Air Traffic Management

In one of my recent posts I argued that there were too many airlines and that consolidation will be necessary.

In a previous one still I opinionated that airlines should diversify their investments and should look more towards mobility and transport rather than just sticking solely to air travel.

These thoughts got me wondering who in fact owns who in the world of airlines. The task is huge as there are thousands of airlines, big and small, worldwide and the ownership lines are complex. I had to start from somewhere, so I started from wikipedia’s list of the top 10 airlines by scheduled international passengers carried. [Which are: Ryanair, Lufthansa, Easy Jet, Air France, British Airways, KLM, Emirates, American Airlines, Singapore Airlines and Cathay]

Airlines who owns who?

I tried to find out who their major shareholders were [more than 3% of shares]. I also looked at what they owned.

The findings are displayed in the diagram above which once clicked on opens to full scale.

For convenience I have put KLM and AirFrance together.

Some of the findings are:

There is a difference in shareholder nature between Europe and US and Asian/ Middle east companies.

In US/Europe the shareholders tend to be investment management organisations or mutual fund firms, whilst Asian / middle east tend to be more state owned with Bank participation.

Another trend is that European and American Airlines are more intertwined together, in terms of ownership with all European and American carriers in the top 10 having a common shareholder with at least another carrier.

[one could also go into the meanings and effects of having an investment company such as the capital group holding 2 digit figure shares in Ryanair, Air France and American Airlines and what this means to the airlines, to the market and to competition, but I am not an economist and I do not have the tools to go there...]

Nothing similar in terms of links between investors is observed for Asia and middle east..

In terms of subsidiaries of these major airlines, to my disappointment most of them owned other airlines or service companies related to the aviation industry. This is not a bad thing in itself as it is only natural for market consolidation. The disappointing part is that airline’s investments are not diverse enough. Only british airways have an investment in another transport sector: the rail [well done BA!] American airlines have investments in Real estate. I would say that we should observe an evolution towards further diversification in the future [I read Air France will buy shares in fast train operations]

Well here it is. By all means it is not an exhaustive piece of research. I also put a disclaimer that whereas I got the sources from the internet from either the companies themselves or from investment and borckering websites or from third websites such as wikipedia, and that I did this at the best of my understanding, there may be mistakes.

As for the legend: In green boxes you find the 10 airlines. In Red you find their owners, in yellow their subsidiaries. In blue there are the cases where two companies cross-own shares [e.g. Iberia and British Airways]. The percentage figure is how much is owned.  There is a boundary for each of the top ten airlines. When a company owns shares in more than one airline, it is present in a number of zones, the percentages per airline are listed.

Enjoy, and I would really appreciate to read what you think, and whether we could take this study further ahead…

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This post somewhat follows and adds to one of my previous posts: “Air transport and environment, the challenge which will leave the industry dented”

It is an attempt of an answer to a series of questions asked by a colleague of mine:
” What are the changes that transport industries will have to face to use all the opportunities? Why are the transport industries the most touched by the crisis after banks? What did they miss? What are the similarities between Transport industries and banks? Can these common points alone explain the reason of bankruptcy? What needs to be done to reconciliate all the subsystems and make them work in harmony supporting each other rather than being an obstacle to each other? What are the level of innovation required to develop a sustainable transport system? What would be the new transport business? “

Cartoon embedded from the cartoonstock web site

In disguise of an answer to some of the questions I’ll note down my observations and opinions mainly focussing on the aviation sub-sector of the transport system then we can see if the reasons describe could be permeated to other sub-sectors:

The main struggle for aviation is that it is operating through an old model:

In rather simple terms, aviation, and more specifically civil aviation commercially transporting passengers and cargo, have historically been created by public funding [with many airlines seeing their birth as state owned enterprises]. There was little consideration to the size of the market in which they had entered. They were also based on a public service and were not operating necessarily for profit. This lead to un-optimised operating costs and a culture which assumed that that is the way it should be done. So the market ended up with too many of them operating at relatively high costs.
Then the crisis started coming alone challenging their business model:

1st crisis: Deregulation: With the progressive deregulation of the market and competition for hubs and airports, airlines found themselves too numerous. This pushed prices down and their profit margins [ticket prices had to fuel their untrimmed operating costs], thinner. Most started to trim their operating costs, some others which could not adapt and which were not helped by public funding [some unjustly were] died.

