Australia’s New Long-Haul Service to Europe and 4 Other Aviation Trends This Week

Qantas

A new nonstop route should change traveler habits on Australia’s west coast and may deliver more market share to Qantas. Qantas

Skift Take: This week in aviation, we considered the pros and cons of spinning off a loyalty program. Then our new Brisbane-based Gateway correspondent reported on new ultra-long-distance flights between Australia and Europe.

— Sarah Enelow

Throughout the week we post dozens of original stories, connecting the dots across the travel industry, and every weekend we sum it all up. This weekend roundup examines aviation.

For all of our weekend roundups, go here.

>>Allegiant can’t fly its MD80s from some cities at certain times of the year. It sometimes cancels routes before they launch. And it’s not interested in coast-to-coast routes. Learn why in this discussion with the airline’s director of planning: Allegiant Air Agonizes Over New Routes for Months or Even Years

>>Elite frequent flyers have been pining over free Wi-Fi for some time and Air Canada finally delivered. But the free connectivity will come at a cost to other benefits: Air Canada Adds Free Wi-Fi for Elite Travelers — Business of Loyalty

>>A new direct route will change traveler habits on Australia’s west coast and may deliver more market share to Qantas. But, more importantly, it looks set to herald more ultra-long-distance connections between Australia and Europe: Australia’s New Long-Haul Service to Europe Could Be Just the Beginning

>>Joseph DeNardi, an analyst with Stifel, is passionate about his thesis — that airlines should sell their frequent flyer programs. Yes, an airline can make money doing so. But airlines that don’t operate their own programs sometimes get into trouble. They have far less data about customers than their competitors. And in 2017, access to data is a big deal: Should More Airlines Spin Off Their Loyalty Programs?

>>Few airlines share as much information as Allegiant Air. You don’t often hear an airline executive (good-naturedly) criticize an aircraft in its fleet — even when it’s warranted: Allegiant Air Seeks to Convert Drivers to Flyers — Airline Innovation Report

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Hotel Experts Predict Top Luxury Lodging Trends for 2018

Rosewood Hotels & Resorts

Traditional spaces such as check-in and the concierge desk, shown here, are completely rethought at Rosewood’s Hôtel de Crillon in Paris. Rosewood Hotels & Resorts

Skift Take: The heads of luxury brands at Marriott and Hilton and other leading industry experts have some bold 2018 predictions ranging from the disappearance of turndown service to the rise of Internet-connected guest rooms.

— Sean O’Neill

In response to the many geopolitical, sociological, and technological changes that took place in 2017, five-star hotels are making changes—some small, some large.

Here’s what to expect, based on predictions from a panel of leading industry insiders: Tina Edmundson, global brand officer at Marriott International Inc.; Bjorn Hanson, clinical professor at NYU’s Tisch Center for Hospitality and Tourism; John Vanderslice, global head of luxury and lifestyle brands at Hilton Worldwide Holdings Inc.; and Guy Langford and Marcello Gasdia, of Deloitte LLP’s travel, hospitality, and services group.

New Fees Will Hit Major Markets

Hotels in major U.S. markets will become more expensive next year as the practice of adding resort fees, once reserved for getaways in exotic locales, becomes more and more common at urban properties—often with a nightly price tag of $25. NYU’s Hanson has noticed them most in New York, where high occupancy rates leave picky travelers with few alternatives. (They’re also rumored to be popping up in Chicago and Los Angeles.) Budget for the fee on business trips, as transparency is not yet what it should be. There is one slight silver lining: “This is better than hotels raising their room rates,” says Hanson, “since the fees aren’t subject to occupancy taxes.”

Turn-Down Service Will Disappear

Pay your respects to those chocolates on your pillow, while you still can. “More and more hotels are making turndown service optional for two reasons. One is cost,” says NYU’s Hanson. The second, he says, is privacy. “We go through cycles when people are more private and more open, and right now — for reasons I can only speculate about — people are feeling more private about their personal space. Some people don’t like their toiletries straightened up.”

