Posts filed under ‘Aviation’
Iberia and British Airways’ merger (two losers together don’t make a winner)
Finally they had to do it. Slumping for too long with revenues going down the drain finally made both companies not so choosy about each other, specially when the rest of the European partners are already married and the half-blood-European-Americans are not allowed. They finally had to sit together in the only remaining chair.
Borrowed from economist.com, thanks 
Okay, I’m being a bit sceptical here, or even negative. There’s a huge positive thing in the news. At least now the different boards will be able to focus on the real problems of both companies, which are not exactly small. The airlines’ world has been turned upside-down, with some new winners (namely Ryanair who have opened around a half of all the new routes in Europe this second half of the year, and yes, sorry again, I’m a fan of their capacity to generate efficiencies) and some losers: flagship airlines.
They used to be so protected. In fact, they are doing what they are doing in order to be able to attain efficiencies (at least I hope so) but at the same time keep their privileged status (in Heathrow and Madrid) where they have been allocated far more than what they deserved, sometimes in the shape of priceless slots they are holding onto, and sometimes in the shape of better premises than competitors at the same price.
What’s funny is that they intend to do everything at the same time, both rejuvenating themselves and both retaining those beautiful curves. And for that they have chosen the least aggressive partner, of course. God forbid that they had to wake up earlier now they are married. Or maybe it’s the other way round and they are expecting their partner to tell them what they couldn’t tell themselves: to clean their share of their house.
Well, they say you can’t want to follow all the strategies at the same time and be successful. Anyway, Mr. Porter will be proud if they do it. Good luck to the newly wed. Let’s hope that the festivities are short. Inefficiencies and pensions are piling up and, most worryingly, the business model is outdated. Other airlines are becoming more efficient, and I’m not only thinking of low-costs. Time to work seriously. Time to finally realise that an airline is not a ministry!
Opening day (the commissioning of Barcelona’s Airport Terminal 1)
Unbelievable we’re already here. After six years of dedicating an important part of my professional life to Barcelona’s Airport, today Terminal 1 is officially born. We’ll listen to the politicians’ speeches on how they made this possible. Maybe they did, but we worked all the way through. And this feeling, this pride, this sense of belonging will carry on with us the rest of our (professional) lives.
A huge, unique project can only be done with the commitment of a group of people. A group of people ready to withstand many pressures and surmount uncountable odds. Very diverse people, some very qualified, some able to star and shine without that qualification.
There are some pass-byers as well. The latter will be all in the official celebration today, even publicly displaying their self-attributed mothering. Isn’t it sad that people that have not appeared in the life of the project, and could have done things to support it, they come now for the medal?
We’ve learnt many things here. We’ve lived through many successes, and mistakes too. Fortunately! You can’t learn if you always do everything well. It would give you a false sense of security that would undermine your judgement.
But even if you make mistakes, you can’t learn unless you can reflect on past experiences. Unless you can evolve. That’s our duty today as nucleus of the project that has created the biggest Spanish airport terminal of all times, the biggest infrastructure that has been built in Barcelona for the last decades. We must make this exercise and learn.
Nothing of this would have been possible without the engineers. People think of architects, but they only make a small part of the project: they don’t make things work. Specially star architects that have seldom appeared during the project and have been more of a nuisance than anything. Till now this was the realm of the engineers. It was our time. Not any longer. Now it’s turn for the airlines and for the people that maintain the airport to work. It’s time for the passengers, for Catalans, to make this terminal their own. This terminal will be the first, and last, thing that visitors to Barcelona, and Catalonia, will see. It’s for all of us.
Yes, that was yesterday. And I was there. And from the experience I can tell you that I felt that my commitment for this project for so many years had been worth it. I feel as I have participated in something big, something important for my country. And this, in itself, is a reward as well for me.
The holidays are over (still here after a busy summer)
Another year is over, and I’m left cold sober. That’s how a song from Queen begins. In my case it has been an interesting but feverish year. I’ve done so many things that I can’t recall them all.
My first year in the Henley MBA is over. I have passed all three exams and I feel relieved, I had my doubts that I’d pass them all. Henley Management College has just become Henley Business School in the University of Reading. That means a lot for the future prospects of the school as it will make new additional resources available to reach new heights. It’s good news.
We had a workshop about global business environment and strategic marketing. I especially liked the first part, reflecting about the global economy and how the different economic areas in the world compare, and the current macroeconomic trends.
