Brussels Airlines future and financial perspective

[convair]

What do the experts make of that?

[Air Key West]

Interesting.

LH CEO, Franz, is said to leave LH by May 31, 2014.

Do I remember correctly that LH has until April 2014 to exercise its option to acquire the remaining 55 % of b.air ?
Is Franz going to make the painful decision (for b.air) not to exercise his option or will he suggest to the LH Board of Directors to buy the remaining shares before he leaves (I have my doubts about the latter).
Or will he try to leave the decision to his successor ?

Interesting, given the info above in convair's post.

[Bralo20]

Do I remember correctly that LH has until April 2014 to exercise its option to acquire the remaining 55 % of b.air ?

This was extended with 3 years I think.

[RoMax]

Do I remember correctly that LH has until April 2014 to exercise its option to acquire the remaining 55 % of b.air ?

This was extended with 3 years I think.

This option was indeed extended until 2017 I believe. 2014 is a critical year, I wouldn't be suprised if LH doesn't take any decision regarding SN in 2014, maybe not even 2015 (if 2014 doesn't prove to be profitable) or later (if the following years are not profitable either).

[Air Key West]

Thanks for your clarifications. So, I missed a stage indeed.
My conclusion fwiw : if LH does not want to take over b.air, they will make Franz announce it right before he leaves. If they still have faith in b.air, they will keep both options open until they feel ready to make the final decision. A lot will depend on whether b.air can at least break even, soon.
Peter Kranich's departure is however "interesting". I don't want to play with words, but "Kranich" (crane, the bird) is Lufthansa's nickname in Germany. Is (the) Kranich (Lufthansa) leaving ?

[Inquirer]

Thanks for your clarifications. So, I missed a stage indeed.
My conclusion fwiw : if LH does not want to take over b.air, they will make Franz announce it right before he leaves. If they still have faith in b.air, they will keep both options open until they feel ready to make the final decision. A lot will depend on whether b.air can at least break even, soon.
Peter Kranich's departure is however "interesting". I don't want to play with words, but "Kranich" (crane, the bird) is Lufthansa's nickname in Germany. Is (the) Kranich (Lufthansa) leaving ?

I think you're trying to read much more in it than there's only to read: a manager leaving for another job. Happens all the time (see Franz).

Remember LH has provided BRU AIR with a "loan" of -if I'm not mistaken- €100m at the start of this year, so they are obviously committed for the long run.

[Passenger]

Franz' family lives in Zürich so he won't have to fly ZRH-FRA-ZRH anymore, he will be able to see his 5 children (all school age) daily, he's a Swiss citizen asked to lead Swiss' top pharma company, he is already member of the Board at Roche, and Roche is going to pay him 2,5 times what Lufthansa offered.

Date of his appointment at Roche is 3th March 2014, not 30th April 2014.

[Flanker]

In exchange for the forgiving of the government loan.
How much was that again? I think that you are reading too much into that too.

I think that Kranich is running away after he made some realisations about the liabilities that he was carrying. On the other hand, did he really contribute anything good that is going to make SN turn around??
The new appointments aren't going to change much if you ask me, unless they are excellent. It's up to them to prove that they can contribute with something great.

I don't think that LH will close any doors until they actually have that option expire.
However, the fundamental question is: how to turn SN around? The economical indicators aren't good... the indexes are showing all time high's despite very sluggish economy, which means that there is no other way to go, but all the way down.
You can also see this in SN's stagnating traffic numbers and the same in the weak September numbers of the AEA. Heck, even Ryanair sees a rough winter ahead. I think that we're in for another round of this depression.

As for those who keep repeating that I was wrong about SN not going over the 100 millions in losses for 2012: well it's plain simple, the difference was made by the ETS.... estimated at 15 to 20 millions for SN. If you add that in the math, which was very current in November-December 2011 when I made the 100+ prediction they would have been 110 millions in the hole.
So this gives some relief for this year as well, and they don't have extra expenses this year. I think that they will reduce their losses slightly to around 70 millions but they will not reach the break-even goal that they set.
I don't see any reasons for the losses to increase.
Heck, why don't they make checked luggage a separate but reasonable charge in b.light? Say 10 euro's?
To break even, they need to be more agressive on the low yield side, the early bookings in b.light.

