Analysis for North America
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.
11-Mar-2013 5:35 PM
Just as with a bus, you wait 17 years for an airport privatisation to come along, one breaks down then you find two come at once.
That encapsulates the story of the US’ 1996 pilot Airport Privatization Program, which, after five years in the doldrums, suddenly sprang back to life in late Feb-2013 with the conclusion of the lease transaction on Puerto Rico’s San Juan Luis Munoz Marin Airport and with the completion of the RfQ (Request for Quotations) procedure on the second attempt to privatise Chicago Midway Airport.
Both of these events imply that life is returning to the US’ Airport Privatization Program, not surprisingly in light of the sequestration that is currently taking place, and due to the struggle between the Obama (Democrat) administration and the Republican majority in Congress to reach a political consensus on deficit reduction. Meanwhile, Airports Council International estimates the US airport system needs investments of USD14.3 billion annually until 2017.
10-Mar-2013 11:50 AM
JetBlue Airways is building on a unique position it holds between bare-bones discounters and US network carriers to sustain its profitability. Its hybrid product remains attractive to customers with a distaste for the ultra low-cost business model adopted by Spirit Airlines and the higher fares charged by US legacy airlines. The US market is moving into seemingly its final stages of maturity with three network airlines – American (once it merges with US Airways), Delta and United – and one large low-cost carrier – Southwest – dominating the landscape.
JetBlue meanwhile believes its growth plan built on expansion from Boston and the build-up of its Caribbean network will allow the carrier to forge an independent and profitable operation somewhat buffered from the waves of consolidation sweeping the country.
The airline may still have to convince some sceptics that it can turn a profit on its planned 2013 capacity growth of 5.5% to 7.5%, but JetBlue grew its 2012 net profit nearly 49% year-over-year to USD128 million on a 7.6% rise in available seat miles. Between 2009 and 2012 the carrier’s profits jumped 120%, which is a solid performance from a comparatively young carrier versus its US industry peers.
8-Mar-2013 3:40 PM
The EU-US Open Skies agreement came into force on 30-Mar-2008. The year before, in 2007, IATA had released a major report looking at the benefits of airline liberalisation. After internal deregulation within the US and the EU, and some limited moves in other parts of the world, the agreement was (and still is) the most significant step towards global aviation liberalisation. The North Atlantic is the world’s largest intercontinental air traffic market and the eyes of the world were on it as it took this step.
The EU-US Open Skies agreement opened up markets on both sides so that any carrier from either side could fly between any point in the EU and any point in the US. It also provided for a second stage of negotiations aimed at loosening foreign ownership controls. This was signed in 2010, but has not so far been implemented.
With the fifth anniversary of Open Skies approaching, this analysis takes the opportunity to review the state of the North Atlantic market since 2008. The launch of Open Skies into the jaws of a global recession blurs its impact, but the main detectable results of Open Skies seem to be in the increased concentration of capacity in the hands of mega carriers and alliance joint ventures, with consequent benefits for load factors and yields.
7-Mar-2013 4:34 PM
Nigeria-based Arik Air enters 2013 with some prospect for growth having reportedly secured a USD2 billion credit facility to fund the acquisition of additional aircraft. The carrier has also held preliminary talks with Ivory Coast national carrier Air Cote d’Ivoire to provide that nation’s domestic network.
But despite repeated announcement of new long-haul routes, the previously aggressive Arik founded in 2006 after taking over the assets of bankrupt national airline Nigeria Airways has achieved little growth in recent years. Arik harboured pretentions of becoming Western Africa’s leading airline and candidate for membership of one of the main marketing alliances but has been weighed down by debt, the lack of a clear business plan and a meddlesome government.
The carrier has capitalised on the demise of a major privately-owned competitor in Air Nigeria as well as grounding of Dana Airways following a crash, which effectively reduced the domestic market to a duopoly with Aero.
5-Mar-2013 11:56 PM
Alaska Air Group during the last few years has consistently outperformed its US carrier peers in a financial metric – return on invested capital (ROIC) – that is prevalent in discourse in other industries but has only surfaced in discussion among airline executives during the last few years. Since 2010 the carrier has exceeded its ROIC targets on an after tax basis and has posted annual profits for the last nine years. Despite its consistent profitability, Alaska’s robust financial performance is often overlooked by the investment community, leaving executives scratching their heads as to why the company’s consistent financial results are not more recognisable.
Even as Alaska delivers consistent profitability, questions often arise over the company’s growth prospects at its two subsidiaries – Alaska Airlines and Horizon Air (which now operates under the Alaska banner). The carrier holds an advantageous position as the leading airline in Seattle, where it can feed into long-haul flights operated by its partner Delta Air Lines. It also has a strong relationship with American Airlines, but it is not certain how that partnership will evolve once American and US Airways close on their merger and complete a roughly 18 month-long integration process. Alaska does have the opportunity to flesh out its domestic network, and remains bullish that it will still deliver sound financial results with planned annual capacity growth of 4% to 8% during the next few years.
2-Mar-2013 12:33 AM
American and US Airways are pressing full steam ahead to close their merger by 3Q2012, including stressing to US legislators that the combination will improve the overall health of the country’s airline industry and make the merged airline a more viable competitor with legacy and low-cost carriers alike. With just a dozen routes that overlap, the carriers should not encounter any resistance from anti-trust authorities, and given that most the markets are hub to hub pairings, few changes are likely to be made to service patterns once the 18 month integration process is complete.
Some of the arguments made by American and US Airways over increasing competition from low-cost carriers and their potential service expansion into overlap markets might be overblown as those airlines in previous mergers have been selective in grabbing the low hanging fruit created by the tie-ups between Delta-Northwest, United-Continental and Southwest-AirTran.
28-Feb-2013 11:16 PM
SkyTeam partners Air France-KLM, Alitalia and Delta are approaching the fifth anniversary of the launch of their immunised trans-Atlantic joint venture. But the major strategic moves by those airlines during the last year were squarely outside that umbrella, as Air France warmed to the Gulf carriers through its new partnership with Etihad, and Delta moved to improve its position in the London Heathrow market through an equity stake and partnership with Virgin Atlantic.
Star joint venture partners Air Canada, Lufthansa and United have been preoccupied throughout most of the last year with getting their own respective houses in order and have done little publicly to play up any advantages they are enjoying through their business partnerships. oneworld joint venture partners American Airlines and sister carriers British Airways and Iberia have been equally distracted with Chapter 11 restructurings, mergers and strikes – and meanwhile, Qatar Airways has been welcomed into the fold, further complicating the evolution of the global alliances.