Brussels Airlines future and financial perspective

[cnc]

Anyone thinks LH may end up selling SN to IAG?

LH would never sell its share to IAG

[airazurxtror]

There is a perception (and I insist on perception) that Ryanair is far cheaper to fly than a full service airline, that is far from being true

I am sorry, but it is true. It is not only a perception, it's a reality.
I can provide you with a few comparisons of prices to show you the difference : but I am sure you already know it.

[Air Key West]

Hi, CNC, Why would LH never sell b.air to IAG ? I would not be so sure. My gut feeling is that Franz doesn't give a damn about b.air and a few destinations in French-speaking Africa. He wants to concentrate on LH, LX and OS and keep the LH Group a "germanic" group. Last Autumn, he announced that there would be no more acquisitions. Still my gut feeling is that Franz would not mind b.air going bankrupt, even if it means loosing some money. LH can afford to loose that money (see BMI case). Unless b.air can announce a profit for 2013 in 2014, LH will not exercice their option.
And back to my question : why wouldn't LH sell b.air to IAG (if the latter were interested) ? I'm not saying you are wrong. I just would like to know your arguments.

[b720]

LH or any other group.. who wants to keep a loss making entity? If brussels airlines can not make profits by 2013 or 2014..honestly, why and who will save it? it means that the whole business plan of the airline is not viable.

[cnc]

Air Key West your feeling is right. However if SN go's down LH can step in before IAG or AF/KLM take over the market, if SN is sold LH faces IAG/oneworld on its doorstep.

[Air Key West]

I don't follow you there. I am increasingly convinced that LH's interest in b.air is decreasing. As happens very often in the business world, when a new boss (Franz) arrives, he wants to do things differently from his predecessor (Mayrhuber) even if the predecessor did a good job, and the new boss will want to get rid of the things he inherited and which he does not like (BMI, LH Italia, and probably SN) for objective or subjective reasons, or for both.
The arrival of a German COO, Peter Kranich, (ex Germangwings, not pure ex LH) at b.air, as a member on this forum already hinted at, makes it possible to have someone inside b.air's management to report back to Franz and LH to help them make their final decision. If b.air manages to survive in spite of its financial situation and if b.air manages to break even for the year 2013, Kranich's recommendations to LH will be decisive.
Now, let's see if Kranich has a real mandate to help turn the airline around. Hopefully, he has. But I don't like the fact that he comes from Germanwings (LCC) and not from LH.
Anyway, imo, b.air's survival will not come from possible savings on social contributions and taxes, certainly not if the figure of 5m mentioned in this thread is close to reality. It's too little. Not worth all the bad publicity Davignon's move has unleached, with probably no positive result for b.air. Bad move from Davignon imho.
The survival will come, in a first stage, from the development of the African network which has, so far, kept the airline afloat. Let's hope this development will not come too late. B.air has been too slow to develop its profitable Africa network, I hope we all can agree on that at least.
In a second stage (if b.air gets there) it should also consider flying to other continents (especially the emerging economies) which still have potential (Brazil for instance has a booming economy and Brazilian have money to travel) in order not to be dependent solely on the African continent for its survival, given that to Africa competition will increase and yields might decrease and in Africa you can always expect a war to break out one day or another somewhere, or you can be the direct victim of the whims of a President or a minister (see Senegal or DRC), which will inevitably disrupt your operations and have a negative impact on your revenue and profitability. "Monoculture" is always dangerous.

[euroflyer]

just my ideas:

why does LH not take the option this year? Well, (1) because they need the money somewhere else at the moment and as times are uncertain you want to keep as much cash as possible; and there is nobody else who could "take away" SN because of the existing contracts, so they would be stupid to buy today; (2) after the experience with BD and OS they certainly want to see a turn-around first, that was the successful scenario at LX; first do the turn-around, than integrate into LH, once an airline is inside the big LH bureaucracy it gets much harder to implement big changes ...

would LH sell SN to IAG? No, that would be stupid, they sold BD to them because this was best for LH to keep competition small (VS would have liked to make BD a growing business, BA wants probably to scale them down and integrate into BA). LH gave it to BA so BA can now serve their home market in the same way as LH or AF can serve theirs; I guess all three learned there is not much point in making themselves life hard in their respective home markets (same reason by the way why LH pulled the plug on LH Italia or why BA sold 'Deutsche BA' some time ago); SN is however a different story, here it is about to which home market Belgium does belong: LH, BA/IB or AF/KL; so a totally different story ...

[DeltaWiskey]

But I don't like the fact that he comes from Germanwings (LCC) and not from LH.

