Analysis Reports

Donald Trump's election to be the 47th US president will eventually, when the dust settles, raise questions about his government's stance on airport infrastructure and privatisation, and whether the national air traffic service should continue to be run by the FAA.

These topics are frequently raised in the US, where privatisation in particular is minimal. But they are not at the top of the new government's 'to do' list on 20-Jan-2025.

If, and when, the president gets round to them, he will recall that in 2018 he put forward some radical proposals to increase private investment in the sector, including major and positive changes to the privatisation programme.

Overall the results were not encouraging, airport leasing has died the death since 2020, and the government will have to focus more on public-private partnerships this time.

There are some suggestions, and they are reported here, as to how the system of tax free bonds could be allied to private investment, instead of being a negative factor in a calculation.

As for ATC, the time to at least corporatise it, if not outrightly to privatise it, has come. There is a consensus for funding reform.

But all of this is, at least on paper, dictated by the fact that no further FAA Reauthorisation Act is planned for another four years - if the new president gets serious about these issues, he will have to find a way around that.

The well known and respected Amsterdam-based consultancy SEO Economics has recently researched a report on behalf of ACI Europe, which makes some impressive claims about the continent's airports: such as that they employ 14 million people (that's a country between the size of Belgium and the Netherlands). And that they generate 5% of the total European GDP between them.

More questionably: that such an increase in business has positive social implications such as on education, research and development, helps reduce poverty, improve gender equality, and even makes people happier.

Two examples given in the text here do lend support to the claims about education and R&D, at least.

The report is not a standalone one in that it must be seen (and was possibly solicited) in conjunction with two independent reports by European ex-politicians with gravitas, into (inter alia) the lack of investment in the EU and how to remedy it; how a concerted, joined-up transportation network policy is required urgently, and how to achieve even more decarbonisation across the entire air transportation network at the same time.

It isn't hard to see how this is ACI Europe playing its cards to ensure that airports get the best deal out of all this, because they - and the airlines - have been on the rack for years now, as sacrificial lambs to the God of the Environment.

The trouble is that the whole ball game has changed in a matter of a day with the election again of Donald Trump as US president. Like it or not, the airports business is now, as the other presidential candidate often said, 'unburdened by what has gone before' and must prepare itself for its own version of The Great Reset.

The Brazilian operator Azul has quickly manoeuvred a balance sheet restructuring that should set the stage for the company to become an even fiercer competitor in the Latin American aviation market.

Azul has accomplished a feat that many of its largest competitors could not achieve - overhauling its debt structure without formally entering Chapter 11 bankruptcy protection.

Now Azul can focus squarely on playing to its strengths, which include a unique fleet strategy that results in limited competition on the majority of its routes, and diversified business streams to maximise revenue generation.

On 27-Oct-2024 Iberia restored its service from Madrid to Tokyo Narita, which it had ceased at the onset of the COVID-19 pandemic in Mar-2020.

Iberia is the sole operator on the route, the longest in its network and its only one in Asia Pacific.

The success of Iberia's Doha service, launched in Dec-2023 and offering onward connections with its oneworld partner Qatar Airways, has provided a window on the strength of demand for Spain-Asia Pacific air travel.

Iberia focuses its long haul network on Latin America, and this is unlikely to diminish. However, Asia Pacific nonstops are underserved from Spain, and Iberia is attracted by the significant potential for expanding capacity to the region.

The nature and purpose of the Western Sydney airport (WSI) that is now under construction at Badgerys Creek far to the west of the city-region has changed.

Once regarded as a necessary reliever airport for the Kingsford Smith (SYD) facility that is located fairly close to downtown, and to handle mainly budget airlines when it opens in 2026, it is now being touted as potentially the busiest airport in the country by 2060.

Full service and alliance member airlines are already demonstrating their interest in operating there.

But WSI still has a few hoops to jump through as the opening date nears, including finalising the surface transport connections that have got caught up in a cost overrun for an entire Metro system, which is being expanded rapidly.

Probably the biggest issue it has got to get to grips with is whether it is still only to be a reliever for SYD, whether it should still focus on low cost, or whether it has the ability and the support to knock SYD airport off its perch.

And that raises the question of who will ultimately operate and finance it.

