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are squaring up to each other airlines been too greedy? highlight sector’s top performers

STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE JUNE 2016

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INTERVIEW

WILLIE
WALSH
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 CONTENTS
VOLUME 32 NUMBER 5

AB INTERACTIVE
EUROPE How big budget players ASIA ORDERS Have LOW-COST Our annual rankings
are squaring up to each other airlines been too greedy? highlight sector’s top performers

STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE JUNE 2016

6 Airline Business digital

flightglobal.com/airlines
BRIEFING
INTERNATIONAL
INTERVIEW 8 Airlines regain acquisition appetite
WILLIE
WALSH
Turning IAG into
AMERICAS
a pan-European 9 Bastian aims to retain high altitude
profit machine
EUROPE
10 New Air France-KLM chief faces familiar challenge
ASIA
11 Mueller times out early at MAS
MIDDLE EAST
12 Concerns as Gulf spat smoulders
FINANCE
13 Asian investors join the leasing fray NOK KNOCK
ROUTES EUROPE page 32
COVER STORY 14 Industry calls for Europe to ease ownership rules
16 On the lookout 15 LOT seeks reliable suitor in privatisation push
Since its 2011 launch, IAG has
made shrewd strategic acquisitions. SPECIAL REPORT
Chief executive Willie Walsh is
evaluating his next moves as alma
LOW-COST CARRIERS
24 Expanding model The sector’s key numbers
mater Aer Lingus joins the fold
26 Battle grounds Europe’s LCCs go head-to-head
HOW TO CONTACT US 32 Opportunity Noks Thai carrier eyes China growth
firstname.lastname@flightglobal.com
35 Growing share Ryanair passes 100m milestone
LONDON OFFICE
Phone +44 (0)208 652 3842 36 Low-cost and leisure traffic Our annual survey PILOT PROJECT
Airline Business editor Max Kingsley-Jones
Flightglobal Dashboard news editor Graham Dunn 38 Low-cost carrier financials Rising returns page 10
Flightglobal Dashboard managing editor Niall O’Keeffe 39 A $4bn pot of gold Airlines must connect customers
SINGAPORE OFFICE and inventory more seamlessly
Phone +65 6 780 4314
Asia managing editor Greg Waldron 40 Counting the tin Our analysis of the LCC fleet breaks
out the numbers and reveals geographical dispersion
WASHINGTON OFFICE
Phone +1 703 836 8052
Americas managing editor Stephen Trimble ANALYSIS
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Executive director content Max Kingsley-Jones Seymour and Richard Evans consider the solidity of the
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SUBSCRIPTION ENQUIRIES 46 Profits fly despite yield concerns Carriers continue page 40
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to profit from restructuring and low fuel costs
Download our 2016 media planner at: 48 Looming gloom in uncertain times Airline Q1
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TravelSky Technology Acquires OpenJaw Technologies Limited
TravelSky has completed its full acquisition of OpenJaw, a wholly-owned subsidiary of
GuestLogix, in a USD39.4-million deal that is TravelSky’s ¿rst overseas purchase.
TravelSky Technology
Limited, the world’s third
largest Global Distribution
System and a leading provider
of information technology
solutions for China’s air travel
and tourism industries,
announced on May 5, 2016
that it has acquired OpenJaw
Technologies, the leading
online technology partner
to the world’s biggest travel
brands. The total transaction
value is US$39.4 million.
OpenJaw becomes a
wholly-owned subsidiary of
TravelSky making it their ¿rst
overseas acquisition.
OpenJaw, headquartered
in Dublin, Ireland, provides
bookings and travel packaging
software that is integrated into
a comprehensive online retail
platform called the t-Retail
Platform. OpenJaw is a key
player in global travel
technology, serving airlines,
hotels, loyalty programs and
OTAs, with customers
including Cathay Paci¿c,
British Airways, S7 Airlines,
Hainan Airlines, and others.
The company began its
partnership with TravelSky in
2013 to bring OpenJaw’s
t-Retail platform to Chinese
carriers, Hainan Airlines being
the most notable client at
present.
Headquartered in Beijing,
TravelSky Technology
provides software and related
Advertisement
services to the aviation and
travel industries in the
People’s Republic of China.
Its services include electronic
travel distribution, airport
passenger processing,
reservation system
maintenance, e-ticketing and
inforomation management for
airlines. The company also
owns the world’s largest IATA
BSP (Billing and Settlement
Plan) data processing center.
Since its founding in 2000,
TravelSky has grown revenue
to over $840 million and is
now one of the three largest
global providers of travel
distribution services and
technology, and is the largest
in China.
TravelSky views OpenJaw’s
products, services and domain
expertise in travel retailing and
merchandising as key strategic
assets for its domestic airline
market and for expansion
beyond the Chinese market.
While TravelSky’s primary
focus is the airline market, it
also aspires to serve the
loyalty, OTA and hotel sectors
in the vertical chain,
leveraging OpenJaw’s
expertise and theindustry
leading capabilities of their
travel E-commerce technology,
the t-Retail Platform.
Despite being a subsidiary
fully controlled by TravelSky,
OpenJaw will remain an
independent business unit and
brand, while TravelSky will
steadily consolidate talents,
technology, operations, culture
and management to
innovatively enhance its
development strategy.
BRIEFING INTERNATIONAL
GRAHAM DUNN LONDON
Airlines regain acquisition appetite
After the deals of the last year, and with more under discussions, European carriers are at the centre of renewed merger talk
onsolidation talk among Euro-
C
  pean airlines has stepped up a
level, led by speculation around
UK leisure carrier Monarch Air-
lines, Lufthansa’s moves to
expand its Eurowings concept,
and Alitalia’s opening of talks to
acquire a stake in Air Malta.
The fresh speculation comes as
several European carriers have
already secured investors over the
past 12 months, including Aer Lin-
gus, TAP Portugal, Air Baltic and,
most recently, Adria Airways.
The Maltese government has
been seeking a strategic investor
for its national carrier as part of
restructuring efforts. While Etihad
had been linked with extending
its acquisition spree with a move
for Air Malta, it is one of the air-
lines the UAE carrier has already
“Increasingly it
has been about
adding to their
long-haul feed”
invested in – Alitalia – that has
made the move. Late in April, Ali-
talia signed a memorandum of
understanding and began due dili-
gence with a view to acquiring a
49% stake in Air Malta.
“There are strong cultural and
commercial bonds between Italy
and Malta, and this MOU is a first
and important step, but we will
only make a decision once we
have completed an exhaustive
examination of a possible deal,”
says Alitalia’s new chief executive
Cramer Ball. “We will need to
establish unequivocally that a deal
with Air Malta will not undermine
the progress of our three-year turn-
around programme, or prejudice
our financial position.” Alitalia
took a step towards it goal of reach-
ing profit in 2017 after disclosing a
sharp fall in losses for the last year.
The restructuring efforts of UK
leisure carrier Monarch Airlines,
after its rescue by Greybull Capi-
tal 18 months ago, has put it in
8 | Airline Business | June 2016
Monarch’s restructuring has made it both a potential target and possible acquirer itself
the shop window. Speculation
has linked EasyJet with interest,
perhaps driven by the chance to
secure more slots at London Gat-
wick airport. EasyJet has not
commented on the reports.
Monarch chief executive
Andrew Swaffield says the UK lei-
sure carrier has generated “atten-
tion from a whole variety of poten-
tial investors, both trade and
non-trade, since it became clear
that we had delivered a successful
turnaround”. But he adds the car-
rier does not have the “For sale”
sign up and that it is also “looking
at external acquisitions ourselves”.
It has appointed Deutsche Bank to
advise it and its shareholder Grey-
bull, which is offering its “sup-
port” in the search for potential
investment opportunities.
SCALING UP
Deal speculation has also reignited
around Lufthansa, which since a
major round of airline acquisitions
before the financial crisis has
shown little interest in adding to its
roster of carriers. The change in
emphasis is driven by its ambition
to build up its new Eurowings con-
cept. “Long-term scale effects you
achieve only through size,”
explained Lufthansa board mem-
ber Karl Ulrich Garnadt in March.
“A crucial point will be other com-
panies joining us.”
One such carrier under consid-
eration is Brussels Airlines. The
two sides have been discussing a
concept of migration into the
Eurowings group. Lufthansa
already holds a 45% stake in its
Star Alliance partner, and has a
call option on taking full control
of the operator. But it has pushed
that back to enable the airline to
focus its operations in the after-
math of the bomb blast in March
at its Brussels airport hub. “We
have agreed with Brussels Air-
lines to give ourselves a further
three months to conclude our
negotiations on the acquisition
terms and devise the migration
concept required,” says Lufthansa
chief executive Carsten Spohr.
Lufthansa has also been linked
with partnership discussions
around the Eurowings concept
with both Thomas Cook’s Ger-
man unit Condor and its long-
time Star partner SAS.
Other European carriers also
continue to seek investors. LOT’s
chief executive, Rafal Milczarski
says the Polish flag carrier is still
on the hunt for a strategic partner,
Croatia Airlines remains in the
preliminary stages of privatisation,
while Irish regional Stobart Air
has been in talks with potential
investors since the end of last year.
Italy’s second-biggest airline
Meridiana is looking toward Qatar
Airways for a possible 49% stake
investment – the Gulf carrier
showing renewed appetite in
European airlines after its short-
lived investment in Cargolux in
2012. That has also included tak-
ing a 10% stake in British Airways
parent IAG – a holding which,
chief executive Akbar Al Baker
has been quoted as saying, is now
nearer 12% after being increased.
China’s HNA Group – which
has been active across sectors and
regions including recent moves for
European catering specialist Gate
Gourmet and Carlson Hotels – con-
Monarch
tinues to be linked with European
operators. It has been touted as a
potential investor in Monarch and
Air Europa, while reports suggest
Air France-KLM is also interested
in acquiring its SkyTeam partner.
END-GAME NEARS
For many carriers the current run
of deals – or potential sales – mark
an end-game for several long-run-
ning processes in Europe, many of
which have been in play since the
financial crisis.
“With the various methods of
national subsidy having been
squeezed continually out of the
system through EU regulation,
there are increasingly few options
left for a number of national air-
lines in Europe to maintain their
business model without being
part of a wider alliance. So some
may want to sell,” says Peter Mor-
ris, chief economist at Flightglob-
al’s consultancy Ascend.
Improved profitability has
strengthened the hand of would-be
European carriers seeking to buy
airlines. But Morris says: “While
they may have higher profitability,
I think any of the major players
would find better use of funds than
bailing out weak business models,
unless there was a particular target
market they believed could be only
captured in this way.
Morris sees recent merger activ-
ity among major European carriers
as “pretty focused”. He says:
“Increasingly, it has been about
adding to their long-haul feed, but
not at any price. Probably the big-
gest business area they would like
to capture is a viable low-cost affili-
ate à la Vueling, or equivalent.” ■
flightglobal.com/airlines

EDWARD RUSSELL ATLANTA
Bastian aims to retain high altitude
New chief is taking the helm of Delta Air Lines at a time of large investments, even as a weakening economy looms
elta Air Lines’ new chief
D executive Ed Bastian has
plenty of work ahead of him, with
numerous projects from cus-
tomer-facing product improve-
ments to fleet renewal under way.
“This airline has never per-
formed better in its history,”
Bastian said at a media event at
the carrier’s Atlanta headquarters
on 29 April.
Of US mainline carriers,
Delta reported the best first-
quarter results, with an operat-
ing profit of $1.54 billion on op-
erating revenues of $9.25
billion. Its operating margin
was 18.5%.
“We have much more to do
ahead,” says Bastian, citing the
many product, aircraft, airport
and other improvements that
Delta is making. He took over as
chief executive from retiring
Richard Anderson on 2 May.
Ongoing projects at Delta in-
clude a new premium economy
cabin and a 5% stake in expedit-
ed security provider CLEAR, as
well as recent new orders for up
to 162 mainline aircraft.
UPGRADED CABINS
“When you look at the interna-
tional space, the international
competition has moved to pre-
mium economy as a cabin and a
service itself,” says Bastian on
plans for a premium economy
cabin. “We believe, while we
have made substantial enhance-
ments to the front of the air-
plane, we’ve actually created a
greater divide between business
and the main cabin.”
He cites experience working
with joint venture partners Air
France and Virgin Atlantic in the
decision to debut the cabin –
which will have new seats with
38in pitch and legrests – in 2017.
The Airbus A350-900 will be
the first aircraft in Delta’s fleet to
feature a premium economy
cabin, followed by the Boeing
777-200, Airbus A330-200 and
then the Boeing 767-400ER, its
new president Glen Hauenstein
said at the media event.
flightglobal.com/airlines
Delta will replace regional jets in its feeder fleet with up to 125 110-seat Bombardier CS100s
Aircraft configured with pre-
mium economy will not have
Delta’s extra-legroom comfort
plus economy product, he adds.
Delta will be the second US
carrier offering premium econo-
my. American plans to debut its
own premium economy product
on new Boeing 787-9 aircraft
from the fourth quarter.
Delta’s investment and part-
nership with CLEAR is in re-
sponse to longer security waits
and reported passenger dis-
satisfaction with the US Trans-
Delta Air Lines
“This airline has
never performed
better… We have
much more to do”
ED BASTIAN
Chief executive, Delta Air Lines
BRIEFING AMERICAS
portation Security Administra-
tion (TSA), says Bastian.
“I think it’s much more impor-
tant to be doing something about
it rather than just complaining
about it,” he says. “That’s exactly
what we’re doing.”
FASTER SECURITY CHECKS
Passengers with CLEAR are able
to jump to the front of the TSA
PreCheck queue, says Bastian.
Premier members in Delta’s fre-
quent flier programme will re-
ceive discounted or complimen-
tary memberships.
CLEAR will be expanded to all
of Delta’s eight domestic hubs –
none of which are among its 13
existing locations – and other key
airports under the agreement.
Bastian does not comment on
the value of the investment.
The product investments join
orders for 37 Airbus A321s and
up to 125 Bombardier CS100s
that Delta announced on 28 and
29 April. The 192-seat A321s will
be used to replace ageing Boeing
MD-88s in the carrier’s mainline
fleet, while the 110-seat CS100s
will replace 50-seat regional jets
in its feeder fleet.
“Upgauging has been a big part
of the success of Delta over the
past five years, not just from the
Bombardier
regionals to the mainline but
within the mainline as well,”
says Bastian on the fleet moves.
He also cites very attractive pric-
ing for both deals.
Bastian is no stranger to devel-
oping and implementing large
investments and programmes.
As president of the carrier under
Anderson, he is credited with its
investments in Aeromexico,
China Eastern Airlines, Gol and
Virgin Atlantic, as well as the
success of its New York City hub
at both JFK International and
LaGuardia airports.
However, his move into the
corner office comes as the eco-
nomic environment – especially
abroad – faces numerous nega-
tive pressures. These range from
economic weakness in Asia and
South America to security con-
cerns in Europe and the Middle
East, and a strong US dollar.
These external economic forc-
es have been cited for the multi-
ple quarters of declining passen-
ger unit revenues, even as profits
have risen due to the significant
savings from low fuel prices.
“It’s an interesting time for
Richard to hand off the keys to
me,” says Bastian. “He said ‘don’t
screw it up’ and we’re working
really hard not to.” ■
June 2016 | Airline Business | 9
BRIEFING EUROPE
HELEN MASSY-BERESFORD LONDON
New chief faces familiar challenge
Former AOM executive Jean-Marc Janaillac faces strategic and social challenges as he takes helm at Air France-KLM
ir France-KLM’s new chief
A executive Jean-Marc Janail-
lac faces big challenges: pushing
through unpopular reforms even
as low oil prices ease financial
pressure on the airline, oversee-
ing a profitable expansion of its
low-cost operation Transavia and
strengthening partnerships to
fuel global growth.
Alexandre de Juniac’s surprise
announcement in early April that
he will succeed Tony Tyler as
director-general of IATA left the
airline scrambling for a suitable
replacement for the role of chief
executive, which comes paired
with a relatively low salary and
built-in turbulence courtesy of
clashes with unions.
Enter Janaillac, boss of public
transport group Transdev and
former chief operating officer of
now defunct airline AOM.
De Juniac will officially take
over the helm at IATA from Tyler
“The most
important thing
is to improve
the profitability
of Air France”
on 1 September. His shoes at Air
France-KLM will be hard to fill,
says one of his European network
airline peers, Willie Walsh, who
describes him as the best chief
executive the group has ever had.
The IAG chief executive, who is
on the IATA airline board of gov-
ernors and the chair elect, tells
Airline Business: “IATA’s gain is
definitely Air France’s loss.”
The airline faces both strategic
and social challenges.
“The new CEO will have to
convince Air France-KLM
employees that even though the
sharp fall in oil prices has given
the airline some financial breath-
ing space, the pursuit of higher
levels of productivity must go
on,” says Oddo Securities ana-
lyst Yan Derocles.
“I’m convinced that within
10 | Airline Business | June 2016
Pilots have already taken strike action over unpopular reforms
two to three years prices will
have more or less adjusted to the
new short-term level of oil, so
there is going to be a lot of
pressure on fares.”
Société Générale analyst
Michael Kuhn explains: “The
most important thing is to
improve profitability of the main
Air France business. In that
context it’s all about unit costs
and cost efficiency.”
De Juniac himself in February,
when announcing the group’s
first net profit since 2010, high-
lighted the continued need to
tackle its competitiveness despite
fuel gains. And disclosing in
early May a narrowing in first-
quarter losses, the airline
sounded a cautious note about
the future, warning of a high level
of uncertainty over fuel prices
and unit revenues.
Management and unions have
been clashing over unpopular
reforms to improve productivity
and close the gap between Air
France-KLM and its rivals. The
SNPL, a pilots’ union, rejected
management’s Perform 2020 pro-
ductivity plan in April.
Kuhn says: “There’s an effi-
ciency gap of 10-15% among the
pilots and 20-30% among the
cabin crew compared with its
competitors. This needs to be
closed or at least narrowed.”
Even if Janaillac will not offi-
cially be in charge by then, he
will be able to take a keen interest
in the board’s strategy committee
meeting in early June, says the
union source. That, combined
with his previous air transport
experience, should mean that the
chief executive switchover won’t
set back the airline’s turnaround
by more than a few months or
even weeks.
“However, managing an airline
the size of Air France-KLM poses
LCHAM/SIPA/REX/Shutterstock
a number of strategic challenges
for anyone,” Brechemier warns.
“He will have to decide what the
airline’s position in the market
should be, manage a number of
different entities – Air France,
KLM, Transavia and Hop – and
Roland Berger partner Didier consolidate partnerships.”
Brechemier says choosing Janail- “Strengthening the partnership
lac makes sense, given these chal- with Delta and deciding if the
lenges. “He has experience, both partnership with Etihad should
directly and indirectly, in air be reinforced, and the impact it
transport, at AOM, Maeva and would have on Alitalia, are also
Maison de France. He has suc- very important, as is clarifying the
cessfully restructured Transdev. company’s positioning in Africa,
He knows how to get people from with regard to Kenya Airways
different company cultures [to and Air Côte d’Ivoire,” he adds.
work] together. And he’s close to
the government.” LOOKING TO CHINA
A union source with knowl- A Chinese partnership could be
edge of Air France-KLM’s board very important, Brechemier says.
agrees: “His profile and experi- Kuhn believes the carrier
ence correspond with the role. could sign a deal with an Asian
He has some experience with dif- partner soon. “An announce-
ficult situations.” ment this summer is realistic but
it’s not entirely in Air France-
KLM’s or its new partner’s
hands. Antitrust approval can
take a couple of months.”
Janaillac will also have to
focus on Transavia, which
opened a new base for the low-
cost subsidiary in Munich in
March, employing local staff on
local terms to cut costs, in a move
that sparked strikes.
“Transavia’s target is to reach
breakeven by 2017,” says Kuhn.
“[It] needs to make credible
progress on the way there.
Opening the base in Munich is
the biggest project this year. That
Air France-KLM
will be eyed closely by the
market: how well can it compete
Janaillac: a steadying hand with Lufthansa in its market?” ■
flightglobal.com/airlines

