Analysis Reports

Saudi Arabia's aviation market has entered a new phase of rapid growth, facilitated by liberalisation. Saudi Arabia recorded 8% passenger growth in 2017 and the rate of growth could reach the double digits over the next several years. 

Five airlines now serve the domestic market, compared to only two airlines two years ago. Intensifying competition has led to lower fares, stimulating demand and leading to faster growth, although overcapacity is a potential concern.

The international market is expanding rapidly and has an even brighter outlook, driven primarily by rising inbound demand as Saudi Arabia focuses on tourism as part of a diversification strategy. Aviation is also a major priority for the government, leading to an ambitious expansion plan at the flag carrier Saudia and the opening of a massive new terminal at Jeddah Airport.

Change is now in the air as low cost long haul operators capitalise on the capabilities of new narrowbody aircraft and increasing liberalisation to stimulate competition in markets traditionally dominated by full service carriers.

As a prime example, LCCs, led by Norwegian, have been encroaching on the tightly controlled North Atlantic route over the past five years. LCC growth here and elsewhere owes much to new, more cost efficient aircraft types – both the widebodies, such as the 787, and the narrowbodies, such as the Boeing 737 MAX and A321neo.

A panel discussion at the inaugural CAPA Low Cost Long Haul Summit in Seville on 4-5 October 2018 will consider the role of new aircraft technology in opening up new long haul markets for LCCs. It will also consider the response of legacy airlines in defending existing routes or taking the fight to the LCCs with new routes of their own.

This report provides some context for this discussion by looking at the importance of new routes to the growth in North Atlantic capacity since 2012, which was the year before Norwegian entered. New airport pairs have driven the majority of seat growth on the North Atlantic since 2012, but incumbent airlines (and airports) have added more seats than new entrants.

Thailand is planning major expansion of its MRO sector, which should enable the country’s maintenance providers to compete for more regional business. Thailand currently has relatively limited MRO capacity, making it difficult to handle its own fast growing fleet.

The Thailand government is heavily promoting and investing in a new maintenance complex at U-Tapao Airport outside Bangkok. Thai Airways’ maintenance division, Thai Technical, is planning to open a new joint venture widebody airframe maintenance facility at U-Tapao with Airbus and could forge partnerships with other manufacturers. The largest LCC group in Thailand, AirAsia, is also aiming to establishing a MRO complex at U-Tapao. 

Thai Technical’s main facility is now at Bangkok’s old airport Don Mueang, while Thai AirAsia outsources its maintenance. Bangkok Airways and several independent MRO providers also have facilities at Don Mueang, where there is limited, or no, space for expansion. 

The return of US sanctions against Iran in Aug-2018 is having a significant impact on the Iran-Western Europe aviation market.

British Airways will suspend its London Heathrow-Tehran service from 23-Sep-2018, leaving Iran Air as the sole operator on the route. BA has said that the route is no longer commercially viable, due to a fall in the number of business travellers.

KLM is to cease operating Amsterdam-Tehran from 24-Sep-2018, blaming the route's negative results and financial outlook. Iran Air will also be the only airline on this route. From the same date, Air France's Joon-branded service from Paris CDG to Tehran will also be suspended, leaving the route to Mahan Air and Iran Air.

Austrian Airlines will suspend its triangular Vienna-Shiraz-Isfahan-Vienna service in late Sep-2018, although it will maintain its Tehran operation. In addition, Aegean Airlines will discontinue its service to Tehran from Athens (included in Eastern/Central Europe) from 11-Oct-2018, leaving no other operator.

Moreover, Iran Air and Mahan Air are reducing capacity to Western Europe and Qeshm Air is exiting this market entirely.

After strong growth in 2016 and 2017 (following the removal of sanctions), Iran-Western Europe seat capacity is set to fall by 30% this winter.

Despite a raft of negative publicity swirling around Cancún during the last year, the region’s airport posted double digit passenger growth in 2017 and a nearly 7% increase through Jul-2018.

But US airlines are making adjustments to their schedules for Cancún as a result of various travel advisories stemming from violence and incidents of blackouts from alcohol consumption at resorts in the Cancún area.

