Why Shanghai Airlines should buy Taiwan's FAT

If Shanghai Airlines were to buy grounded Taiwanese carrier Far Eastern Air Transport (FAT) it could be a good business opportunity assuming it could be bought at the right price and Shanghai Airlines gained effective control over the company.
FAT shuttered its operations on 13 May because it ran out of cash and is heavily in debt.
The owners have been trying unsuccessfully to bring in a new investor that is willing to inject cash into the business and help it overcome its debt problems.
Low-cost carriers such as AirAsia and Jetstar Asia have looked at the business but appear to have decided against getting involved.
AirAsia's director and co-founder Conor McCarthy told me a few weeks ago that AirAsia buying into FAT was unlikely because there are too few synergies between the FAT and AirAsia businesses. FAT is a full-service carrier that operates Boeing MD-80s and Boeing 757s and AirAsia is a low-cost carrier that operates Airbus A320s.
While there may be few synergies between FAT and AirAsia, there are some compelling synergies between FAT and Shanghai Airlines.
Both operate 757s and both have traffic rights to operate between China and Taiwan.
If Shanghai Airlines were to team up with FAT then Shanghai Airlines would immediately become the largest player operating over the Taiwan Strait.
Shanghai Airlines would also gain FAT's pilots which is significant because there is a shortage of commercial pilots in China. The Taiwanese pilots would adapt well to working for Shanghai Airlines because, after all, they speak Chinese.
Also FAT's maintenance arm does heavy maintenance checks on 757 and MD-80 series aircraft so this maintenance base could maintain Shanghai Airlines 757s and do maintenance work for third party customers.
All this adds up to a compelling case for why it might be worthwhile for Shanghai Airlines to take a close look at FAT.

South Korea may be too crowded a market

AirAsia's CEO, Tony Fernandes, was quoted a couple of years ago - while on a trip to South Korea - that the country would be an ideal market for a new low-cost carrier.
He said this because at that time there were only two domestic airlines - both full service carriers - and South Korea has some good short-haul domestic and international routes, ideal for the Boeing 737s and Airbus A320s that low-cost carriers tend to operate.
Today it seems South Korea is no longer an ideal market for a new airline starting out simply because its now too crowded.
The incumbent full-service carriers Korean Air and Asiana Airlines are establishing low-cost carriers of their own.
There are two small regional operators - Han Sung Airlines and Jeju Air - looking to expand.
Plus there are three new airlines starting - Kostar Airlines, Incheon Tiger Yeongnam Air.
I can't see how all these carriers can survice and that can only mean one thing - future consolidation.

SIA master of spin

SIA yesterday had its inaugural Airbus A380 flight from Singapore to Japan but the flight didn't end up in Tokyo Narita as planned but instead was diverted to Nagoya due to bad weather.
The Singapore carrier has been sending out press releases announcing every first A380 flight in an effort to drum up free publicity.
But what to do in the case of the Tokyo service? After all, does a PR hack really want to send out a press release highlighting that passengers have been inconvenienced and sent to the industrial city of Nagoya rather than to Tokyo where they were suppose to be headed?
Solution. Completely ignore the troubled Singapore-Tokyo Narita flight and instead highlight the return leg Tokyo Narita to Singapore.
SIA today sent out a press release headlined: "Singapore Airlines flies inaugural A380 flight from Tokyo."
It makes no mention of the Singapore-Tokyo leg that was diverted yesterday to Nagoya due to bad weather.
And technically Tokyo-Singapore is not SIA's inaugural Japan service but that doesn't seem to matter SIA's PR department.
Don't let the truth get in the way of good puff piece as they say.

MAS' flawed campaign

Malaysia Airlines' (MAS) latest print campaign to promote its new low fares has to be one of the most stupid marketing campaigns I have ever seen.

And that does mean something because prior to joining Flight International magazine six years ago, I was a journalist at Asia's leading advertising and marketing industry magazine MEDIA so I have seen a lot of ad campaigns in my time.

But MAS' latest campaign takes the cake.

The ads look like AirAsia ads and now MAS' CEO, Idris Jala, has even taken to dressing like AirAsia's group CEO, Tony Fernandes.

Fernandes must be having a good chuckle right now over MAS' attempt at marketing.

AirAsia is very much a marketing driven company and Fernandes is a CEO who prides himself on being an astute marketer.

The fact that MAS has made the mistake of mimicking AirAsia's ads means MAS is failing to clearly differentiate its brand and will be seen in the market as a 'me too' product.

There is also a very real danger that MAS' ads will inadvertently help to increase AirAsia's sales.

Consumers - unlike marketers - don't spend hours analysing ads.

People often only spend a split second looking at an ad and what they notice is the general look and feel of an ad rather than the fine print.

If someone is quickly flicking through a newspaper and sees these ads, there is a real danger they will confuse it with an AirAsia ad.

