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Aeromexico transitions to 787s, phasing out 767s; non-stops Mexico City-Tokyo and upgrade for London
Aeromexico has made significant improvements to its long haul operation following the transition to 787s on two of its three European routes and schedule changes on its two Asian routes. Further improvements are expected as Aeromexico takes delivery of additional 787s, enabling it to phase out its remaining 767s and 777s and pursue growth.
London, which was launched in late 2012 with three weekly 767 frequencies, has performed particularly well since the transition to 787s in 2014, prompting the carrier to add two more frequencies. The new five times per week schedule gives Aeromexico a better product for the key corporate market.
Aeromexico hopes eventually to serve all its long haul markets, including Shanghai and Tokyo, with at least five weekly flights and potentially a daily service. Newly available higher thrust ratings for its 787-8s will also enable Aeromexico to begin serving Tokyo non-stop from Mexico City by the end of 2015.
Norwegian Air Shuttle 2Q2015 back to operating profit. Long haul load factor 91%; leasing draws near
Norwegian's 2Q2015 results show further positive momentum after FY2014's slump into losses. Not only did unit revenue grow, driven by a sharp increase in passenger load factor, but also unit cost fell.
However, the fall in unit cost (and more than half of the improvement in operating profit versus 2Q2014) was due to lower fuel prices. Norwegian's ex fuel unit costs have risen year on year for the past three quarters. The current quarter, 3Q2015, will be the key to FY2015 results and Norwegian's management appear comfortable with booking trends and the yield outlook.
Norwegian also gave data on its long haul network, two years after its launch. Passenger numbers in 2Q2015 more than doubled from 2Q2014 and the long haul load factor was 91% in 1H2015. Norwegian must now prove its claim that this part of the business can make a positive contribution to profits. And it has no time to relax: its next new business, aircraft leasing, will be fully operational in 2016, when it plans to lease out all four A320neo aircraft due from Airbus.
At the Paris Airshow, Wizz Air signed a MoU with Airbus for the purchase of 110 Airbus A321neo aircraft, with deliveries to start in 2019, and uncommitted purchase rights over an additional 90 A321neo aircraft. The order is subject to a final purchase agreement and approval by the shareholders of Wizz Air, which listed on the London Stock Exchange earlier this year.
Such approval is typically forthcoming and the new aircraft should provide significant unit cost improvements. Nevertheless, Wizz Air's order is very large compared with its size today and follows large orders for narrow body aircraft in recent years for other leading European LCCs, including Ryanair, easyJet, Norwegian and Vueling (the latter as part of an IAG group order).
Norwegian has admitted that it may not be able to use all of its planned aircraft and Wizz Air's order now provides an opportunity to review the data on the number, and types, of narrow bodies on order in Europe. Narrowbody deliveries to Europe look set to rise, at a time of rising global deliveries. Success is not guaranteed for all. Meanwhile the expanding role of LCCs in both leisure and business markets continues to undermine the positions of legacy airlines on short haul routes.
On 26-Jun-2015, the US Congress went into a recess without having approved a renewal of the charter for the Export Import Bank of the United States (Ex-Im Bank), the country’s export credit agency. Congress doesn’t return to session until 08-Jul-2015, forcing a hiatus of at least a week on further Ex-Im Bank financing activities.
When the bank's Congressional funding authority expired on 30-Jun-2015, it became unable to undertake new transactions. Existing financing – some of it stretching out as far as 18 years – will continue unaffected, but new activity will effectively cease.
This is the first time in the bank’s 81-year history that it has been forced to suspend its lending activities, even on a temporary basis. Once a source of bipartisan unity, the Ex-Im Bank has fallen victim to Tea Party activism, ideology and the increasingly acrimonious nature of US politics. It is hard to see who wins from this silliness.
Royal Brunei Airlines focuses on regional growth as restructuring phase ends, new 5-year plan begins
Royal Brunei Airlines is preparing a new five year business plan which will see it pursue expansion of its regional network within Asia-Pacific. The government-owned flag carrier, which recently celebrated its 40th anniversary, enters a new chapter after completing a restructuring and renewing its widebody fleet.
Royal Brunei (RB) is now evaluating several potential new destinations for 2016 and beyond. Expansion will be made possible mainly by a larger narrowbody fleet, which will grow from six to nine aircraft in the new five-year plan, as well as the delivery of a fifth 787.
The focus will be on expanding regional operations within Asia as RB is unlikely to expand its long-haul network despite performance improvements following the transition to 787s. But the new A320neo fleet will open up opportunities for new medium-haul routes to Australia, South Asia and North Asia.
SAS narrowed its underlying loss in 2QFY2015, after stripping out the gain on the sale of two slot pairs at London Heathrow. The Scandinavian airline is enjoying a more benign capacity environment this year, particularly in short and medium-haul markets, and is cutting its own capacity. This allowed it to grow its unit revenue at a faster pace than its unit cost, prompting a modestly more positive outlook for FY2015.
Although SAS has invested in product improvements and is growing its revenues from members of its Eurobonus scheme, low cost competition in Europe is making short-haul markets increasingly price-based. FY2015's positive unit revenue conditions may not last, especially within Europe.
Looking into 2016, SAS is planning to return to capacity growth, through long-haul expansion. It is looking at adding further long-haul aircraft to its fleet, beyond the four A330s and eight A350s currently on order. However, competition on long-haul markets is also fierce.