FT060815

#INTHEAIREVERYWHERE

Vol. 14 No. 47	Monday June 8, 2015

Heavy Weather For Air Berlin

From Dusk ‘til Dawn

     Air Berlin (AB) is in serious trouble, and not for the first time. This time, however, it is unclear whether the troubled carrier will see the sun rise again.
     AB has been battling mounting debt, increasing customer dissatisfaction, and low yields—even lower than European average—for quite awhile, but now they are under crossfire by competitors who aim to capitalize on what sources say are AB’s weaknesses and unclear business model:
     Ryanair (FR), the enfant terrible of the LCCs in Europe, is poised for further expansion and is attacking AB head on.
     For example, FR announced the re-start of German domestic flights for the winter schedule; but they will now start in September on the profitable Cologne-Berlin route.
     Currently, about 44 flights are flown between CGN and BER daily, about half by LH low-cost subsidiary Germanwings (4U) and half by AB. FR also plans to initially base five aircraft in BER and offer five daily connections between BER and CGN for starters.
     And FR introduced itself in no unclear terms, offering prices in the 20 Euro (U.S. $22.75) range, which were immediately matched by 4U, and then were lowered to 10 Euro (U.S $11.38) one-way.
     FR has made clear that they wish to tackle AB’s position as second largest German carrier, and it is hard to see how AB can fight back.
Stefan Pichler      While a price war is hard to win in any case, AB simply doesn’t have the financial resources at their disposal, while cash-rich FR has announced that they intend to serve “all major German airports except FRA before the end of 2016.” But with FR’s existing services to Frankfurt-Hahn (HHN), they may well compete in the low-cost sector for passengers who do not mind a 90-minute bus ride, even in FRA.
     Stefan Pichler, (right) the current CEO of Air Berlin, took over for Wolfgang Prock-Schauer on February 1, 2015. Many of AB’s issues are rooted in decisions made by Joachim Hunold (who led AB’s disastrous expansion in the 1990s and early 2000s and reportedly also owned most of the aircraft AB operated by means of various foundations, leasing them to AB at well above market rates) and former controversial CEO Hartmut Mehdorn, nicknamed “sanitizer” in Germany, and later the CEO of the no-less troubled Berlin-Brandenburg airport until March 31st, 2015. Mehdorn followed Hunold in 2011 and stepped down in 2013.
     Although Air Berlin is advertised as a “German” carrier and it bears the German capital in its name, since 2006 AB has been headquartered in Rickmansworth, UK—allegedly for tax reasons. Former CEO Joachim Hunold created today’s AB by integrating former German holiday carrier LTU, Deutsche BA (The German subsidiary of British Airways), the Austrian NIKI, and the Swiss Belair.
     AB has a somewhat colorful history: Founded in 1978 by U.S. citizen Kim Lundgren, it was headquartered in Miami because until the German reunification and dropping of the allied air traffic restrictions in 1990, only aircraft registered in one of the allied states were permitted to operate to and from Berlin. In 1991, when Joachim Hunold took over, the registry was moved to Germany and the business model changed entirely.
     While the focus on nearby sun destinations such as ever-popular Palma de Mallorca (PMI) paid off, the mounting debts of AB proved to be a heavy burden, which Hunold tried to alleviate by further expansion. Attempts to take over German holiday carrier Condor (DE) in 2007 and Germania (ST) in 2008 however failed.
     As the attempts to diversify the newly created carrier were not well thought through, AB was neither a full-fledged legacy carrier such as Lufthansa (LH) nor really a charter or holiday carrier anymore, such as SunExpress (XQ) or Condor (DE).
     Air Berlin resorted to measures that usually spell doom for most airline businesses—selling off what little assets they had and leasing them back, plus outsourcing whatever activity could be outsourced.
     These activities prompted the joke that Mehdorn, CEO of AB at that time, “was an avid believer in being able to make a Ponzi scheme work out.”
