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Thai low-cost carrier Nok Air is expecting a recovery in 2H2014 after incurring a rare loss in 2Q2014. Political instability and intense competition made it virtually impossible for any Thai carrier to be profitable in 2Q2014. But Nok is optimistic market conditions are improving, enabling its existing short-haul operation to again be profitable in 2H2014.
The expected recovery of the Thai market also bodes well for its new long-haul low-cost joint venture carrier NokScoot, which plans to commence operations in 4Q2014 with two-class 777-200s operating routes to North Asia. Nok is also preparing to launch services to Vietnam, which will become its second international market after Myanmar.
Nok is currently the largest carrier in Thailand’s domestic market, which continues to grow rapidly this year despite the political turmoil but has become intensely competitive. Regional international expansion and the launch of NokScoot will unlock new growth opportunities for the until now domestic-focused 10-year-old LCC.
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 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.
The planned Feb-2016 delivery of Cathay Pacific’s first A350 XWB will allow it to fulfill the strategic objectives of having the latest premium product, long-haul growth and fleet efficiency. Cathay’s first new aircraft type in nearly a decade and first new aircraft family in two decades will arrive with a refreshed business class product that will be retrofitted across the long-haul fleet, reflecting how important it is during a more competitive environment for Cathay to have the latest premium product, even with relatively minor adjustments.
Another response to competition, and fulfilling demand, is long-haul growth that ensures superior network scale. A350-900s will open European destinations while -1000s will do so in North America. The aircraft also bring efficiency, which Cathay is missing as it continues to operate A340s and 747s. The A350s will arrive with an enhanced premium economy seat while the cabin will be scaled back on A330s in Australia, the Middle East and India, evidencing a false-start for a product that has otherwise found success on long-haul and ultra-long-haul flights to Europe and North America.
JetBlue Airways recorded solid 2Q2014 financial results as it celebrated the debut of its new premium transcontinental product offering, Mint. The product remains in its infancy, but JetBlue is encouraged by the early responses to Mint, particularly among customers who have not previously travelled on the airline.
The company believes 2014 is shaping up to be one of its most profitable years, which in some ways is a testament to JetBlue’s attempts to carve out a niche that offers some frills free of charge while crafting an ancillary strategy based on the premise of creating products that customers value.
But underlying JetBlue’s favourable performance during the second quarter is an attempt by investors to understand the airline’s specific positioning in the market place and growing curiosity over how the company determines its return on invested capital targets. JetBlue may continue to face more scrutiny as some of its peers achieve ROIC levels that are measurably higher than the respectable 7% JetBlue is targeting for 2014.
The allure of big boys' toys appears likely to cost Japan's low-cost Skymark Airlines its reputation, a lot of money and most importantly management focus at the very time when Skymark needed to respond to a raft of new LCC competition in its domestic heartland. Skymark is putting a bold face on the planned delay – or even cancellation – of six A380s it has had on order since 2010, taking the position that the best defence is a strong offence. A statement talked of Airbus imposing "an exorbitant penalty that evades common sense" if the order is cancelled. It appears from the statement that Airbus has sought to find a way out for independent Skymark, "to enter under the umbrella of a major airline."
Negotiations to delay delivery or cancel have, according to Skymark, been under way since Apr-2014. Skymark gives the reason for its move as a "business environment [that] has become severe due to increased competition and the depreciation of the yen in recent years".
Its international route plans had shortcomings for Skymark's first international excursion. Airbus has already begun trial flights with the first new aircraft, complete with Skymark's logo and partial interior. Two A380s were due for delivery in 2014, with another two in each of 2015 and 2016. The order – valued at USD1.3 billion at rack rates – was always a strange one that few in the industry considered a safe one.
There will be much to come out in the wash but Skymark can recover and emerge stronger. A cancellation of Skymark Airlines' six A380s would enable – and force – Skymark to hone the strengths it created in Japan's domestic market before it overly-ambitiously leaps from operating only domestically to long-haul all-premium A380 services.