Brussels Airlines future and financial perspective

[lumumba]

The reason is that it's an agreement with united

But they first fly it year around but they stopped flying it in the winter because there was not enough demande?
If I remember well?!?

[crew1990]

Yes but the agreement was that they can fly yearly if it was an evening flight, but indeed there were not many demand for this scheduling. They then wanted to fly like United in the morning, it has been accepted by unided but only during the summer season.

[Inquirer]

Interesting.
Supposedly it's the consequence of the transatlantic routes being structured as a Joint-Venture operation.
Given the good results on this route, it may be possible to talk to the JV partner to see if a year round operation could be restarted, especially if they further grow on other feeder routes too and can thus make their hub in BRU more attractive. The fact they have been allowed to increase the number of weekly flights for this summer shows that when the figures are right, United don't mind the extra capacity offered.
It would however require yet another extra plane then, no?

[Passenger]

This is a superb result, in line with my commercial/professional contacts with Brussels Airlines and with my own experience as one of their passengers: they all smile.

Brussels Airlines was knocked down by Michael O’Leary back in 2013, when he announced a take over at Brussels Airport. I never saw such a hostile, direct attack from a big company towards a small company. But contrary to what many thought on that day in November 2013, Brussels Airlines accepted the challenge against Ryanair and they fought back. First with a new yield management (Light, Flex), then with new routes, then the 69 € tariff, now with the one way 39 € tariff.

Me thinks it was that agressive press conference (27th Nov 2013) that gave Brussels Airlines the spirit to fight against their biggest commercial challenge so far. And what all legacy airlines have learned from it, is that a small legacy carrier can beat Ryanair: decrease your rates on competition routes to almost the same level, slightly increase your rates to EU destinations that Ryanair doesn’t serve and make your profit on long haul.

Lufthansa will be more then happy with their investment in Brussels Airlines.

[Inquirer]

Aren't you making a bit too much of a 2 men fight out of it, passenger?
I agree on some of what you say, notably on the overly arrogant and needlessly provocative communication style by ryanair's CEO on Brussels Airlines, a behavior which may be long past its most rewarding days in the Belgian press as subsequent events have meanwhile shown him to be completely wrong a bit too often to be still taken without a big pinch of salt, but its not like there are no other players in the market too, albeit with more corporate style communication methods: easyjet, vueling etc all have their share of the market too which they want to grow and they will -together with the 2 aforementioned companies- keep the market interesting in Belgium in the long run.
I think THAT is the main point to take home: Brussels airlines is here to stay and nobody is just going to simply be taking over their European passengers like all of the above companies obviously thought at one stage and some of them also explicitly came to say.
Were they all go from there, is anyone guess.

[sean1982]

That strategy works indeed as long as the LCC presence is not too large. O'Leary was never agressive, hostile or dirty. He only set a goal to become Belgium's largest carrier (and he's not doing a bad job and that is without longhaul, without counting connecting passengers twice and without counting passengers on other metal as their own)

Furthermore, 46 million EUR aint bad, but given a 45% reduction in jet fuel price (and with SN not hedging much they allready take full profit of this) i wouldn't really be dancing on the streets yet.

[Inquirer]

I think that the most decisive element of a clearly quite successful strategy, Sean and Passenger, is not so much to be found in their advertised fares and new classes. That's just what people on the outside get to see and what is often given as an easy to understand explanation.
I think what has happened is that they did a most impressive internal transformation to be able to offer those kind of commercially attractive deals on a wide enough scale without going under.
In the past, they have mentioned several times to have cut their costs quite meaningfully and I remember it was often received with sepsis over here, but it seems that indeed they may no longer be such a high cost operation as one may still think they are. Their increased use of bigger planes, the fact they can significantly drive overhead unit cost down through increased volumes and other labor cost savings (for which they now want to reward employees with a nice bonus, a clear hint massive cost cutting has indeed been done) should indeed have made such possible and will likely continue doing in future too, as there's still margin (remaining regional jets, 25% more passengers by 2018, extra intercontinental flights...).
It would be interesting to see a recent unit cost figure of theirs, but it seems it may be lower than what many think it (still) is, if I go by a recent report from the German financial press in which a Lufthansa insider mentions how pleased Lufthansa is with their performance and how they may actually not just be integrated into Eurowings, but rather how Eurowings may be mirrored (and let to be run) to them!
I will try to link to that later today, as I think its a really interesting article.

