WORLD AVIATION Yearbook 2014 • Global overview - Petrol and partnerships • Analysis - Air travel correlation with GDP growth • 10 regional data & analysis • Key data of each region’s selected airlines Contents Introduction.......................................................... p3 Main feature: “Of petrol and partnerships”.......... p4 Analysis: “Air travel correlation with GDP growth”................................................. p9 Southeast Asia overview....................................... p14 Selected airlines key data..................................... p23 Lion Air Garuda Indonesia AirAsia Singapore Airlines Thai Airways South Asia overview.............................................. p28 Selected airlines key data..................................... p33 IndiGo SpiceJet Air India Jet Airways South Pacific overview.......................................... p37 Selected airlines key data..................................... p42 Qantas Airways Virgin Australia Air New Zealand North Asia overview.............................................. p45 Selected airlines key data..................................... p51 China Southern Airlines China Eastern Airlines All Nippon Airways Korean Air Japan Airlines Cathay Pacific Africa overview..................................................... p67 Selected airlines key data..................................... p71 South African Airways Ethiopian Airlines Kenya Airways Eastern Europe overview...................................... p74 Selected airlines key data..................................... p77 Turkish Airlines Aeroflot Pegasus Airlines Western Europe overview...................................... p80 Selected airlines key data..................................... p85 Ryanair easyJet Lufthansa British Airways Air France KLM Royal Dutch Airlines North America overview....................................... p91 Selected airlines key data..................................... p96 Delta Air Lines Southwest Airlines United Airlines American Airlines jetBlue Latin America overview........................................ p101 Selected airlines key data..................................... p107 GOL TAM Airlines LAN Airlines Aeromexico Middle East overview............................................ p57 Selected airlines key data..................................... p63 Saudia Qatar Airways Emirates Etihad Airways Pg 2 | CAPA World Aviation Yearbook 2014 Except where otherwise noted, content on this site is licensed under a Creative Commons AttributionNonCommercial-NoDerivs 3.0 Unported License. © 2014 CAPA Centre for Aviation Introduction A Pg 3 | CAPA World Aviation Yearbook 2014 S 2014 UNFOLDS, THE TALE EMERGES OF TWO ECONOMIC WORLDS, again on diverging paths; slow growth in Europe and North America brings out and accentuates the conservative voices among those keen to preserve the status quo – or merely to postpone the inevitable. At the same time as China’s economy slows from its previously high levels, casting a shadow over most of Asia, there are signs of improvement in the mature markets. Yet one thing that is not slowing in Asia and the Middle East is the process of change, structural and in terms of market access, as new airlines and airline types push regulatory frontiers. In Asia, the rapid evolution and diversification of low cost operations is the most notable and probably most exportable change. Despite some asynchrony between capacity and demand, which has prompted several SE Asian airlines to delay deliveries of new aircraft, the growing influence of long haul low cost airlines – increasingly networking their operations in ways similar to classic full service network airlines – cannot be ignored and will almost certainly spread across the world. At the same time, legacy airlines, many of them burdened by higher cost bases and often unproductive work practices, are actively seeking ways of restructuring and redefining their roles in a new world. Aside from the essential steps to reduce costs, this increasingly involves adoption of subsidiaries operating with a different, low cost, model. Amid this change, the US, still the world’s biggest market by value and protected from outside competition has been able to generate profits previously unheard of. Delta, the world’s largest airline, alone recorded a profit of over USD2.5 billion for the past year. Recent consolidation (enhanced massively by the introduction of baggage and rebooking charges) has enabled this standout performance; and the projections are for continued financial performance on this scale. The difference in the US market though is that traffic growth is minimal and that market experimentation is limited to the smaller hybrid airlines. Emerging economies meanwhile are achieving varying levels of growth as their economic growth stalls, dampened as the US slows its previous monetary expansiveness. CAPA’s 2014 Global Aviation Outlook incorporates these factors in its region by region assessment of coming months. It also records the growing pre-eminence of partnership strategies, also on many levels and varied types. And, inevitably, recounts the always important issue of fuel prices, with their uncertain impact on the industry. GLOBAL analysis reports: Source: CAPA Centre for Aviation Airline consolidation: could Europe follow North America’s path to improved margins? Protecting the fortress and the double-edged dangers of protectionism Airlines in Transition: Hybridisation and operating dual brands Airline ownership & control. Why might Europe uphold something its officials call “stupid”? Pg 4 | CAPA World Aviation Yearbook 2014 Of petrol and partnerships The airline industry, perhaps more than any other, is horrendously susceptible to external challenges, where managements have little or no control over outcomes. Fuel prices are the most notable economic terrorists, now accounting for nearly four tenths of all airline costs – yet unpredictable and totally unmanageable. Add to that a massively disruptive combination of industry factors that are reshaping the way airlines do business – again mostly outside the ability of most airline managements to control – and it becomes clear why most airlines have such a devil of a job to make decent profits, or even any profits at all. The disruptive forces are driving airlines towards makeshift partnerships, necessary but still made cumbersome by the overhang of nationalistic regulation. The year 2014 and beyond looks likely to be consumed by these two drivers. For a few, it will be abundant with opportunity; for the majority it could represent some of the biggest challenges they have ever experienced. There is another factor that unavoidably influences the course of airline profitability: the state of the economy. Here the news is, barely audibly as yet, getting better. Signs of economic recovery in northern Europe and some easing of pain in the US are welcoming more travellers back into the sky. Better economic conditions do not necessarily correlate with improved profitability; the industry’s competitive foundations can mean simply that better demand is met by greater competition. It can also mean upward pressure on oil prices as consumption increases. Nonetheless, the good news is certainly that things are starting, in a still-fragile way, to look as if demand will continue to strengthen in 2014. There are still worries: China’s uncertain outlook for one; and the continuing widespread instability in the Middle East, further aggravated by Russian land grabs, also with potential implications for fuel supplies. The external impacts: BRENT CRUDE PRICES MAR-2004-2014 SOURCE: NASDAQ.COM CB*1 : 108.55 Vol: 677419 160.00 150.00 140.00 130.00 120.00 108.55 100.00 90.00 80.00 70.00 60.00 50.00 1,000,000 500,000 40.00 30.00 20.00 Pg 5 | CAPA World Aviation Yearbook 2014 1. Fuel prices Improbably, through a year of perhaps the greatest, most diverse series of upheavals in that most sensitive region of the world, the Middle East, oil prices have refused to skyrocket. In fact, after showing some easing in the earlier part of 2013, prices have shown signs of becoming less benign. This is not a good sign and, with President Putin’s Russia showing signs of using energy as a lever against anyone who gets in its way, many of the seeds are there for the sort of speculative bubble that occurred in mid-2008, when prices soared to around USD140 a barrel (with a much higher aviation fuel margin). Further increases push airlines to the limits in achieving profitability – and it is indeed a valuable indicator of the efficiencies achieved that they were no more profitable when oil prices hovered around USD35 in the early part of this century. For an airline with a USD10 billion operating revenue, the rough implication is that, with prices at USD105 a barrel, they will be spending USD300 million annually more on fuel than they did back then. It would have been a tidy profit in retrospect, but a very large additional burden to accommodate today. Where fuel prices will go this year is anybody’s guess – and despite the array of expert opinions, that is all it will be. Airlines will continue hedging and, at a high price, buying no more than short term certainty of how much they will pay in Where fuel prices will go this year is anybody’s guess – and despite the array of expert opinions, that is all it will be. That airlines are having to move quickly has been a factor both of immediate internal need and of a shrinking number of options as competitors soak up the few partnership options available. Pg 6 | CAPA World Aviation Yearbook 2014 fuel costs. There is nowhere to hide. However, the consensus is that prices are unlikely to fall substantially, if at all. The tar sands/US exporter scenario is on one side, reducing reliance on imports and with the US (and others) eventually becoming net exporters; against this is a destabilised Middle East. If a hoped for drop in price were to occur, a newly invigorated industry would enjoy at least a short burst of good news. A substantial drop in prices would (i) breathe life into inefficient models that were striving to achieve cost reductions and (ii) change the equation significantly for LCCs – short, and in particular, long haul. The Middle East turmoil has ensured a floor under prices in recent months. Contrarily though, the surprising lack of an extreme impact so far may actually suggest that there is more pricing stability than we had come to expect – at least on the supply side (rightly or wrongly a lot of the pressure in the 2008 fuel spike was put down to speculation and/or emotion, rather than a “real” supply shortage). The conundrum is that demand has however also been suppressed by slower economies - and an uptick will increase consumption levels. Somehow things rarely seem to turn out as airlines hope. 2. (Re) defining the shape of the industry With most variables outside their control, airlines have few levers to pull when seeking to improve effectiveness and efficiency. The most evident are reducing staff costs and improving productivity – and hopefully both. But the scope for cost reduction in this way is severely limited where fuel costs fill nearly half of the windscreen. Every airline in the world is seeking annual (ex-fuel) unit cost reductions – and if they are not they can be assured that their competitors are. It creates a major source of pain and often resembles running at top speed merely to stay in the same place. But the real area for concern for many airlines, and where cost reductions may be squeezed into becoming a mere sideshow, is in how the shape of the industry is changing. Low cost airlines have remodelled short haul operations across the world; long haul low cost is becoming an extensive reality in the Asian region (and soon the North Atlantic); the Gulf carriers are reshaping much of the longhaul and hub strategies of full service airlines. Partnerships are increasingly looked to as the final resort for airlines under pressure. Nothing less would explain the enormous about face by airlines like Air France in accommodating a relationship with Etihad, or even Qantas with Emirates. Amid this turbulence and under severe stress in short and long haul modes, network and point to point airlines alike have had to begin contemplating compromises that just a year or two earlier would have been unthinkable. Global alliances have filled a very valuable need and continue to work very effectively for many airlines, but as others around them realign into more egocentric partnerships, the pressure intensifies to adopt more specific partnering models. That airlines are having to move quickly has been a factor both of immediate internal need and of a shrinking number of options as competitors soak up the few partnership options available. The dance is becoming more furious – and, in essentially bilateral relationships, only so many partners are available. For many this has required innovative approaches Over the past two years we reached a tipping point. Technology and social pressures have shifted the fulcrum. Pg 7 | CAPA World Aviation Yearbook 2014 previously not part of their armoury. And they have had to be adopted in very quick time. Deciding on a radical new direction – which can sometimes mean casting adrift a large part of longstanding (even core) activities or existing partners – is hard enough, requiring wholly new skills. Negotiating a major partnership on the run while continuing business as normal in these circumstances is another enormous ask, again where there are no roadmaps and, typically a mountain of pushback from vested interests whose status quo is threatened. Actually then to implement them, again with all the other day to day requirements to be met, is even more high risk and diversionary from the main game. Only the US majors are relatively immune from these trends. Comfortably ensconced in a protected domestic market bigger than any other in the world, refreshed by shedding weight in Chapter 11 bankruptcies and now merged into large dominant entities, they are enjoying almost unheard of profitability at home. Internationally, in the key market of the North Atlantic the big three US carriers are also enjoying the protection of antitrust immunised partnerships with their European alliance peers. This combination undoubtedly creates a benign environment, at least for the short term. Whether this creates a level of complacency and lack of innovation that will come back to haunt them is a story still untold. Delta has dipped a toe in the water with its acquisition of 49% of Virgin Atlantic, but for the largest airlines in the world to be otherwise absent from the new world’s close bilateral partnerships must be a strategic flaw. In short, in 2014 disruption of the established framework of the industry will accelerate. For any 70 year old system which has remained virtually unchanged there must be a time when old age catches up. In one respect, safety, there has been massive progress, to the extent that major accidents are extremely rare. But commercially, although changes are occurring, they have been mostly around the margins – until last year. Over the past two years we reached a tipping point. Technology and social pressures have shifted the fulcrum. The key commercial features of the industry in a nutshell are (1) market access in its broadest sense, partly proscribed by bilateral agreements and (2) sales and distribution, dominated by intermediaries, with (still) a minority of direct sales. In this latter area issues have also been bubbling under the surface for several years, with google and other large online forces prowling the boundaries of sales and distribution. Sooner or later – and probably quite soon – a revolution will unfold there too; already there is much activity in the undergrowth. Albeit with the spectre of high fuel prices in the background, trends are accelerating towards more longhaul growth and competition, as new aircraft types are delivered and as industry fundamentals change – thanks to liberalisation, cross border joint ventures, equity alliances and, increasingly, to the effects of partnering. This new environment embraces not only the Gulf airlines, but also how China’s airlines start to become more important in point to point carriage and, increasingly, in sixth freedom transfer operations. Very shortly, they will also become designers of the future partnership system; even if they don’t aggressively pursue expansion internationally with their own metal, the attraction of the Chinese market to outsiders is pressing foreign airlines The platform has been laid for this evolution and its balance has now tilted. to court the few available Chinese partners that are available. Here again there is – at least for the time being – a limited number of dance partners. Other features in the mix are contributing to the upheaval. Long haul low cost, previously the domain of Southeast Asia is surfacing on the North Atlantic. This previously derided concept of long haul low cost involves adopting a range of new measures (like seeking out more efficient crewing approaches, as well as using aircraft like 787s – accompanied by the essential underlying low cost mentality) Will it work on the North Atlantic (yes!) and who else will follow Norwegian, Air Canada rouge and WestJet? The arrival of this previously Asian phenomenon on the North Atlantic surely contains the seeds of something much bigger. After all it used to work 40 years ago, with Laker Airways and so-called charter airlines between the UK and North America. This will further increase pressure on the global alliances on longhaul, including on the closed JVs, especially if fuel prices were to fall. And the impact will not be limited to the North Atlantic, nor just to the global alliances; all longhaul airlines will feel the heat. But members of global alliances will continue to see the need to compromise with – and often partner with – the Gulf airlines. Hybridisation is accelerating as both LCCs and full service airlines look to adopt low cost models with full service profiles. As a result, the dual brand concept is now becoming popular in Europe as well, but the main full service airlines are still having to undergo the upheaval of restructuring to kill costs and increase efficiencies. LCCs around the world are expanding – most notably in Asia; in SE Asia they now account for 60% of all intraregional seats. The nebulous spectre of “excess capacity” is being raised as massive order books convert to deliveries, but deferrals – now seemingly more acceptable to manufacturers – may hold this risk in check. The movement is slowly moving northwards. China has announced it will allow new domestic LCCs to establish there and as others expand in the region there is the platform for a very large growth surge. The northern markets of China, Japan, Korea and Taiwan are becoming much more connected. The resulting traffic volume in 2014 will not transform the world, but the changes will provide the foundation for a whole new wave of low priced growth – and, accompanying it, a cycle of further liberalisation. In Europe the large LCCs, easyJet and Ryanair are significantly profitable, despite sluggish economic growth there; Mexico is lively – and turbulent, with 61% of its domestic market capacity on LCCs; India (72% of seats) and the Philippines (92%) markets are dominated by LCCs. 2014 holds no promise of being more boring than the previous year. Fuel price rises may silently erode the best laid plans, but there is much greater certainty that forging partnerships will occupy a lot more time at airline board meetings. The platform has been laid for this evolution and its balance has now tilted. Pg 8 | CAPA World Aviation Yearbook 2014 Analysis: The air travel correlation with GDP growth; Pinpointing the countries where regulatory intervention are most likely to make a difference. C APA’S EXTENSIVE COUNTRY RANKINGS DATABASE provides rich pickings for analysis of the relationship between the wealth of a country and the penetration of air travel in that country. Not surprisingly, our analysis confirms that the two are closely correlated. Countries with higher GDP per capita tend to have higher numbers of airline seats per capita. Establishing a correlation does not indicate the direction of causality, which works in both directions. Economic wealth drives air travel, but air travel also helps to drive economic wealth. However, the correlation is not perfect and levels of penetration can be affected by geographical, political, fiscal and infrastructural factors. This leads to some countries having a significantly higher or lower number of airline seats per capita than might be expected simply from their level of GDP per capita. Who are the out-performers, in terms of the penetration of air travel, and who are the under-performers? What are the characteristics of each group? How do the main regions of the world compare? And what role can governments play? - in some cases, they can potentially make a significant difference. The penetration of air travel is correlated with GDP per capita AIRLINE SEATS PER CAPITA (VERTICAL AXIS) VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY SOURCE: CAPA – CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014), INTERNATIONAL MONETARY FUND Pg 9 | CAPA World Aviation Yearbook 2014 CAPA’s databases include data from OAG on seat capacity by country, together with population and GDP data from the International Monetary Fund. We can use this to calculate GDP per capita and airline seats per capita for the 177 countries for which all the necessary data is available. A scatter plot showing airline seats per capita (for the week of 9-Jun-2014) against GDP per capita is presented in the graph on the left. The chart demonstrates a number of points. First, there is a vast discrepancy in the level of penetration of air travel (measured by airline seats per head of population) across the countries of the world. Setting aside countries for which we have insufficient data to perform our calculations, the least penetrated nation is the Democratic Republic of Congo, with just 377 weekly seats per million of population, and the highest is Qatar, with 618,362 seats per million people. The most fundamental point highlighted by the chart below is that, in general, a higher level of GDP per head of population is associated with a higher level of penetration of air travel (the correlation is quite strong, as indicated by the R squared value of 0.7). That said, there is also a huge range of different levels of penetration even within a narrow band of GDP per capita, and so there are also other factors affecting the propensity to fly. The density of the chart in the bottom left corner highlights that there are a large number of countries with below average levels of wealth and of air travel penetration. Only 34% of the countries on the chart have GDP per capita above the global mean, but these countries account for 70% of the total number of seats. Only 45% of the countries have more airline seats per capita than the global mean, but they account for 70% of total seats. The disproportionate impact of the wealthier and higher penetrated countries drags up the global averages, but many of the world’s nations are still playing catch-up when it comes to air travel. AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE) VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY SOURCE: CAPA – CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014), INTERNATIONAL MONETARY FUND Increasing wealth has a bigger impact on raising air travel in poorer countries The trend line that gives the best fit to the data points in the above scatter plot is very slightly concave: it does not rise in a straight line, but it gently flattens as it moves to the right across the chart. This suggests that increasing wealth (measured by GDP per capita) has a bigger impact on raising the penetration of air travel in poorer countries than it does in richer countries. The chart below shows the same data as the previous chart, but uses a logarithmic scale on the vertical axis (which shows seats per capita). This not only accentuates the flattening of the trend line as GDP per capita rises, but also stretches out the lower end of the scale for seats per capita making it easier to distinguish the separate data points in this crowded part of the chart. We have also added some labels to selected data points, indicating which country they represent. Other factors also have an impact Countries that are below the trend line on the above chart have the potential to increase their rates of air travel in two ways. First, as for all countries, the number of airline seats per head in these countries should increase as GDP per head grows. For those that are also below the global average for GDP per head, this potential is particularly strong. Second, the countries below the trend line have the potential to increase air penetration to catch up with other countries of a similar wealth, but who already have higher rates of air travel. This process of catch up might be achieved in a variety of ways, including regulatory change (including liberalisation of market access), infrastructure development and taxation policy. On the other hand, geographical and other structural factors may mean that this potential is greater for some countries than it is for others. The BRIC emerging economies are under-penetrated by air travel Note that all of the so-called BRIC countries (Brazil, Russia, India and China) sit below the trend line in the chart above (and they also have a level of airline seats per capita that is below the global mean). Among the four, India would seem to have the greatest potential to improve the penetration of air travel, but needs reform and further development on issues such as fuel tax and infrastructure if this potential is to be realised. For Brazil, the development of airport infrastructure may benefit from recent privatisations and the stimulus of the 2014 Football World Cup and the 2016 Olympics and the airline industry is continuing to develop distribution channels that are adapted to the Brazilian market. Infrastructure development has also been (and continues to be) an important theme in both Russia and China, where recent regulatory and legal changes should stimulate the growth of the LCC sector and give a further boost to air travel penetration. The MINT grouping is more diverse Pg 10 | CAPA World Aviation Yearbook 2014 Moving on from the BRIC countries, the more recently identified group of MINT countries (Mexico, Indonesia, Nigeria and Turkey) are more diverse in terms of their aviation markets. Whereas all the BRIC countries are among the world’s largest airline markets by total number of seats (only Russia is outside the top 10 and it ranks 13th), among the MINTs only Indonesia and Turkey are at a similar rank (they are 11th and 12th respectively; Mexico is 20th and Nigeria 56th). Unlike the BRICs, which are all below trend line on our chart, the MINTs include two countries, Turkey and Indonesia, that sit above the line. These two already have more airline seats per head than might be expected purely from their levels of GDP per head. In the case of Turkey, this reflects the success of its national carrier, Turkish Airlines, in attracting global connecting traffic through its Istanbul hub. Indonesia’s position, only slightly above the trend line, probably reflects the geographical imperative of aviation as a means of transport in the archipelago and the success of the LCC sector in tapping into demand. Mexico occupies a similar position on the chart to that of Brazil, while Nigeria’s is not too far from India’s. AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE) VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY: THE OUTPERFORMERS SOURCE: CAPA – CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014), INTERNATIONAL MONETARY FUND AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE) VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY: THE UNDERPERFORMERS SOURCE: CAPA – CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014), INTERNATIONAL MONETARY FUND Pg 11 | CAPA World Aviation Yearbook 2014 Island nations and city states are the outperformers Next, we reproduce the same chart, but this time we label the “out-performers” - those countries at the upper frontier of the scatter plot that also have a level of air seats per head that is above the global mean. These nations have the highest level of airline seats per head for their level of GDP per head. These out-performers fall into two categories: island nations and what might be termed “city states”. The islands, which include Maldives, Bahamas, Cyprus, Malta and Iceland, rely on air travel (and often inbound tourism) for their links with the rest of the world and this has given rise to a much more developed aviation market than would otherwise be expected in equivalently wealthy countries. The “city states” include true city states Hong Kong and Singapore and also Gulf nations Bahrain, UAE and Qatar. In these countries, aviation markets have been stimulated by government policy in addition to demographic features such as large expatriate populations. The under-performers The “under-performers” highlighted in our next chart (see graph on left) form the lower frontier of our scatter plot. They can also be divided into two sub-groups. The first consists of countries that have above average levels of airline seats per capita, but that nevertheless have a lower level than might be expected from their GDP per capita (in other words, they are below the trend line on the chart). This group includes some of the world’s biggest aviation markets, such as the US, Germany, France and Japan. Comparison with other countries that are similarly wealthy suggests that they could be even bigger if they could move up closer to the trend line. On the other hand, the position of the line is perhaps artificially dragged upwards by the presence of the islands and city states of the out-performer group, where the penetration of air travel is boosted by the geographic and political features mentioned earlier. The more serious under-performers are those countries that have a below average number of airline seats per capita and also sit below the trend line on the scatter plot. These include land-locked African countries the Democratic Republic of Congo, Chad, Lesotho and Swaziland, as well as Turkmenistan, Slovakia and Slovenia. Their under-performance may be a function of a number of different factors, such as the political backdrop, a lack of infrastructure, or being served indirectly by the airlines of neighbouring countries. On paper, at least, this group has the greatest potential to increase the penetration of air travel. AIRLINE SEATS PER CAPITA (VERTICAL AXIS) VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY REGION SOURCE: CAPA – CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014) Pg 12 | CAPA World Aviation Yearbook 2014 Regional differences: Middle East outperforms; North America underperforms By aggregating the data for the countries of each major world region, we present a final scatter plot of airline seats per capita against GDP per capita by region (see below). This highlights a number of points. First, Africa is substantially under-penetrated by air travel, with only just more than one fifth of the global average number of airline seats per head of population. This is broadly consistent with the continent’s level of GDP per capita. African countries occupy the lowest 11 places in the world ranking of airline seats per capita. Second, although Asia Pacific is the largest world region in terms of the total number of seats, it is still a small market relative to the size of its population, with only 56% of the global average number of airline seats per head. Asia Pacific is a very diverse region, with both developed and emerging markets. It includes Maldives (the country ranked number three in the world by seats per capita) and Bangladesh (ranked 171 on this measure). Third, Latin America is not far from the world average on both GDP per capita and airline seats per capita, but is still a little behind on both measures. Its aviation markets have potential to benefit both from GDP growth and from the additional boost to penetration levels that could result from infrastructure development and regulatory reform. Fourth, the Middle East as a region is outperforming strongly in terms of airline seats per capita compared with GDP per capita. It is only slightly wealthier than average (GDP per capita 7% above the global mean), but has 68% more seats per head than the world average. This reflects government policy and the success of the super connector airlines in the Gulf. Fifth, Europe is a modest out-performer, with a higher level of air travel penetration than might be expected from its level of GDP per capita (particularly Western Europe). This reflects the liberalised internal market of the European Union (its aviation market and other markets, including that for labour), relatively well developed aviation infrastructure and the consequent development of the LCC sector. Sixth, North America is underperforming in terms of airline seats per capita against GDP per capita, when compared with other regions. It has more than five times the global mean level of GDP per capita, but less than four times the global mean number of airline seats per capita. This probably reflects the diminishing power of GDP alone to stimulate penetration of air travel as aviation markets mature. As we have seen earlier, there are island nations and city states with similar levels of wealth to that of North America, but where the number of airline seats per capita is much higher, but they benefit from additional geographical and policy stimuli. Governments do have a large role to play This report provides a glimpse of what can be gleaned from analysing CAPA’s country ranking database. It confirms the correlation between the number of airline seats per head and GDP per head, both at the country level and at the regional level. Countries such as island nations have geographical advantages that boost aviation markets. While nations cannot do much about their geographical location, their governments can play a large part in achieving higher levels of penetration of air travel, or in holding it back. Air travel in countries such as the Gulf states of Qatar and the United Arab Emirates has been increased by government policy and the consequent strategic growth of their national airlines. This has led to the Middle East region’s strong outperformance in terms of airline seats per capita compared with its GDP per capita. Europe also achieves a higher level of air travel per head than might be expected from its level of GDP per head, in no small part due to its liberalised internal market. By contrast, a number of countries underperform significantly compared with their GDP per head. In such cases, as in countries like India governments can often do much to improve the penetration of air travel through their stance on factors such as improved regulation, market access, taxation and infrastructure. In very mature markets, such as North America, it seems that the very high levels of penetration of air travel are less susceptible to further stimulation from growth in GDP per head. Perhaps the final frontier for governments in such cases is to open up their domestic markets to global competitors. This is something the incumbent airlines will mostly resist strongly, but equally it is important to recognise that regulators do have the power to unlock further growth through regulatory intervention. See related reports: • India’s Civil Aviation Agenda: CAPA proposals for the new administration to restart the industry • Airline ownership & control. Why might Europe uphold something its officials call “stupid”? • World airline industry in cyclical upswing - but in search of USD125 billion annually in financing Pg 13 | CAPA World Aviation Yearbook 2014 SOUTHEAST ASIA analysis reports: Source: CAPA Centre for Aviation Southeast Asia low-cost airline fleet to expand by almost 20% in 2014. Are more deferrals needed? Garuda adjusts 777-300ER route plans to focus on Japan while dropping Australia-London one-stops Garuda & Citilink 1Q losses widen. Potential Singapore Airlines investment poses intriguing option AirAsia further slows fleet expansion as 1Q profit falls - with the potential to accelerate later AirAsia drives rapid growth at Malaysia’s Johor Bahru’s Senai Airport, further encircling Changi AirAsia X drives 43% transit traffic at Kuala Lumpur’s KLIA. Can Singapore follow the same recipe? AirAsia India to launch on 12-Jun-2014. The LCC’s greatest test or its most lucrative opportunity? Myanmar international aviation outlook: after two years of rapid expansion, growth starts to slow Cebu Pacific Air profits drop; PAL, Philippines AirAsia remain in the red. But outlook is improving Singapore Airlines incurs 4QFY2014 operating loss, adds premium economy as latest strategic response Singapore Airlines seeks to expand its partnership portfolio further following a spate of new deals Tigerair restructures after recording a FY2014 loss. A Singapore Airlines takeover seems sensible SilkAir 737 MAX fleet to open up network options while boosting Boeing’s narrowbody presence in Asia Nok Air and Thai AirAsia profits fall in 1Q but continue rapid growth in response to new competition Pg 14 | CAPA World Aviation Yearbook 2014 Southeast Asia SOUTHEAST ASIA HAS EMERGED AS ONE OF THE WORLD’S FASTEST GROWTH MARKETS. Low-cost carriers have been at the forefront of growth and now account for nearly 60% of traffic within the region. Several have massive orders, with significant numbers still arriving in 2014 despite some deferrals. A dominant theme of the competitive environment is the rapid escalation of the market share battle between the big LCC groups – particularly AirAsia and Lion Air, plus to a lesser extent Tigerair, Jetstar and the emerging VietJet. The region’s LCCs have been ambitiously adding capacity, putting pressure on yields and load factors. Southeast Asia’s full service groups have also been focusing on regional growth, both within Southeast Asia and the wider Asia Pacific market. While demand is relatively robust, there are signs of overcapacity throughout – including in most domestic and short-haul international markets, as well as in some medium-haul markets, particularly Southeast AsiaAustralia. 