Austrian Airlines considers South American flights

[sn26567]

Austrian Airlines is reportedly considering starting flights to South America. Austrian's CEO, Jaan Albrecht, said the arrival of a fifth B777-200 next year in Summer has once more piqued the Star Alliance member's interest in the South American market, especially during the European winter season, but that any flights would depend on the validity of traffic rights which it inherited from Lauda Air.

Austrian's once prolific international network was curtailed in 2006 when it disposed of its four A330-200s and two A340-300s in order to focus on the short/medium haul markets. However, with a growing fleet of B777-200s and B767-300s, the airline is once again seeking to expand its long-haul market presence, with added US and Asian destinations also on the cards in the year to come.

Source: ch-aviation

If OS can do it, why not SN which has a larger home market?

[cnc]

If OS can do it, why not SN which has a larger home market?

just like OS had in the past SN will need some time to reorganize and refocus so who knows once they are firm on track again

[Skyman]

I don't understand why SN is not starting such kind of flight.
If you look : every day, about 6-7 flights of Iberia are leaving BRU to Madrid. On each flight, about more than 50% of the pax have connections flights to South America.

I know the financial problems with SN, but is it not possible to start a 5 weekly flight to Rio for example ?
JFK is a veritable succes, IAD is going very wel... So let's hope that they will put 2 more long-haul aircrafts next years to open such new route like in South America

[Air Key West]

I've being saying that for quiet some time, too.
Brasil World Football Championship 2014
Rio Olympic Games 2016
A booming economy with a middle-class having a good purchasing power.
A strong currency (has been increasing in value over the last years).
After JFK and IAD, it is time to consider Brasil.
And I also agree with you : one new long-aircraft per year is not enough. They should aim at two.
And hopefully they will be able to stop being forced to acquire/lease older planes, but I know their financial situation is not very strong. However, what may seem cheap (older aircraft) at first sight, may turn out expensive (more maintance and more likely to develop technical problems, just like with an older car).
I don't understand why LH is so lookwarm about SN. OK, SN got a loan from LH, but it's a loan, not really the same as a real investment, imho.
I wonder what Austrian's first destination to South America might be.

[LJ]

If OS can do it, why not SN which has a larger home market?

Depending on ther destination you'll need a lot of aircraft for such routes. If you take Sao Paulo as an example, you'll need at least 1.5 aircraft (fortunately SN has a midday long haul departure) unless you don't intend to fly to it daily (in which case you won't attract many business passengers).

If you look : every day, about 6-7 flights of Iberia are leaving BRU to Madrid. On each flight, about more than 50% of the pax have connections flights to South America.

As far as I know IB only has 4 flights, 2 of which connect to its Latin American flights (the early morning departure and the evening flight) and two which connect from its Latin American flights (the midday and the early evening arrival). Second, what's the yield? UX has entered this market as well and the competition is fierce (you can drive to CDG and take AF or JJ connect at FRA, AMS or LHR). Moreover arguably the highest yield is on the red eyes, but that would mean higher costs. The daylight westbound option (probably the only vaible option for SN) is very effecient but usually lower yields.

I know the financial problems with SN, but is it not possible to start a 5 weekly flight to Rio for example ?

I don't understand why SN is not starting such kind of flight.

Does LH want SN do to Latin America and compete with them? IB is IAGs Latin America carrier (though the number of flights ex LHR are growing) and I doubt that LH needs many of its airlines flying to South America (at present LH and LX take care for this market). Moreover, Star already has TP serving many destinations in Latin America (which BTW doesn't have a good schedule ex Vienna). In the end, flying to South America is very expensive and there is already a lot of competition. Finally, Brazil in not so booming anymore. Though still growing, you'll see that the number of passengers aren't growing as much as it used to be. However, with JJ retiring 10 A332s soon and already dropping GIG-FRA and GIG-CDG (though upgauging GRU-CDG to 2 daily 77Ws) there may be some room.

[RoMax]

I don't understand why LH is so lookwarm about SN. OK, SN got a loan from LH, but it's a loan, not really the same as a real investment, imho.

LH wants SN to prove that they are capable of surviving without 100% support from Germany. Of course they want SN to become a succes in their network, but not at any cost. That was the mistake with Austrian, they took over OS way before they were heading the right way again, which costed them (LH) quite some money. Not to talk about BMI...