[sean1982]

Turn it whatever way you want inquirer. BRU has a passenger tax of around 28EUR. Every ticket of 39€ leaves room for 11€ fare (and you need to subtract the fuel surcharge from that)

Now just like with LCC's there are only a few of these seats per flight available off course. They are excecuting the same strategy as most LCC's which LF active/yield passive (on the european sectors at least) It works very well if you can create enough ancillary revenue to compensate on this. As they are making profit that seems to be happening so at the moment (helped by the low fuel price for which they are still charging fuel surcharges) but it would be interesting to see an average overhead cost per pax figure.

[Inquirer]

I am not turning anything anyway, I think.
I try to look beyond just the mantra often read here to make people understand now things really work.
If you think their result of 2015 is mainly fuel price driven, then I wonder how you explain their financial improvement the year before from roughly -E60M to close to breakeven, even when fuel went up a lot?
Its always good to look at the wider picture and see trends, rather than focus on just one year, you know?
IMHO, that last year's result have 'only' improved with roughly the same margin as they did in 2015 (say some E50M), despite the much lower fuel costs this time round is indicative of how revenues must have dropped together with those fuel costs, exactly as you'd expect it in a highly competitive market, so fuel costs alone are not remotely able to explain these much improved figures by themselves.

[sean1982]

Im not saying that at all ... I said helped didnt I?
Charging fuel surcharges is also a form of ancilliary revenue that all passengers have to pay whether they want it or not. Shifting to an all Airbus fleet is driving there cost down tremendously but those savings will stop once the last avro's are gone. The fact that the margin stays the same even with the low prices is the exact proof of the LF positive/yield passive strategy which works perfectly, as long as you keep the money coming in in other ways

[sn26567]

BRU has a passenger tax of around 80EUR.

Excuse me? I've always seen 28 EUR...

http://www.brusselsairport.be/en/b2b/airportcharges/

[sean1982]

BRU has a passenger tax of around 80EUR.

Excuse me? I've always seen 28 EUR...

True sorry, I got confused with another airport.

[Inquirer]

Im not saying that at all ... I said helped didnt I?

Indeed you did, but as I have tried to point out, it may not even help them that much at all!
Give it a thought for a minute:
this year, they have improved their result by some 50M with dropping fuel prices.
the year before, they have improved their result by some 50M with rising fuel prices.
Strange, isn't it, if indeed fuel is somehow a contributing driver to their bottom line?

What it tells us is that fluctuations in fuel prices are somehow immediately passed on to customers (going both ways) and given the fact they face direct competition on most of their routes, I'd say it's something done by all of their competitors even (whether those admit to doing so or not), or they'd immediately start to lose passengers as they'd be priced incompetitively.

As such, I think it's fair to say fuel price has no immediate nor direct relationship to their bottom line, other than that a low fuel price brings along low ticket prices which stimulate demand and thus helps them in cutting unit costs further. THAT is actually a characteristic of the better low cost operators and one which is much wanted by others: it's also linked to the destinations offered, as you can far more easily stimulate regional demand, than you can intercontinental demand.

The fact that the margin stays the same even with the low prices is the exact proof of the LF positive/yield passive strategy which works perfectly, as long as you keep the money coming in in other ways

Indeed.
May I note that the extra revenue you often refer too may not be so much made from a coffee or a snack on board, nor from one of the non-exhaustive list of fees and penalties some airlines live off?
It may actually be paid upfront already from the modest premium a lot of people are clearly willing to pay for a perceived better base product, without it being perceived as needlessly luxureous nor expensive.
We have discussed this many times in the past, but I'd say it has now been tentatively shown to work for them indeed, both in a high fuel cost environment as well as in a low costs environment.
No surprise to me in fact, as the majority of people want a fair deal, without looking at price alone: you see that every day at Delhaize, Carrefour etc too. I suppose everybody shopping there knows by now that Colruyt, Aldi or Lidl are indeed a bit cheaper on average, yet their customers still deliberately opt for say the extra parking convenience, the wider choice of products and the more relaxed shopping atmosphere all together of the first kind of retail stores.

