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:
- LATAM Airlines Group makes strategic moves to bolster network strength as regional dynamics change
- Australia/New Zealand to Latin America: LATAM grows, Air NZ & Qantas consider Brazil
- Ryanair nears annual passenger count of role model Southwest; beats it on low costs and margins
- Europe-Japan airline market: anti-competitive JV concerns as 81% of capacity held by three groups
- Mexico’s Interjet international passenger growth continues to surge as US competition intensifies
LATAM Airlines Group makes strategic moves to bolster network strength as regional dynamics change
LATAM Airlines group has made numerous network changes during the last year-and a-half, adding 25 new routes and canceling 15. The moves are designed to leverage the company’s positions of strength, and connect some secondary international cities to its hubs in Lima and Santiago, capitalising on new opportunities to Argentina and upping competition in some of its domestic markets.
As market conditions in Latin America remain fluid, LATAM has adjusted its capacity projections for certain regions, issuing a downward revisions for domestic Brazil and domestic Spanish speaking markets while upping its ASK deployment for international markets. Despite the downward revision in capacity, LATAM is launching several point-to-point routes within Brazil, Colombia, Chile and Peru during 2017 and 2018, opting to become more aggressive in those markets as competition from new and existing low cost competitors becomes more intense.
LATAM remains cautious about the overall operating environment, but its revenue trends continue to stabilise as 2Q2017 marked the third consecutive quarter of positive passenger unit revenue growth driven partly by appreciating currencies in its operating and largely from its capacity management during the last couple of years.
Australia/New Zealand to Latin America: LATAM grows, Air NZ & Qantas consider Brazil
Travel from Australia and New Zealand to Latin America is in one of aviation’s smaller intercontinental market pairs but is growing, with intra- and extra-alliance partnerships. LATAM will supplement its Santiago-Auckland-Sydney offering with Santiago-Melbourne nonstop, which will give LATAM and its fellow oneworld partner Qantas a one-stop proposition from Melbourne to other South American destinations, including Buenos Aires. Air New Zealand has found a small niche serving the Melbourne-Buenos Aires market via Auckland.
Jan-2018 is a peak month, with nearly three daily flights between the regions. Even in the off-peak the offering will produce growth, after being somewhat flat in recent years: Qantas grew but Aerolineas Argentinas exited the market. Aerolineas now partners with Air NZ.
Qantas and Air New Zealand are evaluating new widebody aircraft that will let them fly ultra-long haul. This could include the first nonstop flights to Brazil from Australia/New Zealand.
Ryanair nears annual passenger count of role model Southwest; beats it on low costs and margins
Jul-2017 was another record month for Ryanair. It carried 12.6 million customers – the first European airline exceeding 12 million in a month – and its load factor increased by 1ppt, to 97%, its highest ever. The airline also said that it had carried its one billionth customer since its first flight in 1985 – the first EU airline to do so.
Ryanair is now close to the annual passenger count of Southwest Airlines, its original template when it adopted the LCC business model back in the 1990s. In the 12 months to Jul-2017 Ryanair carried 125.1 million passengers, only 2% below the 128.1 revenue passengers carried by Southwest Airlines. The pupil seems certain to overtake the master at some point in the next year or two.
This prompts a comparison of Ryanair with Southwest on a number of other measures of size and performance.
Ryanair has a smaller fleet, but a bigger network. However, Southwest’s network and schedule are denser, with higher frequencies and an important component of connecting traffic, whereas Ryanair focuses on point-to-point (even after the launch of a connecting product). In the judgement of both as low cost airlines, Ryanair’s significantly lower unit cost and its higher margins make it the more successful.
Europe-Japan airline market: anti-competitive JV concerns as 81% of capacity held by three groups
There are growing concerns that the market between Europe and Japan has become too concentrated, pushing up air fares and decreasing growth. Of Europe-Japan nonstop seat capacity, 81% is held by three entities: a Star Alliance-centric JV, a oneworld-centric JV, and Air France-KLM – without a JV, but a dominant entity in their own right.
In comparison, the trans-Atlantic market operates with 75% of capacity under JV control and with growing disruption from a combination of national airlines, LCCs and next-generation narrowbodies pushing down JV market share. The Star Alliance-centric Europe-Japan JV has cut capacity, while the oneworld-centric JV is finally expanding.
There is a higher than normal preference from the Japanese market for short journey times. Although this means the market excludes third country options that other markets might accept, many third country routings through other Asian hubs or the Middle East are significantly longer, reducing reasonability.
Mexico’s Interjet international passenger growth continues to surge as US competition intensifies
The Mexican LCC Interjet has held a unique position in the market since its inception during the mid-2000s, along with the more traditional low cost airlines Volaris and VivaAerobus. Interjet has operated as more of a hybrid airline, offering more seat pitch than its fellow low cost competitors, and complimentary food and beverages. The airline has worked to attract a mix of both business and leisure travellers, rather than focusing largely on the VFR (visiting friends and relatives) passenger segment.
Interjet is now Mexico’s third largest airline measured by passengers carried, after having toggled back and forth in the second place position with Volaris for many years. During the past couple of years Interjet’s international passenger numbers have grown rapidly, jumping 53% year-on-year in 2016, and rising 45% for 1H2017.
During 2017 Interjet is adding service to Canada, as well as absorbing the addition of new US transborder routes that it launched in 2016, which were made possible by a more liberalised bilateral between Mexico and the US.
But new competitive dynamics are emerging in Interjet’s largest international market – the launch of Aeromexico’s joint venture with Delta, and the planned expansion by Mexican and US airlines from Interjet’s largest base, Mexico City, after they have obtained slots at the airport. Those two developments, along with Interjet’s own expansion, are resulting in an uptick in Mexico-US capacity; but Mexican airlines serving the market are working to create a place for themselves as demand between the two countries remains steady.