Brussels Airlines future and financial perspective

[RoMax]

Funny (or rather disturbing) that you can turn a purely operational measurement like RPK (which is nothing else than the actual 'occupation' or 'load' of the ASK) in a financial factor which tells you all the things you try to explain Flanker.

I give you a very simple example. A small airline with only regional flights operating regional jets, starts a new ultra long haul route with an A380 (not logical, but just for the example). Multiply the amount of pax travelling on that A380 (and assume a high loadfactor) with the distance they travel (which is very high because of the long route). This will cause a huge increase in RPK (and off course also ASK as both are closely related), still that airline can see a huge decrease in yields, operating margins, etc. if they don't succeed in selling the tickets at a reasonable price.

Do you really think that people on this forum are so stupid to believe your story (of which I'm sure you know it's wrong) because RPK has the word 'revenue' in it? The word 'revenue' in RPK says nothing more than the fact that only paying pax are counted (includes e.g. pax flying on award tickets from the FFP, only 100% non-paying pax. such as e.g. employees or relatives of them that get free tickets, are excluded). So what does it say, that the airline gets revenue (direct or indirect) from the pax that are counted (and multiplied with the distance they travel).

[convair]

RPK = TOTAL PAX x TOTAL DISTANCE

Or, more precisely, the SUM of all individual (PAX x Distance), which is different.(eg 100 pax x 300 km + 200 pax x 3000 km = 630000 whereas 100+200 pax times 300+3000 km would make a total of 990000)

[RoMax]

Or, more precisely, the SUM of all individual (PAX x Distance), which is different.(eg 100 pax x 300 km + 200 pax x 3000 km = 630000 whereas 100+200 pax times 300+3000 km would make a total of 990000)

Yes indeed, that's also why long haul has such a big impact on the RPK and ASK figures. So with a decrease in long haul capacity (ASK) and actual pax (RPK) compared to a big increase on short haul, even when the amount of long haul pax is relatively limited compared to the total pax, you can have quite a big difference in ASK/RPK and actual pax evolution, as we see with SN.

It gives a lot of interesting operational information, but don't start about yields or revenue or yield per RPK, etc. because that has absolutely nothing to do with this.

[Stij]

Gentlemen, it's a lovely Friday afternoon...

Please look outside, the sun is shining...

Now take a deep breath and think again before you type...

Cheers,

Stij

[sn26567]

Now take a deep breath and think again before you type...

... and if you have already typed, moderators will take care!

[Flanker2]

Sorry Romax, but you're giving the example yourself:

I give you a very simple example. A small airline with only regional flights operating regional jets, starts a new ultra long haul route with an A380 (not logical, but just for the example). Multiply the amount of pax travelling on that A380 (and assume a high loadfactor) with the distance they travel (which is very high because of the long route). This will cause a huge increase in RPK (and off course also ASK as both are closely related), still that airline can see a huge decrease in yields, operating margins, etc. if they don't succeed in selling the tickets at a reasonable price.

So how will revenue be affected in your example? It will also increase and probably in very similar proportions as the RPK's.

At the end of the day, it doesn't matter whether you stuff 150 pax on an A320 6 times a day, or 450 pax on an A380 twice a day. The fare revenue per RPK is very similar and the total fare revenue will be similar.
A decrease in RPK at the scale of SN, despite 1 or 2 A330's out for maintenance being 3.2% (with capacity reduction of 2.9%) versus a pax increase of 4.6% translates in a decrease in total revenue. Those +4.6% of pax increase are likely to be achieved at lower yields, given there are lower yielding short sector pax while on the other side of the balance, overall less traffic was achieved.

The traffic is always a good ballpark measure of revenue when you compare year-on-year numbers, except if big changes have happened. No big changes have happened at SN.
The numbers here are large enough to mark a trend for January 2014 versus January 2015, IMO.

They are further reinforced by a palpable reduction in freight.

Hence I conclude that SN probably earned less fare revenue (excluding airport taxes) while having the same or slightly higher costs versus January 2014. That depends on other factors like fueld hedging and currency impact. Not much to worry about yet, but if they want to turn profitable in 2015, they need to keep RPK's and yields stable while hoping to turn numbers green thanks mainly to reductions in costs, thanks to cheap oil, despite resistance of the weak Euro.

