AIRLINE

ISSUE 45 | AUGUST 2018

LEADER
THE STRATEGY JOURNAL FOR AIRLINE CEOS

CHINA’S BELT & ROAD

INITIATIVE AND
AVIATION
A massive global
initiative: aviation legacy
could entrench liberal
market access
Also:
Airports recovering from
airline consolidation
Fleet changes as airlines
reevaluate
Russia’s RoI on USD15
billion World Cup
investment
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China and aviation liberalisation as the US
abdicates world leadership
A
s the world wavers on whether it wants
liberal market access, there are plenty of
cross winds these days.
One of the few positives of aviation’s
archaic regulatory structure is that it sits outside the
main trading channels. So President Trump’s exercise in
applying his real estate negotiating skills to international
trade doesn’t have a direct impact on the airline
industry.
But air travel is necessarily affected by trading
conditions and market growth, so any resulting
constraints on freedom of trade will come back to bite
not only airlines, but every consumer and national
economy.
Constraining air services tends to be a last resort in
trade disputes (or in the case of the aerial blockade
of Qatar, a political measure), so the discretionary
regulation of airline market access should make air
services safe in the meantime.
However, if there is to be a proliferation of tariff and
counter-tariff, this can only add fuel to the fire of those
countries that continue to see airline protectionism as a
sensible national policy.
The world has much to thank the US’ leadership
in airline liberalisation for. It is hard to envisage what
would have happened if one or two enlightened and
influential voices in the US Administration in the 1990s
had not embarked on rounds of open skies bilateral
negotiations around the world.
In bilateral negotiating terms, the US had a powerful
weapon: access to the US market, something that most
foreign flag carriers (and consumers) wanted. The US
negotiators had to embark on this course without the
support of the major US airlines, who saw little value
in allowing foreign airlines into their backyards. In this
regard, little has changed.
In leveraging open the locked doors of protectionism
these US bilaterals also infected other agreements of
the states concerned, spreading the very healthy virus
of liberalisation much more widely.
Now, as the US abdicates its international leadership
role, there is increased attention towards the direction
the world’s second largest aviation market, China, will
take. As its airlines look to spread their wings more
widely in international markets, there is a vested interest
in opening market access.
In principle, China has a relatively open regime at
present, with 50% of international services on foreign
airlines (it would probably be more, but China tends
towards outbound traffic and yields are often low,
deterring many airlines from expanding).
Where its Belt and Road Initiative (BRI) fits into this
puzzle is an intriguing question. For now the BRI has
a very limited impact globally, as its scope remains
confined to only a few markets. And at this stage of
the BRI’s development, aviation is still a small part
and largely concentrated on spreading China’s wider
trade and strategic interests. With this comes implied
liberalisation. At least theoretically though, the BRI is
intended to promote air service expansion, and not just
by Chinese airlines.
China thinks strategy in the long term, so the
foundation of BRI will only be the beginning of what
could become a global exercise in liberalisation. As
the report in this issue of Airline Leader notes, it will
be important to the success of the Initiative that “Brand
China” portrays a serious intention to deliver mutual
benefits.
Undoubtedly the resulting formula will be different
from previous iterations, but with liberalisation as its
guiding principle, there must be grounds for optimism.
PETER HARBISON
EXECUTIVE CHAIRMAN
CAPA – CENTRE FOR AVIATION
AIRLINE LEADER | ISSUE 45 - AUG 2018 1
 T H E S T R AT E G Y J O U R N A L F O R A I R L I N E C E O S

P.10 P.26 P.48 P.52

FEATURE FEATURE FLEETS FLEETS
China’s Belt and Aviation & Tourism Air Canada fleet: Garuda Indonesia’s
Road initiative benefits of extending the A330’s life outlook improves as it
and aviation the World Cup as MAX 8 performance defers aircraft deliveries
delivers

The Flight Deck

On the record – Quotes from industry leaders. 04

The airline retailing revolution: Best and next practices. 06

Air cargo booms: 747 freighters needed, but conversions unlikely. 34

A330F availability increases, intensifying price competition. 38

Sukhoi SuperJet: From Russia, with hope. 42

Pittsburgh Airport: Ideally located, growing, and filling network gaps. 60

St Louis: WOW Air flights herald new opportunity in a mature US market. 64

Duesseldorf after airberlin: New Ryanair base, Eurowings growth. 68

Chicago O’Hare airport transit: potential for innovative technology. 74

EDITOR: Peter Harbison
MANAGING EDITOR: Susan Nguyen
SUBEDITORS: Corinne Hitching; Peter Hickling
DESIGN: David Bell; Maryam Dirou

SENIOR ANALYSTS:
Head of Research: Liz Pinczewski
Chief Analyst: Brendan Sobie
Chief Financial Analyst: Jonathan Wober
Chief Airports Analyst: David Bentley
Senior Analyst – North Asia: Will Horton
Senior Analyst – Americas: Lori Ranson
Senior Analyst – Middle East: Simon Elsegood

HEAD OF AVIATION DATA RESEARCH: Sharon Dai

PROFILE MANAGER: Adam Basir

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On the record
Etihad Airways
ON HOW IT WILL NOT BE REDUCED TO A ‘BOUTIQUE’ AIRLINE STATUS
“That would be the take out, to be very disciplined, very measured... What we have embraced
properly is a way to develop growth in a sustainable way. We will choose wisely; we will make
sure that detail is well-attended to.” Tony Douglas, CEO

Spirit Airlines
ON THE IMPORTANCE OF WIFI IN AVIATION ENVIRONMENT
“WiFi has become so ubiquitous that no matter where you go you are looking for the
password... It is becoming more a part of our regular experience.” Ted Christie, President

KLM
ON HOW IT IS UNREALISTIC FOR THE DUTCH BUSINESS TO LEAVE AIR FRANCE
“Just as it’s not feasible for KLM to continue independently, it’s also not feasible for Air
France to go on alone... That’s the strength of the combination, we need each other
badly.” Pieter Elbers, President and CEO

Eurowings
ON PLANS TO EXPAND ONLINE PRESENCE IN BID TO DRIVE SALES
“In five years, Eurowings won’t be a traditional airline, but a digital company with a
flight operation.” Thorsten Dirks, CEO

Qatar Airways
ON NORWEGIAN’S REJECTION OF TWO BIDS FROM THE IAG GROUP
”If I am a company that knows somebody wants to buy me, I will of course up the price. But
how long can I demand that when the water is rising very hard up to my nose?... It will only
be a matter of time before they have no alternative but to accept a bid from somebody; IAG
or someone else.” Akbar al Baker, CEO

4 AIRLINE LEADER | ISSUE 45 - AUG 2018

 BANGKOK AIRWAYS
ON LACK OF CORRELATION BETWEEN PROFIT, SHARE PRICE
”Every year we manage to post profits. But when it comes to the stock price, it really is a
complicated mechanism - one that we can never anticipate.” Puttipong Prasarttong-Osoth, President

Ryanair
ON IMPACT OF RISING FUEL COSTS
“Spot prices close to $80 a barrel are going to lead to a significant shakeout in the
industry as early as this winter... Some of those loss-making airlines who couldn’t make
money when oil was at $40 a barrel certainly can’t survive.” Michael O’Leary, CEO

Emirates
ON CHALLENGES OF PARTIAL OWNERSHIP IN FOREIGN AIRLINE
“Management time being soaked up in the M&A activity and the subsequent on-going management
of these airlines to protect your investment was disproportionate to the return.”
Sir Tim Clark, President

CityJet
ON WANTING TO ENCOURAGE CUSTOMERS TO ‘STAY LOYAL’
”The next best customer is the one I already have... I want everyone in the cabin to know
[that passenger] has flown 17 times this year.” Patrick Byrne, CEO

NORWEGIAN
ON UNCERTAINTY IN AVIATION SECTOR
“In an airline life you will always go up and down...You cannot always avoid risks.” Bjørn Kjos, CEO

AIRLINE LEADER | ISSUE 45 - AUG 2018 5

OPINION
THE AIRLINE
RETAILING
REVOLUTION:
Best and next practices
L
EADING airlines aspiring
to become good retailers is
hardly a new development.
However, while the desire
has been there, the strategies
available have been limited due
to three major constraints: lack of
sufficient and relevant data, lack of
relevant analytics to synthesise the
data to produce insightful customer
and business intelligence, and the
limitations of the legacy systems to
implement contemporary strategies.
Consequently, airlines have continued
to focus on marketing their basic
product - seats - although with more
and more seat-related products and
services, such as seat location and
the priority of boarding.
Sometimes airlines are mentioned
as having legacy mindsets too,
although the legacy nature has
related more to data, analytics, and
systems, than to mindsets. Consider
data. While airlines are beginning to
have access to more and more data,
the data that they do have is still not
sufficient to generate a 360-degree
view of even a small segment of
customers. As for analytics, airlines
have had a reasonable number of
descriptive and diagnostic analytics
6 AIRLINE LEADER | ISSUE 45 - AUG 2018
to determine what happened and
why. The limitations have been on the
side of predictive and prescriptive
analytics to determine what could
happen and what should happen
to, for example, some proposed
retailing tactics. As for systems, two
limitations have continued to exist.
First, numerous planning systems in
the commercial area (e.g. revenue
management, pricing, reservations,
and loyalty programmes) and in the
operations area (e.g. flight operations,
ground operations, and maintenance,
repair, and overhaul) are of different
vintages. In addition, they are not
sufficiently integrated, either within
the commercial or operations areas,
or between these two areas. What is
needed is the willingness to change
the organisational structures and
to use enabling technologies to
integrate various sub-systems within
the commercial and operations areas
as well as to bond the commercial
and operational areas. The second
key constraint relates to the use of
older-generation Passenger Services
Systems (relating to an airline’s
reservation system and departure
control system). This constraint
has limited the implementation of
contemporary retailing initiatives.
Now that the limitations are
beginning to get resolved, let me
first discuss some examples of the
best practices from the retailing
sector outside of the airline industry.
Combining insights from leading
retailers, the following are five best
practices.
• Meaningful Customer Insights.
Trend-setting retailers know that
it is not sufficient to find out what
customers buy and how, but also
how are the products being used
to achieve what outcomes? They
are using big data, analytics,
and algorithms to understand
customers’ lives that are changing
dramatically.
• Dynamic Pricing. While retailers
have been able to implement
dynamic pricing for products sold
online, they are now beginning
to adopt similar strategies for
products sold in stores. Grocery
stores, for example, can replace
their conventional system of
displaying prices on paper with
prices shown through digital means,
enabling managers to make rapid
adjustments to prices.
• Merging the Physical and the
 Digital Worlds. Clothing stores
can now install digital mirrors to
help customers view images of
how they would look in different
clothes and, when combined, with
different accessories. For example,
machines are being developed for
shoe stores to create 3D scans of
a customer’s feet to enable sales
staff to recommend the best pair of
shoes.
• Shopping with Robots and
without Bags. Stores can now
provide carts (robots) to facilitate
shopping to identify the location
of selected items, keep track of
the money spent as products are
placed in the cart, make payments
with credit cards, and have the
products purchased transported to
a customer’s vehicle, or have the
products delivered to a customer’s
selected address. Products can
also be purchased using a smart
mobile device in the hands of a
customer with the products loaded
on a “virtual” cart. Leaving aside
the value of the convenience of
shopping for the customer, the key
benefit to the store is the capability
of the cart or robot to collect data
on a customer’s purchases as well
as purchasing behaviour.
• Fast Delivery. Retailers are already
reducing significantly the delivery
time. Amazon, for example, is
aiming for not only the same-
day delivery, but in the case of
AIRLINE LEADER | ISSUE 45 - AUG 2018 7
groceries, delivery within hours.
What insights can these best
practices of leading retailers provide
for airlines?
Meaningful Customer Insights.
Airlines have begun to explore
different ways to conduct market
research to identify the needs of
different segments of customers
and develop different products. One
example was an early attempt at
customisation with the introduction
of branded fares. A second example
was the development of premium
economy cabins. The third example
was the introduction of basic
economy fares. As for dynamic
pricing, it is not a new strategy for
airlines. They have been using
OPINION
dynamic pricing for years. Although
prices stayed relatively fixed in
various buckets, airlines controlled
inventory dynamically. Now airlines
are exploring technologies and
strategies to have dynamic control
of prices as well as inventory. As for
merging the physical and the digital
world (digital mirrors and 3-D scans
of feet), according to one technology
expert, an airline could show images
of how a particular traveller would
fit and move around in a specific
seat in three dimensions and with a
360-degree view. And shopping with
virtual carts and without bags is also
being examined in the airline industry
with travellers shopping onboard
an aircraft with their mobile devices
and having the products delivered to
their selected locations, especially
8 AIRLINE LEADER | ISSUE 45 - AUG 2018
purchases of duty free items. As for
fast delivery, items ordered onboard
could easily be picked up as soon
as the plane lands, depending on
the stage length of the flight and the
vendor selected.
Going forward, however, if an
airline is to become a sophisticated
retailer, the airline does need to
sell a full suite of services to meet
customers’ needs and, almost
limitless, expectations. Focusing
on the seat, which is basically a
commodity product, even with the
sale of seat-related services as well
as the conventional travel-related
products like hotel accommodations
and rental cars, limits the value
offered to customers and, as such,
limits the share of the wallet that can
be captured. The value is in meeting
the end-to-end needs of customers
that could include various forms of
ground transportation or a much
higher level of integration within the
travel ecosystem. Consider the travel
needs of a trans-Atlantic passenger
whose flight arrives in London, UK,
at 07:00 but the hotel check-in is at
15:00. Meeting the end-to-end needs
of customers presents a number of
challenges for airlines to address
if they are to take retailing to new
levels.
• The first challenge for an airline is to
access the inventory in real time of
closely related or distantly related
products and services. It is hard
enough to even work in a seamless
manner with a limited number of
related businesses such as hotels,
car-rental companies, and railroads,
 not to mention the wide-ranging
(and widely changing) inventory
buckets of each supplier. The task
is much harder to work with a full-
spectrum of suppliers of distantly
related products and services such
as ad hoc events and activities at
destinations like sports, live shows,
and sightseeing, and the availability
of other products in real time.
• A second challenge is to have
access to a wide array of data
(residing in different places inside
and outside of airlines) and the
techniques to develop 360-degree
views of customers. There are
hidden challenges within this
challenge: namely, the willingness
to share data on the part of data
holders, and data protection, and
privacy of.
• A third challenge is to coordinate
the creation of a dynamic offer that
is:
• personalised,
• based on a reasonable
understanding of the desired
customer experience,
• embedded with personalised
recommendations from trusted
sources,
• matched with the brand of the
content-aggregating airline, and
• the need to differentiate the
customer who is simply looking
for the best fare at the time of
booking the airline seat vs. the
customer who is looking for
the best package at the time of
booking.
• A fourth challenge is to deliver
consistent experience for the end-
to-end journey when many of the
products and services provided
are not under the control of the
airline. Does an airline want to be
perceived as the aggregator of the
package of products and services
to meet the end-to-end needs
of a customer or also be seen
as the entity responsible for the
experience throughout the journey?
• A fifth challenge is how to show on
an airline’s website, in depth and
breadth, the availability of all the
products and services to meet a
customer’s end-to-end needs.
One solution for an airline to
address these challenges and to
become a leading retailer is to
work on platforms, some internal to
integrate the sub-systems within the
commercial and operational areas
as well as to bond the two areas,
and some external to achieve scale,
scope, and flexibility to create and
capture new values for customers and
the airline. Here are a few examples
of the ways platforms can facilitate the
development and delivery of end-to-
end products and services within the
much broader travel ecosystem.
• Platforms can provide scale to
enable airlines to meet the needs of
all passengers, not just those within
the top-tier status or travelling
at much higher fares in premium
cabins.
• Platforms can provide agility for
airlines to keep up with technology
that is moving at a fast rate and that
is enabling consumers to expect
much higher levels of customer
service and experience.
• Platforms can provide user-friendly
ways to identify and sell a wide
AIRLINE LEADER | ISSUE 45 - AUG 2018 9
array of travel-related products
and services in personalised
ways, make payments much
more convenient, while reducing
transaction fees. The platforms
can also track the fulfilment of
customers’ needs in real time,
throughout the journey, and at all
touch points.
• Platforms can provide customers
greater control of their travel,
whether it is relating to shopping,
or inflight services (like preferences
relating to an environment to work,
be entertained, or just rest), or to
change plans easily during normal
operations or during irregular
operations.
Leading airlines have begun to
innovate and adapt to the retailing
revolution underway. They are
beginning to look outside the airline
industry for inspiration: Amazon for
ease of shopping and fast delivery,
and Zara for fast-design cycles, for
example. Based on these insights, it is
clear that airlines need to do lot more
to find out how customers determine
value, including not just price, but also
meaningful and emotional experience,
entertainment and stimulation. Big
data and technologies (machine
learning and artificial intelligence)
are now becoming available to
understand what outcomes various
segments of customers want and
how to connect and engage with
various customers. These technology-
enabled insights will help airlines take
bold steps to engage not only with
customers, but also with employees,
to succeed in the value-driven
retailing landscape. AL
FEATURE