“It’s a fair comment,” says Deloitte’s Langford. “My personal view is that there are things you value and things you don’t, and I don’t need anyone to turn down my bed. With certain companies, it may be part of a brand promise. But if it’s not, it’s a cost—and it doesn’t need to be provided.”

Your Room Will Get Connected

“Technology is top of mind for everyone right now,” says Marriott’s Edmundson—who oversees eight luxury brands, including Ritz-Carlton, Edition, Luxury Collection, and St. Regis—specifically investment in the so-called “Internet of Things” (IoT) tech such as Nest temperature control units or Amazon.com Inc.’s Alexa.

Marriott’s experimental “Internet of Things room,” created in conjunction with Samsung and Legrand SA, includes showers that remember a guest’s preferred temperature, digital wall art that can be swapped for family photos, and mirrors with embedded displays—for on-demand yoga videos. The rooms will soft-launch in 2018; W hotels will likely be first to offer them.

Vanderslice may get there sooner. Hilton just announced a similarly teched-out room with mobile app controls for television, lighting, thermostat, and digital art. It will debut in major cities in the coming weeks, with a rapid rollout across all Hilton brands in 2018 and 2019.

“2018 is going to be the year that the rubber hits the road with IoT technology,” says Deloitte’s Gasdia. “It took a while for this technology to mature, but now personalization can happen in real time. It’s a win-win for everybody.”

The Front Desk Will Get a Makeover

While lifestyle brands, such as Ace and 1 Hotels, have upended the old-fashioned lobby and turned it into a cool, collective workspace, luxury brands have largely stayed true to tradition. That will be challenged in 2018, says Hanson, who predicts that the check-in desk will slowly fade into oblivion, reflecting travelers’ shifting preferences for intimacy rather than formality.

“Fifty years ago, people didn’t have credit cards, and bad guys would come jump the desk and steal the cash,” he begins. “But that’s not the case anymore, and hotels no longer need that type of tall, wide barrier. Now they’re thinking: ‘Why can’t we have a little seating area that’s very comfortable and intimate?’”

Living room-like check-in areas are indeed popping up at some of the world’s finest properties. Take the Hôtel de Crillon in Paris, recently reopened after a four-year makeover by Rosewood. Its reception space is an elegant sitting room, with antique desks and a plush loveseat. The shift allows travelers to relax after a long journey—something Deloitte pinpointed as a key need, especially for business travelers, in its recent “Hotel of the Future” study.

Brands Will Appeal to Travelers’ Values

When the Eaton Workshop opens in Washington early next year, it will be the world’s first hotel for liberals. The company may be onto something. “Luxury customers are drawn to brands that communicate a sense of purpose—beyond just existing to sell something,” says Marriott’s Edmundson, pointing to “sky-high” engagement at two W hotel speaker series, “What She Said” and “Queer Me Out,” showcasing powerful women and lesbian, gay, bisexual, and transgender (LGBTQ) thought leaders, respectively.

But it’s not in every brand’s DNA to plant such politically charged flags, so in 2018, top-tier brands will find softer ways to appeal to consumers’ values—being careful not to alienate any potential guests.

“Forty percent of guests will fall on one political extreme, and 40 will fall on the other,” says NYU’s Hanson. “Few are in the middle. But there are causes that nobody could disagree with, like human trafficking, 40 percent of which occurs in hotels,” he adds. “Nobody would be offended by a company taking a stand on that.”

Wellness Will Be More Important Than Ever

“Wellness is going to be the next trillion-dollar industry,” predicts Deloitte’s Langford. “Everyone wants to capitalize on the huge swell, but every brand is making a different play. Nobody has figured it out yet.”

Already, Hyatt has bought legendary wellness brand Miraval for $375 million, while JW Marriott has partnered with the Joffrey Ballet for on-demand barre classes. Meanwhile, Four Seasons has developed wellness rooms with de-chlorinating showers and Deepak Chopra meditation videos.

“At the bleeding edge, wellness resorts are changing their talent strategies, hiring more doctors, more NPs, more nutritionists—and that’s really expensive,” says Delotte’s Gasdia. “But they’re doing really well with revenue and gross bookings.” Hanson agrees: “With even select-service brands upgrading their fitness centers, this is a place where luxury brands have the physical space to stay ahead of the curve.”