GREG WALDRON SINGAPORE
Mueller times out early at MAS
Can Malaysian flag carrier retain its momentum after turnaround specialist quits a year into job?
A
  s Malaysia Airlines reels
from the unexpected news
that chief executive Christoph
Mueller will step down from his
position in September – a little
over halfway through his three-
year contract – the outgoing boss
has assured employees the carrier
is on the right road to recovery.
But while Mueller has presided
over major changes in the last 12
months, the worry is that the air-
line could regress to its old, loss-
making ways after his departure.
Khazanah Nasional Berhad,
the sovereign wealth fund that
owns the carrier, said in April
Mueller is leaving because of a
“change in personal circum-
stances”. He will stay until Sep-
tember and a successor will be
named before he departs. He will
remain as a non-executive director.
Rumours abound as to why
Mueller is leaving halfway
through his contract. One source
at the airline indicates Khazanah
may have had a role, with increas-
ing demands for details about plans
and the carrier’s performance.
Mueller’s track record in his 12
months at the struggling carrier is
impressive. In an April employee
circular obtained by Airline Busi-
ness, the former Aer Lingus chief
wrote: “We have already seen a
profit in February and we are also
ahead of budget, which gives us
strong indication that our turna-
round initiatives are pulling
through faster than expected.”
He adds, Malaysia Airlines “is
making very good progress and
[is] on track with the [turna-
round] plan”.
CUTTING LOSSES
Flightglobal data shows the last
year has been one of major
upheaval at the airline – quite apart
from 6,000 job losses, which
reduced headcount to 14,000.
Flightglobal’s Innovata sched-
ules service shows Malaysia Air-
lines’ ASKs dropped sharply
after Mueller’s arrival, going from
over 5 billion ASKs monthly a
year ago, to well below 4 billion
in April.
flightglobal.com/airlines
FlightMaps Analytics shows
this sharp fall was largely due to
the elimination of high-profile,
long-haul routes such as Amster-
dam, Paris, Frankfurt, Istanbul and
Brisbane. It also shows the airline
added no new routes during the 12
months of Mueller’s reign.
Flightglobal’s Fleets Analyzer
database shows Malaysia Airlines’
fleet has also changed radically.
Will Khazanah seek
a tough chief
willing to make
hard decisions?
When Mueller sat down for his
first day at the carrier, in May 2015,
it had 95 in-service aircraft. Over
12 months this has fallen to 79.
In May 2015 the carrier had
eight aircraft in storage: four Boe-
ing 737-400s, an Airbus A330-
300, and three Boeing 747-400s.
Today, 15 are in storage: five 747-
400s, seven Boeing 777-200ERs,
an A330-200 and two 737-400s.
The changes have not been
without controversy, however,
with a number of lessors unhappy
about the sudden return of 777s
without compensation. The new
corporate shell for the carrier has
been able to saddle the lease obli-
gations back to the old Malaysian
Airline System, which is in the
process of being wound up, leav-
BRIEFING ASIA
IN BRIEF
HNA TO LAUNCH CARGO
UNIT FROM TIANJIN
China’s HNA Group and the
Malaysia Airlines
aims to name
Tianjin Port Free Trade Zone
have signed a joint venture
agreement to set up a cargo
Mueller’s succesor
carrier. Tianjin Cargo Airlines
before he leaves in
will be based at TInjin Binhai
September
International airport, and will
focus on freighter services to
northeast Asia, Europe and
the USA. The target is to
expand the carrier to a fleet
size of between 50 and 100
aircraft within five years.
Malaysia Airlines
CHINA EASTERN SIGNS
FOR A350S AND 787S
China Eastern Airlines has
signed for 20 Airbus
ing some lessors in a tight spot. A350-900s and 15 Boeing
Other major fleet changes 787-9s as part of a long-haul
appear to be in the works. In fleet modernisation
October Mueller said Malaysia programme. The airline is
Airlines wanted to get rid of six taking delivery of the A350s in
Airbus A380s in 2017-2018. batches from 2018 to 2022.
Given the unproven secondary All the A350s are exclusively
market for the A380, the fate of powered by Rolls-Royce Trent
these aircraft is unclear. XWB engines. Two aircraft will
A month earlier, the carrier arrive in 2018, three in 2019
announced plans to lease four and two in 2020, before the
Airbus A350-900s from Air remaining 13 are introduced in
Lease, with options to lease four 2021-22. China Eastern adds
additional aircraft: two A350- that it will receive the 787-9s
900s and two A330-900s. over the period from 2018 to
Turning Malaysia Airlines 2021. It has not revealed its
around is widely regarded as the selection between General
toughest job in aviation. On a Electric and Rolls-Royce
pure numbers basis, Mueller engines for the 787s.
appears to have done what he set
out to. GARUDA SWITCHES TO
The key thing to watch in the NEO FOR LONG-HAUL
coming months is Khazanah’s Garuda Indonesia is taking
choice to replace Mueller. Will it 14 Airbus A330neo twinjets
install a steady establishment in place of seven A330-300s
figure who will not rock the boat? cancelled by the carrier.
Or will it again seek a tough foreign The decision confirms the
chief executive like Mueller who is airline’s previously-disclosed
willing to make hard decisions intention to opt for the
irrespective of who they upset? re-engined Rolls-Royce Trent
Malaysia Airlines has had 7000-powered type. Airbus
more than its share of shocks in had revealed an order for 14
recent years, namely the disap- A330-900neo jets, for an
pearance of MH370 and the undisclosed customer, at the
shooting down of MH17. In com- beginning of this year.
parison with such catastrophes, The aircraft manufacturer
the resignation of a chief execu- says Garuda will start
tive is of negligible import. receiving the A330neos from
Still, Mueller’s departure is an 2019. It confirms that the
unwelcome surprise for Malaysia deal “replaces and extends”
Airlines, creating uncertainty at a its previous A330 order.
daunting time. ■
June 2016 | Airline Business | 11
BRIEFING MIDDLE EAST
GHIM-LAY YEO PHOENIX
Concerns as Gulf spat smoulders
Battle between Middle East and US airlines over alleged subsidies may not be centre stage, but it is having an influence
lobal airline executives
G remain concerned over the
potential implications of the sub-
sidies battle between US legacy
carriers and Gulf airlines, even
though the issue seems to have
fallen off the industry’s radar.
Speaking on a panel about the
subsidies spat at May’s Phoenix
Sky Harbor International Avia-
tion Symposium, IAG chief
executive Willie Walsh said the
controversy, which emerged in
early 2015, has “changed the
global debate around liberalisa-
tion, which is disappointing”.
“I’m a lot more pessimistic
today,” says Walsh. “The debate
is having a negative effect.”
IAG’s shareholder Qatar Air-
ways is one of the three Gulf car-
riers mired in the controversy.
US majors Delta Air Lines, Amer-
ican Airlines and United Airlines
Baumgartner takes reins
as Hogan moves upstairs
Peter Baumgartner has been ap-
pointed chief executive at Etihad
Airways, following James Hogan’s
move upwards to head the broader
Etihad Aviation Group.
Baumgartner, who joined the
carrier in 2005, had been serving
as chief operating officer. He will be
responsible for functions including
flight and network operations, safe-
ty, security, sales and marketing.
Etihad started unveiling its trans-
formation into the group structure
the first in the world ! ! Wide field of view with flat surface
Passenger Convenience
12 | Airline Business | June 2016
US concerns about Gulf giants have “changed liberalisation debate”
accuse Qatar Airways, Emirates
and Etihad Airways of receiving
more than $42 billion in subsi-
dies from their governments. The
Gulf carriers strongly deny this.
The US government has prom-
two years ago. It says that James
Rigney will be group chief financial
officer, with other group-level chief
appointments include Kevin Knight
for strategy and planning.
Etihad Airways Engineering will
be led by Jeff Wilkinson while Bruno
Matheu becomes chief executive at
the airline equity partners division.
Hogan says the changes will let
the group “maximise opportunities”
for revenue generation and cost
control “on a much bigger scale”.
Shorten Aircraft Turns
reference to the lawns at the
venue where the symposium
was being held: “Using the gar-
dening analogy, the lawns here
are perfect... If the US has lawns
like this, we can do anything.”
Air China’s vice-president and
general manager for North Amer-
ica Zhihang Chi remains con-
cerned that the controversy is a
sign of a new wave of US protec-
Max Kingsley-Jones/Flightglobal
tionism that could impact other
bilateral air services agreements.
Chi has long called for the US
and Chinese governments to
negotiate for more frequencies
under the countries’ bilateral
agreement. A round of May 2015
ised to review the claims, but has talks between US and Chinese
so far not taken any action – and officials did not yield progress,
while public debate over the with Chi saying that the US gov-
issue appears to have calmed ernment was not keen to add
from the latter half of 2015, air- more frequencies.
line executives are concerned
that damage has been done.
“Issues like this do have
“I’m a lot more
implications globally… it
doesn’t feel like it’s going to go pessimistic...the
away as a global topic anytime debate is having a
soon,” says Andrew Parker,
Qantas group executive for
negative effect”
government, industry and inter-
national affairs.
One of the most vocal critics US officials are said to have
of the Gulf carriers, the Air Line raised concerns over the availa-
Pilots Association (ALPA), reit- bility of ideally-timed landing
erates that the US government slots for US carriers at Chinese
needs to reconsider some of its airports. Chi says US reluctance
open-skies agreements. ALPA’s to add more frequencies is
senior attorney David Seman- “unfathomable”. “Just about 10
chick characterises the US gov- years ago, the US was knocking
ernment’s slate of open-skies on the door of China, asking for
deals as a field that needs some more frequencies, for more
“weeding and pruning”. market access.” ■
In response, Walsh says with a See Willie Walsh interview P16
ŽƐƚ^ĂǀŝŶŐƐ͊͊
Saving %6,6WRZDJH%LQ
Non Productive Hour Komy Co., Ltd. www.komy.com
flightglobal.com/airlines

ELLIS TAYLOR PERTH
Asian investors join the leasing fray
As the promise of reliable returns draws new money to the sector, partnerships with established players can limit costs
A sian investors’ appetite for
aircraft stocks appears to
remain strong: three new joint
ventures involving established
players were announced in the
first quarter of 2016.
IBJ Leasing and Aircastle dis-
closed a new venture in February.
The two are linked via Japan’s
Marubeni group – Aircastle’s big-
gest shareholder with a 27% stake
and with extensive business ties
to IBJ parent Mizuho Financial.
The IBJ undertaking is Aircas-
tle’s second joint venture, the US
lessor having operated a similar
one with the Ontario Teachers’
Pension Plan for some time.
With IBJ, it is targeting acquisi-
tions of new narrowbodies leased
to “premier” airlines. Aircastle
will supply the first two but future
investments will be acquired by
the joint venture.
“That model is set up to invest
in younger, better-credit, lower-
return deals – not lower returns
for the sake of lower returns, but
because they have a better risk
profile,” explained Aircastle chief
executive Ron Wainshal during an
April investor briefing.
“We manage the assets, but
while maintaining a 15% ROE on
our minority portion.”
TAKE TWO
The announcement of the
Aircastle-IBJ tie-up was followed
in March by Chow Tai Fook
Enterprises’ second foray into the
aircraft leasing market. Having
bought into Investec-managed
Goshawk in 2015, CTFE joined
related company NWS Holdings
for a joint venture with Aviation
Capital Group. The three parties
have committed to investing up to
$600 million into the venture and
targeting a portfolio of 50 aircraft
in the early stages.
It is the second time CTFE and
NWS have joined forces in an air-
craft leasing platform. In 2014,
after Cheung Kong sold its 80%
share in Goshawk’s portfolio,
CTFE jumped in and later split its
stake with NWS. Those are the
same stakes the two partners hold
flightglobal.com/airlines
Transavia is among the customers of Sojitz’s Dutch leasing arm
in Bauhinia, albeit with the re-
mainder of that held by ACG. But
where Goshawk has morphed
into a full-service lessor, ACG will
manage the Bauhinia portfolio.
Hence CTFE and NWS are each
investing in two platforms. “The
diversified investments could be
risk mitigation, with Chow Tai
Fook and NWS seeking to avoid
concentration of their investment
in a single platform,” says Rob
Morris, head of Flightglobal’s
Ascend consultancy.
A third leasing joint venture
involving Asian investors breaks
the mould. In February Singapore-
based maintenance, repair and
overhaul giant ST Aerospace dis-
closed a deal to sell a 50% stake in
its Keystone leasing platform to
Japan’s Sojitz Corporation for
Y1.2 billion ($11.4 million).
Sojitz is no stranger to the mar-
ket, having long operated a leasing
platform in the Netherlands.
Flightglobal’s Fleets Analyzer
database shows Sojitz Aircraft
Leasing has a portfolio of 11 air-
craft – largely Boeing 737-800s
(including four leased to
Transavia) – with an average age
of just under 15 years.
The deal is effectively the sec-
ond leasing partnership ST Aero
has entered after parting ways
with US-based Wings Capital
Partners last year. Sources say,
while Wings was enthusiastic, the
BRIEFING FINANCE
Transavia
risk-averse nature of ST Aero led
to a clash over strategy that ulti-
mately led to the dissolution of
the WingStar partnership.
Keystone has wasted little time
since in building its portfolio.
Having started with an Airbus
A320 and a 737, it recently added
an Airbus A321, acquired from an
Investec-led aircraft fund.
Morris believes the recent pair-
ing-up has been primarily driven
by Asian investors seeking imme-
Lessors have
benefited from
access to deep,
patient capital
diate access to experienced hands
in the aircraft leasing industry.
“In this manner, the Asian capi-
tal leverages off the management
expertise of the established plat-
forms to derive the required return
without having to incur the cost of
creating their own full-service
management platforms, at least in
the first instance,” he notes.
Conversely, lessors such as
Aircastle and ACG have gained
benefits from access to deep – and
patient – Asian capital. In some
cases, it enables the joint venture
to pursue a different investment
strategy, or provide more overall
balance to the lessor’s portfolio.
For instance, Aircastle’s Wainshal
says the joint venture with IBJ is
one where the Japanese partner is
willing to take smaller returns and
deals in return for lower risk
profile, which balances the riskier
assets and bigger deals pursued by
Aircastle’s OTPP joint venture.
Nonetheless, both Bauhinia
and the Aircastle-IBJ ventures
have indicated that they intend to
purchase more aircraft, with par-
ticular focus on new ones leased
to solid-credit customers. While
both portfolios will initially
acquire aircraft from their lessor
partners, they have also signalled
an intent to look to the wider mar-
ket, probably focusing on
sale-and-leaseback opportunities.
MIDDLE WAY
Keystone, however, is pursuing a
different strategy of targeting mid-
life assets and managing them to
end of life. In large part, the latter
will draw upon ST Aero’s MRO
and fleet management capabili-
ties, mated with Sojitz’s leasing
experience and ability to generate
finance from the yield-chasing
Japanese market.
The teaming up of Asian capital
and Western lessors shows
demand for aircraft investment
continues to rise in Asia – contin-
uing a persistent theme of late.
Nevertheless, the newly
announced joint ventures may be
a sign that investors are taking a
sophisticated approach to their
investments, and are looking to
team up with experienced, mid-
size players to mitigate their risk
and boost their returns. That is a
change from the previously
accepted wisdom that Asian
investors were seeking to put their
own brands on their platforms.
At the broader level, though, it
also demonstrates that leased air-
craft remain attractive invest-
ments, Morris says.
“Lessor returns are not present-
ly as high as they have historically
been, but with low interest rates
the margin remains attractive.” ■
June 2016 | Airline Business | 13
 ROUTES EUROPE

Industry calls for

Europe to ease
ownership rules
Routes Europe touched down in Poland this year
where the event began a decade ago – back then it
was in Warsaw and this time in Krakow. Niall O’Keeffe,
Oliver Clark and Michael Gubisch report

ift the cap on foreign owner- but just to the market becoming
L ship and control of airlines to
facilitate industry restructuring,
more mature”.
He adds: “We’re in archaic
panellists urged during a Routes times when it comes to foreign
Europe debate on the needs of the ownership, foreign equity, joint
continent’s air transport sector. venture, sharing etc. That needs
The wide-ranging discussion to stop.”
at the Strategy Summit, held on Another panellist, John Hanlon
24 April, also highlighted uncer- – secretary general of low-fares “We’re addressing ratio of non- cesses, terms and conditions,
tainty about the economic cycle carrier association ELFAA – is flying personnel to flying person- infrastructure, etc, when the sun
and risks of overcapacity and a equally emphatic. The restric- nel,” he adds, to which panel is shining”.
strong dollar. tions are “irrelevant in a global chair Mark Pilling, Flightglobal’s Weston, meanwhile, makes the
Association of European Air- market”, he says. chief markets officer, asks: novel point that costs must be
lines chief Athar Husain Khan A punchy take on the eco- “That’s code for something, isn’t scrutinised at every level.
argued that ownership and con- nomic climate is offered by Bain it?” But Milczarski will say only “We all obsess about labour
trol restrictions were “not just a & Company partner Geoffrey that “it’s the same rule in any agreements – there’s a bunch of
hindrance to struggling carriers, Weston: “For most airlines, this is operating business: you have to other restructuring you can do.
1 aas good as it gets.” With yields keep the costs down”. You can restructure your head
ccoming down, he asserts, “it’s office. You can start in the man-
FROM
DAAILYY
SUNDAY | 24
APRIL 2016
jujust hard to see if you’ve got no agement,” he says.
KRAKÓW
PE FORUM IN
ROUTES EURO
FROM THE 2016
YOUR NEWS 11th year,
m more oomph left in your fuel Such is the dominance of low-
Now is the right
in 2006. Now in its Warsaw
this is hosted by Kraków
arrival in Kraków this year’s event
Routes Europe’s the Małopolska
to the event’s
ROUTES EUROPE
year marks a return Airport and its partners of Kraków and

h hedging, where you’re going to be cost carriers, now, that he sees the
outing of Routes region, the Municipa
lity
origins. The first
GOES BACK TO
of the regional Organisation.
Europe, the largest Małopolska Tourism

time for airlines to

Polish capital
forums, was in the
ITS ROOTS
m making more profit”. very label itself as redundant. “If
John Grant, director at JG Avia- sort out their cost you’ve got a really crap cost base,
base and structures
REX/Shutterstock

ttion Consultants, takes a warning you’re unlikely to be a winner. In

sition
Taking pole po
etwork planners
meet in tors
it 65% before
exceptional
prof- below the
levels of the last

savings this year

as the fuel
decade. markets
tapping hit on
in 2015, lifting operatingitems, With European carriers hedg- should be more than
and is likely to
yields. But for

savings, while
result in a
airlines this
offset by fuel
for European air-
fr
p
from North America, “always a
precursor” for Europe. Citing
most industries, we don’t put in
this artificial dichotomy.”
 
