Analysis Reports

The global LCC sector has grown at a staggering pace since the beginning of this decade. There are now more than 100 LCCs operating a combined fleet of 6,000 aircraft.

The LCC fleet has doubled in size since the end of 2009, when it consisted of only 2,900 aircraft (source: CAPA Fleet Database). Global LCC seat capacity has also doubled since 2009, reaching nearly 1.7 billion in 2018 (source OAG).

Asia Pacific is now the world’s largest LCC market, accounting for nearly 600 million seats, or 35% of the global LCC seats in 2018. The Asia Pacific LCCs have expanded from a fleet of only 400 aircraft at the end of 2009 to 1,900 aircraft currently and are poised for more rapid growth, given their massive order book of 2,400 aircraft. 

Raleigh Durham International airport has been one of the fastest growing medium sized markets in the US for the past three to four years. Much of the growth was fuelled by Delta Air Lines’ decision to turn Raleigh into a focus city after the company had determined that Raleigh was a ripe growth market with no dominant airline. 

Now Raleigh is drawing attention from the US’ largest ULCCs – Spirit and Frontier Airlines. Raleigh will become a new destination for Spirit Airlines in 2019, which plans to add seven routes from the airport. Spirit’s fellow ULCC Frontier has been rapidly expanding from Raleigh, and is adding eight new routes from the airport in 2019. 

The moves by Spirit and Frontier into Raleigh round out a solid representation of various airline models in that market – FSCs, lower cost airlines and ultra low cost carriers – which ultimately should create more options for Raleigh’s growing passenger base. 

In 2Q2019 Can Tho will become the eighth airport in Vietnam with scheduled international services when AirAsia launches flights from Bangkok and Kuala Lumpur. Other new international services from other airlines will likely follow, including to China, boosting tourism in Can Tho and the Mekong River region of southern Vietnam.

Can Tho is the latest in a growing list of secondary Vietnamese airports to become international. Vietnam currently has seven airports with scheduled international services but six years ago, in early 2013, the country had only three: the main cities of Ho Chi Minh, Hanoi and Da Nang.

Nha Trang gained international status in 2013, followed by Phu Quoc in 2014, Hai Phong in 2015 and Da Lat in 2017. Vinh also gained international status in 2014 but does not currently have any scheduled international flights.

The Infrastructure Ministry in Ukraine wants to develop regional airports, attract more LCCs and, most ambitiously, build an international hub to connect Europe and Asia.

Ukraine’s Minister of Infrastructure, Volodymyr Omelyan, has identified the key directions for aviation reform in Ukraine as: development of regional airports, the attraction of LCCs to reduce fares, and a fair and transparent market for air services.

However, the Ukrainian state airline (UIA) has few flights to Asia and a fleet that is not set up for expanded long haul operations. Moreover, there are many airports in those regions already fulfilling the international hub requirement and the circumstances in Ukraine at the moment are not ideal for making a success of that venture.

On the other hand, there are good prospects for the further development of LCC routes and the airports that service them.

The CAPA Global LCC Summit to be held in Singapore on 25/26-Feb-2019 is a dynamic event dedicated to examining the past, present and future of a sector of the aviation industry characterised by constant change.

Sharing views from LCCs around the world, exploring financing, operational and customer facing issues, corporate travel for the LCC sector, the unique annual event at Singapore's Capella resort hotel, is not to be missed.

Coming almost 15 years to the day after CAPA's world first LCC Summit in Singapore, the event offers time to reflect on the way the industry has been turned on its head since Feb-2004.

Denver International Airport had a banner year in 2018. It continued to log impressive passenger growth levels and launched a facilities revamp that includes a terminal overhaul and the addition of 39 gates in order to meet forecast passenger demand. 

The airport plays an important role for full service and low cost airlines alike. United, Southwest and Frontier are its three largest operators, and United has started rebanking Denver to bolster the airport’s already strong performance in its system. At the same time, Denver has also attracted new airlines during the past couple of years, including Norwegian and Copa. 