2nd crisis: Low cost airlines: Then low costs came along. They tapped on a revolutionised business model. Most were start ups and their operational costs and performance were trimmed from the very beginning. They did not have and legacy cultural inertia to change to a trimmed way of making business that the traditional airlines had.  [in my opinion many of the low costs will be suffering the same issues as ‘traditional’ airlines very soon]
The result was even more airlines on the market, making the market very sensitive to tiny fluctuations in business. [E.g. the SARPs crisis in 2002-3] Profit margins continued to decline. Positive business cycles started not being enough to cover for the great losses during down turns.

Consolidation of the market started to happen at a slightly more accelerated pace. However mature consolidation is yet to happen. The need to travel is real. The market exist, but there is too much offer for the same thing and as a consequence the ticket prices are generally lower than whet they should be. [Whether the current market size in reality is sustainable is rather questionable] .
I believe that in the future further consolidation will continue to happen. Some through mergers others through pure bankruptcies.  Governments, especially in Europe, will be less able to intervene because of their bad financial situation. Some [how many?] companies will go. The market will be shared by less, hopefully making it a bit more stable for those remaining. This will probably push ticket prices up.

I have not mentioned the third crisis yet: the cost of fuel. Cost of fuel amounts to around 40% of an airline’s operating costs. So the sensitivity on the profit margin of fuel prices which are highly volatile [$30 in 02, $60 in 05, $80 in 06, $60 in 07, $100+ in 08, $50 in 09, $80 in 10... or a 300% change in 8 years with multiple fluctuations in between]. This trend will continue as, even though engines are becoming more efficient, the fuel part of operating costs will remain significant and fluctuations in oil prices and the upward trend which will continue. The effect will be that the market will have to adapt. Ticket prices will have to go up, probably leading to a lower demand leading to further consolidation.

Crisis 4: Environment. Apart from prices going up, humanity, at least in western societies is becoming more aware of the environmental impact that certain activities have. People are questioning the sustainability of air travel especially where more environmental friendly options exist and could be developed further. To tap into this trend [and as part excuse to this trend] governments may be inclined to further tax aviation, thus accelerating consolidation.

As a conclusion the commercial airline industry has no option but to consolidate.
Airlines need to get into a strong position in order to survive [while others go, thus making the survivors even stronger] This can be done by:

diversifying their investments, thinking mobility,  more than just air travel.

They can also look for niche markets within the industry as one of the problems is that there are too many offering the same.
They can also put pressure to reduce reliance on fossil fuels which inevitably are on upward trend. The industry is quite behind in this area with the first synthetic fuel based on natural gas tests being done by commercial airlines.

I do not necessarily see many similarities with banks. I am not an expert in the area, but I think consolidation is more mature in the banking industry. I think that banks have abused deregulation and under estimated the global effect of the risk they were taking to maximise profits in the shortest terms possible. And this is why they got [the rest of us] into crisis. I think that the airline industry is simply struggling in an environment because its generic business model and the size of the offer do no longer fit deregulation and the aviation’s dependence on what is now becoming a scarce resource.

Hope you find this useful to fuel the debate…

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According to The guardian [http://www.guardian.co.uk/travel/2006/jan/29/theairlineindustry.ecotourism.observerescapesection] and Eurostar as quoted by the site seat61.com, flying from London to Paris one way [including the drive to the airport I guess] produces 122kg of CO2 per passenger [occupancy rate of aircraft unavailable]. A similar journey by train [and where the car journey is shorter, I guess] produces 11kg of CO2 per passenger [again occupancy rate is unknown].

