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:
- Thai Lion Air to pursue more rapid international expansion as A330-300s and 737 MAX 8s are delivered
- American Airlines’ sets lofty financial targets as it works to change Wall Street’s short term view
- Primera Air: fast growing Nordic leisure airline follows Norwegian’s long haul LCC path
- Singapore Airlines Group faces critical decisions with regional strategy as 787-10s, 737 MAXs arrive
- Chinese airlines to open 102 international destinations since 2006. Air China, HNA growing fastest
- Norwegian Air: slows planned growth to 25% in 2017, improves its cash balance
Thai Lion Air to pursue more rapid international expansion as A330-300s and 737 MAX 8s are delivered
Thai Lion Air is starting a new phase in its rapid expansion in Nov-2017 as it takes delivery of its first widebody aircraft. An initial fleet of three A330-300s will be used to operate new medium haul routes to North Asia, enabling Thai Lion to reduce its reliance on Thailand’s intensely competitive domestic market further.
The international market now accounts for a third of Thai Lion’s capacity, compared to less than 6% in early 2016. Thai Lion has cut domestic capacity this year, freeing up aircraft to expand in the international market.
Fleet growth has been relatively modest, with only two aircraft joining the Thai Lion fleet over the past 12 months. However, fleet growth is about to accelerate as three A330s are delivered over the next two months, followed by several 737 MAX 8s in 2018.
American Airlines’ sets lofty financial targets as it works to change Wall Street’s short term view
Management at American Airlines has relentlessly stressed that the US airline industry has gone through a fundamental structural change, and the historical boom and bust cycles of the past should no longer be applied to the future. But recently, markets have been spooked by creeping capacity and the ensuing revenue pressure that has created.
American’s own planned system capacity growth of 1.4% for 2017 is reasonable expansion, yet its valuation has been pressured by overall industry growth and, in part, by its decision to institute mid-contract pay increases for employees.
Despite this pressure, American remains bullish about its financial performance in the future. The company’s executives have boldly declared American may never lose money again, an assertion driven by estimates of posting USD2.9 billion in incremental revenue during the next four years.
Both American and rival United have outlined ambitious financial targets, with American focusing on consistent pretax profits and United aiming to close margin gaps with Delta. But as United has discovered during 2017, declaring lofty ambitions can have a downside.
Primera Air: fast growing Nordic leisure airline follows Norwegian’s long haul LCC path
Primera Air, part of the Icelandic-owned Primera Travel Group, is set to become the latest European airline to take the narrowbody long haul LCC model onto the North Atlantic when it launches services to New York Newark and Boston from London, Paris and Birmingham next summer. Currently, it specialises in short/medium haul leisure routes between the Nordic region and southern European sun destinations – a very competitive market.
The airline actually consists of two operators, Danish registered Primera Air and Latvian Primera Air Nordic. In operation since 2003, albeit originally under a different name and ownership, the airline has switched from charter to mainly scheduled operations and its rapid growth since 2014 has started to attract more attention.
In 2017 the seat capacity of the Primera Air Group will be more than 10 times its 2014 level, according to OAG. It expects to exceed one million passengers for the first time this year and it plans to grow its fleet nearly fourfold, from nine today to 35 in 2021, with orders for both 737MAX and A321neo aircraft. But it is Primera Air’s trans-Atlantic ambitions, following the path of its regional rival Norwegian Air, which has raised its profile more dramatically.
Singapore Airlines Group faces critical decisions with regional strategy as 787-10s, 737 MAXs arrive
The Singapore Airlines (SIA) Group has an opportunity to adjust its strategy and reposition its product at the full service end of the regional market as it renews its short/medium haul fleet. Intensifying competition within Asia Pacific and product improvements by rivals dictate a new approach for SIA.
SilkAir has started taking delivery of new 737 MAX 8 aircraft, providing an opportunity to deploy highly efficient new generation narrowbody aircraft on longer medium haul routes – both new routes and those now served with SIA’s all-widebody fleet. SilkAir has so far elected only to pursue modest upgrades of its inflight product with the 737 MAX, but will likely consider more significant upgrades and a rebranding or merger with the parent airline as part of an overall SIA Group review.
SilkAir could potentially offer lie-flat business class seats on a new sub-fleet and use the same product SIA will be introducing in 2018 on its new fleet of 787-10s. SIA is planning a significant improvement to its regional premium product as the new two class 787-10s replace two class A330-300s and older model 777s on short/medium haul routes.
Chinese airlines to open 102 international destinations since 2006. Air China, HNA growing fastest
Asia’s airlines are continuing to embark on what they consider to be once-in-a-lifetime long haul growth. Nowhere is this stronger than in mainland China, whose airlines have been opening 102 intercontinental destinations since 2006. Hainan Airlines and Air China lead the frenzy, with 23 and 19 new markets respectively.
China’s growth is moderating (but from a high base) as traffic rights and slots are precluding growth. Changes in subsidy and “one airline, one route” could alter growth. Following extensive operational growth, airlines throughout Asia need to have strategic growth, improving partnerships, international transfers and the onboard/airport experience.
Norwegian Air: slows planned growth to 25% in 2017, improves its cash balance
In Sep-2017 Ryanair CEO Michael O’Leary claimed that both Monarch Airlines and Norwegian Air might not survive the winter. He has been proved right about Monarch, which went bankrupt on 2-Oct-2017. When it comes to Norwegian, this may have been more a case of Mr O’Leary’s outspoken attention seeking.
Norwegian will now be seeking to convert innovative expansion, particularly on long haul, into sustainable profitability. After entering long haul markets in 2013, Norwegian fell into loss in 2014, recovering in 2015 and 2016, mainly (along with most airlines) thanks to lower fuel prices. After an operating loss in 1H2017, it looks set for another full year loss.
Norwegian’s rapid fleet expansion has led to big increases in debt. In 2017 it has raised much needed liquidity through yet more debt and a large increase in sale and leasebacks. As a result, its 1H2017 cash balance was close to 2.5 months of revenue, compared with 1.5 months a year previously. With 234 more aircraft deliveries due in the next five years, more sale and leasebacks seem inevitable, in spite of the higher cost of leasing versus ownership.