You guys are talking too much about increase in total pax, which is meaningless if RPK's don't follow.
That's the main point I wanted to make from the beginning.

[RoMax]

Such a conclusion is worthless because you don't consider the decrease in ASK (which is only slightly less than the decrease in RPK) and the lower 'operating' costs (which are very high for Africa) and your interpretation of the RPK is still wrong. Yield is interesting, but a worthless measure if you don't look at the costs.

Again, the only thing you can conclude is that there was a big decrease in long haul capacity (the ASK decrease) and Africa is not performing that well in general (hence why they launch the 'Africa is not ebola' campaign, this is a problem faced by all airlines with a large African network, even when not serving the Ebola-hit countries, but for SN the effect is slightly bigger because of the weight of this continent on their complete network). The decrease in freight ton-kilometres is also a direct effect on the decrease in capacity (and possibly a slow month in some markets, a decrease in ASK will have much bigger impact on cargo capacity in ton-kilometres).

Based on that it's not difficult to come up with your 'great conclusion' of SN earning less revenue. Yes, at least for long haul, but it doesn't say anything about yields, total costs (fixed + operating), operating margins, or whatever (you simply don't have enough data to form such a conclusion). This decrease in RPK for example can very well 'hide' a big increase in revenue and yields for the European network, making up the potential bad performance of Africa.

[Inquirer]

I conclude that SN probably earned less fare revenue (excluding airport taxes) while having the same or slightly higher costs versus January 2014.

FInal remarks: the ASK reduced by the same amount as the RSK, so if you absolutely want to link the RSK to their revenues, then by the same logic please do link the ASK to their costs. I fail to see where the garanteed higher costs you mention would come from, if they flew less seat-kilometers?

As to your remark nothing significant happened to their long haul operations YTD, I find that a very surprising comment when coming from somebody who has over 60 posts -some of which bordering at pure hysteria in hinsight- on his account concerning something 'insignificant' like Ebola.

You guys are talking too much about increase in total pax, which is meaningless if RPK's don't follow.That's the main point I wanted to make from the beginning.

If you want to look beyond the total number of pax (which I agree is more of a PR figure than anything else: please forward this comment also to Ryanair), then don't just look at RPK as a stand alone figure like you do, better look at RPK/ASK (aka Load Factor).
I notice it remained stable, so the dire strait you are vehemently trying to picture here based on the RPK figure alone, just isn't there.
That is the main point which you are to trying to brush aside by ignoring the pared capacity (and thus by your logic also operational cost then) reduction.

[KriVa]

Yes so do I, because they ran out of temporary contracts at JAF and they didn't have another choice than to start doing temporary contracts at SN

Those people don't really fulfil the "requirements" set out by your initial post, so I didn't even include them.
So no, that was not the group I was talking about.

[Flanker2]

If you want to look beyond the total number of pax (which I agree is more of a PR figure than anything else: please forward this comment also to Ryanair), then don't just look at RPK as a stand alone figure like you do, better look at RPK/ASK (aka Load Factor).
I notice it remained stable, so the dire strait you are vehemently trying to picture here based on the RPK figure alone, just isn't there.
That is the main point which you are to trying to brush aside by ignoring the pared capacity (and thus by your logic also operational cost then) reduction.

The load factor alone is not of importance here as you can't analyse anything about it to measure financial performance. The reduction in ASK should decrease costs, but the higher pax numbers also means higher costs as each passenger bring additional fixed costs per unit.

SN should be careful not to slide into another loss, despite lower oil. 2015 is a year of opportunities thanks to cheap oil. If they don't make money this year, when will they become profitable again?

If anything, I wonder about FR's passive behavior at BRU. They are giving SN too much slack.
If I was MOL, SN was long gone. In addition MOL also failed to chase away VY.
Instead, they allowed VY to settle in BRU and SN to grow their traffic and customer base significantly in 2014.
Something's not right here.

