Problems in Japan, problems at JetBlue and Pandora’s box

Dino D'Amore
By Dino D'Amore October 30, 2013 21:10

Problems in Japan, problems at JetBlue and Pandora’s box

JetStar Japan has gone out to shareholders for additional working capital of around Y11bn ($119m). This is the second time this month that an airline, which other airlines have invested in (albeit that this one is integral to the business models of Qantas and Japan Airlines), has demanded cash. Sometime soon Etihad will get its first real shock to the aircraft investment model when Jet Airways asks for working capital. Of course the other airline to ask for money this month was Alitalia, which in the event were most unkind, boxing into a corner their Air France-KLM shareholder “friends”. In this latest case, Japan Airlines and Qantas will each take-on $5.5bn of shares that will be non-voting so as not to dilute the voting rights of Mitsubishi and Century Tokyo Leasing corp.

JetStar Japan has been struggling for some time losing Y8.8bn to June alone and has not been able to increase load factors in line with capacity and as such the airline is delaying fleet expansion plans and sticking to 18 aircraft well into calendar Q3 2014. Into the mix is the added burden of low aircraft utilisation, a total killer for a low-cost model. The airline is looking to open a hub at Kansai by July 2014, which will allow for a far greater schedule spread as the airfield is at this time able to handle take-off and landings 24 hours a day.

Now this story is reminiscent of the AirAsia Japan venture and its problems to utilise and fill aircraft within Japan’s marketplace. So is there a systemic problem in Japan working against low-costs? Peach has done well but its load factors are slightly down on 2012 at this time and indeed its Kansai departures and arrivals have seen factors in the sub 80% range of late on and off which will push down totals. Even so JetStar load factors have been sub-80% all this past year from 72% lows. JetStar Japan is to concentrate on international routes and that, from the evidence gathering, is a wise move. The Jetstar Japan venture will prove a drag on Qantas and Japan Airlines for the time being.

Meanwhile over in the USA just what is going on at JetBlue? Yesterday it delayed delivery of its 24 E190s from 2014-2018 out to 2020 to 2022 and has moved instead to upscale to 15 A321s and 20 A321Neos. With the CEO stating that he wants a 60 aircraft fleet cap? Now both you reading this and I writing have known and talked about the airline up-scaling trend for near on three years now and yet it has only just got past the door of the JetBlue HQ this summer? One wonders how long this airline is going to survive if it does not know what it wants to become. The move for the A321 is all about delivery slots but it is some upscale from an E190 that is for sure. The A321Neo on the other hand does not have the near range delivery slots going for it but the aircraft is looking to be best in class by some margin and is a good choice. But looking at the JetBlue route map I would argue that something not yet seen must be on the eyes of management at the NYC-based airline as in order to gain maximum economics out of an A321Neo you have got to be flying it out further than that JetBlue route map currently reaches. We shall see. Unsurprisingly stock in the carrier fell 3.9% to $7.24 at the close in New York yesterday. Spirit and Southwest expansion could yet kill this airline off and the US/AA merger slot give-away may well provide the foot in the door for those two killer operations to start taking big bites out of JetBlue’s potential capacity – Be wary all stake holders in JetBlue.

And now it is time for a bit of fun, or at least that is what the marketing guys at Airbus thought this week when they opened Pandora’s box with the minimum 18” seat width argument. Oh my – I have seen reports on the Airbus release from China and India, the US through to Germany and all laud the brilliant idea that came out from the Airbus thinktank that all seats should be a minimum of 18” wide as an industry standard. But as yet I have seen no one question the logic of such a move, and so, alas, it falls upon us here to set some scene to this release and challenge the held perception of the same. So go grab a drink and sit back for a moment:

My first reaction is one of praise for Airbus, its marketing team is doing a great job of capturing a significant point of interest for travellers the world over, and they have. In so doing they are opening-up a conversation that could in the end become regulation and this would be catastrophic to the airline sector as it would limit the ability of airlines to respond to demand, be flexible and of course generate revenue. Of course the release by Airbus is a self-serving one and is somewhat cynical as at this time the A330 and A350 baseline designs have seats that are more-narrow than the 777 or 787 in nine and eight abreast configuration respectively. The A330 and A350 baseline offerings, because they have more narrow seats than the 787 and 777 baseline configurations, do not have a real optionality to add another seat in their rows, although I note that the A330 does have three operators running nine abreast configurations. So we can argue that Airbus is saying, ok, we cannot add any more seats to our rows, so let’s go ahead and propose a limit.

Of course Airbus has an underlying theme, the A380 passenger surveys showed that passengers will put comfort foremost where schedule is not a worry, such as on well-served routes out of Heathrow, Hong Kong, NYC, Sydney and the like where the choice of carrier is great and where the A380 operates. The reality is it depends on who you sell the aircraft to. Sell one A380 to Ryanair for example and all those passenger comfort surveys for the A380 might as well go straight on the fire. You cannot tell a low-cost airline that it has to have fewer seats. And, as low costs upscale to the 787 and move into the widebody arena, Airbus will need to be careful. Of course that is the plan though, Airbus needs to keep one eye on the widebody market becoming a focus of the low costs and thus it needs to level the playing field with Boeing when it comes to seat configuration options.

So: it is a great marketing move by Airbus, but it is a cynical one at that. It is a story that many airlines will be hoping fades away after this weekend.

Dino D'Amore
By Dino D'Amore October 30, 2013 21:10
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