Analysis for North America
25-Mar-2013 11:00 PM
Making an active effort to understand customers’ needs and concerns will give airlines a better idea of the changes required in their business models to deliver and receive value.
The starting point for realigning business models so that they address passenger needs is to agree on which passengers to target; acquiring detailed knowledge of their travel behaviour; and designing appropriate processes and committing resources – whether it’s building new systems and facilities or training staff – to provide the right services.
This sounds fairly basic and easy. Yet, passenger frustration continues to exist and, in fact, in many cases it is increasing. Why?
22-Mar-2013 9:41 PM
United Airlines is recording positive unit revenue trends at the start of 2013 after merger integration headaches resulted in significant revenue degradation for the carrier in 2012. With the airline's management assuring that the bulk of the integration challenges have been overcome, and the work to bring legacy United up to par with Continental’s service standards is well underway, expectations are high for United to begin to deliver on the promised benefits from the merger with Continental.
Signs of a turnaround for United do appear to be emerging as its passenger unit revenue increase of 6.5% to 7.5% for Feb-2013 was the highest among the traditional US network carriers. It is a significant improvement from the unit revenue weakness United suffered throughout much of 2012 relative to the US industry at large. For the full year 2012 United’s passenger unit revenue growth was flat compared with 7% growth at Delta, a 5.6% rise at America and a year-over-year increase of 4.3% at US Airways.
The airline’s on-time performance (OTP) is also on a marked upswing after United suffered a partial operational meltdown during the 2012 summer season when its OTP in Jul-2012 sank to 64%, a 10.2ppt drop year-over-year.
21-Mar-2013 10:20 PM
Delta Air Lines continues to leverage the competitive strength it holds over its US legacy peers to flesh out its network and build pockets of strength as United and Continental remain in the throes of their merger integration and American and US Airways lay the groundwork to begin the complex process of combining their respective organisations.
During the last couple of years Delta has used the nimbleness it enjoys versus its legacy domestic competitors to broker equity investments in foreign carriers to build a robust network ahead of the completion of US consolidation. Those investments have moved in tandem with Delta’s bolstering its presence in New York through its slot swap deal with US Airways and its investment in facilities at JFK and LaGuardia airports.
During 2013 Delta is attempting to strengthen its position in the fragmented but strategic Los Angeles market through a 12% boost in daily seats year-over-year from Jul-2012 to Jul-2013.
19-Mar-2013 11:25 PM
Hawaiian Airlines faces a challenging time during 1H2013 as its efforts to diversify outside of the Hawaii-US west coast market during the last few years need more time to bear fruit. Its ambitious long-haul expansion is accompanied by the introduction of a new inter-island subsidiary and the reworking of other portions of its inter-island network.
All of the changes Hawaiian is undertaking or planning to introduce are intended to bolster efforts to preserve its profitability, which has been fairly consistent during the last few years. But in the near future the carrier is facing pressure as its new long-haul Asian markets spool up and increases in competitive capacity create pressure in its trans-Pacific service to the continental US.
While the strategy Hawaiian is adopting to persevere in the long-term is solid, the airline might be attempting to accomplish too much too fast, which in the shorter-term is creating pressure on yields and unit revenues.
17-Mar-2013 8:25 PM
Air Pacific takes delivery of its first of three new A330-200 aircraft on 19-Mar-2013, heralding the start of a new era as a rebranded Fiji Airways. But the carrier will chart its new course without inspirational MD Dave Pflieger who is returning to the United States when his three year contract ends in May-2013.
Mr Pflieger will be a tough act to follow, having delivered a quite remarkable turnaround of Air Pacific’s fortunes during his tenure. Mr Pflieger led a 360 degree review and restructure of an ailing Air Pacific, financially putting the carrier back on its feet by reversing record losses, re-equipping its wide-body fleet and culminating in the airline rebranding to its 1960s name, Fiji Airways, in Jun-2013.
Mr Pflieger will take up a new position as president and CEO of United States regional carrier Silver Airways based in Florida. His departure is a potential risk to Air Pacific’s expansion plans, particularly in the valuable United States market where Mr Pflieger’s American airline background meant he was well placed both to understand and implement connections and leverage the codeshare agreement with American Airlines which was signed in Dec-2011.
15-Mar-2013 11:15 PM
Despite some backlash from consumers of its no-frills business model that entails selling all add-on items in the travel experience, Spirit Airlines has recorded a strong financial performance since its transition to an ultra low-cost carrier in 2007. The cost base it maintains by skewing customer behaviour in the purchasing cycle allows it to exploit a passenger base the legacy carriers and Southwest Airlines have abandoned, allowing Spirit to operate under the radar of the larger carriers who are squarely focused on expanding their share of high-yielding corporate customers.
The airline concludes that the shifting dynamics of the US market place and its relative low 2% penetration of that space support capacity growth of nearly 22% during 2013.
Recently, analysts at Raymond James recorded that US legacy carriers and Southwest Airlines have exhibited capacity constraint for roughly three years, concluding they would not sell seats which did not cover the cost of fuel, the largest expense for any airline. The company estimates that Southwest’s fares have risen approximately 25% during that time.
14-Mar-2013 10:39 PM
Southwest Airlines sits at an interesting crossroads as the US market reaches a high level of maturity ushered in by legacy carrier consolidation and its own merger with AirTran Airways that is targeted for completion in 2014. With the changes, three distinct business models are emerging in the US – full service, hybrid and ultra low-cost.
But Southwest does not fit neatly into any of those categories, which the carrier might view as a positive attribute as it examines how to evolve its business model. Southwest's history of a skittish approach to change leaves many questions unanswered as to how the airline can retain the attributes that make it a recognisable brand while making key decisions to ensure a large pipe of steady revenue generation.
The low-cost pioneer during the last couple of years has seen its edge in that regard soften as Chapter 11 reorganisations and consolidation among the US majors has resulted in those airlines lowering their unit costs. During 2012 Southwest’s unit costs increased 4.2% year-over-year, and on a stage length adjusted basis there was roughly a 30% difference in its nearly USD7 cent unit costs compared with Allegiant Air, who along with Spirit is considered the new breed of ultra low-cost carrier.
14-Mar-2013 3:39 PM
Virgin Atlantic is something of an enigma. Growing from nothing to become the UK’s second largest airline by ASKs in the lifetime of a typical passenger jet and earning a reputation for innovation, attractive branding and a quality service, it is also loss-making, insufficiently cost-focused, under-capitalised and (until recently) strategically isolated.
Last month saw new CEO Craig Kreeger take control from his long-serving predecessor Steve Ridgeway; this month sees the start of new domestic services wet leased from Aer Lingus; later this year should see the implementation of the new joint venture with Delta and the entry of the latter into Virgin Atlantic’s share register.
Mr Kreeger’s challenge will be to unpick the enigma, bringing greater financial discipline to the airline, while maintaining its attractive qualities.