Brussels Airlines future and financial perspective

[regi]

Without cursing or shouting, but Flanker, you write yourself that economy isn't doing fine and it will be like that for the coming years.

but it's not like the economy is going to improve in the next years, in fact we may not have reached the bottom yet.

With the previous economic crisis ( if that one had passed by is a different question for other fora ) we saw many companies changing rapidly the travelling culture of their personnel.
Less flights, no more business class. Some did even turn to LCC's ( while others maintained their veto against LCC's, but that is also another subject )

Reducing costs is an obvious way to go and the theoretical graphic shows that every company should stop all activities immediately. ( which is of course irrelevant )
So we follow your theory again of reducing the size of the airplane . Theoreticaly it would mean lower operating costs ( I ridiculised you before by proposing to fly Cessna's Caravan but I won't do that again ) And we all know how eager you show us the figures of 1 particular airplane, which would improve the numbers of SN immediately. Leasing or buying costs money. Even for a Q400.
Btw, flying Q400 doesn't mean you can't go bankrupt...
But several members tried to convince you of the danger of reducing capacity. OK, crisis means less sold tickets. So a company has to fight to get those remaining customers. And 1 way to do this is by reducing the price and fill up the plane. Without giving up the premium paying customer. (who wants the connections of the group, the miles, service, international airports and yes, even still some of those who fly real business )

Increasing revenue is the other way : a higher price for the same product is not possible now. ( many companies' bookkeepers found out about the Flex tickets which carried about the same price as before, and the result was that many sales people were bluntly told to fly less ). But you can increase revenue by selling more tickets. OK, at a lower price, but at least , you fill up your airplane.

Other excercises such as expanding the network should always remain in the framework of cost reduction+ revenue increase. Code sharing sounds nice, but who wants to sell the product of another company if the revenue is for the partner airline?

There is no magic trick. Running a company demands daily attention, flexability, decision making.
I do hope for SN that their managment is allowed to work carte blanche ( oops, totally not done in Belgium with unions, politics, old boys network )
But I know that the current situation doesn't allow a company to be run differently as the competitors are being run: to make profit. That is and will always be the only reason of existance of a company.

[Flanker]

Increasing revenue is the other way : a higher price for the same product is not possible now. ( many companies' bookkeepers found out about the Flex tickets which carried about the same price as before, and the result was that many sales people were bluntly told to fly less ). But you can increase revenue by selling more tickets. OK, at a lower price, but at least , you fill up your airplane.

What I always talk about is a higher price for a better product.
Sure, what difference does it make, a 2 hour flight is a 2 hour flight.
You could say the same about a hotel. A bed is a bed, yet people are willing to pay 5 times the price to be in a nicer hotel. What SN is doing now, is selling a 2 star hotel room at the price of a 5 star hotel.
No wonder people are choosing to fly Ryanair, which essentially is a no star hotel selling a room at no star price.

What I mean to say is that there is no point in building large 2 star hotels to sell the rooms at 3 to 5 star prices. Build smaller 5 star hotels and sell the rooms at 4 star hotel prices. That way you can steal pax from other 2 star hotels who are selling their rooms at 5 star hotel prices. By that I mean other legacy airlines flying to/from BRU and also non-O&D pax. That's where the money is for SN!

Give FR all the cheap pax, try to take all the rest. You can deal with FR later, when you're making money.

[regi]

Understood.
But the current economic climate is against marketing a more expensive product, even if it is better.

Question: would it make sense to market an existing product with an attractive price?
To be direct: promote the business class product of SN ? ( without changing the product at all )

Example:
I would like to be in Zürich on Monday 13/08/2012 for a 1 day company visit.
This forks out > 1000 € in economy with SN ( on their website) with an unusable return time.
On Amadeus I can get a real business class with Swiss for 1124 € or with SN for 1130 € ( performed by ...Swiss )

Now I just think: let us promote SN business class and send email to the people in our databank. ( to avoid high marketing costs, and filter out non-business flyers )
Fly Zürich in full business class for 500 €. ( depending availability )

Immediately the seats will be sold. Full business class section. And many jealous passengers who are warned to stay allert , and will keep an eye on SNBA.

