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.


    CAPA airline profit outlook: descending to a soft landing

    The Jul-2019 update of the CAPA world airline industry airline operating margin model cuts forecast margins for 2019 and 2020. It reiterates the view that the industry has been in a cyclical downturn since the 2016 margin peak.

    This report is CAPA’s third successive six monthly update of the model with cuts to forecast margins, following four previous upgrades.

    The oil price outlook appears to have stabilised relative to the 2014-2018 period, although this is always subject to macroeconomic and geopolitical caveats. This means that the balance of supply and demand is the key driver of airline margins.

    Slowing global economic growth and softening passenger traffic growth (plus negative air cargo traffic growth) indicate weaker demand growth. Supply is indicated by fleet growth in the CAPA model, and this is complicated currently by the grounding of the 737MAX. The underlying trend in fleet growth appears to be upward, although not yet faster than demand growth.

    In spite of the weaker outlook for airline profitability, operating margin is forecast to remain only slightly below previous cyclical peak levels of the order of 6% and to increase modestly in 2020 versus 2019.

    However, macroeconomic and geopolitical risks could precipitate a steeper decline.

    To read on, visit CAPA airline profit outlook: descending to a soft landing


    Air Vanuatu: new A220 fleet to support rapid inbound growth

    Vanuatu’s aviation market will undergo a major transformation over the next few years as its flag carrier pursues rapid expansion to support a booming tourism industry. Air Vanuatu expects to triple its passenger traffic by 2030 as visitor numbers quadruple.

    In Feb-2019 Air Vanuatu placed an order for four Airbus A220s, which are slated to be delivered from 2020 to 2022. The A220s will partially replace larger 737s, but international seat capacity will grow significantly as frequencies to existing destinations are bolstered and new destinations are launched.

    The airline also plans to expand its ATR 72 fleet and renew its fleet of small regional aircraft, resulting in significant domestic capacity increases. A larger domestic operation is needed as tourism is developed on smaller islands, aided by infrastructure investments.

    Visitor numbers to Vanuatu grew by nearly 30% from 2015 to 2018, driven partially by rapid expansion from China and other Asian source markets. Asia is expected to continue driving rapid growth over the next several years, but as direct flights to Asia are unlikely, Air Vanuatu is focusing on improving connectivity to the main gateways of Oceania.

    To read on, visit Air Vanuatu: new A220 fleet to support rapid inbound growth


    AsiaPac airlines and unions: strikes rarer than other regions

    Airline strikes are generally not as common in Asia as other regions. However, relations between airlines and unions are often acrimonious in Asia and in a few Asian countries strikes are relatively frequent.

    In Taiwan, a recent flight attendant strike at EVA Air lasted 17 days and cost the airline nearly USD100 million. The strike ended on 6-Jul-2019 as EVA reached an agreement with the Taoyuan Flight Attendants Union (TFAU).

    The strike forced EVA had to cancel 681 flights between 20-Jun-2019 and 7-Jul-2019. The airline typically operates around 1,200 frequencies every week.

    To read on, visit AsiaPac airlines and unions: strikes rarer than other regions


    Japan – Hokkaido airports privatisation close to conclusion

    Privatisation of Japanese airports took years to get off the ground but now that it has, there are reports of new deals and the successful conclusion of existing ones every month.

    A speculative attempt by the Land, Infrastructure, Transport and Tourism Ministry to find a concessionaire for seven airports on the northern island of Hokkaido (of which only one is of any substance) looked to be a long shot when it was first proposed, but it attracted a high number of bidders.

    Now one consortium has been chosen as the preferred negotiation rights holder and the deal could be completed with the concessionaire in place at all of them in less than two years’ time.

    At the same time another consortium, made up of companies experienced in airport privatisation and others that are not, has tied up a deal to manage and develop a new airport in the Mongolian capital, Ulaanbaatar)

    This suggests that both the domestic market and foreign ones in Asia will be fair game for Japanese companies that until quite recently had no experience whatsoever of the airports business.

    To read on, visit Japan – Hokkaido airports privatisation close to conclusion


    UK aviation competitiveness: need to address IATA’s challenges

    In Jul-2019 IATA published a report on the air transport regulatory competitiveness of the UK. Assessing the UK on passenger facilitation, cargo facilitation, supply chain competitiveness, infrastructure and regulatory environment, IATA concluded that the UK was in line with the European average.

    However, IATA identified three key challenges for the UK’s aviation competitiveness: low runway capacity; high passenger taxes and airport charges; and high visa requirements and inefficient border procedures. IATA made common sense recommendations to tackle each of these.

    The UK is Europe’s biggest aviation market, but CAPA analysis shows that its growth is slowing. Its failure to keep pace with the growth of most of Europe’s top 20 aviation markets is at least partly because of its inability to tackle these challenges.

    The UK’s new Prime Minister, Boris Johnson, has been a leading voice in campaigns to leave the EU and to oppose Heathrow expansion, the latter objection being partly on environmental grounds.

    This suggests that IATA’s recommendations to address the three challenges may not be top of Mr Johnson’s populist ‘to do’ list.

    To read on, visit UK aviation competitiveness: need to address IATA’s challenges


    Delta, American, United Air improve Latin America performance

    Latin America was the best performing region for the three large US global network airlines during 2Q2019. Mexico and Brazil emerged as the stand-outs, with strong revenue growth year-on-year.

    American, Delta and United are also maintaining positive outlooks for their Latin American entities in 3Q2019, which bodes well for their full year performance in the region.

    It is a turnaround for those operators in Latin America, driven in large part by capacity reductions in the region. That rationalisation is likely to continue as the economic performance of Brazil and Mexico remains sluggish.

    To read on, visit Delta, American, United Air improve Latin America performance