2014 is shaping up to be a challenging year for the Southeast Asian aviation market. The region will again have some of the world’s highest growth rates but lacks the capacity discipline and rational behaviour exhibited by airlines in other regions. The short-haul market has become challenging, with the rate of capacity growth far outstripping demand. There is a risky element of “strategic” growth here too – a process that airline CFOs usually abhor – as airlines jostle to secure scarce airport slots and to establish first (or second) mover advantage. The result is to jeopardise short-term profitability. TOP 10 AIRLINES WITHIN SOUTHEAST ASIA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Lion Air 1,053,478 2 Garuda Indonesia 473,450 3 AirAsia 470,520 4 Vietnam Airlines 358,595 5 Malaysia Airlines 347,038 6 Cebu Pacific Air 323,967 7 Thai AirAsia 226,800 8 Thai Airways 217,782 9 Indonesia AirAsia 10 Sriwijaya Air 200,700 183,210 CAPACITY BY CARRIER TO/FROM/WITHIN SOUTHEAST ASIA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Lion Air 1,058,000 Garuda Indonesia 557,922 AirAsia 543,240 Malaysia Airlines 524,369 Thai Airways 493,138 Singapore Airlines 473,605 Vietnam Airlines 407,767 Cebu Pacific Air 377,201 Thai AirAsia Singapore 281,520 Other 0M 3,969,379 1M 2M 3M 4M 5M SOUTHEAST ASIA TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Jakarta Soekarno-Hatta International Airport 2 Kuala Lumpur International Airport 809,696 3 Singapore Changi Airport 649,644 4 Manila Ninoy Aquino International Airport 555,351 5 Bangkok Suvarnabhumi International Airport 536,412 6 Bangkok Don Mueang Int'l Airport 466,704 7 Surabaya Juanda Airport 444,575 8 Ho Chi Minh City Tan Son Nhat Airport 438,579 9 Denpasar Bali Ngurah Rai Airport 317,205 10 Hanoi Noi Bai Airport 307,400 Pg 15 | CAPA World Aviation Yearbook 2014 1,308,360 The Singapore market in particular is experiencing overcapacity, putting pressure on yields, load factors and profitability. Rapid expansion by Singapore’s largest lowcost carrier, Tigerair, has been the main driver of the current capacity situation. Tigerair Singapore’s ASKs were up 24% in CY2013 as it added four aircraft, bringing its feet to 25 A320s. The carrier added two more aircraft in early 2014 but further fleet expansion has sensibly been put on hold as the Tigerair Group has cancelled nine A320 orders and is planning to sub-lease eight A320s. The capacity added into the Singapore market during 2013 was clearly too much and it will take time to be fully absorbed even with further growth being halted. In the quarter ending 31-Dec-2013, Tigerair Singapore’s average fares were down 16% while yields were down 11% and load factor slipped a shocking 11.6ppts to 73.4%. The outlook for 2014 is now slightly brighter as it is no longer adding several aircraft but the carrier continues to grapple with falling yields and load factors. Singapore’s other local LCC, Jetstar Asia, has not been expanding at the same speed, with ASKs up by only about 5% in 2H2013. The Jetstar Asia fleet, including aircraft operated by subsidiary Valuair, expanded by only one aircraft in 2013 to 19 A320s. Jetstar Asia will not add any aircraft in 2014 as the Qantas Group has announced the suspension of further growth at Jetstar Asia. But Jetstar Asia will still be impacted Continued red ink may start to test the holding power of a couple of airlines. SOUTHEAST ASIA FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 2000 1,590 1,586 1500 1000 500 228 0 In service In storage On order SOUTHEAST ASIA BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 2.0% 8.7% 13.8% 51.9% 23.5% Narrowbody Jet Regional Jet Widebody Jet Turboprop Small Commercial Turboprop SOUTHEAST ASIA CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 10.6% 14.2% 59.7% 15.5% Unaligned SkyTeam Star Alliance Pg 16 | CAPA World Aviation Yearbook 2014 oneworld as the Singapore short-haul market continues to suffer from overcapacity despite the recent adjustments, leading to continued pressure on yields and profits. Singapore Airlines (SIA) full service regional subsidiary SilkAir has also been growing rapidly, with ASKs up by about 14% in CY2013. The carrier plans more double-digit capacity growth in 2014 as it is expanding its fleet by four aircraft. SilkAir began 2014 with 24 A320 family aircraft and will end the year with 20 A320s and eight 737-800s. SilkAir, in Feb-2014, took the first of at least 54 737s, which will enable the carrier to double its fleet by 2021 and continue growing capacity at an annual double-digit rate. It is not just the LCCs that are hurting from the competition. SilkAir yields were down 10% in 4Q2014 as load factor also slipped by 5.3ppts to 70%. Parent company SIA has been pursuing much slower growth, with mainline ASKs up by only about 2% in CY2013. Similar low single-digit growth is expected for 2014. SIA’s yields have been down slightly in recent quarters (about 2% to 3%) as the carrier has had to lower fares to stimulate demand and maintain its load factor. The SIA Group is focusing expansion almost entirely on Asia Pacific, using SilkAir, new medium/long-haul LCC subsidiary Scoot and SIA mainline. Scoot added two 777s in 2013, giving it a fleet of six aircraft, but will take a hiatus from expanding in 2014. The carrier will add one aircraft this year, a 787-9 in 4Q2014, but has dropped its initial plan to use it as a growth aircraft and has instead decided to use its first 787 to replace one of its 777-200s. While demand for services within Asia Pacific continues to grow, capacity has been added too quickly, particularly in the Singapore-Indonesia and Singapore-Australia markets. Scoot serves three Australian routes and has significantly reduced capacity to Australia by cutting frequencies and combining some Sydney and Gold Coast flights. Qantas has also decided to drop its Perth-Singapore service. More adjustments are likely. As Singapore has a population of only about 5 million and is a relatively mature aviation market compared with other ASEAN countries, there is perhaps limited opportunity for additional stimulation in the local market. Transit traffic remains a large and very important component, but with other hubs in Southeast Asia also seeing capacity growth outstripping local demand, competition for transit passengers has become more intense. Passenger traffic at Singapore Changi was up only 5% in 2013, marking the first time in four years that double-digit growth was not achieved. Passenger growth is expected to dip further in 2014, to between 3% and 5%. Asia traffic for Changi, which was up 7% in 2013, will again lead the way in 2014 but at the expense of yields. Capacity is growing at a rate far exceeding supply, putting pressure on yields and profitability. It will be a challenging year for all five of Singapore’s passenger carriers. Malaysia Malaysia’s rapid growth from 2013 is unlikely to be sustained. The country was one of Asia’s fastest growing markets in 2013, driven by the launch of Lion Air Group subsidiary Malindo and rapid expansion by the country’s three main existing carriers. 2014 will see more rapid expansion – not at the torrid speed from 2013 but at a rate which will likely exceed demand, putting further pressure on yields and profitability. SOUTHEAST ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 300 250 200 150 100 50 72 CARAVAN DHC6 CRJ A320 A330 SSJ ARJ21 A350 A380 737 20 28 20 27 20 26 20 25 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 777 787 SOUTHEAST ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 17.5% 29.3% 2.6% 4.2% 8.1% 8.4% 21.4% 8.6% A320 737 A330 72 777 CARAVAN 747 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTHEAST ASIA: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 80 57.8%58.9% 60 52.0% 40 30.9% 30.7% 32.4% 26.8% 23.2% 18.1% 20 13.6% 9.8% 3.3% 0 4.6% 4.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 17 | CAPA World Aviation Yearbook 2014 JanMay 2014 Passenger traffic at Malaysia Airports grew by 18% in 2013 to 80 million, including a 17% increase in international traffic and a 20% increase in domestic traffic. Malaysia Airports manages all but one of Malaysia’s main airports. Malaysia Airlines (MAS) was the fastest growing Southeast Asian flag carrier in 2013, with passenger figures up 29% to 17 million. MAS increased ASKs by 17%, driven primarily by expansion of its domestic and regional international operation. The carrier was able to grow RPKs by 27%, pushing up load factor by 6.3ppt to 81%. But MAS adopted an aggressive pricing strategy, significantly increasing the number of tickets sold at low LCC-like fares as it responded to the launch of Malindo and intense competition from AirAsia and foreign carriers. It does not have the cost base to allow this sort of pricing over an extended period. MAS incurred a USD360 million loss in 2013 as yields tumbled by 13%, including by 16% in 4Q2013. This is a dangerous strategy, despite being cossetted by its government. MAS’ outlook for 2014 is relatively bleak as yields and profits remain under pressure. Capacity levels will increase further, with a focus on the regional international market. While the rate of capacity growth will be slower than the 17% figure from 2013, it is expected to again be double digits (approximately 10% to 12%). Competition is too intense to expect an improvement in yields and the MH370 incident makes an already challenging situation even more difficult. LCC capacity in Malaysia continues to grow rapidly, putting pressure on all carriers. In 2013, Malaysia’s LCC fleet grew by more than 30% from 73 to 99 as 26 aircraft were added, including 11 aircraft at Malindo, eight at AirAsia and seven at AirAsia X. Malindo, which launched services in Mar-2013, is expected to add about eight aircraft in 2014. Most of its expansion will be in the international market, starting with several South Asia routes that were launched in 1Q2014, followed in the second half by the anticipated launch of services to North Asia. Growth at Malaysia AirAsia and AirAsia X is expected to be similar to 2013 levels, when Malaysia AirAsia recorded an 11% increase in ASKs while AirAsia X ASKs were up by 19%. But yields will continue to be under pressure. At Malaysia AirAsia, the average fare was down 18% and revenue per ASK was down 10% in 4Q2013. At AirAsia X, revenue per ASK was down 15% in 4Q2013, including a 22% drop on routes in which AirAsia X and competitors both added capacity. This is an indication of the stiff competition in the Malaysian market and the broader Southeast Asia market. AirAsia X is only planning to add three aircraft in the Malaysian market in 2014 (as four of its seven additional A330s are allocated to Indonesia and Thailand) while Malaysia AirAsia plans to grow its feet by only four aircraft. While these numbers are significantly down compared with 2013, both carriers added several aircraft in late 2013, which will result in large capacity increases on a full-year basis for 2014. As group AirAsia has significantly slowed down expansion in 2014 by deciding to sell 12 of its oldest A320s and deferring seven deliveries. But this did not lead to a significant adjustment in its Malaysia capacity plans as most of the aircraft that have been removed from the initial fleet plan for 2014 had been intended for Indonesia and India. Competition between the AirAsia, MAS and Lion groups will further intensify in 2014 as Malindo expands into new international markets. MAS will likely struggle as current Capacity is growing at a rate far exceeding supply, putting pressure on yields and profitability. It will be a challenging year for all five of Singapore’s passenger carriers. fare levels are unsustainable given its higher cost structure. Malindo is unlikely to meet its goal in the short to medium term of reaching break-even. Both AirAsia carriers are attempting to cut costs and increase transit traffic in 2014 as part of a bid to improve profitability despite the challenging market conditions. AirAsia has a strong position in its home market but faces some of its biggest challenges in recent years. Thailand 18% PASSENGER TRAFFIC GROWTH AT MALAYSIA AIRPORTS IN 2013 Pg 18 | CAPA World Aviation Yearbook 2014 In Thailand, three new carriers will launch despite challenging market conditions. Competition between the AirAsia and Lion groups has also increased in the local market. Thai Lion launched services in late 2013 with a fleet of two aircraft and is planning to add at least eight aircraft in 2014. Three other LCCs are planning to launch services in 2014 – Thai AirAsia X, Thai VietJet and NokScoot – giving Thailand seven LCCs, which is more than any country except the US, which has eight. The timing for the launches is far from ideal as yet another political crisis, including frequent protests in Bangkok, has significantly impacted demand in late 2013 and 1Q2014, with worrying signs that it will not go away quickly. In the past, the Thai market has recovered rapidly once restored to stability. But there is a dangerous amount of new capacity being added which will put pressure on yields and profitability even under a more stable environment. Thailand’s two main LCCs, Nok Air and Thai AirAsia, are expanding as fast as Thai Lion. Thai AirAsia plans to add six more A320s in 2014, giving it a fleet of 41 aircraft. It added eight A320s in 2013 as ASKs were up 23%. Of the four AirAsia short-haul franchises in Southeast Asia, Thai AirAsia is growing the fastest as only two aircraft have been removed from the original fleet plan for 2014, which envisioned eight additional aircraft. AirAsia’s decision not to pursue a more significant slowdown of growth in Thailand is somewhat surprising given the unfavourable market conditions and is an example of strategic growth as new competitors enter the market. Nok plans to add four aircraft in 2014, growing its feet to 20 aircraft (excluding small turboprops, which were dropped entirely in early 2014 as they were operated by another carrier that Nok has severed ties with). Overall, capacity at Nok is expected to increase by more than 20%, representing only a slight slowdown to 2013 when the level was up by 46%. Both Nok and Thai AirAsia have remained profitable with net profit margins of about 10% in 2013. But yields have been dropping in recent quarters and market conditions will deteriorate further in 2014 as more capacity floods the market despite the unstable political environment. Revenue per ASK was down by 6% at Nok in 2013 and by 2% at Thai AirAsia. Thai AirAsia revenue per ASK was down 10% in 4Q2013, with the carrier’s average fare slipping 13%. New Thai Airways regional unit Thai Smile, which launched services in 2012, has also been expanding rapidly, adding six A320s in 2013. Thai Smile plans to add another seven A320s in 2014 for a total of 17 aircraft. Thai Smile’s ASKs more than tripled in 2013, albeit on a very low base, while group ASKs were up 8% year-on-year. Similar high single-digit capacity growth at the group is expected again in 2014. While Thai Smile will expand rapidly, there will only be modest growth at Thai Airways. The carrier plans to shrink its mainline fleet by six aircraft in 2014, as 13 aircraft are slated to be phased out – five A300s, five A330s and three 737-400s Market conditions in Indonesia have not been helped by a sharp devaluation of the Indonesian Rupiah in late 2013, leading to a sudden surge in costs, challenging profitability. – while seven aircraft are delivered, including the carrier’s first four 787-8s and three additional 777-300ERs. Thai’s mainline ASKs were up 8% in 2013 but there are signs of overcapacity as passenger yield was down 2% and load factor slipped 2.5ppts including 5.3ppts in 4Q2013. Independent regional carrier Bangkok Airways, with its more conservative and focused strategy, is also in expansion mode and plans to add five A320 family aircraft in 2014 for a total of 22. The carrier already added two A320s at the end of 2013 along with two A319s earlier in the year. Bangkok Airways also operates eight ATR 72-500s, which it will start replacing in 2H2014 with recently ordered new-generation ATR 72-600s. But growth in the turboprop fleet is not part of the carrier’s fleet plan. Thai VietJet, meanwhile, plans to launch services by the end of 2014 with an initial focus on the domestic market. The combination of Thai VietJet’s entry along with rapid expansion from Nok, Thai AirAsia, Bangkok Airways and Thai Smile poses a huge risk of overcapacity in Thailand’s domestic and short-haul international market. Thailand’s medium/long-haul market is also poised to become significantly more competitive in 2014 as new widebody LCCs Thai AirAsia X and NokScoot are launched. Thai AirAsia X plans to launch services in 2Q2014 with an initial fleet of two A330s while NokScoot aims to begin operations in 2H2014 with an initial fleet of two 777-200s. With Thailand becoming the first market to have two local medium/long-haul LCCs, overcapacity in some markets such as Thailand-Japan is possible over the medium to long term. But this is not a big concern for 2014 as the two new carriers will start small and there is a lot of room for LCCs to penetrate Thailand’s medium/long-haul market compared with the more mature and much more competitive short-haul market, where 2014 could prove to be a bloodbath. Indonesia Pg 19 | CAPA World Aviation Yearbook 2014 Indonesia will also experience more growth despite a challenging environment. Market conditions in Indonesia have not been helped by a sharp devaluation of the Indonesian rupiah in late 2013, leading to a sudden surge in costs, challenging profitability. So far two Indonesian carriers, Indonesia AirAsia and Tigerair Mandala, have responded by slowing down expansion and cutting domestic capacity. But the main domestic players continue to expand at an aggressive rate. Indonesia AirAsia has suspended fleet expansion and is now planning to keep its fleet stable at 30 A320s in 2014. The carrier originally planned to add six aircraft and the adjustment in Indonesia is one of the main drivers of AirAsia Group’s decision to seek delivery deferrals and the sale of some existing aircraft. Indonesia AirAsia added eight A320s in 2013 for a total of 30, driving a 33% increase in ASKs. Indonesia AirAsia still plans to pursue international expansion in 2014 but this will come at the expense of its domestic operation. The carrier plans to decrease the portion of its capacity allocated to the domestic market from 40% to only 30%. Indonesia AirAsia is already a relatively small domestic player, with about a 5% share of the market, while it is Indonesia’s largest international carrier. Tigerair Mandala has suspended 11 of its 19 routes since the beginning of 2014 and has reduced its fleet from nine A320s to only four aircraft. The carrier initially planned to add three aircraft in 2014 for a total of 12 A320s. Tigerair Mandala hopes to restore some capacity later in the year but AirAsia has a strong position in its home market but faces some of its biggest challenges in recent years. The situation in the PhilippineMiddle East market looks particularly ugly for 2014. Pg 20 | CAPA World Aviation Yearbook 2014 this hinges on an improvement in market conditions and the potential sale to new owners. Even if Tigerair Mandala does not recover and exits the market, the impact will not be significant given its relatively small size. The void left when much larger Indonesian carrier Batavia exited in early 2013 was quickly filled by other Indonesian carriers. Existing carriers should also be able to fill most of the void left by Indonesian government-owned regional carrier Merpati, which suspended operations in early Feb-2014. Indonesia’s two main airline groups, Lion and Garuda, have rapidly expanded regional aircraft operations and continue to quickly grow their narrowbody fleets. Garuda mainline ASKs were up 15% in 2013, including 16% domestic and 14% international growth, as the fleet expanded by 15 aircraft. Double-digit growth is expected in 2014 as the Garuda mainline fleet grows by about another 20 aircraft. A large portion of the fleet growth is at Garuda’s new regional sub-brand Explore, which operates the carrier’s new CRJ1000 and ATR 72 fleets. Garuda took its first five CRJ1000s in 2012, added seven more in 2013 and will take four more in 2014. Garuda took its first two ATR 72-600s in late 2013 and will add six of the type in 2014. Garuda’s new 777-300ER fleet will also grow from four to seven aircraft in 2014. Garuda began operating 777-300ERs in mid-2013 and in early Jun-2014 began using the type to operate non-stop fights to Amsterdam. But Garuda has dropped previous plans to also launch non-stop services to London and will instead only serve Gatwick as a tag to its Amsterdam service, which previously was operated as a onestop via Abu Dhabi using A330-200s. Garuda budget subsidiary, Citilink, meanwhile plans to add eight A320s for a total of 32. Capacity levels will also increase as the carrier increases utilisation of its A320 fleet. Some of the additional capacity will be allocated to the international market as Citilink plans to expand into the international market in 2014, initially with services to Malaysia, Singapore and Australia. Citilink added 10 A320s in 2013, driving year-on-year ASK growth of 75%. Citilink has been facing some of the same challenges as smaller Tigerair Mandala, incurring an operating loss of USD60 million in 2013 while Garuda mainline remained in the black. Current market conditions are particularly challenging for budget carriers in the domestic market. Yet Citilink and domestic market leader Lion Air continue to expand rapidly. The Lion group is privately held but claims to have grown LCC passenger traffic by 15% 2013 to 32.9 million (this includes Lion Air and Wings Air but excludes new full-service subsidiary Batik Air, which carried 800,000 passengers in its first year of operations). The Lion group plans to add 50 to 52 aircraft in 2014 with approximately 15 aircraft allocated to its affiliates in Malaysia and Thailand, leaving 35 to 37 aircraft for Indonesia. This includes 15 to 17 737NGs for Lion, about 10 ATR 72s for Wings and 10 aircraft (four 737s and six A320s) for Batik. But these figures are subject to change as the year unfolds; Lion has a very flexible feet strategy and only finalises allocations among its five carriers a few months prior to delivery. While Indonesia AirAsia is taking a hiatus from fleet expansion, new sister carrier Indonesia AirAsia X plans to launch services in 2H2014 with an initial fleet of two A330-300s. Indonesia AirAsia is less impacted by the rupiah devaluation given the carrier has a much larger portion of foreign passengers than its competitors. AirAsia has a small and shrinking domestic operation in Indonesia but is already the country’s largest international player, a position the group aims to cement by launching the country’s first medium/long-haul LCC. As is the case with Thailand, there are opportunities to penetrate Indonesia’s medium/long-haul market, while a bloodbath could emerge in the short-haul market – particularly domestically. Philippines Conditions in the Philippines domestic market are relatively more favourable, thanks to consolidation. Pg 21 | CAPA World Aviation Yearbook 2014 In the Philippines, domestic market rationality returns, but potential overcapacity looms in international markets. Conditions in the domestic market are relatively more favourable, thanks to consolidation. Philippines AirAsia and Zest Air merged in early 2013. Both carriers integrated their operations in 2H2013 and now both operate under the AirAsia brand. The two carriers began 2014 with a combined fleet of 17 A320s but the group has decided not to pursue any feet growth in the Philippines this year, keeping the fleet stable at about 17 aircraft. As with Indonesia, AirAsia plans to reduce domestic capacity in the Philippines while growing its international operation. Market leader Cebu Pacific announced in Jan-2014 the acquisition of Tigerair Philippines, which will leave two LCC players (AirAsia and Cebu Pacific) compared with five (AirAsia, AirPhil Express, Cebu Pacific Tigerair, Zest) at the beginning of 2013. AirPhil adopted the full service regional model after it was rebranded PAL Express in early 2013. The transition resulted in the PAL group having one rather than two brands on domestic trunk routes, resulting in a significant cut in domestic capacity for the PAL group and flat growth for the overall Philippine domestic market in 2013. The additional consolidation with AirAsia/Zest and Cebu Pacific/Tigerair results in an improved outlook for 2014, ending a period of irrational competition and overcapacity in the Philippine domestic market. Cebu Pacific plans to expand its fleet in 2014 by only four aircraft – one A320 and three A330s – for a total of 52. But the carrier aims to move four of its A320s over to new subsidiary Tigerair Philippines, which had operated five A320 family aircraft that are in the process of being returned to Tigerair Philippines. With the Tigerair Philippines fleet leaving the Philippines, the overall LCC fleet in the Philippines will shrink slightly and end 2014 at just under 70 aircraft. Cebu Pacific, which grew domestic ASKs by 8% in 2013, plans to increase domestic ASKs by 9% in 2014, excluding Tigerair Philippines. While domestic market conditions have improved, overcapacity has now surfaced in the Philippines international market. The situation in the Philippine-Middle East market looks particularly ugly for 2014. Cebu Pacific launched services to Dubai in Oct-2013 and its new longhaul unit is planning to add four to five new destinations in the Middle East in 2014, as well as one in Australia, as it expands its A330-300 fleet from two to five aircraft. PAL and PAL Express, meanwhile, launched services to five destinations in the Middle East in 2H2013 and plan to add at least a couple more in 2014. Overcapacity is also possible in the Philippines-Japan market, as several Philippine carriers rush to add capacity following a new air services agreement between the two countries. Competition is also intensifying in the regional international market within Southeast Asia – a common trend driven by rapid and at times overambitious expansion of budget carriers, as well as growth by full service regional subsidiaries. Southeast Asia’s five smaller markets Myanmar is another frontier market with tremendous potential. But the domestic market is over-served and too fragmented. Pg 22 | CAPA World Aviation Yearbook 2014 Vietnam, Myanmar, Cambodia, Laos and Brunei, Southeast Asia’s smaller markets, have similar challenges. All five markets face potential overcapacity in 2014. In Vietnam, competition from LCC VietJet Air is putting pressure on Vietnam Airlines and the flag carrier’s budget subsidiary Jetstar Pacific. VietJet Air plans to double its fleet in 2014 from 10 to 20 A320s. There are huge opportunities for growth in Vietnam but overcapacity is a risk for the domestic market and on some short-haul international routes. Myanmar is another frontier market with tremendous potential. But the domestic market is over-served and too fragmented, with seven carriers and a few more planning to launch in 2014. Foreign carriers dominate Myanmar’s international market, which has doubled in size since Aung San Suu Kyi’s National League for Democracy won landmark elections in early 2012. But Myanmar now faces overcapacity and below average load factors as airlines have rushed too fast in the wake of the market opening up. Cambodia and Laos are smaller markets with growing demand but have similar challenges due to rapid growth by local carriers and several new services from foreign carriers. Brunei, Southeast Asia’s smallest market, is more stable and Royal Brunei could be the only flag carrier which experiences an improvement in profitability in 2014 as it transitions its entire long-haul operation to 787s by the end of the year. But Royal Brunei is not about to become profitable anytime soon. A majority of Southeast Asia’s main flag carriers and LCC groups were profitable in 2013 but will likely see profits fall in 2014 as stiff competition puts pressure on yields. The overall fundamentals of the Southeast Asian market are excellent as the region’s GDP and middle class continue to grow at healthy rates. There can be no doubt that the upside for economic and air traffic are extreme. But coordinating capacity expansion with such high rates of change is extraordinarily difficult. The tendency to add excessive levels of capacity in individual markets is further encouraged by strategic goals, where emerging LCC groups are vying for pan-Asian pre-eminence, while also making sure that they – and the full service airlines – will be able to secure slots for future expansion at limited-space airports. In many markets, the expansion has predictably been too fast, leading often to irrational competition. Even with the fleet and capacity adjustments implemented in 1H2014, some consolidation is possible in 2H2014, particularly among the smaller and weaker carriers. But the predominant trend will be aggressive competition between all types of carriers. And potentially a lot of red ink as the battle for dominance continues. Southeast Asia Selected Airlines LION AIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 80 1. Lion Air 60 40 20 IN STORAGE 0 60 Airbus A320200NEO 0 0 109 Airbus A321-200NEO 0 0 65 ATR 72-212A(72600) 0 0 25 Boeing 737-300 0 2 0 Boeing 737-400 0 8 0 Boeing 737-800 26 0 17 0 0 201 68 0 79 Boeing 747-400 2 0 0 Boeing 787-8 0 0 5 Boeing/McDonnell Douglas MD-82 0 1 0 Boeing/McDonnell Douglas MD-90-30 0 1 0 96 12 561 Total: 28 26 27 20 20 24 25 20 20 23 20 21 20 22 20 20 19 20 17 18 20 20 15 16 20 20 14 20 20 787 *For group, not individual carrier. Excludes new aircraft that are coming from leasing companies. 2500 No. of Weekly Frequencies 0 Boeing 737-900ER 737 3000 ON ORDER Airbus A320-200 Boeing 737-9 72 SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 SOURCE: CAPA FLEET DATABASE IN SERVICE A320 LION AIR STAGE LENGTHS LION AIR FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 0 20 Lion Air is an Indonesian hybrid airline based at Jakarta-Soekarno-Hatta International Airport. Commencing operations in 2000 and based in Jakarta, Lion Air is the largest privately-owned airline in Indonesia. The carrier operates a network of scheduled passenger services throughout South East Asia and the Middle East. 2000 1500 1000 500 0 -500 0 2 4 6 8 10 Flight Time (Hours) LION AIR TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 17,892 seats SIN - CGK CGK - KUL 8,946 seats 5,964 seats PEN - KNO CGK - JED 4,522 seats 2,982 seats SIN - SGN PEN - MES 2,646 seats KUL - BDO 2,646 seats 576 seats SZB - HDY 432 seats KNO - HDY 0k Pg 23 | CAPA World Aviation Yearbook 2014 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k 22.5k Southeast Asia Selected Airlines GARUDA INDONESIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 40 2. Garuda Indonesia 30 20 10 A330 72 737 18 20 17 20 16 20 15 A320 777 CRJ *Excludes new aircraft that are coming from leasing companies GARUDA INDONESIA STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 1750 1500 1250 No. of Weekly Frequencies Garuda Indonesia is the national airline of Indonesia, based at Jakarta’s Soekarno-Hatta International Airport. The carrier operates an extensive domestic and regional network of services throughout Asia, Australia and the Middle East. In Jun-2010, Garuda resumed services to Europe (initially Amsterdam via Dubai) after an extended EU imposed ban. Garuda has undergone a thorough restructuring in what it labelled “The Quantum Leap”, which involved a dramatic redesign of the airline’s strategic direction, network, brand and fleet. The airline launched an IPO in 2011 which was substantially under-subscribed at the relatively aggressive pricing sought. In Apr-2012, the government announced that talks were under way for a consortium of local investors to absorb the overhang, still held by the underwriters. Garuda Indonesia stated that in line with the airline’s efforts to develop and strengthen its network, especially in the domestic market, it is launching a new sub-brand “Explore” along with the introduction of the ATR 72-600 aircraft into the fleet. In addition to the sub-brand “Explore”, Garuda Indonesia is also introducing the brand “Explore Jet” to operate its Bombardier CRJ1000 NextGen fleet, serving the airline’s network in both eastern and western Indonesia. Garuda Indonesia is the 20th member of the SkyTeam alliance. 