If SN can prove they can grow (long haul), reduce the losses in Europe and become profitable as a whole and reduce overhead costs, LH will come in and take over the remaining 55% and make reall investments. If SN can't prove that, LH will not play Santa Claus.

About South-America (and mainly Brasil). Of course they need to consider it, and I'm damn sure the do. But they have limited resources and want to expand North-America and Africa... I don't think we'll see Sao Paulo or Rio in the network before 2015. Even for OS it will be summer 2014 at the earliest and they are way further in the process of becoming profitable and reorganising their network.

[LJ]

I don't understand why LH is so lookwarm about SN. OK, SN got a loan from LH, but it's a loan, not really the same as a real investment, imho.

It's probably due to the fact that I work for a financial institution, but providing a loan to an airline seems to me like the same as an investment. Moreover, it's the same as what Etihad is doing with Jet Airways and a few of its other investments. They provide a loan to Jet (in addition to the sale/lease back of LHR slots and equity investments) so they gain more control over Jet. In the end, you do listen to those who provided you a loan as they may call it. Moreover, from LH's view it shows how much confident they have they get their money back (and the yield on a loan can much more attractive than the pay out you get if you own an airline).

[Air Key West]

Not to talk about BMI...

Although I agree with most (not really everything) but most of what you're saying, if my memory serves me right, LH was legally (juridisch/juridiquement) forced to buy BD. LH accepted their fate, paid and sold the airline to put a fullstop after this very unpleasant financial episode for LH.

As to b.air flying to Brasil, of course it's a challenge and they would need 1.5 aircraft to go daily. Hence, the suggestion I made some time ago : start to fly to Rio 3xweekly in summer 2014 (World Cup) and develop the market from there. But, I suspect that this won't happen.

And to LJ ; yes, Star Alliance member TAP has its own nich market in Brasil, but it has never been said or decided that alliance members cannot compete between them - see the recent QF decision to end its partnership with oneword partner BA in favor of "non aligned" EK). And TAM is leaving or has perhaps already left Star, hasn't it ?

My only fear is that LH might want to restrict b.air to developing links with Africa (like USA>Africa for instance). As to the non profitable European network, most network airlines have non profitable European networks (including LH ; that's why they are developing Germanwings and will only keep flying themselves to/from their hubs in FRA and MUC). The problem is that apparently network carriers in Europe need a (non profitable) European network to feed their long haul flights and make them profitable, because apparently taht is where and how profits can be made° The same goes for SN. B.Air's African flights would not be profitable without the feed from the European network. It's a Catch22/paradoxical situation.

As to yields to Brasil and Latin America, I think they are still OK. And with increasing competition to/from Africa, yields there will probably drop. And Latin America is now generally spaeking a much more stable continent than Africa where an airline never knows when the next war will break out or when a country or a minister's whim will disrupt operations and impact profitability.

[LJ]

My only fear is that LH might want to restrict b.air to developing links with Africa (like USA>Africa for instance).

Why do you fear this? Be glad that SN will have a niche in the entire LH Group as this means that when it comes to Africa (at keast West-Africa) it will be SN doing the flying. Moreover, this is the same as in the AF/KL Group and IAG. If you're part of a group, than it's about the interest of the group, not of one of the individual members of that group.

Finally, if OS considers South America, I'm sure that they'll have the backing of LH Group. Therefore, the title of this thread is somewhat misleading as it probably should be "LH Group considers South America ex Vienna".

[Air Key West]

Why do you fear this

Because Central and Western Africa is a limited unstable market with increasing competition. One should never put all it's eggs in the same basket and diversification is always a better strategy than monoculture.

[convair]

Although this is an Austrian topic, inevitably, since OS belongs to LH, comparisons are made with SN.

10-15 years ago, GRU would have been the place to go for SN (then Sabena). Today it may not be a booming market but it's still developing faster than most. Maybe Argentina is a less competitive market than Brasil today.

For LH, Brasil is important (some towns in the south are almost exclusively german-speaking) but OS and, later on, SN could find a place too on that vast region. Why not a totally new destination such as Recife, Porto Alegre, Montevideo in Uruguay or Santiago in Chile? Rio is mostly tourism during winter.

Re LH investment in SN, there are 2 ways to look at it:

1. careful: wait for/force SN to show they can survive on their own;

2. bold: after evaluation of strenghts and weaknesses and of the potential of the SN people, of the airport and of the market, take control immediately, despite the losses, and go ahead full throttle, using the large resources of the group to give SN a real boost.

