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Norwegian Air Shuttle's fall in 3Q profit underlines the challenges faced in 2014

27-Oct-2014 3:50 PM

Norwegian Air Shuttle reported its third fall in quarterly profits this year, with the seasonally strong 3Q2014 seeing a 14% drop in its net result. It has been an unusual year. Additional costs associated with the introduction of its 787 fleet on its nascent long-haul network, delays to its US foreign carrier permit application and currency movements have weighed on this year's profits.

But Norwegian cannot blame these factors entirely. It has also experienced heavy falls in unit revenue in 2014, not entirely unrelated to its very rapid capacity expansion. Unit cost has declined too, but not fast enough. Pioneering a new business model on long-haul and growing very rapidly certainly provide challenges.

Norwegian's 2013 profits were lower than in 2012 and it now looks certain to make a significant loss in 2014. In 2015, it is planning much slower growth, which should be beneficial to unit revenue. It must also silence its detractors by proving that it can generate a more favourable profit trend next year, while also managing its new aircraft leasing subsidiary.

Expansion at Air Canada rouge continues unabated as mainline pilots embrace their low cost sibling

24-Oct-2014 12:00 AM

Air Canada continues to expand the network of its low-cost subsidiary rouge with the planned resumption of service from Vancouver to Osaka, Japan in May-2015, which marks the first Asian market for rouge. rouge is also planning to take over Air Canada mainline fights from Toronto to Lima in Peru during 2015, which will be the low-cost airline’s first destination in Latin America.

Meanwhile expansion of rouge's European network will continue in summer 2015 with the launch of services from Montreal to Venice.

As rouge continues its expansion, the low-cost airline has appeared to have gained the support of mainline pilots, who once fiercely opposed rouge’s creation. Now that rouge has logged a year in operation, pilots believe the airline is an important part of Air Canada’s long-term viability.

Delta Air Lines trims 3Q2014 unit revenue targets due to overcapacity and other global challenges

6-Oct-2014 5:40 PM

Delta Air Lines has slightly adjusted its passenger unit revenue targets for 3Q2014 triggered by oversupply in some of its markets, unrest in the Middle East and the Ebola outbreak in Africa.

The airline has previously warned of tougher year-on-year comparisons in 3Q2014 after recording 7% unit revenue growth in 3Q2013. But despite the challenges that have cropped up during the last few months, Delta still predicts a strong performance in the quarter with double digit operating margin expansion and solid cost containment as demand in the US domestic market remains strong.

As it prepares to make trans-Atlantic capacity adjustments for the US winter time period in conjunction with its SkyTeam alliance partners, Delta is also making changes in it Pacific network by down-gauging Boeing 747s it operates to Tokyo and replacing them with smaller and more efficient aircraft.

Monarch Airlines. Part 2: Why one of Europe's lowest cost airlines is right to seek cost reductions

4-Oct-2014 1:56 PM

Monarch Airlines recorded a pre-tax profit in 2013, recovering from losses in 2012. This was driven by unit revenue gains outpacing a small rise in CASK. Nevertheless, its track record is one of losses and only occasional profitable years with thin margins. Traffic growth over a number of years, driven by a switch from charter to scheduled flying, has not typically led to profit growth.

Fleet expansion has contributed to falling aircraft utilisation rates and the airline's strong focus on leisure markets gives it one of the most seasonal demand patterns among European airlines.

In Part 1 of our Monarch analysis, we looked at most recent financial results of the airline's parent, the Monarch Group. We also reviewed developments initiated by the new management of the Group, in connection with strategy, ownership and labour conditions.

In this second part, we focus more closely on Monarch Airlines and suggest that management is right to be seeking cost reductions from what is already one of Europe's lowest cost operators. It will also need a longer term growth plan if it is to avoid becoming marginalised by its bigger LCC rivals.

The Monarch Group. Part 1: No divine right to rule the air, but a new reign has started purposefully

3-Oct-2014 5:17 PM

Monarch Airlines has one of the lowest levels of unit cost in Europe and some decent market positions on routes in its mainly sun-oriented leisure routes. Both the airline and its parent the Monarch Group returned to profit in FY2013 after a period of losses.

Nevertheless, this Monarch has no divine right to rule the air. Its margin is not enough for sustainable long term returns and 2014 is proving to be more difficult. Moreover, its earnings are very seasonal and the Group's year end FY2013 balance sheet was weak. Faced with these issues and the need to fund a planned order for 30 Boeing 737 MAX 8 aircraft, the Group appointed a new Chairman, CEO and CFO in Jul-2014 and launched a strategic review in Aug-2014.

The new management has quickly had an impact in three significant ways. First, it has committed Monarch to scheduled operations only, thereby completing its withdrawal from its original activity of charter flying. Second, it has secured union agreement to wage cuts and new working conditions and, third, it has found a new owner to invest in its future.

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.

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