Analysis for North America
17-Apr-2013 7:00 PM
American Airlines is joining its US legacy rival Delta during 2013 in making a push from Los Angeles International Airport, a strategic but highly fragmented market where no one carrier holds a dominant, commanding position. Presently United has a marginal edge over its two rivals in terms of seat share, but it appears that American and Delta are aiming to close that gap by adding new service from Los Angeles throughout the year.
Unlike Delta, which is launching service to some already-crowded markets from Los Angeles, American appears to be undertaking a different strategy, introducing service in markets served by only one other carrier. In some instances the only other competitor is Allegiant Air, which is a low-frequency operator whose business model is not built on competing with other airlines based on schedules. In other markets Delta is American’s lone competitor, introducing an interesting set of competitive dynamics into the Los Angeles market.
16-Apr-2013 7:00 PM
From the first US Open Skies agreement with the Netherlands in 1992, and the subsequent granting of antitrust immunity to the KLM-Northwest joint venture in 1993, the evolution of airline alliances has been rapid and far reaching. Bilateral codeshares, immunised JVs, multilateral branded global alliances, the Etihad equity alliance: why are there so many models? In the first of a series of reports based on CAPA’s recent Airlines in Transition conference in Dublin, we examine the history and evolution of airline alliances and partnerships.
After decades of strict regulation of international traffic rights post WWII, which controlled destinations, capacity, frequencies and prices, a campaign for more liberal air services agreements (ASA) between nations began to gather pace in the US from 1977. In the words of Jeffrey Shane, General Counsel, IATA and a former senior US aviation regulator, any attempt to modify an ASA was characterised by a "highly calibrated, tit-for-tat mode of negotiation".
16-Apr-2013 7:00 PM
After quietly allowing its rivals to grab headlines in 2012 with the unveiling of new subsidiaries, Canada’s Porter Airlines has followed through on plans to declare its long-term strategy, boldly proclaiming its ambitions to become a strong third force in Canada’s aviation market. Underpinning Porter’s efforts are the carrier’s plans to introduce Bombardier CSeries CS100 narrowbodies in a drive to broaden its reach to markets beyond the eastern half of Canada and the US.
Porter’s evolution follows hints dropped by the carrier in recent weeks that it would table its long-term vision going forward after Air Canada and WestJet dominated Canadian aviation discourse in 2012 by unveiling plans to create their respective subsidiaries Rouge and Encore. Porter now envisions the 107-seat narrowbody aircraft joining its existing fleet of Bombardier Q400 turboprops to allow for expansion into western Canada, and new transborder markets on the US west coast and Florida.
12-Apr-2013 8:00 AM
Australian carriers Qantas and Virgin Australia have built substantial virtual global networks with each relying on large long-haul operators to carry their passengers beyond their Asia-Pacific networks.
Qantas and Virgin Australia have recognised that as end of line carriers they cannot compete with network airlines such as the Gulf and Asian carriers that can aggregate passengers at their geographically advantageous hubs. The Australian carriers are instead using the long-haul capacity pipelines these carriers offer to serve markets they lack the capital to service in their own right.
Virgin Australia led the way, initially with a neighbourhood alliance with Air New Zealand effectively merging their trans-Tasman business. The carrier, under the stewardship of new CEO John Borghetti struck a deal with Gulf carrier Etihad, securing access to the European market. Similar deals with Delta Air Lines followed adding the United States coverage and finally perhaps the most important of them all, Singapore Airlines.
Qantas struck back with its own seismic announcement that it would partner with the biggest of them all, Emirates in a move that provides the platform to stem heavy losses on its long-haul network and return it to profit in FY2015.
8-Apr-2013 4:28 PM
JetBlue Airways is sticking to its strongholds of Boston and San Juan for new route roll-outs during 2013, but it is also introducing flights from Worcester, which is 74km west of its Boston focus city. The move appears to somewhat replicate what JetBlue has done in Newburgh Stewart Airport New York – introducing flights from a smaller market near one of its larger bases to the leisure markets of Orlando and Fort Lauderdale.
While service to Worcester may seem a bit odd, the airport has been engaged with JetBlue intensely in an effort to restore service after Direct Air ended its scheduled flights from the airport in May-2012. During the last decade Worcester has faced challenges in sustaining direct flights, but the airport is now operated by Massport, which is the operator of JetBlue’s growing focus city in Boston. Given JetBlue’s established relationship with Massport, and the reported incentives the carrier is receiving to launch service in Nov-2013, the new flights are likely low risk for the carrier.
4-Apr-2013 10:35 PM
Porter Airlines seems to be instituting a slight strategy shift as its main rivals Air Canada and WestJet turn their attention to the respective launches of their new subsidiaries. While Porter appears largely protected from direct competitive threats from either enterprise, the carrier has recorded dwindling load factors, perhaps an effort to trade loads for yields.
The shift follows increasing competitive pressure in some of Porter’s busier business markets in Canada’s eastern triangle (Toronto-Montreal-Ottawa) after WestJet during 2012 bolstered its frequencies on those routes along with introducing new transborder service from Toronto to New York LaGuardia. Air Canada has repeatedly stated its unit revenues have come under pressure in those markets as competitors increased capacity in those regions.
From its base at Toronto City Centre Porter serves the busy US northeastern transborder markets of Boston, New York (Newark) and Washington (Dulles). The carrier also operates its 70-seat Q400 turboprops to Chicago Midway.
2-Apr-2013 9:21 PM
US airlines appear closer than ever to be taken seriously by an increasing number of investors as discourse over how to reward patient shareholders becomes commonplace. Years of capacity discipline, de-leveraging and prudent investment in product have garnered the attention of would-be investors that have historically been dismissive of an industry that seemed unable to manage the peaks and troughs well enough to create a business model that weathered inevitable economic downturns.
But since oil prices reached historical highs in 2008 and have remained near those levels during the last five years, US airlines have managed to turn profits during the last three years even despite this.
Against that backdrop executive teams at the country’s largest carriers have continually beaten the drum on capacity discipline and the paring down of debt, which allowed them to give serious consideration to shareholder returns. But investors remain understandably skittish about the longevity of the new-found discipline - and whether long-term lessons have really been learned from past mistakes. And significant challenges remain in achieving the sustainability investors seek. Prominent among these is the heavy hand of government in taxing and regulating the aviation industry. So says US trade group Airlines For America (A4A).
29-Mar-2013 8:59 PM
Competitive pressure in long-haul markets between the US and Brazil was a major driver in the 10.3% year-over-year decrease in yields during 4Q2012 for the powerful newly minted LATAM Airlines Group, which is the combination of Brazil’s leading carrier TAM and South American group LAN. The performance in long-haul markets is likely disappointing for the group as its performance in Brazil’s cooling domestic market improved during the last three months of 2012.
In some ways the competitive pressure on long-haul markets from the US and Brazil will be short-lived as TAM and American Airlines are working to forge a codeshare partnership that will see the two historic rivals team up in the market now that LATAM has selected oneworld as its alliance of choice. Once all the regulatory approvals for the tie-up are in place, TAM will be able to benefit from onward connections in Miami and New York that it currently does not enjoy. Based on current schedules in Innovata (24-Mar-2013 to 30-Mar-2013) TAM and American presently account for 69% of the capacity between the US and Brazil.