Some decisions on infrastructure and rolling stock - but are they enough?

Now that the Government has decided on its priorities, at least in part, on transport, we have a clearer idea of its intentions. Crossrail will go ahead as planned though there have been modifications, especially in the design of the stations so as to save about GBP1bn. Thameslink also escapes the hatchet, though with certain delay so as to spread the cost over a longer period.

The GWML electrification scheme, to Bristol, Cardiff and Swansea, has not been decided upon. However, the much mooted extension of the Crossrail project from Maidenhead to Reading is now being turned into an extension of GW surburban services through Reading to Didcot and Oxford on one hand , while to Newbury on the other. It has not been stated whether these are part of Crossrail or not.  


There is a certain logic here since the rolling stock needed will be commuter stock so it makes a logical operational decision to take advantage of the "wires" to run electrical commuter stock under them to the limits of where they will go. The rolling stock needed for the West and South Wales services are long distance and that is where the decision has been postponed until the New Year.

The electrification projects approved in North West England are:

· Liverpool to Manchester via Newton-le-Willows

· Huyton to Wigan

· Preston to Blackpool North

· Manchester to Preston via Bolton

These are basically fill-ins which, more than anything, will facilitate the use of electric traction units using the already electrified WCML between Liverpool and Manchester with Glasgow and Edinburgh. This a long overdue decision since many of these connections were only available with a train change at Wigan or Preston, or the use of diesel units for the whole journey when they were only needed for a short non-electrified section - a gross misuse of resources. Other commuter opportunities are also opened up especially with the extension from Preston to Blackpool which will result in a greater, more efficient use of material. The material used will be cascaded, and should be renovated(though the DfT says nothing about this) from the Thamelink lines which will receive new stock.

HS2 is to go ahead but no definitive route has been decided upon. We suspect that there will be little change (just tinkering) from the route as laid out by the previous government (in March 2010). The present government will just choose its moment to make the route known so as to reduce the negative political impact among its own supporters as much as possible. The no news with regard to the electrification of the MML from Bedford to Nottingham, Sheffield and Leeds was received with great disappointment. However, we suspect that a lot will depend on the final route of HS2 from Birmingham to Leeds. A great part of this route will pass through the aforementioned cities. Therefore, they might get a better than anticipated service when the route is finally announced. Thereafter, the electrification of the MML from Bedford to Nottingham will be a logical fill-in in the next stage.

The main content of the announcement made on 25-11-10 refers to the number of new rolling stock to be purchased. The figures mentioned are about 2100 new carriages, "including vehicles" for the Thameslink and Crossrail projects.The net gain in carriages is calculated to be in the region of 1850. The Intercity Express replacement programme complements this but as yet is still undecided. 

We feel we have to make a comment which has nowhere been made up to date.

One rapid way to increase the numbers of locomotives and coaches on the railway network is to cut a deal with Eurostar.

Eurostar trains were built to British standards(limitations) with a narrower gauge and a dual traction system so they could run on the third rail DC system into Waterloo. Since these limitations no longer exist on HS1 into St.Pancras, then the stock is superfluous to needs and Eurostar will be thinking about replacements for that stock. If the UK government were willing to pay a fair price for the stock (which is only about 15 years old) Eurostar might be persuaded to bring forward its replacement programme so as to have a more modern, more comfortable and a more standardised fleet, thus reducing its own running costs. 

This would be of special importance if DB is to be allowed to run trains into St.Pancras with underfloor traction units and not the end traction units used at present on Eurostar trains.

The UK government would benefit by obtaining a large number of traction units of dual standard together with a large number of coaches which can be used on any long distance line, all at a knock-down price. The timetable, for introduction of the vehicles on to the UK network, might even be quicker.

2018 (Thameslink & Great Northern routes)

The dual standard locomotives are what Thameslink needs and will need for trains on the differing systems both north and south of the Thames. They might not be appropriate for stopping commuter services but certainly would work for fast limited stop services. The future network envisaged for Thameslink would run from Peterborough and Kings Lynn, as well as Bedford, to various destinations on or near the south coast. The locomotives might also be useful for both passenger and freight traffic on the Southampton to Birminghan corridor. This would especially be the case as the GWML has been confirmed as being electrified from Reading to Oxford. This could then be connected to HS2 and so open the rest of the electrified network - especially the WCML.

The number of coaches for these services might be more than needed which opens the possibility of cascading them to other lines.

What we need is some lateral thinking on the whole question of fleet renewal. This idea could be quicker and cheaper than alternatives.

