Las Vegas McCarran International Airport

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

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.

Allegiant’s latest round of Hawaii flights reflects its network strategy

Allegiant Air’s latest round of Hawaiian routes is more representative of the carrier’s historical service patterns rather than the Las Vegas-Honolulu route debuting in the initial roll-out during Jun-2012. While launching its first flights to Hawaii from Las Vegas was driven more by operational considerations, the second batch of flights Allegiant is introducing in November are small markets that are largely shielded from legacy competition.

After a lengthy process to obtain ETOPS, Allegiant now has all the requisite approvals to inaugurate service to Honolulu in June from Fresno, California and Las Vegas, Nevada with 223-seat Boeing 757s, a new fleet type for the carrier. Beginning in Nov-2012 the carrier is introducing flights from Eugene in Oregon and Santa Maria and Stockton in California to Honolulu. Other new service includes flights from Bellingham, Washington to Honolulu and Maui.

The protracted ETOPS approval created marketing obstacles for Allegiant in launching its highly-anticipated flights to Hawaii.

US carriers gain access to their strongholds through new Washington National slot allocation

Four US carriers have won rights to launch flights from slot-controlled Washington Reagan National Airport to serve markets where they are dominant or have a strong presence. Southwest Airlines and Virgin America are gaining access to National for the first time, while JetBlue will expand its blossoming presence at the airport. The new services should usher in some fare rationalisation in those markets as the carriers seek to challenge United’s dominance in the Washington market from its hub at Dulles International Airport, which is about 56km from National.

US lawmakers in the latest FAA Reauthorisation bill signed into law earlier this year included a provision freeing up four outside perimeter (beyond 2,011km) slot pairs for new entrant or limited incumbent carriers at National, which is located only about 6km from the US capitol. Carriers already having an ability to operate flights outside the perimeter were also allowed to trade in a single pair of inside perimeter slots for new outside perimeter service. A slot pair consists of one take-off and one landing slot.

Spirit and Virgin America show drasticially different outcomes from capacity growth

US carriers Spirit Airlines and Virgin America recorded higher than average capacity growth during 2011. But the similarities ended there as Spirit recorded healthy profits that continued into the first quarter of this year while Virgin American continued to mount losses as fuel expense and the spool-up of new markets continued to the crimp the carrier’s bottom line.

While Virgin America concludes it is still in growth mode, it has only recorded one profitable quarter in its five-year history, and only four quarters of operating profits. Unlike Spirit, Virgin America largely operates to legacy strongholds, attempting to lure passengers away from network carriers with its highly-regarded in-flight experience. Although the carrier continues to rack up numerous awards for its service, the business case has yet to be proven.

LCCs help drive Mexican international passenger growth of 42% in 1Q2012

Rapid growth among Mexico’s three low-cost carriers – Interjet, VivaAerobus and Volaris – helped drive international passengers transported by Mexican carriers up 42% year-over-year during 1Q2012 as those airlines further expanded into US transborder markets and introduced new flights from Mexico to Central America and the Caribbean.

Mexico’s airlines transported 1.3 million international passengers during the first three months of this year compared with 924,916 during the prior year period, according to data from Mexico's DGAC. Interjet had the most dramatic growth, increasing its share of Mexico's international market (among Mexican carriers) from zero to 5.8% year-over-year. Interjet launched its first international flights last year and now operates from Mexico City to Guatemala, Havana, Miami and San Antonio and from Toluca to San Antonio.

Interjet currently operates 12 weekly roundtrip flights with Airbus A320s from its main base at Mexico City to San Antonio and three weekly flights from Toluca, where the carrier has its headquarters, maintenance facility and a smaller base.

Spirit Airlines marks milestone with Dallas-Toluca flights

Spirit Airlines will mark a milestone in Jun-2012 when it introduces flights from its growing base at Dallas Fort Worth International Airport to Toluca, Mexico. Currently most of Spirit’s international flying is operated from its Fort Lauderdale headquarters, as part of a strategy the carrier adopted during the middle of the last decade to build the airport as an alternative gateway to Miami for service to Latin America and the Caribbean.

Part of Spirit’s tactics included offering lower fares to those destinations than American Airlines, which remains the dominant carrier in Miami. Spirit for many years had a singular focus on penetrating central America, northern Latin America and the Caribbean to capture the significant volumes of visiting, friends and relatives traffic (VFR) that transited to southern Florida, and now offers flights to roughly 25 international destinations from Fort Lauderdale. It adopted a no-frills model that allowed it to offer appealing low fares to that passenger segment and co-exist with American in the Miami metropolitan market.