Cathay Pacific announced plans to progressively increase capacity between Hong Kong and Taipei to cope with increasing demand (China News, 02-Jun-2010). The carrier plans to increase frequencies between Taipei and Hong Kong from 80 to 87 per week from 11-Jun-2010 and to 94 per week from 01-Jul-2010.
Cathay Pacific to increase Hong Kong-Taipei frequency
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Air Canada’s 1Q2017 margin pressure and lower ROIC targets trigger market trepidation
Canada’s largest airline, Air Canada, is working through a multi year effort to grow its international footprint and cut costs. The company’s strategy has entailed higher than average capacity growth compared with its North American global network airline peers. Its long haul push has resulted in growing stage lengths and yield pressure; but Air Canada’s EBITDAR margin, the preferred metric in which the company measures its performance, has remained well within its established targets.
The company’s capacity should continue to expand in the double digit range during 2017 as it adds more Boeing 787 widebody jets and plans additional new route introductions. Its stage length should continue to grow in 2017, which means yields will remain under pressure. Air Canada’s capacity growth should moderate in 2018 as several initiatives it has undertaken during the last few years reach maturity.
Air Canada has been reasonably successful in growing its valuation during its large scale capacity growth, but a downward revision in ROIC targets and warnings of lower EBITDAR margins for 1Q2017 are triggering some pressure on its stock price. For now, markets are not quite reassured by Air Canada’s pledges that it will still meet its stated annual EBITDAR margins in 2017.
Air Canada continues its strategy of higher capacity growth to fuel rapid international growth
Air Canada’s yield and passenger unit revenues during 3Q2016 remained broadly in line with those of the previous quarter, which is a different outcome from the results posted by many of its North American peers. However its top line revenues grew nearly 11%, and its costs fell at a lower rate than those of many other North American airlines.
The airline’s yields and passenger unit revenues began falling earlier than those of most other airlines based in North America, and Air Canada’s recurring explanation is that lower yields and unit revenues are an expected byproduct of changes in its business model – the creation of its low cost unit rouge, a higher mix of lower-yielding leisure travellers, and longer average stage lengths. As yields and unit revenues continue to decline, Air Canada continues to deliver on its own established financial goals for EBITDAR, ROIC and leverage ratios.
Air Canada’s focus has been on international expansion during the past few years, and that trend will continue for the foreseeable future. In 2017 the airline is expecting nine Boeing 787s scheduled for delivery and its capacity is likely to mirror 2016’s double-digit growth – given that the company will accept delivery of nine new widebodies this year. The bulk of its growth will again be directed to international routes as several new long haul markets are scheduled to come online in 2017.