N Kraków for the
forum with the
Routes Europe
region’s carriers
to a record €2.3
billion ($2.5 bil-
lion). All its carriers
posted a prof-
es that capped
oil prices unwind,
gains from falling
the prognosis –
ports it should
of strong traffic
mean another year
growth – at least
e of low fuel which made

o overcapacity, softening yields As to the potential of the pro-

c backdrop passenger side.
ready to take advantag profitability it, including Iberia, if a steady economi on the
d g profit for almost for this year. a probable
prices and improve its best operatin remains – is positive There is also
n.
further route expansio and a decade. too, like Turkish p from continued
with furt decade Others are in network impact in Europe.
fuel prices and Ryanair,
Buoyed by low airlines Airlines EXPANSION PLAN region’s car- r consolidation activity including
and, European record-breaking
territory. of the carriers,
solid demand, ince the similar ed It means many – After several TAP Portugal,

aand dollar strength, he declares Local factors complicate the posed EU aviation strategy to
year since ile,, several challeng the front foot
enjoyed their best eanwhile
Meanwh riers are on Aer Lingus and in 2015,
with some reach- to profit. Finnair, expanding capac-
recesssion broke carriers returned – opening routes, ve mood. secured new investors deals for
and erstwhile an and Czech Airlines – ity and in acquisiti uisitive year has already
seen
ing record highs black. Norwegi losses ean n this Air Baltic
to the years of the Europea Airways and
loss-makers returning December which halted six The battle in as ca- Adria
in as did UK l market is intense, d. Further deals eals seem
Airline body IATA moved out of the red, short-hau complete

h himself “extremely concerned task facing central and eastern improve the industry’s fortunes,
n carriers were Air
Monarch. Perhaps pacity is added. Ryanair, which likely as Air Malta and Stobart
forecast Europea pair Flybe and
net profits in file, Air France- in March talking to possible

DDAAIL
to make $7 billion high-pro eight 737-800s both been
2

set most received have

in absolute terms challenges at its underlined its ambition investors, while EasyJet has
been

ILY
2015 – a record KLM put labour its alone, has a
– and results dis- French operation aside to post with more base
announcements.
linked with
interest in
for the region airlines will
n airlines since profit since 2010. .■
closed by Europea still. first net Extra capacity from in many restructured Monarch

tth
that we are walking with rose- European carriers, in Milczarski’s Hanlon is encouraged that the
has crept up
YOU
suggest thingsRmight be better
NEW While the oil price FROM
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lobal.
ttinted sunglasses into a position view. “This part of the world Commission “has identified the
data from Flightg
view of aviation
Your complete
Visit us at stand
S15 to meet the
team and find
out more
tth
that will catch people with their hasn’t been, I would say, mentally right focal points”.
p
21/04/2016 17:15

pants down”. equally prepared to protect the However, the Commission’s

interest of local carriers,” he says. description of its own proposal
DOWNTURN CONSENSUS Nonetheless, he is confident as “ambitious” raises a quibble
H
Hanlon, however, takes issue with that region, with its rising eco- with a lawyer on the panel. “The
That’s the way
the tthe suggestion that there is overca- nomic power, needs its own net- fact that we use the word ‘ambi-
Schiphol ta
cookie crumb
les:
Marcel Lekker

p
pacity in North America: “I’m sur- work carriers. “For us, geographi- tious’ does not make it so,” says
kerk

kes the
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of aviation
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prised they have used the collapse cally, to go to western European Watson Farley & Williams part-
has l
the competition:certainly bit into over 20 million
Routess last night, at annum. Munic passengers per Highly
Europe the h airport is commended:
Awards, the Marke commended highly Vilnius.
Dutch gatewa ting Athens took
in the categor
y.
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Norway walked
declared the y was the title for the with the best-de off
overall winne airport in the best with stination award
r.

o
of the oil price to actually put in hubs to fly to the Far East doesn’t ner Jeremy Robinson.
At the ceremo four the Vienna ,
Krakow congre
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ICE passenger catego to 20 million pickin Tourist Board
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succeed than on its l of building
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a new long-h the disclosure

Fuel your g m
more capacity in the USA.” make any sense.” Milczarski, meanwhile, is not
crowned the
winner. near aul route in
future. ■ the

row Your complete

th strateg y Still, there seems to be a con- Grant perceives IAG to be “two encouraged by the EU’s track
view of aviat
Visit us at stand ion data from
S15 to meet Flightglobal.

ssensus on the need to prepare for or three tranches of efficiency record on implementation of
the team and
find out more
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aany downturn. enhancement and cost restructur- policy changes, drawing a lesson
Read more Route
Routes
t sEEuro
Europe
urope
ope “This is the right time for every ing ahead of some of the other from his past in the rail industry.
news and download our
airline to sort out their cost base groups” in Europe. However, he “I was very confident about the
dailies at:
flightglobal.com/
and their structures,” says Rafal acknowledges that at present, it is 4th railway package – ulti-
RoutesEurope Milczarski, chief executive of “extremely emotive to talk to any mately, it’s being introduced
Polish flag carrier LOT. group of employees about pro- pretty much toothless.” ■

14 | Airline Business | June 2016 flightglobal.com/airlines


Panellists covered a wide range of topics and (L-R) included Pilling, Milczarski, Hanlon, Husain Khan, Weston, Grant and Robinson
LOT seeks reliable suitor in privatisation push
OT is still on the hunt for a
L “good, reliable” partner as
part of efforts to privatise the Pol-
ish flag carrier, chief executive
Rafal Milczarski confirms.
“We don’t need any partner:
we need a good partner. An aver-
age or weak partner, we don’t
need,” he says.
When asked whether THY
Turkish Airlines could serve as
the partner, Milczarski responded:
“I wouldn’t rule it out, but there
are other candidates for that ‘relia-
ble partner’ title.”
Milczarski tells Airline Busi-
ness that while the privatisation
Enter into era of national co-operation
Enter Air is looking to restart talks
with Polish flag carrier LOT about a
potential partnership to feed one
another’s networks in Poland.
Enter Air commercial chief
Andrzej Kobielski told Airline
Business in Krakow that the Polish
charter operator had previously held
talks with LOT about how to “actu-
ally join forces, either to fly for them
on an ACMI [aircraft, crew, maint-
enance and insurance] basis or use
their capacity to feed our bases and
our aircraft”. He says Enter does not
currently operate domestic flights.
flightglobal.com/airlines
process is technically “not hap-
pening at the moment”, the gov-
ernment is “assessing the oppor-
tunities with various partners”.
AT STAKE
He says these partners vary on a
“geographical [basis] and also in
terms of the type of investor who
would be able to come in”, adding
that “all of it is being evaluated”.
The Polish government has
been looking to sell a stake in the
state-owned carrier since 2014,
when the European Commission
approved a package of state aid
for the airline.
These previous discussions end-
ed earlier this year when LOT re-
shuffled its senior management
team, replacing chief executive
Marcin Celejewski with Rafal
Milczarski in January.
“I still think there is room for it
[collaboration],” Kobielski says.
“Of course, right now we need to
get familiar with the new manage-
ment,” he adds.
This potential co-operation could
take the form of LOT using the 10
Bombardier Q400s it inherited from
collapsed regional operator Eurolot
Milczarski says that while the
process is being handled by the
government, the airline is “work-
ing on our strategy as to who
would be the best fit for us, and
we will be passing those views to
the ministry of treasury, but ulti-
mately it’s the power of the sover-
eign to decide what they want to
do with the shareholding of LOT”.
He says his priority is cont-
inuing the restructuring of the
airline and making it financially
“healthy”. He reveals that the
first quarter of 2016 was “the best
first quarter we have had for
many, many years” but, due to
last year to feed Enter’s four Polish
bases of Warsaw, Katowice, Wrolaw
and Poznan, Kobielski says. It could
take the form of a codeshare or an
agreement to “distribute capacity
commonly”, he says, adding that
this is “probably a subject we will
get back to”.
Elsewhere in Poland, he does
not see a lot of opportunity for
Enter Air to grow, and says that
while Gdansk is an interesting des-
tination, the market is “massively
seasonal” and would not suit the
airline’s operations.
ROUTES EUROPE
BillyPix
BillyPix
Milczarski: THY not ruled out
financial reporting restrictions,
he declines to provide figures.
LOT is currently working on
expanding an existing comm-
ercial partnership arrangement
with Turkish, but this is taking “a
significant amount of time to
develop”, he says. Closer co-
operation with Turkish could
“extend our network and
improve connectivity”, and the
“implications about Asian and
African traffic for our customers
would be quite beneficial”.
Milczarski says the vast major-
ity of LOT’s co-operation is
around its Star Alliance partners,
and the Polish national carrier is
only allowed to co-operate on 5%
of its business with “non-
alliance” members. ■
June 2016 | Airline Business | 15
INTERVIEW WILLIE WALSH
REPORT
MAX KINGSLEY-JONES
LONDON
PHOTOGRAPHY
TOM CAMPBELL
ON THE
LOOKOUT
Since its 2011 launch, IAG has made some shrewd strategic
acquisitions. Chief executive Willie Walsh is evaluating his
next moves as alma mater Aer Lingus joins the fold
F
ive years ago Willie Walsh set out on
a mission to reinvent the airline
merger as he brought two fiercely
independent international flag carri-
ers – British Airways and Iberia –
into single ownership under the International
Airlines Group umbrella.
Since setting up shop in offices on London
Heathrow’s northside in January 2011, Walsh
and his team have already achieved much of
what they set out to do. The group has
expanded its portfolio through tactical take-
overs and acquisitions of “like-minded” play-
ers as the IAG chief executive worked through
his objectives to create one of the world’s lead-
ing airline clusters.
“We’ve demonstrated that a proper structure
is the foundation to success. And that may
sound very simple but I think a lot of people
have got that bit wrong,” Walsh says.
The group didn’t have to wait long to start its
expansion, as BMI came up for grabs in 2012
and was absorbed into BA to bolster its posi-
tion at Heathrow. In 2013, IAG converted
Iberia’s minority shareholding in Vueling to
full ownership, adding a low-cost airline to the
group’s armoury. And last year Aer Lingus
joined in a strategic move that brings a strong
transatlantic presence, a good position at
Heathrow and high growth potential.
Walsh declares himself satisfied with IAG’s
progress so far and sees more potential oppor-
tunities for the group as industry consolidation
plays out. He points to the decisions taken
during its conception about how the business
16 | Airline Business | June 2016
would be set up as being key to its success.
“This was something we debated a lot while
we were negotiating BA and Iberia,” he says.
And the fact IAG came late to the European
airline merger party was turned to its advan-
tage: “It helped us that we followed on from
others in terms of consolidation, so we were
able to look at some of the positives and some
of the negatives.
“The structure means we’ve been able to
bring Vueling into the group and it is sat side-
by-side with BA and Iberia and has been able
“While Iberia was going
through a crisis, other
parts of the group could
focus on opportunities”
to continue to develop as a low-cost carrier.
We’ve always challenged this view that it is
very difficult to see how a low-cost carrier that
is a subsidiary of a full-service or traditional
airline can operate successfully.”
Walsh also says the way IAG is wired ena-
bles businesses to function independently and
avoid being disrupted by another’s local issues.
“While Iberia was going through the depths
of a crisis, the other parts of the group were
able to focus on their opportunities,” he says.
“We’ve been able to keep them all focused in
their own areas and that is unique in terms of
the consolidation around Europe.”
flightglobal.com/airlines
flightglobal.com/airlines June 2016 | Airline Business | 17
INTERVIEW WILLIE WALSH
Given Walsh’s intentions for the group, it
was no surprise that when Airline Business sat
down with him five years ago, “scale-able” was
his buzzword when explaining his vision. That
ideal was adhered to last year when IAG was
successful in its bid for Aer Lingus.
Walsh knew the Irish carrier well, having
headed the airline from 2001 to 2005. He
hinted to Airline Business in 2011 that it was
on the IAG radar saying, while he didn’t see
Aer Lingus as a potential acquisition candi-
date, “things could change”. And they did.
“It was always on ‘the list’ for obvious rea-
sons – it was an airline we knew well and
worked with, it was a strong brand, it had a good
position on the transatlantic, it had key slot
positions at Heathrow, it was profitable and we
thought there was great potential to expand –
particularly on the transatlantic,” says Walsh.
But the timing of IAG’s move was driven by
two factors – one of which was the need to
resolve a key issue around Aer Lingus’s
responsibility for its pensions deficit.
“I’d always been clear from my history in
the airline that this was not an issue... but I was
always reluctant to look at Aer Lingus because
of the questions surrounding it. Given the scale
of the pensions deficit in BA, I didn’t want to
take on another one.”
A
s IAG prepared to bid in 2014, it
decided to wait for Aer Lingus
to complete the process of
securing shareholder approval
for the resolution of its pension
deficit. But the timing of the bid was ulti-
mately driven by news that Aer Lingus’s long-
standing chief executive, Christoph Mueller,
was to depart.
That offered a bidding window in mid-
December 2014 when Walsh approached the
Aer Lingus chairman and the rest is history.
Aer Lingus finance chief Stephen Kavanagh
succeeded Mueller as chief executive in March
last year, an appointment Walsh says he is
extremely pleased with but claims no influence
on. Walsh, who has taken on the interim role of
Aer Lingus chairman to support the new CEO
during his initial time at the helm, rates
Kavanagh highly from his time at the airline
when he was a rising star in network planning.
“It was absolutely clear to me that he was
the right choice to be CEO, and while it was not
my decision, I did make my views known to
the Aer Lingus board that if it wasn’t going to
be Stephen then I would be giving him a job at
IAG, because I didn’t think he’d stay if he
didn’t get the CEO’s role.”
IAG refers to its new Irish gateway as “the
18 | Airline Business | June 2016
STEADYING THE SHIP
Since stepping away from running an airline
in 2011 after moving from British Airways,
Willie Walsh has enjoyed a slight slackening
of the pace of life.
“I do genuinely feel that it is different. I
don’t work seven days a week and 24h a
day – I used to feel like I did,” he says.
And when he wants to get away from it
all, Walsh spends time motoring up and
down the River Thames on board his cruiser.
“I first rented a boat on the River
Shannon with a friend in the early 1980s a
couple of times, and I enjoy it.”
Walsh has even convened an IAG
management meeting on board his vessel.
“We stopped in a couple of places for a drink,
and sorted all of the issues out,” he says.
“I’m very comfortable letting the other
guys take control of my boat in the wide
open parts of the river, but I don’t let them
take it through the locks.”
INTERNATIONAL AIRLINES GROUP
Operating revenue $m, 2015 25,207
Change $ -5.2%
Change local 13.3%
Operating margin 10.2%
Net margin 6.6%
Year-end 31 Dec 2015
AB 2014 Financial ranking 7 to an existing order the group holds for 16 A350-
AB 2014 Traffic ranking n/a
RPK Growth (2015) 9.6%
ASK Growth (2015) 8.2%
Load Factor (2015) 81.4%
accidental hub”, explains Walsh: “Dublin was
never set out or designed to be a hub, it just so
happened that people recognised there’s a real
advantage in ‘hubbing’ over Dublin and that’s
given us the confidence to expand the transat-
lantic network.”
DUBLIN UP
He highlights recent figures from Dublin air-
port that show a rapid rise in transatlantic
transfer traffic in the first quarter. The number
of passengers transferring from the UK and
mainland Europe to the USA increased by
68%, and by 72% in the other direction.
Aer Lingus announced three new US desti-
nations last year – Hartford, Newark and Los
Angeles – and Walsh expects there will be
more transatlantic expansion from Dublin to
come. “We’ll probably add more capacity on
some of the existing services and potentially
another destination in 2017, and I think we’ll
do the same again in 2018.”
Walsh says while this strategy was already
in play, the IAG connection brings Aer Lingus
into IAG’s joint business with American
Airlines on the Atlantic, giving it the point-of-
sale presence at the European end and on the
US side. “We saw that as adding more feed into
the Dublin operation of Aer Lingus.”
He adds that IAG is not looking to divert traffic
from Heathrow over Dublin, but points out that
the Irish capital offers far more connections to the
UK than BA’s Heathrow hub, serving 21 points.
“That’s clearly an opportunity for us to serve the
UK market [from the transatlantic] in areas that
BA can’t because of slots at Heathrow.”
Aer Lingus holds orders for 11 Airbus wide-
bodies – two A330-300s and nine A350-900s –
and Walsh says that IAG does not plan to
redeploy any of that capacity elsewhere within
the group. But Aer Lingus had to switch its
A350 order to the -900 when Airbus sus-
pended development of the -800 variant and
Walsh questions whether the larger model
could be a step too far for the airline.
“We felt that the -900 was maybe too big an
aircraft for Aer Lingus, and that the A330 is a
better aircraft [for it]. We’ve looked at [the
A330neo], but given that Aer Lingus doesn’t
really have what I’d call a long-haul network,
the fuel advantage is marginal compared with
the A330ceo.”
Aer Lingus’s nine A350s, due from 2018, add
900s for Iberia and 18 -1000s for BA, and Walsh
says the plan for the Aer Lingus order is “some-
thing we’re discussing at the moment”.
“We have flexibility within the fleet plans.
What we have done is accelerated Aer
flightglobal.com/airlines
 “We’ve shown we can
make money with high oil
prices and respond quicker
to external shocks”
Lingus’s transatlantic expansion and we’re
using A330s for that,” he says.
While IAG has been on the acquisition
path since its inception, it has found itself the
target of a similar move from the Middle East.
Qatar Airways’ acquisition of a 10% stake in
2014 was no surprise: Walsh and Qatar’s
group CEO Akbar Al Baker have long been
mutual admirers and there are close ties
between BA and the Doha-based flag carrier.
B
ut while negotiations continue
about a wider joint venture, Walsh
plays down the significance of
Qatar’s stake in relation to a com-
mercial relationship with IAG.
“The shareholding is separate from our will-
ingness to work with them. Their decision to
invest in IAG was a financial decision on their
part. They liked what we are doing and it’s
proven to be a good investment – I got a nice
note from my good friend Akbar to thank me
for the dividend.”
IAG and Qatar Airways already have a tie-up
in the cargo business which Walsh says is work-
ing well and discussions continue about
extending this to the passenger side. As well as
flightglobal.com/airlines
codeshares, potential areas of co-operation that
have been discussed include joint procurement
of aircraft and the leasing of aircraft, as well as
working together on engine maintenance.
“I’m optimistic that we’ll be able to conclude
a deal, which will then be subject to approval
from competition regulators,” he says.
In October, BA is switching its “tag” service
from Heathrow to Doha, which operates via
Bahrain, to a direct flight. Walsh says some
“air-service issues” need to be resolved to
allow the two partners to fully implement their
JV plans.
Walsh says that there is already “a very lib-
eral bilateral” in place between the UK and
Qatar, but “to do some of the things we want to
do we have to ensure we both have all of the
required air service agreements, because you
can’t codeshare to countries where you don’t
have a bilateral”.
DIVIDEND DELIGHT
Al Baker’s delight at the dividend payment is
understandable. In its last financial year, IAG’s
operating profit increased 65% to €2.3 billion
($2.64 billion), while profit after tax rose by
more than 50% to €1.5 billion. This came
shortly after Walsh announced IAG increased
its financial objectives for the next five years
including a return on invested capital of 15%
and operating profit margin of 12-15%. The
previous targets had been 12% plus and
between 10-14%, respectively.
Walsh is confident that this range is achiev-
able despite the unpredictable influence of
variables such as oil price, competitive moves,
trading conditions and labour issues.
“There’s no reason why this industry can’t
generate reasonable levels of profitability
through the cycle and it is now much more
mature and realistic than it used to be,” he
says, pointing out that the industry’s tradi-
tional “cyclical strategic thinking” is now a
thing of the past.
“We’ve demonstrated we can make money
in a high-oil-price environment and that we
can respond quicker and better to external
shocks. It is recognised now that this is an
industry funded by shareholders and those
shareholders expect a return.”
Walsh also believes that today’s airline
workforces are “rational people” and it’s only
when employees don’t believe their business
faces a genuine threat that they behave irra-
June 2016 | Airline Business | 19
INTERVIEW WILLIE WALSH
tionally. He singles out Air France as an exam-
ple of this.
“I think there’s a strong belief in Air France
that the French government will always step in,
it doesn’t matter what happens, and therefore
they don’t need to change,” he says. “I think
that’s madness, because Air France is getting
smaller and smaller and less and less relevant in
an industry where size does have significance.”
S
ize matters in aircraft too, and
Walsh says another advantage of
the IAG structure is that it could
enable small fleets of Airbus A380s
to be allocated within the group’s
airlines outside BA. The UK carrier was due to
receive the 12th and final A380 from its cur-
rent order during May and Walsh “can make a
case for a few more”.
He adds: “One of the issues we’re always
conscious of is flexibility in the event of an
economic downturn. The A380 wouldn’t
work on every part of our network, so from
that point of view we’d be less ambitious [in
fleet size] than Emirates would be.”
As well as possibly expanding BA’s London
Heathrow-based A380 fleet, according to
Walsh, “where it can work for us, because of
the group structure we have, we could see a
case for a couple of A380s in Iberia. You might
even make a case for an A380 in Aer Lingus.”
He adds that the Iberia and Aer Lingus idea
is a “what if” scenario and is a feasible option
as the group “is putting into place a common
specification before we then do the common
procurement so that you don’t have to keep
changing the configuration of the aircraft”.
The Vueling acquisition delivered IAG a
stronger presence in the European low-cost
market, but Walsh says it is the group’s
structure that enables the Spanish airline to
flourish on its own terms among legacy peers,
without the risk of “contaminating” its cost
base and business approach.
“They have to have flexibility and low cost
and we’ve ensured that the other airlines only
interact with them where there’s clear value
and they can benefit from lower cost through
access to our scale or to additional revenues by
feeding traffic. And it’s managed through IAG.”
Vueling’s entry into the group also provided
Walsh with a simple solution to the BA leader-
ship succession, with chief executive Alex Cruz
taking over from Keith Williams during April.
“I appointed Alex because of his leadership
qualities – it’s not all about his experience at
Vueling. He’s a data-driven person and that’s
something BA will benefit from,” says Walsh,
who emphasises that Cruz is “not going to turn
20 | Airline Business | June 2016
SUCCESSION PLAN
Willie Walsh makes a record fourth
appearance on the cover of Airline Business,
having first been interviewed over a decade
ago when at the helm of Aer Lingus and
later when leading BA. He then spoke to us
as he set off on the IAG adventure in 2011.
“I’ll be honest with you, when I took on
the BA job in 2005 I didn’t expect to be in
BA/IAG 11 years later. I did 25 years in Aer
Lingus. I’m not going to do 25 years at BA/
IAG,” says the straight-talking Irishman.
“I’ve a 12-month rolling contract. I’m
happy to stay as long as the board are
happy. I’ve always made clear that if I woke
up one morning and didn’t enjoy coming in
to work, then I’d know it was time to finish.
But I do enjoy it and I’ve no plan to retire.”
This is not to say that Walsh hasn’t been
preparing the framework for the leadership
succession plan at the group.
The IAG leadership programme begins at
the smaller divisions like Iberia Express,
which has provided the training ground for
the CEOs of Iberia and Vueling – Luis
Gallego and Javier Sanchez-Prieto. Vueling
meanwhile was the springboard for Alex
Cruz into the BA hotseat.
“Iberia Express is like the Under-21 team.
We put them in there, we give them a
challenging job and if they succeed we bring
them into the first team and stick them on
the bench,” he says.
One of those former youth team players,
Gallego, is someone Walsh considers as his
potential successor.
“Why couldn’t he be the CEO at IAG? Alex
I’m sure would want the same.”
BA into a low-cost carrier”.
Walsh says that the appointment of Cruz,
along with former IAG cargo chief Steve
Gunning as finance chief, “will be very impor-
tant to BA delivering on the next stage of plans
and targets that we have for it”.
So with BA’s management succession in
play, Iberia stabilised on the right path, and the
Aer Lingus incorporation into its stride, where
does Walsh see IAG’s next strategic move?
KEEPING WATCH
“There are lots of airlines that look interesting
at the moment,” he says.
“There’s nothing we’re actively pursuing
but we definitely believe there will be future
opportunities for further consolidation in
Europe. How we participate in that, and
whether we participate in that, is the only
question to be answered at this stage.”
One European airline that could come into
play is low-cost carrier Norwegian – a business
that Walsh openly admires. He is friends with
chief executive Bjorn Kjos and has been sup-
portive of the carrier’s efforts to secure a US
foreign air carrier permit.
“I think Bjorn’s a very smart guy, the com-
pany is ambitious and growing fast. But I’m
unclear in my own mind as to where it’s going.
It could well be that they are trying to make
themselves attractive for an acquisition but
Bjorn shows no evidence of slowing down or
wanting to move out.”
One market in which IAG is looking to
expand its presence is China. But this will be
“all about organic growth. We’re not looking to
invest in a Chinese carrier,” says Walsh.
Codeshares are planned with China Eastern
and China Southern. Meanwhile Iberia has
accelerated the launch of its Madrid-Shanghai
service from October to the end of June.
BA’s China network currently includes
Beijing, Shanghai, Chengdu and Hong Kong
and Walsh says IAG is “actively looking at a
number of other cities in China”. These
include Shenzhen, Guangzhou, Chongqing,
Wuhan and Xian.
So five years into the IAG project, Walsh
clearly remains as ambitious as ever as he eval-
uates his next moves. But every deal is purely
about good business rationale – even the
swoop for his former airline Aer Lingus:
“Some people have said it must be a great per-
sonal satisfaction. It wasn’t, it was business sat-
isfaction for me. You know me: no emotion.” ■
Read our 2015 cover interview with Alex Cruz
when he was running Vueling:
flightglobal.com/Cruz
flightglobal.com/airlines
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SPECIAL REPORT
LOW-COST CARRIERS