Now, we may argue that the numbers are broad approximations and that the sources are biased. This may well be true, but I think since the differences are so great that we can agree that flying pollutes much [much, much] more than taking the train.

Using an image from http://3.bp.blogspot.com - thank you.

In this blog entry I am trying to think what could be happening in the next decade to aviation, especially in Europe.

So, given that oil will become more expensive and that current aircraft consume and pollute a lot, what should the aviation industry’s strategy be? A strategy which on the one hand guarantees a more environmental friendly approach [something which is not only ethically correct vis-à-vis nature and ourselves but is also quickly becoming a market demand] and on the other maintains a viable industry on its feet?  What should the right strategies be?

Here are three thoughts:

1. Innovate and become more efficient
2. Have a more integral approach to transport
3. Accept reality and bank on the unique non-substitute areas – make positive lobby

1 Innovate and become more efficient [or become extinct]:

In terms of innovation I can see two work areas on which the industry should [is] work[ing]

A. Longer term [but crucial to survival]: Engines and aircraft framework

In terms of engines, aircraft produced today, with a shelf life that easily exceeds 30 years are fossil fuel gulping monsters. These planes will stay with us until 2040. It seems to me that in terms of R&D, when it comes to alternative ways of propulsion, we are significantly behind the changes which lie on the horizon. The first hybrid or non fossil fuel reliant engines will not be produced for a long time still. So we can say that as by today’s situation, we will have to stick with a certain amount of fossil fuel propelled aircraft until 2060.

In terms of the aircraft framework, we are already seeing lighter planes which use less fuel. This is a first step. Research should continue to make aircraft lighter and more aerodynamic…

B. Short to medium term: Efficient routing

Probably in terms of short to medium term improvements, this is where it needs to happen. Flights need to become more direct, with less en route and approach delays. Flights need to be able to climb, descend and cruise at fuel consumption optimised profiles.

Investment here is under way because with the prices of kerosene on the up, the flying community puts substantial pressure on the Air Traffic Management side to reduce its flying costs.

Conclusion on innovation: ATM efficiencies will only come part of the way needed to achieve future sustainability and even the most direct routes with the most consumption efficient profiles will still consume tonnes of litres of fuel. Unless [serious] pressure is put on aviation to innovate on the engines and on the aircraft framework engineering, we will continue to produce fuel gulping aircraft for years to come.

2 Have a more integral approach to transport.

Air transportation is transportation

In reality, rail, air and even road transportation is all about getting people and goods from A to B.

Airline companies should maybe change their strategy and see their business scope enlarged to transportation in general and not solely limited it to air transport. I have not made any research on whether this is already the case, but I would say that in terms of transport, companies should / would start merging strategies. I would say that airlines should start buying shares of rail companies [and vice versa...]

Transport should be seen as one integrated industrial sector and for me the future winners are those which will be able to earn money on a transport offer which adapts to the market’s needs not withstanding the distance to be travelled, the location of the two places A and B and the nature of the persons / goods to be transported.

I think that after the airline industry consolidation we should start seeing a transportation industry consolidation…

3 Accept reality…[whilst making the best out of it]

A successful company would be one which accepts reality and which would bank on its strengths and manages its weaknesses. Talking about Europe, reality is that with a maturing fast train network connecting not only major but also medium sized cities over one given continent and or large countries, inter city flights may likely decline in market demand over the coming years. With oil prices growing and with environmental awareness raising [and with it governmental taxations on carbon emissions] European Inter city flying [at least with destinations under 1200 kms of distance i.e. 4 hours of train city to city] may be out of business some, not too far, a day. [And this includes low cost carriers]

