Monday Briefing – 4 March 2019

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British Airways Boeing 737-236 G-BKYA
British Airways Boeing 737-236 G-BKYA “River Derwent” and BAC One-Eleven Series 528FL G-BJRT “County Of South Glamorgan” in Landor Livery. (Image Credit: British Airways)

Welcome to our Monday Briefing for the week beginning 4 March 2019.

Dutch Dirigisme

Before BA and Iberia merged under the umbrella of International Airlines Group in 2011 there was considerable scepticism as to whether it would work.

How could you bring together two radically different airlines with different working cultures?

The answer of course was keeping day to day operations separate and imposing a self-styled “brand agnostic” parent company on top, headed by a hard-nosed Chief Executive.

It’s not always been plain-sailing. There were some fairly unedifying scenes in Madrid when IAG was seeking to restructure Iberia, with charges that BA was “stealing” routes from Iberia. It has also not gone unnoticed by BA trade unions that much of IAG’s operating profit is generated by BA and they would like a greater reward for this.

Whilst individual IAG airlines are still largely known by their national identities, much behind the scenes has been subsumed within IAG. Many back-office functions are now carried out not in London or Madrid, but in Krakow, Poland. Last week’s order for 18 Boeing 777-9 aircraft was made by IAG, not BA. BA’s retro liveried aircraft are being repainted, not at Heathrow, but in Ireland. It’s these back-office cost savings have helped IAG report an operating profit of over €3bn for 2018.

The pioneer of the pan-European group was Air France-KLM which was formed in 2004. Before BA merged with Iberia, Willie Walsh expressed admiration for what Air France-KLM had achieved, as least as far as revenue synergies were concerned.

15 years on, Air France-KLM still sees itself as two airlines competing against each other for investment in a zero-sum game. The fact both the two have, bar Africa, broadly similar levels of worldwide coverage does not help. BA and Iberia have always been able to claim ownership of distinct markets, namely North and South America.

Air France Long-Haul Network
Air France Long-Haul Network (Image Credit: Air France-KLM)
KLM Long-Haul Network
KLM Long-Haul Network (Image Credit: Air France-KLM)

Last week, the Dutch government acquired a 12.68% stake in the group without any warning, which provoked fury in France and a terse statement from Air France-KLM. The irony of this is not lost as the French state owns 14% of the airline.

Le Monde reported on Saturday that Dutch and French finance ministers Wopke Hoekstra and Bruno Le Maire are setting up a working group to review the airline, and will report their findings in June.

As easyJet found with Sir Stelios Haji-Ioannou, agitated minority shareholders can be a big distraction of management time and require assuaging.

At a minimum this means that the French state will not dispose of its stake, which was seen as a necessary step in getting Air France trade unions to accept structural reform, the resistance to which has frustrated successive Air France-KLM Chief Executives.

It’s worth recalling that BA and KLM did explore a full merger back in 2000. Talks were called off, partly due to a disagreement over control as BA wanted full ownership of KLM. Willie Walsh has expressed on more than one occasion what a missed opportunity this was.

The attractions would have been obvious. The UK and the Netherlands are close in more than just geography. Many passengers in UK regions feel a closer association with KLM than with BA because of the former’s coverage of UK regional airports. The two airlines would have been able to leverage this, as well as KLM’s broader world-wide network. This is of course something that Virgin Atlantic will seek to do in the coming years when Air France-KLM acquires a stake in the airline.

Heathrow Judicial Review

At last week’s IAG results announcement, Willie Walsh had harsh words for airports in general, and specifically Heathrow.

The central charge was it’s the airlines that do all the work and it’s the airports that make the money. Heathrow Airport was admonished in particular for its ability to contain costs and the planned costs of the third runway.

A number of London councils have also instituted judicial review proceedings against the Government over the third runway and the hearing is due to start this week. (The Sunday Times)

Qantas at Sydney Mardi Gras

For over 20 years Qantas has supported Sydney’s annual Mardi Gras, which has long been both a positive promotion for Sydney and a huge draw for visitors to Australia.

Here’s a short film from Qantas from Mardi Gras this past weekend:

Also of note this week:

50 Years Of Concorde In Pictures (Daily Telegraph)

The Great Plane Robbery – The story of the 1971 Qantas bomb hoax. (ABC News)

Late Post Publication Updates

[Reserved for updates during the day.]

BA unveils its retrospective British European Airways livery. (London Air Travel)

Virgin Atlantic has started offering transatlantic codeshare flights with Air France-KLM on its website. (London Air Travel)

Aer Lingus has announced that due to delays in the delivery of aircraft it is to postpone to the launch of Dublin – Montreal from this August to next summer. The route was due to be operated with an Airbus A321 long-range aircraft.

Aer Lingus will also temporarily reduce frequencies on routes from Dublin to Hartford, Minneapolis and Philadelphia and from Shannon to New York JFK in July of this year.

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