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The three large US global airlines are continuing their quest to shed inefficient 50-seat jets in favour of larger gauge aircraft, a trend sweeping the US industry with nearly every major airline undertaking some form of seat densification on existing aircraft or taking delivery of jets configured with a higher number of seats.
United and Delta are opting to replace their 50-seat jets with a mix of new and used aircraft, and American appears to be adding new jets to replace its 50-seat aircraft. Based on current fleet projections American is moving more slowly in culling its 50-seat regional jets while Delta has been the most vocal and aggressive in shedding the smaller aircraft.
Even with the big push to shrink the 50-seat jet fleet, some US majors are extending contracts with their regional partners covering a small number of those aircraft. Perhaps in a few markets lower fuel prices improve the economics of the jets; but overall airlines are marching ahead to rid themselves of aircraft that were a mainstay in regional operations a decade ago.
Whisper it quietly, but Delta and United are dependent on Gulf carrier connections for their Middle East flights. The larger US-Gulf carrier partnerships are between Emirates and JetBlue, as well as American Airlines with both Etihad Airways and Qatar Airways. The latter two are intriguing as American is forcefully involved in the allegations against Gulf carriers; JetBlue is not and in fact strongly supports the Gulf three's expansion. JetBlue will for example open an Orlando-Mexico City service to take feed from Emirates' new Dubai-Orlando service. With Emirates going double daily into Seattle, it could look to replicate with local carrier Alaska Airlines the partnership it has with JetBlue.
Etihad in Mar-2015 said it placed 180,000 passengers onto US carrier networks in 2014 – 493 a day – as well as 50,000 in the first two months of 2015, or 847 a day; around a fifth of Etihad's US passengers connect to a US airline. American Airlines has been a primary recipient of this traffic and has realised the traffic opportunities it is leaving behind. With Etihad serving Dallas-Abu Dhabi only three times a week, there is opportunity for American Airlines to launch its own service to Abu Dhabi and expand its partnership with Etihad. A deeper Gulf partnership will help American, but they are not alone among north American airlines whose interests may be best served by closer links.
Hawaiian Airlines is bracing for industry capacity increases on its North American routes during 2Q2015 ahead of the debut of new flights by Virgin America in 2H2015. At the same time the airline’s international routes are facing some pressure due to the elimination of fuel surcharges and currency fluctuations.
Despite those challenges Hawaiian maintains a bullish outlook for 2015 as it works to leverage its dominant position in the inter-island market and embarks on a course of de-levering its balance sheet now that it is taking a breather in aircraft deliveries and long-haul expansion.
After stating in late 2014 that it was examining various forms of capital allocation, Hawaiian has outlined a USD100 million share purchase programme now that it has achieved certain balance sheet targets, which provided the airline some flexibility to consider alternative uses of cash.
Sichuan Airlines is due to take delivery of an Airbus A320 family aircraft on 22-May-2015, giving the Chengdu-based carrier 100 aircraft. Sichuan becomes the seventh airline in China to have a fleet of 100 or more aircraft. Globally Sichuan will be the world's 50th largest airline by fleet size. Sichuan intends to take another 100 aircraft over the next decade.
Sichuan's hinterland is mostly in China's west, from Xi'an and Kunming to Chengdu and Chonqging, although it also has a large presence along China's eastern seaboard. Sichuan carried just under 20 million passengers in 2014, almost all domestic.International flying, which accounts for 9% of Sichuan's seats in May-2015, is mostly around Northeast and Southeast Asia but limited long-haul links extend to Australia, Moscow and Vancouver.
All of China's Big Three airlines – Air China, China Eastern and China Southern – have a direct or indirect stake in Sichuan Airlines, creating competing interests in China's booming west.
Azul believes Brazil-Buenos Aires service is unviable, partially driven by fifth freedom competition
As the major US airlines sought improved access to Latin America in the 1990s, Brazil and Argentina were persuaded - with some reluctance - to agree to open skies bilateral conditions. One consequence of this liberal environment has indirectly been to open up fifth freedom access between the two countries.
Brazil’s third largest airline Azul concludes now that it cannot profitably serve Buenos Aires, due in part at least to the participation of third country airlines. Buenos Aires is a market in high demand among its customers, but the abundant capacity, including from airlines operating fifth freedom services through Brazil to Argentina, puts this out of the question.
With Buenos Aires unviable for Azul in the short to medium term, it looks as if the airline will focus on more international expansion to the US until its Airbus A350s begin arriving in 2017.
Azul is also keen to strengthen its existing partnership with United and initiate a tie-up with JetBlue, which has a strong presence in Azul’s US markets. Those aspirations likely exclude any consideration by Azul of examining a potential partnership with Gulf airlines.
Spirit Airlines plans to introduce 24 new routes in 2Q2015 after adding Cleveland to its network earlier in the year. The biggest push during 2Q is from Houston Intercontinental, where the airline is adding eight new nonstop destinations that include seven to Latin America.
The rapid route expansion results in Spirit having a significant portion of its network under development, which along with some lingering pricing compression in other market is pressuring Spirit’s unit revenues. It projects a unit revenue decline of 14% to 15% for 2Q2015, which wider than the nearly 10% drop it recorded in 1Q.
Spirit has refined its FY2015 operating margin guidance to a still healthy 24% to 27% as it still faces some lingering pressure in Dallas, one of its larger markets. But it is still the reigning lowest cost producer in the US, which gives is some leverage to navigate the current competitive environment.