Analysis Reports

Although Mexican airlines continue to battle currency fluctuation triggered in large part by ongoing tariff threats from the US, overall they remain comfortable with domestic demand, and transborder capacity is starting to rationalise. However, a huge cloud of uncertainty is hovering over the fate of Mexico City’s airport infrastructure. 

After Mexico’s president Andres Manuel Lopez Obrador (AMLO) cancelled completion of a partially constructed new airport, he offered less than attractive alternatives that include bolstering Toluca airport and constructing two new runways at an air force base near Mexico City. But the runway construction has come under criticism, and the project is reportedly on hold. 

Plans are under way for a third terminal at Mexico City Juarez, but it remains to be seen how much the expansion will alleviate congestion at an airport that is already operating well above its capacity. And ultimately, Mexico City’s potential to become a powerful global hub will be significantly diminished. 

Like any business, airline management is expected to manage the airline prudently through a downturn to minimise the impact on profitability and shareholder returns.

Given the inevitability of a downturn in the industry – whether it’s this year or next – that expectation becomes more telling.

Generally speaking, LCCs should be better placed in times of heightened price sensitivity, as their lower cost base should give them an edge. But that alone is not enough.

In this report, CAPA offers some key tactics that LCC management can deploy when things get tough. Many of them are common sense, but in tough times the sense may not be so common.

The full report is available for free download here.  Topics in this report will be discussed at CAPA’s annual LCCs in North Asia Summit held in Cebu on 24/25-June-2019. 

Philippine Airlines (PAL) will likely follow Garuda Indonesia in suspending services to London, highlighting the challenges smaller Southeast Asian flag carriers confront in sustaining European services.

PAL is now considering instead launching services to Paris and is trying to secure a European airline partner to offer connections to London and other European destinations. 

The Philippine carrier is probably better off dropping its European ambitions entirely and reducing the size of its widebody fleet. PAL is looking at acquiring more A350s or ordering 777Xs to replace its older model 777-300ERs, but should instead use upcoming lease returns as an opportunity to cut long haul capacity and improve profitability. 

PAL has been serving London since late 2013, but the route has been consistently unprofitable despite aircraft, schedule and frequency changes. Garuda followed PAL by launching London in 2014 and is suspending the service in Aug-2019, following several ultimately unsuccessful route adjustments.

Delta Air Lines has made interesting network moves during the last few years, seizing on opportunities from mid-sized airports. Raleigh Durham has become a focus city for the airline and is one of several non-hub markets featuring nonstop flights operated by Delta to Paris. 

In 2018 Delta launched flights from Indianapolis to Paris, joining flights to its French hub from US non-hub airports in Raleigh, Cincinnati and Pittsburgh. After a decade of service, Delta has opted not to resume seasonal service from Pittsburgh to Paris, citing overcapacity in that particular trans Atlantic market. 

Officials from Indianapolis appear bullish about Delta’s first year of service to Paris, and unlike its situation in Pittsburgh, Delta has a stronger position in Indianapolis, Raleigh and Cincinnati that should help to sustain long haul flights for now. 

The three large US global network airlines are in the early innings of deploying their respective premium economy products on long haul routes, but there is no shortage of optimism at American, Delta and United about the revenue-generating potential of a dedicated product between first/business class and economy. 

American is further along in the number of premium economy seats it has on offer after recently completing retrofits of nearly 124 widebodies with a dedicated premium economy section.

United and Delta are at varying stages of a premium economy deployment on long haul international routes, but all three airlines cite encouraging statistics about pricing power and load factors for their latest segmented product.

The roll-out of premium economy by those airlines is the latest development in their product segmentation strategies that are designed to drive upsales and to compete more effectively with lower cost competitors as those competitors enter and exit the market.

Premium economy is a way of ensuring that they cater to all passenger segments that are looking for value in long haul markets. 

The company Brand Finance has released its inaugural report on the most valuable and strongest airport ‘brands’ with a list of the World’s 'Top 25'.

There are several definitions of the word 'brand', including: ‘a particular identity or image regarded as an asset.’ Of course, just about everything is a brand now, from washing powders to pop groups to sporting celebrities, and image is everything. Some people and entities are better known for their image than for what they actually do.

In the report the big city airports dominate at the expense of smaller ones with a strong case and, among the interesting assessments, the exclusion of Dubai and other Middle East airports is a mystery.

The criteria used to establish this list are comprehensive but, even so, may need benefit from a closer review.

Delta Air Lines is arguably one of the best-run airlines in North America, regularly distinguishing itself from its peers through product innovation and consistent operational excellence. 

Another distinctive feature in Delta’s business that makes it unique with respect to its larger airline peers is the low level of union representation among its labour groups. Its pilots are the only unionised employee group. For years, unions have been attempting to organise Delta’s other large work groups, and the International Association of Machinists (IAM) is working to represent Delta’s flight attendants and ramp employees. 

It is not surprising that Delta is taking action aggressively to head off the IAM’s efforts to unionise those employees groups, but the airline’s anti-union campaign has recently stumbled and now Delta is battling a wave of criticism on social media and drawing ire from presidential contenders.

The backlash is also a lesson in the speed with which social media can tarnish a corporate image, and now Delta is trying to make amends. But it is tough to determine what, if any, permanent damage Delta’s brand could endure. 

Latin America’s second largest airline – Avianca Holdings – is facing one of the most tumultuous times in its 100-year history.

The airline is navigating financial struggles and a CEO and board shake-up as its majority shareholder was unceremoniously removed as chairman. And although it has no formal ties to Avianca Brazil, the Brazilian airline’s misfortune has forced Avianca to stress that their operations are entirely separate. 

Now Avianca is in triage mode, but it does have the support from its prospective JV partner, United, which has a vested interest in ensuring that Avianca survives and thrives.

Arguably, United’s Latin American strategy rests on Avianca’s rebound.

CAPA - Centre for Aviation is pleased to welcome back to Sydney the 2019 CAPA Australia Pacific Aviation Summit on 07/08-Aug-2019 at the Sydney Hyatt Regency.

This event is set to once again attract the leading airline, airport and travel industry executives from Australia and key foreign markets, making it the largest strategic event of its kind in the region.

Expect an audience of 600+ aviation leaders, and senior executives from the Qantas and Virgin Australia groups, Japan Airlines, AirAsia X and many others, addressing such diverse issues confronting the industry as "What's really going on within the competitive market in Australia?", "The future of the trans-Tasman market", "The great debate: Airport regulation, friend or foe?" and "Drones: Adapting to a world of UAVs, what's next?".

This important aviation Summit is supported by the NSW Government, through its tourism and major events agency Destination NSW.

Korean Air is considering joining a growing list of major international airlines in removing first class. Reducing, and potentially eliminating, first class represents a shift in product strategy under Korean's new CEO Walter Cho, who took over from his late father Cho Yang-ho in Apr-2019. 

At the beginning of Jun-2019 the airline stopped selling a first class service on 27 international routes, although these routes are still operated with medium size widebody aircraft (A330s, older variant 777s and 787s) that are configured with a first class cabin. For now, the first class seats on these 27 routes are being sold as business class, but are expected to be removed as Korean Air embarks on a major widebody retrofit programme.

Korean Air continues to sell first class on nearly 40 international routes, including all routes operated by A380s, 747-8s and 777-300ERs. However, the airline is also considering removing first class from these three large widebody aircraft types as part of future retrofits, potentially resulting in a consistent two class product across its international network.