Later, reflecting about it, I envisioned myself as an agent of globalisation. After all I had been a few days earlier seeking business in Delhi. I can’t write much about it but Spanish companies do need to go out and compete, and who is going to do that if it is not ourselves?
Yes, that’s the Taj Mahal as captured by my mobile phone. That was one outstanding moment of the summer. I will never forget this image.
In the meantime things are on track for Barcelona’s new terminal. The building is almost complete and we are testing the first systems. The last sneak peek is from one of the busiest commercial areas. A few systems are already installed and the first system trials will begin in one month. Below is an image of the first screen ever working there, still on the floor although the support structures are already installed.
The bottom line: I’m still here. I’ll keep you appraised
Living with the Terminal 5 syndrome
As the average reader of this blog knows, and wordpress knows such individuals exist to my amazement (THANK-YOU), I do several things in my job, one of them is the integration of the baggagge system in the Terminal South (or Terminal D) in Barcelona’s airport.
Well, it used to be one of them… but it has been growing and growing, absorbing my time and effort, sometimes with complex things, of course, but very often with little and silly things, sometimes simply to overcome the lack of communications between parts in a huge project, sometimes just repeating the same things again and again.
Organisations prepare themselves to manage projects. They start shyly with one and, if they are able to envisage an strategy, they include project management into their capabilities. There are models to describe how project management competencies are integrated into organisational capabilities. Different organisations are at different levels, and thus are able not only to manage projects but also to increasingly learn from them.
But, at the end of the day, panic happens. That’s when they forget everything and start to triple-check everything based on the gut feelings of people, high enough in the ladder, that don’t really know about the systems to be implemented. Trivial things get inflated and strategic things suddenly obviated.
That’s what has happened to me with the Terminal 5 syndrome (to know more about Heathrow’s Terminal 5 click here). It will take some time to settle. In the meantime some issues have been enshrined as the most relevant by the organisation and are draining a lot of resources. Yes, organisations are able to learn a lot about project management but, when panic starts, they sort of regress to a previous state, top level managers want to micromanage what they still don’t know anything about, and reality gets distorted to adapt to the top management expectations.
A hard critique? Fortunately the tide is just a tide and we will be able to focus the existing energies on the real issues… having top management’s attention is very helpful as long you can manage it in the right direction, and to help you instead of interfering.
Learning from Terminal 5 (Interviewed for the Times)
I was interviewed by Widget Finn for the Times, and she wrote the following article:
The disastrous debut of Heathrow’s Terminal 5 was a nightmare experience for all involved, but for Gabriel Mesquida it has proved a valuable live case study for his MBA dissertation.
Mesquida is a programme manager for Aena, the Spanish equivalent of British Airports Authority, that is in charge of the expansion of Barcelona’s airport. He is responsible for the coordination of projects in the information systems, communications and security programmes. His dissertation for the distance-learning MBA that he is doing at Henley Management College is on managing airports for the future, so he is watching carefully how the Terminal 5 saga unfolds.
He says: “Our terminal is similar in size to Heathrow, which is considered the plane capital of Europe, and I visited T5 several times when it was under construction. I was impressed, at the time, by how much detail they were going into over safety and they were scrupulous about everything.”
But when the terminal opened it became apparent that there would be other useful lessons to be learnt – including how to manage a meltdown. “An MBA has a foundation of theory but it should be practical, so having a live case study means you can watch events as they unfold and draw conclusions from them.”
The conclusions may be different when the case study is current rather than from a textbook comments Dr Richard Barker, director of MBA programmes at Judge Business School. He says: “One of the benefits is that you don’t know the outcome, which simulates the management situation more effectively. With a five-year-old case study there’s a result to the story which is difficult to escape. You can look at different options that management had at the time but knowing what happened influences your ability to assess the case.”
Mesquida is already putting into practice some principles of leadership from his MBA that were highlighted in the Terminal 5 episode. He says: “Resources are important, but people are far more so and leadership is everything when you have a flock of people wandering around a huge new infrastructure. However carefully you prepare, the unexpected can happen, and that is when your staff should have the flexibility to use their initiative. If the company has a blame culture people will be reluctant to take risks or do anything except cover their own backs.”
Durham University Business School uses live case studies in boardroom simulation exercises where students focus on a real company. Dr Julie Hodges, director of MBA programmes, explains: “They look at the strategic data, where the company is now, what challenges and issues it’s facing, then students come up with recommendations based on the information.” But textbook cases also have their value. “These give an historical perspective so that the issues can be put into context. More data is available and we can identify the medium and long-term lessons.”