And that's based on what? I think it is fairly good for SN, a fresh mind arriving (from an LCC), so he will know exactly (or at least fairly good) where expenses can be cut. I think he is one of the better things that happened to SN the last year.

By 2014 SN should indeed turn positive bumbers at least, not a lot, just black numbers. The fleet should be well harmonized by then, and hopefully some new aircraft (in co-op with LH Group) ordered as well.

[RoMax]

But I don't like the fact that he comes from Germanwings (LCC) and not from LH.

Didn't he came from Eurowings (part of Lufthansa Regional) or was that one of his previous jobs?

[Flanker]

I am disappointed young Flanker!
BruAir has posted some positive results in the past, but they have never been profitable.

For 1 (one) euro the "bought" valuable fuel hedging contracts and even more valuable LHR slots from Sabena. These were later sold to dress up the accounts.
During nine years BruAir was exempted from paying pension contributions for their crews. BruAir even deducted the employee part of the pension contributions but didn't transfer them to the pension fund.
VEX was bought to prevent EasyJet of buying it.
BruAir 's lobbying prevented the opening of a LCC terminal at BRU

For 10 years BruAir has been kept artificially alive.
Level playing field??

There is a lot of truth in that too.
In 2010 they also made a small profit thanks to the sale of several BAe146's.

I do find that there is a major unfairness factor in the Ryanair competition with regards to the use of the regional airport and the incentives they receive there.
But where CRL is doing too much for FR, BRU is treating SN like an inconvenience. High airport taxes, limitations such as the number of handing companies who can compete at the airport, inconvenient infrastructures, and so on.
Perhaps it's time to start threatening BRU that they will leave to CRL?

SN top management, level the playing field by yourself instead of asking others to do it for you.

I don't follow you there. I am increasingly convinced that LH's interest in b.air is decreasing. As happens very often in the business world, when a new boss (Franz) arrives, he wants to do things differently from his predecessor (Mayrhuber) even if the predecessor did a good job, and the new boss will want to get rid of the things he inherited and which he does not like (BMI, LH Italia, and probably SN) for objective or subjective reasons, or for both.
The arrival of a German COO, Peter Kranich, (ex Germangwings, not pure ex LH) at b.air, as a member on this forum already hinted at, makes it possible to have someone inside b.air's management to report back to Franz and LH to help them make their final decision. If b.air manages to survive in spite of its financial situation and if b.air manages to break even for the year 2013, Kranich's recommendations to LH will be decisive.
Now, let's see if Kranich has a real mandate to help turn the airline around. Hopefully, he has. But I don't like the fact that he comes from Germanwings (LCC) and not from LH.
Anyway, imo, b.air's survival will not come from possible savings on social contributions and taxes, certainly not if the figure of 5m mentioned in this thread is close to reality. It's too little. Not worth all the bad publicity Davignon's move has unleached, with probably no positive result for b.air. Bad move from Davignon imho.
The survival will come, in a first stage, from the development of the African network which has, so far, kept the airline afloat. Let's hope this development will not come too late. B.air has been too slow to develop its profitable Africa network, I hope we all can agree on that at least.
In a second stage (if b.air gets there) it should also consider flying to other continents (especially the emerging economies) which still have potential (Brazil for instance has a booming economy and Brazilian have money to travel) in order not to be dependent solely on the African continent for its survival, given that to Africa competition will increase and yields might decrease and in Africa you can always expect a war to break out one day or another somewhere, or you can be the direct victim of the whims of a President or a minister (see Senegal or DRC), which will inevitably disrupt your operations and have a negative impact on your revenue and profitability. "Monoculture" is always dangerous.

Good post, air key west. You seem to have a good understanding of the situation.

[LJ]

In a second stage (if b.air gets there) it should also consider flying to other continents (especially the emerging economies) which still have potential (Brazil for instance has a booming economy and Brazilian have money to travel) in order not to be dependent solely on the African continent for its survival, given that to Africa competition will increase and yields might decrease and in Africa you can always expect a war to break out one day or another somewhere, or you can be the direct victim of the whims of a President or a minister (see Senegal or DRC), which will inevitably disrupt your operations and have a negative impact on your revenue and profitability. "Monoculture" is always dangerous.

However, that second stage should not interfere with the goals of LH. You're forgetting that SN will not control its "second stage" as by then it's bought by LH and the strategy is dictated out of Cologne, not Brussels.

[Air Key West]

Air Key West wrote:
But I don't like the fact that he comes from Germanwings (LCC) and not from LH.
Didn't he came from Eurowings (part of Lufthansa Regional) or was that one of his previous jobs?

