CAPA

Milan Malpensa is trying to gel low-cost and full service to rebuild its lost glory

Wed, 16 May 2012 06:45:00 GMT

Milan Malpensa Airport is betting on low-cost carriers as well as full service carriers to restore its lost glory but it will not be able to rebuild a hub owing to its lack of a local network carrier. LCCs now represent about 50% of total seat capacity at the airport while Alitalia accounts for only 4% of capacity as it has shrunk its Milan network to only seven routes, according to data from Innovata. Including its LCC subsidiary Air One Smart Carrier, Alitalia offers less than 13% of Malpensa’s total seat capacity, which is not sufficient to fulfil a possible hub operator role. Most noteworthy is the decline of Malpensa as a transatlantic gateway.

Malpensa used to be a thriving Alitalia hub with the airline serving over 80 routes from the North Italian airport, including 10 transatlantic routes. But the Italian flag carrier’s bankruptcy at the end 2008 and its restructuring under new private ownership from 2009 changed its fortunes. Alitalia now only operates two transatlantic routes from Malpensa while US carriers have also dropped several routes to Milan in recent years.

Continued erosion in Brazil’s domestic demand triggers stringent capacity discipline for Gol and TAM

Wed, 16 May 2012 06:40:00 GMT

Brazil’s two largest carriers Gol and TAM have further refined their already-reduced capacity guidance for 2012 as traffic growth in the country’s domestic sector continues at a much slower pace than during the last couple of years. The continued discipline is part of a broader effort that began in mid-2011 by the carriers to improve their yield performance. But the rebuilding process is progressing more slowly than each carrier would have liked as TAM has concluded customers in the Brazilian domestic market place are becoming more price adverse as the country’s economy is slowing from historically high growth levels during the last several years. Brazilian carriers are also facing added pressure from government-imposed increases in navigation and landing fees.

During 1Q2012 demand (RPKs) in the Brazilian domestic market grew just 7.3% on capacity growth of 11.3%. The growth in 1Q2012 is much slower than the 15.3% growth recorded year-over-year in 1Q2011 and the 33% growth during 1Q2010.

Postponed opening of Berlin Brandenburg causing the summer blues for Lufthansa and Air Berlin

Tue, 15 May 2012 04:23:00 GMT

Berlin Brandenburg Airport’s announcement that it will not open its EUR2.5 billion new premises as scheduled on 03-Jun-2012 is leading to major operational challenges for all involved, but in particular Lufthansa and Air Berlin which would be the largest operators at the new airport and had planned significant network expansions and new procedures. The delay, which is expected to be several months long, is above all bad news for Air Berlin which had aimed to cement its new strategic positioning as full service network carrier and oneworld member with the opening of the German capital’s new airport.

Low-cost carriers will be the least affected as their drive for low airport costs exceeds the need for enlarged and architectural attractive airport capacity. LCCs also remain outside the public relations contest to participate in the opening of Germany’s prestigious capital airport.

ANA – and Japan's transport system – appears oblivious to coming LCC impacts, which will be vast

Tue, 15 May 2012 01:10:00 GMT

All Nippon Airways (ANA) has reported a very strong financial result for the past year, despite severe headwinds in the wake of the Mar-2011 tsunami and nuclear disaster. This augurs well for the short term as new Boeing 787s arrive and international partnerships are forged with the carrier's Star Alliance partners.

But in its forward vision there appears very little to suggest management fully comprehends the likely impact the three new LCCs (as well as an expanding Skymark) will have on Japan's domestic and regional short/medium-haul markets. And, in Japan's carefully managed transport system, embracing its world class shinkansen high-speed rail and high quality toll roads, pricing instability is about to disrupt travel behaviour in ways seemingly not apparent to Tokyo's planners.

A quick look at what has happened elsewhere in the world, once truly low-cost airline operations arrive, should be enough to make any observer aware of the potential of adding three new LCCs to Japan's slumbering domestic market in the space of six months. But apparently not in Japan. As has been observed many times in this context: once this egg is scrambled, it does not go back in its shell.

All Nippon Airways confident due to 2011 financial success but there are changes ahead

Mon, 14 May 2012 11:00:00 GMT

Japan's All Nippon Airways (ANA) has achieved the impressive accomplishment of posting a record profit not only in the current economic environment but in the year immediately after Japan’s Mar-2011 devastating earthquake and tsunami. ANA's JPY97 billion (USD1.2 billion) operating profit came on the back of international growth and early introduction of cost-cutting measures. While ANA may enjoy this momentum for another year or two, its medium- and long-term strategy is far from certain and could challenge the ability to repeat ANA's recent gains.

