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Air cargo: few other industries would tolerate its structural overcapacity

22-Oct-2014 5:48 PM

IATA's most recent air freight market analysis, published 1-Oct-2014, said "The outlook for air freight markets has started to look better again", but it added that "the extent of future gains could be limited". IATA cautioned that trade volumes are expanding at a slower pace than global economic growth and that gains in business confidence have been slow due to the presence of political and economic risks. Recent concerns in the financial markets about the outlook for global economic growth add to this note of caution about future air cargo demand.

However, air cargo faces much more fundamental problems. It accounted for just 8.6% of total airline industry revenue in 2013, down from 12.4% a decade earlier. Freight load factor was just 45.3% in 2013, compared with almost 80% for the passenger business.

Very few other industries would tolerate such a degree of overcapacity. Perhaps the approach of many LCCs - to ignore cargo - is the right one.

TAP Portugal Part 1: the national carrier needs privatisation to tap fresh capital

10-Oct-2014 8:12 PM

Portugal is widely expected to relaunch the privatisation of TAP Portugal before the end of 2014, possibly offering a 49% stake and a management contract. It is likely to seek assurances on issues such as the retention of TAP's Lisbon hub and connectivity with the Azores.

Although debt is falling, TAP needs fresh equity to increase its fleet expansion options. The privatisation must ensure that the airline, and not the government, benefits from external investment. Through operating leases, TAP has grown its fleet in 2014 (the first time since 2010), but its first Airbus A350 deliveries had to be pushed out to 2017 from 2015.

The delay since the first attempt at privatisation has allowed for some improvement in financial results, but the TAP Group remained in loss at the net income level in 2013 and in 1H2014. Selling or closing loss-making activities such as the Brazil Maintenance division may help the privatisation. In this first part of our analysis, we review TAP's financial track record.

In Part 2, we will look at TAP Portugal's competitive position and its appeal to potential bidders.

CAPA Airport Traffic Database tops 1,000 airports. Asian/BRIC airports dominate growth charts

9-Oct-2014 7:05 PM

CAPA’s Airport Traffic Database, one of the eight components of the Airport Data Suite, now has monthly and annual data for over 1000 airports worldwide.

Specifically, the database has monthly traffic data for 1030 airports and annual data for 1265 airports, to add to the 200 (monthly) and 275 (annual) airlines data, traffic data for 15 countries, and tourism statistics for 27 countries that are held separately. These numbers increase daily as CAPA sources and adds additional airport statistics.

This report considers some of the features and benefits of the CAPA Airport Traffic Database by reference to examples.

Croatia Airlines Part 2: Privatisation will require finding bidders with a strategic motive

8-Oct-2014 7:32 PM

In the first part of our analysis of Croatia Airlines, we examined its finances and highlighted an improving trend. The Croatian government's attempts to find a buyer for a 49% stake in the airline met with insufficient interest in 2013, but it is easier to sell a business where there are clear signs of profit returning than it is to sell a perennial loss-maker.

The potential privatisation has come back onto the agenda.

However, airlines rarely make a good investment on purely financial grounds and Croatia Airlines' prospects are likely to depend on finding a bidder with a strategic interest.

This second report looks into Croatia Airlines' network and market position and considers their possible appeal.

Virgin Atlantic SWOT. Little Red's demise further re-emphasises the Atlantic and the Delta ownership

7-Oct-2014 3:06 PM

The decision by Virgin Atlantic Airways (VA) to close its fledgling UK domestic operation Little Red in 2015 came as no surprise. Its load factor in the 12 months to Jun-2014 was less than 42% and, although the trend was improving, this was clearly not sustainable. In spite of the likely losses at Little Red, VA said last month that it was on target to deliver an annual profit by the end of 2014, which would be its first in four years.

Historically an exclusively long-haul point to point carrier, it seems that it does not need to try to generate its own feed through loss-making short-haul activity.

This development comes as VA is set to take delivery of its first Boeing 787 Dreamliner. It also follows recently announced changes to the airline's long-haul network that will see it increase its already sharp focus on the part of the world that is included in its name - the Atlantic - and the US where its 49% owner, Delta resides. In this report, we consider Virgin Atlantic's main strengths, weaknesses, opportunities and threats.

Croatia Airlines' privatisation is back on the agenda, helped by restructuring and return to profit

5-Oct-2014 2:00 PM

Croatia Airlines celebrated its 25th anniversary this summer, after reporting a return to profit in 2013 and a narrowing of losses in the seasonally weak first half of 2014. It also underwent a recapitalisation in 2013 and the Croatian government now appears to be ready to restart the on-off privatisation of the airline.

Potential acquirers will be encouraged by the improving profit trend, driven mainly by cuts in unit costs (CASK). However, Croatia Airlines still has one of the highest levels of CASK in Europe.

Moreover, the balance sheet may be out of intensive care after the recapitalisation, but it is in need of further strengthening, given that the airline has four Airbus A319s due for delivery in 2015 and is considering a further order of aircraft to fill the gap between its Airbus fleet and its Bombardier Q-400s.

In this first of two reports, we analyse Croatia Airlines' finances and its track record of unit revenue versus unit cost. This analysis will be followed by a second report looking at its network and market position.