The US is by far Cancún’s most important international market, and Cancún’s tourism officials are stressing that the latest travel advisory issued by the US State Department does not include Quintana Roo, which is home to Cancún and several other tourist areas. However, recent violence occurring outside the resort area in Cancún continues to create a negative perception for travel to the region.

For the first time Ryanair's traffic figures for Aug-2018 included Laudamotion, the airline founded by Austria's ex-Formula 1 world champion Niki Lauda. The Austrian airline carried 0.5 million passengers in the month, compared with 13.3 million for Ryanair, and although it may be small, its 92% load factor suggests that it is tapping into firm demand in its markets (although it is still short of Ryanair's 97% load factor in Aug-2018).

Laudamotion only launched operations in May-2018 and, based on OAG data for the week of 10-Sep-2018, is only Europe's 56th largest airline by seats. Moreover, the loss-making start-up is not expected to break even for three years. Yet Ryanair, Europe's largest airline, has raised its initial 25% stake in Laudamotion to a controlling 75% after receiving regulatory approval to do so.

On a Europe-wide scale, the transaction makes virtually no difference to market concentration. Nevertheless, as it is a very rare example of acquisition by Ryanair (the last one being its purchase of Buzz from KLM in 2003), it is interesting to consider what Laudamotion brings to the Irish LCC. The Lufthansa Group would seem to be the competitor most clearly targeted by Ryanair with its newest weapon.

NokScoot was established in late 2013 as a JV between Thailand’s Nok and Singapore’s Scoot. The airline commenced operations in early 2015 with charter flights using two 415-seat 777-200s based at Bangkok Don Mueang.

A third 777-200 had joined the fleet by the time NokScoot began scheduled flights in May-2015. It then did not expand its fleet for over two years. NokScoot finally added a fourth 777 in Oct-2017 and a fifth aircraft in Apr-2018. 

NokScoot is planning to accelerate fleet expansion significantly over the next year. It has committed to taking two 737-800s in 4Q2018, which will be used to supplement 777s on existing routes to China and Taiwan. NokScoot plans to add another four 737s in 2019, as well as two more widebody aircraft, resulting in a fleet of 13 aircraft at the end of 2018 compared to only five aircraft currently.

Vientiane Airport has doubled the size of its international terminal, supporting a Laotian initiative to boost tourism. Laos expects Vientiane’s international passenger traffic to double over the next five years, driven by a rapid increase in visitor numbers.

Vientiane is being served by 15 foreign airlines this summer, whereas at the beginning of the summer 2016 season Vientiane was served by only seven foreign airlines.

Vientiane currently has scheduled international services to 16 destinations. China accounts for eight, or half, of the destinations. Korea and Thailand are the other major markets; Vientiane is also linked with Cambodia, Malaysia, Singapore and Vietnam. 

Following sold out conferences in New York, Singapore and Rio this year, the Association of Corporate Travel Executives (ACTE) will, in partnership with CAPA – Centre for Aviation (CAPA), be bringing the next edition of the CAPA-ACTE Global Summit & Corporate Lodging Forum to Sydney on 3-4 December, 2018. More info here: https://sydney18.capaevents.com/

With a proven track record of attracting 400+ senior executives from the corporate buyer community and travel industry, the CAPA-ACTE Global Summit & Corporate Lodging Forum will be the largest gathering of corporate travel executives in the southern hemisphere.

Norwegian is suspending services between London Gatwick and Singapore, which is currently the longest LCC route in the world. The decision to suspend London-Singapore after only a year operating the route highlights the challenges of true long haul operations for LCCs.

It can be difficult for LCCs to achieve a sufficient enough cost advantage compared to FSCs on routes of more than 12 hours, particularly in a high oil price environment. The Singapore-London market – and the broader Southeast Asia-Europe market – is intensely competitive, with several airlines offering aggressively priced one-stop options. 

The Europe-North America market, which is generally higher yielding and cheaper to operate because of the shorter length of flight, is more attractive to Norwegian than Europe-Asia. Norwegian also now has new opportunities in the Europe-South America market following the upcoming launch of its new Argentina-based subsidiary, which makes Latin America more strategically important for Norwegian than Asia.