- Global: +2.9% capacity, +1.9% scheduled services year-on-year;
Global seat capacity up 2.9% in Jan-2012: OAG
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United Airlines’ moves in New York reflect the heightened competition in the US transcon market
United’s decision to drop its premium transcontinental service from New York JFK to Los Angeles and San Francisco reflects a significant shift in the product proposition in those markets during the last few years, and more broadly, is a reflection of a trend spurred by consolidation of the large US airlines leveraging strength at their largest hubs. In this case, United aims to capitalise its dominance at Newark rather than flight a losing battle at an airport where it has little concentration.
All the airlines in the New York transcontinental market with the exception of Virgin America have overhauled their product offering to cater to the important business passenger base on those routes. JetBlue has arguably been a market disruptor, both through its high quality Mint premium offering and its added capacity on those routes.
The shift is underpinned by a proposed slot swap between United and Delta at JFK and Newark, which is subject to regulatory approval by a government that could view the swap negatively, and insist that other airlines should gain slots to preserve competition.
Air Canada and WestJet maintain supply growth targets as unit revenues trend down
Canada’s two major airlines have adopted divergent - but ultimately converging - paths during the last few years to lay the foundation for expanding margins and ensure sustained positive financial results. WestJet has opted to create a product mix to attract a higher percentage of business travellers while attempting to avoid alienating its core cost conscious customer base. Air Canada has decided to increase its reach among leisure passengers.
Overall, each airline’s respective strategy appears to be paying off in the form of solid returns, margin expansion and increased profitability. But both airlines in the short term are facing unit revenue and yield pressure for different reasons.
Similar to most US airlines, WestJet and Air Canada continue to deliver strong top-line results even if unit revenues remain under pressure. But if oil prices, which are slowly ticking upwards, suddenly start to rapidly rise, Canada’s airlines may need to revisit their capacity projections as overall supply in some regions is exceeding GDP growth.