Analysis Reports

In addition to being a gateway to/from London, a city with more airline seats than any other in the world, London Heathrow Airport is also the UK's main international hub.

According to OAG data for the week of 12-Oct-2019, London Heathrow Airport has direct links with nine UK regional airports (i.e. excluding London). It is feed from these nine airports that gives Heathrow its UK hub status.

However, there are 20 airports in other Western European countries that have direct flights to more UK regional airports than Heathrow has (week of 12-Oct-2019, source: OAG): seven of these have at least double Heathrow's regional UK links, led by Jersey, with 21.

The majority of these airports are southern European leisure destinations and they do not threaten Heathrow's hub status. However, three important European hubs have more UK regional links than Heathrow: Amsterdam (20), Dublin (18) and Paris CDG (14).

Amsterdam and Paris CDG both offer large global networks and each has more destinations than Heathrow in Africa and Latin America, while Dublin has a strong North American niche. In addition, although Madrid, Munich and Frankfurt have fewer UK regional links than Heathrow, these hubs each serve at least one UK airport with no direct Heathrow flights.

Etihad Airways has expanded its codeshare agreement with TAP Air Portugal from 27-Oct-2019. Under the new arrangements, TAP will carry Etihad's EY code on nine additional routes from Lisbon and on one additional route from Porto (to London Gatwick).

The partnership gives each access to the other's networks, although it is heavily skewed towards routes where TAP carries the EY code and both airlines have multiple codeshare partners on several of the partnership routes. Moreover, it could have greater power if Etihad served Lisbon and if TAP served Abu Dhabi.

After the unravelling of Etihad's equity strategy, codeshare remains an important tool for the airline to enhance its access to Europe. Among the four superconnectors (the Gulf three of Emirates, Qatar Airways and Etihad plus Turkish Airlines), Etihad has the most codeshare partners and destinations in Europe.

However, Qatar Airways has added the most codeshare destinations in Europe over the past five years, while also growing its own network in Europe. Indeed, Qatar Airways appears to be going further than the others in growing through a balance between own network, codeshare, equity stakes and global alliance membership.

As flight shaming becomes more prevalent in news headlines and a dominant force in social media, airlines that do not give their attention to a long term strategy for sustainability could, at some point, find themselves at a competitive disadvantage. 

But strides in sustainability, while both commendable and necessary, are slow in nature, and even as progress is being made it might not be at an adequate pace to satisfy the growing detractors of air travel. 

Flight shaming is not as strong in North America as in other regions of the world, but North American airlines understand that the industry as a whole needs to communicate its environmental stewardship better.

But is there really a unified message being delivered by the airline industry? 

On 4-Nov-2019 IAG announced that Iberia had agreed to buy Spanish rival Air Europa for EUR1 billion, with completion expected in 2H2020. It does not require IAG shareholder approval, but will require regulatory approval.

Air Europa's brand will initially be retained and it will be run as a standalone profit centre within Iberia. The use of the word 'initially' suggests that IAG may phase out the Air Europa brand at some point, perhaps to merge it fully with Iberia, but is also keeping its options open to merge it with another of its brands (such as LEVEL or Vueling).

Judged by share of all seats to/from/in Europe, the acquisition will not have a big impact on market structure. Based on OAG data for summer 2019, Air Europa will take IAG's share from 9.4% to 10.4%, but keep it in third place behind Lufthansa Group and Ryanair.

However, it will reinforce IAG's leadership at Madrid, take IAG ahead of Air France-KLM on Europe-Latin America seat share, and extend its lead by the number of Latin American destinations. Moreover, it will end Air France-KLM's hopes of a JV with Air Europa and mitigate the lack of progress on completing IAG's planned JV with LATAM Airlines.

European safety regulator EASA will reportedly choose its own moment to approve the return to service of the Boeing 737 MAX, rather than simultaneously following the FAA, the US regulator. China may also follow its own timetable.

The FAA would prefer a coordinated global decision, since additional delays by other regions after US approval would leave lingering doubts over the aircraft and could be seen to undermine the FAA's authority.

Historically, decisions to ground aircraft and subsequently to approve their return to service have usually - but not invariably - been taken in a globally coordinated manner, with the lead coming from the regulator in the jurisdiction where the aircraft manufacturer is based, or which originally approved the aircraft for service.

