airport has the best meteorological conditions in Brazil for take-offs and landings.

How will Viracopos be transformed into an international gateway to Brazil and the rest of Latin America? We believe that with the amount of investment that we are injecting we are going to reach our goals and we have 30 years to develop our master plan, which will be developed over five phases. As part of this, we are building a brand new passenger terminal, four runways and

developing the Airport Cities concept, as well as all the relevant infrastructure and retail estates associated with that. We also have investments in a major transport link – a regional train that will connect Campinas to São Paulo, and will be ready in two years. Finally, our route development strategy consists of strengthening our domestic network; gradually expanding our Latin America links; and going further with expansion into North America, Europe and Asia.

How will the airport ensure the right balance between increasing international passenger traffic and not losing its position as a leading cargo airport? We have a lot of space, so the airport will increase its cargo business while also providing excellent services for passengers. The passenger flights will bring benefits to the freight sector, which is currently experiencing a slight decline. So we don’t think this new focus on a passenger model should be a competitor to our current model, but rather complementary, which should result in us being the biggest and the best airport in Latin America.

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Brazil will host two of the world’s biggest sporting events in the next three years – Ron Kuhlmann reports on progress being made on airport privatisation and upgrades.

razil is a big place: in terms of land area, it is the world’s fourth largest country (excluding Antarctica) and ranks fifth in terms of population. São Paulo, its largest city, ranks in the top 10 global metro areas and is the most populous in South America. The country is also home to one of aviation’s most famous pioneers, Alberto Santos-Dumont, and its first airline, Varig, began operations just weeks after the establishment of Pan American. Like many large nations, aviation should be the ideal way to connect cities, with forbidding terrain and huge distances making surface transport slow

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and arduous. Yet despite the long history of aviation in the country, and the obvious need for a robust industry, Brazil’s airports handle only a fraction of the traffic seen in other, similarly sized cities. This is clear from São Paulo’s main international airport, Guarulhos (GRU), being ranked 43rd in terms of traffic in 2012, according to Airports Council International (ACI), with Rio’s international gateway, Galeao (GIG), not even making the top 50. Both major gateways also have reputations for overcrowding and poor service, and, according to Infraero, the Brazilian airport operator, overcrowding in Brazilian airports is endemic. Infraero says

that only three of the nation’s 40 busiest airports are operating at or below their planned capacity. GRU operates at 126% of its design capacity, which looks good compared with the airport at Vitoria (number 13), which is 550% over capacity. Despite being one of the largest countries in the world, none of Brazil’s airports are yet certified to handle either the B747-8 or the A380 – a milestone that GRU hopes to reach by May 2014 for the upcoming World Cup. Guarulhos is also presently capped at 45 operations per hour, far below what will be required for the expected influx of tourists for next year’s World Cup and the Summer Olympics in 2016.

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Brasilia was one of the first of Brazil’s airports to be privatised.

All eyes on Brazil Once Brazil was named host of the two global sporting events, it became immediately evident that massive infrastructure investment would be required, especially at airports, which are the first points of contact for most visitors. With the deadlines clearly established, the government instituted a plan in 2011 to privatise some of its airports, with gateways in São Paulo (GRU) and Brasilia (BSB) being the first major facilities offered. In 2012, Infrastructure and Investment Holdings SA, a consortium formed by Brazilian firm Invepar (90%) and ACSA (Airports Company South Africa) (10%), won the São Paulo Campinas Viracopos concession with an eye-popping bid of US$7.2 billion – well ahead of the number two offer, and 374% above the minimum acceptable bid. For that, the consortium got a 20-year, 51% controlling stake, with the remaining 49% continuing to be held by Infraero. Also privatised, albeit for far less money, but still in excess of the minimum bid, has been São Paulo’s other international airport at Viracopos and Brasilia’s airport. Each winning bidder has been a separate entity, with

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all of them involving different pairings of investors. Later in 2013, bids will be accepted for the next two airports destined to be privatised, Galeão in Rio de Janeiro and Belo Horizonte’s Confins International Airport. In each case, Infraero will retain a 49% share in each airport. This arrangement applies only to the major national airports. According to an ICAO report: “Secondary airports operated by states and cities can be privatised without need to refer to any federal law, regulation or policy. For example, some airports in the States of Bahia, São Paulo, and Rio Grande do Sul have already been commercialised through private concessions or privatisation.” In pushing for privatisation, the government hopes the new investment partners will bring new energy and opportunities that will both expand and modernise the facilities, and boost revenue earning opportunities. In recent years, non-aviation revenues have been roughly a third of total revenues at Brazilian airports, and the goal is to up this to 40%. The plan is to achieve this by expanding and modernising passenger amenities, with a focus on retail, and food and beverage.

Industry doubts Despite the government’s efforts, it has been criticised by observers, including the Latin American and Caribbean Air Transport Association (ALTA), which has slammed the selecting of consortia only by price and has advocated a solution like Chile’s where airport awards were based on proposals to lower user costs. The president of Brazilian civil aviation authority ANAC, Marcelo Guaranys, has dismissed such concerns. Nonetheless, the high purchase prices are creating some unease among airlines serving the airports. Carriers question how the investment will be recouped without a substantial increase in fees and charges. São Paulo already charges airlines considerably more than other airports, with the cost of an A330 turnaround being double that of cities like Miami and Madrid. In 2012, IATA’s director general and CEO Tony Tyler warned Brazil that such a move was “a short sighted policy” with the end being “gouging money from the airline industry when [governments] should be seeing them as important engines of growth”. The clock is also ticking onward to Brazil’s major events, and many projects have already suffered delays. The new Terminal 3 at GRU is forecast to be

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Viracopos has been privatised and plans are in place ahead of next year’s World Cup.

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completed in May of 2014, with the FIFA World Cup kicking off just one month later in June. Similarly, Rio will host the tournament’s final, with tens of thousands of supporters and VIPs travelling there. At GIG, both existing terminals are being renovated and airside improvements are also in progress. Given the fact that privatisation contracts will not be awarded until late 2013, many doubt that the new management will have sufficient time to influence the process and even already-planned Infraero projects may well come down to the wire. There is also some infrastructure that won’t be completed in time for the football finals. Plans for a rail link between São Paulo and Guarulhos will not be ready for the FIFA tournament, but it is hoped it will be completed by the 2016 Olympic Games. While privatisation is ongoing, Infraero remains the main driver for expansion ahead of the World Cup and Olympics. In the second half of 2011, the agency released a statement that its goal was to see increased capacity at all host city airports by late 2013 and that, by the opening of the World Cup, Brazil’s airports would have increased capacity by 85%, to a capacity of 118 million passengers a year. This will be achieved

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through an investment of US$3.76 billion at the 13 airports involved. In the near term, those bidding for the available 51% are locked in to the plans that Infraero has established. However, while the implementation of the renovations will fall to the owners, it will be financed through the National Development Bank (BDNES). Some also question the privatisation programme taking place just ahead of the World Cup. While, in the case of São Paulo and Brasilia, there was an almost two-year window for new external investment, the Rio and Belo Horizonte contracts will come into force with only nine months for the new operators to get the lie of the land. Given that the impetus for privatisation was the need to ramp up infrastructure for the two events, the lag time is puzzling. Admittedly, the cash generated by the sales will fill the government coffers, but that is no guarantee of an enhanced passenger experience.

Public backlash While much of the money is already committed to projects that are already under way, there has recently been a public backlash against spending on the World Cup, which resulted in massive demonstrations in some major cities.

One of the demonstrators’ complaints was that ‘special events projects’ are being specially funded, while some other national infrastructure remains in a poor state. However, since many Brazilians who travel are also critical of the nation’s aviation infrastructure, these airport projects may be seen as central to the public good. It is universally accepted that a thriving aviation sector is key to economic growth, and the global events should be a catalyst to upgrade important airport infrastructure. And with three years to go until the Olympics, improved facilities should be operational by the event. However, with the World Cup only months away and new ownership still pending in the second round of bidding, it is unclear as to just how ready the nation’s airports will be to deal with international arrivals estimated by the Brazilian Ministry of Sports to be as many as 600,000. This is in addition to the estimated three million Brazilians that are expected to travel during the tournament. While airport privatisation globally continues to move ahead at a rather glacial pace, nowhere will the expectations and results be more scrutinised than in Brazil – where millions will render a verdict.

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Radical rethink Thomas Cook has seen a major reshaping of its business, including a number of significant changes to its airline and route network, reports Gary Noakes.

ife used to be simple for charter airlines – fly a package group to a sunny destination and then a week or two later, fly them back. Things are not so easy now, thanks to self-packaging, a proliferation of budget carriers in the short-haul sector and the incursion of more scheduled airlines into the long-haul market, notably those in the Gulf offering rock-bottom seat rates. Europe’s two major charter carriers have had to undertake radical rethinks in the last few years. Tui Travel is banking on a fleet of Boeing 787s to give it a cost advantage in the Caribbean and US and to reinstate former one-stop destinations such as Phuket as direct flights from the UK. The 787 will also enable it to add some as yet unnamed new destinations from Europe formerly beyond its reach. Tui’s main rival is Thomas Cook and its airline has been under the cloud of its parent company’s difficulties for the past couple of years. Thomas Cook Group PLC now seems to have turned a corner and a significant part of the group’s restructuring is the transformation of the in-house carrier. A first step towards this in the UK was a deal with easyJet to operate 80,000 return flights this summer from nine UK airports. Handing over around 3% of its capacity enabled Thomas Cook Airlines to shed some older short-haul aircraft from its fleet. The core fleet will be retained, however, and to underline this, Thomas Cook will integrate 23 new aircraft of the A320/A321 family into its fleet, six of which will be for the UK carrier. The short-haul remodelling has been followed by a radical plan for the

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long-haul operation that will affect all four Thomas Cook Airlines brands in the UK, Germany, Scandinavia and Belgium. One Frankfurt-based department covering route development for the entire airline group and revenue management now oversees them, although they each retain their own headquarters.

supply traffic for the long-haul routes – which means Orlando and the Caribbean in the UK, but more than 30 destinations worldwide from Germany. Where there is sufficient demand for a dedicated flight, a W pattern will be adopted from a European city, for example Vienna, where weekly flights to Punta Cana, Varadero and Mombasa will be offered

Our crews have to be flying 15 to 20 days a month to be profitable. We send them to Vienna and put them in a hotel for one night, instead of a week in the Dominican Republic The short-haul business remains broadly as it is now, with point-to-point flying for the in-house tour operation and others supplemented with seat-only sales. In the UK, easyJet’s seat inventory and other charter carriers also work for the tour operation. The new long-haul model is, however, a radical departure from previous years, particularly for the UK carrier. The new approach is to operate two mini hubs at Frankfurt and Manchester, with feed from across Europe and Scandinavia via interline deals with scheduled carriers, which at the moment means Flybe and SAS. Their inventory is loaded into the Global Distribution System and become visible on Thomas Cook websites. They will

this winter. The W pattern brings the airline maximum crewing and aircraft utilisation efficiencies, making these routes economically viable. Jens Boyd, Thomas Cook Airlines’ head of group long-haul, explains: “Our crews have to be flying 15 to 20 days a month to be profitable. We send them to Vienna and put them in a hotel for one night, instead of them staying in a hotel in the Dominican Republic for a week.” One drawback is that the W rotation cuts the number of days’ holiday from the traditional 14 to 13, but Boyd insists there has been no resistance to this. Both strategies, Thomas Cook believes, will give routes critical mass and boost profitability.

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Running head

Jens Boyd, Thomas Cook Airlines’ head of group long-haul.

Using the feeder model to fill long-haul flights has long been the approach of Condor, Thomas Cook’s German carrier. Testament to its success is the sustainability of services from Frankfurt to a range of destinations as diverse as Panama, Kilimanjaro, Zanzibar and Salvador. The carrier has a mix of direct sales (around 40%), in-house (around 30%) and third party revenue that is not typical of a charter carrier. “Condor has developed into a scheduled airline over the course of the past 10 years,” says Boyd. To expand this concept, particularly to the UK, Thomas Cook earlier this summer issued a Request For Proposal (RFP) through Routesonline covering all its long-haul operations, with meetings with departure and destination airports to be held at World Routes in Las Vegas in October. Part of Thomas Cook’s expansion strategy is based on the belief that there is a gap in the market left by Martinair, the Dutch leisure carrier that connected long-haul flights from Amsterdam until it

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ceased passenger services in late 2011. Boyd names Billund and Bergen as examples of airports that need such connectivity, which, he says, are not currently provided via the UK. “Scandinavians are most likely to fly to Heathrow then travel by train to Gatwick. We will give them an alternative via Manchester.” He adds that the connectivity is “the full interline – what you would expect from BA from Glasgow to Calgary”. He stresses, however, that the feeder network is supplementary to the main markets. “We will still be reliant on the UK and Germany.” The airline will continue to base aircraft at Gatwick and has one Boeing 767 at Munich this summer, with a decision on winter capacity there still undecided. This winter, Manchester will offer 10 destinations – double that of Gatwick – and Munich nine. Glasgow, Birmingham and Cardiff will offer an Orlando flight.

Thomas Cook Airlines Scandinavia will continue to have its own long-haul routes in winter from Stockholm, Copenhagen, Oslo, Gothenburg and Helsinki, using A330-200s and A330-300s covering the Caribbean and Thailand. Group-wide, the long-haul fleet from November will comprise five A330-200s. Three of the group’s 15 767-300ERs are currently being used for medium-haul routes. Manchester will have all the A330-200s and two 767s next summer. Next winter will see this slimmed to three A330-200s. Condor’s long-haul fleet until winter 2014/15 will total 12–15 Boeing 767s. These will be based at Frankfurt, with some being used for W flights throughout Europe. The group is considering adding long-haul routes from Brussels, based on “very strong” sales by its in-house tour operator there. There is a compelling offer to destination airports, Boyd believes. “If you don’t regard Tui’s airline as one, we are probably the biggest leisure

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One Frankfurt-based department now covers route development and revenue management, but each airline brand retains its own headquarters.

The Thomas Cook shake-up

homas Cook is perhaps the world’s best-known travel brand due to its global presence and its 172-year history, but only a few years ago it came close to proving the adage that no company is too big to fail. A calamitous 2011 saw the debt-stricken Thomas Cook Group approach banks to raise funds after a series of events against it, including an ailing UK economy and civil unrest in Egypt – until then one of the few growth markets in package holidays. This topped a period when, despite the onslaught of the no-frills airlines and

web sales, Thomas Cook UK had stuck defiantly to its old business model – that of the traditional short-haul package sold through the high street – even expanding its retail estate in 2010. This strategy and the £398 million losses that followed cost former chief executive Manny Fontenla-Novoa his job. A year on from being appointed to rescue the almost bankrupt company, the new Thomas Cook PLC chief executive Harriet Green has managed to turn a small profit, seen the share price rise tenfold and talks of £400 million of cost savings by 2015. These include a number of disposals

airline on the continent. We are probably in the best position to develop leisure destinations out of Europe and if you are at least 4,000 miles away from Europe and want to develop inbound tourism, we have the capability to do it.” He names Puerto Rico as an example. “Puerto Rico is the Majorca of the Americas, but Europe did not really know it. It’s now on the European travel map.” There will not, Boyd says, be a rash of new routes, just the usual one per season – this winter it is Santa Clara, the airline’s fifth Cuban destination. The focus will remain westward.

“The challenge with Asia is you are facing the Gulf carriers. They are able to sell at low rates – we just do not know how they do it, but from a tour operator perspective, we are able to create packages with a plethora of Gulf carriers to many more destinations than we used to.” However, he says he is still open to suggestions from Asian airports wanting direct flights. Wherever they are, airports are asked to “co-ordinate local support” from tourist boards, governments and the private sector, which covers marketing support for new routes.

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of peripheral businesses, a contraction of the short-haul airline fleet and closures of several hundred high street agencies in the UK. Harriet Green.

Once the route development is tackled, one other taxing problem remains. Bringing the airline under a single Europe-wide management means having to tackle the tricky issue of branding. The Condor name is a household one in Germany, but Thomas Cook is travel’s oldest brand and is particularly well-known in the UK market. Boyd acknowledges something will have to give. “We will have to think about the future brand, this is something that we will do once we have successfully set up the Airlines Group.”

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Power partnerships Airline partnerships and special relationships should be at the heart of airports’ and destinations’ route analyses, writes Arik De.

ir service development (ASD) professionals spend a tremendous amount of time arguing the merits of new routes to airlines around the world. As this “dating game” evolves and becomes increasingly data driven, it is worth reflecting on one area that is often ignored by airports, tourism authorities, governments or other stakeholders – the importance of airline partnerships in launching a new route. During my time working and consulting for airlines, I have been continually surprised that air service stakeholders cut themselves short by not fully capturing the importance of these airline partnerships as they build forecasts and impressive presentations extolling the virtues of their city. Don’t get me wrong: airline-partnership-generated flows and associated pro rata revenues are seldom the sole reasons an airline launches a new route. However, in an increasingly “alliance world”, both hub and non-hub airports would greatly benefit from an enhanced and sophisticated approach to route forecasting that quantifies the true benefits of alliances and the nuances between the different types of alliance as they model route forecasts and present them to airlines. The airline industry survives on thin margins and each incremental passenger has the potential to contribute towards this. Within this environment, passenger flows from airline partnerships may make the difference between a loss-generating route and a profitable one. So, what are the key trends emerging in the alliance world, how can the airline

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partnership opportunity be quantified, and how can ASD professionals use this to enhance their route forecasts when approaching various airlines?

Why does it matter? Since the late 1990s, airlines recognised the need to develop deeper partnerships to achieve several commercial objectives, which was driven by the demand for broader network reach and lowered risk. The days of flying one’s own metal to each corner of the world started to come to an end as traditional routes gave way to codeshare routes that leveraged alliance mega-hubs, a trend that became most pronounced between Europe and Oceania. In some ways, this harked back to an older era when Imperial Airways would

take you from London to Singapore, and then safely hand you over to Qantas. As the graph below reminds us, nearly 60% of the ASKs produced in the world today are by airlines that are part of the three global alliances. On some key routes, such as those connecting North America with Europe and Asia, this number is well above 85%. Of course, this might not account for other kinds of partnership such as direct connect, interline, codeshare and joint ventures.

Implications for network development The growth of alliances and airline partnerships has prompted a change in network management, involving the growth in the hub-and-spoke network structure as illustrated in Chart 2, which

Chart 1: Estimated alliance share of scheduled world ASKs, 1996–2013

Source: Innovata.

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Chart 2: Seat growth at airports, 2004–2013

Analysis

Source: Innovata.

Chart 3: Levels of airline partnership and QSI weights Basic Interline

LOW

Advanced Interline*

Oneway Codeshare

Reciprocal Codeshare

Alliance

QSI SCORE WEIGHT

Joint Venture (Metal Neutral, Anti Trust Immunity)

HIGH

*interline bookings allowed on airlines’ distribution platform.

outlines the growth of flights at hub airports versus non-hub airports. This is most obvious in North America, where hub departures have grown by over 75% over the past 10 years, compared with less than 25% for non-hub airports. Even in Europe, with its myriad of secondary airports, dense population centres and the explosion of no-frills airlines, growth at hub airports has been significantly more than at non-hub airports. Not only has this hub growth trend been repeated elsewhere, there has in fact been an increased concentration of service along existing route structures

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and at consolidated hubs. In North America over the past 10 years, over 95% of new departures to Africa or the Middle East have been from gateways at New York, Washington or Atlanta, while over 80% of new departures to South America have been from Miami, Atlanta or Dallas.

Forecasting implications Concentrated hub-and-spoke structures means there are a myriad of connecting opportunities that deter non-stop routes that overfly mega-hubs. Partners tend to join each other’s hub-and-spoke networks

and are happy with this lower risk approach as long as competitor airlines also provide connecting itineraries. For ASD stakeholders, correctly forecasting this partnership-driven flow will be significant in attracting new air service. Almost all airlines will conduct their own due diligence with their network planning team, hashing out a route profit/ loss statement based on internal route forecast modelling. However, from my experience, ASD forecasts that are well modelled and reasoned usually go a long way towards convincing airlines that a potential route will earn profit and contribute to overall network growth, compared with those that focus solely on a community’s ‘feeling’ that the route is just right. The key to developing an accurate forecast is to understand the nuance of the airline partnership and model it appropriately. During my time at WestJet, and at several airlines I have consulted for, we saw forecasts that either failed to capture potential partnerships, or over-indexed the importance of a partnership. It is paramount for the forecast to allow for different levels of engagement; from the deep co-ordination that is the hallmark of immunised partnerships to the basic interline partnerships that have existed for a long time in this industry. It is also acceptable for a refined forecast to potentially contain multiple airline partners. For example, when an Emirates flight takes off from Dubai and heads to Seattle, it carries a broad range of people. This includes local passengers flying the sector, Emirates’ own connecting passengers coming from the Indian subcontinent, passengers leveraging the Emirates codeshare partnership with Oman Air and

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Chart 4: Guest forecasting and role of partnerships After

Before

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Total load factor

Bridge/other

Beyond Canada gateway

Beyond Europe gateway

Local

Total load factor

Bridge/other

Beyond Canada gateway

Beyond Europe gateway

embarking from Muscat, and perhaps even some people taking advantage of Emirates’ interline connections and flying onward from Seattle to Vancouver on Alaska Airlines. To model appropriately, a map of the level of engagement must be produced. Assuming that the most commonly used ASD methodology, Quality of Service Index (QSI), is being used, QSI scores must be developed accordingly. Airports tend to underplay some of the weaker partnerships and focus solely on forecasting ‘codeshare’ benefits. While an interline partnership will never be the justification behind a city pair to be served, there is a reason why that interline exists in the first place. The next level is to understand that there are various depths within each of these partnership groupings. This is the area I would encourage ASD stakeholders to focus on the most, as it differentiates a good forecast from a great one. For example, within the mutual codeshare grouping there might be various levels of partnership. While in most regions a codeshare partnership legally may not allow co-ordinated pricing and schedules, the depth of the partnership can manifest itself visibly through levels of reciprocity in frequent flier partnerships to opaque ones in pricing and revenue. In North America, Alaska Airlines has had a strong history of partnering with both American Airlines and Delta Air Lines. On the other hand, both American Airlines and Delta Air Lines have recently launched codeshare routes with WestJet. In an ASD forecast, having just codeshare flows and generic QSI weights would be an oversimplification and would give wrong weights to the QSI – resulting in the wrong prediction of guest flows.

Local

Analysis

Load factor improvement 11% Source: InterVISTAS Consulting Inc.

I recommend spending time developing a strong and detailed view of the partnership to come up with the appropriate QSI scores. The best way to build this understanding is to leverage the airline relationships and ask key decision-makers within the network planning team about the strength of the partnership. While some airline planners may not share the exact nature of the partnership with you, they may be able to provide you with their relative degrees of co-operation with the various partners, which would allow you to develop a refined understanding and then translate that when building the route forecast. Chart 4 (above) quantifies the effect of using appropriate QSI scores during a recent engagement that I was part of. For this particular airline client in Europe, when we looked at launching a service to a new Canadian gateway, we modelled the benefit of incorporating appropriate QSI scores and including all interline partnerships. This holistic approach meant the load factor on the modelled route increased by 11% through an increase in codeshare and interline guests. This went on to play an instrumental role in the service ultimately being launched.

Conclusions Airline-partnership-generated flows will never be the sole reason for an airline to

launch a service to a new market. However, as airlines develop multi-tiered partnerships with other airlines, it is important for ASD professionals to understand and incorporate this into their analyses. Stakeholders must go beyond knowing their communities and conduct thorough forecasting that not only includes airline partnerships, but also assesses the nuances of each partnership and models it appropriately. In a world of increased airline co-operation, where new service between unserved pairs is becoming increasingly rare, incremental guests in a forecast serves a long way to achieving new air service. Understanding and modelling airline partnerships should be a key piece to attaining these incremental guests, and bringing ASD success. ABOUT THE AUTHOR: Arik De is vice president, airline strategy at air transport consultancy InterVISTAS. He has worked in transportation for 13 years, in over 75 countries, and most recently managed the network planning team at WestJet. InterVISTAS Consulting Group is a leading management consulting company with extensive expertise in aviation, transportation and tourism.

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Mating season Airlines have been forming new partnerships at a record pace over the past year – Lucy Siebert takes a closer look.

he aviation world is abuzz with ‘partnerships’, and with the world’s air development community gathered in Las Vegas, it is timely to look at some of the biggest airline hook-ups – and break-ups over the past year. A quick look at the past 12 months highlights just how quickly airline partnerships are being formed, and the different types of relationship that carriers are embracing. This time last year, the route development community was in Abu Dhabi where Etihad chief executive James Hogan outlined the airline’s strategic plans. At that time, Etihad held 10% in Virgin Australia, 40% in Air Seychelles, 3% in Aer Lingus and a stake of just over 29% in airberlin. Today, Etihad has significantly ramped up its strategic stakes by applying for the option to increase its Virgin Australia stake, snapping up 49% of JatAirways, which is being rebranded Air Serbia, and is trying to get hold of 24% of Jet Airways, subject to government approval. Recently, Etihad has also been linked in the media to Italian carrier Alitalia, which is part of Air France-KLM and Delta’s lucrative transatlantic joint venture. Etihad has also continued to grow its codeshare portfolio, which at the time of going to print stood at 46, but it is the equity stakes in a number of different airlines that is really changing the game for the carrier.

