Analysis Reports

It is early days for Delta Air Lines’ operation of its fleet of Airbus A220 narrowbodies, but so far the aircraft is meeting the airline’s expectations and the route network for the jet continues to expand beyond the initial deployment from New York JFK and LaGuardia.

Delta continues to believe that the aircraft offers a superior customer experience in the US domestic market while delivering much better economics than smaller regional jets the aircraft is replacing. 

Until JetBlue takes delivery of its first aircraft in 2020, Delta has the distinction of being the only A220 operator in the US, which means that Delta’s strategy for the aircraft will continue to be closely scrutinised. 

On 26-Sep-2019 IAG issued a profit warning lowering its 2019 operating result guidance by EUR215 million, or 6%.

IAG blamed the downgrade on three main factors. Two of these were one-offs and broadly known to the world at large, even if not previously fully quantified – namely, the Sep-2019 pilot strike at British Airways and threatened Heathrow strikes.

The third, however, was less expected and highlighted some changes to underlying demand patterns. Since IAG last reiterated its previous 2019 outlook in early Aug-2019, forward booking trends at Vueling and LEVEL have deteriorated to the extent that they are hitting its profit guidance.

IAG had previously maintained its 2019 operating profit guidance – that it would match last year's result – since the beginning of the year, apparently defying the gravity that has weighed on its peers. In Jun-2019 Lufthansa Group lowered its profit target. Although Air France-KLM has not published any profit guidance, its Aug-2019 traffic report revealed a decline in load factor and weaker bookings.

IAG is still forecast to report the highest operating margin among Europe's five leading airline groups in 2019. Nevertheless, its profit warning is further evidence of a downswing in the European airline profit cycle.

IATA took a significant step when it unveiled a new '25by2025' policy that urges its airline members to increase the level of female representation in their senior ranks and under-represented positions during the next six years, but the commitment needs to be underpinned by real initiatives designed to break the barriers that prohibit women from rising through the ranks. 

Gender parity is becoming widespread in aviation discourse as airlines work to understand ways in which they can work to enlarge the number of women in their work forces. 

Canada’s largest airlines – Air Canada and WestJet – are keenly aware of the importance of increasing female representation in their executive ranks, but believe that invoking quotas is not beneficial in pushing for more gender equality within their organisations. 

“There is only one way to finance costs created by climate change – through taxes”. Swedish Finance Minister Magdalena Andersson’s 20-Jun-2019 comments to a Netherlands-hosted conference on carbon pricing and aviation taxes, represent a growing view among Europe’s politicians and electorates. The conference proposed a jet fuel tax.

The Swedish word flygskam, ‘flight shame’ in English, underpins an anti flying movement that has spread from Scandinavia to other European countries. It reflects a growing sentiment, particularly in the developed world, that flying is a source of guilt and shame because of its climate change impact. Sweden introduced a per trip aviation tax in 2018, but Ms Andersson would like to introduce a tax on jet fuel. Meanwhile, the 2018 tax and public sentiment towards aviation’s climate change impact are depressing demand for air travel in Sweden.

Only a small proportion of the world’s population flies, but for those that do, it can account for a very significant proportion of the CO2 emissions attributable to them individually.

As a result of ‘flight shame’, this is causing a small but growing number of people to reduce or even eliminate discretionary air travel. Global aviation should watch Sweden with care.

CAPA’s 2019 New Zealand Aviation Summit & CAPA New Zealand Corporate Travel Summit, hosted by Auckland Airport and Air New Zealand, is due to be held on the 16-17th of October 2019.

Gathering at the event will be key aviation leaders and stakeholders from New Zealand and the Pacific Islands, including C-level executives from airlines, airports, air navigation service providers, tourism bodies and industry technology partners.

Even as the controversy continues over whether low cost long haul LCC operations are sustainable, the fact is that there has been a dramatic expansion in this category over the past few years.

After years of developing short haul, point to point operations, LCCs have reached a point where the sophistication of their business models and new aircraft technologies are aligning with revised passenger expectations to make long haul services a true growth proposition.