20 20 14 0 1000 750 500 250 0 -250 0 2 4 6 8 10 12 Flight Time (Hours) GARUDA INDONESIA FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER GARUDA INDONESIA TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Airbus A320-200 0 0 15 Airbus A320200NEO 0 0 10 CGK - SIN Airbus A330-200 11 0 0 CGK - JED Airbus A330-300 6 0 0 CGK - HKG Airbus A330-300E 1 0 17 CGK - BKK ATR 72-212A(72600) 3 0 22 Boeing 737-300 3 0 0 Boeing 737-500 3 2 0 Boeing 737-800 67 0 10 Boeing 747-400 2 0 0 Boeing 777-300ER 4 0 6 Bombardier CL-6002E25(CRJ1000NG) 13 0 5 Total: 113 2 85 Pg 24 | CAPA World Aviation Yearbook 2014 21,922 seats 7,536 seats 6,799 seats 5,460 seats CGK - PVG 4,396 seats CGK - NRT 4,396 seats DPS - SIN 4,368 seats CGK - KUL 4,368 seats 4,032 seats CGK - PEK DPS - MEL 4,032 seats 0k 5k 10k 15k 20k 25k 30k Southeast Asia Selected Airlines AIRASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 50 3. AirAsia 40 30 20 10 28 26 27 20 20 24 23 22 25 20 20 20 20 21 20 20 20 19 20 17 16 15 18 20 20 20 20 20 20 14 0 A320 AirAsia is a low cost carrier based at Kuala Lumpur International Airport, Malaysia. The carrier, which was formed out of Tune Air in 2002, is led by CEO Tony Fernandes and pioneered the cross-border joint venture in Asia, establishing Thai and Indonesian units with bases in Bangkok and Jakarta. The airline has also partnered with other airlines and investors to create ventures in Japan and the Philippines. AirAsia’s extensive domestic and regional network includes services within Malaysia and to China, Southeast Asia and the Subcontinent. Airbus A320-200 Airbus A320200NEO Total: SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 1500 1250 No. of Weekly Frequencies SOURCE: CAPA FLEET DATABASE IN SERVICE AIRASIA STAGE LENGTHS 1000 AIRASIA FLEET SUMMARY AS AT MAY-2014 AIRCRAFT *For group, not individual carrier. Excludes new aircraft that are coming from leasing companies. IN STORAGE ON ORDER 76 0 67 0 0 264 76 0 331 750 500 250 0 -250 0 1 2 3 4 5 Flight Time (Hours) AIRASIA TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 25,920 seats KUL - SIN KUL - DMK 17,640 seats 12,600 seats KUL - SGN KUL - HKT 10,080 seats SIN - PEN 10,080 seats KUL - HKG 10,080 seats KUL - TRZ 7,560 seats KUL - DPS 7,560 seats KUL - KNO 7,560 seats CAN - KUL 7,560 seats 0k Pg 25 | CAPA World Aviation Yearbook 2014 5k 10k 15k 20k 25k 30k 35k Southeast Asia Selected Airlines SINGAPORE AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 25 4. Singapore Airlines 20 15 10 5 A330 A350 A380 777 21 20 20 20 19 20 18 20 17 20 16 20 15 20 20 14 0 787 *Excludes new aircraft that are coming from leasing companies Based at Singapore Changi Airport, Singapore Airlines is the national carrier of Singapore. Using a fleet of wide-body Boeing and Airbus aircraft, including the A380 of which Singapore Airlines was the launch customer, Singapore Airlines operates an extensive network across Asia, North America, Australasia, Europe, Africa and the Middle East. Singapore Airlines joined the Star Alliance on 01-Apr-2000. SINGAPORE AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 300 250 No. of Weekly Frequencies 200 SINGAPORE AIRLINES FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT 150 IN SERVICE IN STORAGE ON ORDER Airbus A330-300E 27 0 10 Airbus A340-500 0 3 0 Airbus A350900XWB 0 0 70 Airbus A380-800 19 0 5 Boeing 777-200ER 29 2 0 7 0 0 22 0 5 0 0 30 104 5 120 Boeing 777-300 Boeing 777-300ER Boeing 787-10 Total: 100 50 0 -50 0 5 10 15 Flight Time (Hours) SINGAPORE AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 39,552 seats SIN - CGK SIN - HKG 32,816 seats SIN - PVG 21,578 seats SIN - SYD 21,224 seats 20,328 seats SIN - BKK SIN - LHR 19,244 seats 18,760 seats SIN - MEL SIN - DPS 16,464 seats SIN - MNL 16,338 seats SIN - PER 16,212 seats 0k Pg 26 | CAPA World Aviation Yearbook 2014 5k 10k 15k 20k 25k 30k 35k 40k 45k 50k Southeast Asia Selected Airlines THAI AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 10 5. Thai Airways 8 6 4 2 A350 777 18 20 17 20 16 20 15 20 Based at Bangkok’s Suvarnabhumi Airport with secondary hubs in Phuket and Chiang Mai, Thai Airways is the national airline of Thailand and majority-owned by the Thai Ministry of Finance. Using a fleet of narrow and wide-body Airbus and Boeing aircraft, Thai Airways operates an extensive network of domestic and regional services throughout Thailand and Asia and international services to Europe, North America, Australia and New Zealand. Thai Airways is a founding member of Star Alliance. 20 14 0 787 *Excludes new aircraft that are coming from leasing companies THAI AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 600 THAI AIRWAYS FLEET SUMMARY AS AT MAY-2014 500 SOURCE: CAPA FLEET DATABASE Airbus A300B4600R IN SERVICE IN STORAGE 5 5 ON ORDER 0 No. of Weekly Frequencies AIRCRAFT 400 300 Airbus A330-300 8 3 0 Airbus A330-300E 15 0 0 Airbus A330-300X 1 0 0 Airbus A340-500 0 3 0 Airbus A340-600 6 0 0 Airbus A350900XWB 0 0 10 Airbus A380-800 6 0 0 ATR 72-201 0 2 0 Boeing 737-400 5 0 0 Boeing 747-400 12 4 0 Boeing 747400(BCF) 2 0 0 Boeing 777-200 8 0 0 BKK - SIN Boeing 777-200ER 6 0 0 BKK - ICN 12,334 seats Boeing 777-300 6 0 0 BKK - KIX 12,194 seats Boeing 777-300ER 9 0 5 BKK - RGN 12,096 seats Boeing 787-8 0 0 6 BKK - KUL Boeing 787-9 0 0 2 BKK - HND 89 17 23 BKK - FRA Total: 200 100 0 -100 0 2 4 6 8 10 12 14 Flight Time (Hours) THAI AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 23,590 seats BKK - HKG BKK - NRT 15,554 seats 14,798 seats 10,872 seats 10,528 seats 9,768 seats BKK - PVG 9,324 seats 0k Pg 27 | CAPA World Aviation Yearbook 2014 5k 10k 15k 20k 25k 30k SOUTH ASIA analysis reports: Source: CAPA Centre for Aviation Air India finally to enter the Star Alliance. Lufthansa now looks to escalate Gulf carrier rhetoric CAPA India Aviation Outlook FY2015: Losses accumulate but AirAsia India, Tata-SIA undeterred India’s airlines lost USD1.65 billion in FY2013. CAPA India Aviation Outlook 2013/14: Part 4 SriLankan Airlines raises global profile and expands oneworld presence in South Asia Pg 28 | CAPA World Aviation Yearbook 2014 South Asia A TOP 10 AIRLINES WITHIN SOUTH ASIA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 IndiGo 587,700 2 SpiceJet 345,060 3 Air India 338,832 4 Jet Airways 306,244 5 GoAir 167,220 6 JetLite 83,606 7 Pakistan International Airlines 50,058 8 SriLankan Airlines 45,880 9 Maldivian 23,368 10 Buddha Air 22,538 CAPACITY BY CARRIER TO/FROM/WITHIN SOUTH ASIA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 IndiGo 616,500 Air India 454,452 Jet Airways 428,180 SpiceJet 357,888 Emirates 176,508 GoAir 175,860 Pakistan International Airlines 115,562 SriLankan Airlines 102,081 Qatar Airways 85,914 Other 1,166,129 0k 250k 500k 750k 1,000k 1,250k 1,500k SOUTH ASIA TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Delhi Indira Gandhi International Airport 746,672 2 Mumbai Airport 653,098 3 Bangalore Bengaluru (Kempegowda) International Airport 296,368 4 Chennai Airport 261,696 5 Kolkata Netaji Subhas Chandra Airport 260,857 6 Hyderabad Rajiv Gandhi International Airport 212,984 7 Ahmedabad Airport 100,064 8 Pune Lohegaon Airport 90,182 9 Goa International Airport 85,998 10 Kochi Airport 80,823 Pg 29 | CAPA World Aviation Yearbook 2014 S THE INDIAN NATIONAL ELECTION completes a major shift to a new BJP government, with market-changing airline partnerships in train and major new entrants arriving, the year ahead promises to be no less eventful than any over the past decade. The new government will have to address deep structural shortcomings in the sector. Airlines continue to bleed while the competitive environment intensifies with the appearance of new entrants. Creative strategies are going to be needed; equally there are massive strides to be made in improving infrastructure to accommodate the inevitable high traffic growth levels. India’s airlines posted combined losses of around USD1.7 billion in the year ended 31-Mar-2014. Air India again incurred the largest loss at close to half of the total. Jet Airways and SpiceJet both reported record full-year losses. GoAir was earlier expected to end the year with a breakeven result or a modest profit but is also likely to have gone into the red. IndiGo will be the only carrier to report full-year profitability, but this too will be significantly lower than CAPA’s earlier estimates. Nevertheless, as the only consistently profitable airline in India, the time may be approaching to leverage this achievement and an IPO is possible in FY2015. Start-up carriers will place downward pressure on yields and risks will peak for some carriers in FY2015. India’s incumbent carriers can expect no respite on the competitive front in FY2015, with several new carriers expected to launch operations. AirAsia India’s entry into the market on 12Jun-2014 sparked a round of heavy discounting with fares on some routes falling to below USD10 one-way including taxes and surcharges. Apart from AirAsia India, Tata-SIA is expected to commence services in 3Q2014, and a further two to three start-ups are reportedly awaiting licences to commence national and regional operations. The introduction of additional capacity when load factors are already soft, and the consequent downward pressure on yields, is likely to hurt all carriers. Continued red ink may start to test the holding power of a couple of airlines. Downsizing by SpiceJet and freezing by Jet and Air India on domestic routes will help in moderating capacity growth. Fortunately the incumbent carriers are planning only modest capacity increases this year. Jet Airways and Air India are likely to freeze their domestic operations at close to current levels for the near term. GoAir will take one more aircraft in mid-2014 and then does not have any aircraft scheduled for delivery until the first of its A320neos start to arrive in 2016, although it has been evaluating leasing some aircraft to support growth in the interim. And SpiceJet is conducting a detailed review of its operations which has already resulted in a short-term reduction of its domestic narrowbody operations. Question marks continue over its long-term plans in the regional segment, which has to date faced significant operational and reliability issues. Domestic growth will be driven by IndiGo which is expected to deploy six additional aircraft, and AirAsia India, Air Costa and Tata-SIA which combined could induct 18-20 aircraft. This is dependent upon the rate at which AirAsia decides to expand which is currently uncertain. Continued red ink may start to test the holding power of a couple of airlines. SOUTH ASIA FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 800 700 584 600 500 500 400 300 200 63 100 0 In service In storage On order SOUTH ASIA BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 8.7% 2.1% 14.6% 58.9% 15.8% Narrowbody Jet Regional Jet Widebody Jet Turboprop Small Commercial Turboprop SOUTH ASIA CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 3.1% 8.4% 17.5% 71.0% Unaligned Star Alliance oneworld Pg 30 | CAPA World Aviation Yearbook 2014 SkyTeam In FY2015, the high-cost operating environment and the continued weakness in the economy would suggest that domestic traffic growth will be moderate, in the range of 6-8%, albeit slightly higher than the 5.2% achieved last year. However, there is considerable uncertainty about the potential impact of the new market entrants. If fares wars are sustained, traffic growth could be stimulated above this underlying rate; although this would be at the expense of airline balance sheets. Domestic traffic performance could therefore be volatile from month to month. But there may be signs of a more sustained recovery from 3Q2015 onwards as economic confidence has increased following the election of the new government in May-2014. International traffic on the other hand has been a strong and steady performer over the last decade, even during periods where domestic traffic has dropped into negative territory. In FY2015 growth of around 10% is expected and may approach 15% if the 5 year/20 aircraft rule is lifted and as a number of bilaterals are relaxed. Indian airlines are expected to post combined losses of USD1.3-1.4 bn in FY2015. Losses could track further upwards as some airlines have substantial major maintenance checks scheduled this year, the cost of which will be higher than the reserves currently held by lessors. These profitability projections are subject to significant external factors. We have assumed oil at an average of USD110/barrel for the year (and this may be impacted by instability in the Middle East) and an exchange rate in the range of INR58-60 to the US Dollar. It also assumes that pricing discipline will by and large be maintained. Extended periods of aggressive discounting could lead to further deterioration in financial performance. Airline cash balances are in some cases at dangerous levels. As at the end of FY2014 CAPA estimates that Indian carriers combined had INR32.5 billion (USD585 million) of cash on hand. With annual industry turnover in excess of USD10 billion this represents the equivalent of less than three weeks revenue. And since almost 80% of the cash balances were accounted for by just two carriers – IndiGo and Jet Airways – the situation at some airlines is even more precarious. One carrier’s cash balances are understood to have at times dropped to the equivalent of less than one day’s revenue with operations being sustained by borrowing from travel agents against future ticket revenue. Indian carriers, other than IndiGo, are likely to require capital infusions of USD1.6 billion in FY2015 just to stabilise their operations, let alone for investment in aircraft. Air India accounts for more than half of this requirement. Inability to access sufficient funds when required may impact the operational integrity and customer proposition of some carriers. Foreign investors may take a wait-and-see approach for now, with no new transactions likely until at least 3QFY2015. Further foreign airline investment transactions involving existing Indian carriers consequently appear unlikely in the short term given recent losses and in light of the increasing intensity of competition in the market. SpiceJet has reportedly signed a terms sheet with a UAE-based investor, however the ongoing challenges in the market may make it difficult to close this deal. GoAir, which has also been in the market for some time, is similarly expected to face challenges in securing an investor in the near term. SOUTH ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 60 40 20 A320 A330 A350 777 787 737 20 25 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 YUN7 SOUTH ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 20.0% 31.2% 3.1% 4.3% 4.3% 5.7% 5.8% A320 737 25.7% DHC6 777 72 DHC8 A330 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTH ASIA: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 80 60 57.0% 47.3% 62.3% 58.7% 50.0% 50.0% 42.8% 38.6% 40 22.7% 20 5.8% 0 0.1% 0.9% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 31 | CAPA World Aviation Yearbook 2014 JanMay 2014 IndiGo remains the leading bright spot in Indian aviation, with a potential IPO in 3Q2015 likely to attract significant interest. IndiGo has successfully established itself as a sustainably profitable airline, albeit its result in FY2014 was below earlier expectations. The time may be approaching to leverage this achievement and an IPO is likely in FY2015, possibly in the third quarter. If it proceeds it is expected to be the largest ever aviation IPO in India. CAPA estimates that IndiGo could raise USD350-400 million from the flotation. The offer is likely to preceded by a strong statement about its future growth prospects with IndiGo expected to place another large order for 200-250 aircraft at Farnborough in Jul-2014 to meets its equipment requirements post-2025. The carrier has a current fleet of 79 aircraft with an order book of 186. For some carriers, the financing of aircraft already on order may be challenging. Given the ongoing difficulties in the operating environment and with the failed Kingfisher experience still fresh, some banks and lessors remain concerned about the level of risk in the Indian market, especially as the provisions of the Cape Town Convention are yet to be formally incorporated into the Indian Civil Aviation Regulations. Air India’s entry into Star Alliance is a positive development however the new government must take a serious look at the national carrier’s future. Air India has made significant improvements across operational, commercial and financial metrics over the last two years and this is reflected in the decision by Star Alliance to formally induct the carrier as a member on 11-Jul-2014. However funding and ownership issues need to be addressed. Realistic capital requirements are likely to exceed earlier budgetary commitments. The Government’s fiscal deficit means it is already facing challenges in honouring the funding that it has committed to the national carrier. Under its proposed turnaround plan, Air India is expected to require a further USD3.9 billion of funding before returning to profitability. With the internal and external operating environments having become even more challenging since the turnaround plan was developed, these estimates are likely to be conservative. As a result, a practical and dispassionate approach requires that all options be on the table, including privatisation. The new government is expected to outline a clearer long term bilateral policy. In FY2014, Jet Airways, Etihad and Emirates were the primary beneficiaries of bilateral largesse in terms of new access rights. Bilateral agreements with Singapore and Dubai have also been renegotiated to permit carriers to operate A380 equipment, previously barred from Indian skies. The India-Germany bilateral is expected to be similarly updated. Additional Indian entitlements granted to Gulf carriers are likely to be utilised to feed their rapidly expanding US networks. And with the US pre-clearance facility in Abu Dhabi expected to be joined by a similar one in Dubai next year, and probably Doha thereafter, the Gulf carriers will offer a very competitive and convenient product on IndiaUS routes. This is expected to hurt Air India as well as those European airlines which are heavily dependent on US traffic to support their India services. India’s airport privatisation programme had stalled in the lead up to the elections, and the sector is now awaiting an indication from the government on how it plans to proceed. The Airports Authority of India planned to award PPP INDIAN DOMESTIC & INTERNATIONAL PASSENGERS FY2005 TO FY2014 (ESTIMATED) SOURCE: CAPA – CENTRE FOR AVIATION, AIRPORTS AUTHORITY OF INDIA ANNUAL EQUITY INFUSIONS IN AIR INDIA APPROVED BY GOVERNMENT TO FY21 SOURCE: CAPA – CENTRE FOR AVIATION D US CAPITAL INFUSIONS REQUIRED BY INDIAN CARRIERS 1.6lion OVER THE NEXT 12-18 MONTHS bil Pg 32 | CAPA World Aviation Yearbook 2014 concessions for 15 of its most profitable airports, starting with Chennai, Kolkata, Ahmedabad, Guwahati, Jaipur and Lucknow. However the tender process for these first six airports has been stuck since Oct-2013 due to a lack of preparedness with respect to the concession agreement and the approved tariff structure. The most significant greenfield airport project in India is that for the second airport in Mumbai. Request for Qualification documents for the repeatedly-delayed Navi Mumbai Airport project were finally issued on 5-Feb-2014, although a Request for Proposal document is not expected to be sent to short-listed parties until at least Sep-2014. Meanwhile the project continues to face a number of challenges. These relate to land acquisition, the need for complex preparatory earthworks at the proposed site and the absence of convenient surface connectivity between Greater Mumbai (home to the majority of the residents in the Mumbai Metropolitan Region) and the airport. Meanwhile cost estimates continue to be revised upwards as the complexities of the project become more apparent. The new government is however expected to provide a strong push to encourage the development of 50-100 lowcost airports designed to increase regional connectivity to Tier III towns. This is expected to be supported by a new regional airline policy consisting of a package of incentives and concessions to address the viability challenges that airlines seeking to address this segment of the market have faced. India’s regulatory uncertainty remains both a key concern and disincentive to serious investors. The unpredictability and lack of transparency in India’s regulatory framework remains the greatest strategic challenge in the market. For example, on the issue of new airline licences, there are no defined criteria for whether, how and when applications will be assessed; the process seems to differ depending upon the applicant. The arbitrary nature of the timing and process of regulatory approvals makes planning virtually impossible for start-up airlines. And the economic regulation of airports is still subject to some uncertainty. Indian aviation will require billions of dollars of investment over the next decade. But serious investors will be deterred until India is able to develop a more structured and predictable framework. India’s newly-elected government has come to power with a burden of expectation that it will revive the economy. The administration has the opportunity to take some quick and decisive steps to assist the aviation industry. Foremost amongst these is a reduction in sales tax on fuel. This will inspire confidence and signal intent while solutions to deeperrooted problems are developed. If the government is prepared to finally take aviation seriously, it has the ability to take decisions that will transform the performance the sector to the benefit of the entire Indian economy. South Asia Selected Airlines INDIGO PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 30 25 1. IndiGo 20 15 10 5 25 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 Commencing operations in 2006, IndiGo is a low-cost carrier based in Gurgaon, India. The carrier, which is owned by Rahul Bhatia’s InterGlobe Enterprises, operates an extensive domestic network and international services to Bangkok, Dubai, Kathmandu, Muscat and Singapore. 20 14 0 A320 *Excludes new aircraft that are coming from leasing companies INDIGO STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 INDIGO FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT Airbus A320-200 1500 IN SERVICE IN STORAGE ON ORDER 0 16 Airbus A320200NEO 0 0 150 Airbus A321-200 0 0 20 78 0 186 Total: 1250 No. of Weekly Frequencies 78 1000 750 500 250 0 -250 0 1 2 3 4 5 Flight Time (Hours) INDIGO TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 5,040 seats DEL - BKK DEL - KTM 2,520 seats BKK - CCU 2,520 seats BOM - MCT 2,520 seats MAA - SIN 2,520 seats DXB - BOM 2,520 seats DXB - DEL 2,520 seats DXB - TRV 2,520 seats DXB - MAA 2,520 seats DXB - COK 1,800 seats 0k Pg 33 | CAPA World Aviation Yearbook 2014 1k 2k 3k 4k 5k 6k 7k South Asia Selected Airlines SPICEJET PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 12 10 2. SpiceJet 8 6 4 2 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 SpiceJet is an Indian low cost carrier based at Indira Gandhi International Airport, New Delhi. SpiceJet one of India’s largest airlines, serving domestic destinations across India. The airline commenced international operations in Oct-2010 and now provide services to Afghanistan, Maldives, Nepal, Oman, Saudi Arabia, Sri Lanka and the UAE. 737 *Excludes new aircraft that are coming from leasing companies SPICEJET STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 SPICEJET FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE 1000 AIRCRAFT Boeing 737-8 IN SERVICE IN STORAGE ON ORDER 0 42 1 12 Boeing 737-900ER 6 0 0 Bombardier DHC8Q-402(NG) 15 0 0 Total: 55 1 54 800 No. of Weekly Frequencies 0 34 Boeing 737-800 600 400 200 0 -200 0 1 2 3 4 5 Flight Time (Hours) SPICEJET TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4,224 seats DEL - KTM DXB - DEL 2,688 seats AMD - DXB 2,688 seats DXB - COK 2,304 seats 1,536 seats PNQ - SHJ DEL - KBL 1,152 seats AMD - MCT 1,152 seats CMB - IXM 1,092 seats CMB - MAA 1,092 seats MLE - COK 1,092 seats 0k Pg 34 | CAPA World Aviation Yearbook 2014 1k 2k 3k 4k 5k 6k South Asia Selected Airlines AIR INDIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 5 3. Air India 4 3 2 1 777 18 20 17 20 16 20 15 20 14 0 20 Air India is the state-owned national carrier of India with its main hubs at Delhi and Mumbai airports. It established an international LCC subsidiary, Air India Express, in 2005 and merged with Indian Airlines in Aug-2007. Its network covers domestic and regional destinations, as well as international services to Asia, the Middle East, Europe, and North America. 787 *Excludes new aircraft that are coming from leasing companies AIR INDIA STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 AIR INDIA FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE 1000 AIRCRAFT IN SERVICE IN STORAGE ON ORDER 21 1 0 Airbus A320-200 17 7 0 Airbus A321-200 20 0 0 Airbus A330-200 2 0 0 Boeing 747-400 5 0 0 Boeing 777-200LR 2 2 0 Boeing 777-300ER 12 0 3 Boeing 787-8 13 0 14 Total: 92 10 17 800 No. of Weekly Frequencies Airbus A319-100 600 400 200 0 -200 0 5 10 15 Flight Time (Hours) AIR INDIA TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 8,372 seats DEL - LHR DEL - ORD 4,788 seats BOM - EWR 4,788 seats DEL - JFK 4,788 seats RUH - BOM 4,788 seats DEL - KTM 4,438 seats 4,230 seats CCJ - JED DEL - SIN 3,584 seats DEL - FRA 3,584 seats DEL - HKG 3,584 seats 0k Pg 35 | CAPA World Aviation Yearbook 2014 2k 4k 6k 8k 10k 12k South Asia Selected Airlines JET AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 12 10 4. Jet Airways 8 6 4 2 AIRCRAFT IN SERVICE 20 17 20 20 20 20 737 787 SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 IN STORAGE ON ORDER 1500 2 0 5 Airbus A330-300 4 0 0 ATR 72-212A(72500) 13 0 0 ATR 72-212A(72600) 1 0 0 Boeing 737 MAX 0 0 50 Boeing 737-700 5 0 0 Boeing 737-800 54 0 6 Boeing 737-900 2 0 0 Boeing 737-900ER 2 0 0 Boeing 777-300ER 5 0 0 Boeing 787-9 0 0 10 88 0 71 1250 No. of Weekly Frequencies Airbus A330-200 Total: 16 JET AIRWAYS STAGE LENGTHS SOURCE: CAPA FLEET DATABASE 15 JET AIRWAYS FLEET SUMMARY AS AT MAY-2014 14 *Excludes new aircraft that are coming from leasing companies A330 18 0 Based in Mumbai, Jet Airways is one of the largest airlines in India with hubs at Mumbai, Delhi, Chennai and Brussels airports. The carrier operates an extensive domestic and regional network within the subcontinent as well as services to Europe, the Middle East, Southeast Asia and North America. 1000 750 500 250 0 -250 0 2 4 6 8 10 12 Flight Time (Hours) JET AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 8,736 seats BOM - LHR BOM - DXB 7,300 seats BOM - BKK 4,368 seats DEL - LHR 4,368 seats BOM - KTM 4,128 seats BOM - KWI 4,088 seats BOM - AUH 4,088 seats SIN - BOM 4,088 seats SIN - MAA 4,088 seats SIN - DEL 4,088 seats 0k Pg 36 | CAPA World Aviation Yearbook 2014 2k 4k 6k 8k 10k 12k SOUTH PACIFIC analysis reports: Source: CAPA Centre for Aviation As many as 10 Southeast Asian LCCs are poised to enter Australia, further pressuring incumbents The Qantas-Virgin Australia capacity/fare war is not over: WA decreases offset east coast growth Qantas responds to deterioration: cuts 5,000 jobs & 50 aircraft – but changes are overdue Qantas’ pressing need to solve the Asian network dilemma, now its European restructure is in place Qantas-Jetstar and SIA-Scoot dual-brand strategies challenged by SE Asia-Australia over-capacity Virgin Australia: “an important crossroad in our industry’s history” and 1H2014 loss as expected Air New Zealand 2014 outlook: Long-haul expansion resumes as 787-9s and 777-300ERs are delivered Air New Zealand enters its 75th year after posting largest profits and establishing growth platform Pg 37 | CAPA World Aviation Yearbook 2014 South Pacific TOP 10 AIRLINES WITHIN SOUTH PACIFIC SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Qantas Airways 674,590 2 Virgin Australia 489,263 3 Jetstar Airways 325,431 4 Air New Zealand 303,716 5 Tigerair Australia 90,360 6 Regional Express 44,574 7 Air Niugini 44,540 8 Air Tahiti 25,570 9 Fiji Airways 22,292 10 Airlines PNG 14,940 CAPACITY BY CARRIER TO/FROM/WITHIN SOUTH PACIFIC SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Qantas Airways 763,564 Virgin Australia 513,468 Jetstar Airways 367,404 Air New Zealand 304,055 Emirates 90,734 Tigerair Australia 84,960 Singapore Airlines 84,814 Air Niugini 49,428 United Airlines 49,104 Other 589,739 0k 200k 400k 600k 800k SOUTH PACIFIC TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Sydney Kingsford Smith Airport 736,254 2 Melbourne Tullamarine Airport 623,636 3 Brisbane Airport 514,050 4 Auckland International Airport 309,116 5 Perth Airport 244,619 6 Adelaide Airport 174,904 7 Christchurch International Airport 136,262 8 Wellington International Airport 134,480 9 Gold Coast Airport 116,390 10 Cairns Airport 101,738 Pg 38 | CAPA World Aviation Yearbook 2014 1,000k AUSTRALIA-NEW ZEALAND AVIATION effectively embraces a single market. But the contrast between performance of their respective airlines over the past year could scarcely be starker. Qantas and Virgin Australia are headed for their worst annual losses ever in the FY2014; yet Air New Zealand is on track to make its best profit yet. A common theme is, however, towards stronger and closer international partnerships, often involving equity. The coming year promises more of the same, with the turbulence that has characterised the competitive environment continuing to provide challenges to each of them. Air New Zealand’s reward for finding a better balance was a record first half (six months to 31-Dec-2013) result of NZD180 million (USD151 million) before tax, representing a 7.7% margin, exiting from loss-making routes, higher trans-Tasman load factors than competitors, and a more streamlined fleet. Air NZ increased profitability on flat revenue despite decreased capacity. Unlike the much disputed Australian domestic market, Air New Zealand thoroughly dominates its home territory, where it generates the great bulk of its revenue. It also holds a net advantage on the very large but highly competitive market between Australia-New Zealand, where its lower cost base and higher average load factors position it well. At the same time, the carrier also enjoys a 25% equity share in Virgin Australia, securing an indirect stake in the much larger business market across the Tasman Sea. Air New Zealand is projecting a full-year profit, to 30-Jun-2014, of over NZD300 (USD254) million. Alliances are proving critical to Air NZ, unsurprising for an end-of-line carrier, and have largely been enabled by the New Zealand government’s willingness to approve Air NZ’s alliance applications. Its recently announced alliance with Singapore Airlines supports its economics to Singapore as well as onward connections to Europe and augurs well for an emerging Asian strategy too. These partnerships and ultimately long-haul growth come after a period of not growing the network as Air NZ optimised its long-haul network following losses associated with the global financial crisis. Air NZ is planning an average 5% capacity growth per annum over the next five years, including an “aggressive” 8% in the near future. This hinges heavily on New Zealand as a tourism destination, and a 6% visitor increase in 2013 is supportive of that objective. The listed airline remains 73% government owned, after renationalisation in 2001 designed to ensure the country’s tourism industry would be effectively served. This reflects both the relative commercial unattractiveness to other airlines of long-haul operations to New Zealand, but also attractive corollary that the airline is often able to fly “under the radar” where other airlines are unable to mount sustainable operations into the relatively small and price sensitive market. Although its domestic market looks like remaining largely intact, there are some potential threats internationally on its Continued red ink may start to test the holding power of a couple of airlines. SOUTH PACIFIC FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 1200 1000 878 800 600 400 221 200 41 0 In service In storage On order SOUTH PACIFIC FLEET BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 10.1% 13.0% 33.3% 13.4% 30.2% Narrowbody Jet Regional Jet Turboprop Widebody Jet Small Commercial Turboprop As many as 10 new Asian airlines will be entering the market or adding extra capacity over the next two years. SOUTH PACIFIC CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 3.7% 17.2% 48.8% 30.3% Unaligned oneworld Star Alliance Pg 39 | CAPA World Aviation Yearbook 2014 main non-stop route, to the US: United has announced a new non-stop 787 service between Los Angeles-Melbourne, a market which Air NZ has exploited successfully via its home Auckland base; and rumours continue that Qantas’ oneworld partner American will commence New Zealand operations. There has been nothing “under the radar” about the Australian market in recent times. A 46% increase in foreign airline capacity over the past four years bears testimony to that. It has been a very attractive market, with high levels of outbound travel, something that has continued to push Qantas’ international position into substantial losses. The international market is not going to get any less difficult; CAPA has identified as many as 10 new Asian airlines that will be entering the market or adding extra capacity over the next two years. These are mostly short-haul operators, but they also include long-haul low-cost airlines such as AirAsia X and its Indonesian identity, Indonesia AirAsia X. Although they are unlikely to attack long-haul markets like Europe, they will make one-stop access to a burgeoning Asian market a highly attractive option to any network that Qantas can develop. But it was a surge of both domestic and international capacity that largely contributed to Qantas’ underlying PBT loss of AUD252 (USD226) million in the first half, traditionally the stronger period. With a political bunfight continuing over whether or not to end the outdated ownership and labour protection provisions of the 20 year old Qantas Sale Act, management announced 5000 full-time jobs were to be eliminated over the next three years and 50 aircraft orders and existing fleet to be cut or deferred. This is a larger restructure than previous momentous changes, reflecting a situation where negative conditions are not just heightened but, according to CEO Alan Joyce, the worst the company has seen in its