Brussels Airlines future and financial perspective

[Vinnie-Winnie]

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.

I said it already: Outsourcing, pilot base in Ireland, subcontracting, ancillary charges...

You need to get real.

For sure!

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.

It's been explained to you many times Demand varies throughout the year! Losses in the winter are compensated by profits in the summer. U'r Q400 idea may work in the winter but won't allow SN to make the profit it should during the summer!

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.

U'r Uk example shows u'r lack of knowledge of UK people as well as your lack of knowledge of travel behavior in general.

to sum up:

1) Travel is a mean to an end, not an end to a mean.
2) 70% of travel behavior can be explained through travel time, very little through comfort
3) Ryanair is a clear example of how UK people: they suck up the travel time in order to get to their destination cheaply
4) It's not because you can afford something that you will pay for it.

U've got very flawed ideas my friend! U'r ideas just dunno make any sense, Thereotically, historically and practically, what u suggest is just impossible!

And once again if you don't believe me just come and see for yourself what is happening here in the US, a market that is at least 20 years more advanced than the European one...

[Tomskii]

I always love it when enthousiasts think they're the experts. Sigh.

[cnc]

competition in europe is much higher then in the US and lets not forget airlines in the US don't have to compete against high speed trains

[Vinnie-Winnie]

competition in europe is much higher then in the US and lets not forget airlines in the US don't have to compete against high speed trains

It used to be a bloodbath in the US until airline consolidated. Exactly what has started in Europe... So no the industry is trending towards less competition not more. Healthy competition is good for the consumer but not a sign of maturity in the airline industry.

In terms of High Speed Rail true indeed, although HSR works for travel of less than a 1000 km and or 4hrs. US airlines suffer the most on these short distance flights. A lot of airlines wish they could get rid of these unprofitable short hops.

[Flanker]

Flanker wrote: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.


I said it already: Outsourcing, pilot base in Ireland, subcontracting, ancillary charges...

How does outsourcing decrease costs?
How does establishing a pilot base in Ireland decrease costs, if it were viable (but it's not).
How does subcontracting decrease costs?
Do ancillary charges decrease costs or raise revenue?

These touch mostly on the small picture. Reducing crew costs by a few percentage points, while they account for only around 7% of total costs. What is that going to accomplish? Ancillary charges are already applied where possible, ie B.light. Do you suggest that they start doing that on B.flex tickets as well?

U'r Uk example shows u'r lack of knowledge of UK people as well as your lack of knowledge of travel behavior in general.

to sum up:

1) Travel is a mean to an end, not an end to a mean.
2) 70% of travel behavior can be explained through travel time, very little through comfort
3) Ryanair is a clear example of how UK people: they suck up the travel time in order to get to their destination cheaply
4) It's not because you can afford something that you will pay for it.

My UK example is not a typical example, but it illustrates the merits of offering a superior product.
Travel is a mean to an end, but that doesn't mean that people aren't willing to choose how or with whom they want to travel.
If people are no longer willing to pay for a business class, then why do airlines still go through the hassle of offering one? On Flyertalk you can find plenty of reviews of frequent flyers in business class.
A proper business class also attracts some frequent fliers who go hunting for a (cheap) upgrade.
I think that Ryanair has gotten to most people's head. The only way to fight an airline like Ryanair is to do what others don't do and certainly not to do what Ryanair does.

[regi]

competition in europe is much higher then in the US and lets not forget airlines in the US don't have to compete against high speed trains

Maybe of the record, but high speed trains is on top of the agenda now in USA.
So that will mean even harsher competition in USA .
http://www.ushsr.com

[Vinnie-Winnie]

competition in europe is much higher then in the US and lets not forget airlines in the US don't have to compete against high speed trains

Maybe of the record, but high speed trains is on top of the agenda now in USA.
So that will mean even harsher competition in USA .
http://www.ushsr.com

You are mistaken: Plenty of plans, no money, and plenty of suspicion about spending government money on project that will only benefit a few people. (that is the narrative anyway) That + the good work of the road lobby means that none of us will probably see true high speed rail in the US in our lifetime!

How does outsourcing decrease costs?
How does establishing a pilot base in Ireland decrease costs, if it were viable (but it's not).
How does subcontracting decrease costs?
Do ancillary charges decrease costs or raise revenue?

ou gotto be joking right? It's pretty obvious... Not going to waste my time explaining something that you can read in other forums/other publications.

If people are no longer willing to pay for a business class, then why do airlines still go through the hassle of offering one? On Flyertalk you can find plenty of reviews of frequent flyers in business class

Where do people on flyertalk fly from/to? What is their purpose, their income...? You got to know your market before you make the sweeping comments. Brussels isn't London, New York or Paris!

