25-Jun-2015 7:20 PM

Caribbean airline group InselAir pursues more rapid expansion with 14 new routes from Aruba, Curacao

Analysis

Caribbean airline group InselAir is pursuing further network expansion with 14 new routes and seven new destinations in 2H2015. InselAir is launching four routes from its original Curacao base and 10 new routes from its newer Aruba base as it places into service additional aircraft.

The group has significantly expanded its Fokker 50, Fokker 70 and MD80 fleets over the last year as it has acquired eight second hand aircraft. InselAir is now planning further fleet expansion by acquiring four more Fokker 70s and one additional MD80. It is also looking at potentially acquiring several A319s, a new type which would open up new medium-haul routes including to Argentina and Brazil.

Curacao-based Insel has already become the second largest airline group in the Caribbean, having grown consistently since launching in 2006. The family-owned group is poised to continue growing rapidly as its Aruba subsidiary, which launched in late 2013, spools up and a potential third hub at Saint Maarten is established.

InselAir has added eight aircraft since Jun-2014

The InselAir Group currently serves 20 destinations and has a fleet of 19 aircraft consisting of seven MD80s, seven Fokker 50s, three Fokker 70s and two EMB110s. Eight of these aircraft have been added over the last year including one MD80, four Fokker 50s and all three of the Fokker 70s.

While all eight of the additional aircraft were acquired several months ago InselAir has been gradually placing them into service. InselAir plans to place into service the last of these aircraft by Nov-2015 as it expands its network.

InselAir Group fleet summary: as of 25-Jun-2015

Aircraft
Total:	19
Boeing/McDonnell Douglas MD-82	4
Boeing/McDonnell Douglas MD-83	3
Embraer EMB-110P1	2
Fokker F-28-0070	3
Fokker F-50-050	3
Fokker F-50-050-300	4

InselAir also set aside two of the additional Fokker 50s and one Fokker 70 as spares, which improves the group's reliability but has resulted in smaller capacity increases as the fleet has expanded. Utilisation of the Fokker 70s, which were acquired from KLM in 2014, also has been lower than expected as the group has faced delays in securing approvals for planned new routes, in particular to Quito, Ecuador.

The group currently offers about 32,000 weekly seats, according to CAPA and OAG data. This represents capacity growth of only about 3% compared to the 31,000 weekly seats in Jun-2014. But InselAir is planning to boost capacity significantly in Jul-2015 as it launches seven new routes.

InselAir's projected seat capacity for the end of Jul-2015 is about 36,000 weekly seats, which will make it the second largest Caribbean airline group after Caribbean Airlines.

Top five Caribbean airlines/groups ranked by seat capacity: 27-Jul-2015 to 2-Aug-2015

Rank	Airline	Bases	Total Seats
1	Caribbean Airlines	Trinidad, Jamaica	81,870
2	InselAir	Curacao, Aruba	36,047
3	Air Caraibes	Guadeloupe, Martinique	35,832
4	Cubana de Aviacion	Cuba	32,449
5	LIAT	Antigua, Barbados	31,044

InselAir to offer 180 city pairs by end of 2015

Capacity will be increased further in Nov-2015 as six new routes are launched. InselAir is also launching one new route in Aug-2015.

InselAir CEO Albert Kluyver told CAPA at the 8-Jun-2015 IATA annual general meeting in Miami that the group plans to end 2015 with 27 destinations. The group plans to operate non-stop flights to 22 destinations from Curacao and 19 destinations from Aruba in its Nov-2015 schedule. InselAir currently serves 18 destinations from Curacao and nine from Aruba.

The group, which relies heavily on transit traffic, plans to offer 180 city pairs by the end of 2015 compared to 122 at the end of 2014. The nearly 50% increase in city pairs is driven partially by the network expansion as well as by schedule improvements which are designed to facilitate connections.

InselAir already has the largest network among Caribbean airline groups and has carved out a niche providing new or quicker connections linking points in northern South America with the Caribbean as well as within the Caribbean. The group sees further growth opportunities as it continues to open up new and faster connections in a part of the world that has traditionally required long circuitous journeys to travel between two points.

