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Brazilian airline Gol is attempting to respond to deteriorating and fast changing conditions in the country with network adjustments to minimise the effects of a sharp drop off in corporate demand. All airlines operating within the country are doing so against the backdrop of a contracting economy, ballooning inflation and a plummeting currency.
Gol is adjusting its US service to Miami and Orlando via Punta Cana to seasonal as those routes are becoming more challenging due to exchange rate pressure dampening demand. The airline has also faced stiffened competition on US routes from rival Azul. In turn, Gol now plans to challenge Azul on new domestic routes from Campinas as part of its network overhaul.
As economic weakness remains an overhang in Brazil, Gol is also adjusting its aircraft delivery schedule for 2016-2017, and increasing the number of aircraft it plans to sublease year-on-year during the 2016 slow season. Its network and fleet modifications are responses to challenging conditions that show no sign of improving in the short to medium term.
Roughly three years after the debut of the second airline member of the Viva Group, VivaColombia, Costa Rica has emerged as the base for the third airline VivaCam. The new airline is initially focusing on low cost service to Central America, which has little LCC penetration. Economies in that region are also stronger than most countries in South America, which means that residents in the region are more readily incentivised and able to travel.
The establishment of VivaCam is another step towards the Viva Group establishing itself as a pan-Latin American LCC entity after injecting LCC competition into Mexico and Colombia with the establishment of VivaAerobus and VivaColombia. However, the current Viva airlines have no coordination, and it is uncertain whether VivaCam will initially seek to cooperate with its sister airlines.
However, VivaCam will source aircraft from other Viva airlines. VivaAerobus placed a hefty Airbus narrowbody order in 2013, which will no doubt serve as resource for growth among all the Viva airlines, whatever growth trajectory each airline adopts.
Alaska Air Group is planning capacity expansion of 8% in 2016 after growing nearly 11% in 2015, including a 12.5% expansion in 4Q2015. Much of the push during the final three months of 2015 is additions to existing markets where Alaska concludes demand remains robust.
Although Alaska’s YE2015 capacity growth may be outsized compared with other US airlines, its ASM expansion between 2009 and 2014 was in the mid to high single digits, and its 2016 projections are in line with those trends. It also remained profitable during that time period, which featured soaring fuel prices and a global economic downturn.
During early 2016 Alaska is facing some headwinds from capacity growth by its competitors, but concludes much of that growth is the annualisation of new route launches that occurred in 2H2015. With the competitive onslaught Alaska has endured in Seattle during the last couple of years, it is clear the airline can handle the industry capacity growth in its markets. Its own network development during 2015 reflects a strengthening of its presence in Seattle in both small and large markets to leverage both connecting and local traffic.
The phrase "jumbo jet" has been in use for decades but takes on new meaning in Dec-2015 with the planned entry into service of Emirates' two class A380 seating 615 passengers – the most yet of any aircraft. The version will have 18% more seats than Emirates' largest A380 and will be the first time an A380 does not have first class. Emirates is removing that cabin (with its onboard showers) as well as some business class seats to make room for more economy seats. The aircraft is initially to be deployed to Copenhagen and Bangkok, destinations with high leisure but limited premium demand.
Emirates plans to take an initial 15 of these aircraft. Already its 73 A380s on order account for 64% of the type's backlog. Half of the in-service fleet is held by Emirates and Singapore Airlines. As the first operator and with shorter leases, SIA is planning the future for its first batch of A380s. SIA does not intend to renew the leases of these aircraft since they are some of the first and do not incorporate later production chain efficiencies.
The Oslo-based LCC Norwegian Air Shuttle ASA, operating as ‘Norwegian’, has already established a reputation as one of the most prolific long haul budget carriers, with a portfolio of flights to the Middle East, Asia Pacific and North America from Scandinavia and to North America from London Gatwick, under the Norwegian Long Haul brand.
A subsidiary, Norwegian Air International is also established with an AOC at Dublin Airport in Ireland but approval for US flights has not yet been granted by the US Department for Transportation in the form of a foreign carrier permit. So far flights are taking place between primary airports in Europe such as Oslo, Stockholm, Copenhagen and London Gatwick, and primary airports in the US, such as New York JFK, Los Angeles, Orlando and Boston, which joins the network in 2016, the possible exception being Fort Lauderdale, which handles much low cost travel (65% of seat capacity just now).
But Norwegian is hoping to start thinner routes and to sell one way tickets to Europe for USD69 as soon as 2017. It has European airports such as Bergen and Edinburgh in its sights having already announced a service between Cork in Ireland and Boston. It can really only do so by flying from US airports that have low fees. So, which ones might be in the frame, if the demand is there?
With its transition to an ultra low cost airline essentially complete, Frontier Airlines continues to undergo network changes to maximise its ULCC business model. In the latest round of flights starting in late 2015 and continuing early into 2016, Frontier is stepping up competition with familiar foes, namely American Airlines and Southwest Airlines. American in particular has faced deep discounting in its markets during 2015 from Southwest and other ULCCs, which has been one main factor in the Fort Worth-based airline’s sagging unit revenues.
Among the network changes for Frontier is the pruning of some service from Cincinnati, a market that seemed ripe for the airline’s business model. But it appears Frontier is opting to focus much of its new network offerings in leisure markets with a push from Fort Myers, Florida and Las Vegas.
Frontier also recently marked a milestone with the delivery of its first larger gauge Airbus A321 featuring a high density configuration of 230 seats. As it continues to fine-tune its network and product offerings, Frontier finds itself in a US domestic environment where unit revenue and yields are falling, yet profits are reaching record highs.