Textbooks’ case studies are polished, tried and tested so they are easier from a teaching viewpoint. Barker points out that they are also pigeonholed into subject areas. “They may be labelled a strategy or marketing case, which isn’t always obvious when you’ re trying to deal with something in the boardroom.”
He can predict some of the labels that will be put on Terminal 5. “I see it as an operations management case – make sure your operation works before you start overloading it, or a people management case – train your people properly and handle recovery situations effectively.”
Mesquida agrees that more lessons will emerge from Terminal 5 as time goes by, but together with his MBA learning, it is already shaping his decisions for Barcelona airport. He says: “We need performance indicators and a more systemic approach. Stakeholders and users shouldn’t have the impression that you’re out of control or they’ll feel abandoned. They must be kept fully informed of what’s happening and how you plan to remedy the situation.”
Terminal 5’s launch onto the world stage may have been a fiasco but, clearly as a learning resource for business students, it will run and run.
Thank-you Widget
Reflections from a high-speed train (inbetween Madrid and Barcelona)
I often travel the route Barcelona Madrid (and backwards) for the day. By plane it’s rather tiresome and expensive: with an open fare you end up paying around 400€ for a 630 km flight (+ 630 km back).
Barcelona – Madrid is the world’s busiest route with 971 operations per week. The second one is Sao Paulo – Rio (894 per week) then Jeju/Seoul Gimpo (858 per week) and fourth is Melbourne/Sydney (851 per week).
In fact you have to go very low in the ranking to find another crowded European route. That would be Rome – Milan with less than 600 operations per week, which, by the way, is more than the most crowded North American continental route: Las Vegas – Los Angeles (553 per week)
Source: www.oag.com, data from September 2007
But things change. And this milk cow for the airlines faces its first serious menace ever: the high speed Spanish train service, also called AVE.
These brand new trains travel the distance of 630km (410 miles) in two hours and 35 minutes. Not too bad when it’s compared with the plane that takes roughly two and a half hours (not just flying but also spent in the check in and departure processes), and possibly more.
But, from an economic point of view, there are many hidden costs that must be taken into account. After all, what is it that you do in a plane? Well, you sit in a narrow seat, trying not to disjoint your legs, and pray that the person that will be sitting beside you is not extra overweight. In the train you have plenty of space. Being uncomfortable has a cost.
How much? Well, it depends on what you’re willing to pay to be more comfortable, of course, and how much your time costs.
How much are you willing to pay for that extra nap? Well, in a 45-minute-long flight, you’re going to have maximum thirty minutes of uninterrupted sleep. You won’t be able to sleep while you queue, while you’re being inspected at the burdensome security checks, while you wait your turn. But on a continuous 2 hours 35 minutes journey you’ll be able to.
As for opportunity costs, you won’t be able to do anything in the plane, apart from opening your laptop for half an hour. It’s completely wasted time. In the train you can use your computer as much as you want, use your phone, combine them and access the internet. Work, eat, talk, whatever you wish.
But externalities must also be taken into account. Environmental footprints can be four times higher for planes than for trains. That means that the train will always be more sustainable and, if we ever are to reflect the true external costs, energy efficiency will give the train an important lead over the plane.
Add those costs up: discomfort costs, opportunity costs, externalities and you will have a very competitive mean of transport. Which only means that competition has been increased, with a comparable service at a better price. In the end, consumers will be benefited from the additional choices, lower prices and the increased service levels that competition will bring.
That was what I was thinking when I decided to open the textbook I was carrying with me. The Managing Financial Resources module awaited me. Fortunately it was half way to Barcelona, 300 km per hour (186.41 mph), still an hour to go.
Blaming Heathrow (and splicing it up)
It’s increasingly easier for alienated bare-footed queuing passengers to blame Heathrow (BAA) for the illnesses of the deficient British airport system. Even easier to blame there is the Spanish owner: Ferrovial. But a systemic look at the problem reveals that the responsibility is wide spread, and it may not be that easy.
The airport sector has been traditionally underinvested. A very important stakeholder, the surrounding communities, has been reluctant to give way to hostile-perceived enlargements. Justifiably worried about the environment, may that be atmosphere or noise, or simply about the territorial impact in hindered neighbouring villages, new infrastructures take so many years to be constructed that capacity always lags demand. The results: outdated infrastructures that are working over-capacity, and need to be maintained, overhauled or simply redesigned while in operation, leaving a poor image to travellers passing by.
