CAPA

US carriers to slash fourth quarter trans-Atlantic capacity as Europe's outlook dims

Fri, 25 May 2012 05:30:00 GMT

Increasing economic uncertainty in Europe has resulted in US carriers pulling back capacity to the continent later this year to proactively contain losses and a drop-off in traffic that could result from the increasing likelihood of Greece’s exit from the euro zone and the Euro falling to a two-year low against the US dollar. Delta has already stated its goal to reduce capacity 5% across the Atlantic during the fourth quarter, while United has already instituted schedule changes that show a pull-down in secondary European markets. US Airways, which during the last year has enjoyed marked success in its trans-Atlantic business segment, has not declared any plans regarding its capacity to Europe later in the year. But the carrier is launching several seasonal services on the back of its strong performance in the European market.

Trade group Airlines for America (A4A) estimates that during the fourth quarter of this year US carriers will reduce their capacity to Europe by 7.8% as they attempt to better manage seasonality and stave off effects of a recession on the continent. This change is significant as Western Europe is still the largest international market from the US.

MAS should reconsider LCC strategy as losses continue while AirAsia reports more leading profits

Fri, 25 May 2012 00:21:00 GMT

Malaysian low-cost carrier AirAsia has reported another highly profitable quarter, including the highest operating margin among publicly traded Asian airlines (both LCCs and full service carriers) while restructuring flag carrier Malaysia Airlines (MAS) remains one of Asia’s most unprofitable carriers. The outlook for AirAsia Malaysia is bright, particularly if MAS fails to adjust its strategy following the unbundling earlier this month of the equity swap with AirAsia. The MAS outlook remains bleak as the group continues to push on with its new business plan, which focuses entirely on the challenging premium market just as nearly every other major airline group in Asia is investing significantly in the budget sector.

AirAsia Malaysia is the only publicly traded LCC in Southeast Asia to record an improvement in profitability for 1Q2012. The carrier reported a pre-tax net profit of MYR212 million (USD67 million), an improvement of 5%, while its after tax net profit improved by less than 1% to MYR172 million (USD54 million). Revenues at AirAsia Malaysia increased by 11% to MYR1.17 billion (USD371 million) as passenger traffic and seat capacity both increased by 12% to 4.8 million and 6.1 million, respectively.

European woes force changes for the better at Indian Ocean carriers, with Air Austral the latest

Thu, 24 May 2012 10:45:00 GMT

Hardest hit from the European economic situation, aside from the carriers that have collapsed, are far away from continental Europe in the Indian Ocean, which contains the self-proclaimed Vanilla Islands grouping of countries: La Reunion, Madagascar, Mauritius and Seychelles. These nations' carriers are largely dependent on European leisure traffic, which has evaporated in the dual threat of weakening economies and high fuel prices that provide no stimulation to whatever demand is left.

The starkness of the situation has been demonstrated most recently by Air Austral, which over the northern winter will reduce its long-haul network to a single destination and will postpone – or possibly cancel – its order for two Airbus A380s, following it being unable to pay for a new Boeing 777 awaiting delivery. Air Austral is also looking to partner with Air Mauritius to maintain a connection to Australia, a further sign that the situation in Europe is forcing the Vanilla Island carriers to make medium/long-term strategy changes that will finally strengthen them. Etihad Airways earlier this year acquired a stake in Air Seychelles and is now lending management oversight to the Seychelles flag carrier while the region's other carriers have conducted overdue network reviews.

Changes in Northern Europe: Finnair outsources European routes to Flybe; Skyways & City Airline fold

Thu, 24 May 2012 08:09:00 GMT

The North European market underwent another shock wave this week with the grounding of Skyways Express and its subsidiary City Airline and the announcement that Finnair is moving ahead with its plans to outsource its short-haul operations to a much lower-cost airline through forging an agreement with Flybe Nordic that covers one third of its European network and 12 Embraer aircraft. The two events are unrelated though are indicative of a market undergoing a fundamental structural change spelling the evaporation of small, independent regional airlines and the disbanding of the traditional operating model of the legacy carriers in Europe, although Finnair still has to demonstrate how its JV with Flybe will bring its short-haul operation back to profitability.

Stockholm-Arlanda Airport, Sweden-based Skyways Express and Gothenburg, Sweden-based City Airline have cancelled all flights and stopped all payments with immediate effect (22-May-2012) after the owners of the company decided not to provide any further funds.