ROUTES NEWS 6, 2013

Emirates and Qantas officially sealed their deal with a unique A380 flyover of Sydney Opera House in late March.

Etihad’s moves are aimed at building an integrated ‘mega carrier’ and Hogan has openly discussed how the airlines are using their ‘group buying power’ in supplier negotiations and to drive down costs. As Hogan put it: “We all sit around the table and ask, who has the cheapest glass?” He added the Etihad-led grouping is able to outsource key functions and services to countries where they can be carried out at the lowest cost.

Speculation has swirled for years about whether Etihad would ever join an alliance, which was only fuelled by its 2011 deal with oneworld member airberlin. Hogan has now well and truly quashed that speculation, having described traditional alliances as bureaucratic and outdated, and repeatedly stating over the past year that Etihad had no plans to join an alliance. Of course, Etihad’s arch-rival Qatar Airlines, which is set to become a

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All eyes have been on the Gulf carriers over the past 12 months, as Emirates launched its deal with Qantas (above). Right: Etihad grew its strategic equity partnerships and (top right) Qatar revealed it would be joining oneworld.

oneworld member by late October, would disagree with that view. The Doha-based carrier is likely to use its new alliance position to leverage its position at Heathrow with oneworld partner British Airways, in order to grow its share of transatlantic traffic. Meanwhile, within the oneworld alliance, Qantas remains part of the grouping despite its headline-grabbing deal with the mighty Emirates. The Qantas-Emirates announcement came just a few weeks ahead of last year’s World Routes, leaving many in the aviation world stunned. The non-equity partnership saw the Australian carrier dump Singapore as its Asian hub in favour of Emirates’ Dubai hub, as well as sweeping in integrated networks and co-ordinated pricing, sales and scheduling between Australia and Dubai – and despite the complexity involved, the new partnership came together and was executed in a matter of months. According to Qantas CEO Alan Joyce, the Qantas-Emirates relationship was first floated in April 2012, followed by an announcement in September and the eventual roll-out in late March 2013, complete with that now famous dual A380 flyover of the Sydney Opera House. From a Qantas perspective, it urgently needed to seal a deal like the

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Emirates one in order to return its international network back to the black. At the time of going to print, Qantas had stated that it was too early to judge the success of the deal, but Joyce has made positive noises, stating that Australian passengers appreciate the convenience and Emirates’ network offering that is available by transiting through Dubai. He added that reconfiguring its Asian network will be central to turning its international fortunes around, and has already revealed plans to place an A380 on an additional weekly Hong Kong frequency, plus a new seasonal route between Perth and Auckland, more frequencies between Brisbane and Los Angeles and retiming Sydney– Christchurch to allow for more connections at Sydney.

Beyond the Gulf With the Gulf airlines playing such a central role in the world of global aviation, their every move is scrutinised but, of course, there are major partnership changes taking place elsewhere in the world. The biggest of those is undoubtedly American Airlines and US Airways’ planned merger and the impact that the Department of Justice’s opposition to this could have on their plans.

The airlines have succeeded in getting a November court date, but until the legal channels are followed, their plans remain up in the air. One of the outcomes of the planned merger had been US Airways’ plans to exit Star Alliance in favour of oneworld. While the legal action in the US has put the brakes on American and US Airways’ dating game for now, elsewhere in the Americas the relationship swapping is continuing at apace. Brazilian powerhouse TAM is exiting Star Alliance in favour of LAM’s long-time alliance oneworld. Of course, things don’t always go smoothly with airline joint ventures and partnerships – as the dissolution of AirAsia Japan highlighted. While AirAsia has pursued a joint venture approach in other markets, including Thailand and Vietnam, it called time on its AirAsia Japan tie-up with ANA in July. Now, ANA plans to go it alone and has plans to replace AirAsia Japan with the renamed low-cost subsidiary Vanilla Air in December, which will initially have two aircraft plying Asian leisure routes. ANA has also taken the equity share approach by snapping up 49% in Myanmar carrier Asian Wings Airways. It is shaping up to be another fascinating 12 months of burgeoning airline love-ins.

ROUTES NEWS 6, 2013

EYES ON THE EAST Sydney Airport CEO, Kerrie Mather, speaks exclusively to Routes News about taking a collaborative approach to air service development – Lucy Siebert reports.

or the biggest city in a country that boasts such strong economic and cultural ties to Asia, it is staggering that Sydney did not have a direct air link to India before August this year. Air India once flew from Delhi to Australia, but the direct link lapsed in 1997, and 16 years passed before it was re-established. This was despite India experiencing its fastest economic growth in its history during that 16-year period, while Australia basked in the glow of a mining boom. Instead, it was left to hub carriers to funnel passengers to and from Australia and the subcontinent via the Gulf hubs, Singapore or Kuala Lumpur. Despite the obvious need to re-establish a direct route and a growing Indian community in Australia, it took years of high-level negotiations before the daily Air India service was sealed – and even then the airline has opted to

ROUTES NEWS 6, 2013

spread the risk by operating a triangular route between Delhi–Sydney–Melbourne with a B787. Sydney Airport’s managing director and chief executive officer, Kerrie Mather, was closely involved in the process of landing the route, and made a special trip to India with the New South Wales premier to help drum up political support for the new service. She also prioritised working with strategic partners that included Destination New South Wales and Tourism Australia to help to make the route a reality. “India was Sydney’s largest unserved market and it represents significant growth potential. We can already fill a daily service with just the number of passengers that are flying between Sydney and India today. It is one of the fastest growing markets in all of Australia and 40% of travellers departing Australia for India are departing Sydney,” she tells Routes News.

Mather is a passionate advocate of the collaborative approach, saying that working with multiple stakeholders across the industry is one of the highlights of her job leading Australia’s busiest airport. “It is a fantastic airport with significant growth potential and I feel privileged to have this role. It is associated with one of the most exciting industries in all of Australia and brings me in contact with such a wide range of stakeholders. It is such a diverse business and a rich environment in which to work,” she says.

Capacity changes While Air India is operating a B787 to Australia – the first scheduled Dreamliner services to the country – Sydney is well accustomed to handling new-generation aircraft, having welcomed the world’s first A380 route back in 2007. This structural shift in

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Sydney Airport

aircraft types is having a significant and positive impact on Sydney Airport, Mather believes. “The way our capacity is being used is fundamentally different to the way it was used five years ago, or even 10 years ago. It is unique because we are an O&D market and if you look at our operational restrictions, we have close to 500,000 allowable movements per year and are using only 320,000 of those,” she says. “With larger aircraft, new markets opening up and new airline partnerships, we’ve grown the market that Sydney is serving in number of passengers but with negligible growth in aircraft movements over the last 10 years,” adds Mather.

Sydney welcomed the first ever scheduled B787 service to Australia in August.

With larger aircraft, new markets opening up and new airline partnerships, we’ve grown the market that Sydney airport is serving

Airline revolution Not only has Sydney been at the forefront of aircraft developments, it has also been at the heart of the low-cost carrier revolution in Australia, while also witnessing its biggest domestic carriers Qantas and Virgin Australia entering into new partnerships with Emirates and Etihad respectively. These market shifts have not only challenged the airport operationally, but also forced it to rethink its retail and F&B offerings to better suit changing passenger needs. “LCCs are increasing their operations in the off-peak and serving new and existing markets at different times of day. The long-haul markets are also being served through different hubs at different times of the day. Where once upon a time when Heathrow via Asia was a major hub, most of our growth was into our peak, but now we are finding that is moving throughout the day,” she says.

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Mather adds there are clear opportunities to expand Sydney’s air services to other emerging Asian countries, citing Indonesia and the Philippines as two obvious markets. “Indonesia is South East Asia’s most populous country, with nearly 250 million people, and the number of Indonesian residents travelling to Sydney has grown by 39% over the past three years. The Philippines also has a significant population, with 100 million people – equal to the population of Malaysia and Thailand combined. Passengers have been growing by 16% over the past three years, so these are very significant markets on our doorstep for potential growth,” she says. Despite these new market opportunities, China remains the airport’s biggest and most important Asian market. China is only second to New Zealand at Sydney Airport in terms of passenger numbers, and with China forecast to

become Australia’s biggest tourism source market in the next 12 months, it is clear that it won’t be long before it becomes the airport’s biggest market too. As a result, Sydney continues to prioritise enhancing the airport experience for Chinese passengers. “Two years ago we sat down with the carriers who are serving China to find out what we could be doing to make their businesses operate more successfully and create a better passenger experience. It has now become our second biggest inbound market and we are continuing to adapt our offering. We have put in Chinese wayfinding in the terminal and we also have a large number of Mandarin-speaking volunteers to make it easier for Chinese passengers to make their way around the terminal. We have a Chinese version of our apps and website with live flight updates and have looked at our commercial offerings at the airport,” says Mather.

ROUTES NEWS 6, 2013

WIDEBODIES and blurred lines In an exclusive report, OAG’s Mark Clarkson looks at how new aircraft types and the rise of the Middle Eastern carriers are shaping global route development.

bout 15 years ago the two major aircraft manufacturers Airbus and Boeing presented two very different visions of the future at their annual forecasts – how we would fly, how market demand for air travel would be met and, crucially, the size of aircraft required. In June 1998, the statement accompanying Boeing’s Current Market Outlook said: “This forecast was the basis for our decision not to build an airplane larger than today’s 747. Unlike our competitor, we think that market forces are moving toward frequency over size. The market is simply too small and too far into the future to risk investing large amounts of money on airplanes larger than the current 747-400.” The different visions of the future described then have been used to support development of new long-haul

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aircraft models ever since. These decisions were, of course, underpinned by analysis, as the investment required to create a new aircraft is vast and it is risky business, especially if the market cannot support two similar products. So it is no surprise then that what we have seen over the past two decades is two players that have become experts in game theory, engaging in a complex dance in which the steps are called “first mover advantage”, “strategic commitment” and “complementary versus substitutionary”. The strategic decisions and commitments made more than a decade

38%

A380s OPERATE TO OR FROM DUBAI

ago are now coming to fruition in the form of the A380 and B787, which are plying routes around the world. Here, we look at how certain airlines have aligned themselves with one or other of the manufacturers’ two visions of the future and have become early adopters of the aircraft and are, as a result, shaping the way we fly.

Where the growth is In 2013, the world’s airlines will put 4.1 billion seats into the air. By far the largest air travel market is North America, with 22% of all airline seats offered on flights within North America. However, market size is accompanied by market maturity and this is a market that has grown by less than 0.2% on average each year since 2010. It also continues to churn through the process of consolidation and shifting market share.

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Traffic region Seat capacity 2013 Global share AAGR since 2010 TOTAL

4,112,808,151

Intra-regional

100%

1.8%

Intra North America

908,819,771

22%

0.2%

Intra Europe

874,855,913

21%

1.1%

Intra North & Central Asia

670,532,789

16%

4.6%

Intra S/SE Asia & Oceania

515,238,523

13%

7.9%

Intra Latin America

303,859,162

5.1%

Intra Middle East

85,658,236

1.8%

Intra Africa

83,250,014

2.3%

Inter-regional

670,593,743

16%

5.0%

Seat capacity flows to and from Middle East (2013) Middle East capacity flows are among fastest growing

To/from Europe 60m +8.7%

To/from North America 7m +6.3%

Report

3,442,216,421 84% 2.9%

To/from North & Central Asia 8.5m +11.4%

Middle East

To/from Latin America 1m +17.3%

To/from South East Asia 66m +7.4%

To/from Africa 30m +8.1%

106 A380s VERSUS 66 B787s IN OPERATION

and this has grown by a healthy 5% on average each year. A closer look at capacity between these regions shows that seat capacity between Europe and South/South East Asia has actually declined over the past three years, on average by 0.2%. In striking contrast, direct capacity between Europe and the Middle East has grown by 9%, and capacity between the Middle East and South/South East Asia has grown by 7%. Similarly, South/South East Asia to Africa capacity has declined, while the Middle East to Africa market has been one of the fastest growing in the world, with capacity growing on average at 8.1% per annum. In fact, all inter-regional markets involving the Middle East are growing strongly. This clearly points to the success of the Middle East carriers in creating powerful hubs from which to serve these long-haul traffic flows.

Emirates and the A380 Europe is almost as large a market as North America, with airline seat capacity within Europe accounting for 21% of all seats. Here, growth has been slightly stronger at 1.1% per annum over a three-year period, where arguably only Western Europe can be considered a mature market. The real growth has been in Asia, where airline seat capacity for travel within North and Central Asia alone now contributes 16% of global capacity.

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This has grown by an average of 4.6% a year since 2010. Meanwhile, seat capacity for travel within South/South East Asia, as well as Oceania, now accounts for 13% of all capacity and has grown on average 7.9% over three years. Capacity within these regions accounts for 84% of all seats and capacity between these regions – the world’s main long-haul traffic flows – makes up 16% of global capacity. This is about 670 million seats in 2013

The first commercial A380 flight took off in October 2007 with Singapore Airlines. Today, a further nine airlines have bought, leased and operate the 106 A380s now in service. One airline really stands out in the A380 mix and that is Emirates, which, with a third of all A380s in the skies, is the single largest operator of the aircraft type. Perhaps what is more striking is the fact that 38% of all A380 operations have Dubai as their departure airport or arrival airport. Surely these are signs

ROUTES NEWS 6, 2013

Report TOP 10 EMIRATES ROUTES: AUGUST 2008 v 2013 ROUTE RANK

ROUTE

EMIRATES

GROWTH

SEAT CAPACITY

A380

Aug 2008– August August Growth August August Aug 2013 2008 2013 2008 2013

DXB–LHR 60%

112,840 151,590 34%

60% 71% YES

2 DXB–BOM 22%

79,142 93,772 18% 52% 51% NO

71,116

DXB–BKK 40%

111,636 57%

77% 86%

YES

4 DXB–KHI 38%

68,450 94,942 39% 61% 61% NO

-3% 5 DXB–JNB

67,704 65,844 -3% 100% 100% NO

DXB–DOH 120%

59,730

109,818 84%

35% 37%

DXB–KWI

56,696

109,278 93%

40% 43%

77%

8 DXB–SIN 7%

54,964 74,214 35% 57% 72% YES

9 DXB–LGW 28%

51,956 66,404 28% 100% 100% NO

10 DXB–JFK 22%

49,842 60,636 22% 100% 100% YES

that Emirates’ route development strategy is largely aligned with, and has even gone beyond, the vision of the world proposed by Airbus all those years ago of large aircraft flying between major hub airports. And Emirates’ use of A380s is clearly shaping global long-haul route development today. A look at some of Emirates’ most important routes reveals more about how these aircraft are being used by the airline. Taking the top routes operated by Emirates in August 2008, the table above compares the growth in total capacity on these routes between August 2008 and August 2013. It also shows how Emirates’ share of capacity has changed and which routes were being operated by A380s at the start of this year. What is (unsurprisingly) apparent is that Emirates’ A380s are being operated on routes where they connect Dubai with other hub airports – Heathrow, Bangkok, Singapore Changi and New York JFK. What is worth closer examination is the

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4.6%

AVERAGE SEAT CAPACITY GROWTH IN NORTH & CENTRAL ASIA

-0.2%

SEAT CAPACITY BETWEEN EUROPE AND SOUTH/SOUTH EAST ASIA fact that on each of these routes Emirates has either maintained capacity market share at 100% as the only operator on the route, or has gained capacity market share over the period – from 60% to 71% in the case of DXB–LHR, from 77% to 86% on DXB–BKK and from 57% to 72% for DXB–SIN. Anecdotal evidence also suggests that passengers prefer flying on the A380, and given Emirates’ performance on these routes supported by the capacity increase, it is hard to argue otherwise.

Of the other six routes that were among Emirates ‘top 10 routes’ by seat capacity five years ago, two are short-haul (Doha and Kuwait) and not well suited to A380 operations. A further two are long-haul routes but to airports not considered hubs (Johannesburg and Gatwick) and where Emirates is the sole operator. The remaining two are Karachi and Mumbai, where Emirates’ seat share has remained stable. There appears to be no correlation between overall capacity growth and A380 operations, but it seems the A380 has been a factor in Emirates maintaining dominance, or growing its market share, where it chooses to use A380 equipment.

Don’t be distracted by batteries Mention the word Dreamliner to someone in the aviation industry today and you might hear about the delays getting it off the production line, grounded aircraft and problems with batteries catching fire, or wiring defects – but this is a distraction from the real story.

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Report

The fact is that by September 2013 there were more departures and arrivals worldwide by B787s as there were A380s. This is despite the first Dreamliners only entering service in October 2011, and according to OAG data there were 5,221 monthly frequencies by September 2013. In contrast, the A380, which entered service in October 2007, a full four years earlier, reached 4,547 frequencies by September 2013. There are now 73 B787s in service, and 19 of these are operated by the launch customer, All Nippon Airways (ANA). Like the A380, the largest operator of the aircraft dominates in terms of operations, with 40% of all the B787 frequencies operated by ANA. And the airline has orders that will take its Dreamliner fleet to 65. A year after introducing the aircraft into its fleet, All Nippon announced the aircraft was achieving 10% higher passenger load factors than its other aircraft as passengers actively selected flights where the aircraft was used. It added the aircraft was using 21% less

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SEAT CAPACITY GROWTH BETWEEN EUROPE AND MIDDLE EAST

SEAT CAPACITY GROWTH BETWEEN MIDDLE EAST AND SOUTH/SOUTH EAST ASIA fuel than its predecessors on international routes, a slightly higher saving than had been anticipated.

A look at the order books While Emirates may have opted for the A380 and is clearly using it as part of its successful strategy to create a Middle East hub for traffic flows, competitor Qatar Airways has one of the larger order books for the B787, with 41 on order. As a member elect of the oneworld alliance, the aircraft suits Qatarâ&#x20AC;&#x2122;s route development, which features the airline connecting with legacy carrier networks

worldwide. Qatar is also the launch customer for the A350, Airbusâ&#x20AC;&#x2122;s answer to the Dreamliner, with 80 on order. The Doha-based airline also has an order for 10 A380s. Meanwhile, Emirates has placed orders for A350s, with 70 on its order book. Emirates is also set to continue to have no narrowbody aircraft in its fleet, but is that sustainable in the longer term, given the competitive landscape? The other main Middle East competitor, Etihad, predominantly operates widebody aircraft, although it has some A320s and a couple of A319s, which make up about a quarter of the existing fleet. Its order book contains a combination of B787s (41), A380s (10) and A350s (12). This mix suits its approach to growth, which has seen it sign 42 codeshare agreements with a wide range of airlines. Turkish Airlines is keeping a keen eye on the Middle Eastern carriers and has been growing quickly and building its own hub operation in Istanbul. Although its fleet largely comprises of narrowbody B737s and A321s, it now operates to 13 Asian and 33 African destinations and has steadily been adding long-haul aircraft in recent years with plans to serve Sydney from 2014. With another 40 widebodies on order, Turkish Airlines is increasingly offering destinations and frequency that competes directly with the main Middle East carriers and is creating further market share pressure.

Next stop Africa While investors and economists always seek the next new thing, aviation analysts have been watching the African air market for years to assess when it will finally begin to achieve its potential. The World Bank expects sub-Saharan

ROUTES NEWS 6, 2013

Report

African GDP to grow at a robust 5.6% in 2013. While this would usually indicate a market ripe for new air services, the combination of outdated regulatory regimes, protectionism and red tape continues to hold back the industry in Africa. OAG Schedules Analyser data shows that intra-African capacity accounts for only 2% of global seats in 2013 and has grown by a little over 2% per annum since 2010. Airline capacity between Africa and most of the world also seems to be struggling to grow. There are notable exceptions though. Just as the Middle Eastern carriers have transformed the flow of airline traffic between Europe and South/South East Asia and Australasia, a similar pattern is emerging between Africa and the Middle East, and between Africa and North East Asia. For the record, China is one of Africa’s biggest trade partners. As the diagram below shows, drawing on data from OAG Connections Analyser,

the level of connectivity between China and Africa has grown rapidly over the past decade and although there continues to be limited non-stop operations, Emirates now serves 22 African cities, Qatar operates to 18 and Etihad operates to eight.

4.1 billion

GLOBAL AIRLINE SEATS OPERATED IN 2013 Filling in the gaps While the new generation aircraft types have primarily been developed to serve long-haul markets, the success of many long-haul routes has flowed from large, established domestic and regional markets that establish a habit and pattern of air travel and provide feed to the long-haul sectors. This applies for both operations based around

connecting hubs as well as for services aimed at long, thin routes. Historically, it was the flag carriers that developed those domestic and regional markets, but more recently it’s been the low-cost carriers (LCCs) that have taken the lead. Looking at global route development, there are two noticeable gaps in the supply of regional air services – the Middle East and Africa. In the Middle East, this hasn’t held back air service development as the three dominant carriers have taken advantage of the region’s location to establish hub airports on major traffic corridors that provide the valuable feed that makes air services work. In Africa, however, despite the emergence of a number of low-cost carriers, the difficulties of operating in the continent persist. FastJet is the latest LCC attempting to make the LCC model work in Africa. Given that Africa doesn’t lie on any strategic traffic corridors to support hub development, the continent

CHINA–AFRICA FREQUENCIES Non-stop and connecting frequencies (including interline) August 2001, 2007 and 2013 Frequencies per month

2001

2007

2013

1-10 11-20 21-50 51-100 101-500 500+

ROUTES NEWS 6, 2013

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Report

Having only entered service in 2011, by September 2013, there were as many departures and arrivals worldwide by B787s as there were A380s, which started commercial operations in 2007.

will need the likes of FastJet if African aviation is to fulfil its potential. And while the A380s and B787s are influencing route development on long-haul routes, Africa needs more than new aircraft types to get there.

What next? Despite the bold statements that gave rise to the A380 and B787, the lines between each manufacturer’s vision of the world are blurring. Airbus is responding to the B787 with the A350, with claims it will be “operationally superior”. Orders are already at more than 650 (versus more than 900 including deliveries to date for the B787) so Airbus’s confidence may not be misplaced. Meanwhile, Boeing has

ROUTES NEWS 6, 2013

40%

B787 FREQUENCIES OPERATED BY ANA

16%

GLOBAL SEAT CAPACITY WITHIN NORTH AND CENTRAL ASIA developed and delivered the stretch version of the 747-400, with the first passenger versions delivered last year. While the B747-800 order book may not be as strong as the A380s (which has over 100, including deliveries and cargo versions), this model plus others in the

Boeing family clearly pinches into the A380 markets and the recent public spat involving alleged false advertising claims reflects the tension between the two camps. What Boeing and Airbus are proving is that, in a market that continues to grow, they are not playing a zero sum game; there is room for both to succeed but constant innovation is a must. ABOUT THE AUTHOR: Mark Clarkson is commercial director at OAG and has a breadth of experience in airport consulting, airline route development and business development strategy and implementation. He can be reached on: mark.clarkson@oag.com

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Network-wide

How are airlines absorbing B787 and A330 aircraft into their fleets and networks? Richard Evans takes a closer look.

oeing is ramping up its 787 production rate to 10 a month by the end of the year, matching Airbus’s output of A330s, and these two types, along with the new A350-900, will form the bulk of airlines’ small-to-medium category twin-aisle fleets for many years to come. Airbus this year delivered its 1,000th A330 to Cathay Pacific, making it a well-established aircraft, and already there are more than 70 787s in operation with 13 different airlines, so route networks are starting to emerge there too. The 787-8 and the A330-200 are the two major types to fulfil the ‘767 replacement’ size category. However, the A330-300 is a little different, in that it is not designed to fly the longest routes that earlier 300-seater types such as the A340-300 or 777-200ER were capable of performing. Airbus markets it as suitable for both medium-to-long-haul, such as North Atlantic routes, as well as short-range intra-Asian routes.

ROUTES NEWS 6, 2013

Table 1: New customers for the A330, taking delivery since September 2008 OPERATOR AirAsiaX Aeroflot Singapore Finnair Oman Air Sichuan Airlines Hawaiian Saudia Hong Kong Airlines South African Virgin Atlantic Jetstar Alitalia Virgin Australia TransAsia Iberia Fiji Airways Cebu Pacific

FIRST DELIVERY Oct 2008 Nov 2008 Jan 2009 Mar 2009 Sep 2009 Feb 2010 Apr 2010 May 2010 May 2010 Feb 2011 Feb 2011 Mar 2011 Apr 2011 Apr 2012 Nov 2012 Feb 2013 Mar 2013 Jun 2013

VARIANT A330-300 (230t) A330-200 (230t), A330-300 (232t) A330-300 (233t) A330-300 (233t) A330-200 (233t), A330-300 (233t) A330-200 (233t), A330-300 (235t) A330-200 (238t) A330-300 (233t) A330-200 (233t) A330-200 (238t) A330-300 (233t) A330-200 (233t) A330-200 (233t) A330-200 (238t) A330-300 (233t) A330-300 (235t) A330-200 (238t) A330-300 (235t) Source: Fleet data: Ascend Online Fleets.

