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Analysis for Global

Delta Air's refinery shows some positive promise, but the learning curve to success remains steep

3-Sep-2014 8:28 PM

Two years after Delta Air Lines made an unprecedented move to control its largest input cost by purchasing an oil refinery, no definitive conclusions can be drawn about the success of the endeavour. Ironically however, according to one analyst, Delta's investment has had sizeable benefits for its competitors; by using its own facility, Delta has reduced consumption in the open market, causing prices to fall.

Production at the airline’s Trainer refinery has had fits and starts, and Delta has acknowledged that the learning curve in running a refinery was greater than its initial expectations.

But viewed through the lens of helping Delta improve its fuel cost management, Trainer is for the moment making a positive contribution to the airline’s fuel strategy. However, is it only one element in Delta’s fuel cost mitigation scheme, and much road lies ahead in effectively managing Trainer to deliver consistent returns.

Brazil’s domestic aviation market remains stable despite macroeconomic uncertainty

30-Aug-2014 6:48 PM

Brazil’s domestic airline market appears to remain in a rational state as the country continues to battle economic weakness. Its two largest airlines TAM and Gol are maintaining capacity discipline, which is helping each company’s respective performance in the domestic market.

The country’s other two main airlines, Avianca Brazil and Azul, are continuing their solid growth trajectories, but their supply expansion and traffic growth appear in line, which does not seem to be triggering a scenario of oversupply within Brazil.

Brazil’s economy could take a slight upswing in CY2015 as its GDP growth is forecast  at 2.7% versus a more sluggish 1.8% in CY2014, according to estimates from the IMF. If capacity remains rational in the market place, then Brazil’s slightly more promising economy should create some positive momentum for the country’s airlines.

Allegiant cites strong opportunities in the US market as new Mexico service falls in importance

29-Aug-2014 11:36 AM

Allegiant Air continues to stress there are ample opportunities to expand in the US domestic space as its planned transborder service to Mexico appears to be diminishing in priority.

The company believes that its niche is still highly relevant within the US market, highlighting its major advantage of being largely shielded from competition in its markets, a theme consistent with Spirit's thinking too. The logic is prominent in Allegiant’s new routes coming online in late 2014 from Florida leisure markets to small cities, which epitomise Allegiant’s strategy.

But despite strong top line financial results Allegiant is facing cost headwinds in FY2014 from a transaction it concluded earlier in the year to acquire Airbus narrowbodies and crew training expense that could drive up unit costs excluding fuel in 2014 by as much as 8%.

Aircraft manufacturers revel in another likely record year of orders, after strong Farnborough

26-Aug-2014 7:21 PM

With the Farnborough International Airshow over, the major aircraft manufacturers have reported their July orders and deliveries and 2014 is shaping up as another exceptionally strong year for the global airliner market.

Despite the talk of an aircraft ordering bubble, demand remains strong despite some regional weaknesses, order backlogs continue to hit record highs and the major problem for manufacturers is getting their aircraft into the hands of their customers at rates that satisfy them.

Spirit Airlines takes first steps of ancillary dynamic pricing as supply growth continues unabated

13-Aug-2014 3:12 PM

US ultra low-cost airline Spirit Airlines has embarked on the first phases of adding sophistication to the revenue management of ancillary products. The foundation of its business model is based on maximising total revenue, which includes both revenues generated from fares and add-ons including carry-on and checked luggage and seat assignments.

Fort Lauderdale-based Spirit during 2Q2014 introduced some rudimentary dynamic pricing on bag charges during peak periods as it works to maximise its ancillary revenues. Spirit has previously stated that it could foresee non-ticket sales representing 50% of its revenues in the future; but concludes the growth will be more incremental compared with the rapid expansion of those sales during the past few years.

Spirit is gearing up for a high growth period as its capacity in CY2015 is growing roughly 30%. The increase may seem hefty for the mature US market place, but Spirit is repeatedly assuring there is enough stimulative demand to support its ambitious growth targets.

Hawaiian Airlines aims to generate positive results in its long-haul network during 2H2014

8-Aug-2014 7:02 PM

Hawaiian Airlines believes its long-haul international network could turn a corner in 2H2014 to become revenue positive on a unit level, a major accomplishment for geographies that have recorded negative results for the past year.

The main drivers for the improvement are network adjustments Hawaiian has made including eliminating service from Honolulu to Fukuoka and Taipei, and some flights the airline has introduced during the last four years reaching maturity.

At the same time a robust demand environment in North America is benefitting Hawaiian, which has re-deployed some capacity it cut from long-haul operations into seasonal flights to the US mainland from Kona and Lihue.

Hawaiian is also making other changes to its business as it starts to contemplate how it intends to allocate capital once it reaches positive free cash flow, which should occur in CY2015.

4th Dimension and CAPA partnership delivers new airfare analysis and aviation report

6-Aug-2014 7:00 AM

CAPA Australian Aviation Summit - Sydney - 6 August 2014

4th Dimension, Flight Centre Travel Group's new business travel consulting division, has partnered with CAPA - Centre for Aviation, to produce an in-depth report into the Australian aviation industry.

Called the Australian Aviation and Airfare Analysis, the report includes the results of a specialised airfare benchmarking analysis conducted by the team at 4th Dimension.

4th Dimension General Manager Virginia Fitzpatrick said her consulting practice had joined forces with CAPA and leveraged the extensive ticketing data of the Flight Centre Travel Group (FCTG) to produce an airfare analysis that was unrivalled in the Australian travel market.

Air Europa will need its lower costs and higher growth to face renewed competition from Iberia

5-Aug-2014 6:43 PM

IAG's recent announcement that Iberia is to receive 16 new widebodies marks a shift of emphasis for Iberia from internal restructuring towards a new competitive growth phase. Rival Air Europa has taken advantage of Iberia's capacity cuts in recent years to pursue international growth, particularly to Latin America. Parent company Globalia does not report profits for Air Europa, but the group's annual report shows 2013 was very successful for increased revenues, load factor and RASK. It also saw Globalia's return to profit, while Iberia was still posting losses in 2013. Moreover, Air Europa already has its own widebody order (eight Boeing 787-8s and options for eight more).

However, Iberia returned to profit in 1H2014 and its CEO Luis Gallego is relaxed about competing with Air Europa, saying Iberia is "three times [its] size at [Madrid Airport] and twice its size in Spain" and can now "compete with anyone" thanks to its new cost structure (Europa Press/Preferente, 22-Jun-2014).

This analysis of the available data on Air Europa's traffic and financial performance will be followed by our updated analysis of its strategic positioning.


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