Brussels Airlines future and financial perspective

[airazurxtror]

http://www.lalibre.be/economie/actualit ... 6ba0b31366

Very unusual from "La Libre", an article not 100% pro-SN - or is it a clever plea for more subsidies ?

[RoMax]

According to 'la libre', SN's strategy to compete with FR on its own turf is 'suicidal', because of its higher cost structure, smaller fleet, higher number of employees compared to number of passengers carried, load factor, etc... and considering FR's big cash reserve which gives it the possibility to rapidly increase (or decrease) its offer, or flood the market with cheap tickets and sustain a long battle.

SN should instead focus on niche market, and better service for business travelers.

As I stated in the other SN topic regarding the recent announcement. Who made it a direct head to head war SN vs FR based on the lowest costs and the most capacity? Only the media. SN wants to be the flexible carrier. That doesn't mean the largest, neither the cheapest. Yes it's a strategy against the competition including FR, but it's not a war on prices (which SN obviously can't win).

What SN does, is largely the same as LH did with Germanwings. Compare the recent announcements with what Germanwings is currently doing...(of course there are some differences as SN combines it with a full service offer). Germanwings can not win on costs or capacity either, still their new strategy really works agains the LCC's (not just FR, but also the more business orientated LCC's such as easyJet).

[Inquirer]

My expectations were high for LH
(...)
Justified, not justified...
(...)
when a big company buys a significant share into your company that has great, untapped potential, the least you expect is the status quo, but you hope for improvement.

It sure mustn't be fun to be so disappointed, but I think I have told you before you seem not to fully understand how things work within a multinational group, something which is at the very basis of it all.

Allow me to say you have a very "egocentric" view on things and I don't mean this as an insult, because it's in fact an attitude I constantly see at my work too whenever I visit local plants of the multinational I work for (I happen to work for what is called 'central entity'): everybody thinks that the big multinational from overseas should constantly invest in their local plant and that whatever extra global production we are planning should just come their way. Do I need to say that's just not how it works? Production goes to the plant(s) where it makes most sense to send it to and some happen to make far more sense than others, even though all could theoretically do it very nicely.

It's the very same here too: regardless who your shareholder is, be it Lufthansa, British Airways, Etihad or whoever, he's likely going to have multiple bases, hubs, airlines or whatever to care for, so he has to think about more than just your local asprirations and he also has to keep a close eye on shareholders value too, which means he has first of all to protect the profits at other bases, hubs, airlines too before he can even think of spending some money on you, so when you ask for money for expansion projects (the untapped potential as you call it), he's obviously not going to provide you with it if another part of the same group is already tapping the same potential because that just doesn't make any sense then from a group's perspective, sorry.

You can then say Lufthansa isn't very helpful, but take my word for it: it's going to be the very same with British Airways too you know, or in fact with anybody else which has passed the review.
Nobody is going to give you money to basically take (part of) their customers from them as that doesn't make any sense to the group, so whatever airline partner you'd pick, you are always going to have to factor in this element in your proposals, something which I haven't seem much so far.

IMHO, the only real potential for Brussels is it's natural/cultural/ethnic link with Central Africa, something none of the other LH hubs has, so that's really the only element where they aren't going to enter into conflict with the bigger interests of a wider group.
If that niche (combined with some selected feed) is not enough for you, I am afraid you are never going to be happy with what you see, because you may start allover from scratch 10 times in BRU, you will always end up in exactly the same situation: a small to medium sized airline in need of a bigger partner airline which is not going to let it grow beyond the niche it has in mind for it. simple as that really.

Better adjust your expectations to reality, rather than become frustrated because reality isn't matching with expectations: it's going to explain quite a lot AND it's going to make you less embittered. There may just not enough room on the European market for yet another airline the size of KLM or Swiss and there's just no way you'll find the money to conquer their place in the market as that money could just as wel buy (part of) the original then, and probably much cheaper even.

[airazurxtror]

SN wants to be the flexible carrier. That doesn't mean the largest, neither the cheapest. Yes it's a strategy against the competition including FR, but it's not a war on prices (which SN obviously can't win).

Obviously, and they don't even try to come near the Ryanair prices.
I have just booked a day return to Lisbon.
I got it at Ryanair for 67,30 euros.
Brussels Airlines demanded 632,97 euros for the same trip (and TAP 390,33 euros).
They say that the difference is in service. Must be some service !

[RoMax]

Obviously, and they don't even try to come near the Ryanair prices.
I have just booked a day return to Lisbon.
I got it at Ryanair for 67,30 euros.
Brussels Airlines demanded 632,97 euros for the same trip (and TAP 390,33 euros).
They say that the difference is in service. Must be some service !

