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Airlines

Capacity building

Airlines are increasingly buying in capacity to help cope with peaks in traffic, particularly in the busy summer period. Alan Dron reports that more ACMI players are moving in to fill that demand
 
In many ways, Aircraft, Crew, Maintenance and Insurance (ACMI) leasing can be compared to an aspirin for airlines suffering the headache of a lack of capacity. They take the bottle of aspirin – namely, another airline and its aircraft – off the shelf, take the ‘tablets’ for as long as necessary, then stop taking them when the problem has been resolved. It's a solution to a business migraine that has become increasingly popular in recent years.
 
But the benefits don’t only flow in one direction. For an increasing number of airlines ACMI, also known as wet-leasing, provides a secure source of income for the duration of the contract, with the ‘plus’ of not having the responsibility for putting bums on seats – that is down to the lessee. The lessor is paid, regardless of the number of passengers. However, has the ACMI sector peaked? Some believe so.
 
With more operators trying to push into what they perceive to be a safe money-making activity, supply may this year outstrip demand. And that is likely to mean that some of the newcomers in the sector disappearing as quickly as they appeared. Regional OEM Bombardier has calculated that ACMI now accounts for around 20% of all flying in Europe’s regional sector. Last year, for example, London Stansted-based Titan Airways covered flights for easyJet, Jet2 and ‘a whole host of European airlines’, and ACMI services now account for 50-60% of its annual flying – more in the summer peak, says Commercial Director Alex Harrington.
 
Many airlines, particularly low cost carriers (LCCs), now take advantage of ACMI services, he says. This enables them to cope with summer traffic, while not having to carry those aircraft on their inventories over the quieter winter period. For many airlines, buying or dry-leasing an aircraft is expensive. Dry leasing can involve a minimum commitment of seven to eight years: “It’s a lot of money up front.” Not that wet-leasing comes without its own costs, sometimes on the part of the provider.
 
Titan, for example, has invested more money into its aircraft than some competitors, says Harrington, as it wants its aircraft to match up to the standards of the airlines on whose behalf it flies. In Titan’s case, that means installing higher-quality cabins and wireless IFE. Titan’s two Airbus A320s and three A321s are used mainly for ACMI work, although its two Boeing 757-200ERs and single 767-300ER can also find themselves undertaking the role on occasions.
 
“The most successful types for ACMI work are those with around 180-190 seats, such as the A320/321 and Boeing 737-800.” ACMI has been a growing area for the past four to five years, he adds. The reasons are two-fold. Firstly demand has outstripped supply: “That’s why you see ACMI providers with one, two or three aircraft starting up.” Secondly, providing aircraft on an ACMI basis means that the lessor does not have the inherent risk of being responsible for passenger welfare or EU261 compensation payments if something goes wrong.
 
However, that does not mean that a lessor can turn up with an iffy aircraft. It makes good business sense in the longer term to keep your aircraft maintained to a high standard, says Harrington: “When an airline wet-leases someone in, it’s often to solve a problem they have. They don’t want the wet-leased aircraft to become another problem.”
 
Keeping their aircraft at a high pitch of serviceability meant that Titan could find itself trying to lease its aircraft at a higher price than some of its competitors. “But fortunately, we’ve got some really good lessees who see the benefit of the premium we charge. If I have one less technical problem every 30 flights, that has a value to an airline – one less EU261 claim.” Across the Irish Sea, meanwhile, former regional scheduled operator CityJet has decided to change its business model completely, and become solely an ACMI provider.
 
Chief Commercial Officer Cathal O’Connell says there are several reasons why the Dublin-based airline decided to change course after it had conducted a review of its prospects. “What we determined was, looking at the future for an independent scheduled operator in Europe, it wasn’t probably the best long-term strategy for a business to grow itself.” Much of its network was a hold over from its days as an Air France subsidiary. Looking at the infrastructure required to be a scheduled airline, and doing that as an independent carrier, was quite daunting, he says.
 
For example: “We served eight to ten destinations from London City Airport; Dublin was our core route. We had reasonably good brand awareness in the Dublin market, but London was an expensive market to keep the brand awareness at a reasonable level.” Except for the Dublin-London City sector, CityJet was essentially a codeshare partner on most of its routes. While it had very strong demand on its London City to Florence route, it realised that trying to build the necessary scale on its other routes might be a bridge too far. >>
 

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