You're right, Mr Boeing. I mixed up Germanwings and Eurowings. You're right. My mistake. Mea culpa.

Air Key West wrote:
In a second stage (if b.air gets there) it should also consider flying to other continents (especially the emerging economies) which still have potential (Brazil for instance has a booming economy and Brazilian have money to travel) in order not to be dependent solely on the African continent for its survival, given that to Africa competition will increase and yields might decrease and in Africa you can always expect a war to break out one day or another somewhere, or you can be the direct victim of the whims of a President or a minister (see Senegal or DRC), which will inevitably disrupt your operations and have a negative impact on your revenue and profitability. "Monoculture" is always dangerous.

However, that second stage should not interfere with the goals of LH. You're forgetting that SN will not control its "second stage" as by then it's bought by LH and the strategy is dictated out of Cologne, not Brussels.

I'm no longer 100% sure LH wil take control of SN. I think all options are on the table. As I said before, Franz doesn't really want SN in the LH Group. It will take a lot of convincing to make him change his mind, but it's not impossible. In the meantime, I think (for what it's worth) that b.air should develop its business plan and future strategy taking into account that LH might not buy the remaining 55% of shares.

[tolipanebas]

I see the doomsday preachers are out again? What a surprise...
Surely not because they LH is not likely going to excercise their call option this year?
As inquirer and euroflyer have already said, that is a fairly normal business practice really, especially as there is no urgency involved. Better first focus on turning the company around then to hastily take it over and then find out things have become twice as difficult because of an unfinished integration, don't you think?

Besides, what would such a full takeover bring SN in the short term? Not much, IMHO.
What SN needs most of all is not a cash injection, but a ballanced and thus profitable network of its own, something which takes time and vision to build and that they will have to do themselves. LH is there to help where possible (4 slotpairs at LHR, DLA/NSI transfer from LX, HAJ transfer from LH, BSL transfer from LX, ...) and has recently agreed to send over a manager to basically run the daily operations of the airline, but LH is obviously no Santa Claus either.

But I don't like the fact that he comes from Germanwings (LCC) and not from LH.

Didn't he came from Eurowings (part of Lufthansa Regional) or was that one of his previous jobs?

Yes, he's previous assignment was at eurowings, which interestingly enough is also a company in which LH holds a minority share, yet through an agreement with the other private shareholder has taken full operational control of the airline, so he'll be on familiar grounds, so to say.

The survival will come, in a first stage, from the development of the African network which has, so far, kept the airline afloat. Let's hope this development will not come too late. B.air has been too slow to develop its profitable Africa network, I hope we all can agree on that at least.

Who will disagree with that?
As you know my biggest frustration has been the VEX take-over: it made SN lose 4 years in which it was bussy intergrating old planes and low yielding short haul VFR routes which it now wants to get rid of asap, all while it missed some great opportunities to expand intercontinentally (e.g. Montreal).

Where CRL is doing too much for FR, BRU is treating SN like an inconvenience. High airport taxes, limitations such as the number of handing companies who can compete at the airport, inconvenient infrastructures, and so on. Perhaps it's time to start threatening BRU

As I've said before: one of your better ideas!
Interestingly enough, part of the plan at OS is to have VIE seriously lower its fees for OS, thus recognizing their importance to the airport in attracting other traffic. Maybe SN should copy paste this? BRU should massively slash the fees for SN: without them, they are nothing but a regional airport at best.

I'm no longer 100% sure LH wil take control of SN. I think all options are on the table.

Nothing is to be taken for granted in live: as BD has shown, being 'in' is no guarantee either, you know?
it's really not about 'being in' vs. being 'left out', it's about being a sustainable business; the rest automatically follows from that.

I think (for what it's worth) that b.air should develop its business plan and future strategy taking into account that LH might not buy the remaining 55% of shares.

SN can not survive on its own in the long run: it lacks the critical size for that and it will never be able to grow to that size either. If even KLM or SWISS can't be a stand alone with their fairly significant global long haul networks, there's no use in dreaming about a much smaller stand alone Belgian airline, as such an airline would have to downsize to a regional feeder at best and that's not what you'd want, is it?

