Analysis Reports

Consolidation in Latin America has taken many forms over the years, and even as Avianca and LATAM Airlines Group - both the products of mergers - have emerged to become two of the region's largest airlines, there have been attempts at more fusion in the market post-pandemic.

The ultimate composition of the airline industry in Latin America is an unknown; but it's worth examining how the industry has evolved to its current state.

The completion of the three-runway system at Hong Kong International Airport (HKIA) will unlock new growth opportunities at the hub, providing the infrastructure to support extensive aircraft orders placed by Hong Kong-based airlines.

HKIA intends to formally commission the new runway system on 28-Nov-2024. Senior executives from Cathay Pacific and Greater Bay Airlines stressed the importance of this step to their growth plans during the CAPA Airline Leader Summit Asia held in Hong Kong in Nov-2024.

Cathay Pacific has significant widebody and narrowbody order backlogs, and will soon consider a further widebody order.

The newcomer Greater Bay Airlines has ordered narrowbodies, and the airline has also committed to ordering its first widebodies at some point in the future.

However, both these airlines have been affected by delivery delays, causing them to adjust their near-term plans.

The HKIA expansion is not only vital for these airlines' fleet moves, but at a broader level will also improve the competitive position of the hub, compared to other major airports in the region that also harbour growth ambitions.

This, the fourth in a series of SWOT analyses of the major players in the global airport M&A market, looks at a well known firm and its various funds: Global Infrastructure Partners, or 'GIP' as it is acronymically known.

The New York-based investor, with four fully invested funds to its credit, has been on the scene for almost 20 years. The majority of its investments are in the energy sector, but analysts are always on the lookout for it when a potential new deal is in the offing.

And yet it is not as 'big' as some might think, and its notable acquisitions in the UK (in London and Edinburgh) have been wholly or partly divested as it latterly formed a working partnership with VINCI Airports on two of them; a liaison which could perhaps continue elsewhere in the future.

That future will, for the most part, be dictated by its relationship with the giant asset manager BlackRock, which completed its takeover of GIP at the beginning of Oct-2024. GIP will take the infrastructure lead for the combined entity, especially in transport sectors.

The US presidential election result hints at richer pickings in that country than it has experienced previously.

The SWOT analysis reveals that GIP has experience aplenty, and stands to do well out of the arrangement with BlackRock, but any such transaction that creates such a behemoth can equally awake the skeletons that await in the cupboard.

Spirit Airlines' recent Chapter 11 filing was hardly surprising. The airline hasn't been profitable in years, and debt payments were looming large.

The airline has forged a pre-arranged reorganisation with bond-holders, and also released a turnaround plan that's arguably a business model shift away from the aggressive product unbundling that served Spirit well for many years.

But none of its planned changes are new or innovative in a market dominated by larger airlines, whose products will remain superior to Spirit's.

For now, Spirit's bond-holders seem willing to give the company time to execute on its plan; however, the airline's fate is far from certain.

In a previous report earlier in 2024 it was suggested that the sale of AGS Airports, jointly owned by Ferrovial and Macquarie, might be delayed on account of the UK general election, which had just been called.

The outcome of that election, as expected, was a Labour government, that political party not being known to be a friend of aviation - although apart from raising flight taxes, it has not attacked the sector to the degree anticipated. The government has even suggested that it wants to see more investment in airports, one example being that at London Stansted Airport, which was announced last month.

The sale of AGS, which should be completed in 1Q2025, is now going ahead - to AviAlliance, the German operator that is owned by PSP Investments, one of numerous Canadian pension schemes to invest in the airport sector.

AviAlliance has had a year of turmoil, losing its holding in Budapest Airport, while gaining greater equity in Athens Airport.

Although the San Juan airport in Puerto Rico is performing well, its German airports, two of the four it partially owns, are impacted by a lacklustre German aviation market that is afflicted by location costs and other factors.

Could that be at least one of the reasons why AviAlliance has ventured belatedly into the UK market, one that it has mostly eschewed in the past?