Maybe BA has found a new way

With our last blog in July we questioned British Airways´(BA) strategy and its focus. Apart from the intended, now cleared, merger with Iberia to form International Airlines Group (IAG) there seemed to be no clear way forward for the company to compete with its two Europe main rivals Air France/KLM and Lufthansa.


In this summer period several movements have taken place which have altered the picture. Either BA has changed its ways or its incorporation into IAG has made it rethink its strategy. Before we comment let us look at what has happened in two months.

At a news conference on 27th July last "oneworld" members American, BA and Finnair announced the incorporation of "Air Berlin" into the alliance planning to complete the process early 2012 just before the opening of the new Berlin Brandenburg hub airport.

Air Berlin´s Austrian affiliate (49.9%) "NIKI" will become an associate member of "oneworld" while no mention is given to AB´s Swiss affiliate(49%) "Belair" nor to its German subsidiary "LTU".

Air Berlin´s sponsor is BA. While this incorporation will be tremendously beneficial to "oneworld" - filling a huge gap in Central Europe with its large affluent population in the three countries - it is not so easy to see the benefits for IAG.

Speaking in Mumbai on September 5th to announce the codeshare agreements made with "oneworld" partner Kingfisher, BA´s CEO, Willie Walsh, also announced IAG´s intention to take over and/or merge with several other airlines. From an initial list of over 40 candidates this has been reduced to 12 probables. Though WW did not mention any airline by name he suggested the main areas to be looked at were China and India.

As a result of this speculation became rife. The Guardian , Airline News, Breaking Travel News, among a host of other news sources, including Arabian Business.com, all provided lists of candidates for joining IAG.

To understand what is going on all these manouvers should be looked at as a whole not in isolation. The invitation to Air Berlin to join "oneworld" is a surprise to most people. "Oneworld" up to now has been looked upon/ or presented as an exclusive alliance of the best full service airlines. AirBerlin has been looked upon as a low-cost carrier which has moved up-market but is far from being a quality full service carrier. Maybe our perception is now wrong. However, without doubt it offers to fill up that empty space in central Europe which has been "oneworld´s " Achilles´ heel. It has been mentioned as a candidate for IAG thus providing a strong presence in Central Europe, however, it would be a very big mouthful to swallow, at least initially.

On the other hand other factors may have made BA look at the market in a different way. Way before it went bust Mexicana announced it was in difficulties which suggested that the full service airlines were not immune to problems even in such a large market as Mexico. On the other hand it has subsequently been revealed that Malev was days away from closing meaning that Central Europe could well have been left without any "oneworld" members. The partners in the alliance had no control over the events but surely had knowledge that one, or both, of its members was in difficulties.

Now it appears that Aer Lingus(EI) is talking to different alliances with the idea of joining one. "oneworld" is at an advantage as BA already codeshares with EI on the London-Irish routes and it was a member of this alliance previously. However, it is not the only suitor as EI´s CEO, Christph Mueller said to Bloomberg recently(14-9-10).

Whatever the state of the game let us look at what has been mentioned and try to put things into perspective.

Firstly in Europe.

Iberia has a large minority shareholding(45.85%) in VUELING. This has its main base at Barcelona and is a hybrid with low-cost flights combined with codesharing with Iberia. It is Iberia´s second carrier supplementing in Europe what Iberia cannot or will not provide.


AIR NOSTRUM - Iberia Regional is a francisee but does a good service for Iberia in supplying passengers from lesser airports both in Spain and in Europe.This is a strong candidate to be incorporated into IAG to protect Iberia´s backyard.

FLYBE. It claims to be the biggest regional airline in Europe. It has a strong presence at lesser airports in the UK while it has just signed an agreement with Finnair to provide regional services in Finland and across the Baltic. BA has a 15% shareholding which was obtained by selling BA Connect to Flybe. BA has had a hands off approach codesharing some flights while, inexplicably, permitting Flybe to negotiate a wide ranging code sharing agreement with Air France to feed passengers on to its flights. Maybe BA has decided to pull in the reins.


SUN-AIR Scandinavia is a BA francisee based in Billund (Denmark). The agreement was originally signed in May 1996 for Sun-Air to operate as a licensee linking BA services at Copenhagen, Oslo and Stockholm. It does not seem to have fulfilled the original intentions. The company did not even fill in the gaps left by the demise of Sterling in Denmark. However, the potential still exists to be a link between BA and Finnair in Scandinavia.