[Air Key West]

You're right that SN cannot survive alone. Only, we've come from a situation under Mayrhuber where we were 99% sure LH would take full control of SN even before 2014 to a situation under Franz where, imo, it has become 50/50. I will not go as far as saying that LH does not want to take over b.air at all anymore, inter alia for the reasons you have explained, namely

LH is there to help where possible (4 slotpairs at LHR, DLA/NSI transfer from LX, HAJ transfer from LH, BSL transfer from LX, ...) and has recently agreed to send over a manager to basically run the daily operations of the airline,

I am, however, wondering if LH has agreed or has decided to send over a top manager...
I am sure that Franz will not hesitate one second to offload b.air if he thinks it's in the interest of LH to do so or if he does not see any substantial advantage in further investing in b.air. As you said yourself, LH is not Santa Claus.
The problem Franz has with b.air is that there are practically no more savings to be made anymore anywhere (majority of staff have low wages and are overworked ; b.light pax have to pay for their drinks and snacks ; doritos have replaced snacks outside meal times in b.flex) and Franz loves to cut and cut and cut, and when he cannot he's frustrated. OK, it's a very personal interpretation, but that's how I perceive the guy.
I know it's too early to speculate, but isn't it part of the "game" on this forum to do so ? So, what if LH decided to put its stake in SN up for sale in 2014 ?
Franz is a German hardliner. We're far from the more gentle and elegant Austrian way of doing business at LH. The cards dealt by Franz are quite different from those dealt by Mayrhuber not that long ago. I'm convinced of what I'm saying, but of course, it's still a personal opinion and others are free to disagree.

[BrusselsAirlines]

SN still has 3000 employees, so Davignon and co like to see themelves as heroes, but in reality it has 3000 mostly unhappy, low-paid employees

Nice to have all these expert opinions that nobody reads anymore because they are all sooooooo looooong and always the same.

What I can see is an economical recession and oil at almost 130$, a company moving ahead year after year and as I fly daily with different crews, it must be a different bru.air I fly for as I think above comment is totally misplaced, not the least slightly exagerated, just slightly.

Maybe a good idea to get some air once in a while. Or a new challenge or horizon?

There might be some truth here or there but comm'on guys, WTF?

[Squelsh]

Rather interesting public question and answer concerning this topic, yesterday in chamber of reps. Sorry it's a loooooong one, but so many aspects to cover
.
Vraag van de heer Jean Marie Dedecker aan
de eerste minister over "de oneerlijke
concurrentie door Ryanair en de ongelijke
fiscale behandeling van Brussels Airlines"
(nr. P0828)

02 Question de M. Jean Marie Dedecker au
premier ministre sur "la situation de Brussels
Airlines face à la concurrence déloyale de
Ryanair et à la différence de régime fiscal"
(n° P0828)

Jean Marie Dedecker (LDD):
Mijnheer de voorzitter, mijnheer de minister, collega’s, Brussels Airlines trekt aan de alarmbel bij de regering. De maatschappij dreigt te crashen zoals Sabena in het verleden. De rechtstreekse oorzaak is het kerosineprobleem, de taksen en contracten in Afrika. Het grote probleem echter is de concurrentie met de lageloonkostenmaatschappijen. Ryanair bijvoorbeeld vliegt op Charleroi. Momenteel kosten de piloten bij Brussels Airlines een vierde meer en verdienen zij een derde minder dan de piloten die vliegen voor lageloonkostenmaatschappijen. Het IMF heeft vandaag nog het bericht uitgegeven dat wij de hoogste loonlast en de laagste opbrengst hebben met betrekking tot de portefeuille van de werknemer. Hieraan kan de regering iets doen.

Een tweede oorzaak is de subsidiepolitiek. Ryanair vliegt bijvoorbeeld op Charleroi en krijgt hiervoor 33 miljoen euro per jaar subsidies, 15 euro subsidies per passagier, terwijl andere maatschappijen niet kunnen genieten van deze subsidies. Vreemde maatschappijen die naar hier komen en die niet dezelfde sociale lasten betalen, kunnen concurreren met onze lokale maatschappijen die wel belastingen betalen. Bovendien worden deze vreemde maatschappijen extra gesubsidieerd.

Brussels Airlines trekt aan de alarmbel en richt zich tot u, mijnheer de minister. Wat zult u doen? Zult u iets ondernemen, zoals in het verleden met de baggeraars is gebeurd, of zult u de vrije concurrentie laten spelen?

02.02 Minister Steven Vanackere:
Mijnheer de voorzitter, op deze korte vraag geef ik een kort antwoord. De regering neemt dit probleem ernstig. Het gaat om een bedrijf met 3 400 directe arbeidsplaatsen en evenveel of meer indirecte
arbeidsplaatsen. Dinsdagavond boog de kern zich over het probleem. U beschrijft het probleem inderdaad terecht als een kwestie van level playing field. Het is een andere situatie dan de situatie van Sabena. Het is geen kwestie van vragen naar geld, maar een kwestie van vragen naar een eerlijke en correcte
concurrentieomgeving.
U heeft de loonkost genoemd. Ook enkele elementen met betrekking tot de Europese regelgeving spelen ter zake, onder andere de regelgeving die ervoor moet zorgen dat cabinepersoneel en piloten onderworpen worden aan de sociale zekerheid van de vertrekplaats en niet van de vestigingsplaats van het bedrijf.

