United Airlines

Heathrow Airport's slot machine: hitting the jackpot again?

British Airways now holds more than 50% of the slots at capacity-constrained Heathrow, thanks to its bmi acquisition. Nevertheless, BA had managed to grow its holding for years, mainly due to secondary slot trading. After years of uncertainty over its legality in EU law, the EU clarified its position in 2008 and allowed the practice. It went on to commission a 2011 study which concluded that slot trading had clear beneficial impacts at Heathrow.

In this report, CAPA analyses the small proportion of the total number of Heathrow slot trades where slot values have been reported in the media and elsewhere. For many years until the mid 2000s, the average traded value per daily slot pair calculated from such transactions was around GBP4 million. A series of trades at more than GBP20 million per pair captured headlines in 2007 and 2008 before the market went underground. Surprisingly, after such a long quiet period, 2013 has seen two deals valuing Heathrow slots at GBP15 million per daily pair.

Aer Lingus looks to partnerships and new smaller aircraft across the Atlantic for long-haul future

Having gone through a restructure in recent years, Aer Lingus is now focusing on growth, organic and virtual, CEO Christoph Mueller stated on the sidelines of CAPA's Airlines in Transition conference in Dublin. Long-haul of course is the focus for a European carrier given its profitability, and Aer Lingus is looking to expand frequency and overall capacity in North America by using smaller aircraft than the carrier's all-A330 long-haul fleet. Aer Lingus will target new destinations as well as look for where it can gain synergies with key codeshare partners JetBlue Airways and United Airlines.

Ireland's geography makes it a conducive hub for North America-Europe flights, but less so for flights east of Europe. Asia and Australia are home to a large but diverse Irish diaspora, which Aer Lingus will actively target for the first time through its partnership with stakeholder Etihad Airways. These destinations are locations Aer Lingus could not and would not be able to serve independently. Aer Lingus is also looking to leverage its low operating cost and seasonal demand by expanding its wet-lease portfolio, which includes short-haul flights for Virgin Atlantic and long-haul flights for Novair.

United stands in the unenviable position of trying to regain corporate share as demand softens

After battling integration challenges that derailed its operations during the northern hemisphere summer of 2012, United Airlines faces the difficult task of attempting to recapture corporate customers lost during that time. Meanwhile the carrier is attempting to control its climbing costs, which increased 11% on a unit basis during 1Q2013.

As its legacy peers Delta and US Airways recorded profits during 1Q2013, United bled USD325 million during the quarter. Factoring in special charges the carriers recorded a USD417 million loss for the first three months of 2013.

Top-line revenues grew just 1.4% to USD9 billion as expenses grew at nearly the same rate, increasing 1.3% to roughly USD9 billion.

American answers Delta’s expansion in Los Angeles with its own new push from LAX

American Airlines is joining its US legacy rival Delta during 2013 in making a push from Los Angeles International Airport, a strategic but highly fragmented market where no one carrier holds a dominant, commanding position. Presently United has a marginal edge over its two rivals in terms of seat share, but it appears that American and Delta are aiming to close that gap by adding new service from Los Angeles throughout the year.

Unlike Delta, which is launching service to some already-crowded markets from Los Angeles, American appears to be undertaking a different strategy, introducing service in markets served by only one other carrier. In some instances the only other competitor is Allegiant Air, which is a low-frequency operator whose business model is not built on competing with other airlines based on schedules. In other markets Delta is American’s lone competitor, introducing an interesting set of competitive dynamics into the Los Angeles market.

American and US Airways likely to see little competitive change in their overlap markets

American and US Airways are pressing full steam ahead to close their merger by 3Q2012, including stressing to US legislators that the combination will improve the overall health of the country’s airline industry and make the merged airline a more viable competitor with legacy and low-cost carriers alike. With just a dozen routes that overlap, the carriers should not encounter any resistance from anti-trust authorities, and given that most the markets are hub to hub pairings, few changes are likely to be made to service patterns once the 18 month integration process is complete.

Some of the arguments made by American and US Airways over increasing competition from low-cost carriers and their potential service expansion into overlap markets might be overblown as those airlines in previous mergers have been selective in grabbing the low hanging fruit created by the tie-ups between Delta-Northwest, United-Continental and Southwest-AirTran.

For trans-Atlantic airlines, JV benefits are less than obvious as they mature. A US perspective

SkyTeam partners Air France-KLM, Alitalia and Delta are approaching the fifth anniversary of the launch of their immunised trans-Atlantic joint venture. But the major strategic moves by those airlines during the last year were squarely outside that umbrella, as Air France warmed to the Gulf carriers through its new partnership with Etihad, and Delta moved to improve its position in the London Heathrow market through an equity stake and partnership with Virgin Atlantic.

Star joint venture partners Air Canada, Lufthansa and United have been preoccupied throughout most of the last year with getting their own respective houses in order and have done little publicly to play up any advantages they are enjoying through their business partnerships. oneworld joint venture partners American Airlines and sister carriers British Airways and Iberia have been equally distracted with Chapter 11 restructurings, mergers and strikes – and meanwhile, Qatar Airways has been welcomed into the fold, further complicating the evolution of the global alliances.