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.
Europe’s airline margin ranking 2017: Ryanair and Wizz Air stay ahead
A hierarchy has formed among listed European airline groups and their subsidiaries, measured by their operating margins. The ranking for 2017 (or nearest financial year) is headed by Ryanair, consistently Europe’s highest margin airline company, with Wizz Air leading the chasing pack. These two LCCs, which both have a March year end, reported their annual results in the fourth week of May-2018, allowing the ranking to be compiled.
However, LCCs are not having it all their own way. Norwegian is at the bottom of the pile with a negative margin. EasyJet, for some years second only to Ryanair, has now slipped out of the top 10, and Jet2.com’s margin also looks like sliding (it has still to report).
After Ryanair and Wizz Air come two full service subsidiaries of IAG: Aer Lingus and British Airways. In addition, IAG’s Vueling has the highest margin among LCC subsidiaries of the big groups. They keep IAG ahead of Lufthansa and Air France-KLM in the list of Europe’s big legacy groups. Aegean leads the independent FSCs.
The ranking also demonstrates that Europe has only a relatively small number of high-performing airline groups and subsidiaries with margins at world class levels.
To read on, visit Europe’s airline margin ranking 2017: Ryanair and Wizz Air stay ahead
SIA corporate, premium advantage with Newark nonstop return
Singapore Airlines (SIA) has confirmed plans for resuming nonstop flights to Newark and Los Angeles later this year using low density two class A350-900ULRs with a premium-focused product. The Newark flight alone, which will be relaunched in Oct-2018, will generate a 22% increase in SIA’s business class capacity to the US and a staggering 58% increase in premium economy capacity.
SIA operated nonstop flights from Singapore to New York Newark from May-2004 to Nov-2013, using A340-500s. These flights initially featured 117 premium economy and 64 business class seats, but in 2008 SIA transitioned its A340 fleet to an all-business configuration with 100 seats. The retrofit failed to improve the route’s profitability significantly as an increase in fuel prices made it impossible to break even, despite relatively decent load factors and yields.
SIA unveiled plans to resume nonstop flights to New York and Los Angeles in late 2015, when it placed an order for seven A350-900ULRs. It announced on 30-May-2018 that nonstop flights to the New York market would resume on 11-Oct-2018, and that it will configure the new A350-900ULR fleet with only 161 seats, composed of 67 business class seats and 94 premium economy seats.
To read on, visit SIA corporate, premium advantage with Newark nonstop return
Jeju Air SWOT: Korea’s largest LCC must preserve its strengths
Jeju Air is at an inflexion point. Korea’s largest, most successful and profitable LCC now has as CEO Seok-Joo Lee, who was promoted from Director, VP and Head Commercial. He replaces the smart leadership of Kyu-Nam (Ken) Choi, who stabilised the airline, pursued growth and achieved a successful IPO. Mr Choi is leaving to work in digital businesses.
New management often means a company embarks on a new strategy. Long haul widebody operations are in vogue, but Jeju Air is strongly cautioned not to pursue such growth. The market is not ready, and Jeju Air’s existing short haul business has demonstrated success. There are more opportunities with the existing production platform.
The threat of new entrants provides little room for risky deviation.
To read on, visit Jeju Air SWOT: Korea’s largest LCC must preserve its strengths
Japan’s airport privatisation picks up pace – and interest
Privatising Japan’s airports was not a concept that attracted much attention until 2011 when the government said it would set about the task, and even then progress has been slow until the past couple of years.
But the adoption of a foreign partner, France’s Vinci (actually one of few so far), together with the Japanese financier Orix, to take on the ailing Kansai Airport at Osaka appears to have prompted a flurry of interest – at least, from the Japanese themselves, with firms from a multitude of sectors putting in bids for the many ‘national’ level airports that are on offer.
Even as more airports make themselves available to be privatised foreign investors must be sure, though, that the opportunities are realistic, since some of these airports are small. They are not yet well served by what has become the staple in other parts of the world – low cost carriers. Often the need to attract LCCs and to stimulate foreign tourism is part of the contract, and that might not always be easy.
To read on, visit Japan’s airport privatisation picks up pace – and interest
Ryanair: four years of getting better, but beware of turbulence
Ryanair has had an eventful 12 months. After suffering from a major pilot rostering failure last autumn, it agreed to unionisation and granted pay increases. In Apr-2018 Ryanair increased its Boeing 737MAX order by 25 aircraft, to 135 firm (leaving a further 75 options, which it expects to exercise), and took a 24.9% stake in Laudamotion, agreeing to increase this to 75% if EU competition approval is granted. It has also hinted that it may look at further consolidation opportunities over the next few years.
In the financial year to Mar-2018 (FY2018), Ryanair achieved its highest ever net profit, at the top end of its guidance range in spite of the pilot problems. Once again, it is Europe’s most profitable airline by operating margin. However, looking ahead, it expects a net profit fall of around 10% in FY2019 as a result of increased fuel and labour costs. Moreover, Ryanair has also been a leading voice warning of the possible impact of a hard Brexit on aviation.
Four years into its ‘Always Getting Better’ programme, Ryanair has enjoyed demonstrable success with its load factor and margin trends. Although it is likely to remain Europe’s leader on both measures, its unbroken upward trajectory looks set for a pause.
To read on, visit Ryanair: four years of getting better, but beware of turbulence
Myanmar domestic aviation: big growth potential but too many airlines
Myanmar’s domestic aviation market has grown by 150% this decade and has huge potential. But the market continues to suffer from overcapacity and a lack of profitability.
There are currently nine airlines competing in a domestic market consisting of less than 3 million passengers. One competitor suspended operations in late 2017 and more consolidation seems inevitable.
One of the remaining nine domestic airlines is for sale, and another is looking at selling a stake to AirAsia. However, Myanmar’s airline owners generally remain reluctant to exit and are content to funnel profits from other businesses to cover losses at their airlines.
A shake-up is long overdue but still unlikely. The domestic market is still not able to support the LCC model.
To read on, visit Myanmar domestic aviation: big growth potential but too many airlines
US Big 3 airlines: Capacity growth despite fuel price volatility
Revenue momentum for the three large global network airlines should continue into 2Q2018, with international entities leading the charge. American, Delta and United all believe their trans-Atlantic entities should be revenue leaders in the quarter, which is the start of the US summer high season.
But accompanying the solid unit revenue growth forecasts is a certain level of volatility in fuel prices, which increased significantly for all of those airlines during 1Q2018. American Airlines expects a 30% increase in its fuel expense for the year.
Despite the run up in fuel prices, American, Delta and United are keeping their 2018 capacity forecasts intact, for now. American believes it is not prudent to trim its forecast just before the summer high season, but is not ruling out adjustments later in the year if fuel prices remain at current levels.
To read on, visit US Big 3 airlines: Capacity growth despite fuel price volatility