Please do not start up a discussion "what about usual business travellers who want to change their travel date and have to hear that business is full?" There are ways to deal with this.

[convair]

Zürich is a bad example as SN doesn't fly its own metal there. Nor could they "really" compete with another Star company I guess. But your suggestion would be valid for, say, Rome or Madrid or Berlin.

[sn26567]

Here is a translation of the full article in today's De Tijd (the article that was reproduced in part in HLN.be)

Brussels Airlines will receive 25 million

At the end of last year, SN Airholding intervened for 55 million euros, because the largest airline in the country registered a net loss of 79.8 million in its books.

Through this intervention the equity increased again above half of the capital. A reconstruction plan was approved that should provide for 100 million savings by 2014 and make the company profitable again.

But that means that losses are still expected in 2012 and in 2013. In the spring the management, according to some sources, estimated the deficit for 2012 at 20 million. The fact that the holding company made available another 25 million euros through an extraordinary general assembly in June seems to indicate that this budget will be more or less respected.

The Brussels Airlines spokesman confirmed only that the recent operation in both shortages of the past and the future must absorb. The company never makes half year results and the spokesman also wanted to not say what the current year forecast. However, the savings on schedule and the company in 2014 so should make a profit.

Equity

In this second refinancing operation, however, it should be noted that the capital was first reduced by 60 million and then 25 million was contributed, of which 23.78 million was transferred to the item 'share premium' and only 1.22 million to the capital item. That way, shareholders' equity was reduced from 49.95 to 27.78 million, but the capital drops even to a greater extent from 62.78 to 3.64 million.

This has the advantage that if Brussels Airlines would close the year with, say only a 20 million loss, the equity would still be 7.78 million higher than the capital. If the equity falls below half of the capital, shareholders have to decide on the continuation of the company at an extraordinary general assembly. This is now probably avoided.

In the course of 2013, the financial balance should gradually come into balance and Brussels Airlines hopes that Lufthansa finally takes over the remaining 55 per cent in SN Airholding.

[Inquirer]

Flanker,
As people have told you before, the market for your kind of dream airline is infinisimally small, especially in BRU.
In today's market environment, you are talking maybe 10% of all pax passing through BRU at best; that share is dropping every year even, so why go after an ever shrinking segment? Not a solid long term goal, IMHO.
Besides, you are not taking into account the framework you need to work in here: remember you are not setting up a new start up airline, but trying to turn around an existing one with shareholders having certain expectations and strategic objectives which do not seem to match those of the kind of company you are aiming for: what's in for the current shareholders to approve such a radical shrinking of their airline, which is the consequence of your plan? To end up with an arline with a few hundred thousand of passengers, flying short haul routes from BRU, possibly making a few millions of profit? Just where does that match into Lufthansa's overall business strategy or that of the Belgian shareholders to sell to them?
Your idea is dead upon arrival for obvious out-of-touch-with-reality reasons: if you absolutely want to push your concept, better do it with a newco, NOT with an airline with a fleet, network and workforce that is 5 to 10 times to big for it.

Besides, it seems your financial analysis does not match up with what De Tijd reported about the financial transactions between the holding and it's airline recently. If you were even remotely close, then what they have just done would be simply impossible from an accountant point of view because the company would have had to file for court protection right after,, but then you are forgiven, because you once told me you are a pilot, so you can't possibly have all the needed skills you'd so very much need to have to be also a financial auditor, on top of a business consultant, fleet and network planner as well as a strategy developer all at the same time of course.