10 AIRLINE LEADER | ISSUE 45 - AUG 2018

CHINA'S BELT AND
ROAD INITIATIVE AND
AVIATION
Summary
• China’s Belt and Road Initiative (BRI) links China’s global strategic and
commercial expansionist goals
• The BRI is similar in some ways to the post WW2 Marshall Plan, but more “self
serving"
• Since 2015 aviation has been integrated into the Initiative
• The aviation elements involve infrastructure investment and marketing
China’s aerospace capabilities
• A potentially important ingredient is the Initiative’s support for a liberal
aviation access scheme

C
HINA’S BELT AND ROAD INITIATIVE (BRI) essentially follows in
concept the ancient Silk Road, re-creating a trading route linking East
Asia with Europe and other regions along the way. Formerly known as
the One Belt One Road strategy, BRI has grown to embrace countries
far beyond the geography of the old trading route, as far afield as the Middle East,
Africa and even Latin America.
A long term programme, it inextricably links China’s global strategic and
commercial expansionist goals. And with a planned budget of some USD5 trillion
over the next 10-15 years, it cannot be taken lightly. Sometimes considered to be a
project along the lines of the post-WW2 Marshall Plan, others view it as “far more
shrewd and self-serving”.
Aviation has become an increasingly important component of the wider BRI
strategy, as China markets its aviation capabilities, from airport construction
and technology, through aircraft sales and air services, at the same time as
improving connectivity. The sweep of the initiative is wide and, backed by
Chinese government and private loans and investments, forms a broad umbrella
description for policies such as the “go out” programme which encourages airlines
to expand their international route networks. It also encourages investment and
product marketing in other areas of aviation.

AIRLINE LEADER | ISSUE 45 - AUG 2018 11

FEATURE
THE ROUTES OF THE ORIGINAL SILK ROAD
SOURCE: NASSA/GODDARD SPACE AND FLIGHT CENTRE (DERIVATIVE WORK)
Connectivity and co-operation is key to the
BRI succeeding
The original Silk Road was an ancient
network of trade routes that connected the
East and West and was central to cultural
interaction between the two for many
centuries.
The Silk Road referred to both the
terrestrial and the maritime routes
connecting Asia with the Middle East and
southern Europe and derived its name from
the lucrative trade in silk carried out along
its length, beginning in the Han dynasty
(207 BCE–220 CE). The Chinese took great
interest in the safety of their trade products
and extended the Great Wall of China to
ensure the protection of the trade route.
Some analysts have argued the Belt and
Road Initiative constitutes a natural extension
of the infrastructure-driven economic
development framework that has sustained
12 AIRLINE LEADER | ISSUE 45 - AUG 2018
the rapid economic growth of China since the adoption of Chinese
economic reform under chairman Deng Xiaoping. As such, the BRI
connects Asian markets to Europe and is intended to be a rallying point
for private and public investment.
Between 2014 and 2016, China’s total trade volume in the countries
along Belt and Road Initiative exceeded USD3 trillion, while China’s
investment in these nations surpassed USD50 billion. However, there
are concerns in those partnering countries about the large debt burden
on China to promote the Initiative. There are differing views on whether
the BRI is an idealistic reconstruction of the Silk Road concept or a
colossal strategic move to expand China’s influence.
The timing does however, coincide with official expressions about
China’s need to take its place in the world order, using its vast foreign
reserves more effectively than, for example, investing in low yielding
US securities – the more so as President Trump’s recent anti-free trade
initiatives threaten to reverse the US’ leadership in global free trade.
Although the US has to date resisted any moves to reverse its
essentially liberal approach to international aviation in the face of
protectionist prompting from the US big three airlines, the brewing
trade war tit-for-tat means anything becomes possible.
BRI is spreading its wings widely, with aviation a growing focus
Regardless of the motivation and its application, the BRI has become
an important feature of international trade in several countries, often
with readily apparent security overtones. The so-called String of
Pearls for example is a US-originated term to describe China’s naval
geopolitical presence at points around the Indian Ocean, notably
seaports and airports. Many of these initiatives were already in place
before the Belt and Road concept was fully articulated, but they often
fold neatly into the overall plan.
Gaining market presence and securing access to vital resources
and food are key features of the BRI. The overlap between trade and
security is consistent with President Xi Jinping’s emphasis on security
being a “holistic concept”, something that to a greater or lesser extent
applies in most national policies today. But, like the Marshall Plan, and
important for aviation, the BRI posits a role in opening up trade links
generally, albeit with a sharp focus around the Chinese investments.
The BRI aviation strategy was formally announced in 2015
In a 2015 speech, the Civil Aviation Administration of China’s
(CAAC’s) Deputy Li Jian proposed that all BRI countries (including
China) adopt a proactive, more liberal and flexible aviation policy for
an active, orderly and progressive approach to liberalisation. This was
THE SO-CALLED “STRING OF PEARLS”: CHINESE
INFLUENCES AT INDIAN OCEAN PORTS
SOURCE: WIKIPEDIA COMMONS
AIRLINE LEADER | ISSUE 45 - AUG 2018 13
the first occasion the strategy was made
public: "All countries along the B&R route will
adopt a proactive, more liberalised and more
flexible aviation policy for an active, orderly
and progressive approach to liberalisation...
"China will train 500 personnel for the
B&R countries, through exchange, training
or accepting as international students. And
will also support ICAO’s safety support
Partnership program to provide safety
support to B&R countries...
"Seeking to incorporate key flightpaths
and major projects, such as joint investment
and construction of airport, and air traffic
control facilities into China’s regional
support program under the umbrella of
B&R". (Extracts from Mr Li's speech; unofficial
translation)
As described in 2017 by Chinese
investment support company “China
Go Abroad”, “China’s air transportation,
aviation infrastructure and aircraft
manufacturing are expected to achieve
unprecedented demand growth and the
industry’s internationalisation is expected
to accelerate.” China is currently the world’s
second largest aviation power after the US,
but the international expansion planned
under the BRI, with “strategic cooperation
and M&As” is expected to lead to a
“reshaping of the global industry”, according
to the company.
Marketing Chinese aerospace products is
one element of the BRI
Marketing of China’s growing aerospace
industry is one aspect, with the Commercial
Aircraft Corporation of China (COMAC) an
important player. In Jan-2018, the South
China Morning Post reported that investment
company China Everbright and its one-
third (32.3%) owned Hong Kong-listed
aircraft leasing unit, China Aircraft Leasing,
were planning to launch a Silk Road Fund
FEATURE

that would “invest in aircraft leasing and related businesses”. The

company’s CEO, Chen Shuang reportedly noted that he would “hope
to partner with Chinese institutions involved in outbound investments.”
According to CAPA’s Fleet Database, China Aircraft Leasing has
on order 60 Chinese production aircraft, Comac ARJ21-700s and 20
Comac C919s (along with 190 Boeing and Airbus aircraft).
China’s Y-12 turboprop aircraft is also a product on the BRI shelf.
According to Chinese press service Xinhua in Apr-2018, citing aircraft
manufacturer AVIC Harbin Aircraft Industry Group Co., Ltd (HAIG),
“more than 50 Chinese-made Y-12 series aircraft have been delivered
to eight Belt and Road countries.” These are usually supported by
sponsored loans.
Air services connectivity is another
In addition, the BRI is helping form a framework for air service
connectivity, as outlined by the CAAC in Oct-2017. The Belt and Road
Big Data Report 2017 published by the State Information Centre, cited
in the government’s Belt and Road Portal, announced that “by the end
of May-2017, direct air routes had connected 26 provincial regions in
China (84 percent of the total number), with 43 countries along the
extended Belt and Road, with 240 new air routes opened in 2016.” It
continued, “Shanghai, Beijing, Guangdong, Sichuan and Fujian have
the most air links in this regard.”
CAAC also announced, without specifying them, that “113 more
international air routes connecting countries along the Belt and Road
routes (were to) be opened by Chinese and foreign airlines for the new
season starting from Oct. 29, 2017 to Mar. 24, 2018.”
Significant airport and infrastructure investment has already
occurred
Aviation is unlikely to be a dominant feature in the BRI, but it is
becoming increasingly relevant – and may well, eventually, become
important in the global aviation sector. This report looks in particular
at the more tangible aviation related investments: the airports along
the two Belts – Land and Maritime – that are receiving support from
Chinese construction firms and/or investors. It finds that Chinese firms
continue to enhance their presence in selected areas of these belts
but not in others.
The majority of investors are attracted fundamentally by Western
Europe, and then by opportunities in the east of that continent
where cargo rather than passenger facilities can be erected to take
advantage of a comprehensive road network. Accordingly, some
small airports there have been courted by several Chinese operators/
investors. In contrast, many of the airports along the line of the original
Silk Road through West Asia have been thus far ignored.

14 AIRLINE LEADER | ISSUE 45 - AUG 2018

 In each case, it appears that aviation is either an implied part of the
BRI future or is already becoming relevant.
Maintaining a positive “Brand China” will be important
One of the issues confronting branded products, as the BRI has
effectively become, is that problems in one element of it can pollute its
overall commercial and political attractiveness in other markets.
Often involving large debt burdens with high interest loans, BRI
experiences in countries like Sri Lanka and Pakistan have not been
wholly positive. The spread of the concept has also been extended to
countries such as Venezuela, where a deeply indebted country, with
little obvious direction, has become entirely dependent on China for
its future. Here again the role of the BRI could be invoked, something
President Xi raised in his recent visit to congratulate President Maduro
on his re-election.
After China’s massive loans were squandered by previous
administrations, Venezuela’s only viable exit strategy is to deliver large
volumes of oil to China to repay the debt, something its moribund wells
are incapable of. According to the Americas Quarterly, in “Venezuela
after Maduro”, “… Venezuela could need $50 billion per year for 10
years to truly get back on its feet. The West has no particular appetite
for such a large package. But (President) Xi might, particularly if a plan
for Venezuelan recovery is administered through either the AIIB or the
BRICS Bank, both Chinese-led financial institutions, within the context
of China’s global Belt and Road Initiative.”
Presumably to help break the logjam and help the oil flow, in early
Jul-2018, the Development Bank of China approved a further USD5
billion loan to assist Venezuela in increasing its oil output, according to
Prensa Latina.
Coming on the heels of President Trump’s suggestions that the US
should invade Venezuela, the influence of this part of the Belt and
Road becomes more than simply a commercially driven investment. In
the BRI branding context it also helps alleviate a major problem for the
country, even if, (as suggested in the Jun-2017 Foreign Policy article
“Venezuela’s road to disaster is littered with Chinese cash”), at least
part of the ills were caused by “a mountain of Chinese debt”.
China’s infrastructure and airport construction skills are well honed
China was and is a world leader in infrastructure investment. It
has pursued - and continues to do so - an infrastructure-based
development strategy, which has resulted in engineering and
construction expertise and a wide range of modern reference projects
from which to draw, including roads, bridges, tunnels, and high-speed
rail projects.

