Analysis Reports

The head of Russia's competition authority, the Federal Antimonopoly Service (FAS), has called for more competition in the country's low cost airline segment. He has even suggested that Aeroflot launch another LCC to compete with its low cost subsidiary Pobeda.

Pobeda is the country's only LCC, with 7.2 million passengers in 2018 giving it a 5.2% traffic share. It has 100% of domestic LCC capacity and approximately 40% of international LCC capacity to/from Russia, against fragmented foreign low cost competition.

Pobeda has grown rapidly since its Dec-2014 launch and the relative underpenetration of air travel in Russia suggests that it will be able to continue to channel latent demand through its low fares.

However, Pobeda's load factor has peaked, and it slipped to an underlying operating loss in 1H2019.

More low cost competition would help to accelerate the growth in air travel's penetration levels in Russia and might even focus Pobeda on an even more efficient cost structure. Aeroflot's preference would be for others to launch competitor airlines.

The latest tranche of international slot allocations at Tokyo’s Haneda Airport will open up new route opportunities for Japan’s two major carriers, and will also likely mean a further shift of international service from Tokyo Narita Airport.

Japanese regulators have allocated the new Haneda slots to certain international markets, but the key decisions about specific routes are yet to be revealed by Japan’s airlines.

Haneda slots are highly coveted due to the airport’s capacity constraints, and its proximity to one of the world’s most valuable passenger markets in the Tokyo metropolitan area. All Nippon Airways (ANA) and Japan Airlines (JAL) use a dual-hub system in Tokyo, although Haneda is more desirable as it is much closer to central Tokyo than Narita.

The CAPA Latin America Aviation & LCCs Summit in Curaçao on 16/17-Sep-2019 will bring together leaders from across the region to explore the key strategic issues impacting aviation in Latin America. Hosted by Curaçao Airport Partners, CAPA’s Latin America summit returns for a third year and will focus on the regional aviation outlook and issues affecting the region’s LCCs.

Latin America’s aviation industry is undergoing dynamic changes, with improvements to airport and airspace infrastructure and greater operational efficiency for airlines. Airport privatisation processes are underway, the global alliances framework is well established, open access arrangements are in place and regional economies are recovering.

While regional travel demand is buoyant, potential impediments to further growth remain, including infrastructure constraints and high costs.

Against this backdrop, the CAPA Latin America Aviation & LCCs Summit will feature key industry leaders to provide invaluable insights. Attending airlines include Air Antilles, American Airlines, Azul, Copa Airlines, Flybondi, GOL, interCaribbean, LIAT, United Airlines and Winair.

Next year Air Europa and Air France-KLM are hoping to launch their new metal-neutral South Atlantic joint venture, announced in Aug-2018 and originally hoped to begin this summer. Negotiations have taken longer than expected, in spite of common SkyTeam membership and existing codeshare cooperation.

Based on OAG data for the week of 12-Aug-2019, Air France, Air Europa and KLM are respectively second, fourth and fifth by seats on Europe to Latin America excluding Caribbean.

The market leader Iberia combines with British Airways to make IAG the leading airline group in this market. However, the Air Europa/Air France-KLM JV would have a higher seat share than IAG and would be neck and neck with the planned IAG/LATAM Airlines JV.

Meanwhile, Air Europa has launched three new routes this summer (Panama City, Medellín and Iguazu). This gives it more destinations than any other operator between Europe and Central/South America, where its capacity is up by 20% year-on-year in Aug-2019.

Iberia's 18% growth is focused on frequency increases, rather than new destinations. The Air Europa/Air France-KLM JV would have a significant lead over the IAG/LATAM Airlines JV in the number of destinations in Latin America excluding Caribbean.

It has been an eventful 2019 for Brazil’s aviation market since Avianca Brasil ceased operations and Brazil’s largest airlines began jostling for some of the defunct airline’s more attractive assets. 

Azul joined other airlines in working to obtain Avianca Brasil’s slots (particularly at São Paulo Congonhas airport) and now, armed with new slots, the airline is launching flights on the key Rio de Janeiro business route. Its service on the route will pale in comparison to those of GOL and LATAM Airlines Brazil, but breaking into that market is key for Azul’s domestic evolution. 