[fcw]

Flanker,
it seems your financial analysis does not match up with what De Tijd reported about the financial transactions between the holding and it's airline recently. If you were even remotely close, then what they have just done would be simply impossible from an accountant point of view because the company would have had to file for court protection right after,, but then you are forgiven, because you once told me you are a pilot, so you can't possibly have all the needed skills you'd so very much need to have to be also a financial auditor, on top of a business consultant, fleet and network planner as well as a strategy developer all at the same time of course.

But the article does confirm that BruAir is very close to the edge and that the 300+ million in the bank can't be cosidered as available to cover losses!

[eurojet]

The best example of "expensive and high quality airline" Flanker is supporting we have here in Luxembourg: good old Luxair, flying passengers on very very expensive tickets around Europe in Bombardier Q400 and Embraer Eurojets: guess what? They are aslo deep deep in the red, and if it wasn't for the Luxo governement, were out of business already. Their model is dead as well, I fly them nearly every week, their economy section is (albeit very good) very expensive, their C-class is even better short-haul and is nearly always empty... This is a country full of bankers, and yet when talking with guys from other banks, nobody is allowed to fly them in C any more for European flights. The only ones you will see in C are Luxo state officials or people from the European institutions ... Their planes are also always on the ground: a morning wave, a mid-day wave and and evening wave, and the rest of the day their planes are shining on the tarmac ... Whole Findel is chicken-shit as well since in Autumn we have the big revolution : Easyjet entering Findel ... The days of these boutique airlines are counted ...

[Inquirer]

Luxair is indeed one example of such an airline, but better still would be the old CROSSAIR, because they aimed at European connecting passengers, which is exactly what flanker once proposed too, to increase attractiveness beyond BRU as well as justify running higher frequencies than what luxair has.
I happen to know the old CROSSAIR product very very well, because I used to fly them at least twice weekly to connect at BSL, until the price difference became completely prohibitative and my company even went as far as to put an embargo on flying them, unless they were the only option available.
FWIW, that was more than 15 years ago, and travel policies have changed a lot since then!
NOBODY flying for his work is ever going to be allowed to make use of a type of arline flanker proposes and yet that is exactly the type of customer it would need to build a solid customer basis.
Forget about the wealthy dentists going on a city trip once every few months, as you once said. They are not going to pay all the bills.
The concept proposed came at the end of its useful life more than a decade ago already; time to wake up and smell the coffee, flanker. Maybe start wth a round of all big companies around BRU, to talk with them about their extremely inflexible and cost oriented travel policy; you are definitely going to be in for a shock, that much is a given, so be prepared.

[Flanker]

Eurojt, give me a few examples of how Luxair is a high quality airline?
For instance, how is their hard product better than SN's?

See, you're not reading what I'm writing.
I'm talking about a Virgin America-like product. That's what I call a good product.


Inquirer:
Like I said Inquirer, I always use my theory and hard information to back it up.
The 20 million loss plan, it was drafted by some intern I guess.
But tell me, what is going to make them go from minus 80 million to minus 20 million? What is going to change so radically that they will earn 60 million more in 2012? Tell me, I want to know.
As far as I know, 2012 sees many additional issues that cost a lot of money: ETS, maintenance charges, more larger aircraft, weaker euro, new routes, fleet investments, staff terminations, etc... How can they do better than 2011 if they got all these additional expenses?

It doesn't take a genius to see that the losses are more likely to increase than to decrease, but I would applaud SN if they manage to maintain the same losses as last year despite of all these additional expenses.

[Stij]

My personal feeling and experience...

What SN currently charges for a day return in two moths time (457€ to Venice) is simply to expensive for my very small SME. I'll take FR instead. However I'm willing to pay what they charge for a weekend fare in two months (148€ to Venice) for me and my lovely wife. Ryanair charges you for the same period around 36€...

So what does it say: I'm willing to pay 100€ more to fly from BRU and VCE and for an assigned seat, but not 400€. And I think more and more businesses start to reason like this.

I think LH and the other network carriers haven't understood this yet... they can learn from their counterparts in the USA... DL charges 157$ for a randomly chosen day return on a 1:30 flight in the same period.

