Analysis Reports

Two French airlines are to launch Paris Orly to New York Newark services in Jun-2020.

The leisure airline Corsair, sold by TUI Group to Intro Aviation earlier this year, plans to deploy A330-900neos on the route from Sep-2020. The LCC French bee will deploy A350-900s. Both are long haul specialists, but neither currently operates to New York.

Since these plans were announced, another leisure focused French airline that had long been operating between Paris and New York went into receivership: XL Airways France, which operated from Paris CDG to Newark, was the fifth largest of eight airlines on the city pair before hitting financial difficulties.

Paris-New York is the biggest intercontinental city pair by seats from continental Europe and Paris CDG-New York JFK is the largest intercontinental airport pair by seats from continental Europe. Paris-New York has only 44% of London-New York's annual seats in 2019, but it has grown faster since 2012. The Air France/Delta JV's share is higher than the British Airways/American JV's share on London-New York but this is falling, and there are more competing airlines.

Corsair and French bee will follow three other new entrants on Paris-New York since 2015: Norwegian, LEVEL and (briefly) Primera Air.

Canada’s second largest airline, WestJet, has gone through numerous changes to its business model during the last decade – introducing two new subsidiaries, Encore and Swoop, adding new regional partners, forging a new joint venture and launching long haul operations, first with 767s and then with next generation 787s. 

The dizzying pace of change has drawn its fair share of scrutiny from the investment community, reflecting the dichotomy that airlines face in satisfying the shortsightedness of markets while also crafting long term strategic plans. 

WestJet won’t be subject to the quarterly whiplash that other airlines face now that it is being bought by the private equity firm Onex for CAD5 billion. But the airline continues to forge a clear growth strategy that entails building deep partnerships to broaden its international reach and continuing to capture a larger share of Canada’s corporate travellers. 

Alaska Air Group’s merger with Virgin America was one of the more seamless in US aviation history from an integration perspective, and with the combination largely complete, Alaska is now working to reach its long term margin and leverage targets. 

With the exception of Hawaii, the company is also benefitting from an overall positive pricing environment and has raised its unit revenue outlook for 3Q3019. Alaska is also reaping benefits from new revenue initiatives, including segmented fares and other ancillary products, as it works to deliver an ancillary performance that mirrors its larger network peers. 

Alaska also appears to be benefitting from some stabilisation in highly contested transcontinental markets; however the airline is cutting some mid- and transcontinental routes as it works to maximise the overall profitability of its network. 

Aeroflot Group reported an 11.4% increase in passenger numbers for the first eight months of 2019, in line with its target growth rate for the year. The group is on course to achieve its 10th straight year of traffic growth. From 2008 to 2018, its compound average growth rate in passenger numbers was 17.0%.

This was boosted by acquisitions in 2011, but its average over the past five years, based on organic growth, has still been a vigorous 12.2%. Its growth has been resilient to fluctuations in the macroeconomic and geopolitical backdrop in Russia.

Aeroflot has no plans to slow down. Its target to carry between 90 million and 100 million passengers in 2023, compared with 55.7 million in 2018, implies continued growth of approximately 11% pa.

CAPA's analysis of Aeroflot Group's strengths, weaknesses, opportunities and threats suggests that it is well placed to achieve this target.

It is early days for Delta Air Lines’ operation of its fleet of Airbus A220 narrowbodies, but so far the aircraft is meeting the airline’s expectations and the route network for the jet continues to expand beyond the initial deployment from New York JFK and LaGuardia.

Delta continues to believe that the aircraft offers a superior customer experience in the US domestic market while delivering much better economics than smaller regional jets the aircraft is replacing. 

Until JetBlue takes delivery of its first aircraft in 2020, Delta has the distinction of being the only A220 operator in the US, which means that Delta’s strategy for the aircraft will continue to be closely scrutinised. 

On 26-Sep-2019 IAG issued a profit warning lowering its 2019 operating result guidance by EUR215 million, or 6%.