[sean1982]

Inquirer they face competition on a few of their routes, not on most. Lets not forget the 50m € increase with the rising fuel prices was largely subsided by the government, so the effect of the fuel price is very notabele indeed

And about your second statement: you do think SN hasn't got an extensive list of fees and penalties? The net is full of complaints from passengers having to fork out extra money cause they didnt read the small print. So dont make them sound hollier then the pope, EVERY airline in the world lives of fees and penalties (amongst a LOT of other things) Im smart enough to realise that coffee and a sandwich doesnt pay for crew's wages enough there are other things (car rental deals, hotel deals, commercial incentives ...) Did you know that some brands PAY airlines for them to serve their products on board? And a lot too (size of the airline depending)

On the other hand it would be foolish from anyone to assume that SN doesnt have internal targets for onboard sales, fees collections etc and solely depends on "the passengers that wants a bit more" cause if you're not willing to fork out a few 100€ extra per passenger the differences are very small indeed

[Inquirer]

Inquirer they face competition on a few of their routes, not on most. Lets not forget the 50m € increase with the rising fuel prices was largely subsided by the government, so the effect of the fuel price is very notabele indeed

Well, let's just check facts, shall we?
Just how many European routes do they serve and how many see at least one competitor on it to Belgium?
Just a few like you say, or most like I think? Remember competition is more than just ryanair, of course, it can be any other airline, also airlines from those countries.

The tax break you refer to is reportedly €15M, whereas the result improvement is some €50M;
Both are recurrent over those 2 years looked at too, so the effect of the tax break -if voided- would not modify the trend I pointed out, only the value of both results figures.

Allow me to say you are giving the impression of searching a bit too hard to prove that no significant cost cutting can have been done, whereas evidence indicates such is in fact the driving factor to their success, with all the other things you have mentioned simply adding to that as some sort of icing on the cake.
Not to set the trend, but to improve on it and bring them black figures, sooner.

if you're not willing to fork out a few 100€ extra per passenger the differences are very small indeed

Yet that is the whole point, Sean!
A far more segmented approach to the market, in which each customer is put in one of the 4 seperated classes depending his spending behaviour, so that each time he gets a little bit more than what he'd get at direct competitors which may be king in that type of service, yet at a slightly higher price.
It's then up to the customer to decide whether he thinks the extra money asked for it is worth it and it seems many people do. As said numerous times before, not everybody is after rock bottom prices; often people just want a fair deal and a good service: what both are, that is up to the individual to decide depending his own personal needs at the moment of booking, yet being able to offer 4 different products increases the changes of hitting the nail on the head and maximizing the profit while at it. THAT is their real commercial strategy IMHO, and it is one that is far better and sustainable than the one Passenger/you think they use.

[sean1982]

Funny that you are suddenly in favour of operating different approaches under a same brand now inquirer, when talking about other airlines they should do so under a different brand. draaien gelijk de wind they call it in dutch I think

[Inquirer]

Funny that you are suddenly in favour of operating different approaches under a same brand now inquirer, when talking about other airlines they should do so under a different brand. draaien gelijk de wind they call it in dutch I think

You really think so?
Let me explain exactly where the key difference is and then give it another good thought if indeed I turn with the wind like you say, or whether it is rather you who can't see the subtle differences which make that what goes perfectly well for one, doesn't fit so well for the other, exactly because a good idea for one is implemented in a crooked way by another.

Market segmentation is generally a good way forward for a business as it allows to reach out to a wider variety of customers, but one one condition: you need to be very consistent in the way you line up your different products and thus approach the different market segments!