Aside from the debate about what is a long haul low cost operation, the central issue is that the high fare, high service proposition of traditional long haul markets is ripe for disruption. As a consequence, airports and destinations are aggressively courting LCCs to develop new direct routes.

Not all is smooth sailing though. As recent bankruptcies in Europe illustrate, the margins in aviation remain slim and today’s market disruptors are potentially tomorrow’s case studies in what not to do. The clouds of an economic downturn are also looming, and there are those that doubt the viability of the model to weather the storm.   

CAPA’s Low Cost Long Haul Global Summit to be held in Hamburg on 10/11-Oct-2019, will explore this new frontier of low cost travel as one of the key trends for aviation.

Wizz Air is to grow its Poland network by adding 15 new routes and increasing frequencies on 13 existing routes in summer 2020. Its fleet of aircraft based in Poland will expand by four, to 30, and its annual seat capacity on Polish routes will grow by 20%.

This will narrow the gap between Wizz Air and both LOT Polish Airlines and Ryanair in the battle to be the biggest airline in Poland.

Poland is a price sensitive market where low costs are crucial. LCCs have 55% of international seats in Poland – more than in most European markets, with ultra LCCs Ryanair and Wizz Air accounting for 47% in 2019. It is a testament to the success of LOT's restructuring that it has increased its seat share in Poland in each of the past four years and is level with Ryanair in 2019.

Growth by Wizz Air, LOT and Ryanair should ensure that Poland remains a keenly fought three way contest.

Virgin Atlantic Airways' new network plan for an expanded London Heathrow airport appear to confirm that it is considering the relaunch of a direct flight between London and Cape Town. Previously the airline operated from Heathrow to Cape Town, but withdrew in 2015.

The city pair is currently dominated by British Airways. Based on the northern winter 2020/2021 schedule, BA operates 17 weekly frequencies between London and Cape Town (14 from Heathrow and three from Gatwick), while Thomas Cook's demise removes the only other competitor (it was to operate three weekly frequencies), based on the week of 6-Jan-2020 (source: OAG).

More broadly, the aviation market between Europe and South Africa has experienced unspectacular growth over the past three years, after a four-year period of no growth between 2012 and 2016.

It may be ripe for further stimulation.

Mexico’s third largest airline Interjet has faced a confluence of events that are creating formidable challenges for the company. The airline is struggling to rid itself of Sukhoi Superjet narrowbodies that have been plagued by maintenance issues, at the same time as attempting to correct assumptions that it is headed for bankruptcy, and has reportedly also faced staffing issues. 

As it works through all those issues, Interjet is making significant network changes that include bulking up its operations in Mexico City and creating a hub in Cancún. It remains to be seen whether the latest changes will be successful, and Interjet is undertaking its network revamp at a time when the airline's yields are decreasing and costs are expanding. 

Interjet has always billed itself as Mexico’s value airline and its traffic and passenger levels continue to grow, but it faces an uphill climb in its quest to return to profitability as its lower cost rivals continue to compete fiercely in Latin America’s second largest aviation market. 

In a direct challenge to British Airways' dominance, Delta-backed Virgin Atlantic Airways has set out plans for an aggressive expansion of its network from London Heathrow. Virgin regards itself as a potential second flag carrier for the UK, offering lower fares and greater choice to consumers.

Virgin's plans would take its Heathrow long haul network from 19 routes to 54. They would also expand its network to embrace UK domestic routes (12 of them) and short/medium haul European routes (37 of them). They include routes that are BA or IAG monopolies in addition to destinations that are not served by BA, and entirely new destinations for Heathrow.

However, Virgin will only add these 84 new routes if Heathrow's proposed third runway is built and if the slot allocation system is changed. Virgin and its partners have 8.6% of slots at Heathrow (3.5% for Virgin itself), whereas IAG and its partners have close to 60% (51.1% for BA). Virgin's expanded network would require a disproportionate allocation of new capacity to it.

However, that does not stop Virgin from casting itself in the familiar role of advocate for the consumer to put pressure on the incumbent.