CONTENTS
24 Expanding model An infographic showing
the sector-split by numbers in 2015
26 Battle grounds How Europe’s leading
low-cost carriers are going head-to-head
32 Opportunity Noks Thai carrier eyes China
growth and co-operation with long-haul unit
35 Growing share Ryanair flies past the 100
million annual-passenger mark
36 Low-cost and leisure traffic Our annual
survey shows another year of rapid growth
38 Low-cost carrier financials Budget
brigade enjoy rising revenues and returns
39 A $4bn pot of gold Airlines must follow
the industry leaders and connect
customers and inventory more seamlessly
40 Counting the tin Our analysis of the LCC
fleet breaks out the numbers and reveals
the geographical dispersion

Jeff Blackler/REX/Shutterstock

While the lines between low-cost carriers and short-haul

operators continue to blur, the influence of the airlines
that have grown out of that sector is beyond doubt. They
continue to grow in markets across all regions and, while
struggling network players remain their prime prey, there All of our special reports
are available online at :
are some flashpoint routes where they battle it out directly flightglobal.com/airlines

flightglobal.com/airlines June 2016 | Airline Business | 23

LOW-COST CARRIERS SNAPSHOT

EXPANDING MODEL
The latest Airline Business low-cost and leisure carrier survey shows expansion in the
budget sector continues unabated, as their influence spreads deeper into the various
regional segments. In Europe the bigger operators have taken further market share and
prompted fresh attempts from network rivals to develop alternatives, while no-frills
players in the emerging markets have become ever more prominent

TOP 10 BY REVENUE
Southwest $19.8bn
Ryanair $7.5bn*
EasyJet $7.2bn
JetBlue $6.4bn
WestJet $3.1bn
Gol $2.9bn
Jetstar $2.9bn
Norwegian $2.8bn
IndiGo $2.5bn

$92.5bn
Vueling $2.1bn

Based on operating revenue for most recent financial year

*
Airline Business estimate based on nine-month data

Revenue among the 50 leading low-cost carriers totalled

$92.5 billion in 2015. While that figure is roughly unchanged
from 2014 in US dollar terms, in local currencies it marks a
further increase in airline turnover

TOP 10 BY NET PROFIT

Southwest $2,181m
Ryanair $1,400m *

EasyJet $844m
JetBlue $677m
Virgin America $341m
Spirit $317m
IndiGo $303m
WestJet $285m
Norwegian

Wizz Air $230m*

Allegiant $220m

Based on net profits for most recent financial year

*
Airline Business estimate based on FY guidance

24 | Airline Business | June 2016 flightglobal.com/airlines

$10.6bn
Operating profits among low-cost carriers jumped
more than $3 billion in 2015 to top $10 billion, and
2015 LOW-COST CARRIER PASSENGER SHARE BY REGION
Middle East
2.0% North America
will be around $12 billion once Ryanair reports. This 23.2%
includi $4 billion from Southwest Airlines alone
South America
8.1%

1,100m Africa
0.5%
Total passengers

Europe Asia-Pacific
37.7% 28.5%
KeystoneUSA-ZUMA/REX/Shutterstock

SOURCE: Airline Business low-cost and leisure carrier traffic survey

Boeing

$6.7bn
Net profits among low-cost carriers jumped 60% to
reach nearly $6.7 billion in 2015, compared with
just over $4 billion the previous year, This includes
ImageBROKER/REX/Shutterstock

over $4 billion from Southwest Airlines and Ryanair

combined, the latter figure based on the Irish
carrier’s full-year guidance, while also reflecting
heavy losses at Brazilian carrier Gol

flightglobal.com/airlines June 2016 | Airline Business | 25

REPORT
GRAHAM DUNN
& OLIVER CLARK
LONDON
BATTLE
GROUNDS
While the main European budget sector operators still largely keep direct competition
on routes with each other to relatively small levels, there are several flashpoints across
the region where the big low-cost carriers are going head-to-head
L
ow-cost carriers have made their
advance in Europe largely in new
markets or competing with legacy
rivals rather than taking each other
on directly.
While there has been some high-profile over-
lap of late, bringing fresh competition among
Europe’s leading network carriers, there is still
relatively little direct contact in network terms.
Data from Flightglobal’s schedules special-
ist Innovata for April shows the five biggest
European low-cost carriers – EasyJet,
Norwegian, Ryanair, Vueling and Wizz Air –
compete against at least one of the others on
just shy of 200 routes. That figure though,
accounts for a relatively small amount – less
than 10% – of the more than 2,500 routes the
five carriers operate between them, excluding
Norwegian’s long-haul services.
Much of the overlap occurs on more
mature routes and at bigger airports, so direct
competition between the five low-cost
carriers forms a bigger proportion of capacity
as measured by flights. Of the almost 139,000
flights the five carriers were scheduled to
operate in April, more than 27,000 are on
26 | Airline Business | June 2016
routes against a rival. That accounts for
almost a fifth of their capacity. Innovata data
for overlapping flights from April 2015 – for
the same carriers except Wizz Air – showed
overlap on 18% of the combined network.
Most of the competition is between two of
the low-cost rivals. But there are 15 routes
where three operators overlap, nine of them at
Barcelona. While these involve a combination
of all five carriers, they mostly involve
Norwegian, Ryanair and Vueling.
RECENT OVERLAPS
This summer has brought several new head-
to-head battles. Vueling, for example, has just
added Manchester-Tenerife; it will compete
with, among others, EasyJet and Ryanair. The
Spanish carrier has also begun flights from
Barcelona to London Luton and Newcastle in
competition with EasyJet, which in turn put
itself up against Vueling with flights from its
Naples base to Barcelona. Norwegian, mean-
while, in March began basing two Boeing
737s at Rome Fiumicino – a key base for
Ryanair and Vueling – though it is still to
detail its route plans from the Italian airport.
But airline chiefs see relatively little change
in momentum in terms of low-cost-carrier over-
lap. “We don’t have that much competition
with EasyJet and Ryanair; it’s much less than
10% of our portfolio,” says Norwegian’s chief
executive Bjorn Kjos. “I would much rather
work with them than against them, especially
on feeder operations. As an example, Ryanair,
I think, [has] 18 routes into Cork, so why
should I put up a feeder operation into Cork? I
would much rather rely on Ryanair.”
EasyJet chief executive Carolyn McCall
does not see increased overlap. “We are defi-
nitely not [seeing more overlap],” she says.
“We don’t overlap with Wizz at all, really; I
mean, it’s really minute. And with Ryanair,
it’s always been around 5-6% of our routes.
Route-to-route overlap is very small.
“I think what’s happened is that there’s been
a lot of noise about Ryanair’s change of strategy.
imageBROKER/REX/Shutterstock
Clearly, [it has] a strategy and a model and a lot
of that is secondary airports, and that’s not going
to change. That’s the bulk of what [it does], but
[it is] shifting assets into some more important
airports. But it’s not something that’s surprising
because it’s not massively different.”
flightglobal.com/airlines

Ryanair chief Michael O’Leary, while unable
to resist describing rivals as “high-fares carri-
ers”, points out there is plenty of opportunity to
expand without overlapping. “There is more
than sufficient room for everybody to grow in
Europe over the next number of years, except
for the legacy carriers,” he says.
That said, he embarks on point-scoring in
cases where carriers do butt up against each
other. “Our experience is that as we show up or
expand at airports where those carriers are pre-
sent, most passengers transfer to our services,”
he says. “EasyJet, when we opened a base in
Edinburgh, in Glasgow, and shortly now in
Belfast, we see their load factor declines. Their
market share declines as we take traffic and mar-
ket share away from them.”
McCall, though, says the issue is not loads
but the impact on pricing competition has.
“We would never not have a high load factor
because a competitor was on our route. What
we will do is, we will fight the routes we
know we need to keep,” she says.
“EasyJet has had the highest load factors in
the industry for many, many years, so it’s not
a question of load. What will always happen
if you’ve got any competitor – and it’s not just
Ryanair – if you have competition on a route,
your pricing’s going to go down. It’s just called
competition. We will do it to other people,
and other people will do it to us.
“[And] you plan for that. You know what you
can do and for how long, and actually we have a
very strong balance sheet, and we will know
where we have to keep fighting to win, and you
can’t do that in every single place you are. That’s
no different from any other business.”
IN COMPETITION
Vueling has the largest portion of capacity in
direct opposition with rivals. On just over a
third of its routes it competes with a main
low-cost operator. That compares with
around a quarter of Norwegian’s European
routes in competition with a low-cost rival.
Such routes account for almost half the flights
Vueling operates. The Spanish carrier has the
highest portion of flights on competing routes –
just over 46%.
Interestingly, EasyJet deploys the second-
highest share of its flights – 22% – on routes
where at least one of its direct rivals operates.
This reflects that on the routes where EasyJet
competes with rivals, notably in the case of
Norwegian and Vueling, the UK carrier tends
to operate higher frequencies on the route.
Vueling has faced competition from low-cost
rivals from the outset – the latter-day version of
the carrier having been formed after its merger
flightglobal.com/airlines
LOW-COST CARRIERS EUROPE
O’Leary: “There’s enough room for all of us”
with Barcelona-based rival Clickair – and nota-
bly in its home base. Still, Vueling’s largest base,
accounting for well over a third of its routes,
Barcelona is also a base for Ryanair.
EasyJet, too, has long operated from the air-
port and is the third-biggest operator from it,
even before its formal opening of a base at the
airport this summer. Both Norwegian and
Wizz also serve the Spanish airport.
Likewise, Vueling’s second-biggest base,
VOLOTEA ON THE OUTSIDE
One interesting approach has come from
another of Europe’s emerging low-cost opera-
tors, Volotea, which is developing under the
radar and, so far, outside direct competition
with its big low-cost rivals. This is not accidental
on the part of the airline.
“We are in a different league, you could call it
second division if you want – we don’t feel particu-
larly good or bad about it,” Volotea chief executive
Carlos Munoz told Airline Business in March. “We
are just happy that it’s our own league.”
Munoz explains that, right from its inception
in 2012, the Spanish-headquartered budget
SNAPSHOT: EUROPEAN LCC HEAD-TO-HEAD FLIGHTS
EasyJet
Total flights 41,771
Total competing 9,196
Share 22%
SOURCE: Innovata – part of Flightglobal, April 2016
SNAPSHOT: EUROPEAN LCC HEAD-TO-HEAD ROUTES
EasyJet
Total flights 631
Total competing 98
Share 16%
SOURCE: Innovata – part of Flightglobal, April 2016
Rome Fiumicino, is again popular among
low-cost operators. Innovata data shows that
Vueling is the third-biggest operator at
Fiumicino, sandwiched between Ryanair
above it and EasyJet below.
Now Norwegian – which already operates
seven routes from Fiumicino, of which only
the London Gatwick service overlaps with
Vueling – has opened its base there this sum-
mer. Without giving details of any new routes
the airline is planning to operate from the
REX/Shutterstock
Italian capital, Norwegian’s Kjos has said the
base opening is “only the beginning”.
Unsurprisingly, given Ryanair’s scale of oper-
ation at its two biggest bases, it is Vueling and
the Irish carrier that have the greatest overlap
among the five carriers. There are 57 routes on
which both Ryanair and Vueling operate –
nearly half of which are out of Barcelona. Many
of these are to popular resort destinations.
EasyJet and Ryanair are the pairing with the
second-highest numbers of routes and flights
in direct competition, with 49 routes where
they go head to head.
That includes high-profile rivalry, perhaps
most notably after Ryanair’s return to UK
carrier has sought to avoid competing head-to-
head with the likes of Ryanair, Vueling and
EasyJet, instead preferring to focus on markets
less interesting to bigger rivals. He applies a
paradoxical two-word descriptor to these mar-
kets: the “small, big” cities of Europe.
Across 70% of Volotea’s available
seat-kilometres, there is no competition, says
Munoz. Overlap on its routes with other LCCs is
“close to non-existent”, Munoz argues. Volotea
will operate 186 routes this summer but will
compete with Ryanair on three, with EasyJet on
seven and with Vueling on six, he estimates.
Norwegian Ryanair Vueling Wizz Air
15,217 55,848 15,075 10,906
2,553 9,798 6,910 986
17% 18% 46% 9%
Norwegian Ryanair Vueling Wizz Air
294 1,188 272 365
77 145 94 22
26% 12% 35% 6%
June 2016 | Airline Business | 27
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domestic routes in 2014 brought it into
opposition with EasyJet on connections from
London Stansted to Edinburgh and Glasgow.
But overlapping routes still represent a rel-
atively small share of the respective networks
of Europe’s biggest and oldest low-cost carri-
ers. That competition is less concentrated and
spread across many airports, but mostly
covers airports in the UK and Spain.
EASTERN FRONT
If, a couple of years ago, Ryanair appeared to
be butting up against Vueling with its choice
of bases – launching operations at primary
airports in Brussels and Rome at the same
time as the Spanish carrier – then some of its
recent activity moves it into Wizz territory.
While Ryanair has always had a presence
in central and eastern Europe, this appeared
to have been put on a back burner in recent
years. But, armed with renewed capacity after
the hiatus in new aircraft deliveries ended
with its follow-up Boeing narrowbody order,
it has ventured east with renewed vigour.
Since December 2015, the low-cost carrier
has announced two bases in Romania, plus new
routes to Sofia, Bratislava and Rzeszow for the
summer. New bases in Sofia, Vilnuis and Prague
have since been unveiled, from this winter.
While these bases are relatively small, they
do in many cases bring it into head-to-head
competition with Wizz. Innovata schedules
show that Ryanair and Wizz now compete on
19 routes. These predominantly cover routes
out of Bucharest, Budapest and Vilnius. That
figure will further increase when, this winter,
it launches its base in Sofia – where Wizz and
Ryanair will compete directly on eight routes.
“For the last two years, we’ve been under-
serving central and eastern Europe because
we haven’t had the aircraft to expand there,”
O’Leary said earlier this year. But that
situation is changing, he says, as Ryanair adds
AIRPORTS WITH MOST LOW-COST CARRIER
OVERLAPPING ROUTES
Airport Routes
Barcelona 50
London Gatwick 25
Malaga 24
Alicante 16
Rome Fiumicino 16
Palma de Mallorca 15
Copenhagen 12
Brussels 11
Madrid 11
Berlin Schonefeld 10
SOURCE: Innovata – part of Flightglobal, April 2016
flightglobal.com/airlines
LOW-COST CARRIERS EUROPE
John Greim/REX/Shutterstock
The Spanish airport is at the heart of the competition between European rivals
BARCELONA BATTLE
Barcelona El Prat airport is at the heart of petition between EasyJet, Norwegian, Ryanair
European low-cost carrier competition. The 50 and Wizz has been added over the last year.
routes low-cost carriers compete on is double That includes to Birmingham – where Vueling
the next highest figure, at Gatwick. This is hardly and Norwegian have begun competing against
surprising given the low-cost carrier presence at Ryanair. Interestingly, there is no one carrier
the airport, as Iberia focused on Madrid and the driving new competition – the new entrants on
collapse of Spanair left a void. these routes spread across the four carriers.
Vueling, Ryanair and EasyJet account for 60% The route with the most competing flights
of flights in April at Barcelona, which ACI figures from Barcelona – and indeed any route in which
show was Europe’s 10th busiest airport in these carriers directly compete – is the 331
2015 in handling nearly 40 million passengers. flights in April on the Gatwick routing shared
Vueling, the biggest operator at Barcelona, between Vueling, EasyJet and Norwegian.
is in direct competition on all but two of the Gatwick is itself the airport with the second
50 overlap routes – to Vilnius on which most routes on which these carriers compete,
Ryanair and Wizz compete, and to Berlin predominantly EasyJet battling with Norwegian.
Schonefeld, on which EasyJet, Norwegian and The UK carrier, which is by a distance the London
Ryanair operate. Vueling competes on the airport’s biggest carrier, operates around four
most routes with Ryanair from Barcelona. times the number of flights Norwegian does on the
There are nine new routes where direct com- routes they directly compete on.
72 aircraft to its 737-800 fleet over the next competition with the other major low-cost
two years. carriers. It competes on four routes out of
Romania is a particular draw for the airline Barcelona with Vueling; only on Naples-
because of its competitive landscape and the Prague with EasyJet; and solely on Barcelona-
large Romanian diaspora in Italy, where Warsaw with rival Norwegian.
Ryanair bills itself the largest carrier by seats But Wizz does not appear immediately
offered. “Tarom and Wizz have had Romania concerned by the shift in Ryanair’s strategy
to themselves,” notes Ryanair marketing chief and its expansion into central and eastern
Kenny Jacobs. Europe. “We don’t think there’s been a change
By contrast, Wizz Air has little direct in the balance,” says chief corporate officer
Owain Jones, adding that Wizz has always
HOW LOW-COST CARRIERS DIRECTLY operated in “very competitive markets”.
OVERLAP He notes that Ryanair is using 189-seat
Flights Airline Overlapping routes Airline 737-800s while Wizz is starting to introduce
4,971 Ryanair 57 Vueling 230-seat Airbus A321s and will configure its
2,500 Ryanair 49 EasyJet A321neos with 239 seats.
1,331 Ryanair 35 Norwegian “They’re parking their – slightly smaller –
766 EasyJet 31 Norwegian tanks in our bases,” he acknowledges, but
1,867 EasyJet 25 Vueling insists that legacy carriers, rather than Wizz,
1,168 Norwegian 20 Vueling will be the ones losing out from the expansion.
1,105 Ryanair 19 Wizz “We see ourselves as winners in the game.”
965 Wizz 4 Vueling
By contrast, Wizz has little direct competition
with other major low-cost carriers. It competes
759 Norwegian 1 Wizz
on four routes out of Barcelona with Vueling;
842 EasyJet 1 Wizz
only on Naples-Prague with EasyJet; and just on
SOURCE: Innovata – part of Flightglobal, April 2016
Barcelona-Warsaw with Norwegian. ■
June 2016 | Airline Business | 29
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LOW-COST CARRIERS ASIA

REPORT
GREG WALDRON
SINGAPORE

OPPORTUNITY
NOKS
Boss of Nok Air, Patee Sarasin, sees expansion into China and co-operation with
long-haul unit NokScoot as crucial drivers for the Thai low-cost carrier’s profit hopes

N
 
ok Air chief executive Patee Sara-
sin is optimistic his struggling
low-cost carrier can turn a profit
in 2017 on the back of a surging
Chinese market. But he is sharply
critical about structural issues in Thailand
which, he feels, hurt the airline sector.
“The market has now gone to China, and
Thai AirAsia is making money because of
China,” Sarasin told Airline Business during
the recent Future of Aviation event in Singa-
pore. “We’re not slow into it, but we need to
be there in a big way.”
Asia Aviation, the parent of Thai AirAsia,
generated an operating profit of Bt2.6 billion
($73.9 million) in 2015, largely on the back of
booming Chinese tourism. Nok’s 2015 was a
stark contrast, with its operating loss for the
year widening to Bt4.18 million. It blamed the
poor showing on a shortage of pilots, mainte-
nance costs and the negative contribution of
long-haul, low-cost unit NokScoot, in which
it owns a 49% stake.
NokScoot had the bad timing to launch in
early 2015, just as an ICAO audit revealed
serious safety concerns with Thailand’s avia-
tion regulators. This precluded NokScoot
from starting flights to South Korea and
Japan, the two key markets it was designed
to serve. It was forced instead to operate to
China. According to Sarasin, things are get-
ting better at NokScoot, with the carrier con-
sidering the addition of two more Boeing
777-200ER aircraft, which would bring its
fleet of the type to five.