     Air Berlin had divested themselves of aircraft, buildings, ULDs, and even spare engines and crew uniforms. With the damsel already in the greatest distress, the knight in shining armor arrived in December 2011, when Etihad (EY) upped their share from 2.99 percent to 29.21 percent at a cost of 73 million Euros (U.S. $93 million) in order to gain a better foothold in the German market.
     In March 2012, AB joined Oneworld and thus gained access to additional routes and destinations of the Oneworld partners. This measure wasaimed at targeting business and leisure travelers who valued interconnectivity; however, the cutbacks in staff and systems gave AB a notorious reputation for not dealing with customer complaints and inquiries. According to figures obtained by the German business daily HANDELSBLATT in August 2013, more than 30,000 complaints at AB were unresolved at that time and many were closed without any response to the customer. The average time it took AB to respond to any inquiry or complaint was eight months.
     Subsequently, load factors on holiday and business routes were not as expected, so AB resorted to giving up routes and shrinking both network, staff, and fleet in order to ferry passengers into AUH where they connected to EY flights onwards. As cash was running out again, AB resorted to selling their frequent flyer program called “TopBonus” to EY for 184 Million Euros (U.S. $234.5 million) in December 2012.
     Further measures included AB taking over cabin interiors that had been replaced at EY in favor of more modern equipment, joint maintenance for aircraft, and staff reductions—measures well received by the stock market, but not so much by the flying public, who started to see AB as an EY subcontractor at best.
     After the 2013 earnings report showed losses of 314.5 million Euros (U.S. $400.8 million), AB’s bankruptcy was avoided by its knight EY who—albeit reluctantly—had again provided a third-tier convertible bond totaling 300 million Euros (U.S. $383 million). Although it rescued AB from immediate doom, this measure proved to be a double-edged sword since it not only made the German air transport watchdog, the LBA, question the financial standing of AB and its business model, but also understandably angered competitor LH who saw these measures as an illegal aid to the struggling competitor.
     A 3rd tier convertible bond gives the creditor the option to convert the loan into shares at a given date. However, EY is unable to exercise this option since it would raise EY’s share beyond the 50 percent limit, which would make AB lose its European registry.
     Similar doubts about the financial standing of former Air Cargo Germany (6U) resulted in immediate revocation of ACG’s operating permit on April 18th, 2013.
Alexander Dobrint      The LBA’s doubts about the validity of AB’s business model materialized in early October 2014 when the LBA refused to sign off on 34 EY/AB codeshare flights which, according to the LBA, “were not in accordance with the bilateral air services agreement between Germany and the UAE.” Although these codeshare flights had been approved in the previous six years, the LBA insisted that there was no legal basis for further approval, likely based on AB’s questionable financial standing and their rebuilt business model as a feeder for EY and its subsidiaries.
     Although German minister for transport and infrastructure Alexander Dobrindt had ordered the LBA to approve the code share flights in question, the LBA insists that no precedent had been set, leaving AB’s most viable business in question.
     In the meantime, AB has announced it will reduce capacity (4.5 percent less seats offered in the March to June period of 2015 than in 2014) and its 2014 earnings report showed even greater losses of 377 Million Euros (US$429.11 million ).
     Although CEO Stefan Pichler says that he is “cautiously optimistic” about getting AB back into the black in 2016, with the attack launched by FR and the uncertain future of their codeshare flights with EY, that seems more than questionable. For EY, it may be more commercially viable to finance the upstart of an Alitalia Germany.
Jens/Geoffrey

