Brussels Airlines' 3rd US destination will be ...

[BRU]

Is exactly what I heard from b.air mgmt: currently profitability of African network is under huge pressure. So it is no longer the case that yields are making Africa very profitable.

And to add aircraft, you also need money to invest. If that money is not there and you are not sure on the profitability of the route, the risk is huge... Only really profitable markets out of BRU short term would be a EWR and YUL flight. If 9W moves out.

All other destinations are needed much more investment and are thus difficult.

[Air Key West]

Something I have noticed throughout this discussion is the repeated remark as to how lucrative African routes are. Whereas this will have been the case in the past, I'd be reluctant to claim they still are, given the massive capacity dumping by some airlines on the market.
I for one think that the capacity growth to Africa very much outpaces the demand growth, leading to depressed financial results for ALL operators, so I wouldn't be surprised to see them holding back on adding even more capacity and make things even worse.
There's no use in growing in markets which have overcapacity, IMHO?

Agreed. I already mentioned this in an earlier post. Yields to Africa will drop because of increased competition/capacity. What I would like to call the 3Gs (EY,EK,QR) have started to fly to a substantial number of destinations in Africa. I'm tempted to say that this move from the 3Gs will certainly have an impact on traffic figures for European airlines flying to Africa, but to a limited extend. Pax from Asia wanting to fly to Africa, will be tempted to fly with the 3Gs instead of flying via Europe (shorter travel time, more competitive prices).
Europe to Africa still remains attractive for pax originating in Europe or in North America.
The impact of the 3Gs on b.air's African operations should be very limited, since b.air does not fly to Asia and will consequently not loose pax traveling form Asia to Africa via BRU.

For an airline like b.air, however, in order to attract business travelers (which are said to be the most lucrative pax) frequency is important. b.air's frequencies to a number of African destinations is inadequate for business pax. The low frequencies may of course be due to traffic rights restrictions, but not always.

As yields to Africa will drop and if b.air doesn't think it is a good idea to increase its presence on the African continent, a standstill is not a solution either. The motto should be "Diversify", do no longer put all your eggs in one basket. Turn to the emergent economies outside Africa, too.

And if yields to Africa decrease and cannot keep b.air profitable, what if LH suddenly changes its minds and says, well Africa is no longer interesting (see LH's recent pulling out of Pointe Noire and Libreville), so b.air is no longer interesting. Let's divest ?

[RoMax]

And to add aircraft, you also need money to invest. If that money is not there and you are not sure on the profitability of the route, the risk is huge... Only really profitable markets out of BRU short term would be a EWR and YUL flight. If 9W moves out.

All other destinations are needed much more investment and are thus difficult.

Difficult? YES! risky? YES! But I haven't seen many airlines being on the cautious way succeeding. When you are in one of the most challenging sectors of the whole worldwide economy, with an average profit margin of 1% for the whole airline industry over the past 60 years, every is investment is difficult and risky and especially for a small airline having financial problems (like SN) for which even one long haul route is a huge investment.

The current problem SN faces are the yields that are under pressure, but if SN doesn't invest in protecting their market share, they will loose so much more once the market starts to stabilise.

[Inquirer]

You are obviously not reasoning with a managerial look at things,Romax, because whatever the business you are active in, a growing marketshare is important only if it is profitable, otherwise it's just a liability.

If indeed profits are under pressure like you say and which I can imagine them to be indeed, then growing your market share is just growing your risks if the trend should continue over the next years, so unless your shareholders give their backing to a strategy which comes down to burn loads if cash on buying and retaining ever more market share, It would be a wise move not to grow or grow in different -less risky- markets instead.

IMHO and without knowing any figures, I'd go for the generally accepted method to protect your bottom line in such conditions which is output steering, even if it means not growing or shrinking your market share.

It may not look ambitious at first what I am about to say now, but in the end it's far better to make money from a smaller market share, than it is to loose money on a growing one, because although that E100m they recently got from Lufthansa to pay for their turnaround and strategic reorientation may seem a lot to people like you and me, I fear it doesn't go a very long way if they'd embark on a mission which is about buying more market share in a market which is suffering from overcapacity already? I think they rightfully use the money to serve as financial buffer (which means they can't really use it) AND to invest in things which have an immediate effect on their bottom line only as only a profitable company is attractive to invest further in, so this should be their very first priority.
After that they can go back, show their positive result and ask for another E100m.
Anybody an idea about their progress on this front, btw?

I know, I am probably too down to earth for this site, so I'll just leave it here.

[BRU]

You are obviously not reasoning with a managerial look at things,Romax, because whatever the business you are active in, a growing marketshare is important only if it is profitable, otherwise it's just a liability.

If indeed profits are under pressure like you say and which I can imagine them to be indeed, then growing your market share is just growing your risks if the trend should continue over the next years, so unless your shareholders give their backing to a strategy which comes down to burn loads if cash on buying and retaining ever more market share, It would be a wise move not to grow or grow in different -less risky- markets instead.