history. SkyTeam The conditions have also galvanised Qantas to make overdue changes. After bringing needed efficiency to its front line employees, Qantas was left with a bloated back office. Overall, Qantas staff are paid considerably more than at Virgin Australia but are less productive. There are capacity adjustments and, for now at least, a single route cancellation (Singapore-Perth) to the international network; more is required, but while staff are being cut, there needs to be greater synchrony with airline operations if efficiencies are not to be further eroded. A380 orders will be deferred – again. Ironically they may well end up with partner Emirates. Likewise for Jetstar’s last three 787s that it will defer; the LCC subsidiary is focusing on short-haul flying, wise as more efficient long-haul LCC capacity ramps up. Jetstar remains intact – including growth at Jetstar Japan and continuing to work to launch Jetstar Hong Kong, but Singapore based Jetstar Asia will suspend growth for the time being. The highly profitable Qantas Loyalty programme also remains part of the group, overall smart moves that may not be welcome to unions (and some investors). Qantas will SOUTH PACIFIC PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 40 30 20 10 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21 20 22 20 23 20 24 20 25 20 26 20 27 20 28 20 29 20 30 20 31 20 32 20 33 0 72 DHC6 DHC8 A320 737 777 787 SOUTH PACIFIC MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 19.4% 34.3% 14.1% 4.6% 4.8% 737 DHC8 11.7% 5.0% A320 6.2% SAAB340 100 A330 72 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTH PACIFIC: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 50 40 37.4% 39.0% 39.4% 35.0% 30 28.1% 30.2% 31.1% 31.5% 22.6% 19.5%20.2% 20 14.9% 9.3% 10 3.8% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 40 | CAPA World Aviation Yearbook 2014 JanMay 2014 receive AUD112 million from an agreement with Brisbane airport to sell and lease back its terminal, something that is under consideration for Melbourne and Sydney too. In Apr-2013, Qantas’s massive step towards rationalising its international operations involved “virtualising” them through an extensive partnership with former enemy Emirates; this was a first step towards emulating the near-ideal virtual model that Virgin Australia has developed through its equity and operating partnerships with Air New Zealand, Etihad (20%) and Singapore Airlines (20%), as well as a metal neutral JV with Delta on American routes. Meanwhile, at home, Virgin Australia has become not just a virtual but a truly lethal competitor, eating away at the larger carrier’s market share, attracting an increasing share of corporate travellers and generally forcing a higher cost Qantas into a discount war that has sapped the previous profitability of the domestic market. With the purchase of 60% of Tigerair Australia (and a large part of the remainder owned by partner Singapore Airlines), Virgin can now also lay claim in the domestic market to a similar two-brand model to that of Qantas-Jetstar. The resurgent Tigerair will ensure that leisure-oriented capacity continues to increase significantly this year, while Virgin still has more to say in the wider market share battle conversation. The blame for Qantas’ woes are inevitably being laid at the current management’s door; but even if partially justified, the main problem is the same one that plagues most legacy airlines around the world, in this case compounded by the end-of-the-line phenomenon that makes longhaul international service less sustainable almost in direct proportion to the rate at which liberalisation is occurring. It can also be argued that previous managements should have taken bolder steps to cut unit costs. Whatever the cause, the simple fact is that Qantas must change radically if it is to survive as a viable full service airline. The remainder of 2014 looks like more of the same. Qantas will be in downsize mode, but forced at the same time to grow domestic capacity, so long as it continues to adhere to a strategy of maintaining its 65% share – effectively meaning that it must add two seats (or one ASK) for every one that Virgin-Tigerair does. The capacity – and therefore yieldreducing – battle appears likely to continue, now against the background of a softening economy and slackening leisure demand. Temporarily at least Qantas has said it will not expand capacity in the Sep-2014 quarter, as national budget concerns have greatly dampened consumer confidence. This leisure demand is likely – although not certain - to pick up once the initial shock passes through the system, but by signalling its intentions there may be at least a brief lull in expansion. Virgin Australia, even with its strong equity backers (and debt guarantors), cannot look to continue being loss-making forever – although it has now made clear to Qantas that it can no longer be bullied into submission, so long as Virgin The strategic bottom line for the Australian and New Zealand airlines alike is thus in establishing deep and enduring airline partnerships. % 46 INCREASE IN FOREIGN AIRLINE CAPACITY OVER THE PAST FOUR YEARS IN THE AUSTRALIAN MARKET Pg 41 | CAPA World Aviation Yearbook 2014 has its big brothers standing behind it. There is a poker game being played out now, with hands greatly more equal than previously. This may occasion a reshaping of strategies. For Qantas, recreating the mythical level playing field with Virgin now means removal of the restrictions in the Sale Act, perhaps allowing it to establish a similar ownership structure to Virgin Australia’s. This decision rests in the flaky hands of politicians and even if the changes are made, they are unlikely to make a major difference to Qantas until late in the year, at the earliest. But it is a near certainty that the current media noise will have been picked up at other airline managements; it will not be surprising if Qantas becomes the target of some interested buyers. Air NZ remains committed to Virgin in the long term, which must add pressure for Virgin to exit the red. The CEOs of Air NZ and Singapore Airlines are taking a seat on Virgin’s board, alongside Etihad. One outcome is that Air NZ might be able to demonstrate the benefit of having exposure to each part of the common market. Aside from the perilous financial one, the strategic bottom line for the Australian and New Zealand airlines alike is thus in establishing deep and enduring airline partnerships, as soundly and quickly as possible. Virgin Australia is furthest along this route and is leveraging the benefits very effectively. Always exciting and full of new surprises, the market is unlikely to disappoint in 2014. As noted above, there is also an ever present danger in the Australian market of further entry by Asian LCCs such as Lion Air. This has the potential to continue to encourage the incumbents to cover as much of the field as possible, implying that capacity growth must continue, even if it does endanger profitability. South Pacific Selected Airlines QANTAS AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 4 1. Qantas Airways 3 2 1 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 20 14 0 737 Qantas Airways is operated as part of the publicly listed Qantas Group. It is the national airline of Australia with major hubs in Sydney and Melbourne and secondary hubs in Perth and Brisbane. Using a large fleet of narrow and wide-body Airbus, Boeing and Bombardier aircraft, Qantas operates an extensive domestic and regional network within Australia as well as international services to New Zealand, North America, Asia, South Africa and Europe. Qantas is a founding member of the oneworld alliance. *Excludes new aircraft that are coming from leasing companies QANTAS AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2500 2000 SOURCE: CAPA FLEET DATABASE AIRCRAFT No. of Weekly Frequencies QANTAS AIRWAYS FLEET SUMMARY AS AT MAY-2014 1500 IN SERVICE IN STORAGE ON ORDER Airbus A320-200 0 7 0 Airbus A330-200 10 0 0 Airbus A330-300 10 0 0 Airbus A380-800 12 0 8 Boeing 737-400 0 5 0 Boeing 737-800 62 0 5 Boeing 747-400 8 9 0 Boeing 747-400ER 6 0 0 Boeing 767-300ER 13 3 0 Total: 121 24 13 1000 500 0 -500 0 5 10 QANTAS AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 12,584 seats DXB - LHR LAX - SYD 11,802 seats 10,752 seats AKL - SYD SIN - SYD 8,766 seats DXB - SYD 6,776 seats MEL - DXB 6,776 seats LAX - MEL 6,776 seats AKL - MEL 6,720 seats 6,276 seats HKG - SYD NRT - SYD 5,026 seats 0k Pg 42 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 2.5k 5k 7.5k 10k 12.5k 15k 17.5k South Pacific Selected Airlines VIRGIN AUSTRALIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 16 14 2. Virgin Australia 12 10 8 6 4 2 SOURCE: CAPA FLEET DATABASE 21 20 20 20 19 20 18 20 17 20 16 20 *Excludes new aircraft that are coming from leasing companies VIRGIN AUSTRALIA STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2000 1500 IN STORAGE ON ORDER No. of Weekly Frequencies IN SERVICE 1250 Airbus A330-200 7 0 0 Boeing 737-700 2 0 0 Boeing 737-8 0 0 32 62 0 23 Boeing 777-300ER 5 0 0 Embraer ERJ190-100IGW(AR) 17 1 0 0 Total: 93 1 55 -250 Boeing 737-800 15 737 1750 VIRGIN AUSTRALIA FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 Brisbane-based Virgin Australia is Australia’s second-largest airline and one of the rare airlines successfully to have made a full transformation from LCC to full service airline. Virgin Australia commenced operations in 2000 as Virgin Blue, wholly owned by the Virgin Group, the country’s first surviving true LCC, but has since moved away from that market. Under the leadership of new CEO, John Borghetti, the airline rebranded in May-2011. Virgin Australia now operates a full service model, targeting higher-yielding corporate traffic, while seeking to maintain its core leisure market share and low-cost base. 20 14 0 1000 750 500 250 0 5 10 15 Flight Time (Hours) VIRGIN AUSTRALIA TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 BNE - WLG 4,654 seats BNE - AKL 4,654 seats 4,332 seats SYD - LAX BNE - DPS 3,580 seats DPS - MEL 3,580 seats PER - DPS 3,222 seats SYD - DPS 3,222 seats BNE - LAX 2,888 seats SYD - NAN 2,864 seats AKL - OOL 2,506 seats 0k Pg 43 | CAPA World Aviation Yearbook 2014 1k 2k 3k 4k 5k 6k South Pacific Selected Airlines AIR NEW ZEALAND PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 10 3. Air New Zealand 8 6 4 2 A320 777 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 The national carrier of New Zealand, Air New Zealand is based in Auckland and uses a fleet of narrow and wide-body Airbus and Boeing aircraft. Air New Zealand operates a domestic and regional network within New Zealand and the Pacific and international services to Australia, Asia, North America and Europe. Air New Zealand is member of the Star Alliance. 787 *Excludes new aircraft that are coming from leasing companies AIR NEW ZEALAND STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 AIR NEW ZEALAND FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT 2000 IN SERVICE IN STORAGE ON ORDER 22 0 5 Boeing 737-300 7 0 0 Boeing 747-400 2 0 0 Boeing 767-300ER 5 0 0 Boeing 777-200ER 8 0 0 Boeing 777-300ER 5 0 2 Boeing 787-9 0 0 10 49 0 17 Total: 1500 No. of Weekly Frequencies Airbus A320-200 1000 500 0 -500 0 5 10 15 Flight Time (Hours) AIR NEW ZEALAND TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 12,580 seats AKL - SYD LAX - AKL 9,240 seats 7,726 seats AKL - MEL AKL - BNE 6,028 seats SFO - AKL 4,706 seats LAX - LHR 4,648 seats 4,256 seats AKL - HKG AKL - RAR 3,846 seats 3,664 seats AKL - NRT AKL - NAN 3,632 seats 0k Pg 44 | CAPA World Aviation Yearbook 2014 2.5k 5k 7.5k 10k 12.5k 15k 17.5k NORTH ASIA analysis reports: Source: CAPA Centre for Aviation North Asian aviation 2014 outlook: cracks in the wall of inertia - but it is yet to fall North Asia’s airlines add capacity in 2014 as underdogs play catch up and short haul focus increases 13 Chinese airlines could each have a fleet of over 100 aircraft by 2020 China’s reforms match frugality with low-cost airline innovation as a new script unfolds Chinese airlines pioneer new international strategies: JVs to overcome internal limitations China Southern Airlines to move long-haul focus from growth to sustainability and partnerships Cathay Pacific annual results: after a lost year, Cathay sees itself back on track - but to where? Cathay Pacific and Singapore Airlines cautiously welcome new hubs as Qatar & Turkish enter the fray New runways for Tokyo Haneda and Narita airports would allow Japan to catch up to other Asian hubs All Nippon Airways expects stronger 2014 performance due to efficiency and more international flying JAL 2013 profit dented by yen depreciation and retrofit costs, but still an enviable 13% margin Skymark Airlines will need significant strategic changes to avoid heavy A380 operating losses Japan’s expanding LCCs drive growth but need cultivating; Spring Airlines and AirAsia re-entry loom Asiana Airlines’ losses continue in 1Q2014 as capacity growth drags down yields despite fuel savings Korean Air returns to profit in 1Q2014 on the back of yield recovery and cost discipline Jin Air may become a long-haul low cost operator in 2014/15 and take the lead in Korea’s LCC market TransAsia Airways, growing at 20%+, now needs to ensure sustainability among strong competition TransAsia names LCC ‘V Air’ and ‘Wei Hang’. Cuddly bear becomes the dual brand’s low price image China Airlines and TransAsia to start LCC subsidiaries as low-cost carrier fever spreads to Taiwan Pg 45 | CAPA World Aviation Yearbook 2014 North Asia TOP 10 AIRLINES WITHIN NORTH ASIA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 China Southern Airlines 1,847,660 2 China Eastern Airlines 1,751,022 3 All Nippon Airways 1,282,288 4 Air China 1,251,122 5 Japan Airlines 843,384 6 Hainan Airlines 635,514 7 Shenzhen Airlines 610,903 8 Xiamen Airlines 588,162 9 Sichuan Airlines 474,362 10 Shandong Airlines 430,218 CAPACITY BY CARRIER TO/FROM/WITHIN NORTH ASIA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 China Southern Airlines 1,977,515 China Eastern Airlines 1,792,228 Air China 1,409,056 All Nippon Airways 1,395,615 Japan Airlines 976,020 Hainan Airlines 631,316 Korean Air 624,928 Xiamen Airlines 607,516 Shenzhen Airlines 554,957 Other 0M 8,006,897 2M 4M 6M 8M 10M NORTH ASIA TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Beijing Capital International Airport 1,809,010 2 Tokyo Haneda Airport 1,721,660 3 Guangzhou Baiyun Airport 1,090,674 4 Shanghai Pudong Airport 987,739 5 Shanghai Hongqiao Airport 978,839 6 Kunming Airport 822,726 7 Shenzhen Airport 821,250 8 Hong Kong International Airport 816,009 9 Chengdu Airport 801,207 10 Xian Airport 763,179 Pg 46 | CAPA World Aviation Yearbook 2014 NORTH ASIA IS HOME TO MANY OF THE WORLD’S MOST VISIBLE airlines based on size (China Southern), market capitalisation (Air China), profitability ( Japan Airlines) and prestige (Cathay Pacific). The region’s airlines face an encouraging 2014, and are certainly likely to fare much better than European peers. The singular uniting theme for long-haul North Asian full service carriers is the strong market to North America, where corporate and premium travel is improving, while competitors are fewer than on European routes. China inevitably has become the cornerstone of the market and what happens in that massive economy will shape the region – both in terms of growth and in the reshaping of the airline industry. Elsewhere the characterisation is more nuanced. Exchange rates are sharply impacting Japan, where the yen is down about 17%, while helping Chinese carriers with the appreciating yuan. Regional tensions continue to plague bilateral markets such as Japan-Korea and China-Japan. In a region where LCC penetration is still very low (but growing), there is increasing sensitivity about unprofitable short-haul routes: Asiana (with a recently appointed CEO, formerly with subsidiary LCC Air Busan) will introduce a new single-class configuration, while Taiwan’s China Airlines and TransAsia plan new LCC subsidiaries, adding more dualbrand strategies to the region. Except in Japan, liberalisation has occurred more slowly in the still-largely protectionist North Asia. 2014 will be a reflective, even possibly pivotal, year for liberalisation within the region. Jetstar Hong Kong continues to press for an operating licence while AirAsia is exploring Korea and again Japan for subsidiaries. Foreigners fear Taiwan’s newfound pro-LCC attitude will embrace only existing Taiwanese airlines’ subsidiaries. And China, concerned that airline growth may not reach previous levels, has recently adopted a pro-LCC policy that supports establishment of private low-cost operations, to speed things along. In Northeast Asia many factors are taken for granted. Economies are growing, despite occasional slowdowns. The middle class, and therefore travelling potential, continues to increase exponentially. There are literally hundreds of millions of Chinese achieving the economic ability – and desire – to travel abroad in waves never before experienced. Thus a distinct, and relatively new, uniting factor is the improving strength of the North American market. Demand, including from the corporate and premium sectors, is high. Competitors are fewer than to Europe, and some of the biggest carriers benefit from two broad joint ventures, those between ANA and United, as well as between JAL and American Airlines. Southeast Asian carriers are beyond the reach of profitable non-stop services to North America. Operating limitations from the need for an extra stop as well as constrained bilateral fifth freedom rights continue to limit Southeast Asian capacity to North America. These features help immunise their northern neighbours from added competition. Southeast Asian carriers have a stronger presence in the financially weaker long-haul markets of Europe, with increasing pressure from Gulf carriers and a generally crowded marketplace; even Norwegian is entering with its long-haul 787 operation. Meanwhile, North Asian carriers are fortunate to enjoy closer alignment with a wellperforming market. Additionally, Europe is open for many NORTH ASIA FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 5k 4k 3,529 3k 2k 1,122 1k 140 0k In service In storage On order NORTH ASIA BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 2.9% 0.9% 4.9% 27.4% 63.9% Narrowbody Jet Widebody Jet Small Commercial Turboprop Regional Jet Turboprop NORTH ASIA CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 11.3% 31.9% 25.9% 30.9% SkyTeam Unaligned Star Alliance Pg 47 | CAPA World Aviation Yearbook 2014 oneworld within A330 range, making the market more accessible. Despite existing over-capacity and yield pressure, nearly every major carrier in the Northeast Asia-North America market will grow capacity during 2014, many – American Airlines, ANA, EVA Air – at double-digit rates. Every Northeast Asian carrier with widebody aircraft will fly to North America, except domestic Japanese carriers Air Do and Skymark, as well as regionally focused Hong Kong Airlines, TransAsia and Mongolia’s MIAT. Skymark, which suffered delays on its first A330s for domestic all-premium service, planned to have A380s for a New York JFK service in late 2014, but interior problems have pushed this back to 2015. Sichuan Airlines made North America (Vancouver) its first long-haul destination. Xiamen Airlines may also follow suit when its 787s are operating. The result is the addition of more than 60% new capacity on China-US routes between Sep-2011 and Sep-2014, the bulk of it coming from Chinese carriers, notably Air China and China Eastern. For the Northeast Asia region as a whole to the US, the increase over this period is a more modest, but still significant, 28%, from 241,000 weekly seats to 310,000, according to OAG data. Europe-bound travel from China shows a relatively substantial 51% increase over the 2011 to Sep-2014 period. Much of the growth has come from Air China and KLM. Europe-Japan growth has predictably been much more limited, up only 17% over the three-year period to 69,000 seats weekly later this year – again with KLM conspicuous for its expansion. But in short-haul, Northeast Asia lags in the liberalisation that has characterised Southeast Asia in becoming such a vibrant and dynamic market. This mainly impacts low-cost, but also full service carriers: as a sign of the versatility and experimentation in the south, the low-cost Lion Air Group in 2013 launched hybrid full service carrier Malindo Airways in Malaysia. The LCC penetration for travel within Southeast Asia (58%) for the full year of 2013 was six times that for travel within Northeast Asia (9%). The advancement of LCCs in North Asia has been limited, to the benefit of incumbents, unlike Southeast Asia where LCCs, with low unit cost and higher frequency, have made many short-haul routes unprofitable for full service airlines. That challenge has generally been met by full service carriers crafting strategies to complement their existing business – with low-cost subsidiaries – rather than see their markets irreversibly lost. Northeast Asia had one liberalisation push at the end of the last decade as Japan undertook significant reforms partially prompted by JAL’s bankruptcy, coinciding with the long awaited Tokyo “big bang”, as both Narita and Haneda added new capacity, in part to overcome sagging tourist flows. One outcome was a long overdue change of regulatory direction, allowing the launch of three LCCs, all in partnership with an existing Japanese carrier: Jetstar Japan with JAL, as well as AirAsia Japan (now Vanilla Air) and Peach Aviation with ANA. Jetstar Japan and Peach had only minority interests from the full service airline, together with other third party investors. The granting of a licence to Chinese LCC Spring Airlines, in partnership with Japanese companies to establish locally, is further evidence of liberalisation progressing steadily, as are the numerous open skies agreements and expanded bilaterals Japan has signed that benefit the country, adding NORTH ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 300 250 200 150 100 50 A320 ARJ21 A330 AN148 A350 A380 AN158 MRJ 737 CRJ 747 777 CSERIES 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 787 YUN7 C919 72 NORTH ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 11.5% 2.3% 3.7% 32.8% 4.8% 7.8% 8.0% 29.1% 737 A320 A330 777 747 767 E190 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN NORTH ASIA: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 14 12 11.2% 10 9.5% 9.3% 8 6.8% 5.9% 6 3.9% 4 2.7% 2.7% 1.8% 2 0.8% 0.4% 0.4% 0.3% 0.6% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 48 | CAPA World Aviation Yearbook 2014 JanMay 2014 to short-haul competition – and tourism. By contrast the rest of Northeast Asia continues with conservative bilateral strategies. Jetstar Hong Kong could finally secure approval against local opposition in 2014, after being announced in Mar2012. More speculative is AirAsia Korea, which has not yet prevailed in that protected market. AirAsia plans to return to Japan in 2015 with a base at Nagoya. Taiwan has finally encouraged the development of local LCCs – about a dozen foreign LCCs already serve Taiwan – and in Dec-2013 TransAsia and then China Airlines announced they would launch an LCC; in China Airlines’ case, in partnership with Tigerair. The market remains potentially lucrative to foreign LCC groups, but they are sceptical whether Taiwan’s appearance of an open door to LCCs is applicable to those not partnering with a local carrier. Imbalances between attitude and actions are also a concern in China, which in late 2013 formally announced it must encourage private capital in aviation as well as the fostering of new carriers and in particular LCCs. But with airlines being seen by Beijing as serving national interests, and the general can-do attitude of China, the country is unlikely to cede valuable territory to foreign companies looking to establish local joint ventures. Government-led reforms in China’s sector are, however, ushering in a number of worthwhile changes and new carriers, both private and LCCs. As is typically the case, there is much to be gained from liberalisation, but the influence of incumbents and nationalist sentiments still inhibit change. Four more dual-brand LCC/full service strategies will be introduced in 2014. Short-haul services are starting to experience the impact of incremental LCC operations. Asiana is, for example, trialling an all-economy A320 configuration for thin short-haul services to Japan. This raises the proposition that if moving from a dual-brand to singleclass aircraft is good for a route, further concentration on cost-cutting is even better. The answer for four carriers has been to establish dual-brand strategies. China Eastern will have an LCC in the form of China United Airlines, Juneyao with Jiu Yuan, China Airlines with Tigerair Taiwan and finally (for now) TransAsia with its own planned LCC subsidiary. China Southern is also exploring a LCC with subsid Chongqing Airlines. This will represent nearly a doubling in the number of dual-brand strategies in North Asia. Although prevalent in Southeast Asia, in the north they have previously been confined to Asiana with Air Busan, Korean Air with Jin Air, ANA with Peach and (now) Vanilla Air, JAL with Jetstar Japan and Hong Kong Airlines with HK Express. The range of integration at these existing dual-brand strategies varies considerably. Peach is adamant ANA is an interested, not controlling, shareholder. JAL and Jetstar Japan take a strategic approach where each gives and takes. HK Express is largely maintaining independence. The small footprint of Air Busan and Jin Air shows however that they are deployed only where necessary while minimising full service cannibalisation – even if they could make more profit than their full service parents. This may change if Air Busan does proceed with a planned IPO in 2015. Long haul operations from Korean LCCs will also add to the dynamics of the market. The new dual-brand strategies will likely be even more diverse: China Eastern and Juneyao are planning for their CHINA TO UNITED STATES, SEATS PER WEEK, ONE WAY, 19-SEP-2011 TO 31-AUG-2014 SOURCE: CAPA - CENTRE FOR AVIATION AND OAG 80k Seats per week 60k 40k 20k 0k Jan-12 United Airlines Delta Air Lines Spring Airlines Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Air China China Eastern Airlines American Airlines China Southern Airlines Hainan Airlines Hawaiian Airlines CHINA TO WESTERN EUROPE, SEATS PER WEEK, ONE WAY, 19-SEP-2011 TO 31-AUG-2014 SOURCE: CAPA - CENTRE FOR AVIATION AND OAG 125k Seats per week 100k 75k 50k 25k 0k Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Air China Lufthansa Air France China Eastern Airlines China Southern Airlines KLM Royal Dutch Airlines Finnair British Airways SWISS SAS Hainan Airlines Virgin Atlantic Airways Austrian Airlines Alitalia JAPAN TO UNITED STATES, SEATS PER WEEK, ONE WAY, 19-SEP-2011 TO 31-AUG-2014 SOURCE:CAPA - CENTRE FOR AVIATION AND OAG 150k 125k Seats per week 100k 75k 50k 25k 0k Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Delta Air Lines Japan Airlines United Airlines All Nippon Airways American Airlines Hawaiian Airlines China Airlines Singapore Airlines Korean Air Malaysia Airlines Pg 49 | CAPA World Aviation Yearbook 2014 LCC to operate well outside of their home base. Route overlap will be minimal. The LCCs will effectively be a new type of carrier to put in a competitor’s backyard. The question for the medium and long term is how much future overlap is permitted and if the carriers can or need to adopt a more comprehensive dual-brand strategy where the LCC flies alongside most of the full service carrier’s routes. LCC units in Taiwan will have to be more integrated, if only because geography confines them to a realistic operating base of Taipei. China Airlines is mindful of the necessity of short-haul connections for its long-haul network, but is also well aware of many leisure point-to-point routes an LCC could take over today. Segmentation will be challenging at TransAsia, which operates only regional services and carries mainly point-to-point traffic. Its small size – 11 jet aircraft – is a further challenge to have scale. There is no easy solution. Either overlap will be large or opportunities will be missed. Both could use their LCCs on leisure-oriented secondary city pairings between Taiwan and mainland China, where existing full service carriers are challenged for profitability. Such considerations make it easy for EVA Air to say an LCC is not appropriate and it will not pursue one. These will prove to be interesting case studies to the dual-brand strategy textbook yet to be written. Further contributions will be made from additional dual-brand strategies that are surely on their way, especially in China. Exchange rate changes close doors and open windows – but not at the same time. Exchange rates can be both friend and foe. The appreciating Chinese yuan has greatly benefited Chinese airlines’ net profits, even making many overlook under-performing operating results. The declining Japanese yen is so far a negative story for most carriers. Japan is an outbound market: 2012, the most recent full year for which statistics are available, saw 8.4 million foreign visitors to Japan, while 18.5 million Japanese travelled overseas. One argument is that if a weakening yen means fewer Japanese are travelling, more foreigners can visit Japan. That reflects the old adage of a door closing but window opening. Unfortunately these do not happen simultaneously; there is usually a lag. The yen’s depreciation is likely here for the medium to long term, but Japan has years – in some cases possibly a decade – ahead of it to recolour its reputation as an expensive destination. Further, even three years after the great east Japan earthquake and resulting tsunami and nuclear power plant issues, some still perceive Japan to be unsafe. The pressure is greatest on Japanese carriers. The Japanese market has been strongly loyal to them, often paying fares considerably – even ridiculously – higher than foreign peers because ANA and JAL are Japanese and offer Japanese service. Any growth in foreign visitors compensating for declining Japanese tourists will not share the same affinity for ANA and JAL. ANA and JAL are further pinched as the depreciating yen arrives just as they seek a larger international profile; ANA expects to have more international than domestic ASKs after 2015. Foreign carriers recognise the situation was too good and enjoyed the benefits of the high yen while they could – but now the inevitable reality returns. ANA and JAL’s key long-haul market, to the US has, in contrast to the China-US growth, been very muted, with only around a 10% increase in the three years from 2011 to Sep2014. The pair of metal neutral JVs – ANA-UA and JAL-AA – will almost certainly ensure that yields are protected in this way (and, hopefully, also financial returns). This gives comfort The outlook for 2014 is positive and fresh opportunities remain. Pg 50 | CAPA World Aviation Yearbook 2014 as ANA and JAL plan more North American growth, especially with the 787 to mid-size cities. Within the region, tensions are confined but continue to raise concerns. The China-Japan market suffered significant decreases in Sep-2012 after Japan nationalised the disputed islands of Senkaku/Diaoyu. 