AIRLINE LEADER | ISSUE 45 - AUG 2018 15

FEATURE

Transport projects include airports as well ASIAN & AFRICAN COUNTRIES PARTICIPATING IN
as bridges, tunnels and rail projects. China THE BRI*
builds its own airports, largely financing SOURCE: NEW YORK TIMES AND CAPA – CENTRE FOR AVIATION

them from its own resources too, and has in

the main dispensed with foreign assistance,
which previously came in the form of,
inter alia, Copenhagen Airports, Fraport,
Aeroports de Paris (now Groupe ADP) and
Vinci.
On the contrary, it is now a net exporter
both of expertise and of capital, investing
in airports across Europe and elsewhere,
though it has not as yet focused on the
easterly part of the BRI.
The graphic right shows the Asian
countries that are participating in the BRI,
including larger African ones, and the overall
investment they are forecast to receive from
2017 to 2021.
The Asian Development Bank estimates
emerging Asian economies need USD1.7
Note: *Countries participating in the plan and selected African countries expected to receive the most
trillion annually in infrastructure to maintain investment from China from 2017 to 20121.
growth, tackle poverty and respond to
climate change.
The next graphic, opposite page, identifies The countries examined are:
the scope of the Silk Road Economic Belt • (Land) Kyrgyzstan; Kazakhstan; Tajikistan; Uzbekistan; Iran; Turkey;
and the 21st century Maritime Silk Road. It Russia; Belarus; Poland; Germany; Netherlands
should be of no surprise that the eastern • (Maritime) India; Sri Lanka; Africa (general); Greece; Italy
terminus of the belt is situated in Xi’an, the (The southeast line of maritime ports [Hanoi, Kuala Lumpur, Jakarta]
oldest of the Four Great Ancient Capitals, is not addressed here as it is not directly relevant to the east-west
the starting point of the original Silk Road connection).
and home to the Terracotta Army of the first (1) BRI: Land activities
Emperor of a united China, Qin Shi Huang. Kyrgyzstan
Xi’an itself is representative of modern-day There are four known airport projects, at Bishkek Manas (the
China, an emerging megacity of 8.7 million capital), Batken, Isfana and Jalal-Abad airports, with all scheduled
people in a metropolitan area of 12.9 million. for completion by end Dec-2022. They are all terminal expansion or
Many projects form part of the BRI but the extension projects, with a new runway at Bishkek Manas.
remainder of this report is concerned only In 2014, Bishek Manas International Airport OJSC and China's Beijing
with airport projects in countries that lie on Urban Construction Group signed a protocol on the construction of
the route of the land and maritime-based a new terminal at Manas Airport and the rehabilitation of Batken and
roads, and highlights where Chinese capital Issyk-Kul airports; projects with aggregate estimated costs put at USD1
and/or expertise has been brought into play, billion.
and where it could be. The New Osh Airport is a proposed new airport for the second

16 AIRLINE LEADER | ISSUE 45 - AUG 2018

THE OLD SILK ROAD AND THE MARITIME "ROAD"
SOURCE: NEW YORK TIMES AND CAPA – CENTRE FOR AVIATION
largest city, at a cost of USD300 million. Manas International Airport
OJSC, operators of the nation's capital airport, signed an agreement
with China Machine Engineering Corporation (CMEC) to construct the
proposed regional hub.
Kazakhstan
Six projects are known to the CAPA database, at Astana (the capital),
Baikonur, Kostanay, Oral Ak Zhol, Semey and Shymkent airports, with
a total value, where known, of USD345.6 million. They are mostly
terminal or airport reconstructions, with a new terminal and runway at
Astana and Shymkent. All will reach a conclusion between Dec-2018
and Dec-2020.
There is no known involvement by Chinese firms in these projects,
which are the product of the Railway Company.
China’s Tengri Holding submitted proposals to Kazakhstan’s Ministry
for Investment and Development, for construction of a new airport at
Almaty, the largest city.
Tajikistan
The only known project at an existing airport is a new freight terminal
at Dushanbe, the capital, which may be financed by Japan International
Cooperative Agency via a USD31.5 million loan.
AIRLINE LEADER | ISSUE 45 - AUG 2018 17
Uzbekistan
The CAPA Airport Construction Database
contains two existing airport projects: a
terminal upgrade at the small Nukus Airport,
and a new USD431 million terminal at the
capital Tashkent’s Islam Karimov International
Airport. In the latter case, the financing is
coming not from China but from the South
Korea Ex-Im Bank. Indeed, in Sep-2016
South Korea and Uzbekistan signed an
MoU on infrastructure projects generally in
Uzbekistan.
Under the agreement, Korea Economic
Development Cooperation Fund would
provide USD250 million for the construction
of the passenger terminal at Tashkent, as
well as the establishment of a data centre.
Moreover, Seoul’s Incheon International
Airport Corporation and the Korea
International Cooperation Agency (KOICA)
FEATURE

undertook the construction and economic feasibility study. There are

no new airport developments.
Iran
Iran finds itself at a crossroads since President Trump rescinded the
Iran Nuclear Deal (not ‘Treaty’; no formal agreement was ever signed).
The huge western interest in providing aircraft and airport construction
and financing services, which was evident in the attendance at two
CAPA conferences in Iran, dissipated immediately in the face of the
renewal of sanctions on Iran and the threat of possible sanctions
against them.
But Iran needs external investment. None of the Iran Airport
company's 54 airports is profitable with the exception of Imam
Khomeini International Airport.
The main deals that had so far been completed involved mainly
French and Italian companies.
The CAPA Airport Construction Database lists 13 Iranian airports
with construction projects, mainly terminal works. None have any
involvement with China with the exception of the new Mashhad Airport
where Iran Airports Company signed financing agreements with both
French and Chinese companies for the development of a new airport
in 2014. A provision in the financing arrangement covered investments
by Iran Airports Company in the development of 54 other airports
around Iran.
Of the new build airports (of which there are many, considering the
financial plight of the Airports Company, and which include Bushehr,
Chabahah, Ahvaz, Saqqez, Qom and Aras Jolfa), the only known
involvement of the Chinese is a visit by unnamed investors from that
country to the Qom Airport in 2014 to discuss investment projects.
Turkey
Turkey, for centuries the Asia/Europe bridge, is the location of
one of the world’s largest new airport projects, at Istanbul, one that
is scheduled to open in its first phase in Oct-2018. But there is no
Chinese involvement; all the financing and construction participants are
Turkish.
Otherwise, there are major projects at seven airports, the main one
being at Istanbul’s other airport, Sabiha Gökçen (USD1.75 billion).
There is no evidence of direct backing from China in any of these,
either, nor in the six greenfield airport projects, which are typically
under the control of DHMI, the State Airports Authority. Turkey is
a challenger to China in the matter of overseas investment and
development.

18 AIRLINE LEADER | ISSUE 45 - AUG 2018

Russia
Much the same can be said of Russia, although that country is, by
nature of the sanctions imposed on it, not so much of a foreign investor
these days. According to the CAPA Airport Construction Database,
there are over 70 infrastructure projects at existing airports in Russia,
and 14 greenfield airports being built or planned for. However, there
is scant evidence of any Chinese input; the projects being the
responsibility of the state, individual communes or the burgeoning
numbers of private Russian investors and their companies.
The Federal Antimonopoly Service (FAS) aims to reduce
administrative barriers for investing in the country’s port and airport
infrastructure with foreign investors in the second or third quarter of
2018. The Russian Federation is widely acknowledged to be a tough
place to do business. Ordinary fresh impetus might be expected to
come from the west, but the current political deadlock between Russia
and the west rules that out.
If Chinese companies are to get involved, it is more likely initially to
be at the eastern end of Russia where they are closer to home and
where Russian companies may be less inclined to participate owing
to low traffic figures, rather than in the western area around Moscow
and St Petersburg, where most of the traffic is, and which has already
attracted much of the necessary investment, including a sovereign
wealth fund.
FRANKFURT HAHN AIRPORT ANNUAL SYSTEM
CARGO PAYLOAD (KG) CAPACITY
SOURCE: CAPA – CENTRE FOR AVIATION AND OAG
200m
150m
Cargo payload (kg)
100m
50m
0
2012 2013 2014 2015 2016 2017
Year
Belarus
There is only one airport known to have a
significant infrastructure programme but it is
a big one, at Minsk National Airport where a
second runway is under construction which,
together with other works, amounts to over
USD300 million in investments.
Minsk is in an excellent position to benefit
from the “road” as it meanders towards its
western outpost at Rotterdam and at this
project and initially the works were to have
been undertaken in conjunction with a
Chinese company, IF (from 2013). However,
in 2014 Russian interests replaced Chinese
ones as the partner.
Political expediency may have had much
to do with that decision. This is possibly a
conscious strategy on Russia's part, where
former Soviet Union states remain in the
Russian camp. Georgia, further removed
from its former Soviet associations, is by
contrast more engaged in the BRI.
Poland
There are 10 airports with infrastructure
projects in Poland, the biggest of them being
Krakow’s John Paul II Balice International
Airport (USD273 billion). There is one new
airport under construction and the new
Central Polish Airport near Lodz looks likely
to get the final go-ahead, one that will dwarf
the others.
However, Poland, via its State Airports’
Authority, PPL, tends to control most of the
airport infrastructure and there is only one
example of private sector activity there –
the new airport at Suwalki – and very little
external input.
Germany
It is in Germany, where the “road”
traverses the Ruhr industrial area on its way
2018
to the Netherlands and the North Sea, that
some of the better of examples of Chinese
AIRLINE LEADER | ISSUE 45 - AUG 2018 19
FEATURE
co-operation in the airport sector can be
observed.
The Frankfurt Hahn Airport, an important
cargo distribution centre (always attractive to
Chinese operators), came under the scrutiny
of several Chinese firms before it was taken
over (82.5%) by HNA Airport in conjunction
with German firm ADC GmbH, in Aug-2017.
Ten years earlier, Beijing-based Link Global
bought by auction Schwerin-Parchim Airport,
on the German Baltic coast, again with its
employment as a cargo base in mind.
Although it was somewhat out of the
way, to the north of the projected line of
the road, it does lie between Berlin and
Hamburg and the latter’s port could arguably
be considered an alternative BRI port to
Rotterdam.
THE OLD SILK ROAD AND THE MARITIME "ROAD"
SOURCE: NEW YORK TIMES AND CAPA – CENTRE FOR AVIATION
20 AIRLINE LEADER | ISSUE 45 - AUG 2018
Later (2010), Link Global conceded management of the airport to the
Xiamen Airport Group.
Netherlands
And finally to the Netherlands and the western end of the road.
There are five airports with construction projects momentarily, the
largest (USD2 billion) at Amsterdam.
All but one (Maastricht) is within the public sector and none has
any known connections to China. There are no new airports under
construction but there is the conversion of Lelystad Airport to
commercial use.
(2) BRI: Maritime activities
The second part of this examination looks at the maritime part of the
BRI.
India
The Belt passes through the Bay of Bengal city of Kolkata. There is
no known Chinese presence in India in the construction (44 existing
airports and 52 greenfield ones) and/or financing of airports, even at
Kolkata itself, where the airport has suddenly come back on the radar
as a potential concession project, having been taken off it in 2015.
Where there is a foreign presence, it tends to be a traditional one
from Germany, Switzerland and South Africa, from where companies
were involved in the initial big-city airport concession deals in 2006.
That might not be the case forever. In 2017 it was revealed that 42%
of the 600 companies that plan to invest a total of USD85 billion in
India in projects in the country in next five years are Chinese. Some of
the Chinese ones are specifically land developers. That India needs
the investment is without a doubt. Whether the Chinese firms would be
welcomed by a country that believes it can overtake China to become
Asia Pacific’s leading economy, and is wary of China’s strategic goals,
is another matter.
Sri Lanka
There are complicating issues of a different kind in Sri Lanka
(Colombo is on the Maritime Silk Road), where a white elephant vanity
project that opened in 2013 as “Sri Lanka’s second international
airport”, the Mattala Rajapaksa International Airport, has become a
politically strategic battleground between India and China.
The airport, whose usage has now been diverted towards MRO
and cargo activities after just 6,500 passengers used it in 2015, was
financed with soft loan funding from China Exim Bank.
But to repay the airport and related debt China negotiated a 99
year lease of the nearby Hambantota shipping port (to access one of
the world’s busiest shipping lanes) and surrounding real estate. India
became concerned that as China seeks to spread its reach cross-
continent via the Belt and Road initiative, it would use the port as a
naval base.
China’s ability to do so is however severely hampered without
access to an airport. Consequently, the Indian Aviation Authority (not
Airports Authority of India or a private operator) began discussions with
Sri Lanka’s government at the end of 2017 to form a joint venture with
the Sri Lanka CAA to operate the airport, effectively to block Chinese
expansion here. Operational plans for the airport remain vague.
Africa
In Africa, Nairobi features as an outer location on the Belt. That
influence is extensive and Kenya, in particular, has actively courted
Chinese investment for several years, mainly for industrial growth
but also in the railway sector, where Chinese interests financed 90%
and are building the USD4 billion Nairobi-Mombasa railway, one of a
network of similar projects that will eventually connect internationally
throughout East Africa.
In the airport sector, Chinese presence in the form of a contract to

