Analysis Reports

British Airways' service between London Heathrow (LHR) and New York John F Kennedy (JFK) is the world's most lucrative airline revenue route. In the year to Mar-2019, it generated USD1.2 billion – the only route with revenue of more than USD1 billion, according to OAG.

More broadly, the London-New York city pair is the world's largest international route by ASKs and the largest intercontinental route by seats (and second largest of all international routes by seats). LHR-JFK (London Heathrow-New York JFK) is the largest international airport pair by ASKs and the largest intercontinental airport pair by seats.

London-New York is dominated by two antitrust-immune joint ventures.

British Airways/American's share is 48.7% and Virgin Atlantic/Delta's share is 28.4%, according to data from OAG. Norwegian's share has grown to 10.0% from a standing start in 2014. The JVs, particularly Virgin/Delta's, have lost share since Norwegian entered, but this is now stabilising. Moreover, Virgin and Delta plan to upgauge on LHR-JFK and to add a JFK service from London Gatwick (LGW), operated by Virgin, in 2020.

This report presents CAPA's analysis of OAG capacity data on the London-New York market, examining growth and seat share by airport pair, airline, and joint venture.

Vietnam is one of several countries in Southeast Asia where, on the surface at least, it appears as if the government is keen to attract both domestic and foreign investors to its airports portfolio. That appearance might be a little misleading, though.

Aéroports de Paris, which then became Groupe ADP in 2017, looked to tie up a deal with ACV whereby Groupe ADP would acquire a 7.4% equity stake (later 20%) in ACV and make long term investments there. The government approved the deal but it was then stalled by both ACV and Groupe ADP owing to multiple disagreements.

The Vietnamese government currently owns 95.39% of Airports Corporation of Vietnam (ACV), with the remaining 4.61% held by both local and foreign investors. Now, while Ministers are saying that they still welcome investment, the government is proposing to buy back the few shares in ACV not owned by the state, thus effectively nationalising it.

Total airline seat capacity in Iceland this year is set to plummet by more than a quarter versus 2018. This marks a sharp reversal of the strong double digit growth catalysed by the LCC WOW air in the six previous years, when the market leader Icelandair Group and foreign airlines also pursued rapid growth.

WOW air's exit in late Mar-2019 has not only removed the biggest contributor to capacity growth, but has also prompted most of the remaining airlines in Iceland to ease back on the throttle. Excluding WOW air, the collective capacity of Icelandair Group and other airlines will be flat this year.

There is some variation within this. The LCC Wizz Air and the Nordic airlines Norwegian, SAS and Finnair are growing rapidly in Iceland, but Icelandair Group's growth is modest overall and operators such as easyJet and British Airways are cutting capacity.

In other aviation markets the gap left by the collapse of a major player is often fairly rapidly closed by other airlines. This is not yet happening in Iceland – evidence that demand had been artificially inflated by unsustainably low prices during the WOW air years.

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.