Advertise the early booker's one-way fares at 49.99EUR! Ryanair has increased their average fares, so 49.99 would now seem a much better deal compared to 5 years ago when Ryanair advertised 1 to 5 euro fares. Don't forget that reduced government spending = reduced regional spending = less incentives paid to Ryanair = higher fares + reduced profits for Ryanair.
This would increase SN's load factors intra-EU, and could contribute as much as 20 to 30 millions to their earnings, at the expense of Ryanair.

[Air Key West]

Air Key West wrote:Thanks for your clarifications. So, I missed a stage indeed.
My conclusion fwiw : if LH does not want to take over b.air, they will make Franz announce it right before he leaves. If they still have faith in b.air, they will keep both options open until they feel ready to make the final decision. A lot will depend on whether b.air can at least break even, soon.
Peter Kranich's departure is however "interesting". I don't want to play with words, but "Kranich" (crane, the bird) is Lufthansa's nickname in Germany. Is (the) Kranich (Lufthansa) leaving ?


I think you're trying to read much more in it than there's only to read: a manager leaving for another job. Happens all the time (see Franz

You're right. But it's a strange coincidence and I just could not refrain from making the analogy. Sorry.

[Flanker2]

SN is heading for a 45-50 million loss without help from the government. Not sure if this is the nett result or the operational result.

http://www.hln.be/hln/nl/957/Binnenland ... ring.dhtml

My estimate as someone without any access to financials was a reduction of the operational loss to 70 millions versus SN's own estimate of 0-20 million loss. As said earlier in this topic, you've got to love the optimism of SN.

The only difference I see is cheaper fuel and lower dollar.

Next year, they will have a big big problem with FR and Vueling. Decreased yields and traffic, on over 5 European routes.... that could be a 40 million hit right there.That's if FR fix their website and make Brussels Zaventem appear again as a departure airport on the quick-search....

Let's not forget the pressure in Africa...

Lalibre Belgique is a bit more dramatic:
http://www.lalibre.be/economie/libre-en ... 5ef7d5de23

[RoMax]

Let's not forget the pressure in Africa...

The 'funny' thing is that the balance shifted completely over the last 1-1,5 year. Europe is about breakeven, while SN is burning money on their African network. SN took action in reducing costs in Europe and 'optimising' their offer at certain routes. But Africa needs broader action, beyond just SN. Africa is a matter of the LH Group and at this moment it's just waiting what will come out of that.

[convair]

Hence no additional long-haul on the agenda for the moment?! What about North-America?

[Flanker2]

It is funny indeed because I can remember how several of us have been warning about Africa and how SN could easily lose their grips on their African network in a matter of years. I sincerely didn't expect it to come so soon.

However, despite what they are saying, I really don't believe that SN's Africa network is loss-making yet... it's still too soon IMO. Sure, the way SN operates in Africa, it's not difficult to tip the balance. But TK isn't fully deployed yet and it takes time to shift a clientele. I think that in 2014 that could be true though, my rough estimates are that all it takes is 20-40 lost passengers per flight to go from profit to loss if you operate the way SN does.

A narrowbody operation could have made the difference, it's very sad that they didn't take it seriously.
Establishing links to China and Japan could have helped too. North America was a waste of time and money, it didn't help Africa at all. If anything, I think that it helped the European network by increasing the feed traffic. Well at least that's what I think. Probably only god knows the truth.

[RoMax]

The problem of Africa is higher capacity increase (overall, not SN on its own) than the actual market growth and as a result dropping tickets prices/yields because they all want to secure their market share. How are you going to solve that with narrowbody aircraft? Deploying even more capacity in an attempt to get a bigger market share (though that is not possible at several destinations with restricted traffic rights)? Operating aircraft which have an even higher CASM, while the yields are already unsufficient to cover the costs of a widebody operation?