AIRLINE LEADER | ISSUE 45 - AUG 2018 21

FEATURE
build a (subsequently cancelled) USD500
million terminal at Nairobi Jomo Kenyatta
International Airport several years ago
caused political fallout.
Greece
Greece lies on the Maritime Belt just
as Istanbul lies on the Road belt. It has
a powerful port at Piraeus. It is primarily
western interests that are driving Greece’s
airport sector though, through local
companies such as the Copelouzos
Group, western funds and through German
operator Fraport, which took on many of the
diverse regional and island airports under
concession.
While the port is of interest to China (in
2009 half of the container port was leased to
a Chinese firm, COSCO, for 35 years), there
is no evidence yet of significant Chinese
attraction to Greece’s airports. A long-
anticipated further transaction on the already
partially privatised Athens International
Airport (although it is no longer situated
close to Piraeus, as the old Ellinikon airport
was) could see a change in that position,
although it is unlikely a majority stake could
be secured immediately.
Italy
At the far end of the Maritime Belt is Italy, a
country that has been identified by Chinese
firms in the past for investment in the airport
sector. For example IZP Technologies, a
digital company which in 2014 attempted to
buy Parma Airport and to reposition it as a
cargo airport to service the vast Turin-Milan-
Venice corridor to the north. The deal did not
go through.
The problem with Italy for Chinese
investors is that much of it is isolated too
far to the south of the main commercial
regions of Europe, especially for cargo
services; there are severe political tensions
as strongly-differentiated parties battle for
control; the economy is weak; and there are
22 AIRLINE LEADER | ISSUE 45 - AUG 2018
too many airports, as the government has long acknowledged.
Moreover, ownership of airports typically follows a pattern of mixed
municipal/Italian private sector shareholdings that are difficult for
foreigners to penetrate. The chart below, of the ownership of Venice’s
Marco Polo airport, serves as a good example.
Opportunities such as that at Parma, where there had been foreign
interests already, arise infrequently.
The main Chinese investors in airports
Another aspect of the influence of China on Road and Maritime Belt
countries is who its airport investors are and where their preferences
lie.
According to the CAPA Airport Investors Database, there are
over 40 Chinese firms that have either looked at airport investment
opportunities along the Belts or which are in a position to do so (i.e.
their investment outlook is not restricted to China). Not all of this
accumulated interest has been in the countries mentioned; much of
it is in Southeast Asia. A handful of them have taken the plunge and
made investments - but only a handful.
HNA Group, which was mentioned with reference to Frankfurt Hahn
Airport, has long coveted airports in Europe and once sent a team to
scour the continent for them. Six months after the Hahn transaction,
HNA secured a 35-year concession on Plovdiv International Airport in
Bulgaria’s second city. HNA Group specifically mentioned that it was
playing an active role in the Belt and Road Initiative at the time of the
VENICE MARCO POLO AIRPORT OWNERSHIP*
SOURCE: CAPA - CENTRE FOR AVIATION
2.1%
2.1%
2.2%
4.4%
4.8%
39.8%%
8.2%
8.2%
9.2%
20.7%
■ Marco Polo Holding SRL ■ Saint Lazzaro Investment Spain SL
■ Free Float ■ Banca Popolare di Venezia Soc. Coop. ■ SAVE S.p.A
■ District of Venezia ■ Sviluppo 73 S.R.L ■ Fondazione di Venezia
■ Sviluppo 91 S.L.R ■ Municpality of Treviso
Note: * As at 28-May-2018
CHINA SOUTHERN AIRLINES ROUTE MAP
SOURCE: CAPA – CENTRE FOR AVIATION AND OAG
transaction. In 2018 however, besieged by debt, HNA has reined in its
international expansion.
Bulgaria sits between the land and maritime belts as they enter
Europe, and Plovdiv Airport had also attracted the attention of Hainan
Longquanren Century Invest and Development Co., a Chinese
investment firm that is a participant in a USD40 billion fund which was
established under the 'New Silk Road' economic plan and aimed at
boosting trade ties with Europe.
The other significant investor is the Hong Kong-based Friedmann
Pacific Asset Management, which initially joined with the Shandong
Hi-Speed (rail) Group to form a consortium to take a stake in France’s
Toulouse Blagnac Airport. (Central and local governments still retain the
majority of the equity.)
More significantly with respect to the BRI Belts, Friedmann Pacific
subsequently (Oct-2016) joined forces with China Everbright (Hong
Kong and Beijing), through Keen Dynamics, to acquire 100% of Tirana
International Airport (TIA), which serves the Albanian capital. Once
again the acquisition was described as being "a proactive corporate
AIRLINE LEADER | ISSUE 45 - AUG 2018 23
approach to identify good infrastructure
investment opportunities, which is in line with
China's 'One Belt, One Road' Initiative.’”
Even Alibaba has shown interest in BRI
airport investment
The Chinese conglomerate Alibaba
also deserves a mention. Its only declared
interest in the sector to date is Siberia’s
Irkutsk Airport, to build a cargo terminal. No
transaction took place but the positioning of
this airport in the extreme east of the Road
Belt is intriguing.
Several investors made pitches for the
concession on Belgrade’s Nikola Tesla
International Airport in 2017/18 (which was
eventually won by France’s Vinci), including
HNA Group, AVIC International Holdings,
a conglomerate, and the Chinese-ASEAN
FEATURE
Investment Cooperation Fund. Belgrade
again sits between the two road and
maritime belts in Southeast Europe but is
more central than Tirana.
Two Shanghai-based entities have made
themselves known in this area. Shanghai
Construction Company expressed in 2015
the desire to convert and build an unnamed
disused Hungarian airport into a European
cargo base. Nothing came of it. Meanwhile,
Shanghai Yiqian Trading Company actually
reached a deal to acquire Frankfurt Hahn
Airport well ahead of HNA Group, in 2016,
but the deal did not complete owing to
financial difficulties adversely affecting the
investor.
Finally, Hong Kong-based Sixiãn Holding
produced an audacious scheme to build
a EUR15 billion greenfield airport between
Brescia and Verona in Northern Italy, in 2015.
It would have been as close to the optimum
HAINAN AIRLINES ROUTE MAP
CAPA – CENTRE FOR AVIATION AND OAG
24 AIRLINE LEADER | ISSUE 45 - AUG 2018
location for a Maritime Belt airport in that region as it could be, but no
progress has been made with the scheme since.
Otherwise, Chinese airport investors seem mainly to be interested in
the UK, especially London and Manchester. Several have investments
there including London Heathrow Airport (China Investment
Corporation) and Manchester Airport (Beijing Construction and
Engineering). Neither of those places is anywhere geographically near
the Silk Road.
Two investors tried to acquire the Ciudad Real airport in central
Spain, again to use it as a cargo base, but were unsuccessful. Once
again, Spain is well away from the direct influence of the Belts. Several
investors are also focused on Vietnam, which is part of the Maritime
Belt.
In summary, a growing number of Chinese mainland and Hong
Kong investors are looking to Europe in particular for airport-related
investments and while it is evident some are doing so with the spirit
of the Silk Road at the forefront of their thinking, it is not the case with
every example.
Chinese airline expansion through the BRI is relatively gradual
Airlines, confronted with a highly competitive operating environment,
have been slower to adopt the BRI enthusiasm, even though in some
cases Chinese airline operators and airport investors are intertwined.
One intriguing fact that emerges is that, despite official optimism,
in most of the Silk Road Economic countries, the only Chinese
airline operating is China Southern. China Southern, the country’s
largest domestic airline, has been in the vanguard of “going out” on
international routes.
The exception is Russia, to which all of the major Chinese airlines
predictably fly. The same airline is the dominant carrier at the
strategically important western Chinese hub of Urumqi, and (less so)
at Xi’an, at the eastern end of the Road Belt.
Hainan Airlines makes for a good example. It is part of the same
HNA Group as HNA Airport, the investor, though there is little
correlation between its air services, the places where HNA Airport
has invested (Plovdiv and Frankfurt Hahn airports) and most of the
places along the Road and Maritime Belts, some of which are eager
for the air service the Belts “promise”.
A positive legacy of the BRI could be its aviation liberalisation
leadership
There was certainly high level encouragement to expand along
the BRI routes. Of the CAAC’s “Important Civil Aviation Projects
2015”, 51 of its 193 projects were focused on the BRI.
The projects ranged from CAAC focusing its aeropolitical efforts
on the BRI countries, to Chinese airlines increasing capacity on
these routes (according to official reports the airlines’ revenue
passenger kilometre (RPK) growth to BRI countries has been
materially higher than to non-BRI countries), to China-aligned aircraft
lessors (i.e. those that are prepared to finance large numbers
of Chinese-manufactured aircraft) focusing their efforts on BRI
countries.
As noted in this report, there is some visible action already, such
as China Everbright Group's leasing arm pushing Chinese aircraft
into BRI countries (as well as purchasing the Tirana International
Airport). There may be more going on behind the scenes. Chinese
airlines may also be seen to invest in failed/failing BRI state-owned
airlines, though evidence of that is scant at the moment.
The Belt and Road Initiative is undoubtedly well entrenched at this
stage and aviation’s part in it is growing. For the time being and as
Beijing is concentrating on debt reduction and having to confront a
US tariff onslaught, the overall momentum may temporarily slow.
In these circumstances it is possible that the greatest short term
residual value from the BRI for the international airline system could
be in supporting the momentum for liberal market access. This
would be welcome as the US, which has previously led the charge,
becomes increasingly unpredictable on the world stage. AL

AIRLINE LEADER | ISSUE 45 - AUG 2018 25

FEATURE

26 AIRLINE LEADER | ISSUE 45 - AUG 2018

AVIATION & TOURISM
BENEFITS OF THE
WORLD CUP:
Can Russia get an ROI on its
USD14 billion investment?

Summary
• The Soccer World Cup, recently completed, offered Russian cities and
airports a rare opportunity to promote themselves to the outside world.
• Some destinations are no-hopers – hidden by swarms of midges or relics
of a post-industrial past, and their airports are not really ‘open’ to foreign
business.
• But several of them, if they can attract the right sort of airline and if
economic/political events go in their favour, are in a position to reap a
World Cup dividend. This report examines four of them.

W
ITH THE FIFA SOCCER WORLD CUP FINALS now completed,
and reportedly having cost Russia over USD14 billion to put
together, many will be wondering what the payback will be.
Little spectator trouble was reported; overall the weather was
kind and media commentators were keen to extol the virtues of cities they would
never have visited otherwise.
In short, the Soccer World Cup offered Russian cities and airports a rare
opportunity to promote themselves to the outside world. The following prospect
of a visit from the US President was all it needed to round off a very successful
summer for Moscow.
Some Russian cities and their airports will be working on how they can reap the
benefit in the future. Some will gain more than others in the medium and long term.

AIRLINE LEADER | ISSUE 45 - AUG 2018 27

FEATURE
Host cities frequently roll out the red
carpet for fans
There is nothing unusual in host cities
doing so. Any city that hosts, say, the
European Champions League Final will
typically roll out the red carpet for the tens
of thousands of visitors it receives – usually
from two countries – in the hope they will
come back again as casual tourists.
From the way World Cup Finals are
organised, fans get to visit cities across the
host country even during the early group
stage.
In Russia that could have meant crossing
up to 11 time zones, but no games were
played further east than Yekaterinburg,
which is two hours ahead of Moscow.
That arrangement probably supports TV
schedules but it can conveniently hide less
attractive parts of a country from public
view. Major sporting events are as much
about national image as anything else. But
it also means that most of Russia east of the
Urals simply lost out where the World Cup
is concerned. It might as well be in another
country.
And despite the proximity of venues, by
Russian standards travel between them can
be difficult. There are reports of Australian
fans taking over 17 hours to travel the 250
km between Kazan and Samara. There are
three direct flights a week, there is no direct
rail line, and the direct road was closed.
So which cities and airports are likely to
gain most from the publicity they received
as a result of the football?
Volgograd suffered from midges and PR
blunders and unlikely to gain visitors
Volgograd (previously Stalingrad – a
place of historical World War II significance
and bombed into the dust) is located in
one of Russia’s hottest areas. It is close
28 AIRLINE LEADER | ISSUE 45 - AUG 2018
to marshland and the stadium is situated next to the river. Both the
players and the spectators were overwhelmed by millions of midges
and mosquitoes during the first match, for the entire world to see.
The city authorities belatedly sent helicopters to spray the
marshlands with pesticide, which worked for a short while, but
officials asked Visit Russia to announce the PR howler of the year
by saying they had “deployed chemical weapons” to rid the city of
them. (Fans that brought insect repellent to the stadium actually had it
confiscated.)
St Petersburg and its Baltic coastline have something for everyone
One would reasonably expect both Moscow and St Petersburg to
benefit from the exposure, during the group games and the semi-
finals/final, which were played there. Moscow is well known anyway
as the capital, but St Petersburg, which is the home city of President
Putin and was once itself the capital, has a more impressive history. Its
historic centre is a World Heritage site and it has one of the largest art
museums in the world, The Hermitage.
St Petersburg is a Baltic Sea port city and it does have numerous
beaches. Further afield is Repino (or Koukkala, to give it its Finnish
name), 30 km to the northwest on the Gulf of Finland. Repino has
become a very upmarket resort for the area, with several four and five
star hotels.
SAINT PETERSBURG PULKOVO AIRPORT,
DEPARTING SEATS BY COUNTRY*
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
3.9%
4.6%
5.2%
5.5%
58.4%
10.3%
12.1%
■ Germany ■ Ukraine ■ Turkey ■ Italy ■ Cyprus ■ Bulgaria ■ Others
Note: * Week commencing 25-Jun-2018