[Inquirer]

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-

Shaping your product to perfectly suit the average situation may look good in theory and it may reduce your costs when demand is below average, but it will also make you loose out on significant revenues when demand is above average, yet that's when you are supposed to make your money, be it as a hotel business, an industrial plant or indeed a network carrier.

Companies that are already operating at peak performance when demand is just mediocre are generally not very profitable: remember we are not talking parcels or leasure travellers, but time-pressed passengers here: the first (and even the second) you can indeed move around pretty easily in the way that best fits your planes; the latter however only want to fly when it suits them and you will somehow need to adapt to it if you are not to lose them!

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?

Plenty of people?
How many millions of very wealthy passengers do you estimate to win over with your new product then?
Remember, the people you are aiming for aren't flying daily nor weekly, so they better come in millions indeed, because they will to have to take the place of all the frequent corporate flyers like me for instance.

U'r UK example shows u'r lack of knowledge of UK people as well as your lack of knowledge of travel behavior in general. U've got very flawed ideas my friend! U'r ideas just dunno make any sense, Thereotically, historically and practically, what u suggest is just impossible!

I must agree: the idea that somehow a short haul airline can thrive from aiming for infrequent passengers willing to pay hundreds of euro extra for their ticket of on average 1 hour, doesn't seem to fit well with the way the world is evolving.

My UK example is not a typical example, but it illustrates the merits of offering a superior product.
Travel is a mean to an end, but that doesn't mean that people aren't willing to choose how or with whom they want to travel

I don't know if you've noticed, but in the case of virgin america, it involves an airline which predominantly flies routes which are called transcontinental: transposing these route lengths to BRU, would put your destinations well beyond the European continent.
People may indeed be willing to pay more for a better product on for instance a nightly BRU-TLV, but not any longer on a midday BRU-GVA, forget it. However, the bigger market happens to be not on TLV, but on GVA, so if that is what you are after, you are effectively after nothing but a very small niche airline flying pseudo-long haul flights with relatively small planes, configured in a low seating configuration.

In conclusion: if you absolutely want to set up the kind of airline you have in mind, BRU is a pretty poor place to do so: it is just too centrally located to make the average flight time worthwhile and it is a city too small to have sufficiently high numbers of local customers. You seem to acknowledge this because you have weakened your dubious business model by aiming at attracting loads of connecting flows (I don't know if it is still such a big step forward in comfort for those passengers then), as well as call for quite small and not very comfortable turboprop planes. Nice to dream about as a 'what if' for half a day maybe, but nothing to be taken seriously: just being completely different than all the rest isn't a sufficiently solid business case in itself, you know?

[Vinnie-Winnie]

In conclusion: if you absolutely want to set up the kind of airline you have in mind, BRU is a pretty poor place to do so: it is just too centrally located to make the average flight time worthwhile and it is a city too small to have sufficiently high numbers of local customers. You seem to acknowledge this because you have weakened your dubious business model by aiming at attracting loads of connecting flows (I don't know if it is still such a big step forward in comfort for those passengers then), as well as call for quite small and not very comfortable turboprop planes. Nice to dream about as a 'what if' for half a day maybe, but nothing to be taken seriously: just being completely different than all the rest isn't a sufficiently solid business case in itself, you know?

Exactly! + the fact that high yielding passengers fly direct, and are usually people you find in big cities like Paris London which have plentiful of direct connections.

A business class passenger connecting in Brussels will be low yielding for travel within Europe as he most likely has a direct connection to his destination. If he doesn't, he probably has Ryanair which will bring him close or near his destination directly in half the time it would take to connect through Brussels.

So Flanker's proposition is absolutely flawed...

[Passenger]

The Lufthansa Group had an excellent second quarter 2012, and they almost made up the loss from the first quarter 2012:

http://investor-relations.lufthansa.com ... artal.html

[sn26567]

The Lufthansa Group had an excellent second quarter 2012, and they almost made up the loss from the first quarter 2012:

http://investor-relations.lufthansa.com ... artal.html

...or in English: viewtopic.php?p=267283#p267283

[RoMax]

http://www.anna.aero/2012/08/02/meb3-an ... s-expense/

SN and Iberia are the only two airlines in the "big-3" airline groups in Europe that see an increase in the amount of seats to sub-Saharian Africa (september 2012 compared to september 2011). SN grows 11% to 83.712 and Iberia with 12% to 35.601.
Swiss sees the biggest decrease in capacity, but that's no wonder as they stopped with Douala/Yaounde. They don't have so much left in Africa (almost 26.000 seats).
Lufthansa decreases the capacity with 7% ('thanks to' Khartoum and ADD) to 84.002 seats (only slightly bigger as SN)

The LH Group and AF-KL both see their amount of seats to AFI decrease with 3%, IAG grows with 2%.

