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Analysis for Global

LATAM Airlines Group sticks to 2015 capacity targets as Latin America's economy remains shaky

27-Mar-2015 1:00 AM

Pressures from depreciating currency and general macroeconomic weakness that LATAM Airlines Group faced throughout 2014 show no signs of abating in 2015 as the economies in some of its largest markets remain on shaky ground.

But despite those challenges, LATAM does see some opportunities to strengthen its network in 2015, reflected in its unchanged capacity forecast of 2% to 4% expansion with flat growth in the Brazilian domestic market. Even with its sustained capacity discipline in Brazil, LATAM is making a new push from Brasilia in 2015 to leverage smaller regional markets that could help improve its overall performance in Brazil’s domestic market.

LATAM also plans to grow its long-haul international capacity as some North American and European airlines have slowed capacity growth, which is a positive development for LATAM as it continues working to mitigate some of the weakness within South America.

Aeromexico and Volaris remain cautiously optimistic that a domestic yield rebound will hold

16-Mar-2015 9:19 PM

Two of Mexico’s largest airlines are encouraged by the country’s economic uptick and what appears to be capacity discipline in the domestic market, which should further help a recovery in yields that both Aeromexico and Volaris began to see in late 2014.

Despite the challenging conditions, Mexico’s domestic market remained fairly stable in 2014 reflected in roughly 8% passenger growth for the year, with the country’s major airlines retaining or growing their market share year-on-year.

Although the positive momentum is a welcome sign after a challenging 1H2014, there is an air of cautiousness underlying the optimism expressed by Aeroemexico and Volaris as the yield improvement is off a low base. As a result each airline plans to direct the bulk of their 2015 capacity growth to international markets.

Unit revenue pressure could linger beyond 1Q2015 for US airlines as capacity creeps up

13-Mar-2015 8:17 PM

The first quarter of 2015 is shaping up to be choppy for the three major US global network airlines, driven by currency fluctuation, some overcapacity, and for Delta, a reworking of its hedge scheme in light of lower fuel costs.

Those airlines are sticking to previous unit revenue performance estimates for 1Q2015, with the exception of Delta, which has slightly lowered guidance to reflect foreign exchange rate headwinds and the lifting of fuel surcharges in certain international markets.

Overall American, Delta and United believe that underlying demand remains strong; but higher capacity in some regions is outstripping that demand, creating some challenges in the short term. American in particular believes the US domestic market should improve in 2016 as the aircraft upgauge undertaken by nearly every domestic airline begins to taper off.

Aeromexico handles tough conditions in 2014, positive momentum ahead in 2015

19-Feb-2015 10:35 PM

Mexico’s largest airline Grupo Aeromexico is cautiously optimistic that signs of the start of a modest recovery in the country’s economy in late CY2014 and rational capacity growth within the Mexican domestic market should continue to help the airline with a recovery of yields and unit revenues that began in 4Q2014.

Despite battling a weak domestic environment for most of CY2014, Aeromexico remained profitable for the year, growing top-line revenues and decreasing unit costs, albeit with lower margins and an overall tumble in net income.

Following a similar pattern from late CY2014, Aeromexico plans to deploy the bulk of its planned 8.5% to 10.5% capacity growth for CY2015 into international markets, which gives its some leverage in the depreciation of the MXP and a level of network diversification not available to its domestic rivals.

Spirit Airlines contains costs, delivers on margins, plans 30% growth in 2015 as 14 aircraft arrive

13-Feb-2015 8:57 PM

Spirit Airlines delivered strong financial results for CY2014 and 4Q2014 even as its unit revenues were pressured during the last three months of the year by industry pricing action driven in part by lower fuel costs and the sunset of the Wright Amendment that had limited Southwest’s ability to operate certain long haul flights from Dallas Love Field.

The airline continues to face unit revenue headwinds during 1Q2015, caused by industry pricing pressure during off-peak periods. But at the same time Spirit is projecting a favourable unit cost performance, which should allow it to still deliver strong margins for the quarter.

Some of the unit revenue challenges could ease later in 2015 as subsequent quarters do not contain as many off peak days, and none of the pressure is triggering any changes to Spirit’s growth projections for 2015, which include capacity expansion of roughly 30.4%.

Aviation and oil prices: potentially a negative for airport capital expenditure. Time for PPPs?

13-Feb-2015 8:52 PM

The price of a barrel of Brent Crude, the most popular method of tracking oil prices, is today around USD56 a barrel - and this follows a (brief?) rally. A year ago it was trading above USD100.

The falling oil price has already prompted the likes of BP, Shell, Chevron, ConocoPhillips, Russia’s Gazprom and China’s Cnooc to announce cuts in investment. It is occasioned, in the main, by steadily rising supply from non-OPEC countries, and especially from the US, and is, in theory at least, good news for air travellers, if and when airlines feel able to pass on any savings to their customers (assuming they are able to, they may be hedged at higher rates). Some airlines in Southeast Asia and China have already reduced their fuel price surcharge, at least.

But the other side of the industry coin is that some countries may feel the squeeze on their big ticket airport construction projects. Already, they are looking to trim them back. At the very least, smaller construction projects could be postponed or abandoned in many countries, either because the revenues to support them have been reduced or because of declining investment in neighbouring oil facilities and consequential effects on passenger traffic flows, as employees are laid off and executive travel cut back.

This could be the moment when the PPP, already gaining in popularity as a method of ensuring critical airport infrastructure is secured, makes a quantum leap - but the private sector must have confidence in its counterparts in the public arena.

WestJet continues to record a solid financial performance, but faces pockets of capacity pressure

5-Feb-2015 9:50 PM

Canada’s WestJet Airlines delivered strong financial results for 4Q2014 and CY2014 driven by healthy revenue growth, and some benefit from falling fuel costs. Although the weaker CAD against the USD diminishes some of the benefit for Canadian airlines of lower fuel expense.

As it moves fully into 2015 WestJet admits to seeing some pressure in its southern markets, particularly the Caribbean and Mexico, from capacity increases that are outstripping what it characterises at still healthy demand in those regions.

Similar to some of its US peers, WestJet is projecting 1Q2015 unit revenue growth of flat to slightly negative, likely driven in part by some pricing pressure created from the capacity expansion in some winter destination markets. The airline is not offering guidance as to when unit revenues may start an upswing, but feels reasonably confident about overall demand, and has no plans to change its growth targets.

Hawaiian Airlines feels the sting of excess capacity in North America, some of its own making

5-Feb-2015 7:46 PM

For Hawaiian Airlines, after a solid financial performance in 4Q2014 and CY2014, a combination of currency headwinds and industry capacity increases on North American routes are creating unit revenue headwinds during 1Q2015. The airline’s guidance projects the deepest decrease reported by any US airline.

The capacity pressure is driven by additions from both Hawaiian and its competitors on routes to the US mainland. During 2014 Hawaiian opted to redeploy some capacity from long-haul routes that were eliminated back to the US west coast, and still believes that the decision is producing favourable results despite the current capacity pressure.

As it navigates through some revenue challenges in 1Q2015, Hawaiian’s capacity growth is slowing from previous years, and it is also forecasting a decent cost outlook for CY2015, welcome signs that some of the headwinds it has faced in the past are starting to subside.


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