Justin Wastnage joined a panel discussion on Radio-Canada's Première Chaîne.
Originally broadcast on June 26, 2008
Thursday, June 26, 2008
Saturday, June 14, 2008
Reports of Virgin Blue's demise greatly exaggerated
Originally published in TravelWeekly Australia June 13, 2008
Comment
All's well that ends well, or so the saying goes. But with the current economic issues affecting the airline industry, it might not be a happy ending for all stakeholders writes Justin Wastnage
Mark Twain famously found reports of his death to have been greatly exaggerated, not least by the New York Journal-American, which published a not-so glowing obituary. In the aviation business eulogies are often delivered prematurely, with airlines frequently “on the brink of survival” or “at death’s door”. Like a cat, the world’s carriers seem to have a knack of just about scraping through crises to live another of nine lives.
Thus the news this week that market analyst firm JP Morgan read Virgin Blue the final rites is equally exaggerated. The firm warned that the airline needed to up prices by one tenth or else risk insolvency. The root cause is the sky high cost of aviation fuel, currently hovering at about $30 on top of the $140 per barrel of crude oil. This record price, JP Morgan argued, makes many of Virgin’s routes unprofitable.
This may be true, but Virgin would shy away from raising prices on many routes, for in the shape of Qantas-Jetstar and Singapore Airlines’ subsidiary Tiger Airways, , for there are two competitors with deep pockets willing to take a hit in the short term in return for edging the boys from Brisbane out of the market.
Indeed, Virgin’s boss Brett Godfrey is pragmatic. Hitting back at the report, he outlined several other cost-cutting methods such as reducing capacity and “further cash management” strategies. Godfrey is in a bind for sure. But it far from terminal decline. Over the past two years Virgin has built up a credible (if fledgling) rival to Qantas as a full service carrier. It has invested during the good times in frequent flyer programs, interline deals and premium economy seating that should ensure its survival in the short term. If a move upmarket powering an airline through a possible wallet-tightening period sounds counter intuitive, then consider business class ticket sales in the US. It is not the chief executives and government officials who have lost their homes to dodgy mortgages; it is the rank and file travelling public.
But Virgin cannot easily raise fares either. It can look at its fleet mix with more urgency, using its fuel efficient Embraer jets on routes better suited to the 100-seaters, while trimming the frequency of other routes. Qantas has already pulled off some domestic routes where there was competition and Virgin could do likewise. The Australian economy is still booming and at the moment there is sufficient market for everyone if only it is shared a little better.
But the storm clouds are gathering, however, overseas. IATA director general Giovanni Bisignani has warned that the oil price hike represents a bigger threat to the industry’s survival than all previous catastrophes combined. Michael O’Leary, the loud-mouthed boss of Europe’s largest low-cost carrier Ryanair has welcomed the sustained high oil price as a chance to “get rid of a few crappy airlines”. Bisignani is known for hyperbole, warning previously this year that environmental fears could derail the industry and that electronic ticketing was essential to air transport’s survival. Equally, O’Leary has issued warnings of “bloodbaths” and “massacres” in the low-cost scene each European winter season for years now, and at best a couple of smaller airlines fold into larger ones.
But that is not reason to ignore Mssrs Bisignani, O’Leary or even Morgan. The global aviation industry is now predicted to make a combined loss this year of over 2.5 billion dollars, IATA reckons. This a reversal of fortunes to say the least: IATA’s last forecast, itself gloomier than last year’s estimate, predicted profits of $4 billion.
The only airlines laughing are those flying turboprop aircraft (like the Bombardier Dash-8), which use about half as much fuel as jets, or those who have actually gotten their hands on the next generation of aircraft which also consume much less of the black gold.
There will be some casualties for sure in coming months, but is Alitalia can cling onto life for three years of loss-making and Olympic Airways continue to limp on, it would be hard to believe the most pessimistic reports emanating from the world of aviation.
