The only time to set up an airline is when "they are parking planes in the desert", says Ryanair CEO Michael O'Leary.
"We are not very far from that at the moment".
Mr O'Leary said he would consider establishing a low-cost carrier sister company to run long-haul operations if aircraft prices fell next year.
The economic signals are hardly positive. The optimists are forecasting (merely) recessions in most major economies, but even the fiercest pessimist would not predict complete grounding of air services, and as long as aircraft fly there will be those who lust to start up an airline.
So O'Leary's statement is a good indicator that would-be airline investors on the margins will be watching developments with interest.
For such entrepreneurs, some positive pointers are emerging. Oil prices continue to spiral downwards -- now around $US80 a barrel and apparently still heading south unless OPEC curtails production. Undoubtedly, high fuel prices make new entry less attractive and low-cost fuel greatly helps low-cost carriers.
The inflated price of aircraft -- even if they were available -- has been the real killer for those wanting to buckle on new flying goggles.
That's changing, however. Aircraft are becoming more readily available at prices that make economic operation possible -- assuming there are still some discretionary, price-sensitive travellers ready to fly. Lease prices on most aircraft are rapidly sinking for new and older models.
A factor driving this is inevitably the effect of airlines closing. Close to 30 have collapsed since the beginning of 2008, freeing up mostly older aircraft, admittedly, although these are still reasonably economic once fuel costs return to about $US70. Few doubt there will be more in that line.
Simultaneously, incumbent and still viable airlines are reducing capacity, either by cutbacks or delaying new deliveries. Capacity reductions of 5-10 per cent are widely planned by network airlines and even some low-cost carriers.
Parking aircraft or reducing their use quickly passes the effect of slower demand through to core values.
Then there are developments such as the operating merger of Jet Airways and Kingfisher, which are likely to free up dozens of aircraft orders.
You can add to this -- at least in the short term until the issue is resolved -- uncertainty surrounding the future of the world's biggest leasing company, ILFC, following the nationalisation of the massive international insurer, AIG.
The very size of ILFC's holdings and order book strikes fear into the hearts of manufacturers. Any revaluation of its $50 billion or so in aircraft assets will quickly flow through the system.
Against these value threats, the Boeing strike and resulting further delays to B787 production are possibly helping out a number of airlines with big order books
that would actually be quite relieved if they were delivered a year or two late.
This Boeing strike shows signs of being longer and more bitter than past disputes.
There are, for example, 425 Boeing single-aisle aircraft due for delivery in the first half of 2009.
A considerable, and still unknown, number of these will be delayed, helping compensate for the oversupply likely to be caused by slackening demand.
Almost 30 per cent of these aircraft are for low-cost carriers.
Add to these, for example, the orders in Australia's market from Virgin Blue's V Australia for B777s and Jetstar's large order (under the Qantas banner) for dozens of B787s, of which the first was initially scheduled for delivery from August this year (later deferred to January next year).
Before this, due to the strike, only 84 of 119 aircraft due for delivery in the second quarter of 2008 could be delivered, creating a backlog.
Finally, quite apart from the aspiring new entrants, O'Leary's comments about going long-haul once conditions improve will add another shade of concern to network airlines trying to look beyond the short-term horrors to calmer waters beyond.
The thought of a cheap aircraft market helping to launch low-cost principles on long-haul routes, just as the industry might be recovering in a year or two, is not what incumbents would be hoping for.
This is not a continuation of the old argument about whether long-haul low cost can work, but simply about whether a low-cost operator can find the right balance of cost and yield to make long-haul work.
Once the cost part of the equation fits O'Leary's mould, the rest will become more or less academic.
The arguments against long-haul low-cost -- apart from whether costs can be reduced sufficiently -- relate to the question of whether a mix of high-yield travellers is necessary to support the operation.
Already several airlines allocate little more than token capacity for premium travel, for example on the North Atlantic -- that longstanding breeding ground of long-haul low cost, from the "program charters" of the 1960s and 1970s, through PEOPLExpress, Canada's Wardair and more recently Zoom and the like. Their precedents are not always encouraging.
But, for example, looking at the seat profile of KLM, the low-cost operation of Air France-KLM, the largest airline conglomerate in the world, it is hard to see a massive difference between it and a typical long-haul low-cost model.
Existing low-cost models in this region, such as Jetstar long-haul, also allocate roughly that proportion to high-yielding, if not premium, seating.
There is just a possibility that part of O'Leary's pronouncement is bluff aimed at his favourite target, Aer Lingus, which last week announced that another 1500 staff were to go in a new round of cost cutting.
There can be little doubt, however, that for Ryanair and others in a softening aircraft market, with lower fuel costs, new opportunities will be arising daily.
The demand for premium seating is softening, aircraft prices and fuel costs are sinking -- all up, it's perfect breeding conditions for low-cost carriers, long and short haul.