CHINA GROWTH
“[Its] China flights are packed,” he says. “[Its]
business is doing really well... better than I
thought it was going to do.”
Nok Air

For the time being, Nok Air’s China effort

Despite key challenges in the Thai market, Sarasin remains positive about Nok’s future comprises mainly charters, which it operates

32 | Airline Business | June 2016 flightglobal.com/airlines


to several cities – including Chengdu – from
the resort island of Phuket. It also operates
charters on routes such as Bangkok-Chengdu
and Bangkok-Guangzhou. It hopes to operate
more scheduled services to China, with Nok
taking sectors below 4h, and NokScoot oper-
ating the longer routes.
Another opportunity is for greater collabo-
ration between Nok and NokScoot, particu-
larly with transits at Bangkok’s Don Mueang
International airport, but Sarasin says this
work is still in its infancy.
Despite the China hopes, Nok is still very
much a Thai domestic carrier. Here, Sarasin
says a fundamental part of his strategy is shift-
ing domestic capacity from Boeing 737s to
Bombardier Q400 turboprops. Ideally, he
would like to see the 737s operate more inter-
national services, while the Q400s would
operate domestically.
Flightglobal’s Fleets Analyzer database
shows Nok operates six Q400s and 21 737-
800s. It has orders for eight 737 Max 8 aircraft.
OVERCOMING CHALLENGES
A shortage of pilots, however, means utilisa-
tion rates for Nok’s Q400 fleet are 7h per day.
Nok wants to hire 15-20 Q400-qualified
pilots to rectify this, and push the type’s uti-
lisation up to 10h. “The reason pilots are an
issue is that nobody operates the Q400 in
Thailand,” he says.
Still, Sarasin likes the aircraft because of its
speed, and says the cabin is quieter than on
the ATR aircraft Nok formerly operated. He
says there is a “very strong possibility” Nok
will buy more Q400s, and finance them
through sale-and-leasebacks.
While optimistic, Sarasin sees several
major issues in the Thai market that could
prove difficult to overcome. The first hurdle
he mentions is overcapacity, stemming from
the rapid entry of Thai Lion Air in the market
in 2013, which applied downward pressure
to ticket prices.
Overall, Sarasin estimates domestic capac-
ity in Thailand grew 30% in 2015, while
demand grew only 12%. That has put intense
pressure on domestic yields.
“This [capacity] growth is way too fast,”
he says. “If Lion came in a bit slower, I
believe we would all be making money…
including Lion.”
He gives the example of a Rome-Paris flight
costing $300, while a Bangkok-Chiang Mai
flight could be as cheap as $30. Sarasin, how-
ever, sees signs that fares may finally be mov-
ing up in the Thai market.
One element in all this, he feels, is the
flightglobal.com/airlines
LOW-COST CARRIERS ASIA
REGION’S BUDGET AIRLINES EYE LISTINGS
VietJet Air seems poised to become the latest
Asian low-cost carrier to list on the financial mar-
kets after disclosing its plans to have an initial
public offering in the “coming months”, where it
will look to offer as much as 30% of its shares.
The airline says it is seeking a valuation of
more than $1 billion. The airline had previously
said that it was targeting for an IPO in 2015 so
as to raise funds for its expansion plans. It had
also said that it prefers to list on Singapore’s
stock exchange over Hong Kong’s, as VietJet is
primarily a Southeast Asian carrier.
Last year the airline’s revenue tripled to
Law Kian Yan
D10.9 trillion ($488.7 million), while net income
rose to almost D1 trillion.
The announcement comes after the high
profile listing of IndiGo’s parent Interglobe
Aviation last October, as well as that of Jeju Air,
Juneyao and Spring Airlines.
LION’S SHARE
This leaves Indonesian carrier Lion Air as the
biggest low-cost airline by passenger numbers
still not to be listed. However, an IPO still re-
mains on the carrier’s agenda.
Lion Group founder Rusdi Kirana told Airline
Business in January that the slower-than-expected
growth in the Indonesia economy and a falling
currency, coupled with flight cancellations
caused by haze that plagued Indonesia for
months and volcanic ash over Bali, brought
about a perfect storm for airlines in Indonesia
last year – 2015 was the worst year the airline
antipathy between Lion and AirAsia. This,
coupled with a battle for market share, has
also hit ticket prices.
“The Lion-AirAsia battle results in collat-
eral damage,” he says. “It’s ugly... but Lion Air
is being more daring about jacking up the
price a little bit.”
The second issue vexing Sarasin is the gov-
ernment’s reaction to last year’s ICAO audit –
which saw Thailand receive an ignominious
“red flag” – as well as the US Federal Aviation
Administration’s downgrading of Thailand to
Category 2 status. Sarasin feels the govern-
ment is serious about fixing the issues, but
lacks sufficient skilled manpower to get
things done.
“The growth of the aviation market in the
last 10 years has been tremendous,” he says.
“Passenger numbers have grown at a fast
“Aviation growth has been
tremendous, but regulators
have not changed”
PATEE SARASIN
Chief executive, Nok Air
Kirana will revive IPO plans at the right time
group had faced. “For me... I never had a year
like last year. Last year was really terrible,”
Kirana said.
The airline boss says that while Lion Air and
full-service unit Batik Air still eked out a profit in
2015, it was “not as it used to be”. He would
not disclose the airlines’ financial details, but
notes that Lion Air saw its load factor fall from
the 85-90% range to the 80-85% range in 2015.
“And this was because of the slowing economy,
not due to competition,” says Kirana.
But he says plans for an IPO will be revived
when the economy recovers. He believes that
things will pick up in 2017, especially as col-
laboration within the ASEAN Economic
Community deepens.
rate, but the regulators did not change and fol-
low the market. Hence, they can’t cope with
the situation... and before they were giving
away licences without control.”
He believes the government suffers from a
“lack of funds, lack of ideas, and lack of atti-
tude”. He feels engagement with airlines is
improving but could be better.
The third issue that irritates Sarasin is
Nok’s home airport of Don Mueang – which
he says is operating far above capacity – and
other airports such as Chiang Mai and
Phuket which have also not grown along
with traffic.
“What is going to happen in 10 years?” he
asks. “What you have is infrastructure that is
unprepared for this growth. You can see it:
Don Mueang is a parking lot at night.”
The outspoken and effusive Sarasin is
confident about the future for Nok, despite
the challenging Thai commercial aviation
environment. He says Nok will have 40-50
aircraft in five years, up from 28 now, but
will never place mega orders similar to
AirAsia or Lion.
“For us, it’s about making sure we have a
destination first,” he says. ■
June 2016 | Airline Business | 33
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 LOW-COST CARRIERS TRAFFIC

REPORT
GRAHAM DUNN
LONDON

R
  GROWING
yanair ended the 2015 calendar
year passing the 100 million pas-
senger mark, further underlining
the huge growth the low-cost sec-
tor has experienced in recent years.

The Irish carrier became the second opera-
tor in the segment to reach the milestone and
had 106 million passengers – on an earned
seat basis – for its financial year to March
2016. That reflects its return to double-digit
passenger growth, following a relative hiatus
after the delays in sealing a follow-up aircraft
order. It has added 25 million passengers in
the last two years after putting its foot back on
the accelerator. During this period, its fleet
has increased from just under 300 Boeing nar-
rowbodies to almost 350 today.
Southwest Airlines remains the largest
low-cost carrier in the world, handling just
shy of 145 million passengers in 2015. Its pas-
senger levels sharply increased after its acqui-
sition of AirTran – which was fully integrated
at the end of 2014.
STRONG PERFORMANCE
Growth has been strong across the sector. The
latest Airline Business low-cost and leisure
carrier traffic rankings show that in 2015, the
SHARE
Ryanair’s recent acceleration has taken it past the
100 million annual-passenger mark, highlighting
the ongoing rapid expansion of low-cost carriers
only Asia-Pacific carrier among the top 10 in
2008, Indigo, Lion and AirAsia were all among
the biggest carriers last year. AirAsia, which has
doubled in size since 2008, has also developed
a series of affiliate carriers in the region.
Not that European carriers have been left
behind. Alongside the established pan-Euro-
pean pair of Ryanair and EasyJet, the likes of
Norwegian, Pegasus, Vueling and Wizz Air have
more than tripled passenger levels since 2008.
North American carriers too, including JetBlue,
Airbus

20 biggest operators in the sector carried 713
million passengers. In contrast, in 2008, the
20 biggest operators in the sector handled
some 420 million passengers.
More striking still is the growth of the 20
biggest LCCs in 2015 compared with their
own performance in 2008. The biggest carri-
ers last year had more than double the passen-
gers they had in 2008. Brazilian carrier Azul
– which only launched flights in December
2008 – is now the 12th biggest LCC, handling
over 20 million passengers in 2015.
Azul, aided by its acquisition of Brazilian
regional carrier Trip, is among the fastest grow-
ing carriers over this period, together with
Indian carrier Indigo and Indonesia’s Lion Air.
Indigo was the second biggest Asian LCC in 2015
Indigo, which listed on the Mumbai stock
exchange last year, has grown from just under
5 million passengers in 2008 to more than 31
million last year. Lion meanwhile has grown
from around 7 million in 2008 to an estimated
31 million passengers last year – its growth
tempered by more recent checked capacity.
This illustrates the rapid growth of LCCs
from emerging markets. In 2008, only four Asia-
Pacific carriers ranked in the 20 biggest low-
cost operators. This grew to six carriers by 2015.
While Virgin Australia – which has since repo-
sitioned itself as a network operator – was the
Virgin America, WestJet and the ultra-low-cost
pair of Allegiant Air and Spirit Airlines, have all
grown significantly during this period.
Over the last year passenger numbers
among the top 100 low-cost and leisure carri-
ers increased 10% to almost 1.1 billion pas-
sengers – more than 250 million of which
were accounted for by Southwest and Ryanair
combined. That is despite slowdown in some
key growth markets in Asia and Brazil.
This growth will further increase the
budget sector’s share of overall traffic, which
has already grown from representing less
than 10% of passengers carried by the top
150 global airlines in 2008 to more than a
quarter in 2014. ■

2015 TOP 10: THE AMERICAS 2015 TOP 10: ASIA-PACIFIC 2015 TOP 10: EUROPE
Rank Airline Pax (m) Change Rank Airline Pax (m) Change Rank Airline Pax (m) Change
1 Southwest Airlines 144.6 6.5% 1 Lion Air Est 32.0 -1.8% 1 Ryanair 106.4 17.5%
2 Gol 38.9 -3.1% 2 IndiGo 31.4 37.1% 2 EasyJet 68.6 6.0%
3 JetBlue Airways 35.1 9.4% 3 AirAsia 24.3 9.6% 3 Norwegian 25.8 7.4%
4 Azul 20.6 2.7% 4 Cebu Pacific Air 18.4 8.9% 4 Vueling Airlines 24.8 15.4%
5 WestJet 20.3 3.2% 5 Jetstar 17.9 4.3% 5 Pegasus 22.3 13.2%
6 Spirit Airlines 17.9 25.4% 6 Thai AirAsia 14.9 21.6% 6 Wizz Air 20.0 21.2%
7 Frontier Airlines 13.3 9.1% 7 Spring Airlines 13.0 13.5% 7 Eurowings 17.0 20.4%
8 Volaris 12.0 22.2% 8 SpiceJet 10.5 -17.9% 8 Anadolu Jet Est 11.0 22.0%
9 Interjet 10.5 20.6% 9 Citilink 9.5 25.0% 9 Thomson Airways 10.6 2.4%
10 Allegiant Air 9.5 16.5% 10 VietJet Air 9.2 64.7% 10 Air Europa 10.2 6.6%

flightglobal.com/airlines June 2016 | Airline Business | 35

LOW-COST CARRIERS OVERVIEW

DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA RESEARCH TEAM

LOW-COST & LEISURE TRAFFIC

Our annual traffic survey of low-cost carriers, including leading leisure operators, shows another year of rapid growth
during 2015. That was underlined by the more than 40 million extra “customers” the 10 biggest players handled,
which between them account for almost half of the 1.1 billion passengers carried by the top 100 budget airlines

TOP 100 LOW-COST AND LEISURE CARRIERS BY PASSENGER NUMBER: 2015

Rank Carrier Country Passengers Traffic Capacity Load factors Fleet Source
2015 2014 (m) Change % RPK Change % change % Percent Change Current Orders
1 (1) Southwest Airlines USA 144.6 6.5 189,057 8.8 7.2 83.6 1.2 703 246
2 (2) Ryanair Ireland 106.4 17.5 92.9 4.6 352 222
3 (3) EasyJet UK 68.6 6.0 77,619 6.4 5.4 92.6 0.9 249* 174
4 (4) Gol Brazil 38.9 -3.1 38,411 0.9 0.5 77.2 0.3 133 71
5 (6) JetBlue Airways USA 35.1 9.4 67,112 10.3 9.5 84.7 0.6 218 110
6 (5) Lion Air Est Indonesia 32.0 -1.8 114 484 AB estimate
7 (8) IndiGo India 31.4 37.1 34,186 31.2 22.2 83.4 5.7 107 427 DGCA
8 (7) Norwegian Norway 25.8 7.4 42,284 12.4 5.5 86.2 5.3 106* 245
9 (10) Vueling Airlines Spain 24.8 15.4 24,775 15.5 14.2 81.3 0.9 102 60
10 (9) AirAsia Malaysia 24.3 9.6 30,006 10.0 8.1 80.2 1.4 80 306
11 (12) Pegasus Turkey 22.3 13.2 21,223 16.0 12.4 77.4 -1.4 58 82 Airline/ICAO
12 (11) Azul Brazil 20.6 2.7 18,636 18.6 18.9 79.6 -0.2 140 100
13 (13) WestJet Canada 20.3 3.2 34,635 3.3 5.2 80.0 -1.4 117 70
14 (16) Wizz Air Hungary 20.0 21.2 88.2 1.5 67 144
15 (15) Cebu Pacific Air Philippines 18.4 8.9 19,872 22.6 21.5 79.8 0.7 48 33
16 (17) Spirit Airlines USA 17.9 25.4 28,954 27.1 30.0 84.7 -2.0 84 87
17 (14) Jetstar Australia 17.9 4.3 30,503 6.5 3.1 80.4 2.6 70 99
18 (18) Eurowings Germany 17.0 20.4 87* 16 Includes Germanwings
19 (20) Thai AirAsia Thailand 14.9 21.6 14,872 19.7 17.5 81.0 0.5 47
20 (21) Frontier Airlines USA 13.3 9.1 21,822 21.6 25.1 86.5 -2.5 57 97
21 (22) Spring Airlines China 13.0 13.5 22,176 21.4 21.7 92.8 -0.2 53 2
22 (24) Volaris Mexico 12.0 22.2 18,603 18.9 18.8 82.3 0.1 59 53
23 (26) Anadolu Jet Est Turkey 11.0 22.0 36 AB estimate
24 (23) Thomson Airways UK 10.6 2.4 33,395 5.5 4.7 93.8 0.7 60 50 CAA
25 (19) SpiceJet India 10.5 -17.9 10,259 -21.9 -31.0 88.5 10.3 41 42 DGCA
26 (27) Interjet Mexico 10.5 20.6 10,643 24.1 14.9 78.3 5.8 61 49
27 (25) Air Europa Spain 10.2 6.6 22,502 2.4 2.2 84.1 0.1 57 29
28 (28) Allegiant Air USA 9.5 16.5 14,392 14.3 17.7 85.0 -2.5 82
29 (32) Citilink Indonesia 9.5 25.0 7,717 32.1 31.0 80.2 0.6 40 43
30 (45) VietJet Air Vietnam 9.2 64.7 8,566 72.2 75.9 87.1 9.2 31 85 Airline/ICAO
31 (33) Flydubai UAE 9.0 24.7 49 86
32 (31) Nok Air Thailand 8.8 15.0 5,226 19.5 15.7 84.0 2.7 28 12
33 (30) TUIfly Est Germany 8.0 2.6 29 AB estimate
34 (34) Condor Germany 7.7 7.3 89.6 -0.8 44
35 (37) Air Arabia UAE 7.6 12.1 15,100 8.9 10.4 79.0 -2.4 34 7
36 (46) Jeju Air South Korea 7.1 28.3 24 2
37 (39) Virgin America USA 7.0 8.1 16,792 3.6 3.7 82.2 -0.1 61 42
38 (40) GoAir India 6.9 11.7 6,584 11.4 3.8 82.6 5.7 19 72 DGCA
39 (36) Transavia Airlines Est Netherlands 6.9 1.0 12,800 0.4 0.3 83.7 -7.3 38 1 AB estimate
40 (43) Lucky Air China 6.8 18.8 29 2
41 (44) SunExpress Turkey 6.8 19.2 12,210 20.8 20.5 85.5 0.3 22 34 ICAO
42 (29) Indonesia AirAsia Indonesia 6.5 -16.9 8,857 -3.2 0.9 75.2 -3.2 19
43 (41) Thomas Cook Airlines UK 6.4 5.8 22,460 8.5 8.1 91.8 0.4 37 CAA
44 (47) China United Airlines China 6.2 11.8 31 1
45 (38) Skymark Airlines Japan 6.0 -10.9 76.0 10.3 26
46 (42) Jet2 UK 5.9 -2.6 12,222 -0.3 -2.9 91.3 2.4 59 30 CAA
47 (51) Flynas Est Saudi Arabia 5.8 24.0 6,650 22.2 23.8 71.3 -0.9 26 20 AB estimate
48 (53) West Air (China) Est China 5.8 33.2 7,500 31.7 31.5 90.4 0.2 21 2 AB estimate
49 (35) Monarch Airlines UK 5.7 -18.6 12,122 -22.8 -23.9 82.3 1.1 34 30 CAA

