Brussels Airlines future and financial perspective

[Inquirer]

The idea that more long distance flying would benefit their shorthaul is one that is indisputable as the 2 will obviously cross feed each other.
However, I'd be reluctant to advice them to open any Asian routes themselves, as that means they risk spreading their still limited resources too thin.
As in any business, it's far better to focus on a few key markets and make sure you grow in them so you can achieve sufficient volume there, rather than to be present everywhere at the same time.
They can of course try to convince local partner airlines to link their Asian hub with the airport of Brussels and I am sure they are trying hard to do that -together with the airport itself I hope- but I think that quite a few potential airlines are sitting on the fence right now, waiting for a stable outlook.
I can imagine the launch of a route from say Japan or China to be a significant investment from whoever decides to launch it, so this is a decision only made if their partner in Belgium is known to be going to be there for the long run.
Given Brussels Airlines are well underway to take away all remaining doubts as to their longevity, I'd be expecting that the prospect for any such routes will be getting better next year and beyond.
We've had kind words and public intentions from airlines like ANA in the past; it's likely those will indeed materialise in the not too far future if Brussels Airlines lives up to the expectations they have set themselves.
It's proof as to why it is important to have a successful national airline for a country like Belgium, as this opens up our country and thus it's economy to the rest of the world far easier than when we'd have to rely on just foreign (often low cost) airlines alone.
So I'd say: relax and let them become profitable like they seem to be well underway for; after that, the rest will follow. Rome wasn't built in a day either.

[Flanker2]

Thank you Flightmate, you have a good point there.
They are now looking to open a new U.S. route, so they obviously have the budget for another route.

Air China plays at a different level compared to Hainan.
They are the national carrier of China, which brings diplomatic traffic to/from Africa, including all government workers and government-related companies. Hainan is a relatively small airline, they lack the customer base to do big things.

I'm not too worried about East Africa, where SN isn't big.
But the ME3 will not sit idle on West Africa.

Hainan is operating A332's to BRU, so it's not impossible.
However, I'm not sure that SN's older A332's can do it.

[FlightMate]

Flanker, what if you were Air China?
Would you try to hub your flights through Brussels, halving your profits, or would you try to open direct links to Africa?
I suppose it all depends if the traffic is big enough to warrant direct flights and serious frequency.

[Flanker2]

I thought about that too and I think that you are spot on about the answer.
The biggest hurdle for Air China to open direct routes to African cities is that the routes are too thin to fly direct or even triangular flights, even with as small an aircraft as the B788 (which they don't have anyway).

If we do the exercise with SN codesharing, the average amount of pax I can see travelling between China and Africa will be limited to about 50- 300 pax per day each way. Those pax then would be spread over 5 SN triangle or direct flights ex-BRU to 8-10 African destinations. That average will thus reduce to 6-35 pax per SN flight ex-BRU to Africa, which will be a welcome boost for SN.

So if they would do the routes themselves, Air China would be stuck with 6-35 pax on direct flights or 12-70 pax per triangular flight plus some extra costs for operating the triangle. Either way, it's not enough to justify a widebody flight from China.

I've also run some simulations and generally speaking, longer routes above 10.000km only make sense to operate if you have a big demand and can operate an aircraft that is the longest stretch version of its family (B77W vs. B77L, B781 vs B788, A35J vs. A358, A333 vs A332).
The reason is that above 10.000km, the operating costs become higher and ticket prices tend to become higher and thus form a "natural filter" for travel demand.
As for why you need the stretched version: longer routes will cost more to operate and will cost more to the pax as well, so it's important that your CASM is as low as possible. A stretched variant will offer more capacity for about the same cost, hence it's often the only viable option to offer a reasonable fare while making a profit.

If you already have a thin demand, you're going to reduce that demand even further by operating the least efficient aircraft of a family at a higher cost, as you will charge higher fares.

This is why I don't believe in the ULH model using B77L's, or in B788's being used beyond 8000km/4000nm.

Coming back to Air China, if we do some searches between China and Africa on Google Flights, all we see is AF, or China Southern and China Eastern in combination with ET, AF or RAM. Sometimes we see LH/SN pop up as the last, worst option with 2 stops and crazy high fares.