It would be unusual in Australia if that responsibility remained with the government.

Management at the Mexican ultra-low cost carrier Volaris recently took great effort to deliver a clear message to analysts and investors - "we are different from our US counterparts".

With Frontier Airlines and Spirit Airlines languishing during the past year, driven in part by changing market dynamics, Volaris believes that the elements that have propelled the ultra-low cost sector in Mexico for more than a decade remain intact.

A major driving force for Mexican ULCCs has, and continues to be, immense opportunity to switch bus passengers to air travel. And with a restoration of Mexico's safety rating by the US, capacity rationalisation has emerged in Mexico's domestic market, and has created new opportunities for Volaris in the transborder market.

Another way Volaris has distinguished itself from its peers in the US is the way it has faced headwinds created by issues stemming from the geared turbofan engines powering its Airbus A320neo fleet.

A sizeable portion of Volaris' fleet will remain grounded throughout the remainder of the year, yet Volaris posted a profit in 3Q2024, and expects its revenue for 2024 to inch close to its performance in 2023.

Fraport's management of Saint Petersburg Pulkovo Airport, where it was a major part of the consortium that took it under concession with a large stake in 2010, has taken several twists and turns since then, with a difficult acquisition at first proving to be a high performer.

Shortly after the Russian invasion of Ukraine in Feb-2022, Fraport withdrew its hands-on management.

Later a new company was set up by the Russian government, to which Fraport's shares were transferred. Now authorisation has been given for Fraport's stake to be sold to an unknown company.

What was always a difficult transaction became a surprisingly successful one, and then turned into a nightmare, adding to Fraport's woes in respect of abandoned and to-be-abandoned concessions in China and India.

But Fraport is less likely to be hurt by this about-turn in events than is the airport itself.

According to Airlines UK chief executive Tim Aldersdale, "we need a revised and joined-up approach to the UK's strategically vital aviation sector".

His comment followed the UK Labour government's first Budget Statement in late Oct-2024.

The most obvious aviation measure in the UK Budget is a hike in Air Passenger Duty (APD), criticised by Ryanair's Michael O'Leary as a "short-sighted tax grab".

Ryanair plans to cut UK capacity by up to 10%, potentially removing 5 million passengers annually from Europe's biggest aviation market.

The UK Budget also included further support for SAF development and GBP975 million of additional research and development funds for aerospace over five years. Aviation bodies welcomed these measures, but they are relatively minor, and the focus was on APD.

Although the increases might have been much greater, UK passenger charges are already high compared with other large European markets. Airlines are concerned that APD is seen as a form of demand management, while taking money away from aviation when it needs to fund net zero.

This two-part report on the Asia Pacific airline industry is based on a presentation by Adrian Schofield, CAPA - Centre for Aviation and Aviation Week Network senior air transport editor for Asia-Pacific, at the CAPA Airline Leader Summit | Asia in Hong Kong on 5-Nov-2024.

Part one of this report discussed overall recovery trends in the Asia Pacific market from multiple angles, as well as looking at the important Thailand market as an example of how these trends are playing out.

This second part looks at further market examples with mainland China, Japan, Hong Kong and India, as well as examining aspects such as aircraft order backlogs, LCC market penetration, and challenges for 2025.

London Stansted Airport, 35 miles northeast of the UK capital, is its third busiest airport and will exceed 30 million passengers in 2024. It is regarded in some quarters as a downmarket sort of facility overrun with students and backpackers, mainly on account of the overwhelming presence of low cost airlines, led by Ryanair.

It is situated at the heart of overlapping designated economic areas that play host to much of the UK's economic development in new and breaking technologies. Despite that, it has few full service carriers and is heavily reliant on budget carrier business.

Nevertheless, it is ambitious to fulfil the travel requirements of that business community, as well as leisure travellers. While it will not be getting a second runway any time soon, it is about to benefit from a GBP1.1 billion infrastructure investment that will extend the existing terminal while keeping all the passengers under one roof.

The ever-changing nature of the air transport business requires close control of the design of such an extension to cater for evolving passenger demand, both on the ground and in the air, for flight connection facilities, and preparation for future pandemics and so on.

This report looks into these and other issues.