36 | Airline Business | June 2016 flightglobal.com/airlines

TOP 100 LOW-COST AND LEISURE CARRIERS BY PASSENGER NUMBER: 2015
Rank Carrier Country Passengers Traffic Capacity Load factors Fleet Source
2015 2014 (m) Change% RPK Change% change% Percent Change Current Orders
50 (60) Jin Air South Korea 5.3 47.1 20
51 (48) Tigerair Singapore 5.1 -0.2 9,551 -1.5 -2.9 83.3 1.2 23 39 Tiger Singapore only
52 (63) Jetstar Japan Japan 4.9 49.2 4,318 49.2 49.2 77.0 0.0 20 ICAO
53 (50) Onurair Turkey 4.9 4.5 5,511 5.4 3.1 81.8 1.8 22 ICAO
54 (56) Air Busan South Korea 4.9 17.9 82.7 6.9 13
55 (55) VivaAerobus Mexico 4.8 13.4 4,503 17.6 15.9 81.9 1.2 23 45
56 (49) PAL Express Philippines 4.7 -8.4 18
57 (82) Thai Lion Air Thailand 4.6 155.6 19 1
58 (61) Iberia Express Spain 4.1 16.1 5,209 27.5 27.3 77.0 0.1 20 ICAO
59 (59) Peach Est Japan 4.0 10.2 17 3 AB estimate
60 (57) Jetstar Asia Singapore 4.0 -0.2 6,562 6.0 6.8 77.8 -0.6 18
61 (68) Transavia France France 3.9 31.5 6,045 23.1 24.8 79.9 -1.3 24 13 DGAC
62 (73) Jetstar Pacific Vietnam 3.8 47.8 3,150 43.2 49.5 84.3 -3.7 12 4 ICAO
63 (58) Air Transat Est Canada 3.8 1.0 36 AB estimate
64= (64) Tigerair Australia Australia 3.6 10.7 4,470 12.0 9.6 86.1 1.8 18
64= (71) T'way Air South Korea 3.6 26.6 83.3 -4.9 13
66 (54) AirAsia X Malaysia 3.6 -14.6 17,553 -15.7 -7.8 75.1 -7.0 21 76
67 (67) Philippines AirAsia Philippines 3.6 18.6 3,574 15.7 -3.7 79.8 13.3 14
68 (62) Travel Service Airlines Czech Republic 3.5 4.6 7,009 7.1 4.7 83.0 1.9 16 19 ICAO
69 (70) Eastar Jet South Korea 3.4 16.8 86.2 -0.7 15
70 (65) Kulula Est South Africa 3.3 2.4 10 AB estimate
71 (100)Pobeda Russia 3.1 4,668 81.2 19.2 12 Relaunched Dec 2014
72 (66) Jetairfly Est Belgium 3.0 -1.2 24 AB estimate
73 (75) VivaColombia Colombia 2.9 27.8 1,661 56.0 65.5 83.0 -5.0 9
74 (72) Air India Express India 2.7 4.1 7,065 6.7 6.2 81.9 0.4 18 2
75 (69) JetKonnect India 2.7 -8.7 2,268 -5.4 -11.3 81.5 5.0 DGCA
76 (52) Nordwind Airlines Russia 2.7 -40.4 8,425 -37.1 -37.5 91.9 0.5 13
77 (78) Sun Country Airlines USA 2.7 28.6 5,438 22.3 11.1 79.3 7.2 20
78 (83) Volotea Spain 2.5 41.0 22
79= (76) Globus Russia 2.4 13.8 6,081 9.4 9.5 80.8 -0.1 15 FAVT
79= (74) Thomas Cook Scandinavia Denmark 2.4 2.2 8,912 0.9 -0.4 93.0 1.5 12
81 (77) Mango Est South Africa 2.3 9.1 11 AB estimate
82 (94) Hong Kong Express Hong Kong 2.3 78.9 5,156 87.0 70.2 85.9 7.7 13 14
83 (79) Scoot Singapore 2.2 9.9 7,807 71.8 42.9 84.2 14.1 10 10
84= (88) Belair Switzerland 2.0 24.8 8 ICAO
84= (85) SunExpress Germany Germany 2.0 17.6 85.4 0.6 15
86 (81) Corendon Airlines Turkey 2.0 6.3 4,355 13.0 7.7 83.0 3.9 11 ICAO
87 (92) Blue Air Romania 2.0 36.8 2,955 31.3 34.4 81.9 -1.9 15 ICAO
88 (80) Air Do Japan 1.8 -4.7 63.2 -3.1 13
89 (97) Vanilla Air Japan 1.7 48.3 85.5 6.6 8 1
90= (84) Smartwings Czech Republic 1.6 -6.1 2,778 72.0 62.3 81.5 4.6 5
90= (87) Solaseed Air Est Japan 1.6 -0.4 12 AB estimate
92 (86) VIM Airlines Russia 1.6 -1.2 3,264 -3.7 0.0 73.0 -2.8 10 5 FAVT
93 (96) Small Planet Group Lithuania 1.6 35.3 3,536 34.0 36.5 84.0 -2.0 15
94 (90) Enter Air Poland 1.6 5.6 3,498 6.0 4.4 85.9 1.3 17 4 ICAO, 2014 data estimated
95 (98) Loong Air China 1.6 41.2 18 2
96 (89) TUIFly Nordic Sweden 1.5 -0.7 9
97 (99) AirAsia India India 1.5 324.1 1,673 571.9 577.8 80.7 -0.7 6 Launched flights June 2014
98 (90) Freebird Airlines Turkey 1.3 -10.5 2,932 -16.2 -4.7 76.9 -10.6 8 ICAO
99 (93) Star Flyer Japan 1.3 -6.7 1,259 -7.6 -8.0 68.0 0.3 9 1
100 (95) Corsair France 1.3 3.2 8,971 3.0 2.5 87.0 0.4 7 DGAC/ICAO
TOTAL 1,100.0 10.9 4,846 4,006
NOTES: Southwest Airlines includes AirTran; Cebu Pacific includes Tigerair Philippines since July 2014; EstEstimates based on historical, capacity and fleet data, and partial data where available, used for
indicative purposes where published figures unavailable. Figures primarily for scheduled traffic and calendar year. SOURCE: Company replies/records; fleet data: Flightglobal’s Fleets Analyzer. *Includes all
operating airlines

flightglobal.com/airlines June 2016 | Airline Business | 37

LOW-COST CARRIERS OVERVIEW

DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA RESEARCH TEAM

LOW-COST CARRIER FINANCIALS

Revenue and profits among the world’s evolving and expanding budget sector airlines rose again in 2015 as
combined turnover for leading players topping $92 billion, even with the impact of sharp currency movements

2015 FINANCIAL RESULTS FOR SELECTED LOW-COST CARRIERS

Airline Country Revenue Change (%) Operating result ($m) Operating margin (%) Net result ($m) Period Source
($m) USD Local 2015 2014 2015 2014 2015 2014 end
Southwest Airlines USA 19,820 6.5 — 4,116.0 2,225.0 20.8 12.0 2,181.0 1,136.0 Dec 15
Ryanair Est Ireland 7,500 6.4 20.4 1,300.3 18.4 1,400.0 1,080.6 Mar 16 AB estimate
EasyJet UK 7,219 -3.9 3.5 1,059.9 964.6 14.7 12.8 844.2 747.1 Sep 15
JetBlue Airways USA 6,416 10.3 — 1,216.0 515.0 19.0 8.9 677.0 401.0 Dec 15
WestJet Canada 3,122 -13.0 1.3 441.5 429.1 14.1 12.0 284.8 256.3 Dec 15
Gol Brazil 2,878 -32.5 -2.9 -54.1 213.8 -1.9 5.0 -1,263.2 -473.1 Dec 15
Jetstar Australia 2,851 -3.1 7.5 189.3 -105.9 6.6 -3.6 Jun 15
Norwegian Norway 2,763 -9.9 15.1 42.7 -221.3 1.5 -7.2 30.3 -164.7 Dec 15
IndiGo India 2,530 8.4 15.9 451.8 319.9 17.9 13.7 303.3 212.6 Mar 16
Vueling Airlines Spain 2,146 -4.8 13.8 152.4 194.4 7.1 8.6 105.1 129.6 Dec 15
Spirit Airlines USA 2,141 10.9 — 509.1 355.3 23.8 18.4 317.2 225.5 Dec 15
Eurowings Germany 2,105 41.9 2.0 Dec 15
Azul Est Brazil 2,100 -14.6 22.9 155.7 6.3 36.9 Dec 15 AB estimate
AirAsia Malaysia 1,660 -2.5 16.7 402.6 251.4 24.2 14.8 137.5 25.2 Dec 15
Frontier Airlines USA 1,604 1.9 — 275.9 210.2 17.2 13.3 145.5 129.0 Dec 15 US DOT
Wizz Air Est Hungary 1,600 4.6 18.3 208.6 13.6 230.0 228.4 Mar 16 AB estimate
Lion Air Est Indonesia 1,600 -5.9 Dec 15 AB estimate
Virgin America USA 1,530 2.7 — 177.2 96.4 11.6 6.5 340.5 60.1 Dec 15
Flydubai UAE 1,334 11.4 11.4 273.5 264.6 20.5 22.1 27.4 68.1 Dec 15
Pegasus Turkey 1,293 -10.5 12.4 88.5 148.2 6.8 10.3 40.7 65.4 Dec 15
Spring Airlines China 1,280 8.3 10.3 137.7 86.7 10.8 7.3 206.0 142.5 Dec 15
Allegiant Air USA 1,262 11.0 — 371.7 157.3 29.4 13.8 220.3 86.3 Dec 15
Cebu Pacific Air Philippines 1,239 6.0 8.7 212.8 93.5 17.2 8.0 96.2 19.2 Dec 15
Transavia Airlines Netherlands 1,212 -12.9 4.1 -38.6 -47.5 -3.2 -3.4 Dec 15
Volaris Mexico 1,138 8.3 29.5 157.1 15.3 13.8 1.5 154.2 45.3 Dec 15
Air Arabia UAE 1,042 2.6 2.6 153.6 131.5 14.7 13.0 144.5 154.1 Dec 15
Interjet Mexico 945 -6.0 16.7 56.6 11.2 6.0 1.1 13.1 -8.6 Dec 15
Thai AirAsia Thailand 880 9.0 15.2 75.6 20.1 8.6 2.5 58.6 10.6 Dec 15
AirAsia X Malaysia 806 -15.3 1.4 -6.4 -53.7 -0.8 -5.6 -91.6 -158.1 Dec 15
SpiceJet Est India 750 -21.1 -15.5 -95.4 -10.0 -112.0 Mar 16 AB estimate
Lucky Air China 660 2.5 4.4 54.4 19.5 Dec 15
China United Airlines China 628 -8.9 -7.2 41.8 50.1 Dec 15
Anadolu Jet Est Turkey 600 -11.1 6.2 Dec 15 AB estimate
Jeju Air South Korea 535 10.7 19.1 45.3 28.0 8.5 5.8 41.6 30.3 Dec 15 Local reporting
Sun Country Airlines USA 526 16.9 — 25.6 0.4 4.9 0.1 23.9 -0.7 Dec 15 US DOT
Tigerair Singapore 507 -3.1 3.8 10.6 -30.8 2.1 -5.9 0.2 -204.2 Mar 16
VietJet Air Vietnam 497 30.0 34.6 Dec 15
Citilink Indonesia 470 16.5 10.6 -13.5 2.2 -3.4 3.6 -14.9 Dec 15
Jin Air South Korea 406 22.1 31.4 26.2 16.0 6.4 4.8 15.1 Dec 15
Nok Air Thailand 389 4.2 10.1 -12.1 -16.9 -3.1 -4.5 -12.3 -12.6 Dec 15
Indonesia AirAsia Indonesia 377 -29.6 -20.0 -65.6 -53.6 -17.4 -10.0 -172.4 -83.1 Dec 15
Air Busan South Korea 333 0.1 7.7 30.8 19.4 9.3 5.8 16.6 Dec 15
Solaseed Air Est Japan 325 1.1 9.6 14.4 4.5 13.9 Mar 16 AB estimate
Star Flyer Japan 287 -8.5 -0.8 16.9 2.2 5.9 0.7 21.3 3.9 Mar 16
VivaAerobus Mexico 275 -1.8 17.4 32.4 -15.2 11.8 -5.4 28.3 -10.2 Dec 15
Volotea Spain 232 9.8 31.2 Dec 15
Jazeera Airways Kuwait 194 -11.3 -6.2 45.0 46.6 23.1 21.3 51.0 -10.1 Dec 15
Pobeda Russia 177 0.6 Dec 15 Dec 14 start
NOTES: Figures for the latest financial year where available. All revenues are translated into US$ at the average annual rate for the given financial year. Revenue change versus 2014 is given in US dollar
and local currency to illustrate impact of exchange rate movements; Est Estimates used for indicative purposes for revenue at Ryanair, Azul, Lion, Wizz Air, Spicejet, Anadolu Jet and Solaseed Air based on
available traffic/financial and company data, Ryanair/Wizz net profit estimate based on full-year company guidance, Southwest figure includes Airtran; SOURCE: Largely company replies and formal filings

38 | Airline Business | June 2016 flightglobal.com/airlines


A $4 BILLION POT OF GOLD
With cost and ancillary leadership as table stakes, airlines eyeing the prize must
more seamlessly connect customers and inventory, says Volantio’s Azim Barodawala
Imagine if a grocer ran
the following adver-
tisement: “1 litre car-
tons of milk on sale,
prices starting from $0.15*”, with the
disclaimer reading “*Sale cartons hid-
den throughout our store. Customer
responsible for finding them. Cartons
may or may not be available. Sale price
can change at any time. Prices are not
guaranteed until cartons are found and
purchased.” Customers would turn
their back and it’s hard to believe such
a grocer would survive long.
Interestingly enough, most global
airlines have survived just fine while
expecting customers to endure exactly
this experience. As an exasperated
friend once said after receiving an
email advertising Bermuda fares “start-
ing from $88”: “All the airline is telling
me is that someone else paid $88, just
not me.”
This issue has focused on low-cost
carriers. While achieving a competi-
tive cost position is an obvious first
step for successful low-cost and full-
service carriers alike, cost excellence is
necessary but not sufficient in 2016.
There are ultimately limits to how far
the “low cost” in LCC will take us.
The best global LCCs recognised
this dynamic early, looking for ways to
enhance revenue while maintaining
cost excellence. LCCs drove the un-
bundling revolution over the past 10
years, a phenomenon that the rest of
the industry has closely mirrored, re-
sulting in strong financial results (cus-
tomer satisfaction impacts notwith-
standing). Unfortunately, as with cost
reduction, unbundling does eventual-
ly reach its limits.
Which brings us back to the slightly
The home of Airline ridiculous example mentioned earli-
Business on the web er. Once cost savings are achieved,
once products are sufficiently unbun-
is on the Airlines
Channel of dled, the ultimate revenue prize will
flightglobal.com: only be achieved when airlines can
flightglobal.com/ more seamlessly connect their inven-
airlines tory with the customers who want to
flightglobal.com/airlines
LOW-COST CARRIERS FEEDBACK
Volantio
“Technology is the
great enabler, bringing
personalised
communications to
airline customers”
AZIM BARODAWALA
Chief executive, Volantio
purchase it. “Seamless” as in under-
standing what customers care about,
and proactively guiding them with
personalised, destination-specific
communications, to the inventory
most relevant to them. “Seamless” as
in ensuring these communications
contain real, bookable fares, not teaser
“lead fares”.
Technology is the great enabler here.
Advances in inventory API program-
ming capability and optimised query-
ing techniques have made it possible
to deliver personalised communica-
tions containing real, bookable fares to
destinations relevant to an airline’s
customers. Not only is there a revenue
impact, there is a cost impact as air-
lines streamline highly manual mar-
keting functions.
What’s the size of the prize? If, by
using advances in technology and com-
munications, airlines are better able to
connect customers with their available
inventory, the impact could be substan-
tial. A 100 basis point improvement in
load factor (1.5 extra seats filled on 150-
seat aircraft) for the top 20 global carri-
ers represents roughly $4 billion in
incremental revenue combined. And
unlike the process of unbundling,
which typically comes at a customer
satisfaction cost, airlines and customers
“win” when airlines make it easier for
their customers to purchase.
The most progressive airlines recog-
nise every one of their customers trav-
els for a distinct reason. Revenue will
truly be maximised when airlines un-
derstand traveller motivations, and
more seamlessly link relevant invento-
ry and customers.
The New York Yankees fan living in
London would receive an alert on his
mobile letting him know that British
Airways can fly him and his wife to
New York next Friday to see the Yan-
kees play the Red Sox (packaging up
the tickets and the hotel). With one
click, the customer could purchase via
the app. A completely discretionary
trip is now taken, filling seats that oth-
erwise might have gone empty. The
airline closes a vital information gap,
providing specific, actionable, and rele-
vant information to customers, driving
incremental revenue.
The technology exists to achieve this,
moving us beyond the annoying,
unintelligent and untargeted “pricing
starting from $88” advertising. While
global online travel agencies as well as
meta search sites have already seized on
these innovations, airlines clearly re-
main best positioned to capitalise on
these advances in technology given their
unmatched understand-
ing of their customers.
The opportunity should
not be wasted. ■
Azim Barodawala is chief executive of Volantio,
a leader in scalable, cloud-based marketing
optimisation solutions for airlines. He previ-
ously served as head of strategy at Jetstar and
as a project leader with the Boston Consulting
Group: azim@volantio.com
June 2016 | Airline Business | 39
LOW-COST CARRIERS AIRCRAFT MARKETS

ANALYSIS BY ANTOINE FAFARD FLIGHTGLOBAL INSIGHT

COUNTING THE TIN

The market for airliner metal in the low-cost airline sector has always been
about the Airbus and Boeing single-aisles. Our analysis of Flightglobal’s Fleets
Analyzer database highlights which types and engines are the preferred choice
across the global regions

LOW-COST CARRIER FLEET IN SERVICE FLEET BREAKDOWN BY AIRCRAFT CATEGORY

1,600
1,346 Mainline Total: 4,075
1,400 Regional jet Total: 188
1,251
1,173 Turboprop Total: 106
1,200
Total Fleet: 4,369
1,000

800

600
432
400
122
200
45
0
North America Asia-Pacific Europe Latin America Middle East Africa

SOURCE: Flightglobal's Fleets Analyzer database (April 2016)

LOW-COST CARRIER A320/737 FLEET BREAKDOWN

1600
737 Classic Total: 163
737NG Total: 1,890
1400
1,224 A320ceo family Total: 1,872
1,157 1,122 A320neo family Total: 3
1200
Total Fleet: 3,928
1000

800

600

400
270 LOW-COST CARRIER A320/737 SHARE
120
200 Fleet
35
0 3
North America Europe Asia-Pacific Latin America Middle East Africa
163 1,890
SOURCE: Flightglobal's Fleets Analyzer database (April 2016)

LOW-COST CARRIER A320/737 ORDER BACKLOG 1,872

2,000
A320ceo family Total: 282 Total Fleet: 3,928
1,663 A320neo family Total: 2,150
1,600 737NG Total: 302
Backlog
737 Max Total: 865
Total Backlog: 3,599
302
1,200

916 2,150 865

800
635
282

400
272
113 Total Backlog: 3,599

0 A320ceo 737 Classic

Asia-Pacific Europe North America Latin America Middle East
A320neo 737NG 737 Max
SOURCE: Flightglobal's Fleets Analyzer database (April 2016) SOURCE: Flightglobal's Fleets Analyzer database (April 2016)

40 | Airline Business | June 2016 flightglobal.com/airlines

 James Mellon/FLightglobal
LOW-COST CARRIER A320/737 ENGINE LOW-COST CARRIER A320 ENGINE
A320 AND 737 SHARE MANUFACTURER MARKET SHARE MANUFACTURER MARKET SHARE
GLOBAL FLEET SPOILS Fleet
Fleet
The Airbus A320 and Boeing 737 families
776
account for almost 90% of the 4,369 aircraft
3,147 776
flying with the world’s low-cost airlines. Analysis
of Flightglobal’s Fleets Analyzer database 1,096
shows that the Boeing twinjet retains a slight
advantage over the A320 in the current fleet 5 3
measure, holding a 52% share of the 3,928 Total Fleet: 3,928
single-aisles in service. The 737 is the clear Total Fleet: 1,875

leader in the largest LCC market, North Backlog Backlog

America, which has a total fleet of 1,224
644 644 121
aircraft. The 737 holds a slight advantage in
121
Europe, which is the second largest market 2,352 482
(1,157 aircraft) while Airbus has a distinct 482
1,185
advantage in Asia-Pacific, where 1,122 A320s
and 737s are in service with LCCs. Roles are
reversed when it comes to the backlog, where Total Backlog: 3,599 Total Backlog: 2,432
the A320 has the lead with a 60% share of the
3,599 orders. Asia-Pacific is the lead region, CFM International Pratt & Whitney CFM International Pratt & Whitney
with its 1,663 orders representing 46% of the IAE Undisclosed IAE Undisclosed
entire LCC backlog.
SOURCE: Flightglobal's Fleets Analyzer database (April 2016) SOURCE: Flightglobal's Fleets Analyzer database (April 2016)

flightglobal.com/airlines June 2016 | Airline Business | 41

ANALYSIS INSURANCE
Taking an airport exposure reading
Director of air safety Paul Hayes examines the risks around parked aircraft at some of the world’s major hubs by
studying ground accumulation statistics generated by Flightglobal’s Innovata schedules, fleets and values databases
A
ircraft on the ground may
be at risk from a number of
perils including natural
catastrophes such as wind storms
or earthquakes, operational acci-
dents such as where an aircraft
veers off the runway on landing
or take-off and collides with air-
craft parked at the terminal, or
deliberate acts of violence where
parked aircraft may be specifi-
cally targeted. However, the
actual exposure can vary consid-
erably from airport to airport and
even from hour to hour.
Lloyd’s Realistic Disaster Sce-
narios (RDS) describe a number of
catastrophic events which, if they
occur, could significantly impact
the insurance industry. These
RDSs include a number based on
natural perils including RDS 8
and 9: California Earthquakes –
Los Angeles and San Francisco.
Although it is generally
thought that aircraft parked in
the open on the ramp are, in
most cases, at less risk of damage
from an earthquake, the agreed
value of the aircraft at Los
Angeles or San Francisco poten-
tially at risk can well exceed $5
billion. However, the actual ex-
posure at the two airports varies,
reflecting their different traffic
patterns, with the market value
of aircraft on the ground at Los
Angeles being typically about
twice that at San Francisco.
Flightglobal is able to calculate
ground accumulation data
LOS ANGELES INTERNATIONAL AIRPORT
Value ($m)
6,000
Low
5,000
4,000
3,000
2,000
1,000
0
0:00
1:00
2:00
3:00
4:00
5:00
SOURCE: Flightglobal
42 | Airline Business | June 2016
through schedules information
from its Innovata arm, which de-
termines the number of aircraft
on the ground at any specific
time. This is mapped to the
Flightglobal Fleets Analyzer and
Ascend Values databases.
The data shows that the peak
exposure time at both Los Angeles
and San Francisco is in the late
evening, at around 22:00, but at
Risk exposure can
vary depending on
traffic pattern and
value of aircraft
Los Angeles this then rapidly de-
creases so that it is at its lowest
during the early morning hours.
After about 06:00, exposure at Los
Angeles gradually increases
throughout the day, building to a
new peak in the evening.
RISKY BUSINESS
At San Francisco, although the
peak exposure time more or less
matches Los Angeles at 22:00,
there is then only a gradual reduc-
tion during the night and expo-
sure is still relatively high at
06:00. However, it then falls rap-
idly to its lowest point between
07:00 and 09:00 and stays relative-
ly low throughout the day, only Over the years there have been climbing slightly in the early after-
increasing again after about 19:00. several attacks at airports where noon. Exposure then falls back
significant numbers of aircraft later in the afternoon before
have been damaged or destroyed climbing again in the evening.
either “by accident” or as a result At Cairo the peak times are at
of being deliberately targeted. 07:00 and between 21:00 and
Average High Two airports which might be 23:00. Exposure falls back after
considered at risk of attack are midnight but remains relatively
Cairo and Karachi. The value of high throughout the night. The
aircraft on the ground at these lowest exposure time at the air-
airports at any time is far less port is during the afternoon.
than at the two Californian air- Looking at other airports
ports, but can still approach $1 around the world, the two with
billion, in market value terms, the highest peaks for ground ac-
during peak times. cumulation for aircraft operating
Karachi’s peak exposure time is scheduled services, in average
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
6:00
7:00
8:00
9:00
at 09:00 but this then falls rapidly value terms, are Dubai at $5.6 bil-
Data shows estimated value ($m) of aircraft on ground in half-hourly intervals
to a low at around midday before lion and London Heathrow at
flightglobal.com/airlines
 SAN FRANCISCO INTERNATIONAL AIRPORT
The value of the metal on the ground at Los
Angeles each day can exceed $5 billion Value ($m)
3,000
Low Average High
2,500

