Atr vs Dash-8

Introducing a new model of aircraft into the fleet is never an easy task. Before doing so the airline needs to take into consideration numerous different challenges which it might face on the way. These different challenges vary according to the kind of model the airline plans on introducing. For example, numerous airlines that have introduced the A380 needed to make sure that both their home airport and destination airports were ready to handle them with the installation of, for example,  specialized gates and wider taxiways. When speaking of smaller aircraft, not necessarily regionals but, for example, members of the Boeing 737 family, challenges are usually smaller but not to be ignored.

 

The region of ex-Yugoslavia hosts a bunch of crippled airlines trying to become regional carriers without fully understanding what that means. The pack is led by Croatia Airlines which was the only airline to actually successfully replace a model in its fleet with a newer, more advanced one.

One could argue that Montenegro Airlines could make the cut but the fact that their market is far from liberated and that the airline has little competition doesn’t make it fair for us to put them in the same category.

Croatia Airlines’ replacement of their Atr-42 fleet with the Dash-8  was a smart move. Regarding their domestic market it made little difference as all flights are less than one hour. The main difference is that now they can use their fuel-efficient turboprops on the vast majority of European routes.

 

In Belgrade the decision on what to do with the ageing Atrs is not that easy. Jat doesn’t have the domestic market of Croatia, which means that for them it is far more important to define their business plan before making any rash decision regarding the fleet renewal.

One of the possibilities is to postpone the replacement of their B737-300 fleet and instead to concentrate on revising their regional network. With a reinforced regional network additional feed will be enabled in Belgrade and in such a way increase the average loadfactor on their mainline fleet.

 

As described in the previous post, there is a considerable origin and destination market between Belgrade and various areas of ex-Yugoslavia. However,  bus companies currently hold the monopoly by offering lower fares and multiple departure times.

In order to lure more passengers into flying to these destinations, Jat Airways will need to enter a price and comfort war against the bus companies. Most of the roads across this region are bad and travel times are usually very long, whereas they are reachable by air in less than an hour.

In order to be able to make a profit and still offer lower fares it would be advisable for Jat to create a subsidiary airline, similar to EuroLot in Poland.

Lot’s  subsidiary airline operates mostly on domestic flights using regional Atr aircraft. These aircraft are used both to feed Lot’s flights out of Warsaw and also to offer multiple daily departures to various Polish cities at a very low price.

Flights to Montenegro are popular due to the extremely bad condition of the road system making bus rides the equivalent of a ride to hell. That is why Jat should prioritize the resumption of the year round Dubrovnik service since not only is it difficult to access by road but it is also the Croatian city with the greatest potential.

 

By combining low prices with a strong marketing campaign Jat will succeed in stealing passengers from bus companies. With this campaign in place regional cities could be served several times per day, offering numerous connecting possibilities via Belgrade and at the same time giving flexibility to O&D passengers.

 

One main difference between Lot and Jat is that unlike Jat, Lot has a lot of Embraer jets which have enabled it to offer multiple flights per day to various European cities. Jat’s core fleet is made up of B737-300s with a total capacity of 125 seats making it difficult to offer several daily departures to various European cities.

 

This is where another problem arises: if Jat opts to enlarge its fleet of Atrs instead of introducing the Dash aircraft then it will be practically impossible for the airline to send them to key European routes outside the Balkans such as Rome, Milan, Zurich…

By introducing the Dash-8 aircraft they could add additional frequencies to these routes without dumping capacity on them. Double daily B737 would offer 250 seats whereas a daily B737 and Dash-8 would offer 193 seats.

 

The only problem with the Dash aircraft would be the lack of servicing facilities in Belgrade. Jat Thenika would have to be issued a certificate for servicing this model of aircraft.

Since it is not a secret that Jat needs a regional aircraft for longer thinner routes, which might be too long for the Dash, it would be wiser for them to spend more money in enabling Jat Tehnika to service these aircraft and to slowly start building their fleet around Boeings, Embraers and Dashes.

 

As always, Jat Airways needs a strategy that will enable it to reverse its falling market share in Belgrade. Unfortunately with the current management that will most definitely not happen.

 

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Belgrade, a Yugoslav hub.

