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

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

Ottawa Airport maintains robust performance despite being in Montreal's shadow

Canada must have one of the least used capital city airports in the developed world, along with Canberra in Australia. Both are government-dominated cities located away from the commercial mainstream: Montreal and Toronto in Ottawa’s case and Melbourne and Sydney in Canberra’s. But while Canberra was the only major Australian airport to record a loss of total traffic in FY2010/11 (a mild decline at -0.5%), Ottawa has undergone something of turnaround in the last 12 months and looks forward to the future with confidence. But could it do better still?

Oman Air reports record passengers, but also record losses

2011 was another expensive year for Oman Air. The carrier reported a record loss of OMR110 million (USD286 million) in 2011, a year that saw the carrier dealing with ballooning oil prices, regional political unrest and some problems with its own workforce.

This is the fourth consecutive annual loss suffered by the carrier. Since the Oman Government took majority ownership in early 2007, the airline has lost a staggering OMR295 million (USD766.9 million). The losses have not been surprising to anyone; the carrier and Government intentionally planned to ramp up expansion in the fast-growing market and then concentrate on profitability, taking the long-term view that setting the foundation blocks early – even if at a loss for some years ­– would yield a healthier profit in the future.

Kingfisher Airlines shrinks to becomes India’s smallest domestic carrier in Mar-2012

Kingfisher Airlines, in a remarkable turn of events, has slipped from being India’s largest domestic carrier to its smallest in the space of only six months amid significant network rationalisation by the struggling carrier as part of its ‘holding plan’. This is a marked turnaround for Kingfisher, which was the largest stand-alone carrier in the market in the first nine months of 2011 with a high of 20% market share in Apr-2011.

According to the latest Indian Directorate General of Civil Aviation (DGCA) data, Kingfisher held only a 6.4% market share in Mar-2012, surpassed even by JetLite with a 7.1% market share and GoAir with a 7.5% market share. GoAir has been the smallest domestic carrier in the Indian market since Aug-2010, with Paramount previously holding this position.

Kingfisher Airlines will likely remain as the nation’s smallest carrier in the coming months, as it continues its much-curtailed summer 2012 schedule, operating approximately 120 daily services with 20 dedicated aircraft of which only 16 may be fully operational.

More subdued outlook for China in short term but some mighty changes afoot

The year of the dragon, 2012, is typically the mightiest of the Chinese signs, symbolising dominance and ambition; consequently this should be a time for making a large leap forward. However, indicators and performance in the first few months of 2012 suggest a more subdued outlook, at least on the surface with recent commentary coming out of China revealing a tone of caution and concern, a foreboding situation given the previous robustness of demand in the country. Yet below the surface, there are indeed some mighty changes afoot. Liberalisation and economic growth are laying the foundation for a rapid acceleration, for aviation overall, but more particularly for a new generation of airlines, most of which did not exist a decade ago.

Asia Pacific airports move up the ranks in 2011, with Beijing this year to overtake Atlanta

The rankings of the world’s busiest airports for 2011 show key developments and lasting changes in global aviation, although the world’s busiest airport by total passenger movements, Atlanta Hartsfield-Jackson International Airport, continued to hold off Beijing, the world’s second busiest airport, in 2011, according to Airports Council International (ACI). It is, however, expected that Beijing, driven by exponential GDP growth, will overtake Atlanta in 2012, ending the airport's 14-year reign in the top spot.

While Beijing Capital is the dominant airport in China, it is on track to become be the world’s busiest hub by the end of this decade, leaving London and even ambitious Dubai in its wake. And new developments will ensure the city of Beijing has an airport in the top spot: its new airport at Daxing, south of Beijing, could have up to nine runways and ultimate capacity to handle around 370,000 passengers per day, or a staggering 135 million passengers p/a. This would increase capacity at Beijing area airports to around 220 million p/a – almost a quarter of a billion passengers.

Rapidly expanding Kenya Airways charts growth with plan to serve every inhabited continent by 2017

Kenya Airways plans to launch its first services to North America, South America and Australia by 2017, making it one of the few carriers to serve every inhabited continent. While these three continents will give Africa's currently fifth-largest airline by seats a global presence, its future is pegged on Asia, with the carrier over the next 10 years planning to launch seven new routes into China, six in the Indian Subcontinent and three across North and Southeast Asia as well as having a growing presence in Europe and the Middle East. It is poised to become Africa's largest carrier.

