Ordering more aircraft - good or bad?

[markis10]

Interesting comment from Easy Jets founder in recent days after their profit announcement "Good things happen to airlines that don’t order more aircraft" and “However all this good work could be undone by the vanity exercise of buying new aircraft. There are hardly any new routes left that can make a good profit to justify their cost. “The message is now clear – if it ain’t broke don’t fix it”..

Sir Stelios:

Clearly he is talking about the environment in his neck of the woods but I do wonder if its sage advice for Asian Pacific Airlines, especially given Lion Airs recent woes and the sheer numbers of aircraft on order in our region?

 

[casanovawa]

Like any business there should be a reasonable business case for buying new equipment as well as a management/maintenance plan for the equipment.... This can include a range of factors in terms of advancement in new technologies for either enhancing the product offering or lowering the costs of operation, also on Government taxation treatments of depreciation in that country/region etc and resale value of assets (do you want a young fleet and keep selling older equipment off to others or a paid up older fleet)...

If after doing all that and working out whether a maintenance strategy or a growth strategy of your equipment is warranted in terms of whether a profit can be made vis a vis your competitors and forseeable market conditions, then yes it probably can make sense to not be buying new planes for the sake of it... Although Europe is a pretty mature market while Asia seems to have the capacity for a lot of growth and with EasyJet's type of planes it is obviously very geographically locked into a defined set of potential markets? Even leaving aside your competitors sou also don't want your fleet all getting old at the same time and you let yourself in for a major recaptilisation hit all at once sometime in the future...

You also don't necessarily need to run the white flag up the pole just because Lion, or some other airline, makes some high profile big orders, there must be some doubt whether they will ever eventually all be delivered and if that airline with its safety records etc has the capacity to challenge better run and maintained airlines in routes perhaps out side of Indonesia and a few other markets... Just providing for Indonesia's 230 million people will take up a few of Lion's airplanes anyway if that market shows any strong growth...

 

[Must...Fly!]

It is advice that should be very carefully looked at. I would imagine it is much easier to be blasé in balancing what you need with what the manufacturer will actually give you in the way of a deal.

I personally see no way in which Lion Air can be in a position to afford and safely fly all the aircraft it has on order. I want to know where the money is coming from to pay for them all! At least with Emirates, it is obvious.

 

[The Rok]

I read an article last week from MOL about why Ryanair has not yet entered the transatlantic market which he first touted about 8 years ago. Its a lucrative market, and one where Ryanair would do very well, especially with US Customs & Immigration pre clearance in SNN & DUB.

The reason was, he couldn't buy wide body jets at the price he wanted them in order to make it viable, too many large orders from other airlines meant that he could not negotiate the right deal. His solution, wait! Wait until all these orders are fulfilled or start to fizzle out due to a change in the market and then pounce.

So there is probably some method to not buying now if you don't need them immediately.

 

[elbarto]

I read an article last week from MOL about why Ryanair has not yet entered the transatlantic market which he first touted about 8 years ago. Its a lucrative market, and one where Ryanair would do very well, especially with US Customs & Immigration pre clearance in SNN & DUB.

The reason was, he couldn't buy wide body jets at the price he wanted them in order to make it viable, too many large orders from other airlines meant that he could not negotiate the right deal. His solution, wait! Wait until all these orders are fulfilled or start to fizzle out due to a change in the market and then pounce.

So there is probably some method to not buying now if you don't need them immediately.

I don't see him rushing out to buy the 767 which is only getting a drip of orders and Boeing want to keep the line open so they can build tankers for the US air force. Perhaps transatlantic is the reasoning behind the continued take over attempts of Aer Lingus.

 

[The Rok]

He will never get EI, but that's another story. Buying EI would if given him an instant transatlantic airline which only need expanding.

I'll try find the article, but it did mention the 767, however fuel consumption was mentioned as the reason for not buying them.

EI are currently looking at leading some really old 757's to expand the transatlantic market for them.

 

[ajw373]

Interesting comment from Easy Jets founder in recent days after their profit announcement "Good things happen to airlines that don’t order more aircraft" and “However all this good work could be undone by the vanity exercise of buying new aircraft. There are hardly any new routes left that can make a good profit to justify their cost. “The message is now clear – if it ain’t broke don’t fix it”..

Sir Stelios:

Clearly he is talking about the environment in his neck of the woods but I do wonder if its sage advice for Asian Pacific Airlines, especially given Lion Airs recent woes and the sheer numbers of aircraft on order in our region?

Asia is a good 10 years behind Europe (the UK in particular) when it comes to LCC's. Also SE Asian is getting wealthier (and I use that term relatively because clearly that wealth is no where near Aus or the UK) meaning demand is growing for these kind of services. Maybe in 10 years time the LCC marker in Asia will also become saturated in which case the advice may well apply to that part of the world.

 

[markis10]

Sounds like Sir Stelios is unhappy with the news of 235 new Airbus orders placed by Easyjet in Paris today!

@clarkaw: Stelios attacks easyJet order for new Airbus jets: "Yet another huge capital expenditure deal at 'secret' prices"; demands full transparency

 

[UP4014]

I think the trick is to engage with the builders now, firm up the next round of orders and get committed pricing while the manufacturing sector has slowed up. Then hope (of course you've done your research) like hell they don't start arriving until the sector has picked up and you can afford them.


matt

 

[Melburnian1]

The number of worldwide airlines that make an acceptable amount of money from a shareholders' perspective each year or in total over a decade cannot be high. RyanAir would be one; EasyJet might be another; Singapore Airlines was, but may have slipped; Air NZ may in some years but QANTAS "I won't be paying a dividend in March or September' Joyce or Virgin Australia would not be on the list. Most US airlines would not make the grade (anyone for bankruptcy protection?).

So new planes or not, the industry isn't a class leader in industry sector profitability.

 

[mannej]

The number of worldwide airlines that make an acceptable amount of money from a shareholders' perspective each year or in total over a decade cannot be high. RyanAir would be one; EasyJet might be another; Singapore Airlines was, but may have slipped; Air NZ may in some years but QANTAS "I won't be paying a dividend in March or September' Joyce or Virgin Australia would not be on the list. Most US airlines would not make the grade (anyone for bankruptcy protection?).

So new planes or not, the industry isn't a class leader in industry sector profitability.

Do you want to back that up with some facts, or is it more opinion from your side?

 

[Melburnian1]

Here's one article that's positive:

20 May - Full Year Results 2013

and a slightly dated one that is not:

Qantas Return On Equity QAN.AX Australian

The clincher is here. Less than a two per cent profit margin (not return on equity) worldwide:

Airlines predict profits of $13bn next year on revenues of $711bn | Business | The Guardian

 

[casanovawa]

Its not the first industry you think of to invest in and become mega rich...