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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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Brazilian airline Gol is attempting to respond to deteriorating and fast changing conditions in the country with network adjustments to minimise the effects of a sharp drop off in corporate demand. All airlines operating within the country are doing so against the backdrop of a contracting economy, ballooning inflation and a plummeting currency.
Gol is adjusting its US service to Miami and Orlando via Punta Cana to seasonal as those routes are becoming more challenging due to exchange rate pressure dampening demand. The airline has also faced stiffened competition on US routes from rival Azul. In turn, Gol now plans to challenge Azul on new domestic routes from Campinas as part of its network overhaul.
As economic weakness remains an overhang in Brazil, Gol is also adjusting its aircraft delivery schedule for 2016-2017, and increasing the number of aircraft it plans to sublease year-on-year during the 2016 slow season. Its network and fleet modifications are responses to challenging conditions that show no sign of improving in the short to medium term.
Alaska Air Group is planning capacity expansion of 8% in 2016 after growing nearly 11% in 2015, including a 12.5% expansion in 4Q2015. Much of the push during the final three months of 2015 is additions to existing markets where Alaska concludes demand remains robust.
Although Alaska’s YE2015 capacity growth may be outsized compared with other US airlines, its ASM expansion between 2009 and 2014 was in the mid to high single digits, and its 2016 projections are in line with those trends. It also remained profitable during that time period, which featured soaring fuel prices and a global economic downturn.
During early 2016 Alaska is facing some headwinds from capacity growth by its competitors, but concludes much of that growth is the annualisation of new route launches that occurred in 2H2015. With the competitive onslaught Alaska has endured in Seattle during the last couple of years, it is clear the airline can handle the industry capacity growth in its markets. Its own network development during 2015 reflects a strengthening of its presence in Seattle in both small and large markets to leverage both connecting and local traffic.
Norwegian's new order for 19 Boeing 787-9 Dreamliners demonstrates its renewed confidence that 2015 marks the return of financial and strategic momentum. It has eight 787-8s already in operation, alongside 91 Boeing 737-800s (projected at end 2015), and now has a total of 30 787-9s due for delivery as it continues to focus its growth on long haul routes.
The new order comes as Norwegian's long haul operation starts to prove itself financially ahead of schedule, with a positive net contribution now expected in 2015. The group has also reported a more than doubling of its operating profit in 3Q2015, helped by record load factor and low fuel prices. Norwegian should comfortably surpass its 2012 record operating profit in 2015.
The new order also suggests that Norwegian's hopes of a US foreign carrier permit for its Irish subsidiary Norwegian Air International are growing. Since filing its application in Dec-2013, Norwegian has modified its approach, offering to employ only EU and US flight personnel on NAI's transatlantic services, announcing US services from Ireland and applying for a UK AOC. Such pragmatism should serve it well in securing future long haul traffic rights.
Delta opts to flesh out its 2016 European network with new flights from Minneapolis, Detroit and RDU
Delta Air Lines is branching out in its 2016 trans-Atlantic schedule, bolstering service from its lower-profile hubs in Minneapolis and Detroit. It is also introducing service from Raleigh-Durham to Paris, having initially mooted the route eight years ago.
The airline is playing to its positions of strength with the addition of trans-Atlantic services from its hubs in the interior of the US, which should allow Delta to both tap a large pool of local passengers in the metro region of Minneapolis and Detroit and also garner connecting traffic from US midwest spoke routes by touting one stop connections to popular European destinations and hubs of partner airlines.
Delta has been growing in Raleigh at a solid clip during the last couple of years, increasing the number of point to point markets it operates from the airport. The introduction of service to Paris is the next phase of that build up, and a key win for Raleigh-Durham International Airport, which has been working to enlarge its roster of long-haul services.
The three large global US network airlines are in the midst of adding seats to their aircraft at a time when the country’s domestic capacity is creeping up and unit revenues and yields are falling. Of course these reconfiguration projects were set in motion before the price of fuel dropped significantly and pockets of weakness emerged in the US market place.
American, Delta and United remain bullish about their strategies to grow capacity through seat densification, often characterising the additional seats as efficient generators of capacity at nominal costs.
It also appears that the densification efforts are a competitive response to one another as the three large network airlines seek to offer the same size aircraft in order to reap the benefits that more densely configured jets deliver. Passengers, however, have at best mixed views about the strategy of adding additional seats to bolster revenue.
Any number of US airlines are in the midst of, or have recently completed, reconfigurations to increase seating density on their aircraft in an effort to drive additional revenue at a relatively low cost. As capacity creeps up in the domestic market place, airlines often reference their aircraft densification programmes as efficient capacity expansion.
Three US airlines viewed as some of the most consumer friendly – JetBlue, Alaska and Southwest – have all opted to add seats to their respective narrowbody fleets. Those airlines walk the fine line of adopting strategies to bolster revenue while ensuring that passenger goodwill remains intact. Few consumers enjoy less legroom.
The revenue potential of densifying aircraft for most airlines is too beneficial to pass up, reflecting the balance of appeasing investors and working to create a still comfortable travelling experience. It is a scenario whose prevalence will grow as both passengers and shareholders become more vocal in their demands.