2,000

1,500

1,000

500

0:00
1:00
2:00
3:00
4:00
5:00
6:00
7:00
8:00
9:00
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
SOURCE: Flightglobal Data shows estimated value ($m) of aircraft on ground in half-hourly intervals

KARACHI INTERNATIONAL AIRPORT

Value ($m)
800
Low Average High
700
600
500
400
300
200
100

0
0:00
1:00
2:00
3:00
4:00
5:00
6:00
7:00
8:00
9:00
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
SOURCE: Flightglobal Data shows estimated value ($m) of aircraft on ground in half-hourly intervals

CAIRO INTERNATIONAL AIRPORT

Value ($m)
James Mellon/Flightglobal

1,000
Low Average High
800

600
$5.4 billion. In maximum value bodied aircraft with relatively low
terms and, certainly, in insur- values. At the peak time in Atlan- 400

ance agreed-value terms, the ex- ta there are typically only 14 wide-
200
posure will be far higher, and bodied aircraft on the ground.
could approach $10 billion. London Heathrow, at 92 air-
0
However, the peak for Atlanta, craft, has almost as many aircraft
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
0:00
1:00
2:00
3:00
4:00
5:00
6:00
7:00
8:00
9:00

one of the busiest airports in the on the ground during the peak as
Data shows estimated value ($m) of aircraft on ground in half-hourly intervals
world, using average values, is Atlanta but the profile of this ex- SOURCE: Flightglobal

only $1.4 billion. posure is very different. During

GROUND EXPOSURE
The profile of the ground accumu-
lation at these airports is very dif-
ferent. Atlanta, during the peak
hour, could have 99 aircraft from
10 different airlines operating
scheduled services on the ground
but 85 of these will be narrow-
Heathrow’s peak times, there are only 65 aircraft on the ground Notes: Values shown are aircraft
aircraft from 32 different opera- from seven different operators market values; the insurance val-
tors on the ground with almost all but these include 12 Airbus ues (agreed values) can be as-
of these being widebodied jets, or A380s and 30 Boeing 777s/Air- sumed to be significantly higher.
82 aircraft. This widebody total bus A330s. There will be a total Data is for scheduled operations
includes 10 Airbus A380s from of 44 widebodies on the ground only, and is held at the
eight different operators, 25 Boe- with all but one of these, a Ca- individual-flight level so analysis
ing 777s and 10 Boeing 787s. thay Pacific A330, being operat- can be performed for specific air-
At its peak, Dubai may have ed by Emirates. ■ lines and/or aircraft types

flightglobal.com/airlines June 2016 | Airline Business | 43

ANALYSIS ASIA-PACIFIC

Have Asian airlines over-ordered?

Chris Seymour and Richard Evans, respectively head of market analysis and senior consultant at Flightglobal’s
advisory arm Ascend, examine the risk around the backlog for new aircraft racked up by the region’s carriers

here has been much indus-

T try comment on whether

the market has “over-
ordered” as the global firm orders
SEATS, POPULATION AND GDP FOR SELECTED COUNTRIES
Country

China
Seats departing
April 2016
51.3m
Population

1,366m
GDP (in 2014)

backlog for commercial jets now
represents a 60% share of the cur-
rent fleet and almost nine years of
production at the 2016 produc-
tion rate.
The backlog on 1 April stood
at a total of 14,105. Of these,
9,410 (67%) have been ordered
by airlines, 3,002 (21%) by les-
sors and 1,693 (12%) by unan-
nounced customers.
This article focuses on Asia-
Pacific, which accounts for at
least 35% of the total backlog –
about 4,900 aircraft, including
1,325 in the unannounced cus-
15%
Overall traffic
growth for China
in 2015
tomer total, believed to be mostly
for Chinese airline customers.
Single-aisles make up 78% or
about 3,820 of the backlog, while
1,800 of the total announced
backlog is for low-cost carriers –
most of the “backlog risk” centres
on these two aspects.
Looking at the annual number
of Asia-Pacific deliveries, the past
three years have seen an average
ASIA-PACIFIC AIRLINES JET DELIVERIES & FIRM BACKLOG
Number of deliveries
800
700
600
500
400
300
200
100
0
Malaysia
India
Indonesia
Thailand
Vietnam
UK
Switzerland
SOURCES: seats – Innovata – part of Flightglobal; population – Economist Intelligence Unit; GDP – World Bank
of 650 shipments per year. The
backlog for the next five years, in-
cluding estimated deliveries into
China of unannounced custom-
ers is only 670 per year, an in-
crease of just 3%.
However, it is necessary to fac-
tor in lessors who are delivering
around 50% of their backlog into
the region and currently have
only announced 200 leases –
some 19% of their backlog for the
next five years. Assuming they
maintain their 50% rate, this
pushes Asian deliveries up to
4,200 by 2020, an average of 840
per year. This represents a 41%
increase over the past five years
and results in more than 900
annual deliveries by 2019.
Looking at some of the main
countries and sub-regions in
closer detail:
CHINA
Although the announced backlog
for Chinese airlines is just 574 air-
$10,355bn
4.9m 31m
12.8m 1,327m
13.0m 258m
7.1m 68m
3.9m 94m
13.6m 65m
2.75m 8m
craft, which based on 2015’s deliv-
ery total is equivalent to just 1.5
years, in reality Ascend estimates
there are about 1,283 additional
orders from unannounced cus-
tomers in the Airbus and Boeing
orderbooks which will go into
China. This is based on an analy-
sis of letters of intent announced
by Chinese airlines. Until govern-
ment approval is given, these
orders are often confirmed later or
on delivery. This new total back-
log of more than 1,850 equates to
more than five full years of deliv-
eries at 2015’s rate.
The Chinese backlog is proba-
bly the firmest of any country in
the region, given very strong con-
tinued traffic growth (up 15% in
2015), with international traffic
(up 33% in 2015) outpacing do-
mestic (up 9.7%). A number of
new long-haul links have sprung
up in 2016, especially from sec-
ondary cities to the USA, Europe
and Australia.
B
Seats per ’000
head of population
38
$338bn 158
$2,048bn 10
$889bn 50
$404bn 104
$186bn 41
$2,998bn 209
$701bn 343
The Chinese government’s
control over supply and its five-
year plans also mean that there
is little prospect of cancellations
or deferrals.
INDIA
Some 717 jets are currently on
order for Indian airlines, around
15% of the region’s total. The
focus is very much on single-
aisles for the domestic market –
just 19 twin-aisles are on order.
This is unsurprising given that
India particularly is being driven
by domestic traffic growth – 20%
from the start of 2015 to date.
An average of 50 new aircraft a
year are on order in the next dec-
ade. This is actually very close to
the past decade’s average of 48
per year, although the next five
years are predicted to average 65.
The past decade was marred by
the Kingfisher collapse, but there
have been new entrants includ-
ing Air Costa, India AirAsia and
Vistara. Perhaps the only uncer-
tainty is whether airport infra-
structure will be able to keep
pace with fleet development.
SOUTHEAST ASIA
Much of the concern about
“over-ordering” is in Southeast
Asia, where low-cost carrier
growth has been dramatic. A
total of 1,255 aircraft are on
order for airlines in Indonesia,
Malaysia, Philippines, Singa-
pore and Thailand. Vietnam is

B
4

5
6

07

08

09

10

11

12

16

18

19

20

another strong growth country,

1

1
0

1
20

20
20

20

20

20

20

20

20

20

20

20

20

20

20

NOTE: B= backlog SOURCE: Flightglobal’s Fleets Analyzer database Year of delivery

with 112 on backlog.

44 | Airline Business | June 2016 flightglobal.com/airlines

 New entrants are helping to drive growth in orders among Indian carriers, but infrastructure may struggle to match fleet development
This is the region which has
spearheaded budget airline
growth, primarily led by AirAsia
in Malaysia and Lion Air in Indo-
nesia. These groups have back-
logs of 384 and 458 respectively,
and have multiple subsidiaries in
joint ventures in the Southeast
Asia region and as far afield as
India and Japan.
Lion Air is the fastest growing
Southeast Asian airline group –
Flightglobal’s schedules special-
ist Innovata shows seat capacity
is up 25% year-on-year in April,
The stimulation
from lower fuel
prices will fall over
the course of 2016
with most of the growth via its
subsidiaries Batik Air and Wings
Air. Lion has said it sees the in-
coming deliveries (30-50 a year)
as manageable since they will be
spread across five airlines, while
the Airbus A320neo and Boeing
737 Max will also fly longer sec-
tors, requiring fewer slots. Lion
Airbus
has also involved itself in leasing
flightglobal.com/airlines
to other carriers through affiliate
Transportation Partners.
AirAsia has seen more uneven
performance in its group airlines,
with the shifting of some capacity
between them, some deliveries
deferred and only a 0.3% rise in
seat capacity over the past year.
Some legacy carriers are seeing
capacity decreases (e.g. Malaysia
Airlines, Thai Airways) and the
region seems to be slowing, with
airlines reacting to the level of
competition and lower profits in
2013/2014.
SLOWER GROWTH
Yet the sub-region’s seat capacity
was up 9% in April 2016 versus
2015, although major airports are
seeing slower growth – for exam-
ple, Singapore’s Changi airport
only saw passenger numbers
increase by 2.5% in 2015, Kuala
Lumpur was flat, Jakarta was
down 5.5%. This may indicate a
move to secondary airports, with
data showing highest growth in
Vietnam, secondary Indonesian
airports, the old Bangkok airport
(Don Muang) and Phuket etc.
Fuel price declines are help-
ing airline profitability – which
naturally leads airlines to be
more optimistic and plan higher
44%
Growth in
Asia-Pacific fleet
over past five years
capacity. The stimulation from
lower fuel prices will fall over
the course of 2016 as fuel
hedging unwinds, so by 2017 we
may see lower traffic growth.
Over the past five years, the
Asia-Pacific fleet has grown by
almost 2,000 aircraft (44%) and a
further 1,000 have been re-
placed, meaning just 34% of the
almost 3,000 deliveries have
been for replacement. Deliveries
have averaged some 11% of the
fleet annually.
The Flightglobal Fleet Fore-
cast predicts a five-year growth
of 3,080 jets (48%). The current
backlog and forecast lessor de-
liveries of 4,200 implies a retire-
ment total of 1,120 (17%), a
moderate increase over the pre-
vious five years. Deliveries will
still average some 11% of the an-
nual fleet. This suggests that the
region’s deliveries going forward
are not out of step with the re-
cent trend and there is room for
further retirements, or not leas-
ing in extra aircraft, if a capacity
surplus emerges.
On a seat capacity basis, the
current backlog equates to an av-
erage 5.7% annual increase over
the next five years, rising to 7% if
expected leases are included –
this figure being before any retire-
ments are factored in. Given the
2015 traffic growth of 8.2% and
capacity of 6.4%, this is indica-
tive that the region has not over-
ordered as a whole, assuming
traffic continues to grow at strong
levels. China itself has a 9.7% ca-
pacity increase on order.
Yes, there may be some risk to
the backlog at some carriers in
Southeast Asia. There may not be
enough room for all the legacy
carriers, low-cost airlines, and
start-ups, and infrastructure may
also be an issue if all airlines
want to serve the main centres.
However, strong growth in other
countries is likely to absorb any
available slots. Looking longer
term, many of these countries
still have very low departing
seats per head of population, sug-
gesting that the Asia-Pacific re-
gion has a positive outlook for
both flights and fleet. ■
June 2016 | Airline Business | 45
ANALYSIS FIRST-QUARTER RESULTS

EDWARD RUSSELL WASHINGTON DC GRAHAM DUNN & DAVID KAMINSKI-MORROW LONDON

Profits fly despite yield concerns

US carrier earnings continue to benefit from consolidation and lower fuel costs – even in a challenging revenue
environment – while their European counterparts’ fortunes were hit in the first quarter by geopolitical uncertainties

irlines retained their profit

A
  momentum in the first
quarter of the year, as
lower fuel costs helped counter a
US MAJOR AIRLINE GROUP FINANCIALS: FIRST QUARTER (JAN-MAR 2016)
Airline group

Alaska Air Group

Revenue
2016 ($m)
1,347
change
6.1%
Operating result ($m)
2016
290
2015
238
Operating margin
2016
21.5%
2015
18.8%
Net result ($m)
2016
184
2015
149
weakening yield environment.
Allegiant Travel Company 349 5.9% 121 108 34.7% 32.8% 72 65
US carriers in particular
American Airlines Group 9,435 -4.0% 1,335 1,216 14.1% 12.4% 700 932
continued to enjoy strong profits
despite continuing concerns Delta Air Lines 9,251 -1.5% 1,540 1,398 16.6% 14.9% 946 746
around the revenue environment. Hawaiian Holdings 551 2.0% 92 71 16.7% 13.2% 51 26
Collective operating profits among JetBlue Airways 1,616 6.1% 349 253 21.6% 3.0% 199 137
US carriers jumped from around SkyWest Inc 762 0.2% 62 34 8.1% 4.5% 27 10
$5 billion in the first quarter of Southwest Airlines 4,826 9.3% 944 780 19.6% 17.7% 511 453
201 to over $5.5 billion. Net prof- Spirit Airlines 538 9.1% 101 109 18.8% 22.1% 62 69
its for the same 11 airlines were United Continental 8,195 -4.8% 649 741 7.9% 8.6% 313 508
roughly unchanged, at just under Virgin America 364 11.5% 32 15 8.8% 4.7% 17 13
$3.1 billion. TOTAL 37,234 -0.7% 5,515 4,964 14.8% 13.2% 3,083 3,107
The strong profit performance
was achieved despite a fractional
fall in collective revenues, of planned probably means flat to American, says airline president United, sees the most weakness
almost $37 billion. positive passenger unit revenues Scott Kirby. He adds, that timeline in Latin America. This is largely
While the 11 main US carriers are unlikely before the third quar- has “unfortunately been pushed due to Brazil and Venezuela, two
were all profitable in the first ter. Delta had forecast flat PRASM into next year”. countries where it is the largest
quarter, it is American Airlines by mid-year, after pushing it back American saw PRASM fall US carrier in the market. Delta
and Delta Air Lines that continue from the end of 2015. 7.5% in the first quarter and antic- reported weakest yields across
to lead the way. They accounted Delta anticipates domestic, ipates a further 6% to 8% the Atlantic and United the
for over half US carrier profits in Latin America and Pacific passen- decrease in the second quarter. Pacific, regions where each car-
the quarter. ger unit revenue to return to posi- Short-term initiatives to rier is, respectively, the largest
Delta lifted operating profit tive territory soon, driving address the issue include a new US player.
10%, to $1.54 billion, despite improvements in the metric. revenue and yield management Profits at United continue to lag
revenues slipping 1%. The fall in However, its sizeable European system and longer-term ones the other two majors. First-quarter
revenue largely stemmed from a presence continues to lag. include ongoing fleet modernisa- profits were half those of
$125 million negative impact Transatlantic flying generates tion, shift to a revenue-based fre- American and Delta – and a 7.4%
from foreign currency pressures. 15% to 20% of Delta’s operating quent flier scheme and a new pre- drop in PRASM was 2.8 points
But Delta’s operating costs over revenue but is beset by a triad of mium economy cabin, says Kirby. higher than seen at Delta.
the same period were down 3%, foreign exchange, macro and com- However, the longer-term pro- “The absence of sequential
as fuel costs more than a third petitive pressures outside the car- grammes will not impact passen- improvement in the Q2 PRASM
lower outweighed a 10% rise in rier’s control, says Hauenstein. ger unit revenue at American until guide was very surprising and
labour costs. “[This] is where we have the at least 2017, he says. caught even investors with rela-
greatest challenge,” he says. tively muted expectations off
YIELDING CHANGE “Yields remain under pressure as guard, inspiring little confidence
Positive passenger unit revenue industry capacity growth contin- that the goal of trending towards
(PRASM) growth remains a key tar-
get but is proving elusive for many,
ues to outstrip demand.”
Delta expects a profitable peak
0.7% flat to positive by [year end] is
achievable,” said.”
including the three US majors. travel season to Europe, despite Fall in first-quarter United anticipates a 6.5% to
At Delta the metric has fallen the pressure on yields, due to revenues among 8.5% decrease in PRASM and a
every quarter since the first quar- “very strong” volume, says US airlines 13% to 15% pre-tax margin in the
ter of 2015, including a 4.6% drop Hauenstein. But he adds: “We will second quarter.
in the first quarter. “We under- act quickly to move all of the “We need to be more disruptive
stand the importance of getting levers – including capacity – if we “While we believe the long- in the marketplace,” says new
back to positive PRASM,” says do not see sufficient progress in term outlook is bright… for the United chief Oscar Munoz.
Glen Hauenstein, incoming presi- the coming months.” second quarter, total scheduled Analysts pushed United’s sen-
dent of Delta. “Volatility in close- American, which posted an capacity remains elevated in all ior leadership team on what the
in yields and challenges in Europe operating profit of $1.3 billion in regions,” says Kirby. “Total capac- carrier plans to do to close the gap
may mean we achieve our goal a the first quarter, sees the weak rev- ity is still growing faster than in its margin versus competitors,
few months later than we previ- enue environment persisting into economies in all regions of the and how long that will take.
ously had expected.” 2017. Returning to flat to positive world [than in Q1].” “I really believe in this concept
That “a few months later” than PRASM is an “explicit goal” of American, unlike Delta or of proof, not promises,” says