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Running head

Network comparison: 1997 and 2003 While discussing these two aircraft types, it is worth looking back at the 767, the first truly intercontinental widebody twin. It was initially developed for US domestic routes, but the ‘ER’ versions coincided with liberalisation of the North Atlantic market and many US airlines took advantage of its smaller capacity to launch new hub-and-spoke services to Europe. In 1997, there were over 600 767s in service and the network was heavily slanted towards US domestic routes, and North America to Europe routes. Beyond the US border, the 767s were used less in Asia, besides Japan, where the shorter range A300 had seen more success. At that time, the 767’s longest route was Lauda Air’s VIE–SIN at 9,700km, with the average distance being 2,565km. Initially, the A330 had slow sales, with the long-haul A340 attracting more interest. It was not until the A330-200 was delivered in 1999 that airlines were able to use the aircraft on intercontinental services in any major way. A decade ago, the A330 network was dominated by Asia, although there were several smaller European airlines flying the A330-200 on transatlantic routes and leisure services. The A330-300 had also been developed to higher weights, and Northwest and US Airways were using them on routes to Europe. The longest A330-300 routes were Hong Kong–Sydney/Melbourne at 7,400km, with the longest A330-200 route being Air France’s Paris Charles de Gaulle–Kansai route of 9,600km. The average distance flown by A330s was 3,010km.

Figure 1: 767 network in 1997

Figure 2: A330 network in 2003

Figure 3: A330 network in 2013 – new customers in past five years

The A330 and 787 network today A further 750 A330s were delivered between 1997 and 2007, with Airbus

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Figure 4: 787 network in 2013

Source: Innovata.

ROUTES NEWS 6, 2013

Table 2: 2013 routes flown by A330s and 787s – comparison with 2003 schedules

New routes

Replacement

Market growth

Routes

ALL A330s & 787s

347 13,779

540 48,138

228 8,068

787s ONLY

23 1,121

37 3,272

12 517

106

NEW A330 CUSTOMERS 62 IN LAST 5 YEARS

Flights

3,238

Flights

6,199

Flights

2,890

Source: OAG Analyser.

gradually offering higher weight versions, making the A330-300 a truly long-range aircraft. This capability, plus the huge increase in fuel costs, has seen sales of the -300 eclipse the smaller -200. Today, the fleet is split roughly 50/50, but deliveries of the -300 have climbed back above 50% since 2008. Many new A330 airline customers have emerged since 2008. Figure 3 on the previous page shows the current routes flown by the airlines that took their first A330 delivery in the past five years. South East Asia stands out, with Singapore, Jetstar, AirAsia X and Cebu Pacific operating many regional routes.

ROUTES NEWS 6, 2013

Meanwhile, airlines using the A330 as a true long-haul aircraft include Aeroflot, SAA, Finnair and Virgin Atlantic. Of the 18 new airline customers taking delivery of the A330 since September 2008, 11 took the A330-300 and the average sector length of these operators is 4,380km. The longest A330-300 route is now Aeroflot’s Moscow Sheremetyevo–Los Angeles service at 9,750km, and the longest A330-200 route is Air Europa’s Madrid– Buenos Aires service at 10,080km. The average distance of all the current A330 operations is 3,820km – an increase of 27% since 2003.

Figure 4 (previous page) shows the current 787 network, and while it is too early to draw much of a pattern, it is clear the aircraft is being used on a wide variety of routes, from very short Japanese domestic routes to JAL’s Tokyo–Boston route at nearly 11,000km. The current average stage length flown is 3,870km.

Network change from 2003 to 2013 There has clearly been a trend to longer distance flying since 1998, from the 767, through early versions of the A330, to today’s 787 and more capable A330s. But how have airlines’ networks developed over the past decade and are

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SICHUAN AIRLINES Sichuan is a new widebody operator, having received its first A330 in 2010. It now flies four A330-200s and two A330-300s. About 30% of its A330 flights are on new routes, with half having replaced widebodies on three trunk routes, and only a relatively small number of flights replacing narrowbodies, or increasing frequencies. The most important new routes are Chengdu–Shenyang–Vancouver, and Chengdu–Melbourne. These are examples of new long-haul services from ‘secondary’ Chinese cities, and were launched with its A330s. The highest frequencies are on the domestic routes from Chengdu to Urumchi, Shanghai and Lhasa. These routes were flown by 777-200s, A340-300s and 767-300s a decade ago, so the average aircraft size has remained similar.

ANA ANA now has a fleet of 20 787-8s, which operate on domestic, Asian and long-haul services. The aircraft was bought as a 767 replacement and to launch new routes that could not be flown economically by larger types, or were beyond the range capability of the 767. Around 90% of ANA’s 787 flights are replacing widebody capacity, but not always 767s. For example, Osaka to Tokyo was almost exclusively flown by 747s in 2003, but now has a triple-daily 787 service by ANA. It also operates 787s on two trans-Pacific routes, Tokyo to San Jose, which was previously flown by American Airlines, and Tokyo to Seattle.

VIRGIN ATLANTIC Virgin Atlantic has used its fleet of 10 new A330-300s in two different configurations. One is a high-density layout for leisure markets in the United States and Caribbean. The second is for services from Heathrow. Of these flights, 43% replace larger 747s in both segments, with 15% replacing similar sized A340-300s. The only completely new route since 2003 is Glasgow to Orlando, but the A330s are also being used on routes that Virgin has entered competitively since 2003 – namely Heathrow to Mumbai, Delhi and Chicago. It hasn’t increased frequencies much, other than Manchester to Orlando, which now has a double-daily service several times a week. These examples show how airlines need their modern twin-aisle fleets to be flexible, able to fly domestic routes and new long-haul intercontinental routes. The airline may choose to use sub-fleets, with very different seating layouts, but the basic airframe and engine remain common across the fleets.

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they using these aircraft to launch new routes, to replace larger or smaller types, or to accommodate market growth? In total, there were 70,000 flights scheduled for September 2013, of which nearly 5,000 were 787 sectors. These flights covered 1,110 different airport pairs. Of these, 400 are flown exclusively by A330s or 787s. A further 250 routes are served by other widebody types; 220 routes are served by narrowbodies and 240 are served by A330/787s, other widebodies and narrowbodies. Schedule data shows that 347 of today’s routes were not served in 2003, accounting for about 20% of today’s frequencies. Of the rest, more than two-thirds of today’s flights (69%) have replaced frequencies on routes flown a decade ago, with only 11% being additional frequencies on the same routes. There are now 72 routes flown by the 787 and 23% of capacity is on new routes that were not flown 10 years ago. The new A330 operators fly a total of 224 routes today, with 26% of this capacity being on new routes that have been launched over the last decade. A330s and 787s have replaced both narrowbodies and widebodies, with examples of both upsizing and downsizing equipment types over the last 10 years. The economics and range capability of both types are being used to launch new services that would not have been economical with smaller types such as the 767-300, or would not have had sufficient passengers to fill 747 services at an acceptable frequency. ABOUT THE AUTHOR: Richard Evans is head of Market Analysis, Civil Aerospace at RollsRoyce. He can be contacted on: Richard.Evans@Rolls-Royce.com

ROUTES NEWS 6, 2013

Open doors Myanmar is proving to be Asia’s hottest destination, and a raft of new airport and tourism developments are planned, writes Simon Lewis.

sia’s latest frontier market is opening up to private involvement in operating and building airports, and airlines are already recognising the huge potential for growth. In the past two years, Myanmar has begun moving from a hermitic military dictatorship towards what might become a modern democratic nation. As well as tourists wanting to visit the latest destination on the travel map, business travellers are also on the up, with companies seeking to capitalise early on what is seen as a country ripe for investment. Growing visitor numbers, owing to some relaxation of visa rules, mean however that visitor numbers are

ROUTES NEWS 6, 2013

outstripping infrastructure development and the pace at which new hotel and guesthouse capacity can be constructed. With no overland route into Myanmar, and given the large distances between the major cities and attractions, the airports of this burgeoning destination are set to blossom in coming years.

Airport concessions The former British colony also known as Burma, and populated by an estimated 60 million people, has some 32 functioning airports. These include three international airports in the commercial capital Yangon, the former colonial centre of Mandalay and the newly established capital of Nay Pyi Taw, built in the latter stages of junta rule to

house the seats of power in the country. Another 37 provincial airstrips are currently out of service, according to the Civil Aviation Ministry. Those airports are owned and largely operated by the state, but recent tenders excited international firms that were tempted by opportunities to manage Yangon and Mandalay airports under concession agreements. Involving the private sector in the management of the major airports is designed to attract new airlines and modernise the key hubs for Myanmar’s future. “When [we] reformed to the market economy system, we proposed to invite the private sector participation in aviation,” said Win Swe Tun, deputy

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Myanmar

August awarded the concession to run the airport, fighting off competition from international infrastructure firms. Meanwhile, a concession to run Mandalay International Airport was awarded to a Japanese consortium led by the Mitsubishi Corporation.

Airlines landing

director general of the Myanmar Department of Civil Aviation. “Firstly, [we plan] to develop the international airports by the partnership with foreign firms which are capable of investing, operating and maintaining them on a long-term concession basis. We expect the concessionaires to attract the aircraft operators and create more routes,” he adds. Yangon International Airport is already operating above capacity, with three million people travelling through its 2.7mppa capacity terminal in 2012 – and numbers are set to rise again this year. The Yangon terminal reopened after refurbishment in 2007, and there are already plans to expand it to handle 5.5 million passengers a year by 2015. Pioneer Aerodrome Services, a local firm with connections to Singapore, was in

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Visitors arriving from certain destinations can now obtain visas on arrival. Long gone are the days of strict background checks on anyone entering the country and a blacklist for journalists and anyone seen as likely to make trouble for the military regime. Ownership of flag carrier Myanmar International Airways is split between the government and a local bank and its routes remain limited mainly to other South East Asian nations, as well as China, India and Japan. A number of international carriers that are keen to have early advantage have recently entered the market. In 2012, Qatar Airways and South Korea’s Asiana began flying to the commercial capital of Yangon. Asiana flies twice weekly from Seoul, while Qatar operates thriceweekly from Doha. Japan’s All Nippon Airlines has also snapped up a 49% equity stake in Myanmar carrier Asian Wings Airways in its bid to gain early mover advantage in the market. Growth in visitors has seen new smaller airlines and low-cost carriers coming into the market, with three regional carriers, Thailand’s Nok Air and Business Air, and Tigerair of Singapore, announcing they will be joining the 22 international airlines that now fly through Yangon, the country’s biggest airport. It is hoped even more routes will be set up as the Association of South East

Asian Nations’ Open Skies initiative, expected in 2015, opens the region’s aviation sector. A flurry of new domestic carriers has emerged as well, as travellers choose not to endure the long bus journeys and longer train rides that characterise terrestrial travel. But there have been safety concerns over a lack of oversight on domestic carriers, especially after an Air Bagan flight crash-landed at Heho airport in Shan state in December, killing two and injuring 11 others. The DCA’s Win Swe Tun says the relatively new civilian government was learning from examples of modernisation elsewhere, such as the operation of Cambodia’s airports by French infrastructure giant Vinci, which lost out but was named as back-up bidder in the tender to operate the Mandalay airport. “We have a consultant group and we are learning the other examples, including the lesson of the Cambodian case. We understand the value of the geographical location of Myanmar and good potential of development.” And, Win Swe Tun says, private involvement would not stop with concessions to operate the airports. “Secondly, we intend to invite for the aviation-related business such as capacity building, cargo handling, aircraft catering, refuelling services etc. Thirdly, we will invite the foreign and domestic private investors to participate in domestic airports.” An ambitious plan to build an entirely new airport drew initial bids from 11 firms. The 12mppa capacity hub serving Yangon will cost a reported $1.1 billion and will be located about 80km away from the city in Bago region. In early August, the government awarded the preferred bidder status on the project to South Korea’s Incheon

ROUTES NEWS 6, 2013

Above: Pioneer Aerodrome Services, a local firm with connections to Singapore, won the contract to manage Yangon airport. Left: Locals are increasingly choosing air travel over slow bus or train journeys.

Airport Consortium, which is expected to complete construction in 2018 and operate the airport for up to 50 years.

Growing tourist numbers There are reasons to expect a boom in tourist numbers, but, for now, foreigners are still a relatively rare sight, even in Myanmar’s major cities, and nothing like as omnipresent as in neighbouring Thailand. But the country has the potential to offer a similar tourism experience, without the over-development and weariness that have overtaken some Thai hotspots. Coastal regions and tropical archipelagos offer unspoilt beaches, sites such as Bagan have ancient religious sites and the cities retain a quantity of colonial architecture that is long-forgotten in most South East Asian capitals. With help from the government of Norway and the Asian Development Bank, Myanmar has launched a $320 million masterplan to cater for foreign tourists, which currently number about one million per year, but are growing fast. That plan includes projects to increase passenger capacity at the Nay Pyi Taw and Mandalay international airports, and a tourist police service to avoid the regional scourges of child trafficking and sex tourism finding a new home.

ROUTES NEWS 6, 2013

Myanmar has already begun moving from a destination for daring independent travellers keen to see behind the curtain, to an attraction for high-end tourists from the West. UK-based luxury tour operator Cox & Kings resumed tours in the country in October 2010, a month before elections that, while seen as flawed, marked the beginning of what has proved a tricky but rapid transition from dictatorship. Cox & Kings’ spokeswoman Katie Parsons says the company’s escorted group tour quickly became the fastest selling among the company’s East Asian tour packages. “For many people it’s a new destination that is only now opening up to tourism,” she says. “It’s been popular with backpackers, but is only now becoming more accessible to the luxury markets.” The company uses domestic flights to get visitors around the country, with the most popular destinations being the major cities, temple town Bagan and the trekking territory around Inle Lake. Parsons says the tour was selling well, but the country was struggling to meet its growing number of tourists. “It is becoming increasingly difficult to secure block allocation of rooms for tours as the destination becomes more popular.

All of our tours run at maximum capacity,” she says. These tourism trends are also noted in a report by global consultants McKinsey and Co, which in May estimated that tourism, which contributed an estimated $600 million to Myanmar’s gross domestic product in 2010, could be worth $14.1 billion by 2030, with visitors from other Asian countries increasingly flying in. Such growth, however, depends on infrastructure improvements, the consultants said. “To unlock the potential of the [tourism] sector, the government could play an enabling and co-ordinating role. Among the priorities it could consider are liberalising the transport sector and easing visa entry requirements; ensuring that supported infrastructure such as air, water, rail and road infrastructure is in place to support the expansion of hotels and airports; removing bureaucratic barriers to investment; and putting in place national marketing campaigns to attract tourists,” the report said. Myanmar is clearly on the brink of major tourism and aviation growth, but infrastructure challenges will dictate whether the country is able to truly make the most of the many tourism and economic opportunities that are out there.

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Press e enc confer M th ct @ 3P on 6 O d N47 Stan

den: ct Swe Conne new ting the presen elopment ev route d e initiativ

Hello I’m Sweden The fast growing market in Europe

Now is the perfect time to enter the swedish market with new international routes. We are one of the most booming economies in Europe, and the biggest one in Scandinavia. The tourism has doubled in a decade. Sweden is now ranked Top 10 in Global Travel & Tourism competitiveness, and Stockholm No1 as ”European region of the future”. And like this wasn’t enough for creating new aviation happiness, swedes love novelties. So what are you waiting for? Come and join us! All good things in life start with a meeting. Let’s meet for a real Swedish Fika at stand N47.

Sweet tweets The aviation Twittersphere has been abuzz about the Routesonline #AvGeek100 campaign, aimed at finding the world’s most influential airline tweeters.

t the time of going to press, the final judging process was under way in the Routesonline #AvGeek100 campaign, with PeerIndex having sifted through and ranked 160 nominations. According to the PeerIndex, Brett Snyder, @crankyflier, topped the table. A self-confessed ‘airline dork’, Snyder is the author of The Cranky Flier, a consumer air travel blog, and has 130,000 followers on Twitter. “I’ve had the airline bug since I was young,” he says on his blog. “As a kid, I never missed a chance to go to Los Angeles International Airport and pick up airline timetables. My grandmother even took me to an airport hotel for my birthday one year so I could watch the planes land.” According to the PeerIndex ranking, some of the top airline tweeters include:

@crankyflier

@landlopers

@airlinereporter

Brett Snyder

Matt

AirlineReporter.com

I write The Cranky Flier, a snarky consumer air travel blog. Yes, I’m an airline dork. Long Beach, CA. “American and US Airways Get Their Day in Court With a Side of Turkey and Stuffing http://dlvr.it/3vVQYm (Cranky Post)”

Travel blogger, writer and photographer specialising in luxury adventure travel. Social media strategist and general gadabout. Seven continents and 60+ countries. Washington, DC. “Steamed Dumplings and beef noodles at the EVA lounge have made me very happy :) #smallstuff”

We are a team of AvGeeks covering aviation, travel and airlines since 2008. Seattle, WA & Around the World. airlinereporter.com “Will this 24yr start up using a Boeing 747-200 actually get off the ground? Learn more about @BaltiaUSA http://ow.ly/ox4us”

9,386 tweets

72,329 tweets

16,099 tweets

222 following

6,515 following

626 following

129,572 followers

35,348 followers

28,028 followers

@todayinthesky

@flyingwithfish

@jaunted

Ben Mutzabaugh

Steven Frischling

Jaunted

Get the latest airline industry news from USA TODAY’s Ben Mutzabaugh in his Today In The Sky blog brought to you by: http://USATODAY.com. Washington DC. “United to connect Indianapolis to its San Francisco hub http:// usat.ly/15EdKzS”

#SocialMedia Consultant, Creator of TweetAFlight/ TweetASuite, Corporate Photog and Host of #TNI, the Original Twitter Travel Chat. Flyingwithfish.com “Is the #TSA mistaking “not getting any better” #paxex for “improved” passenger experience?”

The Pop Culture Travel Guide. jaunted.com “Prices to fly transatlantic are way too high. NYC to Europe shouldn’t cost more than $400-$450 rt.” - @Fly_ Norwegian CEO Bjørn Kjos

@Routesonline

7,905 tweets

97,584 tweets

11,887 tweets

@TheHUBRoutes

589 following

662 following

1,094 following

@airlineroute

154,712 followers

14,233 followers

37,559 followers

ROUTES NEWS 6, 2013

www.routes-news.com

@apexmary

@hharteveldt

@flyertalk

@nycaviation

Mary Kirby

Henry Harteveldt

FlyerTalk

NYC Aviation

Editor-in-chief of the Airline Passenger Experience magazine and APEX media platform. Covering the #PaxEx world. World Traveller. Blog.apex.aero “Looking forward to boarding my @USAirways flight to Vegas. I think I’ll have a better chance of accessing Wi-Fi in-flight than at PHL #PaxEx”

Airline, hotel and travel industry analyst at Hudson Crossing, focusing on business/industry strategy, marketing, distribution and eBusiness topics. San Francisco. hudsoncrossing.com

The world’s most popular frequent flyer community. Where the miles are. Flyertalk.com “Would you sit next to an adorable 22 month old? One man refused to. http://bit.ly/19jQhrA”

“Kudos to @united: Its #MileagePlus “crowd sourced” PeoplePower promo to sell bonus miles is clever.

Airline and aerospace news, airplane photos, planespotting maps and weather and travel updates. Also follow @NYCAForum. Headquartered in New York, NY. Nycaviation.com “Today: Delta orders some new planes, trading peanuts for wifi, JFK T2 overhaul, FedEx gets a 767, & TSA PreP expands”

32,000 tweets

15,126 tweets

4,255 tweets

27,895 tweets

13,237 following

1,799 following

322 following

2,085 following

20,785 followers

13,645 followers

14,743 followers

29,526 followers

@jonostrower

@aviationweek

@flyingphotog

@simpliflying

Jon Ostrower

Aviation Week

Paul Thompson

Shashank Nigam

Aerospace and Boeing beat reporter for The Wall Street Journal. Adopted Chicagoan, proud geek. jon.ostrower@wsj.com “Share of labor cost to make a Starbucks grande latte in China may be a higher % than assembling a US jetliner. http://on.wsj.com/17ObCMB “

News and updates from Aviation Week, the largest multi-media information and services provider to the global aviation, aerospace and defence industries. aviationweek.com “Alabama-Assembled A321s Destined For Delta http://ow. ly/2zDmSU”

I’m a published aviation writer and photographer with 12 years at a major airline. Moving bags in the mile-high city. Denver, CO. about.me/flyingphotog “About to end a 12-hour shift, and begin an 8-day time off! First, sleep. Plane leaves for DAL in <12 hours.”

We believe in thinking differently about aviation marketing. I love planes, cricket, kids. Born in DEL, raised in SIN, now a habitual globetrotter living in EBB. Up in the air… simpliflying.com “How Facebook Custom Audiences can work for your airline http://bit.ly/FBCustomAud “

21,312 tweets

6,745 tweets

41,986 tweets

14,302 tweets

2,138 following

962 following

1,420 following

5,278 following

25,851 followers

57,965 followers

6,660 followers

12,744 followers

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ROUTES NEWS 6, 2013

Being social

Routes News takes a look at the latest innovative ways airlines and airports are using social media.

@JetBlue15 Now connecting customers through to @BritishAirways’ international destinations you say? Brilliant!

@fastjet1 Book your tickets for our brand new route between Dar es Salaam and Mbeya today!

News TWICE AS NICE TWEETS Etihad has launched a new Arabic Twitter account @EtihadAirwaysAR to better engage with its Arabicspeaking customers. The new account is in addition to Etihad’s existing English Twitter account, which has nearly 26,000 followers. The new Twitter account follows Etihad’s Arabic Facebook page, which has 60,000 fans globally. The carrier claims it is one of the first airlines to create a dedicated Arabic account on Twitter. “Etihad Airways is committed to Arabic-speaking audiences across its variety of communication channels.

We encourage Twitter followers to ask questions in Arabic through the new Twitter account where an online customer service team will offer assistance 24 hours a day, seven days a week,” said Peter Baumgartner, Etihad Airways’ chief commercial officer. Meanwhile, Indian low-cost carrier IndiGo has joined the Twittersphere, generating more than 2,000 followers in its first month of operation. The airline’s social media team has thrown its weight behind the account, notching up more than 1,300 tweets in its first month.

JAL’S ONLINE DESTINATION

in Japan like JAL can deliver”. His first post was entitled: ‘Whether you are a pilot or a business leader, it’s all about the destination’. http://tinyurl.com/le6lrgf

JAL’s representative director, president Yoshiharu Ueki, is taking part in LinkedIn’s Influencer Programme. The invitation-only programme allows participants to post monthly updates to more than 200 million users of the professional social media site around the world. Ueki said he planned to highlight JAL’s “spirit of hospitability, its attentive and refined sensitivity, and noble spirit, which only an airline born and nurtured

ROUTES NEWS 6, 2013

BA SAYS “SORRY” British Airways issued an apology after an angry customer bought a promoted tweet to complain about the airline. UK businessman Hasan Syed paid $1,000 to have his Tweet promoted after his father’s luggage went missing on a flight from the US to France.

@SydneyAirport 1st #Dreamliner from @fly_air_india arrives into @SydneyAirport with a water salute from Air Services Australia!

@ABZ_Airport Hot off the press: Latvian airline airBaltic have confirmed they are preparing to launch a new route between Aberdeen and Riga.

@AmericanAir We’re expanding our network to bring you greater convenience & flexibility. Now fly #LAX to 5 new destinations.

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Social media What are the key social media channels for AirAsia? Facebook, Twitter, Weibo and Instagram. Each of these channels has a specific channel strategy and, at the same time, they co-exist harmoniously and support each other.

How many fans/ followers do you have on Twitter and Facebook?

ONLINE WITH:

You know an airline takes social media seriously when a new route is launched on the back of a customer’s tweet to the chief executive. AirAsia’s group chief commercial officer, Siegtraund Teh, shares some of her social media highlights. When did AirAsia first start using social media? We launched our corporate blog, Just Plane Thoughts, in 2008 and our social media journey began from there. Today, we are arguably the most social airline in the world – we are on Facebook, Twitter, Weibo, YouTube, Instagram, Pinterest, and we don’t stop there. We are quick at recognising the next big thing on social media, so we started an account on WeChat, which is a fast growing social chat application. We have already garnered over 270,000 followers on our official brand account.

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Our total consolidated Twitter followers are more than 1.2 million and Facebook fans are more than 3.8 million. On our Global Facebook page and Twitter account, our fans are over 1.9 million and 741,235 followers.

How has the rise of social media impacted your marketing strategy? We have been a strong believer in social media from the beginning and we created our own in-house social media team in 2008. We were one of the pioneers of using innovative social media channels in all our marketing strategies, both online and offline. We often kick-start Our Big Sale campaigns on our social media channels, and that shows the impact that social media has on our marketing strategies.

Do you have a team dedicated to managing your social media? We strongly believe in having our own in-house team and we have 20 team members spread across 13 countries: Malaysia, Thailand, Indonesia, Philippines, Singapore, Vietnam, Japan, India, China, Hong Kong, Taiwan, South Korea and Australia.

