Analysis for Middle East
3-Dec-2013 5:30 PM
The recent decision by Lufthansa to end its codeshare agreement with Turkish Airlines (THY) came as a surprise to most observers. Talks between the two carriers over the past 18 months had been seeking closer co-operation, a prospect that had even been discussed by the respective heads of government of Germany and Turkey.
However, the strong growth of THY in Germany has led to imbalances in their relationship. In particular, THY now has a strong presence in secondary German cities away from Lufthansa’s Frankfurt and Munich strongholds. This has undermined Lufthansa’s strategy of funnelling Asia-bound traffic from secondary markets via its hubs as THY increasingly offers an alternative connection via Istanbul.
With fares that Lufthansa cannot match, one of the world’s biggest networks and a product that continues to win plaudits, THY has become a formidable competitor to Lufthansa and its group companies in spite of also being a Star Alliance partner.
2-Dec-2013 9:12 PM
Qatar Airways has named its forthcoming Saudi Arabian carrier "Al Maha Airways" but says it will not start operations until the first half of 2014 at the earliest. While Qatar has been unusually quiet on the operation and is not known to have ever stated a launch date, Saudi regulators had said it would launch before the end of 2013 as part of its liberalisation process. Qatar, along with a Gulf Air-linked group, was awarded in Dec-2012 a licence to operate domestic flights in Saudi Arabia as part of overdue reform in the aviation and tourism sector.
The Saudi government is right to rejuvenate the sector, but reform in early initiatives – the privatisation of Saudi Arabian Airlines – has proven slow. It now seems loosening the reigns on the domestic market is more challenging than imagined by regulator General Authority of Civil Aviation. GACA says it has had prolonged negotiations with government entities to reduce fuel prices for new carriers. Saudi Arabian Airlines receives fuel subsidies that distort the market and forced the exit in 2010 of start-up Sama. A cap on domestic fares makes some flights unprofitable even for Saudi. Qatar Airways CEO Akbar Al Baker told Reuters in reserved remarks he has an "undertaking" from Saudi authorities that these two "contentious issues" will be resolved. While domestic growth has lagged international growth – creating opportunity – there are, as Mr Baker said, "many challenges".
23-Nov-2013 11:13 PM
In CAPA’s report on Turkish Airlines’ 3Q2013 results, we highlighted that RASK growth failed to beat CASK growth for the first time this year and suggested management would want to demonstrate this was not the start of a new trend. The airline has now provided some reassurance on this.
Beyond this issue, CEO Temel Kotil used the recent Turkish Airlines’ investor day to reiterate his strategy of using the carrier’s Istanbul hub to attract global connecting traffic flows, leading to growth ahead of the market, albeit with an increased focus on frequencies rather than new destinations in future. This strategy has similarities with those of the Gulf carriers, but is also underpinned by the significant Turkish home market.
The Turkish market includes strong competition in the shape of LCC Pegasus, but the return to profitability of SunExpress, jointly owned by Turkish Airlines (THY) and Lufthansa, provides THY with another option for facing this competitive threat.
20-Nov-2013 8:59 PM
Etihad's announcement that it was buying 33.3% of Switzerland-based Darwin Airline was made on the first day of the Dubai Airshow and was easily lost in the fury of orders announced that day.
Darwin only flies aircraft with 50 seats, less than the number of premium seats that will be on many of the 350-plus widebody aircraft Gulf carriers ordered at the airshow. But the announcement is significant, and three reasons stand out.
First, for Etihad the carrier will "connect the dots" in Europe for itself and partners, linking hubs but also tertiary cities, which have largely been passed over by Gulf carriers. Many of these cities are served by the Lufthansa Group. This gives rise to the second significant impact: on Europe's legacy carriers. Gulf carriers changed their long-haul business while European LCCs decimated short-haul. Regional traffic was always typically a burden, and will come under further pressure following Etihad's announcement. Third is that Darwin Airline will re-brand as "Etihad Regional", and Etihad openly states Darwin is only the first carrier to use this new brand. As the industry still digests Etihad's partnership and equity strategy, Etihad promises to change another component of aviation – and raise the stakes in the liberalisation of the industry, especially by stamping its name on a European carrier.
