The World of Alliances

I have made a guest post in airBaltic blog. Find out:
1. When and why alliances were founded;
2. What benefits they bring to airlines and passengers;
3. What is the hub coverage by each alliance.
http://blog.airbaltic.com/2011/08/11/all-you-ever-wanted-to-know-about-alliances/

Long Distance Coaches From Riga

Long distance coaches are rather developed and popular mode of passenger transportation in the Baltic States. Last year I wrote how coaches dominate the public transport market within Baltic States so now it’s time to look what are the possibilities for travel from Riga to destinations beyond borders of Latvia, Lithuania and Estonia. There also are several long distance coach routes not involving Riga but these are not taken into account here.

Altogether 131 unique cities and towns outside the Baltic States can be identified with direct service from Riga. As the map shows – all routes can be divided in two large groups based on their geography:

1) The closest destinations – Russia (excluding Moscow), Belarus and northern part of Poland. This group includes frequent services to the large cities as Warsaw, St Petersburg and Minsk and far less frequent services to regional destinations like Gomel and Baranavichy in Belarus or Velikiy Novgorod and Smolensk in Russia. Services in this group see competition from car travel and in lesser extent from air travel (limited number of destinations focused on feeding Riga hub) and trains (service being limited to St Petersburg, Minsk and few more stops on the way). Routes in this group have many stops in the Baltic States and further abroad and they are operated by various companies often strongly cooperating and, in some occasions, competing.  

2) Routes to more distant destinations in Ukraine, Germany, Netherlands, Belgium, Russia (Moscow) and other countries. All of them (except few in Ukraine) are operated by carrier Norma-A under Ecolines brand. These routes face strong competition from airlines (airBaltic and Ryanair) that outperform Ecolines by frequency and seat capacity, and of course – by travel time.

Nevertheless there are reasons why some costumers choose 31-hour bus ride instead of less than 3-hour flight to Düsseldorf. First of all - coaches serve many more cities and towns than air travel can offer. Almost all of West-heading coaches from Riga make a detour to pick more passengers at Vilnius and stop at all mayor towns all the way to Warsaw. In Germany and the Netherlands coaches stop at large number of medium-sized towns. So being closer to the origin and destination of passenger is a cornerstone in this service. This positively effects the overall travel costs as ground transport in Germany is monopolized and expensive.

Secondly, coach travel is generally cheaper than air travel for close departure bookings, yet directly comparison is hard as airlines use fare level system and extensive sales but Eurolines – flat fares. In the example of Düsseldorf, flat Eurolines fare of €110 is undercut by airBaltic for travel 7-8 weeks from today and by Ryanair – within a week from today. As Ryanair has recently restricted online bookings for travels from Latvia and Lithuania for departures within a week due to credit card fraud risk, choosing a coach is an alternative also in urgent cases.

And the last, but not the least reason is luggage allowance. While charging for checked-in luggage is a mayor revenue source for almost all airlines operating from Riga, Eurolines don’t charge for luggage at all and the luggage size regulations are less strict. This is a large travel cost saver for those passengers intending for a longer stay – guest workers and students for example.

Passengers loading luggage for their trip from Riga to Kiev at Riga coach station. Operated by Ukrlines under Ecolines brand. The €50 service is popular despite the more than 16-hour ride and need of Belorussian transit visa.  

Norma-A has publicly admitted that after the opening of German labor market their sales has strongly increased and some capacity will be added. But what are other development opportunities in the market? As top priority for Ecolines I see more complicated fare system that guaranties lower fare than air travel also for more distant departure dates and allows benefit from elements of yield management. If the number of departures is going to increase - the number of destinations per route should be decreased to reduce the travel times (similar to current route to Paris that skip all German destinations). The role of frequency seems to less important in this type of service, though I believe no destination should be served less than twice weekly anyway. If the market grows, different route structure of developed transfer opportunities and high route frequencies may be applied. From one side - long distance coach market is strongly linked to situation in air travel so increased airfares must increase the passenger number for bus travels, but from the other side - many of the potential passengers may choose not to travel at all because of the unacceptable travel time by coach or choose to make the journey by car to benefit from grater flexibility. 

airBaltic Riga Base 2011

Two years ago I took a close look how airBaltic had transformed its Riga base from point-to-point strategy in 2007 to a genuine hub in 2009. Now it’s time to find out how things have evolved since then.

It’s clear that the hub strategy has not changed. Almost all aircraft operations can be divided in 5 groups: group 1 in morning, group 2 in afternoon, group 3 in evening, group 4 late at night, group 5 also at night but with earlier departure and later arrival than group 4.

Anyway there are some details that have changed:

1. Almost all Nordic routes have gathered in group 5. In 2009 Oulu was operated in group 2, Alesund in group 3 while now both of them and also some new destinations are in group 5.
2. Billund - previously group 3 destination - now have altering group 1 and 3 operations.
3. Group 2 – the important daytime operations to mayor European cities – has sprawled. Both backwash and uprush windows are longer due to the new service to Madrid and rearranged timings for some Baltic flights. Berlin and Stockholm daytime operations are no longer in group 2. Instead two flights are made.
4. Second daily flights to Paris and Amsterdam have joined London in group 3.
5. Some clustering has happened in departure times for flights within one geographic region. For example – group 5 flights to Kalinigrad, Palanga, Tartu and Kaunas all depart at 8.20pm.