1Q2014 seat capacity is still down 4.5% compared with pre-crisis levels in 2012. But this does not reflect weaker load factors that airlines have experienced. JNTO data shows Japanese passengers to China declined 21% in the first 10 months of 2013. Oct2013 registered 8.6% growth compared with Oct-2012, but this was after a 27% decrease in Oct-2012 compared with Oct-2011. Japan and Korea, meanwhile, have their own territorial dispute over the Takeshima/Dokdo islands, with tensions further inflamed by other factors, including the visit by Japanese prime minister Shinzo Abe to the Yasukuni war shrine. Seat capacity in 1Q2014 was down 4.3% compared with pre-crisis 1Q2013 levels. Japanese passengers to Korea were down 24% in the first 10 months of 2013 compared with 2012. Passenger numbers were even down in Oct-2013, whereas Japanese passengers to China in Oct-2013 recorded a slight year-on-year gain. Korean passengers were up 27% in the first 10 months of 2013, but the growth was not enough to offset declines in Japanese passengers. The total Japan-Korea market saw 4.7 million visitors in the first 10 months of 2012 but only 4.4 million in the same period in 2013. Depending how ongoing relations evolve – the Yasukuni shrine visit has flamed feelings and is still recent – the Japan-Korea market could rebound in 2014, much faster than the Japan-China market. Strong growth by Korean passengers has translated to some better performance by JAL on Japan-Korea routes than on Japan-China routes, but this is probably at the expense of yield. Earlier in 2013, Asiana experienced deteriorating yields to Japan. Other carriers in the market did not disclose yields but likely had performances similar to Asiana’s. These two political conflicts are the main ones involving North Asian countries, but they are not alone. A smaller conflict between China and the Philippines emerged in 2012 as well, and there are numerous historical differences that could, very potentially, turn into another conflict. But most countries seem eager to limit the extent of such issues, seeing them as non-sequiturs that cause harm. The outlook for 2014 is positive and fresh opportunities remain. A level of robustness is necessary for an industry characterised by volatility. Upsets in 2014 are, unfortunately, likely. The crises of 2013, such as a bird flu scare in eastern China and ongoing territorial issues, were handled well. There are still lingering impacts but a way forward can be seen. Unfortunately, it is now clouded – for some – by the declining yen and aggressive new competitors, some in the form of LCCs that carriers have previously not had much direct exposure to. The outlook for North Asian markets is positive in 2014, yet it is not as strong as it could be. 2014 may prove another year of missed opportunities. The stuttering spread of liberalisation may not be sufficient to allow the potential to be recognised. But the potential remains, implying that once the chains are released, the pace of change will be that much greater. North Asia Selected Airlines CHINA SOUTHERN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 30 25 1. China Southern Airlines 20 15 10 5 A320 Established in 1988, China Southern Airlines is the largest airline in China and has hubs in Guangzhou and Beijing. The carrier operates an extensive domestic network within China, as well as international services to the Middle East, Asia, Africa, Europe, North America and Australia. China Southern has been a member of the SkyTeam alliance since 2007. China Southern Cargo is the cargo subsidiary of China Southern Airlines. The cargo subsidiary joined the SkyTeam Cargo alliance in November 2010. IN STORAGE 777 787 19 20 18 20 17 737 C919 *Excludes new aircraft that are coming from leasing companies CHINA SOUTHERN AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4k ON ORDER Airbus A319-100 40 0 0 Airbus A320-200 111 0 8 Airbus A321-200 65 0 13 Airbus A330-200 16 0 0 Airbus A330-300E 10 0 11 Airbus A330-300X 3 0 0 Airbus A380-800 5 0 0 No. of Weekly Frequencies SOURCE: CAPA FLEET DATABASE IN SERVICE A330 3k CHINA SOUTHERN AIRLINES FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 16 20 15 20 20 14 0 2k 1k 0k -1k 0 5 10 15 Flight Time (Hours) Boeing 737-300 8 10 0 Boeing 737-700 33 0 0 Boeing 737-800 106 0 16 Boeing 747-400F 0 2 0 Boeing 757-200 14 0 0 ICN - DLC 7,518 seats Boeing 777-200 4 0 0 CAN - BKK 7,485 seats Boeing 777-200ER 4 0 0 CAN - SYD 7,434 seats Boeing 777-300ER 1 0 9 CAN - LAX Boeing 777F 8 0 4 CAN - SGN Boeing 787-8 9 0 1 CAN - MEL Comac C919 0 0 5 CAN - ICN 5,012 seats Embraer EMB-145LI 0 6 0 CAN - KIX 5,012 seats 20 0 0 457 18 67 Embraer ERJ190100LR Total: Pg 51 | CAPA World Aviation Yearbook 2014 CHINA SOUTHERN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 7,084 seats 6,436 seats 5,740 seats 4,904 seats ICN - SHE CAN - DXB 4,592 seats 0k 1k 2k 3k 4k 5k 6k 7k 8k 9k 10k North Asia Selected Airlines CHINA EASTERN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 40 2. China Eastern Airlines 30 20 10 A320 Shanghai-based China Eastern Airlines is one of China’s ‘big three’ stateowned airlines, with hubs at Shanghai’s Pudong and Hongqiao airports, as well as Kunming Airport in southwest China. The airline operates a fleet of Airbus, Boeing, Embraer and Bombardier aircraft to support an extensive network, serving over 350 domestic routes and 40 international destinations, including cities in Australia, Europe, Korea, Japan, North America and Southeast Asia. China Eastern merged with Shanghai Airlines in 2010 and joined China Southern in the SkyTeam Alliance in Jun-2011. A330 737 777 20 20 19 20 18 20 17 20 16 20 15 20 20 14 0 C919 *Excludes new aircraft that are coming from leasing companies CHINA EASTERN AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 5k 4k SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER Airbus A300B4600R 6 1 0 Airbus A319-100 25 0 5 Airbus A320-200 146 0 14 Airbus A321-200 34 0 11 Airbus A330-200 24 0 9 Airbus A330-300E 6 0 3 Airbus A330-300X 6 0 0 Airbus A340-300X 0 2 0 Airbus A340-600 5 0 0 Boeing 737-300 16 0 0 Boeing 737-700 42 0 7 Boeing 737-800 34 0 51 Boeing 777-300ER 0 0 20 Bombardier CL-6002B19(CRJ200ER) 0 5 0 Comac C919 0 0 5 Embraer EMB-145LI 6 4 0 350 12 125 Total: No. of Weekly Frequencies CHINA EASTERN AIRLINES FLEET SUMMARY AS AT MAY-2014 3k 2k 1k 0k -1k 0 5 15 CHINA EASTERN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 17,580 seats HKG - PVG PVG - SIN 11,386 seats 10,746 seats PVG - ICN PVG - KIX 9,490 seats 8,688 seats PVG - NRT PVG - CJU 6,888 seats PVG - TPE 6,864 seats TAO - ICN 6,594 seats PVG - NGO 6,594 seats PVG - FUK 6,462 seats 0k Pg 52 | CAPA World Aviation Yearbook 2014 10 Flight Time (Hours) 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k 22.5k North Asia Selected Airlines ALL NIPPON AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 20 3. All Nippon Airways 15 10 5 A320 Founded in 1952, Tokyo-based All Nippon Airways (ANA) is a major Japanese airline with hubs at Tokyo/Narita, Tokyo/Haneda, Kansai and Osaka airports. ANA operates an extensive domestic and international network, with scheduled service to over 50 domestic destinations and 25 international destinations across Europe, South Asia, East Asia and North America. In addition to its mainline operations, ANA also controls several subsidiary passenger carriers, including its regional airline, Air Nippon, charter carrier, Air Japan, and LCC Air Next. 737 777 787 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 20 14 0 MRJ *Excludes new aircraft that are coming from leasing companies ALL NIPPON AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4k 3k SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER Airbus A320-200 15 1 3 Airbus A320200NEO 0 0 7 Airbus A321-200NEO 0 0 23 Boeing 737-500 0 1 0 Boeing 737-700 12 0 0 Boeing 737-700ER 2 0 0 Boeing 737-800 25 0 6 Boeing 747-400D 0 4 0 Boeing 767-300 21 9 0 Boeing 767-300ER 26 0 0 Boeing 767-300ER(BCF) 7 0 0 Boeing 767-300F 3 0 0 Boeing 777-200 16 0 0 Boeing 777-200ER 12 0 0 7 0 0 Boeing 777-300ER 19 0 3 Boeing 787-8 27 0 9 Boeing 787-9 0 0 30 Mitsubishi MRJ90 0 0 15 192 15 96 Boeing 777-300 Total: Pg 53 | CAPA World Aviation Yearbook 2014 No. of Weekly Frequencies ALL NIPPON AIRWAYS FLEET SUMMARY AS AT MAY-2014 2k 1k 0k -1k 0 5 10 15 Flight Time (Hours) ALL NIPPON AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 12,852 seats HND - GMP NRT - PVG 11,466 seats 7,576 seats NRT - ORD NRT - JFK 7,390 seats HND - BKK 7,302 seats HND - FRA 6,804 seats HND - SIN 6,776 seats HND - TSA 6,748 seats NRT - PEK 6,720 seats NRT - HKG 6,720 seats 0k 2.5k 5k 7.5k 10k 12.5k 15k 17.5k North Asia Selected Airlines KOREAN AIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 25 4. Korean Air 20 15 10 5 A330 A380 737 747 777 787 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 Established in 1962, Korean Air is the largest airline and flag carrier of South Korea. From its base at Seoul Incheon International Airport, Korean Air serves extensive domestic and international networks. The carrier’s cargo division, Korean Air Cargo, is the third largest cargo airline in the world and it also wholly owns a low cost airline subsidiary, Jin Air. Korean Air is a founding partner airline of the SkyTeam alliance. CSERIES *Excludes new aircraft that are coming from leasing companies KOREAN AIR STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 KOREAN AIR FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT 1500 IN SERVICE IN STORAGE ON ORDER 1250 0 3 0 Airbus A330-200 3 0 0 Airbus A330-200(HGW) 5 0 0 Airbus A330-300 5 0 0 Airbus A330-300X 10 0 6 Airbus A380-800 8 0 2 Boeing 737-800 19 0 6 Boeing 737-900 16 0 0 Boeing 737-900ER 6 0 0 Boeing 747-400 14 0 0 Boeing 747400(BCF) 0 2 0 Boeing 747-400ERF 8 0 0 Boeing 747-400F 9 0 0 Boeing 747-8 0 0 10 Boeing 747-8F 5 0 2 Boeing 777-200ER 18 0 0 Boeing 777-300 4 0 0 Boeing 777-300ER 12 0 12 Boeing 777F 4 0 1 Boeing 787-8 0 0 1 Boeing 787-9 0 0 10 Bombardier CS300 0 0 10 146 5 60 Total: Pg 54 | CAPA World Aviation Yearbook 2014 No. of Weekly Frequencies Airbus A300B4600R 1000 750 500 250 0 -250 0 5 10 15 Flight Time (Hours) KOREAN AIR TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 17,488 seats ICN - HKG ICN - LAX 13,142 seats ICN - BKK 12,951 seats HND - GMP 12,868 seats 12,546 seats ICN - NRT ICN - PVG 11,556 seats 10,396 seats ICN - FUK ICN - JFK 9,772 seats 9,464 seats ICN - MNL ICN - KIX 9,256 seats 0k 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k 22.5k North Asia Selected Airlines JAPAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 14 12 5. Japan Airlines 10 8 6 4 2 Based in Tokyo, Japan Airlines (JAL) is one of Japan’s two major flag carriers with hubs at Tokyo’s Narita International Airport, Tokyo International Airport, Nagoya’s Chubu Centrair International Airport and Osaka’s Kansai International Airport. Operating a large fleet of Boeing narrow and widebody aircraft, JAL has an extensive domestic network with regional and international services to Europe, Canada, the United States, South America and Australia. JAL is a member of the oneworld alliance. JAL exited court-administered restructuring in late Mar-2011, after repaying all of the reorganisation debts owed in a one-time payment on 28-Mar-2011. IN SERVICE 23 20 22 20 21 20 20 20 19 18 20 17 20 16 15 20 20 787 *Excludes new aircraft that are coming from leasing companies JAPAN AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 3000 2500 2000 SOURCE: CAPA FLEET DATABASE AIRCRAFT A350 No. of Weekly Frequencies JAPAN AIRLINES FLEET SUMMARY AS AT MAY-2014 20 20 14 0 IN STORAGE 1500 ON ORDER Airbus A3501000XWB 0 0 13 Airbus A350900XWB 0 0 18 Boeing 737-800 11 0 0 Boeing 767-300 17 0 0 Boeing 767-300ER 32 0 0 1000 500 0 -500 0 5 10 15 Flight Time (Hours) Boeing 777-200 15 0 0 Boeing 777-200ER 11 0 0 Boeing 777-300 7 0 0 Boeing 777-300ER 13 0 0 Boeing 787-8 15 0 10 GMP - HND 10,332 seats Boeing 787-9 0 0 20 NRT - PVG 10,332 seats 121 0 61 NRT - HNL Total: JAPAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 10,032 seats HND - SIN 8,022 seats BKK - HND 8,022 seats HND - TSA 6,888 seats NRT - MNL 6,888 seats JFK - NRT 6,244 seats 5,600 seats NRT - PEK KIX - TPE 5,600 seats 0k Pg 55 | CAPA World Aviation Yearbook 2014 2k 4k 6k 8k 10k 12k 14k North Asia Selected Airlines CATHAY PACIFIC PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 20 6. Cathay Pacific 15 10 5 A330 A350 747 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 As the national carrier of Hong Kong SAR and based at Hong Kong International Airport, Cathay Pacific is majority-owned by logistics corporation Swire Pacific with significant shareholdings from Air China parent CNAC. Using a fleet which includes widebody Boeing and Airbus aircraft, Cathay Pacific’s extensive network consists of services throughout Asia, Europe, North America, Canada, Australia and New Zealand. Cathay Pacific is a founding member of the oneworld alliance and wholly-owns short-haul operator Dragonair. 777 *Excludes new aircraft that are coming from leasing companies CATHAY PACIFIC STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 400 CATHAY PACIFIC FLEET SUMMARY AS AT MAY-2014 350 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE 300 ON ORDER No. of Weekly Frequencies AIRCRAFT 250 Airbus A330-300 11 0 0 Airbus A330-300E 15 0 7 Airbus A330-300X 11 0 0 Airbus A340-300X 11 0 0 Airbus A3501000XWB 0 0 26 Airbus A350900XWB 0 0 22 0 Boeing 747-400 11 4 0 -50 0 1 0 Boeing 747-400ERF 6 0 0 Boeing 747-400F 3 3 0 Boeing 747-8F 13 0 1 Boeing 777-200 5 0 0 Boeing 777-300 12 0 0 Boeing 777-300ER 39 0 14 0 0 21 137 8 91 Total: 150 100 50 0 5 10 15 Flight Time (Hours) Boeing 747400(BCF) Boeing 777-9X 200 CATHAY PACIFIC TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 73,205 seats HKG - TPE HKG - SIN 36,000 seats 32,209 seats HKG - BKK HKG - ICN 24,330 seats HKG - MNL 23,937 seats HKG - NRT 18,785 seats KIX - HKG 18,468 seats HKG - LHR 18,112 seats 15,740 seats HKG - KUL HKG - SYD 13,988 seats 0k Pg 56 | CAPA World Aviation Yearbook 2014 10k 20k 30k 40k 50k 60k 70k 80k 90k MIDDLE EAST analysis reports: Source: CAPA Centre for Aviation Arab Air Carriers show that not all are created equal, but the rest of the world can learn from them Etihad Residence highlights the UAE airline ascension in first class travel, while others cut back Dubai International Airport: The world’s biggest in 1Q2014, but runway works reduce full year 2014 Emirates increases competition with Etihad and Qatar as it adds Chicago to its US network flydubai has its second consecutive annual profit as network continues to overlap with Emirates Air Arabia lags flydubai in the battle for Middle East LCC supremacy, but opportunities abound Qatar Airways all-business London service. An attempt more likely to succeed than others were Saudi Arabia aviation: an evolving market is about to undergo another rapid transition in 2014 Pg 57 | CAPA World Aviation Yearbook 2014 Middle East TOP 10 AIRLINES WITHIN MIDDLE EAST SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Saudia 399,279 2 Qatar Airways 160,436 3 Emirates 4 Iraqi Airways 122,224 5 flydubai 119,259 6 flynas 95,700 7 Gulf Air 89,408 8 Iran Aseman Airlines 85,757 9 Iran Air 72,681 10 Air Arabia 67,240 137,170 CAPACITY BY CARRIER TO/FROM/WITHIN MIDDLE EAST SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Emirates 966,302 Saudia 600,273 Qatar Airways 556,353 Etihad Airways 332,706 flydubai 171,612 Air Arabia 156,784 Gulf Air 137,262 Iraqi Airways 137,210 flynas 135,324 Other 2,186,336 0k 500k 1,000k 1,500k 2,000k 2,500k MIDDLE EAST TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Dubai Intl Airport 471,488 2 Riyadh King Khaled Intl Airport 344,894 3 Jeddah King Abdulaziz Intl Airport 4 Doha Intl Airport 246,592 331,416 5 Tehran Mehrabad Airport 212,910 6 Kuwait Intl Airport 171,812 7 Bahrain Intl Airport 160,567 8 Dammam King Fahd Intl Airport 137,446 9 Abu Dhabi Intl Airport 109,739 10 Amman Queen Alia Intl Airport 104,187 Pg 58 | CAPA World Aviation Yearbook 2014 3,000k THE MIDDLE EAST CONTINUES TO DEFY global trends, witnessing growth in demand and an expansion of capacity at rates not seen in any other global market. Airlines in the region will continue to outstrip global expansion in passengers and capacity in 2014, cashing in on regional and global economic growth, improving international passenger traffic flows and increasing aircraft production. The main battlefront will move to the US as protectionist reaction grows. At the forefront of the region’s phenomenal success are the Gulf sixth-freedom carriers, chiefly Emirates, Etihad Airways and Qatar Airways. All three continue to exploit their natural geographic advantage, which puts more than two thirds of the world’s population within an eight-hour flight from Dubai. Accompanied by supportive ownership and regulatory regimes, they are growing local markets and applying new aircraft technology and service standards to generate global success. The past two years have been about much more than their intrinsic strengths however. From being outsiders to the European established airlines, all three were admitted – if not welcomed with open arms – into the inner sanctums of the leaders of the global alliances, Star Alliance excepted. This has shifted the course of alliance and partnership thinking, as well as deepening their impact on global aviation. Even SkyTeam leader Air France, the most virulent opponent of the Gulf airlines, was eased into an increasingly cosy partnership with Etihad. Emirates meanwhile joined with oneworld’s Qantas – also a former staunch critic – and Qatar actually moved into the oneworld alliance, once its competitors agreed to the compromise. Basically the position arrived at applied the fine principle of si non cecidit, iunge. Between them the three handled approximately 70 million passengers in 2013 and are targeting double-digit passenger growth for 2014, as they continue to add aircraft and destinations. As their network power increases, each is now targeting the Americas, as well as thickening routes in their longer standing markets in Africa, Asia and Europe. But there are differences that are much more than nuances, each pursuing quite different business strategies. Emirates, the Middle East’s largest airline, favours organic growth for its fleet and network, augmenting this with local partnerships, but only in codeshares. Etihad Airways is building its unique and possibly industry-altering ‘equity alliance’, which has now stretched to seven airlines, with Alitalia also in the pipeline for 2014. Even Malaysia Airlines has been rumoured as a potential target for part acquisition. The carrier has created a massive virtual network and fleet, aligning its schedules, fleet planning and marketing (and even frequent flyer programmes) with partners to achieve mutually beneficial goals. Etihad will look to continue to expand its portfolio of codeshare and equity partners until revenue from such agreements reaches about 25% of total income. Qatar Airways joined oneworld in late 2013, with strong support from IAG/British Airways, the only one of the Big Three to so far enter a global alliance. The carrier’s membership in oneworld gives it access to more than 1000 Despite the amount of capacity arriving in the region, growth has not been haphazard. MIDDLE EAST FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 1500 1,211 1250 956 1000 750 500 250 109 0 In service In storage On order MIDDLE EAST FLEET BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 4.8% 1.6% 9.2% 48.0% 36.4% Widebody Jet Narrowbody Jet Small Commercial Turboprop Regional Jet Turboprop MIDDLE EAST CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 8.1% 14.9% 14.9% 62.1% Unaligned SkyTeam oneworld Pg 59 | CAPA World Aviation Yearbook 2014 Star Alliance destinations and will funnel many oneworld passengers through Qatar Airways’ Doha hub. Its presence is another example of how the Middle East’s airlines have been increasingly drawn into the global alliance network. The Big Three carriers are not doing all of the Middle East’s heavy lifting alone though. National airlines and smaller privately owned carriers are also expanding, if not in quite the same spectacular fashion. These airlines, such as Gulf Air and Oman Air, are covering the fast expanding intra-Middle East and intra-Arabian markets, but they are also expanding in the long-haul segment. Carriers such as Middle East Airlines, Saudia and Royal Jordanian Airlines are maintaining their anchor roles as national airlines, but are also expanding and using their alliance partnerships to generate traffic and revenue, the first two in SkyTeam and Royal Jordanian in oneworld. In addition to the full service airlines in the Middle East, the region’s small low-cost carrier segment continues to stand out in terms of growth and also profits. Although the sector remains under-developed by global standards, regional LCCs are already evolving and hybridising, introducing business-class cabins, new services and even taking on the low-cost long-haul market for the first time. According to IATA, growth in passenger traffic for airlines in the Middle East was 12.1% for 2013 – better than double the global average. Growth was strong in both business and leisure travel to regions such as Europe. Meanwhile, the overall growth in international passenger traffic returned to its long-term historical trend above 5% as global economies and business confidence continued to recover, oil prices eased marginally and airlines conservatively added capacity. Growth for Middle East carriers in 2013 reflected not only the recovery in international markets, but also the strong performance of lynchpin regional economies such as the UAE and Saudi Arabia. With a young population, increasing propensity to travel, ongoing regional liberalisation and expanding tourism opportunities, regional traffic growth is proving just as an important component of the Middle East’s expansion as long-haul routes are. Long-term expansion is clearly in the pipeline. Airlines in the region have a remarkable 960 aircraft on order, including more than 600 widebodies, equivalent to 25% of the global backlog, or twice as many as on order in North America. Aircraft order books are unsurprisingly dominated by Emirates, Etihad and Qatar, with 615 mostly widebody aircraft on order between them. Low-cost carriers account for better than 140 of the 330 narrowbodies on order in the region, indicating the segment will continue to expand in importance. Despite the amount of capacity arriving in the region, growth has not been haphazard. Airlines in the Middle East have generally matched capacity to demand. Regional ASKs expanded 12.4% in 2013, marginally higher than RPKs, and load factors remained near all-time highs, at about 77%. Regional yields remain below global averages, but consistent profitability is emerging as a trend in the Middle East, particularly as more privately owned airlines join the market. Accompanying this, regional governments continue to prioritise aviation, seeing the industry as a catalyst for local development and diversification, delivering trade, tourism and technological and economic growth. Airline growth has also gone hand-in-hand with infrastructure development in the region. Airport infrastructure investment in the GCC nations alone over MIDDLE EAST PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 200 150 100 50 787 33 32 20 31 A350 20 30 20 29 20 28 A330 20 27 20 26 20 25 A320 20 24 20 23 20 22 20 21 777 20 20 20 19 737 20 18 CRJ 20 17 20 16 20 15 20 20 20 14 0 A380 MIDDLE EAST MOST POPULAR AIRCRAFT TYPES IN SERVICE the past 10 years has exceeded USD35 billion and this investment only continues to grow to accommodate more traffic. IATA estimates another USD40 billion is being invested in aviation infrastructure by what it describes as “far sighted” Gulf-region governments, which will allow the airlines to sustain their double-digit traffic growth. Infrastructure development is being concentrated at the largest airports in the region, including Dubai, Doha, Jeddah, Riyadh, Abu Dhabi, Muscat, Kuwait, Damman and Manama. Dubai International is already on track to overtake London Heathrow as the world’s largest airport for international passenger traffic by 2016, even with the dilutionary effect that the opening of the nearby Al-Maktoum International Airport to passenger traffic late in 2013 will cause. Dubai is undergoing an expansion that will see USD7.8 billion invested to increase its capacity from 60 million to 90 million passengers per annum by 2018. Meanwhile, London Heathrow faces capacity constraints and a drawn-out SOURCE: CAPA FLEET DATABASE | MAY-2014 Government controlled airports have been less willing to move to take advantage of non-aeronautical sources of revenue, keeping fees and charges above global averages. 22.5% 25.4% 3.9% 4.1% 20.2% 5.8% 8.1% A320 777 A330 10.0% 737 A300 MD-80 A380 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN MIDDLE EAST: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 20 15.9%15.8% 15 13.3% 11.6% 11.3% 10 7.4% 8.3% 5.6% 5 3.5% 1.9% 0 0.1% 0.9% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 60 | CAPA World Aviation Yearbook 2014 JanMay 2014 commission on the future of its development, with final recommendations not due until summer 2015. Despite the positives, invisible infrastructure and regulatory barriers and inefficiency are hindering growth. Not everything is smooth sailing for the airlines of the Gulf. While airport infrastructure has seen unmatched levels of development (regional governments may indeed be overinvesting in airport capacity), airspace congestion is a point of increasing concern. Airlines, airports, government and other stakeholders have been urging for years that action be taken to remedy bottlenecks that have started to emerge in regional airspace, the “invisible infrastructure”. Gulf-region ANSPs have already moved to introduce new air corridors and are working to reduce restrictions on civil aviation movement through military zones and introducing better techniques and technologies to improve the capacity and quality of air transport management. This may not be enough though, merely spreading the bottlenecks beyond the Gulf to neighbouring countries. More radical ideas, such as the establishment of a pan-Middle East or pan-Arabian air traffic control body similar to EUROCONTROL, have already been proposed to ensure that airspace does not throttle growth. Also reining in growth potential is the heavy-handed approach to regulation across most of the Middle East. A few markets such as the UAE, Kuwait and increasingly Saudi Arabia and Jordan, are encouraging deregulation and commercialisation, but overall Middle Eastern governments exercise tight control on bilateral air traffic rights, capacity allocation, airport tariffs and fares, seeking to protect usually inefficient and unwieldy flag carriers. The region has a higher than average degree of government ownership of airports and airlines. The privatisation of several major national airlines has been completed or is ongoing, but the processes have been long and drawn out, with MIDDLE EAST AND GLOBAL INTERNATIONAL RPK GROWTH APR-2011 TO DEC-2013 SOURCE: CAPA – CENTRE FOR AVIATION AND IATA 25% 20% 15% 10% 5% Ap Ju r-1 1 n11 Au g11 Oc t-1 1 De c-1 Fe 1 b12 Ap r-1 2 Ju n12 Au g12 Oc t-1 2 De c-1 2 Fe b13 Ap r-1 3 Ju n13 Au g13 Oc t-1 3 De c-1 3 0% Middle East International MIDDLE EAST CARRIERS’ CAPACITY (ASKS) AND PASSENGER DEMAND (RPKS) GROWTH MAY-2011 TO JAN-2014 SOURCE: CAPA – CENTRE FOR AVIATION AND IATA 25% 20% 15% 10% 5% Ma y-1 1 Ju l-1 1 Se p11 No v-1 Ja 1 n12 Ma r-1 Ma 2 y-1 2 Ju l-1 2 Se p12 No v-1 2 Ja n13 Ma r-1 Ma 3 y-1 3 Ju l-1 3 Se p13 No v-1 3 Ja n14 0% ASKs 1% 12. RPKs GROWTH IN PASSENGER TRAFFIC FOR AIRLINES IN THE MIDDLE EAST IN 2013 Pg 61 | CAPA World Aviation Yearbook 2014 considerable social and political dissatisfaction associated with any restructuring or downsizing. Regional governments continue to prop up loss making carriers, although subsidies are slowly being reduced or phased out all together for many state-owned airlines. Government controlled airports have been less willing to move to take advantage of non-aeronautical sources of revenue, keeping fees and charges above global averages. Unlike Europe or Asia, there are few secondary or privately operated airports in the Middle East to provide alternatives to the major hub airports. With such high levels of growth, skills needs are escalating dramatically and training too remains a concern, across the industry as well as at public institutions, to ensure that the region not only has the operational skills but also sufficient national oversight and safety regulatory competence to accompany its expansion. These constraints have created particularly high barriers to entry for new airlines and foreign investment in the Middle East airline sector is almost non-existent. Privately owned LCCs have found the Middle East environment particularly difficult, with several failures in the past few years. Of the four LCCs in the region, flydubai is state owned and Air Arabia was established by the Sharjah government, although it has since moved to public ownership. Further industry deregulation will continue, but the pace will be slow. The talk is not always matched by the walk. Saudi Arabia, as an example, has approved two new airline operating licences for this year, but is not yet willing to fully open its domestic market to large-scale competition. Opening up the market to deregulation is expected to produce vigorous competition, resulting in expansion of the regional market, with better and lower cost services. The Middle East’s aviation transport market will continue to grow and to evolve, but increasingly the region is turning into one of haves and have-nots. With massive investment from interested governments, the region is assured a prime position as a new centre of gravity for aviation. In the short space of a decade, regional passenger traffic has more than doubled, but power has been increasingly concentrated in the hands of a few, fast growing carriers. The smaller airlines of the region are adapting to the changing circumstances, and there are signs of a new maturity emerging in regional governments concerning their national airlines. The massive subsidisation of loss-making state-owned airlines appears to be drawing to a close, as the smaller national carriers privatise or rationalise and restructure their operations. The pace of deregulation remains slow and there is little momentum to accelerate the change. Private carriers continue to flourish in the limited spaces made available, but private start-ups remain scarce in a region that should be welcoming them. The new global battlefront of the three major long-haul Gulf carriers will move to the US in 2014. Now that much of the venom has been removed from the attacks by European airlines and replaced by partnerships, this year the heart of the confrontation looks likely to migrate to the US. The While airport infrastructure has seen unmatched levels of development, airspace congestion is a point of increasing concern. GLOBAL WIDEBODY ORDERS BY REGION SOURCE: CAPA FLEET DATABASE Pg 62 | CAPA World Aviation Yearbook 2014 reaction of the major US airlines and the trade association Airlines for America (A4A) to the Gulf airlines’ recent and proposed increases in capacity and routes have been very similar to those of the European carriers prior to the de facto reconciliations of the past two years – that is, protectionist, accompanied by good doses of misleading information. Delta in particular has adopted the crusade to resist further incursions in every way possible. Even though the US airlines are less impacted in terms of hub challenges than their European counterparts, the steep difference in international inflight standards of the US majors as compared with Emirates, Etihad and Qatar, still makes the threat to the status quo a real one. The perceived threat is greatest where it raises the competitive bar on North Atlantic routes, where the nowpowerful trio of antitrust immunised partnerships has provided a platform for more “rational” competitive behaviour, allowing at least a temporary profitability to emerge. This is where Etihad’s initiatives in particular have drawn the most ferocious fire. Spurious but no less ferocious arguments against allowing preclearance in Abu Dhabi (followed by Dubai) have been rejected by US authorities (the risk was of diversion of Indian traffic via the Gulf, rather than through the US carriers’ European partners’ hubs). But the strongest opposition has been against initiatives to use such liberal measures – espoused in the first place by US negotiators – as third country codeshares and others. That aside, there seems little reason why the expansion of the Gulf carriers should slow in any way in 2014. Middle East Selected Airlines SAUDIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 12 10 1. Saudia 8 6 4 2 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER Airbus A320-200 35 0 0 Airbus A321-200 15 0 0 Airbus A330-300 2 0 0 16 SAUDIA STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2000 1500 500 0 Airbus A330-300E 12 0 0 0 1 0 Boeing 747-300 0 8 0 Boeing 747-400 5 0 0 Boeing 747-8F 2 0 0 Boeing 777-200ER 23 0 0 Boeing 777-300ER 12 0 8 JED - CAI Boeing 787-9 0 0 8 DXB - RUH Boeing/McDonnell Douglas MD-11F 4 0 0 JED - DXB Embraer ERJ170100LR 15 0 0 125 9 16 -500 0 5 10 15 Flight Time (Hours) SAUDIA TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 16,520 seats 16,368 seats 10,166 seats CAI - RUH 6,444 seats JED - CMN 5,782 seats RUH - LHR 5,670 seats RUH - MNL 5,629 seats JED - CGK 5,301 seats JED - LHR 5,214 seats JED - KHI 5,130 seats 0k Pg 63 | CAPA World Aviation Yearbook 2014 20 15 *Excludes new aircraft that are coming from leasing companies Boeing 747-200F Total: 787 1000 SAUDIA FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 777 No. of Weekly Frequencies Based in Jeddah, Saudia is the national airline of Saudi Arabia and is wholly owned by the Kingdom of Saudi Arabia. The airline operates a network of domestic and regional services within Saudi Arabia and the Middle East as well as Asia, Europe and North America from its main base at Jeddah-King Abdulaziz International Airport. Previously named Saudi Arabian Airlines, the carrier formally joined the SkyTeam alliance on 29-May-2012, becoming the alliance’s 16th global member and first member from the Middle East. Saudi Arabian also used the occasion to re-brand, adopting its old name of “Saudia”. Saudia has its own cargo division, Saudi Airlines Cargo, which services over 20 destinations with a dedicated cargo fleet. 20 20 14 0 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k Middle East Selected Airlines QATAR AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 60 50 2. Qatar Airways 40 30 20 10 777 22 21 20 A380 20 A350 20 A330 20 A320 19 20 18 20 17 20 15 16 20 Founded in 1993 and re-launched in 1997, Qatar Airways, based in Doha, is the national flag carrier, wholly owned by the Qatari government. Qatar Airways is one of the Middle East’s “big three” network airlines, with aggressive fleet and route network expansion plans. The carrier operates an extensive network of regional services in Asia and the Middle East together with international services to Australia, Europe, Africa and North America. Qatar Airways joined the oneworld global alliance on 30-Oct-2013. 20 20 14 0 787 *Excludes new aircraft that are coming from leasing companies QATAR AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 700 QATAR AIRWAYS FLEET SUMMARY AS AT MAY-2014 600 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER Airbus A319-100LR 2 0 0 Airbus A320-200 31 0 1 Airbus A320200NEO 0 0 35 Airbus A321-200 10 0 0 Airbus A321-200NEO 0 0 14 Airbus A330-200 16 0 0 No. of Weekly Frequencies AIRCRAFT 500 400 300 200 100 0 Airbus A330-200F 3 0 5 Airbus A330-300 13 0 0 Airbus A340-600(HGW) 4 0 0 Airbus A3501000XWB 0 0 37 Airbus A350900XWB 0 0 43 DOH - LHR 20,797 seats Airbus A380-800 0 0 10 DOH - DXB 20,679 seats Boeing 777-200LR 9 0 0 DOH - KWI Boeing 777-300ER 25 0 2 DOH - BKK Boeing 777F 6 0 2 DOH - BAH Boeing 787-8 13 0 17 DOH - CDG 13,258 seats 132 0 166 DOH - DMM 13,218 seats Total: -100 0 5 10 QATAR AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 19,080 seats 18,760 seats 15,156 seats DOH - AUH 12,622 seats 12,136 seats DOH - KUL DOH - MCT 11,010 seats 0k Pg 64 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 5k 10k 15k 20k 25k Middle East Selected Airlines EMIRATES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 60 50 3. Emirates 40 30 20 10 Founded in 1985, Emirates Airline is the national carrier of the emirate of Dubai, United Arab Emirates, and is based at Dubai International Airport. The world’s largest airline as measured by international passengers carried, Emirates is among the fastest-growing airlines in the world, pursuing an aggressive expansion strategy across all continents. The airline operates a large fleet of all-widebody Boeing and Airbus aircraft and is the largest customer for the Airbus A380. Emirates provides an extensive network of services within the Middle East as well as to Africa, East Asia, South Asia, Australasia, North America, Europe and South America. Emirates SkyCargo is the air freight division of Emirates serving over 40 destinations. 