Brussels Airlines in 2020

[Inquirer]

If having a consolidated loss on your accounts -let alone holding debt- is a problem for the continuation of a business, then by year's end there won't be many businesses left in the world!

Fact remains their latest 5 years showed a positive net result 4 times: what you're looking at in those figures quoted is what you could describe as previous difficulties carried over from God knows when.

Rest assured that as from year's end, you'll have no problem to find exactly such kind of red figures in the books of pretty much every other successful airline in the world and this for the forseeable future even, as it will take each and every one of them at least a decade to flush the accounting impact from the current grounding and the subsequent restart out of their consolidated accounts again.

It's why rating agencies rate airlines as questionable investments, even those bragging about holding a top rating in their sector, because aviation as a whole is not 'investment worthy' for a private investor as W. Buffet confirmed once more by pulling out of all US majors as well as LCC Southwest alike!

[LJ]

First of all, I don't think you should play bluff with CS/LH but you shouldn't give them SN for free without some guarantees for the future - that can include more European and longhaul destinations.

One must be glad if many of the destinations are kept. Loans aren't free money either (at least not at 5% or higher).

1. There is a direct impact on the Belgian economy. It has around 4,000 employees.

Expect the number of employees to drop by at least 20% if you look at what's happening at most legacies nowadays. That's something the Belgian government must accept.

SN was also instrumental in repatriation flights and can be useful in the future in emergency situations.

Air Belgium is doing that job pretty well for other countries.

[Atlantis]

I agree with most of the points, conditions, the Belgian government is asking from LH. But regarding lay offs, I think they have to be realistic in this. It will happen. Also KLM is going to cut in employees after huge loses.

SN will be no exception. This is sth the government has to accept. Better a certain number than the full 4000 employees.

I would prefer a smaller airline but strong and with fewer employees then a disaster....

[PttU]

Regarding to those two letters: Lufthansa has to defend their position, Belgium has to defend theirs. Simple as that. If the prime minister would write a letter "we demand xxxx jobs to be cut" or "we demand a smaller company", that would be a weak position to start from in further negotiations.
I guess they know a loss of jobs is inevitable, point is to keep that number as low as possible, and with good guidance towards another job or something. Those things can be arranged in negotiations, in exchange for the financial support.

[Passenger]

Consolidated loss around 130 million, debt 500 million, you can call it negative perception or irrelevant, as much as you want but it’s black-and-white or better red-and-white.
One of my relatives is a senior underwriter at an important trade insurance company, since 2015 they refuse to insure against insolvency of SN because the risk is deemed too high. They love negative perception though as it allows them to charge a higher premium.

I know someone who works for a large Belgian factoring company, and he contradicts you. "Debts is not our primary parameter", he tells me. "First of all, we look for RSZ/ONSS and taxes (BTW/TVA) debts. Then we calculate the nett own assets and the cash flow. When that is OK, we insure. Then we look at the debts, assets, liquidity, and a lot of other parameters like Regularisatierekening and Dubieuze Debiteuren. Brussels Airlines looks fine, but Air Belgium is a flashing light", he told me.

[oldblueeyes]

Consolidated loss around 130 million, debt 500 million, you can call it negative perception or irrelevant, as much as you want but it’s black-and-white or better red-and-white.
One of my relatives is a senior underwriter at an important trade insurance company, since 2015 they refuse to insure against insolvency of SN because the risk is deemed too high. They love negative perception though as it allows them to charge a higher premium.

You have read numbers properly, not just to claim some figures.

If company A hast 200 mil initial capital and company B only 10 and both burn 150 mil, than company A will still have 50 mio equity and company B 140mil losses.

Debt can be better for company B when they come to profits, as they can deduct interest rate as pre-tax costs. So this can be a startegy as well.

Secondly, changes bring with them some one-time-costs that for accounting reasons you can not write off over the usage of an asset. If you keep in mind that for example the whole long haul fleet was rejuvenated currently, some of the costs in the losses are there. Of course, they have to be offset by future earnings, but legal and managerial accounting are two different things.

Last but not least, debt ist not bad. Did you bought your house in cash? I assume not. So leveraging capital is something aboslutely normal, as long as the operating income pays the capital cost. And here we all have to admit that there is a structural weak point and this is why Reoot was designed for.

