Analysis for Europe
5-Dec-2013 7:30 PM
The year 2013 will go down in Aegean’s history as a year to remember. The Athens-based carrier has already packed a lot into its short life since it commenced operating scheduled passenger services in 1999. In that time, it has transformed its fleet; moved its head office; experienced growth, decline and a return to growth; seen a significant increase in LCC competition; become a regional partner to Lufthansa; joined the Star alliance; listed its shares on the Athens Stock Exchange; and undergone more than one merger.
2013 will go down as the year in which it acquired Greece’s former national flag carrier, Olympic Air, and in which it reversed a three year period of losses to record an annual profit once more. In the first nine months of 2013, it was back in the black, turning a EUR9 million loss into a EUR59 million profit. Although revenue per passenger growth slowed in 3Q, it stayed ahead of growth in cost per passenger. Nevertheless, with unit costs (CASK) higher than those of LCC competitors, it must now use the Olympic acquisition to drive cost synergies as far as possible.
4-Dec-2013 4:05 PM
Jet2.com’s parent, Dart Group PLC, enjoyed a strong increase in revenues and profit in the first half of the year to Mar-2014. Leisure-focused LCC Jet2.com is the group’s principal business, although it also includes a tour operator and a distribution business. The airline saw very healthy growth in traffic and revenues, improved yields and a positive trend in ancillary revenues.
Nevertheless, the outlook for the second half, which covers the winter season, is for increased losses. Moreover, profit growth for the full year, while still likely, is not guaranteed. The seasonality in the group’s business is growing, largely reflecting the wide gap in passenger demand for Jet2.com's leisure network between the summer and the winter.
Counter-seasonal business lines such as charter and cargo operations help to contain this. Nevertheless, comparison with its nearest peers, such as Monarch Airlines and Transavia, suggests that more could be done to narrow the seasonal gap. Any increase in the number of year-round destinations would probably also bring the challenge of increased competition with more cost-efficient LCCs
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 9:37 PM
Aeroflot is seeking to downplay reports from earlier in 2013 that it was considering leaving its SkyTeam alliance, to which it has belonged since 2006. But its relations with the alliance have become strained. Air France-KLM and Delta blocked Aeroflot's request to join their trans-Atlantic joint-venture, Aeroflot Deputy Director for Strategy and Alliances Giorgio Callegari told CAPA at its World Aviation Summit in Amsterdam on 26/27-Nov-2013. Mr Callegari declined to say why Aeroflot was not permitted to join, but said SkyTeam is "basically run by Air France-KLM and Delta" and Aeroflot "belongs in name only".
Mr Callegari's views on certain airlines dominating an alliance are not unique to Aeroflot or SkyTeam. The question for Aeroflot is "where do we go from here?" Mr Callegari said. His answer is to establish bilateral relationships, and namely joint-ventures, in Aeroflot's three key markets, in order of importance: Europe, Asia and North America. Mr Callegari reported "good" relations with SkyTeam's Asian partners, potentially meaning they could be part of a JV. But Aeroflot will likely have to turn to non-SkyTeam members if it is to establish a JV of significant weight in Europe and North America. Such numerous and strong JVs outside of an alliance would be unprecedented, and fuel more speculation about Aeroflot's future in SkyTeam.
1-Dec-2013 2:01 AM
United Airlines plans a realignment of its Pacific operations centred on increasing direct flights rather than stop-overs in Tokyo as the weakness in Japan’s currency has dragged down the carrier’s results in those markets for most of 2013. United is also building a strategy to directly serve non-traditional gateways to China as competitive capacity increases have also pressured the carrier’s Pacific performance.
The adjustments are freeing up some aircraft for redeployment into new markets from United’s Houston Intercontinental, Washington Dulles and Chicago hubs for new service to Europe, which perhaps seems like a safer option at the moment even as the region is on an at-best slow trajectory to economic recovery.
The success of these planned network shifts necessarily depends on execution, an area where United has faced challenges with respect to the merger with Continental. Now, getting it right will be central to the airline's Asian strategy.
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.
23-Nov-2013 1:35 AM
A beleaguered United Airlines has outlined ambitious goals for its investors that entails an annual cost cutting scheme of USD2 billion and a pledge to begin returning cash to shareholders by 2015.
After battling operational, revenue and cost challenges during the last couple of years, United has no choice but to crystallise a plan to improve its performance in the medium term. Its target of rewarding shareholders is likely to be a competitive response to Delta Air Lines, who recently outlined plans to return USD1 billion to its shareholders during the next three years.
Additionally, United believes it can increase pre-tax earnings by two to four times during the next four years. Taken together it is tall order for a company that is still trying to deliver on its merger synergy targets. Now that United has declared those goals, the challenge is to deliver a successful execution, something that sceptics might have a right to be weary of.
22-Nov-2013 7:14 PM
Air Astana is planning another year of double-digit capacity growth in 2014 as the Kazakhstan flag carrier expands its 767, A320 and E190 fleets. The carrier will focus on further expansion in the CIS and Central Asia region, but new 767-300ERs will also enable some capacity growth across its long-haul network.
ASK growth of 15% is expected for 2014, following 16% growth in 2013. But Air Astana plans to slow down expansion in 2015, ending a period of five consecutive years of expansion at a pace of approximately 15% per annum.
Market conditions have become less favourable in 2013, impacting load factors and profit margins. The prospect of increased competition, including the possible opening of Kazakhstan’s domestic market to Russian carriers, clouds Air Astana’s medium to long term outlook.