Analysis Reports

Jeju Air’s proposed takeover of Eastar Jet is a significant development for South Korea’s airline sector. The pair are each important players in a crowded South Korean low cost carrier field, and their combined footprint will change the competitive dynamics in some of the country’s most important international and domestic markets.

It has been clear for some time that the South Korean LCC sector is ripe for consolidation; a Jeju-Eastar merger would be an important step in that direction.

There are currently at least six locally based LCCs in South Korea – Jin Air, Jeju Air, Eastar, T’Way, Air Busan, and Air Seoul. South Korean authorities have added new competitors to the mix by approving three more airlines – Fly Gangwon, which launched in Nov-2019, and Aero K and Air Premia, which are both due to begin flights this year.

More than 20 LCCs – including Korean and overseas-based carriers – competed in South Korea’s international markets in 2019. CAPA and OAG data show that as of 13-Jan-20 LCCs account for 37.8% of South Korea’s international seats and 50% of domestic seats.

Mexico’s value airline Interjet is working to send a positive message at the start of 2020 after enduring challenges in 2019 that ranged from attempting to rid itself of Sukhoi Superjet 100s to battling back reports about its precarious financial state. 

At the same time, Interjet has also been focusing on rejigging its network, bolstering its operations in Mexico City and building a hub in Cancún.

Now, at the beginning of 2020, Interjet is touting its international expansion with a focus on growth to the US. This is an interesting move for Interjet, and occurs just as other Mexican airlines are experiencing the return of a certain level of rational behaviour to the Mexico-US transborder market. 

If there was any doubt that environmental stewardship is rapidly gaining traction among investors, look no further than the annual letter from the BlackRock (Investment) CEO declaring that sustainability is taking centre stage in the company’s investment approach. The declaration is not surprising; however, it should serve as a wake-up call to business executives worldwide that their respective companies need to have a viable environmental, social and governance (ESG) plan in place in order to attract investment. 

The scrutiny of the aviation industry’s environment footprint continues to grow, and airlines are touting a range of environmentally responsible practices they have adopted, but arguably it is tough to garner a unified message from the industry. 

The letter from BlackRock shows that environmental responsibility will become a core part of business for industries worldwide – sooner rather than later. For its part, Delta Air Lines has pledged to become more vocal in the environmental movement in 2020.

Boom Supersonic commits to using Prometheus carbon-neutral fuel for XB-1 flight testing (Boom Supersonic report)

Turkish government to launch carbon-free airport project (Turkey's Minister of Transport and Infrastructure report)

Clean Sky publishes 11th call for proposals with EUR45m budget (Clean Sky report)

VINCI Airports to introduce environmental incentive/penalty scheme across its airport network (VINCI Airports report)

The Canadian ultra low cost airline Swoop recently marked a milestone when it reached two million passengers carried since its launch in Jun-2018. That is an accomplishment for an airline that entered the market under intense scrutiny as sceptics questioned whether Swoop’s parent WestJet could effectively execute owning an airline with a distinctively different business model and brand. 

The consistent message Swoop sends is simple – it is in the business of passenger stimulation. And for now, the airline sees no shortage of opportunity for spreading the ULCC model across Canada. Swoop believes it is also benefitting from having little direct competition over its network of secondary bases. 

Swoop also seems poised to quickly apply lessons quickly learned as it evolves, ranging from distribution to network strategy. 

Headlines

World Economic Forum: Global risk perceptions have shifted from the economy to the environment (WEF report)

Etihad Airways targets zero net carbon emissions by 2050

Lufthansa Group to increase fuel efficiency by 1.5% in 2020

Hi Fly targets carbon neutrality by end of 2021

Regional Jet OÜ to save paper as part of Paper free Cockpit project

Swedavia: it is 'absolutely essential' to develop infrastructure adapted to fossil-free aviation (Swedavia report)

Schiphol Group commits to implement nitrogen reduction measures on advice from Remkes Committee (Schiphol Group report)

VINCI commits to 40% reduction in CO2 emissions by 2030, carbon neutrality in 2050 (Vinci report)

Aéroports de la Côte d'Azur details net-zero emissions 2030 strategy (Aéroports de la Côte d'Azur report)

Dortmund Airport website now CO2 neutral (Dortmund Airport report)

Tourism New Zealand: 93% of New Zealanders agree international tourism is good (TNZ report)

UK Health secretary Matt Hancock: 'We shouldn't be flying less' (BBC news report)

Aviation Environment Federation: 'No justification for cutting APD to save Flybe'

The UK government's decision to help Flybe financially, deferring some of its air passenger duty payments, signals the socio-economic and political importance of regional air services.

It has also prompted criticism from rivals. IAG has complained that the deal breaks EU state aid rules (although, with Brexit imminent, the Boris Johnson-led government may not care). EasyJet and Ryanair have argued that taxpayers should not prop up a rival airline.

The deal is thought to be conditional on Flybe's shareholders (Virgin Atlantic, Stobart Group and Cyrus Capital) investing new capital, less than a year after they bought it. Before the government's intervention, they had appeared reluctant.

After others (Monarch, bmi regional, Thomas Cook) were allowed to go bust, this marks a sharp change of direction by the UK government on bailing out struggling airlines. The case focuses on jobs, regional connectivity (Flybe is the biggest UK domestic regional airline), and Flybe's importance to several smaller airports.

Flybe's change of ownership has not changed its structural problems and neither will this bailout. Instead, a more structural solution would be to split Flybe into three: competing for justifiable subsidy on designated public service obligation routes; operating those routes that can be commercially profitable; and exiting routes with no prospect of sustainable profitability.

Investors in airports have long been confused by government policies in Indonesia where they have, in theory, been welcomed, even coveted, but where the state airport operators continue to acquire those airports around the country that might attract those investors.

At last a consortium, involving an Indonesian company with experience in the air transport business and a Singaporean one of international repute, has acquired a concession on an airport which supports tourist visits to see the ‘Komodo dragons’ – huge lizards that were only discovered in the 20th century.

But the transaction came just as the government was about to close off the Komodo island and then to bring in a hefty tourist charge to visit it – not what the joint venture wanted to hear.

Headlines

Ryanair's Youtube ad claims "lowest fares, lowest emissions"

WEF and World Energy to offer SAF for flights to the WEF 50th annual meeting

75% of Europeans intend to fly less in 2020 to combat climate change: EIB survey

Rolls-Royce takes majority holding in power storage and battery specialist Qinous

Geneva Airport aiming for zero net emissions by 2050

British Airways and China Southern Airlines commenced a joint venture agreement on 2-Jan-2020. The agreement covers the two airlines' routes between the UK and China and will expand to include their domestic networks. BA operates from London Heathrow to Beijing and Shanghai, while China Southern serves Heathrow from Guangzhou, Sanya, Wuhan & Zhengzhou.

Under the deal, BA and China Southern cooperate on schedules and pricing, and providing reciprocal website booking, frequent flyer benefits and lounge access.

The new agreement builds on British Airways and China Southern's codeshare agreement, previously limited to carrying each other's codes only on certain domestic routes (and BA's Heathrow-Amsterdam service). The routes operated by the two airlines between London and China are now not only codeshare routes, but also form the core of the JV arrangement.

According to data from OAG, BA and China Southern's combined UK-China capacity in the JV jumps ahead of the Virgin Atlantic/China Eastern JV (due to begin in summer 2020, when Virgin joins the wider Europe-China JV operated by Air France-KLM and China Eastern). The JV also has more capacity than the previous market leader, Air China.