Analysis Reports

During the past year Avianca and Viva have attempted to drive consolidation in the Colombian market – but have encountered headwinds after the government concluded that their plans would harm competition in Colombia’s aviation sector. 

Despite the fact that Colombia had one of the swiftest rebounds in traffic after the COVID-19 pandemic, the dramatic drop-off demand in the early days of the crisis propelled the country’s largest airline, Avianca, into Chapter 11 bankruptcy protection.  

In Apr-2022 Avianca outlined its plans to purchase its Colombian low cost rival Viva and keep the entities separate. Now those airlines have offered concessions to push the deal through, stressing that time could be running out for Viva, whose financial situation continues to deteriorate. 

But it remains unknown whether they can convince the government to endorse their merger, and as those airlines await the fate of their tie-up, the fast growing airline group JetSMART group is working to spread its ultra-low cost wings to Colombia. 

The CEO of the UK low cost leisure airline Jet2.com, Steve Heapy, recently warned that government-imposed environmental taxes will continue to push air fares up (The Independent, 16-Nov-2022).

"It will put holiday prices up and tax people out of the ability to fly, meaning flying will become something for the rich and privileged only. People want sustainable holidays and this should be seen as an opportunity."

Even before environmental costs, passenger air transport inflation is rampant in Europe in 2022.

Surging prices of oil and jet fuel, together with the return of post-pandemic demand and constrained capacity, are the main causes.

Korea Airport Corporation has, during the last few years, been noted for developing a deep interest in operating airports in South America – specifically Ecuador.

But it has also had its eye on the main chance in Southeast Asia where it feels it can add value.

Having just completed a feasibility study for the expansion of Laos’ second largest airport, in its main tourist city, it is now seeking a formal PPP contract with the Laotian government.

Laos may need to replace its usual main source of tourists, from China, and one potential benefit of a deal with KAC is an economic spin-off, which might result in Korean firms investing in Laos.

All Nippon Airways (ANA) is optimistic that improvements in Japanese outbound leisure traffic flows will help drive the next phase of its international capacity recovery.

The airline’s international traffic has increased dramatically since Japan's government lifted some entry restrictions on 11-Oct-2022, although gains have been uneven across different market sectors.

Inbound leisure traffic has experienced the biggest increases, and ANA has rebuilt its North American network almost to pre-pandemic levels. However, outbound leisure travel has so far been much slower to respond, meaning that this is also the market segment with the most growth potential.

Mainland China traffic remains heavily constrained, and European routes have been severely hampered by ANA’s avoidance of Russian airspace. Similar issues confront ANA’s rival, Japan Airlines.

Like many other Asia-Pacific airlines, ANA is also looking to lock down its long term widebody aircraft replacement plans. However, its efforts are being complicated and it may require short term solutions.

Brazilian operator Azul has held one of the most bullish views as the global aviation industry reshapes itself in a post-pandemic environment.

The airline believes it could eventually serve up to 200 destinations within Brazil. But in the short term, Azul is gearing up to double its presence at São Paulo Congonhas after receiving coveted slots at the airport.

Azul has long sought to build up its presence at Congonhas, and the company believes its ability to tap a diverse fleet will create a competitive advantage as it grows in the market. 

The uncertainty surrounding the reopening of Mainland China’s air travel market remains the major wild card in the outlook for the Asia-Pacific airline industry. Restoring Chinese international traffic flows will be essential to the region’s full recovery, but there are very few details regarding when – and how – this will occur.

Growth in outbound and inbound travel had made China one of the most important markets for many of the region’s airlines before the pandemic. However, international capacity in Mainland China is at skeleton levels due to its strict COVID-19 travel policies.

Airlines are tentatively planning for China restrictions to ease sometime in 2023. Despite some limited moves by the Chinese government recently, there is not yet a timeline for more meaningful steps to reopen cross-border travel.

This limits the international recovery for some of the Asia-Pacific region’s airlines. Even if these airlines fully restore other routes, they will still be missing a large chunk of their pre-COVID operations.

New York's airports are collectively becoming the US capital for public-private airport infrastructure projects.

Hard on the heels of the completion of two terminal projects at LaGuardia Airport, the Port Authority has announced that a USD4.2 billion, ‘state of the art’ Terminal 6 construction project at New York John F Kennedy International Airport is scheduled to start in 1Q2023.

Other works at JFK include the USD9.5 billion development of New Terminal One that will anchor the airport's south side and which broke ground recently in Sep-2022.

This new infrastructure, at all three New York airports, is bestowing respect on facilities that have – perhaps justifiably – come in for a great deal of criticism in previous years.

According to IATA, international bookings for air travel are back to 80% of 2019 levels this year in the UK, and more than 70% in Germany. These nations were Europe's biggest aviation markets before the COVID-19 pandemic, so their pace of recovery is significant to Europe as a whole.

Outside Europe, international bookings are close to 80% of 2019 levels in the US, but only 30% in Japan and 5% in China.

In capacity terms, in the week of 21-Nov-2022 Europe's seat numbers are at 84.5%, which represents a shortfall of 15.5% against the equivalent week in 2019.

This is a deterioration of 0.4ppts from last week and right at the bottom end of the narrow range of 85% to 86% of 2019 capacity that Europe's recovery has occupied for more than six months.

Europe's intercontinental capacity to most regions is recovering faster than intra-Europe, with the notable exception of Europe-Asia Pacific.

Saudi Arabia is often overlooked as the regional powerhouse it aspires to be in Middle East aviation.

But with the opening of two terminals at Riyadh’s King Khalid International Airport, that facility has ambitions to be a ‘global hub’.

Currently it lags airports like Dubai International in some respects.

But the loosening of tourist restrictions in the country will go some way to improving traffic flow both to and from it, and through it.

As an engine of socio-economic growth, regional aviation development is indispensable to the markets and the communities it serves.

In the case of an emerging market such as Vietnam, regional aviation will not only improve the connectivity from big cities to lower density destinations, but also the international connectivity to the neighbouring countries of Vietnam, such as the Southeast Asia region and China, according to the aircraft manufacturer Embraer.

With a population of around 100 million and one of the fastest growing economies in Southeast Asia, Vietnam needs additional aviation capacity to sustain the projected air transport demand, in line with the country’s projected economic growth of 6.4% between 2021 and 2030.

Embraer believes its aircraft portfolio is a good fit for the market.