[LJ]

I agree with most of the points, conditions, the Belgian government is asking from LH. But regarding lay offs, I think they have to be realistic in this. It will happen. Also KLM is going to cut in employees after huge loses.

It's almost a requirement from the Dutch government as it wants a "healthy" business (or better it wants its money back including the interest). Dutch politicians (but also the government) mentioned that the KLM pilots should look at the pilots at LH and take a voluntary paycut. I wonder if the Belgian government would dare to say something like that in public.....

Regarding to those two letters: Lufthansa has to defend their position, Belgium has to defend theirs. Simple as that. If the prime minister would write a letter "we demand xxxx jobs to be cut" or "we demand a smaller company", that would be a weak position to start from in further negotiations.

Yet their couunterparts up North take that approach. Maybe it's beacuse election year in The Netherlands next year, but any government has to sell this to its citizens as well.

[Bracebrace]

It's almost a requirement from the Dutch government as it wants a "healthy" business (or better it wants its money back including the interest). Dutch politicians (but also the government) mentioned that the KLM pilots should look at the pilots at LH and take a voluntary paycut. I wonder if the Belgian government would dare to say something like that in public.....

There are reasons why people from ALL Belgian companies are leaving for a career in AF/KLM, even if it means giving up the left seat and starting at the bottom of AF/KLM seniority (even wide body captains go right seat AF/KLM, it's a career decision with regards to pension plans etc).

Last time I talked to a retired KLM pilot about salary, he couldn't believe he wasn't offered a 5 digit number contract with 0 years seniority in a Belgian company, while retaining his KLM pension.

You are comparing two different worlds. [edit: Belgium vs LH/KLM/AF and alikes]

[shockcooling]

And to be completely clear, the LH pilots are proposing a 45% pay cut on their base salary, which is around 4500e brut. On average it means a 10a20% total pay cut compared to their total salary package which consists of function pay, type pay, fixed flight hours pay, etc...
Now politicians in NL (and probably BE) think they can ask a 45% pay cut like the LH pilots, because they are so awesome.
What do they think, because pliots have such a high salary you can easily live with almost half of it without any impact on their personal finances?

[Atlantis]

What I will write here is an own thought. Not what we know from our industry or during negotiations. So this time is my own vision on the situation.

As we can think there is a possibility in a fleet reduction for SN. But as the Lufthansa group always was preaching, it would be possible in shifting planes in the group.

Well, Lufthansa Cityline is going to store a big part of their CRJ900LR fleet. This would be a great replacement for certain A319 and A320 of SN.
The A319 And A320 are most of the time too big on SN destinations. Why not to take those over and Lufthansa certain ones of SN? Leasing contracts can still be changed and leasing companies are now more flexible.

On this way a Brussels Airlines Europe or Brussels Airlines Express could be created for Europe. Flying to pure business destination with high frequenties, more turn around. Keep a few A319 or A320 for flights to Tel Aviv and other very busy routes. But keep this fleet busy the whole week for business and feed the long haul. Create an aggressive policy in the neighbour countries to attract much more foreigners to the own flights. Stop the expensive night stops. Have the whole fleet at home by night.

During the weekend, leisure flights can be organised as business is slower. This from Saturday morning till Sunday noon. As from then to start up business flights again. A strict order in this. Just like TNT Airways did in the past. Flying during the day for Club Med and during the night freight.

But keep the majority of leisure flights for TUI, they will be more then happy.

If the Belgian government would like an investment of Lufthansa in SN, this could be proposed as a sign of goodwill. You both will win in this

This is my own thought

[crew1990]

Brussels Airlines, Brussels Airlines Europe, Brussels Airlines Express, so 3 AOC's what a lovely idea.

And if I understood well, you want to keep a good connectivity between Europe destination and Long haul operation. But you also want to remove the expensive night stop? Great But can you tell me how do you want to do that?

If you want a pax to fly from MAD and further on a long haul flight, how do you expect this PAX to be around 9 AM in BRU if the plane is not staying at night in MAD? Do you think that airlines set up night stop for the pleasure of the crew (witch trust me if you work in aviation you would cherish much more your family/home time than you loonely/hotel time).

