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Analysis for Global

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.

Niche airline Allegiant's unit cost pressures soften as it makes a push into medium sized markets

4-Feb-2015 9:51 PM

US niche airline and travel company Allegiant capped off CY2014 by taking a USD43 million write down on its fleet of six Boeing 757s, which created additional noise in its results that were also affected by training expense that created cost headwinds throughout most of CY2014.

Despite those challenges, Allegiant recorded strong top-line revenue growth in 4Q2014 and CY2014 as unit costs were pressured by training expense during the year. But at the same time the company is keeping an eye toward shareholder returns by deciding to issue a recurring dividend for each quarter in CY2015, and still retains roughly USD86 million in share repurchase authority.

After facing continuing cost headwinds in 1Q2015, Allegiant’s cost pressure should ease throughout the remainder of the year as it seems to be focussed on domestic expansion for the foreseeable future.

Alaska posts strong CY2014 results, prepares for softer revenues in 1Q2015, but outlook strong

28-Jan-2015 9:24 PM

Alaska Air Group benefitted from a strong domestic environment in 2014 that helped the airline continue execute a solid financial performance and deliver an impressive 18.6% return on invested capital for 2014.

Even as Alaska believes the US economy remains strong, like to the country’s other airlines, it appears to be bracing for some revenue headwinds in 1Q2015 driven by what seems to be unique factors that should not linger throughout the year.

Alaska is also forecasting flat unit cost growth year-on-year in 2015, which is somewhat better than other large US airlines, but not as strong a performance as Alaska has delivered in the past.

Air China and United Airlines vie for title of largest carrier between China and the United States

28-Jan-2015 5:00 PM

China's regulator the CAAC decreed that Air China is the largest carrier in the China-US market, ending the "domination" of US carriers. However this was based on Air China operating to six US cities while the largest US carrier, United, links China with only five US cities.

On almost every other metric – seats, frequency, city pairs – United (Air China's Star Alliance partner) is far larger and will grow in 2015 as it expands its Chengdu service and adds a second daily flight from San Francisco to Shanghai, the first example of a US carrier having more than a daily flight on a Chinese routing.

Perhaps more important though is the fact that the CAAC saw fit to announce the comparison, a clear statement that China's international airlines are on the march, particularly in one of their most important strategic markets.

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