Catch up on CAPA’s exclusive Market Analysis pieces

    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.

    Avianca and LATAM shift focus more locally

    Changing market dynamics are driving several network adjustments at Latin America’s two largest airline groups – LATAM and Avianca Holdings. Those companies are navigating currency pressure and rising fuel costs, and as a result they are working to maximise the profitability of their respective networks.

    LATAM is opting to cut some long haul flights and service to Argentina, and instead will focus on regional international routes and growing service in Brazil’s domestic market as its competitor Avianca Brazil continues to shrink.

    Avianca’s adjustments include essentially exiting Peru’s domestic market and cutting some service to the US from its Bogotá hub. At the same time, the company is opting to add capacity from Bogotá to some larger domestic routes in Colombia and Chile.

    Airlines worldwide are constantly scrutinising their networks as demand patterns shift. For now, it appears that LATAM and Avianca see more opportunities within Latin America for fortifying their largest hubs.

    To read on, visit Avianca and LATAM shift focus more locally

    Air freight ACI: ‘trade war tensions’ slow growth

    It is often said to be an indication that there is an economic recession on the cards once air transport freight volumes go into negative growth territory. That happened in 1Q2019, as ACI World (Airport Council International) has confirmed in its quarterly report, though there are regional discrepancies.

    ACI World reports that airfreight volumes decreased by 1% year-on-year in Mar-2019 and by 2.1% in 1Q2019. These figures contrast with continuing growth in the global passenger segment of 4.1% year-on-year in 1Q2019.

    But at the same time, there are particular reasons why the fall in freight volumes might be happening now as trade wars intensify and concerns grow about the potential for a military conflict involving Iran.

    A clear definition of future prospects for both freight and passengers is not easy to resolve as oil prices continue to rise.

    To read on, visit Air freight ACI: ‘trade war tensions’ slow growth

    Peruvian aviation: LCCs are spreading and smaller airlines are at risk

    Peru has been one of the more dynamic markets in Latin America during the past few years. The country’s relatively stable economic growth and lower trips per capita are driving solid passenger growth.

    Those elements have given rise to the appearance of low cost operators in the country.  Viva Air Peru debuted in 2017 and Chile’s Sky plans to launch a new Peruvian airline in 2019.

    As those airlines work to achieve their growth ambitions, Avianca has opted to draw down some of its domestic operations in Peru after dealing with a market has been challenging for many years. Avianca Peru had historically been the second largest airline in the country after LATAM Airlines Peru, but its passenger share has slipped as Peruvian Airlines has moved up to the second spot.

    As Viva and Sky work to spread the low cost model in Peru, and LATAM aims to maintain its dominance, the positioning of the country’s airlines could continue to shift.

    To read on, visit Peruvian aviation: LCCs are spreading and smaller airlines are at risk

    Scotland’s airline market shrinks. Its airline, Loganair, expands

    According to data from OAG Schedules Analyser, total seat numbers from Scotland’s airports will fall by 3.0% in 2019. This will be the second successive year of capacity decline, after a 0.7% drop in 2018.

    This reversal in growth contrasts with an increase of 20.3% between 2014 and 2017. At least to some extent, airlines (especially LCCs) were tempted into growth in Scotland by the promise of a cut in air passenger duty by the Scottish government in 2015. The SNP-led government’s recent change of mind would seem to be a contributory factor in the capacity reduction.

    Among the leading airlines serving Scotland that are still growing this year, the one that is growing fastest is Loganair.

    Styling itself as Scotland’s airline, it emerged from its previous life as a Flybe franchise operator to flying under its own brand in Sep-2017. Loganair took on a fleet of Embraer regional jets from its bankrupt former sister company flybmi in Feb-2019 to add to its turboprops.

    It is the fifth largest airline overall in Scotland (after easyJet, Ryanair, BA and Flybe), but number one on routes within Scotland. This summer 2019 it is launching a number of new routes and it has opened a base at Newcastle.

    To read on, visit Scotland’s airline market shrinks. Its airline, Loganair, expands

    Ryanair’s FY2019 results: a warning to Europe’s airlines

    Ryanair Group’s results for FY2019 (year to Mar-2019), although expected, sound a warning to the European airline industry.

    Europe’s highest margin airline group reported its lowest profits in five years and suffered a 10ppt drop in its consolidated operating margin as average fares fell by 6%. Moreover, Ryanair expects further declines in ticket prices and another year of falling margins in FY2020.

    However, Ryanair is well placed to weather storms of this nature. In spite of the precipitous drop in its profits last year, it still had the highest operating margin of Europe’s big five airline groups, ahead of IAG, easyJet, Lufthansa Group and Air France-KLM. Moreover, strong growth in its ancillary revenues helps to offset weakness in fares.

    More ominously for others, falling fares are a deliberate ploy by the ultra LCC to maintain its industry-leading load factors, taking traffic from higher cost airlines less able to cope with price competition.

    As the European airline industry moves through a downturn in the profit cycle, this approach should ensure that Ryanair is a beneficiary of the resultant consolidation. IAG, easyJet, Lufthansa Group and Air France-KLM are also likely to benefit, but Ryanair’s superior profitability gives it more headroom to navigate the increasing downward pressure on margins.

    To read on, visit Ryanair’s FY2019 results: a warning to Europe’s airlines

    Flydubai thrives on developing new markets in Central Asia, Caucasus

    Flydubai has emerged as one of the largest airlines in Central Asia and the Commonwealth of Independent States (CIS). Following the recent launch of services to Tashkent and the upcoming launch of Sochi, flydubai will have 21 destinations in the CIS.

    The Dubai-based hybrid airline serves all five Central Asian countries, including newly added Uzbekistan, and all four countries in the Caucasus. Its Russian network will grow to nine destinations as Sochi is launched and several seasonal destinations are resumed.

    While the CIS accounts for only 15% of flydubai’s total seat capacity this summer, its network in the region is important strategically, since most of the markets are underserved and growing. Flydubai has excelled at developing new markets in the CIS, along with other regions such as Africa and Eastern Europe that previously were not served from Dubai.

    To read on, visit Flydubai thrives on developing new markets in Central Asia, Caucasus

    North American airlines and AI: usage is becoming more widespread

    As the aviation sector’s investment in Artificial Intelligence (AI) reaches approximately USD2 billion by 2025, North American airlines are stepping up their commitments to using AI in a variety of business functions.

    Air Canada has been one of the more vocal North American operators about the promise of AI, and now the airline has committed to creating AI labs with the aim of using big data and AI functionality in its maintenance and frequent flyer programme. Delta is also using AI in everything from maintenance to HR functions.

    Those are the latest examples of North American airlines going beyond discussing AI’s potential, and there is little reason to doubt more operators will continue to disclose more applications of AI. For now, it is tough to determine the returns on investment from AI; but airlines seem to have little doubt about the returns AI can generate.

    To read on, visit North American airlines and AI: usage is becoming more widespread