Analysis for Latin America
24-May-2013 10:00 PM
Mexican low-cost carriers Volaris and VivaAerobus are continuing to build up domestic market share during 2013 as Interjet appears to be holding its own on routes within Mexico while it awaits delivery of its first 93-seat Sukhoi Superjet 100 during 2H2013, when it plans to make a push into markets that are too thin for its current fleet of 150-seat Airbus A320 aircraft.
Volaris and VivaAerobus should continue to grow their share of the Mexican domestic market during 2013 as both carriers have stated an intent to exploit opportunities within Mexico, reflected by plans for each airline to make a push from Cancun to target Mexican travellers with increasing discretionary income.
16-May-2013 9:42 PM
Weakness in long-haul markets from Brazil continued to pressure LATAM Airlines Group during 1Q2013 as competitive capacity increases triggered depressed loads and unit revenues in its international network. But LATAM’s efforts to restore strength in the Brazilian domestic market and the relative strength in the group’s Spanish speaking companies should help to offset some of the continuing pressure in LATAM’s international network.
The company’s attempts to bolster international service during the last year to offset some of the continuing weakness in the Brazilian domestic market have faltered somewhat due to competitive capacity increases by American and United in the US-Brazil market, and LATAM’s own expansion of supply in the market. The company’s overall capacity increase in its international markets during 1Q2013 was 12.3%.
15-May-2013 11:41 PM
Brazil’s second largest carrier Gol recorded mixed fortunes during 1Q2013 as its overall losses widened year-over-year but yields and unit revenues improved at what appears to be at the expense of load factor. After recording annual losses for the last two years Gol is hoping an aggressive capacity reduction in the Brazilian domestic market place and a significant reduction in its workforce will help the carrier slowly improve its fortunes.
But Gol faces challenges in achieving its turnaround as company management believes it is uncertain that Brazil will record 2.5% GDP growth in 2013 while inflation is rising. The carrier feels positive about its position heading into the slow season in South America, but the timing of a full recovery for the carrier seems far from uncertain.
15-May-2013 3:52 PM
European airline margins have underperformed other regions for years. There are many reasons for this, but our analysis suggests that Europe’s relative lack of consolidation may be a significant one, since margins appear to be correlated with market concentration. Even after a number of significant deals over the past decade, the European market is less concentrated than North America, where consolidation has gone further, to the benefit of margins. Europe is also less concentrated than Asia-Pacific (analysed as its sub-regions), whose margins have consistently been the highest.
If consolidation brings structural benefits, are there still European deals that can make a difference? Europe has a long tail of small carriers, which are unlikely to have a significant impact, but comparison with North America points to the potential for further combinations among the top five. Nevertheless, there are hurdles to such deals, not least of which are the ongoing restructuring programmes at Europe’s Big Three and the incompatibility of LCC/FSC mergers, but some second tier groups could be targets.
6-May-2013 9:00 PM
Spirit Airlines’ rapid growth during the last couple of years has not compromised the carrier’s profitability. During a time when it is not uncommon for the carrier to introduce 20 new route pairs during a half-year period, Spirit has maintained and grown its profits while undergoing a fundamental shift in its business.
As it continues to turn its attention to the US domestic market, Spirit seems unfazed by JetBlue’s moves into some of Spirit’s Latin American markets, as JetBlue by YE2013 will compete with Spirit on all its markets from Fort Lauderdale to Latin America. But Spirit’s US domestic growth remains unabated, and will account for the bulk of the roughly 22% capacity increase Spirit plans during 2013.
Spirit also declares that it has one of the most enviable cash positions in the industry, which at YE2012 was nearly 32% of the last trailing 12 months revenue. But the carrier’s relatively young status in some ways diminishes the prospect of cash dispersion or other shareholder reward, as Spirit continues work to prove its business model has staying power.
It will be interesting to see how long it is before other airlines feel the need to head off Spirit's growth.
3-May-2013 9:00 PM
JetBlue plans to introduce its first destination south of the equator in Nov-2013 with new daily service from Fort Lauderdale in South Florida to Lima in Peru. The move is consistent with the carrier’s plan to use Fort Lauderdale as a springboard into Latin America as JetBlue indicates more international service from the airport is in the pipeline.
JetBlue is also seizing a prime opportunity to introduce low-cost competition in market where the only LCC presence is a single weekly flight operated by Spirit Airlines. Other carriers operating in the South Florida-Lima market are oneworld partners American Airlines and LAN and Star Alliance member TACA Peru.
Services JetBlue has launched from Fort Lauderdale to Latin America appear to have a short maturation time, which results in the carrier looking to harvest more of those opportunities to balance out new market introductions that take longer to mature. JetBlue has identified about 20 potential new markets in Central America, South America and the Caribbean that are viable from Fort Lauderdale.
23-Apr-2013 9:20 PM
Caribbean Airlines’ 2010 acquisition of Air Jamaica ushered in high hopes that a strong flag carrier would finally emerge in a fragmented region where home airlines have been constantly propped up and protected by the governments. But roughly three years after the landmark deal that was supposed to seal Caribbean Airlines’ fate as the leading carrier in the market, the airline continues to be dragged down by financial challenges that are at least partially attributed to ill-advised expansion into a long-haul route with Boeing widebody aircraft and the continuing integration of Air Jamaica.
Although the carrier has reportedly indicated that it is seeing signs of a return to profitability, Caribbean is cautioning that a complete turn-around is two to three years away. As the carrier’s current plight illustrates, benefits of consolidation in the region have yet to surface as its weak performance continues unabated.
Stability has evaded Caribbean since its purchase of Air Jamaica as it endured a management shake-up in late 2010 with the abrupt resignation of CEO Ian Brunton, who held the position for a roughly a year.
23-Apr-2013 2:00 AM
Brazil’s domestic market is showing more signs of a slowdown after shrinking by 1% in the first quarter. Load factors are improving, an encouraging sign for profitability, but growth has taken a back seat, driven by the capacity cuts at Gol and TAM.
The country’s international market, meanwhile, is showing signs of over-capacity as load factors slipped in 1Q2013. The key Brazil-US market has particularly become over-saturated.
The Brazilian international market will likely post high single digit growth in 2013. The domestic market should also still grow, albeit modestly, for the full year. But Brazil’s once red hot aviation sector faces a challenging 2013. As Brazil is by far the largest market in the region, the slowdown will drive down overall Latin America growth figures.