SN never offers cheap one-day returns. There are very good reasons for that and also why full service carriers offer such prices and LCC's don't. But as these have been explained (and ignored...) tens of times already, I'm not putting effort into that.

[cathay belgium]

Hi,

Besides I tried to make your booking and noticed that the true one way fares are gone by FR also !!!
When you change your outward date the prices of the returnleg changes also...
So far the one way fare policy of 'former' FR...
But indeed 70 euro return day trip... but don't swop the date much of the price will be bigger.
Your/our Ryanair will become the same like the others soon out of the BRU-ones...

CXB

[airazurxtror]

Hi,
Besides I tried to make your booking and noticed that the true one way fares are gone by FR also !!!
When you change your outward date the prices of the returnleg changes also...
So far the one way fare policy of 'former' FR...

Are you sure, Lex ? never experienced it up to now (and I make a lot of simulations nearly every day).
Anyway, if so, one can book the two flights separately.

[cathay belgium]

Hi Michel !

Indeed it is and I am quite schocked with this...
This means you can't see real day return fares when searching for a nice deal..
Only noticed it with flights from BRU not from CRL and EIN..
Guess I will avoid FR in a wide angle from BRU !
But when you book quite on time there's no need to fly FR from BRU, I prefer SN...
Altough when looking for daytrips only FR and EAsy will give you affordable fares, and we know the reason.
You are leisure pax and this aren't the people where they can make money from, just fill the bird last rows..
For 100 euro return SN won't turn profitable with bags,etc.. For sure not in avro, not even in dash..
Daytrips still means CRL or EIN to me..

CXB

[airazurxtror]

SN never offers cheap one-day returns. There are very good reasons for that and also why full service carriers offer such prices and LCC's don't. But as these have been explained (and ignored...) tens of times already, I'm not putting effort into that.

Yes, I remember the reason.
Most day-returns are made by businessmen whose company pays the bill and don't care about the price, isn't ?
SN seemingly go on caring only about that kind of custom, which however doesn't help them out of the red.

[RoMax]

Most day-returns are made by businessmen whose company pays the bill and don't care about the price, isn't ?
SN seemingly go on caring only about that kind of custom, which however doesn't help them out of the red.

If SN can sell just two last-minute tickets to business pax who really have to take those flights anyway, its a winning situation for SN. For that same amount of revenue, they would have to take a fierce low price battle with the competition to secure 20 cheap ticket sales. If SN puts too much on the leisure pax (which is implied by certain media due to their recent announcements, but in fact nothing is changing on that aspect), they will loose against FR. It doesn't make them more popular with the low budget traveller which wants last minute tickets or same day returns, but it's the better choice for SN.

But this is not something unique to SN, basicly every full service carrier does this, even business orientated LCC's on routes on which they see high rates of last minute business bookings.

[sean1982]

Hi Michel !

Indeed it is and I am quite schocked with this...
This means you can't see real day return fares when searching for a nice deal..
Only noticed it with flights from BRU not from CRL and EIN..
Guess I will avoid FR in a wide angle from BRU !
But when you book quite on time there's no need to fly FR from BRU, I prefer SN...
Altough when looking for daytrips only FR and EAsy will give you affordable fares, and we know the reason.
You are leisure pax and this aren't the people where they can make money from, just fill the bird last rows..
For 100 euro return SN won't turn profitable with bags,etc.. For sure not in avro, not even in dash..
Daytrips still means CRL or EIN to me..

CXB

Hey,

Just did some simulations out of BRU and I didnt see any changes. Outward dates changed, return prices remained the same. Strange :-s

[Flanker2]

What is it with the plans for Africa? "We look to Juba in Southern Sudan," says Gustin. The situation in the country will of course need to calm down first. "And you should not be in Juba overnight countries, which is difficult for us." Gustin says Brussels Airlines wants to expand, as the intra-African flights. Destination network in East Africa With partner airline Korongo can be flown from Kinshasa to Lubumbashi Lubumbashi to Johannesburg. "The future of flying in Africa is intra-African," says Gustin. But first Gustin in Africa still needs a few more days on the bike.

Well Gustin certainly seems to have an interesting plan for Africa. I would prefer that energy is focused on that rather than FR competition.

IMHO, the only real potential for Brussels is it's natural/cultural/ethnic link with Central Africa, something none of the other LH hubs has, so that's really the only element where they aren't going to enter into conflict with the bigger interests of a wider group.
If that niche (combined with some selected feed) is not enough for you, I am afraid you are never going to be happy with what you see, because you may start allover from scratch 10 times in BRU, you will always end up in exactly the same situation: a small to medium sized airline in need of a bigger partner airline which is not going to let it grow beyond the niche it has in mind for it. simple as that really.

