Long-haul low-cost – mission (im)possible?

The summer of 2014 might have marked a new page in the development of the global passenger air travel market. Only a few global media sources have missed out on covering the Norwegian’s latest ambition – to launch low-cost transatlantic flights from London.

A similar initiative is being also considered by the Chinese Spring Airlines, while Lufthansa is also being anticipated to announce its long-haul low-cost project in the nearest future. However, yet another attempt to introduce cheap long-haul routes faces a whole set of obstacles, including the HR-related ones.

In July 2014 the Norwegian airlines launched its flights from London Gatwick to three USA-based destinations with some tickets starting at 300 USD, or approx. half the price of those offered by “traditional” carriers. Moreover, the newly-launched routes are not the only long-haul destinations on the Scandinavian carrier’s map. The company is already operating flights from Norway and Sweden to Thailand and the U.S. East Coast.
In the meantime, the Shanghai-based carrier Spring Airlines has also recently announced its plans to launch long-haul routes, connecting Asia and Europe for as little as 100-200 USD per ticket. At the same time, Lufthansa plans to launch a long-haul low-coster already in the beginning of 2015. Allegedly, it will by carrying passengers from Germany to South Asian destinations.

“Less fuel consumption, more aircraft turn-arounds, minimum ground handing and maintenance time, no catering, no multi-class, optimized aircraft ownership and HR-related costs – these are the traditional factors which allow low-cost airlines to keep their ticket prices bottommost. However, lately the industry has been increasingly noticing that the distinction between traditional and low-cost business models is becoming less apparent,” comments Skaiste Knyzaite, the CEO of AviationCV.com.

For instance, according to KPMG, over the past several years the cost gap between traditional and low-cost airlines has fallen by an average of 30%, reducing from 3.6 to approx. 2.5 US cents per Available Seat Kilometre. Nevertheless, gaining the desired competitive edge on long-haul operations might prove to be a much bigger challenge for the carriers ambitious enough to try the new approach.

In addition, on average, aircraft ownership and maintenance account for 23-24% of all carriers’ expenses. Therefore, operating new aircraft models comes as one of the main factors allowing the development of a profitable low-cost model. New aircraft provide higher residual values (70% of the initial price in five years) and lower aircraft maintenance-related costs as they are usually covered by at least four-year long warranty maintenance with no major repair works required for the following several years. Unfortunately, both Boeing and Airbus are fully booked for years ahead, meaning that not all carriers which explore long-haul low-cost routes will be able to minimize some of their major expenses with newly-built aircraft.

Yet another factor is aircraft operation. In Europe most legacy carriers operate up to 300 block hours per month, whilst low cost airlines keep their aircraft in the air for 350-400 hours or even more during the summer season. The higher density allows maximizing profit generation from a single aircraft. However, when it comes to long-haul low-cost routes (e.g. London-Los Angeles), we are talking about 20-22 hours of a turn-around flight plus 2-3 hours on-ground time. This applies to both budget and legacy carriers.

So what allows low-cost carriers to offer cheaper tickets? Apart from more fuel-efficient aircraft, one should consider the seat number – approx. 240 in 3-class against up to 380 in 1-class Boeing 787-8. In addition, no interline/codeshare agreements allow a cheaper distribution network, while more flexible HR-management provides lower personnel-related expenses.

Sourcing both cockpit and cabin crews from the entire world is one of the main strategies implemented by low-cost carriers when seeking optimal HR-solutions subject to the price and experience of the personnel. But it is the demand for cheaper HR-solutions that has been recently raising more and more concerns within the pilot/steward community, particularly in Europe. 

“European pilots shouldn’t be overly concerned about the risk. While in Europe the average market-wide salary rate maintains at 9-11 thousand USD/month, other regions, particularly Asia, are at the 11-15 thousand USD/month point due to a substantial shortage of skilled personnel. However, the same cannot be said of cabin crew which does present a viable opportunity for the carriers to optimize their HR-related costs, as in certain cases European stewards earn twice as much as their Asian colleagues,” shares the CEO of AviationCV.com. “In other words, it is essential to maintain constant monitoring of the job market and continuous communication with potential employees in separate countries and regions in order to be able to balance one’s HR costs. Therefore, as the long-haul low-cost project is concerned, it is yet too early to speculate about its potential success or failure.”

Source and image: AviationCV.com

China will need $870b worth of new planes by 2033

Boeing, China's leading provider of passenger airplanes, projects a demand in the country for 6,020 new airplanes over the next 20 years, valued at $870 billion. The company released its annual China Current Market Outlook (CMO) today in Beijing which shows Chinese carriers will take delivery of nearly 45 percent of the total demand for airplanes in the Asia Pacific region during the forecast period.