Overall the hub operation strategy is little bit clearer and still is the lifeline of airBaltic. Unfortunately flights to Visby to be cut this month, yet not really a surprise as they did not fit in any flight group so transfer possibilities were too limited. As for future – the arrival and departure times for group 2 should be kept under control – no more too far destinations like Madrid. It would actually make sense to swap Dublin and Madrid flight times. Long arrival and departure frames make transfer longer if traveling between close cities where majority of the traffic lies. There should not be routes operated only in group 1 or in group 3 – they rather must be operated in some other group or using altering pattern like Billund does. It’s similar to the mixed-up schedule pattern for p2p carriers I proposed earlier. And there should not be new routes from weak destinations operated out of hub pattern. In contrast - there may be strong routes with high frequencies that go out of the hub frame - like many current departures to Helsinki, Vilnius and Tallinn.

Could the New airBaltic Terminal Become the First True Low-Cost Terminal?

Everyone who had air-traveled at least once had got familiar with the traditional order at airport: check-in, baggage drop, security, passport control, boarding, luggage reclaim and so on. But is it really the most appropriate, easiest and cheapest way to get people and their bags on and off the planes? There must be some more up-to-date model because the current system has strong roots in early luxury air travel when traveler numbers were low, ticked prices unaffordable for general public and service standards high.

Current terminal at Riga airport is now considerably crowded at peak times as airBaltic has created a local hub. All of the earlier expansion proposals came from airport itself and were some type of traditional glamorous ‘air-travel temples’ spread all over the world. The project did not move on and airBaltic took over the initiative of building a terminal for 7-8 million annual passengers with expansion possibilities to capacity of 14 million passengers. Terminal must be low cost (~EUR 95m) and satisfy needs of airBaltic. Here come my ideas for the terminal:

Self-Service Luggage Handling

The cheapest and most obvious way to handle luggage is to put this duty on the owner. This means no traditional luggage drop when entering the terminal but one must bring his suitcases as far as the aircraft and put it in trolley for loading onto aircraft. Arriving bags are delivered right near the aircraft and anyone can take them without any delays. Of course, all bags must comply with hand luggage safety standards so no sharp items or liquids can be carried. If all this is introduced luggage handing will cost less so most of restrictions and fees actually could be eliminated.

Problems start with other airports in airBaltic network – the arriving bags at Riga must be cleared as hand luggage not as checked-in luggage so gate baggage drop must be applied for everyone and several airports may not find it acceptable. Luggage transfers from traditional carriers to BT would be impossible and travelers would have to pick-up the bags from reclaim belt and go trough security again. Alternatively such type of luggage could be considered as air cargo and delivered at cargo facilities at RIX (with significantly longer delivery time).

Keeping the Terminal Simple

As terminal would not have a traditional baggage handling system, all the facilities can be located in single floor; there would be no need for check-in counters. Single floor and gate baggage drop don’t go well together with jetbridges so walk and bus gates are the only reasonable option also saving time.

New passenger oriented cargo and mail service must be developed for prohibited items in hand luggage. Sharp items and liquids could be delivered to destination with special mail service (optionally connected to traditional mail). The difference from current checked-in luggage would be earlier check-in times or later deliveries (booth in special offices), smaller item size. These items would not be attached to the particular flight where the owner flies but could be delivered to destination also earlier or later. The packages can be delivered to traveler’s preferred post office as regular mail so avoiding the need of make companies own post offices at all stations.

Maybe this all sound too crazy but just imagine how big savings could give significant airport cost reduction at hub airport for hub and spoke model airline. Hub model was introduced because it is cheaper than point-to-point model; it is multiple times easier to connect each node with one hub rather than each node with all of the others. Paradoxically European point-to-point LCC now can offer cheaper tickets with significantly more expensive network. Hub airlines can blame only themselves for high airport costs coming from starchitect terminals, luggage handling systems, jetbriges and 100m spans over check-in halls. 

Regulation 261 - an insane standard for pax service

Regulation 261/2004 covers EU air passenger rights and airlines’ obligations in case of delays, cancellations, flight changes from airline’s side and other disorders. One of the main rules is airlines’ duty to give meals and to accommodate the delayed passengers. This regulation was presented like a triumph from consumer right protection organizations. Indeed - the punctuality now is top priority for all airlines as the passenger assisting expanses are undesirable. The recent airspace closure above parts of Europe had put an enormous financial challenge for air carriers – to assist stranded passengers from hundreds of flights for several days. Of course – most of airlines tried to escape this declaring that the delays are beyond airline’s control. We will see some legal actions against the airlines for breaking this regulation but I want to turn to the fundamental problems in the spirit of Regulation 261/2004:

1. It puts the expanses and responsibility of delayed passenger service on shoulders of airlines. Even if the delay is due to weather conditions or – more unfairly – government institutions which are not financially responsible for consequences of their decisions, the expanses are covered by airlines

2. The regulations are applied just to airlines and not train, ferry and coach operators.

3. The biggest problem – it regulates what shouldn’t be regulated at all. Airline’s dealing with delayed flight has nothing to do with safety issues which are the main objects of usual regulations. Keeping passengers happy is a pure example of ground service and it must be up to airlines how they position their brand and how keep people flying with them. A good example of good service is Volaris from Mexico – if a flight is more than 30 minutes late passengers receive a gift certificate for further flights valued 50-100% (depending on booking class) of the price paid for the delayed flight. This gives a great target for employees to arrive on-time and is one element why Volaris is the most loved airline in Mexico. And this policy comes from an airline, not from the government.

Government still could regulate required information about the product costumers buy. Airlines can be pushed to clearly define what type of help passengers receive in case of delayed/cancelled flight, up to what time the airline keep the rights to make  changes in the ticket and other areas of costumer service, leaving the product and price up to the market.