FINNAIR. This is an airline with good connections to the Far East. Now that it has signed the aforementioned agreement with Flybe it could find itself with better feeds for its long distance services. It is too small to continue on its own so is a strong candidate to enter IAG.

MALEV. This airline has been mentioned as a candidate for IAG but with its financial problems being aired recently probably nobody would want to touch it with a barge pole.

MERIDIANAFLY. The link with BA is very tenuous as BA only has one codeshare agreement with Meridiana between London and Florence. However, the company has a strong presence in Italy, both domestically and with European and Intercontinental leisure flights, which is an appealing market for IAG. This company must be on the shopping list.

The Americas.

American Airlines has always been looked upon as a strong candidate to merge with BA. However, the US government has not made any moves on the limitation of foreign airlines having no more than a 25% shareholding. This is something BA has already experienced with its attempted investments in US Air and UNITED. The Americans would undoubtedly want to be top dog in any merger. Hopefully, the Iberia part of IAG would put a damper on that.

Another question is LAN(now established in Chile, Argentina, Peru and Ecuador).












It has just decided to merge with the Brazilian airline TAM to form a holding group called LATAM while retaining their own brands. There might well be reticence on the part of both to immediately submerge into IAG without enjoying the benefits of the merger and the possibilities of expansion as a South American group. While LAN has been a member of "oneworld" for some time TAM has only just entered into Star Alliance(May 2010). One can see a big battle between the alliances to incorporate the other member. LAN is extremely important for "oneworld" while TAM is the only Latin American member of Star - all this is more important since the demise of Mexicana. This will be a battle to watch and is certainly not decided as yet. It could be a candidate for the future.

Africa.

South African Airlines has been mentioned as a candidate for incorporation into IAG. Though it is a very interesting morsel we doubt if the SA government would want its flag carrier to be swallowed up. It is already a member of Star Alliance.
BA on the other hand has an 18% shareholding in Comair of South Africa. This airline provides domestic and regional flights connecting to BA´s services at Johannesburg and Cape Town. It also has a low cost airline, Kulula.com working mostly in the domestic market. It seems logical that IAG would take advantage of the stake to build up its presence in South Africa.


Middle East.

Royal Jordanian is already a member of "oneworld" but has not been mentioned as a takeover candidate as yet. However, Gulf Air was mentioned in Arabian Business.com(23-9-10)

With Emirates, Qatar Airways and Etihad making concerted, and so far quite successful, attempts to become important airlines with hubs in the Gulf, the other Gulf airlines are feeling the squeeze. That does not mean that "oneworld" or IAG should ignore the Gulf. Quite the opposite. It is another area where a presence is necessary. There is also a history of BOAC having a shareholding in Gulf Air. Therefore, maybe the mention is not so much wishful thinking as at first it appears to be.


Asia-Pacific.

The first candidate to be mentioned in all the press was QANTAS. The reasons for this are twofold. Firstly in March 1993 BA invested in a 25% stake in the airline - which it subsequently sold. More relevantly, though, in 2008 while negotiations between BA and Iberia were going on, Qantas proposed merging with BA. This seemed logical but irked Iberia and came to nothing.
Now Qantas seems not to want to merge with BA but go it alone in Asia. (according to Airline news of 22-9-10)


Notwithstanding that, there may be a future in a merger if both Qantas and IAG are looking at Asia for expansion. Qantas has two lost cost affiliates called Jetstar. The Australian company is 100% owned while the one based in Singapore is 49% owned - as required by local law the majority has to be owned by Singaporeans. These provide for Qantas to extend its reach in (South East) Asia.


Air Asia, which is a low cost carrier flying out of Kuala Lumpur to regional destinations together with its transcontinental subsidiary Air Asia X (flying to London and soon to Seoul,Tokyo and Paris(?)) have been mentioned as candidates for takeover. One analist suggested that such a move was unlikely while Malaysia Airlines was a better fit for IAG.


Cathay Pacific,together with its subsidiary Dragonair, a founder member of "oneworld" was mooted and flies out of Hong Kong. The problem in this case is the position of the Chinese government. As any investor in HK over the years since the return of HK to China have found that despite the economic system in HK being different to the mainland they have been "persuaded" to reduce their shareholdings in HK businesses to less than half.


If such is the case in Hong Kong then the other Chinese candidates mentioned,

"Air China, China Southern and China Eastern as willing recipients of foreign investment", then IAG will come up against the barrier of a 25% investment as a maximum.