 

It is a common Balkan phenomenon for one to come across a speech by an airline or airport official stating that the institution they work for will become a regional leader.

However what these people tend not to do is specify which region we are talking about. Is it the region of that particular city? Is it the country itself? The Balkans? South-East Europe? The whole of Europe?

 

In today’s thread all the Balkan comparisons will exclude Athens and Istanbul as they are in a completely different league when compared to all other Balkan airports.

In the region of ex-Yugoslavia it is no secret that Belgrade has the greatest potential to become a regional leader. This is not my nationalism speaking, nor is it wishful thinking but it’s simple common sense backed by solid facts.

Naturally, the growing economy and the developing tourism industry are fuelling passenger demand. However, these are only contributing factors required to transform Belgrade into a regional leader.

For an airport to become a regional leader it needs to have a strong local carrier. In the case of Belgrade, the lack of a strong domestic carrier is standing between the airport and regional dominance. Jat Airways is a crippled, senile airline currently operating by default.

Jat’s so called regional network includes three cities (Skopje, Sarajevo and Podgorica) whose flights are timed to offer connections during early morning departures.

What Jat failed to think about is how passengers will arrive at their final destination without spending over 7 hours waiting at Belgrade airport. Recently the airline started offering afternoon flights between Belgrade and Skopje, but the only problem with this is that once in Belgrade passengers have nowhere to connect to besides Dubai (via Larnaca), a schedule which

operates only 4 times weekly.

The airline’s incompetence goes so far that they are unable to offer daily flights to major hubs around Europe. Recently both Dusseldorf and Athens have been upgraded to daily services. Dusseldorf is perfectly timed for connections via Belgrade, whereas Athens leaves roughly one hour before the arrival of the regional flights (that is if we exclude the random afternoon frequencies).

 

Loads to Dusseldorf are decent whereas Athens records catastrophic loads, usually below 50%. Maybe it’s time Jat understood that one of the main reasons for a regional network and feeder flights is not to make the route map pretty but rather to fill their outward flights with passengers from the region.

 

However, today I am not going to speak about the importance of feeder flights in general, but rather how they could play an important role in giving Belgrade a clear advantage over other cities in the region.

The key to Belgrade’s success is in the origin and destination (O&D) market. The O&D market is made up of passengers travelling between points A and B, that is they are not using Belgrade as a connecting airport.

 

With a regional network in place the newly launched flights departing Belgrade would be fed by the O & D market, thus guaranteeing satisfactory load factor

 

For example, when Malev introduced flights to the Yugoslav region, they had to invest a lot of money in advertising in order to secure decent loads and to attract connecting passengers to Budapest. Jat would not need such a large investment in this region as the brand is already known. What Jat needs is to reinstate services to Yugoslav cities. It was a good start when they reintroduced Dubrovnik as this was once one of the most important destinations for JAT (Yugoslav Air Transport).

There is another problem at this point. Since the dissolution of Yugoslavia, the younger generation has no sentimental link to the cities on the Adriatic coast. For a lot of young people Dubrovnik is just another city in Europe trying to attract Serbs to spend their money there. On the other hand, for the older generation, Dubrovnik is more than just a city, it is a reminder of better days way back when…..! The O&D market is shrinking every year and Jat should act before all is lost.

This is something Jat needs to understand when entering these markets. We are no longer living in the heyday of Yugoslavia. The market has both changed and shrunk since then.

The best example is this summer season; even if there are 2 weekly frequencies between Belgrade and Dubrovnik, the loads are still weak. This summer Greece and Turkey remain as top destinations for holidaymakers.

 

Yugoslav expansion should be carried out carefully and with thorough prior analysis; most importantly this expansion should concentrate on offering connections via Belgrade. Numerous tourist destinations have become cash cows for a lot of airlines, the best examples being Larnaca and Malta.

I believe that this new expansion should be undertaken by people who had no connection to the old JAT as emotions are something that have no place in this new business environment. Today these destinations are simply on a par with certain other coastal cities outside the Yugoslav region, Thessaloniki or Venice for example.

 

Recently Lufthansa announced that their European network is losing money and that they need to do something in order to bring it back to profitability.

