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Analysis for Global

Allegiant: a successful niche player with wider lessons for the world's airline industry

14-Apr-2014 9:24 PM

Allegiant's business model seems to fly in the face of conventional wisdom. A fleet of old, fuel-inefficient aircraft, flying with low frequencies and at low daily utilisation rates in markets with a high degree of seasonality. Yet the ultra-LCC is consistently profitable and generates free cash flow (operating cash flow in excess of capital expenditure), unlike most of the airline industry.

Allegiant's Vice President for Fleet and Corporate Finance told CAPA's Airline Fleet and Finance Summit in Mar-2014 that his airline was "built to be different". Of course, no business proceeds entirely smoothly and Allegiant faces some challenges, including labour relations issues and successfully taking its business model outside the contiguous United States.

Nevertheless, its return on capital employed is consistently the envy of most carriers. How does Allegiant achieve its strong financial results and what can the rest of the airline industry learn from its approach?

CAPA's Airlines in Transition: limits on ownership, legal knots, labour and long haul

11-Apr-2014 11:20 AM

At CAPA's Airlines in Transition 2014 conference in Dublin, the opening session included high profile industry figures debating a key area of airline industry transformation (or not): national ownership controls. The panel included IAG CEO Willie Walsh, Norwegian Air Shuttle CEO Bjorn Kjos, AirAsia co-founder and Dublin Aerospace Chairman Conor McCarthy, European Commission Director Aviation and International Transport Policy Matthew Baldwin and Irish Aviation Authority CEO Eamonn Brenan.

John Byerly, former Deputy Assistant Secretary for Transportation at the US State Department and a major negotiator in the EU-US Open Skies agreement, set the context for the discussion with a review of the "archaic" restrictions on foreign ownership and control. All panellists, airline executives and regulators alike, agreed that the current system is "stupid".

Third party ground handling business in India could increase by USD130 million overnight

7-Apr-2014 6:00 PM

After more than three years of legal challenges, India’s Supreme Court is likely to rule in mid-Apr-2014 in favour of the government’s ground handling policy which was first proposed in 2007.

Things can move slowly in India; but when they do move, the scope of change can often be transformative. Such would be the case with the country's ground handling industry. But it would not all be smooth sailing.

If the Court does rule to uphold the policy, the size and structure of India’s ground handling sector will be dramatically transformed - significantly increasing the size of the contestable market for third party handlers almost overnight. CAPA estimates the market will be worth USD1 billion annually within the next ten years.

Iran aviation: lifting of sanctions could breathe life into the ageing fleets of Iran's airlines

27-Mar-2014 9:35 PM

The embargo on aircraft and parts exports to Iran has left the Iranian airlines saddled with not only some of the oldest fleets in the Middle East, but in the world - a contributing factor to the dreadful safety record of the country's aviation system over the past 20 years.

While Iran has attempted to kick start its own commercial aviation manufacturing industry and has also sourced aircraft from Russia and Ukraine, its efforts to acquire Western-made aircraft and replacement parts have largely been frustrated, thanks to the effects of sanctions imposed by many countries.

But as a result of Iran's agreement in Nov-2013 to suspend nuclear activities, several countries including the US and France and Germany have agreed to a temporary 6 month suspension of restrictions on sale of spare parts for aircraft and engines, in order to help improve safety levels. The window for sales began in Jan-2014. Boeing and General Electric are reportedly among manufacturers who have applied to use the opportunity to provide spare parts.

LATAM Airlines Group records losses as balance sheet clean-up and fleet renewal continues

25-Mar-2014 10:38 AM

Latin American powerhouse LATAM Airlines Group recorded losses for 4Q2013 and FY2013 driven in part by continuing currency fluctuations in Brazil and other markets in Latin America.

Brazil’s currency devaluation has dogged LATAM for much the past year even as the company has taken steps to minimise its balance sheet exposure to the weak BRL, and by YE2013 it had reduced its risk by half compared to the year prior.

LATAM’s ongoing efforts to minimise risks posed by varying exchange rates and a fleet overhaul are creating some flux for the carrier throughout 2014; but the company assures it is meeting its overall synergy goals estimated by the merger of LAN and TAM, and remains committed to balance sheet improvement.

Tigerair cancels nine A320s - averting excessive capacity in the Singapore market

25-Mar-2014 10:34 AM

Tigerair’s decision to cancel nine A320 aircraft that were to be delivered in 2014 and 2015 will provide some much needed relief in the Southeast Asian market, where there are increasing signs of overcapacity. Tigerair should be able to avert a potential bloodbath in Singapore, where its initial fleet plan envisioned an extraordinary nine additional aircraft over the next 13 months.

The cancellations, which were part of a deal with Airbus that includes orders for at least 37 A320neos for delivery from 2018, also give Tigerair more flexibility as it reviews options for its currently unprofitable affiliate in Indonesia. But while the revised fleet strategy improves the group’s outlook, Tigerair still has a host of challenges to overcome.

Tigerair follows larger LCC group AirAsia in slowing down growth for 2014. More adjustments are likely as Southeast Asia’s LCC fleet is still expected to grow by about 17% in 2014.

World airline industry in cyclical upswing - but in search of USD125 billion annually in financing

21-Mar-2014 5:38 PM

IATA's recent revision to its airline industry financial forecast grabbed headlines for downgrading the profit outlook for 2014. However, as IATA pointed out, "we continue to expect a significant improvement in airline profits this year compared to 2013". Moreover, Jan-2014 data show that premium traffic is on a rising trend. It does seem that the global economic cycle is turning upwards and CAPA's Capacity Index supports the view that the sector is in a cyclical upswing.

However, the industry is forecast to generate a net profit in 2014 of only USD5.65 per departing passenger. With a record order backlog and annual deliveries of USD125 billion or more to fund over the next decade alone, this throws out a challenge to the world's aviation financiers.

Lessors, banks, ECAs, capital markets and newer sources of finance will all continue to play their part in meeting this challenge. Representatives of all these sources of aircraft finance, plus aircraft operators and manufacturers, will discuss these themes at CAPA Airline Fleet and Finance Summit Asia 2014 in Singapore from 25-Mar-2014 to 26-Mar-2014.

Mexican airlines review Part 3: Volaris believes it can rebound from a tough 2013

19-Mar-2014 9:10 PM

Mexican ultra low-cost carrier (ULCC) Volaris is exuding confidence that it can attain margin expansion in 2014 even as it predicts an economic rebound in Mexico will not take hold until the second half of the year.

Volaris' bullishness follows a challenging 2013 for all of Mexico’s carriers as the country’s GDP was a weak 1%. The weak economy resulted in yields at both Aeromexico and Volaris sinking, and Volaris recording a loss for 4Q2013 and a 30% fall year-over-year in profits for FY2013.

After battling pressure from Aeromexico at its third largest base in Guadalajara during 2013, Volaris predicts some rationality should be restored to the market in 2014 even as it establishes a new base in Monterrey, which will increase capacity in a market important to all four of Mexico’s major carriers.

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