Industry Intelligence – catch up on CAPA’s exclusive market analysis insights

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. Here’s some of the reports published over the past week.


UK regional airlines: Flybe or not Flybe? Connectivity!

The UK government’s decision to help Flybe financially, deferring some of its air passenger duty payments, signals the socio-economic and political importance of regional air services.

It has also prompted criticism from rivals. IAG has complained that the deal breaks EU state aid rules (although, with Brexit imminent, the Boris Johnson-led government may not care). EasyJet and Ryanair have argued that taxpayers should not prop up a rival airline.

The deal is thought to be conditional on Flybe’s shareholders (Virgin Atlantic, Stobart Group and Cyrus Capital) investing new capital, less than a year after they bought it. Before the government’s intervention, they had appeared reluctant.

After others (Monarch, bmi regional, Thomas Cook) were allowed to go bust, this marks a sharp change of direction by the UK government on bailing out struggling airlines. The case focuses on jobs, regional connectivity (Flybe is the biggest UK domestic regional airline), and Flybe’s importance to several smaller airports.

Flybe’s change of ownership has not changed its structural problems and neither will this bailout. Instead, a more structural solution would be to split Flybe into three: competing for justifiable subsidy on designated public service obligation routes; operating those routes that can be commercially profitable; and exiting routes with no prospect of sustainable profitability.

TO READ ON, VISIT: UK regional airlines: Flybe or not Flybe? Connectivity!


United Airlines aims to bolster Denver’s success with new gates

United Airlines is taking advantage of expansion at one of its key hubs – Denver International – through its efforts to add gates at the airport, which is the airline’s fastest growing hub and one of its most profitable.

The planned expansion occurs nearly two years after United rebanked Denver, maximising revenue generating connections as part of a broader mid-continent hub strategy to bolster its performance in the US domestic market.

Denver is a somewhat unusual hub in the US domestic market as United faces formidable competition from the two low cost operators Southwest and Frontier. Yet United’s push on bolstering connectivity in the market appears to be paying off, reflected in its commitment to keep growing in Denver.

TO READ ON, VISIT: United Airlines aims to bolster Denver’s success with new gates


Croatia Airlines: Aegean Airlines and Air Nostrum submit bids

In the quiet holiday week at the end of Dec-2019 Aegean Airlines Group announced that it had made a non-binding indicative offer for Croatia Airlines. The Spanish regional airline Air Nostrum is also reported to have submitted a non-binding offer for the Zagreb-based airline. The Croatian government is seeking partners in the privatisation of its national airline.

Croatia Airlines celebrated its 30th anniversary in 2019, but has not kept pace with the rapid growth in demand for air transport to/from Croatia. Growth has been driven by airlines from elsewhere, particularly by LCCs. Croatia Airlines is still the country’s biggest airline, but it is loss-making, has a high unit cost, and competition is strong.

Its fleet mix of A320s and Dash 8s matches Aegean Airline Group’s equipment. In addition, the Greek group has experience of integrating an acquisition after buying Olympic Air in 2013.

Air Nostrum’s Bombardier regional jets and ATR 72s are a less clear fit, although the Spanish airline currently operates some routes for Croatia Airlines. Air Nostrum is still working towards completing a merger with CityJet that would create Europe’s largest independent regional airline.

Both options are likely to be of interest to the Croatian government.

TO READ ON, VISIT: Croatia Airlines: Aegean Airlines and Air Nostrum submit bids


Paine Field: US airport receives boost from major global investor

Propeller Airports has announced that Global Infrastructure Partners (GIP) has become an investor in the Paine Field Passenger Terminal at Everett Paine Field Airport (Washington). GIP is managing the investment on behalf of the Washington State Investment Board (WSIB).

This is a significant departure for GIP, a U.S. and UK-based entity that manages infrastructure investment funds across multiple sectors, including transport, with approximately USD50 billion of assets under management. In its time actively involved in the air transport business, GIP majority-owned and managed the downtown London City Airport in the UK, which it sold in 2016, and until Mar-2019 it was also the majority investor in London Gatwick Airport.

Paine Field is a modern technically equipped terminal and location in an economically fast growing region. Seattle-Tacoma Airport is facing up to potential capacity issues, although it is combating that scenario with a USD2 billion infrastructure investment.

TO READ ON, VISIT: Paine Field: US airport receives boost from major global investor


British Airways & China Southern: new JV leads in UK-China airline market

British Airways and China Southern Airlines commenced a joint venture agreement on 2-Jan-2020. The agreement covers the two airlines’ routes between the UK and China and will expand to include their domestic networks. BA operates from London Heathrow to Beijing and Shanghai, while China Southern serves Heathrow from Guangzhou, Sanya, Wuhan & Zhengzhou.

Under the deal, BA and China Southern cooperate on schedules and pricing, and providing reciprocal website booking, frequent flyer benefits and lounge access.

The new agreement builds on British Airways and China Southern’s codeshare agreement, previously limited to carrying each other’s codes only on certain domestic routes (and BA’s Heathrow-Amsterdam service). The routes operated by the two airlines between London and China are now not only codeshare routes, but also form the core of the JV arrangement.

According to data from OAG, BA and China Southern’s combined UK-China capacity in the JV jumps ahead of the Virgin Atlantic/China Eastern JV (due to begin in summer 2020, when Virgin joins the wider Europe-China JV operated by Air France-KLM and China Eastern). The JV also has more capacity than the previous market leader, Air China.

TO READ ON, VISIT: British Airways & China Southern: new JV leads in UK-China airline market


Delta Air Lines and the US DoT: labour gains traction over JVs

If Delta Air Lines’ proposed JVs with WestJet and LATAM Airlines Group come to fruition, the annual contribution to Delta from its immunised relationships with various airlines worldwide will cross the USD20 billion threshold. Those relationships are a key pillar of Delta’s international strategy that is unmatched by its large full service rivals in the US.

But Delta has to strike a delicate balance between, on the one hand, reaping the benefits from its strategy of largely taking equity stakes in foreign airlines and forging antitrust immunity with those operators and on the other, navigating concerns expressed by labour groups. Delta’s pilots have been vocal in pushing for equitable distribution of growth in those partnerships, and believe that in some cases Delta has essentially outsourced operations to airlines whose flight crews have less favourable wages and work rules.

The union representing Delta’s pilots, the Air Line Pilots Association (ALPA), recently gained some traction with US regulators after the DoT stipulated that Delta, Air France-KLM and Virgin Atlantic needed to include the effects on US aviation jobs in a regular self-assessment of their Blue Skies joint venture.

ALPA is now pushing for a similar requirement in Delta’s proposed JV with WestJet.

TO READ ON, VISIT: Delta Air Lines and the US DoT: labour gains traction over JVs


Indonesia’s Labuan ‘Dragon airport’: confusing signals for Changi

Investors in airports have long been confused by government policies in Indonesia where they have, in theory, been welcomed, even coveted, but where the state airport operators continue to acquire those airports around the country that might attract those investors.

At last a consortium, involving an Indonesian company with experience in the air transport business and a Singaporean one of international repute, has acquired a concession on an airport which supports tourist visits to see the ‘Komodo dragons’ – huge lizards that were only discovered in the 20th century.

But the transaction came just as the government was about to close off the Komodo island and then to bring in a hefty tourist charge to visit it – not what the joint venture wanted to hear.

TO READ ON, VISIT: Indonesia’s Labuan ‘Dragon airport’: confusing signals for Changi