EuroLOT Q400 order confirmed

Finally, after rumors that the deal might have fallen at the last hurdle, EuroLOT (K2) confirmed the order for 8 Bombardier Q400 aircraft with options for 12 more.

The airline was founded by LOT Polish Airlines as a wholly owned subsidiary in 1996, but LOT is now only the minority shareholder with State Treasury of Poland holding around 60% shares. K2 acts as a feeder airline for LOT in Warsaw, but recently made a change in the strategy and started offering flights on its own from smaller Polish cities.

However, the order does not only represent the change in route network and structure, but also a change in fleet since K2 currently operates 13 ATRs - four ATR42-500s and nine ATR72-200s. Although part of the order is intended as ATR replacement, another part will be used for expending K2's list of destinations.

Some of the aircraft will be delivered to K2 before the Euro 2012 Football Championship in Poland, allowing the airline to leave a good impression of itself and the country. These are also good news for Bombardier which has very few Q400s on order. If WestJet also orders the Q, which is very likely, it looks like the turboprop airliner will gain another much-needed momentum.

K2 has not (yet) revealed any more details about how and where it will utilize the Q.

UPDATE: Air Transport World reported that K2 will take delivery of three aircraft in April, one in May, three in July and the last one in August. K2 has plans to retire all ATRs from its fleet next year, so it is likely that the airline will exercise some of the options it has for Q400s.

Why Estonian Air chose ERJs over CRJs

Tallinn-based regional carrier revealed it would replace three CRJ-900 aircraft it has in fleet with Embraer's regional jets which would also be used for replacing aging 737s. The announcement was surprising since the airline already operated CRJs for a year and the company's balance sheet isn't strong enough to tolerate such changes, at least not without a good reason. The story about Estonian Air's (OV) regional jet fleet is quite interesting.

As a result of technical issues SAS Scandinavian Airlines had with its fleet of Q400 turboprops, it received a compensation from Bombardier consisting of, among others, 13 CRJ-900s. Since OV was part of SAS Group at the time and needed a replacement for Saab 340s and Boeing 737s, SAS decided to provide the airline with some of their newly received CRJs.

Estonian Air's ERJs will incorporate
the new, slightly revised livery.

OV now operates 3 of them, one of which was received only recently. In the meantime, SAS sold 39% stake in the carrier to the Estonian government and is now only the minority shareholder with 10% stake, so OV is no longer considered part of the Group.

But Estonia's flag carrier needed more than three regional jets. In fact, it was planing to operate seven of the type. Since it was no longer part of the SAS Group, it had to use either its own, or the government's funds to acquire additional CRJs from Bombardier. But with the already mentioned weak balance sheet due to the past losses, Bombardier considered the deal to be risky and, according to OV's new CEO Tero Taskila, imposed additional conditions that would have required the state owner to inject more capital into the carrier. This was not acceptable, so OV turned to Bombardier's rival Embraer and secured a deal for four E-Jets from the manufacturer.

CRJs will be returned to SAS and in short term replaced by four Embraer 170s on sublease from Finnair. The airline placed an order for three Embraer 175 and one Embraer 190 aircraft. Additionally, the airline will also lease-in four ERJ-190s.

All E-Jets will be configured in a single-class layout with 76 seats on ERJ-170s, 88 on ERJ-175s, and 112 on ERJ-190s. Flybe, which operates densely configured E-Jets to ensure low CASM, has the same number of seats on E-175s, but also six more seats on E-195s.

OV will therefore operate a single-type fleet of E-Jets if they decide to replace the Saabs with Embraers as well, but that decision has not been made yet. Taskila says "one family concept offers the capacity flexibility we need to pursue our immediate expansion and fleet modernization objectives. The aircraft will deliver a standard of in-flight experience that will keep us competitive and allow us to access new markets with lower risk than using larger jets.” He is aiming at "right-sizing" of the airline's fleet and positive financial results in the future.

Volotea to start operations in April from Venice

Volotea received its first Boeing 717 (previously operated by Mexicana Click) only a couple of months ago. Back then it was speculated that the airline would operate charter flights or provide wet-lease, so many were surprised when it revealed it would operate scheduled flights. Although the start-up airline is headquartered in Barcelona (Spain), it announced the first base would be at Venice Marco Polo airport (Italy).