Obviously and sadly, LH choose the first option. They are waiting for SN to recover while probably losing opportunities and allowing the competition to take advantage of the present weaknesses of SN.

In business, the second option is often best, provided your analysis is correct of course but who could better analyze this business than LH.

@LJ
Lending money to a future subsidiary in the hope of making a few quick bucks is really shortsighted; it will be money going from your right pocket to the left one.

[convair]

Why do you fear this

Because Central and Western Africa is a limited unstable market with increasing competition. One should never put all it's eggs in the same basket and diversification is always a better strategy than monoculture.

Looking at it from LH's point of view, they actually ARE diversifying, through their ownership of several companies.
We should all be aware of the fact that, once SN becomes a wholly-owned subsidiary of LH, it will cease to exist as a company (except for the legal aspects); it will be a division of LH.

[Air Key West]

Agreed. But if a division is or becomes unprofitable because of the wrong strategy, LH will shed it (sell or close it), because LH will never be prepared to "subsidize" (for long) one of its loss-making divisions.
So, less exposure to one single unstable market is strongly advised.

[convair]

Yes, of course, but as a division, they will not be free to make that kind of decision on their own.
In a group, there is a constant power struggle between Corporate HQ and the local/division managers, as well as between the divisions themselves. The role of the corporate mgt is to keep the right balance between the necessary autonomy (motivation in the divisions is essential) and the requirements of the group's interests.

[convair]

I must add that LH will not gladly sacrifice one of its subsidiaries in bad times. When you have in your group a reputable co with good mgt, good staff and good record, you will tend to keep it alive, give it, if you can, another chance, another opportunity, a new challenge, even in hard times.

[LJ]

Agreed. But if a division is or becomes unprofitable because of the wrong strategy, LH will shed it (sell or close it), because LH will never be prepared to "subsidize" (for long) one of its loss-making divisions.

Didn't the do that at OS? I don't recall OS being very profitable the past few years (and OS doesn't even have a niche). OK, they're making it pofitable, but SN can also be made p[rofitable.

Lending money to a future subsidiary in the hope of making a few quick bucks is really shortsighted; it will be money going from your right pocket to the left one.

Not really, you gain some control before you've actually bought it. Moreover, providing loans to you subsidiary is common place (and transfer of P&L is sometimes an added benefit).

Hence why KL increased Rio for S13.... BTW you do know about the boom currenty going on in Rio and the fact that the oil and gas industry has made Rio one of the oil/gas capitals of the world?

In business, the second option is often best, provided your analysis is correct of course but who could better analyze this business than LH.

I personally think it's the second option they're persuing.

Why not a totally new destination such as Recife, Porto Alegre, Montevideo in Uruguay or Santiago in Chile? Rio is mostly tourism during winter.

I reckon SCL will be back once JJ leaves Star and they've given the GRU-SCL leg to JJ.

BTW you do know about the boom currenty going on in Rio and the fact that the oil and gas industry has made Rio one of the oil/gas capitals of the world (and hence why Kl increased GIG for S13)?

[galaxy]

Since almost 10 years I'm travelling once a year to LIM and CUZ. I was travelling with KLM,Air France,Iberia and LAN. with B777,B747,A340-300,A340-600,B767. On each flight the loadfactor was about 100 %. I asked myself why other airlines such SN don't fly that route ?

[cnc]

Since almost 10 years I'm travelling once a year to LIM and CUZ. I was travelling with KLM,Air France,Iberia and LAN. with B777,B747,A340-300,A340-600,B767. On each flight the loadfactor was about 100 %. I asked myself why other airlines such SN don't fly that route ?

100% lf doesn't equal profit

[OO-ITR]

Since almost 10 years I'm travelling once a year to LIM and CUZ. I was travelling with KLM,Air France,Iberia and LAN. with B777,B747,A340-300,A340-600,B767. On each flight the loadfactor was about 100 %. I asked myself why other airlines such SN don't fly that route ?

100% lf doesn't equal profit

Would also love to see SN fly to South America. But I think there is already a lot of competition on the market Europe-South America. But never say never. Although I think SN's focus right now is on the AFI and North American market.
I was wondering is Sabena was flying to South America...

[nordikcam]

Yess, SN was flying to SAO PAULO...and VASP too ! I flew with the two airlines. Direct from BRU with SN...via Recife or Salvador de Bahia with VASP.