Catch up on CAPA’s exclusive Market Analysis pieces – All Nippon Airways, US airfares, LCCs in Korea and more

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.


All Nippon Airways expands internationally, Japan Airlines slowly

Japan’s flagship airlines are investing heavily in their international networks. Combined, they have allocated USD10.7 billion of capital expenditure over the next three years to acquire new aircraft for growth and replacement.

Yet the details have surprises. ANA will step up growth (11.5% CAGR for international ASKs) despite investor pressure to slow capacity expansion to improve profits and margins instead. ANA flies more than JAL, but JAL’s profits are higher.

ANA and, especially, JAL are under investor pressure to spend their cash piles.

JAL is planning more conservative 7% international ASK CAGR. JAL will become the size of today’s ANA while ANA will surpass the peak size that JAL reached before its bankruptcy restructuring. In 2020 Tokyo Haneda’s slot expansion will bring strategic benefits, but also short/medium term overcapacity and pressure on yields and profitability.

To read on, visit All Nippon Airways expands internationally, Japan Airlines slowly


US air fare wars: Basic Economy vs ULCCs shifting network focus

Although US ULCCs Spirit and Frontier combined represent just 6% of the country’s domestic market share, their rapid growth during the last few years has changed market place dynamics in the US. The result of their proliferation is US majors segmenting their pricing structures to compete more effectively with low cost competitors, but also to improve their overall revenue management schemes.

The changes American, Delta and United have made in their pricing tiers have largely lived up to expectations. American and Delta have stated upsell rates from their Basic Economy offerings are roughly 50%, and believe segmented fares will drive billions in revenue improvement.

Now that fare segmentation is fully entrenched in the US market, the country’s major airline’s are focusing on maximising connectivity at their hubs to drive up yields and create a new line of defense against ULCCs in their hubs.

To read on, visit US air fare wars: Basic Economy vs ULCCs shifting network focus


LCCs in Korea: tighter entry rules for startups

Korea is home to six LCCs, the most recent of which launched in 2016 and then 2010. The prevailing assumption was that the market would consolidate, but new players have made known their wish to launch.

Unlike in other Asian markets, all flying or proposed LCCs are wholly Korean brands. The former Tiger group was unsuccessful in launching a Korean unit, and the AirAsia Group was told that an application would be rejected. This policy is unlikely to change.

What is different from the policy revisions is Korea’s apparent attempt to weed out some of the smaller LCCs that have less in financial resources. Korea will also exercise greater control over airline finances and exclude airlines from slot allocation, which should make the process fairer.

Korea does face medium term market saturation, but the start-up process has been coloured by a degree of protectionism. With a final framework for start-ups, Korea appears set for new market entrants.

To read on, visit LCCs in Korea: tighter entry rules for startups


Lufthansa Group SWOT: largest European airline group, strong brands, but progress may stall

In 2017 Lufthansa Group’s achieved record profits and passenger numbers and its operating margin was its best this century.

Europe’s largest airline group by passengers, revenue, ASKs and fleet size has made solid progress since the global financial crisis. However, although it was the only big three European legacy airline group not to fall into an operating loss in 2009, it has not matched IAG’s margin improvement since then (but has easily beaten Air France-KLM’s).

Lufthansa, the group’s largest airline, is the only airline in Europe to be rated by Skytrax at five stars, a certification achieved in Dec-2017. This confirmation of its service quality is important to a brand that operates at a high unit cost and must generate a yield premium to be profitable.

Nevertheless, the group is seeking unit cost reductions, both within each airline and also through flying a growing share of traffic via the lower cost Eurowings. Eurowings itself is also targeting cost reduction in order to bring its unit cost closer to genuine LCC levels.

Lufthansa Group’s prediction of a slightly lower result in 2018, due to higher fuel costs, highlights the elusiveness of further margin improvement in Europe’s highly competitive airline sector.

This report considers Lufthansa Group’s strengths, weaknesses, opportunities and threats.

To read on, visit Lufthansa Group SWOT: largest European airline group, strong brands, but progress may stall


US trade policy aviation impact: aerospace companies challenged

Predicting the direction of US foreign or trade policy under the administration of President Donald Trump is, in many ways, an exercise in futility, and the repercussions of that level of whimsy on business are just as difficult to ascertain.

US airlines and aerospace companies face a range of effects from Mr Trump’s policies. Those firms are welcoming benefits from changes to US tax rates, but aerospace companies in particular are concerned about proposed tariffs on aluminium and steel.

The policy change could create roadblocks in a potential tie-up between Boeing and Embraer as they work to combat new competition from a partnership between Airbus and Bombardier.

The potential ramifications of a larger trade battle spurred by tariffs are tough to predict; however trickle-down effects could alter the reasonably bullish views that airlines have on corporate travel for 2018, and create challenges in forecasting demand in the future.

To read on, visit US trade policy aviation impact: aerospace companies challenged


Long haul LCCs: big opportunities in Japan and Korea

Japan and Korea are important markets for the reasonably large long haul, low cost airlines based in Southeast Asia. Europe’s long haul LCCs are eyeing Japan and Korea, subject to aeropolitical rights.

Yet Japan and Korea have only one long haul LCC of their own: Korean Air’s Jin Air. More long haul LCCs are inevitable but an all-new independent long haul LCC is unlikely to launch from the region.

Cities in Japan and Korea have far larger local markets than do the homes of existing long haul LCCs. This could even negate the need for precious short haul feed. Airlines could transfer existing flights to a long haul LCC platform and/or use it to expand to new markets. This could occur in an airline’s main city or a smaller city where it has a low nonstop long haul presence.

CAPA’s 11/12-Jun-2018 “LCCs in Northeast Asia Summit” in Seoul will further explore this topic.

Later in the year, 4/5-Oct-2018 in Seville, Spain, CAPA’s Low Cost Long Haul Global Summit will deal expressly with long haul operators and their local connectivity.

To read on, visit Long haul LCCs: big opportunities in Japan and Korea


Brazil-US aviation: open skies as foreign ownership laws relax

The recent ratification of an open skies agreement by Brazil’s Senate results in the US airlines arguably gaining unfettered route access to Latin America’s largest markets – Brazil, Mexico and Colombia.

Now that the agreement is nearing formal ratification, LATAM Airlines Group and American Airlines can move forward in establishing their immunised joint venture, which in many ways represents a virtual merger. Rivals of those oneworld partners have had ample time to craft a response to the proposed JV, but the ratification of open skies creates a certain level of pressure for LATAM’s and American’s rivals to ensure they’ll have the necessary tools to compete effectively against an entity that could control approximately 54% of the seats between the two countries.

The establishment of open skies with the US could reignite discussion in Brazil about changing foreign ownership laws covering the country’s airlines, but 100% full foreign ownership is unlikely to materialise.

Still, a more liberalised perspective in Latin America’s largest air travel market could spread to some of the region’s more protectionist countries. Chile, which allows 100% foreign ownership of airlines, is not experiencing any detrimental effects from the debut of the ULCC JetSMART in its domestic market during mid-2017.

To read on, visit Brazil-US aviation: open skies as foreign ownership laws relax