Volotea was founded by Carlos Muñoz and Lázaro Ros, the very same people that founded successful Spanish LCC Vueling, and its name means "to fly around" in Spanish. They managed to raise about $65 million from private-equity firms. Some of Volotea's employees are from defunct Spanish carrier Air Quantum, but it was revealed that the airline will also happily hire some of the former employees of Spanair, another airline that ceased operations.

The airline currently has one Boeing 717 on long-term lease from Boeing. They plan to receive two (?) additional 717s before the start of operations in April. Aircraft will be configured with 125 seats in one class, which is 7 seats (one row) more than 717's typical one-class configuration.

Route map of Volotea's first 14 destinations.

Last Thursday, Volotea disclosed launching 14 routes from Venice Marco Polo airport in Italy. First 5 routes will be launched on 5 April and all of them are domestic. Those are Brindisi (BDS), Cagliari (CAG), Olbia (OLB), Palermo (PMO) and Calabria (REG). The other 9 routes will be introduced on 24 April to Spanish, French, Hungarian, Polish and Greek cities. More speifically, to Alicante (ALC), Bilbao (BIO), Bordeaux (BOD), Budapest (BUD), Krakow (KRK), Malaga (AGP), Porto (OPO), Santiago de Compostela (SCQ) and Thessaloniki (SKG). Volotea will have monopoly on all of these routes.

The airline claims it will implement LCC model and drawn attention in the local media announcing fares as low as €19. It was also revealed that Volotea intends to be similar to UK hybrid regional airline Flybe by operating point-to-point services between secondary cities. It will avoid larger airports and not offer connections between flights. Their Boeing 717s are smaller than easyJet's and Ryanair's aircraft, but also larger than those of Flybe.

I am optimistic about the venture, especially since it's run by the people that already have experience in the industry. But I am also a little concerned about its business model; running a hybrid airline can be challenging as you have to ensure that you don't find yourself in the middle with a product that is not as cheap as LCC's and not as "premium" as legacy's. But it seems that Volotea will stick to the markets with little or no direct competition, so this should ensure that the airline doesn't find itself in trouble early. I wish everyone behind Volotea the best of luck!

CORRECTION: Volotea will face some direct competition on domestic routes mostly from Alitalia, but these services operated by Alitalia seem to be seasonal.

Vietnam Airlines takes majority stake in Jetstar Pacific

Vietnamese national airline, Vietnam Airlines (VN), decided to take the majority stake in Jetstar Pacific (BL), Jetstar's small Vietnamese division. VN will now hold 70% stake in BL which was previously held by Vietnamese State Capital Investment Corporation. Qantas will own 30% of BL as its stake increases by 3%.

Thanks to the deal, BL will receive $25 million cash injection, of which $8 million will be provided by Qantas. BL will use the funds to replace its four ageing Boeing 737-400s with Airbus A320s. The airline already has 2 A320 aircraft in its fleet and plans to operate 15 of the type in the next few years.

With IATA predicting Vietnamese market to become one of the fastest growing in the world by 2014, VN has even more reasons to celebrate. Vietnam's flag carrier already has around 80% market share in Vietnam which will now increase to more than 90%. Two other airlines in Vietnam, Air Mekong and ambitious start-up VietJet, will continue to compete against VN and BL, but it is quite clear that the later two will be hard to outperform.

VN and BL used to compete against each other on Vietnam's trunk routes which caused serious financial difficulties for both airlines. It goes without saying that cooperation between the two comes as a relief for both, although major downsizing of BL is currently not considered. VN, which is a full-service carrier, was already considering launching its own LCC division in the past to better compete against other LCCs, but figured out that taking over BL would be a much better move.

The general public fears airfares could rise as a result, but that is very unlikely since VN already had a lion's share of the market before the deal. As already mentioned, VN and BL do overlap, but it is believed that the overlap will not be an issue and the two airlines will be able to coexist successfully.

VN and BL will both benefit financially from the deal as well, so it seems to be a win-win. The two will have a chance to replicate the success of Qantas and Jetstar strategy in Australia.

Air Australia (Strategic Airlines) suspends all flights, resumption unlikely

Although Air Australia was known under this name for only half a year, the company had a twenty years long history.