Based on a recent survey of 5,000 Marriott guests, Edmundson says that “about 80 percent of respondents agreed that improving their physical and emotional well-being is more of a focus for them today than it was three years ago—sleep improvement, new diets, and meditation all scored high in terms of what travelers had participated in over the past 12 months.” Not coincidentally, her eight brands will “lean into this space” in 2018, with JW Marriott taking the leading role.

Hotels Will Sell Far More Than Rooms

The business of running a hotel company can no longer be boxed into four walls. “These days, we think of ourselves as being more in the travel business than the hotel business,” says Marriott’s Edmundson, who is overseeing the launch of Ritz-Carlton’s cruise product in the next two years.

“In every single sector, including travel, it’s all about ecosystems,” says Deloitte’s Gasdia. “Think about Amazon buying Whole Foods. It’s all about leveraging the power of adjacent spaces.” So what does that mean for travelers? Most notably, hotels will now attempt to fill up their itineraries with experiences and activities.

“The tours-and-activities space is going through a huge coming of digital age,” explains Gasdia—and hotels want to cash in. (Airbnb caught on early.) Take Marriott’s strategic investment in PlacePass, which unlocks 100,000 walking tours, biking excursions, and culinary classes in 800 destinations around the world. Or the new “Live Unforgettable” campaign for Waldorf Astoria; Hilton’s Vanderslice says it will link hotel guests with such celebrities as Gabrielle Union at high-profile dinner events.

NYU’s Hanson argues that selling activities is crucial for luxury hotels. It helps them control the end-to-end shopping experience, offers data that can feed guest personalization, and distinguishes high-end properties from mid-tier ones.

“Luxury hotels need to do more. We get ironing boards and bathrobes everywhere, don’t need business centers, and even the concierge has become irrelevant,” he explains. Experiences, though, are a winnable space. “Local walking tours, comped theater tickets, exhibits in the hotels, manager receptions for frequent guests—these are the types of things that only luxury hotels can do.”

©2017 Bloomberg L.P.

This article was written by Nikki Ekstein from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Toronto City Council Voted 40-3 In Favor of Short Term Rental Regulations

Thu., Dec. 7, 2017 Toronto city council approved regulations for short-term rentals in the city after a day-long debate on the issue. Council voted 40-3 in favor of the new regulations, and 27-17 in favor of restricting secondary suites. The new regulations don’t ban short-term rentals, defined as less than 28 days, but instead require those […]

The post Toronto City Council Voted 40-3 In Favor of Short Term Rental Regulations appeared first on VRM Intel.

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Latest Travel Ban Appeal Arguments Focus on Security Risks

Associated Press

Muslim and civil rights groups and their supporters gather at a rally against President Trump’s third travel ban. Associated Press

Skift Take: The longer the travel ban appeals process goes on, the more likely it seems that a watered-down version of the original ban will remain in place.

— Andrew Sheivachman

Federal appeals court judges in Virginia peppered a government lawyer Friday with questions about President Donald Trump’s latest travel ban and whether the president has the authority to ban 150 million foreign nationals — mostly Muslims — from the United States.

A full panel of 13 judges from the 4th U.S. Circuit Court of Appeals heard arguments on the third version of Trump’s travel ban. It was the second federal appeals court to hear a challenge to the ban this week, following a hearing Wednesday before the San Francisco-based 9th Circuit.

The hearing came four days after the U.S. Supreme Court said it would allow the travel restrictions to go into full effect, at least until the two appeals courts ruled on separate lawsuits challenging the ban.

The 4th Circuit is being asked to reverse a decision by a Maryland judge whose injunction in October barred the administration from enforcing the ban against travelers from Chad, Iran, Libya, Somalia, Syria and Yemen who have bona fide relationships with people or organizations in the U.S. It also blocks travel by North Koreans along with some Venezuelan government officials and their families, although those parts of the restrictions are not being challenged.