33 32 20 31 20 30 20 29 20 28 20 27 20 26 A380 20 25 20 24 20 23 A350 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 20 20 14 0 777 *Excludes new aircraft that are coming from leasing companies EMIRATES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 500 400 SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE Airbus A330-200 21 0 ON ORDER 0 No. of Weekly Frequencies EMIRATES FLEET SUMMARY AS AT MAY-2014 300 200 Airbus A340-300X 4 0 0 Airbus A340-500 9 0 0 Airbus A3501000XWB 0 0 20 0 Airbus A350900XWB 0 0 50 -100 Airbus A380-800 47 0 93 Boeing 777-200 3 0 0 Boeing 777-200ER 6 0 0 Boeing 777-200LR 10 0 0 Boeing 777-300 12 0 0 Boeing 777-300ER 94 0 58 Boeing 777F 10 0 3 216 0 224 Total: 100 0 5 10 EMIRATES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 35,210 seats DXB - LHR DXB - BKK 26,306 seats 24,424 seats DXB - KWI DXB - BOM 22,026 seats 21,126 seats DXB - JED DXB - KHI 20,720 seats 18,524 seats DXB - CDG DXB - SIN 17,402 seats DXB - LGW 17,402 seats DXB - MAN 17,402 seats 0k Pg 65 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 5k 10k 15k 20k 25k 30k 35k 40k 45k Middle East Selected Airlines ETIHAD AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 35 30 4. Etihad Airways 25 20 15 10 5 Founded in 2003, Etihad Airways is the national carrier of the emirate of Abu Dhabi, United Arab Emirates, and is based at Abu Dhabi International Airport. Operating a fleet of narrow and wide-body Airbus and Boeing aircraft, Etihad operates a rapidly expanding network of services within the Middle East and to Europe, Asia, North America, Canada and Australia. In addition to its core activity of passenger transportation, Etihad earns significant revenue from its cargo operation, Etihad Crystal Cargo. Etihad Airways forms part of the Etihad Aviation Group. A330 A350 A380 IN SERVICE IN STORAGE 25 20 24 20 23 ETIHAD AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 250 150 ON ORDER Airbus A319-100 2 0 0 Airbus A320-200 22 0 3 Airbus A320-200NEO 0 0 10 Airbus A321-200 1 0 7 Airbus A321-200NEO 0 0 26 Airbus A330-200 22 0 1 Airbus A330-200F 3 0 2 Airbus A330-300E 6 0 0 Airbus A340-500 4 0 0 Airbus A340-600(HGW) 7 0 0 Airbus A350-1000XWB 0 0 22 Airbus A350-900XWB 0 0 40 Airbus A380-800 0 0 10 AUH - BKK Boeing 777-200LR 4 0 0 AUH - LHR Boeing 777-300ER 20 0 0 AUH - JED Boeing 777-8X 0 0 8 AUH - MNL 10,332 seats Boeing 777-9X 0 0 17 AUH - JFK 10,332 seats Boeing 777F 3 0 1 AUH - BAH 8,810 seats Boeing 787-10 0 0 30 AUH - CGK 8,764 seats Boeing 787-9 0 0 41 AUH - MAN 94 0 218 AUH - CDG 100 50 0 -50 0 5 10 15 Flight Time (Hours) ETIHAD AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 15,498 seats 14,008 seats 11,692 seats 8,540 seats 8,176 seats AUH - KWI 7,616 seats 0k Pg 66 | CAPA World Aviation Yearbook 2014 787 *Excludes new aircraft that are coming from leasing companies No. of Weekly Frequencies SOURCE: CAPA FLEET DATABASE Total: 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 A320 200 ETIHAD AIRWAYS FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 20 14 0 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k AFRICA analysis reports: Source: CAPA Centre for Aviation Africa’s ailing national airlines survive on USD2.5 billion of government subsidy. Not sound policy EgyptAir plans further restructuring as losses mount. But outlook may brighten as Egypt stabilises Kenya Airways to focus on Asia, with new Beijing and Shanghai routes, as 787s and more 777s arrive Air Austral makes a remarkable return to profit, now with strong market positions on most routes Air Seychelles returns to Paris while expanding partnerships and achieving second year of profits South African Airways seeks UAE stop on Beijing & Mumbai with support from Emirates or Etihad South African Airways premium economy product to be part of its long-haul restructuring: SAA Part 2 South African Airways pursues more growth in Africa including potential Ghana JV: SAA Part 3 Zambia provides fastjet with easier affiliate option than South Africa, Ghana, Kenya or Nigeria Pg 67 | CAPA World Aviation Yearbook 2014 Africa TOP 10 AIRLINES WITHIN AFRICA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 South African Airways 218,946 2 Ethiopian Airlines 119,207 3 Kenya Airways 97,882 4 Arik Air 91,678 5 EgyptAir 91,496 6 Comair (South Africa) 76,220 7 Royal Air Maroc 74,375 8 Mango 56,484 9 Aero 54,268 10 Air Algerie 52,431 CAPACITY BY CARRIER TO/FROM/WITHIN AFRICA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 EgyptAir 271,293 South African Airways 266,526 Royal Air Maroc 194,383 Ethiopian Airlines 186,559 Air Algerie 135,064 Kenya Airways 123,752 British Airways 107,866 Emirates 107,564 Air France 104,763 Other 1,863,483 0k 500k 1,000k 1,500k 2,000k 2,500k AFRICA TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Johannesburg Oliver R Tambo Intl Airport 374,012 2 Cape Town International Airport 168,999 3 Lagos Murtala Muhammed Airport 144,767 4 Nairobi Jomo Kenyatta International Airport 120,113 5 Durban King Shaka Int'l Airport 107,221 6 Cairo International Airport 102,352 7 Addis Ababa Bole Airport 100,279 8 Abuja Nnamdi Azikiwe International Airport 96,554 9 Casablanca Mohammed V Airport 83,069 10 Accra Kotoka Airport 66,568 Pg 68 | CAPA World Aviation Yearbook 2014 IT IS TEMPTING TO REPEAT THE TRUISMS that Africa continues to offer extraordinary potential upside. With many of the world’s fastest growing economies and weak surface transport infrastructure, aviation is an obvious opportunity to support and accelerate that growth. Yet unhelpful government interference and poor planning continues to slow the promised expansion, leaving service levels mostly weak and prices generally high. There are however some bright spots as well as glimmers of optimism: Ethiopian continues to expand with new fleet generations, with five 787s in service, eight more to come and talk of negotiations for another 10 777Xs; South African Airways is full of hope that its new turnaround plan will succeed (although it has a long way to go); Kenya Airways, accepting its first 787 in Apr-2014, is recovering well from last year’s catastrophic fire at its Nairobi Airport hub; and would-be pan African LCC fastjet appears to be establishing a viable foothold – although it remains a fragile existence. The other of the biggest four African flag carriers, EgyptAir, is inevitably suffering the effects of continuing uncertainty in its home country, although its government’s protective policies ensure that the carrier retains a two thirds market share at its Cairo Airport base, but overall Egyptian airport traffic numbers were down 20% in Feb-2014, a casualty of the tourism downturn and airlines cutting services. Long-haul operations are being squeezed by new services by the Gulf carriers, at least on eastbound and some European routes, making life increasingly difficult for airlines drawing regional traffic through their home hubs for long-haul onward carriage. As the Gulf carriers increase the number of their “spokes” into their own hubs, airlines such as Ethiopian and Kenya Airways lose their connectivity advantages. South African Airways’ (SAA) problems are different. Unable to be a major collection hub due to its geographic position, it has sought to develop a more regional presence. It has instead chosen to partner with Etihad. This strategy may well be adopted by others. Kenya Airways, part of the SkyTeam alliance and a close partner of KLM, is increasingly drawing closer to Etihad too. A reciprocal codeshare agreement giving access to each others’ networks and paving the way for greater collaboration and cost savings, was established in Feb-2014. Under its new strategic plan, adopted in late-2013, SAA will increase operations within Africa while cutting unprofitable long-haul routes and potentially handing more domestic routes to low-cost subsidiary Mango. SAA could also start operating alongside new partner Etihad on the Johannesburg-Abu Dhabi route, using the capacity freed up from axing highly unprofitable long-haul services, as it increases its reliance on partnerships to provide a stronger network beyond Africa. However, the airline’s new management is making further noises to government about the need to address its weak balance sheet, a product of extended carelessness by its shareholder, accompanied by constant meddling. Part of the new programme provides for a ZAR5 billion (USD468 million) government loan guarantee, but management says Long-haul operations are being squeezed by new services by the Gulf carriers. AFRICA FLEET the airline does not have a sufficient capital base to take on new debt. According to CAPA’s Fleet Database, SAA has a relatively modest 16 A320-200s on order. The airline’s new plan embraces principles, albeit tending towards motherhood, that would seem appropriate for others in the region to note. These include: SOURCE: CAPA FLEET DATABASE | MAY-2014 1750 1500 1,282 1250 1000 750 500 250 191 143 0 In service In storage On order AFRICA BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 12.3% 37.6% 13.2% However, the major hurdle that most governments will have to overcome is the clearly unsustainable economic condition of many airlines, with few original ideas to extract them from this condition. Africa’s unenviable record of government interference in the continent’s aviation system is demonstrated by the 17.1% 19.8% Narrowbody Jet Widebody Jet • Support the country’s development agenda, achieve and maintain commercial sustainability and foster performance excellence; • Create an integrated airline group, SAA Group Holdings, incorporating SAA, Mango and SA Express under a single holding company structure to improve asset utilisation, operational efficiency and capital allocation; • Implement a new network, alliance and fleet strategy to develop SAA as a full-service premium carrier, Mango as a LCC and SA Express as a regional feeder airline. This plan will allow the group to meet current and projected demand, produce capacity through alliances and implement integrated fleet planning; • Develop a ‘Whole of State Aviation Framework’ to ensure consolidated policy approach to aviation in South Africa to maximise the growth potential of its airlines. Turboprop Small Commercial Turboprop Regional Jet AFRICA CAPACITY SEATS SHARE BY ALLIANCE (Nigeria) is an airline graveyard due to the government’s misconceived protectionist policies. SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 8.5% 11.0% 54.4% 26.2% Unaligned Star Alliance SkyTeam Pg 69 | CAPA World Aviation Yearbook 2014 oneworld fact that no less than nine carriers are surviving only with significant support of their respective governments through a variety of financial support mechanisms collectively worth about USD2.5 billion. In most cases this support serves only to distort any prospect of a level playing field, preventing privately owned carriers from competing effectively. Nigeria was even planning to take this a stage further as state support of private carriers is being undermined by a desire to relaunch a government owned national flag carrier, Nigeria One. The recent sacking, by President Goodluck Hanson, of high profile Minister of Aviation Stella Oduah in Feb-2014, followed by the replacement of all senior management of the main civil aviation bodies in Mar-2014, hardly augurs well for a good short-term outlook for that major country’s airline system. Nigeria is a market that on economic and population fundamentals should support a booming aviation industry. But instead it is an airline graveyard due to the government’s misconceived protectionist policies. The combination of interference and hostile attitudes towards private carriers looks set to jeopardise prospects indefinitely. In other cases, such as Uganda, new state-owned airlines are planned to compete with successful privately owned operators in markets that often lack sufficient demand to AFRICA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 80 60 40 20 21 20 19 737 777 20 A380 20 A350 SSJ 20 18 20 17 16 A330 DHC6 20 DHC8 A320 42 YUN7 20 15 20 20 14 0 747 787 72 AFRICA MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 23.6% 45.7% 9.8% 4.9% 4.4% 3.6% 4.0% 737 A320 DHC8 B1900 4.1% CARAVAN 72 CRJ Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN AFRICA: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 11.7% 11.8% 12 9.9% 10 10.3% 10.8% 10.5% 9.1% 8 6.9% 6 4 2.6% 2 0.3% 0 3.1% 3.3% 1.7% 0.6% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 70 | CAPA World Aviation Yearbook 2014 JanMay 2014 support them both. Whatever the motives – and many of them are questionable at best – the outcome is sadly predictable. While SAA has represented Africa’s most extensive turnaround effort, Royal Air Maroc (RAM) at the opposite end of the continent has been the most expensive to tax payers in recent years. The flag carrier received a USD193 million bailout in 2011 and has access to a further USD900 million of on-going funding until 2016 as it repositions itself to compete with an influx of LCC competition from Europe, in particular Ryanair, resulting from Morocco’s open skies agreement with the EU aimed at boosting tourist arrivals by 1 million annually. This conflict of objectives perhaps encapsulates many of the problems that African governments have in their attitudes towards maintaining a viable airline industry. Despite this, private money has shown it is willing to address some of the potential opportunities in the continent. Low-cost intra-African operations would be a massive boon to regional economic development, but the one genuine LCC model, Tanzania based fastjet, is running into severe headwinds as it seeks to expand into other countries. Plans to grow in Zambia and South Africa are under way and a recent GBP1 million injection of funds offered some short-term relief; it may need more if it is to weather the stiff opposition it is meeting in the air and on the ground, but the positive news is that things are improving. Africa Selected Airlines 1. South African Airways SOUTH AFRICAN AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 8 6 4 2 With hubs at Johannesburg and Cape Town, South African Airways (SAA) is the flag carrier of South Africa and ranks among the largest airlines on the African continent. The carrier is wholly-owned by the South African government and operates an extensive network of services throughout Africa and international services to North America, South America, Asia, Australia and Europe. SAA became a member of the Star Alliance in 2006. 16 20 15 20 20 14 0 A320 *Excludes new aircraft that are coming from leasing companies SOUTH AFRICAN AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 1250 SOUTH AFRICAN AIRWAYS FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE Airbus A319-100 IN SERVICE IN STORAGE 11 ON ORDER 0 0 Airbus A320-200 6 0 16 Airbus A330-200 6 0 0 Airbus A340-200 0 1 0 Airbus A340-300E 6 0 0 Airbus A340-300X 2 0 0 Airbus A340-600 9 0 0 Boeing 737-300(F) 2 0 0 Boeing 737-800 12 0 0 Total: 54 1 16 No. of Weekly Frequencies AIRCRAFT 1000 750 500 250 0 -250 0 5 10 15 Flight Time (Hours) SOUTH AFRICAN AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 6,797 seats JNB - LUN JNB - LHR 6,720 seats 6,640 seats JNB - WDH JNB - HRE 6,268 seats 6,070 seats JNB - GBE JNB - GRU 5,832 seats JNB - JFK 4,438 seats JNB - FRA 4,438 seats 4,120 seats JNB - MUC JNB - LAD 4,120 seats 0k Pg 71 | CAPA World Aviation Yearbook 2014 1k 2k 3k 4k 5k 6k 7k 8k 9k Africa Selected Airlines 2. Ethiopian Airlines ETHIOPIAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 16 14 12 10 8 6 4 2 Addis Ababa-based Ethiopian Airlines is the national airline of Ethiopia. One of the leading airlines on the African continent, Ethiopian Airlines serves more than 60 international destinations across Africa, Asia, Europe, The Middle East, and North America, as well as operating an extensive domestic and international cargo network. Ethiopian Airlines became a member of Star Alliance in Dec-2011. A350 737 777 19 20 18 20 17 20 16 20 15 20 20 14 0 787 *Excludes new aircraft that are coming from leasing companies ETHIOPIAN AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 250 ETHIOPIAN AIRLINES FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER Airbus A350900XWB 0 0 12 Boeing 737-400(F) 1 0 0 Boeing 737-700 7 0 0 Boeing 737-800 9 0 4 No. of Weekly Frequencies AIRCRAFT 200 150 100 50 Boeing 757-200 3 3 0 Boeing 757-200(ETOPS) 1 0 0 Boeing 757-200(F) (ETOPS) 1 0 0 Boeing 757-200PF 1 0 0 Boeing 767-200 0 1 0 Boeing 767-300ER 12 0 0 Boeing 777-200LR 6 0 0 Boeing 777-300ER 2 0 2 Boeing 777F 2 0 4 ADD - CAN Boeing 787-8 5 0 8 ADD - NBO Boeing/McDonnell Douglas MD-11(F) 1 0 0 Boeing/McDonnell Douglas MD-11ER(F) 1 0 0 Bombardier DHC8Q-402(NG) 7 0 0 de Havilland of Canada DHC-6-300 3 0 0 62 4 30 Total: Pg 72 | CAPA World Aviation Yearbook 2014 0 -50 0 5 10 15 Flight Time (Hours) ETHIOPIAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 10,458 seats ADD - DXB 5,586 seats 5,460 seats ADD - LOS 4,494 seats ADD - PEK 4,494 seats ADD - ABV 4,494 seats JNB - ADD 4,494 seats ADD - EBB 4,165 seats 3,870 seats ADD - PVG ADD - JRO 3,850 seats 0k 2k 4k 6k 8k 10k 12k 14k Africa Selected Airlines 3. Kenya Airways KENYA AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 8 6 4 The Pride of Africa 2 777 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 Kenya Airways is the national airline of Kenya. The carrier is based at The Pride of Africa Jomo Kenyatta International Airport, Nairobi, and operates an extensive network of regional services within Kenya and Africa as well as flights to Asia, the Middle East and Europe. Kenya Airways became a member of SkyTeam in Jun-2010. 787 *Excludes new aircraft that are coming from leasing companies KENYA AIRWAYS FLEET SUMMARY AS AT MAY-2014 KENYA AIRWAYS STAGE LENGTHS SOURCE: CAPA FLEET DATABASE AIRCRAFT SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 IN SERVICE IN STORAGE ON ORDER 4 0 0 Boeing 737-300(F) 2 0 0 Boeing 737-700 4 0 0 Boeing 737-800 4 0 0 Boeing 737-800(ETOPS) 1 0 0 Boeing 767-300ER 6 0 0 Boeing 777-200ER 4 0 0 Boeing 777-300ER 2 0 1 Boeing 787-8 1 0 8 Embraer ERJ170100LR 3 0 0 Embraer ERJ170100STD 1 0 0 Embraer ERJ190-100IGW(AR) 14 1 0 Total: 62 4 30 600 500 No. of Weekly Frequencies Boeing 737-300 400 300 200 100 0 -100 0 2 4 6 8 12 KENYA AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 6,720 seats NBO - DAR NBO - EBB 6,576 seats NBO - JNB 6,568 seats NBO - BOM 5,098 seats NBO - AMS 4,508 seats NBO - LHR 4,508 seats NBO - KGL 3,144 seats NBO - BJM 3,096 seats NBO - BKK 3,024 seats NBO - JUB 3,024 seats 0k Pg 73 | CAPA World Aviation Yearbook 2014 10 Flight Time (Hours) 1k 2k 3k 4k 5k 6k 7k 8k 9k EASTERN EUROPE analysis reports: Source: CAPA Centre for Aviation Wizz Air: London share listing planned after three-fold profit increase for the ultra-LCC Russia’s low air travel penetration augurs well for the aviation market - and for Aeroflot Aeroflot SWOT analysis. Russia’s national champion is well positioned to confront new challenges Dobrolet nears take-off, but can Aeroflot’s LCC subsidiary achieve the required cost structure? Massive capacity expansion is planned for Istanbul airports, with competing private interests Turkish Airlines: capacity and network growth stay strong in 2013; profit growth is more challenging Turkish Airlines suffers bigger 1Q losses, but continues to focus on “profit, profit, profit” Pegasus Airlines must not let worsening quarterly profitability become a new trend Ukraine International Airlines to cut fleet by 25% but network expansion continues Pg 74 | CAPA World Aviation Yearbook 2014 I Eastern Europe N GENERAL, EASTERN EUROPE TENDS TO OUTPACE THE WESTERN PART OF the continent, with Turkey and Russia preeminent among the major leaders. Turkey, home to high growth LCC Pegasus Airlines and Europe’s fastest growing FSC Turkish Airlines, saw the highest growth in the number of flights in 2013 and will be looking to retain its quasi-Gulf expansion status in 2014. Istanbul Ataturk was the only airport in Europe’s top 10 to experience an increase in the number of flights. Both leading Turkish carriers plan to continue double digit growth in 2014. The strength of demand in Eastern Europe is also evident in Russia, for example, where IATA says domestic RPKs grew by 9.6% in 2013. The relatively low penetration of air travel in Eastern and Central Europe, compared with Western Europe, should ensure that its growth remains superior to that of the West for some time to come. For Russia this should be the case as Aeroflot’s new LCC subsidiary enters the market and the Government moves to reduce regulatory constraints on the sector. Eurocontrol expects countries in Eastern Europe once again to enjoy the continent’s highest growth, led by Armenia (12%), Moldova (11.0%), Georgia (9.6%), Belarus (7.0%), Ukraine (6.4%) and Turkey (6.1%). TOP 10 AIRLINES WITHIN EASTERN EUROPE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Turkish Airlines 656,451 2 Aeroflot 490,281 3 Pegasus Airlines 357,264 4 S7 Airlines 211,097 5 Aegean Airlines 153,988 6 UTair Aviation 128,738 7 Transaero Airlines 123,937 8 Onur Air 79,098 9 Ural Airlines 65,078 10 Atlasjet 59,334 CAPACITY BY CARRIER TO/FROM/WITHIN EASTERN EUROPE EASTERN EUROPE FLEET SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Turkish Airlines SOURCE: CAPA FLEET DATABASE | WEEK STARTING 05-MAY-2014 1,287,410 Aeroflot 3000 760,454 2,355 2500 Pegasus Airlines 465,777 Ryanair 367,038 Wizz Air 2000 329,040 1500 Lufthansa 281,960 S7 Airlines 255,531 Transaero Airlines 223,485 Aegean Airlines 222,364 1000 500 229 Other 3,411,046 0k 500k 800 0 In service 1,000k 1,500k 2,000k 2,500k 3,000k 3,500k 4,000k 4,500k SOURCE: CAPA FLEET DATABASE | WEEK STARTING 05-MAY-2014 SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4.0% SEATS 1 Istanbul Ataturk Airport 621,998 2 Moscow Domodedovo Airport 425,683 3 Moscow Sheremetyevo Airport 419,887 4 Istanbul Sabiha Gokcen Airport 381,822 5 Ankara Esenboga Airport 225,853 6 Athens International Airport 214,457 7 Moscow Vnukovo Airport 211,589 8 Saint Petersburg Pulkovo Airport 197,542 9 Izmir Adnan Menderes Airport 164,819 10 Antalya Airport 152,343 Pg 75 | CAPA World Aviation Yearbook 2014 On order EASTERN EUROPE BREAKDOWN FOR AIRCRAFT IN SERVICE EASTERN EUROPE TOP 10 AIRPORTS RANKING AIRPORT NAME In storage 10.3% 11.0% 56.6% 18.0% Narrowbody Jet Turboprop Small Commercial Turboprop Regional Jet Widebody Jet EASTERN EUROPE CAPACITY SEATS SHARE BY ALLIANCE EASTERN EUROPE MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 SOURCE: CAPA FLEET DATABASE | MAY-2014 6.7% 14.8% 25.1% 35.3% 48.7% 2.5% 3.2% 3.5% 29.8% Unaligned Star Alliance SkyTeam A320 oneworld 737 21.9% 3.9% AN24 4.5% AN26 TU154 CRJ A330 EASTERN EUROPE PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN EASTERN EUROPE: 2011 TO 2014* 200 20 SOURCE: CAPA FLEET DATABASE | MAY-2014 Other SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated; Excluding Russia 150 16.1% 15.3% 15 11.5% 100 10 6.7% 50 5.3% 5.1% 5 2.9% A330 777 A350 A380 CRJ CSERIES 787 747 SSJ E190 E195 Pg 76 | CAPA World Aviation Yearbook 2014 25 20 24 23 20 20 22 20 21 20 20 19 20 20 18 20 17 20 16 15 A320 737 20 20 20 14 0 AN148 TU204 42 MS21 YUN7 0.6% 0 7.1% 7.0% 0.9% 2.8% 1.6% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 JanMay 2014 Eastern Europe Selected Airlines TURKISH AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 60 50 1. Turkish Airlines 40 30 20 10 A320 A330 737 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 Based at Istanbul’s Ataturk International Airport, with secondary hubs at Esenboga International Airport and Adnan Menderes International Airport, Turkish Airlines (THY) is the national airline of Turkey and the country’s largest carrier. The carrier operates a network of domestic and regional services throughout Turkey and the Middle East and international services to Europe, Africa, North America, South America and Asia. Turkish Airlines is a member of the Star Alliance. Turkish Cargo, the airline’s freight division, serves over 30 destinations. 777 *Excludes new aircraft that are coming from leasing companies TURKISH AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2500 TURKISH AIRLINES FLEET SUMMARY AS AT MAY-2014 2000 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER 0 1 0 Airbus A310-300(F) 2 1 0 Airbus A319-100 14 0 0 Airbus A320-200 30 0 0 0 0 4 43 0 25 Airbus A321-200NEO 0 0 60 Airbus A330-200 11 0 0 Airbus A330-200F 5 0 0 Airbus A330-300E 15 0 15 Airbus A340-300 4 0 0 Airbus A340-300X 3 0 0 Boeing 737-700 3 0 0 Boeing 737-8 0 0 40 Boeing 737-800 61 0 24 Boeing 737-9 0 0 10 Boeing 737-900ER 10 0 5 Boeing 777-300ER 15 0 20 216 2 203 Airbus A320200NEO Airbus A321-200 Total: No. of Weekly Frequencies AIRCRAFT Airbus A310-200 1500 1000 500 0 -500 0 5 10 20 TURKISH AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 17,466 seats IST - TLV IST - LHR 15,642 seats 12,808 seats IST - JFK IST - CDG 12,612 seats IST - ECN 11,906 seats IST - FRA 11,838 seats 11,566 seats IST - DUS IST - AMS 11,154 seats 10,802 seats IST - BRU IST - IKA 10,337 seats 0k Pg 77 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k 22.5k Eastern Europe Selected Airlines AEROFLOT PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 40 2. Aeroflot 30 20 10 A350 737 777 787 20 20 19 20 18 20 17 20 16 20 15 A320 SSJ *Excludes new aircraft that are coming from leasing companies AEROFLOT STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 1500 1250 No. of Weekly Frequencies Aeroflot is the national airline of Russia with its main base at Moscow Sheremetyevo International Airport. Formerly wholly-state owned, the airline has been partially privatised and continues to be the dominant carrier in the country, accounting for about 20% of the Russian passenger market. The Russian Government continues to hold 51.17% of the airline’s equity. Legal entities and individuals own the rest. Aeroflot operates an extensive network of domestic services within Russia, as well as international services to Europe, Asia, the Middle East and North America. Aeroflot is Russia’s largest air carrier; it accounts for over 42% of international scheduled and 13.7% of domestic traffic in Russia (with its subsidiaries, around 20%). Aeroflot is a member of SkyTeam. Aeroflot has been a leading voice behind consolidation in the Russian airline industry, and has supported the Government’s plan to address the fragmentation of the airline industry that has been a central feature since the fall of the Soviet Union. Aeroflot has taken over management control of four Russian airlines including Rossiya, Orenair, Vladivostok Avia and SAT Airlines. 20 20 14 0 1000 750 500 250 AEROFLOT FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT 0 IN SERVICE IN STORAGE ON ORDER Airbus A319-100 9 0 0 Airbus A320-200 63 0 10 Airbus A321-200 26 0 4 Airbus A330-200 5 0 0 Airbus A330-300E 17 0 0 Airbus A350800XWB 0 0 8 Airbus A350900XWB 0 0 14 Boeing 737-700 0 0 10 Boeing 737-800 4 0 30 Boeing 737-900ER 0 0 6 Boeing 767-300ER 2 0 0 Boeing 777-300ER 8 0 8 Boeing 787-8 0 0 22 Boeing/McDonnell Douglas MD-11(F) 2 0 0 Ilyushin IL-96-300 0 6 0 Sukhoi RRJ-95B 11 3 12 147 9 124 Total: -250 0 5 10 Flight Time (Hours) AEROFLOT TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 11,128 seats SVO - SIP SVO - CDG 10,500 seats SVO - KBP 9,932 seats SVO - JFK 9,856 seats SVO - PEK 9,856 seats SVO - EVN 9,324 seats SVO - LHR 9,116 seats SVO - PVG 9,052 seats 8,534 seats SVO - TLV SVO - PRG Pg 78 | CAPA World Aviation Yearbook 2014 8,220 seats 0k 2k 4k 6k 8k 10k 12k 14k Eastern Europe Selected Airlines PEGASUS AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 20 3. Pegasus Airlines 15 10 5 Istanbul-based Pegasus Airlines is a privately-owned low-cost airline based at Istanbul Sabiha Gökçen International Airport. Using a fleet of narrow-body Boeing 737 and A320 family aircraft, Pegasus operates an extensive network of domestic and regional services throughout Turkey, Europe and the Middle East. A320 22 20 21 20 20 20 19 20 18 20 17 20 16 20 20 15 0 737 *Excludes new aircraft that are coming from leasing companies PEGASUS AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 PEGASUS AIRLINES TFLEET SUMMARY AS AT MAY-2014 1250 SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER 1000 4 0 0 0 0 57 Airbus A321-200NEO 0 0 18 Boeing 737-400 1 0 0 Boeing 737-800 47 0 2 Total: 52 0 77 No. of Weekly Frequencies Airbus A320-200 Airbus A320200NEO 750 500 250 0 -250 0 2 4 6 Flight Time (Hours) PEGASUS AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 14,553 seats SAW - ECN 7,938 seats SAW - TLV 5,670 seats SAW - STN ESB - ECN 5,481 seats SAW - ORY 5,292 seats SAW - CGN 5,292 seats SAW - AMS 5,292 seats ECN - ADA 5,292 seats 4,140 seats SAW - CPH AYT - ECN 3,780 seats 0k Pg 79 | CAPA World Aviation Yearbook 2014 2.5k 5k 7.5k 10k 12.5k 15k 17.5k WESTERN EUROPE analysis reports: Source: CAPA Centre for Aviation European airline restructuring: survival strategies for 2014 Airline consolidation: could Europe follow North America’s path to improved margins? Ryanair reports a rare fall in annual profit, but aims for rapid rebound and goes in search of yield EasyJet narrows its winter losses as it attracts more business travellers Lufthansa’s 1Q2014 losses narrow, but its new CEO has a busy agenda, with helpful partners scarce Lufthansa pilot strike highlights labour issues for Europe’s legacy carriers. It’s time to wake up British Airways adjusts its post-Qantas JSA Asian network and partnerships; Qatar Airways to be next British Airways and bmi: two years after integration, BA has grown some services, reduced others IAG’s 1Q losses narrow. Discipline over capacity, capital and costs provides momentum Virgin Atlantic Airways sees more than a little red, but things were much simpler 30 years ago Iberia: six successive years of losses. Now will 2014 finally see a return to profit? Air France-KLM: 1Q losses narrow, but needs more cargo restructuring. Will financial targets slip? KLM looks to grow partnerships in Asia, which are becoming larger targets than North America’s Transavia France to add destinations, but Air France-KLM’s LCC vision remains relatively limited SAS yield decline outweighs cost cuts to give wider losses in 2Q. Market share versus profitability? Norwegian Air Shuttle’s record 1Q loss: fighter pilot, lawyer, novelist needed? Pg 80 | CAPA World Aviation Yearbook 2014 Western Europe TOP 10 AIRLINES WITHIN WESTERN EUROPE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Ryanair 1,757,700 2 easyJet 1,310,448 3 Lufthansa 1,032,375 4 SAS 690,747 5 Air France 686,860 6 British Airways 7 airberlin 562,324 8 Norwegian Air Shuttle 562,096 9 Vueling Airlines 471,636 10 KLM Royal Dutch Airlines 402,543 618,974 CAPACITY BY CARRIER TO/FROM/WITHIN WESTERN EUROPE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Qantas Airways 763,564 Virgin Australia 513,468 Jetstar Airways 367,404 Air New Zealand 304,055 Emirates 90,734 Tigerair Australia 84,960 Singapore Airlines 84,814 Air Niugini 49,428 United Airlines 49,104 Other 589,739 0k 200k 400k 600k 800k WESTERN EUROPE TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Barcelona El Prat Airport 809,602 2 London Heathrow Airport 808,704 3 Frankfurt Airport 772,052 4 Amsterdam Airport Schiphol 757,709 5 Adolfo Suarez Madrid Barajas Airport 741,534 6 Paris Charles De Gaulle Airport 731,579 7 Rome Fiumicino Airport 656,188 8 Munich Airport 638,030 9 London Gatwick Airport 606,719 10 Oslo Airport 579,691 Pg 81 | CAPA World Aviation Yearbook 2014 1,000k EUROPE CONTINUES TO BE A DIVIDED CONTINENT, with Western Europe being home to most of the bigger airlines, while Eastern Europe enjoys the more rapid growth in air traffic. On short/medium-haul, the LCC business model continues to demonstrate its superiority over FSCs, although the sharpness of the dividing lines has been blurred by the Big Three legacy groups’ strategic moves in the LCC segment. Losing share within the continent, their long-haul profitability is underpinned by Atlantic joint ventures with North American partners, a model now also pursued by Virgin Atlantic. Gulf carrier competition continues to affect their long-haul operations to the East, although a discernable shift in attitudes may see further new developments in this direction in 2014. Another, different, geographic dividing line defines the economic outlook too, as northern Europe shows signs of improvement, prompting hopes of increased business and discretionary travel. Overall RPK growth for European airlines, legacy and LCC combined, slowed to 3.8% in 2013, from 5.3% in 2012, according to IATA. This is forecast to rise to 4.7% in 2014, which is below IATA’s world RPK growth forecast of 6.0% for 2014 (versus 5.2% achieved in 2013). The increased emphasis by full service carriers on longhaul relative to short-haul meant that growth in AEA passenger-km, up 2.7%, was again higher than growth in AEA passenger numbers, up 1.6% in 2013. Indeed, longhaul passenger numbers were up by 3.5%, while short-haul traffic grew by only 1%. AEA average load factor reached an all-time high of 79.9%, up 0.7 ppts against 2012. Members of the European Low Fares Airline Association saw passenger numbers grow by 6.3% (adjusting for changes in membership) and load factor gain 1.2 ppts to 83.5% in 2013 (12 months to Jun-2013). Statistics from Eurocontrol show that traffic picked up during the course of the year, with 1Q2013 experiencing 5% fewer flights than a year earlier, but equalling and then exceeding the prior year in the summer and autumn. Overall, however, 2013 saw the total number of flights in European air space fall by 0.8% compared with 2012. By contrast with the growth in most countries in Eastern Europe, Spain, Germany, Italy and France saw a significant reduction in the number of flights in 2013. Eurocontrol forecasts an increase of 1.4% in the number of flights in 2014, reversing two years of declines, with Eastern Europe again outpacing the West. Growth in the number of flights is forecast to be more muted in the major Western countries of France (2.0%), Germany, (1.7%), UK (1.3%), Italy (0.9%) and Spain (a decline of 0.6%). In 2013, positive growth in passenger traffic – in spite of a fall in the number of flights – was the result of higher load factors and larger average numbers of seats per aircraft. If these trends continue in 2014, then passenger growth should again outpace the growth in flights and should also be stronger than in 2013, as forecast by IATA. In addition, growth in passenger traffic should reflect the relative strength of East versus West as identified by Eurocontrol. Continued red ink may start to test the holding power of a couple of airlines. WESTERN EUROPE FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 6k 5k 4,350 4k 3k 2k 1,318 1k 210 0k In service In storage On order WESTERN EUROPE BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 3.3% 10.4% 10.6% 55.8% 19.8% Narrowbody Jet Widebody Jet Small Commercial Turboprop Turboprop Regional Jet WESTERN EUROPE CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 14.6% 14.7% 47.3% 23.3% Unaligned Star Alliance oneworld Pg 82 | CAPA World Aviation Yearbook 2014 SkyTeam In the freight markets, Europe’s airlines carried 1.8% more freight tonne-kms in 2013 than in 2012, according to IATA data, reversing the 2.9% decline of 2012 and growing slightly faster than the world average of 1.4% in 2013. Europe played its part in making 2013 a record year for aircraft orders, with a number of leading airline groups placing long-awaited orders. Ryanair placed an order for 175 new Boeing 737-800s, easyJet for 135 Airbus A320s (of which 100 were for the neo), Lufthansa for 100 A320 family aircraft and 59 widebodies (34 Boeing 777-9Xs and 24 Airbus A350-900s). Even IAG, until recently very reticent to add to the group’s fleet, committed to 98 firm orders (30 A320 and 32 A320neos for Vueling, 18 converted Boeing 787 options and 18 A350s for BA) and a further 158 options on Airbus narrowbodies. Europe’s fastest growing FSC, Turkish Airlines, placed orders in 2013 for up to 117 Airbus narrowbodies (including 35 options over A321neo aircraft) and up to 95 Boeing narrowbodies (including 25 options over 737 MAX8s). It aims to grow its fleet to 436 aircraft in 2021 from 232 at the end of 2013, with most of the planned growth coming from the short/medium-haul fleet. A significant order for widebodies is expected, but not in 2014 as THY continues to focus primarily on the more than 40% of worldwide international traffic that is within narrowbody range of its Istanbul hub. The LCCs’ faster growth relative to the FSCs looks set to continue in 2014. Ryanair will take delivery of the first of its 175 new aircraft in Sep-2014 and plans seat growth of about 3% this year, slightly slower than the 5% planned by easyJet. While this planned growth by the big two European LCCs is in a similar range to that envisioned by some of the leading FSCs, the likes of Norwegian Air Shuttle, Vueling, Wizz Air and Pegasus are seeking double digit growth. Turkish Airlines remains the notable exception to the generalisation that FSC growth is relatively slow, as it continues to pursue LCC-like double digit capacity growth. Ryanair will have additional reasons to regard 2014 as an important year, during which it will take its first delivery under the new Boeing order, and decide whether or not to press the button on an anticipated 737MAX order. For years the icon for believers in the purist LCC model, Ryanair will be a somewhat changed beast by the end of the year. Allocated seating; a new user-friendly website; a less penal approach to passengers who need to check in bags or reprint their boarding pass at the airport; new distribution channels including a dedicated mobile app and GDS partners; and a greater presence in primary airports – all of these should be in place in the coming months. For Norwegian, 2014 will be the first full calendar year of long-haul operations and a test of whether its long-haul lowcost model can become firmly established, particularly on the North Atlantic as it launches new US routes from London Gatwick this summer. It will have 12 out of its 14 long-haul routes operating to the US. Norwegian’s long-haul adventure is just one example of how the business models of Europe’s LCCs and FSCs are continuing to move towards common ground in 2014. Vueling has long been known for additional product features and easyJet’s push to attract business passengers is now three or four years old. Moreover, the Big Three legacy flag carrier groups will further evolve their LCC subsidiaries. Air France-KLM’s Transavia France subsidiary is to add new routes and aircraft; WESTERN EUROPE PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 250 200 150 100 50 72 28 27 737 20 26 20 25 747 20 24 777 20 23 20 22 20 21 A380 20 20 20 19 A350 20 18 20 17 A330 CSERIES 20 16 20 15 A320 CRJ 20 20 20 14 0 787 E175 WESTERN EUROPE MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 29.4% 30.7% 3.1% 3.1% 4.0% 4.0% 4.5% A320 737 A330 21.3% 777 747 DHC8 A340 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN WESTERN EUROPE: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 50 40 37.1% 32.9% 38.3% 38.5% 37.8%38.3% 33.8% 29.6% 30 24.6% 21.6% 19.1% 20 15.0% 9.1% 10 5.4% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 83 | CAPA World Aviation Yearbook 2014 JanMay 2014 Lufthansa’s Germanwings will add Duesseldorf to the list of German airports converted to its brand from the parent company in point to point non-hub flying; and IAG will experience its first full year of owning Vueling, which will open bases at Rome Fiumicino, Palermo and Brussels on a stand-alone basis. Russia’s national carrier, Aeroflot, is to join the Big Three in establishing a LCC subsidiary with the launch of Dobrolet. Although there are currently no domestic LCCs in Russia, and LCCs account for only 4% of seats on international routes to/from the country, Russia looks set to be a growth market for LCCs, with flydubai, easyJet and Wizz Air already operating there and Ryanair having obtained rights. Although Europe’s airlines are generally on an improving trend in terms of financial results, this hides wide disparities in margins and balance sheet strength. Almost every FSC in the region is in the middle of an on-going restructuring programme to reduce their cost base. In addition, some are using their geographical location to pursue a niche network strategy, for example Finnair to Asia, TAP Portugal and Air Europa to Latin America and Icelandair to North America. The Lufthansa Group, Air France-KLM and IAG’s Iberia are notable examples of those that are battling to secure a more stable platform for future profitability. For airlines such as SAS, Alitalia, LOT Polish Airlines, Virgin Atlantic and flybe, the restructuring battle is still (to a greater or lesser degree) one of survival; profit improvement measures may not be enough. SAS has made progress with its cost reduction, but clearly feels that an additional liquidity cushion is necessary, suggesting that its restructuring programme may not deliver fully on its targets. Virgin Atlantic’s future looks more secure now that it is developing a joint venture on the Atlantic with its 49% owner Delta. However, to date, Delta has not provided fresh funds and its restructuring programme remains very important to restoring profits and shoring up its balance sheet. Gulf-based Etihad has begun to play an increasingly important role in Europe now. Alitalia now looks set to receive an investment from Etihad, which has said that it is in the final stages of due diligence. Other European carriers – airberlin, Darwin Airline (now Etihad Regional) and Air Serbia – have already received investment from Etihad, whose Equity Alliance, supplemented by bilateral codeshares, continues to extend the Abu Dhabi carrier’s reach into Europe and beyond. (Etihad also has a stake in Aer Lingus, but the Irish carrier did not receive new funds, nor was it in financial distress.) 