Los Angeles 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.

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.

Qantas in a changing world: quantifies refocused international strategy and limits capital exposure

Qantas' withdrawal from a series of international routes promises the single largest benefit to its loss-making international division, delivering AUD100-120 million (USD101-122 million) in annual benefits, with the majority to be realised in FY2013. But with the international division reporting a loss of AUD216 million (USD219 million) in FY2012, Qantas will continue to operate a number of unprofitable routes, primarily to Europe and Asia.

Qantas expects to reduce those losses through the reconfiguration of its Boeing 747-400 and A380 fleets, which when complete towards the second half of FY2014 will deliver AUD70-90 million (USD71-91 million) of benefits annually. Qantas previously put those retrofit changes at a cost of AUD400 million (USD406 million). They include reconfiguring nine 747-400s to have no first class while 12 A380s have a reduced number of business class seats but more economy and premium economy seats.

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.

Frontier encouraged by its strategy of dodging Southwest in Denver, but looks for new bases

Frontier Airlines believes its tactic to target markets from its main Denver base not served by rival Southwest Airlines remains the best method in fortifying its major hub. But at the same time Frontier is looking to lessen its reliance on a single hub and is exploring new bases, two of which are opening this summer supported by a single aircraft.

Southwest returned to the Denver market dominated by United and Frontier in 2006, and since that time has built its presence at the airport to 159 daily departures to 51 destinations. Based on US Department of Transportation (DoT) data, Southwest had a 22.5% market share at the airport from Feb-2011 to Jan-2012.