Brussels Airlines future and financial perspective

[airazurxtror]

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.

Not so long ago, here on Luchtzak, there were many complaints from the SN-boys that the new LCCs (mainly Ryanair and Vueling) would do much harm to Brussels Airlines. It was even said that they should not be allowed at Zaventem !
One can see that it is quite the reverse : traffic is growing at SN.
In must be added that, in all probability, without Ryanair and Vueling, the new ticket categories would not have been ...it remains to be seen if they will bring more overall profitability.

[RoMax]

But actually, did anyone expect these kind of growth numbers? It's not even a matter of increasing capacity at any cost, because they also have a very significant increase in loadfactor. Of course the question remains how the yields developed, but I doubt SN would push for that much growth just to look good while pushing their yields to a dramatic low level. LH is expecting SN to return to a profit, they are not going to wait forever and the longer it takes, the more extreme measures LH will demand to save costs.

[Inquirer]

Not so long ago, here on Luchtzak, there were many complaints from the SN-boys that the new LCCs (mainly Ryanair and Vueling) would do much harm to Brussels Airlines. It was even said that they should not be allowed at Zaventem !
One can see that it is quite the reverse : traffic is growing at SN.
In must be added that, in all probability, without Ryanair and Vueling, the new ticket categories would not have been ...it remains to be seen if they will bring more overall profitability.

I would not put too much credibility on what fanboys or bashers from either side say here; by definition they are generally not very well placed to make objective remarks.

What these figures show is the for all the bashing going on here, literally millions of new customers are feeling they do offer a good deal or they wouldn't be opting to fly on them.

With such an quickly growing customer base, it's a guarantee investors will be giving them far more time to fine tune their business plan than when they would be stagnating or even shrinking, so I think we can leave behind all the talk about a quick demise now: It just ain't going to happen with this kind of commercial figures on the table.

In that relation I'd like to share an observation: it's not the first time I have noticed a check&go'er checking in at the counters with luggage, being told there that he isn't entitled to checked luggage any longer, after which his luggage is kindly accepted without charging for it.
I don't know If there is some sort of a transitional policy to be extremely lenient, but it shows that once that will be over, the increased and completely new customer base they are tapping into offers them plenty of new opportunities to make significant ancillary sales to in order to improve their total revenues and thus their financial result further. Combined with the fact that over 2014 this wasn't possible still (for most of the time) as well as the repeated hints from others that there are more add-ons to follow next year for which they are perfectly situated given their premium background stil, my gut feeling is it will not be too difficult to close any remaining financial shortfall there may still be remaining at the end of this financial year.

As they have entered the world where a passenger is not just sitting idle on your plane, but is a potential customer throughout his checked in period, tens of millions in extra revenues are up for grabs at hardly any extra cost almost, especially from the new type of customers used to all of this (often at higher prices too and for less) , so I'd say they are definitely on the good track with all this.

[OO-ITR]

Not so long ago, here on Luchtzak, there were many complaints from the SN-boys that the new LCCs (mainly Ryanair and Vueling) would do much harm to Brussels Airlines. It was even said that they should not be allowed at Zaventem !

On the other hand, there are the SN bashers that were claiming that the promotional fares of 69€ was nowhere to be found. I guess several months with +20% pax prove that there are people able to find these fares...

[convair]

I'm not so sure the current growth is linked to the new fares. The double-digit growth started in or even before spring, when the new fares were not yet available, I think.

[airazurxtror]

On the other hand, there are the SN bashers that were claiming that the promotional fares of 69€ was nowhere to be found.

Well, not being very bright, I have never been able to find a 69 euros fare for where I wanted to go - but that's not important, as I can easily find a 40 to 50 euros fare on a competitor, whose website is much more practical and thus accessible even for the lowest intellects.

[Flanker2]

1.
I think that there is a bubble in traffic formed by the media attention towards BRU from early this year, thanks to FR and friends. The price war story made every ticket look cheaper than it was the year before.
This bubble will burst this winter as people look at their reduced travel budgets for next year and realise they have less savings to spend and tickets aren't that cheap.

