London Gatwick Airport

British Airways: the parental favourite gets new toys, but still has homework to do

If airline groups can be thought of as families, then profitable British Airways is the strait-laced older sister of the petulant, unreliable and loss-making Iberia. BA has learnt from its hedonistic, free-spending youth and matured into the sensible, trustworthy one. Parents are not meant to have favourites, but it is clear that IAG looks on BA with a glint in the parental eye, while Iberia is constantly being scolded. IAG refuses to buy its irresponsible Spanish child any new toys until it mends its ways, while it now trusts her British sister with shiny new 787s and A350s.

Nevertheless, BA should not allow itself to feel too smug. It remains much more dependent on a single hub (Heathrow) and on a single intercontinental market (North America), but less connected to domestic and European markets than its peers. Moreover, cost benchmarking points to the need for a reduction in CASK, which it has not managed since before the merger. As any parent knows, it is not just the children that are most visibly struggling that need attention.

Ryanair: Europe's lowest cost producer wins again, reporting record profit of EUR569 million

Ryanair reported a record net profit of EUR569 million for FY2013, 13% up on last year, and its operating margin of 14.7% is comfortably the highest among European airlines. Even after returning EUR1.5 billion in cash to shareholders over the past five years, the LCC had EUR3.6 billion in cash at the end of Mar-2013, equivalent to almost nine months of sales.

Results like these, achieved in the teeth of the weakest economic backdrop in Europe for decades, underline the strength of Ryanair’s low-cost model. Already Europe’s lowest cost producer, and with relatively little scope to cut unit costs, earnings growth in recent years has been driven by the pricing power resulting from tighter capacity expansion than in the past, aided by restructuring and capacity cuts by many competitors.

These conditions should help Ryanair make progress towards its target of a 20% market share over the next five years, after which a possible order for the Boeing 737MAX may be the key to longer term earnings growth.

CAA’s price proposals for London’s airports: the battle begins as airlines go on the attack

It’s a familiar story as we approach the next five-year regulatory period for airport charges at London’s Heathrow, Gatwick and Stansted airports starting from Apr-2014. The airports seek big price increases, while the airlines want them cut and the Civil Aviation Authority (the regulator) tries to make proposals in the middle that displease both sides. A CAA-commissioned study shows that all three airports have significantly increased their realised airport charge yield over the past decade and are above the averages of their comparator airport baskets.

The CAA’s initial proposals were met on 30-Apr-2013 with immediate howls of displeasure from airline chiefs describing the proposed Gatwick price increases as “completely unjustifiable, totally unacceptable”, referring to Stansted’s “absolute pricing power” and calling Heathrow “over-priced, over-rewarded and inefficient”. For their part, the airports complained about “heavy handed regulation”, fearing that the proposals “will put passenger service at risk by not attracting the necessary investment”.

Hopes of stability in the Caribbean are dashed as its namesake carrier struggles

Caribbean Airlines’ 2010 acquisition of Air Jamaica ushered in high hopes that a strong flag carrier would finally emerge in a fragmented region where home airlines have been constantly propped up and protected by the governments. But roughly three years after the landmark deal that was supposed to seal Caribbean Airlines’ fate as the leading carrier in the market, the airline continues to be dragged down by financial challenges that are at least partially attributed to ill-advised expansion into a long-haul route with Boeing widebody aircraft and the continuing integration of Air Jamaica.

Although the carrier has reportedly indicated that it is seeing signs of a return to profitability, Caribbean is cautioning that a complete turn-around is two to three years away. As the carrier’s current plight illustrates, benefits of consolidation in the region have yet to surface as its weak performance continues unabated.

Stability has evaded Caribbean since its purchase of Air Jamaica as it endured a management shake-up in late 2010 with the abrupt resignation of CEO Ian Brunton, who held the position for a roughly a year.

Norwegian Air Shuttle: at a critical turning point

Norwegian Air Shuttle’s 2012 results confirmed its position as the Nordic region’s most consistently profitable airline and the one with the lowest unit costs. This year represents a critical turning point for Norwegian. In 2013, it will establish its first base in a major capital city outside Scandinavia (at London Gatwick) and set up a base in the highly competitive mainland Spanish market. Moreover, it will also launch long-haul routes to New   York and Bangkok. Only time will tell if 2013 proves to be the point where Norwegian turned up or turned down. This may depend on what the future holds for regional competitors SAS and Finnair.

On long-haul, it will encounter efficient competitors from much lower wage economies and well established strongly branded operators from Europe, while on short-haul it will meet embedded lower cost competitors that will not have the distraction of start-up long-haul operations. Looking further ahead, it will need more bases around Europe in order to achieve the double-digit growth rates demanded by its ambitious fleet expansion over the next decade or so. It may also need to consider recapitalising its somewhat slight balance sheet.

Asian Airlines' changing presence at London Pt 2: Emirates' virtual growth, others try Gatwick

This is the final part of a report looking at airlines from greater Asia (including the Middle East) and how they are changing the landscape of London. Latest developments include Emirates' decision to complement its five daily A380 flights between Dubai and London Heathrow with codeshares on Qantas' forthcoming double daily Dubai-London Heathrow services. This will increase frequency with flow-on effects across Emirates' mighty hub, allowing shorter connections and more seats to be filled.

Etihad, which is the smallest of the Middle East network carriers at Heathrow, has received a boost by partnering on Aer Lingus' services.

Meanwhile Air China and Korean Air are complementing their Heathrow services with organic expansion, but to Gatwick, which sees less capacity than their Heathrow flights.

MAS has increased capacity with double daily A380 flights to Heathrow while Thai Airways does not intend to deploy its A380s to Heathrow. Garuda will open a service to Gatwick with 777-300ERs and Philippine Airlines with its 777-300ERs hopes to expand to London too if the Philippines can be removed from the EU blacklist.