UK air transport policy post-Scotland vote; 'devolution' could reshape previous aviation plans

1-Oct-2014 3:00 PM

UK aviation policy may well be substantially changed in the wake of the 18-Sep-2014 vote on the independence of Scotland, even though Scotland remains part of the UK. In this report we speculate on some of the possible aviation outcomes.

Roughly 55% of the electorate voted against independence versus 45% for, although four of 32 areas did vote in favour, including the biggest city, Glasgow. But that decision has hardly settled the matter; indeed the process of electioneering has opened up a Pandora’s Box of issues that possibly threaten the 307 year old Union even more than Scottish independence alone would have done. As ever, aviation will be dragged into the melee.

One thing now apparent is that there are no longer any certainties and that the Airports Commission especially needs to be aware, at a critical moment in its deliberations, of the many new forces at play - and the potential new scenarios.

Wizz Air: growing at 15% annually, one of Europe's most profitable airlines "not desperate" for IPO

19-Sep-2014 3:47 PM

Wizz Air CEO Josef Varadi told a recent meeting of the Aviation Club in London that he ran a very disciplined airline. "We never grow for growth's sake", he said, explaining that the airline had clear financial targets and that growth was an output from this process.

Earlier this year, Wizz Air pulled out of a planned initial public offering (IPO) of its shares, which would have seen it floated on the London Stock Exchange. Investor appetite was dulled by geopolitical issues, a fuel price spike and profit warnings from other airlines, rather than any problems at the airline itself. Indeed, its most recent accounts show that it is now one of Europe's most profitable airlines, with significant cash reserves. An IPO could come back onto the agenda, but, Mr Varadi said, "we are not desperate".

Its results have not always been strong in the 10 years since its 2004 launch, but our analysis of its accounts suggests that it is now on a firm footing, supporting Mr Varadi's claim that "financial performance is at the core of the airline – we are not doing it for charity".

SAS Scandinavian Airlines: 3Q profits down as yield weakness continues at Europe's high cost airline

12-Sep-2014 4:41 PM

Another quarter, another fall in yield for Scandinavian Airlines, SAS. The Nordic region's largest airline reported a year on year decline in profits in 3QFY2014 and a fall into loss for 9M. It has made good progress with its cost reduction programme, but costs are not falling fast enough to offset tumbling yields and SAS remains one of Europe's highest cost airlines.

Healthy load factor gains demonstrate that SAS has some appeal to the Scandinavian frequent flyers that it desires, but price discounting remains a key feature of this appeal. Overcapacity in its markets has contributed to yield weakness, but its many LCC competitors are better positioned to provide the lower fares demanded by the market. In spite of some easing of the supply/demand imbalance, SAS expects continued yield pressure.

SAS' number one priority is an additional cost reduction programme, full details of which will be announced by the end of 2014.

Cyprus Airways: investor needed as market share evaporates

9-Sep-2014 6:44 PM

The government of Cyprus is currently assessing the expressions of interest it has received in connection with its controlling stake in the national carrier Cyprus Airways. The highest profile potential bidders are Ryanair and Aegean Airlines, who also happen to be the two most profitable European airlines in the first six months of calendar 2014.

For the outside observer, up to date analysis of Cyprus Airways' financial performance is not possible. Nevertheless, our previous analysis suggested that its unit costs were higher than those of its main competitors in the Cyprus market and it is unlikely that this situation has fundamentally changed. Moreover, its share of seats at its Larnaca base and in Cyprus overall is continuing to flow to others.

The sale of the airline could be its last chance of survival, although potential buyers may be tempted to use the process to find out as much as possible about an ailing competitor before letting it wither.

Aegean Airlines Group benefits from Olympic Air integration with a strong 1H2014 profit increase

5-Sep-2014 8:00 PM

Aegean Airlines Group has continued to build on 2013's record profit with a more than doubling of its 1H2014 net profit (based on proforma figures that include Olympic Air in the prior year results). Although unit revenue (RASK) fell in 1H2014, reversing the positive trend of the previous two years, it succeeded in cutting unit cost (CASK) at a faster rate.

Aegean's 1H2014 operating margin of 6.0% makes it one of Europe's most profitable airline groups so far this year. The acquisition of Olympic in Oct-2013 appears to be providing benefits in the form of cost synergies and improved network feed, apparently without significantly distracting management attention.

Nevertheless, the competitive landscape is unlikely to become more hospitable as competitors such as Ryanair expand in Greece. In addition, geopolitical risk in Russia, one of Aegean's most important markets, is likely to add to pressure on RASK in 2H2014.

Aeroflot Group suffers first 1H net loss in many years as geopolitical backdrop starts to show

4-Sep-2014 3:00 PM

The Aeroflot Group fell into loss in 1H2014, its first 1H loss since at least 2008. Although the result was affected by a significant level of non-recurring expenses, the underlying operating result was still significantly lower than last year. Aeroflot continues to grow faster than the Russian market and its focus on increased frequencies, rather than new routes, has helped the Group to grow its RASK (revenue per available seat kilometre). Unfortunately, this growth in RASK was outpaced by growth in CASK (cost per available seat kilometre).

The current geopolitical backdrop is clearly providing Aeroflot with some serious challenges. Demand for international flights has been weakened and EU sanctions forced the suspension of operations of Aeroflot's nascent LCC Dobrolet. Plans by the Russian government to reduce its stake in Aeroflot to 50% plus one share may now meet with delays as investors are likely to want to wait for the geopolitical situation to become more stable.

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