Believe me, TK is not being profitable in Africa either (and it is not going to be in the upcomming years), Emirates claimed several West-African countries remain difficult for them, Qatar Airways dumps capacity where there is not enough demand but just to be sure they secure future demand and Air France also adds capacity but sees their yields dissapearing together with it. Africa is no longer the profitable market it has been for many years, of course there are profitable routes left, but overall airlines are dumping capacity where the demand is unable to follow, just because they all see the potential of the market and all want to be sure to get a piece of the cake, but that also means this is a terrible period financially.

Less triangle flights, more optimal connections, a bigger focus on the core of SN's AFI network (West and Central African markets, mainly French speaking markets). But being carefull with adding too much capacity to certain destinations.

[Inquirer]

Good to read they are (close to) break even in Europe: I'd think that is excellent news even as this should be the core of any Belgian airline: connecting the home market with the economic zone around it. If you can't do that profitably, you are in for potential trouble as most if not all longhaul from Brussels will always need connecting passengers for an airline based in a country as small as Belgium and this means loads of competition, much more than you can ever image on any direct route, I am sure, so if you want to compete on price like you need to do when you are after connecting passengers, you better have a profitable feeding network to start with.

Is there any news on what they will do to the remaining Avro100?
Given the success with going for bigger Airbus jets on their European network, would it be a safe bet to say they are also going to replace the remaining regional jets by more Airbus jets to continue on the path chosen?

All in all, these seem like encouraging results, I'd say: Rome wasn't built in a day either.
Maybe they should add some more planes on Europe then? I wouldn't mind seeing a few more Airbus and destinations in Europe added, given I fly them on a weekly basis and would do so even more if they'd offer more choice of routes. I am sure there are many here who'd like to suggest a few new routes from BRU which could support a flight: my favourites would be Saint-Petersburg and Leipzig, as I now need to connect through FRA for those and I see a lot of regulars in the lounges at both ends (as well as in between, sadly).

[Wohowbagger]

If Europe is almost break-even, africa isn't lossmaking and US is ok, where are they still losing that much money on? Not the planes, I guess. And there were no major investments since, well were there any ever? So where are those 50mil euro's (2bil BEF!) going to?

[Inquirer]

If Europe is almost break-even, africa isn't lossmaking and US is ok, where are they still losing that much money on?

First of all, please note how "close to breakeven" still means a small loss, while "satisfactory performance" on a what is probably still just start up operation often entails a significant loss too.

Secondly, as I have understood it, there's not going to be a loss of up to €45M; that would be the case if the Belgian government wouldn't honour its commitment to help level the playing field for Belgian airlines.
It seems our government has every intention to honour its past commitment however, even for this year still, in which case the result will be pretty close to target. In case they can't/won't, one could provocatively answer your question by simply replying: "on the way too high Belgian social taxes", as quite a few people in politics do these days, not entirely without any grounds to it, I should say.

Thirdly, every market probably has its own dynamics and its own performance, some of which satisfying, others probably less so, so it's much better to look at them individually and fix them where needed, rather than consider them as suffering from a homogeneous problem which can all do with the same cure just because they are located on the same continent. IMHO, the solution is to single out those troubled markets and get their specific problem fixed on an ad hoc basis: always beware of wizards who claim to have one single magic formula for every possible problem.

[fcw]

First of all, please note how "close to breakeven" still means a small loss, while "satisfactory performance" on a what is probably still just start up operation often entails a significant loss too.

Secondly, as I have understood it, there's not going to be a loss of up to €45M; that would be the case if the Belgian government wouldn't honour its commitment to help level the playing field for Belgian airlines.
It seems our government has every intention to honour its past commitment however, even for this year still, in which case the result will be pretty close to target. In case they can't/won't, one could provocatively answer your question by simply replying: "on the way too high Belgian social taxes", as quite a few people in politics do these days, not entirely without any grounds to it, I should say.

"De TIJD", a source you often quote, talks about DARK RED figures, a loss of up to €50M in case rhe state aid would not be allowed.

[Flanker2]

Good point Treeper. If SN is making money in all its market, the only explanation for these bad numbers is that they're using a real good coffee in the B.House...

I really wonder if SN's European network really became that profitable all of a sudden. After all, the traffic numbers aren't up by that much. Cutting the loss-making routes may help a bit but turn around SN's network?
Africa being in the loss so quickly after TK's expansion is also too weird to me... especially for Africa.