InselAir CEO Albert Kluyver discusses InselAir's role connecting the Caribbean and efforts to reduce taxes on flights within the region: Apr-2015

InselAir to launch seven new routes in July

InselAir plans to launch services in Jul-2015 from Aruba to San Juan in Puerto Rico, Medellin in Colombia, Saint Maarten in the Dutch Antilles and Santo Domingo in the Dominican Republic. From the Curacao hub InselAir plans to launch in Jul-2015 services to Havana in Cuba, Manaus in northern Brazil and Puerto Ordaz in Venezuela.

Most of the new routes will be initially served with two weekly frequencies using the newly expanded Fokker 70 fleet. Puerto Ordaz will be served with two weekly MD80 flights.

Havana, Puerto Ordaz and San Juan are new destinations for the InselAir Group. InselAir plans to also serve Havana from Aruba starting 15-Aug-2015.

Manaus is already served from Aruba while Medellin, Santo Domingo and Saint Maarten are already served from Curacao.

InselAir to add another six routes in November

In Nov-2015 InselAir plans to launch another six routes including Punta Cana from both Aruba and Curacao. From the Aruba hub the group also plans to launch services to Barranquilla, Bucaramanga and Cali in Colombia and Quito in Ecuador. Again almost all these routes are expected to be launched using Fokker 70s.

Bucaramanga, Cali, Punta Cana and Quito are new destinations for the group, giving InselAir a total of seven new destinations for 2H2015 when including Havana, San Juan and Puerto Ordaz. None of the new routes are currently operated by any other carrier, according to OAG data.

InselAir current and planned new destinations

Destination	Airport code	Curacao Hub	Aruba Hub	Non-stop competition
Curacao	CUR	N/A	Existing	None
Aruba	AUA	Existing	N/A	None
Bonaire	BON	Existing	Existing	None
Barquisimeto	BRM	Existing	No	None
Caracas	CCS	Existing	Existing	From both hubs
Las Piedras	LSP	Existing	No	None
Maracaibo	MAR	Existing	Existing	From both hubs
Valencia	VLN	Existing	Existing	From both hubs
Medellin	MDE	Existing	Launches 1-Jul-2015	None
Charlotte	CLT	Existing	No	None
Miami	MIA	Existing	Existing	From both hubs
Kingston	KIN	Existing	No	None
Port Au Prince	PAP	Existing	No	None
Paramaribo	PBM	Existing	Existing	From Aruba
Santo Domingo	SDQ	Existing	Launches 1-Jul-2015	From both hubs
St Maarten	SXM	Existing	Launches 1-Jul-2015	None
Baranquilla	BAQ	Existing	Launches 15-Nov-2015	None
Port of Spain	POS	Existing	No	From Curacao
Georgetown	GEO	Existing	Existing	None
Manuas	MAO	Launches 3-Jul-2015	Existing	None
San Juan*	SJU	No	Launches 2-Jul-2015	None
Havana*	HAV	Launches 3-Jul-2015	Launches 15-Aug-2015	None
Puerto Ordaz*	PZO	Launches 15-Jul-2015	No	None
Bucaramanga*	BGA	No	Launches 15-Nov-2015	None
Cali*	CLO	No	Launches 15-Nov-2015	None
Punta Cana*	PUJ	Launches 15-Nov-2015	Launches 15-Nov-2015	None
Quito*	UIO	No	Launches 15-Nov-2015	None
TOTALS		18+4=22	9+10=19	12

Of the 41 routes InselAir is expected to operate from the Aruba and Curacao hubs by the end of 2015, there are other airlines operating non-stop services on only 12.

The group also currently operates some non-stop flights from Saint Maarten to Port au Prince and Santo Domingo, which will give it a total of 43 scheduled routes. There are currently no other airline operating non-stop flights on these two routes, according to OAG data.

InselAir adds back capacity in Venezuela

Venezuela had traditionally been InselAir's largest market and currently accounts for 24% of its current seat capacity. But InselAir has cut capacity over the last year due to the Venezuelan currency crisis, which has prompted virtually every foreign airline serving the country to cut flights or pull out entirely.

InselAir Curacao currently has about 2,600 one-way seats to Venezuela, which represents a 15% reduction compared to a year ago.

Curacao to Venezuela capacity by carrier (one-way seats per week): 19-Sep-2011 to 6-Dec-2015

The reduction to Venezuela explains why the group's total seat capacity is up only by about 3% over the last year despite the overall expansion of InselAir's fleet and network. The sharp increase in the group's total capacity levels in Jul-2015 is driven partially by adding back some capacity in Venezuela as well as by adding six new non-Venezuela routes.

