Analysis for North America
11-Dec-2013 3:02 PM
Partnerships and KLM Royal Dutch Airlines are intertwined: KLM and Northwest Airlines first joined forces in 1989 when KLM acquired a 20% holding in the US carrier, then the two pioneered the industry's first modern joint venture in 1997, subsequently been imitated not just by trans-Atlantic peers but by airlines across the world. Partnerships today are even more prevalent and critical for KLM. The trans-Atlantic deal has expanded and KLM has a JV with Kenya Airways, among others.
But it is Asia where KLM's breadth of partnerships is most evident and also where there are expansion opportunities, as KLM COO and Deputy CEO Pieter Elbers told CAPA at its recent World Aviation Summit in Amsterdam.
The launch of European flights by China's Sichuan and Xiamen Airlines could see KLM form a deeper partnership, adding to its existing relationships with China Eastern and JV partner China Southern. KLM's historical relationship with Malaysia Airlines has continued despite MAS joining oneworld in 2013, and KLM has also added one-time foe Etihad Airways as a partner. KLM would like a partner in Japan, its second-largest Asian market, and ideally hitch on Air France's relationship with JAL. Mr Elbers describes a stable if limited relationship with SkyTeam heavyweight Korean Air. The growth in partnerships comes as Asia widens its lead over North America as KLM's largest long-haul market.
9-Dec-2013 10:01 PM
Mastery is the buzzword of choice for executives at Hawaiian Airlines as the carrier heads into 2014 aiming to drastically slow its capacity growth and turns a sharp focus on maturing a number of new long-haul markets it has rapidly introduced during the past three years.
In tandem with the slower capacity growth, Hawaiian’s capital commitments are winding down as it takes delivery of its last Airbus A330 widebody in 2015. The company expects to turn a corner that year by generating positive free cash flow to improve its financial leverage.
For management and investors alike, the slowdown and shift of focus to ensuring new routes reach profitability is likely a welcome change from the frenetic expansion Hawaiian has undertaken since 2010, when it started down a path of introducing 10 new long-haul markets that will culminate with new service from Honolulu to Beijing, scheduled to launch in Apr-2014. Hawaiian faces specific challenges in each of its long-haul geographies that it needs to overcome, but executives remain bullish that the company’s network diversification strategy will deliver favourable results over the long term.
5-Dec-2013 10:00 PM
Pressure by Delta Air Lines on Alaska Airlines in Seattle continues through service additions on routes where Alaska is the dominant or lone carrier – Vancouver and Fairbanks, Alaska. The latest moves underscore Delta’s build-out of Seattle during the last year to solidify connecting traffic for its gateway to the Pacific, and the now familiar increasing competition with its long-term partner Alaska Airlines.
Alaska is all too aware of Delta’s encroachment, evidenced by the recent acknowledgement of Alaska’s management that the two carriers have no plans to codeshare on Delta’s recently announced spate of new US domestic north-south markets from Seattle to feed the legacy carrier’s expanding international network from Tacoma International Airport.
As it works to add service to six of Alaska’s top 10 domestic markets from Seattle by Sep-2014, Delta during the next year also plans to compete with Alaska by launching service from Vancouver to feed its international operations in Seattle. The new service not only continues to heighten tension with Alaska, but also adds a new layer of competitive dynamics to carriers offering service to Asia from Vancouver, which is just 204km north of Seattle.
5-Dec-2013 7:08 AM
Japan Airlines may seem to be reclaiming something of its former glory by bringing back a second-daily Tokyo-New York service, which it last offered prior to its bankruptcy and deep restructure. But the route will have a different strategy – and implications – when resumed on 30-Mar-2014. The service will be on JAL's relatively small 186-seat 787-8, not the 747-400s of past times. That represents a decrease in seat capacity, further aggravated by the service largely replacing American Airlines' recently-cancelled New York-Tokyo flight. The JV between AA and JAL makes that switch relatively easy, coupled with the convenience of being able to alter market profiles with the 787.
Whereas previously one of JAL's New York services continued to Sao Paulo, the re-introduced second daily service will have better connections to South America on partner airlines, not on JAL's own metal. The 787 will overnight at New York, allowing for an early return the next day. JAL will have the second earliest morning departure from JFK to Asia, allowing for more time in Tokyo with limited improved connections. This contrasts to ANA's second daily New York-Tokyo service, which leaves JFK in the evening and arrives in Tokyo even later when there are limited connecting opportunities and ground transport options.