What has been your most successful social media project? AirAsia Friendsy recently garnered the Facebook Studio Awards (Silver Award). After we launched our Sydney route, we wanted to showcase AirAsia’s brand promise, which is “Now Everyone Can Fly”, and to do something that no other airline had done before. The Friendsy campaign saw one Facebook fan being given the chance to fill up the whole virtual plane (that’s 377 seats) by inviting their Facebook friends for a specially reserved flight from Sydney to Kuala Lumpur for a three-night stay, before returning home on their specially chartered flight. The buzz spread quickly across social networking sites and media and the AirAsia Australia Facebook fan base grew by 30%. The campaign also generated A$1,627,593 worth of PR coverage.

Have you noticed any differences in how people use social media across your different countries/markets? Definitely. Facebook is not popular in every country we fly to, but we do not let that stop our social media efforts. In China, Weibo.com is the number one social media phenomenon there, with over 250 million registered users and 100 million user postings per day. Through Weibo we have been able to translate our online engagement with fans into real relationships offline through social events that were held in Beijing, Chengdu, Guangzhou and Chongqing.

What tone do you adopt in your online/social media messages? Fun, friendly and bold – which are also our core brand values.

What role does social media play in your route launches? Our route launch campaigns are always kick-started on social media channels and feature fully integrated

ROUTES NEWS 6, 2013

Social media social media campaigns. This includes engaging our fans from the teaser period in guessing where we will be flying to next, which also gives us an idea of which destinations are on their minds.

Which route launch saw customers engaging well on social media? The Kuala Lumpur–Osaka route stands out. Our in-house team created a stop-motion video that highlighted five key Osaka attractions. At the same time, it served as hidden clues to our social media contest.

Do you use social media at all for the planning of new routes? Definitely – social media is a key crowd-sourcing point for us. We even launched a direct flight from Kuala Lumpur to Lombok because a fan tweeted our group CEO, Tony Fernandes (@tonyfernandes), and that prompted many fans to also tweet about starting a direct flight between the two cities. We also have fans that convinced us to fly to their destinations of choice, for example Xi’an, China. Our Weibo fans contacted us about starting a flight there and soon after that we launched Bangkok–Wuhan (Xi’an). We have also many interactions on our AirAsia India Facebook page where fans have been giving us suggestions about where they hope AirAsia India will fly to when we start operations later this year.

How do you work with partners on social media campaigns? We regularly receive requests from tourism partners to run social media campaigns to create buzz around destinations. Our most recent campaign is the ‘Where’s Johno’ campaign, which is a collaboration

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We even launched a direct flight from Kuala Lumpur to Lombok because a fan tweeted our group CEO, Tony Fernandes with Tourism Queensland. The main objective was to tell the public that the Gold Coast has more to offer than just being a surfer’s paradise. We developed an interactive microsite where fans can use Google Streetview to play five different types of games, which are real attractions in the Gold Coast. To reward our fans for playing, the game scores are group discounts for each attraction. Fans need to find ‘Johno’ at the five locations, grab five stamps from him and play all five games to be eligible for the Grand Prize, which is a return trip to the Gold Coast.

official source, which helped to minimise rumours from spreading. Our key influencers also helped to amplify our message that the incident was minor and that AirAsia is committed to flight safety.

What is the next phase in your social media strategy? As we expand into other markets (with India in view), we are looking into consolidating our social media strategies to give our fans from around the world a global view of our airline, while at the same time, localising content to suit them.

Have you used social media during crisis situations?

GET INVOLVED!

In January 2011, we had a minor incident in Kuching due to extreme weather. Our team was very proactive in providing live updates from an

Do you want the global route development community to hear what you have to say? Let us know at: lucy.siebert@routes-news.com

www.routes-news.com

Social media weather that may affect their flights; we talk about new airlines and new routes; and also any special offers we have on. About a year ago we developed two avatars called Bud Peter and Bud Kata who fulfil different purposes on the site. We use Bud Peter as the contact for our ‘spotters’ – our aircraft enthusiasts, which is a global audience. Peter talks to them and promotes pictures of aircraft we have here. We use Bud Kata to talk to customers about new launches, customer service and traveller advice.

How do your customers use the feedback feature on your Facebook page and how do you deal with any complaints you may receive? Every week I have a meeting with our web master and she updates me on the themes of the previous week. When there has been a lot of activity, she’ll tell me and we can discuss how to respond. In December, we had a blackout and the airport had to be closed for 24 hours. A lot of our passengers and our followers wanted information, so every couple of hours we posted updates on Facebook using Bud Kata.

ONLINE WITH:

Budapest Airport’s executive director for aviation Kam Jandu introduces Emilee Tombs to the gateway’s social media avatars Bud Peter and Bud Kata. Which social media channels does Budapest airport use? We mainly use Facebook; with a population of 10 million people, five million of whom are Facebook users, it’s the largest social media channel in Hungary. We blog and post regular updates on Facebook, in much the same way that Twitter is being used in the UK. We also use Twitter, Pinterest, YouTube, Google Plus and LinkedIn, and we’ve done a couple of flash mobs, which we promoted on our YouTube channels and that went viral. However, we focus on Facebook because there are only about 400,000 active Twitter users in Hungary.

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When did you start using Facebook? About four years ago, but we really stepped it up two years ago. We now have about 18,000 Facebook ‘likes’. The three airports we benchmark ourselves against in terms of size, passenger traffic and geography are Vienna, Prague and Warsaw, and in terms of likes per volume of passengers we outperform all of these airports and we’re very proud of that. It seems to me that we got into the market a bit earlier and our followers have embraced us because of that.

What kind of content do you promote via Facebook? It’s a mixture – first and foremost we alert passengers to any adverse

What have you got planned for the future with social media? We would like to work more closely with our airline partners and develop strategies so that we can help them with their audience and help them sell more tickets. We also want to work with the retailers we have here at the airport. As well as our Facebook ‘likes’, we have about 22,000 newsletter subscribers and we would like to increase that database so we can keep them updated. We’re also trying to recognise the positive comments on the site too, whether that’s with competitions or something else. For us it’s all tied into the theme of engaging with our customers via social engagement.

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American revolution With Puerto Rico’s main gateway successfully privatised and an increasing number of airports adopting new business models, are times finally changing in the US for airport ownership? Joe Bates investigates.

o the outsider it might appear as if little has changed in the US in terms of airport ownership – almost all of the nation’s 545 commercial service gateways remain publicly controlled entities that are owned, operated and developed by cities, counties and states. The fact that airports are viewed very much as key public assets for their respective cities and regions, and the way the US airport system is funded – with major contributions from the federally controlled Passenger Facility Charge (PFC) and Airport Improvement Program (AIP) grants, means that this is unlikely to change any time soon. However, if you thought that this adds up to little going on behind the scenes in the US right now, you’d be wrong, as this

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is arguably the busiest time for deals, potential deals and changes in airport business models since Congress first entertained the idea of change when it launched the Airport Privatization Program nearly 20 years ago. Private investors interested in getting a piece of the action will no doubt be hoping that the recent privatisation of San Juan–Luis Muñoz Marin International Airport (SJU) in Puerto Rico turns out to be third time lucky for the US, following the failure of the sale of New York–Stewart and collapse of a $2.5 billion deal to privatise Chicago Midway in 2009. Stewart became the first US commercial airport to be privatised in 2000 when the UK’s National Express Group paid the State of New York

$35 million for a 99-year operating lease, but things didn’t work out as planned, and it offloaded the gateway to the Port Authority of New York and New Jersey (PANYNJ) for $78.5 million in 2007. And the US’s next attempt at privatisation ended in embarrassment when the winning bidder for Chicago Midway, the Vancouver Airport Services led Midway Investment and Development Corporation (MIDco) consortium, failed to find the funds to complete the deal.

San Juan–Luis Muñoz Marín International Airport Aerostar Airport Holdings – whose $1.75 billion deal for a 40-year concession to operate Luis Muñoz was ratified by the Department of

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Transportation (DOT) earlier this year – believes that its deal cannot be compared to anything that has gone before in the US, as it is completely different in terms of location (Puerto Rico, an unincorporated US territory) and financial commitments. Aerostar – a joint venture between Highstar Capital IV and Mexican airport operator ASUR – has pledged to invest up to $1.4 billion on upgrading the gateway during the term of the lease. It has pledged to execute a $240 million capital programme in the first three years of the lease, which includes a Capacity Enhancement Program (CEP) for the terminals. The CEP includes a new inline baggage handling system for Terminal B/C, a new consolidated security checkpoint, new passenger check-in facilities and new customer service conveniences such as Wi-Fi, power and charging outlets, and enhanced concession offerings. Most of the work will be completed by the end of 2014, with additional improvements to Concourse C complete by mid-2015. Andrew Vasey, chief development officer at Aerostar Airport Holdings, told Routes News: “Aerostar sees significant development potential at SJU, which attracted us to the opportunity initially. “The emerging economies in Central and South America present significant growth opportunities for Puerto Rico’s business and tourism industry, with airlines from this region still in growth mode. “We will be adding another four gates in the terminal area to the 10 that already have access to the US Customs and Border Patrol services as part of our focus on this growth.

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At the end of the day, those thinking of investing in Midway just did not clear the bar I set for the city, which I believe is a high bar “There are also many opportunities for growth within the existing footprint of the airport, including the capacity enhancements that Aerostar is making to improve the passenger experience and upgrades to our general aviation and cargo operations,” he adds. Talking about whether Aerostar felt any added pressure to succeed as SJU was the first major US airport to be privatised under the FAA’s pilot programme, Vasey says: “We believe that Aerostar can demonstrate to the US aviation industry that airport public/private partnerships can be as successful as P3 transactions in sectors such as toll roads and public infrastructure. “As far as kick-starting the P3 process in the US market, we have definitely seen immediate interest from other US airports who are interested in the process, the benefits and the changes that a potential P3 transaction might bring. “Chicago-Midway was in the process, so that transaction, if it had been completed, could have further contributed to the viability of airport P3 deals in the US market.” The Puerto Rico government has indicated that it estimates that it will receive over $2.6 billion in revenues and other benefits from the PPP transaction over the term of the lease.

Chicago Midway For the second time in five years the planned privatisation of Chicago Midway has collapsed at the eleventh hour – this time due to one of the two remaining bidders dropping out of the race for the 40-year lease to operate the gateway. Chicago Mayor, Rahm Emanuel, pulled the plug on any potential deal on September 5 after the Industry Funds Management (IFM)/Manchester Airport Group consortium dropped out of the bidding, citing valuation issues for the decision. Their decision left the Macquarie Group/Ferrovial consortium as the sole remaining bidder. Emanuel said he called off discussions because he was not willing to pursue a deal that would not meet his minimum expectations. “At the end of the day, those thinking of investing in Midway just did not clear the bar I set for the city, which I believe is a high bar,” said the mayor. “If you’re coming to the City of Chicago, you have to meet our high expectations,” Emanuel added. The on-off privatisation saga of Midway may not be over, however, as the mayor’s spokeswoman, Sarah Hamilton, has since hinted that future negotiations may be possible.

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Missouri’s Branson Airport is the only privately funded, developed and operated commercial gateway in the US.

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“If it were to be considered in the future, it would have to be done with the mayor’s same approach that ensures the long-term interests of taxpayers and residents are protected,” said Hamilton. “We set a high bar that required a new level of taxpayer protection. The companies did not meet that bar and could not make an offer that would meet what taxpayers deserve.” A previous attempt to privatise Chicago Midway fizzled out in 2009 after winning bidder MIDCo – comprising Citi Infrastructure Fund, Vancouver Airport Services (YVRAS) and John Hancock Life Insurance Company – failed to secure the financing for the proposed $2.52 billion, 99-year deal.

Hendry County Airglades Airport The only other gateway still in the FAA’s privatisation programme other than Chicago Midway is Hendry County Airglades Airport, a tiny general aviation facility in Florida. It is, however, in demand, with the FAA currently reviewing a management purchase agreement for it from Airglades International Airport, LLC.

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The company – whose stakeholders include USSC Group Inc, Hilliard Street Capital and Florida Cargo Fresh Inc – has been selected on the basis of its promise to transform the airport into a cargo-focused facility that will bring economic benefits for the local community.

The big picture So does the privatisation of Luis Muñoz Marín and potential leasing of Chicago Midway mean the US is at last ready to embrace the privatisation of its airports? The FAA’s deputy associate administrator, Catherine ‘Kate’ Lang, for one, remains sceptical about the US’s desire to let the private sector have more of a say in the running of the nation’s airports. “The privatisation programme has been on the agenda for 17 years, and has consistently failed to attract much interest from US airports, and I don’t exactly see them queuing up to join now, despite the recent developments,” she told Routes News. “There has been a lot of curiosity about San Juan, but you could argue that

why would we want to change an airport system that works well and has provided stability during difficult economic times?” Lang notes that existing US economic and regulatory legislation ensures that, when it comes to airport rates and charges, the FAA imposes a very broad statutory framework, whose governing principles are based on being “fair and reasonable”, “non-discriminatory” and “economically self-sustaining”. She also believes that light handed regulation of the system, the fact that many functions are already in the private sector and access to inexpensive capital act as disincentives to airport privatisation in the US. The current system does, however, forbid airports from pocketing their ‘profits’ and spending them elsewhere, as all net revenues must be spent on-airport, which is very different from the privatised model. She adds: “There are, of course, limitations to the US model, and while I think it works remarkably well, the proof is in the pudding when you look at the density and development of the system.”

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Lang, who jokes that the US is a bit of a “late bloomer” when it comes to airport privatisation, also concedes that the nation’s airport system would be a very difficult one to change. She also refuses to promote one business model over another (public v private, dual till v single till or hybrid), prophetically stating that “the best business model is the one that works best for you, as long as it’s not illegal, anti-competitive or discriminatory”. She also notes that all business models only remain good if they continue to evolve and grow. Wise words indeed, because although the US airport system may not have fully embraced privatisation, it is evolving, and now boasts one privately built and operated commercial gateway (Branson, Missouri) and a growing number of quasi-government run airport operators, which include the newly created Connecticut Airport Authority.

after voters twice rejected the opportunity to back and fund its development. When it opened for traffic on May 11, 2009, with a single 7,200ft runway and 58,000sqft terminal – described by some as about a third of the size of a suburban supermarket – Peet stayed on as its CEO to oversee its addition to the US’s airport system. It wasn’t an overnight success, and had to form its own low-cost airline (Branson Express) to stimulate traffic growth, but it did the trick as Frontier Airlines followed, and in March this year,

Indeed, such is the confidence that the airport has in its growth potential that ambitious Bourk even talks about the possibility of handling up to 2mppa by 2020. Impossible? Well, think again, as Branson is no backwater. Its Ozark mountains location, status as the third-largest outlet-shopping venue in the US and reputation as an entertainment capital – the city boasts over 50 theatres, between them showing 100 daily shows – already attract over eight million visitors yearly.

We believe that Aerostar can demonstrate to the US aviation industry that airport public-private partnerships can be successful

Branson Airport Missouri’s Branson Airport is different from any other airport in the US as it is the nation’s only privately funded, developed and operated commercial gateway. To all intents and purposes, it is also privately owned, but operator Branson Airport LLC’s decision to give it to Taney County after building it – in exchange for a 50-year lease – theoretically makes it publicly owned. It took the dramatic step to give it access to tax-exempt debt that would help finance its construction. The $160 million airport was the brainchild of businessman Glenn Patch and Aviation Facilities Co (AFCO) – later joined by former bond trader Steve Peet and a group of investors that included a unit of Citigroup – who decided to build it

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Southwest launched daily flights to Chicago, Houston and Dallas/Fort Worth and a weekly service to Orlando. Executive director, Jeff Bourk, says: “Getting Southwest is a major coup for Branson and justifies our belief that there was the potential for a new low-fare airport that makes visiting the area quicker, cheaper and easier for vacationers.” The addition of Southwest means that around 335,000 passengers are expected to use the airport this year – a far cry from the 80,000 that passed through Branson in 2009 and well above the 225,000 to 250,000 figure that Peet revealed that he hoped to see in its first three years.

Bourk believes that Branson Airport can only become more popular in the future as the word spreads and passengers realise that they no longer face the prospect of paying “sky high” fares to fly to nearby Springfield Airport, which is also 52 miles and a one-hour drive away. In addition to its 750,000 passenger capacity terminal and single runway, the airport boasts and operates its own fuel farm, FBO facility, general aviation facility, rental car complex and parking lots on its 922 acre site. So what are the advantages and disadvantages of going it alone? Bourk says: “We don’t have the restrictions of the federal grant assurances. In other

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could grow to half a million or even one or two million passengers yearly? “If you look at other airports our size that have had air services for much longer, such as Myrtle Beach and Reno, they are handling one million and 2.5 million enplanements respectively, so two million people here is definitely achievable. We have a lot of room to grow.”

Connecticut Airport Authority

The potential privatisation of Chicago Midway is a hot topic in the windy city.

words, we are not so regulated and told what we can and cannot do by the government. This means that we can negotiate our deals directly with the airlines and tenants on business merits alone.” As an example of more freedom afforded by its business model, Bourk says that Branson can encourage airlines to launch services by granting them ‘initial development rights’, which means that no other carrier is allowed to operate on the same route. He adds that being independent ensures there is less red tape to contend with, and points out that if the airport was profitable, its shareholders would be able to keep the money.

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Bourk lists the disadvantages as not being eligible for any federal grants, such as the Passenger Facility Charge (PFC) and Airport Improvement Program revenue, which for Branson would amount to over $1 million per annum. “We are not profitable yet, but we have only been open for four years and have a lot of debt to pay off,” comments Bourk. “However, enplanements are growing each year and Southwest coming here will significantly boost our numbers and mean that other airlines will have to seriously consider this market in the coming years. “We don’t need to grow massively, but is it unreasonable to think that we

Arguably the US’s latest quasigovernment airport organisation, the newly formed Connecticut Airport Authority (CAA) was set up to develop, improve and operate Bradley International Airport and the state’s five general aviation airports of Danielson, Groton/New London, Hartford Brainard, Waterbury-Oxford and Windham. Its goal is simple – to make Connecticut’s airports more attractive to airlines and bring in new routes and businesses, which support Connecticut’s overall economic development and growth strategy. In line with its new, more entrepreneurial philosophy, its 11 member board is primarily made up of people from the private sector with more commercial backgrounds. They include chair, Mary Ellen Jones (Pratt & Whitney), and former ACI World director general, Robert Aaronson, as well as three state officials. CAA chair Ellen Jones, says: “The big difference between now and when we were part of the State of Connecticut Department of Transportation (DOT) is that we are a bit more agile and entrepreneurial in terms of operating our airport system. “We had very strong support from the Governor of Connecticut, from the

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We had very strong support from the Governor of Connecticut, from the legislator and the business community to do something different legislator and the business community to do something different. The model we use now was actually copied from other US airports and brought into effect in the middle of 2011, although the official transfer to the CAA won’t happen until this summer. “Like any new organisation, we are looking to bring in new blood. We are bringing in new talent with more commercial experience to help us develop and grow the business. However, we also need people who know the airport and state, so I think the fact that the bulk of our staff have transferred over from the Department of Transportation gives us a good mix of talent. “We want to enhance the airport experience for our customers by introducing new concessions, more comfortable facilities and, of course, new airline services and cargo operations. We are now more focused on customer satisfaction than ever before.” And it appears to be working, as American Airlines recently launched a new trans-continental service to Los Angeles, and JetBlue has said it will boost its operations out of Bradley with new flights to Fort Myers and Tampa. Jones now wants a transatlantic service, and although that might prove difficult to achieve, it wouldn’t be a first,

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as Bradley did briefly have a Northwest Airlines B757 flight to Amsterdam in 2007/8 before the global recession put paid to it. Bradley also harbours ambitious plans to upgrade its airfield and road system and eventually build a new Terminal B to cope with rising demand, which currently stands at around 4.5mppa. According to the most recent economic impact analysis, Bradley International Airport contributes $4 billion in economic activity to the state of Connecticut and the surrounding region, representing $1.2 billion in wages and 18,000 full-time jobs. Other quasi-government operators in the US, according to Jones, include The Rhode Island Airport Corporation and the Port Authority of New York and New Jersey (PANYNJ) and the Massachusetts Port Authority (Massport).

Gary/Chicago Airport Another airport looking to the private sector is Gary/Chicago (Idaho), which recently hired a consulting firm spearheaded by former Indianapolis and Jacksonville boss, John Clark III, as an adviser to help it secure a private investor to help to develop the airport site. According to The Times of Munster, the contract calls for a success-based

fee for Clark’s consulting firm of the greater of $200,000 or 0.5% of any public-private partnership deal struck. The airport authority is looking to find a private investor willing to pump at least $100 million into the airport.

LA/Ontario International Airport Los Angeles World Airports (LAWA) is refusing to give much away about the possible sale or leasing of LA/Ontario International Airport, other than to admit that it was “in negotiations” with the City of Ontario over the gateway’s future. Any potential deal will not be impacted by the May 7 announcement that Ontario International Airport Terminal & Equipment Company, LLC (ONT-TEC) had signed a deal for the lease of terminal space and the maintenance and operation of terminal equipment at LA/Ontario. Last year, LAWA rejected Ontario’s rock-bottom bid of $50 million to take over the airport. Its offer followed LAWA’s 2011 call for Expressions of Interest from parties interested in leasing the airport. Global airport operators Fraport, GMR, Munich and Incheon were among the 10 consortiums to express an interest in operating and managing LA/ Ontario International Airport. The list also included infrastructure investors Goldman Sachs, the Carlyle Group and Australia-based AMP Capital Investors. Passenger traffic at LA/Ontario has plummeted from 7.2 million in 2007 to 4.2 million last year, and the latest projections indicate that the figure could fall to below 4mppa in 2013. So it seems that while some changes are afoot in terms of airport ownership in the US, you wouldn’t want to hold your breath for any major developments any time soon.

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Central point Hubs continue to go from strength to strength in the US, writes Ron Kuhlmann.

nyone looking at Atlanta airport’s flight information boards will immediately grasp the dominance of Delta Air Lines. The same local effect, with a different carrier featured, can also be observed at Miami or Dallas/Fort Worth (American Airlines) and at Newark or Houston (United Airlines), and even Southwest dominates airports such as Chicago’s Midway and Baltimore/ Washington, although it does not call them hubs. The hub airport is a key component of the airline system in the US and in some of those cities the dominant carrier trumps any competition and presides over a de facto monopoly. For instance, US Airways provides 90% of the available capacity at Charlotte, making carrier choice more of a theoretical concept than a reality.

Made in Europe Despite their enthusiastic adoption by US carriers, hubs are not a concept rooted in American aviation history. The first hubs were established in post-war Europe where competing national carriers tried to lure transatlantic passengers into their

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home cities for onward connections. TWA and Pan Am could get travellers to London or Paris, but those bound for Hamburg or Venice were often drawn to the European carrier networks that made interline connections far easier. Prior to deregulation, US carriers flew linear routes according to the authority granted by the Civil Aeronautics Board. As such, the 1964 routing of United’s Flight 262 was not at all unusual. The B727 originated in Seattle and ended at Newark, transiting Los Angeles, Omaha, Chicago and Pittsburgh en route. The idea that Los Angeles to Omaha or Chicago to Pittsburgh would be origin and destination flights was foreign at the time. While Zurich, Amsterdam, Brussels and Vienna were all calling themselves “the Heart of Europe” as a ploy to attract connections, the US carriers were slogging away with multi-stop, linear networks that offered little choice and, when required, often lengthy connections. Deregulation put an end to those strictures and the airlines each sought to extend their reach across the nation – and often the world. For that to be possible, places where passengers could be gathered and redistributed, all within

the airline’s own network, needed to be built. As hubs proliferated, the practice of interlining – passing passengers on to a competitor for part of the journey – has almost disappeared. Where it does still exist, the hand-offs are almost always to alliance partner airlines.

Austin: an ideal example Austin, Texas, is the state’s capital city and home to the University of Texas. Like many cities in the South West, the last decades of the 20th century saw enormous expansion across Texas and the Sunbelt. During that period, Austin became a centre of technological development and gained the reputation of having a thriving music scene. Between 1980 and 2000, the population almost doubled – and has continued to grow since the turn of the century. So, additional air service is not surprising, but what is interesting is the very definitive way in which service was expanded over the period. It also tells a story about the aviation system changes that have been a constant factor in the deregulated environment and the city’s new status as a desirable spoke in airline networks.

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ê NON-STOP ê ê ê SERVICE ê ê ê FROM ê êAUSTIN ê ê ê

Deregulation changed everything As is quite clear, prior to deregulation there were not a lot of non-stop flights from Austin. Many of the services operating to either Dallas or Houston were part of longer linear routings. One of the Texas International flights included the following (rather daunting) routing: McAllen–Houston–Austin– Lubbock–Amarillo–Denver. Meanwhile, Braniff offered New York passengers the opportunity of a same-plane service to Austin with stops in Washington, Memphis and Dallas – a full travel day for sure. During the last two decades of the 20th century, airlines came and went, service expanded and cities like Austin experienced a phenomenal growth in flights. However, almost all of these new services only connected Austin to a hub that allowed access to virtually the entire network – including international flights – of the originating carrier. This hub development reached its apogee in 2001, when airlines were still benefitting from the robust economic growth that eventually revealed itself to be a bubble. Even prior to the attacks of September 11, the airlines were looking at diminishing revenues and the events of that fateful day simply accelerated the downward spiral.