Hierover is er Europees overleg. Er is echter een overgangsperiode die ons tot 2020 kan leiden. Wij
moeten onderzoeken of wij deze periode kunnen inkorten. Het is niet enkel een kwestie van loonkost, maar ook een kwestie van statuten. Wij moeten nagaan of iedereen wel degelijk in loondienst werkt en of er geen oneigenlijk gebruik van zelfstandige statuten is.

In het algemeen kan ik bevestigen dat onder het initiatief van mijn collega, staatssecretaris Wathelet, deze voormiddag een eerste interkabinettenvergadering plaatsvond om de verschillende aspecten van dit probleem te bespreken. Wij werden er twee dagen geleden mee geconfronteerd en wij nemen het probleem
heel ernstig. Wij zijn van plan om er iets aan te doen. Het zal zeker aan bod komen tijdens het bredere competitiviteitsdebat, want het is niet de bedoeling dat de competitiviteit van de Belgische economie enkel punt voor punt en enkel sectoraal wordt aangepakt. Wij moeten daar een globale kijk op hebben. U hebt daar in uw vraagstelling trouwens naar verwezen toen u het had over de algemene problematiek van de loonkosten.

02.03 Jean Marie Dedecker (LDD):
Mijnheer de minister, in essentie fietst u om het probleem heen.
Wij hebben in België een eigen maatschappij, met name Brussels Airlines. Wat doen wij echter? Wij gebruiken het geld van de belastingbetaler die zijn belastingen op een normale manier betaalt, om in Charleroi subsidies uit te keren aan een vreemde maatschappij die, zoals u zelf zegt, werkt onder het Ierse sociale stelsel.
Ik geef u een voorbeeld. Een Ierse piloot die 100 000 euro bruto per jaar verdient, kost de Ierse maatschappij 111 000 euro. Als hij voor een Belgische maatschappij werkt, kost hij 128 000 euro. In België heeft die piloot 50 000 euro in de hand, en in Ierland 73 000 euro.
De essentie is dat u niet moet rommelen in de marge, zoals met de baggeraars gebeurd is. De essentie is dat het beleid van deze regering moet veranderen. Nu worden zulke maatschappijen aan de ene kant gesubsidieerd. Ook door de Gewesten, daar hebt u gelijk in. Wallonië doet dat inderdaad, maar zo kunnen vreemde maatschappijen concurreren tegen onze eigen maatschappij, dankzij de subsidies die door de
overheid gegeven worden.
L'incident est clos.
Het incident is gesloten.

[cnc]

very interesting indeed.

[Flanker]

The same politicians who are running the country into the ground have to find a solution for SN?
From stupid to hideous.

It's not Ireland's fault if Belgium want to charge such high taxes. After all, when more than half of the money your employer spends on you, lands in your government's pockets, even if there is a decent welfare system, wouldn't it be much cheaper to buy medical insurance and invest by ourselves for our retirement?

We like to say that the Americans are stupid, because they have no welfare system, have to buy medical insurance and live in wooden houses worth 100k$ waiting for their 401k retirement. Aren't we the stupid ones to give more than 50% of OUR money to the government, plus another 21% at every purchase in the stores, having to pay a chunk of our medical bills and live one on top of the other in tiny brick apartments that go for over 200.000 euro?
We pay gas/diesel at twice the price in America while most jobs only pay half of what they pay in America.

It's no secret, it's impossible to make money with a business in Belgium without committing fraud.
Don't blame Ryanair, blame the stupid government who thinks that higher taxes and less benefits is the way to solve this budgetary crisis and once again for using those taxes to subsidize foreign entities that reduce tax income from national entities even more.

HAHAHAHAHAHAHAHAHAHAHA.
Even animals aren't this ridiculous.

[sn26567]

It's not Ireland's fault if Belgium want to charge such high taxes.

I did not intervene in this discussion because it is not my role. However, I am outraged to see that Ireland can keep such low taxes whilst receiving aid from the EU to avoid bankruptcy like Greece. It means that our high taxes in Belgium help subsidise Ireland and allow it to keep its generous tax system. If that is not unfair competition, please tell me what it is!

[pressman]

Ireland didn't get any aid from anybody , it got a loan , which has so far been paid back as and when it should be including the interest .