I don't fully agree, nor disagree.
As you note, LH's interest in SN could be purely limited to its niche, ie Africa. However, to support that niche, SN needs to develop Asia-Africa traffic. The Chinese own half of Africa by now, so the niche that SN is in, is shifting geographically from Europe-Africa towards Asia-Africa.

Japan and China are in a race for Africa:

Japan put together the conference in the hope of demonstrating the appeal of the long-term approach typical of Japanese companies. Many African countries have begun to complain about what they see as the heavy-handed approach of China's investments.

Delegates to the conference appeared receptive to the overtures. John Bande, minister of mining for Malawi, said he had expressions of interest ranging from trading companies such as Marubeni Corp. 8002.TO -5.08% to auto maker Toyota Motor Corp. 7203.TO -5.68%

"The idea is that we want to encourage more faithful investors like those from Japan," he said, adding that he admired Japan's reputation for honesty and willingness to provide technical assistance and long-term investments.

For many Japanese industrial companies, the reason for the increased level of interest is clear—the need to secure resources.

"The competition for acquiring coking coal has begun," Shinichi Fujiwara, a managing executive officer for Nippon Steel & Sumitomo Metal Corp. 5401.TO -6.15% , told the conference.

Attendees said the Japanese overture was welcome and that the continent's dependence on China was because of necessity, not necessarily by choice.

"When you have no friends, any friend is a good friend," said Zimbabwe's deputy minister of mines and mining development, Gift Chimanikire. "China came in when Zimbabwe was shunned by the rest of the world."

http://online.wsj.com/news/articles/SB1 ... 0704384652

A Chinese 'Irruption'

For years, China has engaged in an intensive campaign of visiting the continent. Presidents, heads of the government and ministers have traveled to almost all sub-Saharan countries that support China's policies and do not recognize Taiwan. They have forgiven debt, granted billions in loans, sealed defense deals and handed out generous aid packages. Most of all, however, they have secured access to Africa's natural resources.

China's "irruption onto the African scene has been the most dramatic and important factor in the external relations of the continent -- perhaps in the development of Africa as a whole -- since the end of the Cold War," wrote Christopher Clapham of Cambridge, England-based Center of African Studies.

There are now more than 2,000 Chinese companies and well over a million Chinese citizens in sub-Saharan Africa. They can be encountered in the major cities, in mining centers and oil fields, on plantations and even in the most remote jungle villages. They include managers and military advisers, doctors and agronomists, engineers and importers, itinerant traders, small business owners and contract workers employed on countless construction sites.

http://www.spiegel.de/international/wor ... 34826.html

The European Union still accounts for more than 40% of Africa's trade but the share of Africa's trade with the EU and U.S. fell from 77% to 62% over the last decade. At the same time, the share for new economic forces -- China and India but also countries like Brazil, Turkey and South Korea -- rose from about 23% to 39%.

http://edition.cnn.com/2011/BUSINESS/09 ... ce.africa/




Hence for me, SN not operating to China and Japan, because it presents a conflict of interest with LH/LX, is a big problem. Of course Hainan is operating BRU and codesharing with SN, but most Chinese people never heard of them! Most Chinese travel with EK or TK to Africa... SN is missing out big on this developing market.

The reality in Africa is that Europeans/American are losing a lot of trade to Asians every single day. Bad blood from colonial times is part of the reason, but Asian companies have a more charming win-win way of doing business where Western countries have a more one-sided approach.

So yes, LH need to give SN the opportunity to keep up with their niche and develop it together.
Even if it means that some Asian routes don't go through MUC but through BRU!

[Passenger]

I have just booked a day return to Lisbon.
I got it at Ryanair for 67,30 euros.
Brussels Airlines demanded 632,97 euros for the same trip.
They say that the difference is in service. Must be some service !

Actually, I don't think that Brussels Airlines has sold one single day return to Lisbon during the last three years. And they won't sell one this year neither, even if they would charge just 50 Euro. Simply because the flight schedule for such a day trip would be:
SN3815 (11h25-13h15)
SN3816 (14h00-17h45)

To use such schedule for a fare comparison isn't fair.

(and if you now look for other dates, please then add "Beste tarief +/- 7 dagen" in the Brussels Airlines booking engine)

[Air Key West]

Hi Flanker ! Sorry, but I'm afraid it's already too late. Most traffic between Asia and Africa now goes through the Near&Middle-East (EY/EK/QR/TK) with most of the time, shorter travel times, shorter connections and better lounges for high yield pax, etc...
Since a lot of pax flying to Africa originate in France, b.air should consider developing their operations there. I still don't understand why there is for instance no early morning flight from NCE.