I think Easyjet understood this perfectly well with their flex fares, flying into business centres and now even experimenting with assigned seating. Just the frequencies aren't there yet.

FR will probably continue to go for the rock bottom of the market: people who first decide they'll fly away for their holidays and then see where the cheap fares are.

Cheers mates,

Stij

[eurojet]

Hi Flaker,

what about a 15-20 minute flight Lux-Fra where you get the choice (in economy) of some 8-10 different newspapers, a full drink round with any type of alcoholic and non-alcoholic drink and a hight quality (e.g. freshly made roastbeef) sandwhich? On longer routes (e.g. Madrid) in economy still a full cold meal with 2 drink services, coffee and liquor round (again, this is in economy). Oh shocking, in economy you have to settle for Bernard Massard crémant while in C you get prper champagne?

In C on short-haul flights, very complete meal service and basically all you get in Y but even more and better ... When they fly their B737s to a bit longer destinations, also in Y you get your headsets to listen/watch their inflight entertainement.

For the rest, nice hard product since their planes are always half-empty since plenty of place around. Again, it is like flying in the 70-80's, and this usually on flights that last some 50-70 minutes. Try them once, they are very good, but do it quickly before this type of service will soon disappear

[Inquirer]

Eurojt, give me a few examples of how Luxair is a high quality airline?
For instance, how is their hard product better than SN's?

See, you're not reading what I'm writing.
I'm talking about a Virgin America-like product. That's what I call a good product.

What I notice is that you can not even clearly describe the basic concept of the new type of airline you are advocating to potential key customers like eurojet and me, other than say that it would be completely different.
Mind you, not only would it have to be much better than anything we know today as corporate customers, be it in Business or Economy, to be considered by us, but at the same time it imperatively will have to come at a price that doesn't exceed what we pay today, or it is a definite "no go".
Allow me to say I am rather sceptical you can pull that one off, so rather than ask us stupid end users all the questions like you do here again, why dont you show just how great you truely are and thus come up with the hard facts abour your concept as well as a detailed cost and revenues analysis of it in the market at BRU which you obviously must have readily available, since you pretend to always back your claims up? Care to do so, for the first time ever then, before quickly logging out again once people start to ask detailed questions?

Oh, and i dont want to raise the bar, but don't forget to make sure it fits the strategic objectives of the current owners of the airline under discussion, because as I have pointed out, so far you conveniently go by at that little detail; your plan needs to be a restructuring plan, not that of a newco.

[fcw]

The 20 million loss plan, it was drafted by some intern I guess.
But tell me, what is going to make them go from minus 80 million to minus 20 million? What is going to change so radically that they will earn 60 million more in 2012? Tell me, I want to know.

They will get 30 mio of State aid to start with.

[Inquirer]

Hi Flaker,

what about a 15-20 minute flight Lux-Fra where you get the choice (in economy) of some 8-10 different newspapers, a full drink round with any type of alcoholic and non-alcoholic drink and a hight quality (e.g. freshly made roastbeef) sandwhich? On longer routes (e.g. Madrid) in economy still a full cold meal with 2 drink services, coffee and liquor round (again, this is in economy). Oh shocking, in economy you have to settle for Bernard Massard crémant while in C you get prper champagne?

In C on short-haul flights, very complete meal service and basically all you get in Y but even more and better ... When they fly their B737s to a bit longer destinations, also in Y you get your headsets to listen/watch their inflight entertainement.

For the rest, nice hard product since their planes are always half-empty since plenty of place around. Again, it is like flying in the 70-80's, and this usually on flights that last some 50-70 minutes. Try them once, they are very good, but do it quickly before this type of service will soon disappear

Funny how you write that; I feel exactly the same about them!