New Denver-Tokyo 787 service to help boost United's sagging trans-Pacific performance

Wed, 23 May 2012 13:45:00 GMT

United’s plans to launch new flights from its Denver hub to Tokyo Narita Airport in Mar-2013 with its 219-seat Boeing 787 comes at fortuitous timing. While North Asia-North America traffic has been growing, primarily at the behest of Asian carriers, United is the best positioned of US carriers to take part in this growth since it achieves the highest trans-Pacific yields. Combined with anti-trust immunity with Japan's All Nippon Airways (ANA), which is already showing benefits, and United's market leading position in the US, United will be able to grow the market.

Yet trans-Pacific yields are the lowest international ones for United, as it is with other US carriers. The trans-Pacific market does not have the strong corporate and leisure base of Europe or the VFR traffic of Latin America. With yield growth being more limited, the 787 will help the bottom line with its step change in efficiency, reducing costs. United will certainly not be the last carrier to take advantage of changing competitive dynamics.

Delta launches attack on JetBlue through new leisure push from New York

Wed, 23 May 2012 05:30:00 GMT

Delta Air Lines is targeting JetBlue Airways through new and bolstered flights being introduced to Florida and the Caribbean from New York’s LaGuardia and JFK airports in late 2012 and early 2013. Delta’s move is a departure from its recent New York strategy of using slots obtained at LaGuardia to capture business travellers from smaller markets that prefer the convenience of getting in and out of the airport closest to downtown Manhattan. But in its latest offensive Delta is targeting leisure markets where JetBlue is deeply entrenched, and in some cases breaking JetBlue’s monopoly on those routes.

Delta in Mar-2012 introduced new flights from LaGuardia to 15 markets as it began developing the airport into a hub after gaining 132 slot pairs at the facility from US Airways. Delta is scheduled to complete the new market phase-in during Jul-2012 when it launches 26 additional markets from LaGuardia.

Air Moldova embarking on summer expansion while continuing with Chisinau hub strategy

Wed, 23 May 2012 04:15:00 GMT

Air Moldova is embarking on a summer expansion programme in Jun-2012, building upon capacity increases already seen in winter 2011/12. From Jun-2012 the airline will expand across Italy, Ireland and Russia, adding new destinations as well as increasing frequencies to existing destinations as it seeks to build connecting traffic through its hub at Chisinau International Airport.

Air Moldova is the flag carrier of the Republic of Moldova and operates to Eastern and Western Europe but most of the upcoming expansion is focussed on western markets. Since 2011 the airline has begun to focus on establishing Chisinau International Airport as an east-west transit hub and has increased year-round capacity on key routes including Bucharest.

CAPA India Outlook 2012/13: Critical uncertainty prevails. Possible Air India shutdown

Wed, 23 May 2012 02:12:00 GMT

Indian aviation is facing its most uncertain phase in more than a decade. After reporting an estimated record loss of just over USD2 billion[1] in the 12 months ended 31-Mar-2012, India’s airlines are facing an equally challenging year ahead. Weak balance sheets, increasing costs, regulatory uncertainty, a sluggish Indian economy and a difficult global environment will continue to pile the pressure on airlines, especially the poorer performing carriers. However, this may in turn create market opportunities to exploit for those that are better positioned. Some of the key highlights of the CAPA India Outlook 2012/13, to be released on 31-May-2012, include:

- Indian domestic capacity growth of 7-8% in FY2012/13, traffic to grow 8-10%

- India’s airlines expected to post a combined loss of USD1.3-1.4 billion

- Jet Airways to prosper; major aircraft order expected

- Kingfisher Airlines revival dependent on foreign airline investment

New routes to China to flourish in the next few years

Wed, 23 May 2012 01:48:00 GMT

China's leading airports are on the cusp of strong international growth, with several new routes to be launched in the coming 12 to 24 months. Growth will be driven by foreign and local needs: countries will have greater needs to further link with China while locally there will be an increasing propensity to travel among the Chinese population as incomes rise, while high-speed rail expansion will push Chinese airlines to grow internationally, at the same time providing feed opportunities for foreign carriers at the main Chinese gateways.

But growth is not only expected at the main Chinese hubs. Second tier airports can also look forward to increasing air services as the Government supports expansion from these hubs and as the LCC revolution takes hold in North Asia. New carriers across the region will be looking for new route opportunities, fuelling rapid growth at non-congested Chinese gateways. China's own second tier airlines are also looking to expand abroad, mainly within the Asia Pacific region, which will spur development at the provincial capitals across China's vast interior and economic zones.

