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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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Copa Airlines has revised its 2016 capacity targets downwards to 2% growth, which is half of the expansion the airline recorded in 2015. The cuts are against a backdrop of the IMF forecasting a 0.5% contraction in Latin America’s economy in 2016, which is deeper than the 0.3% decrease in 2015.
Given the effects of Latin America’s deteriorating economy on market demand, Copa has cut its margin forecast for 2016. The company is warning that operating margins for 2Q2016 could fall to the low single digits, which is a significant drop from Copa’s historical highs.
The company admits that it has little visibility beyond 2Q2016, but believes that unit revenues in 2H2016 will be slightly lower than the year prior. Although conditions remain historically weak, there is some easing of currency depreciation and capacity cuts by other airlines, but it remains to be seen when the benefits of those changing dynamics will materialise.
Air Canada believes that changes it is making to business strategy – aircraft densification and the expansion of its low cost subsidiary, rouge – are positioning the airline to weather uncertain economic conditions in Canada and in other geographical regions.
A decline in industry domestic capacity later in 2016 should benefit Air Canada and rival WestJet, but Air Canada’s yields will continue to decline because certain components of its strategy blueprint – longer stage length and a higher proportion of leisure travellers – dictate a decrease in yields.
Although Air Canada has ceased offering capacity guidance, most of its planned expansion of supply in 2016 is pegged for international markets as it works to craft a global network that rivals that of its large North American peers. Perhaps to reassure investors that it is prepared to act rationally if conditions suddenly worsen, Air Canada is stressing the flexibility it retains to adjust its fleet and redeploy capacity from underperforming markets to other regions of its network.
The Canadian airline WestJet has been confronted by paradoxes in early 2016, a period in which the company celebrated its milestone 20th anniversary. After attaining an investment grade rating from Standard & Poor’s in 2014, in 2016 WestJet has secured that coveted status from a second ratings agency, Moodys. WestJet and Alaska joined Southwest Airlines in obtaining investment-grade status in 2014, followed by Delta Air Lines in 2016.
But as it marks two decades in business WestJet is facing challenges. In the short term, economic weakness in the resource-driven province of Alberta dragged down its revenue performance in 1Q2016, and in the long term, WestJet needs to ensure that the employee sentiment that helped propel it to its 20 year anniversary remains intact. It has faced union drives in recent years, which is inevitable as the company continues to expand.
WestJet has evolved from a pure low cost airline to a hybrid company that caters to both leisure and corporate customers. At times the transition has not been easy on its culture. Cultural preservation will be key as WestJet forges a path for the next decade and beyond.
The year 2016 marks the third consecutive year of high single-digit growth between Asia and North America, and the third year of approximately 20% annual growth between China and the United States. Between 2012 and 2016, trans-Pacific flights have grown from 150 a day to 193 while those just between China and the US have doubled from 21 to 42. One in five trans-Pacific flights is travelling between China and the US, and one in four from China to Canada/US.
Although demand is strong, capacity has arguably grown slightly faster. This pressure, combined with wanting to secure a strategic foothold, has the result that airlines on both sides are considering deeper partnerships, including joint ventures. CAPA's recent Americas Aviation Summit held in Las Vegas brought together airlines representing the spectrum of trans-Pacific alliance developments: ANA, which has a joint venture with United and wants to expand it to include Air Canada; Air China, which wants closer ties to its Star partner United, and equity partner Cathay Pacific; Korean Air, which has been aggressively courted by Delta; and Hainan Airlines, which is seeking a partnership solution. Hainan opposes any JVs that foreign airlines may seek to establish with state-owned airlines, such as Air China. Hainan's worries of protectionism could gain ground with the US DoT, which permits JVs so long as there is open skies and no barriers to entry. US-China open skies is one of the most pressing aeropolitical matters.
Comparing Southwest Airlines’ unit revenue trends with the rest of the US industry is difficult due to the benefits the company is enjoying from a new credit card agreement forged in 2015. On a total unit revenue basis, Southwest posted a flat performance in 1Q2016 and expects very modest growth in 2Q2016, which is the last quarter where it will enjoy gains from the credit card deal.
Southwest’s average fare and yields during 1Q2016 reflect the competitive pricing environment that lingers in the US domestic market. Few are venturing to predict when pricing traction will return, including Southwest. The company does, however, believe that it can weather what it has claimed to be an aggressive industry build-up of capacity.
Southwest’s projected capacity growth of 5% to 6% for 2016 remains unchanged. The airline will increase ASMs in 2017 and 2018, but that increase could be slower than in 2016 due to the airline's decision to accelerate the retirement of its Boeing 737 Classics by a year to 2017. The accelerated retirement was driven by training complexities, and an inability by Southwest and its pilots to reach a deal on segmentation of the Classics. Contract talks between Southwest and its pilots have dragged on for nearly four years, and remain under the guidance of a national mediator.
Mexican low cost airline VivaAerobus ended 2015 on a positive note, reversing its losses from the year prior and charting solid EBIDTAR margins. The airline is in the final stretch of a fleet revamp; this entails shedding Boeing 737 Classics operated since its 2006 launch and transitioning to a much younger fleet of Airbus narrowbodies.
Among the new crop of Mexican low cost airlines that formed in the mid-2000s (VivaAerobus, Interjet and Volaris), VivaAerobus remains the smallest measured by market share. Aeromexico, Interjet, Volaris and VivaAerobus are Mexico’s dominant airlines, but VivaAerobus’ 12% in 2015 share was a distant fourth. That could change as VivaAerobus expands its fleet with larger-gauge aircraft, taking steps to broaden the expanse of its network.
VivaAerobus suspended a number of short-lived transborder routes in 2015, and it appears to be focused on rounding out its domestic network in 2016, before resuming international expansion in 2017. During the next few years VivaAerobus could elevate its position in the Mexican market if there is enough demand to sustain the growth plans of the country’s largest airlines.