Chicago O'Hare International Airport

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.

Delta remains bullish on foreign investments strengthening its bottom line but cost creep is a worry

Delta Air Lines in 2013 aims to narrow competitive network gaps with its US legacy rivals through the maturation of its cross-border investments in Aeromexico and Gol while laying the groundwork to strengthen its dominance in the strategic New York market. This after unveiling plans in Dec-2012 to bolster its position at London Heathrow through an equity stake in Virgin Atlantic.

As its major competitor United embarks on 2013 still in the throes of merger integration, and with a strong likelihood that American and US Airways will begin the complex process of combining their respective networks this year, Delta will continue to enjoy the revenue benefits of its long-ago completed merger with Northwest.

But Delta also has its own set of challenges to overcome including a spillover from 2012 of unit cost creep and proving to sceptics that its recently purchased oil refinery will live up to expectations. At the same time Delta’s stock price continues to underperform its peers, which could mean the airline still has to convince investors that its three-year profit streak has staying power.

Spirit assures opportunities abound to stimulate traffic in the US market

US ultra low-cost carrier Spirit Airlines believes consolidation among the country’s major carriers and larger low-fare airlines continues to create opportunities for niche players to fill service gaps created by the four mergers that have occurred in the industry since 2005. The airline remains so bullish on its growth prospects domestically that it is growing capacity during 2013 by 18% to 22%, a growth rate the carrier aims to maintain through 2015. But Spirit could face hurdles in maintaining that explosive growth as its unit costs continue to climb, and its continued penetration of the top US markets will also inevitably slow as the opportunities for exploitation shrink.

After turning its focus away from building up a strong presence in the Caribbean and Latin America from its Fort Lauderdale hub, Spirit during the last couple of years has set its sights on the domestic market, making a push into legacy strongholds under the premise that it can charge ultra low fares and stimulate low-yielding traffic that most other airlines would choose to abandon.

Gulf carriers turn their attention to the US to fuel their continued rapid growth

The big three Gulf carriers are turning to expansion in North America to round out their global networks that have largely focussed on Europe, Africa and Asia during the last few years. Emirates is leading the charge through the introduction of three new US cities during 2012, which will result in the carrier holding onto its leading position in the US-Middle East market. But its rivals Etihad Airways and Qatar Airways are not sitting idle as they develop plans to broaden their respective US footprints during 2013.

Shifting their attention to the US is a natural progression for Emirates, Etihad and Qatar as the Americas are the least served regions in each carrier’s network. Now that those carriers have a well-established and firm footing in other key global markets, and as they bolster their fleets with more efficient long-haul aircraft, opportunities are emerging for expansion beyond their traditional growth patterns.

WestJet continues to be the strongest player in Canadian aviation

Calgary-based WestJet continues to outshine legacy rival Air Canada as the low-cost carrier appears to be excelling in every facet of its business. Recent high-profile launches in the US transborder business markets of New York and Chicago are furthering the carrier’s push to expand its ranks of business passengers, and a partnership with Delta on connections through New York will bolster WestJet’s goal of enlarging its presence in the US transborder markets. At the same time, communities are continuing their lobbying efforts to secure WestJet’s low fare brand to their regions in the hopes of either gaining improved air access or introducing rationalised pricing on monopoly routes. All this is occurring as WestJet reported significant traffic growth of 7.2% in May-2012 compared with 1.8% growth at larger rival Air Canada.

WestJet made pivotal moves beginning in May-2012 when it launched flights from Vancouver and Calgary to Chicago O’Hare followed by the Jun-2012 debut of flights in the high-yielding business market of New York-Toronto.

Steady demand fuels strong revenue performance for Canadian carriers in first quarter

Favourable demand trends helped Canada’s two main carriers record strong unit revenue performance year-over-year during 1Q2012. But the similarities end there as WestJet recorded a profit of CAD68.3 million (USD68.6 million) while Air Canada widened its loss from CAD19 million (USD19.1 million) to CAD210 million (USD210 million) year-over-year as its fuel expense grew by CAD147 million (USD147.7 million). Both carriers face challenges heading into the rest of year as WestJet has revised its cost guidance upwards and Air Canada continues to manage the fallout from its prolonged labour strife.

WestJet’s 6% growth in passenger unit revenues beat the carrier’s own forecast as CEO Gregg Saretsky explained the revenue growth allowed WestJet to fully recover the 19.6% rise in fuel costs the airline recorded year-over-year.

Total revenue at WestJet increased 15.3% during 1Q to CAD891 million (USD895.2 million) as yields increased 4.8% on a 8.8% rise in supply.