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Boeing is a leading manufacturer of commercial and military aircraft, rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. Headquartered in Chicago, Boeing employs more than 170,000 people across the United States and in 70 countries.
Boeing is organised into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. Supporting these units is Boeing Capital Corporation, the Shared Services Group and Boeing Engineering, Operations & Technology.
Boeing’s main commercial products are the B737, B747, B767 and B777 families of aircraft and the Boeing Business Jet. New product development efforts are focused on the B787 Dreamliner, 737Max, 777X and the B747-8. The company has nearly 12,000 commercial jetliners in service worldwide, which is roughly 75% of the world fleet.
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Alaska Air Group is making subtle changes to its business in 2016, which include the introduction of a premium economy product and a decision to enlarge its fleet of larger regional jets, as the airline positions itself to compete more effectively with its rivals.
There are also nuanced changes in Alaska’s competitive landscape in 2016. Although Delta Air Lines remains a fierce competitor in Alaska’s Seattle hub, most of the competitive capacity additions that Alaska faces in early 2016 stem from other airlines, including expanded competition with ULCCs. For now, Alaska does not foresee a need to segment fares to compete more effectively with ULCCs, but concludes that it would be an easy change to its business model, if necessary.
The company is sticking to its previous projections of 8% capacity growth in 2016 even as unit revenue pressure continues through the first half of the year. As a result, Alaska’s stock value compressed in early 2016, but regained some traction in late-Jan-2016. The fluctuations have not deterred Alaska’s inherent belief that it can post solid revenue growth with an annual expansion of ASMs between 4% and 8%.
Canada’s second largest airline WestJet is starting 2016 by battling undervaluation by the market while still enjoying its stature as one of the few airlines globally to hold investment grade status. The dive in WestJet’s stock price is driven by trepidation over the airline’s planned growth. During 2016, its capacity expansion could reach 11%, well above Canada’s projected GDP growth of 1.7%.
Investors also seem jittery about WestJet’s planned long haul expansion to London Gatwick with Boeing 767 widebodies given the existing capacity in the market. Rival Air Canada has responded by adding new service to Gatwick on its low cost subsidiary rouge. WestJet seems undeterred by the added competition, and stresses its long haul experiment with four widebody aircraft is a low risk proposition.
The airline is also touting flexibility to scale down its growth projections should conditions worsen. But for now WestJet believes its expansion in 2016 is warranted given its strong financial position and numerous quarters of profitability. For now, the company sees no reason to scale back its ambitions.
Canada’s largest airline Air Canada continues its march to slash unit costs even as the devaluation of the CAD against the USD creates some temporary headwinds for the company. It believes that many opportunities lie ahead to further draw down its costs including a new agreement with regional partner Jazz and the introduction of the Boeing 737 Max beginning in 2017.
The company has revised its 2015 unit cost projections excluding fuel from a 1% to 2% decline year on year to a 1% decrease, driven by several factors, including currency pressure. Absent the depreciation of the CAD, Air Canada maintains its unit cost decreases would be greater year on year for 2015.
Given its complexity, Air Canada’s cost on an absolute basis will likely never equal that of its main rival WestJet; but keeping fuel and currency costs constant, the airline remains confident of lowering its unit costs by 21% between 2012 and 2018,. Air Canada's fleet strategy and the continued favourable performance of its low cost subsidiary rouge are major components of its cost cutting strategy.
Although Latin America has suffered from challenging economic conditions throughout 2015 that are lingering into 2016, some interesting developments have occurred between Mexico and South and Central America. Mexican airline Volaris during 2015 has branched out its international offering beyond US transborder routes to Central America, and Aeromexico and Avianca have added routes between Mexico and South America.
Copa Airlines has also added two new destinations in Mexico as it redirects capacity from battered Brazil to routes whose revenue potential is more promising. Although it is facing currency weakness similar to other Latin American economies, Mexico’s economic climate is more healthy than most countries in South America.
LATAM Airlines Group is also strengthening its ties in Mexico with a new codesharing agreement with Interjet, which has a solid domestic network. The pact shows that Latin America’s second largest aviation market, Mexico, remains one of the region’s strategic areas going forward.
For some, the re-authorisation of the US Ex-Im Bank in early Dec-2015 was a major victory in the years long political fight over the embattled agency. Its detractors claim Ex-Im is a poster child for corporate welfare and its proponents argue the agency supports hundreds of thousands of US jobs, some of which were jeopardised during the six month hiatus Ex-Im was forced to take when its charter expired in Jun-2015.
But the US Senate still needs to authorise two of five seats on Ex-Im’s board of directors, which means the bank cannot approve transactions of more than USD10 million until there is a quorum of directors. Although Ex-Im executives seem optimistic the Senate will move quickly on director approval, US politics is anything but predictable. In the interim, other global export credit agencies will continue to seize on opportunities created by Ex-Im’s hands essentially remaining tied.
Ex-Im’s current authorisation lasts until Sep-2019, which is after the US presidential and Congressional mid-term elections. Given the US political climate, Ex-Im’s may again be open for business, but its future is anything but secured.
Alaska Air Group plans 8% capacity growth in 2015, which is lower than the roughly 10% rise the airline will post in 2015, but higher than the industry average. Higher than average capacity growth has been the norm at Alaska Air during the last five years. The company finds itself constantly defending its expansion, pitting that growth against consistent profitability and an expansion of top line revenue.
Alaska Air believes 4% to 8% capacity growth is the ideal range for its business, and using that growth profile baseline, concludes it can generate annual increases in revenue of 3% to 8%. One new revenue stream Alaska is adopting in the short term is the creation of a premium economy product, a trend that has swept much of the US industry.
As Alaska Air looks to increase the amount of revenue generated within the aircraft cabin, revenues from the company’s partnerships have diminished. But the company has made up for the shortfall by increasing its own branded revenue, driven by Alaska’s solid network expansion during the last few years.