46 | Airline Business | June 2016 flightglobal.com/airlines

Munoz who announced an inves- demand and revenue trends have “perceived global and regional
tor day on 21 June, where he will
detail his plans. However he asks
for time to implement this strat-
also been affected in the wake of
the attack on Brussels airport.
IAG has trimmed its planned
3.6% risks” as a factor in its first-quarter
loss of $214 million, which
reversed a profit of $17 million in
egy, especially considering he full-year capacity growth fraction- Rise in first-quarter the same period of 2015. Revenue
only returned to full-time status in ally to 4.9%, in response to reve- Europe n airline was down 1% at $2.19 billion.
March, after undergoing a heart nue trends over the three-month revenues “The political and economic
transplant in January. period. Unit revenues were down instabilities over [the] operating
3.6% in the quarter. environment, and increasing per-
EUROPE SLOWING Chief executive Willie Walsh than made up” for the decline. ceived global and regional risks in
The traditionally difficult first says the revenue trends for IAG’s The airline, though, has trimmed Turkey and Europe, have negative
quarter for European carriers was operating companies over the first its capacity expansion plans for impact on aviation demand, and
compounded by geopolitical fac- two months of the year had been the year, cutting the figure to 6% placed additional pressure on
tors. Air travel demand, still “very much in line” with those of from the 6.6% originally planned. yields in a seasonally low quar-
recovering from the Paris terrorist the previous quarter, but that the Revenue rose only fractionally, ter,” it says.
attacks in November, was hit attack at Brussels airport was hav- and fell like-for-like, at Air France- It adds “low fuel prices imply
again by the attack on Brussels air- ing an impact. KLM. It cites over-capacity in sev- increased market capacity and
port in March. This mitigated the Lufthansa and Air France both eral markets and says economic increased competition”, which
benefit from lower oil prices for maintained their full-year guid- considerations will generate unit affected fares and revenues.
European carriers this year as ance after making inroads into revenue pressures and negative Pegasus Airlines says its
hedging deals start to unwind. operating losses – though the currency effects. These will com- EBITDAR figure has been nega-
German carrier’s net losses deep- bine, it says, to “significantly off- tively affected by pricing as well
ened against the same period last set” savings on its fuel bill. as load factor on international ser-
year, which had a one-off gain vices, although it says it has made
Low fuel prices from its JetBlue stake divestment. TURKISH TROUBLES gains in ancillary income.
imply increased Both achieved improved profits While for most European carriers First-quarter revenues rose to
market capacity performance despite revenues it was a case of relatively TL691 million ($233 million) – a
and competition concerns. Lufthansa revenues unchanged or reduced losses dur- climb of 18.5%, in line with pas-
slipped slightly to €6.9 billion as a ing the quarter, it was a tougher senger growth – despite attacks in
result of “significant pricing pres- picture in Turkey, where recent Turkey as well as Brussels, and
sure” within the group’s passen- bomb blasts have taken a toll. political tensions with Russia. ■
Collective revenues among ger airlines, says chief financial Losses deepened at both
European operators did increase officer Simone Menne. But it has national carrier Turkish Airlines Follow airline results on the
3.6% in US dollar terms – driven achieved “substantial” unit-cost and low-cost operator Pegasus Flightglobal Dashboard at:
by some fast-expanding carriers. cuts, she adds, which have “more Airlines. Turkish Airlines cited flightglobal.com/Dashboard
But collectively Europe’s airlines
could still only narrow operating EUROPEAN AIRLINE GROUP FINANCIALS: FIRST QUARTER (JAN-MAR 2016)
losses by around $300 million and
Airline group Revenue Operating result ($m) Operating margins Net result ($m)
net losses for the period doubled. 2016 ($m) change 2016 2015 2016 2015 2016 2015
Only one of the carriers to
Air Berlin 813 -7.1% -190 -176 -23.4% -20.1% -201 -232
report financials as of mid-May
Air France-KLM 6,181 0.4% -109 -460 -1.8% -7.5% -171 -616
posted a profit. British Airways
Finnair 616 2.6% -17 -31 -2.7% -5.2% -17 -11
and Iberia parent IAG continued
its strong profits run, achieving a Icelandair Group 212 13.8% -21 -19 -9.8% -10.4% -17 -15
first-quarter operating profit of IAG 5,600 7.9% 185 28 3.3% 0.5% 115 -29
€155 million ($177 million) before Lufthansa Group 7,627 -0.8% -23 -147 -0.3% -1.9% -9 469
exceptional items. This is sharply Norwegian 580 23.0% -105 -84 -18.0% -17.9% -94 -63
up compared with a €25 million Pegasus 252 10.1% -71 -4 -28.1% -1.6% -65 -28
profit in 2015. This increases to Turkish Airlines 2,282 18.5% -219 14 -9.6% 0.7% -425 128
€181 million when its Irish unit TOTAL 24,161 3.6% -569 -880 -2.4% -3.8% -884 -396
Aer Lingus is included. NOTE: Results are for airline groups, including non-aviation businesses. All figures are in US dollars exchanged at average rate for period. All changes
IAG is expecting to increase given in local currency terms or at constant current rates. SOURCE: Flightglobal (all tables)

operating profits by a level similar EUROPEAN AIRLINE GROUP FINANCIALS: FIRST HALF (OCT 2015-MAR 2016)
to last year, despite adjusting
short-term capacity growth. It says Airline group Revenue Operating result ($m) Operating margins Net result ($m)
2015-16 ($m) change 2015-16 2014-15 2015-16 2014-15 2015-16 2014-15
it has experienced “some soft-
ness” in underlying premium EasyJet 2,587 0.2% -34 10 -1.3% 0.4% -29 7

flightglobal.com/airlines June 2016 | Airline Business | 47

ANALYSIS MARKET OUTLOOK

Looming gloom in uncertain times

Airline Q1 results signal downside risk, as profit warnings are issued and forecasts reduced against a volatile backdrop

CHRIS TARRY 2016 will be better than in 2015, EUROPEAN MAJORS (AEA MEMBERS) TRAFFIC: MARCH
CTAIRA
there should be no doubt this is
Region Pax traffic RPK Capacity Load factors Freight FTK
ANALYSIS BY the result of large numbers and
millions change change percent change million change
FLIGHTGLOBAL forces moving in a different direc-
INSIGHT Domestic 3,050 3.6% 3.1% 74.6% 0.4 1 9.2%
tion, that for many airlines it will
Intra-Europe 13,562 9.5% 7.9% 74.5% 1.0 24 18.8%
GRAPHIC BY result from the unwinding of fuel
PAUL RIGNALL hedging positions, and that it also NorthAtlantic 11,607 15.3% 17.6% 82.4% -1.6 563 1.6%
reflects performance for a relative- MidAtlantic 3,842 6.3% 7.8% 87.1% -1.2 98 -13.0%
ly small number of large airlines. SouthAtlantic 3,140 5.4% 6.1% 77.2% -0.4 158 9.7%

W
e often debate the perils
associated with fore- For many the outcome will be FarEast/Australia 12,386 3.5% 5.7% 80.4% -1.7 850 7.3%
casting and the conse- either one where the results are SubSaharanAfrica 4,351 5.8% 1.5% 77.2% 3.2 174 -2.0%
quences of changed forecasts – slightly better or, more likely, less N.Africa/M.East 2,947 9.0% 8.2% 74.9% 0.6 78 14.5%
particularly if the new forecast is bad. That this is the case is evi- TOTALMONTH 54,894 8.1% 8.2% 78.6% -0.1 2,095 6.0%
lower than the one it replaces. dent from the results, and for YEAR-TO-DATE 153,485 7.6% 7.9% 77.4% -0.2 5,650 0.9%
In its latest quarterly review of those still in the red this may be SOURCE: Association of European Airlines
profit warnings (albeit only for as good as it gets in the near term.
UK-listed companies), entitled ARAB AIRLINES (AACO MEMBERS): MARCH*
Uncertain Times, EY reported NO SURPRISES
Passenger traffic RPK Capacity Load factors
that companies had issued 76 Although the most recent results
million change change percent change
profit warnings in the first quarter season, for the first calendar quar-
Intra-Arab World 5,211 0.5% 11.7% 48.1% -5.3
of 2016, which it considered was ter of 2016 should have produced
With Other Regions 41,853 6.2% 11.5% 66.2% -3.3
a “remarkably high number”. few surprises, there were some
This, however, is not only a UK marked share-price movements TOTAL MONTH 47,064 5.5% 11.5% 63.6% -3.6
phenomenon. on the day of publication – often YEAR-TO-DATE 139,915 6.4% 11.7% 64.9% -3.2
Of course there are formal profit seen as an unwelcome outcome NOTES: *Estimates. **Includes domestic. SOURCE: Arab Air Carriers Organisation.

warnings which generally result by investor-relations departments

in analysts reducing forecasts, as – as forecasts have been reduced. – while CASK ex-fuel and on a share price also fell by 5% on the
well as the responses to results or The current round of results also constant currency basis, was 4% day of the results.
other announcements – both of highlights the need to get behind lower – the reaction to the results
which follow a catalyst event. the headlines and look at the rea- was a 6% fall in the share price on REALITY GAP
Against this background it is per- sons why the numbers have the day of the announcement. Getting to grips for some means at
haps of interest to consider and changed and particularly if there The statement accompanying the very least reducing future ca-
review the most recent results sea- have been changes in the compo- the Air France-KLM results, pacity growth or, in Air Berlin’s
son and some of the outcomes. sition of businesses. which showed a fall in revenue case, capacity per se. Indeed, we
While at an industry level the A key feature of Q1 results was on a like-for-like basis of 1.3%, have seen a raft of announce-
expectation is that the outcome in disappointment on the revenue highlighted overcapacity in the ments relating to deferrals across
front, which should come as little market and an uncertainty over the world.
JET KEROSENE SPOT PRICES surprise. While IAG announced the economic outlook (seen as But none of this should have
an 8% increase in revenue, ex- likely to deteriorate further) and come as a surprise and the fact
Month Fuel price Change over period
cluding the effect of Aer Lingus, fuel prices (expected to rise). Its share prices reacted as they did
¢/US gal 1 month 1 year
the underlying increase was just
May 186.1 7.8% -35.8%
0.7%. This also reflected the tim-
June 178.4 -4.1% -38.9%
ing of Easter, which was in the Traffic growth trend
July 158.8 -11.0% -44.7% first quarter where there was a
Aug 140.5 -11.5% -50.5% positive impact on revenue and a
20
Sep 142.2 1.2% -47.8% concomitant reduction in Q2
Oct 141.1 -0.8% -43.0% against a higher comparator; re-
15
Growth rates (%)

Nov 135.1 -4.3% -42.0% ported yields at IAG, excluding

Dec 111.4 -17.5% -40.4% Aer Lingus and at a constant ex-
Av.15 155.5 -42.8% change rate, were 5.2% lower –
10
Jan 92.1 -17.4% -40.2% the share price fell 5% on the day.
Feb 98.6 7.1% -44.8% The Q1 results for Lufthansa
show an almost 1% decline in rev-
Mar 111.6 13.2% -33.4% 5
enue and a 6.3% fall in passenger
Apr 117.5 5.3% -31.9%
yields – in terms of RASK and cost
NOTES: Prices are world average = median
per ASK (CASK); Revenue per
of Europe/Singapore cargo and US pipeline
0
spot prices in US¢/gallon. ASK (RASK) was 7.5% lower – Aug Sep Oct Nov Dec Jan Feb Mar
SOURCE: ICIS
6.6% on a constant currency basis

48 | Airline Business | June 2016 flightglobal.com/airlines

 SH
3
01
TS
V2

%
NO
MORE ONLINE

40
For more market indicators,

%
including expanded traffic,

15

%
capacity, fuel and share price

10
data, download our digital
Airline Market Outlook in

%
%
Flightglobal Dashboard’s

10
25
Reports section

perhaps reflects the gap between majors will move back into losses US MAJORS (A4A MEMBERS) PASSENGER STATISTICS: MARCH*
hope (rather than expectation) any time soon, experience sug-
Region Pax traffic RPK Capacity Load factors Freight FTK*
and reality. There is nothing in the gests you should never say never
million change change percent change million change
results statements that wasn’t – particularly when so many of
Domestic USA 58,181 3.8% 4.1% 85.5% -0.3 1,388 -1.9%
known, or that observers were un- the key variables lie outside the
North Atlantic 7,070 -4.5% -2.5% 73.7% -1.5 643 -1.1%
able to take a reasonable view on, control of management.
in whether it be the timing of the Latin America 9,935 8.4% 6.0% 80.1% 1.8 142 -7.8%
benefit of a lower fuel price or the TRADING RISK Trans Pacific 6,619 1.4% 4.5% 79.8% -2.5 805 -6.8%
fact that the price of oil and fuel is Against this background, it is inter- All international 23,624 2.3% 2.8% 78.0% -0.4 1,590 -4.7%
rising against a weakening eco- esting to look at the analysts’ rec- TOTAL MONTH 81,805 3.4% 3.7% 83.2% -0.3 2,978 -3.4%
nomic background. ommendations for our sample of YEAR-TO-DATE 221,381 4.7% 5.1% 80.7% -0.3 2,978 -3.4%
There has also been talk in quoted airlines. While in essence NOTE: *Freight data is January as February n/a. SOURCE: Airlines for America.
some quarters about how it is dif- these constitute advice to buy, hold
ferent and how some airlines or sell, they are nuanced by addi- US MAJOR PASSENGER YIELD: A4A AIRFARE REPORT
have broken the traditional cycle; tional categories of outperform and
Route 2015
American Airlines chief execu- underperform. In any event, airline Unit Mar Apr May Jun Jul Aug Sep
shares for most are for trading and Domestic ¢/RPK 10.54 10.47 9.94 9.77 10.47 9.94 9.77
despite the hope of a new environ- change -5.5% -3.5% -6.8% -5.6% -3.5% -6.8% -5.6%
ment, the beta risk factors for air-
The conclusion lines continue to demonstrate a
North Atlantic¢/RPK 9.61 9.28 8.55 8.81 9.28 8.55 8.81
is that the peak high level of volatility.
change -6.4% -6.1% -8.5% -8.8% -6.1% -8.5% -8.8%
of performance At the simplest level, what trad-
lies in the past ers want and need is a moving ASIA-PACIFIC AIRLINES (AAPA MEMBERS) INTERNATIONAL TRAFFIC
market and the necessary condi- Month Passenger traffic RPK Capacity Load factors Freight FTK
tions clearly exist in the airline million change change percentchange million change
sector; but given the outlook, there Jan 91,491 9.9% 7.1% 79.6% 2.1 5,122 -0.7%
tive Doug Parker was reported as is a disproportionate number of Feb 83,855 9.5% 9.9% 78.2% -0.3 4,331 -12.1%
saying in early April: “This isn’t buy or outperform recommenda- Mar 86,879 4.7% 6.7% 77.4% -1.5 5,611 -5.3%
just good times. This is new. This tions for airline shares where the YEAR-TO-DATE 262,225 8.0% 7.8% 78.4% 0.1 15,064 -5.9%
is a dramatically different busi- risk is clearly on the downside SOURCE: Association of Asia Pacific Airlines.
ness; I think it is highly unlikely and where markets will become
you are going to see losses again more unforgiving of performances LATIN AMERICAN AIRLINES (ALTA MEMBERS): MARCH
in this business.” falling short of forecasts.
Pax traffic RPK Capacity Load factors Freight
Those are comments reminis- Against this backdrop, when
Region million change change percent change million change
cent of those of UK Chancellor the outlook for 2017 and beyond
Total Intra-LatAm* 15,717 1.6% 0.4% 77.2% 1.0 127 -11.4%
Gordon Brown when he said he is taken into account, the likely
Total Other International 7,554 10.8% 8.7% 80.9% 1.6 266 -4.1%
had ended boom and bust not too conclusion is that the peak of per-
long before the onset of what we formance for most would already TOTAL SYSTEM 23,721 4.5% 2.8% 78.4% 1.3 393 -6.6%
now know as the great recession. appear to lie in the past – at least YEAR-TO-DATE 73,009 4.1% 3.6% 80.1% 0.4 1,136 -2.1%
While it looks unlikely the US in share-price terms. ■ NOTE: *Domestic and international flights. SOURCE: ALTA

Capacity growth trend Freight growth trend

20 10
A4A
5
15
Growth rates (%)

Growth rates (%)

AEA
0

10 -5 AAPA

-10 AACO
5
-15
ALTA
0 -20
Aug Sep Oct Nov Dec Jan Feb Mar Aug Sep Oct Nov Dec Jan Feb Mar

flightglobal.com/airlines June 2016 | Airline Business | 49

ANALYSIS MARKET OUTLOOK

Capacity Snapshot
A monthly breakdown of airline capacity across the different
regions, using data from Flightglobal’s schedules specialist
May Capacity:
166bn ASKs/wk 7.1% vs May 2015
Innovata, illustrates the fastest-growing markets

Focus on: Middle East

The United Arab
Africa Emirates is at the
While much of the centre of Middle
attention has been on Eastern growth to
growth plans in the Iran- Asia-Pacific, with
ica
Europe market since the er more than 100,000
m weekly seats added
lifting of sanctions
A
rth

against the country, local from the country

No

carriers Iran Aseman compared with last

Airlines and Qeshm year. Destinations in

Asi
Airlines have added India and Pakistan

a-Pa
70,000 weekly seats to account for two-
destinations in the thirds of these.

cific
Middle East compared
with a year ago.

The largest route

Middle

between the Middle East

and Europe remains
Dubai to London
East

Heathrow, which also

saw the biggest year-on-
year increase in seats. 11.5bn ASKs/wk
13.1% YoY
La

Between the two

tin

airports, British Airways

Am

has doubled its 777

er

ca
i

operations, Emirates
Weekly capacity ASK
added a 777-300ER to
Region Millions Change
the A380s it already
Asia-Pacific 4,290 14%
operates and Virgin
Atlantic switched out Europe Europe 3,041 12%
Intra-region 1,740 18%
A330-300s in favour of
North America 1,229 9%
A340-600s.
Africa 1,030 11%
Latin America 121 20%

Asia-Pacific Europe North America Latin America Africa

Africa Africa Africa Africa Africa

ica ica ica ica ica

er er er er er
m m m m m
A
A

A
A

rth
rth

rth

rth
rth

No
No

No

No
No

Asi

Asia
Asia

Asia

Asia
a-Pa

-Pac
-Pac

-Pac

-Pac
cific

ific
ific

ific

ific
Middle

Middle
Middle

Middle

Middle
East

East
East

East

East
La

La
La

La

La
tin

tin
tin

tin

tin
Am

Am
Am

Am

Am
er

ica ica ca ica ica

er
er

er

er
i

Europe Europe Europe Europe Europe

55.3bn ASKs/wk 41.7bn ASKs/wk 41.5bn ASKs/wk 11.0bn ASKs/wk 5.0bn ASKs/wk
10.3% YoY 5.8% YoY 4.5% YoY 3.0% YoY 3.4z% YoY

NOTES: Data based on one week of schedules data, May 2016 against May 2015. Figures reflect airlines operating nonstop unrestricted scheduled passenger services.

50 | Airline Business | June 2016 flightglobal.com/airlines

flightglobal.com/airlines June 2016 I Airline Business I 53
COMMENT
EURO VISION
A new round of consolidation could be on the cards in Europe – particularly
in the leisure sector. But which carriers seem most ripe for acquisition?
A
fter the love bug that has
infected some US carri-
ers with the slightly sur-
prising Alaska land grab
at Virgin America in
April, similar emotions may start
afflicting their European cousins.
But just as the recent US west coast
meeting of minds surprised at least
one analyst, it is not entirely obvious
who in Europe wants to jump into bed
with whom.
Even one of the region’s merger gurus
– Willie Walsh – isn’t entirely sure what
developments are on the horizon. But
he’s sure there will be some.
“There are lots of airlines that look
interesting at the moment,” the IAG
chief tells Airline Business in this
month’s cover interview. And Walsh is
firmly of the belief that there is more
consolidation to play out in Europe,
which could offer opportunities to IAG,
although he quickly adds the group isn’t
actively pursuing any at the moment.
While there’s a raft of second-tier
European national carriers that could
be in the consolidation mix (Finnair,
SAS, Air Malta and Brussels Airlines,
to name a few), the region’s leisure and
low-cost sector looks like it could also
yield some movement. UK leisure car-
rier Monarch, whose origins date back
to the bucket-and-spade holiday era of
the late 1960s, has become increas-
ingly squeezed out by low-cost carri-
ers. Its owner and saviour, Greybull
Capital, looks likely to use a takeover
to furnish its exit strategy, with EasyJet
touted as the most likely suitor.
Consolidation in the Euro-budget
sector seems an obvious development,
but it appears to have ground to a halt
in recent times. As our special report
this month highlights, the region
boasts almost half of the world’s top 10
LCCs (or “next-generation carriers” as
Walsh’s IAG prefers to call them), so it
feels like there is room for some
alignment here.
While the likes of Hungary’s Wizz
54 | Airline Business | June 2016
for unconditional approval of a US for-
Creative Commons via Norwegian
eign carrier license to support its
transatlantic operations.
Walsh confesses to being a great
admirer of Kjos’s strategy and style,
and notably did not line up with
his European legacy airline peers to
object to Norwegian’s bid for US
approval. “We’ve been very supportive
of their view that they should get
approvals in the US. I don’t think he’s
Led by charismatic done anything wrong,” Walsh says.
lawyer and former “Bjørn’s a very smart guy, the com-
pany is ambitious and growing fast,”
Starfighter pilot he adds.
Bjørn Kjos, But despite the plaudits, Walsh
Norwegian has admits he’s unclear of the former fast-jet
challenged jock’s true intentions, and wonders
whether Norwegian is working on its
convention and acquisition appeal. Although he admits
carved out a niche that his pal Kjos “shows no evidence of
slowing down or wanting to move out”.
There has been talk about some
Air and Turkey’s Pegasus (which are form of co-operation with Ryanair,
just outside the world top 10) are poten- which itself is departing from the
tial participants in Europe’s long-term usual “keep it simple” policy with a
consolidation game, the really interest- flight-connections trial. Boss Michael
ing brand in the sector is Norwegian. O’Leary has long been a proponent of
Led by the charismatic lawyer and the long-haul low-cost idea, so per-
former Royal Norwegian Air Force haps Norwegian could provide him
Starfighter pilot Bjørn Kjos, the airline with the turnkey opportunity to finally
has carved out a niche and challenged make the leap to that sector. When
convention with its unique strategy of asked recently by Flightglobal if there
dispersed short- and long-haul operat- was any deeper agenda, Kjos
ing bases and plans for a mixed fleet of responded that Norwegian was “not
Airbus and Boeings supplemented by up for sale”.
a leasing company, Arctic Aviation So there you have it, straight from
Asset. Norwegian carried 26 million the horse’s mouth. Or perhaps as
passengers on its fleet of over 100 air- Winston Churchill once said, they’re
craft last year, and continues to push just haggling over the price? ■
Airbus
FARNBOROUGH TAKES FLIGHT
This year’s air show takes place on
11-17 July, and the Flightglobal team
will be out and about to bring you all The home of Airline
the news and gossip both online and Business on the web
is on the Airlines
in our daily papers. To read our
Channel of
digital magazines and keep abreast flightglobal.com:
of developments, stay tuned to: flightglobal.com/
flightglobal.com/Farnborough airlines
flightglobal.com/airlines
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