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LATAM Airlines Group plans an international push as it continues to leverage Sao Paulo

2-Oct-2014 9:30 PM

LATAM Airlines Group is making adjustments to its international network in late 2014 and 2015 as the macroeconomic conditions in some of its home markets remain weak. The changes also reflect the group's ability to leverage the combined fleets of LAN and TAM post merger as LATAM continues its efforts to shed inefficient aircraft as it phases out 39 jets during a two year period.

LATAM is increasing frequency to North America and adding service to Europe even as it has cited some pressure in those markets during the last year.

But the company appears wisely to be selecting markets that are largely shielded from competition that could help deflect any lingering economic weakness within South America.

UK air transport policy post-Scotland vote; 'devolution' could reshape previous aviation plans

1-Oct-2014 3:00 PM

UK aviation policy may well be substantially changed in the wake of the 18-Sep-2014 vote on the independence of Scotland, even though Scotland remains part of the UK. In this report we speculate on some of the possible aviation outcomes.

Roughly 55% of the electorate voted against independence versus 45% for, although four of 32 areas did vote in favour, including the biggest city, Glasgow. But that decision has hardly settled the matter; indeed the process of electioneering has opened up a Pandora’s Box of issues that possibly threaten the 307 year old Union even more than Scottish independence alone would have done. As ever, aviation will be dragged into the melee.

One thing now apparent is that there are no longer any certainties and that the Airports Commission especially needs to be aware, at a critical moment in its deliberations, of the many new forces at play - and the potential new scenarios.

Aeromexico and Volaris increase international spread to strengthen yields; and VivaAerobus follows

25-Sep-2014 8:30 PM

Mexican airlines Aeromexico and Volaris are sticking to their proclaimed strategies of deploying most of their capacity into international markets as the Mexican economy slowly rebounds from a sluggish 2013. Through the first eight months of 2014 each airline increased their international capacity and traffic significantly, betting that yields are stronger in international markets.

The competitive overlap between Aeromexico and Volaris on each airline’s top US transborder markets is not overwhelming, and Volaris has previously stated that it is targeting routes with a higher percentage of visiting, friends and relatives (VFR) travellers.

Aeromexico’s and Volaris’ rival VivaAerobus is also making a new transborder push during 2014, upping competition with Aeromexico and Interjet on some of its international services. It is tough to determine if the push is creating oversupply; but the international growth indicates Mexico’s airlines are attempting to counter weaker yields on the country’s domestic routes.

US investment grade airlines deliver consistent returns, and pledge to continue full steam ahead

24-Sep-2014 7:03 PM

It is no surprise that the two US investment grade airlines have recorded the most consistent shareholder returns during the past few years. Neither Alaska Air Group nor Southwest Airlines shows signs of slowing their shareholder reward schemes, reflected in Southwest doubling its dividend in May-2014 and Alaska’s consistent share repurchases and dividend pay-outs in 2013 and 2014.  

The two other US hybrid airlines Hawaiian and JetBlue have less definitive plans for the form their shareholder returns will take. But reflecting the increasingly vocal base of US airline shareholders, Hawaiian has declared it would outline some form of capital allocation by YE2014.

JetBlue appears to be the one US airline furthest away from offering a timeframe and structure of its shareholder rewards; but it is likely to be top of the airline’s agenda as a new CEO takes the helm in Feb-2015.

This is Part 2 of a two-part series examining US airline shareholder returns.

China Eastern Airlines: rebranding, strategic revival, new 777 deliveries and an investor hunt

23-Sep-2014 12:26 PM

It is not often that a lick of paint is so momentous. When China Eastern Airlines – China’s second largest carrier and the world’s eighth largest by seats – unveiled its new livery, it marked an important step. The details of the branding are the minor part; the major fact is that in China’s slow-moving legacy environment of national carriers where the state has a heavy hand, China Eastern was able to implement change. Competitors, still wearing their old coats, are jealous. This is China Eastern's first re-branding since its establishment over 20 years ago, and the first major one among China's airlines.

The branding itself is the visible signal of strategic change. A more material one is due to arrive with the 24-Sep-2014 delivery of the first of China Eastern’s 20 777s for long-haul growth, mainly to North America. China Eastern’s lagging performance has made its Shanghai hub vulnerable, albeit one of China's most important. Further, China Eastern is the first – and so far only – state carrier to launch an LCC. Even more disruptive, in its low key way, is China Eastern’s discussion of finding a strategic investor.

The strategy may be relatively fresh but it needs time (perhaps years) to incubate. China Eastern has some way to go before becoming fully commercial; for example, its 1H2014 financial results included domestic load factor gains at the expense of yield - while operating profit was boosted by state subsidies.

Gol receives some recognition for its prolonged restructuring. Now the goal is profitability

18-Sep-2014 8:00 PM

Large Brazilian airline Gol is gaining some attention for the restructuring it has undertaken during the past three years as market conditions in its home country deteriorated driven by a weakening economy.

Despite a still tenuous economic environment Gol has worked to improve its financial situation through capacity reduction, the restructuring of debt, network changes and a heightened focus on the corporate customer.

The results are improved leverage, a shrinking of losses and increases in its margins. Gol is refraining from declaring any definitive targets of when it will return to profitability, but believes it could be on a clear path to positive net income by YE2015 as it braces for continued higher fuel costs and currency devaluation.

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