It was founded back in 1991 under the name Strategic Aviation. The company specialized in oversize cargo and utilized Antonov An-124, Ilyushin Il-76 and Boeing 747 aircraft. After a while, the company shifted away from cargo to flying troops when it won the Australian Defence Force Troop Lift Contract. The company now used leased Airbus A330s.

However, Strategic eventually lost the contract and had to change its source of income yet again. This time, the company started offering flights to the general public and slightly changed its name to Strategic Airlines. It even acquired troubled carrier OzJet in 2009 and A320 aircraft also entered its fleet around that time.

The airline soon announced it would rebrand to Air Australia and finally did so late last year. But with rebranding also came the change of business model; the airline, which was a full-service carrier up until now, became an LCC.

It hasn't been known much about the financial health of the airline, which is understandable since the airline operated only a couple of A320s and A330s (although it did plan to expand to around 20 aircraft soon). It is speculated that change of business model, costs of rebranding, reckless management, weird choice of destinations, small network and poor financial state with lack of cash all contributed to bankruptcy.

Around 4,000 people were left stranded and additional 100,000 will have to find alternatives. The airline was placed into voluntary administration and is unlikely to continue operations any time soon

Indonesian aviation market expanding rapidly

When talking about the fastest-growing aviation markets of the world, one often tends to think about Brazil in South America and China and India in Asia. Surprisingly, country that is often overlooked is Indonesia. With a population of close to 250 million scattered across many islands and booming economy, Indonesia is set to become one of the largest aviation markets in the world within a decade.

It is predicted that Indonesia's airlines will have enough room for around 1000 aircraft. Currently, Indonesian airlines have around 300 aircraft with capacity larger than 50 seats, with majority of them split between Garuda Indonesia and Lion Air.

Garuda caters to full-service and premium segments of Indonesian market. Its fleet consists of around 80 aircraft, mostly narrowbody Boeing 737s. Additionally, it has a small fleet of a dozen Airbus A330s and has 18 Bombardier CRJ1000 regional jets on order. It is in talks with Airbus and Boeing about their re-engined aircraft and plans to double its fleet in the next few years. Garuda's LCC division Citilink, which will soon receive its own AOC, operates only a small fleet of A320s and 737s, but is also aiming towards expansion.

Lion Air, which operates 68 737s, is probably Indonesia's most ambitious airline; it has 230 Boeing 737 aircraft on order, 201 of which are for the re-engined MAX variants. Its subsidiary Wings Air operates ATR72, MD80 and Bombardier Dash8 aircraft, but has additional ATR72s on order and expects to eventually operate a fleet of around 60 ATR72 aircraft split between -500 and -600 series. It will stick to its strategy of operating short island-hopping routes that don't have enough demand for larger aircraft. Wings Air is set to become the largest operator of ATR aircraft in the world. Lion Air's ambitions don't end there as it is in the process of setting up full-service airline Space Jet with a fleet of 60 737s. Lion Air is also examining the possibilities of launching long-haul full-service operations with 10 Boeing 787 or Airbus A330 widebodies, but still hasn't revealed much details about that venture.

Two businessmen from Indonesia and India recognized the potential of the market and decided to set-up a new airline called Pacific Royale which will soon begin operations with a fleet of two Fokker 50s and two Airbus A320s. This full-service airline with hub and spoke route structure will offer state of the art IFE system and is set to compete against Garuda and Space Jet. It will replace its Fokker 50s with ATRs at a later date and will continue to expand its A320 fleet.

Indonesia has four other small airlines which will have to compete against Lion Air and Garuda groups, those are Indonesia AirAsia, Batavia, Merpati and Sriwijaya which operate only around 100 aircraft combined. Consolidation is likely to happen among them.

With such a huge expansion taking place in its aviation market, Indonesia will have to work hard not only on providing adequate infrastructure, but also on making sure that satisfactory levels of safety are achieved. Unfortunately, Indonesian carriers are still regarded rather unsafe by many.

Finnair in search of partner for short-haul joint venture; government willing to sell its stake

In face of widening losses and tough economic climate, Finnair (AY) disclosed intentions to find a partner for its short-haul European services. The partnership would be in form of a joint venture and the airline intends to transfer the entire narrowbody fleet or part of it to the new company.