Oh I got an idea, why not take back some old concorde's from Air France or British Airways. 100 seater, perfect size and you can than remove the night stop by doing early up and down... pfff really

[Atlantis]

Brussels Airlines, Brussels Airlines Europe, Brussels Airlines Express, so 3 AOC's what a lovely idea.

And if I understood well, you want to keep a good connectivity between Europe destination and Long haul operation. But you also want to remove the expensive night stop? Great But can you tell me how do you want to do that?

If you want a pax to fly from MAD and further on a long haul flight, how do you expect this PAX to be around 9 AM in BRU if the plane is not staying at night in MAD? Do you think that airlines set up night stop for the pleasure of the crew (witch trust me if you work in aviation you would cherish much more your family/home time than you loonely/hotel time).

Oh I got an idea, why not take back some old concorde's from Air France or British Airways. 100 seater, perfect size and you can than remove the night stop by doing early up and down... pfff really

Maybe you still don't know it but times has changed and offers has to be. At least there are ideas, we can't keep the former model which we could see that it was not working. Also to get rid of the expensive night stops are on the table, you should know that.

There will be not for everybody good. If you have so much better ideas, feel free, but I didn't saw them so far...

[oldblueeyes]

What I will write here is an own thought. Not what we know from our industry or during negotiations. So this time is my own vision on the situation.

As we can think there is a possibility in a fleet reduction for SN. But as the Lufthansa group always was preaching, it would be possible in shifting planes in the group.

Well, Lufthansa Cityline is going to store a big part of their CRJ900LR fleet. This would be a great replacement for certain A319 and A320 of SN.
The A319 And A320 are most of the time too big on SN destinations. Why not to take those over and Lufthansa certain ones of SN? Leasing contracts can still be changed and leasing companies are now more flexible.

On this way a Brussels Airlines Europe or Brussels Airlines Express could be created for Europe. Flying to pure business destination with high frequenties, more turn around. Keep a few A319 or A320 for flights to Tel Aviv and other very busy routes. But keep this fleet busy the whole week for business and feed the long haul. Create an aggressive policy in the neighbour countries to attract much more foreigners to the own flights. Stop the expensive night stops. Have the whole fleet at home by night.

During the weekend, leisure flights can be organised as business is slower. This from Saturday morning till Sunday noon. As from then to start up business flights again. A strict order in this. Just like TNT Airways did in the past. Flying during the day for Club Med and during the night freight.

But keep the majority of leisure flights for TUI, they will be more then happy.

If the Belgian government would like an investment of Lufthansa in SN, this could be proposed as a sign of goodwill. You both will win in this

This is my own thought

Let's look towards the group fleet from all angles and see the options.

CS declared recently that he sees a LH group with approx 100 fewer aircraft but doing the similar number of pessengerkm flown. That means operational improvement ( or more P2P vs hub), upgauging, some better LF especially at Eurowings, Austrian and Brussels etc.

Upgauging is good to see at Austrian, where they are replacing the Q400 with A320. Interestingwise they get rid of the A319 so coming to a 2 short haul planes strategy -E195 and A320.

In the past Dolomiti asked for larger aircraft, eg 319, instead it got the remaining Embraers promised.LH needs some of them in wetlease also due to the high frequency of the LCY routes.

Cityline has an agreement to operate up to 45 A319 -only 6 pieces now to be transferred.

On the long run the mainline is consolidating on the A320 and 321 -> out of the existing fleet of 29 pieces 19 are 20 years and older and 10 relative new.

Eurowings has 46 remaining A319, but only 37 of them are relatively young.

Swiss and Austrian are giving the 319 away, the 7 pieces from Austrian being relatively young.

If we look to the fleet needs, strategies and demands within the Group, we can see what the opportunities are.

So there are 54 A319 that will operate for longer time or let's say cover the decade.

Honestly i don't see the CRJ operating as one family aircraft for Brussels, since for longer trips they are pretty unconfortable - unclear to me if and how the ex wetlease routes will be operated. Also as Cityline took over some regional routes from Austrian, they simply can't jump straight to the A319 to operate them.

The major advantage of the Brussels fleet is that is leased, although the engine preferences are not that "clean" as the LH group likes.

