Analysis Reports

Detroit and tourism are two words that don’t easily go hand in hand.

The blighted US Midwest city, once home to the nation’s car builders and the most iconic of all record labels fell on hard times long ago, lost well over half its population, and has found it hard to make a comeback – even if its fortunes have improved a little in the last few years.

What it does have is its award winning (Best 25-40mppa airport in the US - ACI) Detroit Metropolitan Airport (DTW), home to Delta Air Lines, for which it is one of nine US hubs.

Delta has just launched a four times weekly flight from Detroit to Keflavik in Iceland, which was almost immediately matched by the same level of service from Icelandair, at a time when the real level of demand is barely comprehended.

As this report sets out, how this route will be marketed speaks widely at least of Icelandair’s established M.O., and implies how connectivity is more critical than ever to the success or failure of a new service.

Aegean Airlines Group is operating 16 new routes in summer 2023, taking its total network to 161 destinations and 264 routes.

For the full year 2023, the group plans its highest ever capacity levels, which should allow record traffic and take its passenger numbers above 2019's level of 15.0 million.

In 2022 Aegean was still below 2019 levels of capacity and traffic, but it reported its highest ever revenue and profits. Its 1Q2023 results recorded improvements versus 1Q2019 on all of capacity, traffic, revenue and profits.

Aegean's capacity recovery has not kept pace with the wider Greece market, where LCCs have returned capacity much more quickly. As a result, it has lost market share since before the COVID-19 pandemic.

However, with Aegean sitting in a market segment between LCCs and traditional legacy airlines, the priority for Greece's biggest airline group would seem to be profitability, and not market share.

Around the world several airports have been at pains to design new terminal space with lessons learned from the COVID-19 pandemic in mind. One of them is at the Clark International Airport near Manila, Philippines. Pittsburgh Airport in the US is another one to incorporate such measures in its new terminal, which has reached the halfway stage in its construction.

Whether or not these examples become benchmarks for other airports depends on the position taken elsewhere as to the likelihood of another pandemic in the foreseeable future, because any such measures will inevitably mean more open space within terminals – and fresh air can’t earn revenues.

Separately, Pittsburgh has reached a point where it has put its history with US Airways behind it. It is no longer heavily reliant on a single airline, but international direct flight options remain limited.

This is part two of a two-part report.

Around the world several airports have been at pains to design new terminal space with lessons learned from the COVID-19 pandemic in mind. One of them is at the Clark International Airport near Manila, Philippines. Pittsburgh Airport in the US is another one to incorporate such measures in its new terminal, which has reached the halfway stage in its construction.

Whether or not these examples become benchmarks for other airports depends on the position taken elsewhere as to the likelihood of another pandemic in the foreseeable future, because any such measures will inevitably mean more open space within terminals – and fresh air can’t earn revenues.

Separately, Pittsburgh has reached a point where it has put its history with US Airways behind it. It is no longer heavily reliant on a single airline, but international direct flight options remain limited.

This is part one of a two-part report.

The fate of the Colombian ultra-low cost carrier Viva has been sealed, now that Avianca has abandoned plans to purchase its low cost rival. It is not a surprise that Avianca walked away from the deal – which included broadly a year of wrangling with the Colombian government to gain a decision regarding the acquisition. 

Viva’s financial state continued to weaken after Avianca announced plans to acquire the ULCC in Apr-2022.

In Aug-2022 the two companies asked Colombia’s regulator Aerocivil for a speedy decision regarding the transaction – given Viva’s fragile financial state. In the space of a month during early 2023 Viva entered a voluntary restructuring, then ceased operations. After Viva was grounded, Aerocivil approved the deal, but with numerous conditions.

Although the foot-dragging by the government was frustrating, overall Avianca remains in a strong position and – for better or worse – Colombia’s market will continue to remain dynamic in the near term. 

South Africa has always attracted tourist visitors from the old colonial powers, and though diminished, they kept up appearances during the pandemic. Following a big influx of visitors in 2022 and 1Q2023, the country’s tourist authority must now consider whether the time is right to seek new markets, or whether it should continue to focus on these markets in which there will always be a solid base.