While InselAir adjusted capacity to Venezuela during the low season in response to reduced local demand capacity it expects demand to recover for the high season, which runs from 20-Jul-2015 to 20-Sep-2015. InselAir will be back up to 3,400 weekly one-way seats in the Curacao-Venezuela market in late Jul-2015, according to CAPA and OAG data. The economic situation in Venezuela appears to be stabilising as Venezuelans gradually start to get accustomed to paying for flights in USD.

The expansion includes the launch of services to Puerto Ordaz, which will become InselAir's sixth destination in Venezuela on 15-Jul-2015. But essentially Puerto Ordaz replaces La Romana, which was recently dropped.

InselAir to expand in Colombia

Colombia is a more attractive market for expansion as it is politically stable and has one of the fastest growing economies in Latin America. InselAir currently only has about 800 weekly seats in the Colombian market, making it one of its smaller markets.

InselAir's network in Colombia is poised to double in Nov-2015 as Bucaramanga and Cali are added. InselAir is also adding capacity to its two existing Colombian destinations, Barranquilla and Medellin, by adding new flights from Aruba to supplement existing services from Curacao.

InselAir does not serve the Colombian capital Bogota but sees opportunities in underserved secondary markets. In Bucaramanga it will become only the second carrier with international services after Copa, which serves Bucaramanga from Panama City.

InselAir is quietly developing a network that is similar but much smaller than Copa, connecting cities such as Bucaramanga with destinations throughout the Caribbean as well as the US. Secondary cities in Venezuela as well the main cities in smaller Guyana and Suriname are similarly underserved, leaving an opening for a niche player such as InselAir.

InselAir finally ready to launch services to Ecuador

Quito will be InselAir's first destination in Ecuador. The group has been planning to launch services to Quito for two years and in early Jun-2015 was finally able to secure approvals from Ecuadorean authorities.

Aruba-Quito is a relatively long (about 1,700km) and thin route which InselAir sees as ideal for its newly acquired fleet of Fokker 70 regional jets. The Fokker 70 fleet has so far been underutilised in part due to the delays in securing approvals for the planned Aruba-Quito route.

According to OAG data, the group is currently only using the Fokker 70 on five routes including Curacao-Port of Spain (Trinidad), Curacao-Manaus, Curacao-Georgetown (Guyana), Aruba-Georgetown and Aruba-Paramaribo (Suriname). All of these routes are only served with two or three weekly flights.

As a result Fokker 70 flights only currently account for about 6% of the group's total seat capacity. InselAir's utilisation of the Fokker 70 should more than double as most of the new routes planned for 2H2015 will be operated with Fokker 70s.

InselAir plans to acquire four more Fokker 70s and one more MD80

Mr Kluyver told CAPA that the group is now discussing acquiring four more Fokker 70s from KLM. Two of the aircraft could be delivered in early 2016 and two more in early 2017. This would give InselAir the capacity to continue expanding its regional network.

Mr Kluyver said the group is also planning to acquire one additional MD80 series aircraft, which would give it eight of the type. But he said this aircraft would not be used to expand scheduled services but instead be used for new charters between Miami and Cuba which are expected to be launched in 3Q2015.

InselAir is not currently looking at expanding its MD80 scheduled operation but is planning to reconfigure its MD80 fleet to incorporate a business class. Mr Kluyver said the group will introduce an eight-seat business class cabin on its MD80s as it sees demand for a premium product. All of the group's aircraft are in single-class configuration although InselAir offers an extra legroom product at the front of its MD80s and Fokker 70s.

InselAir looking to acquire A319s

To meet its requirement for additional narrowbody aircraft InselAir is now studying A319s. The value of A319s have come down considerably, making them attractive to airlines that have traditionally been opportunistic acquirers of second hand aircraft such InselAir and US leisure carrier Allegiant Air.

InselAir is interested in the A319 as it offers significantly improved range over the MD80. Mr Kluyver pointed out that with the A319 InselAir can cover all of the Americas from its Aruba and Curacao hub. "It will be a good aircraft for us in future," he said.