[Passenger]

One must be extremely naive to think that the Sales Department from Brussels Airlines hasn't done thorough investigations already into all those new destinations that have been brought forward here as "they should fly to..."

For those suggesting to Brussels Airlines that they should consider flying to China or Japan: please keep in mind that the wheel already has been invented.

[Flanker2]

It's late, but not too late. EK and TK are expensive between Asia and Africa because it's where they make their big money! For instance a round trip NRT-IST-FIH is an astonishing 1500 euro's.
Also, neither have the coverage in West Africa that SN has! SN can cover that market much better out of BRU because they can combine Europe-Africa with Asia-Africa and N.A.-Africa. With TK, Europe-West Africa is a serious back-track that TK can't make money on.

Also, SN can combine Asia-Africa traffic with Asia-BRU O&D, because they can operate most routes without competition out of BRU. By doing this, LH fights against the ME3 and TK more proactively.
But no, they want SN to figure it out on their own and limit themselves to complaining openly about the ME3...

[Flanker2]

One must be extremely naive to think that the Sales Department from Brussels Airlines hasn't done thorough investigations already into all those new destinations that have been brought forward here as "they should fly to..."

Well, it's the same department who figured that they can compete against FR on CAG, Bari.
It's the same people who green-lighted JFK and IAD against so many people's advice and are now finding themselves trapped by more headwind than anticipated.

So one must be naive to think that those people know everything about all these routes. Those people are people who like you and me, spend 80% of their time between their homes in Belgium, the Belgian highways and their office and base all their studies on computer-generated traffic simulations that can't take nearly close to enough parameters into account nor are reliable in the first place because it doesn't take all booking data into account.

By the way, most of these routes are being flown successfully by LH, LX, AF, BA and others and EK and TK are making their bread and butter between Asia and Africa.

[convair]

Japan and China are in a race for Africa:

Many African countries have begun to complain about what they see as the heavy-handed approach of China's investments.

Bad blood from colonial times is part of the reason, but Asian companies have a more charming win-win way of doing business where Western countries have a more one-sided approach.

I don't fully agree with that last sentence Flanker, and it contradicts the statement you are quoting yourself just above, even though I share some of your conclusions.

I understand and agree with Inquirer's "group" approach that LH must be applying with all its subsidiaries, including SN of course. But the development of several hubs( like for the big airlines in the US), each with its specific market, should be part of that approach: OS for Eastern Europe, LX for international institutions and corporations (chemicals, pharmaceuticals...), and SN mainly for Africa.

And, as Flanker reminds us, such development cannot be achieved without adequate feeding routes. I agree with Flanker that the Asian market isn't well served from/to BRU, specially Japan. Given the density of the Frankfurt-Japan traffic, LH could easily (should!?) shift at least one daily to BRU,operated by SN of course(or by a mixed crew, including Japanese F/A commercially compulsory), even if with an LH aircraft at the beginning, while waiting (and waiting and waiting...) for SN's l/h fleet expansion.

[RoMax]

I still think the highest chance of getting a non-stop connection with Japan is a 787 flight of ANA (which has a joint venture with LX, OS and LH, so in that case I assume SN would be included). Would that be the best for SN? I don't know, I do believe in the BRU-Asia market, but I also realise it is a tricky market with a lot of competition from Amsterdam (maybe not leading in capacity on several routes, but they have a very high variety of different Asian routes, I believe the most of any major EU hub) and Frankfurt (mainly high capacity routes and a strong coverage of Japan and India). These are long and costly routes, so you have to be very sure you can earn something with them. Aside from what I would like to see, I don't see SN starting flights to Asia in the first 1-2 years, maybe afterwards if it's not too late already and if LH allows it (probably only when they face restrictions on their own expansion).

I'm quite sure LH is 'afraid' SN will run away with parts of the Asia to secondary French and UK airports traffic, which now runs mainly through their own hubs. SN has a quite good coverage on secondary UK and French airports, at some of them even better than LH. On the other hand, the amount of UK pax flying to Asia through AMS is very significant, SN may be better placed to compete with those flows compared to the German hubs.

[airazurxtror]

Actually, I don't think that Brussels Airlines has sold one single day return to Lisbon during the last three years. And they won't sell one this year neither, even if they would charge just 50 Euro. Simply because the flight schedule for such a day trip would be:
SN3815 (11h25-13h15)
SN3816 (14h00-17h45)

SN6401 : BRU 06.05 - LIS 08.00
SN6406 : LIS 19.55 - BRU 23.35

The lowest price is 569,33 euros. Lowest price asked, bflex economy price given.