SN is only 5th in the ranking of these airlines based on amount of seats. But for a large part that's because of some high capacity routes not operated by SN (BA and LH for exemple have quite some capacity to South-Africa, also KL has daily flights) and like KL and AF, on the routes they operate they often have more capacity as SN (especially KL which has less destinations in sub-Saharian Africa, but more amount of seats).
In many markets in West-/Central-/East-Africa SN is behind AF.

[Passenger]

It's quite amazing to see how all self declared financial experts here have put much effort in analyzing the balances and prognoses from/for Brussels Airlines, SN Airholding, Brussels Airport and Lufthansa, whilst at the same time ignoring an important press release from Belgium's National Bank from 1st August 2012: the economic growth in Belgium for second trimester of 2012 has been set at -0,6%.

Business here is slowing down. So it's quite acceptable that Belgian airlines/airports also suffer.

NL : http://www.nbb.be/doc/dq/n/dq3/nnfe.pdf
FR http://www.nbb.be/doc/dq/f/dq3/NFFE.pdf

[LJ]

Business here is slowing down. So it's quite acceptable that Belgian airlines/airports also suffer.

And this isn't unique to Belgian airlines/airports...hence why not only SN is having difficult times

The Lufthansa Group had an excellent second quarter 2012, and they almost made up the loss from the first quarter 2012:

Unfortunately LHs share in SN Airholding became even less valuable during this quarter....

[Skyman]

On the news todays: not very good news about SN. There excpecting to do the same financial result like 2011. A lot of investissments, increase price of fuel.
No benefit expected before 2014 see 2015 ! Feel a little bit afraid with this situation...

[airazurxtror]

http://www.lecho.be/actualite/entrepris ... .art?ckc=1

"We continue to restructure and invest more quickly. The results of 2012 can be as bad as those of 2011 but it is necessary for a better future, "said Bernard Gustin, CEO of Brussels Airlines.
In 2011, the Company recorded a loss of approximately 80 million euros.

[RoMax]

What's new about this? Heavy investments during started in 2010/2011 hugely needed for a better future (caused by heavy underinvestment during 2002-2009), making it impossible to be profitable because of the combination of high investments, high fuel costs, economic crisis,... No profit planned before 2014 (break even or minimal profit for 2014, but probably not a reall profit before 2015), that's said now, that was said last year when "Beyond 2012-2013" was presented.

What IS new in the article is the fact that they talk about a loadfactor for NYC of +90% in September and already above 60% for October (which is still weeks away). The ticketprices are low compared to those to/from Africa, but not at all low compared to the transatlantic competition.

[airazurxtror]

What "heavy" investments ? Most of the SN "new" planes are leased or bought second-hand ...
High price of fuel and economic crisis hit all carriers - some of them make a profit, though.

[RoMax]

What "heavy" investments ? Most of the SN "new" planes are leased or bought second-hand ...

30 million for a cabin overhaul of the long haul fleet, several millions for the new cabins of the Airbus A32S fleet, 15 million to re-train people for another aircraft type, several millions to start new long haul routes (what was it for NYC, about 10 million? of course a part of that is already included in the other parts), ...
That are quite heavy investments for an airline like SN.
These are investments that should have been made more gradually over the years, but that didn't happen, so now they realise they have to do these investments to secure their future they have a hard time doing it all at once.

High price of fuel and economic crisis hit all carriers - some of them make a profit, though.

Well yea, so? Does that mean that the other carriers that have the same high fuel prices (tough that's even not totally true because each airline has different hedge contracts) but do make money, don't have any troubles with it? That simply means they succeed to save more money on other parts of the operations.

When you have only small margins (like all airlines have), but you have to do several investments, these margins are gone in seconds.

Everyone knows that the underinvestment in SN Airholding and SN itself is one of the main causes of the current troubles. That underinvestment was fine during the growing years of aviation, but once economy started to behave differently and the fuel prices continued to rise, troubles began. You don't solve that in 6 months, that takes a lot of years. That's like people saying Obama didn't achieve anything in the US, and made things only worse...those people don't realise that you don't clean up the mess of someone else in a 4-5 years.

[Passenger]

High price of fuel and economic crisis hit all carriers - some of them make a profit, though.

If your favourite airline would not get all those unfair subsidies from local and regional governments, they would also be loss making.