More capacity is coming: brand-new T5 will open in March 2008
But what does it take to open a new terminal? There’s a lot of regulation in that too. Regulation that can be changing at any moment, as the new security requirements. BAA is required to enforce the law, a law that has changed to tougher requirements that imply additional costs.
But, that’s another point, tariffs are regulated. Airports are not free to choose what they charge the customer. In the case of the British Airports it was decided at some point that they wouldn’t compete with each other. Instead they were to be bound by decree tariffs. So the passengers would spill from one another filling all them up.
It has certainly happened. But the model needs a lot of overhauling too. Competing airports would make additional capacity out of thin air, and improve the customer service. Airports would feel the need to adapt to their customers: both airlines and travellers, and would need to align costs and prices. Do I really need to praise market economies here?
In my opinion, that’s what the Spanish owner Ferrovial is looking forward to. They had to incur in huge debt to buy BAA at a higher price than expected. And right now they are bound both by harsh requirements and fixed tariffs. In a free market they’d be competing against other airports bearing a much lower debt. And they’d have the first say on which airports to sell. If I was them, I’d pressure for that using public opinion, a very important stakeholder in this sector.
And when social brokers, namely the media, align with public opinion pressuring for change, the government complies.
Airlines still dancing at the Spanish ball (Iberia and Spanair seeking mates)
Subtle movements show greater undercurrents in the Spanish Airline’s ball. You’ll see several previous posts about this in Scarcityrent.com (Airline movements in Europe: British Airways and Iberia on hold, Airlines corporate hunt: British Airways and TPG finally join forces to buy Iberia, Iberia and its brides… where’s the value?)
But let’s review the latest movements and their meanings. Major strategies in the Spanish airline sector are wobbly now.
Iberia has decided to open its books to TPG. They were trying to win some time waiting for things to happen but it seems they have changed their mind. Why?
- There’s not a competing strong offer for Iberia. In fact shareholders wanted to sell right away. Now they fear they could be left out in the cold with a company they no longerwant. Lufthansa is cooler every day.
- Being privileged for being the Spanish flagship carrier in a heavily regulated sector, they wanted to wait until Spain’s next election, awaiting a possible change. But change seems more unlikely each day, so there’s no point in waiting. Maybe it’s even better not to wait because the forthcoming government might even be the same but stronger.
- They had the previous objective of raising the share price to 4€, whilst the prospective buyers valued a maximum of €3,6. Have shareholders renounced to that objective?
- In other European countries things are cooling down too. See Alitalia, left with no brides, or Lufthansa drifting away towards another option (see below)
Less risk means less reward too. Looks like shareholders are aiming at speeding things even at a lower price. That’s good news for both TPG and British Airways, and for a sector that needs consolidation and clarification. Many things depend on the management of those big airlines.
And meanwhile, Spanair, the second Spanish airline, is for sale too. SAS, it’s current owner, has decided to disinvest in the company. Gonzalo Pascual, the president of the company, owner of the Spanish touristic group Marsans is about to buy it, but some things have happened too:
- Lufthansa has expressed their interest to buy the company. Although of a smaller size than Iberia, this airline has the advantadge of being in the same alliance than Lufthansa: Star Alliance, while Iberia is in the wrong one: OneWorld, lead amongst others by British Airways, direct competitor of Lufthansa, with many flights shared with Iberia and, of course, shareholder of Iberia with a 10% stake. (and, maybe, unwilling to sell to their German competitor)
- TAP, Portuguese Airline, has expressed its interest too.
Of course that means that this €450 million Airline is about to increase its price. There’s nothing like competition. Good news for SAS, of course.
This man is the one that has the key. Gonzalo Pascual, beside SAS (Scandinavian Airlines Systems) executive Joergen Lindegaard, controls Air Comet, Pullmantur, Austral and Aerolíneas Argentinas, with heavy traffic across the Atlantic Ocean and a total fleet of 90 airplanes. Spanair is their natural ally, with an additional fleet of 65 airplanes and a lot of Spanish connections that can feed their intercontinental routes.
But, you there are always other possibilities, if the Spanair acquisition were to fail, why not buying Iberia instead? It would be hard and difficult, but Gonzalo Pascual is the one Spaniard that could. That would mean removing the foundations of the whole Spanish aviation sector though.
