Brussels Airlines future and financial perspective

[Air Key West]

LH imposed on all airlines in the LH Group the slim seats and a 30 inch seat pitch throughout the cabin on European flights. They also imposed it on b.air or b.air decided to follow (that I don't know).
We can go on our knees to Santiago de Compostella (and back), these seats are here to stay for a number of years...
So, I'm trying to be realistic : all I'm (now) asking for is for all these airlines (or at least b.air if they have some guts), to take out one row of seats at the front of the cabin (until the first exit row). That should give b.business and (most) b.flex pax an extra three to four inches of seat pitch (and more comfort). B.air, this cannot be too much to ask for, especially when your load factor is on average fairly low.

[Lysexpat]

According to the press the EU is not happy with the 60mio€ subsidies the Belgian state will give to Brussels airlines over the next three years.

[brusselsairlinesfan]

It is not what I would call a real gift.

[crew1990]

In the mean time, the money is not going straight to SN. SN will now have to pay any bill.

[Lysexpat]

In the mean time, the money is not going straight to SN. SN will now have to pay any bill.

Didn't Mr Davingon say that SN was unable to pay and that without that money they were going to go bankrupt?

[RoMax]

Didn't Mr Davingon say that SN was unable to pay and that without that money they were going to go bankrupt?

That's a bit exagerated, Davignon said that without the 'state support' their financial loss would be much higher (about 13-14 million more as that is the share of the support that SN will 'get').

[tolipanebas]

Just wait till the audited results for 2013 are published, before commenting: Q4 was above expectations, just as the start of this year, btw. It's not for nothing they are quite confident their explosive EU growth stands a good chance of turning a profit, you know? The market is picking up, and they have a very good cost basis now, in part thanks to the big airbus fleet.

[Flanker2]

I don't think that Q4 will make much of a difference for the result of 2013.
The beginning of the year was strong, as was everywhere else.
However, the rest of the year may not be as good. SN will lose tens of millions in the battle against Ryanair and Vueling, but also in Africa where they will lose millions against TK.
They are confident they will do good with routes such as GVA... I would't advertise that too much...FR will be looking for new routes to operate out of BRU from the winter.

I'm not sure what to think about the LIS increase. It's good that they try to defend their territory, but isn't it a lost cause when you have so much competition? Wouldn't it be better to spend that budget on something that is sustainable and focusses on their core niche, ie Africa? I mean, how important is LIS really to SN?
They can not compete there or at any of the other European routes where Vueling and Ryanair will expand.

I think that 2014 will result in at least as bad a result as 2013, despite the growth of the overall market.
In my assessment, there will be no break-even and certainly no profit.
I'm not sure that LH will make another hand-out and therefore I'm not sure that they will complete the year.

[MD-11forever]

SN will lose tens of millions in the battle against Ryanair and Vueling, but also in Africa where they will lose millions against TK.

And where exactly do you base this statement on? Do you have any calculations or background information to prove this?

[RoMax]

Dakar proves to be a very important cargo destination for SN with a relative belance between import and export (contrary to many of the other African destinations). About 24-25% of the revenue on the daily Dakar flights is being generated by cargo.
No suprise that DKR is a major cargo destination for SN, but it's the first time I see a revenue percentage from them.

http://cargoforwarder.eu/2014/03/03/dak ... o-hotspot/

[Passenger]

SN will lose tens of millions in the battle against Ryanair and Vueling, but also in Africa where they will lose millions against TK.

And where exactly do you base this statement on? Do you have any calculations or background information to prove this?

Still no answer...

[Air Key West]

in Africa where they will lose millions against TK.

This is probably a"guts" feeling you have (unless you have date to support your statement), but which, I think, you are entitled to express to keep the forum going, and as many of us do (since we don't have any "hard" figures). We are in a discussion forum, not in the Board room.
My own "guts" feeling is that b.air may loose some pax to TK, but not that many. A long time competitor we seem to forget is RAM which offers attractive fares to Western Africa without the long "detour" via IST.

SN will lose tens of millions in the battle against Ryanair and Vueling

I'm not convinced either that spending a lot of time, energy and money on a battle with LCCs is the best strategy and I am tempted to say, too, that it would be wiser to spend this money on stengthening and developoping their "niche" market. But since b.air has opted for a "capacity increase" in Europe, they need to get a slice of the low cost pax to fill their planes and make them at least break even in Europe.