4-Dec-2013 9:51 PM
Some intrigue is surfacing around a new ultra low-cost airline that aims to debut from a base in Vancouver during summer 2014. Modelled after Spirit and the pioneer of the bare-bones business scheme Ryanair, it would arrive just as new carriers created by Canada’s dominant airlines Air Canada and WestJet hit their stride.
Founders of Canada Jetlines have recently been making the rounds among Canada’s media outlets touting their plan to operate Airbus narrowbodies to under-served and little-served markets, appealing to cost-conscious travellers with low base fares and an extensive a la carte menu that could even include a nanny service.
Given Spirit’s solid financial results since its initial public offering in 2011 and Ryanair’s consistent profitability levels, it was only a matter of time before an aspiring ULCC would sprout up in Canada. Of course the challenge is amply executing the theory that the time is ripe for the ultra low-cost model to succeed in Canada. There will also be many across the border watching closely.
2-Dec-2013 9:37 PM
Aeroflot is seeking to downplay reports from earlier in 2013 that it was considering leaving its SkyTeam alliance, to which it has belonged since 2006. But its relations with the alliance have become strained. Air France-KLM and Delta blocked Aeroflot's request to join their trans-Atlantic joint-venture, Aeroflot Deputy Director for Strategy and Alliances Giorgio Callegari told CAPA at its World Aviation Summit in Amsterdam on 26/27-Nov-2013. Mr Callegari declined to say why Aeroflot was not permitted to join, but said SkyTeam is "basically run by Air France-KLM and Delta" and Aeroflot "belongs in name only".
Mr Callegari's views on certain airlines dominating an alliance are not unique to Aeroflot or SkyTeam. The question for Aeroflot is "where do we go from here?" Mr Callegari said. His answer is to establish bilateral relationships, and namely joint-ventures, in Aeroflot's three key markets, in order of importance: Europe, Asia and North America. Mr Callegari reported "good" relations with SkyTeam's Asian partners, potentially meaning they could be part of a JV. But Aeroflot will likely have to turn to non-SkyTeam members if it is to establish a JV of significant weight in Europe and North America. Such numerous and strong JVs outside of an alliance would be unprecedented, and fuel more speculation about Aeroflot's future in SkyTeam.
1-Dec-2013 2:01 AM
United Airlines plans a realignment of its Pacific operations centred on increasing direct flights rather than stop-overs in Tokyo as the weakness in Japan’s currency has dragged down the carrier’s results in those markets for most of 2013. United is also building a strategy to directly serve non-traditional gateways to China as competitive capacity increases have also pressured the carrier’s Pacific performance.
The adjustments are freeing up some aircraft for redeployment into new markets from United’s Houston Intercontinental, Washington Dulles and Chicago hubs for new service to Europe, which perhaps seems like a safer option at the moment even as the region is on an at-best slow trajectory to economic recovery.
The success of these planned network shifts necessarily depends on execution, an area where United has faced challenges with respect to the merger with Continental. Now, getting it right will be central to the airline's Asian strategy.
29-Nov-2013 7:00 PM
As Indigo Partners moves closer to finalising its acquisition of Frontier Airlines and heightens the efforts underway to transition the airline into a true ultra low-cost carrier similar to Spirit Airlines, certain nuances to Frontier’s strategy should prove interesting for Indigo to navigate as it works to place Frontier squarely in the US’s growing ultra low-cost business model. Overall, the ultra low-cost business scheme has so far proven fruitful for Spirit in terms of the carrier’s financial performance; but passengers still bristle about being nickel and dimed even though they are paying base fares lower than most other airlines (even so-called low-fare airlines) by a significant margin.
Headed by former Spirit Airlines chairman William Franke, Indigo was a major owner of Spirit as it began the transition to an ultra low-cost carrier in 2006. As is now well documented, he set the wheels in motion to purchase Frontier earlier in 2013 when he resigned as Spirit’s chairman and Indigo sold its stake in Spirit.
The deal is expected to close some time during 4Q2013; but Indigo has no doubt been plotting a strategy specific to Frontier’s network to ensure the successful execution of the business model change. It is a formidable challenge for a long-standing brand that for a long period of time offered at least some medium frills. Indigo’s biggest challenge may lie in avoiding isolating a loyal Frontier passenger base in Denver that has already endured a number of significant changes since its 2009 purchase by Republic Airways Holdings.