Delta Air Lines

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

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.

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

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.

US carriers remain bullish on demand as capacity discipline ensues

Current robust demand trends are creating a sustained confidence among US carriers that the airline business now has a strong foundation to withstand fuel price fluctuations and begin delivering consistent positive results. Although the business overall is still not delivering adequate returns, management teams at US carriers are encouraged the building blocks are in place to manage the industry’s cyclicality. The transformation occurring through capacity discipline and shrewd revenue management is beginning to catch the attention of investors that historically avoided the troubled airline industry.

Recently US Airways president Scott Kirby told a group of investors that during the last three years US airline industry revenues have grown in the double-digit range, which he concluded was a remarkable result in the particularly cyclical airline business. The performance appears to be drawing attention from investors that have eschewed the industry based on past performance, as Mr Kirby remarked during the last few months he has encountered and met with potential investors never drawn to the airline business. He believes their interest is an endorsement in the rationalisation ushered in by consolidation and improved capacity management.

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

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.

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

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.

Steady demand fuels strong revenue performance for Canadian carriers in first quarter

Favourable demand trends helped Canada’s two main carriers record strong unit revenue performance year-over-year during 1Q2012. But the similarities end there as WestJet recorded a profit of CAD68.3 million (USD68.6 million) while Air Canada widened its loss from CAD19 million (USD19.1 million) to CAD210 million (USD210 million) year-over-year as its fuel expense grew by CAD147 million (USD147.7 million). Both carriers face challenges heading into the rest of year as WestJet has revised its cost guidance upwards and Air Canada continues to manage the fallout from its prolonged labour strife.

WestJet’s 6% growth in passenger unit revenues beat the carrier’s own forecast as CEO Gregg Saretsky explained the revenue growth allowed WestJet to fully recover the 19.6% rise in fuel costs the airline recorded year-over-year.

Total revenue at WestJet increased 15.3% during 1Q to CAD891 million (USD895.2 million) as yields increased 4.8% on a 8.8% rise in supply.