CAPA World Aviation Yearbook 2014: Regional, Airline data in a comprehensive report

Section 1: Global Analysis Reports

Of petrol and partnerships

The airline industry, perhaps more than any other, is horrendously susceptible to external challenges, where managements have little or no control over outcomes. Fuel prices are the most notable economic terrorists, now accounting for nearly four tenths of all airline costs - yet unpredictable and totally unmanageable.

Add to that a massively disruptive combination of industry factors that are reshaping the way airlines do business - again mostly outside the ability of most airline managements to control - and it becomes clear why most airlines have such a devil of a job to make decent profits, or even any profits at all. The disruptive forces are driving airlines towards makeshift partnerships, necessary but still made cumbersome by the overhang of nationalistic regulation.

The year 2014 and beyond looks likely to be consumed by these two drivers. For a few, it will be abundant with opportunity; for the majority it could represent some of the biggest challenges they have ever experienced. (Extracted from Section 1: Global Analysis Reports)

Section 2: Analysis: "Air travel correlation with GDP growth"

CAPA's extensive country rankings database provides rich pickings for analysis of the relationship between the wealth of a country and the penetration of air travel in that country. Not surprisingly, our analysis confirms that the two are closely correlated. Countries with higher GDP per capita tend to have higher numbers of airline seats per capita.

Establishing a correlation does not indicate the direction of causality, which works in both directions. Economic wealth drives air travel, but air travel also helps to drive economic wealth. However, the correlation is not perfect and levels of penetration can be affected by geographical, political, fiscal and infrastructural factors. This leads to some countries having a significantly higher or lower number of airline seats per capita than might be expected simply from their level of GDP per capita.

Section 3: Regional Report: Southeast Asia

Southeast Asia has emerged as one of the world's fastest growth markets. Low-cost carriers have been at the forefront of growth and now account for nearly 60% of traffic within the region. Several have massive orders, with significant numbers still arriving in 2014 despite some deferrals. A dominant theme of the competitive environment is the rapid escalation of the market share battle between the big LCC groups - particularly AirAsia and Lion Air, plus to a lesser extent Tigerair, Jetstar and the emerging VietJet.

The region's LCCs have been ambitiously adding capacity, putting pressure on yields and load factors. Southeast Asia's full service groups have also been focusing on regional growth, both within Southeast Asia and the wider Asia Pacific market. While demand is relatively robust, there are signs of overcapacity throughout - including in most domestic and short-haul international markets, as well as in some medium-haul markets, particularly Southeast Asia-Australia.

Southeast Asia: Selected airlines

Lion Air.........................................................................pp.23

Garuda Indonesia........................................................pp.24

AirAsia..........................................................................pp.25


Singapore Airlines........................................................pp.26

Thai Airways.................................................................pp.27


Section 4: South Asia

As the Indian national election completes a major shift to a new BJP government, with market-changing airline partnerships in train and major new entrants arriving, the year ahead promises to be no less eventful than any over the past decade.

The new government will have to address deep structural shortcomings in the sector. Airlines continue to bleed while the competitive environment intensifies with the appearance of new entrants. Creative strategies are going to be needed; equally there are massive strides to be made in improving infrastructure to accommodate the inevitable high traffic growth levels.

India's airlines posted combined losses of around USD1.7 billion in the year ended 31-Mar-2014. Air India again incurred the largest loss at close to half of the total. Jet Airways and SpiceJet both reported record full-year losses.

South Asia: Selected airlines

IndiGo..........................................................................pp.33

SpiceJet.......................................................................pp.34

Air India.......................................................................pp.35


Jet Airways..................................................................pp.36

Section 5: South Pacific

Australia-New Zealand Aviation effectively embraces a single market. But the contrast between performance of their respective airlines over the past year could scarcely be starker.

Qantas and Virgin Australia are headed for their worst annual losses ever in the FY2014; yet Air New Zealand is on track to make its best profit yet.

A common theme is, however, towards stronger and closer international partnerships, often involving equity.

The coming year promises more of the same, with the turbulence that has characterised the competitive environment continuing to provide challenges to each of them.

Air New Zealand's reward for finding a better balance was a record first half (six months to 31-Dec-2013) result of NZD180 million (USD151 million) before tax, representing a 7.7% margin, exiting from loss-making routes, higher trans-Tasman load factors than competitors, and a more streamlined fleet. Air NZ increased profitability on flat revenue despite decreased capacity.

South Pacific: Selected airlines

Qantas Airways.............................................................pp.42

Virgin Australia.............................................................pp.43

Air New Zealand...........................................................pp.44

Section 6: North Asia

North Asia is home to many of the world's most visible airlines based on size (China Southern), market capitalisation (Air China), profitability (Japan Airlines) and prestige (Cathay Pacific).

