Irish Analyst: Time is right for LH LoCo

[Just a spotter]

Reported by RTÉ, the "airline analyst" at Dublin based Bloxham stock brokers give his thinking on Long Haul, Low Cost.

RTÉ.ie Media Player: Business Today (http://www.rte.ie/business/2009/1127/businesstonight_av.html?2657643,null,209)

JAS

[Love_joy]

Its not rocket science...

Laker would have succeded had he not entered a price war with the Big boys, and literally being priced out of business. This time round, the rules of engagement are very different and the Big boys can't afford to do this.

There will always be a market for those who will travel in limited conditions, but pay **** all. Probably a much larger market than those who want to pay a lot more for an extra " and a sandwich.

[Peter47]

Short-haul locos have many cost advantages. No crew lodging, quicker turnarounds, more sectors per day to name a few.

With long haul these advantages are less. On the North Atlantic you are only going to get one round trip per day. You still have to pay for crew hotels. There will, of course, be some savings:

- Lower airport charges - but these are a smaller proportion of costs.

- Lower staff (particularly crew) costs - but legacy carriers, North American ones are reducing costs anyway, and you can't pay cabin crew much less than VS (can you)?

- No frills - yes but I would factor in free food & drink into the fare I would pay for an eight hour flight.

- Tighter seat pitch - see the comment above.

I am sure that you can think of other savings but they will not be large.

The front of the plane has been subsidising the back for a long time. The economy fares for a route such as LHR - JFK at least off season are roughly the same as in money terms as carriers such as Wardair were charging for LGW - YYZ thirty years ago. This is not all due to efficiency gains. The trouble is that there is no longer as much revenue from premium traffic to do this.

You could argue that LoCos already exist in the form of charter airlines with low overheads flying to leisure locations such as Orlando but this will only happen on routes where legacy carriers do not offer lots of economy seats.

[potkettleblack]

Aren't Bloxhams now advising Ryanair in relation to taking over Aer Lingus? Kind of funny how they are now going on about LH loco and MOL has been stirring this idea up over the past few years. And again he wants to "retire" in 2-3 years we are being told. Perhaps to go and run a new LH airline venture using green A330's?

Incidentally I don't bother listening to any analysts anymore. They are usually only trumpeting whatever their pension fund bosses want them to peddle in anycase. I suspect that all that this illustrates is that MOL now has Bloxhams in his backpocket.

[TwinAisle]

You know, I've been in this game for quite a while now, and have written and/or reviewed a lot of low cost airline business plans...

... and for the life of me, I can't make long haul low cost work.

For exactly the reasons that Peter47 notes. A lot of long haul is already effectively 'low cost' - BA often do a LHR-NYC for less than £250, and when you think how much of that vanishes down Greedy Gordon's little pink lane, BA don't get a helluva lot now. Might save a few quid by knocking off the food and drink, but if anyone thinks we are going to see FR style pricing across the pond, my guess is that they'll wait a helluva long time.

Perception will be key - if BA are at £249, and someone comes in with £199 (remember just how much of this is tax, so un-discountable) - I wonder how many people will say "meh... rather have the reliability, T5 and a good G&T thanks". I would bet that people's willingness to sit with their knees around their ears, coughing up for a cuppa and eating Pringles declines rapidly with sector length....

I see MO'L basically said 'not on my watch' to LH loco today... that should tell you something.

TA

[potkettleblack]

So Bloxhams think LH loco is a great idea after their "analysts" state there are great market opportunities. Now low and behold their corporate finance team (chinese walls I am sure - not) are seeking investors for a start up. Oh and wait for it apparently MOL is being targeted as an investor. Give me strength. These guys are worse than politicians!

New low-fare airline planned for Ireland-U.S. route | Irish News | IrishCentral (http://www.irishcentral.com/news/New-Low-Fare-Airline-Planned-for-Ireland-US-Route--77255262.html)