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Analysis for Global

Airline product differentiation to customers still in its infancy: CAPA Americas Summit (VIDEO)


Global airlines increasingly pursue the notion of de-commoditising their products in order to create a strategic level of differentiation. But the reality is that the concept of creating new airline customer value propositions remains in its infancy; airlines and other travel companies are still navigating the intricacies of determining how to deliver more differentiated passenger experiences.

Understanding passenger preferences is a huge piece of the puzzle to be solved as travel providers work toward greater product distinction and personalisation. At the same time, passenger preference for the lowest price will always dictate a high level of commoditisation within the travel industry.

The key for travel providers is finding the right balance, and most admit that they are far away from mastering the move from product commoditisation to personalisation. But some signs are emerging that the industry is achieving small moves in that direction.

jetBlue’s Mint a great example of innovation; next phase now tests its premium model more widely


Nearly two years ago jetBlue debuted its Mint premium product, which was a bold move for a low cost, hybrid-like North American airline. The company is the only low cost airline in the Americas that offers a dedicated premium product, and the success of Mint has even surprised jetBlue’s senior management.

In an increasingly vanilla US marketplace, largely driven by Wall Street analysyt demands for short term profits, Mint’s success has beaten jetBlue’s own expectations, and now the airline is planning a massive expansion of Mint routes from its three largest bases – New York, Boston and Fort Lauderdale. jetBlue is undertaking the spread of Mint as Alaska and Virgin America work to gain approval for their merger, then to embark on a years-long integration process of the two. During that time jetBlue will leverage its strengths to inject a premium product into some of Alaska and Virgin America’s important transcontinental markets.

There is much for jetBlue to digest as it works to roll out Mint in several additional markets. But with Mint’s current track record, jetBlue is not surprisingly remaining open-minded about its scope.

LCC CEOs to lead discussions at CAPA North Asia LCC Summit, Tokyo, Jun-7/8-2016


Leaders of North Asia’s low cost carriers (LCCs) will gather in Narita on Jun-7/8 for CAPA’s North Asia LCC Summit.

Hosted by Narita Airport, the Summit marks 12 years of CAPA’s flagship series of LCC events in Asia and marks CAPA’s second return to Japan.

Featuring over 40 speakers, including senior executives from all of North Asia's LCCs, and with simultaneous translation in English, Japanese, Korean and Mandarin, the Summit will explore the commercial drivers for LCC growth in this region, as the market opens.

North Asia has yet to experience the rapid expansion of LCCs  that has occurred in Southeast Asia - but that is changing quickly.

CAPA Americas Summit: Latin America remains promising as open skies drives US international growth


The evaluation process that airlines use to determine the viability of international routes goes far beyond merely calculating potential profitability. Myriad considerations need to be undertaken, including ease of doing business with governments, infrastructure constraints and the customer experience of passengers travelling to the end destination.

Although American and Delta continue to trumpet the need for government-to-government consultations between the US and the UAE and Qatar regarding open skies agreements with those countries, fully liberalised air service pacts remain the cornerstone for international expansion from the US. Particularly so for airports outside the hub systems of the three large global US network airlines.

A pending open skies agreement with Brazil, a new bilateral with Mexico and the recently concluded agreement to resume scheduled flights between the US and Cuba have created new opportunities for US airlines to broaden their reach in Latin America and the Caribbean. But there are obviously inherent risks in undertaking expansion to those regions, and the rewards from growing on routes to those countries may only manifest themselves in the medium to long term.

VivaAerobus starts 2016 with positive momentum. Profitable growth is the key to its future


Mexican low cost airline VivaAerobus ended 2015 on a positive note, reversing its losses from the year prior and charting solid EBIDTAR margins. The airline is in the final stretch of a fleet revamp; this entails shedding Boeing 737 Classics operated since its 2006 launch and transitioning to a much younger fleet of Airbus narrowbodies.

Among the new crop of Mexican low cost airlines that formed in the mid-2000s (VivaAerobus, Interjet and Volaris), VivaAerobus remains the smallest measured by market share. Aeromexico, Interjet, Volaris and VivaAerobus are Mexico’s dominant airlines, but VivaAerobus’ 12% in 2015 share was a distant fourth. That could change as VivaAerobus expands its fleet with larger-gauge aircraft, taking steps to broaden the expanse of its network.

VivaAerobus suspended a number of short-lived transborder routes in 2015, and it appears to be focused on rounding out its domestic network in 2016, before resuming international expansion in 2017. During the next few years VivaAerobus could elevate its position in the Mexican market if there is enough demand to sustain the growth plans of the country’s largest airlines.

European airline consolidation Part 2: M and A potential of major groups; benefits and hurdles


Part one of this report on European airline market structure and consolidation highlighted that the top twenty airline groups in Europe hold 75% of seats. This is the same share as the top six groups in North America. This equivalence, in market share terms, between Europe's top 20 and North America's top six underlines the huge gap in consolidation progress between the two regions' airlines. It would take a large number of merger and acquisition deals to recreate North America's market structure in Europe, consolidating 20 into six.

This second part of the report is a kind of fantasy, a hypothetical. It suggests an illustrative series of combinations among Europe's top 20 that would approximately replicate the market shares, in terms of seat share, held by North America's top six.

This would require large merger and acquisition transactions involving pairings between members of Europe's smaller top six of Lufthansa Group, IAG, Ryanair, Air France-KLM, Turkish Airlines and easyJet. It would also mean several deals involving second-tier FSCs and LCCs. However, for now the larger deals in Europe remain relatively unlikely, and there are even hurdles to the smaller deals.

European airline consolidation and profitability Part 1: top 5 airline groups have only 43% share


Consolidation among Europe's airlines has always been fitful, and truly sizeable deals have ground to a halt in recent years. By comparison, North America has become the benchmark of airline consolidation progress. The announcement that Alaska Airlines is to acquire Virgin America once again highlights the differences in pace between Europe and North America.

This first part of CAPA's analysis of European airline market structure and consolidation compares market concentration in Europe with that of other world regions and looks at the link with profitability. It mainly focuses on comparing Europe with the other two large aviation markets, North America and Asia Pacific, but also gives data on market concentration for all of the other regions: Middle East, Latin America and Africa.

Europe's fragmented airline market is less profitable than its much more consolidated North American counterpart (although, on most measures, Europe is less fragmented than Asia Pacific). Europe's top 20 airline groups have the same seat share as North America's top 6.

Part two of this report considers a possible set of combinations to reassemble Europe's top 20 into six groups matching North America's top six.

Do airline industry associations have a future?: CAPA Airlines in Transition


Following two conspicuous airline defections from regional airline associations in 2015 there must be questions about the role of industry bodies in future – Delta left A4A and IAG left AEA. The issue is further complicated when a European, cross-association grouping is set up to achieve a special purpose.

Whereas Delta's departure from A4A was over fees and ATC privatisation, IAG left AEA on broader policy grounds in a disagreement over liberalisation versus protectionism. IAG then became a member of ELFAA, previously the stronghold of LCCs. Adding further to the density of the manoeuvres, IAG then joined Air France-KLM, Lufthansa, easyJet and Ryanair in forming a new body, A4E, with a very focused agenda.

CAPA's Airlines in Transition (AIT) event in Dublin in Mar-2016 assembled a panel bringing together the heads of four of Europe's airline bodies (AEA, A4A, ELFAA and ERA), the head of its airport trade body (ACI Europe) and the experienced head of the Arab Air Carriers Organisation. Moderated by Kurt Knackstedt, President of the Association of Corporate Travel Executives, the panel addressed the relevance and future of these associations.

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