Each week, CAPA – Centre for Aviation, produces informative, thought provoking and detailed market analysis of the aviation industry. With supporting data included in every analysis, CAPA provides unrivalled and unparalleled intelligence.
IAG airline group: meets targets, outperforms Lufthansa and Air France-KLM, but still lags Ryanair
IAG’s performance since it last suffered a loss in 2012 has been impressive. In 2017 it made its highest ever net profit and operating profit, and its operating margin again led the way for European legacy airlines. Lufthansa and Air France-KLM have also improved since the global financial crisis, but IAG’s margins leave its rivals in its wake.
IAG and all its individual airlines – Aer Lingus, British Airways, Vueling and Iberia – are now generating returns above their cost of capital. Moreover, its ability to lower debt while also making increased cash returns to shareholders is fairly rare in the global airline sector.
IAG is now meeting its financial targets, but will be keen to maintain its momentum. It may be Europe’s most profitable legacy airline group, but its low cost rival Ryanair regularly generates much higher margins. IAG and its management are unlikely to be happy with standing still while there is more to be achieved.
Finnair 2017: the former ‘poor relation’ growing strongly and now the most profitable Nordic airline
Finnair made a new high operating margin in 2017, when it also became the most profitable major airline in the Nordic region, beating SAS, Icelandair and the loss-making Norwegian with its margin. This marks a strong recovery from the years following the global financial crisis, when Finnair struggled to make a profit and was the region’s weakest performer.
In spite of quickening capacity growth and strong competition in the region, Finnair’s load factor and unit revenue increased in 2017, compounding the beneficial impact of a unit cost reduction (thanks mainly to fuel hedging).
Finnair achieved its best load factor and unit revenue performance in Asia, in spite of growing its capacity faster there than in any other region. Its strategy of using its Helsinki hub to target connecting traffic between Europe and Asia seems to be paying off.
Finnair’s turnaround has been based on sticking to its strategic priority on Asian routes while supplementing this with targeted growth elsewhere in its network, also supported by a fleet renewal programme and restructured labour agreements.
None of these factors has produced overnight results, and Finnair has also been patient and persistent in clawing its way back to beating its financial targets.
Cambodian aviation: seven airlines and more to come in 2018; start-ups and fleet proliferating
Cambodia’s aviation sector is growing rapidly, leading to a rapid expansion of the Cambodian fleet. There are now seven airlines in Cambodia, together operating a combined fleet of 30 aircraft, compared to two airlines operating seven aircraft four years ago.
At least three new airlines are planning to launch operations in 2018, while several of the existing airlines are pursuing further fleet expansion. The Cambodian fleet will likely reach 40 aircraft by the end of 2018.
JC International Airlines, an ambitious start-up which began operations less than a year ago, could become the largest airline in Cambodia by the end of 2018, based on fleet size. Cambodia Angkor Air and Sky Angkor Air are now the largest local airlines and are also the most established.
A320neo aircraft engines: CFM achieves 56% share of orders; Pratt & Whitney remains active
CFM International and Pratt & Whitney have been competing to supply engines for the A320neo family since the neo programme was launched in late 2010. CFM has so far accounted for 57% of deliveries and currently accounts for 56% of all A320neo family engine orders, according to the CAPA Fleet Database.
While Pratt & Whitney is behind, the gap with CFM is relatively small, given the multiple delays encountered by Pratt & Whitney. There are nearly 2,500 A320neo family aircraft on order that still do not have an engine allocation, providing ample opportunity for Pratt & Whitney to narrow the gap.
Royal Brunei Airlines recently become the second A320neo family customer after Qatar Airways to switch engine suppliers, dropping its initial contracts with Pratt & Whitney in favour of CFM. However, these two customers account for only 3% of the orders placed with CFM.
Canadian airline fleets: Boeing dominates deliveries and Air Canada looks to offload Embraer 190s
The Boeing 737 Max is the dominant aircraft for Canada’s largest airlines during 2018, representing the bulk of deliveries for both Air Canada and WestJet.
Air Canada is embarking on its narrowbody fleet revamp after completing a years-long widebody fleet renewal. The airline had also decided to accelerate the removal of 25 Embraer 190s from its fleet, joining American Airlines in shedding the smaller aircraft earlier than originally planned.
WestJet is taking its 737 MAX jets ahead of its first 787 delivery in 2019. Canada’s second largest airline has also opted to extend leases on a portion of its current generation narrowbodies. With the combined order books of WestJet and Air Canada, Boeing dominates aircraft orders in Canada, the MAX to serve as the backbone for each airline’s narrowbody fleet in the future.
Both Air Canada and WestJet are working to expand the number of unencumbered aircraft in their respective fleets. For now, WestJet has a higher percentage of untethered jets, but Air Canada is pushing forward to own more aircraft in its fleet during the next few years.
Brexit and aviation: UK airline access to EU markets to diminish, as airlines prepare for the worst
In spite of UK Transport Secretary Chris Grayling’s continued assertion that he will seek “the best possible access to European markets” for UK airlines, this access is increasingly likely to be less liberal than now. The European Commission has made it clear that the UK will leave the single aviation market when it leaves the EU, possibly after a limited transition period yet to be agreed.
Future UK-EU traffic rights are likely to be governed by a new bilateral similar to the EU-US and EU-Canada deals. The UK’s participation in EU deals with third countries will also cease, but Mr Grayling is confident that the UK can replace them with new bilaterals (although these seem unlikely to give UK airlines the right, for example, to fly to the US from elsewhere in Europe).
Meanwhile, Ryanair has warned that the UK government is underestimating the likelihood of flight disruptions to/from the UK. It has followed Wizz Air in applying for a UK AOC as a contingency. EasyJet is setting up a new UK subsidiary alongside the European one established in 2017 in an effort to be both a UK and an EU operator.
Little more than 13 months before the UK’s departure, clarity is needed urgently.
Tokyo Haneda Airport to become Asia’s #1, overtaking Beijing Capital, as international grows
Tokyo Haneda is poised to regain the title of Asia’s largest airport from Beijing Capital. Beijing Capital overtook Tokyo Haneda in passenger traffic in 2009, but Haneda’s growth and future expansion from international services will boost its traffic, whereas at Beijing Capital there will be a reduction as some airlines move from it to the new facility, Beijing Daxing.
But rankings and titles have limited implications. Tokyo Haneda will receive approximately 53 new daily international round trips in 2020 in the lead-up to the 2020 Tokyo Olympics.
As with the previous international Haneda expansion, many of Haneda’s new flights will be existing flights transferred from Narita. Allocating the slots will be political, domestically and internationally, as Japan shapes its aviation policy considering ANA versus JAL; full service versus low cost; ANA and JAL JV partners versus independent airlines.
Even before those discussions begin, ANA and its partners have received an advantage with planned expansion works that will mean that ANA’s domestic Haneda terminal will also handle international flights, allowing same-terminal domestic-international connections.