The airport also took top honours among the Wall Street Journal’s top US airport rankings based on a wide range of factors, including value and convenience, besting other large hubs and among them Los Angeles and Atlanta.

Norwegian's 2018 results revealed its third set of losses in five years. Although it was burdened by higher fuel costs and by costs related to Rolls Royce engine problems on its 787s (now resolved), its track record points to more fundamental flaws in its model, particularly as its losses have coincided with a period of strong margins in the global airline industry.

Norwegian's rapid expansion along with its new market entries has spread its management focus, weighed on its margins and burdened it with ever growing debt and worryingly low cash levels. At the same time, it has given it a network with strengths in the Nordic region and on the North Atlantic that attracted interest from IAG during 2018.

After rebuffing that interest, and in the absence currently of alternative bidders, Norwegian is to issue NOK3 billion of new shares in 1Q2019 (but this compares NOK32 billion of net debt at the end of 2018). Taken with cost reductions, aircraft sales and delivery postponements, this emergency rights issue should rescue Norwegian.

Longer term, it may need to find a buyer.

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

One of the many unanticipated consequences of the uncertainties raised by Brexit is increased regulatory scrutiny of North Atlantic airline joint ventures. Members of these JVs are allowed to coordinate schedules and prices only with regulatory immunity from competition rules.

In Oct-2018 the UK's Competition and Markets Authority (CMA) launched an investigation into the JV inside oneworld between British Airways, Iberia, Finnair and American Airlines. The JV was approved by the European Commission in 2010 after JV members gave commitments to release slots to competitors on six city pairs: London-Dallas, London-Boston, London-Miami, London-Chicago, London-New York and Madrid-Miami.

The commitments expire in 2020, after the UK's scheduled exit from the EU, and five of the routes touch the UK, hence the CMA's investigation ahead of their expiry. It is expected to report in Mar-2019.

CAPA analysis indicates that there has been only a limited increase in competition, if any at all, on these routes and on the two routes most important to the other JVs (Paris-New York and Frankfurt-New York). Competition investigations are complex, and it would be foolhardy to second-guess their outcome, but the CMA's study could prompt other regulators to review the North Atlantic aviation market.

The CAPA Americas Aviation Summit in Denver on 18-19 March 2019 will include discussion of the North Atlantic.

All airlines worldwide are working to strengthen their non-ticket revenue base, and while vacation packing doesn’t garner much attention, the US airlines JetBlue and Spirit are working to shore up their packaging businesses.

JetBlue has created a new travel products subsidiary that will help the airline to meet its 2020 EPS goals. Its travel products arm includes its JetBlue Vacations brand and the airline is working to increase the number conversions of customers buying products other than a flight.

After engaging in a significant international expansion in 4Q2018, Spirit has also pledged to revamp its vacation package programme to bolster its non-ticket revenue. 

Obviously vacation packing will never be a huge revenue generator for those airlines. But JetBlue and Spirit have decided that refreshing their packaging programs is a worthy investment for continuing to build their respective non-ticket revenues. 

Asia has emerged as a fast growing market for Brisbane and Queensland, driven by rapid expansion from Asian airlines. In Jun-2019 Thai AirAsia X and Royal Brunei Airlines will become the sixth and seventh airlines from Asia to launch services to Brisbane since 2017.

In Jul-2019 the Brisbane-Asia market will be served with 137 weekly frequencies, generating approximately 34,000 weekly one-way seats. In Jul-2016 the Brisbane-Asia market was served with only 87 weekly flights, generating approximately 24,000 weekly one-way seats.

The new services to Asia are important for Queensland and its tourism industry, which accounts for 4% of Queensland's GDP. China has become the largest source market for Queensland while Japan is the third largest source market. Other Asian markets are smaller but have been growing, and the rate of growth should accelerate as new nonstop flights stimulate demand.