Interestingly, airlines such as British Airways, Air France and KLM have never made similar statements. This is because all these airlines operate out of hubs that have considerable O&D markets. By relying on this O&D they can always expect a certain number of passengers on their flights, meaning that they do not need to drop their fares in order to attract passengers.

Some airlines that are facing similar problems to Lufthansa are those that developed their hubs in places with a small O&D market (relative to their operations). These artificially created hubs are dangerous places and need extra caution when planning future business steps. Another European airline that has tried to recreate Lufthansa’s success is Latvia’s national carrier, airBaltic. Currently the airline is battling debt and may face closure. This is because such airlines attract passengers with low fares that cannot sustain their route network.

Within the region Slovenia’s Adria tried to create its own its own hub without a substantial O & D market which resulted in the airline owing €100,000,000

That is why Jat Airways should feel blessed that it can still rely on its O&D market to sustain its regional and European expansion.

 

 

 

 

 

S-uper S-olution for J-at… SSJ 100 (Part 3)

Most people tend to associate Russian aviation with a high level of pollution, general lack of safety and efficiency. Naturally, the recent crash of the inefficient Tupolev Tu-134 didn’t help at all in changing this perception as news of the crash of the dated Soviet built aircraft travelled the world.

However, what could be said for the newest aircraft model from Russia, the Sukhoi Super Jet 100?

For quite some time now I have been advocating that the SSJ 100-75 model would have been the most suitable aircraft for Jat Airways. Naturally, this idea was received with scepticism, amidst claims that the best model would be the Embraer jet.

They were right, the Embraer family with its proven reliability and safety record would have been the best and safest aircraft for Jat. However, the E-jet is the most suitable aircraft for numerous airlines around the world which means that these aircraft are not easily found on the market.

By analysing the situation within the Serbian airline I noticed that on the vast majority of European routes they operate their Boeing B737-300, with an average load factor of 60%. Jat’s 737s are equipped with 125 seats which means that on average they have 70 passengers per flight.

The SSJ 100-75 accommodates around 78 passengers, making it the ideal candidate.

Naturally, when compared to the E-170 aircraft, its equivalent within the Embraer family, the SSJ appears to be even more impressive.

The only characteristic that is clearly superior with the E-170 over the SSJ is the range with full load. The E-jet has a range of 3,892kms whereas the SSJ has about 2,900kms. This fact however is irrelevant to Jat Airways as their longest flight on these models would be 2 hours and 30 minutes.

In addition to having a roomier cabin the SSJ has a greater maximum take-off weight (MTOW), beating the E-jet by 2,500 kilos. Other characteristics of these two models are more or less the same and they are not worth mentioning here.

If Jat was to order a brand new E-jet the waiting time would be calculated in years. As the SSJ is a new model, airlines are reluctant to place orders as they are waiting for airlines that have received them to give a final verdict.

At the Paris air show the SSJ secured an order for 8 aircraft from the Italian carrier Blue Panorama in addition to 10 orders from Indonesia. Just a couple of months previously the Mexican airline Interjet had placed an order for 15 aircraft with a generous seat pitch of 34.

The time is right for Jat to look into this model. Their 737 fleet is ineffective for their current network. For example, their daily flight to Athens is mostly served by the 737 and has recorded an average load factor of 41% in the period January-May.  If Jat had used the SSJ on the route it would have improved its average load factor to 78%, which would enable it to increase frequencies and offer more connecting possibilities to regional passengers.

Athens is just one among the numerous routes where the SSJ would be the perfect candidate. Other cities such as Berlin, Gothenburg, Istanbul, Copenhagen, Rome, for example, would have been the perfect candidates.

One airline which has managed to work wonders with regional aircraft is Poland’s Lot. With its core fleet made up of Embraer jets it covers the majority of European routes. The airline has understood that in today’s aviation world passengers are looking for frequency over capacity. However routes that demand higher capacity are served by Boeing 737 aircraft.

Even on its Warsaw-Belgrade-Warsaw route, the airline initially used its E-145 which was upgraded to an E-170 once the route matured. Lot’s average load factor to Belgrade in 2011 was around 60%.