2013 saw significant shifts in the attitudes of the major European legacy carriers towards their competitors from the Gulf, as well as some changes in the strategic stance of the Gulf carriers towards global partnerships. Qatar Airways joined oneworld (sponsored by British Airways) and Air France-KLM started to codeshare with Etihad. Lufthansa and Emirates, who entered into a JV agreement with Qantas, both hinted that they may be open to some form of partnership with one another in the future. Lufthansa remains the only one of the Big Three in Europe not to have embraced one of the Gulf Three carriers; meanwhile pressure to address its strategic options towards the Middle East and Asia Pacific is growing following the end of Lufthansa’s codeshare with Star Alliance partner Turkish Airlines. The AEA’s last estimate for its members’ aggregate Europe remains the least profitable of the world’s major aviation regions. Almost every FSC in the region is in the middle of an ongoing restructuring programme to reduce their cost base. Pg 84 | CAPA World Aviation Yearbook 2014 EBIT figure was close to break-even in 2013. For Europe as a whole, IATA predicts a net margin of 1.3% for 2014, compared with 0.2% in 2013. This includes the LCCs, who are not members of AEA, and who look set to outpace the legacy carriers on both traffic growth and profits. Nevertheless, even with the contribution of the LCCs to regional profitability, Europe remains the least profitable of the world’s major aviation regions (among all the regions, only Africa has lower margins than Europe). For many of Europe’s legacy carriers, 2014 could be the year of reckoning for their restructuring programmes, either providing the much needed platform for future financial health, or leaving little alternative to closure or seeking acquisition. Western Europe Selected Airlines RYANAIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 80 1. Ryanair 60 40 20 19 20 18 20 17 20 16 20 15 20 14 0 20 Ryanair is Europe’s largest airline, the largest low-cost carrier, and one of the world’s largest airlines as measured by international passengers carried. Ryanair has its largest base at London Stansted Airport, and second-largest base at Dublin Airport. Ryanair currently operates a network covering over 40 bases and 1,100 routes (with over 1,300 daily departures) across 26 countries, connecting some 155 destinations. Ryanair operates a fleet of over 250 B737-800 aircraft, with a large order backlog and employs more than 8,000 people. 737 *Excludes new aircraft that are coming from leasing companies RYANAIR STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4000 RYANAIR FLEET SUMMARY AS AT MAY-2014 3500 SOURCE: CAPA FLEET DATABASE 3000 IN SERVICE IN STORAGE ON ORDER Boeing 737-800 297 0 180 Total: 297 0 180 No. of Weekly Frequencies AIRCRAFT 2500 2000 1500 1000 500 0 -500 0 2 4 6 Flight Time (Hours) RYANAIR TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 20,790 seats STN - DUB DUB - LGW 11,718 seats 11,340 seats DUB - MAN STN - CIA 10,962 seats DUB - BHX 10,584 seats STN - BCN 10,584 seats STN - MAD 10,584 seats STN - BGY 10,584 seats 9,450 seats DUB - EDI DUB - LPL 9,072 seats 0k Pg 85 | CAPA World Aviation Yearbook 2014 5k 10k 15k 20k 25k Western Europe Selected Airlines EASYJET PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 30 25 2. easyJet 20 15 10 5 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 Based at London Luton Airport, with its busiest base at London Gatwick Airport, easyJet was founded by Sir Stelios Haji-Ioannou and is listed on the London Stock Exchange. The carrier has experienced rapid growth since its establishment in 1995, having expanded due to a combination of acquisitions and base openings triggered by consumer demand for low-cost air travel. Using a fleet of Airbus and Boeing narrow-body aircraft, easyJet operates an extensive network throughout Europe as well as to northern Africa and Israel supported by over 15 hubs spread throughout Europe. A320 *Excludes new aircraft that are coming from leasing companies EASYJET STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4k EASYJET FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER Airbus A319-100 140 0 0 Airbus A320-200 60 0 46 0 0 100 200 0 146 Airbus A320200NEO Total: No. of Weekly Frequencies AIRCRAFT 3k 2k 1k 0k -1k 0 2 4 6 Flight Time (Hours) EASYJET TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 15,528 seats MXP - CDG 14,640 seats GVA - LGW 14,232 seats AMS - LGW BCN - LGW 13,680 seats 11,616 seats FCO - ORY AGP - LGW 11,376 seats MXP - LGW 11,352 seats NCE - LGW 11,280 seats 10,128 seats MAD - LGW FCO - LGW 10,032 seats 0k Pg 86 | CAPA World Aviation Yearbook 2014 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k Western Europe Selected Airlines LUFTHANSA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 40 3. Lufthansa 30 20 10 A320 A350 A380 747 25 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 With its headquarters in Cologne and primary hubs at Frankfurt and Munich airports and secondary hubs in Berlin, Dusseldorf, Hamburg, Stuttgart and Milan, Lufthansa is one of the largest airlines in Europe. Operating a large fleet of narrow and wide-body Airbus, Boeing and Embraer aircraft, Lufthansa operates an extensive network of regional services within Germany and Europe as well as Asia, the Middle East, North America, South America and Africa. A publicly listed company, Lufthansa is a founding member of Star Alliance. 777 *Excludes new aircraft that are coming from leasing companies LUFTHANSA STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 6k LUFTHANSA FLEET SUMMARY AS AT MAY-2014 5k SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER No. of Weekly Frequencies AIRCRAFT 4k Airbus A319-100 32 0 0 Airbus A320-200 60 0 33 0 0 64 Airbus A321-100 20 0 0 Airbus A321-200 42 0 2 Airbus A321-200NEO 0 0 40 Airbus A330-300E 9 0 0 Airbus A330-300X 10 0 0 Airbus A340-300 2 1 0 Airbus A340-300X 18 0 0 Airbus A340-600 12 0 0 Airbus A340-600(HGW) 12 0 0 Airbus A350900XWB 0 0 25 Airbus A380-800 11 0 3 FRA - VIE Boeing 737-300 9 2 0 MUC - LHR Boeing 737-500 9 6 0 FRA - FCO Boeing 747-400 18 2 0 BRU - FRA 1 1 0 FRA - PRG Boeing 747-8 13 0 6 FRA - AMS Boeing 777-9X 0 0 20 FRA - VCE 278 12 193 Airbus A320200NEO Boeing 747-400M Total: 3k 2k 1k 0k -1k 0 5 10 LUFTHANSA TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 27,086 seats FRA - LHR FRA - CDG Pg 87 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 22,720 seats 21,652 seats FRA - BCN 19,600 seats 18,108 seats 16,672 seats 15,182 seats 14,648 seats 13,748 seats 13,684 seats 0k 5k 10k 15k 20k 25k 30k 35k Western Europe Selected Airlines BRITISH AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 12 4. British Airways 10 8 6 4 2 777 22 20 20 21 20 A380 20 A350 19 20 18 20 17 20 16 20 15 20 14 0 20 British Airways (BA) is the national carrier of the United Kingdom, a subsidiary of publicly-listed International Consolidated Airlines Group (IAG), and is based at London Heathrow Airport with a secondary base at London Gatwick Airport. Using a fleet of wide and narrow-bodied Airbus and Boeing aircraft, BA’s extensive network, including that of franchise partners Sun Air (Turkey) and Comair (South Africa), includes services to Europe, North America, Latin America, Canada, Africa, Asia and Australia. BA is a founding member of the oneworld alliance. 787 *Excludes new aircraft that are coming from leasing companies BRITISH AIRWAYS STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2500 BRITISH AIRWAYS FLEET SUMMARY AS AT MAY-2014 2000 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER 2 0 0 Airbus A319-100 44 0 0 Airbus A320-200 53 0 0 Airbus A321-200 18 0 0 Airbus A3501000XWB 0 0 18 Airbus A380-800 5 0 7 Boeing 737-400 13 2 0 Boeing 747-400 47 7 0 Boeing 767-300ER 18 3 0 Boeing 777-200 3 0 0 Boeing 777-200ER 43 0 0 Boeing 777-300ER 10 0 2 Boeing 787-10 0 0 12 Boeing 787-8 4 0 4 Boeing 787-9 0 0 22 260 12 65 Total: No. of Weekly Frequencies AIRCRAFT Airbus A318-100 1500 1000 500 0 -500 0 5 15 BRITISH AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 37,514 seats LHR - JFK LHR - MAD 22,016 seats 17,208 seats LHR - FCO LHR - AMS 16,780 seats 16,232 seats LHR - BOS LHR - BCN 15,452 seats LHR - GVA 14,840 seats LHR - TXL 14,556 seats 14,020 seats LHR - NCE LHR - CDG 13,720 seats 0k Pg 88 | CAPA World Aviation Yearbook 2014 10 Flight Time (Hours) 5k 10k 15k 20k 25k 30k 35k 40k 45k 50k Western Europe Selected Airlines AIR FRANCE PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 20 5. Air France 15 10 5 A320 A350 A380 777 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 A subsidiary of the Air France-KLM Group and based in Paris, Air France is the national airline of France. The airline merged with Dutch flag carrier KLM in 2004, forming one of the world’s largest airline groups. The airline is based at Paris Charles de Gaulle Airport, with smaller hubs at Paris-Orly, Lyon and Nice airport. Air France operates an extensive global network, serving almost 200 destinations across North America, South America, Asia and Africa. Air France is a founding member of SkyTeam. 787 *Excludes new aircraft that are coming from leasing companies AIR FRANCE STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 4k AIR FRANCE FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER 3k No. of Weekly Frequencies Airbus A300B4-200 0 1 0 Airbus A318-100 18 0 0 Airbus A319-100 39 0 0 Airbus A319-100LR 2 0 0 Airbus A320-200 44 3 3 Airbus A321-100 5 0 0 Airbus A321-200 20 0 0 Airbus A330-200 15 0 0 Airbus A340-300 3 0 0 Airbus A340-300X 10 0 0 Airbus A350900XWB 0 0 25 Airbus A380-800 9 0 3 Boeing 747-400 6 0 0 CDG - JFK Boeing 747-400ERF 2 1 0 CDG - LHR Boeing 747-400M 1 0 0 CDG - BCN Boeing 777-200ER 25 0 0 CDG - GVA Boeing 777-300ER 37 0 5 CDG - FCO Boeing 777F 2 0 0 CDG - MAD Boeing 787-9 0 0 37 CDG - AMS 238 5 73 CDG - TXL Total: 2k 1k 0k -1k 0 5 15 AIR FRANCE TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 21,764 seats 18,938 seats 17,338 seats 16,612 seats 15,766 seats 15,440 seats 13,592 seats 13,264 seats 12,002 seats CDG - LIN CDG - MUC 11,866 seats 0k Pg 89 | CAPA World Aviation Yearbook 2014 10 Flight Time (Hours) 5k 10k 15k 20k 25k 30k Western Europe Selected Airlines KLM ROYAL DUTCH AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 2 6. KLM Royal Dutch Airlines 1 16 20 15 20 20 14 0 777 Based in Amsterdam, KLM is the national airline of the Netherlands. Part of the Air France-KLM Group, KLM operates an extensive network which includes services within Europe and to Asia, Africa, North America, Central and South America and the Middle East. KLM is a founding member of the SkyTeam alliance. *Excludes new aircraft that are coming from leasing companies KLM ROYAL DUTCH AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2500 KLM ROYAL DUTCH AIRLINES FLEET SUMMARY AS AT MAY-2014 2000 SOURCE: CAPA FLEET DATABASE IN SERVICE IN STORAGE ON ORDER 12 0 0 Airbus A330-300 4 0 0 Boeing 737-700 18 0 0 Boeing 737-800 25 0 0 Boeing 737-900 5 0 0 Boeing 747-400 5 0 0 Boeing 747-400ERF 3 0 0 Boeing 747-400M 17 0 0 Boeing 777-200ER 15 0 0 Boeing 777-300ER 8 0 3 Boeing/McDonnell Douglas MD-11 5 2 0 117 2 3 Total: No. of Weekly Frequencies AIRCRAFT Airbus A330-200 1500 1000 500 0 -500 0 5 10 KLM ROYAL DUTCH AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 19,086 seats AMS - LHR AMS - CDG 13,780 seats 13,232 seats AMS - JFK AMS - BCN 12,776 seats AMS - TXL 12,024 seats AMS - MAN 11,964 seats AMS - MAD 11,900 seats AMS - FCO 11,900 seats AMS - CPH 11,796 seats AMS - ARN 11,656 seats 0k Pg 90 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k 22.5k 25k NORTH AMERICA analysis reports: Source: CAPA Centre for Aviation US airlines mostly post encouraging 1Q2014 results; but it’s a long and winding road to stability Dallas/Fort Worth airport secures Shanghai and Hong Kong services, seeks Beijing and maybe Istanbul North American hybrid airlines offer a range of possibilities as consolidation takes hold: Part 2 Delta Air Lines’ 2014 network strategy entails bypassing Tokyo and leveraging partnerships Allegiant Air’s strong fundamentals remain intact even as costs continue to rise; US ULCCs Part 1 Delta Air Lines continues to work towards achieving investment-grade with strong 1Q2014 results Delta Air Lines’ loss at Dallas Love Field is Seattle’s gain, but Alaska Air still feels more pain JetBlue Airways’ hybrid model remains enigmatic as cost creep outpaces revenue production Southwest Airlines continues work to drive network strength in the US market Southwest Airlines’ paradox - strong fundamentals confronted by a challenged business model Spirit Airlines joins the dots in 2014, with also some new growth in Kansas City; US ULCCs Part 3 United Airlines: time to deliver as sceptics look for improved fortunes in 2Q2014 Air Canada eyes healthy demand in the summer season after racking up losses in 1Q2014 WestJet continues attempts to recoup its revenue slide as new international service debuts Porter Airlines’ plans remain in limbo as its competitors work to sustain their long-term viability Pg 91 | CAPA World Aviation Yearbook 2014 North America TOP 10 AIRLINES WITHIN NORTH AMERICA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Delta Air Lines 3,549,840 2 Southwest Airlines 3,283,031 3 United Airlines 2,674,725 4 American Airlines 2,145,360 5 US Airways 2,005,329 6 Air Canada 737,596 7 Alaska Airlines 650,044 8 JetBlue Airways 619,280 9 WestJet 449,032 10 Spirit Airlines 278,993 CAPACITY BY CARRIER TO/FROM/WITHIN NORTH AMERICA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Delta Air Lines 3,928,824 United Airlines 3,357,796 Southwest Airlines 3,292,146 American Airlines 2,692,052 US Airways 2,179,842 Air Canada JetBlue Airways Alaska Airlines WestJet 910,820 735,220 685,083 474,587 Other 0M 3,965,852 1M 2M 3M 4M 5M NORTH AMERICA TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Hartsfield-Jackson Atlanta International Airport 2 Chicago O'Hare International Airport 1,369,723 3 Dallas/Fort Worth International Airport 1,280,940 4 Los Angeles International Airport 1,211,229 5 Denver International Airport 1,127,587 6 Charlotte Douglas International Airport 974,009 7 Las Vegas McCarran International Airport 941,795 8 Phoenix Sky Harbor International Airport 923,904 9 San Francisco International Airport 879,182 10 Minneapolis St Paul International Airport 747,291 Pg 92 | CAPA World Aviation Yearbook 2014 1,955,191 DESPITE RECENT STRONG RETURNS, SIGNS OF COST AND CAPACITY CREEP ARE POLLUTING THE NORTH AMERICAN INDUSTRY. Most North American airlines entered 2014 on relatively sound footing, buoyed by solid FY2013 profits, a stabilising US economy and lower fuel prices, albeit still in the USD90 to USD100 per barrel range. Carriers executing the spectrum of business models – full service, hybrid and ultra lowcost – are busy building out their strategies in the hopes that a foundation is laid for the industry to thrive, rather than merely survive. The only clouds on the horizon are proposed increases in capacity and upward cost pressures. With nearly three years of profitability on record, discussions among management teams at North American carriers are gravitating toward shareholder returns, something largely unheard of during the previous decade. In 2013, Delta returned USD350 million in cash to shareholders, and targets total returns of USD700 million by May-2014. Alaska Air Group issued its first dividend in 21 years during 2013 while Canadian hybrid carrier WestJet increased its 1Q2014 quarterly shareholder dividend by 20%. Despite the foundations North American airlines have laid in order to sustain profitability, capacity and costs have been growing at the majority of carriers during 2014. But those airlines are taking great care to emphasise the capacity uptick is largely driven by migration to larger-gauge jets rather than a return to the days of airlines dumping irrational supply into the market place. At the moment revenue momentum seems strong enough to offset the unit cost pressure that both low-cost and full service carriers face this year, but if conditions soften, airlines may have to temper capacity growth to protect their profits. Even as weakness in the emerging markets created some jitters in early 2014, the three large US network carriers were bullish regarding demand, particularly in the domestic market. Delta, United and American (including results for US Airways) increased domestic yields during 4Q2013 by 9%, 6% and 4%, respectively. Each carrier seemed encouraged by positive demand trends heading into 2014, and for the moment have no plans to revise their capacity guidance for the full year. Of the three major US carriers, the “new” American has the largest planned capacity increase for 2014 of 3.5%. The carrier estimates 2.6ppt of the planned increase results from the operation of higher density aircraft that American believes is P&L positive given the incremental revenue from higher density aircraft goes straight to its bottom line. United plans it first consolidated capacity increase in three years during 2014 of 1% to 2%. Similar to American, the carrier states the rise is driven by aircraft upgauging as it takes delivery of higher density narrowbodies and regional jets, and the addition of slimeline seats to existing aircraft. Delta expects flat to 2% capacity growth during 2013 – again driven by a years-long scheme to replace 50 seat jets with higherdensity aircraft. In 2014, Delta aims to continue sharpening its competitive edge against its full service peers. The airline’s major initiatives include turning the corner to profitability in New The threat of ULCC entry remains as yields increase and the majors reduce hub coverage. NORTH AMERICA FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 12k 10k 8,401 8k 6k 4k 2,272 2k 547 0k In service In storage On order NORTH AMERICA FLEET BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 7.1% 13.3% 43.7% 13.6% 22.3% Narrowbody Jet Turboprop Regional Jet Widebody Jet Small Commercial Turboprop NORTH AMERICA CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 19.6% 34.2% 22.0% 24.2% Unaligned oneworld Star Alliance Pg 93 | CAPA World Aviation Yearbook 2014 SkyTeam York at its hubs in JFK and LaGuardia, bolstering its own branded feed at its Asian gateway in Seattle and reversing losses at the Trainer oil refinery it purchased in 2012. High hopes for Trainer were steadily dampened throughout the course of 2013 as the business bled USD116 million for the full year. Obviously American’s largest task in 2014 will be the integration with US Airways; that includes network optimisation, crafting a blueprint for migration of technology platforms and navigating the often thorny task of combining labour groups. Plans are already under way to rebank the Miami hub during late 2014 followed by similar changes in Dallas/Fort Worth and Chicago O’Hare. These are not small challenges and with so much in flux at American during 2014, any predictions of the carrier’s performance are best shelved until 2015 at the earliest. However, it does appear that American aims to study lessons learned from previous mergers in order to avoid pitfalls experienced by other carriers. The proof always lies in execution, and American in 2014 faces considerable scrutiny as the integration progresses. United’s shareholders are welcoming its declaration that 2013 was the year it left integration challenges behind. But those investors are also justified in harbouring some scepticism given the carrier still needs to deliver on USD1.2 billion merger synergies it promised four years ago when it tabled plans to merge with Continental. There are signs of positive momentum as United achieved its stated return on invested capital (ROIC) goal of 10% during 2013. But challenges in 2014 include a unit cost creep of 1% to 2% and delivering a unit revenue performance that mirrors its peers. United has improved its passenger unit revenue metrics relative to its peers after running at a deficit for most of 2012 and some of 2013. American, Delta and United all recorded FY2013 passenger unit revenue growth of roughly 3%, which bodes well for United’s recent revamp of its revenue management system. The one-time US low-cost pioneer Southwest Airlines expects a 2% to 3% jump in unit costs excluding fuel during FY2014, which is in line with estimates provided by major airlines Delta and United. Southwest concludes much of the cost pressure it faces during 2014 stems from integration with AirTran, which it expects to complete this year. Notably, the carrier’s estimates do not include any projections from new labour contracts. Southwest is in the midst of negotiations with all its organised labour groups, and cracks are emerging in its historical favourable relations, illustrated by the carrier’s suspicions of a work slow-down in Jan-2014 by some employees at Chicago Midway. On a broader scale Southwest remains outside of any of the three emerging business models, something the carrier believes helps to preserve its renegade image. But with a narrower cost gap versus its legacy peers and fewer amenities than hybrid carriers, Southwest finds itself at a crossroads in terms of its evolution. No one is questioning its still-loyal following, but with the US reaching full-scale maturity, Southwest needs a sure-fire strategy to sustain its leading position in the market. The threat of ULCC entry remains as yields increase and the majors reduce hub coverage. As consolidation has reduced competition, established ultra low-cost carrier Spirit Airlines refocussed its attention back into the domestic market and a reformulated Frontier Airlines was quick to step into the hole being left at Cleveland as United vacates its hub there. NORTH AMERICA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 350 300 250 200 150 100 50 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21 20 22 20 23 20 24 20 25 20 26 20 27 20 28 20 29 20 30 20 31 20 32 0 767 E190 737 E175 777 MRJ 787 A320 A330 A350 DHC8 CRJ NORTH AMERICA MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 18.7% 35.2% 11.8% 4.9% 11.4% 5.0% 737 CRJ A320 6.7% 6.2% 757 EMB145 CARAVAN MD-80 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN NORTH AMERICA: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 40 30 24.0% 24.9% 26.0% 27.1% 28.5% 28.0% 28.7% 29.7% 30.1% 30.1%30.3% 21.9% 20 19.8% 17.6% 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 94 | CAPA World Aviation Yearbook 2014 JanMay 2014 Spirit Airlines too expects some cost pressure in 2014 driven by new US pilot duty and rest time regulations and its average 22% growth rate during the next couple of years. However, its projected 4Q2013 unit costs excluding fuel and special items were in the USD5.98 cent to USD6.03 cent range, well below Southwest and all other US carriers. Spirit also expected 3% unit revenue growth year-on-year in the quarter, which shows positive demand among its targeted passenger base of customers that normally can not afford air travel except for Spirit’s low fares. The three US hybrid carriers – Alaska, Hawaiian and JetBlue – also enjoyed profitability during 2013. All of those airlines continued their trend of higher than average capacity growth during 2013, with Alaska and JetBlue each recording an approximate 7% year-on-year increase in supply. Hawaiian’s roughly 14% jump in capacity was mainly driven by its long-haul growth largely centered in Asia. Alaska and JetBlue’s higher than average capacity growth did not pressure each carrier’s profits in 2013. Alaska’s net income jumped 61% to USD508 million while JetBlue increased 31% to USD168 million. Both carriers also expect unit costs to rise in FY2014 – a 1% rise at Alaska and a 3% to 5% increase at JetBlue. Alaska’s increase appears driven by one-time items such as IT and marketing spend, while a rise in pilot wages accounts for a large portion of JetBlue’s increase. JetBlue believes it can achieve a 7% return goal in 2014 after falling short of ROIC targets in 2012 and 2013. While Alaska’s robust balance sheet allows the carrier to discuss concrete shareholder returns, JetBlue is in the midst of paring down its debt. JetBlue is a much younger company than Alaska, but as investors get a whiff of sustained profitability, their appetite for at least a blueprint of shareholder return is growing. The major cloud hanging over Alaska during 2014 is its diminishing relationship with Delta at Alaska’s Seattle hub. By Sep-2014 Delta will compete with Alaska head-on in numerous domestic markets from Seattle to feed its long-haul trans-Pacific flights, and is opting to operate those services with its own metal rather than tap a long-standing codeshare with Alaska. Executives at Alaska believe the carrier can withstand the added competitive pressure from Delta; but backfilling the annual USD200 million-plus revenue the Delta codeshare fetches for Alaska is a daunting task for the carrier. Hawaiian’s stated goals for 2014 are maturing the approximately 10 long-haul markets it has introduced since 2010. Most are to date delivering a negative burden. By 4Q2014 Hawaiian estimates new markets should account for only 8% of its international capacity deployment, compared with 30% during 4Q2012. The carrier also expects to drop its capacity growth to 5% in 2014 versus a 14% hike in supply during 2013. In the medium term Hawaiian declared it will generate positive free cash flow during 2016 after taking delivery of all 22 A330 widebodies it has on order. Canada’s two major airlines, Air Canada and WestJet, also enter 2014 on reasonably sound footing, which is key as each carrier’s new business enterprise – Air Canada’s long-haul low-cost carrier Air Canada rouge and WestJet’s regional subsidiary Encore – log a full year of operations in 2014. Since Encore’s launch in mid-2013, WestJet has announced the new airline has performed better than expectations, and estimates roughly 50% to 60% of Encore’s passengers connect to its mainline services, which should .5% 3 THE LARGEST CAPACITY INCREASE FOR 2014, PLANNED BY THE “NEW” AMERICAN Pg 95 | CAPA World Aviation Yearbook 2014 ultimately be a positive force for the carrier’s revenue growth. WestJet is also warning of cost pressure in 2014, having revised its full year unit cost guidance upwards to a 1.5% to 2.5% rise versus previous estimates of flat to 1% growth. Air Canada plans a hefty 9% to 11% rise in its capacity during 2014, with international growth representing the bulk of its expanding supply. The carrier is adding six Boeing 787-8s to its mainline operations in 2014, while rouge should end the year with six 767s. Air Canada is also operating five higher-density, 458-seat Boeing 777-300ERs this year to markets featuring a higher level of economy passengers, including Hong Kong and Paris. The establishment of rouge and Air Canada’s operation of higher density aircraft are factors cited in the airline’s ambitious goals of slashing its unit costs by 15% in the medium term. After a tumultuous previous couple of years, Air Canada entered 2014 with a strengthening balance sheet and falling debt levels, which improves its ability to compete with WestJet, who is feeling out the potential for trans-Atlantic service with new seasonal narrowbody service from Toronto to Dublin via St John’s beginning in Jun-2014. If WestJet turns a favourable performance in its foray into true longhaul markets, rouge faces a formidable competitor on its lower-yielding trans-Atlantic services. “Mastery” was the buzzword of choice for executives at Hawaiian Airlines as they outlined the carrier’s goals for 2014. Perhaps that sentiment is appropriate for the North American market as a whole this year as each of the region’s carriers needs to accomplish pivotal tasks to prove their respective business models of choice have staying power throughout the unpredictable rises and falls of a business cycle. Airlines operating in North America deserve some credit for their accomplishments during the last few years to create a rational airline industry. But it is still too early to declare a complete and successful turnaround in the North American market. For the short term, the main challenge for airlines will be to master sustainability amid rising costs and a still fragile demand recovery. North America Selected Airlines DELTA AIR LINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 50 40 1. Delta Air Lines 30 20 10 A320 A330 32 31 20 30 20 29 20 28 20 27 787 20 26 737 20 25 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 20 14 0 20 Based in Atlanta, Delta Air Lines merged with Northwest Airlines in Oct2008 to form one of the largest airlines in the world. Operating an extensive fleet of Boeing and Airbus aircraft, Delta’s network includes extensive domestic services within the United States as well as international services to Central and South America, the Middle East, Asia, Australia, Africa and Europe. The airline’s main hub is Hartsfield-Jackson Atlanta International Airport, which ranks among the world’s busiest - largely due to Delta’s dominant presence at the facility. Delta also has hubs in New York, Detroit, Minneapolis, Memphis and Salt Lake City in the USA and international hubs at Amsterdam, Tokyo and Paris. Delta is a founding member of SkyTeam. CRJ *Excludes new aircraft that are coming from leasing companies DELTA AIR LINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 DELTA AIR LINES FLEET SUMMARY AS AT MAY-2014 15k SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE 12.5k ON ORDER 57 0 0 Airbus A320-200 69 0 0 Airbus A321-200 0 0 30 Airbus A330-200 11 0 0 Airbus A330-300 0 0 10 Airbus A330-300E 21 0 0 Boeing 717-200 27 0 0 Boeing 737-700 10 0 0 Boeing 737-800 73 0 0 Boeing 737-900ER 20 0 80 Boeing 747-400 16 0 0 Boeing 757-200 96 31 0 Boeing 757-200(ETOPS) 36 0 0 Boeing 757-300 16 0 0 Boeing 767-300 15 6 0 Boeing 767-300ER 58 2 0 Boeing 767-400ER 21 0 0 Boeing 777-200ER 8 0 0 Boeing 777-200LR 10 0 0 Boeing 787-8 0 0 18 SJU - JFK Boeing/McDonnell Douglas DC-9-51 0 31 0 ATL - SJU Boeing/McDonnell Douglas MD-82 1 8 0 Boeing/McDonnell Douglas MD-83 0 3 0 Boeing/McDonnell Douglas MD-87 0 1 0 Boeing/McDonnell Douglas MD-88 117 0 0 Boeing/McDonnell Douglas MD-90-30 65 2 0 STI - JFK 1 0 0 ATL - AMS Bombardier CL-600-2B19(CRJ100LR) Bombardier CL-600-2B19(CRJ200ER) 4 1 0 Bombardier CL-600-2B19(CRJ200LR) 2 1 0 Bombardier CL-600-2D24(CRJ900ERNG) 0 0 17 754 86 155 Total: Pg 96 | CAPA World Aviation Yearbook 2014 No. of Weekly Frequencies Airbus A319-100 10k 7.5k 5k 2.5k 0k -2.5k 0 5 10 15 Flight Time (Hours) DELTA AIR LINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 15,312 seats AMS - DTW ATL - CUN 12,666 seats 12,030 seats MSP - AMS 11,183 seats 11,013 seats LHR - JFK 9,744 seats ATL - MEX 9,688 seats ATL - LHR 9,604 seats 8,320 seats 7,997 seats 0k 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k North America Selected Airlines SOUTHWEST AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 50 2. Southwest Airlines 40 30 20 10 27 26 20 25 20 20 23 24 20 22 20 21 20 20 20 19 20 17 18 20 20 20 16 15 20 20 20 14 0 737 SOUTHWEST AIRLINES FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER Boeing 737-300 122 11 0 Boeing 737-500 15 2 0 Boeing 737-7 0 0 30 398 2 56 Boeing 737-700 Boeing 737-700(ETOPS) 0 2 0 Boeing 737-8 0 0 170 Boeing 737-800 56 1 47 Total: 591 18 303 SOUTHWEST AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 10k 8k No. of Weekly Frequencies Southwest Airlines is an American low-cost carrier headquartered in Dallas, Texas. The archetype low-cost airline that inspired the low-cost movement around the world, Southwest is ranked amongst the largest airlines in the world as measured by passengers carried. Southwest is one of the world’s most consistently profitable airlines, adhering closely to its low-cost tradition but differentiating itself through well-regarded customer service and free baggage checks. Southwest remains one of the most influential airlines in the world, with an enormous fleet of Boeing 737NG aircraft which operate over 3500 services each day to over 70 destinations across the United States. *Excludes new aircraft that are coming from leasing companies 6k 4k 2k 0k -2k 0 2 4 6 Flight Time (Hours) SOUTHWEST AIRLINES INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 6,454 seats SJU - MCO 4,452 seats SJU - BWI 4,004 seats SJU - FLL 2,386 seats SJU - TPA 2,288 seats SJU - ATL 0k Pg 97 | CAPA World Aviation Yearbook 2014 1k 2k 3k 4k 5k 6k 7k 8k North America Selected Airlines UNITED AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 60 50 3. United Airlines 40 30 20 10 A320 A350 737 25 20 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 20 14 0 20 Based at Chicago O’Hare, with secondary hubs in Denver, Houston, Newark, Cleveland, LAX, San Francisco and Washington Dulles, United Airlines is one of the world’s largest airlines. Using a large fleet of narrow and wide-body Airbus and Boeing aircraft, United Airlines operates an extensive domestic and regional network of services within North America as well as international services to Central America, South America, Asia, Australia, Europe and Africa. United Airlines is a founding member of the Star Alliance and announced a merger with Continental Airlines in May-2010. 