And even if they see the ad and notice it is for MAS they will still be thinking of AirAsia because the ads draw on AirAsia's branding ie. the white and red colors and the type face used in the MAS ads are indicative of AirAsia.

Finally, MAS' ads don't work to promote MAS but are instead working to promote the idea of low cost travel.

In other words it is promoting the category rather than the brand and because AirAsia is the leader of the low-cost market category it could benefit the most from these ads.

It reminds me of a scenario that happened in Australia about 12 years ago when Red Rooster - Australia's equivalent to KFC Chicken - launched a multi-million dollar ad campaign that failed to promote the Red Rooster brand and instead only worked to promote the idea that people should eat take-away chicken.

Sales of Red Rooster's major competitor - Chicken Treat - went through the roof.

The ad agency that came with the dud campaign eventually lost the Red Rooster account. I suspect the same will happen to whoever came up with the ill-conceived MAS campaign.

Tiger takes on bear market

Tiger Airways issued a press release today announcing that it is seeking $225 million to help fund aircraft and engine purchases.

This news itself was not that interesting. After all, airlines are always seeking to borrow money or do sale leaseback deals following aircraft acquisitions.

But what is interesting is that Tiger is actively working to publicise the fact and is going out of its way to woo financiers.

Gone are the days when airlines had financial institutions beating a path to their doors trying to get in on aircraft deals.

With the the US sub-prime crisis still taking its toll, financial institutions are continuing to announce write-downs and are out in the market trying to attract funding to prop up their own cash reserves.

If the financial institutions are out pounding the pavement with cap in hand to meet their own needs, its less likely that these same financial institutions will be in the mood to lend millions to others.

The fact that several airlines in the USA have gone into bankruptcy in recent weeks also doesn't whet their appetite for lending.

Lets hope Tiger can beat the bear market.

Yao yapping on

The take-over of Philippine carrier Seair has taken a new twist with Filipino Chinese tycoon Alfredo Yao claiming in the news media that he has bought the airline when in fact he hasn't.
A report in The Manila Bulletin quoted Yao as saying that he has bought the airline and will be merging it with his other airline Asian Spirit and rebranding the business.
He told the newspaper he paid "less than two billion Philippine pesos" ($48 million) for the two airlines.
Yao last month bought Asian Spirit but he has yet to buy Seair.
I know this because I asked Seair director, Nick Gitsis, yesterday whether the airline has been sold and Gitsis said “not yet”.
He says Seair is in negotiations to sell to Yao and some things have been agreed to verbally but Seair has yet to receive a written offer from Yao and “there are still a lot of things that are not clear”.
Gitsis says the carrier anticipates it will receive a written offer on Monday 28 April.
Yao is buying into the small airlines at a time when these two carriers face new competition in the domestic market from larger airlines Cebu Pacific Air and Philippine Airlines which have just started to add turboprops.
Yao is a Philippine businessman who made a fortune from his Zesto fruit juice business plus he has the rights to the RC Cola brand in the Philippines.
Lets just hope Yao's bid for Seair doesn't fizzle out by Monday.

Could PAL's props topple its smaller competitors?

Lucio Tan's new turboprop operation in the Philippines PAL Express is wasting no time in its all out assault on Seair and Asian Spirit's market share in the Philippine domestic market.

Air Philippines, another of Tan's airlines, is in the process of transferring its turboprop aircraft to PAL Express which is due to start on 5 May with three Bombardier Dash 8 Q300s. Tan is one of the Philippines' wealthiest businessmen.

I know this because earlier today I did an interview with Air Philippines CEO Edilberto Medina.

Philippine Airlines - another one of Tan's airlines - has also just bought six second-hand Bombardier Dash 8 Q400s for PAL Express. These Q400s were previously with Scandinavian Airlines group.

Rather than slowly phase in the Q400s - say maybe one every three months - PAL Express is going to be adding one every couple of weeks.

Medina told me today that the first Q400 will arrive in the Philippines on 5 May and will enter into commercial service on 19 May.

He says the dates for entry into service for the other five Q400s are: 26 May, 23 June, 21 July, 26 July and 22 August.

These aircraft will be used on short-haul domestic routes - a market that had previously been left to independent carriers Asian Spirit and Seair.

Asian Spirit - realising the imminent tsunami of competition it was about to face - sold out a few weeks ago to Alfredo Yao, a Philippine Chinese businessman who made his fortune from soft drinks.

Asian Spirit COO, Joaquin Po, tells me Yao has promised to get newer aircraft for the airline to help drive the business forward.

Seair is also looking to sell out - possibly to Yao as well - but is only willing to sell if it is the right price.

One problem Seair and Asian Spirit face is that each operates older aircraft. Asian Spirit has mostly de Havilland Canada Dash 7s and BAe 146s; while Seair operates Let 410s and Dornier 328s.