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Operational improvement is a top priority for Spirit Airlines' new CEO, who has held the position for just six months. Data from the US government show that Spirit is making progress in some areas of operations, but still lags behind other US airlines. As the busy summer season kicks into full force, Spirit’s commitment to improving operations could be put to the test.
As Spirit’s rivals hone their product segmentation strategies to match Spirit’s low fares, operational improvement takes on a whole new level of importance for the ultra-low cost airline and its particular business model. Spirit’s ULCC rival Frontier is outperforming Spirit in some operational metrics.
Spirit is in undergoing other changes, including a change in its fleet mix to smaller-gauge Airbus narrowbodies. The company has intimated that it would examine smaller markets in the future to decrease competition with larger airlines. Many of the new routes that Spirit has introduced in 2016 feature Southwest and Delta as competitors and it appears that Spirit now has the largest network overlap with Southwest, rather than with American Airlines.
Garuda Indonesia is close to completing a new 10-year fleet plan outlining narrowbody and widebody growth. An overdue order for new generation widebody aircraft, along with a top-up order for 737 MAX narrowbodies, is expected by the end of 2016, potentially at the upcoming Farnborough Airshow.
The new fleet plan supports an ambitious plan to expand Garuda’s international network – both regionally and in the long haul sector. Garuda is also striving to strengthen its domestic position further with narrowbody growth.
According to CEO Arif Wibowo, the group's new overall strategy is: “To dominate the domestic market, expand regional where the opportunities are and subsidise long haul growth.” This is the fourth and final part of a comprehensive series of analysis reports published by CAPA on the Garuda Indonesia Group.
One of the most discussed aspects of the pending merger between Alaska Air Group and Virgin America is how Alaska would navigate the sensitivities of dissolving the Virgin America brand, given the fierce brand loyalty that Virgin America engenders among higher-yielding passengers. Now it appears that Alaska is giving serious consideration to retaining the Virgin America brand.
Although sustaining two brands post-merger is rare in the US industry, the combination of Alaska and Virgin America is unique in many aspects – most notable is that both brands generate strong positive sentiment among customers. That has not been the case for some US airline mergers, where in some cases a less popular or less prominent brand was retired.
Despite the complexities inherent in running separate brands, there are valid business reasons for Alaska to seriously evaluate the pros and cons of adopting that strategy. One important factor is preserving the levels of revenue that made the deal attractive in the first place.
Alaska, jetBlue and Southwest cost projections; good in the short term but long term challenges loom
Just as the large three global US airlines – American, Delta and United – work to contain their unit costs, their rivals Alaska, jetBlue and Southwest are committed to keeping their respective unit costs in line as the current revenue environment in the US remains weak.
The latter three airlines face different cost dynamics in the future. Alaska is attempting to embark on a merger with Virgin America, which will inevitably create some cost pressure as the full integration gets under way. Southwest is in the middle of complex pilot and flight attendant negotiations, which makes predicting its cost performance in the near- to mid-term difficult. At some point jetBlue will also conclude a new pilot contract that will affect its cost structure.
Cost performance results for Alaska, jetBlue and Southwest for 2Q2016 and the full year look reasonably favourable, although Alaska has refined its 2016 targets slightly, driven in part by increases in performance-based pay. But its costs should remain competitive compared with its peers, and solidly lower than those of the larger network carriers.
The paradox of margin expansion and unit revenue contraction will continue for most US airlines into 2Q2016 as those companies work to alleviate investor concern and set a course for a positive unit revenue trajectory. But maintaining favourable unit costs is key for the continued margin expansion forecast by the three large US airlines – American, Delta and United.
Although fuel prices have been rising, energy costs remain below historical levels, which is helping American, Delta and United to keep their unit costs in check. Excluding fuel, each airline has varying forecasts for 2016 driven by different inputs, including rising labour costs and profit-sharing.
American’s unit costs during the past year have been affected by labour contracts it reached with pilots and flight attendants in 2015. Delta and United will also likely need to weather labour cost increases as both companies are in the process of negotiating contracts with different employee groups. Many US airlines face uncertainty in their cost performance in the future as they work towards favourable contract terms that preserve their efforts to contain costs. And so the wheel turns.
The US global network airlines Delta and American regularly receive accolades for the execution of their respective merger integrations. Assessment of the merger between United and Continental has been different, even from the airline’s own executives, who admit the integration was more challenging and took longer than anyone had anticipated.
United is working to adapt to changed pricing structures ushered in by the ULCCs – shifting more of its operations from regional to mainline and ensuring that customers fully understand the attributes of its various product offerings once its version of a basic economy fare debuts later in 2016.
United’s executives are also acknowledging the long standing gap it has in margin performance vis a vis its peers, and stresses its commitment to margin improvement. United in many ways is starting again, attempting to build a new foundation of trust with customers, employees and investors.