Repino is 30 miles from Pulkovo Airport, about the same as
Benidorm is from Alicante Airport in Spain. Pulkovo hosted 16.1 million
passengers in 2017, a fraction of the total at the Moscow airports.
Currently 46% of seats are on international flights at Pulkovo, the
airport is dominated by Russian carriers, and the chart of departing
seats by country below strongly suggests that outbound travel to ‘sun’
destinations plays a large part in the airport’s portfolio.
In order to benefit from the World Cup exposure foreign LCCs need
to have a greater presence at Pulkovo. Right now all LCCs account for
just 7.4% of seats. But that eventuality is subject to traffic rights and to
economic sanctions.
Further east, the fourth largest Russian city
East of the Ural Mountains is Yekaterinburg, another city that might
benefit. Known as ‘the third capital of Russia’, the fourth largest
Russian city acts as a gateway between Europe and Asia in a similar
way to Istanbul.
AIRLINE LEADER | ISSUE 45 - AUG 2018 29
The beach at Repino
It is the fifth most visited city by
Russians themselves, though much of
that traffic is business tourism, especially
for conferences. However, it has also
recently ranked as the third most popular
city with foreign visitors. Leisure tourism is
increasing. Of primary interest is the last
Russian Emperor, Nicholas II, and the royal
family, who were killed by the Bolsheviks
at Yekaterinburg after the 1917 October
Revolution.
Koltsovo Airport at Yekaterinburg is less
developed than Pulkovo, with just 5.4 million
passengers in 2017. Again, there are few
foreign airlines and slightly more LCC seats,
but many international routes are oriented
to outbound travel, rather than inbound.
FEATURE
MATCH VENUES
SOURCE: ROADTRIPS.COM
A closed city is now very much open, to
travel innovators
Nizhny Novgorod (Gorky until 1990) is
another city that could receive the benefits
of staging matches, if only because it was
a closed city during the Soviet era, as a
centre for the armaments industry. It was
not possible to visit the city as a foreign
tourist or even sometimes as a Soviet one.
While much of the centre was destroyed by
the Bolsheviks, there are over 600 unique
architectural sites remaining. Such places
inevitably attract ‘first mover’ and ‘innovator’
tourists, once they discover them.
Annual passenger numbers are close to
one million. There are hardly any foreign
carriers to speak of, 20% of seats are on
foreign routes, and just 7.7% of seats are on
budget carriers.
30 AIRLINE LEADER | ISSUE 45 - AUG 2018
Kaliningrad has many attractions but is being outshone by
neighbouring Lithuania
Finally, Kaliningrad, the Baltic Sea oblast (province) in the far west,
separated from the mainland by Lithuania and Poland and annexed by
the Soviet Union from Germany at the end of World War II.
The oblast and city of Kaliningrad has almost become a showpiece
for Russia owing to its western location, and the oblast has special
economic status. The weather can be of Mediterranean standard
in the summer (as is the case with nearby Klaipėda, Palanga and
Nida in Lithuania), and tourism is particularly well developed along
the Curonian Spit – a 100km long, curved sand-dune spit and World
Heritage Site which forms a lagoon separated from the Baltic Sea, and
is shared by Russia and Lithuania.
Considerable capital expenditure (USD240 million) has gone
into the reconstruction of the runway and terminal at Kaliningrad
Khrabrovo Airport, which can now handle 3.5 mppa.
In 2017 that traffic amounted to 1.78 million, so the local authorities
will hope there can be a spin-off from the World Cup to match the
growing foreign interest in the nearby Lithuanian resorts.
LOCATION OF KALININGRAD
SOURCE: GOOGLE MAPS

But again, there is precious little foreign airline,

or LCC (13.2% of seats) penetration. Kaliningrad
also needs more accommodation.
Compare that with nearby (75 km)
Palanga Airport in Lithuania (68.5% LCC).
How Khrabrovo would benefit now from the
presence of KD Avia, the airline which operated
a Russia/CIS/Europe hub there from 2005 to
2009.
So, four different cities which for their own
reasons might benefit from the World Cup
effect. Whether or not they do will depend on
some factors that are under their control and
some that are not. They include: their own
promotional efforts while the competition was
taking place, and also now it's over; also the mix
of airline services at the respective airports, and
economic and political factors that include how
easy or difficult it is to get a visa to Russia. AL

AIRLINE LEADER | ISSUE 45 - AUG 2018 31

FLEETS

CAPA
FLEET TRENDS

Visuals of CAPA Fleet Database

CAPA’s global database updated daily and featuring 250,000+ records, including 65,000+
individual commercial aircraft records.
32 AIRLINE LEADER | ISSUE 45 - AUG 2018
1. As air cargo booms, 747 freighters needed, but
conversions unlikely
As air freight recovers rapidly (albeit off a modest base), consideration is being given to
satisfying capacity lift - just as airlines retire their passenger 747-400s.
These passenger 747-400s could potentially become freighters. While airframes are
reducing in value, conversion costs remain significant, and the great age of the 747-400s
provides fewer years for costs to be amortised. A larger concern is the ongoing inefficiency
and cost disadvantage of a converted 747 compared to a 747 built as a freighter. These are
general costs and not related to converted 747s being unable to have a swing nose door,
which is required for only a minority of freight.

2. A330F availability increases, intensifying price

competition
After Etihad parked its five A330Fs, Qatar Airways plans to return three A330Fs to their
lessor upon the lease expiring in 2019. Qatar is considering selling the five A330Fs it owns.
Qatar Airways is the second largest operator of A330Fs. Turkish Airlines operates nine.
These aircraft disposals could mean that one third of the A330F fleet is on the market
from a few lessors and airline owners, creating price competition and perhaps the need for
some creativity as owners with only one or two A330Fs partner with others for bigger deals
to customers.

3. Sukhoi SuperJet: From Russia, with hope

In late Apr-2018 S7 Airlines signed a letter of intent to buy 50 Sukhoi SuperJets, with
options over a further 25. The order is for the as yet undeveloped 75 seat SSJ-75, the
smallest variant of the SuperJet family, with a target entry into service in 2022.
The 100-seat Sukhoi SuperJet has enjoyed some success. The first delivery to an
operator outside Russia was to the Mexican LCC Interjet in 2013, and the first delivery to
Western Europe was to CityJet in 2016.
The SuperJet competes with Bombardier's CSeries and Embraer's E-Jet, but targets the
lower end of the size range for new technology regional jets.

4. Air Canada fleet: Extending the A330’s life as

MAX 8 performance delivers
Although Air Canada’s widebody fleet revamp is complete, the airline has opted to
extend the life of its A330 twin aisle jets and add four more of the type to its fleet in lieu of
exercising options for 787s to replace its ageing 767 jets. The company has assessed that
refurbishing its A330s for specific missions will generate better returns than placing an order
for new aircraft.
Air Canada marked the beginning of its narrowbody fleet restructuring at the end of 2018,
after taking first deliveries of its Boeing 737 MAX 8 jets. The number of new generation
narrowbodies in its fleet will grow from two at YE2017 to 18 by YE2018.

5. Garuda Indonesia’s outlook improves as it

defers aircraft deliveries
Garuda Indonesia is taking a nearly two year holiday from adding aircraft, as part of an
attempt to restore profitability. Deliveries of 10 737 MAX 8s have been deferred and Garuda
is trying to cancel its remaining nine commitments for ATR 72-600s.
Garuda is focussing on increasing utilisation, which will enable the airline to pursue further
capacity growth without expanding the fleet. Garuda particularly believes it can squeeze out
more from its A330s, ATR 72s and CRJ1000s, which are now utilised below industry norms.

AIRLINE LEADER | ISSUE 45 - AUG 2018 33

FLEETS

Air cargo booms:

747 freighters needed,
but conversions unlikely

A
S AIR FREIGHT recovers rapidly, consideration is being given to satisfying capacity lift –
just as airlines retire their passenger 747-400s.
Delta and United are two of the more recent airlines to retire their 747s, while Qantas is
the latest to announce that it will accelerate 747 retirement. Even British Airways, which will
operate the 747 into the 2020s, plans some retirements this decade.
It has been suggested that these passenger 747-400s could become freighters. While air frames are
lowering in value, conversion costs remain significant, and the great age of the 747-400s provides fewer
years for costs to be amortised. The larger concern is the ongoing inefficiency and cost disadvantage of
a converted 747 compared to a 747 built as a freighter.

34 AIRLINE LEADER | ISSUE 45 - AUG 2018

 Summary
• The rebound in air cargo coincides with passenger 747 retirements.
• Converting passenger 747s to cargo aircraft is expensive and inefficient.
• There are only 13 non-converted 747-400 freighters in storage.
• Current cargo up-cycle may not be structural. Risk management is cautioned.

These are general costs and not related to converted 747s being unable to have a swing nose door,
which is required for only a minority of freight.
Although converting 747s may not be ideal, the pool of available freighters is small: CAPA's Fleet
Database logs only 13 747-400 freighters (non-conversions) that are in storage, and some of these are
already being prepared to resume service.
Passenger 747s available; Qantas latest to accelerate retirement
Despite the low fuel prices of mid-decade, airlines have continued or accelerated retirement of their
passenger 747-400s. United Airlines attributed its 747 phase-out as being due to maintenance costs
(regular, and as aircraft and their engines neared heavy checks) and lower reliability. Also in the US,
Delta Air Lines ended 747 operations.

AIRLINE LEADER | ISSUE 45 - AUG 2018 35

FLEETS
747-400 FREIGHTERS*
SOURCE: CAPA FLEET DATABASE
IN STORAGE: 36
-ERF: 5
Converted: 23 -F: 8 Converted: 48
-EFR 35
IN SERVICE: 196 -F: 113
Note: *As of 24-May-2018, Excludes combi aircraft and Boeing
Dreamlifters
Most recently, Qantas announced plans
to accelerate retirement of its remaining
747-400s. Qantas now plans for its 747-400s
to exit its fleet by 2020. The accelerated
retirement is made possible by exercising
787-9 options, the result of Qantas
being satisfied it can ensure a consistent
sustainable financial position.
British Airways is the world’s largest
passenger 747-400 operator and expects
to have a fleet of 22 in 2020, but this
represents a decrease from 2017's 36
aircraft and 2018's projected 747 fleet of 34.
BA expects to retire the 747 in 2024, but an
optional accelerated retirement plan could
mean that the aircraft exit in 2022.
Passenger 747s are being retired, but are
they right for cargo conversion?
The planned and accelerated retirements
of 747-400 passenger aircraft puts a
substantial number of 747-400 aircraft on
the market. The CAPA Fleet Database tracks
71 passenger -400 aircraft that are not in
service.
The chart adjacent plots the age and
airframe market value (valuation from CAPA
partner Oriel) of parked passenger 747-
36 AIRLINE LEADER | ISSUE 45 - AUG 2018
400s. This includes a handful of VIP-configured aircraft. The parked
aircraft are all at least 16 years old, with an average parked age of 23
years.
Market valuations generally follow age, with the youngest parked
747-400 (but still 16 years old) having a market valuation of USD8.0
million. Valuations generally go as low as USD2 million for aircraft older
than 25 years.
A handful – which are not the oldest – are valued at USD500,000.
It has been suggested these aircraft could be cheaply acquired,
stripped of interiors and used to become part of the freight
renaissance. It appears that without a significant – and improbable –
change in market conditions of freight demand and oil price, these
passenger 747-400s are unlikely to be converted to freighters.
The airframe could be acquired for a small sum. However,
conversion costs are not insignificant. The bigger drawback is the
inefficiency of converted freighters. Some operators have found the
inefficiencies make converted freighters ill-suited for anything but short
haul flying.
Of the all-freight 747-400s (excluding combis) that are in flying
condition, either in service or parked, converted freighters have the
highest availability share. Nearly one third – 32% – of converted
freighters are available.
In comparison, 6% of 747-400Fs that were built as freighters are
in storage, and 13% of 747-400ERFs, also built as freighters, are in
storage. The availability of the -400F and -400ERF is slightly lower than
the “in storage” categorisation suggests, since a few aircraft are being
prepared, or are expected to be prepared, to resume service.
PARKED PASSENGER 747-400FS BY AGE*
SOURCE: CAPA FLEET DATABASE
10,000,000
8,000,000
Market Valuation
6,000,000
4,000,000
2,000,000
0
15 20 25 30 35
Age
Note: *As of 28-May-2018
BRITISH AIRWAYS WIDEBODY FLEET COMPOSITION*
SOURCE: IAG

