Time’s up!

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By admin May 15, 2015 13:40

Time’s up!

It is one of those seminal days of the year when the tables start turning for many companies. 5pm today is of course deadline for TAP bidders; with reports this week indicating that Greybull Capital, owners of the Monarch Group are interested in making a bid. Also putting their hat in the ring is a consortium led by Brazilian David Neeleman, which is backed by a host of Portuguese investors. Also still in the fray is Germán Efromovich, who saw his bid for TAP rejected in 2012 after he reeled back from guaranteeing to underwrite TAP’s re-capitalisation (quite right too).

This time around with the addition of Greybull and David Neeleman things are getting interesting. Greybull now has a solid record after stepping-in to save Monarch from dramatic contraction, in the event Greybull turned Monarch into profit at speed after getting staff to agree a 30% pay cut with the loss of just 700 staff through redundancy, two thirds of which were voluntary, and by cutting just eight aircraft from the fleet and re-focusing on critical mass at a few airfields. This strong recent record of turning an airline around at speed will resonate with the Portuguese government no doubt as it asked the TAP board to study the possibility of retrenchments and a reduction in flights just last week prompting TAP chairman Fernando Pinto to state to TAP staff that “sometimes to go forward, you need take a few steps backward”. With TAP pilot unions ruling out any further strike action, the outlook for change looks set.

Meanwhile Brazilian-American businessman David Neeleman stated to the WSJ yesterday that “I think this is an opportunity, given TAP’s connectivity to Brazil, [the] “chances of a bid are high.” For Azul, connecting its network in Brazil to Portugal is a logical next step. This move would be a serious threat to the future of Germán Efromovich’s  Gol Linhas Aéreas Inteligentes and AviancaTaca Holding empire.

Neeleman, said the bid, if submitted, will be made through his personal holding company, DGN, with backing from some of Azul’s investors and investment funds.
Portuguese Prime Minister Pedro Passos Coelho said Wednesday that the priority for the government isn’t a good sale price, but rather a much-needed capital injection into TAP’s operations, including to update its fleet. “TAP needs to be recapitalized, and the state can’t do it,” Passos Coelho said. TAP, which includes the airline and a maintenance unit in Brazil, reported a €85.1 million loss for 2014, higher than the €5.9 million loss in the previous year. It ended 2014 with €1.06 billion in debt.

Whatever the outcome of the bidding process, nothing is likely to be confirmed before the October general election. Now that is a headache for potential investors as it is looking highly likely that the opposition Socialist Party will win power in a landslide victory and it has been putting out statement after statement over the past three or four years to the effect that TAP should never fall into private hands – So any deal agreed could be overturned anyway.  TAP is a political football.

Staying on the theme of time’s up, it is clear that many animal rights groups are gearing-up for an assault on the reputation of airlines who do not have bans in place for the transit of dead animals on the endangered species list for major carriers to and from African hot-spots. Those airlines include Delta, Qantas, El Al, Egypt Air, Etihad as well as Lufthansa in some circumstances and Qatar. Maybe some of those airlines, especially Delta, which is engaged in a high stakes battle for hearts and minds, should close this loophole off at speed just as Emirates did this week.

In the USA, system-wide (domestic and international) scheduled service load factor rose to 84.2% in February, seasonally adjusted, reaching its highest level since February 2014. The February 2015 load factor was below the all-time seasonally-adjusted high of 84.6% reached in January 2014. The load factor rose month-on-month as a result of a 0.1% increase in RPMs from January to February combined with a 1.0% decline in ASMs. Unadjusted System-wide Load factor was at an all-time high for the month of February at 80.2%, exceeding the previous high set in 2014. The domestic load factor was at an all-time high for the month of February, exceeding the previous high set in 2013 at 82.4% as aircraft utilization shot up to levels not seen since 2008.  The international load factor was up year on year at 75.3%.

But in the APAC region load factors remain lower than many would like to see them, especially at AirAsia. Time is most definitely not up for AirAsia but one gets the feeling that from 2015 onwards the going for AirAsia is going to be tough. In Thailand, Lion Air will hit Thai AirAsia, Nok and others very hard when they move-in for the kill over the next few years, starting a price war for market share not seen outside of India to date. But in the here and now one of the major worries for AirAsia and others is the development of the Malaysian high-speed rail link between Singapore and Kuala Lumpur which will have unbundled fare options matching those offered by airlines. Mohd Nur Ismal Mohamed Kamal, Malaysia’s Land Public Transport Commission chief executive, was yesterday quoted by the country’s media as saying that tickets would be priced at less than RM200 (S$74) for a single trip. “We foresee a much lower average price to make the HSR project feasible,” he stated to the New Straits Times.

A flight from Singapore to Kuala Lumpur takes less than an hour, but getting to the airport, going through security and the terminal means rail has a slight edge on time as travel time between the two cities via high-speed rail is about 90 minutes.
There are at this time around seven airlines operating more than 240 weekly flights in each direction between Singapore Changi Airport and Kuala Lumpur International Airport and with all fares on the route already on the floor we can expect nothing less than significant contraction and a need to redeploy aircraft elsewhere once rail services begin, and as such maybe a few aircraft orders will need to be leased-out, pushed back or cancelled, there is also a strong case for suggesting that maybe reducing frequency and upscaling aircraft on the Singapore/Kuala Lumpur will be the way to go in five to seven years’ time. Given the delivery schedules of some airlines decisions will have to be made soon.

admin
By admin May 15, 2015 13:40