Analysis Reports

Sustainability and environmental responsibility are clearly mainstays in the global aviation industry and many airports worldwide are making changes to reduce their environmental footprint, anticipating the added benefit of reducing costs. 

Solar panels are becoming more commonplace at airports and in the US, Chattanooga airport has reached a major milestone in becoming the first airport in the country to run completely on renewable energy from solar panels.

This is a significant development, and Chattanooga seems to have addressed some of the unique challenges that airports face as they evaluate adding or expanding their use of solar panels, including the issue of glint and glare problems for pilots. 

It could be some time before other airports in the US follow Chattanooga’s lead as airports located in larger metro areas may face space constraints in installing enough solar panels to replace the use of electricity completely.

But Chattanooga could offer lessons to other airports, which will increasingly become included in renewable energy schemes adopted by their respective municipalities. 

‘Part of the Union’ with its refrain “You don’t get me I’m part of the union”, is a famous 1970's song (by the British band Strawbs).

Penned during a period of intense industrial rest in the UK, it was interpreted as a pro-union song when in fact it was a sarcastic put-down. Such is the level of trade union-led strikes in the airline and air traffic control sectors at the moment that it is surprising that the song has not resurfaced as a contemporary anthem.

But what of the airport sector? How does that compare with the airlines and ATC for industrial unrest?

It appears that a comparative lack of organisation, with many different roles being represented by multiple unions, means that bargaining and, when required, strike action are less coordinated. When different unions do choose to work together though and choose to withdraw labour, the impact on the travelling public can be every bit as problematic as action by pilots, cabin crew and air traffic controllers.

Airport unions are especially dismayed by concession agreements, but they sometimes engage in the most unlikely campaigns.

Finnair launched Helsinki to Los Angeles at the start of summer 2019 and will add Beijing Daxing to its Beijing Capital service this winter, when Guangzhou will become a year-round destination. The airline also plans to launch a service to Busan in South Korea in summer 2020.

These route additions underline that the focus of the airline's long haul network remains North East Asia, building on its connecting strategy between there and Europe via its Helsinki hub. In addition, its US network is growing, albeit from a small base, and this is giving some additional impetus to its east-west transfer flows.

Finnair's expansive mood is coming at a time when it admits that there is a slowdown in its key markets. Its 1H2019 financial results statement indicated that its FY2019 operating margin is likely to fall below its target of 6.0%, since revenue is expected to grow at a slower rate than capacity growth.

This report considers Finnair's strengths, weaknesses, opportunities and threats.

The UK-Russia aviation market is a massive underachiever, judged by its size against the magnitude of each country as a market in its own right.

There are currently only two airlines, Aeroflot and British Airways, operating only 70 weekly frequencies on a meagre four airport pairs and two city pairs (London-Moscow and London-St Petersburg) between two of Europe's largest nations.

This underserved market is attracting interest from new entrants.

The ultra LCC Wizz Air will launch two new routes from the UK to Russia on 1-Oct-2019, with services to Moscow Vnukovo and St Petersburg from London Luton Airport operated by its Wizz Air UK subsidiary. On 27-Oct-2019 Ural Airlines will launch London Stansted to Moscow Zhukovsky.

Nevertheless, the total of six UK-Russia airport pairs in the coming winter is still a paltry figure, and weekly seat capacity will only be back to where it was in 2014. Since then, easyJet has abandoned its loss-making three-year foray into this market, and Aeroflot's LCC subsidiary Pobeda has been and gone in just one winter season. UK-Russia has long been seen as a difficult market for new entrants.

Wizz Air UK, the UK subsidiary of a Central/Eastern European airline, may change that.

Sacramento International airport posted record passenger numbers in 2018, achieving impressive double digit passenger growth and surpassing its own forecasts for the year. 

The airport was one of the top growing mid-sized airports in North America last year, according to CAPA partner OAG. Sacramento was ranked seventh among the top 50 mid-sized airports in seat growth in 2018, and has recently welcomed services from two new ULCCs – Spirit and Sun Country. 

Sacramento is no doubt still working to add long haul flights to its network roster, and it remains to be seen whether the airport will secure intercontinental flights in the future.

But the upside is that its prospects for maintaining steady passenger growth remain promising. 