Brussels Airlines had one advantage: that of having no clear product profile!
As I have come to explain, they have managed to change that and turn themselves into a modern hybrid airlines which covers no less than 3 different market segments, each of which I think can best be described as "offering a little bit more than competitors do in that market segment, albeit for a premium".
And that's now exactly their unique and consistent product profile too in fact, IMHO: "always little bit better, yet often for a little bit more money".

The issue with that other airline you refer is that a similar segmented market approach is somehow detrimental for it's unique product profile which can be described as "always being the cheapest option".
It really can't upgrade itself to reach out to the more demanding passengers, unless it somehow ruins its unique selling point in the process too, as it can't take on all of the costs from the upgrading, without asking more money from everybody, also from those customers that don't ask for more.
If you want to remain a hard discouter, you better separate your markets in different brands to avoid that prices across the whole product spectrum have to go up and somebody else comes along to undercuts you.
We've discussed this many times, and it is happening as we speak.


---

After yesterday's article, De Tijd has another in depth article on Brussels Airlines' results; I don't seem to find a link to it on their site, so let's just summarize some interesting pieces of information from it:

1- it seems they not only let their employees share in their profit, but they have also reimbursed some €20M of a loan to Lufthansa. No further explanation was given as to how this was accounted for, but an interesting piece of information nevertheless. Shareholders will not receive a dividend however.

2- the much discussed security tax break aka security subsidy was only paid out once by the Belgian government, in 2013: no further money transfers were made over 2014 nor over 2015, so their liquidity in 2014 and 2015 is completely unaffected by it. The Belgian government is however strongly defending the case at the EC and in case of a positive verdict, Brussels Airlines will receive an additional €30M.

3- Not so much financially related, but worth mentioning nevertheless as it may settle a little side-discussion I had with Sean: according to De Tijd, they have low cost competition on 44 of their 71 European routes.

[sean1982]

You really completely contradict yourself from a few weeks ago when you were defending the whole possible eurowings/Brussels airlines split-up and when pointed out that the passengers who chose the "higher product segment" on the long haul end up having to pay for their coffee and their sandwich when arriving on their short haul sector of their journey are strongly voicing their displeasure. Now that they made 46m € profit, it suddenly aint nescessary anymore. If and when LH would decide to absorb SN into eurowings I have a feeling you will be defending this again

You also claim that SN is undercutting the LCC's in BRU? What's your source for this? I can't speak for the other LCC's cause I dont know exact figures and I dont want to turn this into a "vs" war, but SN is still about 15% below in loadfactor, which clearly indicates that the price sensitive passenger is still not really being captured.

You claim 44 out of 71 routes have direct competition. Is that out of BRU or out of Belgium? Cause when me and others talked about figures before then suddenly we were only allowed to quote direct BRU numbers cause the rest of Belgium "didnt matter in the discussion"

That's what I call "draaien gelijk de wind"

[Inquirer]

Again Sean,
the problem is not me turning with the wind like you say, but rather you not reading closely enough what is written and just reading what you want to read, or worse even: immediately starting to comment on a post you feel you won't agree with, without having read it in full.

Both ways you miss subtle yet all important textual differences like you do in the one discussed here (i.e. why a segmented product approach is not so clever when you have a hard discounter profile), or in fact in another topic (were you misread 'in Belgium' with Belgian'), just to give two recent examples of this weekend, which indeed give impressions of inconsistency, albeit only in your own reading.

As to the figure of 44 out of 71: again, it's a pitty I have to point it out, but that's not my figure, it comes straight from an article in De Tijd like I've clearly said: another misreading. And again, what others have said in other discussions about what you may or may not consider: why transpose them on me in this unrelated discussion? Or why do as they've asked you?

Now, back to topic please.

[sean1982]

I dont see why this would be off topic. Its about SN and its future isnt it?

Im not missing anything here. SN's profile was and is still that they are a "legacy carrier" for all intents and purposes. Why is a legacy carrier taking a segmented approach to the market more ok than a discounter taking a segmented approach to the market? I really dont see the difference at all

I realise that that is not your figure, but that's not the point. In other topics you insisted on using BRU figures only where as in here its suddenly Belgium that counts. In that way it isnt hard to interpret the figures to fit them to your point of view