Focus on Information Sharing

Deputy Assistant Attorney General Hashim Mooppan told the judges that the latest travel restrictions were the product of a global, multiagency review that found the countries do not share enough security-related information with the U.S. He insisted the latest travel ban is not anti-Muslim, but is necessary for national security.

“The proclamation says there’s inadequate information sharing from these eight countries or other risk factors that undermine visa vetting, and to deal with that problem — a particular aspect of the broader terrorism problem — they are imposing entry restrictions to those (countries) to improve those practices and protect this nation until they do so,” Mooppan said.

He said the president has broad executive authority to bar aliens he believes would be detrimental to the interests of the U.S.

Cecillia Wang, a deputy legal director at the national American Civil Liberties Union, told the judges that the ban is a manifestation of Trump’s campaign promise to keep Muslims out of the United States. Wang cited various statements made by Trump and anti-Muslim videos he retweeted on Nov. 29, saying he has “doubled down” on his pledge.

“It’s clear on the record that the president has continued to make statements of hostility toward Muslims,” Wang said.

Different Opinions

The judges differed on whether they should consider Trump’s statements and tweets. Judge Paul Niemeyer called Trump’s statements “background noise,” while Judge James Wynn asked if the court should “ignore reality” and just look at the legality of the travel ban.

The 4th Circuit cited Trump’s remarks on Muslim travelers while rejecting an earlier version of the travel ban in May, finding that it “drips with religious intolerance, animus and discrimination” toward Muslims.

Niemeyer suggested that the challenges to the administration’s travel restrictions are based largely on Trump’s statements and not on the ban itself.

“How about if another candidate won the presidential election and entered this proclamation? You wouldn’t even be here,” he said to Wang.

Wang said it “would be a different case” without the statements Trump has made about Muslims, but said the ban itself violates the U.S. Constitution because it discriminates against Muslims.

“The president was acting out of a purpose to disfavor Islam and he directed his lower-level officials to carry out his original purpose in the original way he meant to do that, which was by using nationality as a proxy to religion,” she said.

Several Concerns

Several judges questioned Mooppan about the scope of the ban. Judge Albert Diaz said he was struggling with the administration’s stated goal that the ban will prompt uncooperative countries to improve their information-sharing processes on security issues.

“This is a wholesale ban of 150 million-plus nationals based on the hope and expectation that this will incentivize the nations to cooperate. The connection there to me is missing,” said Judge Albert Diaz.

Trump announced his initial travel ban on citizens of certain Muslim-majority nations in late January, bringing havoc and protests to airports around the country. A federal judge in Seattle soon blocked it, and courts since then have wrestled with the restrictions as the administration has rewritten them. The latest version blocks travelers from the listed countries to varying degrees, allowing for students from some of the countries while blocking other business travelers and tourists, and allowing for admissions on a case-by-case basis.

It is unclear when the appeals courts will rule, though both sides expect the U.S. Supreme Court will ultimately decide on the legality of the ban.

This article was written by Denise Lavoie from The Associated Press and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Delta and Partners Will Charge for Checked Bags on Cheapest Transatlantic Fares

Delta Air Lines

Delta is introducing a Basic Economy fare for transatlantic flights. Passengers who buy it must pay $60 each way to check one bag. Delta Air Lines

Skift Take: A $60 fee to check a bag in one direction sounds extreme. But how many passengers will buy Basic Economy fares on transatlantic flights? It’s one thing to give up perks on a two-hour domestic flight. It’s another to give up the right to choose a seat on an eight- or 10-hour segment.

— Brian Sumers

Fees for checked luggage are finally coming to transatlantic routes, at least for flights on one major airline alliance.

Delta Air Lines soon will charge $60 for the first checked bag to customers who buy the airline’s cheapest fares, called Basic Economy, according to an update on its website. The no-frills fares, which Delta had been selling within North America for several years, come without many perks passengers expect, including advanced seat assignments and upgrades for elite frequent flyers.

And while Delta’s main transatlantic partners, Air France and KLM, don’t offer true Basic Economy, they also will soon start charging 50 euros ($58.79) for a first bag on their cheapest fares. 