[Boeing767copilot]

Le RDV CEO: Bernard Gustin, «nous ne tomberons pas dans le piège Sabena-Swissair!»


http://www.lesoir.be/794086/article/eco ... a-swissair

[RoMax]

The load factor alone is not of importance here as you can't analyse anything about it to measure financial performance. The reduction in ASK should decrease costs, but the higher pax numbers also means higher costs as each passenger bring additional fixed costs per unit.

This data is simply not complete enough to make conclusions like that. The ASK reduction is the result from a reduction in long haul (while for Europe, we don't have the ASK data, but given the 8.3% increase in pax, I assume they also had at least a slightly higher ASK in Europe).
You can perfectly assume (and not conclude, we don't have the data for that) that both capacity, costs, pax and revenue in Europe increased, while capacity, pax, operational costs and revenue decreased for long haul. Still, that doesn't say you anything about actual financial performance.

There is simply no point in making conclusions like this from this very basic operational data. It would help if you have for example ASK and RPK for intra-European network, Africa and US seperatly as you can already get much more information from that, but we don't.

We don't have information about average ticket prices compared to last year (we can assume they are lower in Europe, but what about long haul). We don't even have total revenue.
We don't have information about costs (SN is still in the process of lowering its cost base).
We don't have anything to make financial conclusions, only very very wild guesses.

If anything, I wonder about FR's passive behavior at BRU. They are giving SN too much slack.
If I was MOL, SN was long gone. In addition MOL also failed to chase away VY.
Instead, they allowed VY to settle in BRU and SN to grow their traffic and customer base significantly in 2014.
Something's not right here.

I don't know how true it is, or whether it is more of an excuse from FR, but recently they said they are not happy at all with the pricing structure of BRU which, according to them, is not beneficial for a LCC carrier like them at all. This results in FR not taking any risky decisions in BRU and only launching safe bets like Dublin. Or well, that's what they say. BRU responded that they are not planning to change their pricing policy in the near future as the current one is the right balance for all various types of airlines and operations at the airport (FR named the example of LGW how it should be done, but LGW is a completely different airport), the current pricing has been approved by all the airlines some years ago (so before FR came..) and they don't see a reason to change it yet.

[Pocahontas]

Flanker2: No doubt you can be MOL in a Virtual Game... I'm sure you will be good at it! Enjoy!

[airazurxtror]

Quite a lot here could be Gustin in that virtual game of yours ... much less enjoyable !

[airazurxtror]

This results in FR not taking any risky decisions in BRU and only launching safe bets like Dublin.

Ryanair has no aircraft to spare for Brussels, they even will have to take a few planes on lease this summer; wait until next year and after, when they'll have some 30 or 40 aircraft delivered each year.
For the moment, I guess they put their few new aircraft for really important airports.

http://www.jethros.org.uk/fleets/fleet_ ... _order.htm

[nordikcam]

This results in FR not taking any risky decisions in BRU and only launching safe bets like Dublin.

I guess they put their few new aircraft for really important airports.

...as Charleroi ? Oups Brussels South...?

[RoMax]

This results in FR not taking any risky decisions in BRU and only launching safe bets like Dublin.

Ryanair has no aircraft to spare for Brussels, they even will have to take a few planes on lease this summer; wait until next year and after, when they'll have some 30 or 40 aircraft delivered each year.
For the moment, I guess they put their few new aircraft for really important airports.

These are not my words, these are FR's words (something they said I believe last week). What they said about the aircraft they will base in CPH, "they could have been based in BRU". "No aircraft" is never an excuse in case of FR. Last year didn't have new aircraft at all, still they based 4 aircraft at BRU (coming from other bases obviously). So if they really see potential in BRU in the current situation, they would expand.

[Flanker2]

Romax, I remind that Tolipanebas said that SN was continue to grow BASED ON THESE FIGURES.

The figures for EUR show SN has no problem continuing on the growth path of last year and you'll see this trend reaffirmed more clearly in the figures for FEB and the months thereafter, once all planes (as well as 3 additional A32F) are back in the sky ...

You reinforced that point of view while confusing "traffic" with "passengers":

Contrary to the second half of 2014, January was a month of significant capacity reductions in long haul (as I expected from the published data and confirmed by Tolipanebas) having a 'negative' impact on SN's overall traffic results (which are still not bad btw, with 4.6%)

SN didn't grow in January, and it's doubtful that the financial performance remained equal and improbable that it improved. It's probable that it deteriorated slightly. Not dramatic, probably just a few millions, but it shouldn't become a trend.