787 *Excludes new aircraft that are coming from leasing companies UNITED AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 UNITED AIRLINES FLEET SUMMARY AS AT MAY-2014 12.5k SOURCE: CAPA FLEET DATABASE AIRCRAFT IN SERVICE IN STORAGE ON ORDER 10k 55 0 10 Airbus A320-200 97 0 8 Airbus A350-1000XWB 0 0 35 Boeing 737-500 0 3 0 Boeing 737-700 34 0 0 2 0 0 Boeing 737-800 99 0 0 Boeing 737-800(ETOPS) 31 0 0 Boeing 737-9 0 0 100 Boeing 737-700(ETOPS) No. of Weekly Frequencies Airbus A319-100 7.5k 5k 2.5k 0k Boeing 737-900 12 0 0 Boeing 737-900ER 89 0 50 Boeing 747-400 24 0 0 Boeing 757-200 54 6 0 Boeing 757-200(ETOPS) 54 0 0 Boeing 757-300 11 0 0 Boeing 757-300(ETOPS) 10 0 0 Boeing 767-200ER 0 1 Boeing 767-300ER 35 Boeing 767-400ER -2.5k 0 5 10 UNITED AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 15,518 seats IAH - CUN EWR - LHR 14,878 seats 11,572 seats IAH - MEX SFO - NRT 10,472 seats 0 SFO - FRA 10,472 seats 0 0 IAD - LHR 16 0 0 GUM - NRT Boeing 777-200(ETOPS) 19 0 0 ORD - FRA 9,044 seats Boeing 777-200ER 55 0 0 IAH - LHR 8,923 seats Boeing 787-10 0 0 20 Boeing 787-8 10 0 11 Boeing 787-9 0 0 24 707 10 258 Total: Pg 98 | CAPA World Aviation Yearbook 2014 15 Flight Time (Hours) 10,052 seats 9,856 seats ORD - LHR 8,736 seats 0k 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k North America Selected Airlines AMERICAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 80 4. American Airlines 60 40 20 ON ORDER 17 0 7 Airbus A321-200 15 0 67 Airbus A321-200NEO 0 0 100 Boeing 737-8 0 0 100 Boeing 737-800 233 0 73 Boeing 757-200 57 23 0 Boeing 757-200(ETOPS) 29 0 0 Boeing 767-200ER 3 10 0 Boeing 767-300ER 58 0 0 Boeing 777-200ER 47 0 0 Boeing 777-300ER 12 0 8 Boeing 787-8 0 0 12 Boeing 787-9 0 0 30 Boeing/McDonnell Douglas MD-82 89 11 0 Boeing/McDonnell Douglas MD-83 71 6 0 25 20 24 SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 7k Embraer E175STD 0 0 60 631 50 457 5k 4k 3k 2k 1k 0k -1k 0 5 10 15 Flight Time (Hours) AMERICAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 14,336 seats MIA - SJU LHR - ORD 13,643 seats 13,468 seats MIA - GRU JFK - LHR 13,020 seats 12,786 seats MIA - CUN DFW - CUN 11,798 seats 11,592 seats DFW - LHR DFW - MEX 9,800 seats 9,366 seats MIA - CCS MIA - SDQ 9,099 seats 0k Pg 99 | CAPA World Aviation Yearbook 2014 20 23 20 22 20 20 20 20 19 20 18 20 17 20 16 20 21 787 6k Airbus A319-100 Total: 777 AMERICAN AIRLINES STAGE LENGTHS No. of Weekly Frequencies IN STORAGE 737 *Excludes new aircraft that are coming from leasing companies SOURCE: CAPA FLEET DATABASE IN SERVICE 15 A320 AMERICAN AIRLINES FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 14 0 20 A subsidiary of AMR Corporation, American Airlines (AA) is based at Dallas Fort Worth with hubs in Chicago, Miami and New York. AA’s extensive network includes domestic and regional services within North America and international services to Europe, Asia, Central America and South America. AA is a founding member of the oneworld alliance. The carrier filed for bankruptcy protection on 29-Nov-2011. As part of its restructuring plan, the carrier unveiled a new livery and branding in Jan-2013. AMR Corporation and US Airways Group announced the completion of their merger to officially form American Airlines Group on 09-Dec-2013 while AMR emerged from restructuring with full recovery to American creditors. 2.5k 5k 7.5k 10k 12.5k 15k 17.5k North America Selected Airlines JETBLUE PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 40 5. jetBlue 30 20 10 22 21 20 E190 20 A320 20 20 19 20 18 20 17 20 16 20 15 20 jetBlue is a low-cost carrier based at New York JFK International Airport, with secondary bases at Boston Logan, Fort Lauderdale-Hollywood, Orlando International, Washington Dulles and Long Beach airports. Using a fleet of Airbus A320 and Embraer E-190 aircraft, jetBlue has an extensive network that serves destinations in the United States, the Caribbean, and Central and South America. 20 14 0 *Excludes new aircraft that are coming from leasing companies JETBLUE STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 1750 JETBLUE FLEET SUMMARY AS AT MAY-2014 SOURCE: CAPA FLEET DATABASE 1500 AIRCRAFT IN STORAGE ON ORDER 130 0 3 Airbus A320-200NEO 0 0 30 Airbus A321-200 6 0 47 Airbus A321-200NEO 0 0 30 Embraer ERJ190-100IGW(AR) 60 0 23 Total: 196 0 133 1250 No. of Weekly Frequencies Airbus A320-200 IN SERVICE 1000 750 500 250 0 -250 0 2 4 6 Flight Time (Hours) JETBLUE TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 JFK - SDQ 10,760 seats JFK - STI 10,740 seats 10,500 seats SJU - JFK SJU - MCO 9,100 seats 7,000 seats SJU - FLL SJU - SDQ 6,300 seats SJU - TPA 5,700 seats SJU - BOS 5,700 seats 5,600 seats NAS - FLL JFK - PUJ 4,760 seats 0k Pg 100 | CAPA World Aviation Yearbook 2014 2k 4k 6k 8k 10k 12k 14k LATIN AMERICA analysis reports: Source: CAPA Centre for Aviation Gol presses forward with international expansion as it records losses in 1Q2014 Profitability eludes Brazil’s Gol for a third consecutive year and a turnaround still looks distant Avianca Brazil slows domestic growth. Perhaps time to expand into the international market LATAM Airlines Group’s merger pains are aggravated by currency woes across multiple markets LAN Airlines cuts Chile domestic capacity, as World Cup traffic slump adds another hurdle for LATAM Avianca’s strength in growth markets helps lift its 2013 financial performance Pg 101 | CAPA World Aviation Yearbook 2014 W Latin America TOP 10 AIRLINES WITHIN LATIN AMERICA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING CARRIER NAME SEATS 1 Gol 967,336 2 TAM Airlines 815,604 3 LAN Airlines 601,120 4 Avianca 516,916 5 Azul 444,900 6 Aeromexico 330,887 7 COPA 247,272 8 Aerolineas Argentinas 221,340 9 Interjet 221,076 10 Volaris 208,704 CAPACITY BY CARRIER TO/FROM/WITHIN LATIN AMERICA SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 Gol 1,032,024 TAM Airlines 900,964 LAN Airlines 648,699 Avianca 597,082 Azul 519,225 Aeromexico 431,345 American Airlines 385,305 COPA 297,310 Aerolineas Argentinas 255,314 Other 3,182,101 0k 500k 1,000k 1,500k 2,000k 2,500k 3,000k 3,500k 4,000k LATIN AMERICA TOP 10 AIRPORTS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 RANKING AIRPORT NAME SEATS 1 Sao Paulo Guarulhos International Airport 724,512 2 Mexico City Juarez International Airport 654,682 3 Bogota El Dorado International Airport 530,363 4 Sao Paulo Congonhas Airport 442,348 5 Brasilia International Airport 6 Lima Jorge Chavez International Airport 335,407 7 Rio de Janeiro Galeão International Airport 331,650 8 Santiago International Airport 320,284 9 Buenos Aires Aeroparque Jorge Newbery Airport 255,972 10 Rio de Janeiro Santos Dumont Airport 254,381 Pg 102 | CAPA World Aviation Yearbook 2014 405,113 ITH THE FIRST WAVE OF AIRLINE CONSOLIDATION COMPLETE, LATIN AMERICAN aviation enters a new phase in 2014. As the world’s eyes turned to Brazil and the World Cup, the majority of Latin America’s airlines believe the year holds promise as air travel growth within the region has yet to reach its full potential. Even though Latin America’s two largest markets began the year on tenuous grounds, Latin America’s large airlines have built fairly sound business models and seem prepared to exhibit capacity discipline if market conditions worsen. Now that the two major mergers between Star Alliance’s Avianca-TACA and LAN-TAM (the latter of which is in oneworld) have officially closed, the stage is set for Latin America to exhibit a new equilibrium that should help the region profitably reach its growth potential. But Latin American carriers entered 2014 with far from identical outlooks depending on their respective countries of origin. In many cases, externalities, notably economic conditions, are creating great uncertainty, with Argentina and Venezuela heading the list of problem countries. Airlines in the region’s largest markets, Brazil and Mexico, are however hoping for improved economic conditions to bolster softness in demand created by fiscal uncertainty at home. Brazil’s major airlines were adopting a cautious view of the FIFA World Cup beginning as currency depreciation, infrastructure challenges and pricing caps threatened to create a non-event for carriers. Mexico’s largest carriers also hope for a rebound in the domestic market during 2014 after slowing economic growth in 2013 created softness in demand and eroded pricing traction. After low-cost rival Volaris completed a successful initial public offering, both VivaAerobus and Interjet made rumblings of completing IPOs during 2014, but VivaAerobus at the last minute cancelled its public debut, citing market volatility. Colombia shows continued promise during 2014, unlike Brazil and Mexico, whose slowing domestic air travel growth reflected the tenuous states of each country’s economy during 2013. Colombia, in contrast, recorded a 14% jump in domestic passengers during 2013 to 21.5 million. For the first two months of 2014, domestic passenger growth in Colombia was roughly 12%. Colombia in particular has a changing set of competitive dynamics in 2014 as upstart low-cost carrier VivaColombia opens a base in Bogota and enters key trunk routes served by larger carriers Avianca and LAN Colombia. At the same time Avianca Holdings (which includes all of TACA’s operations) faces stiffer competition in the Colombian market. It has reached a steady-state market share of 15% in Peru and is tempering its growth within Ecuador, citing softened domestic demand. Artificial barriers erected by the Argentinian government continue to protect money losing, state-owned Aerolineas Argentinas, which is opting to expand in its safe home market and near-international routes. Brazil, however, remains the region’s largest market, still with enormous upside. But there is pause for breath. Brazil’s economy reached a zenith shortly after it campaigned successfully in 2009 to host this year’s World Cup and the 2016 summer Olympics. The country’s GDP growth had soared in 2010 to 7.5%, but by 2012 sagged to 0.9% and increased to a tepid 2.5% in 2013. As Brazil’s dimming economic prospects began to suppress domestic demand, the LATIN AMERICA FLEET SOURCE: CAPA FLEET DATABASE | MAY-2014 2500 2,049 2000 1500 1000 623 500 237 0 In service In storage On order LATIN AMERICA BREAKDOWN FOR AIRCRAFT IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 7.5% 14.2% 47.5% 14.2% 16.6% Narrowbody Jet Widebody Jet Small Commercial Turboprop Regional Jet Turboprop LATIN AMERICA CAPACITY SEATS SHARE BY ALLIANCE SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 12.8% 15.4% 45.2% 26.7% Unaligned oneworld Star Alliance Pg 103 | CAPA World Aviation Yearbook 2014 SkyTeam country’s airlines found themselves in a state of over-supply. During CY2013 ASKs in Brazil’s domestic market actually fell 3% as traffic grew a mere 1.4%, according to regulator ANAC – hardly the stuff that emerging market dreams are made of. This is in contrast to the 3% capacity growth in CY2012 and a nearly 7% increase in traffic. Prospects for Brazil looked more promising at the start of 2014, as domestic traffic increased 8.7% year-on-year during the first four months of the year. Loss making Gol was the first carrier to spring into action to slash supply in 2012, and continued to decrease its ASK growth by 6.4% during the first nine months of 2013. While the carrier still continues to post top-line losses, it has recently recorded some positive margin improvement and is stepping up efforts to clean up its balance sheet and improve its leverage ratios. TAM initiated its domestic ASK reductions later than Gol, evidenced by TAM’s FY2012 capacity reduction of just 1% compared with 5% for Gol. During 2013 Gol’s overall domestic capacity grew 5% while TAM, now part of the behemoth LATAM Airlines Group, cut Brazilian ASKs by 8%. TAM’s parent, LATAM Airlines Group, has officially declared its operations within Brazil have rebounded, evidenced by its 19% improvement in unit revenues in 3Q2013. LATAM is leveraging its scale to eliminate TAM’s currency challenges in the Brazilian market – the BRL fell 13% against the USD in 3Q2013 – by mid-2014. LATAM is reducing its BRL exposure by moving TAM’s debt and aircraft obligations to LATAM’s balance sheet, which is denominated in USD. Gol has no large umbrella parent company to protect it from the sagging currency; but at the end of 9M2013 Gol estimated it had hedged 70% of foreign exchange exposure for the following three months. Additionally, Gol believes it can begin to improve load factors during 2014 after opting to trade loads for yields during a large portion of 2013. Gol CEO Paulo Kakinoff has stressed opportunities are available to sustain yields while boosting loads as the carrier declares it is strengthening its focus on corporate customers. Even as Brazil’s largest airlines opted to rationalise supply, the carrier’s fastest growing airlines continued their rapid growth. Azul grew its capacity 31% and traffic by 32% in CY2013 and Avianca Brazil also boosted its supply by 31% while enjoying traffic growth of 35%. Azul aims to access the public markets during 2014 after shelving plans for an IPO in 2013. It is an interesting move given projected GDP growth for Brazil of just 2.5% this year, an underwhelming forecast for an emerging market. The carrier has already outlined a BRL20 million hit (USD8.3 million) from capping its fares during the World Cup, which doesn’t bode well for a market where domestic demand is languishing. Avinaca Brazil has also publicly declared it would cap fares during the tournament. Brazil’s two largest carriers have yet to commit to fare limits, presumably because corporate demand could be crimped during the event as business travellers may eschew the festivities. Pressure is also mounting on airports in cities hosting the World Cup to ensure their readiness for the tournament, but doubts are growing over Brazil’s ability to update its infrastructure in time for football’s premier event. Mexico’s airlines are hoping for an economic rebound to improve their yields. They too face a level of uncertainty heading into 2014 as the country’s GDP growth rate fell to under 2% in 2013. Growth in Mexico’s domestic air travel LATIN AMERICA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER SOURCE: CAPA FLEET DATABASE | MAY-2014 100 75 50 25 737 777 787 72 A320 A330 20 24 20 23 20 22 20 21 20 20 20 19 E195 SSJ 20 18 20 16 E190 AN158 20 17 20 15 20 14 0 A350 LATIN AMERICA MOST POPULAR AIRCRAFT TYPES IN SERVICE SOURCE: CAPA FLEET DATABASE | MAY-2014 23.5% 36.5% 3.2% 3.2% 3.2% A320 737 E190 20.4% 4.2% 72 5.9% 767 CARAVAN 42 Other LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN LATIN AMERICA: 2011 TO 2014* SOURCE: CAPA - CENTRE FOR AVIATION AND OAG *Year to Month indicated 50 40 30 28.3% 29.9% 31.8% 31.6% 34.4%33.9% 21.7% 20 17.6% 14.3% 10 5.7% 7.2% 7.8% 9.6% 3.2% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pg 104 | CAPA World Aviation Yearbook 2014 JanMay 2014 market slowed to 7% during 2013, versus double-digit 10% growth in 2012. Weakened demand resulted in soft yields for the country’s publicly traded airlines Aeromexico and Volaris during 2013 as each carrier worked to maintain its respective load factor. Weakness in pricing traction continued into early 2014 as Volaris’ average fare sank 21% during 1Q2014 and Aeromexico recorded a 13% decline in yields during the first three months of 2014. Some of Aeromexico’s softness in yields was deliberate as the carrier is attempting to bolster loads in the Mexican domestic market after losing market share to Volaris and Interjet, and to a lesser degree VivaAerobus, during the last few years. Those carriers worked furiously to seize on gaps left by now defunct carriers, most notably Mexicana. Grupo Aeromexico, which includes Aeromexico Connect, essentially sustained its leading market share during CY2013, accounting for 36% of the domestic market compared with 37% the year prior. Interjet retained its 24% share year-on-year in 2013 while Volaris grew its share 3ppt to 23%. VivaAerobus kept its share consistent at roughly 12% from CY2012 to CY2013. For the 12M ending Mar-2014, Aermexico’s share remained at 37% while Interjet and Volaris maintained their 24% and 23% respective shares. VivAerobus’ also maintained its 12% share during that period. But it appears VivaAerobus has ambitions to increase its stature in the Mexican market after placing an order for 52 Airbus narrowbodies during late 2013. Some of the aircraft are pegged to replace its current fleet of 19 older Boeing 737-300 classics, but the higher-density Airbus narrowbodies – 12 current generation A320s and 40 A320neos – could also result in VivaAerobus tripling its capacity by 2021 when it completes deliveries of the new jets. VivaAerobus, Volaris, Interjet and Aeromexico are basing their business models in varying degrees on capturing bus traffic as discretionary income among Mexico’s middle class grows. Mexico’s four largest carriers now have approximately 228 aircraft on order, compared with a cumulative total of 281 aircraft for Gol and LATAM Airlines Group. While Mexico’s market shows promise, the immediate goal for 2014 is building and sustaining demand as the Mexican economy ended 2013 on shaky ground. And carrier confidence in a complete rebound during 2014 is tenuous at best, evidenced by VivaAerobus’ cancelled IPO. VivaColombia will take on Avianca and LAN in 2014 with a new base in Bogota. If conditions in the Mexican market worsen, VivaAerobus has the flexibility to perhaps transfer some of its incoming aircraft to sister carrier VivaColombia, which emerged as Colombia’s first full-fledged lowcost carrier in 2012. Both carriers are partially owned by investment firm Irelandia, which is headed by Ryanair founder Declan Ryan. After operating below the radar during 2013, VivaColombia is now working to establish a base in the country’s largest market, Bogota, upping competition with Colombia’s largest and second-largest carriers Avianca and LAN Colombia. The airline introduces its first international route on 1-Aug-2014 when it introduces flights to Panama City (operating to Panama Pacific International airport) from Bogota and Medellin. Mr Ryan has tabled ambitious goals for VivaColombia, estimating the carrier could operate a fleet of 50 aircraft (it presently operates five A320 narrowbodies). Conditions in Colombia might warrant Mr Ryan’s ambition – with 14% passenger growth in the country in 2013, Colombia seems ripe for the type of traffic stimulation ushered in by the Viva group’s pure-play low-cost carrier philosophy. 74 % CHILEAN DOMESTIC MARKET SHARE BELONGING TO LAN After operating below the radar during 2013, VivaColombia in 2014 is working to establish a base in the country’s largest market, Bogota. Pg 105 | CAPA World Aviation Yearbook 2014 Avianca’s response to VivaColombia’s entry into major Colombian trunk routes should be interesting as Avianca’s market share during 2Q2013 fell to 55% from 60% the year prior. While Avianca reported in mid-2013 that Colombia was one of the group’s most profitable markets, the company could experience yield erosion within Colombia in 2014 as it might find itself matching VivaColombia’s fares in order to sustain passenger loyalty. Avianca also appears to be capping its domestic share in Peru at 15%. TACA began targeting Peru’s domestic market in 2010 and rapidly built up share to its current levels, but it appears Avianca has no further expansion plans after recently declaring it would not expand its fleet in Peru’s capital and largest market Lima. The company has also downgraded its hub in San Jose, Costa Rica (a legacy TACA hub) to a focus city, which benefits Panama’s Copa and US carriers Delta and JetBlue. In late 2013, Copa emerged as San Jose’s largest carrier after adding a ninth daily flight to its strong hub in Panama City. Copa, with the help of a supportive government, has built Panama City into a powerful hub that connects to both strategic Latin American markets and numerous routes in North America. After the consolidation shake-out in Latin America that created Avianca Holdings and LATAM Airlines Holdings, Copa’s fate as a stand-alone carrier was called into question. But with the power of its hub in Panama City and a strong financial performance – it has recorded operating margins above 17% since 2004 – Copa is proving that under the right conditions independent carriers can still thrive in Latin America. It plans ASK growth of 10% during 2014 as new service to Fort Lauderdale, Georgetown and Montreal debuts in 2014. Meanwhile, Avianca has also curtailed its growth within Ecuador after concluding that the elimination of a fuel subsidy and the opening of a new airport farther away from Quito’s city centre weakened demand within the country. Avianca’s rivals in the domestic Peruvian and Ecuadorean markets, LAN Peru and LAN Ecuador ,continue their unabated growth within those markets. Peru and Ecuador were LATAM Airlines Group’s fastest growing markets in 3Q2013 as ASKs within those regions increased 18% and 35%, respectively, year-on-year. Argentina’s government continues to hold tight to its protectionist ideals, ensuring a rocky road for its airlines. LAN Argentina faces a much different scenario. Its growth in the domestic market remains hampered by the government’s protection of renationalised flag carrier Aerolineas Argentinas. The latest affront occurred in 2013 when Argentina’s government attempted to evict LAN Argentina from its maintenance base, which would have resulted in the carrier exiting the domestic market. In response to increasing domestic demand and the government’s constant thwarting of growing competition within Argentina, Aerolineas, now embraced within SkyTeam, has ordered 26 Boeing 737-800s. Presently Aerolineas has 50 aircraft in operation, including Airbus A330/A340 widebodies and Embraer 190s operated by its subsidiary Austral. Even as Aerolineas benefits from favourable protection from Argentina’s government, the carrier has lost roughly USD2 billion since it was renationalised in 2008, and its profitability targets have consistently been missed. Although the airline has made improvements in re-fleeting and grown both revenues and passengers carried since the government 17% + COPA’S OPERATING MARGIN SINCE 2004 Outside the two largest markets, Brazil and Mexico, a main theme throughout Latin America has been the strong growth in the domestic markets. 14% DOMESTIC GROWTH FOR 2013 IN CHILE AND COLOMBIA Pg 106 | CAPA World Aviation Yearbook 2014 reassumed control, it is time for Argentina’s government to loosen the tight reins it holds on domestic air travel and infuse real competition into the marketplace. But the government has bigger things on its mind as the economy teeters towards another potential collapse. In the financial disaster stakes, post-Chavez Venezuela is causing considerable pain to several airlines – among them Copa and American – as tiered devaluation is imposed by the government. Repatriating funds at well below official exchange rates is a painful exercise for foreign airlines; Copa reportedly has USD300-400 million tied up in the country, while American is USD700 million in the same straits. Like Argentina, Venezuela is a strong supporter of protectionist strategies; while these are not necessarily the root of the problem for airlines, it may be more than coincidence that the countries share other serious shortcomings. Most airlines serving Venezuela have significantly cut their operations to the country – beginning in Jul-2014 American Airlines is cutting its weekly flights from the US to Venezuela from 48 to 10. Copa Airlines in May-2014 began cutting its seats on offer to Venezuela by 40%. The outlook for Chile is more upbeat. Chile has been the fastest growing market in Latin America in recent years, quietly outperforming much larger Brazil and Mexico, despite being one of the largest markets in the world lacking LCCs. Passenger traffic in Chile grew by 8% in 2013 to 16.5 million, driven by a 14% increase in domestic traffic to 9.5 million as international traffic grew by only 2% to 7 million. More rapid domestic growth is expected in 2014 as Chile’s economy remains robust, with expected GDP growth of about 4%. LAN will again be the main beneficiary as the carrier has a dominating 74% share of the Chilean domestic market. LATAM also flew 66% of passengers in Chile’s international market in 2013. Chile’s second carrier, Sky Airline, has been growing rapidly but is still very small, accounting for only a 22% share of the domestic market and a 5% share of the domestic market in 2013. As one of Latin America’s last remaining independent full service carriers, Sky is a potential takeover target for one of the region’s groups, particularly Avianca. But LATAM’s domination of its home market makes it very challenging for a competing group or new entrant, despite Chile’s generally favourable economic conditions and a stable political environment. Outside the two largest markets Brazil and Mexico, a main theme throughout Latin America has been the strong growth in the domestic markets. The 14% domestic growth for 2013 in Chile, where domestic growth was in the 18% to 19% range in 2010 to 2012, was matched in Colombia and surpassed in Peru. Colombia reported 14% domestic growth in 2013 to 21.5 million while Peru recorded 15% growth to 8.3 million. Argentina also had double digit domestic growth in 2013 of 12% to 12.5 million as Aerolineas focused capacity expansion on the domestic market. Only Colombia had international growth (14%) that kept up with domestic growth. Peru reported 11% international growth while Chile recorded international growth of only 2% and Argentina experienced a 3% drop in international passenger traffic. These are encouraging features for the region; not only is there substantial upside internationally, but the major domestic markets are showing considerable resilience as national economies gain scale and maturity. Latin America Selected Airlines GOL PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 20 1. GOL 15 10 5 Listed on the New York Stock Exchange, GOL Linhas Aéreas Inteligentes (Gol) is based in Sao Paulo, Brazil. The LCC has smaller hubs in Sao Paulo’s Congonhas International Airport, Rio de Janiero International Airport and Brasilia International Airport. Gol is a major player in South America, with over 40% of the Brazilian domestic market. Gol operates a fleet of Boeing 737NG aircraft supporting an extensive domestic network within Brazil and services to 61 destinations in ten countries across Central and South America. SOURCE: CAPA FLEET DATABASE IN STORAGE ON ORDER 0 0 Boeing 737-700(ETOPS) 5 0 0 Boeing 737-8 0 0 60 100 0 23 0 1 0 135 1 83 Total: 24 20 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 GOL STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 3500 No. of Weekly Frequencies IN SERVICE 30 Boeing 767-200ER *Excludes new aircraft that are coming from leasing companies 2500 Boeing 737-700 Boeing 737-800 737 3000 GOL FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 20 14 0 2000 1500 1000 500 0 -500 0 2 4 6 Flight Time (Hours) GOL TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 7,728 seats GRU - AEP EZE - GRU 4,416 seats 4,048 seats CCS - GRU GRU - MVD 3,680 seats 3,312 seats EZE - POA CCS - PUJ 2,944 seats GRU - COR 2,576 seats GRU - VVI 2,576 seats MVD - POA 2,576 seats EZE - FLN 2,576 seats 0k Pg 107 | CAPA World Aviation Yearbook 2014 1k 2k 3k 4k 5k 6k 7k 8k 9k 10k Latin America Selected Airlines TAM AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 30 25 2. TAM Airlines 20 15 10 5 Based at Sao Paolo-Guarulhos International Airport, TAM Airlines is listed on the New York and Sao Paulo Stock Exchanges, and is the national airline and largest carrier in Brazil. TAM has an estimated 50% of the domestic market share and 75% of the international market share. Using a fleet of narrow and wide-body Airbus and Boeing aircraft, TAM operates an extensive network of domestic and regional services within South America and international services to North America and Europe. TAM ended its membership of Star Alliance on 30-Mar-2014, joining oneworld on the following day. IN STORAGE Airbus A319-100 26 0 0 91 0 0 Airbus A320200NEO 0 0 18 Airbus A321-200 12 0 36 Airbus A330-200 8 5 0 Airbus A340-500 1 1 0 Airbus A350900XWB 0 0 27 Boeing 767-300ER 8 0 0 Boeing 777-300ER 10 0 2 156 6 83 22 20 TAM AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2500 1000 500 0 -500 0 5 10 Flight Time (Hours) TAM AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 11,278 seats SCL - GRU MIA - GRU 10,498 seats 7,964 seats GRU - JFK GRU - AEP 7,308 seats EZE - GRU 5,210 seats GRU - MCO 5,129 seats GRU - CDG 5,068 seats GRU - FRA 5,068 seats GRU - LHR 5,068 seats GRU - MVD 4,524 seats 0k Pg 108 | CAPA World Aviation Yearbook 2014 21 20 20 20 19 20 20 17 20 16 20 15 18 777 1500 ON ORDER Airbus A320-200 Total: A350 *Excludes new aircraft that are coming from leasing companies No. of Weekly Frequencies SOURCE: CAPA FLEET DATABASE IN SERVICE A320 2000 TAM AIRLINES FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 20 14 0 2k 4k 6k 8k 10k 12k 14k Latin America Selected Airlines LAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 40 3. LAN Airlines 30 20 10 21 20 22 20 787 20 A320 20 19 20 18 17 20 16 15 20 20 Based in Santiago, LAN Airlines is the national airline of Chile. One of the largest airlines in Latin America, LAN Airlines uses a fleet of Boeing and Airbus narrow and wide-body aircraft and operates an extensive network within Central and South America as well as Australia, the Pacific, North America and Europe. LAN is a prominent player in South American aviation. It is one of the most consistently profitable airlines in the industry, and has subsidiaries in Argentina, Peru, Ecuador and a cargo subsidiary. LAN is a member of the oneworld alliance. 20 20 14 0 *Excludes new aircraft that are coming from leasing companies LAN AIRLINES STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 1750 1500 LAN AIRLINES FLEET SUMMARY AS AT MAY-2014 AIRCRAFT IN SERVICE IN STORAGE ON ORDER 1000 Airbus A319-100 5 0 0 Airbus A320-200 43 1 22 Airbus A320200NEO 0 0 20 Airbus A321-200 0 0 18 Airbus A340-300X 3 1 0 Boeing 767-300ER 31 0 0 Boeing 787-8 5 0 17 Boeing 787-9 0 0 10 87 2 87 Total: No. of Weekly Frequencies 1250 SOURCE: CAPA FLEET DATABASE 750 500 250 0 -250 0 5 10 15 Flight Time (Hours) LAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 20,668 seats SCL - LIM EZE - SCL 14,800 seats 9,070 seats EZE - LIM SCL - AEP 7,056 seats 6,672 seats SCL - MDZ SCL - GRU 6,352 seats LIM - MIA 6,188 seats LIM - LAX 6,188 seats 5,746 seats SCL - MIA SCL - MVD 4,762 seats 0k Pg 109 | CAPA World Aviation Yearbook 2014 5k 10k 15k 20k 25k Latin America Selected Airlines AEROMEXICO PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER* SOURCE: CAPA FLEET DATABASE | MAY-2014 12 10 4. Aeromexico 8 6 4 2 Wholly-owned by Grupo Financiero Banamex, Aeromexico is based in Mexico City and operates an extensive regional network within Central and South America, as well as to Asia, North America and Europe. Aeromexico, together with subsidiaries Aeromexico Connect (regional division) and Aeromexico Travel (charter division), are the largest domestic airline in Mexico and, until Mexicana’s apparent demise in Aug-2010, was the secondlargest international airline behind Mexicana. Aeromexico is a founding member of SkyTeam. Boeing 737-700 IN STORAGE 0 0 0 0 60 20 0 1 Boeing 767-200ER 2 1 0 Boeing 767-300ER 3 0 0 Boeing 777-200ER 4 0 0 Boeing 737-800 Boeing 787-8 5 0 4 Boeing 787-9 0 0 6 60 1 71 Total: 23 20 22 20 21 20 20 20 19 20 18 20 17 20 16 20 15 AEROMEXICO STAGE LENGTHS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 2500 1500 ON ORDER 26 Boeing 737-8 787 *Excludes new aircraft that are coming from leasing companies No. of Weekly Frequencies SOURCE: CAPA FLEET DATABASE IN SERVICE 737 2000 AEROMEXICO FLEET SUMMARY AS AT MAY-2014 AIRCRAFT 20 20 14 0 1000 500 0 -500 0 5 10 15 Flight Time (Hours) AEROMEXICO TOP 10 INTERNATIONAL ROUTES BY SEATS SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014 9,795 seats MEX - LAX MEX - JFK 9,674 seats 5,910 seats MEX - MIA MEX - ORD 5,790 seats MEX - LAS 5,640 seats MEX - IAH 5,610 seats 5,044 seats MEX - MAD MEX - LIM 4,596 seats 4,200 seats LAX - GDL MEX - EZE 4,058 seats 0k Pg 110 | CAPA World Aviation Yearbook 2014 2k 4k 6k 8k 10k 12k