As the shakeout in Brazil’s domestic market after Avianca Brasil’s exit continues, Brazil’s economy is facing some headwinds after its growth forecast for 2019 has been cut, and general overall recession concerns are rising for countries worldwide. 

The number of airlines offering lie-flat seats on narrowbody aircraft is increasing rapidly, providing better options for corporates in a wide range of markets. The introduction of new generation narrowbody aircraft, including the A321neoLR and in future the recently launched A321neoXLR, is a game changer as it enables airlines to operate long haul narrowbody routes efficiently in low density premium-focused configurations. 

There are currently 13 airlines operating narrowbody aircraft with lie-flat business class seats, compared to only eight airlines 15 months ago.

Five airlines have introduced lie-flat narrowbody aircraft since May-2018, kicking off a new trend which is expected to accelerate as more network airlines take delivery of A321neoLRs, A321neoXLRs, 737 MAX 8s, 737 MAX 9s and 737 MAX 10s.

The five recent adopters are Philippine Airlines (PAL), Panama’s Copa, Saudia, France’s La Compagnie and TAP Air Portugal. Kazakhstan’s Air Astana is planning to put its first lie-flat narrowbody aircraft into service in Oct-2019, followed by Bahrain’s Gulf Air in early 2020.

Curaçao Hato International airport is benefitting from the country’s steady increase in tourism numbers, which is driving expanded service from the New York market, Colombia and direct flights to Trinidad.

The country’s tourism body has calculated that tourism generated USD132.7 million for Curaçao’s local economy during the first two months of 2019, which was a 10% increase year-on-year. Approximately 46% of that total is generated by visitors from Europe.

Data from CAPA and OAG show that as of late Aug-2019 Curaçao has service to 17 nonstop destinations: two in Europe, four in North America and 11 within Latin America. Curaçao's is the second largest air service market among the “ABC” islands – Aruba, Bonaire and Curaçao. 

The airport has also weathered the challenges faced by InselAir that ultimately led to the airline ceasing operations. It appears that some operators are working to fill that void, including the start-up JetAir Caribbean, which is working to gain certification from Curaçao’s aviation authorities. There was little doubt that airlines would work to fill the void left by InselAir, given Curaçao’s solidly growing tourism numbers. 

Croatia Airlines celebrated its 30th anniversary on 7-Aug-2019. However, in recent years it has not kept pace with the rapid growth in demand for air transport to/from Croatia.

The country's 2019 seat capacity will be more than twice the level of 2012, but its national airline will have grown seat numbers by only 6.4% over the same period: Croatia Airlines carried almost 2.2 million passengers in 2018, a figure not much more than the 1.9 million of a decade earlier.

Growth has been driven by airlines from elsewhere, particularly by LCCs. Inbound summer tourism is the major agent of this growth in one of Europe's most seasonally skewed markets.

However, Croatia's total seat growth is slowing to 7.7% in 2019 – still high compared with European and global average rates, but Croatia's slowest since 2013.

The nation's government expects slower growth in tourism due to encroaching infrastructure constraints. Nevertheless, tourist demand looks set to remain healthy and Croatia's aviation market should continue to grow.

Both JetBlue and Delta Air Lines are downplaying their intensifying competition in Boston as both airlines march towards their respective goals of 200 daily departures from the airport and Delta transitions Boston into a hub airport. 

JetBlue shows no signs of retrenching in Boston, having made a significant investment in building up the airport as its second largest focus city, and using Logan as its base for the launch of trans Atlantic operations in 2021. 

The commitments by Delta and JetBlue to Boston are good news for the airport, which will no doubt continue to chart solid growth as the competition shakes out. 

Effective revenue management is one of the most complex aspects of airline financial management and is constantly evolving as technology improves. During the past few years US airlines have reached a point where they can invest in new revenue management technology to add levels of sophistication previously not available to them. 

United Airlines and Alaska Air Group are two US operators that have invested in new revenue management systems during the past couple of years. United debuted its new system in 2018 and has started to reap rewards from the change, particularly in its corporate revenue. 

Now Alaska has invested in a new revenue management system to replace decades-old technology, and the changes should aid the company in sustaining its long term margin targets.