Brussels Airlines future and financial perspective

[Passenger]

What does this appointment mean? First we need to ask ourselves what happened to the guy who held this position before. Was he fired? If so, it will confirm the answer to my previous question:

2.
I have to ask myself whether SN's yield department didn't push SN into losses by posting too high fares in the previous years. If they had done this sooner, before FR and VY came to BRU, they could have done much better.

Next quetion: If this guys is good, why would LH waste a good man for SN? I remind you that they have bigger fish to fry at Passage, which is far more important than SN.

Believe ot or not, but the boss (Etienne Davignon, that is) has invited me for another of his great gholf parties in Knokke Zoute next Sunday. Weather permitting of course, because we both suffer a lot from gout/jicht. I will remind E.D. that all future management nominations at Brussels Airlines must have anterior acceptance by Luchtzak's Brussels Airlines Shadow Board .

(by the way, "the guy who held this position before" hasn't been fired: he made a career switch, made possible by a total reshuffle in another airline).

[Inquirer]

Some people here clearly need to get a few refresher lessons in basic business management: commercial price setting is dependant on manufacturing costs on one side (low end) and product demand on the other (high end).

This means that for a product known to have low margins to start with, one can only stimulate demand and sell at a significanly lower price than before is one firsts manages to reduce the unit costs of it: otherwise, the price cut just isn't sustainable.

Prices have dropped very significantly indeed and not surprisingly market stimulation has happened as a consequence, yet more interestingly the financial result is expected to improve significantly too, so clearly they have worked on the cost side of the equation to make their new model truly sustainable, much to the surprise of some here, yet exactly as one logically would have expected them to do. Contrary to what you often read here, they do not show much signs if being run by idiots, quite on the contrary even, as of lately.

I'd expect them to continue doing more of the same in the coming years too, notably by using bigger planes and by simplifying their oprational processes further through better integration with other Lufthansa departments for instance or through outsourcing and further automation: that should drive costs further down, especially as they grow in volume and thus make any such moves less expensive per ticket sold and further improve their results, thus making them quite attractive for a full integration into the bigger group. Their unique in between product itself may also be of interest to the other airlines, say for instance Austrian.

If in the meantime they manage to turn their premium profile into a sellable asset likeis rumoured here, they are in a position to make far more additional revenues from the average passenger than any traditional low fare airline can ever do, so they should not have too big a problem in diversifying from those spartan airlines and closing any remaining financial gap between cost and price in future.

As said before: things are looking better than ever for them in the past few years and IMHO the potential is to the up side for the first time since long. They have finally found an operating model which clearly works commercially and which has ample potential to be further tweeked into a financial success too. If I wouldn't be occupied in plastics, I could easily be tempted to take an offer to join them as working for an airline could be fun to do for a couple of years and so far an airline is still missing on my CV.

[RoMax]

Just so : Brussels Airlines is not an independant airline any more, it's simply a division of Lufthansa - who clearly calls the shots.
Jetairfly and Brussels Airlines are German, Thomas Cook is British - VLM remains the only Belgian airline - for how long ?

Yes, but I don't see the point. Is that bad? It's the way forward in the industry. The days that airlines could really make the difference through strategic alliances such as Star, Skyteam and oneworld are over. It still helps (for certain airlines), but too many airlines are already in alliances to make really differentiate yourself as a company and achieve bigger market dominance purely through alliances (also look at internal competition, LH vs TK is probably the best example). Consolidation is the way forward and in case of the US and Europe that's easier because they are such large single deregulated markets. Outside these 'domestic' markets ownership rules are too restrictive to achieve the full benefits from M&A's, but even then (look at South America with LATAM and Avianca-TACA).

To get the most benefit it is important that a group is well coordinated. It's normal that LH is steering LX, OS and SN in their strategic decisions. There is no place for nationalims, pitying our small little country (and its companies), in a global market. For SN it is good to be part of the LH Group. It might restrict them in certain ways, but at the same time the benefits are way too big to ignore. SN is too small and too insignificant to survive without a company like LH controlling it in today's market. But contrary to the bmi deal which was forced upon them too fast, they are playing it in a smarter way with SN. They make sure SN does much of the work itself and steers them in the right direction with minimal financial support, before taking over them being fully exposed to SN's financial performance.

[sn26567]

Jetairfly and Brussels Airlines are German, Thomas Cook is British

... and Ryanair is Irish, both in BRU and in CRL.

