Analysis Reports

Thai Airways' extensive restructuring efforts have spurred an impressive financial turnaround, and now the airline is undertaking a rapid fleet rebuild to pursue its revised strategy.

The airline revealed the scope of its ambitions a year ago in 2023, when it placed an order for 45 Boeing 787s. Since then, it has been adding as many leased widebodies as it can in order to grow into its new opportunities before the 787s arrive.

While the airline was a player in the international transit market before the COVID-19 pandemic, it now intends to put a lot more focus on this part of the business.

Thailand is well located as a connecting point between some major markets, and its fleet overhaul will be better suited to supporting this effort.

Thai CEO Chai Eamsiri talked about the airline's strategy and turnaround on the sidelines of the Association of Asia Pacific Airlines annual meeting in Brunei on 13-Nov-2024.

A sudden flurry of activity in an otherwise barren year has resulted in three UK airports being sold, and another three being put on the market in Nov-2024.

Firstly, AGS Airports was sold to AviAlliance, which is owned by the Canadian pension fund PSP Investments. Then, before the dust had settled, another Canadian pension fund (OTPP) announced that it would offload its interest in another three UK airports, plus two in mainland Europe. OTPP is a majority/minority shareholder in all of them; it owns none outright.

The reasons for this decision of OTPP's are unclear.

It may have been prompted by the AGS sale; it could be because the time is right (it often isn't in the airports business, and if you don't make hay while the sun shines you never will), or it might have been influenced by attempts being made in Canada to encourage the country's pension funds to invest in domestic infrastructure, including airports.

Whatever the case, it will be fascinating to see who takes on these disparate airports (two UK regionals, a London STOL business airport and two capital city facilities in Europe) when none is owned outright by OTPP, and with a new government in power in the UK - one which historically is no friend of air travel, but which has not done them any great harm - at least, so far.

The first reaction - a move by the Danish Finance Ministry to acquire 98% of Copenhagen Airports - is not likely to be repeated elsewhere.

Spain is fining five low cost airlines for what it calls "abusive practices[,] such as charging extra for hand luggage or for reserving adjacent seats to accompany dependent persons".

The fines on Ryanair, Vueling, easyJet, Norwegian and Volotea are only small percentages of their annual revenue - but banning these ancillary services attacks the LCC model and its profitability.

Moreover, almost all airlines adopt an unbundling approach to a greater or lesser extent.

The decision has been condemned by airline bodies such as IATA and Spain's airline association ALA, as well as by Ryanair. The affected airlines are appealing the decision, and are confident that Spain is contravening EU law.

ALA has observed that the decision would effectively force 50 million passengers who do not take a trolley bag as cabin luggage to pay for a service they do not need.

Spain's misguided attempt at consumer protection will raise prices for all - the opposite effect to what was intended.

The stark imbalance in the Japanese international travel market is showing no signs of fading, as the glacial pace of the outbound recovery contrasts with surging inbound travel.

Despite the problematic outbound market, Japan Airlines (JAL) and All Nippon Airways (ANA) are benefitting from the strong overall financial performance of their international operations.

The inbound/outbound disconnect has become well-enough established that the airlines are adjusting their strategies accordingly. Economic and market conditions are not changing quickly enough to suggest that the imbalance will shift significantly in the near term.

In the meantime, leveraging inbound demand is allowing international capacity to continue recovering for both airlines.

Senior executives from JAL and ANA discussed these trends at the Association of Asia Pacific Airlines (AAPA) annual assembly in Brunei on 13/14-Nov-2024.

Consolidation in Latin America has taken many forms over the years, and even as Avianca and LATAM Airlines Group - both the products of mergers - have emerged to become two of the region's largest airlines, there have been attempts at more fusion in the market post-pandemic.

The ultimate composition of the airline industry in Latin America is an unknown; but it's worth examining how the industry has evolved to its current state.

The completion of the three-runway system at Hong Kong International Airport (HKIA) will unlock new growth opportunities at the hub, providing the infrastructure to support extensive aircraft orders placed by Hong Kong-based airlines.

