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SilkAir is planning to upgrade its in-flight product in 2014 as the Singapore Airlines (SIA) full-service regional subsidiary starts to transition to a Boeing 737-800 fleet. SilkAir will also continue to grow rapidly in 2014 in line with the SIA Group’s increased focus on Asia.
But SilkAir has seen profitability slip in recent months as competition has intensified in the regional market within Asia. A 12% capacity increase through the first seven months of the current fiscal year has not been absorbed, resulting in a drop in load factor and clouding SilkAir’s short-term outlook.
The forthcoming product upgrade is designed to further differentiate SilkAir from LCCs and cement its position as a leading full-service regional carrier in the Southeast Asia region. But SilkAir has decided against following Cathay Pacific regional subsidiary Dragonair in improving its business class seat.
Some intrigue is surfacing around a new ultra low-cost airline that aims to debut from a base in Vancouver during summer 2014. Modelled after Spirit and the pioneer of the bare-bones business scheme Ryanair, it would arrive just as new carriers created by Canada’s dominant airlines Air Canada and WestJet hit their stride.
Founders of Canada Jetlines have recently been making the rounds among Canada’s media outlets touting their plan to operate Airbus narrowbodies to under-served and little-served markets, appealing to cost-conscious travellers with low base fares and an extensive a la carte menu that could even include a nanny service.
Given Spirit’s solid financial results since its initial public offering in 2011 and Ryanair’s consistent profitability levels, it was only a matter of time before an aspiring ULCC would sprout up in Canada. Of course the challenge is amply executing the theory that the time is ripe for the ultra low-cost model to succeed in Canada. There will also be many across the border watching closely.
A beleaguered United Airlines has outlined ambitious goals for its investors that entails an annual cost cutting scheme of USD2 billion and a pledge to begin returning cash to shareholders by 2015.
After battling operational, revenue and cost challenges during the last couple of years, United has no choice but to crystallise a plan to improve its performance in the medium term. Its target of rewarding shareholders is likely to be a competitive response to Delta Air Lines, who recently outlined plans to return USD1 billion to its shareholders during the next three years.
Additionally, United believes it can increase pre-tax earnings by two to four times during the next four years. Taken together it is tall order for a company that is still trying to deliver on its merger synergy targets. Now that United has declared those goals, the challenge is to deliver a successful execution, something that sceptics might have a right to be weary of.
Malaysia Airlines (MAS) plans more rapid expansion over the short to medium term albeit at a slower rate compared to the torrid 20% capacity growth recorded for 3Q2013. The carrier – which has been expanding its domestic, short-haul international and long-haul international operations at similar rapid clips in 2013 – will focus in 2014 primarily on regional international growth.
MAS has been able to grow passenger traffic so far this year by 28%, including a 37% jump in 3Q2013, easily outstripping the large increase in capacity. But the load factor improvements have come at the expense of yield, pushing MAS back into the red in 3Q2013.
The flag carrier hopes it can eventually improve yields across both cabins, leveraging the improvements in its product and new membership in oneworld. But the intense competition in Southeast Asia could make it difficult to achieve higher yields, clouding the carrier’s outlook.
easyJet's FY2014 pre-tax profit increased by more than 50% to its highest ever level and its operating margin returned to double digits after more than a decade at less than 10%. Its pursuit of a more passenger-focused and business-serving LCC model has driven it to improve and innovate in terms of product, with features such as allocated seating and a user-friendly website now being copied by the likes of Ryanair.
This customer focus, together with what the company has called “a benign capacity environment”, as competitors were forced to reduce seat numbers, has led to impressive unit revenue growth, while management has not lost sight of cost control. Its confidence in the future was signalled by a dividend totalling GBP308 million.
Looking into FY2014, however, the outlook for unit revenues is less certain as capacity growth steps up a little, and profits are unlikely to grow as rapidly as they did in FY2013. Nevertheless, easyJet's business model remains robust and should deliver sustained healthy returns.
International Airlines Group: 2015 target raised thanks to BA & Vueling; Iberia still has work to do
As CAPA predicted, IAG increased its operating profit target for 2015 at its recent capital markets day. This reflects better progress than previously expected at British Airways, the integration of Vueling into the group and additional growth at both BA and Vueling.
The group’s target has been raised from EUR1.6 billion to EUR1.8 billion. British Airways’ own 2015 operating profit target has been raised from GBP1.1 billion to GBP1.3 billion. This would bring BA to an operating margin in the region of its best-ever level of 10%.
The increase in the BA target, translated into EUR, is more than the increase in the group target. The implicit reduction in the Iberia target increases the pressure on its restructuring programme to create a competitive cost base. Nevertheless, the group as a whole now faces the real prospect of generating a return on capital ahead of its cost of capital.