Every 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.
In this week’s edition, our global team of experts deliver you a wealth of insightful commentary on the latest news and trends affecting the commercial aviation industry, including:
- Delta Air Lines and United focus on US domestic routes as United ramps up capacity and Pacific slows;
- Japan Airlines partners with VietJet to boost Southeast Asian feed for trans-Pacific network;
- United Airlines exits Hangzhou: secondary China service became redundant with Shanghai growth;
- Colombian LCC Wingo: Copa becomes first Latin American airline group to test out multi-brand model.
Delta Air Lines and United focus on US domestic routes as United ramps up capacity and Pacific slows
The US major network carriers Delta Air Lines and United Airlines have turned a corner on their respective weak passenger unit revenue performances that have remained stubbornly negative since 2014. But Delta’s unit revenue outlook for 3Q2017 is more robust than United’s forecast of broadly flat growth year-on-year.
Delta and United remain at divergent phases in their network evolution. United is on a quest to regain lost domestic ground by bolstering capacity on routes in the US, whereas Delta is leveraging its strong domestic base to enjoy its position as a first mover in developing and selling branded fares, which represented nearly 40% of Delta’s growth in top line passenger revenue for 2Q2017.
Both companies are zeroing in on a rebound in domestic pricing to sustain their unit revenue momentum, rather than betting on a quick recovery in trans-Atlantic and trans-Pacific markets. Although each airline expects some upside in those challenging entities, a consistent positive performance in those regions seems out of reach in the near term.
Both Delta and United are encouraged by improved business demand on flights to Europe, and robust US point of sale on those routes, but their performance in Asian markets continues to be battered by growing industry capacity. Delta is hinting that a turnaround in its Asian performance is not likely until 2018, while United continues to believe the Pacific remains its most challenging geographic commitment in the short term.
Japan Airlines partners with VietJet to boost Southeast Asian feed for trans-Pacific network
In a pragmatic partnership of the odd couple, Japan Airlines and VietJet Airlines are coming together in a codeshare partnership.
One of Asia’s most storied, yet legacy, airlines is teaming up with one of Asia’s youngest airlines, which has quickly amassed domestic Vietnam market share while pushing the boundaries with bikini uniforms. So, while the two partners may appear to be ill matched, they are undoubtedly influenced by the existing partnership between their respective rivals – All Nippon Airways and Vietnam Airlines.
JAL and VietJet plan to codeshare on Japan-Vietnam routes and domestic flights. There is considerable attention being given to JAL using VietJet as its partner to reach further into Southeast Asia, but VietJet has a limited Southeast Asian footprint. VietJet would later like access to JAL’s North America network, and JAL needs a partner with a lower cost base to provide feed from key Southeast Asian source markets onto JAL’s North America flights.
Domestically VietJet is nearly the same size as Vietnam Airlines, but internationally Vietnam Airlines is much larger and enjoys its status as the national airline. JAL is in a new era, free of restrictions. A VietJet partnership could bring benefits; and JAL also has other opportunities to explore.
United Airlines exits Hangzhou: secondary China service became redundant with Shanghai growth
After blaming softer demand in China and Hong Kong for its worse than expected trans-Pacific performance in 2Q2017, United Airlines is returning to Plan A as it ends service to secondary Chinese city Hangzhou from 14-Oct-2017. United launched three times weekly San Francisco-Hangzhou 787 flights in Jul-2016 when it was unable to secure slots for a second daily San Francisco-Shanghai Pudong service. Hangzhou is part of Shanghai’s catchment area, 45 minutes distant by high speed train, and has large digital companies based there, so Hangzhou seemed a worthy alternative to being blocked in Shanghai.
Yet after launching Hangzhou, United received slots and launched its second daily San Francisco-Shanghai service in Oct-2016. Hangzhou under-performed and incurred load factors below United’s average and lower than typical performance for secondary city long-haul routes. United’s Shanghai performance has weakened from apparent over-capacity. Ending Hangzhou should alleviate the over-capacity situation. China’s secondary long-haul routes attract attention and despite United’s Hangzhou exit following BA’s Chengdu withdrawal, market fundamentals remain unchanged. What varies is opportunities in primary cities and what different management makes of the secondary city opportunity.
Colombian LCC Wingo: Copa becomes first Latin American airline group to test out multi-brand model
The Panama-based airline group Copa Holdings is testing out the multi-brand model with its LCC brand Wingo, which launched operations in late 2016 and is now operating 17 short haul routes. Wingo has already captured a 2% share of seat capacity in both the group’s home markets, Colombia and Panama.
Copa is following a typical multi-brand strategy by using Wingo to take over unprofitable routes that were previously under the full service brand Copa Colombia, as well as launching new point-to-point leisure routes that would not be viable under its normal two-class full service product.
However, Copa has decided not to follow the typical multi-brand strategy of establishing a new airline from scratch; Wingo uses the Copa Colombia operators certificate, providing economies of scale and minimising risk, but potentially limiting the potential benefits.
As the first LCC under a Latin American full service airline group, Wingo is an experiment in many respects. If the initial trial using four single class 737-700s is successful, Copa could use Wingo to expand in Colombia and Panama as well as potential other Latin American markets while other full service airline groups may be compelled to establish their own LCC brands or subsidiaries.