HKIA intends to formally commission the new runway system on 28-Nov-2024. Senior executives from Cathay Pacific and Greater Bay Airlines stressed the importance of this step to their growth plans during the CAPA Airline Leader Summit Asia held in Hong Kong in Nov-2024.

Cathay Pacific has significant widebody and narrowbody order backlogs, and will soon consider a further widebody order.

The newcomer Greater Bay Airlines has ordered narrowbodies, and the airline has also committed to ordering its first widebodies at some point in the future.

However, both these airlines have been affected by delivery delays, causing them to adjust their near-term plans.

The HKIA expansion is not only vital for these airlines' fleet moves, but at a broader level will also improve the competitive position of the hub, compared to other major airports in the region that also harbour growth ambitions.

This, the fourth in a series of SWOT analyses of the major players in the global airport M&A market, looks at a well known firm and its various funds: Global Infrastructure Partners, or 'GIP' as it is acronymically known.

The New York-based investor, with four fully invested funds to its credit, has been on the scene for almost 20 years. The majority of its investments are in the energy sector, but analysts are always on the lookout for it when a potential new deal is in the offing.

And yet it is not as 'big' as some might think, and its notable acquisitions in the UK (in London and Edinburgh) have been wholly or partly divested as it latterly formed a working partnership with VINCI Airports on two of them; a liaison which could perhaps continue elsewhere in the future.

That future will, for the most part, be dictated by its relationship with the giant asset manager BlackRock, which completed its takeover of GIP at the beginning of Oct-2024. GIP will take the infrastructure lead for the combined entity, especially in transport sectors.

The US presidential election result hints at richer pickings in that country than it has experienced previously.

The SWOT analysis reveals that GIP has experience aplenty, and stands to do well out of the arrangement with BlackRock, but any such transaction that creates such a behemoth can equally awake the skeletons that await in the cupboard.

Spirit Airlines' recent Chapter 11 filing was hardly surprising. The airline hasn't been profitable in years, and debt payments were looming large.

The airline has forged a pre-arranged reorganisation with bond-holders, and also released a turnaround plan that's arguably a business model shift away from the aggressive product unbundling that served Spirit well for many years.

But none of its planned changes are new or innovative in a market dominated by larger airlines, whose products will remain superior to Spirit's.

For now, Spirit's bond-holders seem willing to give the company time to execute on its plan; however, the airline's fate is far from certain.

In a previous report earlier in 2024 it was suggested that the sale of AGS Airports, jointly owned by Ferrovial and Macquarie, might be delayed on account of the UK general election, which had just been called.

The outcome of that election, as expected, was a Labour government, that political party not being known to be a friend of aviation - although apart from raising flight taxes, it has not attacked the sector to the degree anticipated. The government has even suggested that it wants to see more investment in airports, one example being that at London Stansted Airport, which was announced last month.

The sale of AGS, which should be completed in 1Q2025, is now going ahead - to AviAlliance, the German operator that is owned by PSP Investments, one of numerous Canadian pension schemes to invest in the airport sector.

AviAlliance has had a year of turmoil, losing its holding in Budapest Airport, while gaining greater equity in Athens Airport.

Although the San Juan airport in Puerto Rico is performing well, its German airports, two of the four it partially owns, are impacted by a lacklustre German aviation market that is afflicted by location costs and other factors.

Could that be at least one of the reasons why AviAlliance has ventured belatedly into the UK market, one that it has mostly eschewed in the past?

This report aims to uncover the pros and cons of the Aberdeen, Glasgow and Southampton airports and what the future holds for them.

More than a decade ago, the aviation sector set a series of lofty goals around aviation sustainability: improve fuel efficiency by 1.5% per annum; cap net CO2 emissions from 2020; and reduce net CO2 emissions by 50% relative to 2005 levels by 2050. IATA member airlines doubled down on their sustainability ambitions with the Fly Net-Zero Commitment agreed to in 2021.

Progress has been slow, and the industry can only now start to point to measurable steps on sustainability and meeting its goals. The transition away from conventional aviation fuel and towards sustainable aviation fuel (SAF) is where the majority of the industry's efforts are concentrated.