The airline uses geographical position of its hub in Helsinki to its advantage and is known to offer good connections between Europe and Asia. Long-haul (Asian) part of the network is profitable, but like many other European legacies, it struggles to achieve profitability on short-haul. This is mostly due to LCCs which are simply more attractive to passengers thanks to lower fares they offer. But of course, AY's short-haul operations are still very important for the airline as they provide feed for long-haul; getting rid of them is not an option.

Joint venture is a great way to reduce costs and could have a very positive impact on AY's bottom line. The new company would also have bases outside of Finland and would expand AY's network in the Nordic countries. This is not the first time the airline is looking at a joint venture; just last year AY teamed-up with UK regional airline Flybe and created Flybe Nordic which operates regional flights in the Nordic region.

Furthermore, the Government of Finland, which currently holds 55.8% stake in AY, announced that it plans to privatize the company. It will, however, not sell its entire stake.

The CEO of AY claims that many airlines already expressed interest in the joint venture with AY, but ruled out Norwegian, SAS Scandinavian Airlines and Flybe. It is assumed that Air Berlin might be interested in the joint venture, while IAG could be interested in a stake in AY. Both entities are in good relations with AY as all three of them are members of the same alliance - oneworld (Air Berlin will join soon).

Budapest changing after Malév's demise

Budapest Airport is in for some interesting changes now that Hungary lost its flag carrier. Airlines from across Europe are looking how to take their part of the cake, which will in the end, albeit not for long, result in overcapacity on some routes to and from Budapest. On the other hand, playing a role of Hungary's national airline, Malev was expected to serve some destinations even if they were not profitable. Some of those routes are likely to stay empty.

Wizz Air (W6), which was Hungary's second largest airline before the collapse of Malev, will invest in expanding operations from Budapest. The airline was rather cautious at first and only added frequencies to its existing routes, but recently announced that it will also start a dozen of new routes.

Their main competitor will now be Ryanair (FR) which reacted very fast. FR already had aircraft that were grounded during the winter due to low demand, so it was an easy task for them to open the base in Budapest. It will be interesting to see who will blink first between W6 and FR, not only in Budapest, but also in Warsaw Modlin Airport where battles between W6 and FR will also take place.

Small Czech LCC SmartWings owned by Travel Service also announced opening of what so far appears to be a base with two or three aircraft.

Air Berlin is now set to return to Budapest, Lufthansa will add frequencies to its existing routes and so on...

One thing is for certain, Budapest will hardly ever be the same. Malev was a hub-and-spoke airline and it gave Budapest Airport some transfer passengers. Now that Malev is no longer there, passengers that used Budapest as their transfer point will have to find alternatives or accept the risk of traveling on separate tickets. Hungarian business travelers will also be affected since great portion of Malev's market will be taken over by LCC's which are often not favored by business travelers. These passengers will now have to connect through other European gateways instead of using non-stop routes. American Airlines cancelled planned service resumption on New York JFK – Budapest route as they no longer have Malev for feed.

With all of that inconvenience it is not surprising that the Hungarian government showed interest in Malev's "rebirth", but with every day it's getting too late. Other airlines are already capturing significant parts of once Malev's market share. If the government doesn't react now, Hungarians will probably never have the airline like Malev again.

WestJet to order Bombardier Q400 or ATR72-600 for its regional subsidiary

WestJet (WS), Canada's second largest airline, recently revealed more details about its proposed regional subsidiary. Unlike its main competitor, Air Canada, WestJet is in good relations with its workforce and reported that 91% of its 8,500 employees voted in favor of launching the short-haul airline as a wholly owned subsidiary. Calgary and Toronto will be the centers of the regional airline, and WS is now examining which turboprop aircraft would fit them better. WS took Bombardier Q400 and ATR72-600 into consideration.

It is likely that WS would benefit from Q400's higher speed, but this speed comes at a cost; Q400 is significantly more expensive than the ATR72-600. In fact, it is not much cheaper than similarly sized regional jets. However, Q400, unlike ATR, currently has a very small backlog of orders. This means that Bombardier would probably provide larger discount than ATR, which would result in more reasonable pricing. And given that WS is doing well in terms of finances, they will be more interested in aircraft's performance than acquisition costs, especially since most other airlines already operating in this segment of the Canadian market do so using the Q. Q400 also has a unique advantage over the ATR for WS; it is manufactured in Canada. Although this is not the most important for customers when they shop for airfares, it would portray a more positive picture about WS to Canadians if it ordered from the Canadian company.