160

140
37 42 46 56 62 71
120

100

80

60 63 63 63 63 63 63

40

20

0 36 34 31 22 18 12
2017 2018 2019 2020 2021 2022

■ B747 fleet ■ B777 fleet ■ A380, A350, B787s

Note: *As of Nov-2017

There is a small pool of adequate 747 freighters available. cost does not. As airframes age there
Operators seeking used lift will most likely consider existing is a shorter lifespan for acquisition, and
freighters. Of the -400 freighters built (or converted), most – 84% – are conversion costs to be amortised. Operating
in service. An operator could consider taking an existing in-service an older aircraft brings higher maintenance
freighter. costs.
Of the parked freighters, there is a small pool to choose from. There These are characteristics generally
are 36 parked -400 freighters, but most of these are converted -400 well understood by freight operators.
freighters from passenger aircraft. These are likely to be considered Less understood is the outlook for freight.
last, or not at all, owing to higher operating costs compared to factory While operators are buoyant with current
line freighters. conditions, they quietly acknowledge – and
There are 13 factory line -400 freighters in storage, comprising eight fear – that the current boom is not structural,
-400Fs and five of the more capable -400ERF. However, this figure of and could recede almost as quickly as it
13 includes a few frames that are believed to be resuming service in appeared. Almost no operator foresaw the
the near future, thereby reducing even more the available pool of ideal current cargo rebound; equally, they do not
freighters. want to predict future strength. The freighter
Freight’s improvement may not be structural situation is further complicated with high
Converting passenger 747-400s to freighters was popular a decade passenger growth as routes and capacity
ago when markets were booming and fuel was manageable. Since proliferate, offering larger amounts of
then, the industry has adjusted to operating at higher fuel prices, and bellyhold space.
this rubric typically means foregoing converted freighters on long With an uncertain outlook and limited
haul flying. The operating performance of a converted freighter is options to acquire used freight supply, risk
better understood and less desirable, especially in a high fuel price
management is critical. But opportunities are
environment.
apparent. AL
Although an air frame becomes cheaper with age, the conversion

AIRLINE LEADER | ISSUE 45 - AUG 2018 37

FLEETS

38 AIRLINE LEADER | ISSUE 45 - AUG 2018

A330F AVAILABILITY
INCREASES,
INTENSIFYING PRICE
COMPETITION
Summary
• Qatar Airways is the second largest A330F operator.
• Qatar to return three A330Fs to lessor BOC and seek sales on the five
A330Fs it owns.
• Qatar to replace A330Fs with 777Fs; has an LoI for five further 777Fs.
• Qatar is second operator in region to plan A330F phase-out; five
Etihad A330Fs remain parked.
• One third of the A330F fleet could be on the market for sale and re-
lease.

T
HERE COULD BE A SECOND AIRLINE about to end its A330F
operations in the Middle East. After Etihad parked its five A330Fs,
Qatar Airways plans to return three A330Fs to their lessor upon the
lease expiring in 2019. Qatar is considering selling the five A330Fs
it owns. Qatar Airways is the second largest operator of A330Fs. Turkish
Airlines operates nine.
The aircraft disposals could mean that one third of the A330F fleet is on the
market from a few lessors and airline owners, creating price competition and
perhaps the need for some creativity as owners with only one or two A330Fs
partner with others for bigger deals to customers. There is opportunity for
airlines that could not take a brand new A330F to take one of these still
relatively young A330Fs.
The larger freight operators are more interested in the 777F's longer range
and higher payload capacity. Qatar Airways has a Letter of Intent for a further
five 777Fs, which will make Qatar the second largest 777F operator after
FedEx.

AIRLINE LEADER | ISSUE 45 - AUG 2018 39

FLEETS

Qatar Airways to return A330Fs to lessor
and seek sales
Qatar Airways’ chief officer cargo
Guillaume Halleux gave Cargo Facts an
update on the airline's A330F fleet. Mr
Halleux said Qatar would return three of its
A330Fs to the lessor upon lease expiry in
2019. Qatar has a further five A330Fs that
it owns but will try to dispose of. Mr Halleux
said: “I cannot hide the fact that we are
considering removing them”.
Mr Halleux said the 777F provided
stronger operating economics and was
relevant as Qatar further spreads its network
and becomes familiar with markets. Mr
Halleux said the A330F was useful to put
medium gauge capacity into a new market
or test new frequencies (similarly to the way
Qatar operated its passenger A330s), but
once a market got past the start-up phase,
a 777F was usually justified. With Qatar's
destination roster growing, there are few
markets remaining for Qatar to test out.
Qatar will take delivery of two 777Fs later in
2018.
Like Etihad, Qatar is expected to phase out its passenger A330 fleet
(one Qatar A330 has been repainted in the livery of Air Italy, which
Qatar Airways has invested in). The prospect of ending passenger
A330/A340 operations dampens the prospect for the A330F, which
would require its own pilot and resource pool. This adds to the
operating conditions, with airlines typically finding the A330F does not
have enough range or payload. While the A330F may be suited for
regional freight markets, there are not many of them, and operators
value the long range and haul of larger freighters.
This development makes it most unlikely that Qatar will exercise its
eight remaining options for the A330F.
Qatar operates eight A330Fs: it owns five and leases three from
BOC Aviation, according to the CAPA Fleet Database. The frames from
BOC Aviation are the oldest, manufactured between Oct-2012 and Apr-
2013, putting their age between five and six years old. Qatar's owned
A330s were manufactured between Aug-2014 and Jan-2016, putting
their age between 2.3-3.7 years.
As would be expected, the oldest frames – those on lease – have
the highest cycles and flown hours. The three A330Fs that Qatar
leases are the only A330Fs under management from BOC Aviation.
Etihad's A330Fs are still parked
Earlier in 2018, Etihad confirmed that it had parked its entire fleet of
five A330-200Fs. The airline said in a statement that "it is normal airline
industry business practice to continuously review aircraft requirements
and to make modifications to the fleet when and where necessary".

A330-200F FLEET PROFILE*

SOURCE: CAPA FLEET DATABASE

Airline IATA ICAO Country Aircraft In Service On Order On Option Inactive

Turkish Airlines TK THY Turkey Airbus A330 A330-200F 9 0 0 0
Qatar Airways QR QTR Qatar Airbus A330 A330-200F 8 0 8 0
Avianca Cargo QT TPA Colombia Airbus A330 A330-200F 5 1 0 0
Malaysia Airlines MH MAS Malaysia Airbus A330 A330-200F 3 0 0 0
Hong Kong Airlines HX CRK Hong Kong Airbus A330 A330-200F 3 0 0 0
Hong Kong Air Cargo Hong Kong Airbus A330 A330-200F 2 0 0 0
Avianca Brazil 06 ONE Brazil Airbus A330 A330-200F 1 0 0 0
MNG Airlines Cargo MB Turkey Airbus A330 A330-200F 1 3 0 0
(Ex-Malaysia Airlines) Airbus A330 A330-200F 0 0 0 1
Etihad Airways EY ETD United Arab Emirates Airbus A330 A330-200F 0 0 0 5
Note: * As of 21-May-2018

40 AIRLINE LEADER | ISSUE 45 - AUG 2018

 The aircraft are stored in the UAE and range from two to nine years
old, according to the CAPA Fleet Database. All have Rolls-Royce power
plants, as is typical of A330Fs (although Malaysia Airlines’ A330Fs use
Pratt and Whitney engines).
CAPA Fleets partner Oriel values the aircraft from USD49-79 million.
Of the five, Etihad leases four and owns one, its second youngest
(almost four years old).
Etihad continues to operate its fleet of five 777Fs (with a further 777F
on order) but CAPA Fleets data suggests that from late 2017 there was
some easing of utilisation, despite most freight operators reporting a
strong end to 2017.
One third of the A330F fleet will be on the market
The likely addition of Qatar's eight A330Fs being on the market,
combined with Etihad's existing five parked A330Fs (as well as one
parked A330F formerly with Malaysia Airlines), means that 37% of the
A330F programme will be on the market.
This was a small programme, but the high proportion of available
aircraft makes it challenging for existing owners to secure favourable
sales/leases, since there is competition. As noted, the ex-Malaysia
Airlines aircraft has engines from Pratt, whereas other A330Fs are
powered by Rolls-Royce.
Conversely, the availability of airframes and competition creates a
buyer's market and could open the A330F platform to airlines that can
make the aircraft viable but perhaps were not in a position to acquire
or lease the aircraft brand new. Boeing has more unfilled orders for the
777F than Airbus has built A330Fs.
AIRLINE LEADER | ISSUE 45 - AUG 2018 41
Airbus' most recently delivered A330Fs
were two in Feb-2017: one to Turkish and
one to Etihad (now parked). Since Jan-2017,
Boeing has logged 13 confirmed orders for
the 777F, comprising four for Ethiopian, three
for Turkish Airlines, two for ANA, one for
FedEx and three for unidentified customers.
Further, in Apr-2018 Qatar signed a Letter
of Intent for five 777Fs. This would bring
Boeing's 777F orders to 18 since Jan-2017.
If Qatar's LoI is included, Boeing has 43
outstanding orders for the 777F – more than
the 38 A330Fs that have been produced.
With Qatar's existing fleet of 13 777Fs in
service and another three on order, the new
LoI would bring Qatar's 777F fleet to 21. As
at May-2018, Qatar and Emirates are the
second largest 777F operators, with 13 each.
Emirates, however, has no 777Fs on order.
The largest 777F operator is FedEx, with 34
in service and 12 on order.
The A330 and 777 are highly successful
programmes, along with their popular
passenger variants. But for cargo, the 777F
has found more success. AL
FLEET

42 AIRLINE LEADER | ISSUE 45 - AUG 2018

SUKHOI SUPERJET:
From Russia, with hope
Summary
• There are 125 Sukhoi SSJs in service and 175 on order. 78% of the fleet in
service is with Russian operators.
• Aeroflot is the current biggest operator. S7 has the biggest order, for the SSJ-75
that is still to be developed.
• CityJet and Interjet are important to the SSJ's international profile.

I
N LATE APR-2018 S7 Airlines signed a Letter of Intent to buy 50 Sukhoi
SuperJets, with options over a further 25. The order is for the as yet undeveloped
75 seat SSJ-75, the smallest variant of the SuperJet family, with a target entry into
service in 2022.
The 100 seat Sukhoi SuperJet conducted its maiden flight on 19-May-2009 and
entered service in 2011 (although the launch customer Armavia subsequently withdrew
its single aircraft from service). The first delivery to an operator outside Russia was
to the Mexican LCC Interjet in 2013, and the first delivery to Western Europe was to
CityJet in 2016.
The SuperJet competes with Bombardier's CSeries and Embraer's E-Jet, but targets
the lower end of the size range for new technology regional jets. SSJ variants will offer
75-100 seats, whereas the CSeries is in the 100-130 seat range and the E-Jet will be in
the 80-140 seat range. (The SSJ size range also mainly avoids direct competition with
the lower end of the Airbus A320 and Boeing 737 families.)
Built by the Sukhoi Civil Aircraft Company, which is part of Russia's majority state-
owned United Aircraft Corporation, the SSJ is rare in being a Russian-built aircraft
operating within Western markets. SCAC is now hopeful of securing more orders in
Europe, with interest reportedly high in the Balkan region.
There are 125 Sukhoi SSJs in service and 175 on order
According to the CAPA Fleet Database, there are 125 Sukhoi SSJs in service and
175 on order (this includes 92 unconfirmed orders). The most popular variant, both in
service and on order, is the SSJ RRJ-95B (89 in service and 68 on order).
The -95B has up to 100 seats, while the longer range -95LR has up to 103 seats in a
single cabin configuration.
The SSJ-75 is planned for 2022
Sukhoi's newest variant to be offered is the 75 seat SSJ RRJ-75, the development of
which was announced in Feb-2018. It is to be aimed at regional routes of 1,500km to

AIRLINE LEADER | ISSUE 45 - AUG 2018 43

FLEETS

SUMMARY OF SUKHOI 2,000km. There is no confirmed delivery date for the smallest variant,
SUPERJETS IN SERVICE AND but it is expected to enter service in 2022.
ON ORDER* S7 Airlines' intended 50 aircraft order and options for a further 25
SOURCE: CAPA FLEET DATABASE RRJ-75s also involves its participation in the aircraft's development.

180
Sukhoi estimates the market potential for the new variant at 200 to 300
aircraft in Russia and up to 3,000 internationally.
160
Aeroflot is the biggest SSJ operator currently; 78% of its fleet is
140
with Russian operators
120 ■ RRJ-75
The 125 SuperJets currently in service are deployed by 15 operators,
100 ■ RRJ-95
according to the CAPA Fleet Database. A large majority of this fleet,
80 ■ RRJ-95B
78%, is operated by Russian operators.
60 ■ RRJ-95LR Russia's leading airline, Aeroflot, has the largest SSJ fleet, with 43 (all
40
-95B variants) in service, followed by Interjet, which has 20 (also -95Bs).
20 The Russian carriers Yamal Airlines and Gazpromavia are the only
0 other operators with SSJ fleets in double digit quantities (15 and 10
In Service On Order respectively).
Note: *At 12-Jun-2018
There are a further nine Russian operators, making 12 in total. Other
than Interjet, the other non-Russian SSJ operators are Ireland's CityJet,
which has six -95Bs, and the Royal Thai Air Force, which has two
-95Bs.
S7 has the most orders
S7's (unconfirmed) order for 50 SSJ-75s puts it at the top of the
ranking of SuperJet orders, which comprises 11 operators and three
lessors (with no identified operator).