Fonte : The Australian
"We are not very far from that at the moment".
Mr O'Leary said he would consider establishing a low-cost carrier sister company to run long-haul operations if aircraft prices fell next year.
The economic signals are hardly positive. The optimists are forecasting (merely) recessions in most major economies, but even the fiercest pessimist would not predict complete grounding of air services, and as long as aircraft fly there will be those who lust to start up an airline.
So O'Leary's statement is a good indicator that would-be airline investors on the margins will be watching developments with interest.
For such entrepreneurs, some positive pointers are emerging. Oil prices continue to spiral downwards -- now around $US80 a barrel and apparently still heading south unless OPEC curtails production. Undoubtedly, high fuel prices make new entry less attractive and low-cost fuel greatly helps low-cost carriers.
The inflated price of aircraft -- even if they were available -- has been the real killer for those wanting to buckle on new flying goggles.
That's changing, however. Aircraft are becoming more readily available at prices that make economic operation possible -- assuming there are still some discretionary, price-sensitive travellers ready to fly. Lease prices on most aircraft are rapidly sinking for new and older models.
A factor driving this is inevitably the effect of airlines closing. Close to 30 have collapsed since the beginning of 2008, freeing up mostly older aircraft, admittedly, although these are still reasonably economic once fuel costs return to about $US70. Few doubt there will be more in that line.
Simultaneously, incumbent and still viable airlines are reducing capacity, either by cutbacks or delaying new deliveries. Capacity reductions of 5-10 per cent are widely planned by network airlines and even some low-cost carriers.
Parking aircraft or reducing their use quickly passes the effect of slower demand through to core values.
Then there are developments such as the operating merger of Jet Airways and Kingfisher, which are likely to free up dozens of aircraft orders.
You can add to this -- at least in the short term until the issue is resolved -- uncertainty surrounding the future of the world's biggest leasing company, ILFC, following the nationalisation of the massive international insurer, AIG.
The very size of ILFC's holdings and order book strikes fear into the hearts of manufacturers. Any revaluation of its $50 billion or so in aircraft assets will quickly flow through the system.
Against these value threats, the Boeing strike and resulting further delays to B787 production are possibly helping out a number of airlines with big order books
that would actually be quite relieved if they were delivered a year or two late.
This Boeing strike shows signs of being longer and more bitter than past disputes.
There are, for example, 425 Boeing single-aisle aircraft due for delivery in the first half of 2009.
A considerable, and still unknown, number of these will be delayed, helping compensate for the oversupply likely to be caused by slackening demand.
Almost 30 per cent of these aircraft are for low-cost carriers.
Add to these, for example, the orders in Australia's market from Virgin Blue's V Australia for B777s and Jetstar's large order (under the Qantas banner) for dozens of B787s, of which the first was initially scheduled for delivery from August this year (later deferred to January next year).
Before this, due to the strike, only 84 of 119 aircraft due for delivery in the second quarter of 2008 could be delivered, creating a backlog.
Finally, quite apart from the aspiring new entrants, O'Leary's comments about going long-haul once conditions improve will add another shade of concern to network airlines trying to look beyond the short-term horrors to calmer waters beyond.
The thought of a cheap aircraft market helping to launch low-cost principles on long-haul routes, just as the industry might be recovering in a year or two, is not what incumbents would be hoping for.
This is not a continuation of the old argument about whether long-haul low cost can work, but simply about whether a low-cost operator can find the right balance of cost and yield to make long-haul work.
Once the cost part of the equation fits O'Leary's mould, the rest will become more or less academic.
The arguments against long-haul low-cost -- apart from whether costs can be reduced sufficiently -- relate to the question of whether a mix of high-yield travellers is necessary to support the operation.
Already several airlines allocate little more than token capacity for premium travel, for example on the North Atlantic -- that longstanding breeding ground of long-haul low cost, from the "program charters" of the 1960s and 1970s, through PEOPLExpress, Canada's Wardair and more recently Zoom and the like. Their precedents are not always encouraging.
But, for example, looking at the seat profile of KLM, the low-cost operation of Air France-KLM, the largest airline conglomerate in the world, it is hard to see a massive difference between it and a typical long-haul low-cost model.
Existing low-cost models in this region, such as Jetstar long-haul, also allocate roughly that proportion to high-yielding, if not premium, seating.
There is just a possibility that part of O'Leary's pronouncement is bluff aimed at his favourite target, Aer Lingus, which last week announced that another 1500 staff were to go in a new round of cost cutting.
There can be little doubt, however, that for Ryanair and others in a softening aircraft market, with lower fuel costs, new opportunities will be arising daily.
The demand for premium seating is softening, aircraft prices and fuel costs are sinking -- all up, it's perfect breeding conditions for low-cost carriers, long and short haul.
Fonte : The Australian
