Delta Air Lines

United Airlines eager to tap expected growth in US-Africa market

United Airlines aims to further expand its network in Africa, the fast-growing market it only began serving last year and last month tripled its capacity in with the launch of Houston-Lagos service. But the rate of expansion will likely be relatively slow, reflecting some of the growing pains in Africa experienced by rival Delta Air Lines.

The opportunities in Africa for US carriers are huge given the current small number of flights in the market and the increasing economic ties between the US and several African countries. US-Africa has always been a modestly sized market that has traditionally been served primarily with connections via Europe. Slowly more direct services are opening up and over the next several years new flights are expected to be launched by US and African carriers.

Africa finally became the sixth and final continent to be added to United’s network in Jun-2010, when the carrier launched daily Boeing 767 service on the Washington Dulles-Accra route.

Delta increases capacity at La Guardia, but United still the largest carrier across New York

If anyone was in doubt about who the 900-pound gorilla is in New York City, one of the world’s top aviation markets, that doubt was eradicated on 16-Dec-2011 when Delta announced it is making a domestic hub of New York’s LaGuardia Airport (LGA), improving its USD13 billion economic impact on the area. But Delta will still be in second place. It offers approximately 400,000 weekly domestic and international seats across New York's three airports compared to United-Continental's 651,000.

The move comes a few days after the airline closed its slot swap deal with US Airways, giving Delta 132 new slot pairs at the airport, which the airline described as New York’s preferred business airport. Delta may be able to close the gap on United-Continental, but the world's largest airline will still be able to claim that title in New York.

Delta’s investment in Gol has SkyTeam and broader US-LatAm strategic implications

SkyTeam’s goal of recruiting Gol as a new member took one gigantic step forward this week with Delta Air Line’s acquisition of a minority stake in the Brazilian carrier. The deal also further separates Delta from its US peers as the airline continues to aggressively pursue a strategy of investing in carriers from Latin America and potentially other overseas markets. Other US major carriers have not yet duplicated this strategy but should be enticed to follow Delta’s lead given the opportunities which exist outside the mature US market.

Delta’s eagerness to invest outside North America first surfaced in late 2009, when it made an ultimately unsuccessful bid to acquire a stake in Japan Airlines while the oneworld carrier was restructuring under bankruptcy protection. Nearly two years later, in Aug-2011, Delta made a lower profile but equally significant move in agreeing to acquire a minority stake in fellow SkyTeam member Aeromexico. The USD65 million deal with Aeromexico will give Delta about a 4% share in its Mexican partner as well as a seat on Aeromexico’s board.

American Airlines charts a course through bankruptcy

Last week’s Chapter 11 filing by American Airlines (AA) and American Eagle (AE) parent AMR marks the end of the post-deregulation period as well as possibly signalling the beginning of the end of US legacy consolidation as many believe the shedding of American’s baggage will position it for the US industry’s final merger with the only other independent legacy, US Airways (LCC).

Across the board the feeling is this is the best thing for both AMR and the US industry because it means more capacity cuts. Delta and United are expected to be the principal beneficiaries. JP Morgan expects a 10% capacity cut from American, which translates to a USD1.4 billion, or 1-3% revenue jump for United, Delta Air Lines, US Airways, Alaska Airlines, Southwest and JetBlue in 2012. US Airways was already slated to benefit from the capacity cuts of competitors this quarter.

US carriers shrinking in United States-Southeast Asia market

US carriers are shrinking their presence in the Southeast Asian market, which they serve via Asian hubs, typically in Tokyo or Hong Kong. United's current schedule sees a 27% drop from its last schedule, and is made feasible by merger partner Continental having a narrowbody fleet in the Asia-Pacific region. The decline follows previous cuts made by Delta merger partner Northwest. Despite United's cuts to Vietnam, Delta has no plans to add capacity. Southeast Asian carriers have almost twice the capacity to North America as US carriers have to Southeast Asia.

Delta even considered deploying its B777-200LR on non-stop flights from the US to Singapore, as Singapore Airlines does with a fleet of A340-500s, but determined sustaining the flights would be difficult. Working against US carriers are their higher cost bases than Southeast Asian carriers, despite US carriers having extensive fifth freedom rights in the region.

With the American regional aviation model broken, consolidation is the answer

The old regional airline, capacity-purchase model is well and truly broken and airlines must evolve to find a more profitable model, Dahlman Rose analyst Helane Becker said in her latest briefing in a harsh evaluation of the sector based on losses and current efforts to restructure.

Regionals have been evolving, expanding capacity purchase portfolios or acquiring branded operations such as Republic’s acquisition of Midwest and Frontier to form Frontier Airlines. Even so, that doesn’t seem enough simply because they are still so many aircraft in a vastly shrinking regional airline system.