Like Twain, UK rock fiddler Dave Swarbrick’s death in Coventry was also mistakenly reported. Unlike Twain he was able to read a favourable account of his life and the incident has given him the chance to deliver the gag: "It's not the first time I have died in Coventry". Aviation must also be hoping for a silver lining.
Comment
All's well that ends well, or so the saying goes. But with the current economic issues affecting the airline industry, it might not be a happy ending for all stakeholders writes Justin Wastnage
Mark Twain famously found reports of his death to have been greatly exaggerated, not least by the New York Journal-American, which published a not-so glowing obituary. In the aviation business eulogies are often delivered prematurely, with airlines frequently “on the brink of survival” or “at death’s door”. Like a cat, the world’s carriers seem to have a knack of just about scraping through crises to live another of nine lives.
Thus the news this week that market analyst firm JP Morgan read Virgin Blue the final rites is equally exaggerated. The firm warned that the airline needed to up prices by one tenth or else risk insolvency. The root cause is the sky high cost of aviation fuel, currently hovering at about $30 on top of the $140 per barrel of crude oil. This record price, JP Morgan argued, makes many of Virgin’s routes unprofitable.
This may be true, but Virgin would shy away from raising prices on many routes, for in the shape of Qantas-Jetstar and Singapore Airlines’ subsidiary Tiger Airways, , for there are two competitors with deep pockets willing to take a hit in the short term in return for edging the boys from Brisbane out of the market.
Indeed, Virgin’s boss Brett Godfrey is pragmatic. Hitting back at the report, he outlined several other cost-cutting methods such as reducing capacity and “further cash management” strategies. Godfrey is in a bind for sure. But it far from terminal decline. Over the past two years Virgin has built up a credible (if fledgling) rival to Qantas as a full service carrier. It has invested during the good times in frequent flyer programs, interline deals and premium economy seating that should ensure its survival in the short term. If a move upmarket powering an airline through a possible wallet-tightening period sounds counter intuitive, then consider business class ticket sales in the US. It is not the chief executives and government officials who have lost their homes to dodgy mortgages; it is the rank and file travelling public.
But Virgin cannot easily raise fares either. It can look at its fleet mix with more urgency, using its fuel efficient Embraer jets on routes better suited to the 100-seaters, while trimming the frequency of other routes. Qantas has already pulled off some domestic routes where there was competition and Virgin could do likewise. The Australian economy is still booming and at the moment there is sufficient market for everyone if only it is shared a little better.
But the storm clouds are gathering, however, overseas. IATA director general Giovanni Bisignani has warned that the oil price hike represents a bigger threat to the industry’s survival than all previous catastrophes combined. Michael O’Leary, the loud-mouthed boss of Europe’s largest low-cost carrier Ryanair has welcomed the sustained high oil price as a chance to “get rid of a few crappy airlines”. Bisignani is known for hyperbole, warning previously this year that environmental fears could derail the industry and that electronic ticketing was essential to air transport’s survival. Equally, O’Leary has issued warnings of “bloodbaths” and “massacres” in the low-cost scene each European winter season for years now, and at best a couple of smaller airlines fold into larger ones.
But that is not reason to ignore Mssrs Bisignani, O’Leary or even Morgan. The global aviation industry is now predicted to make a combined loss this year of over 2.5 billion dollars, IATA reckons. This a reversal of fortunes to say the least: IATA’s last forecast, itself gloomier than last year’s estimate, predicted profits of $4 billion.
The only airlines laughing are those flying turboprop aircraft (like the Bombardier Dash-8), which use about half as much fuel as jets, or those who have actually gotten their hands on the next generation of aircraft which also consume much less of the black gold.
There will be some casualties for sure in coming months, but is Alitalia can cling onto life for three years of loss-making and Olympic Airways continue to limp on, it would be hard to believe the most pessimistic reports emanating from the world of aviation.
Like Twain, UK rock fiddler Dave Swarbrick’s death in Coventry was also mistakenly reported. Unlike Twain he was able to read a favourable account of his life and the incident has given him the chance to deliver the gag: "It's not the first time I have died in Coventry". Aviation must also be hoping for a silver lining.
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