Thai AirAsia plans to launch Phuket-Denpasar and Phuket-Surabaya services, as part of plans to develop Phuket as a regional hub (The Nation, 09-Sep-09). The carrier also plans to develop Chiang Mai into a hub, with plans to launch services to Hanoi, Kunming and Dhaka from the destination. Thai AirAsia also plans to launch services to Siem Reap, Mumbai and Hangzhou from Bangkok and increase Ho Chi Minh City frequency.
Thai AirAsia to develop Phuket and Chiang Mai as hubs
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AirAsia initiates third attempt to launch Vietnamese JV; Vietnam maybe overburdened with LCCs
The AirAsia Group has forged a new joint venture in Vietnam, marking its third attempt to establish a Vietnamese affiliate. AirAsia was initially partnered with VietJet Air but the partnership was dissolved prior to VietJet commencing operations in late 2011.
The market has since more than doubled in size, and Vietnam has emerged as Southeast Asia’s fastest growing market. While there is further growth potential, the LCC incumbents VietJet and Jetstar Pacific have first mover advantage, and infrastructure constraints could make it difficult for any new entrant to establish a significant presence. AirAsia will also need to overcome regulatory hurdles.
Vietnam is the second largest market in Southeast Asia without an AirAsia affiliate - after Singapore, where the group has been able to develop a sizeable presence with a virtual hub. Vietnam is a market AirAsia strategically cannot avoid, but the group is late to the party and faces some of the same obstacles that have impacted its performance in the Philippines.
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.