In the greatest movement of people the world has ever seen, China is secretly working to turn the entire continent into a new colony.
Reminiscent of the West's imperial push in the 18th and 19th centuries - but on a much more dramatic, determined scale - China's rulers believe Africa can become a 'satellite' state, solving its own problems of over-population and shortage of natural resources at a stroke.
With little fanfare, a staggering 750,000 Chinese have settled in Africa over the past decade. More are on the way.
The strategy has been carefully devised by officials in Beijing, where one expert has estimated that China will eventually need to send 300 million people to Africa to solve the problems of over-population and pollution.
The plans appear on track. Across Africa, the red flag of China is flying. Lucrative deals are being struck to buy its commodities - oil, platinum, gold and minerals. New embassies and air routes are opening up. The continent's new Chinese elite can be seen everywhere, shopping at their own expensive boutiques, driving Mercedes and BMW limousines, sending their children to exclusive private schools.
The pot-holed roads are cluttered with Chinese buses, taking people to markets filled with cheap Chinese goods. More than a thousand miles of new Chinese railroads are crisscrossing the continent, carrying billions of tons of illegally-logged timber, diamonds and gold.

http://www.dailymail.co.uk/news/article ... rried.html

[sn-remember]

A nice discussion on sn's desirable strategy.
But nothing is new.

So I'd say: relax and let them become profitable like they seem to be well underway for; after that, the rest will follow. Rome wasn't built in a day either.

Its' more than 10 yrs now !
I acknowledge the good results but still very fragile.
Some points to retain
1. The focus was on O/D leisure trafic
2. New s/h a/c is a good move
3. Lack of l/h expansion
L:h expansion is the way to go bcs that's were sn's future lies.
..
So to summarize as I see it there are 2 flows relevant to sn's l/h ops :
1. Wafi <-> NEASia
2. WAfi+Eafi <-> NAmerica

Flow 1 shoud rely on partnerships with asian carriers : HA or/and CA, ANA, OZ (in a later stage)
The cities would be PEK,PVG,TYO,(ICN)
Flanker has a point saying CA is a better partner than HA .. I don't know if CA can take HA's ops over ..
With 4 links to NE-ASia, Sn should offer 4 links to w-Afi (in my theoretical moldel, SN should at least operate 8 dailies to AFI)

Flow 2 would rely on 4 american destinations (among the 8 or so offered daily from sn and ua)
The cities would be iad,ewr,jfk,yul for instance (ord,yyz,bos,additional ewr, jfk would equally be offered)
And there should be 4 additional links to EAfi (2 daylies) and W/CAfi (2 daylies)
In practice, of course there would be overlaps among the flows regarding the AFI feeding.

I could put this in form of flight timetable (I did it once), but it's useless.
I don't know why lh are not supporting sn more.
Anyways just my 2 cts ..

[RoMax]

While I fully agree SN must make sure they don't lose out on long haul, I fully understand their current focus on Europe. Europe has been the reason for their losses in the past. The idea of "long haul will make up for our short haul losses" is a terribly outdated view and one of the main reasones that many legacy carriers record bad financial results. They didn't take the effort to reform their short haul networks and didn't follow the trends of the European market.
The long haul market is not the holy grail of profitability. It's a smart move of SN to concentrate on making its European network profitability. They should have done this earlier though. If they had done this in the period 2007-2009, they could have recovered enough from the crisis to completely focus on long haul expansion now.

When their current EU reorganisation turns out well, they can be a profitable company in 2015 with relying on their limited and highly volitile long haul network to achieve these profits. And that will give them much more room to actually invest in a long haul network.

The risk is that it will be too late for a part of SN's potential long haul market and pressure in Europe will increase putting their possible profitability in Europe at constant danger.

Btw, talking about LH and investing in SN. Did they already use the full 100 million loan? I remember that mid-2013 they were saying they used almost half of it and 'might not need' the rest. But the rest of 2013 didn't went that great either, so I wonder how much of the loan they used.

But I can understand the way LH holds back on SN. If SN doesn't turn around their European network, chances are high they burn up all the money LH puts into SN. LH holding back and pushing SN to turn profits, is saying "you better make sure you turn a profit or we will do it ourself and you will not like that". That's when all loss making routes come at a risk

About Asia. While I can understand the China logic, I don't believe SN is going after that market at this point. Except for that limited codeshare with Hainan, China would be a complete new market for them. For Air France or KLM or Lufthansa or BA or whatever it might be 'easy' to generate feeding flows from China, for SN it will not. SN will make high costs in the beginning and it will take 1-2 year(s) to get some return from it. That's not what SN wants to do know with LH expecting them to be profitable in 2015. Air China could help indeed, but it's of course the question if they want to.

[sn-remember]

Precision ..
When I say
"Flow 1 shoud rely on partnerships with asian carriers : HA or/and CA, ANA, OZ (in a later stage)
The cities would be PEK,PVG,TYO,(ICN)"
I mean operated by those carriers.
Of course you have to attract them with a comprehensive AFI offering.
I believe SN has not the possibility to launch routes other than to AFI and America.

[Passenger]

If we do the exercise with SN codesharing, the average amount of pax I can see travelling between China and Africa will be limited to about 50- 300 pax per day each way.