The new policy is in effect for all tickets bought after Dec. 6, and departing on or after April 10, 2018. In addition to Europe, the policy also covers flights to North Africa. Passengers who buy regular economy tickets still will receive one free checked bag.

This is believed to be the first time a legacy U.S or European airline has charged for checked luggage on transatlantic flights, though other carriers likely will copy it. Both United Airlines and American Airlines sell similar no-frills fares in the Americas, and each seems likely to introduce them across the Pacific. European airlines tend not to have Basic Economy fares, but some airlines, including British Airways, have taken perks away from passengers buying the cheapest tickets.

New Competition

The new fee comes as legacy carriers wrestle with how to compete with a new wave of European discounters flooding the transatlantic market with cheap seats. Two of the best-known airlines, Wow Air of Iceland and Norwegian Air of Norway, both charge for checked luggage on cheap fares.

However, Delta is also likely to sell Basic Economy on routes where it does not compete directly with discount airlines, a move that allows it to upsell customers to what was once the entry-level fare.

“The success of that product in our minds is not how many people buy it, but how many people don’t buy it and choose another product,” Delta president Glen Hauenstein said in October on the airline’s third-quarter earnings call. 

At least on Delta, passengers who plan to check bags might be better served by buying a traditional economy fare. Roundtrip Basic Economy fares between New York and Dublin, for example, are $90 cheaper than regular economy fares — not enough to offset $120 in bag fees.

Not a Surprise

In an August roundtable at a conference in Las Vegas, Don Casey, American’s senior vice president of revenue management, said he expected his airline might offer similar stripped-down fares as soon as next year. American, he said, needed to keep pace with discount airlines.

“The strategy of unbundling the product and creating sell-up opportunities is something that will work in more markets than just domestic,” Casey said. “We would expect over time, like hopefully some time in 2018, we would have a form of this product on the transatlantic.”

In emails on Friday, representatives for United Airlines and American Airlines said little about their plans. Both said their their carriers had not yet announced plans to implement a Basic Economy fare to Europe.

That means, for now, bags still fly free on all fares. But that may change soon.

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How Jason Schott of Schott NYC Is Driving the Brand’s Made-in-America Heritage

Skift Take: Jason Schott, chief operating officer and fourth-generation family member of Schott NYC, talks about how the 104-year old company values its rich history and the craftsmanship behind their jackets and defies conventional manufacturing rules.

— Dawn Rzeznikiewicz

The Unbound Collection by Hyatt and SkiftX present The Freedom to be Extraordinary content series, which explores how breaking free from convention can lead to extraordinary success. These conversations will reveal how leading innovators and entrepreneurs approach creativity and how they’re embracing the freedom to be extraordinary.

Even if the name Schott NYC doesn’t ring a bell right away, you’re probably more familiar with the company than you’re aware of. Schott NYC is the brand behind the classic leather motorcycle jacket—the one worn by Marlon Brando, James Dean, Bruce Springsteen, The Ramones and other iconic American figures—and despite the odds, has kept the production of its jackets in the United States for over one hundred years. Jason Schott, chief operating officer of Schott NYC and fourth-generation family member to lead the company, spoke about how the company and the family behind it has embraced the idea of freedom throughout its history.

Schott NYC was started in 1913 in New York’s Lower East Side neighborhood by Jason’s great-grandfather Irving Schott and his brother Jack. The two began making fur-lined raincoats and selling them door-to-door, eventually opening up a factory and store of their own. The brothers soon revolutionized the way jackets were made—they were the first to insert zippers into their jackets, which led the U.S. Air Force to commission them to create pea coats and bomber jackets for the country’s soldiers in World War II.

Following the war, the classic leather motorcycle jacket, also known as the Perfecto, became all the rage with America’s youth after Marlon Brando sported it in The Wild One. Decades later, Schott NYC’s jackets are still associated with the idea of “the rebel.” As Schott explains, “There was such a strong connection between that jacket and the bad boy mentality, that the jacket was banned from schools. However, as we now know, there was really no stopping it. It’s forever been the uniform of someone who wants the freedom to express themselves in their own way.”

