Analysis Reports

Management at the Mexican ultra-low cost carrier Volaris recently took great effort to deliver a clear message to analysts and investors - "we are different from our US counterparts".

With Frontier Airlines and Spirit Airlines languishing during the past year, driven in part by changing market dynamics, Volaris believes that the elements that have propelled the ultra-low cost sector in Mexico for more than a decade remain intact.

A major driving force for Mexican ULCCs has, and continues to be, immense opportunity to switch bus passengers to air travel. And with a restoration of Mexico's safety rating by the US, capacity rationalisation has emerged in Mexico's domestic market, and has created new opportunities for Volaris in the transborder market.

Another way Volaris has distinguished itself from its peers in the US is the way it has faced headwinds created by issues stemming from the geared turbofan engines powering its Airbus A320neo fleet.

A sizeable portion of Volaris' fleet will remain grounded throughout the remainder of the year, yet Volaris posted a profit in 3Q2024, and expects its revenue for 2024 to inch close to its performance in 2023.

Fraport's management of Saint Petersburg Pulkovo Airport, where it was a major part of the consortium that took it under concession with a large stake in 2010, has taken several twists and turns since then, with a difficult acquisition at first proving to be a high performer.

Shortly after the Russian invasion of Ukraine in Feb-2022, Fraport withdrew its hands-on management.

Later a new company was set up by the Russian government, to which Fraport's shares were transferred. Now authorisation has been given for Fraport's stake to be sold to an unknown company.

What was always a difficult transaction became a surprisingly successful one, and then turned into a nightmare, adding to Fraport's woes in respect of abandoned and to-be-abandoned concessions in China and India.

But Fraport is less likely to be hurt by this about-turn in events than is the airport itself.

According to Airlines UK chief executive Tim Aldersdale, "we need a revised and joined-up approach to the UK's strategically vital aviation sector".

His comment followed the UK Labour government's first Budget Statement in late Oct-2024.

The most obvious aviation measure in the UK Budget is a hike in Air Passenger Duty (APD), criticised by Ryanair's Michael O'Leary as a "short-sighted tax grab".

Ryanair plans to cut UK capacity by up to 10%, potentially removing 5 million passengers annually from Europe's biggest aviation market.

The UK Budget also included further support for SAF development and GBP975 million of additional research and development funds for aerospace over five years. Aviation bodies welcomed these measures, but they are relatively minor, and the focus was on APD.

Although the increases might have been much greater, UK passenger charges are already high compared with other large European markets. Airlines are concerned that APD is seen as a form of demand management, while taking money away from aviation when it needs to fund net zero.

This two-part report on the Asia Pacific airline industry is based on a presentation by Adrian Schofield, CAPA - Centre for Aviation and Aviation Week Network senior air transport editor for Asia-Pacific, at the CAPA Airline Leader Summit | Asia in Hong Kong on 5-Nov-2024.

Part one of this report discussed overall recovery trends in the Asia Pacific market from multiple angles, as well as looking at the important Thailand market as an example of how these trends are playing out.

This second part looks at further market examples with mainland China, Japan, Hong Kong and India, as well as examining aspects such as aircraft order backlogs, LCC market penetration, and challenges for 2025.

London Stansted Airport, 35 miles northeast of the UK capital, is its third busiest airport and will exceed 30 million passengers in 2024. It is regarded in some quarters as a downmarket sort of facility overrun with students and backpackers, mainly on account of the overwhelming presence of low cost airlines, led by Ryanair.

It is situated at the heart of overlapping designated economic areas that play host to much of the UK's economic development in new and breaking technologies. Despite that, it has few full service carriers and is heavily reliant on budget carrier business.

Nevertheless, it is ambitious to fulfil the travel requirements of that business community, as well as leisure travellers. While it will not be getting a second runway any time soon, it is about to benefit from a GBP1.1 billion infrastructure investment that will extend the existing terminal while keeping all the passengers under one roof.

The ever-changing nature of the air transport business requires close control of the design of such an extension to cater for evolving passenger demand, both on the ground and in the air, for flight connection facilities, and preparation for future pandemics and so on.

This report looks into these and other issues.

For the Asia Pacific airline industry, 2024 has been marked by more hurdles on the path to full recovery of international capacity and traffic.

The region's overall capacity has moved much closer to 2019 levels, but new and familiar challenges meant that the rate of growth slowed significantly compared to the previous two years.

This overview is based on a presentation by Adrian Schofield, CAPA - Centre for Aviation and Aviation Week Network senior air transport editor for Asia Pacific, at the CAPA Airline Leader Summit | Asia in Hong Kong on 5-Nov-2024.

Part one of this report discusses overall recovery trends in the Asia Pacific market from multiple angles, as well as looking at Thailand as an example of how these trends are playing out.

The second part will look at further market examples in mainland China, Japan, Hong Kong and India, as well as examining aspects such as aircraft order backlogs, LCC market penetration, and challenges for 2025.

This regular CAPA - Centre for Aviation report provides a summary of major developments in the aircraft interiors sector, supported by data from the CAPA - Centre for Aviation Aircraft Interiors Database and CAPA - Centre for Aviation News.

This edition covers Sep-2024 and Oct-2024 and features:

• Starlink signs with United Airlines and Air France;
• Cathay Pacific replacing the Cirrus: a look back at the original reverse herringbone;
• Latest global interior updates.

The Brazilian airport concession process, which began in 2011, has come a long way since then, with many of the country's airports now under contract to a variety of mainly western operators, while in latter tranches more Brazilian companies came on board when the smaller airports became available (of which there are many).

Along that road there have been successes and failures, economic crises, the COVID-19 pandemic, complaints about misinformation concerning traffic forecasts, and a handful of re-concessions.

Now the second phase is being entered, one of maturity in the marketplace, in which concessionaires are being pressed for enhanced investment in the properties, and in some cases being offered a carrot to do so.

Going hand-in-hand with that is a sudden and unexpected renewal of the procedure to offload even more of the small regional airports, those which are there for social rather the business or tourism purposes, and those that were expected to be managed by the state operator Infraero as its role changed.

The seventh concession tranche was anticipated to be the one which wrapped up the process, but there is life in the old dog yet, as the government incentivises existing concessionaires to invest in these isolated airports - bundled up in groups of six like a fire sale - by dangling the attraction of an extension of the existing contract.

Whether that will be enough to attract them is yet to be determined.

Frontier Airlines has remained unabashedly bullish about the ultra-low cost business model in the US during the past year, as the weaker performance of budget airlines has triggered questions about their long term viability.

After several product pivots and a network revamp, Frontier is declaring itself as "the premier ULCC," and believes that it can deliver double digit margins by mid-2025.

It's a big gap to close, considering that Frontier's forecast adjusted pre-tax margin for 4Q2024 is 0-2%.

Given the ample progress the airline needs to make, markets are likely to adopt a wait-and-see approach before rewarding Frontier with higher valuations.

As 2025 approaches and travellers start thinking about where they'll go next year, Skyscanner has revealed the most exciting industry and traveller trends it is seeing on a global and regional level - from spending habits to the hottest new destinations.

The latest 2025 edition of its Horizons report brings together proprietary search and booking data with a survey of 19,000 travellers worldwide to reveal a unique forward-looking view of changing attitudes, planning and destination trends.