Low Cost Carriers (LCCs)
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878 total articles
Ryanair's agreement to buy 100 Boeing 737MAX aircraft, plus a further 100 options, for delivery between 2019 and 2024 allows it to accelerate its traffic growth modestly. After four years of growing passenger numbers in the region of 3% to 5% annually, it looks set to step this up to 6% pa from FY2016 (year to March).
The greater fuel efficiency of the MAX and a higher number of seats (197, eight more than on its 737-800s) will give Ryanair significant operating cost per seat savings. Its negotiating power is likely to have secured favourable terms with Boeing and this should also give Ryanair an advantage over competitors in ownership cost per seat.
The recent evolution of its product and service add new elements to the basis of competition. However, low fares (based on low costs) will remain its key competitive advantage. In this report, we consider Ryanair's main strengths, weaknesses, opportunities and threats.
Europe's airlines: 1H2014 results season shows improving trend, but cost reduction is the key driver
Europe's airlines appear to be following a course to improved profitability, based on the 1H2014 results of the largest publicly quoted airline groups. Profits remain slender in most cases, but margins are improving in aggregate. Individually, financial performance varied widely, with LCCs both leading (Ryanair) and lagging (Norwegian) the operating profit margin rankings in 1H2014.
The European market offers volume growth, but is characterised by price pressure, with RASK falling for the majority of the larger airline groups and this points to the need for additional caution in capacity growth. The LCCs collectively enjoyed higher growth than the FSCs in 1H2014 and also achieved a more stable RASK performance (although not in all cases).
Profit improvement is largely being achieved through cost savings and CASK reduction. Although fuel prices are high on a longer term historic perspective, they are enjoying a period of relative stability and this has helped the cost picture. Although Europe's airline sector remains only thinly profitable, these 1H results hold out the prospect of better full year results in 2014 versus 2013.
At the Farnborough Airshow on 15-Jul-2014, AirAsia X became the launch airline customer for the new A330-900neo, with 50 commitments. That is an important order – but it is made doubly special because AirAsia X is a long-haul low-cost airline, a model that is consistently written off by industry experts.
What makes the story most significant for the purposes of this discussion about airline business models – and more challenging as the industry goes through its gentle process of disruption – is that AirAsia X has also very quickly become a network airline.
Nearly half of its passengers through its Kuala Lumpur hub are transfer traffic; and that percentage is growing steadily. Many full service hub operators do not manage that level of connectivity.
This is a slightly amended version of a report that first appeared in CAPA's Airline Leader, Issue 23, 2014.
CAPA has released the final Agenda for the upcoming Asia Aviation Summit and LCC Congress to be held at the Capella Sentosa Singapore on 13-15 October. It promises to deliver unique insights into the outlook for the region’s airline, airport and corporate travel sector.
CAPA will also name its Asia Pacific winners of the prestigious CAPA Awards for Excellence in aviation strategy at a gala reception on the evening of 14 October.
“The Summit will draw on the expertise of industry leaders from within and outside Asia to address topics that are of critical importance to the region at its stage of development. We look forward to welcoming our industry to Capella in October”, said Peter Harbison, Executive Chairman of CAPA.
Kuwait-based LCC Jazeera Airways reported a 34.7% decrease in net profit in 1H2014, with the tough operating environment in many of the airline's major markets, the rising price of aviation fuel and other externalities contributing to the reduction.
The carrier’s focus has been to successfully navigate the regional turbulence and deliver a strong second half of the year, particularly the busy and highly profitable summer travel period. Despite the regional unrest, Jazeera Airways has maintained its 2014 outlook, maintaining the strong run of profitability and improving value for shareholders.
Meanwhile the company's aircraft leasing company, Sahaab Aircraft Leasing, contributed positively to overall group revenue.
Ryanair increased its profits substantially in 1QFY2015, as revenue per seat grew faster than cost per seat. By comparison with the same quarter a year earlier, revenues and profits were assisted by the inclusion of Easter in 1Q this year, but the underlying trends still looked favourable.
In spite of its caution over the outlook for average fares in 2H, Ryanair has raised its profit guidance for FY2015, based on higher traffic and load factors and lower cost per passenger than previously expected.
This is in contrast with its profit warning last autumn (and with more recent profit warnings from a number of European legacy carriers) and gives some comfort that its strategic shift to increase the emphasis on customer service may be starting to work.