The position is made more complex by uncertainty over the future of South African Airways. With there being an imminent takeover, that future looks brighter than it has been for quite a few years, but there is still much work to be done.

And while the country sells itself easily with its big open spaces and beaches, the crime rate is of sufficient concern that the formation of a special tourist police force is under consideration, nationally. The biggest area of concern, though, must be the allegations made in the past week or so that a Russian cargo ship was permitted to transport arms to that country from a South African port.

South Africa is repositioning itself geopolitically, away from its previous ties to the US, UK and the Netherlands, but to gravitate too far, too fast, could have a negative impact on numerous elements of its economy, including tourism.

This is part two of a two-part report.

LOT Polish Airlines expects to handle 10 million passengers in 2023, according to Chief Commercial Officer Michał Fijoł. For the airline this would be an increase of 19% year-on-year after carrying 8.4 million in 2022. Significantly, this would take LOT back to pre-COVID levels of traffic, since it last reached 10 million passengers in 2019.

However, the ultra-LCCs Ryanair and Wizz Air – respectively the biggest and third biggest airlines by seats in Poland (with LOT in second place) – are already above their 2019 capacity levels.

This means that LOT has lost seat share in Poland since before the COVID-19 pandemic. In particular, the two LCCs are eroding its share in Warsaw, where LOT is still the leading airline.

Wizz Air has ambitions to replace Ryanair as the largest ultra-LCC in the Warsaw airports system. These two dynamic competitors are set to continue their aggressive growth, while LOT risks slipping from number two to number three in Poland overall.

South Africa has always attracted tourist visitors from the old colonial powers, and though diminished, they kept up appearances during the pandemic. Following a big influx of visitors in 2022 and 1Q2023, the country’s tourist authority must now consider whether the time is right to seek new markets, or whether it should continue to focus on these markets in which there will always be a solid base.

The position is made more complex by uncertainty over the future of South African Airways. With there being an imminent takeover, that future looks brighter than it has been for quite a few years, but there is still much work to be done.

And while the country sells itself easily with its big open spaces and beaches, the crime rate is of sufficient concern that the formation of a special tourist police force is under consideration, nationally. The biggest area of concern, though, must be the allegations made in the past week or so that a Russian cargo ship was permitted to transport arms to that country from a South African port.

South Africa is repositioning itself geopolitically, away from its previous ties to the US, UK and the Netherlands, but to gravitate too far, too fast, could have a negative impact on numerous elements of its economy, including tourism.

Ultra-low cost carriers continue to be some of the fastest growing airlines worldwide, but the US ULCCs Frontier Airlines and Spirit Airlines are experiencing margin pressure as they work towards restoring their pre-crisis financial performance. 

Spirit Airlines posted a 16.2% operating margin in 2Q2019, but its forecast for the second quarter of 2023 is 4.5% to 6.5%.  The airline believes that there are drags on its margin performance, including issues with the Pratt & Whitney PW1000G engines powering its Airbus A320neos and pilot attrition, which should gradually improve throughout the year.   

Frontier Airlines is also working to bolster its margins. In 2019 the airline’s adjusted pretax margin was 14.2%. For the first quarter, the airline posted a negative 1.9% margin.  

The two airlines realise the importance of restoring their pre-pandemic margins as a means of showing the investment community that the ULCC business model has staying power. 

Ryanair's 9-May-2023 order of 150 firm and 150 options for Boeing 737MAX-10 aircraft was not really a surprise. However, it was significant both for Ryanair and for Boeing.

The 228 seat configuration planned by Ryanair for its new aircraft is 21% more than its 189 seat 737-800s and 16% more than its 197 seat MAX-8200s. This should allow for a lower cost per seat and closer competition against Wizz Air's 239 seat Airbus A321neos.

If Ryanair exercises all the options, its fleet could grow from 537 at the end of Mar-2023 to 800 in FY2034. The order puts Ryanair on a course to reach 300 million passengers pa in FY2034.

The order is also good news for Boeing, whose MAX-10 is yet to be certified and whose MAX programme overall considerably lags that of the Airbus A320neo programme.

This report considers Ryanair's order and also provides contextual data on 737MAX and the A320neo aircraft numbers.