Monday Briefing – 2 July 2018

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Heathrow Expansion CGI Image
Heathrow Expansion CGI Image (Image Credit: Heathrow)

Hello and welcome to our Monday Briefing for the week beginning 2 July 2018, summarising the main developments in air travel over the past week, and a look the week ahead.

Heathrow Third Runway

The third runway at Heathrow received parliamentary approval last week. A number of local councils in London, supported by the Major of London, Sadiq Khan, are to seek a judicial review of the Government’s decision.

As far as we’re aware legal proceedings have not yet formally started. As mentioned last week, a judicial review is not easily won. That said, it is highly likely that there will be many more challenges to the Government’s decision, and not just in the courts.

A third runway will be in operation by 2026 at the very earliest. Given that nearly 10 years ago, BA was planning for a new runway to be operational by now, you would be forgiven for having your doubts.

Heathrow is keen to talk up the prospect of new links to UK regional airports operated by Flybe, easyJet opening a base at Heathrow, and direct links to more cities in Asia.

However, 8 years is a very long time in aviation. At Heathrow alone in that time we have lost bmi British Midland, which once held nearly 15% of the airport’s slots. Virgin Atlantic has substantially scaled back its route network outside of North America (more on that below). The number of US airlines serving Heathrow went from 2 to 5 and back to 3. International Airlines Group did not exist.

If we were take some predictions:

Whilst much has been made about the prospects of new routes to China, geography is not on Heathrow’s side. It is too far west to pick up connecting traffic from mainland Europe, something of course Finnair has exploited to great advantage at Helsinki. Most long-haul routes will be westbound as this is Heathrow’s natural geographic advantage and due to economic and cultural ties between the UK and USA.

Whilst many new slots will inevitably go to new entrants and to new UK regional routes, a big area of activity is likely to be incumbent airlines seeking more advantageous timings.

For all the talk about luxury and lounges online, it is easily forgotten that business travellers are time sensitive. It is in the relatively pedestrian area of schedules that airlines actually compete. A lot of airlines are likely to seek more advantageous slot timings with arrivals in the crucial early morning period for business travellers. This is the biggest competitive advantage BA has over other airlines at Heathrow and, arguably the biggest threat to it from a third runway.

BA 2018-2019 Survey

As we are now half way through the year, we took a look major announcements from BA so far and what to expect for the rest of the year and into 2019.

In terms of what to look out for over the next 12 months:

1. A new long-haul aircraft order from BA’s parent company IAG. This should at least finally settle the question of whether BA will ever order more Airbus A380s.

2. A full refurbishment of some of the Boeing 747s with 52 Club World seats. This should largely be in line with the refurbishment of the Boeing 747s with 86 Club World seats a few years ago.

3. A possible joint-announcement from American Airlines and BA on their plans for London Heathrow Terminal 3, including a possible reshaping of their network of transatlantic routes shared between the two airlines.

4. BA’s plans for Gatwick from late March 2019 with the additional slots it had acquired from Monarch.

5. More incremental improvements to Heathrow ground services for premium passengers.

6. And last, but not least, BA’s plans for a new Club World seat when the Airbus A350-1000 is delivered and its centenary in 2019.

Virgin Atlantic: Yesterday, The World

Once upon a time Virgin Atlantic had ambitions to take on BA anywhere. There was a long list of potential new routes from Bangkok, to Melbourne and Rio de Janeiro.

All that was needed was more Heathrow sots. Those ambitions have been curtailed significantly in recent years. Indeed, last week Dubai joined the long list of Heathrow routes outside of the US that Virgin has been suspended. It is quite some list: Accra, Cape Town, Mumbai, Nairobi, Sydney, Tokyo Narita and Vancouver.

There are of course still many non-US routes at Heathrow: Dehli, Hong Kong, Johannesburg, Lagos, and Shanghai. It’s a safe assumption that routes like Johannesburg and Lagos must be quite profitable.

Whilst this has been compensated for by increased flying to the US and Las Vegas will transfer from Gatwick to Heathrow next year, with a new CEO in place next year and a new combined joint-venture with Air France-KLM and Delta imminent, attention will continue to be focused on what’s next for the airline.

LEVEL launches in Austria

There was considerable attention given to the launch of new flights by IAG’s low cost brand LEVEL last week.

This includes a new twice daily service from London Gatwick to Vienna. Not only is this LEVEL’s first move into short-haul, but also its first route from London.

LEVEL is one of a number of brands targeting Vienna following the collapse of Air Berlin last year. Eurowings has also launched new services from London Stansted. Much was made of the relatively short notice period from announcement to launch. But this is of course how IAG intended LEVEL to operate.

It’s worth adding that LEVEL still does not exist as an independent airline. It using airline operating certificates and crews of other airlines in IAG. In this case, Vueling. Some have speculated whether this is precursor to Vueling being branded as LEVEL. It is more likely due to the name LEVEL working better in German speaking markets.

Also of note this week:

British Airways introduces another new safety video. (London Air Travel)

Norwegian publishes its Q2 financial results, next Thursday 12 July. Clearly a lot of attention will be on both the numbers and any comments on a possible acquisition.

Philippe Capron, CFO of Veolia, pulls out of the highly political race to become CEO of Air France-KLM. (Financial Times)

Virgin Atlantic on what it takes to turn around an aircraft in Newark (Virgin Atlantic)

Late Post Publication Updates:

IAG’s LEVEL begins long-haul operations at Paris Orly today with its inaugural flight to Montreal. In 2019, three aircraft will be based at Paris Orly and four aircraft will based at Barcelona.

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