Delta Air Lines confirms talks with WestJet
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China-US air growth slows as Xiamen Airlines flies Fuzhou-New York, making the world a smaller place
The world becomes a smaller place on 15-Feb-2017 with the launch of Xiamen Airlines' Fuzhou-New York JFK service. The route is a not a headline grabber like the ultra long hauls of Singapore-San Francisco or Doha-Auckland. But linking the two cities brings a nonstop flight to what is, by some calculations, the largest unserved trans-Pacific market.
The new flight reflects on current themes in the market between Asia and North America: the growth from China's secondary cities, more Chinese airlines being catapulted onto the world stage, and impacts to one stop competitors.
Fuzhou-New York will initially be only flown three times a week, supporting competitors' retorts that they have a frequency advantage – or at least for now. Competitors have also claimed a better product, but Xiamen's 787-9 is China's fifth widebody to offer direct aisle access business class. Soft service is catching up, and likewise for commercial planning: Xiamen's 787-9s do away with first class. This report looks at the growth of China and the rest of Asia to North America as growth momentum slows with China's bilateral capacity being reached.
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.