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Pressure from having to pull capacity from Venezuela and overall economic weakness in many regions within Latin America pressured Copa Airlines’ financial results for 2014; but the airline still delivered a respectable 19.8% operating margin for the year and posted a decrease in unit costs.
Many of the elements that dragged down Copa’s financial results in CY2014 remain intact – continued pressure on yields by moving a significant amount of capacity from Venezuela and weakened economies in Latin America. The airline has not made any adjustments to its projected 7% capacity growth for CY2015, but its expansion of supply is at a lower rate than 2014, and most of the growth stems from network changes Copa undertook in CY2014.
Although Copa’s yield and unit revenue challenges will persist in the near future, overall the company remains in good financial shape to withstand the macroeconomic pressures weakening its results.
Spirit Airlines delivered strong financial results for CY2014 and 4Q2014 even as its unit revenues were pressured during the last three months of the year by industry pricing action driven in part by lower fuel costs and the sunset of the Wright Amendment that had limited Southwest’s ability to operate certain long haul flights from Dallas Love Field.
The airline continues to face unit revenue headwinds during 1Q2015, caused by industry pricing pressure during off-peak periods. But at the same time Spirit is projecting a favourable unit cost performance, which should allow it to still deliver strong margins for the quarter.
Some of the unit revenue challenges could ease later in 2015 as subsequent quarters do not contain as many off peak days, and none of the pressure is triggering any changes to Spirit’s growth projections for 2015, which include capacity expansion of roughly 30.4%.
Canada’s WestJet Airlines delivered strong financial results for 4Q2014 and CY2014 driven by healthy revenue growth, and some benefit from falling fuel costs. Although the weaker CAD against the USD diminishes some of the benefit for Canadian airlines of lower fuel expense.
As it moves fully into 2015 WestJet admits to seeing some pressure in its southern markets, particularly the Caribbean and Mexico, from capacity increases that are outstripping what it characterises at still healthy demand in those regions.
Similar to some of its US peers, WestJet is projecting 1Q2015 unit revenue growth of flat to slightly negative, likely driven in part by some pricing pressure created from the capacity expansion in some winter destination markets. The airline is not offering guidance as to when unit revenues may start an upswing, but feels reasonably confident about overall demand, and has no plans to change its growth targets.
For Hawaiian Airlines, after a solid financial performance in 4Q2014 and CY2014, a combination of currency headwinds and industry capacity increases on North American routes are creating unit revenue headwinds during 1Q2015. The airline’s guidance projects the deepest decrease reported by any US airline.
The capacity pressure is driven by additions from both Hawaiian and its competitors on routes to the US mainland. During 2014 Hawaiian opted to redeploy some capacity from long-haul routes that were eliminated back to the US west coast, and still believes that the decision is producing favourable results despite the current capacity pressure.
As it navigates through some revenue challenges in 1Q2015, Hawaiian’s capacity growth is slowing from previous years, and it is also forecasting a decent cost outlook for CY2015, welcome signs that some of the headwinds it has faced in the past are starting to subside.
Singapore Airlines long-haul low-cost subsidiary Scoot has begun the long anticipated transition from 777s to more efficient 787s. Scoot took delivery of its first of 20 787s on 31-Jan-2015 and plans to place the aircraft into service on 5-Feb-2014.
Scoot is planning a rapid fleet transition which will see all six of its 777-200s phased out by the end of 3Q2015. The airline also plans to launch several new routes as its fleet expands to 10 aircraft, a mix of 375-seat 787-9s and 330-seat 787-8s, by Apr-2016.
The 787 is important, but not the only, component of a long-term business plan that Scoot needs to implement to reach profitability. Partnerships are also crucial for unlocking growth as currently less than 5% of Scoot passengers connect to other airlines.
Alaska Air Group benefitted from a strong domestic environment in 2014 that helped the airline continue execute a solid financial performance and deliver an impressive 18.6% return on invested capital for 2014.
Even as Alaska believes the US economy remains strong, like to the country’s other airlines, it appears to be bracing for some revenue headwinds in 1Q2015 driven by what seems to be unique factors that should not linger throughout the year.
Alaska is also forecasting flat unit cost growth year-on-year in 2015, which is somewhat better than other large US airlines, but not as strong a performance as Alaska has delivered in the past.