The Japanese market is about to undergo a significant structural shift with the introduction of LCCs that will reshape domestic and short-haul regional flights. ANA is fully aware of new LCCs – its subsidiary Peach was the first to market and ANA will shortly co-launch AirAsia Japan – its management plan has seemingly not taken the carriers into full consideration. Rival Japan Airlines is planning to decrease its exposure to the domestic market, already lower than at ANA, while ANA is planning to grow its LCC-exposed domestic network.

History suggests ANA's domestic strategy is in substantial need of revision.

Hub airports still more attractive, as Beijing's growth slows, affected by the economy and HSR

Mon, 14 May 2012 06:31:00 GMT

Airports Council International (ACI) has provisionally released its annual list of the world’s busiest airports for 2011. While there is equal representation from the Americas, Europe and Asia Pacific throughout (and specifically in the top 10) the 2011 the list is notable for the way Beijing Airport has retained its second position behind Atlanta, but growth slowed there in 2011.

Meanwhile the US' southern hub managed a small growth margin of its own that was equivalent to a small airport’s entire annual throughput, to maintain a 15 million passenger cushion over Beijing, where economic factors and high-speed rail (HSR) came into play. But sadly for the US, that country's airports will not have similar levels of competition from HSR to China's.

IAG first quarter operating loss doubles on shabby Iberia performance and pilot strikes

Mon, 14 May 2012 06:00:00 GMT

International Airlines Group (IAG) has joined the ranks of its full service peers, Lufthansa Group and Air France-KLM Group, in reporting a deepening of its first quarter operating loss with higher fuel costs nullifying the rise in passenger traffic growth and unit revenues. IAG’s deteriorating results, however, also depict a two-tier performance within the Group giving little reason to rejoice the one-year old merger with an “ole”.

Iberia contributed to the bulk of the operating loss whereas it accounts for approximately a third of the group capacity (in terms of ASKs) and group revenue. This highlights the urgent need to proceed with the restructuring of Iberia and resolve the dispute with its pilots. The 10 days Iberia’s pilots were on strike in 1Q2012 cost EUR25 million, according to IAG.

IAG’s Spanish unit incurred a EUR170 million loss from operating activities in the first three months of 2012, compared to a EUR100 million loss in the year-ago period. British Airways (BA) posted an operating loss before exceptional items of GBP62 million (EUR77 million) in 1Q2012.

Jazeera Airways and Air Arabia stick to their models and report double-digit increases in profits

Fri, 11 May 2012 07:30:00 GMT

Business is booming for LCCs in the Middle East. The two oldest low-cost airlines in the region – Air Arabia and Jazeera Airways – have both reported profitable first quarters, as the regional political environment cools and oil prices begin to trend back from their highs earlier in the year.

Both airlines have positive outlooks for this year. Jazeera Airways just reported its seventh consecutive quarterly profit – a record run of profitability for the airline – and aims to continue the success with its new strategic management plan (STAMP). Air Arabia achieved a double-digit increase in profit during the first quarter and the carrier plans to continue to enter new markets and launch new business ventures this year.

Air Canada vows bankruptcy is not an option as its losses continue to mount

Fri, 11 May 2012 06:19:00 GMT

Air Canada is vowing another bankruptcy is not an option as it continues to battle an unprofitability streak and continued fallout from its ongoing labour strife and the closure of its main maintenance provider Aveos. Patience appears to be wearing thin as four years of losses continue to plague investors looking for an elusive return on investment. The airline is opting not to give any clear-cut timing for a return to profitability as it first needs to achieve new collective bargaining agreements with two remaining labour groups – pilots and mechanics – that have staged work stoppages that in the short term have further diluted its brand.

Despite paying down CAD260 million (USD259.2 million) in debt during 1Q and achieving a more than CAD500 million (USD498.5 million) improvement in a cost reduction scheme, Air Canada overall remains unprofitable. Its CAD3.1 billion (USD3 billion) in expense outpaced the CAD3 billion (USD3 billion) recorded in revenues, which drove a 27% increase in its operating loss year-over-year to CAD93 million (USD92.7 million).

American Airlines' bright outlook: 1Q yield grows as international flights & product to be enhanced

Thu, 10 May 2012 07:42:00 GMT

American Airlines recorded first quarter revenue results that rivaled those of its legacy peers and brought its yields to commensurate levels. But its loss for the quarter is evidence of the cost disadvantage it has and is seeking to overturn in bankruptcy protection, just as its competitors achieved in a now well-trodden path. Yet this balance, simple on paper, is dismissed by American's over-zealous detractors. Even Southwest, the darling of the US industry, feels this narrowing cost gap.

