Air Nostrum does its homework, reaps rewards

 - September 28, 2010, 10:37 AM

Following the recent worldwide financial crisis and recession, regional airline services in Europe are set to change as operators move to introduce bigger equipment. Air Nostrum chief executive Carlos Bertomeu, for one, predicts that his carrier’s recent strategy to increase average capacity–and thereby reduce unit costs–will be copied elsewhere in the industry.

“[Within] three years, the majority of European regional airlines will emulate this evolution toward larger aircraft,” he told AIN, as Air Nostrum prepared to welcome European Regions Airline Association delegates to their annual general assembly in Barcelona later this month. Forecasting that in the next few years “nothing will be the same,” Bertomeu and the management of Air Nostrum have developed “an extensive action plan to adapt as soon as possible to the new market.”
Introduced last year, the program takes into account the importance of flexibility as the regional seeks to develop services to new, longer-haul markets. Air Nostrum already has seen the benefits of last year’s decision to drop loss-making routes and consolidate operations. “After doing our homework last year, we are registering a rise in profits per passenger, especially in the international markets like France or Italy,” said Bertomeu.

“The prospects for the end of 2010 are to return to [profit], consolidate our current cost-control policy–maintained at a lower level [from] last year–and continue carefully [to] adapt supply to the real demand,” he added. Bertomeu said last year’s action had allowed Air Nostrum to face the new financial year “from a solid and solvent position, which establishes a good guarantee for the future.”
Driven by the recession, last year’s austerity moves followed some 13 years of profitable business for the Spanish airline, which operates as Iberia Regional under franchise arrangements with the country’s flag carrier. It also operates as an affiliate member of the Oneworld global airline alliance, one of whose major players, British Airways, owns 10 percent of Iberia.

In 2008, Air Nostrum’s revenue rose to €682.3 million (almost $820 million), resulting in a net profit of €13.3 million ($16 million), according to Bertomeu. “The strong impact of the crisis was visible in 2009 company results,” said Bertomeu, as income fell to €561.4 million (about $675 million), resulting in a loss of €16.2 million ($19 million), “of which 56 percent, or €9.1 million ($11 million), were expenses–part of the restructuring included in the anti-crisis plan.”

Accordingly, he emphasized that last year proved not “a time to sow, [to] open markets or create [new] connections.” Instead, the airline cut all non-profitable routes and now claims to have been “the first Spanish airline to react to the strong recession suffered in the market.”

By applying its “strict action plan” in the second quarter of last year, Air Nostrum generated savings of €34 million ($40 million). The highest proportion of those savings came from reduced capacity, which accounted for cost reductions of €19 million ($23 million).

With the elimination of loss-making routes, Air Nostrum disposed of 11 turboprops, including at least seven Bombardier Q300s.  “We reacted quickly and took the right measures, which achieved a better load factor and prevented the fall in our average passenger income,” said Bertomeu. As a result of the cuts, Air Nostrum saw passenger numbers drop to 4,686,000 passengers from 5,364,000 (a fall of 13 percent) and flights from 157,633 in 2008 to 136,099 (down 14 percent) last year.
Air Nostrum began with a fleet of seven turboprops in 1995, introducing its first jets three years later. By 2004, when the fleet numbered 57, jets comprised a slight majority. Numbers of turboprops have fallen since 2000, when there were 36 among a total of 42 aircraft.

Today, the Air Nostrum fleet comprises 63 aircraft: 35 Bombardier CRJ200 and 11 CRJ900 regional jets, 12 Bombardier Q300s and five ATR 72-500s. At the 2009 Paris Airshow, Bombardier identified Air Nostrum as the previously unnamed customer for thirty 100-passenger CRJ1000s (first announced as 15 “firm” and 15 “conditional” orders at that variant’s launch in February 2007) and also converted a firm order for five CRJ900s to the new model. On the same occasion it signed a contract for 10 ATR 72-600s (and took options on another 10) with which it plans to replace the current ATR 72-500s.

Fleet renewal stands as one of the medium-term strategic measures Air Nostrum has taken in response to “the serious crisis aviation was facing.” Bertomeu sees the proposed fleet changes as “coherent with market evolution; the delivery schedule is designed to allow the company to gradually replace its 50-seat aircraft, as the arrival of new aircraft will be preceded by the redeliveries of current machines.”
Air Nostrum expects the CRJ1000s to reduce its current cost per seat by up to 32 percent. “We are proud to be the first company worldwide to launch this new model,” said Bertomeu.

French regional carrier Brit Air serves as a fellow “launch” customer, and manufacturer Bombardier won’t say when it expects to deliver the first aircraft and to whom. The Spanish airline expects to receive the first CRJ1000 “toward the end” of next month. The new ATR 72-600, which Air Nostrum plans to introduce “gradually during the next few years,” will offer more passenger comfort and improved engine efficiency.

Iberia Connection
Air Nostrum operates its entire scheduled network under the framework of its Iberia franchise agreement. “Our relationship with Iberia is excellent,” claimed Bertomeu. “We are strong allies and so the more prosperous and efficient the cost of the alliance, the more benefit for the regional airline.”

Iberia, meanwhile, does not have to invest capital in a regional operation but its name appears through Air Nostrum’s “Iberia Regional” branding. Of course, it also benefits from all the connecting traffic the regional feeds to its hub. In return, the major airline carries responsibility for the marketing of Air Nostrum flights, which all carry its “IB” airline designator code.

The regional benefits further through its use of the Iberia computerized passenger-reservations system and airport services. Although Iberia must approve of any Air Nostrum flight that carries the IB code, the regional remains free to launch its own new routes and use its own airport takeoff and landing slots.

So, how has Air Nostrum benefitted from affiliation with the Oneworld alliance? Bertomeu said the Spanish regional operator considers the alliance with British Airways “magnificent, as it means having an even stronger ally.”

Affiliation reflects the benefits of the Iberia franchise: “Belonging to a worldwide alliance like Oneworld is of great importance to us,” said Bertomeu. “The aviation sector is a globalized market with high operating costs and small profit margins, where we live off ‘the last passenger.’ This is where a worldwide alliance is vital to feed your connecting traffic and bring in passengers thanks to global commercialization, which we wouldn’t be able to reach individually.” But Bertomeu argues that “without a doubt” the passengers benefit most from Oneworld’s seamless connections. 

Overall, Air Nostrum flies to more than 70 airports, slightly more than half of them Spanish domestic destinations. The balance of flights involves service to and from 11 countries in Europe and North Africa.

Some four years ago, Air Nostrum had reached the third stage of its planned development, providing nonstop links between secondary Spanish cities. Although the recession has interrupted its fourth stage, during which it planned to offer international nonstop service between medium-size European cities, Bertomeu considers the disruption only a temporary setback. “Obviously the crisis has slowed our plans, but this doesn’t mean that they will not be accomplished,” he concluded.