Despite the challenges of modern domestic manufacturing, while most of their competitors have moved production overseas, Schott NYC has continued to thrive as a family-run business, and the majority of their products are still manufactured in the United States. Over 200 leather jackets and other apparel items are produced in its Union, New Jersey factory, and the company still uses a similar process, as well as much of the same machinery, used by the founding brothers. While keeping manufacturing in the U.S. can be costly, Schott explains that money that would otherwise be put toward marketing initiatives are instead invested in production and craftsmanship of the product. “Instead of focusing on marketing, we tend to let the product speak for itself,” he says.

There are currently about 100 operators who work at the Schott factory and create the jackets piece by piece. The company uses U.S. domestic cowhide—again illustrating the importance it places on the superb quality of its materials—which is individually inspected and cut by hand one piece at a time. Schott explains the value of the company’s workforce, which would likely be difficult to truly replace if the company were to move overseas. “There are 30 to 35 steps that a jacket will go through throughout the factory, so there are a lot of people, and decades of experience, involved in the process,” says Schott. “Our people work really hard, and there’s an incredible amount of knowledge and skill here that is really rare to find.”

While Schott is a family business, leadership isn’t easily handed over to anyone in the family—Schott started out by sweeping the floors and loading trucks. After a stint as an accountant for five years, he returned to the company. According to Schott, the family has avoided nepotism by making sure that every family member involved in the company brings something new to the table. “We have an unwritten rule that in order to become a family member working in the business, you have be employable somewhere else and bring us new skills,” he says. “Now I can’t imagine doing anything else.”

As for the future of Schott, he says he hopes to see many more generations to come, as well as a lot of new twists on old ideas. He says, “We’re sewing our names into these jackets, so it comes with a tremendous sense of pride and responsibility to make sure that people always have an emotional connection to them.”

The Unbound Collection by Hyatt

This content was created collaboratively by The Unbound Collection by Hyatt and Skift’s branded content studio, SkiftX.

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Germany Calls for Talks With Kuwait Airways Over Barring Israelis From Flights

Kuwait Airways

Kuwait Airways came under criticism in Germany for barring Israelis from its flights. Kuwait Airways

Skift Take: Air traffic law is like Swiss cheese, and Kuwait Airways has put its finger in a hole that can’t be blocked. Yet if the banning of selected nationals would become commonplace, it would widely upset the stability of global travel.

— Sean O’Neill

A German government minister has suggested holding talks with Kuwait over its national airline’s refusal to transport Israeli citizens, which he says is “fundamentally unacceptable.”

Transport Ministry spokesman Martin Susteck said Friday the acting transport minister, Christian Schmidt, criticized the practice in a letter to Kuwait Airways.

The letter follows a German court ruling last month that the airline didn’t have to transport an Israeli man on a flight from Frankfurt because it would face legal repercussions at home in Kuwait if it did.

Susteck said Schmidt wrote that “we will examine all appropriate steps to prevent such cases in the future, and consultations could be helpful in this.”

Any such talks would address the countries’ bilateral air transport agreement.

Susteck says the ministry is awaiting a response from Kuwait.

Kuwait resolved a related dispute with the U.S. in 2015 by stopping flying a particular route.

Copyright (2017) Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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DOT Nixes Proposals to Force More Airline Fee Transparency

Bloomberg

A traveler in an airport. Deregulation is beginning to hit online air bookings. Bloomberg

Skift Take: Regulatory rollback is the name of the game for the Trump administration. One has to wonder if a new version of the Transparent Airfares Act of 2014, which would allow airlines to hide taxes and fees during online booking, will get another shot in Congress as well.

— Andrew Sheivachman

Two efforts to make airline fare information easier for customers to understand were killed by President Donald Trump’s Transportation Department.

The department announced Thursday on its website that it was withdrawing the proposals as part of Trump’s effort to reduce regulatory burden on U.S. businesses.

As airline charges for such items as checking bags or getting seat assignments have grown, transportation regulators had sought to make the process of comparing prices more transparent.