The alternative of turbo-props for European flights is not viable in a war against LCCs like FR with jet aircraft only. You won't convince a passenger to fly on a turbo-prop for the same fare offered by FR with a jet aircraft. But you might reply that most pax don't know which plane they are flying on. OK, but they would remember : SN = turbo-prop ; FR = jet aircraft. And you won't convince high yield pax to pay for expensive tickets on uncomfortable turbo-props. Then, they might say : we can just as well fly FR. SN is in a Catch-22 situation.

Imho b.air is in a terrible position inter alia because not one single shareholder wants to invest in it and give it the "real" means to survive.

[Flanker2]

It's a pretty easy calculation.
Operating cost per hour x hours on the route x 2 for outbound + inbound x 365 for a daily route.
For LIS, twice daily service of SN equals a yearly operating cost of 15 million euro's.
A bit on this route and a bit on that route over 10 routes with direct competition, and it's a pretty sure thing that it will result in tens of millions in losses for SN compared to last year.

Do the same for Africa yourself and you can finally realise the dire state of SN's business. It's not for nothing that I've been screaming around for a long time...

The good news is that there is perceptible market growth in 2014. Without TK and FR/VY, I could have seen SN break-even, if fuel costs don't soar too much and the euro remains stably higher.

Unfortunately, TK, FR, VY are here and will hit SN, so that SN will continue to be in the same range of losses as last year, if not (much) more depending on the damage the competitors can inflict. I also have my doubts about their summer seasonal expansion and their charter operation, I don't think that it will be lucrative. Break-even sounds more like it. Tomorrowland packages are expensive but a lot of resources and costs go into organising such charters, plus they fly empty twice to carry the party people. In the end it doesn't make much money althout it does have a small positive marketing effect as it features on the media.

So add last year's loss to their negative balance sheet and add this year's, I don't think that the banks are going to keep their mouth shut. The VY/FR/TK situation will only get worse and worse, there is no solution to that problem. Well at least they will have a good argument to justify why they didn't make it.
I can already see the writing on hln.be: "Brussels Airlines gaat ten onder door extreme concurrentie".

Edit: response Air Key West
Well Air Key West, turboprops were a solution if they were used as I said,
-to increase frequencies and fly along A320's on the main routes (and thus close the market for LCC competition)
-to operate niche regional markets that can transit through BRU to reach their final destination.

TK is hitting them very bad already, now they are expanding more and more in West Africa. When you consider that SN's aircraft operate triangles, it doesn't make much of a time difference to fly TK through IST with a transit. A few hours at best. If the fare is significantly cheaper, people will forfeit a few hours of their time and also take advantage of TK's superior product. TK can also capture a major part of the US-Africa traffic, and there they can even attract J class pax.

TK is doing everything right in Africa. They are offering a convenient high frequency service even if that means using smaller aircraft, correct rates and a good product. SN will lose big on the low-frequency 2-3 weekly services first, where I see reductions as soon as this summer unless they continue to operate them at a loss. Then, the high frequency services will follow, ie Cameroon and Kinshasa, but they could continue a few years if the rest of their network doesn't shut them down first.

I think that next year already, even if SN gets all the funds to survive, TK will have taken over so much of their market share that I see SN's African network loss to become irreversibly unsustainable.

[RoMax]

I'm not convinced either that spending a lot of time, energy and money on a battle with LCCs is the best strategy and I am tempted to say, too, that it would be wiser to spend this money on stengthening and developoping their "niche" market. But since b.air has opted for a "capacity increase" in Europe, they need to get a slice of the low cost pax to fill their planes and make them at least break even in Europe.

Don't make it too much of a SN vs LCC's war. SN increases their Southern Europe offer not because it's a fight against the LCC's but because the demand is there (and not the least from companies such as Thomas Cook and Club Med). Several of their routes to the south of Europe were among the best performing and most profitable routes last summer (thanks to the large touroperator contracts they have for many of these routes).
Of course there is a battle with the LCC's, but that's mainly on their existing routes and the only thing they do to give them a stronger position is by adapting their product (ranging from website to on board product to loyalty programs). That's not wasted energy or time and certainly not waisted money. And the money they spend on those 9 new seasonal routes, that has nothing to do with a battle with the LCC's, that has to do with SN responding the demands of the market. The holiday market which is often seen as low-yield and not worth the investement, but last two summers proved otherwise for SN and the expectations for 2014 are only getting better. That expansion in the south of Europe would have come with or without Vueling and FR expanding at BRU (it are different routes anyway, except for the fact that FR serves some of these routes from CRL, but that doesn't matter for SN as they already cover their costs just by having lucrative contracts with touroperators). Don't forget many of the new sheduled flights were operated last summer as well, just as charters and sometimes not that frequent. Now SN still has those charter pax, but can fill more seats by selling tickets on their own as well.

