See below the list of current and pending members of the Global Alliances.
A new government in New Delhi since May-2014 has brought heightened expectations of faster GDP growth, industry reforms and enhanced transparency. But with an entirely new team leading the Ministry and most of the government agencies involved in aviation, there is a lack of experience at the top. It will therefore take some time for the key decision-makers to grasp the complexity of the situation.
A clear roadmap is yet to emerge on the Indian government’s proposed institutional framework, a strategy for Air India and the Airports Authority of India, and the intended policy settings on critical issues such as bilaterals, economic regulation and route dispersal guidelines. However, indications are that the government will push ahead and abolish the five year/20 aircraft threshold for international operations, airport privatisation, construction of low-cost airports and corporatisation of air navigation services.
The Aviation Minister has also been encouraging state governments to reduce the onerous sales tax on aviation turbine fuel which currently averages 24%. This would be the single greatest benefit that the government could deliver to the industry.
Once rejected by global alliances, Etihad Airways has turned around and established its own partnership platform, "Etihad Airways Partners". Partners has familiarity to existing alliances: commercial relations are emphasised, there are frequent flyer benefits and aircraft will have the Partners logo.
But Partners is not simply a de facto fourth global airline alliance. Etihad is starting small with six members. This view requires Etihad's standard disclaimer that it seeks not to be the biggest but to have the highest quality.
Partners in some ways is a branding of what Etihad has already done, and plans to continue to do, in the loyalty space. Consolidating loyalty programmes reduces costs while providing scale.
United Airlines continues its efforts to close the gap with peers after posting solid 3Q2014 results
United Airlines admits there is still much work ahead to close the gap with its large network airline peers in key metrics such as margin performance. But efforts United has undertaken to improve its revenue performance showed promise in 3Q2014 as it out-performed its peers in passenger unit revenue growth.
Even as it faces some unit revenue headwinds in 4Q2014, United believes it will sustain profitability during the last quarter of 2014 as the US domestic market remains robust.
Similar to rival Delta, United could grow its capacity to upwards of 2% in 2015, which may cause some concern among investors. But United stresses that much of the growth stems from aircraft up-gauging, improved utilisation and increasing density of certain aircraft.
Delta Air Lines has slightly adjusted its passenger unit revenue targets for 3Q2014 triggered by oversupply in some of its markets, unrest in the Middle East and the Ebola outbreak in Africa.
The airline has previously warned of tougher year-on-year comparisons in 3Q2014 after recording 7% unit revenue growth in 3Q2013. But despite the challenges that have cropped up during the last few months, Delta still predicts a strong performance in the quarter with double digit operating margin expansion and solid cost containment as demand in the US domestic market remains strong.
As it prepares to make trans-Atlantic capacity adjustments for the US winter time period in conjunction with its SkyTeam alliance partners, Delta is also making changes in it Pacific network by down-gauging Boeing 747s it operates to Tokyo and replacing them with smaller and more efficient aircraft.
It is not often that a lick of paint is so momentous. When China Eastern Airlines – China’s second largest carrier and the world’s eighth largest by seats – unveiled its new livery, it marked an important step. The details of the branding are the minor part; the major fact is that in China’s slow-moving legacy environment of national carriers where the state has a heavy hand, China Eastern was able to implement change. Competitors, still wearing their old coats, are jealous. This is China Eastern's first re-branding since its establishment over 20 years ago, and the first major one among China's airlines.
The branding itself is the visible signal of strategic change. A more material one is due to arrive with the 24-Sep-2014 delivery of the first of China Eastern’s 20 777s for long-haul growth, mainly to North America. China Eastern’s lagging performance has made its Shanghai hub vulnerable, albeit one of China's most important. Further, China Eastern is the first – and so far only – state carrier to launch an LCC. Even more disruptive, in its low key way, is China Eastern’s discussion of finding a strategic investor.
The strategy may be relatively fresh but it needs time (perhaps years) to incubate. China Eastern has some way to go before becoming fully commercial; for example, its 1H2014 financial results included domestic load factor gains at the expense of yield - while operating profit was boosted by state subsidies.
Malaysia Airlines (MAS) plans to increase focus on regional operations as it starts to implement capacity and job cuts as part of a new recovery plan. Cuts to the long-haul network are expected as the group’s new strategy aims to leverage partnership and its membership in oneworld.
The changes could create a void In Malaysia’s long-haul market and persuade AirAsia X to reconsider services to Europe. But it could also lead to an opening for oneworld partners such as British Airways and Finnair to enter the market, possibly as part of a joint venture with MAS.
The new strategy, which also includes a focus on premium services and improving yields, is not actually new. MAS tried to implement a similar strategy as it entered oneworld in early 2013. Then it became distracted over the last year and started pursuing ambitious growth at the expense of yields. A second attempt at the same strategy has a better chance of succeeding as this time it comes with the job cuts that MAS has needed for years. But there will still be challenges.
Etihad & Alitalia agree and affirm their partnership vision. Protectionist voices will become louder
Alitalia is finally set to become the eighth airline in Etihad Airways' Equity Alliance, as the two airlines on 08-Aug-2014 announced a transaction implementation agreement under which Etihad will invest EUR560 million in Alitalia for a 49% stake. That investment, together with injections from other investors and additional financing and loans will create a EUR1.8 billion investment deal for troubled Alitalia. "The future is secure," Etihad CEO James Hogan said in Rome. Its competitors must now prepare for a more competitive Italian market.