Here are some thoughts from Markus Aerne of Schneider Freight USA, a privately held, 150-year-old Swiss logistics company headquartered in Basel, with offices in America in Valley Stream, New York, near JFK International Airport . . .

There is no proactive tracking, not with the airlines, not with UPS, not with FedEx.
You can look it up online and only see: 'shipment left warehouse or truck station' and is ‘in transit.’
     True useful information with the integrators (and also airlines) is only wishful thinking.
     The airlines have a unique opportunity, I think, to leap ahead of the integrators based on the strength and development of their IT on the passenger side if applied to air cargo.
     I had a shipment recently going to a show. There were casters on the shipment.
     A major domestic carrier accepted the shipment, no problem, for next morning delivery in Los Angeles.
     When the consignee did not receive the shipment, we were informed shipment could not fly as tendered because the casters would scratch their ‘new aircraft.’
     So I went over to the airport with a screw driver and removed the casters, and the shipment flew.
     What the airlines don’t understand is that the customers/shippers have changed.

Today’s customer wants to know if there is an app that [they] can load up on [their] phone to follow [their] shipment through its transportation chain.

Hunting Trophies Have No Way To Go

      On May 15, 2015, the British publication The Economist featured an article titled “You kill it, you carry it” dealing with the issue of trophy hunting in Africa and, sidelining on the logistical aspects of this business, how to get that freshly hunted trophy back home.
      In a time when preservation of nature and protection of endangered species is on most people’s conscience, who could disagree with opposing this trade? A simple look at comedian Ricky Gervais’ facebook photo stream will show you he has made it his business to call out each and every trophy hunter who dares post a photo with his or her prize.
      Illustrating The Economist article with a smiling man giving the thumbs up, his scoped gun propped against the belly of his “prize”—a dead giraffe—can elicit only one response from the reader: disgust, and utter disbelief that people like this are still around.
      The Economist points out that “examples of multinational companies forgoing business on purely ethical grounds are rare.
      “Despite fine words, corporations are by nature profit-maximisers,’ The Economist wrote.
      “Their remit is to make money without stepping over the law; separating right from wrong, they often argue, is the job of governments and regulators.”
      The Economist also stated: “there are occasions when a perfectly legal practice is so unpalatable to the public, and any association with it so damaging to the brand, that morality is difficult to ignore.”
      The Economist notes that British Airways stopped carrying animals for scientific experiments in 2005 despite jeopardizing lucrative pharma business, and South African Airways (SA) has just embargoed transporting hunting trophies altogether after alleging some customers had misdeclared items such as illegally obtained elephant tusks.
      The Economist explains that SA’s rationale behind this decision is “to nullify a potential storm of bad publicity before it arrives.”
      A brief check of the facts reveals that the transport of animals—both dead and alive—is one of the most tightly regulated items in the air cargo industry today.
      The IATA “Live Animals Regulations”—which in part have been incorporated into local legislation with the demand for strict adherence to the well-being of the animals by means of so-called “container requirements” and mandated proper classification of animals, and scrupulous checks of CITES documentation for any species flagged as endangered or subject to trade bans—ensure that the well- being of individual live animals during transport and the preservation of nature is a number one priority.
      Of course, one could argue that at least in some cases these regulations don’t work all too well, given the volume of various Customs seizures of illegally transported (thus undeclared or misdeclared) animals or animal products.
      As for hunting trophies, the legal side of the safari and hunting business is a major—sometimes the only—source of income for economies, especially in Africa, and the monies required for the upkeep of wilderness preserves, protection of endangered species, and public education come from exactly this business.
      Whether or not it is moral to shoot a lion, bear, antelope, or giraffe bred in captivity, and then ship home the trophy, is another matter.
      While IATA together with the IAEA are campaigning to remove trade barriers, which are ultimately detrimental to the public health interest, they may have failed to overlook one important point which was recognized by The Economist:
      “Corporations are by nature profit-maximisers.”
      Since the transport of certain special cargoes—such as temperature-controlled pharmaceuticals, certain dangerous goods, live animals, and for this example hunting trophies—require specific (and expensive) training to employees and dedicated facilities for the storage or handling of these commodities, isn’t the real question whether or not the volume of animal trophy transport is a viable commodity worth the costs for the sizable regulatory burdens on such business?
      Moving animal trophies in 2015 is a non-starter to almost everybody.
      That kind of business is off the table and, based on volume, probably not worth the furor.
      But since the image here is also the point, we think the image of transporting laboratory animals and legal hunting trophies may get confused, at least in public opinion, with the dastardly trade of rhino horns and various other illegally slaughtered wildlife.
      I remember once sitting with the late Freddie Laker, much later in the low-cost airline pioneer’s life, when he was “flying gamblers around in the Caribbean,” as he described it.
      I asked Freddie if he ever carried air cargo for a living and he recalled:
      “Post WWII, when they were doing polio experiments, we used to operate flights into the UK from India via converted bombers that were filled with Rhesus monkeys.”
      “The flights were long and arduous and required attendants aboard the aircraft in wet suits as the animals pissed almost non-stop all the way from India to the UK.”
      “The upshot was a cure for polio,” Freddie said, adding, ”you must never tell that story while I am alive.”
      We continue to attempt to separate the wheat from the chaff in what we read or are told, but remain convinced that almost anything that needs to move from one place to another will find a way to do it, legal or otherwise.
Geoffrey

