Analysis for North America

Aeromexico predicts a rise in domestic market share as rivals continue to grow

Mexico’s largest carrier Aeromexico predicts a rebound in its domestic market share during 4Q2012 after watching its rivals grow in the market during the last year as they worked to seize on opportunities created by Mexicana ceasing operations in Aug-2010. Aeromexico’s management during the last three months of 2012 plans to focus more on building load factor instead of yield strength, which company executives believe will shore up its standing in the domestic market after the summer high season that was tilted more heavily towards leisure traffic. The carrier is also planning a trans-Atlantic push as it works towards the launch of new service to London Heathrow and forging a partnership with a Middle Eastern carrier to funnel traffic through its new European destination.

Aeromexico’s focus on improving yields was reflected in the nearly 7% growth the carrier recorded in that metric during 3Q2012, which helped to drive the carrier’s unit revenue growth up 3.6% year-over-year. While the yield strength reflects Aeromexico’s ability to garner favourable pricing, its 6% rise in capacity year-over-year in 3Q2012 outpaced the 2% traffic growth, driving the airline’s load factors down by 3.7ppt in 3Q2012 to 77%.

Spirit assures opportunities abound to stimulate traffic in the US market

US ultra low-cost carrier Spirit Airlines believes consolidation among the country’s major carriers and larger low-fare airlines continues to create opportunities for niche players to fill service gaps created by the four mergers that have occurred in the industry since 2005. The airline remains so bullish on its growth prospects domestically that it is growing capacity during 2013 by 18% to 22%, a growth rate the carrier aims to maintain through 2015. But Spirit could face hurdles in maintaining that explosive growth as its unit costs continue to climb, and its continued penetration of the top US markets will also inevitably slow as the opportunities for exploitation shrink.

After turning its focus away from building up a strong presence in the Caribbean and Latin America from its Fort Lauderdale hub, Spirit during the last couple of years has set its sights on the domestic market, making a push into legacy strongholds under the premise that it can charge ultra low fares and stimulate low-yielding traffic that most other airlines would choose to abandon.

Southwest cedes some markets to Delta as tweaks in Atlanta continue

Southwest Airlines is ceding some markets from Atlanta to Delta during 2Q2013 as work continues towards fully optimising the combined networks of Southwest and AirTran, the carrier acquired by Southwest in 2011. The cuts reflect Southwest’s desire to transition AirTran’s Atlanta hub from a connection centre to its traditional point-to-point model as smaller markets such as Flint, Michigan and Rochester, New York are pegged for elimination. But Southwest is also cutting Charlotte, one of the top destinations from Atlanta, and redeploying the capacity to its strongholds of Chicago Midway, Houston Hobby and Orlando.

The moves are occurring as Atlanta’s largest carrier, and Southwest-AirTran’s main rival, Delta is declaring that Southwest is facing some challenges in changing the dynamics of AirTran’s operations in Atlanta. Overall Delta believes the capacity changes Southwest is making in Atlanta should create a rational operating environment. But it is not yet certain if Southwest will be successful in spooling up Atlanta to its expectations.

United Airlines aims to open secondary Chinese cities with the 787

European and Middle Eastern carriers are slowly opening services to China's secondary cities that may be overshadowed by Beijing and Shanghai but still boast of populations well into the millions. Now United Airlines looks set to be the first North American carrier to introduce non-stop service to secondary cities, with CEO Jeff Smisek telling local media that its Boeing 787s will open cities like Chengdu, Chongqing, Xi'an and Wuhan.

Such services will bring the China-North America market to a new stage of development, critical since from the Chinese perspective it is expected to be the healthiest and most stable long-haul market. Yet the balance for the long-term will be weighted towards US carriers, which not only will have a larger domestic market than China for at least a decade, but also have regional traffic around Latin America to feed to long-haul routes, whereas Chinese carriers' regional traffic around Asia is more hotly contested.