And this way this airlines’ love triangle gets more interesting. We’ll see what happens next 
Airline movements in Europe: British Airways and Iberia on hold (and a remote highway too)
It’s funny that the Wall Street Journal published this week an article about the consolidation of the European airline industry. I’ve written about Iberia and it’s many contenders in two previous posts: Airlines corporate hunt: British Airways and TPG finally join forces to buy Iberia and Iberia and its brides… where’s the value?
What has happened this time about Iberia? In fact very little.
I don’t know what the WSJ article said because I’m not a subscriber. But this wave of consolidation that they talk about has come to a stall in Spain. Why?
BA and Iberia: having second thoughts?
One of my assumptions was that, where there is a flagship airline, there are also political interests. No need to prove me wrong. Politics have a lot to do with that. And it’s Iberia who has been stalling the situation.
Because Iberia’s dominant position in Spain, specially in Madrid, has a lot to do with political connections. They have been granted the best slots and the lion’s share of Madrid brand new terminal: T4.
Madrid’s brand new Terminal 4, granted to Iberia and OneWorld
The Spanish government has already required that Iberia needs to be Spanish to keep enjoying the privileges it already enjoys (exclusive routes, slot assignement, top location at Spain’s first airport).
In time this privileges will cease to exist, specially when European regulations in open skies come to be in effect. But I don’t know any single country that doesn’t -or didn’t- protect its flagship airline.
The government’s point: we’ll still protect the status quo, but only for a Spanish company. And Texas Pacific Group or British Airways are not exactly Spanish. But, how do you know if Iberia is Spanish right now? How can you know who, in fact, owns free floating shares?
Anyway, these are advantadges that no company should have, regardless of its nationality. They are just imperfections of the market that the consumer ends up, as always, paying. But that’s how it is, and that’s how I like to tell
State Highway 121, Texas, U.S.
More noise from Texas
And right now another Spanish company, the infrastructure operator CINTRA is fighting for a highway concession in Texas: State Highway 121. The company already exploits two highways in the US: Chicago Skyway and Indiana Toll Road, and is already constructing a third one in Texas: SH 130. The concession was granted to CINTRA, but it has been recently revised. The Texas Transport Commision still has the final word but taking back a concession already granted to a Spanish company wouldn’t help politically Texas Pacific Group interests in Iberia.
Which strategy now?
Just let the time pass. Iberia has not given any of the contenders its data, and it is for a very good reason. The longer it takes, the better. Why? Spain will hold a general election in nine months. Maybe the government will change but, in any case, the government will be less pressured and open to negotiations.
Airlines corporate hunt: British Airways and TPG finally join forces to buy Iberia
Smart move from British Airways. The hunt has resumed and two hunters have made an alliance: Texas Pacific Group and British Airways will go together.
That’s a good idea because private equity can cooperate easily with the British airline’s knowledge support. And there are synergies: Iberia has what BA lacks: a good connection with America, specially Central and South America. And TPG has what BA lacks: money. Apax wouldn’t fit in the agreement, though.
British Airways has many shared codes with Iberia, plus a 10% stake in the company, and call options to a 27% more from Caja Madrid (10%), BBVA (7,3%), Logista (6,7%) and El Corte Inglés (3,1%). But British Airways’ shares have not been very optimistic lately, as you can see in the following graph:
BA in London Stock Exchange (blue) compared to Dow Jones Index (red), not too bright
(It’s not something about British Airways. EasyJet and RyanAir have been squeezing as much money from traveller’s pockets as they have been able to, but there’s a dead end right in front of them, and the Airline’s sector situation now is not that bright. Iberia and Alitalia are looking for buyers. Time for restructuring. But that’s not for today.)
Remember my last post on Iberia and why it had to keep being Spanish? Well, looks they’ve found the solution. TPG and BA would acquire a maximum share of 49% while the rest would be left for Spanish investors. They are also known: Vista Capital (which includes Banco de Santander and his old ally Royal Bank of Scotland), Ibersuizas and Quercus (a venture capital fund also participating in another low-cost Barcelona-based airline: Vueling). That way they can protect their exclusive international flying agreements signed with the Spanish government. (those kind of agreements that you can’t acquire in the free market). Here is the post: Iberia and its brides… where is the value?
So it looks like British Airways is trading handling victory to TPG over Apax (and partners Hemisferio and Torreal) with his call options, plus knowledge and synergies with his network for a bigger chunk of shares without spending money. All of that without having to renounce to international agreements signed by the Spanish government on behalf of a Spanish Iberia.
European real integration: British airports more Spanish and Spanish planes more British
Well done BA!
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