"China's aviation market is going through dynamic changes," said Randy Tinseth, Boeing Commercial Airplanes vice president of Marketing. "New business models like low-cost carriers and airplane leasing companies, a new generation of fuel-efficient airplanes and evolving consumer needs are driving demand for more direct flights to more destinations."
Boeing airplanes such as the 737 MAX, 777X and 787 Dreamliner are well positioned to take passengers directly to their destinations and help airlines generate more revenue.
The new CMO also shows how the emergence of start-up airlines and low-cost carriers stimulates traffic and allow more people to fly. Tourism in China and intra-Asia travel support a strong demand for single-aisle airplanes, with total deliveries reaching 4,340 through 2033. Tinseth said both the Next-Generation 737-800 and new 737 MAX 8 offer the airline customers the most revenue potential in this segment.
Chinese airlines with large global networks continue to look for opportunities to expand as international flying increases from secondary cities apart from Beijing, Shanghai and Guangzhou. This growth in the long-haul segment is expected to result in demand for an additional 1,480 new fuel-efficient widebodies, such as the 777, 787 Dreamliner and 747-8 Intercontinental. This year's forecast reflects a continued shift in demand from very large airplanes to efficient new small and medium widebody airplanes.
"To compete in the tough long-haul international market, our Chinese customers are focused on evolving new business models, adding new destinations, increasing their capacity and resources," said Tinseth. "These trends will shape market demand for an airplane lineup that has high efficiency, low operating costs, environmentally progressive technologies and a great passenger experience. We believe Boeing's comprehensive widebody portfolio is perfectly aligned to meet those needs."

Source and  image: Boeing

International Aero Engines achieves certification of V2500®-E5 engine

IAE International Aero Engines AG has achieved Federal Aviation Administration certification of the V2500®-E5 engine for Embraer's KC-390 aircraft. The KC-390's launch customer is the Brazilian Air Force.

"Achieving engine certification on schedule is a big win for the program," said Jackson Schneider, president and CEO, Embraer Defense & Security. "We have a high level of confidence that the engine will perform as reliably as its in-service counterpart has done, and we look forward to a successful first flight."
"Reaching certification is further proof of the steadfast reliability of our V2500 engines and our development team's ability to enhance this technology," said Dave Brantner, president, Pratt & Whitney Commercial Engines. "Our entire team looks forward to supporting Embraer's goals for the KC-390 program."
The V2500-E5 engine, rated at 31,330 pounds of thrust, was selected in July 2011 by Embraer Defense & Security and the Brazilian Air Force, which established the KC-390 requirements.

Source and image: Pratt & Whitney

A quest for profit: increasing aircraft availability

While IATA forecasts the airline industry to generate $746 billion revenues in 2014, the airlines are still struggling with profitability. Currently, the average actual earnings of the carriers globally account for less than $6 per departing passenger. Thus, in a struggle to find ways to earn more, the focus of the aviation industry must change with regard to how aircraft maintenance is accomplished.

The civil aviation market is intensely competitive. It has rising fixed costs, low margins of profit and increasing consumer demand. As the Wall Street Journal recently revealed, 99% of revenue received per flight is needed simply to breakeven on the cost of operation and maintenance. However, as costs related to maintenance typically make up to 11% of all operating costs, it is one area in which technology can be used to optimize operations and boost profits.

“The most precious assets of an airline are the airplanes themselves. To give one example, the average list price of a Boeing 737-800 approximately reaches $90 million, so it is important that this asset is utilized to its maximum in order to provide the lowest per trip capital cost,” shares Andrius Norkevicius, the COO of FL Technics Engineering. “Therefore, it is crucial that airlines learn to benefit from solutions that simplify the complex range of MROprocesses, such as scheduling, forecasting, replenishing inventory, repair & overhaul and delivery of serviced aircraft – thereby increasing efficiency, reducing maintenance-related downtime and delivering substantial cost savings.”

According to FL Technics, on the average only 12+ hours of a Boeing 737NG aircraft operations are generating revenues. Meantime, delays and scheduled major maintenance checks account for approximately 2.6 hours. In a 24-hour period, this leaves a little less than 9 hours, during which the aircraft is available, but not used. At the same time, an additional hour of B737NG utilization might generate about $1.3 million per year.

“By optimizing check intervals, reducing technical delays, increasing airplanes parts availability, and spending less time in the hangar through optimum deployment of manpower and outsourcing of work, it is possible to significantly enhance aircraft availability. Combined with a shorter gate turnaround time, this can provide the additional couple of hours needed for one more flight every day, which can result in almost $2.6 million in profit opportunity per year, per airplane. Apply this for a typical airline fleet of 30 airplanes, and it adds up to $80 million per year. Thus, while optimizing MRO is not a panacea, it is certainly a good starting point,” concludes the COO of FL Technics Engineering.

