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.
Singapore-China aviation market: rapid growth as Chinese visitor numbers surge, LCCs expand
The Singapore-China market has grown rapidly over the past three years, driven by inbound tourism. Chinese visitor numbers to Singapore have nearly doubled since 2014, prompting several airlines to add capacity in the Singapore-China market.
Singapore-China passenger traffic increased by 15% in 2016, and by another 12% in 2017. Traffic initially recovered in 2015 with a 7% increase, after the Singapore-China market had contracted in 2014.
LCCs have accounted for a large proportion of the growth, increasing their overall capacity share over the past four years from less than 20% to 33%. Scoot is now the airline with the largest share in the Singapore-China market, having a 27% share of capacity and operating 17 Chinese destinations.
Europe’s resurrected airlines: NIKI & Belair join VLM & Cyprus Airways in a rise from the ashes
Two recent announcements highlight the eternal optimism of some participants in the European airline sector.
On 23-Jan-2018 the administrators of NIKI announced that the Austrian airline would be sold to Laudamotion, a general aviation company belonging to the airline’s founder, Niki Lauda. Just over a week before, on 15-Jan-2018, SBC, a Duesseldorf-based investment company, announced the takeover of the Swiss airline Belair Airlines from airberlin’s administrators (it was an airberlin subsidiary).
These two deals came quite soon after the relaunch of Belgium’s VLM Airlines and the return to the skies of the Cyprus Airways name, both in 2017.
The original versions of both had previously gone bankrupt. There are also a number of older examples of European national airlines that have been reincarnated after suffering what had appeared to be terminal failures.
The increased incidence of resurrected airlines in Europe could be symptomatic of the broadly benign conditions that have helped the global sector to achieve historically high margins. However, it may not always be easy to separate sentiment from rationality in the decision to bring an airline back from the dead.
Indonesia-Malaysia aviation market: rapid growth as AirAsia, Lion Group and Malaysia Airlines expand
Indonesia-Malaysia is a large and dynamic market, with intense competition between the leading Southeast Asian airline groups AirAsia and Lion. The AirAsia Group and Lion Group combined have close to 550 weekly one-way flights from Indonesia to Malaysia, or nearly 80 per day, and account for 70% of total capacity.
AirAsia Group and Lion Group both added flights in the Indonesia-Malaysia market in 2017, driving a more than 20% increase in total Indonesia-Malaysia capacity. The market leader, AirAsia, grew at slightly less than 20%, and Lion Group grew at a more ambitious 40%, but on a much smaller base, as its Batik Air subsidiary entered the market with four routes.
Malaysia Airlines, the third largest player, also resumed expansion in 2017 by relaunching services to Surabaya. Malaysia Airlines is planning further expansion in the Indonesia-Malaysia market in 2018, as are AirAsia Group and Lion Group.
Potential JVs create intrigue in the Canada-US aviation market as route expansion continues
The Canada-US market may be one of the more mature markets in the world, but it remains highly strategic to airlines operating on those routes – evidenced by Delta and WestJet unveiling plans in late 2017 to create an immunised transborder joint venture. American, which is ending a codeshare with WestJet, is increasing its service to Canada in 2018 as its former codeshare partner now becomes more of a rival.
A push by WestJet’s rival Air Canada into the US during 2018 remains unrelenting, as some of its planned new routes speak directly to its sixth freedom strategy to funnel US passengers through its Canadian hubs onto long haul flights to Europe and Asia.
Air Canada continues to work to grow its share of international passenger traffic to and from the US, and believes that if its share rises to 2%, the airline could generate CAD1 billion in annual incremental revenue.
It is not clear whether the potential Delta-WestJet tie-up could hinder Air Canada’s sixth freedom ambitions, but Canada’s largest airline shows no signs of altering its strategy – to offer attractive itineraries for US passengers who do not have easy access to long haul flights.
Southeast Asia-US aviation market: Thai Airways and Vietnam Airlines to enter, following FAA upgrade
In late 2017 the US FAA conducted safety audits of Thailand and Vietnam. The agency is expected to assign both countries a Category 1 rating within the next few months, which will enable airlines from Thailand and Vietnam to launch services to the US.
Thai Airways is preparing to resume services to the US in late 2018 or early 2019. Thai intends to operate nonstop from Bangkok to a not yet selected US city. Thai has not operated nonstop flights to the US since 2012, and dropped one-stop flights in 2015.
Vietnam Airlines also intends to launch flights on the Ho Chi Minh-Los Angeles route by 2019. It may start with a one-stop service via North Asia, but nonstop flights remain the long term aspiration.
For both airlines, the decision to enter the highly competitive US-Southeast Asia market is political rather than commercial. Financial losses are expected for at least a few years and profitability is unlikely, unless there is a significant improvement in market conditions.
Amazon’s second headquarters: airport infrastructure and quality may influence the decision
In Sep-2017 the online retailer and tech/cloud computing company Amazon announced it was seeking a second corporate headquarters (HQ2) to supplement the one in Seattle, and issued a request for proposals from cities to make their case for its location.
From that request, 238 cities or larger municipal entities applied for what is, in fact, a big deal. Amazon intends to invest USD5 billion in the construction of this building and employ 50,000 workers there, more than the 40,000 it employs at Seattle.
The core criteria demanded proximity to an international airport, with flights to key cities. The short list is focused mainly on the East Coast and industrial cities in the Midwest of the USA, with Los Angeles as the sole West Coast finalist.
The betting in the media is currently on Atlanta, Raleigh and Nashville, in that order.
Big 4 aerospace and aviation giants’ trade disputes should not prevent logical partnerships
Boeing’s moves throughout the past year to impose tariffs on Bombardier’s CSeries narrowbody (now seemingly resolved) have culminated in the US aerospace manufacturer pursuing a controlling stake in the Brazilian aerospace manufacturer Embraer.
Boeing’s pursuit of trade tariffs against Bombardier led to Airbus’ decision to take a stake in CSeries programme, which instantly gave the European airframer a more viable platform for the smaller jet segment. Its A319neo has not gained much sales traction, and the mutually beneficial tie-up lends some sales expertise to Bombardier.
Now Boeing is attempting to level the playing field with Airbus through a tie-up with Embraer. It is hard to predict the ultimate shape that those deepened ties will take, given the Brazilian government’s golden share in Embraer, and Brazil’s upcoming presidential election.