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.
Airline technical outages: vulnerable systems, customer reactions
A recent technology outage that resulted in thousands of flight cancellations by American Airlines’ wholly owned regional subsidiary PSA has drummed up memories of major IT meltdowns that Delta and Southwest experienced in 2016; those also resulted in thousands of flight cancellations and millions in lost revenue for those airlines.
Given the high levels of complexity in the airline business, technical glitches and outages are inevitable. And even though airlines can calculate the effects of cancelled flights and reaccommodation on their respective revenues, measuring the long term ramifications of customer sentiment in the aftermath of these outages is difficult. The heightened outrage that is prevalent on social media during technology breakdowns is another challenge that airlines face as they work to correct problems and return to normal operations.
The likelihood of future IT outages remains high, given the larger reliance that all companies, not just airlines, put on technology. But US airlines are now in a position to make necessary investments to mitigate the effects of technical mishaps.
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Europe’s low cost long haul airlines establishing themselves
CAPA convenes the world’s first Low Cost Long Haul airline Summit in Seville, 04/05-Oct-2018.
According to CAPA analysis of the CAPA Fleet Database, Europe has 47 aircraft that are currently deployed on long haul low cost routes. Not surprisingly, the majority of these aircraft are widebodies, but there are now four narrowbodies with low cost airlines based in Europe that are operating trans Atlantic routes.
These 47 aircraft are operated by just six airline brands: Norwegian, Eurowings, WOW air, Primera Air, French Bee and Level.
Nevertheless, little more than five years ago, none of these airlines operated on long haul and some did not even exist at all. In spite of question marks over the profitability of the model (Norwegian, in particular, has struggled with losses in two of the four full years since entering long haul), Europe’s low cost long haul operators continue to develop and grow.
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Japan Airlines to decide on 787 aircraft for long haul LCC
In summer 2018 Japan Airlines (JAL) is registering the business for its new low cost, long haul airline to launch in mid-2020. Many key decisions await: besides the name, JAL is finalising aircraft plans.
Perhaps unusually, and in contrast to past long haul LCCs from either a parent company or independent, JAL has committed to using next generation aircraft, whereas past LCCs weighed old or new aircraft.
JAL’s debate is whether to give the new airline a 787-8 from JAL’s order book or retrofit an existing JAL aircraft to be suitable for a long haul LCC unit. JAL has four 787-8s on order, as well as seven -9s, according to CAPA’s Fleet Database.
Some delivery date adjustments may be needed, but Boeing would surely like to provide a factory fresh aircraft for an all-new airline. Some of JAL’s original 787s feature not only old products but low-density cabins. JAL may retrofit these aircraft anyway, so JAL could instead give an older – but still next gen – aircraft to the LCC. Compared to a new aircraft, there will be some operating inefficiencies and higher maintenance costs.
To read on, visit: Japan Airlines to decide on 787 aircraft for long haul LCC
Alaska Air and JetBlue: major aircraft fleet decisions still undone
The US’ two higher value, lower cost airlines – Alaska and JetBlue – are at different stages in their fleet development.
Alaska has recently decided to restructure its order book, pushing back deliveries, and opting for a higher number of larger gauge 737-9 Max aircraft. Alaska is working to lower its annual growth levels and cut its capex in order to improve its margin performance.
JetBlue’s fleet composition remains relatively stable now that it has selected the Airbus A220-300 (previously the CS300). And at some point in the not too distant future, the airline needs to render a decision about converting some existing orders to the longer range A321neoLR to support potential trans Atlantic operations.
It remains unclear when Alaska will make a final decision regarding the order for 30 Airbus jets it inherited with its acquisition of Virgin America. But given its drive to moderate cost increases and its historical ties to Boeing, Alaska is likely to tilt back to a single fleet type.
To read on, visit: Alaska Air and JetBlue: major aircraft fleet decisions still undone
Long haul low cost airlines slowly start to grow in Asia-Europe market
Low cost airlines are slowly starting to penetrate the Asia-Europe market. Widebody LCCs have launched nine Asia-Europe routes over the past two years and there are now five long haul LCCs competing in the market, compared to only two in mid 2015.
At least three more LCC groups are preparing to enter the Asia-Europe market over the next two years: WOW, AirAsia X and Lion. WOW will become the sixth LCC in the Asia-Europe market in Dec-2018 as it launches services from Reykjavik to Delhi. Thai AirAsia is looking at launching services to Eastern Europe in 2019 while Thai Lion Air is aiming to launch services to Western Europe in 2020.
However, LCCs only account for 2% of Asia-Europe capacity and are not likely to capture more than a 5% share in the foreseeable future. Intense competition from full service airlines, including Gulf airlines, and rising fuel prices make the Asia-Europe market a challenging proposition for long haul low cost entrants.
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Mainland China and Taiwan: aeropolitics impacts airlines at all levels
Politically necessitated cosmetic changes are cheaper but louder for airlines in 2018 than a few decades ago. Mainland China’s wide push for companies to distance themselves from recognising Taiwanese independence impacted the aviation sector as airlines this year were instructed for their websites and other materials not to categorise “Taiwan” as a separate country, but rather to list Taiwanese destinations as being in “China”.
This was a reminder of the early 1990s – before widespread internet usage and landmark PRC-Taiwan accords – when China prohibited airlines from serving both China and Taiwan.
Airlines then created “Asia” subsidiaries to circumvent the ban: British Airways flew to China, but British Asia Airways flew to Taiwan, while Qantas established Australia Asia Airlines. That avoided airlines making political statements about territorial claims.
These incidents are highly visible and come with PR implications. Yet there are China-Taiwan matters less visible but with far greater impacts for other airlines, markets, tourism and aircraft sales – which this report explores.
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