Any possibility to get the source for this "50-300"?
Any possibility to make them more accurate then a 500% margin?

Coming back to Air China, if we do some searches between China and Africa on Google Flights, all we see is AF, or China Southern and China Eastern in combination with ET, AF or RAM. Sometimes we see LH/SN pop up as the last, worst option with 2 stops and crazy high fares.

Your friend Google has let you down here. When I ask some China <-> Africa routes on my CRS, I never get routings with AF, LH or SN (unless those expensive last page solutions that no one ever buys).

Still wondering why Brussels Airlines has to be involded in this China-to-Africa story. If someone needs to drive from Brussels to Antwerp, will he do that via Hasselt?

Could it be that the China story is brought up to stop the discussion that was started with this post:

The full results can be found here:
http://press.brusselsairlines.com/186-p ... in-october

So as said an 18.5% growth (about 98,000 additional passengers) to a total of 624,794 and a 4.4 pct point loadfactor increase to 72.2%.
In Europe a growth of 21.5% and 6.5 pct point increase in loadfactor to 77.6%, this was the first full month with the new 4 ticket types.
In Africa a growth of 1.5% and a 0.8 pct point higher loadfactor. In the US a 4.5 pct point increase in loadfactor, but total pax numbers are said to remained stable.

Overal capacity growth (ASK - available seat kilometres) was 'just' 5.4%, but actual traffic (RPK - revenue passenger kilometres) rose with 12.3%. This is lower than the growth in pax numbers, because that growth was mainly in Europe, and short flights have lower impact on the RPK/ASK compared to long haul routes.

Cargo (freight-ton kilometres) increased with 4.7% and overall loadfactor of pax and cargo combined rose 4.1% to 62.8%

The growth rate in Europe is impressive to say the least, not only 21.5% growth in pax numbers, but also a loadfactor increase from 71.1% to 77.6%.

[White Light]

I read on another thread that LH will start a flight to Tampa, Florida, next year, despite the high competition on North Atlantic.

However, my point is that they (LH) could spend the money in helping SN to open possibly more promising connections .

My impression is more and more that LH is not very interested in SN anymore (which investor is actually ?).

[RoMax]

My impression is more and more that LH is not very interested in SN anymore (which investor is actually ?).

Then I think you are wrong. LH is still very interested in SN, or better say the potential of BRU. They consistently talk about LH, LX, OS AND SN when talking about they key airlines in the group and about FRA, MUC, ZRH, VIE and BRU when talking about the key hubs of Lufthansa Group, while they just have a minority share in SN.

LH's relative lack of investment in SN has nothing to do with them not being interested in SN anymore. If they don't expect SN to turn to profite or they don't see a future of SN/BRU in the group, they would have sold it already instead of calling it "a new pearl in the group" (in mid 2013, not so long after the announced their huge 2012 loss). It's not because LH owns 'just' 45% that they don't care and they would keep that loss making share without seeing a future for that part of the group. There is just no logic in that at all.

[sn-remember]

Still wondering why Brussels Airlines has to be involded in this China-to-Africa story. If someone needs to drive from Brussels to Antwerp, will he do that via Hasselt?
Could it be that the China story is brought up to stop the discussion that was started with this post:

OK we are slightly above the immediate topic ..
But let me elaborate on the hypothesis of NE-Asia trafic to AFI via bru ?
1. I concede to you that he flow would arguably be marginal, BUT not meaningless though .. It could very well make the difference between a flight and a no flight between bru and the cities mentioned (pek,pvg,tyo).. and a welcome additional feeding to afi for sn.
2. There is a demand, that will increase. The contenders are the ME3, ET,KQ,TK. (MArginally AF/KL).
Why do you think ET alone operate 3 daily nonstop flights to China, plus 2 daily freighters ?
Again I concede sn cannot compete against those, only quite marginally (like AFKL do) on some Wafi destinations.
3. The distance overhead is not as damaging as you believe
For instance , taking the example of the abj-pek route
ABJ PEK 7548 mi
ABJ-BRU-PEK 8131 mi (+7.7%)
ABJ-ADD-PEK 8122 mi (+7.6%)
ABJ-DXB-PEK 7791 mi (+3.2%)
Pvg numbers are a bit less favorable, tyo is better ito connecting at bru. In fact I believe that ANA could very well use bru as a connecting hub to Wafi (provided ...)
Of course dkr-bru-pek routing has negligeable overhead, dla/fih significantly more.
It is a matter of discussion if you consider the destinations portfolio sn might offer.
..
Sorry if digressed a bit on the "future l/h strategy" side of the question. But it is distantly correlated to the topic somehow .. or is it not ?