Dear Geoffrey,

   Greetings from Dallas . . . I hope this finds you well. Since Madam Secretary has become a favorite show of ours, Louise and I enjoy watching young Geoffrey and seeing what a fine actor he has become. Congratulations to you and Sabiha for raising such a talented and well-rounded family.
Garner McNett    I wanted to share with you that I am retiring from the air cargo business and have sold the assets of Cargo Data Management to the company’s employees and a group of investors from the Pacific Rim. This is our 25th year in business and just to have survived the airline / air cargo maelstrom for this length of time is a feat in itself. We have reinvented ourselves several times just to stay ahead of the technology curve and installed our first Internet hosted fully integrated air cargo system using all e-AWB’s in 2003 with Cebu Pacific in Manila. It has been a great ride that started with Arrow , Midway and Evergreen in 1991 all signing contracts in the same week and wanting immediate installation…which brings to mind the old phrase “be careful what you wish for . . .
   A quick word of thanks to you specifically for putting a face and personality onto our industry. Yours is not a publication of facts and forecasts but one that addresses and lifts up the people that make this air cargo industry so unique. This is the fifth industry in which I have worked in my career ( someday I will get it right ) and no industry publication that I have seen comes anywhere close to providing the people oriented insight and honest reporting that you provide in Flying Typers and Air Cargo News.
   I have enjoyed our conversations over the years and look forward to seeing you again one of these days.

My best personal regards,

Garner McNett
gmcnett@cargodata.com

Japan Week 2015

As a New Yorker, any opportunity afforded to more deeply explore historic areas of the city should be immediately exploited—too often, native New Yorkers suffer the dreaded malaise of Head Down Syndrome, missing the once-spectacular, now-mundane sights of one of the greatest cities in the world.
     I decided to take in Japan Week, which celebrated its 4th year in New York City at Grand Central Terminal from earlier this year. Set in the small Vanderbilt Hall just off the Main Concourse, Japan Week was a small marketplace of foods, goods, and services sponsored by both local and international Japanese businesses. While my eyes bulged at the sweet, golden cream puff pastries from Bear Papa’s, a bakery that originated in Osaka, Japan, but which now has locations worldwide (and whose Japan Week queue doubled around like the coiled colon to which the pastries would serve their final destination), and my brain marveled at the new Shinkansen high-speed rail model from Japan’s largest railway, JR-EAST, a particularly busy and populous booth immediately caught my eye.
Gregory Fisher      There were several exhibitors and sponsors at Japan Week, but Delta Air Lines had a lively milling of the young and the old, and centered specifically on a set up of i-Pads and flat-screen TVs that served as leaderboards for a game called Sky Search. We spoke with Gregory P. Fisher, Specialist, Global Meetings & Events, to learn about Delta’s presence at Japan Week.
     “Japan Week has been an event for four years; it’s held with the Japan Tourism Agency and we’re the official airline. This is the 3rd year we have participated.
     “The Japanese travel market is very influential, and we have a lot of competition with JAL and ANA. We’re not where we’d like to be in New York City, and we don’t think we’re currently making ourselves fully available to the Japanese community.
     “So we’re here supporting the community and letting them know that Delta has a vested interest in their business travel, and not only their leisure travel.
     “We have a large Japan selling group here in New York City—we really wanted to support the Japanese business community, because it is a lot of import/export, technology, travel, fashion, and they are very appreciative that Delta Air Lines has a vested interest in their needs,” said Mr. Fisher.
     Noticing the 180-degree reclining flat-bed seat available for testing, we grabbed the opportunity to lie back and experience what it would be like to travel on Delta. Business travelers to Japan will appreciate the ability to fully recline inside a personal, private Delta ‘pod,’ enjoying food from James Beard Award-winning chefs and wine pairings from master sommeliers.
Delta Lie Flat Bed      “Almost everybody, if they’re traveling 9, 10, 12 hours, appreciates the full recline of our seats. It’s really designed for the business traveler. We do a lot of corporate travel, which will be married with a Sky Club package, so they sleep on the way over, get up, have breakfast, get off the plane, go to a Sky Club, shower, go to a meeting, and then come right back.
     “That’s called severe business travel. Many of the people that fly like this are ‘million milers.’ They’re actually better friends with the flight attendants than they are with their own family. They see them every day, on long flights—JFK to Asia is thirteen hours. So it’s like your family; you see them every day.”
     Of course, as a child of the 80s and the generation of Atari, Nintendo, and Super Genesis, I couldn’t help but wander to the i-Pad stands, where children of all ages were furiously finger-punching the screens to catch wayward symbols streaking across a cloudy blue sky.
     “That is an interactive game called Sky Search. We developed the game as an engagement piece for anyone coming to an event like this.
     “We have three different prizes that we give away each day: a leather Delta bag, a messenger bag, and a backpack, all filled with Delta swag.
     “At the end, we give away our grand prize. Whoever is the highest scorer will win a trip to Japan, JFK to Tokyo, with a 3-night stay at the Hyatt Regency in Tokyo.
     “The game is set up with our 21 Sky Team partners. Players have to tap on all the readable icons—Delta Vacations, Sky Priority, Aeroflot, Air France, KLM, Alitalia, etc.
     “There are icons that deduct your time—like a fork, a spoon, or a cigarette smoking sign—but they all fly across the clouds, so you tap on the right ones and get extra points,” said Mr. Fisher. Looking at the leaderboards, I noticed the top scorers pushing over 35,000 points, and my eyes focused in on a young man shifting his feet and watching the leaderboards anxiously.
     “That gentleman right there was here for five hours yesterday,” Mr. Fisher said. “He won third place yesterday and has been here since we opened today. He’s currently number three—his name is Bronstein.”
     Noticing that Bronstein’s name was duplicated several times over on the leaderboard, occupying several spots in the top 20, we refrained from joining in on the screen-tapping fun. Better to take in a saké tasting than ruin poor Bronstein’s chances at a trip to Japan. If you close your eyes and have a crispy Bear Papa pastry close at hand, it’s almost as good as the real thing.
http://japanweek.us/
Flossie Arend