[airazurxtror]

Just so : Brussels Airlines is not an independant airline any more, it's simply a division of Lufthansa - who clearly calls the shots.

Yes, but I don't see the point. Is that bad? It's the way forward in the industry.
(...)
There is no place for nationalims, pitying our small little country (and its companies), in a global market.

I don't care for the economic and industrial logic, my comment is from an aviation amateur, one could say enthusiast.
Only one surviving Belgian airline, and a small one at that, I feel it's a pity.
Other countries, some smaller than Belgium, have airlines : Ireland, Switzerland, Iceland are examples.
No place for nationalism ? Some countries are very "nationalist" as regards their air company : look at France and Air France, for instance.
Not to mention the strong feeling that some still have for our "national" Sabena ...

[sn26567]

Other countries, some smaller than Belgium, have airlines : Ireland, Switzerland, Iceland are examples.

With regard to Switzerland: the largest one, SWISS, is 100% German (vs 45% for SN), together with its subsidiaries Helvetic and Edelweiss. Darwin Airline is Emirati. What's left over?

[airazurxtror]

You're right about Switzerland - my mistake.
But Ireland (5 million inhabitants) has Aer Lingus and Ryanair; Iceland (0,3 million) has Icelandair and WOW; Finland 6 million) has Finnair; Norway (5 million) has Norwegian AS, ....

[RoMax]

I don't care for the economic and industrial logic, my comment is from an aviation amateur, one could say enthusiast.

Other countries, some smaller than Belgium, have airlines : Ireland, Switzerland, Iceland are examples.

Well okay, but does that actually matter? Does it matter who owns the airline. I still see JAF, HQ and SN as Belgian airlines despite their foreign ownership.

Only one surviving Belgian airline, and a small one at that, I feel it's a pity.

I don't know who was all part of the management buy-out, but for example the ceo of VLM is from the UK and though I don't remember exactly, I believe also for example the COO is no Belgian. Before the AF-KL time, I believe VLM was owned by a Dutch guy. Does that make VLM suddenly no Belgian airline anymore? I still see it as a the "Vlaamse Luchttransportmaatschappij" as for which VLM stands.

No place for nationalism ? Some countries are very "nationalist" as regards their air company : look at France and Air France, for instance.
Not to mention the strong feeling that some still have for our "national" Sabena ...

I was talking from a business perspective. What did it bring, all the French nationalism for Air France or all the Belgium nationalism for Sabena? Besides, in case of Sabena, most people love(d) that airline for what it was, it carried the label of the national carrier but that's not the reason why people still 'have something' with Sabena.

If ownership is this important for you. See Air Contractors, Europe Airpost, etc. (the ASL Aviation Group) as a majority Belgian airline. For 51% ASL Aviation is owned by the Antwerp based Compagnie Maritime Belge of the Belgian Saverys family.

[sean1982]

I think it's ironic that FR (and vueling) had to actually move to BRU for SN to start to shape up .. but as a belgian it's refreshing to finally see them going in the right direction I sincerely hope they can keep it up

[Passenger]

Maybe Brussels Airlines can open a hub in Charleroi? If sean is right with his theory, that new SN hub will then boost Ryanair's reduced activities at Charleroi.

[OO-ITR]

I don't care for the economic and industrial logic, my comment is from an aviation amateur, one could say enthusiast.
Only one surviving Belgian airline, and a small one at that, I feel it's a pity.
Other countries, some smaller than Belgium, have airlines : Ireland, Switzerland, Iceland are examples.
No place for nationalism ? Some countries are very "nationalist" as regards their air company : look at France and Air France, for instance.
Not to mention the strong feeling that some still have for our "national" Sabena ...

I'm confused, so the one who is constantly negative about the biggest belgian airline is the one who is in favour of a 100% belgian airline...now you lost me!!!

[sean1982]

Maybe Brussels Airlines can open a hub in Charleroi? If sean is right with his theory, that new SN hub will then boost Ryanair's reduced activities at Charleroi.

Seriously? Pathetic child

[Flanker2]

Believe ot or not, but the boss (Etienne Davignon, that is) has invited me for another of his great gholf parties in Knokke Zoute next Sunday. Weather permitting of course, because we both suffer a lot from gout/jicht. I will remind E.D. that all future management nominations at Brussels Airlines must have anterior acceptance by Luchtzak's Brussels Airlines Shadow Board .

