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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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Whisper it quietly, but Delta and United are dependent on Gulf carrier connections for their Middle East flights. The larger US-Gulf carrier partnerships are between Emirates and JetBlue, as well as American Airlines with both Etihad Airways and Qatar Airways. The latter two are intriguing as American is forcefully involved in the allegations against Gulf carriers; JetBlue is not and in fact strongly supports the Gulf three's expansion. JetBlue will for example open an Orlando-Mexico City service to take feed from Emirates' new Dubai-Orlando service. With Emirates going double daily into Seattle, it could look to replicate with local carrier Alaska Airlines the partnership it has with JetBlue.
Etihad in Mar-2015 said it placed 180,000 passengers onto US carrier networks in 2014 – 493 a day – as well as 50,000 in the first two months of 2015, or 847 a day; around a fifth of Etihad's US passengers connect to a US airline. American Airlines has been a primary recipient of this traffic and has realised the traffic opportunities it is leaving behind. With Etihad serving Dallas-Abu Dhabi only three times a week, there is opportunity for American Airlines to launch its own service to Abu Dhabi and expand its partnership with Etihad. A deeper Gulf partnership will help American, but they are not alone among north American airlines whose interests may be best served by closer links.
Canadian hybrid carrier WestJet has settled into another ambitious year during 2015 as it adds more service to Europe and introduces Boeing 767 widebodies into its fleet. That expansion accompanies further growth of its regional subsidiary Encore, which is growing in Canada’s eastern provinces.
But depreciation of the CAD against the USD and some economic pressure in Canada’s western provinces where WestJet has a large presence are posing challenges for the airline in 2015. At the same time WestJet is facing oversupply in the Caribbean and Mexico, which is creating pricing pressure in those regions.
With its underlying financial strength, WestJet should be able to withstand most of the challenges its faces in 2015 as the company continues to evolve from a traditional low-cost airline to a global competitor. This CAPA analysis of WestJet’s strengths, weaknesses, opportunities and threats continues a series of SWOT reports on global airlines.
United Airlines is bracing for a unit revenue decline during 2Q2015 that could reach the mid single digits as internal and external factors are coalescing to drag down the company’s performance in that metric.
But United maintains that some drivers of the decline are both earnings and margin accretive, and stresses it ultimately makes decisions to maximise margins and return on invested capital (ROIC). To demonstrate that philosophy it has undertaken several fleet changes that include deploying 777-200 onto high frequency domestic hub-to-hub routes.
To mitigate some of the pressure it is feeling from the strengthening USD and competitive capacity actions, United has shaved a half-point off of its projected 2015 capacity growth and now expects a 1% to 2% expansion for the year as it works to shore up margins and sustain profitability.
The same pressures plaguing it US global network rivals Delta and United are also creating challenges for American Airlines in 2Q2015 as it is projecting a similar passenger unit revenue decline to United of 4% to 6%.
Similar to United, American recently refined its 2015 capacity targets by a half a percentage point as supply-demand imbalance has become a short-term mainstay in most of its markets. And like United, American believes 2Q2015 should be the low point for passenger unit revenue degradation in 2015.
For the moment US airlines are weathering unit revenue decline in part through lower fuel costs. But at some point energy expense will inevitably rise, and a rebound in unit revenues will be necessary to continue the industry’s sustained profitability.
Brazilian airline Gol continues to face all the same challenges in 2015 that have plagued the airline during the last two to three years – a weak Brazilian economy, currency devaluation and soft corporate demand.
The company during that time has taken steps to improve its fundamentals including restructuring debt and improving its leverage ratios. Now it has gained approval from shareholders for a new corporate structure to allow the airline to possibly expand foreign ownership, which could create some advantages over the long term.
But in the short term Gol admits that the overall macroeconomic environment was even more challenging at the start of 2015 as corporate demand has fallen-off amidst a still-weak Brazilian economy.
Even after achieving investment grade status in 2014 – becoming only the second US airline to reach that milestone – Alaska Air Group’s valuation still trails its competitors, many of which do not have the financial stability that Alaska has enjoyed for years.
It appears current investor trepidation centres on Alaska’s ultimate fate after Delta has aggressively built up Seattle during the last couple of years, adding significant competitive capacity in Alaska’s largest hub. Despite Alaska’s confidence that it will survive and thrive after Delta’s encroachment, investors seem to be taking a wait-and-see attitude with respect to the new competitive dynamics in Seattle.
In the short term, Alaska is still facing unit revenue headwinds both from its own capacity growth and competitive capacity expansion in Seattle, which may be fuelling the cautious approach investors are taking towards the company.