Le RDV CEO: Bernard Gustin, «nous ne tomberons pas dans le piège Sabena-Swissair!»

Gustin shows some signs of maturing in that interview. After many years, it seems that he's starting to get a feel for this industry and SN.
He's saying exactly what I anticipated for SN: 2015 has to be profitable if oil stays where it is, despite currency pressure and hedging. This cancels the previous forecast of break-even for 2015 and profit in 2016.
But to do that, they need to keep traffic and yields stable. They can't let their gards off.
Also glad to read that he doesn't see LH as "the only option" and wants to avoid another déja-vu.

[Inquirer]

Romax, I remind that Tolipanebas said that SN was continue to grow BASED ON THESE FIGURES
(...)
SN didn't grow in January.

One recurring observation with your posts in this topic is that you systematically try to inflate the downside risks, yet now you are really trying to excel at what you have been doing here since long, IHMO?

Maybe you can try to claim improved financial results from the growing passenger numbers will be non-existing (but one can't prove that, because there's no acces to any revenues nor cost figures), but you're not seriously going to try to spin a pretty nice 4,8% customer base growth in a traditionally weak month like January (Easyjet added just a few hundred customers vs. same month last year) into a claim of no growth now, are you?

The passenger volume growth definitely isn't the most meaningful metric to have access to, but it is the one which is increasingly being referred to these days in press releases in order to show off increased commercial appeal; you can blame Ryanair for introducing that practice.
(Because in ASK their true regional size would show too much, I suppose)?
In their defence: for as long as one doesn't try to somehow derive financial guidance from that commercial appeal, there's nothing really wrong with doing it either.
Please note the only person almost desperately trying to do exactly that around here, is in fact you, only to then claim it's a bad metric to focus on in the first place?

I don't know what exactly the problem is: whether it is something personal between you and some other forum members or between you and Brussels Airlines, but by all fairness, they did grow by a non-insignificant amount during what is probably the quietest period of the year, a fact you may hate to see, but can hardly dispute; nobody ever said anything other than that they were still growing and would grow even more in the next months too,btw, so your posts are beginning to bathe in frustration more than substance against whomever you have your problem with.

[RoMax]

You reinforced that point of view while confusing "traffic" with "passengers":

Contrary to the second half of 2014, January was a month of significant capacity reductions in long haul (as I expected from the published data and confirmed by Tolipanebas) having a 'negative' impact on SN's overall traffic results (which are still not bad btw, with 4.6%)

I didn't confuse anything. Total pax. is still a measure of traffic in the industry, maybe not the best one, it still gives a very general view of the airline's growth. I refer to Inquirer's post, FR excels in using that number to 'prove' that they are Europe's largest. Yes indeed they are the largest single airline (so not counting AF-KL, IAG, etc. as groups) based on pax. numbers, in fact they are in the global top-5. But when it comes to RPK they are far down the list (in Europe at least LH, AF and BA end ahead of FR).

He's saying exactly what I anticipated for SN: 2015 has to be profitable if oil stays where it is, despite currency pressure and hedging. This cancels the previous forecast of break-even for 2015 and profit in 2016.

Aren't you taking too much credit here again? Exactly one year ago you expected SN not to be even around here anymore. What Gustin says is nothing more than a natural evoluation from what they are saying since at least March/April 2014 (when they published their financial results and gave a new guideline for 2014-2016). Gustin says that break-even is still the goal for 2015 and a real profit in 2016, and yes he says that the low oil prices might make that a bit easier despite them not feeling the full effect of it like most airlines (even more so for non-US carriers). So yes with these prices it should be a shame if SN doesn't reach its break-even goal and they should end up with a 'positive break-even' result. But seriously don't try to say that's what you anticipated, you may have come up with that idea recently because of the low oil prices, but that wasn't a hard analysis that you needed for that, isn't it?
Your claims about SN are changing like the wind, while for once SN is already saying almost exactly the same for over a year.