Airlines: surviving in a changing world
Thursday 30, December 2010
As the international airline industry evolves from a heavily protected, government-run activity into a commercial hybrid, individual airlines are confronted by massive challenges, each of them unique to the company concerned.
At the same time, the industry overall remains constantly at risk from any number of external threats. Some are adapting more effectively than others to their new environment.
In these conditions, what makes an airline Hot to Watch? What motivates some airlines to be agents of change, while others adopt a much more cautious approach? Difficult times can bring out the best in some competitors, who innovate and grow - yet at the same time others cling to older, safer models.
The standouts in 2011 will possess a sound – and flexible – strategy. Many will introduce one or more of the following ingredients:
- rapid fleet and network development;
- a new business model;
- innovative products and services;
- consolidation or cross-border JV activity;
- financial outperformance (or financial distress)
The shifts in the industry are by no means standard, largely mirroring the way global economic change is occurring. For example:
- Asia ascends in importance, with sometimes remarkable growth rates, a growing number of new entrants appears, legacy airlines are reinventing themselves, often with low cost subsidiaries and liberalisation is moving relatively rapidly;
- Latin America begins to assert itself, but there the focus is more on consolidation across borders;
- Europe and north America, after a decade of rapid low cost airline growth, are witnessing low growth rates and the major airlines seek to protect themselves against their short haul cost inadequacies by relying on global alliance membership and consolidation;
- The Middle East airlines, aided by liberal policies, integrated aviation strategies and new generation long haul aircraft, are showing how a future airline system – based on practicality, rather than relying on ageing protectionist bilateral restrictions – should perhaps function;
- Eastern European airlines are beginning to assert themselves on the world stage as their national economies too expand.
For all contestants in these various markets the challenges are different, but similar, as the industry becomes both more global and more local (with sectoral focus on short haul point-to-point operations).
CAPA’s inaugural list of the 75 Hottest Airlines to Watch does not apply a rigid scientific formula, but in selecting the carriers involved, it does take into account the regional differences and the varying strategies adopted. Our intensive daily research over the past 12 months has produced a list of the carriers most likely to be the movers and shakers in 2011 - driving change, moving the industry forward.
Their impact will be immediate – on their competitors and on their markets. And competitors will be placed in the position where they are forced to react. But there will be implications for airports, airways and for all suppliers to the industry.
CAPA has created a new Alerts service, delivering customised news, analysis and data reports, daily by email. Any combination of airlines, airports, suppliers, countries, regions or issues, depending on requirements, is possible in one very handy daily bulletin. CAPA Alerts puts the reader in control, saving crucial time, as well as informing of key developments that are vital to your business that may otherwise have been missed.
Some highlights from the Hottest Airlines for 2011 report:
Aegean - Over the next few years as a sick Greek economy restructures, Aegean's strategy will be to focus on short-haul operations with its own metal, while relying on its Star partners for wider links.
Aer Lingus - Much remains uncertain about the carrier’s future which has stated that while it can survive as a standalone airline it may consider selling a stake to a larger airline identifying Lufthansa’s acquisition of a minority stake in Brussels Airlines as a good model for such a move.
Aeroflot - Aeroflot has been a leading voice behind consolidation in the Russian airline industry and has supported the Government's plan to address the fragmentation that has been a central feature since the fall of the Soviet Union.
Air Berlin - Air Berlin was also relatively proactive in protecting its position throughout the financial crisis and has had considerable success in one of the most challenging periods for international aviation.
Air Europa - A SkyTeam alliance airline and Spain’s third largest carrier, has in the past 18 months capitalised on market and route opportunities arising from the failure of some other Spanish carriers.
Air France-KLM - The carrier has also joined British Airways and Lufthansa in calling on the European Union to curb the expansion of Gulf carriers, stating the region’s status as an air-travel hub is under threat.
Air Nostrum - The oneworld alliance airline plans to continue its growth trajectory most recently announcing a firm order for 35 CRJ1000 NextGen aircraft at Farnborough Air Show in 2010.
Alitalia - The carrier - which reported a much improved net loss of EUR164 million in 1H2010 - is on track to break even in 2011 as planned under its restructuring.
Atlant Soyuz/Moskva Air Company - Finance Minister Alexei Kudrin has told City Hall to sell its key assets including “airlines and banks” creating uncertainty over the carrier’s future.
Avianova - The LCC has grown rapidly since commencing operations in 2009 and stated that it aims to lower fairs to “nothing” and generate revenue solely through ancillary offerings.
Carpatair - The carrier has benefitted from operating predominantly in niche regional markets ensuring it has not faced much competition from others.
easyJet - The carrier has been dogged by internal strife with an ongoing and highly-publicised dispute with founder and major shareholder, Sir Stelios, although at least part of this has been partly resolved.
Finnair - Finnair, a member of the oneworld alliance, expects to make a profit in 2H2010 after facing a challenging financial situation throughout the financial crisis.
Flybe - Flybe carrier is planning a “string of exciting business developments with the carrier believing that "if you're making a profit during the recession, then that's the time to expand your business”.
