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.
China’s Belt and Road Initiative and aviation
There has been considerable speculation about China’s ‘One Belt, One Road’ initiative as it used to be called (now Belt and Road Initiative, BRI), surrounding its application to the Chinese air transport sector to it. This report looks at which airports along the two Belts – Land and Maritime, are receiving any support from Chinese construction firms and/or investors. It finds that Chinese firms continue to enhance their presence in selected areas of these belts but not in others.
The majority of them are attracted fundamentally by Western Europe, and then by opportunities in the east of that continent where cargo rather than passenger facilities can be erected to take advantage of a comprehensive road network. Accordingly, some small airports there have been courted by several Chinese operators/investors. In contrast, many of the airports along the line of the original Silk Road through West Asia have been thus far ignored.
But in each case, it appears that aviation is either an implied part of the BRI future or is already becoming relevant.
To read on, visit China’s Belt and Road Initiative and aviation
JetBlue and JetSuiteX relationship: investment with a unique codeshare
JetBlue Airways has been a trailblazer in many ways. Its offering of LiveTV on its aircraft arguably revolutionised inflight entertainment in the US and its premium product offering Mint has resulted in one-upmanship in the US transcontinental market.
During 2016 the airline opted to invest in the public charter operator JetSuiteX, and upped its stake in the entity during early 2018 as its partner Qatar Airways also made an investment in the ERJ-135 operator. JetBlue now has a 10% stake in JetSuiteX, and has also brokered a somewhat unconventional codeshare with the charter operator.
JetBlue’s decision to codeshare with JetSuiteX is obviously multi-faceted. The airline primarily aims to ensure an adequate return on its investment, and the relationship further advances JetBlue’s image as an innovator that emphasises a favourable customer experience. JetBlue has cited JetSuiteX’s favourable net promoter score (NPS) as one reason for its excitement in partnering with the small jet operator.
To read on, visit JetBlue and JetSuiteX relationship: investment with a unique codeshare
Wizz Air: rapid growth plan will need to reverse margin squeeze
By operating margin, Wizz Air has consistently been Europe’s second most profitable airline company over the past four years. Its unit cost defines it as an ultra-LCC, alongside Ryanair, which is its biggest rival in its focus market of Central/Eastern Europe and is also Europe’s highest margin airline.
As part of its strategy to lower its unit cost further, necessary to remain competitive in its tussle with Ryanair, Wizz Air is transforming its fleet from A320ceo domination to one that is dominated by A321neos. Unit costs should benefit both from the higher seat count per aircraft and from the improved fuel efficiency of the new generation aircraft.
However, this strategy also locks Wizz Air into continued rapid capacity growth; this will likely weigh on unit revenue and, possibly, its profit margin. Wizz Air achieved record profits in FY2018 (year to Mar-2018), but its operating margin has now suffered two years of modest decline. It expects further profit growth in FY2019, but this may again not match its capacity and revenue growth.
To read on, visit Wizz Air: rapid growth plan will need to reverse margin squeeze
Brazil domestic aviation: major airlines to weather pressures
Rising fuel costs and currency fluctuations are looming challenges for Brazilian airlines, but two of the country’s largest airlines feel reasonably confident that they can weather those difficulties – in part, due to stable demand in the country.
That demand and prudent capacity management should allow Brazilian airlines to drive revenue in order to offset some of the cost pressure from increased fuel cost and the currency fluctuations of the BRL.
Of the country’s three largest airlines, Azul is planning the largest domestic capacity increase in 2018; however most of its network is uncontested, and the airline believes demand will hold steady in 2H2018.
To read on, visit Brazil domestic aviation: major airlines to weather pressures
Kazakhstan-Europe aviation: Air Astana’s new routes and upgrades
Kazakhstan’s Air Astana has launched two routes to Germany over the past year, made possible by a new partnership with Lufthansa. Air Astana will operate four Kazakhstan-Germany routes in summer 2018 and Lufthansa will operate a fifth route.
Air Astana is also upgrading its Astana-London Heathrow service to daily in Jun-2018. London has been a highly successful market in the past three years, enabling Air Astana to expand from only three to (now) seven frequencies.
Air Astana also serves Amsterdam and Paris, and will have 26 weekly flights to Western Europe in summer 2018, compared to only 16 four years ago. Air Astana and its partner Lufthansa are now the only airlines operating nonstop flights from Kazakhstan to Western Europe, but several Eastern European airlines compete aggressively in this market with a one-stop product.
To read on, visit Kazakhstan-Europe aviation: Air Astana’s new routes and upgrades
Air Canada fleet: A330 aircraft extended and MAX performance delivers
Although Air Canada’s widebody fleet revamp is complete, the airline has opted to extend the life of its A330 twin aisle jets and add four more of the type to its fleet in lieu of exercising options for 787s to replace its ageing 767 jets. The company has assessed that refurbishing its A330s for specific missions will generate better returns than placing an order for new aircraft.
Air Canada marked the beginning of its narrowbody fleet restructuring at the end of 2018, after taking first deliveries of its Boeing 737 MAX 8 jets. The number of new generation narrowbodies in its fleet will grow from two at YE2017 to 18 by YE2018. The airline has not had significant issues with the introduction of its MAX 8 narrowbodies, and states that the aircraft are delivering on their cost promises.
Similarly to many global airlines, Air Canada continues to work to enlarge its numbers of unencumbered aircraft, with a target of 89 by YE2018, compared to 56 for the year prior.
To read on, visit Air Canada fleet: A330 aircraft extended and MAX performance delivers
Garuda Indonesia and Sriwijaya respond to Lion by forging partnership
Indonesian airline groups Garuda and Sriwijaya have forged a partnership which will lead to a codeshare between all four of their airline subsidiaries. The two former rivals have joined together to fight off their larger competitor, the Lion Group, in a challenging domestic environment.
The Indonesian domestic market is the fifth largest in the world and one of the fastest growing, with passenger numbers tripling since 2005. However, competition has intensified despite consolidation, resulting in overcapacity. All the main Indonesian domestic airlines were unprofitable in 2017.
The Garuda-Sriwijaya partnership, which will also involve the Garuda LCC Citilink and Sriwijaya’s regional subsidiary Nam Air, should improve the two groups’ long term position and could potentially lead to a merger. However, there will be significant short term costs as Citilink Sriwijaya and Nam add codeshare functionality that could make it more difficult for the two groups to return to profitability in 2018.
To read on, visit Garuda Indonesia and Sriwijaya respond to Lion by forging partnership