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The United Kingdom of Great Britain and Northern Island spans an archipelago including Great Britain, the northeastern part of the island of Ireland, and many small islands. Aviation is a major UK industry, carrying over 180 million passengers a year and over 2.1 million tonnes of freight. England’s domestic airlines include British Airways (the nation’s flag carrier), BMI Regional, Flybe, EasyJet and Ryanair. The British capital, London is a global transport hub. In recent years, the massive growth of LCCs has increased the number of routes and reduced the fares between the UK and continental Europe. London’s main airports for international flights are Heathrow and Gatwick. Luton and Stansted airports deal largely with charter and budget European flights, and London City Airport specialises in business flights.
The Civil Aviation Authority is the UK's independent specialist aviation regulator. Its activities include economic regulation, airspace policy, safety regulation and consumer protection. Unlike many countries, there is no direct Government funding of the CAA - its costs are met entirely from charges levied on those whom it regulates. Under the EU’s Single European Sky initiative the design, management and regulation of airspace will be coordinated throughout the European Union with the aim of using air traffic management that is more closely based on desired flight patterns leading to greater safety, efficiency and capacity.
Airports in United Kingdom
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A beleaguered United Airlines has outlined ambitious goals for its investors that entails an annual cost cutting scheme of USD2 billion and a pledge to begin returning cash to shareholders by 2015.
After battling operational, revenue and cost challenges during the last couple of years, United has no choice but to crystallise a plan to improve its performance in the medium term. Its target of rewarding shareholders is likely to be a competitive response to Delta Air Lines, who recently outlined plans to return USD1 billion to its shareholders during the next three years.
Additionally, United believes it can increase pre-tax earnings by two to four times during the next four years. Taken together it is tall order for a company that is still trying to deliver on its merger synergy targets. Now that United has declared those goals, the challenge is to deliver a successful execution, something that sceptics might have a right to be weary of.
Etihad's announcement that it was buying 33.3% of Switzerland-based Darwin Airline was made on the first day of the Dubai Airshow and was easily lost in the fury of orders announced that day.
Darwin only flies aircraft with 50 seats, less than the number of premium seats that will be on many of the 350-plus widebody aircraft Gulf carriers ordered at the airshow. But the announcement is significant, and three reasons stand out.
First, for Etihad the carrier will "connect the dots" in Europe for itself and partners, linking hubs but also tertiary cities, which have largely been passed over by Gulf carriers. Many of these cities are served by the Lufthansa Group. This gives rise to the second significant impact: on Europe's legacy carriers. Gulf carriers changed their long-haul business while European LCCs decimated short-haul. Regional traffic was always typically a burden, and will come under further pressure following Etihad's announcement. Third is that Darwin Airline will re-brand as "Etihad Regional", and Etihad openly states Darwin is only the first carrier to use this new brand. As the industry still digests Etihad's partnership and equity strategy, Etihad promises to change another component of aviation – and raise the stakes in the liberalisation of the industry, especially by stamping its name on a European carrier.
easyJet's FY2014 pre-tax profit increased by more than 50% to its highest ever level and its operating margin returned to double digits after more than a decade at less than 10%. Its pursuit of a more passenger-focused and business-serving LCC model has driven it to improve and innovate in terms of product, with features such as allocated seating and a user-friendly website now being copied by the likes of Ryanair.
This customer focus, together with what the company has called “a benign capacity environment”, as competitors were forced to reduce seat numbers, has led to impressive unit revenue growth, while management has not lost sight of cost control. Its confidence in the future was signalled by a dividend totalling GBP308 million.
Looking into FY2014, however, the outlook for unit revenues is less certain as capacity growth steps up a little, and profits are unlikely to grow as rapidly as they did in FY2013. Nevertheless, easyJet's business model remains robust and should deliver sustained healthy returns.
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.
A corporate leader of any organisation requires an unusual, sometimes extraordinary range of skills. Inevitably not every CEO has these; nor does having the skills necessarily always triumph over external forces. Timing is not everything but it is important. With time, those external forces change the skill sets needed, for example when an industry is undergoing major upheaval.
Arguably, given the complexity of the airline business, a leader in this industry has greater demands placed on him (rarely her; there are very few women CEOs). And today the world must seem a particularly hostile place for legacy airline managements and their workforces, under siege from all directions. Meanwhile the Gulf carriers and many new short-haul low-cost models are changing the demands made on competitors, as protectionism slips away and hiding places become scarce.
This CAPA report examines some of the features involved in making a great airline CEO – or not.
Air Canada reached a milestone in 3Q2013 as its return on invested capital (ROIC) as of 30-Sep-2013 was 10.8% compared with 7.7% at YE2012. The improvement is notable as the company broaches its stated objective of achieving an ROIC between 10% and 13% on a sustainable basis by 2015.
It is a laudable achievement given a couple of years ago the carrier was working feverishly to combat significant financial challenges and battled labour strife throughout much of 2012 in order to forge collective bargaining agreements that it believes will aid in its ultimate goal of sustainable profitability.
Obviously the carrier still has a long road ahead in proving its mettle in regular profitability, but for the moment it seems to be holding its own against increased competitive pressure from WestJet while getting its own new low-cost carrier Air Canada rouge off the ground.