I have tried them once, on a Torino flight and indeed, their service is what you used to get in the late 1980s early 1990s. Definitely not something of these days anymore.
Despite this, I wouldn't regularly consider them as a corporate flyer, because of their limited network and low frequencies: I am sure you agree that all the little perks on board are fantastic, ever more so because we aren't used to many of them any more, but in the end the only reasons we decide to pay a premium is schedule and flexibility, two fields where they somehow let you down other than on a very few key routes.
Luckily they are associated with Lufthansa's M&M, or the incentive to fly them would be completely non-existing for me, even if they'd give my a lie flat business seat and an in flight shower with real Champagne, because none of that is what I am after on a flight of less than a few hours!

[cnc]

They will get 30 mio of State aid to start with.

more like 15 to 18

[Vinnie-Winnie]

The BS is all yours. The only airlines in the US and Asia (including Midle-East) that are doing well are the airlines offering premium for the money. People in Europe are willing to pay more if they get value for their extra money.
It's all about value but no one is offering it.
Tell me, how will airlines like SN survive when they offer less value for more money?

You get real!

Have you ever flown in the US?

Companies that are doing well are companies that have restructed through bankrupcy (ie Delta), or have a low cost base. (ie Jetblue)

High cost high service airlines like American Airlines and Virgin are struggling.

And in terms of regional service, airlines here in the US rely on ultra low cost regional airlines such as Comair, AIr Wisconsin etc which fly into hubs at a very low price!

Most asian airlines now have a low cost subsidiary, showing again that your analysis is wrong!

All in all the way forward for SN is to lower its costs, which may well include creating a subsidiary in Ireland! Buying smaller aircraft under SN's own cost structure is something that will lead SN into a AA situation. Ever heard of American Eagle by any chance?

[Tomskii]

Could we maybe get back to the SN case instead of the US/Asia... If you want to discuss marketing strategies for airlines worldwide, do so in a seperate topic, this is still the SN topic.

[Vinnie-Winnie]

Could we maybe get back to the SN case instead of the US/Asia... If you want to discuss marketing strategies for airlines worldwide, do so in a seperate topic, this is still the SN topic.

1) If Flanker says he should follow the US or Asian strategy, not knowing what he is talking about, then I think we'r game to enlighten him!

2) it's my belief that Sn and many European Airlines should lower their cost on their European network, not increase service. In that sense it is interesting to see what US companies do/have been doing/may be doing in the future!

Sorry but SN is not gonna be able to succeed if it doesn't look at industry best/worst practices!

[Flanker]

2) it's my belief that Sn and many European Airlines should lower their cost on their European network, not increase service. In that sense it is interesting to see what US companies do/have been doing/may be doing in the future!

How do you suggest they do that?
Most costs are fixed and shaved to dangerous levels, and even though they cut overhead costs, airlines still can't seem to make money on shorthaul. It's easy to say that they need to cut costs.

You need to get real.

The only way forward for an airline like SN is to reduce cost by reducing capacity to match the demand, ie introducing Q400's and make them fly packed like hell. This way you increase the load factors and reduce the cost per passenger seat-mile. On the revenue side, they need to increase revenues by opening up to new markets by landing at more regional airports in the UK, France and Italy, and maximize their premium revenues by introducing a real business class that people would get out of their own way to fly on. You don't need to increase the business class fares, you keep the fares where they are and make sure more people buy it by offering real value for the money.

Again I don't care if company managers don't get business class privileges, there are still plenty of people who can afford a business class ticket. By offering a good product you can attract passengers who had no plans to fly SN at all. For intance a wealthy business man from Edinburgh who wants to go to Florence. He could use BA or for the same price get a much better product with SN. Which one would you choose?
Remember that there are also plenty of executives who used to have business/corporate jet privileges but are downgraded to airline travel.

The same goes for economy class, where passengers should be provided a decent meal and drinks, because catering doesn't cost much. If ordered for all pax, catering costs for decent meals can go down as low as 2 euro per pax. If pax are happy, they come back. I don't think that catering would make a difference with regards to profit/loss, but at least it would remind the pax why they are flying SN.