19-Nov-2013 7:36 PM
Royal Brunei Airlines (RBA) will make a big leap in improving efficiency and profitability on 1-Dec-2013 as the carrier introduces Boeing 787-8s on the Bandar Seri Begawan-Dubai-London Heathrow route. Another leap could occur in 2016 or 2017 as the carrier, somewhat surprisingly given its very small size, has received aggressive proposals and early delivery slots for new-generation narrowbody aircraft.
RBA became in Oct-2013 the first 787 operator in Southeast Asia. It has already taken delivery of two 787-8s, one of which is in static display this week at the 2013 Dubai AirShow. RBA will be the first carrier to operate the 787 between Dubai and London, one of the world’s largest routes, and in Mar-2014 will become the first carrier to have an all-787 long-haul operation.
RBA meanwhile is in the closing phases of a competition between Airbus and Boeing for its new-generation narrowbody requirement, which includes over 10 aircraft for delivery from end of 2015. Airbus and Boeing are offering early delivery slots for their A320neo and 737 MAX families, with support from leasing companies, and the campaign has become very competitive as Boeing is eager to switch RBA’s narrowbody fleet from Airbus. RBA has already ruled out Embraer and Bombardier, after earlier considering large regional jets.
19-Nov-2013 3:11 AM
The opening day of the Dubai Airshow brought orders for over 350 widebody passenger aircraft from Gulf carriers. The size of the orders – 150 777Xs and a further 50 A380s for Emirates – gives a sense of the scale Emirates, Etihad and Qatar Airways are still to achieve. The three have already re-written aviation, from network construction to partnership strategy. While markets have benefitted, the three have caused consternation. No doubt that after this spate of orders, competitors are worried now that projected growth targets in abstract percentage terms have been translated into metal.
But there is some relief. While Emirates has now placed orders for 140 A380s – more than half of the programme total – the airline is most unlikely to operate 140 A380s at one time. There will be growth, but some of the A380s – and 777s and other aircraft ordered – will be for replacement since these orders cover deliveries well into the 2020s, when aircraft from the 2000s and 2010s will be due for replacement. What exactly the balance is between growth and replacement is still being defined within the airlines, and no doubt will be subject to revision. In this report we look at the current fleet and projected deliveries at Emirates, Etihad and Qatar as well as average fleet age to see where these new orders slot in.
17-Nov-2013 2:27 PM
Airberlin delivered a 14% year-on-year increase in EBIT in 3Q2013, recording a positive quarter for the first time this year. The quarter also saw airberlin’s first reduction in unit costs (CASK) this year, reflecting good progress in the cost-cutting aspects of its Turbine restructuring programme.
However, the quarter also saw airberlin’s weakest RASK performance of 2013 and profits were not sufficient to restore a positive equity position to its fragile balance sheet. As a result mainly of a weak pricing environment, it has abandoned its previous FY2013 target for a breakeven EBIT result and set a softer target for year-end net debt reduction.
Airberlin CEO Wolfgang Prock-Schauer told analysts on the 3Q conference call that the relationship with Etihad was for the long term and that it “gives us time really to restructure the company properly”. This commitment looks likely to be tested again soon.
15-Nov-2013 2:28 PM
Emirates Airline carried 15% additional passengers in the first half of 2013/2014 compared to a year ago. The growth in volume has been led by Europe and the Middle East while Australia has seen the highest percentage growth. Saudi Arabia, the UK and Thailand have received some of the largest capacity injections. India and the UK remain Emirates' two largest markets based on seat capacity, but Saudi Arabia has overtaken Germany as the third-largest while Australia overtook the US, and Thailand overtook South Africa.
In terms of the rate of growth, the standouts were Portugal, Vietnam and Zambia – all with 100%-plus growth, albeit from a low base. But Emirates saw 40-50% growth in seven other countries, including Australia, Saudi Arabia and France.
Overall, 15% passenger growth and 16% capacity growth for an airline the size of Emirates is a considerable achievement. Full year capacity growth, however, is likely to be closer to 12%, making 2013/2014 one of the slower years at Emirates in recent times. Asia will be the largest market for growth, followed by Europe and the Middle East.