Hainan Airlines reportedly stated the carrier’s first Boeing 787, initially scheduled for delivery at the end of 2012, will be delayed to 2Q2013 adding China Southern Airlines’ first 787 also faces similar delays, according to a National Business Daily report. HNA Group chairman Chen Feng previously said the carrier may change its 787 order to the 747-8 aircraft. As previously reported, Mr Chen stated the company is in talks with Airbus and may cancel its order for 10 A380 aircraft due to weak market conditions.
Hainan Airlines expects 787 delivery to be delayed to 2Q2013
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Chinese New Year air traffic a boon to airlines but reflects challenges of year-round sustainability
The Chinese New Year travel season, billed as the world's largest migration, once again fills the headlines with astounding numbers of passenger movements. Some airlines set maximums on pricing, for fear of being seen as price gouging if revenue management systems followed their normal pricing curve upwards.
Even the most sceptical investors would be forgiving for contemplating airline ownership during the travel rush. The question, and lurking problem, is what happens the rest of the year.
China's concentrated and en masse travel periods present a challenge for sustainability. Airlines local and foreign are often reduced to hoping that routes will be annually profitable based on a few weeks of travel during Chinese New Year, the brief summer peak, and the autumn holidays. With load factors consistently high, yields are weakened, either on point-to-point traffic or as Chinese airlines aggressively discount connecting/transfer traffic.
On a volume basis, international traffic remains strong, expanding by an estimated 9.3 million passengers in 2016 for 22% growth. Chinese airlines continue to pivot to the international market, and Air China now has more capacity internationally than domestically.
Frontier and Spirit Airlines ramp up their fleets to support bullish views on passenger stimulation
ULCCs Frontier and Spirit hold orders for more than 150 Airbus narrowbodies to support the proliferation of the model across the US. Frontier’s fleet is projected to grow by 83% from YE2016 to 2021 – from 66 to 121 aircraft. Spirit’s current fleet forecast shows 46% growth from YE2017 to 2021 – from 108 aircraft to 158 aircraft.
Each airline is taking nuanced approaches to financial management of its fleet. Spirit has opted to purchase some aircraft off lease in order to enlarge its number of owned aircraft, while Frontier, which is just embarking on the process of accessing public markets, will use operating leases as its primary financing vehicle.
The planned growth by each airline reflects conclusions reached by Frontier and Spirit about the opportunities for the ULCC model in the US, despite changing market dynamics – namely a push by large US global network airlines to create pricing segments to compete more effectively with ULCCs. Despite the focus on price matching by larger airlines, Frontier and Spirit remain bullish on the opportunities for stimulation in the US market.