Spirit Airlines is the largest ULCC in the Americas and deserves a lot of credit for making the model well-known, albeit at times not in the most positive ways. 

As both Spirit and the ULCC model reach a certain level of maturity, the airline apparently no longer internally refers to itself as an ultra low cost airline, but believes it is more of a 'high value provider'. 

Although Spirit’s long term fundamentals remain solid, the company is facing short term cost pressure and the challenge of correcting aspects of its operations, after changes it made for the busy summer time period have resulted in a tarnish on its improving operating performance. 

This report considers Spirit’s strengths, weaknesses, opportunities and threats.

LCC growth in Argentina is continuing full steam ahead, with low cost operators representing approximately 31% of the country’s domestic flights for the seven months ending Jul-2019. 

But there is growing uncertainty about the future of low cost operators in Argentina as the odds of the country’s current president Mauricio Macri winning re-election are growing increasingly slim. Mr Macri’s government is responsible for liberalised policies that have created opportunities for low cost operators to establish themselves in Argentina.

After a Cristina Kirchner-backed candidate showed likely to win the next election, the Argentinian peso lost nearly 20% of its value in a week. Even as the political winds appear to be shifting within Argentina, the country’s start-up low cost airlines remain in growth mode, looking to seize on opportunities for traffic stimulation within the under-served country. Even as the political winds appear to be shifting within Argentina, the country’s start-up low cost airlines remain in growth mode, looking to seize on opportunities for traffic stimulation within the country. 

Following a commitment for 31 additional Airbus aircraft, Cebu Pacific is poised to grow capacity in Manila by more than 40% over the next five years as it accelerates an upgauging strategy. The Philippines' largest airline group is not expecting to be able to add any flights at Manila due to slot constraints, but the average seat capacity per departure should grow from 195 seats currently towards an average of nearly 280 seats.

Increasing densification is a sensible strategy for Cebu Pacific as the resulting reductions in unit costs enable it to maintain very low fares in a price sensitive market while maximising precious slots at its main hub. Over the next few years Cebu Pacific will stop operating turboprops at Manila, double the size of its widebody fleet and transition most of its Manila-based narrowbody flights from A320s to A321s. 

Cebu Pacific is the launch customer of a new 460 seat high density configuration for the A330-900 and will receive 16 of the new type from 2021 to 2024. It is also the launch customer of A320neos in a new 194 seat configuration and plans to start receiving in 2020 A321neos in the 240 seat maximum configuration. 

The airline group’s overall seat capacity has grown marginally in the last three and half years as it has waited for the delivery of new generation aircraft, which have been delayed due to Pratt & Whitney engine issues. Cebu Pacific is resuming double digit capacity growth in 2H2019 and expects annual seat capacity growth of 10% to 11% from 2020 to 2024.

Air Malta is accelerating fleet renewal as it takes delivery of two A320neos in Aug-2019. The government-owned flag carrier took its first A320neo in 2018 and plans to transition to an all-A320neo fleet within the next few years as eight A320ceo family aircraft are phased out. 

The A320neo is driving a 17% reduction in costs and enabling Air Malta to improve its inflight product, as all the aircraft will be outfitted with WiFi. The airline also recently introduced an improved business class service, although it is sticking with a convertible business cabin and blocked middle seats. 

Air Malta turned its first profit in the fiscal year ending Mar-2018 after nearly 20 years of losses, earning it the CAPA 2018 Airline Turnaround of the Year Award. It was back in the red in the year ending Mar-2019 and is hoping that fleet renewal will help drive sustainable profitability.

A new network consolidation phase, which will focus expansion on existing rather than new destinations, should also help improve profitability. Air Malta launched a staggering 28 routes in 2018, impacting its profitability as LCC competition intensified. 

As the bond rate inversion curve appeared on 14-Aug-2019 in the US and the UK, Wall Street headed rapidly south. A number of other countries have already this experienced inversion for a while. And in Germany, the world’s fourth largest economy, GDP growth rate went into reverse in 2Q2019.

Does this mean recession is coming, or even imminent?

Air freight numbers have been steadily falling for nearly a year. They used to be good forward indicators of where the world economy is headed, but not so much in recent years. Passenger traffic growth too has slowed markedly in the past year.

Global trade conflict is creating uncertainty and aviation is inevitably caught up in that.

So are we heading for trouble, and if so, when?