So what would be a good strategy? It surely should not be that of tobacco companies in the past, i.e. denial and counter propaganda [even if some of this will anyway happen]. In my opinion [apart from what has been mentioned above in terms of integrating other means of transport within the company's portfolio] this would be to start lobbying on the strong holds of aviation travel [I call it positive lobbying], where the alternative is not modernly viable with alternative means. This includes all water crossing – e.g. accessing islands and flights between connecting destinations which are further than 2000kms apart.  There companies could lobby that there is a public mission [and an economical one too] of theirs to transport people between these places and that these flights should not be extra penalised by new eco friendly malus taxations, which will continue to come into place in the coming years.  In return airlines would agree to heavier tax shorter flights, implicitly acknowledging that alternatives exist.

This would protect aviation until innovative and sustainable propulsion becomes feasible.

In the mean time pressure should start being put on manufacturers [probably the market will regulate itself through cost of demand versus offer, etc. anyway but being proactive won't hurt] to innovate before fuel will become too expensive anyway to scare more revenue away from airlines [and from the rest of the supply chain].

Finally, [after all this is an ATM blog] what could the repercussions on ATM be?

Well, in terms of Europe, air traffic may plateau earlier than expected. The 2009 crisis showed a severe correction to traffic growth. Traffic will recover from this one and will continue to grow to unprecedented figures, but will this trend resist the next blow? Will it resist, even with all ATM and trajectory improvements, oil prices in excess of $150 a barrel?  Will it resist the growing environmentalist awareness and the market and lobby this is putting over governments who will potentially start heavily taxing all sorts of CO2 consumption [and we know current aircraft consume a lot]?

And when will this plateau potentially happen?

I have a gut feeling that in Europe, given oil prices, environmental awareness, the infrastructure and maturity of alternative means of transportation, mainly fast trains, this could happen in the next ten years.  Which then means that the current mass investments in air traffic management to be able to accommodate tomorrows demands may in fact be the last one before a new flying technology is introduced. One which does not use fossil fuels.

Maybe I may sound too pessimistic, but frankly that is what my glass ball is showing me. [and maybe my blog, if it will still exist then, it will talk about transportation in general ]

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Need a one stop shop for legal publications on Air Law – Here seems to be one solution.

Click here

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Following my previous post where I wrote about the commission’s mailbox to help stranded passangers, here is the latest news on what the European Commission is doing to help us prospective passangers get clear air fares when looking for a ticket; especially via internet.

Go EC go:

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1857&format=HTML&aged=0&language=EN&guiLanguage=en

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I thought this piece of news, although not directly ATM related could be of interest:
” ‘Emergency’ email system to clarify EU passenger rights

European Commission transport regulators have set up an email system for passengers affected by flight cancellations or delays, to ensure they understand their rights under such circumstances.
The “emergency” email address – listed as ‘passengersrights@ec.europa.eu‘ – will allow passengers to submit queries directly if they are caught up in prolonged delays, overbooking or other similar problems.
Lack of understanding among air passengers over their entitlements has been a particular concern of the Commission since it introduced legislation covering their rights to compensation.
European transport commissioner Antonio Tajani says: “Community rules on passenger rights need to be rigorously applied. The European Commission will provide precise information to those making use of this email address on how to exercise their rights.”

Source: Air Transport Intelligence news

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To a different degree, most of us have, are being, or will be affected by the financial crisis.  Some directly, unfortunately, through loss of money or job, others indirectly by worrying about what the future will bring.  So it is quite legitimate, I think, to dedicate a post on this crisis.

I could have written on how ANSPs and States should still invest in aviation and air traffic management during a trough in activity [called, I think, a counter-cyclic investment] which would better prepare us for the future and help the industry to react to the difficulties rather than getting it into a downward spiral.  But I won’t.

What I would like to talk about is what ANSPs could learn from the bank bail-outs offered by the states to save the financial system from utterly collapsing.