Birmingham Airport repositioning as a national UK gateway point

Wed, 23 May 2012 01:02:00 GMT

In the 1980s and 1990s there was one regional airport in Europe that was notably and successfully aggressive in its attempts to convince government of the value of this genus – Manchester. Since then, Munich has taken the baton, with even better results. Now attention swings back to the UK and to Birmingham Airport, which is going a step further, by attempting to persuade government that it should be the extra capacity provider for the southern part of Britain, rather than one or more of the London airports, which have been told that they cannot have any more runway space. CAPA visited Birmingham Airport to discover what it takes for a mid-ranking (8.6 million passengers in 2011) European airport to assume such a position of responsibility within a national air transport framework that hosts over 220 million passengers per annum through its 40 largest airports.

Chinese airlines start developing mutually beneficial solution through air-rail codeshare agreements

Wed, 23 May 2012 00:38:00 GMT

After two years of competing aggressively with the nation’s growing high-speed rail network, Chinese airlines are beginning to adopt a different approach: 'if you can't beat them, join them'. Mutually beneficial solutions are emerging in the form of air-rail codeshare agreements that could pave the way for foreign airlines to also tap into China's vast interior even with a single gateway. China Eastern Airlines and Hainan Airlines are taking the lead, with the recent agreement between China Eastern and the Shanghai Railway Bureau and between Hainan Airlines and Yuehai Railway.

The moves are changing the relationship between airlines and rail, following a model successfully introduced in the European market. Using rail operations as an alternative to some short-haul feeder services will enable airlines to concentrate on longer routes (including international sectors), which is a key pillar of China’s aviation policy, while also enabling airlines to enhance their feeder traffic rather than losing this market to rail operators altogether. Direct rail links also increase airport (and airline) catchment areas for passengers that can allow them to be more competitive.

Southwest continues to show conservative approach to growth with deferral of 737s

Tue, 22 May 2012 06:16:00 GMT

Southwest’s move to defer deliveries of 30 Boeing 737-800s scheduled for 2013/14 to 2017/18 is a concerted effort to continue a disciplined approach to capacity management and a way to accelerate the company’s often-touted goal of achieving a 15% return on invested capital that it enjoyed in the 1990s. The move illustrates Southwest’s classic conservative approach in running its business as it believes an uneasy economic recovery and volatile fuel prices are creating uncertainty in how the airline business will evolve during the next couple of years.

The carrier first committed to the 737-800 in Dec-2010, opting to substitute 20 of the larger 175-seat aircraft for 137-seat 737-700s it had on order. Southwest expanded its Next Generation 737 order a year later and now has 73 737-800s on firm order with Boeing, plus an additional five leased from a third party scheduled for delivery later in 2012.

CAPA Report: Potential for USD3.5bn of duty free, retail, F&B spend at Indian airports

Tue, 22 May 2012 04:58:00 GMT

CAPA’s India Travel Retail Report, which was released this week, surveyed more than 7000 passengers across 12 airports and highlights the massive potential of travel retail in India.

Qantas restructures in a bid to wrest back the initiative in a turbulent world

Tue, 22 May 2012 04:23:00 GMT

Qantas today announced a substantial reorganisation of its management structure designed to create greater accountability and transparency among its different business units. This comes at a time when the international aviation scene is in a greater state of turbulence than ever before, with alliance and partnership relationships reaching a critical stage.

Splitting domestic and international operations into two separate business units and giving each its own separate P&L is not a unique strategy in any industry and arguably at a time like this gives the Group a better handle on formulating strategy for the future.

Coming in the wake of local competitor Virgin Australia dividing its domestic and international businesses into what are effectively separate companies (something that Qantas is unable to do, thanks to political restrictions set in the Qantas Sale Act), this does also set Qantas up for something similar in the future.

Tiger faces challenging year as it looks to recover following losses in Australia and Singapore

Tue, 22 May 2012 00:52:00 GMT

Tiger Airways has reported a loss of SGD104 million (USD82 million) for its fiscal year ending 31-Mar-2012, a rare negative result for a leading Asian LCC, which generally continues to profit from the huge growth opportunities in the budget end of Asia’s dynamic market. But Tiger is confident the launch of new joint ventures in Indonesia and the Philippines will allow the group to absorb the excess capacity which plagued Tiger in FY2011/12, significantly increasing its ex-fuel unit costs as its fleet became underutilised.

With the return of higher aircraft utilisation and lower unit costs, coupled with more rationale capacity, Tiger’s typically profitable Singapore operation could return to the black later this year. But turning around the Australia operation, which was already unprofitable prior to the six-week grounding by Australian regulators last July and August, could be more challenging. Equally daunting is the task of turning its newly launched joint venture in Indonesia and its planned joint venture in the Philippines, which is now expected to launch in the quarter ending 30-Sep-2012 (2QFY2012/13), into profitable investments.