[RoMax]

Brussels Airlines passed the 5.86 million pax mark last Wednesday, the same amount as the total for 2013. They expect to transport about 900,000 additional passengers by the end of this year compared to 2013 if everything goes well for the remaining 1.5 month. So the total will be somewhere around 6.7-6.8 million passengers. The first time that a Belgian airlin passes the 6 million mark again since the bankruptcy of Sabena and they do it with a large margin approaching the 7 million and this in a year with the most LCC growth ever at BRU.

SN says they thank this growth to additional capacity (but not exclusively, given the loadfactor growth), popular holiday destinations and a new commercial strategy, including the introduction of new fare types in Europe.

While SN's revenues are growing and (unit) costs are still decreasing, they will not be profitable in 2014 as been said before. First full year profits are to be achieved in 2015.

http://www.hln.be/hln/nl/942/Economie/a ... iers.dhtml

[airvoltaire]

Pax growht is one thing, profitability another thing. European network profitability is not as what they expected at the B-house. (lower yield than expected)

[airazurxtror]

Starting March 1st, 2015, Dr. Stefan Kreuzpaintner will be the new Vice President Pricing & Revenue Management of Brussels Airlines. Together with his team and based on the recently introduced new commercial positioning of the Belgian airline, he will make sure that the company stays at the forefront of the most advanced and dynamic Pricing & Revenue Management systems, while at the same time ensuring the competitiveness of Brussels Airlines.

Well, what about it ?
What does it mean for Brussels Airlines ? and for its employees ? and for Mr Gustin ? And, last but not least, for its customers, sorry, guests ?

[sn26567]

What does it mean for Brussels Airlines ? and for its employees ? and for Mr Gustin ? And, last but not least, for its customers, sorry, guests ?

For me it means that:

1. Lufthansa will have a firmer grip and a stricter control on the SN policy, with the view to take over the company at 100% in the near future.

2. For the customers, it will not change much, except perhaps a larger variation in prices (as well upwards as downwards)

3. The SN employees and their boss Mr. Gustin might have less freedom to decide policy matters (although in the past the LH people at SN didn't influence management a lot, IMHO). Perhaps...

[RoMax]

What does that mean? That for the 3rd time Lufthansa is sending 'one of their own guys' to the top layer of the SN management after Lars Redeligx (CCO at SN, was Vice President Revenue Management and Distribution at Lufthansa before he started as CCO for SN) and Peter Kranich which worked as COO (a position which no longer exists now, the job was taken over by a lower management function, while the legal liability of the COO, which is a requirement for the AOC for example, is now with the CEO, so Gustin).

Another proof that LH is not losing interest in SN, on the contrary, they probably have the idea that the big work has been done and that it's now time to send someone that can have a better control over the details that can make the real difference for SN.

The fact that Bernard Gustin is still CEO and Jan De Raeymaeker is still the CFO despite multiple changes in the top management in recent years, that probably means LH has quite some confidence in these two.

[Flanker2]

What does this appointment mean?
First we need to ask ourselves what happened to the guy who held this position before.
Was he fired?

If so, it will confirm the answer to my previous question:

2.
I have to ask myself whether SN's yield department didn't push SN into losses by posting too high fares in the previous years. If they had done this sooner, before FR and VY came to BRU, they could have done much better.

Next quetion: If this guys is good, why would LH waste a good man for SN?
I remind you that they have bigger fish to fry at Passage, which is far more important than SN.

[Inquirer]

People are reading way too much into all this, personally: i think it simply shows Brussels Airlines is fully part of the Lufthansa corporate structure now and managers thus move from one branch to another back and forth as they progress in their carreer. Same as in pretty much any other multinational where managers rotate and move internally between different countries every few years. I'd expect more of this in future.

[RoMax]

In response to Flanker.
I don't know, but there have been shifts. For example the previous Vice President Marketing became Vice President Innovation and Business Development with a new Vice President Marketing being sourced from outside. I can imagine that LH wants to have grip on such an important department like yield and revenue management. Even if the current Vice President has been doing a good job or not, still the German logic often is that they can do it better themself.

And why LH didn't keep him themself if he would be good? If he wouldn't be good, he wouldn't be working as a Vice President for Lufthansa and they wouldn't send them to a daughter airline where it is crucial that they make a profit for the future of the Brussels hub and the African network which are both of high value for LH. In addition, he already had experience with SN as he worked as vice president of sales and marketing for the group in Spain/Portugal.

[airazurxtror]

(...) personally: i think it simply shows Brussels Airlines is fully part of the Lufthansa corporate structure now and managers thus move from one branch to another back and forth as they progress in their carreer.

Just so : Brussels Airlines is not an independant airline any more, it's simply a division of Lufthansa - who clearly calls the shots.
Jetairfly and Brussels Airlines are German, Thomas Cook is British - VLM remains the only Belgian airline - for how long ?