A view just before the world changed However, the information in the table is from pre-September 11 and clearly shows the structure of the industry and its changed form. Most of the flights had just two segments: the segment from Austin to the hub and a continuing segment to another destination. For instance, AA 572 operated AUS–ORD–BWI not because passengers wished to travel

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1978

2001

2013

AIRPORT CARRIER Atlanta Baltimore Boston Charlotte Chicago (ORD/MDW) Cincinnati Dallas (DFW/DAL) Denver Houston (IAH/HOU) Las Vegas Los Angeles Memphis Minneapolis Nashville New York (EWR/JFK) Philadelphia Phoenix Raleigh/Durham St Louis Salt Lake City San Diego San Francisco San Jose Seattle Tampa Washington IAD

DL WN AA UA/AA (ORD) DL BN/TI (DFW) AA/WN UA/F9 BN/TI (DFW) CO/WN WN AA/WN NW NW WN CO HP/WN WN TW DL WN UA AA WN UA

CARRIER CODE American AA America West HP Braniff BN Continental CO Delta DL Frontier F9

DL/WN WN US UA/AA/WN AA/WN UA/F9/WN UA/WN WN AA/UA/WN DL DL WN UA/DL/B6 US US/WN

DL WN UA/B6 WN AS WN UA

CARRIER CODE jetBlue B6 Northwest NW Southwest WN Texas Int’l TI TWA TW United UA Source: OAG.

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to Baltimore via Chicago (Southwest would do that non-stop), but to feed Austin passengers to onwards flights and gather arriving passengers wishing to go to Baltimore. Almost without exception, each carrier operated only to its own hub cities. Even Southwest operated non-stop primarily to its “focus” cities where connections were available. Some of the cities served were unlikely to generate much origin/destination traffic at all – Cincinnati, for example, was a new Delta hub that offered alternative connections to the traditional Atlanta routings. Similarly, the St Louis–Austin demand probably did not warrant four daily flights, but the TWA network benefitted from their inclusion. American operated numerous services from Austin to San Jose in Silicon Valley and they were dubbed the “nerd birds” due to the technological bent of most passengers. However, as American implemented its “cornerstone” strategy, which focuses primarily on service to its major hubs, the flights were discontinued and are now operated by Southwest. The 2013 section of the chart further chronicles the changes in the last decade. Continental, America West and Northwest have been replaced by their merged identities, and failed hubs, like Cincinnati, have lost their service. Meanwhile, the demise of TWA has ended non-stop flights to St Louis and the route is now served with one-stop flights operated by Southwest. Now US Airways and Alaska both connect Austin to their respective hubs in Charlotte, Philadelphia and Seattle, and the growth of Southwest and its merger with AirTran have made it a

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The hub-and-spoke model is firmly entrenched in the US airport system.

competitor for Atlanta and Denver, which 10 years ago were fortress hubs for the incumbents. JetBlue, unlike everyone else, is linking Austin to a number of non-hub destinations, displaying a somewhat different business model. With the incredible expansion of international service at almost every hub, Austin passengers have a bountiful menu of one-stop journeys across the globe, with every alliance represented.

What next? The hub-and-spoke model is not going away. It provides airlines with a way to link almost everywhere to almost everywhere else. However, airport congestion and scheduling realities have forced carriers to adopt a “rolling hub” philosophy that lengthens the hub peaks and ensures (theoretically) that connections can be made. Even new, ultra-low-cost airlines such as Spirit and Allegiant have route maps that fan out from particular cities in a hub-like manner, even though their network philosophy is quite different from the majors. There appears to be little indication that airlines will be any less protective of their hubs. At foreign hubs like London’s Heathrow and Singapore’s Changi, the home carriers never exceed a 50%

share, meaning that, at some US airports, carriers enjoy a virtual monopoly status. Residents of Miami, Houston or Atlanta have a limited choice of carrier, especially if a non-stop flight is desired. And, as most carriers are part of one of the three global alliances, these hub cities tend to also be especially friendly to other members of the alliance. While a vastly expanded national aviation grid has significantly increased choice and eliminated the need to hopscotch from New York to Austin, it is true that where you live can often dictate who you fly with, with the residents of spoke cities like Austin having a greater range of choice than those in nearby Dallas or Houston. Similarly, the highest average fares tend to exist in those hub cities where choice is limited. Residents in Austin have the advantage of fierce competition between hub carriers that discourages fare increases. Perhaps the worst off are those in Cincinnati – once enjoying non-stop service across the globe, but now living in a city with vastly reduced choices but little competition for its still-dominant incumbent. Like they say about democracy, the system is not perfect, but it is better than the available options, so the hubs are here to stay.

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Everyone together now? ASEAN states are scheduled to open their skies in 2015 – but major stumbling blocks remain, writes Simon Lewis.

long time in the making, a move to open the skies of the economically dynamic region of South East Asia is set to be enacted in 2015 and the 10-nation Association of Southeast Asian Nations, or ASEAN, is outwardly confident its Open Skies policy is on track. However, there are suggestions that national interests are threatening to compromise a liberalisation that airlines hope would allow them to dramatically expand their route networks across the region. First proposed as early as 1995, the regional deal for aviation, dubbed the ASEAN Open Skies policy, is part of a package of regional policies designed to create the so-called ASEAN Economic Community in 2015. The bloc includes wealthy and open economies such as Singapore alongside developing states such as Myanmar, which is emerging from oppressive military rule. The start of a unified economic community, which aims to open up the movement of goods and skilled labour between the countries, was originally envisioned at the start of 2015, but is now slated for the last day of that year. Indonesia, the largest member, with about 40% of the region’s 600 million

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people, could also prove to be a stumbling block in the scheme, with the country believed to favour a protectionist approach to open skies. Despite this, within the Jakarta-based ASEAN Secretariat there is confidence that the new dawn in regional aviation will arrive on time. “We are ahead of the schedule,” insists Tran Dong Phuong, the ASEAN Economic Community Department’s head of the Infrastructure Division. Tran Dong Phuong says the legal instruments to enact the Open Skies policy have been in place since 2010, and the key parts have been ratified by all nations, except Indonesia and the Philippines. Even if some countries balk, those states that are willing to can go ahead with the plan, he says. “It doesn’t have to wait until all members states have ratified, but it will come into force for individual members states when that member state ratifies it,” he says.

Infrastructure worries One stumbling block for the Philippines, and, crucially, Indonesia, is infrastructure, with concerns that both nations’ large networks of airports, many of which have not been recently

upgraded, will be overwhelmed by liberalisation. “If the agreements are implemented, the skies are open to every [ASEAN] airline to fly in. With the expected surge in aviation demand, the current infrastructure is not yet sufficient. So some governments would rather wait until they have developed infrastructure or increased capacity,” says Tran Dong Phuong. “They are trying; they are investing in new airports or upgrading the current airports, so I think they will be able to implement in all countries by 2015,” he adds. According to local media reports, the Philippines, which has 10 international airports, has plans to expand the capacity of Manila’s International Airport. This will be alongside a dramatic expansion of Clark Airport, which also serves the city, increasing the airport’s capacity from 2.5 million passengers per year to more than four million. Indonesia has 29 international airports, but its Transport Ministry has said it only plans for five key airports – Jakarta, Surabaya, Medan, Denpasar and Makassar – to be opened up to airlines from other ASEAN states in 2015. According to a report released this year by researchers Batari Saraswati and

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ASEAN Open Skies It doesn’t have to wait until all members states have ratified, but it will come into force for individual members states when that member state ratifies it

Hanaoka Shinya at the Tokyo Institute of Technology, Indonesia’s airports, which are all managed by state-owned companies, are already overstretched. “The government has already fallen behind in providing adequate infrastructures. Sixteen of Indonesia’s 25 largest airports are currently operating above design capacity,” the report says, citing official data. “Jakarta is the most congested, with existing terminals operating well above capacity and the airport’s two runways fully utilised during peak hours. The airport served more than 50 million passengers in 2012, more than twice its design capacity. A major upgrade project for [Jakarta’s] Soekarno-Hatta Airport finally commenced in 2013 and will increase the airport’s capacity to 62 million passengers,” it adds. The researchers point out, however, that by the time that expansion is completed in 2015, the passenger traffic at Jakarta’s main airport will likely have exceeded the increased capacity.

traffic is not impeded by restrictive aviation policies, thus enabling airlines to fully capitalise on the market potential,” it adds. Malaysia Airports says it has capacity to handle more airlines operating more routes and is broadly supportive of liberalisation. “The industry has always been moving towards some form of liberalisation through alternative means such as codeshares and revenue sharing. The benefits have been obvious and ASEAN Open Skies is a more formal approach towards such liberalisation,” it says.

Ready and willing

Protecting flag carriers

Outside Indonesia and the Philippines, there is more readiness. In a statement, Malaysia Airports, a public company that operates most of the country’s airports, including Kuala Lumpur, said it was “fully supportive” of the efforts to open South East Asia’s skies. “It augurs well with the company’s aspiration of bringing in more passengers through its airports, as liberalisation would provide a less restrictive operating environment for airlines,” the company says. “In taking cognisance of KLIA’s position as the main gateway to Malaysia, it is imperative that the flow of

As well as the burden on infrastructure, some fear that opening up the region’s skies, which has been actively lobbied for by major airlines, may squeeze out smaller or state-owned competitors. “There have been those concerns,” admits Tran Dong Phuong. “But at the end of the day, member states realise that the benefit brought along by more competition is overwhelming the challenges.” With plenty of room for growth in South East Asian aviation, the risk of monopolies forming is minimal, he insists, pointing to the region’s unsaturated aviation market and strong economic growth.

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Gross domestic product in ASEAN states is expected to continue its trend of healthy growth, with the International Monetary Fund predicting 5.6% GDP growth across the 10 members for 2013. IHS Global Insight predicted in May that the size of the 10 ASEAN states’ economies combined will more than double from $2 trillion to $4.7 trillion by 2020. That growth goes alongside growth in tourism and foreign investment in almost all ASEAN countries. “With increasing business activity and regional growth, the opportunities are there for everyone, whether they are big or small airlines,” says Tran Dong Phuong. “You can see that the number of low-cost airlines in ASEAN countries is growing. Every year there are new low-cost airlines opening in the region,” he adds.

Low-cost boom According to CAPA – Center for Aviation’s yearbook for the South East Asia region, low-cost carriers are more dominant in some regional countries than anywhere else in the world. “The four largest domestic markets in South East Asia – Indonesia, Philippines, Malaysia and Thailand – all now have LCC penetration rates exceeding 50%,” it says, predicting that penetration in the Philippines would reach 85% this year.

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ASEAN Open Skies

CAPA adds that, while some of the low-cost carriers were approaching saturation on current routes, “market conditions overall remain favourable and can support rapid growth, driven by the strength of the region’s economy and the continued rapid rise of the middle class. “The increase in discretionary incomes feeds into the hands of LCCs as a larger portion of the population can afford to fly but generally only on budget airlines,” it adds. “South East Asian flag carriers are also growing, particularly their budget and regional full-service subsidiaries, albeit at slower rates.”

Not an EU carbon copy It is hoped the Open Skies policy will be a boost for regional carriers, but it is not planned to be a complete single aviation market like Europe’s unified skies. All states, except the Philippines and Indonesia, have signed up to giving third, fourth and fifth freedoms to other member states. However, Indonesia, Laos and Cambodia have not yet agreed to extend the rights beyond their capital cities. And without full agreement on the current modest Open Skies proposal, seventh right freedoms, which allow flying between two other countries without a link back home, and the right to fly routes between airports inside a foreign country, are not yet even being considered. “The ASEAN Open Skies just opens the skies to give the right to an airline from the ASEAN member state to carry passengers from their own country to another ASEAN country, and then from there to a third ASEAN country,” says Tran Dong Phuong. He explains the ASEAN model was never intended to be a carbon copy of the European Union’s aviation market.

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This means that ownership rules and other aviation freedoms, like the right for airlines to fly routes between two other countries without originating in its home country, are still off the table. “The EU is a single airspace, a single aviation market, so they are operating like within one country in the whole EU. Whereas, in ASEAN, we are not up to that stage yet.” Alan Khee-Jin Tan, professor of aviation law at the National University of Singapore, has also stressed that the most important contrarian nation is Indonesia. “There is no guarantee that Indonesia will accept the agreements by 2015,” Professor Tan says. “If it, and the other member states, do accept by 2015, there will be effectively open skies for the region, but this stops at third, fourth and fifth freedom relaxations. So, it is true that there is a chance the project might come into effect by 2015, in this limited way. “Although there are obviously still benefits to this, Indonesia’s staying out will hamper the project significantly since it is the region’s largest economy and has nearly half the entire population of ASEAN,” Tan says. “So, there will still be a positive overall impact, just that if Indonesia stays out, the impact will be much reduced in significance.”

Scope for expansion Tan says in the long-term it is critical for the region to look at seventh freedom rights. Such liberalisation would certainly be even more of a sticking point for protectionist-minded policy-makers, and would force airlines to compete with

carriers from other countries on every transnational route. But, Tan says, a failure to open up the seventh freedom – what he calls “the true hallmark of a real ‘single’ aviation market” – would hurt regional airlines when it comes to connecting the region to the rest of the world. “The effect of not having seventh freedom rights can be detrimental to ASEAN airlines,” he says. “This is because, apart from the intra-ASEAN agreements, ASEAN has adopted an agreement with China that provides unlimited third and fourth freedom access for airlines from both sides. The effect is that Chinese carriers will be able to connect any point in China – since China is a unified market – with any point in ASEAN member states that accepts this agreement.” But Tan says that, without the seventh freedom rights, a Thai carrier would not be able to connect Singapore and Shanghai, and therefore regional airlines would miss out on opportunities to expand. The ASEAN bloc has had some success in fostering economic ties in the region, preventing conflict and creating some sense of peoples united, despite the many differences that divide states. As Tan points out, regional co-operation is based on consensus in ASEAN, and the group’s secretariat has little power to strong-arm members into anything. “[The] problem is that we are not like the EU where there is the European Commission which can force member states to adhere to community law,” he says. With economic integration on its way, this region could become a powerful force in aviation, if it sticks together, that is.

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STAR PERFORMER China is set to become the world’s biggest travel market and will continue to grow strongly in the next 12 months – Lucy Siebert reports.

hinese tourist numbers are expected to soar over the next 12 months, despite slowing economic growth and a government-led ‘anti-hedonism’ programme, new research shows. An easing of visa regulations, new Chinese government-led travel initiatives, changing tourist preferences, strong growth in first-time travellers in Tier II cities and the growing influence of social media will fuel growth in outbound travel. While tourism giants such as the US and France will continue to grow their share of Chinese tourist numbers, smaller countries that have already relaxed their visa rules, boosted air services and which offer pristine natural landscapes, such as New Zealand, Seychelles and Switzerland, are also reaping the Chinese tourism rewards. This is according to the China Outbound Market Intelligence (COMI), a quarterly publication by the China Outbound Tourism Research Institute (COTRI), one of the most complete sources of outbound travel trends in China. According to the report, China has already overtaken the US and Germany in terms of border crossings and spending, making it the leading outbound tourism source market, with Chinese tourists spending US$102 billion last year – up 40% on 2011. According to the report, China’s outbound travel sector will grow by 17% during 2013, unless there are any exceptional events. This will see 106 million border crossings between July 2013 and June 2014, with spending by

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Chinese travellers hitting US$129 billion during the 12-month period. The value of the China market is clear in destinations such as Australia, which will this year see China becoming its biggest source market, and New Zealand, which during 2013 is expected to double the number of Chinese visitors it welcomed in 2011.

106 million

BORDER CROSSINGS IN 2013/14 New Zealand has already seen Chinese arrival figures leap by 22.9% in the first quarter of this year, which has been followed by strong growth in subsequent months. The report attributes this success to New Zealand’s

easing of visa processes and its fast-track scheme for high-end Chinese travellers. The country has also succeeded in marketing its natural beauty and outdoor activity offering products to a maturing Chinese market. This segment is increasingly moving away from packaged tourism offerings towards becoming independent travellers who are seeking clean air and green spaces. Many other Asian countries are also seeing huge growth in Chinese tourist numbers, with South Korea, Thailand and Vietnam registering sharp spikes this year due to Asia-Pacific politics and the growing influence of social media and other media channels. However, Japan has seen its numbers plummet over the Senkaku Islands crisis and this is expected to continue over the next 12 months.

Forecast for Chinese tourism arrivals in selected Asian destinations in the period July 2013–June 2014 Forecast of arrivals for the next 12 months

YoY arrivals until latest available data

Forecast arrivals July 2013– June 2014

Forecast increase / decrease July 2013–June 2014

THAILAND

3,707,869

5,500,000

45%

SOUTH KOREA

3,216,176

4,500,000

37%

TAIWAN

2,718,210

3,320,000

20%

MALAYSIA

1,661,778

2,100,000

21%

VIETNAM

1,549,846

1,800,000

16%

JAPAN

1,252,957

1,250,000

Data given for most current 12-month period available. Source: COMI July 2013.

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Within China

Forecast for Chinese tourism arrivals in selected nonAsian destinations in the period July 2013–June 2014 Forecast of arrivals for the next 12 months

YoY arrivals until latest available data

Forecast arrivals July 2013– June 2014

Forecast increase / decrease July 2013–June 2014

1,474,408

2,175,000

32%

FRANCE

829,800

990,000

14%

GERMANY

778,403

962,500

20%

AUSTRALIA

670,100

817,500

19%

SWITZERLAND

602,319

755,000

22%

NEW ZEALAND

220,736

330,000

46%

179,000

220,000

15%

USA

Data given for most current 12-month period available. Source: COMI July 2013.

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A number of economic and social changes are taking place in China that are impacting the outbound travel industry. Firstly, despite a slowing economy, with China’s GDP growth declining in the second quarter to 7.5%, travel remains a priority for Chinese consumers. While China’s mega-cities continue to provide a steady supply of wealthy and increasingly experienced travellers, the growing middle class in China’s ‘lower tiered’ cities means there are new people who are keen to take their first steps abroad. According to the report, between January and September 2012, the number of tourists from Tier II cities rose by 28% year-on-year. In comparison, in Tier I cities the number of tourists grew by 18%. Secondly, the Chinese government remains broadly supportive of the outbound travel industry, according to the report. It states that China’s premier Xi Jinping has said 400 million Chinese tourists are expected to travel abroad in the next five years and he has also specifically talked about tourism during a number of his official trips abroad,

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China WINNERS AND LOSERS

S including a recent one to Mexico. Xi’s comments come despite the Chinese government’s campaign against ‘hedonism’ in society, which does not extend to travel. Instead, for Chinese citizens’, travelling abroad is still viewed favourably and as a means of cultural interchange and education, according to COMI.

17%

GROWTH IN CHINESE OUTBOUND TRAVEL IN 2013/14 Meanwhile, new regulations came into effect in July that allow Chinese citizens from 43 major cities to apply for or renew their passports in a city that is not the one where they are registered with their official ‘hukuo’. This is seen as removing a hurdle for travel abroad and should positively impact outbound travel. And in April a new Chinese Tourism Law was passed, which for the first time drafts a policy for domestic, inbound and outbound tourism products. This came into effect on October 1 and is aimed at improving the quality of services offered by Chinese tour operators, including banning extremely low-cost tours and forced shopping. “Effects on destinations with a high level of package groups from China could be noticeable,” the COMI report states.

Challenges remain While developments within China signal the ongoing strength of the travel industry in the country, visas and air access continue to be stumbling blocks for many destinations seeking to grow their Chinese arrivals.

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outh Korea is a major winner in the Chinese tourism stakes, with the country appealing as a trendy pop culture destination, particularly to Chinese tourists who are shunning Japan over the Senkaku Islands crisis. The popularity of South Korean soap operas in China is also playing a role in creating demand for travel to the North East Asian country. In the first quarter of 2013, South Korea welcomed about 720,000 Chinese tourists – 200,000, or 37.8%, more than the same period in 2012. In the next 12 months, South Korea is forecast to grow its share of Chinese tourists by 37%, while Japan will see no growth at all. Chinese tourists are also flocking to Thailand, with demand being driven by the comedy film ‘Lost in Thailand’. The country saw a 93.5% increase in Chinese visitors in the first quarter of this year, following a massive 162% rise in the last quarter of 2012. “Regional co-operation to establish a joint visa between Thailand and Cambodia since late 2012 has facilitated this growth even further for both countries,” the report adds. Vietnam is also riding high on a wave of success, registering a 48.4% increase in Chinese visitors in the second quarter, compared with a decline of 22.4% in the same period in 2012. In the next 12 months, Vietnam is expected to register 16% growth in Chinese tourists. Further afield, Seychelles has seen Chinese tourist numbers rise by 111% in 2012, which was followed by a 67% increase in the first half of 2013. The tiny Indian Ocean country has become the first African country to offer visa free travel for Chinese passport holders, and it is expected

this will see arrival numbers from China double in the coming 12 months. In more traditional markets, Hong Kong and Macau remain the leading regional destinations for Chinese tourists and will continue to grow their arrival numbers in the next 12 months. Hong Kong will see its number of visitors grow by 17%, while Macau will see a more modest increase of 10%, due to the effect of the government clampdown on ‘hedonism’ and the expected effect this will have on the gambling industry. In Australia, China will become the country’s biggest tourist market, growing by 19% in the next 12 months. “Increasing efforts to improve its connectivity with both Tier I cities and inland China are a main factor,” the report states. Across the Tasman, New Zealand will see growth rates of 46% in the next 12 months, with the South Island already attracting a large number of wealthy, individual Chinese travellers. The US and France will also remain popular with Chinese travellers, and they will continue to appeal to cultural tourists, luxury travellers, VFR markets and education sectors. Tourist arrivals to France will grow by 14%, while the US, which is already the most popular Western destination for Chinese travellers, will see its share grow by nearly a third at 32% in the next 12 months. “Connectivity will improve with new relations and improved [flight] frequencies, for instance to Hawaii and Boston,” the report states. “The Senate Democrats demands for further visa reforms and renewed ‘open skies’ agreements will open the doors wider for Chinese visitors, while the development of strategies to attract Chinese tourists will lead to better adapted services,” it adds.

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Overall numbers of Chinese outbound trips and arrivals of Chinese travellers to Hong Kong and Macau

China 40% The Schengen states, the US and the UK are among the countries trying to make their visa regimes less cumbersome, and COTI forecasts there will be a wave of countries opening their doors to Chinese tourists this year. “Within the forthcoming 12 months, an 125,000,000 easing of visa regulations for Chinese visitors can be expected around the globe,” it states.

JULY 2012– JUNE 2013

38% 60%

JULY 2013– JUNE 2014 FORECAST

62%

Hong Kong & Macau SAR

Other destinations

106,000,000

100,000,000

$129 billion

89,212,000

Arrivals July 2012 – June 2013 Forecast arrivals July 2013 – June 2014

CHINESE TOURIST SPENDING75,000,000 IN 2013/14 50,000,000

Changing times

44,250,000 37,507,948

Many Chinese tourists have embarked on a number of international trips within 25,000,000 17,696,000 19,250,000 Asia and beyond, and these more experienced travellers are changing the stereotypical image of a Chinese tourist. 0 While most Chinese tourists still go on Overall numbers Macau SAR Hong Kong SAR organised package tours, more of Chinese Source: COMI. outbound trips experienced tourists are steadily moving towards independent travel. This is impacting not only the type of travel quasi-individual tour products, allowing product on offer, but also the type of Most Chinese travellers are below the the participants to spend some days destination and when Chinese tourists age of 44, making social media the ideal organised as a group, combined with choose to travel, with more taking trips channel for travel brands to reach several days to fill up independently,” outside traditional holiday periods. young, upwardly mobile and tech-savvy the report states. “Considerable increases in bookings for consumers. According to the report, It adds that Chinese tourists will group travel as well as for self-organised continue to shift their holiday preference trips reflect the trend to arrange more CHINA’S SOCIAL MEDIA from sightseeing to activities, with a than one journey per year outside the CHANNELS growing desire to “seek out pristine, busy holiday periods of the Golden outdoor destinations that offer greenery Weeks, both for domestic and WEIBO and open spaces, which are increasingly international travels,” the report states. more than 536 million users rare in China’s over-populated, industrial According to the report, the share in cities,” it says. self-organised travel will increase in the TENCENT next 12 months, with rough estimations more than 400 million users suggesting about a third of outbound Getting social TRIPSHOW.COM Chinese travel is self-organised. “Travel Social media is proving to be a huge average of 200,000 users a month agencies increasingly offer more driver of travel for Chinese consumers.

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China

Sina Weibo has more than 536 million users and its main competitor Tencent is China’s fastest growing social media channel, with more than 400 million users. Social media channels entirely dedicated to travel are also growing, such as TripShow.com, which generates an average of 200,000 users monthly and is seen as an important travel

influencer. According to the report, Shen Wei is a “famous young frequent traveller and is a key influencer among younger travellers and has several hundreds of thousands of fans following his everyday moves and comments online. In March 2013 Shen Wei went on a 12-day tour through Canada, posting pictures on Weibo as he went.

Mainland Chinese arrivals to Taiwan July–June

Following this social media campaign, organizer CTrip is developing tour packages which emulate his journey.” Meanwhile, McKinsey has identified a new generation of Chinese consumers called Generation-2. These uppermiddle class youngsters who were born in the mid-1980s will become the main engine of consumer spending in the next 10 years and are already the main group for mass tourism in China, according to the consultancy.