All of this means that Q400 comes as natural for WS which is expected to place an order for around 40 aircraft by mid-year.

Malév Hungarian Airlines closes down after 66 years of continuous operation

When we lost Spanair last week, most of us did not feel very sad. Sure, it had a rather large market share in Spain, especially in Barcelona, but it was only a business. People don't tend to sympathize with just about any business, especially if it's something like Spanair. But when a flag carrier closes down, it can be heart-breaking. And if that same flag carrier had a long history and offered great service and product, than it's a very sad moment for everyone.

Malev (MA) was that kind of airline. It was more than just a national airline of Hungary, it was a symbol of Hungary. It represented its country to those that stepped inside their aircraft, and it was often the first and the last impression of Hungary for many visitors of this Eastern European country. Undoubtedly, MA had a sense of national pride tied to it.

Malev's Q400 in retro livery illustrates the
company's long history.

Unfortunately, that alone does not work in modern economy. MA was loss-making and Hungarian government privatized it in 2007. The privatization was considered a failure and the government had to re-nationalize the company again in 2010. However, the government was providing state aid to MA between 2007 and 2010. Notice that MA was private entity in that period of time, so the state aid was considered illegal by the European Union which recently ordered Malev to repay the huge sums of money it received back then. It seemed that status quo could continue, but things started to look bad this week.


While Spanair's demise was rather out of the blue, MA was clearly on the edge in recent days. The airline announced that they might have only enough cash for a day or two, and the government could no longer provide cash injections to MA. Instead of cash, the Prime Minister Viktor Orban decided to declare the airline strategically important company for Hungary. This basically meant that the airline was under a sort of bankruptcy protection. So if it wasn't the lack of cash that ultimately "killed" the airline, what was it? Well, the answer is - suppliers. Frightened by the news, suppliers decided to demand advance payment for their services. Even two of MA's aircraft were grounded overseas, one in Dublin and the other in Tel Aviv. Due to all of this mess, it was decided that MA ceases all operations on Friday at 5 AM GMT.

The gap left at MA's hub in Budapest (BUD) will be filled very soon. Ryanair announced opening of a base in BUD, while Wizzair announced more frequencies on existing routes. Other airlines are expected to follow. It is sad to see an airline like Ryanair take over the routes and passengers used to the great service MA offered.

While the relaunch of a Hungarian national airline was not ruled out, it is unlikely as long as Hungary is in its present state.

Alitalia to strengthen its position in Italy through acquisitions of Wind Jet and Blue Panorama

In a market so heavily eroded by LCCs, it's not an easy task to remain a quality flag carrier. Alitalia (AZ) seems to have found a way to keep it's brand at a level, but still be able to effectively fight LCC competition. Its intentions are to acquire Wind Jet and Blue Panorama, both of which account for a nice piece of market share and can also be used against LCCs in AZ's favor.

Wind Jet (IV) is a typical LCC based at Catania Fontanarossa Airport with secondary bases at Rome Fiumicino and Palermo. They maintain strong presence in Eastern Europe, and AZ is expected to benefit from extra market share in this region. IV's fleet consists of Airbus A320s and A319s, which fits AZ's own short-haul fleet perfectly.

Blue Panorama (BV) operates both charter and scheduled services. It is based at Rome and will add destinations in the Caribbean to AZ's network. However, what is maybe even more important for AZ is its LCC Blu-express based at Fiumincino. Blue Panorama's fleet of 757s and 767s will fit AZ perfectly, but Blu-express will introduce new type to AZ's fleet - Boeing 737-300 and 400.

Up until now, Alitalia used Air One to compete against LCCs like Ryanair, easyJet and Wizz Air. Since Air One is simply to small for this, IV and BV will be very welcome. Alitalia can now relax and concentrate on higher level of service and leave the lower end of the market to these three airlines.

Having three airlines with virtually the some role might cause a bit of confusion to Italian passengers, so it is likely that AZ will look for ways to unify Air One, Wind Jet and Blu-express under a single brand.

Overall, I consider this deal very smart on behalf of AZ. However, it is still subject to regulatory approval, and don't forget that a fair bit of competition would be removed from the market. That said, Italian market will still have plenty of other airlines serving it, so I don't see this deal as a huge issue.