However, that gentlemen's agreement was broken at the outset in the case of the MAX when the Civil Aviation Authority of China became the first to ground the aircraft on 11-Mar-2019, beating the FAA by two days.

Boeing hopes for a 4Q2019 return to service, but several operators of the aircraft are planning on Jan-2020 or Feb-2020.

In the meantime, the grounding is hitting Boeing's bottom line and weighing on the wider US economy. Regulators acting out of phase with each other could further complicate the return of the MAX.

The worldwide grounding of the Boeing 737 MAX fleet has wreaked havoc on all of the aircraft’s operators, and it will take some time to attain a normal level of operations once the MAX returns to service. 

Air Canada has been acutely hit by the MAX grounding. The MAX jets it was supposed to be operating represented a substantial portion of its narrowbody fleet for the busy summer travel period in 3Q2019. 

The company has used a mix of mitigation measures as the MAX remains grounded, including wet leasing widebodies and extending the operating life of Embraer 190s and Airbus A320s that should have been taken out of its fleet by now.

Air Canada is also working to ensure that it can time the end of some leases with the re-entry of the MAX into scheduled service – a complex process made even more difficult as the aircraft’s service entry date remains highly uncertain. 

US airlines that operate all Airbus fleets or have order books dominated by the European airframer have been able to breathe a sigh of relief during the continuing turmoil triggered by the worldwide grounding of the Boeing 737 MAX – until recently. 

As part of a years-long trade dispute over alleged subsidies provided to Airbus, the US has won authority to impose a 10% tariff on Airbus aircraft, which is creating uncertainty for US airlines that have deep order books for Airbus jets. 

The short term solution is a huge push by those operators to take delivery of aircraft assembled at Airbus’ US assembly site in Mobile, Alabama. But ultimately the US and Europe need to reach an agreement that ensures airlines, and possibly consumers, do not bear the brunt of those tariffs. 

As key aviation and travel industry leaders come together in Singapore at CAPA's Summit, the Asia Pacific remains the growth engine of international aviation, home to more than 4 billion people, including the large developing economies of China, India, Indonesia and Vietnam.

However, the region’s appetite for air travel has moderated this year, due to wider global economic and geopolitical currents.  Compared to 2018, the rate of passenger growth has more than halved for the year to date.

Despite this, the region’s airlines have kept themselves tracking level with last year in terms of financial outcomes, having pursued – or imposed on them – tight capacity discipline. Even though growth has moderated, the sustained expansion in major Asian emerging and developing economies, supported by ever lower airfares and ever wider networks, continues to fuel the appetite for travel. 

The CAPA Asia Aviation & Corporate Travel Summit 2019: Singapore, will convene at The Capella on 14/15-Nov-2019, with a sparkling industry awards dinner on the evening of 14-Nov-2019. 

Brazil’s Azul Airlines has built up a sizeable presence in the country during its first decade of operations and believes its defensible network is one of its strongest assets. And although the airline has a low cost DNA, its approach to the Brazilian market is very different from that of a typical low cost operator.

Azul’s network strength is built on connectivity to its largest hubs, and more than half of its passengers travel on connecting itineraries. The airline’s proposition is not low fares; rather, it is access to a level of air travel not available in the past coupled with a favourable travel experience. 

It has obviously made tweaks to its model along the way, but Azul unsurprisingly believes its formula is successful, and is now working to accommodate the demand it has built up through the years with larger gauge aircraft that should provide the airline with a line of defence against fuel price volatility, as well as helping the airline to lower its unit costs over the long term.

After its plans to operate CSeries jets from Billy Bishop Airport were quashed four years ago, Canada’s Porter Airlines has largely operated under the radar. It has previously offered various scenarios for expansion, but so far nothing concrete has materialised. 

Since that time, significant changes have occurred in the Canadian aviation landscape that have included the debut of new ultra low cost airlines, Onex’s purchase of WestJet, and Air Canada’s decision to acquire its rival, Air Transat. 

Porter has created a fort for itself at Billy Bishop, and remains somewhat shielded from competition; but with no aircraft on order, and with no real strategy emerging, the airline seems content to maintain the status quo, and emphasises that its operating niche remains viable.