I am writing at a stage when banks which went bankrupt have been saved [even if we start hearing that the same banks having been bailed out are still fragile and might need more help in the near future] and those responsible for this mess have not been punished yet. If this remains to be the case, then if I were CEO or were sitting on the directors’ board of a corporative or privatised ANSP, I would then start thinking in the following manner:

Let us start taking more risks with our service provision so that we maximise our profits.  Let us get rid, or under invest, or ignore the areas which do not generate enough profit [such as for example local / small airfields or lower airspace which generates lower revenues], let us not invest in new technology which will maintain and improve the levels of safety; let us do more with less, let us squeeze what we have. If we fail our State will bail our company out; it will have to because the service we give is of capital importance to the masses, to the economy and finally to the running of the state itself.  As heads of the ANSP will get away with it [like the bank chiefs did] and by that time we would have bloated our pockets with profit [which otherwise is not so easy to get in an industry such as ANS provision.]

The recent bailouts without serious consequences to those who caused them [at least yet] carry a very serious risk of eroding a level of responsibility that corporative and privatised companies have when they are giving key services to the population and to the state.  Already, one can convincingly argue that key services should remain in the public services’ realm.  Now if we add bailouts and impunity of privatised ventures in this domain, I think we will be heading for serious troubles in the future…<–>

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The Civil Air Navigation Services Organisation [CANSO] has recently published its Global vision of the future air navigation services.

The document in itself identifies a number of areas of change in the operational and regulatory domains necessary to achieve a global ATM system.  I found it quite clear to read -unlike some other documents issued recently on the subject.   In its 16 pages -rather short, it explains CANSO’s views on items such as: customer focus, business-like approach, civil military collaboration, the people working in the ATM system, environment, safety management,  etc.

What particularly interested me in this document was the vision CANSO has on the page dedicated to the people working in the system where it recommends a change from National Training Standards to Globally Harmonised Training Standards.

This is a very important recognition, especially in the light of recent corporatisation and privatisation of several European ANSPs [many of which members of CANSO themselves] who in the interest of surviving in the commercial world have endorsed the strategy of isolation with regards of standard practices in training.  Europe is passing through a hard time where it comes to harmonisation of training, with many training institutions pleading for guidelines but no standards.

I simply hope that the direction set by CANSO is endorsed by its member ANSPs and we start once more moving towards harmonising training in European ANS…Â

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As I have explored in previous posts; Innovation in training, the future of ATC, etc, ATC in the future will change.

A lot of the current instructors, especially those preparing students during  intial training have left active operations for 100% training provision.

A good number of these instructors will never go back to operations, and although a number of schemes, within the training provision certification process require them to do familiarisation or observation visits, these schemes remain marginal and only provide tasters of how the operational world is evolving.

Now with further autmoatisation and dyinamicity of the ATC system, this category of staff runs the risk of being left behind.

This will impact training institutions three fold:

First, a lot of the changes in the ATC systems will be radical enough to change initial training, especially the rating part.  This will mean that training institutions who deliver this training will need to find further schemes to have personnel able to understand [let alone teach] the implications of the new systems, procedures and ways of working.

Second, the training staff I am referring to, are often also those involved in writing the training objectives and syllabi [for example the review of the Common Core Content syllabus for ATCOS].  How will they be able to evaluate the training gap and training needs if they do not understand the implications enough?

Third, training institutions risk of having some of their staff made redundant, or at least off-side and this we all know is neither effective nor efficient.

I suggest that training institutions who have full time ATC instructors working for them and who are not keeping a current license should think about these factors and about ways of how to enhance the instructors ability to stay on the train.

If the train leaves without them it might then be too late for them, and quite expensive for their employers.

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On the 3rd of July ENAC was formally certified by the French Civil Aviation Authority as an ATC training provider.

 Congratulations to ENAC, but also to all the other providers who have obtained the certification from their local CAA.

May this certification continue in the path of improving quality, effectiveness, efficiency and innovation in ATC training in Europe.

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