The outlook for 2014

3500000

+20.9

3000000

+5.4

2500000 2000000 1500000 1000000 500000 0

2011 to 2012

2012 to 2013

Arrivals

Forecast 2013 to 2014

Source: COMI.

Share of Chinese arrivals in overall arrivals July 2012– June 2013

July 2013– June 2014

Increase in share next 12 months

THAILAND

15.4

55.8%

VIETNAM

22.6

19.5%

AUSTRALIA

11.9

12.5

UAE

3.7

3.8

2.7%

SPAIN

0.4

0.6

50%

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Despite a slowing economy, demand for travel abroad will grow in Mainland China in the next 12 months. “The basic travel motivations remain in place: relaxation and visiting other Chinesedominated regions and countries within South East Asia, gaining prestige, self-esteem and knowledge for travels to long distance destinations.” It adds that destinations that have already eased their visa regimes will grow their share of Chinese visitors, and with Chinese outbound travel expected to grow by 17% until the middle of 2014, spending on international travel by Chinese consumers will reach US$129 billion between July 2013 and June 2014 – making it a lucrative market for all destinations to tap into.

About the report The COMI China Outbound Market Intelligence report is published quarterly by COTRI China Outbound Tourism Research Institute, providing in-depth market intelligence on the Chinese outbound tourism market. For more information or to subscribe visit: www.china-outbound.com.

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Striking it rich Mozambique’s economy is booming on the back of extensive gas discoveries – Max Marx investigates what it means for air services.

rom a country that was wracked by a 16-year civil war shortly after it gained independence from Portugal in 1974 right up until 1992, Mozambique has today become one of the fastest growing economies in the world, thanks to the booming extractive industries sector. The country has seen a remarkable turnaround in its economic fortunes in the past decade; however, poverty and corruption remain widespread. Over the past 10 years, Mozambique has recorded successive growth rates of more than 6% in real terms, according to a report by international advisory firm KPMG. This growth continued in 2011 and 2012, when Mozambique recorded GDP growth rates above 7%. Expectations are that the country could record growth of about 8% in 2013 and 2014. The current economic boom is the result of massive foreign direct investment in the energy and natural resources sectors; the start of large-scale coal production; and the discovery of

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large natural gas reserves. So large are these reserves that the country is expected to become one of the major global exporters of natural gas in the future. There has also been significant investment from large multi-national oil companies that are banking on commercial crude oil discoveries.

FORECAST GDP GROWTH IN 2013 Along with the expansion of the extractive industries sector, there has been major – and much needed – focus on infrastructure development, thanks to the coal and gas companies’ needs to get their goods to market. Infrastructure challenges include there only being one railway line – the Sena line from Moatize to the Port of Beira – to move coal to port, and regular coach derailments are severely

hampering export operations. One coal mining company is now building a new railway line from Tete (the main coal producing region) to the Port of Nacala, while two others have been proposed. This economic boom, and the associated infrastructure upgrades, should be good news for the country, but so far the majority of Mozambicans have not benefitted from it. About 80% of Mozambique’s population is engaged in subsistence farming, which according to the World Bank is a sector that remains largely unproductive. According to the United Nations Development Programme, 54.7% of Mozambicans lived below the national poverty line in 2010, and hundreds of thousands continue to seek out greener pastures in neighbouring South Africa or Swaziland. So while most locals aren’t likely to be taking to the skies anytime soon, business travel is on the up, with more than 600,000 corporate travellers having visited Mozambique in 2011, up from 405,000 in 2010.

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ANGOLA

MALAWI ZAMBIA

MOZAMBIQUE DA GA SC

ZIMBABWE NAMIBIA

BOTSWANA

SWAZILAND

SOUTH AFRICA

South Africa is the major connecting hub for air travel to Mozambique, and travel management companies there report a significant increase in demand from the business sector. Rachael Penaluna, business manager of South African travel management company Sure Maritime Travel, which manages travel for a number of multinational oil and gas companies, reports a significant increase in business travel to Mozambique in the last 18 months. “The influx into Mozambique has been absolutely phenomenal. We’ve seen an increase of about 200% in the last 18 months. One of our clients has even decided to build an apartment block in Pemba to house its employees, so frequent has their travel become,” she says. Izzy Etkin, director of South Africanbased Wings Travel Management, echoes this. “Mozambique is booming. There is a lot of investment coming in which is resulting in increased traffic,

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LESOTHO

SOUTHERN AFRICA

The influx into Mozambique has been absolutely phenomenal. We’ve seen an increase of about 200% in the last 18 months especially business travel. We expect growth to increase even further.” Etkin believes that, as demand grows, more airlines will enter the market or increase frequencies. Despite the clear growth in demand for flights to Mozambique, Kovilan Naidoo, travel manager: Africa at Cummins Business Services, a USmulti-national company that is opening offices in Mozambique to service its mining clients, says air access remains one of the biggest challenges. “Mozambique’s national carrier LAM Mozambique Airlines is blacklisted by the European Commission, so we are not

allowed to use them to fly to Mozambique. We use South African Airways and Airlink to get to most destinations in Mozambique. These airlines operate small aircraft on most routes, which means flights get fully booked really quickly,” says Naidoo. Naidoo explains that he has even had to get special permission from his company to use LAM on certain routes within Mozambique. “With LAM the only airline with a significant route network in the country, we have no other option,” he explains. Penaluna adds that a lack of frequency to destinations besides the

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131

but large is engaged in subsistence farming, Most of Mozambique's population omy. boosting the econ deposits of coal and natural gas are

Mozambique

capital Maputo is also a challenge. “This means clients get stranded at a destination until the next scheduled service,” she adds. Penaluna believes this lack of air access will prompt the big multi-national oil, gas and coal companies to start to push airlines for increased schedules and hotel groups for better corporate hotel offerings.

Tourism paradise Mozambique has long been a favourite destination for South African tourists, who flock to its magnificent white, sandy beaches, azure seas and upmarket island lodges and resorts. The industry is growing, with the country’s tourism authority INATUR reporting a 9.6% increase in arrivals in 2012 – up to 2.2 million from 2 million in 2011. Of this, 71% of tourist arrivals were from Africa, of which 44.1% were from South Africa. This is reflected in the fact that nearly 55% of tourists arrive in Mozambique via road, and only a third travel by air – a trend due to a new and upgraded highway system between South Africa and Mozambique. Marian Sandu, managing director of tour operator Africa Stay, confirms the South African leisure market is primarily a self-drive segment, and often opts for self-catering accommodation. The international leisure market, he says, generally flies into Mozambique via

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South Africa, but also on international carriers that fly direct to Maputo, such as TAP Air Portugal. “The international leisure market will typically go to the more exclusive island resorts in Mozambique and generally combine this with a few nights in Cape Town, or a safari in the Kruger National Park and/or a visit to Victoria Falls in Zambia and Zimbabwe,” he says. However, the ongoing recession in major European economies has resulted in a decline in overseas visitors, particularly from Italy, says Sandu.

9.6%

INCREASE IN TOURIST ARRIVALS IN 2012 Europe’s economic migrants Europe’s economic decline has also prompted an influx of expatriates who are drawn to the southern African country’s promised riches. This is a particular trend with Mozambique’s former colonial power Portugal, with many relatives of Portuguese who fled the country in the 1970s now returning for economic reasons. As a result, the visiting friends and relatives (VFR) market is on the up, says Jeremias Manussa, INATUR’s director of marketing.

Kerry Butler, managing director of Maputo-based Mosaic Travel, one of the leading inbound tour operators in Mozambique, concurs. “Mozambique has, in the last few years, seen an enormous influx of expatriates due to oil and gas. In the last six months we have seen an upsurge in international leisure travel. Our numbers so far this year are up 100% on what they were for the same period last year. Five years ago, we were doing 70% pure leisure, with people from Europe and other overseas countries coming on holiday to Mozambique. Today, 70% of leisure travel is attached to business, where expatriates have come out here for work and friends and family have come to visit them and then take a holiday,” he says. While Mozambique’s economy is transforming, its air services remain highly regulated and access for foreign carriers is limited. National carrier LAM Mozambique’s network covers 10 domestic destinations and five regional cities (Johannesburg, Luanda, Harare, Nairobi and Dar es Salaam). Johannesburg–Maputo is its busiest route, with 25 flights a week. From Johannesburg, LAM also flies to Inhambane, Vilanculos, Pemba, Beira, Nampula and Tete. Earlier this year, LAM introduced a new service between Johannesburg and Nampula in April, operating five flights a week, and has moved to boost frequencies on its Johannesburg–Beira, Johannesburg–Tete and Johannesburg– Maputo routes. However, as Cummins Business Services’ Naidoo alluded to, LAM has, since April 2011, been banned from flying into any European Union country after Mozambique’s civil aviation authority was blacklisted by the European Commission. As a result,

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MOZAMBIQUE’S AIRPORT SYSTEM

ozambique’s airports company Aeroportos de Moçambique (ADM) manages 20 airports, with the main international gateways being Maputo, Tete, Nampula, Pemba and Vilanculos. Maputo International Airport recently underwent a major expansion and upgrade and there are plans to upgrade the airports at Ponta de Oura, Lumbo, Tete, Pemba and Mocimboa da Praia, while a new airport is being built at Nacala. Emanual Chaves, ADM’s CEO says there is a particular focus on upgrading air navigation equipment and systems to improve security to ICAOrecommended standards and practices. To this end, ADM has already spent millions of dollars on purchasing safety and air traffic control equipment, which is now installed in most airports. The strategic plan includes increasing revenues from non-aeronautical activities. Around one million passengers fly into Maputo International Airport each year, and passenger numbers are on the increase. In the first six months of 2013, 750,000 passenger arrivals were processed at the airport, compared with 500,000 arrivals during the same period in 2012. Chaves says he expects passenger numbers to continue to grow as the airport operator attempts to woo more airlines to its shores. “At the recent Routes Africa conference held in Kampala, Uganda, we had the opportunity to invite Turkish Airlines, Etihad Airways, United Airlines, RwandAir, EgyptAir and others to commence operations to Maputo,” he says. Further afield, in northern Mozambique, construction on the brand new Nacala International Airport started in March 2012. Chaves says the airport’s location on the Mozambican coastline near the deep-water port of Nacala, makes it a strategic hub for Mozambique’s development, as well as that of southern Africa’s. The port of Nacala is the third largest deep-water port on the eastern coast of Africa, and the Nacala Special Economic Zone, which is linked by road to the provincial capital Nampula and to Malawi and Zambia, is a potential hub for economic and social development. Due to be completed later this year, the airport will have capacity to serve 500,000 passengers a year and handle Boeing 747 aircraft.

all Mozambique-registered aircraft are banned from entering EU airspace. This, despite LAM having met all of IATA’s Operational Safety Audit (IOSA) requirements and being listed on the IOSA register. At the same time, the European Commission has not barred any EU-registered aircraft from flying in Mozambique airspace. In its most recent update of the EU Air Safety List during July, the European Commission recognised Mozambique’s efforts to reform its civil aviation systems, but it remains on the banned list all the same.

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This means that many international visitors opt to fly to South Africa or another African country and transfer onto flights to Mozambique. International and regional airlines flying to Maputo include the big three African carriers, South African Airways, Ethiopian Airlines and Kenya Airways. In addition, TAP Air Portugal, Qatar Airways, TAAG Angola Airlines and regional carriers Airlink, SA Express and British Airways operated by Comair service the city. Several regional carriers operate into Beira, Vilanculos, Tete, Nampula, Pemba and Lichinga airports.

Mozambique The scope for increased air services saw British Airways operated by Comair (BA Comair) launching nine weekly services from Johannesburg to Maputo in May. Meanwhile, Kenya Airways launched a fourth weekly frequency between Nairobi and Maputo in June. Flights from other South African cities are also on the up, with South African Express Airways, which already flies from Cape Town to Maputo, having just been given the go-ahead for services between Durban and Maputo. It is expected to launch three weekly frequencies between the cities in the coming months.

44%

OF TOTAL TOURIST ARRIVALS ARE SOUTH AFRICAN Airlink has also increased frequencies on several of its Mozambique routes out of Johannesburg, boosting frequencies to Pemba and Nampula to cater for demand from business travellers, and to Vilanculos to cater for business and leisure demand. The airline also flies to Tete and Beira from Johannesburg and operates services between Durban and Maputo. These new flights come after Mozambique managed to convince Qatar Airways to launch services in October 2012, making it the first Middle Eastern carrier to fly to the country, offering three weekly flights from another major gas centre, Doha, to Maputo. So while the social and infrastructure challenges abound in Mozambique, it seems clear that there are huge opportunities for those corporations and airlines that are willing to invest in what could become one of the leading economies in Africa.

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Pacific power player The little island of Guam has big tourism and aviation ambitions, reports Peta Tomlinson.

or its diminutive size, Guam packs a mighty punch. This Pacific Island territory of the United States is, at its extremities, only eight miles wide and 32 miles long. Yet here the visitor experience ranges from designer-brand shopping to pristine ocean play and from rugged jungle trekking to world-class spa indulgence – and all within a few hours’ flight of key Asian cities. No wonder its airport plays such a vital role in the Guam economy. Over the past three decades, the Antonio B (AB) Won Pat International Airport in Guam has been on an extraordinary growth trajectory. Passenger arrivals have been rising steadily to reach 1.5 million in 2012 – 940% greater than the island’s population of only 159,500. Over US$500 million has been invested in the airport without debt over the past 10 years. The business has also attracted about US$39 million of private

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development investment in aviationrelated activities. But perhaps the most impressive number is the airport’s economic contribution: directly and indirectly, Guam Airport infuses US$1.7 billion annually – accounting for 60% of the island’s total GDP. “Guam is a unique place – and so is its airport,” says Pedro Martinez, deputy executive manager, AB Won Pat International Airport Authority. “The large number of visitors is Guam’s largest economic opportunity. As the only civilian airport on the island, we are definitely capitalising on what this opportunity represents.” Therein lies a dilemma. Guam is actually proving to be “too popular”, with more tourists than hotels can accommodate. Last year, over 200,000 visitors were unable to secure accommodation due to the lack of available rooms.

The airport has capacity, but faces challenges of its own – such as “getting the airlines to operate out of the peak periods,” says Martinez. Even simply processing such vast numbers of travellers, 90% of whom are foreign nationals, in itself requires logistical precision – especially given that, as a US territory, Guam must conform to the US Department of Homeland Security’s exhaustive security, customs, border protection and immigration regulations. All of this requires personnel and equipment, taking up precious floor space and putting further pressure on the busy check-in and departure areas. Just as measures are being taken to address the hotel shortfall (with 1,200 rooms under construction or planned by 2018), Guam’s airport, too, is looking to the future by investing heavily in its own development.

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Guam

Passenger arrivals have been rising steadily to reach 1.5 million in 2012 – 940% greater than the island’s population of only 159,500

Since 1998, more than US$175 million has been invested in airport infrastructure improvements, which include extensions to both the primary and secondary runways (from 10,000 to 12,000 linear feet, and 8,000 to 10,000 linear feet respectively); a 10,000 feet parallel taxiway; and major improvements to utility infrastructure in all airport facilities and ground areas. Facilities and security fencing have been strengthened against typhoons and earthquakes, and energy efficiencies have been achieved for terminal air conditioning and lighting. Other improvements have included construction and operation of an independent airport facility-wide water system, and the development of a 1,420-acre Airport Business Park. “In addition to the $175 million investment the airport made to the facilities, private developers have also invested about

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$39 million in cargo, express package, consolidated freight and support facilities,” says Martinez. “Recently, the airport has also increased its non-aviation revenue streams with the awarding of a new retail merchandise concession that increases minimum annual guaranteed (MAG) revenue from $4.5 million to $15 million annually. In addition to increased MAG rent, the concessionaire, Lotte Duty Free, has also committed to a $23 million investment to the retail spaces and surrounding areas to improve visitor experience. Parking lot enhancements, a rental car facility, and other supporting business opportunities are also being looked into,” he adds. Future investments are also planned to improve security, safety and the overall passenger experience. These will include an arrivals corridor, in-line baggage screening, expanded passenger screening, common-use check-in and an aesthetic terminal makeover. A vibrant retail layout, with major improvements to the food court, restrooms, smoking lounge and a new kids’ playroom, are proposed. Route development is also on the agenda. Currently, 10 airlines service Guam, providing 247 weekly frequencies connecting to 20 destinations.

Management is pursuing air service development “that makes sense to us and the prospective airlines”, says Martinez. “The eligibility to enter the United States is important. So we are looking at new origins and increased frequencies to Japan, Korea, and Taiwan, which are all eligible countries in the US Visa Waiver Program. We are looking to capitalise on Guam as a link from Australia to Japan and Honolulu. Likewise, we look for airlines which have the rights and freedom to service these routes,” he says. Potential is also seen for expanding the Guam–Commonwealth of the Northern Mariana Islands (CNMI) visa waiver programme. Russia was included in the programme in 2011, allowing a visitor stay of up to 45 days. As a result, Starflyer launched a direct service to Guam from Kitakyushu in August 2013, and Russian carrier Vladivostok Air plans to begin a direct service from Vladivostok in November 2013. But the biggest prize could be Chinese visitors becoming eligible for this programme, which Guam is pushing for. Japan has always been Guam’s bread and butter tourism market, but its population regression means the country is looking to new and growing markets

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Pedro Martinez.

AIRLINES OPERATING TO GUAM Jeju Air United Jin Air Delta Japan Airlines China Airlines Philippine Airlines Korean Air Aviation Services – Freedom Air Asia Pacific Airlines such as South Korea, Russia, Taiwan and China. “A US visa waiver to Guam for China would be a game changer,” says Martinez. With more Chinese travelling than ever before, and now with some of the highest spending power, “we just need onequarter of 1% stopping in Guam, for the economic benefits to be enormous”. Airlines, too, can benefit from adding Guam to their routes, he believes. “We offer lower rates and high utility for aircraft that would otherwise sit overnight in higher priced airports such as Narita (due to the curfew). Safety is optimal on our 10,000 and 12,000 feet

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runways with ILS precision approach. We also provide airline ground support for fuel, handling and catering.” Using Guam as a link to further destinations westward to the US is another advantage for airlines. Guam can also act as a tech stop and crew rest for major airlines, and develop fixed based operations for private plane servicing in Asia, he says. For narrowbody aircraft, the island is within five hours of all North East Asian countries. Apart from route development and investment in airport infrastructure, the airport has other plans for its role in Guam. “As the economic driver of the island, Guam Airport has emerged as a hub for the Micronesian region. We plan to expand this role by encouraging a regional approach for travel through Guam to Micronesia, with a multi-destination option on trend with the desire for environmental tourism which is available throughout the region – all unique, and all famous in one area or another. “We are also working to develop and expand the emerging cruise ship industry on Guam, with a possibility to travel here by air, and board cruise ships here.” Air cargo is another area of opportunity, given Guam’s proximity to Asian factories and manufacturers sending their goods to the US west coast. “Our effort to establish the Guam International Airport as a Regional Center for the US Immigrant Investor Visa Programme (EB-5) is also exciting. This is an investor visa category that a foreign investor can participate in as long as they establish a new commercial enterprise, and meet minimum investment and full-time job creation requirements. We believe that Guam Airport offers this unique opportunity and will be able to attract investment

under this programme.” All of these projects are in the works, “and in varying stages of progress,” he says. The grand vision incorporates property development with third party investment, and further aeronautical and airport-related businesses for job creation using skilled labour. “We are only just starting,” says Martinez. As the island moves forward, the airport authority strives to “sustainably develop our aviation industry, protect and respect our island’s resources, and all the while being aware of enhancing our role as a leading airport in the region, and a US airport in the heart of Asia,” says Martinez. “Our vision is to set the standard in excellence as a safe, secure, world-class, premier aviation hub in the region.” A step in this direction is the Guam International Airport Authority’s hosting of ACI Asia-Pacific’s Small and Emerging Airports Seminar during October, which will see airport leaders from the region gathering in Guam. Who dares doubt that this is achievable? Only a few years ago, the terminal expansion which some island leaders at the time dubbed a “white elephant”, believing it was too ambitious and would never reach capacity, was “bursting at the seams” with commercial tenants and passengers. Diminutive Guam’s diminutive airport has always had faith in itself. As Martinez says: “We’ve developed our air transport industry from a simple Quonset hut to a $500 million airport consisting of terminal and surrounding business and industrial parks, which collectively represent 60% of Guam’s economy. If we could do that then, we can do anything now.”

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In it for the

LONG-HAUL Istanbul’s Sabiha Gökçen is after long-haul routes to Africa, East Asia and the Americas, reports Piers Evans.

or Istanbul’s aviation sector, the outlook is bright but not entirely clear. Demand is rising steeply, but the visibility drops when it comes to infrastructure. On the western side of the city, plans for a third Istanbul airport are accelerating and, in theory, the new gateway could open as soon as 2018, heralding the closure of Atatürk Airport (IST), the city’s main hub. But any project of this scale – especially given the need for new land transport links within the city itself – has a slightly uncertain schedule. Meanwhile, Atatürk, which handled 45 million passengers last year, is already feeling a capacity squeeze. Over the Bosphorus, though, the forecast is cloudless, says Gökhan Bugday, CEO of Istanbul’s second airport, Sabiha Gökçen (SAW).

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A ‘completely new catchment’ Since its privatisation in 2008, Sabiha Gökçen has grown strongly, buoyed by a fast-expanding economy and new low-cost carriers entering the market. By 2009, its passenger figures were up from 4.4 million to 6.6 million, while last year it handled 14.9 million passengers. Despite the impact of this year’s protests in Istanbul, the airport continued to grow in the first half of 2013. An 18% rise in traffic lifted passenger numbers to 8.1 million, with domestic travellers up 12% to 5.2 million and international traffic rocketing 32% to 2.8 million. Credit for spotting and realising this opportunity lies with the low-cost carrier Pegasus Airlines, says the airline’s COO, Güliz Öztürk. “In fact, we created a completely new catchment area around Sabiha Gökçen

Airport,” she tells Routes News. “Straddling two continents, the city certainly needed a main airport on its Asian shores and we recognised the potential there.” Pegasus, the airport’s main carrier, now flies from SAW to 43 international and 29 domestic destinations, combining point-to-point flights with transit operations. “By utilising SAW as our main hub, we offer connections to both Turkish guests for international destinations through Istanbul, and also to our international guests for travel between Europe and all across Turkey, as well as to a growing number of routes to the east of Turkey such as Tel Aviv, Beirut, Doha, Dubai, Tehran and Tblisi.” Over recent months, Turkish Airlines has also committed to the airport,

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Running head

ISTANBUL’S THIRD AIRPORT

alongside its main operation at Atatürk on the European side of the city. The flag carrier is now set to double its five or six aircraft at SAW by autumn and again by next summer to ultimately have up to 40 planes at the airport. In fact, including its Anadolujet low-cost subsidiary, the flag carrier’s fleet at Sabiha Gökçen already totals 15 aircraft. Crucially for SAW, Turkish Airlines aims to maintain its operations there even when the new airport opens, an airline spokesman tells Routes News. “TK will shift all of its operations from Atatürk Airport to the new one. We will continue to use Sabiha Gökçen Airport for the rest of our flights,” says the spokesman.

SAW’s next steps In the meantime, with Atatürk straining at its limits, Sabiha Gökçen’s route development team hopes for a clear run at new routes. For Bugday, a key focus is long-haul routes. “The most underserved

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destinations are in markets such as the Americas, East Asia and Africa,” he says. SAW will continue to welcome a mix of legacy airlines and low-cost carriers, although traffic from LCCs will continue to slip from its current figure of 70%, he says. Sabiha Gökçen’s owners are also working to expand capacity, he adds. “Preparations for the tender of the second runway are continuing,” he says. “We are expecting the tender to take place in the last quarter of the year. Construction will start in 2014 right after the tender and I believe the runway will be constructed and open for operations in two years’ time.” The planned second runway, longer and wider than the current one, is to be built in parallel to cater for simultaneous operations. “Our ATM number, which is 32 per hour at the moment, will be doubled with the opening of the second runway,” says Bugday. “Consequently, our expansion will accelerate rapidly. This will also affect the expansion of the

If all goes to plan, Istanbul could soon be home to one of the world’s largest airports, with four terminals, six runways and an annual capacity of 150 million passengers. The new gateway is due to be constructed in four phases to the north of the city’s main hub, Atatürk Airport. In 2018, on completion of the first stage, the new airport is scheduled to open with an initial capacity of 90 million passengers per year. In May this year, a Turkish consortium won the tender for the project with an offer of €26.1 billion, including a 25-year lease from 2017. The airport is a response to capacity constraints at Atatürk, where slots are already running short but surrounding residential and industrial areas rule out any expansion. Yet the new hub’s construction timetable could be optimistic. An environmental impact report is now being completed, which could prolong the schedule. Meanwhile, ground has not been broken for building crucial rail and road links to the city.

aviation sector in Istanbul and Turkey.” Meanwhile, new transport links will secure the airport’s competitiveness, even when the new hub opens across the Bosphorus, says Bugday. “Since Atatürk will be closed by then and all operations will be moved to the

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new airport, we will be the closest airport to both city centres and – with metro and train lines linking to the city centres directly from our airport – we will be the most convenient airport for both European and Asian sides of the city.”