[MD-11forever]

It's a pretty easy calculation.
Operating cost per hour x hours on the route x 2 for outbound + inbound x 365 for a daily route.
For LIS, twice daily service of SN equals a yearly operating cost of 15 million euro's.
A bit on this route and a bit on that route over 10 routes with direct competition, and it's a pretty sure thing that it will result in tens of millions in losses for SN compared to last year.

For a flight to LIS, you estimate the yearly operating cost at 15mio EUR. So per flight you assume:
15,000,000
/2 (twice daily)
/365 (flight operated year-round)
/2 (outbound and inbound)
= 10275 euro operating costs per flight

According to the Brussels Airlines site, an A319 has about 130 seats. Let's assume a load factor of 65% (which is on the conservative side), so that's about 85 seats sold. To be break even when 85 seats are sold, an average passenger on the flight to LIS should pay around 115 to 120 euro one way (mind you that I'm talking about an average passenger, so some will pay more, some will pay less). I think that should be feasible. So according to your calculations, I would not fear for "tens of millions in losses for SN".

But then again, I'm not an expert in airline fees and costs, and I don't have a clue about the the accuracy about operating costs and the average price of an airline ticket presented above...

[teddybAIR]

Or the pragmatic calculation:

> how many pax does RYR want to transport in a year (eg: 1,5mio);
> of that, how many are maximally lost to your airline (eg: 1%)
> what is the average fares on those routes (eg: 200€)

What the above learns you that for every % pax of their estimated traffic that is sourced from your airline, the top (and bottom by the way) line impact is 3mio€!

[tolipanebas]

FWIW,

1) LIS is ONCE daily at SN.
It's only during JUL and AUG that we'll go double daily on this route as bookings are stong and justifying this last minute frequency increase... LIS is a major EU connecting route too, BTW.

2) As to the pragmatic calculation attempted above: average one way ticket revenues on Europe stand at just 88 euro (not 200 like some think; if that were the case, revenues on EU alone would outdo SN's yearly turnover, which also includes long haul, charter, handling for third parties in BRU and FIH and MX activities).

3) Finally, forward looking bookings are aread of where they were this time last year, fully in line with what we have seen over the past few months on the LF front.

Enjoy the back of the envelope calculations with these real figures: I'll stick to reality.

[FlightMate]

Tolip, what are management's (and your) reviewed predictions, for next year, now that FR has entered the BRU market?
Breakeven? Better?

I see an improvement in the overall economy, so possibly a good sign for SN (but maybe the previous predictions were already based on a recovering economy). But with this (and with a possible 'cold war'), I see more expensive fuel price.

[sn47031]

I think SN can only survive thanks to the good cargo figures.
High yields to/from Africa.

[Flanker2]

Tolipanebas, I don't deny that SN will not have increased bookings for the coming months. As I said, given the improved economic situation, I would have see them break-even if it werent for VY and FR and TK.
So while all bookings are up, the 10 affected routes will yield a significant enough loss that the break-even achieved by the other routes and which was also achievable on those 10 routes, would result into a loss.
I also see some surprises from FR come fall, as they open up winter-proof routes out of BRU.

The FR effect will take months to be felt, but I think that it should catch up by May, when Vueling settles in. Also, in a ny case, regardless of traffic, yields will be under pressure.

But TK will be by far the biggest problem and I count on them to inflict significant damage to SN.
Say that 350 millions of SN's billion euro revenue comes from Africa. If TK can snap away 10% of that, it's already significant.

MD-11, that's more or less correct, but don't forget to add the taxes and the problem of ovresupply.
With taxes, that would be 150 euro one-way, 300 euro's return...
You need to find 85 pax who are willing to pay on average 300€ return, when FR, VY and TP offer seats for less... that's where the difficulty is and partly where this year's loss will come from.