Spain and Canary Islands
- CAPA Analysis
- Schedule Analysis
- Low Cost Carriers
- Economics & Trade
- Print Summary
Transportation in Spain has an extensive network of air routes. There are several international and regional airports, the largest of which is Madrid-Barajas Airport (MAD). The major airlines operating at MAD are Air Europa, EasyJet, Ryanair and Iberia Airlines - which is the flag carrier of Spain. The Spanish Civil Aviation Authority - Ministerio de Fomento is the authority responsible for overseeing and regulating the air transport industry in Spain as well as the Canary Islands. The Canary Islands are a Spanish cluster of islands located just of the Northwest coast of Africa, which are also part of the European Union. A number of airlines fly into the seven Canary Islands all of which have an airport. International flights are frequent as well and those from mainland Spain and inter-island flights. The majority of international flights serving the islands are charters.
Airports in Spain and Canary Islands
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International Airlines Group: 2015 target raised thanks to BA & Vueling; Iberia still has work to do
As CAPA predicted, IAG increased its operating profit target for 2015 at its recent capital markets day. This reflects better progress than previously expected at British Airways, the integration of Vueling into the group and additional growth at both BA and Vueling.
The group’s target has been raised from EUR1.6 billion to EUR1.8 billion. British Airways’ own 2015 operating profit target has been raised from GBP1.1 billion to GBP1.3 billion. This would bring BA to an operating margin in the region of its best-ever level of 10%.
The increase in the BA target, translated into EUR, is more than the increase in the group target. The implicit reduction in the Iberia target increases the pressure on its restructuring programme to create a competitive cost base. Nevertheless, the group as a whole now faces the real prospect of generating a return on capital ahead of its cost of capital.
Emirates Airline carried 15% additional passengers in the first half of 2013/2014 compared to a year ago. The growth in volume has been led by Europe and the Middle East while Australia has seen the highest percentage growth. Saudi Arabia, the UK and Thailand have received some of the largest capacity injections. India and the UK remain Emirates' two largest markets based on seat capacity, but Saudi Arabia has overtaken Germany as the third-largest while Australia overtook the US, and Thailand overtook South Africa.
In terms of the rate of growth, the standouts were Portugal, Vietnam and Zambia – all with 100%-plus growth, albeit from a low base. But Emirates saw 40-50% growth in seven other countries, including Australia, Saudi Arabia and France.
Overall, 15% passenger growth and 16% capacity growth for an airline the size of Emirates is a considerable achievement. Full year capacity growth, however, is likely to be closer to 12%, making 2013/2014 one of the slower years at Emirates in recent times. Asia will be the largest market for growth, followed by Europe and the Middle East.
Air Europa has been talking up its ambitions in Latin America. It has firm orders for eight Boeing 787 aircraft, but its president Juan Jose Hidalgo recently said it will eventually have up to 22 of the type by 2020-2022. He plans to deploy them on Latin American routes. These could include Mexico City, Bogota, Cartagena and Quito.
Currently, Iberia is the leader on all three routes to Latin America where it competes with Air Europa and is number one overall on Spain to LatAm. However, Air Europa has been picking up routes dropped by its larger rival and Mr Hidalgo says it plans “to fly all the destinations that Iberia flies to”. The pendulum is swinging towards Air Europa in much of the region outside Central America. Iberia has abandoned the Caribbean altogether.
Air Europa has a unit cost advantage and ambitions to grow. This poses a credible threat to Iberia’s Latin American network. Iberia’s cost restructuring will have to succeed if it is to avoid a further dulling of its brightest network jewel.
In this second part of our report on Air Europa, we analyse the airline's revenue development and estimate its unit costs. In recent years, it has achieved revenue growth in spite of falling passenger numbers. However, it has recorded losses for at least the past two financial years, blaming “competition from low-cost airlines” and pilot strike action.
Established as a charter carrier in 1986 and operating domestic scheduled flights since 1993 and international scheduled flights since 1995, Air Europa has been part of the Globalia tourism group since 1991. The first privately owned airline to operate domestic scheduled flights in Spain in competition with Iberia’s then monopoly position, it is somewhat ironic that it is now suffering from increased competition.
Air Europa's unit costs look to be very efficient compared with other European FSCs, but the impact on unit revenues of LCC competition has weighed on its profitability. So, why is it growing its short-haul operations once more in 2013?
Did you hear about the privately-owned, number two home-grown carrier in a country on the Mediterranean among Europe’s top five for airline seats? The loss-making airline has origins in connecting islands to mainland cities and a market share of around 5% of seats in its country. This puts it a long way behind the top two players, Ryanair and the loss-making national ‘flag carrier’ group, and third-placed easyJet.
No, this is not a re-run of our recent report on Italy’s Meridiana, but the similarities with Spain’s Air Europa are striking. There are differences, too. Although both of their ‘flag carrier’ group competitors are loss-making, Air Europa faces a more formidable national competitor in IAG than Meridiana confronts in Alitalia, but its SkyTeam membership may partly offset this. Moreover, Air Europa is growing again in 2013 after some years of capacity cuts.
This is part one of a two part report in which we assess its network and market position. Although financial data is scarce, we will analyse its revenue development and estimate its unit costs in part two.
easyJet’s 1H2013 pre-tax result improved by GBP51 million to a loss of GBP61 million. This puts it comfortably on course to achieve the current consensus forecast for record pre-tax profits of GBP410 million in FY2013. It may also be on another collision course with founder and largest shareholder Sir Stelios Haji-Ioannou over aircraft orders.
CEO Carolyn McCall believes easyJet can take further market share from non-LCCs on point-to-point routes. At its top 20 existing airports, where easyJet has 46 million seats (a share of 22%), she puts this potential additional market at 86 million seats. This analysis appears to pave the way for a large aircraft order after easyJet completes a review of its future fleet strategy later this year, although it insists that no decision has yet been taken.
This would not please Sir Stelios who said: “Good things happen to airlines that don’t order more aircraft.” Under Ms McCall's guidance easyJet's share price has more than doubled over the past year and not just because it didn't grow. It may be time for Sir Stelios to let go.