Prospects for growth Turkey’s strong economy is likely to ensure growth at any Istanbul airport, but SAW’s catchment of 19 million people is a real advantage, says Bugday. “Sabiha Gökçen mainly serves Istanbul and the neighbouring cities in a two-hour range: Kocaeli, Adapazari and Bursa,” he says. “In this catchment area there are both large residential areas and business-oriented districts.” About 40% of Istanbul’s 300,000 companies are based on its eastern side, where the new suburban district of Atasehir is a key financial district. What’s more, despite its recent expansion, Turkey’s air traffic is still less than half its potential, according to Pegasus Öztürk. On domestic routes, she draws a comparison with Spain, where 80% of the population fly, twice the figure for

Turkey’s 75 million people. On international routes, though, she sees the situation as even “more positive”. “We can draw a great big loop around Turkey – all of it is untouched territory,” she says. “The penetration of low-cost carriers is just 11.5% in Eastern Europe, 13.3% in the Middle East and 11.8% in North Africa. In all these regions, the concept of consumer choice is only just kicking off.” Pegasus is now targeting Russia, the Middle East, the Caucasus, the CIS countries and Eastern Europe, she adds. “As fast as we can obtain flight rights, we want to expand further internationally,” she says. “Our growth and expansion over the past eight years is out there for all to see, and it’s something we’re committed to. By 2023, we may have between 75 and 130 aircraft in our fleet.” Pegasus is also looking to keep SAW as its launch pad for expansion, regardless of developments on the European side of the city, she says. “Our route strategy at Sabiha Gökçen will continue independently of the third airport and so it will continue to be our

most important hub. The opening of the third airport, though, will present us with the opportunity to add another hub to our network if we so wish.”

The new route map Pegasus’s route map at SAW recently saw the addition of Athens, Bishkek, Barcelona, Doha and Tirana. This past summer, Turkish Airlines also launched services from the airport to Amsterdam, Kuwait, London Gatwick, Milan Malpensa, Paris CDG, Tbilisi and Vienna. SAW has also recently landed Riga with AirBaltic, Rotterdam with Transavia, Simeropol with Aironix, Budapest with Wizz Air and Mykonos with AtlasJet. Over the next few years, international coverage of Istanbul’s air sector is set to focus on the creation of its new hub, with its world-beating capacity. But for the east of the city, the project’s impact will be muted, Bugday believes. “The third airport will not change much – except that by the time it opens we will have much bigger capacity with both local and international airlines,” he says.

TURKEY’S TOURISM POTENTIAL

n June this year, the rise in visitors to Turkey was 5% more than the same month in 2012 – an outstanding achievement under the circumstances. Despite the global media’s intensive coverage of long-running demonstrations in Istanbul’s Taksim Square, inbound travel continued to rise. Indeed, for the year to June, arrivals totalled 14.55 million, a 14% increase year-on-year. By 2023, on the centenary of the founding of the Republic of

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Turkey, the country is aiming to welcome 50 million arrivals. To hit these tourism targets, Turkey is looking to the BRIC countries, says Ali Selcuk Can, a director at the Turkish Tourism Office in London. Additional tourism offices are already set to open in new cities in China and Russia. Meanwhile, an office in Sydney is due to open this year, to cater for Australia and New Zealand. Brazil, India, Canada, Tunisia and Greece are also each getting their first dedicated Turkish tourism office.

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The role of aircraft in

REGIONAL ROUTE DEVELOPMENT Peter Donaldson looks at how next generation aircraft are pushing new developments in regional route development.

he business model for regional route development has changed; airlines no longer trial routes with cheap and ageing aircraft. Now, economics and operating costs reign supreme and airlines are flying even the latest aircraft on their new routes. This fact was obvious at the Paris Air Show (PAS) where Embraer launched its next generation of EJets, the E2 family, and where it and turboprop manufacturer ATR won a stream of orders. The majority came from Latin American and South East Asian airlines, whose CEOs cited the next generation turboprops and regional jets as a key factor in route development.

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Customers are ordering record numbers of regional aircraft and there are three reasons for this: regional carriers are going through a period of re-fleeting and phasing out old aircraft; they require the most fuel-efficient aircraft in order to cut high fuel costs; and they are ‘right-sizing’ their fleets, bringing in aircraft that have the most cost-effective number of seats for their routes. The ATR 72-600 is a favourite route opener in Latin America. During PAS, ATR announced orders from HGI Aircraft Division for Brazil’s Passaredo, while Avianca took delivery of its first of 15 ATR 72-600s to replace its fleet of

ATR 42s and Fokker 50s, and to expand its networks domestically and in Central America. “These aircraft will enable us to improve our service standards while operating our regional routes even more efficiently,” said Avianca’s CEO, Fabio Villegas, Ramirez. “Their advantages in terms of passenger comfort, as well as their excellent performance on high-altitude runways, perfectly match the requirements of our regional network. They will also enable us to increase our seating offer and reduce operating costs.” Among the destinations the first aircraft will serve are Barrancabermeja, Florencia, Manizales, Neiva, Pasto,

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Regional routes

Economics and operating costs reign supreme and airlines are flying even the latest aircraft on their new routes Popayán, Tumaco and Yopal in Colombia. As more ATR 72-600s enter the fleet, there are plans for them to connect Guatemala City and Flores in Guatemala, Tegucigalpa, Roatán and San Pedro Sula in Honduras, San Salvador in El Salvador and Managua in Nicaragua, as well as San José and Liberia in Costa Rica. The Caribbean’s regional traffic and route networks are also growing, with LIAT upgrading its fleet. The airline took delivery of the first of eight new aircraft (four 68-seat ATR 72-600s and four 48-seat ATR 42-600s) in Paris. LIAT serves 21 Caribbean destinations and most of its routes are less than 100nm long, such as Grenada to Trinidad and Dominica to Antigua. “The 68-seat ATR 72-600s are perfectly adapted to many of our existing and potential routes,” said LIAT’s CEO, Ian Brunton. He explained that LIAT is focusing on lower operating costs, next generation technologies and passenger comfort, all of which the ATR 72-600 supplies. It is the same story of growth for South East Asia’s regional networks. For example, Malaysia Airlines and its subsidiary, Firefly, placed an order for up to 36 ATR 72-600s last February. “Our ATR 72 fleet has allowed Firefly to develop a unique high frequency network out of Subang, Penang and Johor Baruh, which greatly benefits our Malaysian communities, as well as the rest of the

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population in the Indonesia–Malaysia– Thailand growth triangle (IMT-GT),” said Ignatius Ong, CEO of Firefly. In India, Vijayawada-based Air Costa is leasing three EJets to launch a scheduled regional service connecting southern cities such as Bangalore, Chennai, Hyderabad and Vijayawada, as well as key secondary cities in the north and northwest. “Our plan is to link underserved markets in India with more direct flights,” said Captain Babu, CEO of Air Costa. “The E170 and E190 are ideal in size and range. We can add frequencies and routes without adding too much capacity, thus serving places with seasonal demand, as well as key secondary and tertiary business centres.” Meanwhile, in North East Asia, Japan Air Lines (JAL) has ordered another four E170s in 76-seat configuration to add to the 12 its regional subsidiary, J-AIR, already flies. “We are operating approximately 158 flights daily to 27 destinations in 20 cities throughout Japan. Using these additional aircraft, we are able to expand our network to and from Osaka Itami Airport, which is our main base of operations,” said J-AIR’s president, Tetsuya Onuki. During PAS, Embraer launched its next generation of EJets, the E2 family, with letters of intent from five airline customers from Africa, Asia, Europe and Latin America; and – most interestingly – from lessor, International Lease Finance Corporation (ILFC), which is likely to open

new markets by placing the aircraft anywhere where there is demand. More new additions will come from new and existing regional jet manufacturers, including COMAC with the 78-seat ARJ21; Sukhoi with the 95-seat Superjet 100; and Mitsubishi with its 70- to 90-seat MRJ family. And, of course, there is Bombardier’s existing offering as well as its 110- to 160-seat CSeries family and the 90-seat aircraft ATR has set its sights on.

North America hangs on Across in the US, despite route development being subdued, US regional airlines are still investing in new fleets with better operating economics, enabling them to preserve and eventually develop their route structures. One of the most spectacular of these investments is SkyWest’s order for 100 of Embraer’s next generation E2 EJets, with options for another 100. This comes in the wake of its order for up to 200 current generation EJets. “The selection of the current E175 and the new E175-E2 is another phase of our fleet renewal strategy that will allow SkyWest to offer the best operating economics for its partners and the most comfortable experience for their passengers,” said Jerry Atkin, chairman and CEO of SkyWest. Even with economic problems, turboprops continue to open new routes, even in North America. Horizon Air, for

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Some thinner routes in Europe look set to lose their regional airline services due to lack of connectivity with the wider network and suitable aircraft. The answer appears to be the 90-seater example, has placed an order with Bombardier for 51 Q400 and Q400 next generation aircraft, which will enable the Seattle-based airline to expand much further north. “The addition of these three Q400 next generation aircraft will allow us to venture into the state of Alaska, which is considered America’s last frontier and is now an exciting new frontier for Horizon,” said Horizon Air’s president, Glenn Johnson. In June, Canada’s WestJet took delivery of the first of 20 next generation Q400s for operation by new regional carrier, WestJet Encore opened routes to Fort St John and Naniamo, British Columbia, and to Brandon, Manitoba during September, and other destinations due this year are in Alberta and Saskatchewan. “With an unmatched balance of speed, comfort, cost-efficiencies and highly regarded environmental qualities, the Q400 NextGen aircraft will also allow us to operate more efficiently as we enhance service on more routes,” said Ferio Pugliese, president of WestJet Encore and EVP of WestJet.

Europe’s struggle for survival Europe is a mature market but one ravaged by economic austerity. There

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are a number of major challenges to regional airlines that make route development (and even survival) far from straightforward. What is more, some thinner routes in Europe look set to lose their regional airline services due to lack of connectivity with the wider network and suitable aircraft. The answer appears to be the 90-seater. In their report, Are European Regionals’ Successful Days Numbered?, Hanna Schaal of Prologis and Max Oldorf of CH-Aviation pointed out that between January 1, 2008 and February 17, 2013, one-third of all regional airlines disappeared. Of the 195 regional carriers in business at the start of the period, just 130 were still operating at the end; that is a loss of 65 airlines. Schaal and Oldorf identified several contributing factors, one being the decline of affiliations with network carriers. The report also cited Lufthansa’s planned shedding of Augsburg Airways in the summer and of Contact Air last October, and Air France-KLM’s merging of Airlinair, Brit Air and Régional into new airline, Hop!, in March. Regionals often depend on cooperation with larger carriers for interlining, codesharing and check-in.

But as network carriers drop regional routes, the point-to-point demand is not sufficient for a regional airline to take over and these routes lose their services. Schaal and Oldorf also consider growing competition from low-cost carriers and international carriers based in the Middle East as a factor in the decline of regional airlines. The resulting lower yields for point-to-point regional traffic and lower demand for hub-andspoke services make it difficult to sustain profitable regional services with small aircraft. With high fuel costs making 37 to 50 seat regional jets much less viable, regionals are moving to jets with 90 seats or more. “Other routes are either dropped altogether or picked up by other carriers operating smaller turboprop aircraft,” say Schaal and Oldorf. But they point out that operators of smaller turboprops will have a problem replacing their fleets because there are no new-build regional turboprops with between 20 and 50 seats. Yet, even in Europe, some regionals are acquiring new aircraft to consolidate existing networks and develop additional routes. One of them is Aer Arann, which has taken delivery of the first of eight ATR 72-600s.

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regional airlines in Europe disappeared between 2008 and 2013.

“Regional traffic is substantially developing and we aim to upgrade our regional aircraft fleet with the new ATR-600s,” said interim CEO, Sean Brogan. “These aircraft offer high economic efficiency, optimum performance and exceptional passenger comfort. We are convinced that these new airplanes will bring very interesting business opportunities while further developing air traffic in the region.” Flying in Aer Lingus Regional livery, the aircraft will operate on Aer Arann’s current routes from its Dublin base to Cork, Shannon and Knock (all in Ireland) and will fly two new routes from Dublin to Manchester and Birmingham, both in the UK. In April, Norway’s Flynonstop received its first E190 to launch services between the company’s Kristiansand base and cities in central and southern Europe. The aircraft has 100 seats in a single-class. “The aircraft will allow us to schedule direct routes with eco-efficient aircraft,”

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said Daniel Lundberg, CEO of Flynonstop. “The E190 will also help us to develop our direct flight network with enhanced frequency and routes in response to the growing and seasonal demand from Norwegian passengers who need to reach some key European cities.” Aer Arann is not alone. During PAS, Bombardier revealed the customer for a previously announced firm order for 10 of its CSeries regional jets, start-up carrier Odyssey Airlines. It will operate CS100s from London City Airport. The CS100 offers 108 seats in a dual-class, 110 in standard-single class or up to 125 seats in a high-density configuration. “We are launching Odyssey Airlines with the CS100 aircraft because its transcontinental range will allow us to connect key city airports with stringent performance and environmental requirements both in Europe and further afield,” said Odyssey’s CEO, Adam Scott. “We have a unique strategy that will offer a premier service with a focus on new destinations that cannot currently be

served from London City Airport. For us, the game-changing CSeries aircraft offers the best-in-class airfield performance, the lowest sound profile of any commercial aircraft in production in its segment, and will provide the ability to open new markets – all of which are integral to our business model.” Air Lituanica, based in Vilnius, Lithuania, is due to launch a scheduled service with a leased single-class, 76-seat E170 and to add an 86-seat E175 in July. “Air Lituanica is aiming to improve non-stop air travel links between Vilnius and points in Western Europe, Scandinavia, Russia and the CIS. The arrival of our first EJets is a very important milestone for the company,” said Erikas Zubrus, CEO of Air Lituanica. This kind of global interest, despite regional growth trends and sluggish economies, reflects a healthy market and proves that investment in the latest regional aircraft can cut operating costs, push growth and open new markets.

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Corporate strategy How much clout do companies hold when it comes to route development negotiations? Adam Coulter investigates.

an a corporate influence a decision by an airline to launch a particular route? The short answer is yes, but the question is: by how much? There are four key players when making a decision to launch a new route: the airline, the airports, the travellers and the travel management companies (TMCs). And all of them have very different and specific roles to play when an airline takes the plunge and invests in a new route. Ultimately, of course, it is down to the airline to make the final decision, but how it comes to that decision is where the other three players become influential. Let’s start with the airline. When launching a route, the overriding question the airline has is: will it be profitable? A number of factors are key to making this decision. The first is the mix: if you are a full-service airline, you have to have a strong business/leisure mix. You simply cannot launch a new route without a good proportion of the plane being filled with business travellers. There is also a great deal of risk involved for an airline, which it wants to mitigate as much as possible. Nigel Turner, director of programme management and business development UK&I at Carlson Wagonlit Travel, explains: “There’s a huge amount of risk involved for an airline to launch a route,

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so if it knows that a corporate will be able to bring X number of passengers onto that route, then of course that’s a key contributory factor. “An airline cannot be reliant on one segment, whether it be leisure, visiting friends and relatives or corporate traffic, so it has to spread that risk. “If there is a high amount of corporate traffic, it’s going to be looking at which industries would use the route. If it’s a large enough customer, with traffic in the right cabins, then that will be an influencing factor.” Airlines also want a long-term commitment from a corporate – not just a temporary need such as a project. In other words, if an airline knows that a company is opening an office in a particular destination, that gives it the long-term guarantee it needs that a particular flight will be supported. The balancing act for the airline is between guaranteed, negotiated-rate seats, and still having some seats to sell at full fare. Turner adds: “I can think of one particular route, where almost the entire plane was filled with employees from one company on a very, very low negotiated rate.” Similarly, an airline would never want all its eggs in one basket in case a corporate changes its travel policy from air to rail, for example.

Paul Tilstone, senior vice president of the Global Business Travel Association, says: “A corporate would not dictate or decide an airline’s behaviour, but if it said it could bring traffic to a particular route – especially a very regionalised one – then that would be a factor in an airline’s decision.” He also believes the discussions between airlines and corporates should be more strategic, concentrating on long-term plans: “The type of discussion that should be happening between a corporate and an airline should be more strategic. “They should be talking about a corporate’s growth plans, where they are planning on opening a new office for example, and factor that into their decision-making process,” he says. Airlines will also look at a number of other factors, such as: How are they getting from A to B now (is it via C?), the frequency of the flights, terminal issues and transfer times. Paul Dear, director of client consultancy at HRG, explains: “It’s very unusual for an individual corporate to influence the launch of a new route. “We lobby on behalf of our client base, so for example if a lot of travellers fly indirect between two points, then it makes sense to listen to the TMC.” But, in reality, how responsive are airlines?

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Corporate travel

“It depends on the airline,” says Dear. “Most airlines when they are launching, or thinking about launching, a new route they would contact a number of companies in an industry to see if they match the client base they are after.” The other factor to consider is how mandated a corporate culture is. So, for example, a travel manager may all but guarantee X number of seats on a new route – but his travellers may choose otherwise, unless the travel policy is strictly adhered to. Where it becomes easier – and makes more business sense – is when you identify a growth area that is very specific to particular destinations and covers a number of corporates. “Oil and gas from Aberdeen and the Nordics to Houston, for example – if you can highlight to the airline that this is a growth area and say ‘we think there are opportunities there and it makes sense for you to launch a flight’, then the airlines will listen to you,” says Dear. He cites the all-business flights out of London City Airport to New York JFK via Shannon launched by British Airways five years ago as a “relatively obvious step” due to the clear demand from City and Canary Wharf-based companies tired of traipsing across London to Heathrow. It’s a similar story with Air France subsidiary, CityJet’s flights from LCY to Paris–Orly, which serve companies based to the south of Paris. It’s a view backed up by Richard Tams, head of sales and marketing UK&I at British Airways, who was instrumental in launching those all-business flights.

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Corporate travel

“A corporate rarely single-handedly supports the launch of a route, but a grouping of corporates frequently does. Certainly, some industries support particular routes, for example, the financial sector supporting routes out of LCY, the oil and gas industries supporting routes like Houston and Stavanger and the pharmaceutical sector flying to and from places like Philadelphia and Basle,” says Tams. He adds: “The corporates don’t come together physically, but collectively we estimate what support they will give to a route if we start it. We consult them independently on possible volumes and add them all together to help make up a business case with any leisure demand and other sources of data on traffic flows. We do not ask corporates to make guarantees.” He also confirmed that big corporates have on occasion approached BA to ask it to look at launching a specific route. Alan McIntyre, head of network and scheduling for easyJet, echoes Tams’ views. “There are many factors which contribute to decisions on routes, and corporate demand is one factor which on certain routes can be significant. For example, our Scottish domestic schedule is very much influenced by corporate travellers in terms of schedule certainly. “But taken on its own there aren’t any routes in our network currently which exist due to corporate demand alone, as there isn’t enough volume.” A spokesman for American Airlines adds: “A major influencing factor is the corporate traffic as well as the total premium opportunity. Long-term corporate relationships are important and help increase the viability and strategic reasons for flying certain city pairs, but it

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okyo is the number three destination for all Silicon Valley travellers, either as a final destination or a stop to other Asian cities. London and Beijing hold the number one and number two spots respectively. The Silicon Valley Leadership Group recognised the importance of Tokyo. It also realised that many travellers were driving on clogged highways between Silicon Valley and San Francisco to take flights on high-tech Virgin America. San Francisco also offered more airlines and non-stop service to where people wanted to fly. Mayor Reed, Guardino and 25 chief executives from top Silicon Valley companies, including Cisco, eBay, Adobe, Brocade and Novellus, committed to supporting ANA and VX flights at San Jose. The ANA flight from San Jose is now offered daily, and is “demonstrating strong and steady

wouldn’t influence us to such an extent that we would launch flights on its own; it is one of a number of contributing factors that are part of the mix.” Airports also work with corporates to help to influence airlines, as Rosemary Barnes, a spokesperson at San Jose Airport, explains: “SJC is definitely an example of how our local corporations supported us in attracting new airlines and non-stop service. Both All Nippon Airways (Tokyo–Narita) and Virgin America (LAX) joined SJC this year and much of the credit for this new service is attributed to San José mayor Chuck Reed and Silicon Valley Leadership Group led by chief executive Carl Guardino.” (See case above). Ole Wieth Christensen, director of airline sales and route development at Copenhagen Airport, explains he will also bring together airlines and corporates with the purpose of discussing new route opportunities. “We are part of the Danish Business Travel Network and we work with the major corporates and bring them to the airline. Airlines come along to the meeting and will talk about strategy,” he says.

loads”, according to the airport. It adds that Virgin America is gaining traction and is now competing with five other airlines on the Los Angeles route. Guardino has been quoted as saying: “Time is money and it is tremendously inefficient for Silicon Valley CEOs and their employees to drive past San José airport on their way to SFO to suffer through inevitable delays that are based on weather.”

“If a corporate can say to the airline, ‘We think we can bring this number of passengers on a particular route’, then that’s what the airline wants to hear. Then what we’d try and do is get more corporates in a particular sector and get them to confirm they want this particular route too. Then we’d go to the airline and say: ‘We have this many corporates who want to fly on this particular route and this is how many passengers they would bring.’ It’s a relatively robust business case, but of course then it’s up to the airline to justify that business case,” says Christensen. Airports also have a part to play when it comes to offering incentives, such as waiving landing fees, which of course removes a fixed cost for the airlines. He cites a specific growth area – technology – which as a direct result of demand in Copenhagen and southern Sweden saw the launch of a flight from Copenhagen to San Francisco. But as Christensen says: “A corporate plays a contributing role in an airline’s decision to launch a particular route, but it is not the sole consideration.”

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Driving change

ith the City of Detroit focusing on getting its finances back on track, its airport W is set to play an even more vital role as an economic driver, writes Chris Beanland.

or more than a century Detroit has been synonymous with the automobile industry, but in July it made history for being the first US city to be declared bankrupt. Americans reacted with shock as Detroit Mayor, Dave Bing, explained how the City of Detroit had collapsed under the weight of about $18 billion worth of debt and was receiving federal funding to operate basic services. This came after Detroit had struggled with economic decline for years, but the Detroit Metro Wayne County International Airport (DTW) has been quick to point out that the city’s current financial status does not directly affect the gateway. “The airport is run by an independent airport authority and we are entirely self-sustaining,” says Wayne County

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Airport Authority’s spokesperson Scott Wintner. “We have no link to the City of Detroit government and the bankruptcy filing itself has no direct impact on us.” While the City of Detroit grapples with getting its finances in order, it is business as usual at the airport, which consistently ranks in the top 20 US cities as measured by ACI’s passenger traffic figures. The gateway has worked for years on developing new traffic within its catchment and diversifying its offering – and nothing has changed there. WCAA’s Michael Conway explains: “Detroit Metro Airport is controlled by an operating authority that is independent of and has never been part of the City of Detroit.” He adds: “DTW is located in Romulus, Michigan, which is about 10 miles from the City of Detroit. The City now makes

up a little over 10% of Metro Detroit’s population. We do not expect any negative impact and, in fact, believe that this development will be very positive for the City of Detroit moving forward.” Airlines operating at Detroit declined to comment on the impact of the city’s bankruptcy on their operations, but it’s worth noting that the definition of Detroit ‘City’ in this case refers to only the most central core. Joe Cambron, director of air service development at DTW, says: “According to Sabre zip code data, just 3.1% of DTW originating passengers were shown as sold in the “City of Detroit” over the past six months ended in May 2013.” Many commentators also believe that Detroit’s bankruptcy should be seen as an opportunity to turn things around in the city, and there are signs of hope on

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Detroit

the horizon. The airport’s CEO is quick to point out that the regional economy continues to diversify and signs of growth are starting to come through. “Sure, we as a city have had our share of challenges [in Detroit],” says Thomas Naughton, DTW’s CEO. “But South East Michigan is actually doing quite well. Michigan’s economic activity is now at a 10-year high. In 2012, Michigan had the highest economic growth rate in the Midwest and sixth best in the nation. We’re also one of the top states for R&D spending, which has enabled Michigan to maintain a new job growth rate well above the national average over the past few years.” A burgeoning tech industry is in particular providing reason for hope, adds Naughton. “We ranked third in the nation for high-tech job growth last year,” he says.

Expanding hub for Delta While the city’s financiers and administrators grapple with how to balance the books, at DTW work continues as normal. Detroit is still Delta’s second biggest hub after Atlanta, with the airline homed in the sleek McNamara Terminal, which was built for Northwest in 2002 as its hub. Naughton stresses the importance of Delta’s hub operations at the airport: “We’re Delta’s second-busiest hub and the world’s sixth-busiest airline hub by operations. Detroit is a strong O&D business market, so we would always have air service to and from most major markets. “Our status as a Delta hub also provides local travellers with non-stop flights to and from secondary markets that might not be sustainable on Detroit O&D demand alone,” he says.