Growth will be fuelled by Africa's status as a burgeoning market, as well as reliance on partners: Kenya Airways will open routes to SkyTeam member hubs in Xiamen (Xiamen Airlines), Hanoi (Vietnam Airlines), Seoul (Korean Air), Moscow (Aeroflot) and Prague (Czech Airlines). The intercontinental focus follows Kenya's strong emphasis on regional Africa, with the carrier aiming to serve every African nation by the end of 2013. 

The Middle East continues powerfully on thanks to the Gulf carriers, despite some setbacks

The Gulf carriers continued to go from strength to strength in 2011; Etihad made its first (narrow) profit and Emirates again returned the strongest result of any airline globally, even though it was substantially affected by increased fuel prices.

The three major sixth freedom hubs in the Middle East – Abu Dhabi, Doha and Dubai – added 7.7 million passengers between them in 2011, continuing strong growth, despite the regional disruptions. Much of this is testament to the strength of the home carriers, the industry-aligned development policies pursued at each airport and the vision of local governments to transform their cities into major aviation centres. (The contrast with European governments is extreme, as they meanwhile continue to see the sector as a taxation target, to the great detriment of the industry there.)

JetBlue continues to see benefits and growth opportunities from its hybrid business model

Since its inception more than 12 years ago, JetBlue has undergone a fundamental shift in its business model to become one of the few carriers to achieve true hybrid status: low fares with frills. It has firmly entrenched itself in luring business travellers through a small corporate sales force and built up its network in Boston to largely cater to the more lucrative corporate traveller. This shift in strategy was primarily undertaken to even out the dramatic peaks and troughs JetBlue experienced with its leisure-focused model, and was also accompanied by a push into Latin American and the Caribbean to introduce markets with a strong base of visiting friends and relatives traffic (VFR) that JetBlue concludes is somewhat recession proof. At the same time, it has aggressively added interline partners that help to boost its passenger numbers and smooth out the revenue troughs it can experience during slow travel periods.

But that strategy is not without critics. JetBlue’s growth rates during the last few years have raised eyebrows when most carriers have constantly refined their capacity growth to near zero or have actually shrank their supply.

Has the Canadian airport model become an anachronism?

From 1992 to 2003, under a National Airports Policy, the 26 largest Canadian airports (out of more than 100 in total) began to be transferred from the control of the Federal Government to newly created local airport authorities. The airports are operated as not-for-profit facilities with stakeholders drawn from a range of public and private sector functions. Only a couple – Vancouver and Montreal – engage in any management activity outside of their own city through subsidiaries. The Government retained ownership of the 26 airports and charges high lease payments within very long leases, that are in turn recouped from landing charges. The airports have been complaining about the rents for many years without much success. But with passengers deserting Canadian border airports (and almost all the main ones are on the border) for cheaper airports in the US, the question is whether it is time for an alternative model.

Fuel costs create uncertainty for continued profitability of Latin American carriers

Latin American carriers entered 2012 with mixed fortunes as two of its major players, Brazil’s Gol and TAM, posted losses for 2011 and started the year off reining in their capacity to bolster a yield recovery that started in 2H2011. A USD52 million loss at LAN’s Colombian subsidiary also pressured LAN’s overall profits as the group’s net income fell 24%. Both Copa and Aeromexico turned strong performances last year, and remain confident of continuing their positive momentum in 2012 as the economies of Panama and Mexico continue to grow. But similar to many previous occasions, fuel costs are ushering in a level of uncertainty surrounding Latin America this year.

Etihad Airways nears USD1 billion revenue as quarterly growth slightly outpaces capacity

Following Etihad’s first annual profit, the Abu Dhabi-based airline reported revenue jumped 28% year-on-year for the three months to 31-Mar-2012, to a record USD989 million.

The increase corresponds to a 27.4% surge in passenger traffic in the quarter, up by just over half a million passengers, indicating Etihad is growing revenue very slightly ahead of capacity growth. Etihad Airways added new services to Tripoli, Shanghai and Nairobi during the quarter, with passenger numbers reaching 2,360,000.