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Growth in Chile's domestic market remains flat as Sky Airline embraces the LCC model


Growth in Chile’s domestic passenger market was flat during the first eight months of 2015, in a region that was one of Latin America’s fastest growing areas just a couple of years ago. The slowdown is driven in part by overall sluggish economic growth within Latin America and the weakening of Chile’s currency.

It is not obvious when domestic passenger growth will resume, but the general consensus is Latin America’s economy will likely remain weak throughout 2016. At the same time domestic passenger numbers are leveling off, Chile’s second largest airline Sky appears to be shifting its business strategy from a hybrid offering to a more pure low cost model.

Chile did enjoy solid growth in international passengers during the first eight months of 2015, reflecting growing tourist numbers and perhaps a strategy by the country’s largest airlines to allot capacity to higher yielding regions.

US airline seat densification Part 2: The Big 3 add seats, change the profile of willing passengers


The three large global US network airlines are in the midst of adding seats to their aircraft  at a time when the country’s domestic capacity is creeping up and unit revenues and yields are falling. Of course these reconfiguration projects were set in motion before the price of fuel dropped significantly and pockets of weakness emerged in the US market place.

American, Delta and United remain bullish about their strategies to grow capacity through seat densification, often characterising the additional seats as efficient generators of capacity at nominal costs.

It also appears that the densification efforts are a competitive response to one another as the three large network airlines seek to offer the same size aircraft in order to reap the benefits that more densely configured jets deliver. Passengers, however, have at best mixed views about the strategy of adding additional seats to bolster revenue.

US airline seat densification Part 1: Alaska, JetBlue and Southwest strike a delicate balance


Any number of US airlines are in the midst of, or have recently completed, reconfigurations to increase seating density on their aircraft in an effort to drive additional revenue at a relatively low cost. As capacity creeps up in the domestic market place, airlines often reference their aircraft densification programmes as efficient capacity expansion.

Three US airlines viewed as some of the most consumer friendly – JetBlue, Alaska and Southwest – have all opted to add seats to their respective narrowbody fleets. Those airlines walk the fine line of adopting strategies to bolster revenue while ensuring that passenger goodwill remains intact. Few consumers enjoy less legroom.

The revenue potential of densifying aircraft for most airlines is too beneficial to pass up, reflecting the balance of appeasing investors and working to create a still comfortable travelling experience. It is a scenario whose prevalence will grow as both passengers and shareholders become more vocal in their demands.

Avianca joins airline rivals, revising margins downwards, as economic conditions worsen


Latin American airline group Avianca is attempting to mitigate tough conditions in the region, particularly a sharp devaluation of the currency in its largest market Colombia. Steps the company is taking to counteract weakness in Colombia and throughout Latin America include a domestic capacity reduction within Colombia and fleet adjustments that include both deferral of aircraft deliveries and grounding of its subfleet of Embraer 190 aircraft.

Similar to most airlines operating in Latin America, Avianca is attempting to match its supply with demand and shore up yields, even if that means sacrificing some market share, as is the case in another one of its large markets Peru.

The worsening conditions in Latin America have forced Avianca to join most of its rivals operating in the region to issue a downward revision of its EBIT margin for 2015, a discouraging sign for a company that embarked on 2015 in a seemingly better position than its rivals.

Bohai Leasing signs definitive agreement to acquire Avolon at an enterprise value of USD7.6 billion


HNA Group unit, Bohai Leasing has taken another step towards becoming a major global aircraft lessor, with the Chinese company signing a definitive merger agreement with Avolon earlier in Sep-2015.

The deal prices the publicly listed Irish lessor at USD31 per share, representing a purchase price of about USD2.6 billion. The transaction has a total enterprise value of approximately USD7.6 billion.

Bohai agreed to a modest discount to the USD32 per share commitment the parties announced when they entered an exclusive negotiating agreement in early Aug-2015. The price cut, totalling about USD82 million, is due to “significant volatility across global equity markets”, which have particularly affected markets in China. A formal agreement is due to be signed in 1Q2016.

US airline debt management Part 2: Southwest, JetBlue and Alaska enjoy favourable leverage


As the US Big 3 airlines trumpet their growing balance sheet strength, Southwest, Alaska and JetBlue are also working to preserve their favourable balance sheet standings and either improve or enjoy positive leverage positions.

Southwest and Alaska have the distinction of holding investment grade status due in part to their debt management strategies. The youngest of the three airlines, JetBlue, has also taken steps to reduce its leverage during the last couple of years.

All three airlines are taking prudent steps to ensure that they have the proper balance sheet metrics to support planned growth and sustain positive leverage ratios. And similar to the three large network airlines, Southwest, Alaska and JetBlue have slightly nuanced approaches to meeting those goals.

CAPA's new CASK database allows global airline unit cost benchmarking and strategic mapping


One of the key competitive dynamics in the aviation industry is the relative cost efficiency of different airlines, as measured by cost per available seat kilometre (CASK). CAPA's new CASK Database plots CASK against average trip length, giving its members an important graphical tool for comparing competing airlines and highlighting broad differences between them.

A direct comparison of CASK, or unit cost, for different airlines is not straightforward as it varies with the average distance flown. In general, the cost of producing a seat kilometre falls as average trip length increases since fixed costs are amortised over more seat kilometres and variable costs, such as fuel, are more efficiently consumed in longer flights. Plotting CASK versus average trip length allows the relative cost efficiency of different airlines to be compared visually.

WestJet and Air Canada work to secure aircraft financing for Boeing wide and narrowbodies


Canadian airlines WestJet and Air Canada are busy preparing for upcoming aircraft deliveries as part of significant planned fleet changes at each company as they work to create the proper fleet profile for their respective business models.

WestJet recently marked a milestone with the delivery of its first Boeing 767 widebody, marking a time of rapid change at the airline during the last three years that also included the introduction of 70-seat Bombardier Q400 turboprops.

Air Canada in the short term is focussed on expanding its Boeing 787 widebody fleet, but is also preparing to add 737 Max narrowbodies beginning in 2017, the same year WestJet is adding the new next generation narrowbody to its fleet.  

Each airline has also been working to line up financing for its upcoming deliveries, with WestJet tapping Export Development Canada and Air Canada capitalising on the EETC market that opened up to Canadian airlines in late 2012.

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