But American is not entirely blame-free. Its disclosure of welcomed plans to increase international flights 6 ppts to 44% during the next five years will bring it in line with today's Delta and United. Like other moves, this latest seems to be one page behind in the playbook already worn in by the carrier’s legacy peers, although American is catching up with a premium economy option and surpassing with a new business class product. If it can rein costs in, American has a clear future.

easyJet's reduced loss in 1H2012 reflects brighter skies and higher seat revenue

Thu, 10 May 2012 07:22:00 GMT

easyJet blew a kind wind through the cloudy European sky as it reported a better than expected net loss of GBP90 million for the six months ended 31-Mar-2012, despite increased fuel costs and the increased UK Air Passenger Duty (APD). Net loss for 1H2012 reduced 21.5% on the year-ago period on a 5.4% rise in passengers carried and a 15.7% growth in total revenues.

The good performance of Europe’s second largest LCC in terms of passengers carried contrasts with the worsening operating results of its full service peers like Lufthansa Group and Air France-KLM Group, which were not able to absorb spiralling fuel expenses, notwithstanding increased passenger traffic and higher passenger unit revenue in their most recent 1Q2012.

The financial year of easyJet differs from Lufthansa and Air France-KLM’s which both have the calendar year as their financial year.

Belarus aims to privatise Belavia in 2013, with Russian carriers the most likely suitors

Thu, 10 May 2012 05:00:00 GMT

Belarus and its aviation industry have come under the spotlight in recent months, not least for its air services dispute with Russia which led to the temporary suspension of all Minsk-Moscow services in late Mar-2012. Discussions regarding the privatisation of national carrier Belavia have also been occurring, with the privatisation likely in 2013 according to Belarus’ Transport Minister. Aeroflot is rumoured to be interested in purchasing the carrier, although other Russian companies are also reported to be interested.

In Apr-2012 the subject of Belavia’s potential privatisation emerged after the Belarusian Government revealed plans to convert state-owned transportation enterprises into open joint stock companies by 2015. Belarusian Transportation Minister Ivan Shcherbo confirmed Belavia was included in these plans with privatisation most likely to occur in 2013.

UK carriers rush to snap up bmibaby’s planned route closures

Wed, 09 May 2012 14:53:00 GMT

British Airways (BA) is preparing to disband bmibaby, the low-cost unit it unwelcomely acquired from bmi after previous owner Lufthansa failed to find a buyer. But as the saying goes: one man’s meat in another man’s poison and the news of bmibaby’s grounding was welcomed by multiple airlines including Monarch, Flybe and Jet2.com, all of which are swiftly stepping in to backfill capacity.

Anemic-turns-dynamic is not exclusive to bmibaby’s network but a development seen following the recent demise of other small- and medium-sized airlines in Europe such as Spanair, Malev and Cimber Sterling. In those cases, competitors have reacted swiftly and within a couple of days to fill the void.

bmibaby’s closure is indicative of a recent development in Europe: the lavish injection of capital in loss-making carriers is coming to a standstill with public and private shareholders alike halting the operations of these entities, mostly small- and medium sized airlines, a trend long overdue and induced by low or no economic growth in most EU countries implementing stark austerity measures, and high fuel prices.

Spirit and Virgin America show drasticially different outcomes from capacity growth

Wed, 09 May 2012 14:09:00 GMT

US carriers Spirit Airlines and Virgin America recorded higher than average capacity growth during 2011. But the similarities ended there as Spirit recorded healthy profits that continued into the first quarter of this year while Virgin American continued to mount losses as fuel expense and the spool-up of new markets continued to the crimp the carrier’s bottom line.

While Virgin America concludes it is still in growth mode, it has only recorded one profitable quarter in its five-year history, and only four quarters of operating profits. Unlike Spirit, Virgin America largely operates to legacy strongholds, attempting to lure passengers away from network carriers with its highly-regarded in-flight experience. Although the carrier continues to rack up numerous awards for its service, the business case has yet to be proven.

A diverging West Africa: Ghana finds over-capacity while Nigeria struggles with too little

Tue, 08 May 2012 13:40:00 GMT

Only 402km apart, Accra and Lagos could not have more different aviation markets. Accra has found itself with excess capacity, and consequently Brussels Airlines and United Airlines are withdrawing their respective services from Brussels and Washington DC while Delta Air Lines will reduce overall capacity. Meanwhile in Nigeria, the country's lack of capacity has become a national discussion after the Government threatened to suspend British Airways (BA) and Virgin Atlantic for having expensive fares. But the focus has shifted to the Government and its unwillingness to liberalise air service agreements, which are operating at the maximum for UK carriers, as well as its lack of support for a homegrown aviation industry.

This month Air Nigeria will commence Lagos-London services, adding to the market and further utilising Nigerian capacity to the UK, raising the chances of Nigeria being willing to expand its air service agreement with the UK, which has seen little change since 1999. There are 14,000 weekly seats from Ghana to Europe and 33,000 from Nigeria to Europe, despite Nigeria having a population and GDP five to six times larger. The potential in Nigeria is waiting to be unlocked by a government that in the Corruption Perceptions Index ranks 143rd out of 182nd most corrupt nations.