Analysis Reports

Recently, CAPA - Centre for Aviation reported on interest allegedly coming from Saudi Arabia’s Public Investment Fund, a sovereign wealth fund (SWF), in London Heathrow Airport where Ferrovial may sell some or all of its stock.

The Saudis are not yet committed to the airport sector in the UK (while they are to sport – Newcastle United Football Club, and Abu Dhabi owns Manchester City), but they must have noticed that six SWFs already are part-owners of three London airports.

In fact, London is the nexus of financial sector interest in airports – partly on account of London being one of the leading centres in the world for such activities, as well as collectively the world’s biggest hub for air transport activities. Not to mention that it is open to foreign business.

If there is to be further airport M&A activity from SWFs it is in cities like London where it is most likely to happen. Conversely, there is no set pattern otherwise to those investments elsewhere, and half of the Top 15 SWFs aren’t directly into airports at all.

Even though immigration ‘pre-clearance’ into the US for transport passengers has existed for over a century, there has been very slow progress in implementing it globally more recently.

Passengers availing of pre-clearance formalities have passports checked by US immigration officials and cleared by US customs for entry into the US at their departure airport. They are not subject to further check, because flights arrive at domestic rather than international terminals at US airports.

The 15 airports that benefit from pre-clearance have not been added to for years. It seems Edinburgh Airport in Scotland, first proposed in 2012 but which only became a formal candidate years later, may overtake London Heathrow and Manchester airports to be the first UK airport in the scheme.

But for all the benefits of the arrangement (as Dublin Airport in particular would testify), there are pitfalls, including security, user satisfaction (airlines as well as passengers), and funding issues.

This two-part report examines the benefits and disadvantages. This is part two.

When China emerges from its COVID hibernation it will be a different aviation force. It will not be business as usual. The world has changed greatly since Jan-2020; and China has changed too.

Financial markets anticipate that China under President Xi will lean more towards central strategy, with a greater role played by national policy goals than previously. This reflects a sense that President Xi’s focus on national security and pandemic policies will go unchallenged – even if it means slower growth and shareholder discomfort.

In the past China has used the power of its outbound tourist expenditures to punish states for stepping out of line. Beijing pressure on agents, airlines and the public at large can steeply reduce tourism traffic to the countries who are the target of Beijing’s displeasure.

There are many other issues that have altered the shape of China’s aviation outlook since 2019.

This is part two of a three-part report.

Even though immigration ‘pre-clearance’ into the US for transport passengers has existed for over a century, there has been very slow progress in implementing it globally more recently.

Passengers availing of pre-clearance formalities have passports checked by US immigration officials and cleared by US customs for entry into the US at their departure airport. They are not subject to further check, because flights arrive at domestic rather than international terminals at US airports.

The 15 airports that benefit from pre-clearance have not been added to for years. It seems Edinburgh Airport in Scotland, first proposed in 2012 but which only became a formal candidate years later, may overtake London Heathrow and Manchester airports to be the first UK airport in the scheme.

But for all the benefits of the arrangement (as Dublin Airport in particular would testify), there are pitfalls, including security, user satisfaction (airlines as well as passengers), and funding issues.

This two-part report examines the benefits and disadvantages. This is part one.

Malaysia Airlines is making good progress towards regaining the financial momentum it lost due to the COVID-19 pandemic and this is allowing the airline to address more of its fleet replacement needs.

There are clear signs that the group’s most recent round of restructuring has improved its business outlook.

Of course, there is still a long way to go, but the trajectory is in the right direction. Its prospects may even be brighter than before the pandemic, thanks to the changes to its cost structure and debt terms.

Malaysia Airlines has demonstrated its confidence by taking steps towards fleet renewal. The airline is due to begin receiving Boeing 737 MAXs in 2023, and is now considering further deals for the next phase of its narrowbody fleet plans. On the widebody side, Malaysia Airlines has selected Airbus A330neos to replace its older A330 fleet.

During the past year Avianca and Viva have attempted to drive consolidation in the Colombian market – but have encountered headwinds after the government concluded that their plans would harm competition in Colombia’s aviation sector. 

Despite the fact that Colombia had one of the swiftest rebounds in traffic after the COVID-19 pandemic, the dramatic drop-off demand in the early days of the crisis propelled the country’s largest airline, Avianca, into Chapter 11 bankruptcy protection.  

In Apr-2022 Avianca outlined its plans to purchase its Colombian low cost rival Viva and keep the entities separate. Now those airlines have offered concessions to push the deal through, stressing that time could be running out for Viva, whose financial situation continues to deteriorate. 

But it remains unknown whether they can convince the government to endorse their merger, and as those airlines await the fate of their tie-up, the fast growing airline group JetSMART group is working to spread its ultra-low cost wings to Colombia. 

The CEO of the UK low cost leisure airline Jet2.com, Steve Heapy, recently warned that government-imposed environmental taxes will continue to push air fares up (The Independent, 16-Nov-2022).

"It will put holiday prices up and tax people out of the ability to fly, meaning flying will become something for the rich and privileged only. People want sustainable holidays and this should be seen as an opportunity."

Even before environmental costs, passenger air transport inflation is rampant in Europe in 2022.

Surging prices of oil and jet fuel, together with the return of post-pandemic demand and constrained capacity, are the main causes.

Korea Airport Corporation has, during the last few years, been noted for developing a deep interest in operating airports in South America – specifically Ecuador.

But it has also had its eye on the main chance in Southeast Asia where it feels it can add value.

Having just completed a feasibility study for the expansion of Laos’ second largest airport, in its main tourist city, it is now seeking a formal PPP contract with the Laotian government.

Laos may need to replace its usual main source of tourists, from China, and one potential benefit of a deal with KAC is an economic spin-off, which might result in Korean firms investing in Laos.

All Nippon Airways (ANA) is optimistic that improvements in Japanese outbound leisure traffic flows will help drive the next phase of its international capacity recovery.

The airline’s international traffic has increased dramatically since Japan's government lifted some entry restrictions on 11-Oct-2022, although gains have been uneven across different market sectors.

Inbound leisure traffic has experienced the biggest increases, and ANA has rebuilt its North American network almost to pre-pandemic levels. However, outbound leisure travel has so far been much slower to respond, meaning that this is also the market segment with the most growth potential.

Mainland China traffic remains heavily constrained, and European routes have been severely hampered by ANA’s avoidance of Russian airspace. Similar issues confront ANA’s rival, Japan Airlines.

Like many other Asia-Pacific airlines, ANA is also looking to lock down its long term widebody aircraft replacement plans. However, its efforts are being complicated and it may require short term solutions.

Brazilian operator Azul has held one of the most bullish views as the global aviation industry reshapes itself in a post-pandemic environment.

The airline believes it could eventually serve up to 200 destinations within Brazil. But in the short term, Azul is gearing up to double its presence at São Paulo Congonhas after receiving coveted slots at the airport.

Azul has long sought to build up its presence at Congonhas, and the company believes its ability to tap a diverse fleet will create a competitive advantage as it grows in the market.