Analysis Reports

On 29-Nov-2024 Turkish Airlines (THY) added Sydney to its network (via Kuala Lumpur) - its second destination in Australia, after launching services to Melbourne (via Singapore).

The addition of Australia to its network is another step in expanding its Asia Pacific presence. This is helping to achieve a better balance of its capacity between the three major aviation markets, Europe, North America and Asia Pacific.

Türkiye is a large and growing aviation market and provides a solid platform for THY's global connecting strategy. THY has an efficient cost structure, a relatively young fleet, and orders to ensure continued profitable growth.

Earlier this year its low cost subsidiary AJet began operations as a separately incorporated subsidiary, increasing the group's focus on high-growth short/medium haul leisure markets.

In this report, CAPA - Centre for Aviation considers Turkish Airlines Group's strengths, weaknesses, opportunities and threats.

Korean Air appears close to finally gaining all the clearances it needs for its takeover of Asiana Airlines, which would signal the end of a four-year journey through a regulatory maze involving multiple jurisdictions.

Competition authorities in several countries have weighed in on the effects of the merger in their markets, and in many cases they have raised concerns.

Korean Air has patiently worked its way through these processes, agreeing to the concessions needed to address any objections.

The regulatory scrutiny took much longer than expected, but the process is now essentially finished, prompting Korean Air to set a date for closing the acquisition.

While this would mark the end of one phase, it also represents the start of the lengthy and complex task of merging the two airlines' fleets and operations.

Air transportation in the Middle East has been developing rapidly and the Gulf area has become the epicentre of activity, its main airports being leaders in facilitating one-change travel globally, while aiding the brisk development of tourism at home.

Saudi Arabia tends to be overlooked, but is making great strides to improve its domestic air network. Even more so its international one, which it has so far done partly through co-operation with the private sector.

The country already has some of the biggest and most expensive airports under its belt.

Now it looks set to get another one: the King Salman airport at Riyadh, one that will be built around the existing King Khalid Airport, and an essential part of Crown Prince Mohammed bin Salman's 'Vision 2030'.

It is a giant project, costing close to USD30 billion, but there are warning signs about overdevelopment, both at home and abroad.

In Saudi Arabia the country is at a crossroads as it adapts to the paradigm of a world with less reliance on oil, while the US looks set to gain the ascendancy in that field, and while it reassesses its relationship with Iran.

Internationally, in the UAE, the Dubai World Central (Al Maktoum) Airport already stands as a memorial to overestimation of demand - no airport in the world is going to be handling over 200 million passengers a year anytime soon, and such an operation would simply be too big anyway.

While King Salman airport is on a smaller scale, it is still vast, and the Saudi authorities need to be absolutely certain that the planned growth will be sustained.

If there is to be any private sector participation they will definitely need to be convinced of that.

Thai Airways' extensive restructuring efforts have spurred an impressive financial turnaround, and now the airline is undertaking a rapid fleet rebuild to pursue its revised strategy.

The airline revealed the scope of its ambitions a year ago in 2023, when it placed an order for 45 Boeing 787s. Since then, it has been adding as many leased widebodies as it can in order to grow into its new opportunities before the 787s arrive.

While the airline was a player in the international transit market before the COVID-19 pandemic, it now intends to put a lot more focus on this part of the business.

Thailand is well located as a connecting point between some major markets, and its fleet overhaul will be better suited to supporting this effort.

Thai CEO Chai Eamsiri talked about the airline's strategy and turnaround on the sidelines of the Association of Asia Pacific Airlines annual meeting in Brunei on 13-Nov-2024.

A sudden flurry of activity in an otherwise barren year has resulted in three UK airports being sold, and another three being put on the market in Nov-2024.

Firstly, AGS Airports was sold to AviAlliance, which is owned by the Canadian pension fund PSP Investments. Then, before the dust had settled, another Canadian pension fund (OTPP) announced that it would offload its interest in another three UK airports, plus two in mainland Europe. OTPP is a majority/minority shareholder in all of them; it owns none outright.

The reasons for this decision of OTPP's are unclear.

It may have been prompted by the AGS sale; it could be because the time is right (it often isn't in the airports business, and if you don't make hay while the sun shines you never will), or it might have been influenced by attempts being made in Canada to encourage the country's pension funds to invest in domestic infrastructure, including airports.

Whatever the case, it will be fascinating to see who takes on these disparate airports (two UK regionals, a London STOL business airport and two capital city facilities in Europe) when none is owned outright by OTPP, and with a new government in power in the UK - one which historically is no friend of air travel, but which has not done them any great harm - at least, so far.

The first reaction - a move by the Danish Finance Ministry to acquire 98% of Copenhagen Airports - is not likely to be repeated elsewhere.

Spain is fining five low cost airlines for what it calls "abusive practices[,] such as charging extra for hand luggage or for reserving adjacent seats to accompany dependent persons".

The fines on Ryanair, Vueling, easyJet, Norwegian and Volotea are only small percentages of their annual revenue - but banning these ancillary services attacks the LCC model and its profitability.

Moreover, almost all airlines adopt an unbundling approach to a greater or lesser extent.

The decision has been condemned by airline bodies such as IATA and Spain's airline association ALA, as well as by Ryanair. The affected airlines are appealing the decision, and are confident that Spain is contravening EU law.

ALA has observed that the decision would effectively force 50 million passengers who do not take a trolley bag as cabin luggage to pay for a service they do not need.

Spain's misguided attempt at consumer protection will raise prices for all - the opposite effect to what was intended.

The stark imbalance in the Japanese international travel market is showing no signs of fading, as the glacial pace of the outbound recovery contrasts with surging inbound travel.

Despite the problematic outbound market, Japan Airlines (JAL) and All Nippon Airways (ANA) are benefitting from the strong overall financial performance of their international operations.

The inbound/outbound disconnect has become well-enough established that the airlines are adjusting their strategies accordingly. Economic and market conditions are not changing quickly enough to suggest that the imbalance will shift significantly in the near term.

In the meantime, leveraging inbound demand is allowing international capacity to continue recovering for both airlines.

Senior executives from JAL and ANA discussed these trends at the Association of Asia Pacific Airlines (AAPA) annual assembly in Brunei on 13/14-Nov-2024.

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.