Davignon thought that he could become an aviation tycoon by blocking the efforts of Belgium's only aviation tycoon (Mr. VG Airlines). In the learning process, he has burned his fingers and dragged business partners including government investment funds, into a gambling adventure that has seen all their (our) money drained in the toilet.

So you may think highly of your friend, but for me he's just another amateur who thought he could make money investing in aviation, starting off as billionaire to end up a poor millionaire.

He thought that he would turn DAT into Belgium World Airlines, instead he ended up building a subsidiary of the RVA/ONEM, where government is maintaining jobs artificially through subsidies.

I think that if you show him luchtzak.be, he wouldn't understand a lick of what is being said here.
It's too technical.

[Passenger]

Maybe Brussels Airlines can open a hub in Charleroi? If sean is right with his theory, that new SN hub will then boost Ryanair's reduced activities at Charleroi.

Seriously? Pathetic child

Actually, I just copy/pasted the master. Anyway, it's good to see that you seems to understand that your statement about Ryanair's arrival at BRU boosting Brussels Airlines was childish indeed.

[sean1982]

Oh yeah sure ... That 20% passenger growth came out of the blue

[RoMax]

Oh yeah sure ... That 20% passenger growth came out of the blue

This way it almost sounds like FR has been selling SN tickets

No seriously, you have a certain point that FR contributed, but IMO you look at it in a wrong way. Of course FR and Vueling's new bases had an influence on SN's European sales strategy. But changes were already initiated internally before FR announced its base. Things got speeded up and made a bit more drastic, but it's not like SN didn't already experience harsh competition before FR came to BRU. They knew it would only get worse so they were already preparing.

And in the end it's still SN that did it, not FR and not Vueling (or both). SN succeeded in adapting itself, that's the way how you can survive. Not by standing still, but looking at the market you're operating in and adapting to changing conditions. FR and Vueling added the challenge of changing market conditions, but in the end it's SN that adapted itself and succeeded in attracting 20% more passengers.

[sean1982]

Sure ... I agree with that. I just meant to say that the increased competition at BRU was a catalyst for SN to adapt quicker. The company and its employees can be proud of themselves.

[Stij]

Believe ot or not, but the boss (Etienne Davignon, that is) has invited me for another of his great gholf parties in Knokke Zoute next Sunday. Weather permitting of course, because we both suffer a lot from gout/jicht.

You made my day!

We should organize a competition for quote of the week!

Thank-you!!!

Cheers,

Stij

[Inquirer]

Sure ... I agree with that. I just meant to say that the increased competition at BRU was a catalyst for SN to adapt quicker.

I think that the reality is that it's not so much the arrival of a few more low cost competitors at BRU itself at the start of this year, but rather the changing market trends throughout Europe in general which have lead them to overhaul their business model, because they can't possibly have come up with all of this in the weeks after vueling/ryanair announced their plans for BRU. Sure, changing just the commercial strategy alone would have been possible, but making it also financially sustainable to do so is something which takes much longer and requires much preparatory work first.

Besides, I am pretty sure they were testing market response on their route to BSL last winter (a route which I fly almost weekly and which suddenly opened up for booking at prices well BELOW the old b.light fare of 99 return), something which I reported here back then. In hindsight, that was an ideal route to testrun a new fare structure on: direct competition from Easyjet, high number of corporate clients, low profile (so not much public attention), ...

BTW, the 'catalyst' llike you call it, is in fact a reaction to those same changed market trends in itself, of course, and that one too was prepared much longer than it got announced.
still remember how you were defending the extremely spartan product of Ryanair in a discussion with me in August last year when the writing was already on the wall your company was in commercial trouble?
Today we know that at that very moment your CEO was contemplating what to do to stop easyjet, vueling, germanwings etc from eating his lunch in full and putting the core of his business model into question, and i bet that at that same time, they were doing exactly the same at brussels airlines too, and yes, also in reaction to the same market trend.
The fact that both companies managed to put into question long standing corporate dogmas and adapted to the new reality relatively quickly is good to see, because it's what makes them survivors. a company which can't re-invent itself will in the end share the fate of the dinosaurs as no product offer will last forever.

[b720]

I also think that the arrival of FR at BRU shook the SN house to the core.. They probably worked day and night to produce the new products they launched for Europe just in time when FR started their flights.. They were probably planning changes earlier; however as mentioned above the CATALYST probably fast forwarded everything for the new European products.