Source and image: FL Technics Engineering

SR Technics announces strategic investment in Armac Systems

SR Technics is pleased to announce a strategic investment in Armac Systems, a leading provider of aircraft MROinventory planning and optimization software and solutions. The investment will result in a close strategic partnership between the two companies, enabling customers to benefit from a turn-key planning solution that will continuously optimize component inventory asset investment and maximize component availability.

SR Technics and Armac Systems have successfully collaborated for several years providing significant benefits to SR Technics and its customers. Combining both companies’ core competencies will allow SR Technics to continue delivering enhanced inventory management and optimization solutions to its customers. 
Micheál Armstrong, CEO of Armac Systems, stated: “This is a very welcome development for Armac Systems. It is a natural evolution of our relationship with SR Technics to combine the market-leading services offered by both companies. This combined solution will deliver a unique inventory planning offering to the market that will help our customers maximize the value from their inventory investment. We look forward to leveraging the strong market 
position of SR Technics to significantly develop the business in the coming years.” 
André Wall, CEO of SR Technics, said: “As an inventory management systems specialist Armac Systems has a deep understanding of innovative solutions for the highly complex MRO business. Our collaboration has resulted in a market-leading inventory planning andmonitoring system to boost supply chain efficiency and deliver outstanding fleet protection. 
With this important step SR Technics will further enhance its service portfolio by offering superior total asset life-cycle management solutions. This will further strengthen our position as a world-leading component solutions provider. I look forward to continuing to work with Armac and to delivering even greater value to our customers.”

Source and image: SR Technics

Imperium and Barfield announce distribution agreement

Imperium Inc. today announced the signing of a global distribution agreement with Barfield, a recognized worldwide market leader in ground support test equipment that will be distributing Imperium's line of ultrasound cameras for nondestructive testing (NDT) usage.

"We believe Barfield to be among the most far reaching and visionary company marketing aviation related products. The combination of our unique ultrasonic imaging system and Barfield's marketing reach will foster significant growth. With the need for aircraft inspections expected to grow, this relationship will enable us to meet the needs in the market," said Bob Lasser, Chief Executive Officer of Imperium, Inc.

"The signature of this additional and major distribution agreement highlights a successful collaboration between Barfield and Imperium and strengthens Barfield's expertise in Ground Support Equipment. We are proud of the trust that Imperium has placed in Barfield" said Johann Panier, Chief Executive Officer of Barfield Inc.

"Imperium's NDT products make ultrasonic testing extremely simple, without sacrificing any quantitative data. Imperium's highly innovative products and OEM approval led us to decide to focus our efforts with them," said Lew Wingate, Vice President of Distribution and GSTE for Barfield. Barfield's distribution of Imperium's products will focus initially on the Americas.

Source and image: Air France Industries KLM

FL Technics to support Ural Airlines in Armenia, Russia and Tajikistan

FL Technics, a global provider of tailor-made aircraft maintenance, repair and overhaul services, is further developing its cooperation with CIS-based air carriers by signing a Line Maintenance agreement with Ural Airlines. According to the documents, FL Technics engineers will be providing on-call support to the carrier’s aircraft in 5 airportsacross Armenia, Russia and Tajikistan.

Under recently signed contracts, FL Technics specialists will be providing comprehensive on-call line maintenance services to Ural Airlines’ Airbus A320 Family aircraft at Khudjand International Airport (LBD), Kulob Airport (TJU) and Qurghonteppa International Airport (KQT) in Tajikistan, as well as at Khrabrovo Airport (KGD) in Russia and Zvartnots International Airport (EVN) in Armenia.

“Pro-active developing along the expansion of our clients – that is one of our main advantages. We are very glad to have Ural Airlines amongst our clients in both well-established and recently launched FL Technics’ line maintenance stations. We are certain that this cooperation will ensure smooth and timely operations of the carrier as well as support our further development in the region,” comments Asta Zirlyte, Head of FL Technics’ Line Maintenance Unit.

The new cooperation with the Yekaterinburg-based carrier follows FL Technics recent expansion of its line maintenance network under which the company has launched line stations in Kaliningrad (Russia) and Yerevan (Armenia) which have been fully certified by local CAAs earlier this summer.

Ural Airlines is an airline based in Yekaterinburg, Russia, operating scheduled and chartered domestic and international flights out of Koltsovo International Airport. The carrier’s fleet includes 35 Airbus A319s, Airbus A320s and Airbus A321s.

Source and image: FL Technics / Ural Airlines