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.

3.
Can they continue to grow even more next year?
Given the spectacular growth figures posted in 2014 vs. 2013 it will be hard to post double digit growth figures next year in a 2015 vs 2014 comparison.

4.
A significant traffic growth can be seen as a positive sign for shareholders, but combined with a stagnant loss, it can also show that the company has lost its profit potential at every level of the yield spectrum.

5.
Good luck to SN for the future.

[Passenger]

1.
The sour reactions from the Brussels Airlines shadow management proof that the October figures are more then just a bubble in traffic.

[convair]

Or the bubble in media attention was formed by the growth in traffic?!?

[RoMax]

I don't think anyone will be suprised with lower growth numbers next year, numbers like this cannot be sustained on the long term as that would require dramatic increase increase in capacity and or drop in yields as from a certain point. But I'm sure there is still a lot of room for growth. SN's loadfactor has been in the seventies for most of the year and even 80+ in July/August, but is still somewhat below the industry standard. With some smart sales strategy, helped by smart yield management, they can push that loadfactor up even further withouth losing on profitability. From what I have seen until now (already 6 new destinations, of which an important secondary Scandinavian destination with double daily flights) and more Airbusses to join the fleet, I don't think SN is backing down. Though things like the economy could harm SN's growth and profitability in 2015 as expectations are not good.

Ryanair and Vueling will not give up either and I'm curious to see what they'll do next summer (especially Ryanair which had quite a disappointing winter offer with only Dublin as new route, while most other routes are downgraded due to their seasonality, which is 100% normal...before I get attacked again as a FR basher, but I expected at least 2-3 new 'winter-proof' destinations). I'm sure these carriers will both launch a new offensive next summer, but for sure they didn't expect SN to have more than 20% growth this year in their European network.

[FlightMate]

I don't think we can expect similar growth next year. But even a status quo would be good (if the yields are sustainable).

It's funny though, how some were bashing FR for their 'hidden cost' (pay for checked luggage, etc...), while it really seems to be a working method. People WILL book the cheapest flight, then care later for convenience, comfort (and even may pay the price separately).

I believe it was an excellent idea from SN to add this 'ryanair class' to their product.

It is strange though, that this extra 21% in european traffic doesn't translate in so much long haul traffic.

[RoMax]

It's funny though, how some were bashing FR for their 'hidden cost' (pay for checked luggage, etc...), while it really seems to be a working method. People WILL book the cheapest flight, then care later for convenience, comfort (and even may pay the price separately).

Ancillary revenue through so called "a-la-carte services" are getting more and more important for legacy carriers, SN jumped on that train full force with their new product and will expand that offer. But there is still a certain difference in service level between a "low-cost FSC offer" and a "low-cost LCC offer". Although that line is thin and some people don't agree that there even is a difference.

It is strange though, that this extra 21% in european traffic doesn't translate in so much long haul traffic.

A lot of overcapacity on the trans-Atlantic market (not for BRU in specific, but the whole market), currency exchange rates in the disadvantage of EU carriers, problems in Africa, etc. are not helping. Also many of the growth is in point-to-point traffic and even in transfer traffic within Europe (which is a market many people forget).

I don't think we can expect similar growth next year. But even a status quo would be good (if the yields are sustainable).

Not similar growth indeed, as I also said, but if the economy allows for it, there certainly is room for further growth next year. But of course that will depend on many factors. From a financial point of view, it could be even better to keep a status quo, but that depends on many factors that are currently 'too fluid' to base a conclusion, especially as an outsider without for example information on yields and forward bookings.

[OO-ITR]

On the other hand, there are the SN bashers that were claiming that the promotional fares of 69€ was nowhere to be found.

Well, not being very bright, I have never been able to find a 69 euros fare for where I wanted to go - but that's not important, as I can easily find a 40 to 50 euros fare on a competitor, whose website is much more practical and thus accessible even for the lowest intellects.