The group particularly is keen to use the A319 to open up routes in southern Brazil and Argentina. InselAir now only serves Manaus in northern Brazil as it does not have the aircraft to reach the main cities of Sao Paulo or Rio de Janeiro.

Argentina and Brazil are large and growing source markets for the Caribbean tourism sector. There are also opportunities for InselAir to tap into new sixth freedom markets such as Argentina and Brazil to other parts of the Caribbean and the US. InselAir already carries a large number of transit passengers to the US from Venezuela and to a lesser extent from Colombia, Guyana and Suriname. The group currently only serves Miami and Charlotte in the continental US but the A319 could open up routes deeper into North America.

Without a new aircraft type network development opportunities could start to become limited as most of the potential short-haul routes will be served by the end of 2015. Only two of the group's current routes are more than three hours long.

InselAir Curacao seat capacity by length of flight: 22-Jun-2015 to 28-Jun-2015

InselAir Aruba seat capacity by length of flight: 22-Jun-2015 to 28-Jun-2015

With the A319 several new destinations that are four to six hours from the Dutch Antilles will become possible, opening up a range of new network opportunities. With feed from new destinations such as Buenos Aires and Sao Paulo, InselAir should also be able to support more new regional routes or increased frequencies on existing routes.

InselAir has an approximately equal number of destinations in South America and the Caribbean as well as two destinations in North America. It will likely try to maintain this balance as it expands deeper into South America.

Aruba has driven InselAir's recent growth

The Aruba base has accounted for most of the group's growth since it opened at the end of 2013. Mr Kluyver said Aruba should account for 200,000 to 250,000 of the group's projected 1.3 million passengers in 2015.

The Aruba hub handled about 95,000 passengers in 2014. The group carried 1.14 million passengers in 2014, representing 13% growth compared to 2013. Aruba accounted for 70% of the total growth in 2014 and is projected to account for 73% of the growth in 2015.

Only three of the group's aircraft, all MD80s, are currently registered under the InselAir Aruba operating certificate. But the group is operating some of the Fokker 70s from Aruba although all these aircraft are registered in Curacao.

The entire turboprop fleet is also based in Curacao although these aircraft are used to operate shuttle flights between Curacao and Aruba, which is by far the group's largest route. The Curacao-based carrier also operates one daily Fokker 50 flight between Aruba and Bonaire, which is the third and smallest island in the ABC group of islands. Curacao-Bonaire is the group's second largest route after Curacao-Aruba.

InselAir is well placed to continue growth trajectory

InselAir has been able to register double-digit passenger growth every year since it was established in 2006. Growth has been in the 12% to 14% range the last three years. Growth in the initial years was much faster but on a very small base.

InselAir Group annual passenger traffic: 2010 to 2015*

To continue its rapid growth trajectory the group will need to eventually establish a third hub. InselAir is keen to develop a portfolio of regional airlines and has been exploring opportunities in other parts of the Caribbean. As CAPA previously highlighted, Saint Maarten, which is also part of the Dutch Antilles, is the most likely location for a potential new subsidiary.

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InselAir already has a mini-hub at Saint Maarten with flights to Curacao, Port au Prince, Santo Domingo and soon Aruba. The group expects the Saint Maarten mini-hub to handle about 44,000 passengers in 2015 compared to about 37,000 in 2014. An operating certificate in Saint Maarten would enable the launch of several new routes, similar to the expansion now being pursued in Aruba.

The group has ample opportunity to expand in Aruba as it currently only accounts for a 10% share of seat capacity at Aruba. InselAir now has a similar approximately 9% share of seat capacity at Saint Maarten, according to CAPA and OAG data. In comparison it already has a more than 50% share at Curacao and more than a 60% share at Bonaire, a tiny market which is too small to support a hub.

But InselAir has been careful not to pursue overly ambitious expansion. Buying second hand aircraft has given it the flexibility to add flights when market conditions are favourable and be patient when it faces regulatory delays in trying to launch new routes or establish new subsidiaries.

The Aruba project took nearly two extra years to get off the ground and InselAir will patiently wait for the right environment before launching a third carrier. In the meantime there are still opportunities to expand in Aruba and to a lesser extent Curacao.

The group has quickly positioned itself as a leader in the challenging Caribbean market. InselAir is well placed to leverage this position as its network expands by 50% over the next few months.