Icelandair - Having survived the global financial crisis which resulted in the failure of numerous Icelandic companies including three major banks Sterling Airlines), Icelandair is now in a much better position now than it has been over the past two years.
Lufthansa - For Lufthansa, international expansion through ownership of surrounding airlines has given it substantial market power although it has put some pressure on the carrier at a challenging time for the entire European aviation industry.
Montenegro Airlines - Montenegro Airlines is based in the high potential Balkan region with the carrier part of the Balkan Airlines Alliance.
NIKI - NIKI has stated that “the cooperation between airberlin and NIKI marked the first European low-cost airliner alliance”.
Norwegian Air Shuttle - With the battle currently occurring in the Nordic and European market, the carrier will look to long-haul in the future (it already operates to Dubai) and plans to order widebody aircraft from either Boeing or Airbus in 4Q2010 as it prepares for the launch of its first long-haul routes.
Ryanair - The carrier has indicated strongly that it is considering opening routes to all major European airports, as slowing growth prompts it to modify its operating strategy.
S7 - The carrier to benefit from any potential air licence cancellations related to the weakness of other operators in the high-growth and high-potential yet challenging Russian market.
Turkish Airlines - The fast-growing carrier has not only increased is its size at a time when the majority of its European counterparts are shrinking but also has been profitable whilst doing so.
Vueling - The carrier’s “New Sustainability Model” envisages further improvements to its product to better compete with the legacy carriers while also keeping costs to an absolute minimum.
Wizz Air - The carrier claims it has been "one of the fastest-growing airlines in the world over the recent years”, claiming 36% of the LCC market in central and eastern Europe and a 48% share of the Hungarian market.
Allegiant - Throughout the global financial crisis. As others downsized, Allegiant has become a rising force within the US airline industry.
AirTran Airways - The story of the year for AirTran is its planned integration with Southwest Airlines, announced in Sep-2010 and to be implemented through a USD1.4 billion share repurchase by Southwest.
American Airlines - The carrier plans to run as a stand-alone company with strong international alliances, but stated it is well positioned to participate in consolidation if the opportunity arises.
Delta Air Lines - As capacity comes back into the US market next year, Delta will discover whether it is pushing forward on too many fronts, or whether a fast grab for market presence has been enough to cement its position.
JetBlue Airlines - The carrier’s main focus in 2011 is to maintain its strong liquidity position which JetBlue claims is one of the best in the industry, standing at around USD1 billion.
Southwest Airlines - With a strong liquidity position and balance sheet, the carrier is proceeding with its AirTran acquisition that the carrier believes will generate “very handsome returns” based on the expected synergies and profits.
United/Continental - United Continental Holdings will have a comprehensive network, a young and flexible fleet and order book and an extensive frequent flyer programme.
Virgin America - While it is continuing to gain rave reviews from travel bloggers, Virgin America earned its first quarterly profit in 3Q2010 of USD7.5 million, a big swing from the USD5.9 million loss in 3Q2009.
AirAsia - AirAsia is the world's lowest cost producer of airline seat kilometres, an innovator in distribution and ancillary revenues and is expanding rapidly. As such, it is perennially a mouth-watering airline to watch for airports, suppliers and competitor airlines in 2011.
AirAsia X - The carrier’s growth trajectory is set to continue, with the carrier describing its agenda as “Growth! More planes, more destinations and more profits”.
All Nippon Airways - ANA’s moves to establish an LCC reflects another part of its strategy to maintain its newly found dominance in Japan. The carrier has also had success in luring business passengers away from JAL with an increasingly improved business product and is eagerly awaiting delivery of its first and much-delayed B787.
Japan Airlines - JAL’s deep restructuring plan does assure that there is a future for the carrier, with JAL to eventually emerge from bankruptcy with a lower cost base and a more efficient operation. JAL will be on airport and supplier watchlists for cutbacks.
Garuda Indonesia - Garuda is planning a massive fleet rejuvenation and enhancement strategy, as part of which the carrier plans to more than double its current fleet of 67 aircraft to 116 aircraft over the next five years.
IndiGo - The carrier has a good reputation in the market and has a well-organised operation, which has positioned it well. Airports in the Indian subcontinent, Gulf and Southeast Asia take note: Indigo is coming.
Lion Air - Lion Air plans to aggressively expand its international network from 2010, focussing in particular on the Chinese market.
Jet Airways - Jet Airways is the strongest of the “Big Three” Indian carriers, benefitting from a revival in domestic demand in the Indian market and international demand to/from India.
Jetstar / Qantas - Qantas' strategy and development is watched closely by airline managements around the world, particularly its two-brand flying strategy with its Jetstar LCC offshoot and its massively successful frequent flyer programme. Qantas Group’s low-cost carrier, Jetstar, is a growing jewel in the Qantas crown.
Korean Air - Korean Air has been buoyed in 2010 by surging cargo demand and rising international passenger traffic and yields. The carrier’s passenger business is also witnessing record traffic levels and Korean Air is in expansion mode once again.
Malaysia Airlines - MAS has again entered a rapid fleet and network growth phase (the carrier has around 40 aircraft on order, including 27 by the end of 2012).