One pending regulation would have required airlines and ticket agents to disclose to consumers all fees during the process of buying a ticket, and the other would have collected more detailed revenue information from large carriers. The department said it was withdrawing them after input from industry and the public.

“Having the DOT step back from developing rules to allow consumers to know the full price of travel and to be able to comparison shop is an affront to America,” Travelers United, an advocacy group for passengers, said in an emailed statement objecting to the action.

 

©2017 Bloomberg L.P.

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New German High-Speed Rail Link Looks to Take Business From Airlines

Sven Hoppe  / dpa via Associated Press

A special train of the Deutsche Bahn (DB) railway company departs towards Berlin at the central station in Munich, Germany. A new fast railway track connection has opened between the two cities.
Sven Hoppe / dpa via Associated Press

Skift Take: Although aviation liberalization has made flying within Europe much cheaper and easier, it doesn’t always make sense. Using trains, especially high-speed ones, is often much more convenient.

— Patrick Whyte

German rail operator Deutsche Bahn has opened a new high-speed rail line connecting Berlin and Munich that it hopes will compete with air travel between the two cities.

Deutsche Bahn said Friday the new line will shave up to two hours off the current trip between northeastern Germany and Bavaria with high-speed trains able to travel up to 300 kph (185 mph) and complete the journey in just under four hours.

That compares to about an hour of in-air flight time.

The fastest trains will run three times a day in either direction, while regular Berlin-Munich trains will run every hour on the route that runs through Erfurt and Nuremberg and also complete the journey 90 minutes faster than before.

The new line opens to the public Sunday.

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WestJet Thinks It Can Please All Flyers With Dual Strategy

WestJet

A WestJet 737-800. The airline is launching a low-cost offshoot called Swoop. WestJet

Skift Take: Just because low-cost offshoots failed in the past, it doesn’t mean they’ll do the same now. WestJet’s dual strategy has a good chance of succeeding as long as there׳s a big enough difference between the two offerings.

— Patrick Whyte

Out in western Canada, the airline world is about to watch a unique business experiment. If it goes as planned, in a few years there will be a new favorite carrier battling for your airfare dollars, regardless of whether you’re a penny pincher or a rich banker.

WestJet Airlines Ltd., which flies Boeing Co. 737s in Canada much the same way Southwest Airlines Co. does in the U.S., is embarking on a radical shift to become a global-network airline, replete with fancy foods, plush beds up front and nine new, spiffier airport lounges and many more top-dollar business customers. Simultaneously, it’s launching an ultra-low-cost airline called Swoop to pursue those with the smallest budgets.

This “high-end, low-end” strategy comes as airlines the world over struggle to combat the grand ambitions of lower-cost rivals. The response has largely been defensive, with new fare classes or new airlines that have lower cost structures.

WestJet had a different idea. Next June, the carrier will debut no-frills Swoop, which is modeled on ultra-low-cost carrier Ryanair Holdings Plc. Swoop is squeezing 189 seats onto its 10 Boeing 737-800s, which is 21 more seats than WestJet flies on the same airplane. It’s simultaneously preparing for the first of 10 new Boeing 787-9 Dreamliners, which arrive in January 2019, to fly to Europe and Asia, with options for 10 more of the large planes.

WestJet’s attempt to strengthen its position comes amid a collective bargaining push by employees. In May, its pilots voted to unionize, as did pilots at its regional carrier, Encore, five months later. Multiple unions are looking to organize other groups at WestJet, including flight attendants and mechanics. These efforts are likely to mean higher labor costs. With that threat hanging over its bottom line, not to mention the cost of long-haul flights, the planned expansion with Swoop and long-haul jets could endanger what is currently a profitable franchise.

WestJet executives, who are quick to boast of 50 consecutive quarters of profit, said they’re not worried.

“We just got to the point where the single brand can no longer fulfill all of the missions,” Chief Executive Officer Gregg Saretsky said Wednesday, during an investor presentation. He acknowledged the skeptical feedback his airline has received over Swoop: “Many people are scratching their heads and wondering if that will work.”

“We’ve heard concerns about execution and our ability to successfully move upmarket and downmarket at the same time,” he said.