So if we are honest, we might see a revised short haul fleet around 30 aircraft.
One aircraft family brings simplicity - this is something SN was aiming for since the AVRO days.
Rolling out leases and replacing them by newer A319 from LH would make sense.

I do believe that a A223 single fleet as Air Baltic is operating could be a fesable solution for the future, but first money has to be earned in Belgium.

[crew1990]

Brussels Airlines, Brussels Airlines Europe, Brussels Airlines Express, so 3 AOC's what a lovely idea.

And if I understood well, you want to keep a good connectivity between Europe destination and Long haul operation. But you also want to remove the expensive night stop? Great But can you tell me how do you want to do that?

If you want a pax to fly from MAD and further on a long haul flight, how do you expect this PAX to be around 9 AM in BRU if the plane is not staying at night in MAD? Do you think that airlines set up night stop for the pleasure of the crew (witch trust me if you work in aviation you would cherish much more your family/home time than you loonely/hotel time).

Oh I got an idea, why not take back some old concorde's from Air France or British Airways. 100 seater, perfect size and you can than remove the night stop by doing early up and down... pfff really

Maybe you still don't know it but times has changed and offers has to be. At least there are ideas, we can't keep the former model which we could see that it was not working. Also to get rid of the expensive night stops are on the table, you should know that.

There will be not for everybody good. If you have so much better ideas, feel free, but I didn't saw them so far...

First of all I apologise for this spicy answer "antwerp-style"

I don't have any better idea, from an ecological point of view a point to point airlines make more sense, it's nowadays plain ridiculous to fly Paris-Brussels-Dakar or Brussels-Amsterdam-Tokyo when you can do Paris-Dakar and Brussels Tokyo.

Unfortunately you cannot expect to have an airline base in Brussels with business oriented destination without some connecting flight, the local demand is not wide enough to fill an airplane unless if it's touristic destination.

If you want to have those type of destination, you need some connecting pax to fill the rest of the seat that local demand can't do by it self. And the only way you can do it is with night stop.

You can reduce the night stop by cooperating with other airlines this is alreaydy the case on Vienna route, with austrian doing the early flight from Vienna and Brussels Airlines from brussels. You could do than with Lufthansa with Berlin and Hambourg, with Swiss for Geneva, for Oslo, Copenhague, Stockolm and Goteborg with SAS, this is to me the way to go. But this solution has it's own limit being the fact that there are no partner in Spain, Italy, France, Uk, Hungary etc

There is no choice we can turn the problem in anyway we want, brussels airlines need those night stop to fill the planes. So this is not this part of the business model we need to change.

[crew1990]

Nights stop are absolutely necessary if you want to have a network airline and not a P2P/LCC.
They may be expensive on the hand (even if like I presume, SN crews are not put up in five-star hotels), but in exchange for that they bring money in, too. You loose to earn/win.

Just to give a little idea about the cost of a night stop.

Of course no we don't sleep in five-star hotel, but still as we spend almost 1 night out of 3 abroad we need something decent. We mainly sleep in hotel like novotel, mariott, pullman, sofitel, crown plaza etc or private hotel (Memling, Mille Colines,etc) sometimes better, sometimes worst, sometimes close to the airport, sometimes in the city center and sometimes lost in nowhere.

Brussels Airlines doesn't pay the full prize as there are agreement with the hotel. Having a contract with an airline mean having many room booked for the whole years.

When the night stop is done with an A319, as there are 2 pilot and 3 ccm on board, you need to book 10 rooms, 5 for the crew arriving late and 5 for the crew departing early, so 12 when it's operated on A320.

Beside those 10/12 rooms booked, you also need a transportation for the crew from the hotel to the airport and the other way, so a total of 4 ride per day.

The crew also get an allowance per night stop, for the 10/12 crew member per destination per night.

Finally the airlines have to pay extra fees to the airport for having the plane overnight (but not sure we can count it in the calculation as it would be the same in BRU)

There is also some little extra like in summer when the food trolley are disembarked to be refrigerated.

I hope this can give you a little overview of the cost of an airline per night stop.

[oldblueeyes]

Brussels Airlines, Brussels Airlines Europe, Brussels Airlines Express, so 3 AOC's what a lovely idea.

And if I understood well, you want to keep a good connectivity between Europe destination and Long haul operation. But you also want to remove the expensive night stop? Great But can you tell me how do you want to do that?