Although Mr Hogan warned "there's no quick fix", his quick three-year re-structuring plan projects Alitalia to post a EUR100 million profit by the end of 2017. Alitalia will re-brand as early as 1Q2015 and will exit loss-making short-haul markets and introduce long-haul growth from multiple Italian cities to Abu Dhabi as well as global destinations. China can be expected to be a focus, with some services routed via Abu Dhabi. Mr Hogan affirmed the value of SkyTeam to Alitalia and expects the alliance membership to continue.
Etihad's Alitalia investment has hallmarks of past deals, with Etihad buying into Alitalia's frequent flyer programme and conducting a sale-and-leaseback agreement for its London Heathrow slots. Both Alitalia and Etihad avoided being drawn on details of sticky matters like redundancies, mounting European opposition, "effective control" and if Alitalia really can be saved. Some matters will become clear in the short term and others will take longer, but Mr Hogan is unambiguous: "Our entry into Alitalia has no exit strategy."
Garuda Indonesia will slow its international growth following a lacklustre performance on international routes in 1H2014, which drove a net loss of USD212 million. Garuda recorded an average international load factor of only 63% in 1H2014 as RPKs dropped by 3% despite a 15% surge in ASKs.
Competition in the Indonesian international and broader Southeast Asian market has intensified, making life extremely tough for Garuda just as the carrier attempts to make a bigger international push following its ascension into SkyTeam. The introduction of five 777-300ERs over the last year has contributed to overcapacity, just as its long-haul strategy has had to be revised.
Garuda has responded to the unfavourable market conditions by deferring plans to launch services to India and the Philippines. The carrier is also now planning to cut unprofitable routes and reduce capacity growth by deferring aircraft deliveries.
Aeromexico is pursuing rapid growth for its long-haul operation as it renews and expands its widebody fleet. The transition from 767s to larger 787-8s, which began in 3Q2013 and will be completed in mid-2015, is enabling Aeromexico to add long-haul capacity and improve yields.
The carrier will end this decade with 20 787s, compared to only 11 widebodies one year ago, enabling the launch of new destinations and higher frequencies on existing routes. The 787 and the growing long-haul network is a critical differentiator as Aeromexico is Mexico’s only widebody operator while it faces intensifying competition and overcapacity in the domestic and transborder markets.
As Aeromexico expands its long-haul operation it aims to increase transit traffic at its Mexico City hub by leveraging its enhanced network within Latin America. It is also working to boost yields, which have sagged over the past year, through product improvements and an increased focus on sales in higher yielding origin markets such as the UK.
As Malaysia Airlines (MAS) and the Malaysian government start to consider restructuring options, the possibility of a tie-up with Etihad Airways has emerged. An MAS-Etihad partnership would be logical for both carriers and have repercussions in the dynamic Southeast Asian marketplace.
MAS would initially forge a comprehensive codeshare partnership with Etihad, building on the limited codesharing the carriers already have in place. But with Etihad an equity stake is also always a possibility. Ultimately the ball will be in the Malaysian government’s court to determine if such a scenario is palpable, adding to the difficult decisions the government is already confronted with as MAS requires a deep restructuring and potentially out of the box solutions to survive.
In the meantime MAS is sounding out its oneworld partners. While MAS does not need oneworld approval to forge a relationship with Etihad, it is only courteous – and sound business practice – to give Qatar Airways and other alliance members an opportunity to come to the table with alternatives.
Avianca Brazil is slowing down expansion after quadrupling in size over the last four years. Avianca will again pursue faster domestic capacity expansion in 2014 than its three larger competitors as six additional A320s are delivered, replacing smaller Fokker 100s, but the rate of growth will slow significantly.
Avianca Brazil now accounts for 8% of Brazil’s domestic market, up from only 2% four years ago and 5% two years ago. Gol, TAM and most recently Azul have all slowed down capacity growth while Avianca Brazil has continued to expand rapidly but from a small base.
As Avianca Brazil’s domestic position could be approaching maturity, the airline will need to turn its attention to international market potential. Avianca Brazil remains purely a domestic carrier while TAM has a dominant position in Brazil’s international market, Gol is increasing its international focus and Azul has unveiled plans for a new long-haul operation. If Avianca Brazil is to maintain its relevance, an international move should be on the radar, particularly as it prepares to enter Star while the alliance also controversially continues to court rival Azul.
A recent profit warning by Finnair highlights the challenge in converting an operationally successful niche strategy, based on capturing Europe-Asia connecting flows via its Helsinki hub, into sustainable profit. In spite of the advantages of its geographic location for this strategy, its strong performance on punctuality and reliability and a well regarded brand, Finnair has perhaps lacked scale to compete profitably in the global market. In addition, its short haul feeder operations have felt the sting of LCC competition. Against a weak revenue backdrop, it is rightly prioritising cost savings in 2014.
The long haul operation should benefit from the newly commenced joint venture with JAL and BA on routes to Japan and there is at least some aspirational legitimacy in Finnair's confidence that it can tap into China's vast potential. Moreover, from 2016, Finnair will become the first European operator of the A350, providing it with a considerable unit cost advantage over its existing A340 fleet. Meanwhile, it has crucial negotiations to conclude over labour cost savings and must also make a decision about short haul fleet renewal.