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Alaska Air Group is making subtle changes to its business in 2016, which include the introduction of a premium economy product and a decision to enlarge its fleet of larger regional jets, as the airline positions itself to compete more effectively with its rivals.
There are also nuanced changes in Alaska’s competitive landscape in 2016. Although Delta Air Lines remains a fierce competitor in Alaska’s Seattle hub, most of the competitive capacity additions that Alaska faces in early 2016 stem from other airlines, including expanded competition with ULCCs. For now, Alaska does not foresee a need to segment fares to compete more effectively with ULCCs, but concludes that it would be an easy change to its business model, if necessary.
The company is sticking to its previous projections of 8% capacity growth in 2016 even as unit revenue pressure continues through the first half of the year. As a result, Alaska’s stock value compressed in early 2016, but regained some traction in late-Jan-2016. The fluctuations have not deterred Alaska’s inherent belief that it can post solid revenue growth with an annual expansion of ASMs between 4% and 8%.
Wizz Air's trading update for 3Q2016 paints a picture of an airline enjoying robust health. The number one airline between Central/Eastern Europe and Western Europe is growing rapidly, increasing its profit margins, raising its FY2016 profit target, and generating cash.
Moreover, Wizz Air may now be Europe's lowest cost airline, defined by its CASK over 12 months, although a lack of comparable data from current CASK king Ryanair means it's not currently possible to confirm this. Falling fuel prices (and its lower levels of fuel hedging) have helped Wizz Air's cost position, but it has shown consistent ex fuel cost control for many years.
Wizz Air's first two Airbus A321ceo aircraft joined its previously all-A320 fleet during the quarter, which also witnessed shareholder approval of its A321neo order. It will add 97 aircraft over the nine years from the end of FY2015 and the combination of larger aircraft with newer technology should help to take unit costs even lower. This will be crucial in its ongoing competition with Ryanair, the biggest airline in Europe and second biggest in Wizz Air's markets.
On 12-Jan-2016, Turkish Airlines (THY) published detailed targets for 2016 on the development of its fleet, network, traffic, workforce, revenue and earnings. It expects 2016 to be a year of strong capacity growth, led by expansion in America and Africa. The fleet will expand further across the network, while retaining its narrow body bias. The labour force will grow, but with improved productivity, enabling THY to continue on its existing strategic network development path. Although its expects a fall in unit revenue, it also anticipates improving profitability thanks to lower fuel prices and control over ex fuel costs.
Over the past decade, THY has increased its ASKs at an average rate of 18% pa, doubling its ASKs every four or five years. Such rapid and relentless capacity growth puts downward pressure on unit revenue. Moreover, in 2016, macroeconomic uncertainties and geopolitical events add to the risk of a further weakening in unit revenue.
Nevertheless, it has a solid track record of riding out such risks. Its relatively unusual decision to publish such detailed guidance at the start of 2016 suggests that it is feeling confident about the year ahead.
Air France flight 439 from Mexico City arrived in Paris CDG on 11-Jan-2016, and was the airline's last commercial 747 passenger flight.
The service brings to an end over 45 years of 747 flights at the French flag carrier. Later in 2016 Cathay Pacific and Saudia will also retire their passenger 747 models. Once a ubiquitous sight, 747-400s are disappearing, 221 of them now remaining in service (according to CAPA's Fleet Database). One third of them are in service with just three airlines: British Airways, United Airlines and KLM. BA operates almost twice as many 747-400s as the next largest operator, and still intends to have a 19-strong fleet by the end of 2020.
Almost half of the world's passenger 747-400s are with European carriers, but seven of the world's 10 longest 747-400 routes are to/from Australia, all operated by Qantas. Of the 15 longest 747-400 routes, all but one are to/from Asia-Pacific.
The fading of the 747-400 has meant a diminishing role on long haul routes. The aircraft type accounted for nearly half of Asia-Europe and Asia-North America flights in 1H2006, but in 1H2016 it accounts for less than 10%. On the trans-Atlantic, 747 flights have gone from a 15% share to 9%.
Canada’s second largest airline WestJet is starting 2016 by battling undervaluation by the market while still enjoying its stature as one of the few airlines globally to hold investment grade status. The dive in WestJet’s stock price is driven by trepidation over the airline’s planned growth. During 2016, its capacity expansion could reach 11%, well above Canada’s projected GDP growth of 1.7%.
Investors also seem jittery about WestJet’s planned long haul expansion to London Gatwick with Boeing 767 widebodies given the existing capacity in the market. Rival Air Canada has responded by adding new service to Gatwick on its low cost subsidiary rouge. WestJet seems undeterred by the added competition, and stresses its long haul experiment with four widebody aircraft is a low risk proposition.
The airline is also touting flexibility to scale down its growth projections should conditions worsen. But for now WestJet believes its expansion in 2016 is warranted given its strong financial position and numerous quarters of profitability. For now, the company sees no reason to scale back its ambitions.
All Nippon Airways and the A380: Airbus wins a new customer in return for invaluable Skymark support
All Nippon Airways is likely to become an A380 operator, with three aircraft due for delivery from 2018. Operating the A380 was not in ANA's plans. In fact, as ANA itself has itself stated, there are many arguments against taking A380s.
The aircraft order appears to be a trade-off: ANA won the last minute support of Airbus to vote for its restructuring plan of the bankrupt Skymark Airlines. There was little obvious reason for Airbus to back ANA, a tiny Airbus customer, over the alternative restructuring plan proposed by Delta, itself a major Airbus operator. It may be that in exchange for Airbus' support ANA agreed to do more business with Airbus.
Thanks to Airbus, ANA has gained not just Skymark, but perhaps more importantly, also ensured that Skymark did not go to Delta, which would have been a significant competitive threat. In doing so ANA calculates the benefit of having Skymark outweighs the trade-off of operating the A380s, which were not part of its fleet planning.