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South East Michigan is actually doing quite well. Michigan’s economic activity is now at a 10-year high While Delta has invested heavily in reinforcing Detroit as its Asian gateway, it has also added transatlantic capacity with an additional daily flight to Paris, in addition to the existing daily flight operated by Air France and seasonal non-stop flights to Rome, on top of existing services to London Heathrow, Frankfurt and Paris. Naughton adds that Delta has introduced its first non-stop service from the city to South America with new flights to São Paulo, as well as more capacity between Detroit and Mexico City and Monterrey. Delta’s alliance membership also plays an important role for the airport. The airline and its joint venture partner Air France-KLM have the whole McNamara Terminal to themselves – making it an important North American SkyTeam hub. Detroit’s bankruptcy is a stark example of the economic and social effects of the decline of manufacturing in North America, but DTW is quick to point to its strong links with the new manufacturing powers in Asia. Delta serves 20 international destinations from DTW, with a strong focus on Asian cities. “With non-stop service to Shanghai and Beijing, Seoul, Tokyo and Nagoya, Detroit Wayne County Airport has emerged as a major gateway to Asia for Delta,” says the airline’s spokesman Keelan Morris. These Asian routes are fed through an extensive domestic network. “Domestically, we continue to develop connections to Detroit, with 535

peak-day departures to 135 non-stop destinations,” he adds. While motor manufacturing in Detroit is challenged, the industry continues to play an important role in supporting these Asian routings. “Most of the Asian automakers have large R&D facilities in Metro Detroit, and the big US automakers have a huge presence in Asia – particularly in China. So, the ability to fly non-stop between Detroit and these top Asian business markets is critical for Detroit,” says Naughton. This business traffic ensures Detroit remains a high-yielding one for Delta and other airlines. Cambron explains: “The auto industry generates a lot of high-yield front cabin traffic, so while one of the other [US] hubs might have similar volume to a place like China, our yield mix is much better.”

More low-cost routes Asian routes are proving to be increasingly important for the airport, but traditional European routings continue to be vital. Airline partnerships are sparking a lot of discussion in airline circles, and at Detroit airline partnerships continue to play a role in some of its routings. Delta preserves the Amsterdam route, a result of the JV with NWA and KLM back in 1989. Delta’s spokesperson in the UK, Debbie Egerton, is emphatic: “Detroit and Amsterdam are both important hubs in Delta’s international network.”

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Royal Jordanian operates a seasonal service to Amman, but the airport insists there is traffic to support a year-round Middle East service.

We have over 100 passengers each day locally to India. It’s our largest unserved market Despite the focus on Delta and its partners at Detroit, the airport also has strong networks from US Airways and United, as well as a number of low-cost carriers, including Southwest and Spirit. “It’s our best year on new low-cost carrier service since 2006,” says Cambron. New LCC routes this year include Southwest’s route to Fort Myers, Frontier’s link to Trenton/Princeton and Spirit’s new flights to Houston and Denver. Ultra low-cost carrier Spirit has made Detroit one of its most important focus cities. “Detroit is one of our largest operations and also one of our airports with a crew and maintenance base,” confirms the airline’s spokesperson Misty Pinson. “We have grown at DTW in the last year with recent non-stop service inaugurated to Denver, Dallas/Fort Worth and Houston,” she adds. It is no secret that Canadian travellers have been known to drive to their southern neighbour in order to take advantage of more competitive fares and more convenient routings, and Detroit has also been able to take advantage of this. Being just 12 miles from Canada, Naughton confirms that passengers originating in Canada make up an important part of DTW’s catchment. “Our catchment area

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is wide – encompassing South East Ontario,” he says. “There is a regular passenger bus that runs airport to airport from DTW up towards YYZ [Toronto Pearson],” adds Cambron. Despite its economic challenges, the Detroit area remains a hub for Middle Eastern emigrants to the US – a demographic trend that is illustrated by DTW’s direct route to Amman in Jordan with Royal Jordanian. The growing Middle Eastern community, as well as a burgeoning Indian one, means the airport is keen to grow its network in that geographical direction. “We have a medium size Indian population, but it drives a lot of traffic. The Indian propensity to travel is very high here. We have over 100 passengers each day locally to India. It’s our largest unserved market,” says Cambron. “As arguably the largest Arab-American population centre [in the US], we feel two flights per week non-stop to the Middle East, only in the summer, is inadequate to serve the market,” he adds. Qatar Airways’ high-profile CEO Akbar Al Baker has already hinted that his airline is keen to add Detroit to its route network. He told USA Today earlier this

year that Atlanta, Boston and Detroit were next on the Gulf carrier’s American wish list. The addition of Qatar, which is due to become a oneworld member at the end of October, will strengthen that alliance’s presence at Detroit. With Royal Jordanian, Qatar and the potential American and US Airways merger, oneworld would find itself in a good position at the airport.

Development plans With the focus at the City of Detroit being on finances, Cambron is quick to highlight the airport’s competitive financing position. “We think we run a very low-cost airport. Our costs per enplanement are between $10 and $11. We also offer marketing reimbursement for new routes,” says Cambron. DTW is also confident that its current infrastructure is well placed to serve its passengers and airline into the future. DTW notched up more than 32 million passengers in 2012 – and the FAA predicts it will handle 60 million passengers by 2025. “This summer, we’re completing the total reconstruction of our longest runway – 4R/22L, which is 12,003ft long,” says Naughton. “Inside the McNamara Terminal, a transformation of our concessions programme is now under way. By April 2014, we expect all new retail outlets to be operational. With these projects and the much hoped for new Middle Eastern route on the horizon, DTW is looking ahead to playing its part in returning the larger Detroit area to economic health.

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CENTRAL issue Central American countries are keen to grow their slice of the European tourism pie, but direct air services look to be a long way off, writes Mark Smulian.

any destinations in Central America have targeted tourism as a growth priority, but direct scheduled air services from Europe remain few and far between. Plenty of visitors already arrive from North America, but the European tourist market is small, and under continued pressure due to depressed economies. The small market from Europe is reflected in the fact that there are relatively few direct scheduled flights to Central American countries, which forces most European tourists to fly via the United States which requires a visa or an ESTA and frequently involves the notorious bottleneck of Miami Airport. Costa Rica and Panama promote themselves mostly as wildlife, ecological and coastal destinations and, according to the World Travel and Tourism Council, in 2012 visitors spent $5.5 billion in Costa Rica and $3.3 billion in Panama. Meanwhile, Guatemala saw $4.1 billion spent in 2012, while tourists contributed $2.6 billion to Honduras in 2011.

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According to the Panama Tourism Authority, 796,700 tourists arrived in the first quarter of 2012, a 4% increase on the same period in 2011. Of these, 514,862 entered via Tocumen International Airport, with most of the rest being cruise ship passengers. Europeans made up 51,086 of the first quarter total, so in rough terms some 200,000 in a year, with Germany being the main market. Panama’s tourism board has stated that it hopes to increase the number of routes into the country in order to boost visitor numbers. Currently, Panama has direct air links with 27 carriers to 59 destinations in 24 countries – most are in North or South America. There are also daily flights to Amsterdam with KLM, and five services a week to Madrid on Iberia. Costa Rica’s annual tourism statistics for 2012 show it received 2.34 million visitors, of whom 284,996 came from Europe, again with Germany the largest single source market. The main Juan Santamaria Airport saw 1.2 million international arrivals in 2012, with 212,759 from Europe.

Both Costa Rica and Panama promote themselves as ecological and winter sun destinations and they have Atlantic and Pacific coastlines with beach resorts on both. Although short on the archaeological treasures found in Mexico and Guatemala, the two countries seek to make up for this with natural wonders. Costa Rica in particular markets itself as a place to see wildlife and rain forests, including green tortoises’ nesting grounds along the beaches of Tortugero National Park and bird and turtle observation on the Caribbean coast. The Pacific coast offers beaches, viewing of whales and dolphins, fishing, and the Corcovado National Park, which boasts that 2.5% of the planet’s biodiversity can be found within its boundaries. Panama also offers a number of national parks and for the more intrepid visitors the chance to explore parts of the Darién jungle, an area so impenetrable that it is still the ‘missing link’ in the Pan-American Highway. There are also historic areas of Panama

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City to explore, and trips through the Panama Canal are popular. While European air links are few and far between, within South and Central America air travel is booming, with Avianca Taca reporting growth in the first half of this year. The airline carried nearly 12 million passengers, a 9.3% increase over the same period in 2012. Of these, more than half flew in Colombia, Peru and Ecuador and the remainder on flights to destinations outside these countries. From Europe, Iberia offers the most flights to Central America at 16 per week, including daily flights to San Jose, Costa Rica, five weekly services to Panama and four flights to Guatemala and El Salvador. The embattled carrier’s network is being reshaped and long-haul routes are in the firing line, which could potentially leave some routes for other carriers to pick up, as Air Europa has already done with some South American links such as Montevideo. Iberia also codeshares with Avianca Taca, which covers other regional destinations. With Iberia facing its battles, Spain’s Air Europa is attempting to position itself to become the leading operator from Europe to Latin America from its Madrid hub. Some 30% of Air Europa’s passengers through Barajas Terminal 1 are intercontinental transfers to South America from its European feeder routes from Gatwick, Paris Charles de

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Gaulle and Orly, Amsterdam, Rome and Brussels. Air Europa’s UK general manager, Colin Stewart, told Routes News: “Central America is not on our system yet. We would do it, but we need opportunities. Montevideo was there because Iberia was pulling out, so there may be routes that become opportunities like that. “We would look for one or two new flights over the next year, so who knows? There have got to be commercial reasons for any flight and we’d need to know the level of government support available, and how many passengers we could expect originating there, rather than just those flying back to Europe,” he adds. While Air Europa doesn’t yet have any Central American points, Germany’s carrier Condor flies direct to Costa Rica and reports the route is performing strongly. Its spokesman Johannes Winter says: “The comfort of flying non-stop is high and our three booking classes give a broad choice to the customer.”

The Miami connection The lack of direct flights from Europe to Central American cities means that many tourists have little choice but to transit through Miami International Airport (MIA), which is well-documented as being one of the most tricky US transfer points. Even Florida’s state governor, Rick Scott, has complained

about the way the US federal government staffs Miami. In a public letter to homeland security secretary Janet Napolitano, Scott said: “I would like to bring to your attention a serious situation concerning US Customs and Border Protection (CBP) staffing at MIA, which has the potential to damage Florida’s image and international business competitiveness.” Scott says the airport had in 2012 invested $180 million in a new Federal Inspection Services facility for customs and passports, with the intention of improving passengers’ experience, but despite this, “passport control lanes [are] not being adequately staffed”. More than 1,000 passengers a day missed onward connections as a result, Scott adds. However, if anything, things have got worse following federal spending cuts in March. An MIA spokesman told Routes News: “Since then, CBP overtime has been greatly reduced. This has resulted in long wait times for processing during peak periods.” MIA has even sought permission to pay CBP officers’ overtime itself, and is exploring the use of self-service kiosks. It seems like faster transits through Miami are not going to happen any time soon, and more direct flights from Europe to Central American destinations remain a long way off too.

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Eastern crossroads

Poland’s newest airport, Lublin, opened at the start of this year – Stuart Bowden reports on how the gateway has fared so far.

ate last year, construction of Europe’s newest commercial airport was completed, in eastern Poland on the confluence of several important international trade routes. Just an hour by motorway from the Ukraine border, Lublin is Poland’s ninth largest city, located in a wider region of considerable economic potential, despite it having fared less well than more westerly parts of the country since the fall of the Iron Curtain. It is also potentially attractive to international leisure visitors keen to explore a ‘new’ city and its surrounding countryside. And, of course, for members of the Polish ‘diaspora’ of recent years hailing from the region and returning to visit friends or family, it will no doubt prove very handy. Ryanair, Wizz Air and EuroLOT are the scheduled airlines that have so far launched services at the airport, which is about 10km east of the city

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centre at Świdnik, and is reached by a 15-minute direct train ride from Lublin’s central station. Currently, the gateway’s route network includes Stansted, Luton, Dublin, Liverpool, Oslo and Gdańsk. The airport’s marketing and business development officer, Piotr Plikus, believes this is just the start of things for the airport. “Our region has significant potential in terms of passenger numbers,” he says. “It’s home to more than 2.2 million people, who had no other choice but to use far away airports in Warsaw, Rzeszów, Kraków and Katowice – these are within reach, but you need to drive for between three to six hours to get to them. “According to our research, 7% of Warsaw’s passengers are inhabitants of the Lublin region, which translates to almost 700,000 journeys,” Plikus adds. Potential clearly exists for this fledgling airport and since it started

operations at the beginning of 2013 it has been achieving monthly passenger figures nearing the 20,000 mark. “Ours is a modern airport, which takes the accessibility of Lublin and the surrounding region to the next level,” says Plikus. “The terminal is capable of handling a million passengers yearly, and has been designed to allow easy extension.” The all-important business travel sector also has good potential, he stresses. “Our local businesses already have, or are developing very strong ties with foreign partners,” says Plikus. “The Lublin region is a very attractive destination for investors anyway. The proximity of Ukraine and Belarus, shale gas deposits, as well as incentive programmes run by local authorities for new business ventures, generate considerable business traffic,” he adds. He continues by explaining an international airport is a huge advantage and driver of development for the entire region.

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Wizz Air along with Ryanair and EuroLOT are the first scheduled carriers to commit to Poland’s newest gateway.

“The areas in the vicinity of the airport are perfect for doing business: we are a neighbour to the Świdnik Industrial Park and the industrial district and just a stone’s throw from Lublin’s Special Economic Zone Euro-Park Mielec. In addition, the region has three more economic sub-zones in Janów Lubelski, Tomaszów Lubelski and Łuków.” Plikus says the development of a local airport was a natural response to the growing travel needs of the region’s population. “The residents of the Lublin region are increasingly interested in flying rather than using some other means of transport,” he says. Lublin is the third largest administrative region in Poland, in the easternmost part of the EU, bordering on Ukraine and Belarus. Geographical location is one of its strong attractions, Plikus points out. “This is an investor-friendly place, especially if they intend to do business in the vicinity of eastern European markets. The most critical transcontinental road and rail routes from Brussels, Berlin and Warsaw to Lviv, Odessa, Kiev, Minsk and Moscow transect the region, and lead out through its six border crossings. Nearly half of the passenger and cargo traffic of the entire eastern Polish border is handled by our regional crossings.

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“Our region is home to one of Europe’s most modern cargo clearance terminals in Koroszczyn, and to the largest rail-to-road trans-shipment port in this part of Europe – Małaszewicze. Of major importance for shipment of goods en route from Asia to Europe is the railway line cutting across the southern part of the region and heading for Silesia. Lublin also sits along the international Berlin–Warsaw–Kiev route.” The building of a local airport was a landmark decision that, it is hoped, will satisfy Lublin’s aspiration to enter the league of highly developed European cities. “In the near future, a northern Lublin ring road will be complete that will allow arriving passengers to access the city centre in 10 minutes, or get to the eastern EU border along a newly developed dual carriageway within an hour.” Aside from the business opportunities offered by Lublin, there are considerable opportunities for tourism development, says Plikus. “Promotion of the region is ensured by the regional authorities and individual municipalities. Lublin Airport does work closely with most of them. We frequent all major international tourism fairs and partner up with local government to launch campaigns to promote both the

values of the region and local events,” he says. The airport is also keen to work with airlines in developing new services. “First of all, our airport is attractive because of the very transparent system of airport charges and the discount programme, which promises equal treatment and non-discrimination of clients. This means that the cost of services for each airline is alike,” asserts Plikus. “However, if a carrier wants to expand its network of services from Lublin Airport, we can help and support it. Our system of bonuses of up to 95% will definitely foster such a development. The rule is simple. The more you fly, the less you pay. In addition, we are able to support the development of connections by sharing the promotion and advertising expenses.” And for the future? Plikus says the airport’s ILS system is about to become operative, but looking further ahead, a proposed terminal extension is already at the design stage. “If operations and passenger numbers grow as expected, we are ready to expand to serve more than three million passengers,” he says. Lublin is a region with ambitions – and its airport clearly shares these.

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eventsupdate World Routes Checklist Friday 4 ARRIVE; check out the famous Las Vegas Strip or take in a show. Download the World Routes App.

Saturday 5 Collect delegate badge from the Las Vegas Convention Center; or join complimentary or discounted tours. Grab flip-flops and head to Mandalay Bay Beach Club for the Welcome Reception sponsored by the Mandalay Bay Hotel & Casino.

Sunday 6 Head to the South Halls of the Las Vegas Convention Center; attend World Routes Strategy Summit and World Tourism Summit. Explore Networking Village and get involved in activities on the stands; Face-to-Face meetings begin today so make extra meeting requests at the Diary Advice Desk using the Extra Meetings System, sponsored by Copenhagen Airport. Attend Routes Talks and Route Exchange Airline Briefings which start today. The Routes Talks Seminar Theatres, located in the Networking Village, are open to all delegates and feature briefings, presentations and discussions. There will be 30 Route Exchange Airline Briefings by senior network planners; confirmed Exchange Briefings include JetBlue, Fastjet, Kenya Airways and many more.

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October 4 – 8 Monday 7 Get to the event for 7:30am opening. Face-to-Face meetings continue in Meeting Halls, sponsored by Edmonton International Airport. The World Routes Strategy Summit, World Tourism Summit, Routes Talks and Route Exchange Briefings continue, with the networking lunch sponsored by Brand USA. Time for a quick change of clothes; head to the Garden of the Gods at Caesars Palace for an evening of entertainment ‘Vegas style’, sponsored by Caesars Entertainment, plus the World Routes Awards and more informal networking.

Tuesday 8 Get to the event for 8am. World Tourism Summit, Routes Talks and Face-to-Face meetings are on the go, plus Invest and Manage starts today, featuring best practice investment and operational strategies for financing airport development. Attend the networking lunch sponsored by co-hosts of World Routes 2014, the Chicago Department of Aviation (CDA) and Choose Chicago. And get to the Farewell Reception hosted by next year’s hosts in the Networking Village after the final meeting. Then put your feet up and recover before the next Routes event!

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Events update

World Routes turns 20 in Chicago Next year, World Routes will mark its 20th anniversary in Chicago. Having begun in Cannes in 1995, World Routes has grown into the route development industry’s most important annual event. In 2014, the event will be co-hosted by the Chicago Department of Aviation (CDA) and Choose Chicago and will take place at McCormick Place, the largest convention facility in the Western Hemisphere. Chicago is also one of the US’s most important aviation hubs and is

home to two internationally renowned airports. Chicago’s main airport, O’Hare International, is the second busiest airport in the world for traffic movements and the fifth busiest in the world for passenger traffic. And with Midway also being the busiest airport in Southwest Airlines’ system, Routes delegates will be hosted in a city that is rightly regarded as a true aviation hub. Alongside a range of speaker and networking events, there are also some other exciting plans to mark the event anniversary.

upcoming events

World Routes September 20–23, 2014 Chicago, USA The global meeting place for every airline and airport

Routes Americas February 23–25, 2014 San Salvador, El Salvador Routes Asia March 9–11, 2014 Kuching, Sarawak, Malaysia

GET THE WORLD ROUTES SMARTPHONE APP Download this year’s World Routes Smartphone App, available on Android and iOS, for all the event essentials at your fingertips. The free event Wi-Fi, sponsored by Budapest Airport, will keep delegates connected and allow them to download and log in to the app.

FEATURES INCLUDE: • F inal diary information – for meeting delegates • Personal profile – create and edit your personal profile

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• Full delegate listings – message anyone who is attending World Routes with the profile and message functionality • Speaker profiles – see who is speaking and when • Rate and review – rate individual sessions or speakers • Airline table listings – where the airlines are and who is representing them • Event programme – an easy-to-use guide will ensure you know what is taking place across the event • ‘Visit Me’ information – discover what stand activities are taking place • Las Vegas City Guide • Leaderboard – top app users.

Routes Europe April 6–8, 2014 Marseille, France

Routes Africa June 22–24, 2014 Victoria Falls, Zimbabwe

Routes CIS TBC

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One of our top priorities is the n of a creation and implementatio will ch whi National Airline Policy, for help make flying better passengers and shippers by reducing taxes, reforming ty and regulations unrelated to safe

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modernising the air traffic g even control system, to make flyin n it is safer and more efficient tha today. Enhancing the global ine competitiveness of the US airl to s ine airl ble ena will industry nomy contribute to jobs and the eco ay. even more than they do tod with ely clos g kin wor A4A is ermine members of Congress to det how best to advance it.

Why have A4A been campaigning against the ility proposed pre-clearance fac at Abu Dhabi?

For starters, it establishes a ch the disturbing precedent in whi ners US government is picking win al and losers in the internation e of ens exp the at ss ine bus aviation and US airlines, their customers and l loca our and s, yee emplo an national economies. Americ ed to forc ng bei also are rs taxpaye ent of foot the bill for the Departm Homeland Security’s (DHS) ntdecision to back a governme – itor pet com ign fore owned essentially handing them a age strategic competitive advant , this ally Fin s. rier car sed -ba over US y awa plan diverts critical resources t from an existing problem tha g lon the – d fixe be to needs

Customs waits that greet travellers arriving at major US nt is airports. Our own governme the into get to making it easier it is US through Abu Dhabi than gn, pai cam a ted at JFK. We star Draw the Line Here (www. ch DrawTheLineHere.com), whi lved invo get to lic urges the pub by and let their voice be heard and S DH se, the White Hou Congress on this issue. So far, e more than 3,000 people hav sent letters.

Why do you view this pre-clearance facility s differently from existing one on? ann Sh at Dublin and

are Shannon and Dublin airports Abu s. ine airl US both served by Dhabi, which ranks 80th in vals in average daily passenger arri le sing a by ved ser the US, is not pite des re, mo at’s US carrier. Wh s are the fact that airline passenger s tom Cus ble pta cce waiting in una jor ma into ving lines when arri ns to gateway US airports, DHS pla and lars dol r use US taxpaye resources to establish the Abu . We Dhabi pre-clearance facility e first her s line the fix need DHS to ney mo any ng before spendi outside of the US.

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Would you oppose any other ies future pre-clearance facilit at other airports around the world?

ayer Our position is that no US taxp side dollars should be invested out viates the US before Customs alle ts of the long waits at our own por erstand entry. We simply cannot und ld why our own government wou use US taxpayer dollars to pay Abu for pre-clearance services in y onl ed rag ave ch whi Dhabi, 2012, 573 passengers per day in while passengers are waiting s several hours to clear Custom at some major US gateways.

How would you describe the current ‘health’ of the US airline industry?

is the creation “One of our top priorities National Airline and implementation of a ake flying better Policy, which will help m rs” for passengers and shippe

has We are on the right track. It ade dec t cul diffi a n bee ly certain l fue in ses rea inc tic ma dra with of costs and the financial crises came 2008/2009. But the airlines and are through that difficult period ever managing costs better than still before. Profit margins, while factors narrow and often dictated by sing. rea outside their control, are inc

e In what areas do you believ US airlines are leading the industry globally?

tion, US Department of Transporta ade dec 2012 was the best year in a for s ark for these important benchm customer satisfaction. We are ter. committed to getting even bet

A? Do you work with Brand US

A4A’s Brand USA is working with at es coalition to reduce wait tim the g customs for travellers enterin are United States. Together, we der working with Customs and Bor ce pla Protection (CBP) to put in ry and programmes, like Global Ent to other technology solutions, . expedite passenger processing

ng the We are currently experienci history. safest period in US aviation endous This is in and of itself a trem e, achievement. At the same tim the US-based airlines are leading for world in expanding choices passengers, allowing them to never customise their journeys like tly before. They are also constan w for allo improving technologies that more on-time arrivals, more ter seamless check-ins, and bet to the baggage tracking. According

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Do you work with international partners?

We work closely with The International Air Transport they Association (IATA). Like us, tion support many areas of avia ustry activity and help formulate ind We es. policy on critical aviation issu al ion reg also work closely with other ope Eur airline associations in Asia, and Latin America, and the and manufacturers of products al ion services supporting the reg airline industry.

lers furloughed air traffic control in ng ulti res r, earlier this yea , thousands of flight delays, A4A s ger sen pas ine airl the airlines and ugh thro ss gre Con to spoke directly the Don’t Ground America gress campaign. A week later, Con hs oug furl the and acted swiftly don’t were stopped. We hope we gn, pai cam the ate have to reactiv tect pro to ary ess nec but we will if air st safe the and s our passenger can You ld. wor the in travel system the at ok ebo Fac follow us on on the National Airline Policy page, on and l nne cha e A4A YouTub twitter at @AirlinesDotOrg and al @Natl_Air_Policy. My person . alio ickc twitter is @n

What is your vision for the airline industry in the US in the next 10 years?

endous The next decade holds trem ustry. ind ne airli US promise for the grow, to e tinu con will y I believe the and jobs ate continue to cre rove continue to enhance and imp tomer cus of ord rec lar an already stel they ch mu How ty. safe service and not or r the whe on end grow will dep ines xam re-e nt me ern the federal gov ne airli the of nce the importa In what ways do you use and the industry to the US economy social media? same the At it. on ed burdens plac critical Social media has become a st in the inve to e tinu con time, we will nicate tool in our efforts to commu to ary ess nec ates upd technology eive with the flying public and rec our e serv ter bet y ustr help the ind used their feedback. We have also petitive passengers and be more com a e hav it to ensure air travellers e mis pre ire ent the is s globally. Thi points voice and are heard at critical icy. Pol ine Airl l of the Nationa FAA in policy debates. When the