One could say that Jat today is where Lot was several years ago. When Lot placed its order for the E-170 jet the Brazilian manufacturer was far from famous. Today some of the biggest airlines in the world rely on the E-jet to serve their regional routes. In Europe, Lufthansa has managed to revolutionize its regional market with the arrival of their Embraer jets.

Even on its Munich-Belgrade-Munich thrice daily flights the A319 (which was very common at that time) was replaced by the E-jets.

So should Jat recognize the potential of the SSJ 100-75 and place an early order? After all the feedback coming from the launch customer Armavia of Armenia has been nothing but positive. Below is a recent statement by an Armavia pilot:

“The aircraft demonstrates remarkable performance at operation. The flights go without any serious delays. All flights are made in automatic control mode at the altitude of 35000 – 39000ft. The speed is 0,78-0,8M. SSJ100 has got remarkable flight deck ergonomics and control features. It’s easy and comfortable to handle” stated Armavia SSJ100 Captain Aram Egoyan.

As always we have no choice but to sit and wait to see what happens in Jat. The airline is keen to order B737-700s as part of the fleet renewal, however there was no mention if the order is intended to add capacity or replace the old Boeings.

However, with its average load factor at around 60% the airline should seriously reconsider adding additional capacity to its network.

Even its most popular European routes do not manage to secure a load factor greater than 80%.

The Jat saga (Part 2)

 

In the previous thread we looked at the current situation in Jat Airways. We tried to understand why the airline is where it is today by looking at its past and its present. I would love to look into Jat’s future. However I am very afraid of what I might see there, or for that matter, not see!

 

Trying to save Jat is about the same as trying to save a sinking boat. There are so many things that need fixing but not enough time to do it properly.

 

 

In today’s post I will look at Jat Airways and its operations to the Asian continent. By looking at their current operations in that region I will endeavour to see what needs to be done to ensure its survival.

There are two words which should scare Jat: Qatar Airways. Actually, in order for the management of Jat Airways to be afraid of the airline they would need to be aware of its existence. Some time ago I had the (dis)pleasure of talking to one of Jat’s board members, who didn’t know that Singapore Airlines was rated as the best airline in the world. Not to mention that he couldn’t even list the highest ranking airlines in the world.

The reason I mention Qatar Airways is because they are the only threat to Jat’s service to Dubai. Currently Jat operates three flights per week to Dubai using a B737-300 with a stop in Larnaca. Such a long flight can be exhausting on a plane like the 737 (old generation) whose interiors are outdated, offer no in-flight entertainment, and provide mediocre on-board service at best…

The only reason Jat has managed to survive in this market for so long is thanks to the interline agreement with Emirates.

Qatar Airways has been aggressively expanding in Europe. They have been opening new routes from its ever growing hub in Doha to places such as Barcelona and Copenhagen.

Recently the airline announced the opening of routes from Doha to Oslo and Sofia; the latter will pose an indirect threat to Jat.

Qatar announced that the flights to Sofia would operate 4 times per week via Bucharest. Currently this route  is operated via Budapest, however the latter has proven to be a profitable destination in its own right, and as such will be operated directly. With service to cities like Sofia, Bucharest and Budapest the next logical step would be the announcement of Belgrade.

Serbia is an important market for Emirates as it uses Jat to feed its flights on Asian and Australian routes.

A few years ago when the deal with Emirates and Jat Airways was abruptly terminated the Serbian airline was forced to relocate its flights to Abu Dhabi. Shortly after this event Emirates renegotiated the deal with Jat whose withdrawal from Dubai had caused a decrease in Emirates’ loads on the routes to Australia.

If Qatar Airways were to enter the Serbian market I believe it would signal the end of Jat’s service to Dubai.

There are two reasons for this theory. Firstly, the Qatar Airways on board product is far superior to that of Jat Airways. Not to mention that Qatar’s flight would be operated directly non-stop, making it far more attractive.

Secondly, Qatar Airways is an airline whose main priority is not to make profit. With state support they can enter a price war with Jat Airways driving it into major losses resulting in suspension of the route.

With Qatar’s flights perfectly timed for connections to both Asian and Australian destinations this will not only hurt Jat but will not go unnoticed by Emirates. When Jat Airways transferred their flights to Abu Dhabi the Gulf carrier demonstrated how important the Serbian market is for them. One reason why Emirates negotiated with Jat was probably because FlyDubai was not then set up and Belgrade, as a market, was far from ready to handle Emirates.