SUKHOI SUPERJETS IN SERVICE BY OPERATOR *

SOURCE: CAPA FLEET DATABASE

50
45
40
35
30
25
20
15
10
5
0
Aeroflot

Interjet

Yamai Airlines

Gazpromavia

Azimut Airlines

IrAero

CityJet

Yakutia Airlines

EMERCOM

Royal Thai Air

Force

Rossiya

Sukhoi
Multipurpose Airco

Buryat Airlines

RusJet

Russian State
Transport

Note: *At 12-Jun-2018

44 AIRLINE LEADER | ISSUE 45 - AUG 2018

SUKHOI SUPERJETS ON ORDER *
SOURCE: CAPA FLEET DATABASE
50
45
40
35
30
25
20
15
10
5
0
S& Airlines

State Transport
Leasing Co*

Iran Air Tours

Iran Aseman
Airlines

Ilyushin Finance
Co*

CityJet

Interjet

EMERCOM

Aeroflot

Severstal
Aircompany

Yakutia Airlines

Aero Mongolia
Note: *At 12-Jun-2018, Lessor orders with no identified operator.

Of the 14 entities that have outstanding SuperJet orders, eight are and three with Yakutia); Vnesheconombank
Russian and six are from other countries. has 24 (23 with Aeroflot and one with Buryat
Two Iranian operators, Iran Air Tours and Iran Aseman Airlines, each Airlines); Sberbank Leasing has 20 (all with
have preliminary agreements to buy 20 SSJ-95LR aircraft, making them Aeroflot); and VEB Leasing has two (both
the most significant non-Russian organisations ranked by outstanding leased to Yakutia).
SuperJet orders (if confirmed). Lessors account for 33% of SSJ orders
The return of US sanctions on Iran may boost the prospects of A smaller proportion of the 175 SuperJets
Iranian orders for the Sukhoi equipment, although questions have been on order have been placed by lessors.
raised within Iran about the reliability of Russian aircraft. There are outstanding orders for 57 aircraft
CityJet has nine outstanding orders, one more than Interjet. These (33% of the total) with three Russian lessors.
two are important to the SuperJet's prospects in international markets. The majority of these 57 aircraft (42 of them)
Among the remaining orders, the only others by non-Russian operators currently have no identified operator.
are Aero Mongolia's two -95LRs and the Royal Thai Air Force's one State Transport Leasing Company has 27
remaining -95B. orders with no identified operator (plus two
In addition to the orders summarised in the chart above, there are for Yakutia Airlines), while Ilyushin Finance
options for a further 69 SSJs (25 with S7, 16 with CityJet and 28 with Company has 14 (plus six for Severstal
lessors). Aircompany) and Vnesheconombank has
63% of SSJs in service are leased one (plus seven for Aeroflot).
Out of the 125 aircraft in service, 79 are owned by four Russian CityJet and Interjet are important to the
lessors (63% of the total). SSJ's international profile
State Transport Leasing Company, owned by the Russian Federation, CityJet placed its SSJ order in 2015 with
has 33 SuperJets (15 with Yamal, eight with Azimut, seven with IrAero a view to replacing its ageing BAE146 fleet.

AIRLINE LEADER | ISSUE 45 - AUG 2018 45

FLEET
It now has a fleet of six SSJ-95Bs in service,
with nine more on order. The first European
customer for the SuperJet outside Russia,
CityJet took its first delivery in summer 2016.
When CityJet announced the SuperJet
order in Oct-2015, it intended to deploy it on
its London City network once operational
approval had been received for the aircraft
at this airport.
SUKHOI SUPERJETS IN SERVICE:
OWNERSHIP*
SOURCE: CAPA FLEET DATABASE
46 aircraft, 37%
79 aircraft, 63%
■ Lessor owned ■ Operator owned
Note: * As of mid-Jun-2018
SUKHOI SUPERJETS ON ORDER:
OWNERSHIP*
SOURCE: CAPA FLEET DATABASE
57 aircraft, 33%
118 aircraft, 67%
■ Lessor owned ■ Operator owned
Note: * As of mid-Jun-2018
46 AIRLINE LEADER | ISSUE 45 - AUG 2018
Pending modifications to the aircraft by Sukhoi to allow for City's
steep approach (expected in 2019), CityJet is wet leasing half of its six
SuperJets to Brussels Airlines and deploying the remaining three on its
own network away from London City.
The Irish regional airline is operating Brussels Airlines services
to Billund, Birmingham, Bologna, Edinburgh, Figari, Gothenburg,
Hannover, Manchester, Milan Malpensa, Nantes, Prague, Stockholm,
Venice, Vienna and Zadar (source: OAG).
This is consistent with CityJet's strategic shift towards third-party
operations (it also operates for Air France and SAS, using other aircraft
types).
The SuperJet's operation by CityJet in a number of major European
cities is important in raising its profile outside Russia.
In addition to its SSJs in service and on order, CityJet also has
options for a further 16. If it were to exercise all of its options, this would
take it above Mexico's Interjet as the most important non-Russian
operator of the SuperJet, with a total of 31.
Interjet has 20 SSJ-95Bs in service, two in storage and eight on
order, giving a total of 30 aircraft. Only S7 (50 orders and 25 options
for the SSJ-75) and Aeroflot (43 -95Bs in service and seven on order)
would have more than these two non-Russian operators.
Interjet mainly uses its SSJ fleet on domestic routes, so that it plays
a lesser part in raising the aircraft's profile compared with CityJet's
operations in Europe (but Interjet does deploy the SuperJet on
routes to Cuba and to the US cities of Houston and San Antonio from
Monterrey).
More international customers are needed
The SSJ had a head start on the CSeries and the E-Jet. The SSJ
has been in service since 2011, whereas the CSeries entered service
in 2016 and the E-Jet only began operation in Apr-2018 (with the
Norwegian regional airline Widerøe).
However, in spite of its longer period of availability, the SSJ is
underselling these competitors.
Adding the 125 SSJs in service to the 175 on order gives a total of
300 aircraft for the Sukhoi SuperJet to date. This compares with 311
for the E-Jet (309 orders and two in service) and a total of 439 CSeries
aircraft (399 on order and 40 in service).
In selling to CityJet and Interjet, Sukhoi Civil Aircraft Company have
made important breakthroughs in the international markets for the
SuperJet.
For its newest variant, the SSJ-75, it achieved a significant early
customer in the form of S7.
Nevertheless, it will need to find a major non-Russian order if it is to
fulfil its hoped-for 3,000 international orders. AL
 DID
YOU
KNOW?

The Latin American aviation industry is

undergoing some dynamic changes.
Airport and airspace infrastructure
is improving and airline operating
efficiencies are rising.

Meanwhile a crop of new low cost

carriers are pushing full steam ahead,
opening up exciting new markets in
their efforts to stimulate traffic in the
region.

We invite you to join us in Cartagena 2018 Latin America

for our Latin America Aviation & LCCs
Summit (10-11 September). We’ll explore
AVIATION & LCCs SUMMIT
the regional aviation outlook and the
issues affecting LCCs. 10-11 September, Cartagena

laas18.capaevents.com

INFORM. CONNECT. INSPIRE.

FLEETS

48 AIRLINE LEADER | ISSUE 45 - AUG 2018

AIR CANADA FLEET:
Extending the A330’s life as
MAX 8 performance delivers

Summary
• Air Canada is using cash to purchase some of its Boeing 737 MAX 8
deliveries scheduled for 2018.
• The airline is opting to hang onto unencumbered Airbus A330s and
refurbish those jets for trans-Atlantic service from Montreal.
• Air Canada has been satisfied with the 737 MAX 8 in the early days of
the aircraft’s operations.

A
LTHOUGH AIR CANADA’S widebody fleet revamp is complete,
the airline has opted to extend the life of its A330 twin aisle jets
and add four more of the type to its fleet in lieu of exercising
options for 787s to replace its ageing 767 jets. The company has
assessed that refurbishing its A330s for specific missions will generate better
returns than placing an order for new aircraft.
Air Canada marked the beginning of its narrowbody fleet restructuring
at the end of 2017, after first taking deliveries of its Boeing 737 MAX 8 jets.
The number of new generation narrowbodies in its fleet will grow from two
at YE2017 to 18 by YE2018. The airline has not had significant issues with
the introduction of its MAX 8 narrowbodies, and states that the aircraft are
delivering on their cost promises.
Similarly to many global airlines, Air Canada continues to work to enlarge
its numbers of unencumbered aircraft, with a target of 89 by YE2018,
compared to 56 for the year prior.

AIRLINE LEADER | ISSUE 45 - AUG 2018 49

FLEETS

Air Canada says it could purchase
additional aircraft with cash in the future
From a fleet perspective, Air Canada’s
focus for the next couple of years is a
restructuring of its narrowbody fleet as
the 737 MAX 8 jets replace older Airbus
narrowbodies.
The narrowbody fleet restructuring follows
a years-long widebody fleet revamp that has
centred on Boeing 777 and 787 twin aisle
jets.
Air Canada recently altered its 737 MAX
purchase agreement to accelerate deliveries
of five aircraft by one year, to 2020, and the
deferral of 11 jets by up to 36 months.
During 2Q2018 Air Canada expects to
take delivery of six 737 MAX narrowbodies
and two 787s. The two widebodies
and three of the six narrowbodies have
been financed under private offerings of
Enhanced Equipment Trust Certificates
(EETC). “And given the high level of cash
on our books, we plan to purchase the
other three remaining 737s with cash in the
second quarter, and may purchase additional aircraft with cash in 2018”,
Air Canada CFO Michael Rousseau recently stated. As of 31-Mar-2018,
Air Canada’s cash and short term investments totalled approximately
CAD4.5 billion (USD3.4 billion).
Air Canada opts to refurbish A330s instead of ordering additional
787s
As it works to add younger and more fuel efficient narrowbody jets
to its fleet, Air Canada has decided to invest CAD275 million (USD209
million) in its A330s, eight of which are owned and fully unencumbered.
The airline also plans to lease an additional four A330s, with delivery
scheduled in 2019. Those final four A330s are slated to replace the
capacity of older Boeing 767s exiting the airline’s fleet.
Air Canada has decided to invest in reconfiguring its A330s to
align the interiors with its 777s and 787s. The company selected ST
Aerospace to perform the interior reconfigurations of the A330s, which
are scheduled to begin in late 2019, with completions targeted for
1H2020.
Executives from the airline recently explained that the company had
evaluated exercising options for additional 787s versus an investment
in A330 refurbishment, and refurbishing the older aircraft proved to be
the better business case. “We are not always going to lean towards
spending the capital on brand new airplanes”, Air Canada CEO Calin
Rovinescu recently stated. “We’ll have a business analysis to sort of say
what the best approach is to it.”

AIR CANADA GROUP FLEET SUMMARY*

SOURCE: CAPA FLEET DATABASE

Aircraft In Service In Storage On Order (confirmed) On Order (unconfirmed)

Airbus A319-100 15 0 0 0
Airbus A320-200 42 0 0 0
Airbus A321-200 15 0 0 0
Airbus A330-300X 8 0 0 0
Boeing 737-8 13 0 37 0
Boeing 737-9 0 0 11 0
Boeing 767-300ER 7 0 0 0
Boeing 777-200LR 6 0 0 0
Boeing 777-300ER 19 0 0 0
Boeing 787-8 8 0 0 0
Boeing 787-9 26 0 3 0
Bombardier CS300 0 0 45 0
Embraer ERJ190-100IGW(AR) 25 0 0 0
Total 184 0 96 0
Note: * As of May-2017

50 AIRLINE LEADER | ISSUE 45 - AUG 2018

AIR CANADA GROUP FLEET SUMMARY*
SOURCE: CAPA FLEET DATABASE
25
20
15
Age (years)
10
0
737 767 777 A330
Aircraft Model
■ Average ■ Median
Note: * As of May-2017
The average age of Air Canada’s A330s is 17.8 years, versus 22.8 for
its 767s. Additionally, the eight A330s currently in Air Canada’s fleet are
fully owned and unencumbered, which was obviously factored into the
business case for holding on to the aircraft and spending close to the
equivalent cost of one widebody to refurbish eight jets.
Air Canada’s total number of unencumbered aircraft is jumping from
56 at YE2017 to 89 at YE2018.
The airline has outlined the mission for its reconfigured A330s,
stating that the aircraft will be based in Montreal, “where we have
a shorter stage length across the Atlantic and a performance and
cost profile [that] fit [the A330s] perfectly”, said Air Canada president
passenger airlines Benjamin Smith. He remarked that is the reason Air
Canada has decided to keep its A330s, and why it has opted to lease
additional widebodies of the type.
The Boeing 737 MAX 8 appears to meet Air Canada's expectations
Obviously Air Canada’s major fleet focus at the moment is the
incorporation of the Boeing 737 MAX 8. As of late May-2018, the airline
has 13 of the jets in service.
The aircraft’s entry into service at Air Canada appears to have
progressed reasonably well. “There have been some delays around
engines, which always complicates matters, whenever you bring in
a new fleet...so that slowed us a little bit”, Mr Rovinescu stated. Air
Canada’s 737 MAX 8s are powered by CFM56 LEAP 1B engines.
Air Canada has previously calculated that the 737 MAX 8 would
represent an 11% CASM improvement over its existing current
generation Airbus A320s, and Mr Smith said that the new narrowbody’s
A320 787 E190 All
CASM was “in line or better to what we are
expecting”.
Air Canada's latest moves show fleet
science is constantly evolving
Similarly to so many large global full
service airlines, Air Canada is making
small adjustments to its fleet even as its
fleet composition is largely settled for the
foreseeable future. Air Canada’s decision to
use the A330s on specific missions rather
than place an order for new widebodies
reflects its position that placing orders for
new aircraft is not always the best decision
for producing certain returns.
Air Canada also probably did not want
to alter its cash position drastically with the
purchase of new widebodies while it works
to fund the acquisition of narrowbodies with
its cash balances. The rejigging of its 737
MAX 8 deliveries also reflects the constant
analysis of fleets that larger airlines conduct
in order to deploy new aircraft in the most
efficient manner to generate the best
returns.
Fleet management is a science that is
constantly evolving! AL
AIRLINE LEADER | ISSUE 45 - AUG 2018 51
FLEETS

52 AIRLINE LEADER | ISSUE 45 - AUG 2018

GARUDA
INDONESIA:
Outlook improves as
it deferrals aircraft
deliveries
Summary
• Garuda has deferred 737 MAX 8 deliveries by two years after
taking just one of the new type.
• Garuda has indefinitely deferred ATR 72-600 deliveries and
is seeking to cancel all remaining ATR 72 orders.
• Garuda is keen to sell or sublease its CRJ1000 fleet but in
the meantime is trying to improve regional jet profitability by
improving utilisation and adjusting its regional model.
• Garuda also plans to improve utilisation rates this year on the
ATR 72 and A330.