The other market which has been focused on is India. Kingfisher has been accepted as a candidate for entry into "oneworld" with BA announcing codesharing agreements with the airline. Probably for that reason it has been looked upon as a takeover target. However, at the moment the Indian government does not, as yet, permit any foreign participation in its airlines. Thus this company is not an immediate target.

Whatever the future decision of the Indian government to allow foreign shareholdings, it is likely to be a minority foreign participation - probably 25% initially.

That being the case in both China and India, does IAG want to be a minority shareholder of any such airline? or will it be looking more longer term when such restrictions might well be eliminated?

We can now say that though BA seemed lost in July its new grouping, IAG, seems to be more focused in September. Time will only tell what IAG will do but without doubt the merger will be and has to completed before anything noteworthy happens - are we looking at two years down the line, 2012?

British Airways has lost its way

On the day(Tuesday 13th July 2010) that British Airways´ affiliate company FlyBe signs an agreement to codeshare its flights with Air France it seems to us that BA has lost its way with its obsession with the US market and its desire to form ever closer links to American Airlines. Let us look at this tragic comedy of errors which has turned Britain´s main flag carrier from the most important European carrier into the third bit player trying to survive with no coherent strategy.

1-With the inheritance of the occupiers´ German routes into Berlin, Deutsche BA was formed to try and build on that experience. The results were not to its liking so short termism prevailed and the subsidiary was taken over firstly by "easyjet"(a wierd arrangement) and then by AirBerlin. Thus BA withdraws from the German market(Europe´s biggest) just as all Europe´s markets are about to be opened to free competition.

2-BA built up a subsidiary in France called Air Liberté. The results were not to its liking so short termism prevailed and the subsidiary was sold. Thus BA withdraws from the French market just as all Europe´s markets are about to be opened to free competition.

3- KLM twice offered itself for merger with BA which fell through. Then it suddenly decided to merge with Air France which apparently has proved more successful than anticipated. Previous anti-monopoly worries suddenly went out of the window thus opening the whole European market for consolidation.

4- Swiss was handed on a plate to BA and was set to join oneworld but then (through frustration??) changed its chairman and fell into the lap of Lufthansa. This airline was the perfect fit for BA and its partners in oneworld at a crossroad in Central Europe providing two potential hubs (one in a French speaking market while the other is in a German speaking market). The results for Lufthansa have proved tremendously beneficial with regard to revenue and traffic.

5- BA´s licensee BMED was snatched from under its nose by BMI. This reduced BA´s attraction through Heathrow to the benefit of the Star Alliance through BMI.

6- BMI was subsequently bought by Lufthansa and now serves LH´s interests.

7- BA´s licensee GBAir was similarly bought by "easyjet". This reduced the number of slots available at Gatwick and destinations on offer in the southern Mediterranean. Also the company lost a possible vehicle to run BA´s regional services.

8-Some of BA´s regional operations from less important UK airports were sold off to Eastern Airways

9- BA Connect was set up in a half hearted attempt to consolidate(what remained of) BA´s regional operations from Birmingham, Manchester and Glasgow.

10-Without being given a chance to work short termism prevailed and the operations were handed over to Flybe in exchange for a paltry 15% of its equity. The franchise agreement with Loganair is broken thus leaving BA with no offers north of Edinburgh and Glasgow. Loganair subsequently signs a codeshare agreement with FlyBe. (so there must still be business to be had)

In our view it would be more logical to build up the stake to at least 40% to safeguard the investment while pushing Flybe into being a better service airline thus becoming an honorable representative of and for BA. (Air Nostrum does a good job for Iberia)

It cannot be understood how Lufthansa has been able to build up regional services in Europe while BA turns its back on the British regions. The connections from the UK to the European continent are now effectively offered to European full service competitors especially when these passengers want to fly long distance but not through Heathrow(as has been shown by FlyBe´s announcement of extensive codesharing with Air France). BA´s Manchester -New York service inexplicably closed down emphasising this lack of support for the regions while Continental, American Airlines fly transatlantic from Manchester as well as other airlines.

11- Brussels Airlines (in the backgarden and a natural ally of BA with tremendous untapped potential) sold a majority stake in itself to Lufthansa.

12- Aer Lingus was offered for sale by the Irish government which thankfully did not let Ryanair take a majority stake. BA handed over the UK/Irish routes to Aer Lingus some years ago which was not problematic when AL was in oneworld. AL subsequently left oneworld while under the direction of WILLIE WALSH (now the CEO of BA)!!!