The region's airlines face an encouraging 2014, and are certainly likely to fare much better than European peers. The singular uniting theme for long-haul North Asian full service carriers is the strong market to North America, where corporate and premium travel is improving, while competitors are fewer than on European routes.

China inevitably has become the cornerstone of the market and what happens in that massive economy will shape the region - both in terms of growth and in the reshaping of the airline industry.

Elsewhere the characterisation is more nuanced. Exchange rates are sharply impacting Japan, where the yen is down about 17%, while helping Chinese carriers with the appreciating yuan. Regional tensions continue to plague bilateral markets such as Japan-Korea and China-Japan.

North Asia: Selected airlines

China Southern Airlines................................................pp.51

China Eastern Airlines...................................................pp.52

All Nippon Airways........................................................pp.53

Korean Air......................................................................pp.54

Japan Airlines................................................................pp.55

Cathay Pacific................................................................pp.56

Section 7: Middle East

The Middle East continues to defy global trends, witnessing growth in demand and an expansion of capacity at rates not seen in any other global market. Airlines in the region will continue to outstrip global expansion in passengers and capacity in 2014, cashing in on regional and global economic growth, improving international passenger traffic flows and increasing aircraft production. The main battlefront will move to the US as protectionist reaction grows.

At the forefront of the region's phenomenal success are the Gulf sixth-freedom carriers, chiefly Emirates, Etihad Airways and Qatar Airways. All three continue to exploit their natural geographic advantage, which puts more than two thirds of the world's population within an eight-hour flight from Dubai. Accompanied by supportive ownership and regulatory regimes, they are growing local markets and applying new aircraft technology and service standards to generate global success.

The past two years have been about much more than their intrinsic strengths however. From being outsiders to the European established airlines, all three were admitted - if not welcomed with open arms - into the inner sanctums of the leaders of the global alliances, Star Alliance excepted. This has shifted the course of alliance and partnership thinking, as well as deepening their impact on global aviation.

Middle East: Selected airlines

Saudia............................................................................pp.63

Qatar Airways................................................................pp.64

Emirates.........................................................................pp.65

Etihad Airways...............................................................pp.66

Section 8: Africa

It is tempting to repeat the truisms that Africa continues to offer extraordinary potential upside. With many of the world's fastest growing economies and weak surface transport infrastructure, aviation is an obvious opportunity to support and accelerate that growth. Yet unhelpful government interference and poor planning continues to slow the promised expansion, leaving service levels mostly weak and prices generally high.

There are however some bright spots as well as glimmers of optimism: Ethiopian continues to expand with new fleet generations, with five 787s in service, eight more to come and talk of negotiations for another 10 777Xs; South African Airways is full of hope that its new turnaround plan will succeed (although it has a long way to go); Kenya Airways, accepting its first 787 in Apr-2014, is recovering well from last year's catastrophic fire at its Nairobi Airport hub; and would-be pan African LCC fastjet appears to be establishing a viable foothold - although it remains a fragile existence.

Africa: Selected airlines

South African Airways....................................................pp.71

Ethiopian Airlines...........................................................pp.72

Kenya Airways................................................................pp.73

Section 9: Eastern Europe

In general, Eastern Europe tends to outpace the western part of the continent, with Turkey and Russia preeminent among the major leaders.

Turkey, home to high growth LCC Pegasus Airlines and Europe's fastest growing FSC Turkish Airlines, saw the highest growth in the number of flights in 2013 and will be looking to retain its quasi-Gulf expansion status in 2014.

Istanbul Ataturk was the only airport in Europe's top 10 to experience an increase in the number of flights. Both leading Turkish carriers plan to continue double digit growth in 2014.

Section 10: Western Europe

Europe continues to be a divided continent, with Western Europe being home to most of the bigger airlines, while Eastern Europe enjoys the more rapid growth in air traffic. On short/medium-haul, the LCC business model continues to demonstrate its superiority over FSCs, although the sharpness of the dividing lines has been blurred by the Big Three legacy groups' strategic moves in the LCC segment.

Losing share within the continent, their long-haul profitability is underpinned by Atlantic joint ventures with North American partners, a model now also pursued by Virgin Atlantic. Gulf carrier competition continues to affect their long-haul operations to the East, although a discernable shift in attitudes may see further new developments in this direction in 2014.

Another, different, geographic dividing line defines the economic outlook too, as northern Europe shows signs of improvement, prompting hopes of increased business and discretionary travel.

Western Europe: Selected airlines