Airlines continue with cuts and changes to their business model

The continued unrest of the spread of Covid-19 around the world is continuing to force airlines to make cuts and implement changes to their business models in order to continue fighting the impact that the pandemic is having on their business.

VIRGIN Australia

Virgin has become the first major Australian Airline to exit voluntary administration, with its new CEO unveiling its future direction.

Last Wednesday on her official first day as Virgin’s CEO, Jayne Hrdlicka showed off the airline’s plan resulting from collaboration with staff and combined with detailed customer research.

It includes retaining its core lounges and reimagining the lounge experience, retaining three choices of seating Economy, Economy X, and Business, leveraging new technology for a simplified check-in and airport experience, and cheaper airfares.

The plan will see the airline compete in its mid-market heartland for guests who want a more premium experience at an affordable and competitive price.

While Virgin will serve all segments of the market, the carrier plans to build its proposition around its longstanding and most loyal guests, which include price-conscious corporate travellers, small-to-medium-sized businesses, premium leisure travellers, and holidaymakers.

“The travel environment is changing and so are our customers’ preferences Hrdlicka said. We know that leisure travellers, small and medium businesses, and many corporates are now emerging from COVID-19 wanting better value.

“They are hungry for flexibility and choice, a trusted brand that resonates with their values, and great prices, along with the premium features they value most.”

Hrdlicka said Virgin’s post-administration plan will ultimately give customers what they value without the big price tag, such as premium lounges, a new and fresh retail offering onboard, a choice of cabins, better digital technology, and a more streamlined check-in experience.

“We will also continue to deliver our award-winning service, a strong network of destinations, an award-winning frequent flyer program, and a safe and reliable operation,” she added.

QANTAS

Staff have reportedly been told the carrier will permanently close select service and sales desks at all airports and lounges, according to the Sydney Morning Herald.

The airline said it would continue to maintain staffed check-in desks, however, lost baggage counter hours would either be reduced or cut under new cost-saving measures, replaced by “self-serve recovery” services instead. The changes are scheduled to come into effect in the first half of next year, with Qantas telling employees the service restructure was necessary to cater for the significant travel downturns brought on by COVID-19, as well as to adjust to new behavioural norms from travellers.

“More people are choosing to self-manage their bookings, check-in, and boarding processes,” Qantas’ Executive Manager of Airports Colin Hughes reportedly said in an internal memo. “Their feedback, which is understandable in this environment, is that they prefer digital interactions over face-to-face contact,” he added.

Qantas stressed that check-in counter resources would remain the same, with the changes only affecting sales desks where consumers normally buy tickets and extra baggage allowances on domestic flights. The latest decision will result in the loss of around 100 jobs. RBA’s grim forecast.

ETIHAD Airways

The airline has announced a significant makeover to its organisational structure, with CEO Tony Douglas saying “as a responsible business we can no longer continue to incrementally adapt to a marketplace that we believe has changed for the foreseeable future”. “That is why we are taking definitive and decisive action to adjust our business and position ourselves proudly as a mid-sized carrier,” he said.

The changes include the departure of EY Chief Commercial Officer Robin Kamark, which will see the business units within the commercial division split into three under the leadership of Mohammad Al Bulooki, Chief Operating Officer, CFO Adam Boukadida; and Terry Daly who takes on the role of Executive Director Guest Experience, Brand and Marketing, including Etihad Guest and Partnerships. Senior VP Sales & Distribution, Duncan Bureau, is also leaving Etihad, with his responsibilities to be taken on by Martin Drew who will also continue to be in charge of Cargo & Logistics. Mutah Saleh is leaving his position as Chief Risk & Compliance Officer, with General Counsel Henning Zur Hausen to take on additional responsibility for Ethics and Compliance while Business Continuity will transfer to Ahmed Al Qubaisi, Senior VP of Government, International and Communication.

SINGAPORE Airlines

The carrier has confirmed it will absorb its SilkAir regional narrow-body operations into the mainline brand, with the first SQ 737-800 aircraft expected to enter into service early in 2021.

The integration of SilkAir into SQ “will provide an improved in-flight experience for our customers and bring about greater operational efficiency for the group,” the carrier said, with the SilkAir brand identity ceasing to exist. The overall result for the six months to 30 Sep was a whopping SG$3.467 billion loss, but that included significant non-cash write-downs including impairment of the carrying value of over SG$1.3 billion in older generation aircraft including seven A380s, eight 777s, nine A320s, and two A319s.

Singapore Airlines has also fully written down the SG$170 million carrying value of its Tiger Airways low-cost offshoot, and the previously announced SG$127 million charge from the liquidation of Thailand-based NokScoot (TD 29 Jun). SQ confirmed the ongoing “severe impact” of COVID-19 on its operations, with passenger traffic down 98.9% and group revenue declining over 80%.

The overall Singapore Airlines fleet comprises 222 planes, of which just 39 are currently operating passenger flights, with 114 aircraft parked at Singapore Changi Airport and 29 stored in Alice Springs. The airline said there were some early signs of optimism, as it works closely with authorities to help implement safe travel bubbles and allow flights to resume, noting that despite the uncertain and highly volatile environment it is “ready to swiftly and decisively seize all opportunities and respond to any adverse changes that may arise”

ALITALIA

It reboots As ITA (Italia Trasporto Aereo)There has been news from Italy over the past month about the third reboot in the past 10+ years of the country’s flagship airline Alitalia.

The country has already spent more than 10 billion euros in the previous bankruptcies and will throw in another three to get ITA – Italia Trasporto Aereo off the ground. The Alitalia name is supposedly retired, and the membership in the SkyTeam is uncertain.

The Italian newspaper Il Messaggero reported:

For now, it is called Italy Air Transport ( ITA ) and part under the control of the State, but it will open the share capital to institutional, financial, and industrial investors. When the new company will buy planes and take over employees, it will also be able to take over the Alitalia brand and be called Alitalia ITA. The new company, which will have an initial capital of 20 million and will reach 3 billion within a few weeks, is authorized to purchase and rent, also by direct negotiation, company branches of companies holding airline licenses issued by the Italian Civil Aviation Authority, even in extraordinary administration. It could therefore save Air Italy. And it will be able to develop synergies and alliances with other Italian and non-Italian public and private entities». It can be divided into subsidiaries in maintenance and services.

You would think that the Italian government would have learned by now that Airlines are not meant to be run by governments. You could understand trying to reboot it once but now for the third time, it really becomes questionable after not getting it three times in the past 15 years.

The government is already arguing with the EU regarding the previous reboot and loans extended to the airline. States in Europe are not supposed to prop up failing businesses distorting competition.

Ryanair, EasyJet, and Wizz now all operate domestic routes within Italy, and undoubtedly their cost base is lower than that of Alitalia or ITA. A high-speed rail is also a viable option between population centres within the country.

Air Italy, the former Meridiana that partnered with Qatar Airways, ended its operations this spring. The owners decided that there was no way to turn the business around despite their lofty medium/long-term goal of forming a new global airline.

I am sure that nobody would like to see a well-established airline to collapse, I am no different, but at some point, you have to conclude that there is no business case to keep throwing billion every year to keep the “flagship” airline flying that even a lot of Italians don’t use.

Let’s see if Alitalia or ITA (Italia Trasporto Aereo) returns to profitability. I am sure that the new company would not be happy to burn 3 billion euros.