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Analysis for Global

LATAM and GOL: Excess capacity could threaten arrival of crucial recovery in Brazil domestic market


After two years of weak demand and pricing, some signs of stabilisation are emerging in Brazil; however the country’s two largest airlines are adopting an understandably cautious tone in their assessment of the operating environment. Although both LATAM Airlines Brazil and Gol have significantly reduced their domestic capacity during the last year and a half, both airlines have concluded that some excess supply remains in the market place. Fast-growing Azul has opted to slow its capacity growth in 2016, but Brazil’s fourth largest airline Avianca Brazil has continued growth in order to build its market share within the country.

LATAM Airlines Brazil also believes its performance on routes between the US and Brazil is improving, which is a similar conclusion drawn by US airlines operating between the two countries. For LATAM, the improved performance is offsetting some weakness on other long haul routes from its Spanish-speaking countries.

Neither airline has offered specific capacity guidance for 2017, but LATAM Airlines Brazil and Gol are likely to keep their supply restraint intact. Pricing in the domestic market has yet to stabilise, and competitive capacity actions will result in those airlines keeping their own ASK increases at bay in order to sustain a favourable supply/demand balance.

United Airlines Part 2: Sustaining balance sheet strength while declaring ambitious margin targets


One area where United Airlines has made important strides during the last few years is in overhauling its balance sheet. Its efforts have gained some recognition from credit agencies for its progress in paring down debt and improving leverage ratios; but similarly to its rival American Airlines – attaining an investment-grade credit rating is not a huge priority for United. The airline believes it can achieve some benefits that investment-grade companies enjoy with the current state of its balance sheet.

In order to sustain the progress it has made in balance sheet repair United plans to amend its aircraft order book to slash capex commitments during the next couple of years, including the deferral of 61 Boeing narrowbodies. United is hinting that other fleet changes could be under consideration, including deals similar to the agreement it forged during 2015 to lease used Airbus A319s.

This is Part 2 in a two-part series reviewing United’s financial and revenue-generating opportunities.

Allegiant Air: unit revenues could still turn positive in mid-2017 as cost pressures rise


Although Allegiant Air’s niche model differs from those of the majority of US airlines, the company has not been immune from the weaker pricing environment that has engulfed the US industry during the past year. Similarly to many US airlines Allegiant is beginning to see improving trends in the US market, and believes it can attain positive total unit revenues by mid-2017 as its own capacity growth slows and certain routes within its network mature.

Allegiant is facing pressure on its 4Q2016 unit revenues driven by effects from operational disruptions that were triggered by Hurricane Matthew and the timing of the Christmas holiday. But if the company reaches the lower end of its quarterly unit revenue guidance, Allegiant’s sequential improvement in unit revenues during 2016 will continue for the final three months of the year.

A new pilot agreement and other items are creating pressure for Allegiant in its unit cost performance in 4Q2016 that could continue into 2017. One cost area where Allegiant should see relief is in its maintenance expense, as the phase-out of its older MD-80 aircraft begins in full force.

CAPA and ACTE announce Australasia 2017 corporate travel conference schedule


Building on the success of their first combined corporate travel events in Australasia and the Asia Pacific in 2016, the Association of Corporate Travel Executives (ACTE) and CAPA - Centre for Aviation have announced a comprehensive conference programme for 2017.

Like the 2016 series, next year’s CAPA-ACTE events will be held in all the Australian state capitals and Auckland, allowing travel managers to participate without having to travel interstate. Over the past year CAPA-ACTE Australasia Corporate Travel events have attracted almost 1,200 participants, of which 350 were corporate buyers. Over 300 industry professionals will attend the ACTE-CAPA Global Conference in November 2016 at the Sheraton on the Park, Sydney, to be headlined by ABC journalist, Tony Jones, and renowned economist Michael Pascoe.

Capture untapped revenue opportunities using advanced analytics


Sabre Airline Solutions continues its year-long series focused on the need for a next-generation revenue management system. The four-part article series examines how Total Revenue Optimization (TRO) can be realized by implementing a revenue management solution that incorporates real-time data, portfolio integration, advanced analytics, and real-time decision support. The following is a preview of the series’ fourth article discussing the benefits of a revenue management system with portfolio integration.

ACTE-CAPA Global Summit addresses liberalisation, disruptive technologies and Brexit


The ACTE-CAPA Global Summit attracted over 800 delegates and more than 40 c-level executives to Amsterdam on 27-28 Oct-2016. The CEOs of more than 20 airlines spoke during the summit, which included the annual CAPA Aviation Awards for Excellence gala dinner.

For a report on the award winners see: Icelandair, Iberia, Qatar, Wizz, AirAsia’s Fernandes, London City, Vancouver, ABB win CAPA awards

Liberalisation and disruptive technologies were among the main themes across two days of keynotes and panel discussions. Brexit, China, global alliances and the future of the low cost model were also examined in specifically themed panel discussions.

Spirit Airlines expresses cautious optimism about pricing improvement in the sagging US market


Similarly to the largest US global network airlines, the ULCC Spirit is welcoming signs of a modest improvement in the US pricing environment. The company’s decline in total unit revenues year-on-year in 3Q2016 slowed to single digits – compared with some of the steepest decreases recorded among US airlines for the past year. If the overall trends in the US market stick Spirit’s sequential unit revenue improvements should continue, reflected in projected further improvement in 4Q2016. However, unlike some US airlines, Spirit is not offering a specific timeframe for a return to positive unit revenue.

Spirit also posted sequential improvement from non-ticket revenue declines in 3Q2016. The airline has been battling soft pricing in baggage fees tied to lower ticket prices. It has been in the process of incorporating ways to shore up non-ticket revenue, including adopting more dynamic pricing of its ancillary products.

Throughout 2016 Spirit has retained a number of smaller-gauge Airbus A319s as it adopts a pivot in its network strategy – to smaller markets. Looking forward, the company is not ruling out talks with other manufacturers about its long-term fleet needs, reasoning that with Airbus’ strength among low cost airlines other airframers are ultimately going to act aggressively to secure new business.

jetBlue Airways keeps long-term cost performance in sight as US pricing trends start to stabilise


After outperforming the industry throughout most of 2015 in its unit revenue performance, jetBlue Airways has posted negative results throughout 2016, driven by a weaker pricing environment in the US market. Unlike other airlines, jetBlue does not provide much forward guidance about unit revenue, and is not venturing to offer a timeframe for a return to positive unit revenue. For 4Q2016 the airline is facing pressure from the timing of the Christmas holiday, and the effects of suspended operations due to hurricane Matthew in Oct-2016.

jetBlue is noticing similar trends to those at other US airlines – generally, close-in bookings and pricing began to improve in 3Q2016. Most US airlines are planning lower year-on-year capacity growth in 2017; these include jetBlue, which expects its supply to drop a couple of points below 2016 levels. jetBlue’s 2017 capacity will still run higher than that of some of the larger and more mature US airlines, but the company always stresses that it remains in growth mode, reflected in the introduction of eleven new routes from late 2016 through 1H2016.

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