Well dear you can't have it all. Nobody is perfect
And I'm sure that those competitors with their wonderful, practical and accessible website are happy to have you...

[convair]

Looking at the BRU figures for October, it seems SN is not taking full advantage of the growth in transfer passengers. Of course, most of it contributes to intra-Europe growth, as pointed out by RoMax, but some of this growth is taken up by new airlines/new destinations. SN could tap more transfer pax with more l/h flights IMHO.

[nordikcam]

SN could tap more transfer pax with more l/h flights IMHO.

Of course but with wich aircraft(s) ??

[RoMax]

Long haul expansion is not simple though. It's a story with two sides, SN should have some more long haul routes that would enable better feeding through the network. But start up costs are very high (even when just leasing an aircraft ,it's still very expensive) for long haul routes and returns very limited currently. Economy is not great and competition is high. Especially the trans-Atlantic market suffers from overcapacity, that doesn't mean that launching a new route is impossible, but it's a very risky business and certainly in the first year(s) returns will be very thin if existant at all. But again at the same time, SN risks losing even more market potential to carriers that have the ability to push through these losses (like Turkish Airlines).
So it's a difficult balance question on whether to do it or not. While in Europe, costs are lower, risks are lower and if it succeeds, you can start earning money almost immediately.

I think SN focussed this year (and maybe next year as well) on network expansion that gives quick returns (Europe and many leisure destinations with lucrative contracts with companies like Club Med and Thomas Cook) and at the same time investing in things that could help them securing a certain market on the long term. Especially their investments in IT have been huge. It's something you don't always notice as a customer, but big changes have been made. Changes that allowed them to start offering the new on board 'a-la-carte' products, better on ground assitance (portable devices), a new website that's more than just a new look (like the one which was launched for a few hours in 2012 or when was it and than pulled back offline) etc. With SN's old IT legacy systems that was basicly impossible to implement.

[convair]

I read on another thread that LH will start a flight to Tampa, Florida, next year, despite the high competition on North Atlantic.
They're certainly right to do it if they are reasonably confident that it will be profitable.

However, my point is that they could spend the money in helping SN to open possibly more promising connections such as Boston and Montreal. I think that they will take over SN next year but, in the meantime, they are losing good opportunities to strengthen their future subsidiary.

[Flanker2]

The main market for Africa right now is not the U.S. or Europe.
It's Asia.

As long as the geniusses at Ringbaan don't do something about it,...
If they can't do it themselves, then they should at least approach Star partner Air China with a codeshare deal as they are very eager to open new routes in Europe.

Air China is struggling at CDG, where they are dumping seats, but could do well out of BRU.

A few benefits of a cooperation with Air China:
-One-stop Beijing/Shanghai to Africa. Late night departure from China, early morning arrival BRU.
-SN can bring shorthaul feed to the Air China flights
-Cargo potential China-Africa/China-Europe
-SN can strangle TK's Asia-Africa operations, while also taking an option on potential growth of this segment among the ME3, which should be a matter of concern for LH
-Diplomatic link Beijing-Brussels
-Benefit for Belgium: Chinese tourism, could be used as departure arrival point for package tourist groups from China

PS: I don't see LH buying SN, unless they show they could make money in a sustainable way.

[Pocahontas]

Thanks Flanker02 for your contribution to this forum. If you bring money to SN, SN will do what you want and will kill all competition. Now go and find some money and bring it to Gustin!

[FlightMate]

Pocahontas, there was money for IAD, which seems to be doing not se great.

On the other hand, PEK or PVG are much further away than IAD and require something else than a 330.

I agree with Flanker that the travel needs between Africa and China are booming. But there is strong competition from the likes of EK or TK, which are geographically better off than SN to at least east Africa.
Maybe their location advantage on a route Asia to West Africa is not so big, though.

Feeding for Air China? Why not.
Not costly to SN, brings extra traffic.
But they tried with Jet Airways and Hainan. Was it worth it? I don't know. But at least they've got the data already.