This report aims to uncover the pros and cons of the Aberdeen, Glasgow and Southampton airports and what the future holds for them.

More than a decade ago, the aviation sector set a series of lofty goals around aviation sustainability: improve fuel efficiency by 1.5% per annum; cap net CO2 emissions from 2020; and reduce net CO2 emissions by 50% relative to 2005 levels by 2050. IATA member airlines doubled down on their sustainability ambitions with the Fly Net-Zero Commitment agreed to in 2021.

Progress has been slow, and the industry can only now start to point to measurable steps on sustainability and meeting its goals. The transition away from conventional aviation fuel and towards sustainable aviation fuel (SAF) is where the majority of the industry's efforts are concentrated.

Donald Trump's election to be the 47th US president will eventually, when the dust settles, raise questions about his government's stance on airport infrastructure and privatisation, and whether the national air traffic service should continue to be run by the FAA.

These topics are frequently raised in the US, where privatisation in particular is minimal. But they are not at the top of the new government's 'to do' list on 20-Jan-2025.

If, and when, the president gets round to them, he will recall that in 2018 he put forward some radical proposals to increase private investment in the sector, including major and positive changes to the privatisation programme.

Overall the results were not encouraging, airport leasing has died the death since 2020, and the government will have to focus more on public-private partnerships this time.

There are some suggestions, and they are reported here, as to how the system of tax free bonds could be allied to private investment, instead of being a negative factor in a calculation.

As for ATC, the time to at least corporatise it, if not outrightly to privatise it, has come. There is a consensus for funding reform.

But all of this is, at least on paper, dictated by the fact that no further FAA Reauthorisation Act is planned for another four years - if the new president gets serious about these issues, he will have to find a way around that.

The well known and respected Amsterdam-based consultancy SEO Economics has recently researched a report on behalf of ACI Europe, which makes some impressive claims about the continent's airports: such as that they employ 14 million people (that's a country between the size of Belgium and the Netherlands). And that they generate 5% of the total European GDP between them.

More questionably: that such an increase in business has positive social implications such as on education, research and development, helps reduce poverty, improve gender equality, and even makes people happier.

Two examples given in the text here do lend support to the claims about education and R&D, at least.

The report is not a standalone one in that it must be seen (and was possibly solicited) in conjunction with two independent reports by European ex-politicians with gravitas, into (inter alia) the lack of investment in the EU and how to remedy it; how a concerted, joined-up transportation network policy is required urgently, and how to achieve even more decarbonisation across the entire air transportation network at the same time.

It isn't hard to see how this is ACI Europe playing its cards to ensure that airports get the best deal out of all this, because they - and the airlines - have been on the rack for years now, as sacrificial lambs to the God of the Environment.

The trouble is that the whole ball game has changed in a matter of a day with the election again of Donald Trump as US president. Like it or not, the airports business is now, as the other presidential candidate often said, 'unburdened by what has gone before' and must prepare itself for its own version of The Great Reset.

The Brazilian operator Azul has quickly manoeuvred a balance sheet restructuring that should set the stage for the company to become an even fiercer competitor in the Latin American aviation market.

Azul has accomplished a feat that many of its largest competitors could not achieve - overhauling its debt structure without formally entering Chapter 11 bankruptcy protection.

Now Azul can focus squarely on playing to its strengths, which include a unique fleet strategy that results in limited competition on the majority of its routes, and diversified business streams to maximise revenue generation.

On 27-Oct-2024 Iberia restored its service from Madrid to Tokyo Narita, which it had ceased at the onset of the COVID-19 pandemic in Mar-2020.

Iberia is the sole operator on the route, the longest in its network and its only one in Asia Pacific.

The success of Iberia's Doha service, launched in Dec-2023 and offering onward connections with its oneworld partner Qatar Airways, has provided a window on the strength of demand for Spain-Asia Pacific air travel.

Iberia focuses its long haul network on Latin America, and this is unlikely to diminish. However, Asia Pacific nonstops are underserved from Spain, and Iberia is attracted by the significant potential for expanding capacity to the region.