IAG blamed the downgrade on three main factors. Two of these were one-offs and broadly known to the world at large, even if not previously fully quantified – namely, the Sep-2019 pilot strike at British Airways and threatened Heathrow strikes.

The third, however, was less expected and highlighted some changes to underlying demand patterns. Since IAG last reiterated its previous 2019 outlook in early Aug-2019, forward booking trends at Vueling and LEVEL have deteriorated to the extent that they are hitting its profit guidance.

IAG had previously maintained its 2019 operating profit guidance – that it would match last year's result – since the beginning of the year, apparently defying the gravity that has weighed on its peers. In Jun-2019 Lufthansa Group lowered its profit target. Although Air France-KLM has not published any profit guidance, its Aug-2019 traffic report revealed a decline in load factor and weaker bookings.

IAG is still forecast to report the highest operating margin among Europe's five leading airline groups in 2019. Nevertheless, its profit warning is further evidence of a downswing in the European airline profit cycle.

IATA took a significant step when it unveiled a new '25by2025' policy that urges its airline members to increase the level of female representation in their senior ranks and under-represented positions during the next six years, but the commitment needs to be underpinned by real initiatives designed to break the barriers that prohibit women from rising through the ranks. 

Gender parity is becoming widespread in aviation discourse as airlines work to understand ways in which they can work to enlarge the number of women in their work forces. 

Canada’s largest airlines – Air Canada and WestJet – are keenly aware of the importance of increasing female representation in their executive ranks, but believe that invoking quotas is not beneficial in pushing for more gender equality within their organisations. 

“There is only one way to finance costs created by climate change – through taxes”. Swedish Finance Minister Magdalena Andersson’s 20-Jun-2019 comments to a Netherlands-hosted conference on carbon pricing and aviation taxes, represent a growing view among Europe’s politicians and electorates. The conference proposed a jet fuel tax.

The Swedish word flygskam, ‘flight shame’ in English, underpins an anti flying movement that has spread from Scandinavia to other European countries. It reflects a growing sentiment, particularly in the developed world, that flying is a source of guilt and shame because of its climate change impact. Sweden introduced a per trip aviation tax in 2018, but Ms Andersson would like to introduce a tax on jet fuel. Meanwhile, the 2018 tax and public sentiment towards aviation’s climate change impact are depressing demand for air travel in Sweden.

Only a small proportion of the world’s population flies, but for those that do, it can account for a very significant proportion of the CO2 emissions attributable to them individually.

As a result of ‘flight shame’, this is causing a small but growing number of people to reduce or even eliminate discretionary air travel. Global aviation should watch Sweden with care.

CAPA’s 2019 New Zealand Aviation Summit & CAPA New Zealand Corporate Travel Summit, hosted by Auckland Airport and Air New Zealand, is due to be held on the 16-17th of October 2019.

Gathering at the event will be key aviation leaders and stakeholders from New Zealand and the Pacific Islands, including C-level executives from airlines, airports, air navigation service providers, tourism bodies and industry technology partners.

Even as the controversy continues over whether low cost long haul LCC operations are sustainable, the fact is that there has been a dramatic expansion in this category over the past few years.

After years of developing short haul, point to point operations, LCCs have reached a point where the sophistication of their business models and new aircraft technologies are aligning with revised passenger expectations to make long haul services a true growth proposition.

Aside from the debate about what is a long haul low cost operation, the central issue is that the high fare, high service proposition of traditional long haul markets is ripe for disruption. As a consequence, airports and destinations are aggressively courting LCCs to develop new direct routes.

Not all is smooth sailing though. As recent bankruptcies in Europe illustrate, the margins in aviation remain slim and today’s market disruptors are potentially tomorrow’s case studies in what not to do. The clouds of an economic downturn are also looming, and there are those that doubt the viability of the model to weather the storm.   

CAPA’s Low Cost Long Haul Global Summit to be held in Hamburg on 10/11-Oct-2019, will explore this new frontier of low cost travel as one of the key trends for aviation.