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:
- Garuda Indonesia seeks a halt in aircraft delivery as focus shifts to utilisation, profitability
- Hawaiian Airlines aims to deepen ties with JAL as it works to fend off United and Southwest
- The great Brexit aviation debate. A transition deal is needed to avoid disaster for UK airlines
- United Airlines needs some short term positive momentum as it works toward long term aspirations
- Finnair: “the largest expansion in its history” this winter, led by Asia growth & new LatAm routes
- Hong Kong Airlines SWOT: opportunities to be grasped, but fundamentals to be addressed
Garuda Indonesia seeks a halt in aircraft delivery as focus shifts to utilisation, profitability
Garuda Indonesia is aiming to halt all aircraft deliveries for two to three years as part of an initiative to improve its financial position. The group still intends to grow capacity by 10% to 12% per annum by improving utilisation of its existing fleet, which will result in lower unit costs and higher efficiencies.
Garuda has begun negotiations with manufacturers to defer A320neos, A330-900neos, 737 MAX 8s and ATR 72-600s. The group has set an objective of not taking delivery of a single new aircraft in both 2018 and 2019, including aircraft for its LCC subsidiary Citilink.
However, the objective seems unrealistic, particularly for most of the 2018 deliveries. Citilink will likely take three A320neos in 2018 as initially planned, since the buyer-furnished equipment has already been acquired. Garuda may, similarly, not succeed at entirely halting 737 MAX 8 deliveries after taking its first of the type in Dec-2017.
Hawaiian Airlines aims to deepen ties with JAL as it works to fend off United and Southwest
Shortly after Hawaiian Airlines outlined its plans forge a codesharing partnership and an eventual joint venture with Japan Airlines, Southwest Airlines moved closer to launching service to Hawaii, declaring it would serve the islands at some point – possibly in 2018 or 2019. Southwest’s aspirations for Hawaii along with United’s planned boost in capacity to Hawaii have pressured Hawaiian’s valuation, even as its revenue performance has outpaced most US airlines for more than a year.
Hawaiian’s management has clearly determined that the company is undervalued, and has decided to buy back USD46 million of stock in 3Q2017, planning to pay USD12 cent per share dividend in Nov-2017.
Hawaiian’s message regarding changing competitive dynamics remains clear – the airline believes higher numbers of premium seats and the quality of its brand position it favourably to withstand the latest competitive onslaught. It is not the first time Hawaiian has faced competitive capacity pressure; but markets remain jittery about changes in Hawaiian’s North American markets, which still represent the bulk of the airline’s revenue.
The great Brexit aviation debate. A transition deal is needed to avoid disaster for UK airlines
Sixteen months after the Jun-2016 Brexit referendum, nobody in the UK government or EU can say anything at all about the details of what will happen to aviation after the UK leaves the EU in Mar-2019.
A debate moderated by leading aviation consultant John Byerley at the ACTE-CAPA Global Aviation Summit in Oct-2017 considered whether “Brexit will be a disaster for UK airlines”. A range of outcomes is possible, but it will be a disaster if no replacement for the existing traffic rights regime is negotiated before the UK leaves the EU in Mar-2019. It could also be a disaster if the UK’s participation in EASA does not continue.
The best possible outcome on market access would be keeping the status quo – an outcome favoured by the large majority of industry stakeholders (although some European legacy airlines expect an opportunity to limit competition from UK airlines).
However, that would appear only to be the best likely outcome, with a lesser result much more likely. It is still impossible to say how a positive outcome can be achieved, given the UK’s rejection of the jurisdiction of the European Court of Justice and freedom of movement.
Meanwhile, airline planning horizons demand clarity around a year in advance, leaving very little time to negotiate an agreement – with uncertainty the almost inevitable result. A transition deal is the only practical way forward.
United Airlines needs some short term positive momentum as it works toward long term aspirations
United Airlines has been in a state of flux for the better part of a decade since Continental swooped in to forge a hasty merger with United, ousting US Airways as the preferred partner. After Continental’s management took the helm at United, employee relations worsened and the airline’s operational performance tanked.
After his appointment as United’s CEO in 2015, Oscar Munoz put together a new management team that outlined ambitious goals in late 2016, including closing the margin gap with Delta, significantly shoring up United’s revenue and pairing down costs.
Since that time, United has increased its capacity growth, and endured challenges in achieving sustained positive unit revenue while its costs are also moving in the wrong direction. The result: the company being left in the unenviable position of attempting to steer investors to its long term strategy as short term metrics continue to suffer.
Finnair: “the largest expansion in its history” this winter, led by Asia growth & new LatAm routes
This winter, Finnair will increase its seat capacity by 13% in what the airline has called “the largest expansion in its history”. The launch of new routes to Goa, Havana and Puerto Vallarta and increased capacity on existing Asian routes will drive its intercontinental capacity up by 19% compared with winter 2016/2017.
With a long haul connecting strategy over its Helsinki hub, Finnair is also expanding its European network, where seat capacity will grow by 13% this winter. This includes a 20% increase in capacity to Lapland in the north of Finland. As of mid-December, Finnair will start flying new nonstop flights to Lapland airports from London Gatwick, Paris and Zurich.
Finnair’s network, which is evenly balanced through the year, will encompass 20 long haul destinations and 72 destinations in Europe and the Middle East, according to OAG. This report focuses on Finnair’s long haul network, where it is the biggest airline by seats on every route.
Hong Kong Airlines SWOT: opportunities to be grasped, but fundamentals to be addressed
It is tempting to portray Hong Kong Airlines as a fresher Cathay Pacific, one of Asia’s – and the world’s – blue chip airlines. After building up a regional network centred on mainland China, Hong Kong Airlines is expanding long haul with high profile flights to Los Angeles, San Francisco and New York. London and other European destinations are inevitable. As with Cathay, Hong Kong Airlines has new aircraft, and is investing in on-board product and an airport lounge.
Yet Hong Kong Airlines is missing fundamental commercial elements and is still navigating its complicated identity of being a nearly mainland Chinese airline in the internationally minded Hong Kong, “Asia’s world city”.
Hong Kong Airlines is taking a long while to mature, and now Cathay Pacific, which has recently struggled, is restructuring to become more agile. The race is on: not for aircraft, flights, and ego – but for which company can be smarter, more modern and in touch with the market.