Alaska, JetBlue and US Airways see pockets of softness amidst overall positive demand trends

Increasing caution is underlying positive commentary by US carriers Alaska, JetBlue and US Airways as each airline faced some areas of softness during 3Q2012 in their respective networks. But their overall view of trends throughout the remainder of 2012 and into 2013 remains optimistic, as reflected by Alaska and JetBlue adhering to previous capacity guidance that remains well above supply growth planned by their legacy carrier peers.

The bulk of JetBlue’s growth will continue in its Boston focus city, Latin America and the Caribbean, while Alaska plans to introduce three new markets during 2013 which should be unveiled in the coming weeks. It is unlikely that Alaska will continue its aggressive push into Hawaii as the carrier continues to reiterate that capacity gaps created by the demise of Aloha Airlines and ATA have been filled. Alaska also faced some competitive capacity pressure during 3Q2012 in its Hawaiian markets.

American Airlines looks to new Asian and German connections through new international markets

American Airlines is largely targeting growth markets through new international routes it plans to introduce in 2013, bolstering its already robust ties to Latin America through new flights to Lima where oneworld partner LAN is increasing service to capitalise on increasing demand between North and Latin America. Attempting to build on a recently strong performance in the Pacific, American is also introducing its first direct service from the US to Seoul in South Korea, a market dominated by SkyTeam carrier Korean Air and Star member Asiana.

New service planned by American from its Chicago hub to Dusseldorf in Germany is a direct result of airberlin’s ascension earlier this year into oneworld, allowing American to seize on airberlin’s stature as Germany’s second largest carrier and fill a hole in both its own and oneworld’s larger European network. The carrier is also entering a well-served market with a new service from JFK to Dublin, but American appears to be timing the launch of service to coincide with “The Gathering”, an Irish-government sponsored initiative aimed at encouraging individuals of Irish descent to return to the country to boost tourism and strengthen the economy.

Gol shifts US strategy as Venezuela shuns stopover traffic to the US

Brazil's Gol has shifted the focus of its plans to re-launch US flights by applying for one-stop service to Miami and Orlando via Santo Domingo in the Dominican Republic after its attempts to serve Miami via Caracas were denied by the Venezuelan government. Gol’s failed attempt results in American Airlines and Venezuela's Santa Barbara Airlines retaining a duopoly in the US-Venezuela market, and a less desirable route for pick-up traffic for Gol through Santo Domingo.

The decision by the Venezuelan government appears to reflect a trend by the country’s authorities to deny South American airlines access to the US through Caracas. Aerolineas Argentinas earlier this year attempted unsuccessfully to secure authority to route its new second daily Buenos Aires-Miami frequency through Venezuela’s capital. Aerolineas will now launch the new flight as a non-stop service in Dec-2012 (it already operates one daily non-stop between Buenos Aires and Miami).

Meanwhile, smaller Caribbean carriers are trying to fill the void in the under-served US-Venezuela market by offering more one-stop connections via the Caribbean to circumvent the restrictive air transport agreement between the US and Venezuela.

Qantas' evolving A380 network highlights some of Asia's biggest airline strategic shifts

When Qantas in Mar-2013 shifts the stopover of its London-bound services from Singapore to Dubai, the switch represents more than just the large change over the past decade between Australia and Europe. Qantas' A380 fleet has been at the centre of some of the largest strategic re-directions that have occurred around Asia-Pacific, from Japan's prominence fading to the growing importance of China to the new competition across the Pacific to the United States.

These changes make for an interesting comparison with the very original network for the initial 12 A380s Qantas foreshadowed when issuing a request for proposal to suppliers related to its 2000 acquisition of the aircraft. Some parts of the original network were implemented: Melbourne-Singapore-London Heathrow while others, between Sydney and London, shifted layover hubs from Bangkok to Singapore as the latter gained prominence. With Japan's economic slowdown, Sydney-Tokyo A380 services were never realised, but services from Sydney to Hong Kong – Asia's new global city – were.