IMHO and without knowing any figures, I'd go for the generally accepted method to protect your bottom line in such conditions which is output steering, even if it means not growing or shrinking your market share.

It may not look ambitious at first what I am about to say now, but in the end it's far better to make money from a smaller market share, than it is to loose money on a growing one, because although that E100m they recently got from Lufthansa to pay for their turnaround and strategic reorientation may seem a lot to people like you and me, I fear it doesn't go a very long way if they'd embark on a mission which is about buying more market share in a market which is suffering from overcapacity already? I think they rightfully use the money to serve as financial buffer (which means they can't really use it) AND to invest in things which have an immediate effect on their bottom line only as only a profitable company is attractive to invest further in, so this should be their very first priority.
After that they can go back, show their positive result and ask for another E100m.
Anybody an idea about their progress on this front, btw?

I know, I am probably too down to earth for this site, so I'll just leave it here.

Without financial backup thhere is no room for expansion or growth or increasing or protecting market share, only bottem line counts. So do agree with your analysis. Is not what we wish them to do, but is the only logical conclusion...

[RoMax]

You are obviously not reasoning with a managerial look at things,Romax, because whatever the business you are active in, a growing marketshare is important only if it is profitable, otherwise it's just a liability.

I didn't say anything on "growing" their market share, I talked about "protecting" their market share. Because in reality Air France, KLM, Emirates, Qatar Airways, Turkish Airlines, Ethiopian Airlines,... are all expanding their to/from Africa offer much faster than SN is doing it.
I'm not saying they should dump capacity on the African market at any cost, but there are weak points in their African network which they should enforce.

And when talking about North America. Earlier this year SN said a number 3 US destination would be a logical step in 2014 with some possibilities (including EWR, ORD, LAX/SFO,...). What changed since that moment? The only developments I can see from looking at overall IATA data is that both European and North American markets are growing again and especially the premium traffic is making its way up again. That shouldn't be a reason for SN to say "oh well, let's forget about it all and lets hope for the best" only because 9W decides to keep their two North American routes yet (they stay this winter, but who says this will not leave next summer? They'll leave if Etihad finishes its deal with the Indian carrier, 9W delaying its departure from BRU is caused by the delay in the Etihad deal, nothing more, nothing less).

It may not look ambitious at first what I am about to say now, but in the end it's far better to make money from a smaller market share, than it is to loose money on a growing one, because although that E100m they recently got from Lufthansa to pay for their turnaround and strategic reorientation may seem a lot to people like you and me, I fear it doesn't go a very long way if they'd embark on a mission which is about buying more market share in a market which is suffering from overcapacity already?

Again, if they are even making money from their current market share, that will be a very temporary situation if they don't protect it. I never talked about growing their market share, protecting your market share can also mean keeping it at the same level or even reducing it (as other carriers are expanding faster capacity wise and even percentage wise).
Yes several routes currently face overcapacity and higly pressured yields, but there are still several white blanks in SN's network which do have potential. Yes it's risky, yes it needs investments, yes they will not get those markets whithout fighting, but if SN is not acting strong now, they will be eaten allive when the market situation starts to improve.

I think they rightfully use the money to serve as financial buffer (which means they can't really use it) AND to invest in things which have an immediate effect on their bottom line only as only a profitable company is attractive to invest further in, so this should be their very first priority.
After that they can go back, show their positive result and ask for another E100m.
Anybody an idea about their progress on this front, btw?

And which of such investments actually have an immediate effect on their bottom line? Improved catering? You'll first see high costs, gradually improving passenger experience and as a result maybe more business pax (but we are at least 6 months further already when talking about that). Renovation and expansion of the lounges? Same situation, with the difference that it's a much bigger investment. Sponsor deals like Tomorrowland? Again, same situation, you'll don't see immediate return to your balance sheet.
Don't understand me wrong, these investments are crucial as well. But did you ever see an airline waiting to invest in the thing that would make them strong on the long term? Yes I did, but they do not excist anymore today.

And actually that's exactly what SN did past years with their long haul investments. Their financial situation is currently improving again, contrary to the past two years, still they invested in what they needed.

[Inquirer]

I didn't say anything on "growing" their market share, I talked about "protecting" their market share.

I understand what you are saying RoMax, but I'll repeat myself: a focus on market share is only justified if it is linked to a guaranteed profitable market over the forseable future; when it isn't, the only thing which should be of importance is making sure the bottom line remains positive all the time.

Earlier this year SN said a number 3 US destination would be a logical step in 2014 with some possibilities (including EWR, ORD, LAX/SFO,...). What changed since that moment?

I don't have a clue what they were thinking back then, nor what they are thinking now in fact, but I can very much imagine that IF they decide to launch another transatlantic flight, they will do so only after having received the green light from their JV partners.
Even if B.air would be willing to do as you say and take the risk to operate at a loss for many months in a row all while Eithad stays in BRU just to be ready, who says their JV partners are willing to help food such a bill? Why would they do that?

Which investments actually have an immediate effect on their bottom line?

