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Growth in Chile’s domestic passenger market was flat during the first eight months of 2015, in a region that was one of Latin America’s fastest growing areas just a couple of years ago. The slowdown is driven in part by overall sluggish economic growth within Latin America and the weakening of Chile’s currency.
It is not obvious when domestic passenger growth will resume, but the general consensus is Latin America’s economy will likely remain weak throughout 2016. At the same time domestic passenger numbers are leveling off, Chile’s second largest airline Sky appears to be shifting its business strategy from a hybrid offering to a more pure low cost model.
Chile did enjoy solid growth in international passengers during the first eight months of 2015, reflecting growing tourist numbers and perhaps a strategy by the country’s largest airlines to allot capacity to higher yielding regions.
The three large global US network airlines are in the midst of adding seats to their aircraft at a time when the country’s domestic capacity is creeping up and unit revenues and yields are falling. Of course these reconfiguration projects were set in motion before the price of fuel dropped significantly and pockets of weakness emerged in the US market place.
American, Delta and United remain bullish about their strategies to grow capacity through seat densification, often characterising the additional seats as efficient generators of capacity at nominal costs.
It also appears that the densification efforts are a competitive response to one another as the three large network airlines seek to offer the same size aircraft in order to reap the benefits that more densely configured jets deliver. Passengers, however, have at best mixed views about the strategy of adding additional seats to bolster revenue.
Any number of US airlines are in the midst of, or have recently completed, reconfigurations to increase seating density on their aircraft in an effort to drive additional revenue at a relatively low cost. As capacity creeps up in the domestic market place, airlines often reference their aircraft densification programmes as efficient capacity expansion.
Three US airlines viewed as some of the most consumer friendly – JetBlue, Alaska and Southwest – have all opted to add seats to their respective narrowbody fleets. Those airlines walk the fine line of adopting strategies to bolster revenue while ensuring that passenger goodwill remains intact. Few consumers enjoy less legroom.
The revenue potential of densifying aircraft for most airlines is too beneficial to pass up, reflecting the balance of appeasing investors and working to create a still comfortable travelling experience. It is a scenario whose prevalence will grow as both passengers and shareholders become more vocal in their demands.
Latin American airline group Avianca is attempting to mitigate tough conditions in the region, particularly a sharp devaluation of the currency in its largest market Colombia. Steps the company is taking to counteract weakness in Colombia and throughout Latin America include a domestic capacity reduction within Colombia and fleet adjustments that include both deferral of aircraft deliveries and grounding of its subfleet of Embraer 190 aircraft.
Similar to most airlines operating in Latin America, Avianca is attempting to match its supply with demand and shore up yields, even if that means sacrificing some market share, as is the case in another one of its large markets Peru.
The worsening conditions in Latin America have forced Avianca to join most of its rivals operating in the region to issue a downward revision of its EBIT margin for 2015, a discouraging sign for a company that embarked on 2015 in a seemingly better position than its rivals.
Canadian airline WestJet during 2H2015 marked the second anniversary of its regional subsidiary Encore, an airline designed to allow WestJet to tap new sources of revenue within the Canadian domestic market and flesh out its schedule to make it more desirable for the business passenger segment.
WestJet has stuck to its plans for Encore expansion, launching in Western Canada and then setting its sights on the Eastern region of the country culminating with a push from Halifax in 2015. Encore’s network composition is a mix of stand-alone stations and markets where it operates alongside mainline narrowbodies to improve schedule integrity.
Encore is fuelling at least half of WestJet’s capacity growth in 2015, and WestJet management has found itself defending Encore’s growth amid a shaky Canadian economy, stressing that the growth was justified given the regional operator’s stimulative effects. That growth continues in 2016 when Encore enters its first US transborder market, Boston.
HNA Group unit, Bohai Leasing has taken another step towards becoming a major global aircraft lessor, with the Chinese company signing a definitive merger agreement with Avolon earlier in Sep-2015.
The deal prices the publicly listed Irish lessor at USD31 per share, representing a purchase price of about USD2.6 billion. The transaction has a total enterprise value of approximately USD7.6 billion.
Bohai agreed to a modest discount to the USD32 per share commitment the parties announced when they entered an exclusive negotiating agreement in early Aug-2015. The price cut, totalling about USD82 million, is due to “significant volatility across global equity markets”, which have particularly affected markets in China. A formal agreement is due to be signed in 1Q2016.