For the past six years, a number of TUI’s Boeing 737s have migrated from the winter in Europe to the sunnier climes across North America for up to five months, before making their journey back home, ready for the summer in Europe. So why is TUI leasing its aircraft to North America and what is the benefit of doing so?
Typically, each winter in Europe, the tourism business recedes for a few months as many of the short-haul destinations in the Mediterranean lose their summer sun and the business operates what’s known as its low season. There is of course an impressive programme of winter season flying for people escaping long or medium-haul for some winter sun, or those taking a well-earned skiing holiday. However the number of tourists, and therefore the number of aircraft required, is reduced compared to the peak summer season. In contrast, in North America, there is an increase of holidaymakers flying between November and April. The airlines and tour operators operating here therefore experience a peak winter high season and require an increased number of aircraft.
This cyclical seasonality provides both a challenge and an opportunity. The TUI source markets in Germany, the Netherlands, Belgium and the UK and Ireland all have a peak summer season, so there is an overcapacity to be managed in the winter. If the aircraft fleet is to provide optimal capacity, the challenge is how to maximise the flying time of the fleet, to ensure that if the aircraft is not flying or having any required maintenance, the aircraft isn’t costing money. And the opportunity is to find synergies and support any fleet resourcing requirements across the Group.
In looking for a solution, a clear synergy was identified with Sunwing Travel Group (SWG). Established in 2002, SWG is a family business, and has grown to become Canada’s number one, providing more holiday packages to the Caribbean, Mexico and Central America than any other travel company in Canada. SWG is one of Canada’s fastest growing and most successful companies, and is owned and operated by the Hunter family headquartered in Toronto. SWG operates an airline, three tour operators, a retail chain and destination management company.
A strategic venture was established in 2009, during which TUI gained a 49 per cent economic ownership and 25 per cent in voting rights of the leading Canadian group.
Tom Chandler, Director of Fleet Management and Fleet Finance at TUI Group explained: “Aircraft are expensive assets. Our goal is to enable to the TUI airlines to maximise the revenue generating use of the aircraft all year around. As a group of companies we achieve very high utilisation, especially during the summer months given the nature of our business in Europe and the breadth of our flying programme for holidaymakers. In the winter we can operate our TUI programmes with fewer aircraft so there are some available to lease out. By leasing aircraft to SWG in the Canadian peak winter season, TUI is able to operate more of its own aircraft in the summer, lowering our aviation costs, compared to leasing in summer-only capacity from the third-party market. There are the same reciprocal benefits for SWG. As well as leasing its Boeing 737s for their winter peak, TUI also receives a number of aircraft from SWG to provide additional capacity for the summer months in Europe.”
For the winter 2016/17 season, 14 TUI aircraft will be leased to SWG to be based across airports in Canada flying to winter sun destinations, primarily in the Caribbean and Mexico. For the summer 2017 season, seven SWG aircraft will be leased to TUI, specifically for Thomson Airways and TUI Netherlands.
A year round operation
Regular leasing to SWG is combined with other season-by-season leasing with other airlines. For the winter 2016/17 season, a total of 18 aircraft will be leased out and of this 14 will be leased to SWG. With a clear strategy, a strong team and a business partner in place, the operation gets underway to lease the aircraft. Despite this being a five to six month flying programme, it is a complex and detailed year round operation. It involves a range of experts, including technical and mechanical engineers from the TUI airlines who work with Sunwing to ensure a comprehensive hand-over of the aircraft leading up to the delivery, along with maintenance teams from both sides working together to deliver the aircraft and the support of spare parts at the base.
Fleet programme managers within the TUI airlines work to ensure that the aircraft are released from their flying programme to be prepared for the lease, and at the same time plan ahead to ensure the aircraft return from the winter lease in time to resume operations for TUI. Work with the organisations and institutions who own the aircraft is also a big focus to ensure that the lease out remains compliant with contractual obligations. They also need to consider how many aircraft need their regular heavy maintenance work.
Chris Broad, a senior manager who is responsible for the leasing of the aircraft within the Fleet Management team at TUI, explains: “The focus is mainly on Thomson aircraft in the UK, TUI fly in Germany, TUI Belgium and TUI Netherlands. Having identified the aircraft that the airlines want to send, we agree the departure and return dates with Sunwing and then engage with the aircraft lessors and banks that need to be involved in any transfer of TUI aircraft. Our aircraft lessors are now quite used to this annual activity but there is still a lot of logistics to be managed to ensure that everything happens at the correct time when an aircraft moves from Europe to Canada. It’s a detailed process but one that is tried, tested and successful.”
Of the 14 aircraft that will be leased to SWG in 2016/17, three are from TUI fly Belgium, three are from TUI fly Germany and eight are from Thomson Airways.
One advantage is that both businesses operate a fleet of Boeing 737s, both with very similar specifications. Therefore exchanging aircraft means very little needs to change to meet the aircraft specification. There’s also no additional pilot training required. The first of the aircraft begins to migrate in November and the last aircraft will land and be delivered just after Christmas.
»Aircraft are expensive assets
Tom Chandler
and our key goal is to maximise the use
of the aircraft all year around.«
Director of Fleet Management
and Fleet Finance at TUI Group
Aircraft leasing
The industry has two main leasing types: wet- and dry-leasing. A wet lease is a leasing arrangement whereby one airline (the lessor) provides an aircraft, complete crew, maintenance and insurance (ACMI) to another airline or other type of business acting as a broker of air travel (the lessee), which pays by hours operated. A dry lease is a leasing arrangement whereby an aircraft is provided without crew.
For the 2016/17 season, 12 of the aircraft are dry-leased and two of the aircraft are on a wet lease from Thomson Airways, together with eight flight crews per aircraft. On a dry lease, once the airline in Europe hands over the aircraft, it becomes an SWG aircraft.
Chris explains: “The dry-leased aircraft are fully integrated with SWG’s own aircraft. The wet-leased aircraft remain under the operation and maintenance control of Thomson. There is far more involvement and Thomson is responsible for the aircraft in accordance with the Civil Aviation Authority’s rules, regulations and standards. The dedicated team in Luton in the UK keep a watchful eye on the aircraft and manage all of the maintenance conditions around it.”
BIRDS OF MIGRATION
The leased aircraft are based at various Canadian airports, flying for Sunwing to the Caribbean, Cuba and Mexico. The wind changes in summer: TUI needs reinforcements in Europe, so leases additional planes from Sunwing.
Bridging process
As the businesses approach the delivery dates, SWG and the TUI airlines have regular meetings to exchange the necessary technical information on the current status of the aircraft and each engine.
SWG takes this information and builds each dry-leased aircraft into their maintenance and commercial systems so it’s integrated as part of their fleet. Chris explains: “This is a significant and in-depth process to exchange information. SWG then builds the aircraft in their own system so that when they collect it, it is instantly one of their own. This is called a bridging process between one airline and the other. SWG may have different regulations because they are governed by the Canadian authorities. This bridging process ensures that SWG does everything required under these regulations. The reverse happens before the re-delivery back to Europe.”
In a reciprocal leasing arrangement, seven of SWG’s aircraft will be leased to Thomson and TUI Netherlands for the Summer 17 programme.
Tom Chandler comments: “This method of leasing is truly beneficial for both companies, enabling us to future proof for changing demands. The real beauty of how it works, it’s a counter cyclical arrangement; it deals with our need to decrease in the winter and flex our capacity in the summer months. With a similar specification for the Boeing 737s and the same inte-rior standards, it allows this strategy to be effective and successful with a trusted business partner.”