Well, you've posted a nice exemple of that yourself a couple of hours ago, as I see they got permission to operate a 3rd flight to Angola, which is definitley good news.
If Tolipaneba's is right again (he seems to be will informed, generally) and they are going to operate it as a stop on the existing flight to Kinshasa, then that is going to improve their bottom line almost right away, without need for much extra investment, other than the direct operating costs for that extra stop.
Renting an extra plane, hiring hundreds of extra flightstaff and setting up local sales infrastructure to start a new destination in a completely new environment is something entirely different to do and the impact of it on the bottom line may not be much higher than from the above, if not lower even: it's why generally speaking, its much easier to add production to an existing Industrial facility (or in fact to an airline already serving a route or a country), than it is to launch from scratch and why B.air has traditionally been more comfortable with adding extra capacity to exisiting long haul destinations of theirs over opening ever more new routes, despite there being quite some pertinent blanks in their network, just like you say.

[Flanker2]

If Tolipaneba's is right again (he seems to be will informed, generally) and they are going to operate it as a stop on the existing flight to Kinshasa, then that is going to improve their bottom line almost right away, without need for much extra investment, other than the direct operating costs for that extra stop.
Renting an extra plane, hiring hundreds of extra flightstaff (....).

To me it looks like they're taking capacity out of Kinshasa to put it on Luanda, while bringing the extra costs resulting from the additional stops and the empty seats between Kinshasa and Luanda.

There is no growth here on a network scale, the only certain growth I see is in the costs.

If we have to cheer about every increase of a single daily frequency, let alone at the cost of another route in Africa and increased operating costs, I can now see why sending narrowbodies to Africa to increase both frequencies and capacity seems like an unachievable endeavour.
"Didier Reynders is pleased about this additional daily traffic right." This achievement is worthless, he better spends his time fixing the real issues of this country together with his socialist friends who are sending us back to the Middle Ages.

[crew1990]

The negative point will be that there is no grow at all, there will be the same number of seat per week sold in Africa, traffic right will just allow SN to transfer the capacity from Kinshasa to Luanda, (more or less 100 seats per week).

In the mean time from a Bussiness point of view, a frequentie of 3x a week is much better then only 2x. And so I think SN will be much attractive on the Luanda route than before.

I think this news is quite posite, even if I thing that SN should stop the triangular flight on some destinations.

[RoMax]

http://www.usatoday.com/story/todayinth ... s/3514721/

Lufthansa Group aims further growth in the US which proved this year to be "a very healthy part of the long-haul market worldwide", with a "much more reasonable capacity development" compared to other parts of the world. Lufthansa also pointed out that North American expansion will never be unilateral, but always in cooperation with JV partners UA and AC.

Lufthansa wants to connect more LH Group hubs with the existing US destinations. They give the example of IAD which is connected with MUC, FRA, VIE and BRU, but could be connected with ZRH in the future. This kind of expansion is preferred before looking at completely new US destinations (something which British Airways is currently talking about, like the launch of Austin thanks to the 787 introduction).
Growth of the LH Group will focus on "major destinations with a high share of premium passengers".

So about SN this doesn't say much more, as about every 'possible' North American destination for SN is already served from another LH hub. But it does say, that even with 4 hub-to-hub connections, a fifth could still be added (naming the example of LX not flying to IAD). And it also says that the North American market is a healthy one for Lufthansa Group this year and further growth is aimed (with the focus on improved hub coverage).

[OO-ITR]

well Austrian already announced they gonna increase their Trans Atlantic offer :
viewtopic.php?f=31&t=51511

[RoMax]

well Austrian already announced they gonna increase their Trans Atlantic offer :
viewtopic.php?f=31&t=51511

Indeed, but the potential is not only in VIE, also in Germany, Switserland and Belgium.

[OO-ITR]

well Austrian already announced they gonna increase their Trans Atlantic offer :
viewtopic.php?f=31&t=51511

Indeed, but the potential is not only in VIE, also in Germany, Switserland and Belgium.

I know that is why I wanted to add the link as AU is part of LH group

[Inquirer]

Thank you for posting this, RoMax.

The interview illustrates what I have been trying to say before: a local branch of a multinational does not just decide on its own what to do and since the transatlantic flights are run as a Joint Venture with Air Canada and United, those partners must have their say too when it comes to any new US or Canadian route.

[lodewijk]

Alles hangt van het wel of niet vertrek van Jet. Die zouden richting SChiphol gaan. Als ze bij SN slim zijn verdelen ze dan de markt met star Alliance leden op de USA Ik zou zeggen: Newark door SN, Toronto door Air Canada en de rest door United.

Tevens zou ik kijken richting India. Om het Europees India segment te pakken. Austrian en LH zijn er actief. Kan dus makkelijk daarop door. Een feeder deal met Air India <die zouden bij de Star Alliance komen>.

Afrika zou ik vrolijk focus leggen op het zuidelijke deel, primair Zuid-Afrika. Is in het netwerk de grote misser.