If you want a pax to fly from MAD and further on a long haul flight, how do you expect this PAX to be around 9 AM in BRU if the plane is not staying at night in MAD? Do you think that airlines set up night stop for the pleasure of the crew (witch trust me if you work in aviation you would cherish much more your family/home time than you loonely/hotel time).

Oh I got an idea, why not take back some old concorde's from Air France or British Airways. 100 seater, perfect size and you can than remove the night stop by doing early up and down... pfff really

The major question that has to be answered first is - what business model you want?
Small Hub and Spoke is not sustainable economically. Just compare this with the number of planes Hansa in MUC for their European hub or KLM in AMS, whilst noticing that they serve rather Western Europe.
As a second point, the logic of this industry is that direct flights have /should have higher yields than connecting flights. Thus premium tickets from Belgium are a matter to have or not a long haul in BRU. If the public prefers to g by train to AMS or transfer in LHR because it is cheaper, than let it be. There is a good commercial reason why the focus is on the West African niche and not on "mainstream" like the US.
Third point - even if you have a hub, you can't have to many compromises to drive your profitability down: the smallest long haul planes, the less efficient aircraft of their class as feeders, the less portion of high yield tickets etc.

So just see the reality - Belgium is a niche market surrounded by the major hubs of the biggst European players. You can survive in an economic efficient mode if you don't play against them but offer something in a niche that is not of interest to these players. It means either

- focusing further on niches like West Africa as done before -> but that within a group and not against it, otherwise they can also fly against you
- of offering a lighter product - basically a European P2P network with fair but not optimal hub connections, or to put it other was a "lighter" product than your competitors

[PttU]

When the night stop is done with an A319, as there are 2 pilot and 3 ccm on board, you need to book 10 rooms, 5 for the crew arriving late and 5 for the crew departing early, so 12 when it's operated on A320.

So it's cheaper to operate an A319 over an A320. As OS is taking them out of their fleet, this might be interesting for SN?
As the demand will be lower, an A320 might be too big, so A319 is better for SN? Even with the small difference: a LF of 80% on an A319 is better than a 65% LF on A320...

[nordikcam]

What about CS meetings with the Austrian Government and ours, moreover, represented by Alexander De Croo. It was not this week that he was expected rue de la Loi? I ask that before the planes of some are the planes of others ...

[oldblueeyes]

When the night stop is done with an A319, as there are 2 pilot and 3 ccm on board, you need to book 10 rooms, 5 for the crew arriving late and 5 for the crew departing early, so 12 when it's operated on A320.

So it's cheaper to operate an A319 over an A320. As OS is taking them out of their fleet, this might be interesting for SN?
As the demand will be lower, an A320 might be too big, so A319 is better for SN? Even with the small difference: a LF of 80% on an A319 is better than a 65% LF on A320...

This is not a yes/no question.
The rule of thumb at aircraft families is 20% more pax at 10% higher cost per trip.
If one competes with P2P LCC's, than the cost per seat is key, as most of the competition fills over 90% of their seats.
If you can't fill the seats, than cost per trip might be more important, but one should be aware than eg in a hib and spoke model there are further cost disadvantages - you have "lost time" as you have to organize everything in waves and on the revenue and cost side you have 2 flights with all their collateral costs , from one additional climbing to each one additional landing and departing and their costs at the airports.

Thus "the best" is rather the most acceptable compromise for a certain business model.

[theeuropean]

What about CS meetings with the Austrian Government and ours, moreover, represented by Alexander De Croo. It was not this week that he was expected rue de la Loi? I ask that before the planes of some are the planes of others ...

De Standaard has an article from today saying that next week there should be a solution about state aid. I did a google translate but the main points:

1. Vrancx couldn't give any clarity to the employees as negotiations are still ongoing.
2. Gustin is an adviser to the BE government. The BE government has also not forgotten Spohr's intention to integrate SN with EW. Whereas Mayrhuber had more ambitious plans than Spohr.
3. The issue of trust has been a major thorn in negotiations but the talks more recently have been constructive.
4. BE government does not want to give a blank check to LH, the BE government is also looking at what will happen with Germand and Austrian governments also.

Lets see what will happen next week!