I really wonder what is going on. Isn't it in SN's interest to tell the world that they are so strong in Europe to make their new friends in BRU shiver, and to say that Africa is a lost cause, to avoid any new competitors from joining the market? After all, it's so easy to manipulate the numbers between feeding and longhaul flights that one could prove anything with them...

For Romax only (I would appreciate if the radical fanboys would not comment, otherwise it would steer us too far away): the narrowbody ops would have reduced costs... significantly. The whole idea was to use the aircraft at night where they would otherwise rest on the tarmac, to fly point to point to the closer African cities, with high frequencies and to cross-use them with mid-haul routes where those aircraft are used anyway. It would definitely have helped keep TK out of the market through frequencies, on top of helping SN expand more into AF-KL territory. 2 direct A320 flights would have saved about 20-25% on operating costs over an A333 triangle, while making the trip shorter for the passengers and yield management easier. This would come at the expense of cargo revenue, which would only be a 3-5% loss of revenue. With an extra flight crew, no hotel would have been required on the shorter trips, which would have saved the company tons of money.
By shortening the trip time and placing the departures in the late afternoon, it would also have enabled SN to better fill its afternoon Europe feeding and would have worked perfectly with evening flights to the U.S. to reduce transit times and would also have offered better yields.
Operationally, it would have avoided the current mess they are in, which costs a lot of money too.
But now it's too late, they added A330's instead and the A319/A320's they added are not the right aircraft for this operation, so they are stuck with it.

At the current rate, bearing a rescue package from somewhere, I don't see them surviving very far into 2015, even if they miraculously stay afloat in 2014. For me, this chapter is closing, I'm already wondering what comes next. This stays of course my humble opinion and my gut felling, based on past numbers and the cash they have remaining.

There is room in Belgium for a competitive carrier with a great network, a great brand and one that gives thousands of competent workers pride and a good, steady paycheck. I no longer believe that SN can be turned into that, it's become too much of a wreck.

[RoMax]

I really wonder if SN's European network really became that profitable all of a sudden. After all, the traffic numbers aren't up by that much. Cutting the loss-making routes may help a bit but turn around SN's network?

Cutting frequenties/routes that are not needed, optimising the shedules to enable better connections (Europe-Europe and Europe-Africa/US), removing the RJ85 and 737 fleets and replacing them with Q400's on the thin routes and A320series, ... SN has been able to cut their costs, while increasing their loadfactors. A smaller fleet for Europe, but with higher capacity resulted in less flights, but a more limited reduction in capacity, a serious reduction in CASM and thanks to better network connectivity and a new focus on certain market elements, a higher loadfactor. All elements that make a significant difference.
I'm not quite sure they are profitable yet, but they are close.

Africa being in the loss despite only a minor setback is also weird to me.

What is a minor setback to you? SN has been able to keep up their market share in Africa this year, but at a high cost, their yields on some routes were flushed down the drain because other airlines intensified competiton by adding more capacity without sufficient demand. Turkish Airlines, Qatar Airways, Emirates, Air France, ... face bad yields as well, but for these companies the African network is just a small part of their whole business, while for SN it represents a significant share of their revenue (even AF can not be compared with SN on this, as they have a very significant business outside Africa).
I'm not sure they are losing money on the network as a whole, but for sure it is MUCH lower than in the past, despite the slightly higher capacity.

Isn't it in SN's interest to tell the world that they are so strong in Europe to make their new friends in BRU shiver,

Actually the way they reacted on the base of Ryanair was quite 'cold', as if they feel quite confident they have a network and a product which is stable enough to survive this attack.

"Europe is profitable" is a phrase that LH is saying a lot lately, while it's been in the red since as long as I could remember. All it takes is to increase the share of the fare for feeding to make it look like Europe is now magically profitable and longhaul is sagging...

LH Group is saving billions in operational costs with their most recent savings plan, generating even more savings than expected. I don't see it unpossible for LH to generate an operational profit in Europe. Of course it is the question if that profitability is sustainable.