SpiceJet - SpiceJet is expected to deliver consistent profitability as demand continues to recover in the growing Indian market.
Thai Tiger - The proposed JV, which is facing some government opposition, raises the bar in low-cost airline competition in Asia and could have a major impact on the pace of airline liberalisation in the region.
Tiger Airways - Tiger, one of the lower cost operators in the region, is establishing itself as a major future force in the region, with the potential to become one of three large non-flag carrier operations, along with AirAsia and Jetstar.
Tiger Airways Australia - The entry of Tiger Airways Australia into the Australian market in late 2007 put, and continues to create, significant pressure on all incumbents.
Virgin Blue - Australia’s second-largest airline, Virgin Blue, will be an interesting carrier to watch in the next 12 months, as it develops into a more corporate entity under new leadership. The carrier has transformed from being Australia’s first LCC when it launched in 2000 to become a hybrid-LCC now targeting higher-yielding corporate traffic.
Air China - Air China, one of the "big three" Chinese carriers, is well positioned to benefit from China's rapid economic growth and increasing wealth which will drive continuous demand for domestic air traffic. International air travel is now also recovering with the global economy, with the carrier planning to leverage its strategic partners.
China Eastern Airlines - China Eastern merged with Shanghai Airlines in 2010 and has announced plans to join the SkyTeam Alliance in 2011 as part of efforts to further strengthen its presence domestically and internationally.
China Southern Airlines - China Southern is planning a strategic transformation into a global network-focussed airline, partly as a result of domestic high-speed rail competition but also as part of its strategy to become a leading international brand.
Hainan Airlines - To further support its global plans, which are expected to take on more prominence in 2011 as its fleet grows, the carrier is pursuing a global alliance membership to reinforce its position and boost its competitiveness against its larger rivals.
Henan Airlines - The carrier had been hoping to shake up the regional Chinese market over the next decade, with ambitious plans to operate a fleet of 200 aircraft by 2016.
Sichuan Airlines - Sichuan Airlines is targeting more than CNY10 billion in assets and revenue and more than 100 aircraft by 2015, with 27 narrowbody Airbus aircraft on order. Most of them are scheduled for delivery in the next two years, making it a key carrier to watch for airports in China and neighbouring countries.
Tianjin Airlines - The carrier plans to take delivery of at least one new aircraft per month in 2011, with its 72 aircraft fleet, which includes 24 E190 jets, to rise to about 150 aircraft by 2013.
Hong Kong Airlines - Hong Kong Airlines, and sister airline, Hong Kong Express, are relatively small players in the Hong Kong market. However, the carrier, like its parent company in HNA Group, appear to be serious about making their mark in the region.
Air Arabia - Air Arabia, MENA’s first and largest LCC, has continued to report profits throughout the global financial crisis and 1H2010, emerging as one of the best positioned carriers in the region.
Emirates - The carrier has doubled in size roughly every three-and-a-half-years, with “explosive growth” set to continue through the next decade.
Etihad - The carrier is anticipating a break-even result in 2011 as it sees yield improvements related to a return of business travel. Etihad's fleet expansion will ramp-up more significantly beyond 2013.
Saudi Arabian Airlines - The much-awaited privatisation of the carrier would strengthen Saudi Arabia’s aviation industry and services.
Qatar Airways - With more than 200 aircraft worth more than USD40 billion on order, Qatar Airways sits on one of the largest aircraft order backlogs of any airline in the world.
Avianca - Avianca, Colombia’s national airline, is one of the major players in the fast-growing and high-potential Latin American market.
Azul - The carrier plans to operate a fleet of 40 aircraft by the end of 2011, introducing the first of 20 ATR 72-600s during the year.
GOL - GOL still holds dominant position in the Brazilian market, with a market share of approximately 40% and access to 45%-50% of the available slots in Brazil's most important airports. The carrier is set to continue to benefit from this solid position in an improving market.
LATAM - The merger between LAN and TAM not only affects the Latin American market, but will likely influence thinking in other emerging markets, such as China, India and eastern Europe.
TRIP - TRIP has been quietly expanding its presence in the domestic market over the past 12 months, with this set to continue.
Air Arabia Egypt - Egypt is an ideal market for Air Arabia, due to a lack of surface transportation and significant two-way business and leisure travel and lack of LCC competition.
Air Arabia Maroc - With its fleet of A320 aircraft, the airline is expanding its network into Europe to take advantage of Morocco's vertical open skies agreement with the EU.
Arik Air - Arik Air is seeking to establish a stronger network, with the clear intention of becoming a serious African force.
Ethiopian Airlines - The carrier is planning considerable long-haul expansion having around 45 aircraft on order – for the largest fleet order in the region - coinciding with the rise of the Addis Ababa hub.
Kenya Airways - The airline’s CEO Titus Naikuni in Oct-2010 commented that the carrier is benefiting as a “number of countries continue to open up their skies, which is tied to the deepening democracy and free market [policies]”.
1time - 1Time CEO Rodney James is calling for authorities to allow South African LCCs to operate more routes into the rest of Africa, adding that it could significantly boost traffic if they were permitted to grow their capacity.
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