 

If the above mentioned scenario does take place, what reaction can we expect from Emirates? They are definitely not going to rely on Jat to save the day or launch the route with their own metal, mostly because their smallest aircraft is way too big for Belgrade. Let’s not forget that Qatar’s smallest aircraft that could operate this route is an A319 whereas Emirates would have to use their A330-200.

 

What Emirates might do is strike back by launching Dubai-Belgrade on their lowcost subsidiary, FlyDubai. By using a B737-800 they could compete perfectly with Qatar’s capacity on the route.

 

 

 

While these two mega-carriers would fight each other Jat would have no other choice but to leave the market.

 

 

 

 

Jat’s troubles in the Dubai market are nothing new. They began when Turkish Airlines launched flights to Belgrade, offering convenient connections via Istanbul, using new aircraft and providing excellent service.

So what can Jat do in order to prevent its total collapse in this market? In order for them to even consider surviving on the route they need to launch direct flights and cut out Larnaca.

This can be achieved in two ways, either by acquiring new generation aircraft such as B737-7/800 (Airbus A320 series) or by finding a solution in the old generation market.

The only adequate,old generation plane is the Boeing B757-200. Even if this plane is considered too big for the airline on this route, it will most definitely increase its chances when faced with competition from Turkish Airlines.

If the airline does decide to go with the B757 then the timing must be right. The aircraft needs to be introduced into service in early May, just before the summer rush. Their Dubai flights must be perfectly timed with regional arrivals in order to secure additional feed.

After returning from Dubai the aircraft could be used to operate summer charter flights. By using the B757 on charters it will free some of its B737s to strengthen its scheduled services. For example instead of operating 4 daily flights to Antalya the airline could operate two flights with the B757.

If the airline does decide to go with the new generation models then it should definitely go with Boeing. However if Jat opts for Airbus it will result in extra expenses from introducing a new type of aircraft and in training its crew. But this will mean that it will have two aircraft types in its fleet; something that most airlines are advised against on the grounds of fleet commonality.

If the airline decides to go with new generation aircraft it can lease either a Boeing 737-800 or -700 for the route, in which case the same operational strategy as with the 757 (mentioned above) could be applied. However the 737 could be used on the more competitive European routes. The older B737s can be used for charter flights. The only problem is that the new generation aircraft are more expensive and not that easy to find, especially now when the economy is picking up and airlines are adding capacity.

I believe that Jat Airways should not focus too much attention on acquiring new generation aircraft, at least not for the time being. They should not start to introduce new generation aircraft until they are sufficiently stable to retire their entire old generation fleet. European airlines with this policy include Norwegian who just recently started replacing their B737-300s with new generation B737-800s. Other airlines include airBaltic from Latvia, Aerosvit from Ukraine and Lot from Poland.

In conclusion, Jat Airways desperately needs to revise its strategy in Dubai. Through the interline agreement with Emirates it has access to Asia, Africa and Oceania. It is unacceptable for the management not to seize this opportunity and use it to their own benefit.

In my opinion the airline should go with the B757 simply due to its availability and reliability; not to mention greater comfort on this 6 hour flight. For now the airline needs to concentrate on regaining those passengers lost to Turkish Airlines. In order to achieve this Jat must change and regain the confidence of its passengers.

Unfortunately, I fear that Jat’s present management will neglect the growing threat from the Gulf region. Eventually Qatar Airways will launch flights from Doha, thus destroying Jat Airways. The government will announce that the airline is reporting growing losses and that a new CEO should be appointed. A new CEO will be announced, either a member of  the ruling political party (naturally with no experience in the aviation business), or someone who once worked as a check-in agent and advanced overnight to a high-ranking position!

This vicious cycle will continue until one of the oldest airlines in the world (founded 1927) will be destroyed by the incompetence of its own people.

 

 

The Jat saga continues…at least for now.

 

 

What’s up with Jat? (Part 1)

Where does one begin to point out the flaws of an airline whose basic foundations and infrastructure are extremly outdated and flawed.