Now BA must take over AL to secure its own back yard. If any non-British airline has any chance of competing with BA at Heathrow or anywhere else in the UK it is Aer Lingus. Most Brits will fly Irish with no second thoughts(look at Ryanair´s success in the UK) while we would look hard at a foreign airline.(What success has Air France had with its Los Angeles flight from Heathrow?). Can you imagine the aggressive Ryanair fully taking over Aer Lingus and running low cost long distance flights from Heathrow? It is one airline that must be won.

13- "BA´s" CEO walked away from the bidding for Austrian saying it was a better strategic fit for Lufthansa. We cannot understand how he just wanted to hand it to Lufthansa. What better strategic fit is there for BA in Central Europe after the loss of Swiss? Has Malev been proven a better substitute?

14- Alitalia was on the rocks and nobody wanted a lame duck. However, then the proposal was to merge it with Air One (also participated in by Lufthansa). Alitalia is given the "kiss of life" and now survives in the SkyTeam alliance. Only Lufthansa takes advantage of the weak Alitalia restructuring situation by setting up its Lufthansa Italia subsidiary. BA nothing.

15- BA´s CEO states in each case that BA is only looking for a commercial alliance - this has got BA nowhere as has subsequently been proved.

16- BA sets up a subsidiary "Open Skies" very timidly in 2008 as an all business airline just when other similar concerns are going out of business(EOS, Maxjet and Silverjet). "Open Skies" takes over L´Avion to obtain access to Paris Orly and an up and running business with flights to NY-Newark. After initial attempts to fly Orly to Newark and JFK and from Amsterdam to New York(susequently suspended indefinitely), now it flies Paris Orly to Newark while it has just introduced a Paris Orly - Washington Dulles flight. The chic image and name of L´Avion is lost and submerged in the insipid image and ridiculously cheap name of "Open Skies"
However, where are the connecting services to BA, its subsidiaries and its partners in "oneworld"? They do not exist. OS is not in "oneworld" and cannot offer the services of a full service airline in an alliance. To us this seems to be cutting your own throat. American Airlines flies from NY-JFK not Newark, nor does it fly from Dulles. In Paris, of the "oneworld" European partners only Iberia and Vueling fly into Orly; Finnair, Royal Jordanian, Malev, BA and FlyBe fly into CDG.

17- BA´s CEO expressed a desire to take over BMI "to consolidate BA´s position at Heathrow". We all knew that this was a nonstarter because Lufthansa (with its 20% stake) would not permit it, and the competition authorities would be against any control by BA of more slots at Heathrow.

18- BA has just been given the go-ahead by the European Commission for its transatlantic alliance with Iberia and American Airlines. The US authorities have given provisional approval to the alliance while are still prevaricating. The price to pay will be for 8 landing/take off slots to be ceded to competitors. This tends to show that the "desire to take over BMI" as expressed in the previous paragraph as being knowingly unachievable and thus a smokescreen

19- BA announced the start up of a twice daily business service(similar to "Open Skies´") to New York from London City(from October 2009). Then to eveyone´s surprise BA announced the service would land at Shannon to refuel and invent an excuse that US passport formalities will be done there. The real reason is only that the aircraft cannot take off from London City with a sufficient load of fuel for JFK. What is gained by the immigration process at Shannon is lost by the length of the stopover.

20-Now BA announces that its London City services are so successful that it is thinking of introducing more business services to Chicago, Washington and Boston. It cannot fly further with the A318 (from Shannon).

All these are illustrations of what concerns us about BA. It seems to have no logical strategy. A merger with Iberia(not takeover - under less favourable conditions than before) only seems logical as the Spanish can maintain the identity of the airline and direct its operations into Central and South America. But what else? Are you not looking at the possibility of another airline in Central Europe (CSA or LOT)? What plans are there for Eastern Europe , the Balkans, Greece, Turkey. Is RJA a sufficiently connected airline? What about the Gulf airlines to join oneworld? Should it not be better to have Etihad, Emirates or Gulf onboard than being competitors? It is just as well that S7(Russia) and Kingfisher (India) have been sought as suitable partners for oneworld. Thanks be that JAL (Japan) decided to stay in oneworld and not defect to Skyteam. But where is BA going in Africa? - at the moment nowhere. That is one reason why Brussels Airlines(with its partner in the Congo) was important.

The only strategy the airline appears to have at the moment is to turn British Airways into London North American Airways for high flyers in Business class. This is not good enough,especially when it flies from an airport which will not be expanded (at least at the moment) and where it cannot get more slots but has to give up some present slots. This is plain madness. We expect better.