Calgary-based WestJet knows the dismal history of U.S. airlines that battled low-cost upstarts by establishing new carriers such as Swoop. In the early 2000s, Delta Air Lines Inc. formed Song to battle JetBlue Airways Corp., while United Airlines established a low-cost airline called Ted. Neither brand had operating costs that were sufficiently below its parent, and both were dissolved within five years.

WestJet executives, however, point to a different model: the experience of Melbourne-based Jetstar Airways, which Qantas Airways Ltd. launched 13 years ago to combat low-cost rival Virgin Blue (now called Virgin Australia Pty). Jetstar is a completely separate operation that flies in Australia and New Zealand and has helped Qantas cater to the thriftier end of the travel market.

Jetstar is “the one major exception in the world to the rule about low-cost airlines-within-an-airline never working,” said Seth Kaplan, managing partner of trade journal Airline Weekly. He also noted that Australia and Canada share some critical similarities in terms of population, the size of economies, major industries focused on natural resources and currencies that are heavily influenced by commodity markets.

WestJet said Swoop will fly primarily domestically, with a cost base that’s 40 percent below the mainline carrier—and only 0.1 cent above the average 5.9 cent cost per seat mile of the three U.S. ultra-low-cost airlines.

“Our view is that the network that Swoop builds will be incremental to the WestJet network, rather than cannibalizing it,” Ed Sims, executive vice president of commercial at the airline, said Wednesday in an interview.

In America, the Big Three legacy carriers have tried this “high-low strategy” without creating new carriers. They shoehorn every demographic into the same aircraft, from the price-sensitive Basic Economy traveler to the corporate big spenders in first class. Some airlines now segment customers into five distinct fare families, with multiple cabins on their aircraft.

The goal is to cede as little traffic as possible to no-frills rivals such as Spirit Airlines Inc. and Frontier, a shift from past years when the big airlines largely considered their customer bases to be radically different.

In Europe, the global behemoths have begun new, lower-cost offshoots: Air France-KLM Group has made a play for younger customers with an airline called Joon; IAG SA, British Airways’ parent, started a cheaper brand, Level, for trips across the Atlantic; and Deutsche Lufthansa AG is busy expanding Eurowings with new, longer flights, mainly into the U.S. This trio is chasing budget-minded travelers with new subsidiaries, rather than trying to integrate them into their flagship brands.

Despite these attempts, many industry analysts see ample risk in chasing all segments, the proverbial “all things to all people” strategy that has a checkered track record. After all, many airlines that stick to their patch have done well.

Spirit and Ryanair, for the most part, don’t lure business traffic away from Delta or Lufthansa. And premium carriers such as Singapore Airlines Ltd. and Qatar Airways Ltd. rarely expend effort to chase cash-strapped travelers. Investors have criticized United Continental Holdings Inc., for example, for aggressive fare skirmishing with ultra-low-cost rivals, a battle that’s dented its revenue performance.

Of course, WestJet’s big changes weren’t born in an aviation vacuum. The airline is responding to a variety of threats, from new ultra-low-cost Canadian rivals plotting new service to its bigger rival Air Canada, which has made international growth from the Great White North an article of faith. Air Canada also operates a budget unit called Rouge, which battles for price-sensitive customers, as do Canadian leisure airlines Air Transat and Sunwing Airlines Inc. Air Canada estimated that a Rouge aircraft costs up to 30 percent less to operate than similar jets in its mainline fleet—the result of additional seats and lower-cost labor agreements.

Analysts have been cautiously optimistic about WestJet’s plans, noting that Swoop is likely to be profitable from the start, but said there will have to be significant follow-through. The “rewards associated with success are two to three years away,” BMO Capital Markets analyst Fadi Chamoun wrote in a client note this week. Given WestJet’s scale, low debt and ample cash flow, Raymond James analyst Ben Cherniavsky wrote in a report, “we believe these are risks worth assuming.”

©2017 Bloomberg L.P.

This article was written by Frederic Tomesco and Justin Bachman from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Ryan Wolkov

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Author: Ryan Wolkov

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