FlyingTypers Managing Editor Flossie Arend (left) and Special Events Editor Emily Arend (right) pose with the iconic Japanese character Domo-Kun.

Vital Views 1975-2015

    The year 2015 marks our 40th year in the world of air cargo news reporting—first as Air Cargo News and now as FlyingTypers.
   In 2015 we are fortunate to present the writings of the nearly 102-year-old Richard Malkin, who remains the first air cargo reporter in history (circa 1942) and now serves as FlyingTypers' Senior Editor.
     Here Richard recalls the views of executives over the four decades.

2002

Dennis W. Patrick, president, Lynden Air Freight, in a forceful comment on techniques for “everyday work.” He said: “You can remember one minute manager and management of objective. You can remember how Japan and ‘quality management’ led the industrial world in their modern management and demand for ‘zero tolerance’ for errors and ‘quality management.’ Still, there are some principles that prevail, and I think quality as a noun, incorporated in a culture is one of those. I am thinking of continuous improvement, meeting mechanics, measurement, and process improvement.”

2007

David Abney David Abney, chief operating officer – UPS and president, UPS Airlines, offered these words of change and challenge: “The air cargo industry has seen much change and many challenges in the past year. There are the economic and regulatory pressures, security, and environmental concerns, rising fuel prices and ever-expanding supply chains made efficient with globalization and effective network management. Despite these challenges, the demand for air cargo and express shipments has continued to grow—and is forecasted to keep growing to support global sourcing, production, distribution, and consumption.”

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
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Vol. 14 No. 44
Air Cargo News For May 27, 2015
Leipzig Transport Interlude
Quote Of The Month Doug Parker
Summer & Moak
Saudia Adds B777 Freighter
Chuckles For May 27, 2015
WTO Moves Toward TFA
Logistics Versus Nepal
Echoes 1990 & 1994
American Launches B787

Vol. 14 No. 45
Achim Too Cool For School
Pilots Want Lithium Cargo Revamp
Turk Tips Wings To India & Africa
Chuckles For May 29, 2015
Up Up And Away With UPS

Vol. 14 No. 46
Air Cargo News For June 3, 2015
Oliver's Long Beach Love-In
Chuckles For June 3, 2015
Face Time-Tim Clark
Jyoti DHL India Livewire

Publisher-Geoffrey Arend • Managing Editor-Flossie Arend • Associate Publisher/European Bureau Chief-Ted Braun
Film Editor-Ralph Arend • Special Assignments-Sabiha Arend, Emily Arend • Advertising Sales-Judy Miller

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All Cargo Media, Publishers of Air Cargo News Digital and FlyingTypers. Copyright ©2015 ACM, Inc. All Rights Reserved.
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If You Missed Any Of The Previous 3 Issues Of FlyingTypers Access complete issue by clicking on issue icon or Access specific articles by clicking on article title

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
Access complete issue by clicking on issue icon or
Access specific articles by clicking on article title