The airline in question is Jat Airways, the national airline of Serbia. Since the break-up of Yugoslavia the airline has been struggling. Its home market has shrunk from over 20 million potential customers (of  the former Yugoslavia) to just under 10 million after the break-up of the Republic: a figure that is equal to the population of  Serbia and Montenegro.

Shortly after international sanctions were  lifted the airline was able to resume operations.

Unfortunately by then the domestic market potential had been greatly reduced . Post-war Yugoslavia had little passenger demand due to the visa restrictions imposed on its citizens by the majority of European countries. Yugoslavia had a very weak economy at that time, without which there was very little demand for either carriage of cargo or business  class passengers (both being a very good source of income).

During the 1990s the airline’s core fleet consisted of B737-300s, DC-9s, B727-200Advs, Atr-72s and, importantly, one remaining DC-10.  With a fleet that exceeded its passenger demand the airline was forced to lease out certain planes. Jat’s planes flew all around the world, from South America to South-East Asia.

Its DC-10, once the pride of the Yugoslav flag carrier was forced to fly on short routes such as Zurich, in addition to occasional flights to Larnaca and Montenegro.

With the advent of the 21st century the airline continued to record multi-million euro losses and a constant change in leadership. The latter proved to be extremly detrimental to the airline as without a constant leadership it was extremly difficult to create a long-term strategy which would bring the airline into profit, or at least reduce its losses.

In 2004 the airline was forced to start retiring the most important airplane in its fleet, the DC-9. This aircraft was perfect for the airline as it had the precise capacity it needed, up to 100 seats. These planes could be flown on thinner routes where a Boeing 737-300 or Boeing 727 would be too big. DC-9s were already too old (the first DC-9 joined the fleet in 1969) and their fuel consumption made them too costly to remain in the fleet.

From 2005 the airline’s fleet consisted mostly of Boeing 737-300s operating on the Euro-Mediterranean routes and a fleet of Atr-72s for both domestic and regional routes (with the exception of routes such as Prague or Munich to which the Atrs were flying occasionally).

Jat Airways today is one of  numerous ailing European carriers and its owners, the Serbian government,  have no idea what to do with it. This claim is backed by the latest results recorded by the airline: the loss of market share at Belgrade Airport (which stands at around 40%) and enormous losses achieved with an archaic fleet whose average age is 23.4 years.

As the Serbian sky has been recently liberated, the competition is just going to add more nails to Jat’s coffin.

The new management is promising a fleet renewal by 2012. The only problem is that they are planning  purchase planes from Airbus (A319 with a capacity of about 130 seats) which are going to require new training, new spare parts… only to prove inadequate for the market served by Jat.

The management is blinded by their lack of  aviation knowledge  which prevents them understanding that Jat doesn’t need additional capacity on its routes, proven by their low loadfactor. What the airline needs instead  is additional frequencies in order to consolidate itself on the few routes where it does not face any competition; at least for the time being.

The airline has been suffering because it has never managed to replace the DC-9 fleet. That is why today, the management of Jat should concentrate on finding a replacement for this rather than for their B737-300 fleet, which at this point is partially overhauled with new interiors and new engines.

In my opinion, by acquiring the Airbus airplanes, Jat will be in the same position as Tarom of Romania with their Airbus A318.

With this move, not only will the airline suffer in the long run but so will the government, who will have to finance the introduction of a new plane model into the fleet.

The management has not specified whether they are planning on purchasing brand new Airbus planes or  simply leasing second hand aircraft.

The only thing that they did mention was that they intend to end the 12 year dispute with Airbus. I can only say that they may be shooting themselves in the foot.

It is to be expected that when a completely new plane model is introduced into the fleet (such as Jat Yugoslav’s introduction of the Atr-72, Croatia Airlines’ Dash-8, Emirates’ A380)  technical failures might occur. This is caused by the lack of operating familiarity with the new model.

The Serbian media will not miss an opportunity to report on these events and greatly exaggerate them for dramatic effect. An example of this is the widely reported story of the ‘missing screws’. With the bad publicity following Jat this could hurt them even more. With fierce competition in Belgrade their customers might switch to to other airlines which tend to be less expensive than Jat.