Alliances have had their day, Air France is in deep trouble and long-haul, low-cost carriers (LCC) may be close to getting it right.
Just some of the points made by two of the world’s leading airline executives during a panel discussion at the World Travel Market (WTM) exhibition in London.
Sir Tim Clark, president of Emirates Airline and Willie Walsh, CEO of International Airlines Group, which includes Aer Lingus, British Airways, Iberia and Spanish Low-Cost Carrier Vueling, made their comments during a wide-ranging discussion at WTM, which brings together representatives from thousands of travel trade and tourism organizations.
The two executives’ companies have plotted very different courses: Emirates has famously steered clear of involvement in any of the major airline alliances, while British Airways was one of the early members of the oneworld grouping.
Both men agreed that alliances retained some value for their members, but argued that their influence was waning. They had developed out of major changes to the industry in the last 25 years of the last century, said Clark, when major changes to the airline industry such as deregulation and equity swaps, and meant that airlines felt safer huddling together. “It’s 1970s and 80s thinking, in my view.”
“I wouldn’t disagree,” said Walsh. “I think they have value today, but question if they’ll have value in the future. I would be surprised if they still exist 20 years, or even 10 years, from now.”
Emirates Airbus A380. Flickr/Mark Harkin
Recalling his time as CEO at Irish flag-carrier Aer Lingus, he said that he had done the groundwork for it to leave oneworld. There were high costs associated with alliance membership, “especially for a small airline,” said Walsh and it had reached the point where the costs were “at least as large” as the benefits Aer Lingus derived from membership.
The Irish airline joined oneworld in 2000, but decided to leave in 2006, after it had re-made itself into a lower-cost, point-to-point airline that had less use for the connections offered by alliance members.
Both men expressed sadness at the state of Air France-KLM – especially the French half of the organization – which they said had tried and failed to solve its long-running problems due to the unwillingness of many in the French flag-carrier to face up to the fact that world had changed.
“It hasn’t adapted and it’s relied on the French government stepping in to support it,” said Clark. “With that dynamic, people won’t change – they will resist change.”
A British Airways Airbus A380-800.AP Photo/Alex Brandon
Walsh noted that many industry observers had some years ago compared the problems at Air France with those at Iberia – including a high cost-base, overmanning and poor onboard product – but the Spanish flag-carrier had cut its costs and was now back in the black.
“[Iberia] is today effectively a different company,” said Walsh. “[CEO] Luis Gallego has done a fantastic job. It’s profitable and more popular than ever.”
Part of the painful cost-cutting medicine taken by Iberia had involved it dropping several of its traditional Spain to South America routes. He recalled at a conference in New York some years ago, an Air France executive had exulted that the French airline would swoop in and pick up those routes.
However, said Walsh, even before restructuring, he knew that Iberia had a lower cost base than Air France. “I said ‘You’re welcome to take on the South Atlantic runs, because you’ll never make them pay, you’ll be even weaker and we’ll take them back from you.’”
An Air France Airbus A380.Flickr/Christopher Griner
He added that KLM – particularly its cost-base – had suffered from being part of the Air France-KLM consortium. There have for years been reports that KLM senior management is frustrated at being dragged down by its French partners: “We wait to see what’s going to happen,” said Walsh.
Clark and Walsh noted with interest that the long-haul, low-cost concept seemed to be on the verge of paying off. Airlines such as Malaysia’s Air Asia X, Singapore’s Scoot and Norwegian were not quite there, but were on the verge of becoming profitable, a development that would change air travel dramatically.
A Norwegian Air Boeing 787.Flickr/Eric Salard
“I think we’re seeing the beginnings of an inflection point,” said Clark. “We’re just on the brink of something fairly new coming along.” More work was needed to refine their business models, but that would happen.
Walsh agreed: “I like what Bjørn” – Norwegian’s CEO Bjørn Kjos – “is doing. They’ve not quite cracked it yet.
“I think the consumer is prepared, more and more, to look at unbundling the [long-haul] product as they have on short-haul. It’s clear from what Norwegian has done that the consumer IS prepared to do that – for example, to pay to check in a bag.”