G
ARUDA IS FOCUSSING on increasing utilisation,
which will enable the airline to pursue further capacity
growth without expanding the fleet. Garuda particularly
believes it can squeeze out more from its A330s, ATR
72s and CRJ1000s, which are now utilised below industry norms.
Garuda Indonesia is taking a nearly two year holiday from adding
aircraft, as part of an attempt to restore profitability. Deliveries of 10
737 MAX 8s have been deferred and Garuda is trying to cancel its
remaining nine commitments for ATR 72-600s.

AIRLINE LEADER | ISSUE 45 - AUG 2018 53

FLEETS
Garuda is focusing on increasing
utilisation, which will enable the airline to
pursue further capacity growth without
expanding the fleet. Garuda particularly
believes it can squeeze out more from its
A330s, ATR 72s and CRJ1000s, which are
now utilised below industry norms.
Garuda plans to pursue modest
domestic capacity growth and much faster
international expansion. China and India are
the main target markets as inbound demand
surges.
But even with the new moderation in
strategy, many challenges remain for the
Indonesian flag carrier.
Garuda adjusts its fleet plan
Garuda Indonesia currently operates
a fleet of 142 aircraft consisting of 34
widebody aircraft, 74 narrowbody aircraft
and 34 regional aircraft. It has another
72 aircraft on order consisting of 49
narrowbody aircraft (MAX 8s), 14 widebody
aircraft (A330-900neos) and nine regional
aircraft (ATR 72-600s).
Garuda is not taking delivery of any aircraft
in 2018 after negotiating deferrals with
Airbus, ATR and Boeing in 2H2017 as part of
a turnaround initiative.
Delivery deferrals and increased
utilisation of its existing aircraft are
important components of a transformation
plan. Garuda also has been renegotiating
contracts with suppliers and restructuring
its network. Garuda cut 30 unprofitable
routes in 1Q2018 – mostly small secondary
domestic routes – while increasing capacity
on better performing routes.
Garuda incurred an operating loss (EBIT)
of USD76 million in 2017 and an operating
loss of USD66 million in 1Q2018. However,
the operating loss for 1Q2018 represented a
42% improvement compared to 1Q2017 and
the airline group is hopeful it can restore
54 AIRLINE LEADER | ISSUE 45 - AUG 2018
full year profitability by the end of 2018. Garuda was profitable in 2014,
2015 and 2016; historically the airline is unprofitable the first half of the
year and in the black the second half.
Garuda defers delivery of 10 737 MAX 8s
Garuda took delivery of its first 737 MAX 8 in late 2017 but has
deferred all MAX deliveries that were initially slated for 2018 and 2019.
Garuda SVP corporate strategy and IT Albert Burhan told CAPA on
the sidelines of the IATA AGM in Sydney on 03-Jun-2018 the airline
originally planned to take five 737 MAX 8s in 2018 and five in 2019.
Garuda will now take its next 737 MAX in early 2020 and has
pushed back the delivery of its final 737 MAX until 2024. Garuda still
has outstanding commitments for 49 737 MAX 8s from the original 50
aircraft order.
Garuda would have preferred not to take any MAX aircraft until
2020 but by the time it decided to pursue deferrals it was too late
to postpone the delivery of the first aircraft without incurring a large
penalty. Garuda therefore decided to go ahead and take the aircraft,
giving it one 737 MAX 8 alongside 73 737-800NGs.
Mr Burhan said the original fleet plan for 2018 and 2019 envisioned
the 10 737 MAX 8s being used for a mix of growth and replacements.
He said Garuda is now planning to extend leases on some 737-800s
which initially would have been returned. Garuda is able to negotiate
lease extensions at much lower rates than the 737 MAX 8s, enabling
Garuda to achieve cost reductions while avoiding capacity reductions.
Garuda improves widebody utilisation
Garuda plans to increase capacity over the next year without
growing the fleet by improving aircraft utilisation. However, Garuda
does not expect to achieve significantly higher utilisation from its 737
fleet as the 737 fleet is already relatively well utilised.
GARUDA INDONESIA FLEET SUMMARY*
SOURCE: CAPA FLEET DATABASE
Aircraft In service On order (confirmed)
Airbus A330-200 7 0
Airbus A330-300 6 0
Airbus A330-300E 11 0
Airbus A330-900neo 0 14
ATR 72-600 16 9
Boeing 737-8 1 49
Boeing 737-800 73 0
Boeing 777-300ER 10 0
Bombardier CRJ1000NG 18 0
Note: *As of 12-Jun-2018
GARUDA INDONESIA INTERNATIONAL ASKS AND YEAR OVER YEAR GROWTH*
SOURCE: CAPA - CENTRE FOR AVIATION AND COMPANY REPORTS

30b 20%
Available seat kilometres

Available seat kilometres

20b 10%
(ASKs)

(ASKs)
10b 0%

0 -10%
2010 2011 2012 2013 2014 2015 2016 2017 2018*
Year
■ Available seat kilometres (ASKs) / International
■ Available seat kilometres (ASKs) growth
Note: 2010 to 1Q2018

Significant utilisation increases are expected for widebody fleet and was aiming to launch new routes to Moscow,
regional fleet, driving overall increases in capacity. Utilisation of the Los Angeles and Frankfurt or Paris. Garuda
widebody fleet already increased from an average of 10 hour 05 mins instead is now focusing on medium haul
in 4Q2016 to 10 hour 54 mins in 4Q2017 and 11 hour 21 mins in 1Q2018. expansion opportunities, which are much
Garuda does not plan to take delivery of any additional widebody more attractive given the huge growth in
aircraft until late 2019. Mr Burhan said Garuda now plans to take its first inbound demand from China and India.
three A330-900neo aircraft, the only widebody type it currently has on Garuda launched services from Bali to
order, in late 2019. He said these are intended to replace older model Xian and Zhengzhou in early 2018 using
A330-300s. A330s and is looking at launching other
Garuda currently operates six older model A330-300s along with new destinations in China from Bali. Garuda
11 newer model A330-300Es and seven A330-200s, according to the currently serves six destinations in China
CAPA Fleet Database. The six older model A330s will be phased out from Bali and also serves three of these
as the A330-900neos are delivered. destinations from Jakarta (based on OAG
In the meantime, Garuda has been working to improve utilisation of schedule data for the week commencing
its existing A330 fleet. Mr Burhan said Garuda has already boosted 11-Jun-2018).
average A330 utilisation from approximately 11 hours to 12 hours and Garuda is focusing on Bali as it expands
aims to achieve an average utilisation rate of 12.5 hours by the end of in China as the island has emerged as a
2018. Garuda already achieves a higher utilisation of over 13 hours for popular destination for Chinese travellers.
its fleet of 10 777-300ERs. Chinese visitor numbers to Indonesia
Garuda pursues expansion in China and India increased by 36% in 2017 to nearly two
The additional capacity being generated by the A330 fleet is mainly million, driven mainly by Bali.
being used to expand in the Bali-China and Bali-India markets. Garuda Bali also has emerged as a popular
has shelved plans for long haul international expansion. destination for Indians, driving rapid growth
Prior to embarking on its latest restructuring programme, Garuda in the Indonesia-India market although from

AIRLINE LEADER | ISSUE 45 - AUG 2018 55

FLEETS
GARUDA INDONESIA DOMESTIC ASKS AND YEAR OVER YEAR GROWTH*
SOURCE: CAPA - CENTRE FOR AVIATION AND COMPANY REPORTS
30b
Available seat kilometres
20b
(ASKs)
10b
0 -20%
2010 2011
Note: 2010 to 1Q2018
a much lower base than China. India is now
Indonesia’s fifth largest source market while
China has assumed the top spot.
Garuda launched three times weekly A330
service from Bali to Mumbai in Apr-2018,
providing the first nonstop service in the
Indonesia-India market. Mr Burhan said the
Bali-Mumbai route is performing well and
Garuda aims to increase Bali-Mumbai to daily
“fairly soon”. He adds Garuda is also looking
at launching services from Bali to Delhi.
Garuda domestic growth slows
Mr Burhan said Garuda expects to
increase international ASKs by 15% in 2018
driven primarily by expansion to China and
(to a lesser extent) India. Garuda posted
only a 0.4% increase in international ASKs in
1Q2018 but growth is expected to accelerate
during the remainder of this year.
International ASKs increased by 7% in 2017
and have nearly doubled since 2010.
Mr Burhan said Garuda projects its
mainline domestic ASKs to increase by only
56 AIRLINE LEADER | ISSUE 45 - AUG 2018
40%
Available seat kilometres
20%
(ASKs)
0%
2012 2013 2014 2015 2016 2017 2018*
Year
■ Available seat kilometres (ASKs) / International
■ Available seat kilometres (ASKs) growth
2% to 3% in 2018. Garuda’s domestic ASKs were down marginally in
1Q2018 as several smaller unprofitable routes were cut.
Domestic ASKs increased by only 1% in 2017. Garuda’s domestic
ASKs have more than doubled since 2010 but the rate of growth has
slowed for four consecutive years.
Garuda boosting regional aircraft utilisation
Mr Burhan said Garuda will be able to increase domestic capacity,
albeit modestly, by boosting utilisation of its regional fleet.
Garuda’s regional operation, which is branded Garuda Explore, has
struggled since it was introduced in 2012. However, the group is now
trying to improve the performance by reducing costs and by tweaking
its regional business model. Higher utilisation will help on the cost
side and a new fare structure offering cheaper basic fares on regional
routes could help generate more revenues as load factors improve.
Mr Burhan said Garuda has increased utilisation over the last year
of its ATR 72-600 fleet from only five hours per day to six hours and
aims to reach seven hours by the end of 2018. He said Garuda aims
to achieve eight hours average utilisation for the CRJ1000 fleet by the
end of 2018 compared to seven hours currently.
Garuda currently operates 18 CRJ1000s and 16 ATR 72-600s,
according to the CAPA Fleet Database. The airline took its first
CRJ1000 in late 2012 and its first ATR 72-600 in late 2013; previously
Garuda’s smallest aircraft was the 737-800.
 Garuda has no more commitments for CRJ1000s,
having received in late 2015 the last aircraft from its
original order with Bombardier. However, it still has
outstanding commitments for nine more ATR 72-600s.
Garuda seeks to cancel remaining ATR 72 orders and
phase out CRJ1000 fleet
Mr Burhan said Garuda has indefinitely deferred
LOW COST
LONG HAUL
delivery of all remaining ATR 72-600s and is now
negotiating with ATR to cancel these orders. Garuda was
initially slated to take two additional ATR 72-600s in late
2017; these aircraft were never delivered and Garuda
Global Summit
does not plan to take any turboprops while it tries to
negotiate cancellations.
However, Garuda intends to retain its current fleet of
16 ATR 72-600s. Garuda does not have similar intentions
for its CRJ1000 fleet, which it has been trying to sell and
sublease for the last few years.
Efforts to remarket Garuda’s 18 CRJ1000s continue
but the type is not in high demand, making it difficult to
find a new operator. Garuda owns six of its 18 CRJ1000s
and leases the remaining 12. Lessors have tried to
help Garuda find new operators but have so far not
succeeded.
Garuda still has fleet challenges that need addressing 4-5 October, Seville
Garuda is in a difficult position with its fleet. The two
year hiatus in 737 MAX deliveries has provided some
relief but the airline still has not found a solution for its
unprofitable regional fleet. Book your seats
Garuda should also be relooking at whether it still early to our
needs to acquire A330-900neos, a new type which Low Cost Long Haul
has been set back by delays and cancellations. Garuda
Global Summit.
is one of only 14 airlines with commitments to A330-
900neos and is one of only five airlines with at least 10
orders, according to the CAPA Fleet Database.
Garuda should also consider reducing its 777-300ER
Save BIG
fleet. Suspending the highly unprofitable London route Ultra Early Birds
and phasing out its two three class 777-300ERs would
be sensible. These are now the only aircraft in Garuda’s
on now!
entire fleet with a first class product as the rest of its 777-
300ER fleet has been retrofitted or delivered in a higher
density two class configuration. AL Visit
lclh18.capaevents.com

AIRLINE LEADER | ISSUE 45 - AUG 2018 57

AIRPORTS

CAPA
AIRPORT TRENDS

58 AIRLINE LEADER | ISSUE 45 - AUG 2018

1. Pittsburgh Airport: Ideally located,
growing, and filling network gaps
Pittsburgh International Airport has been one of the US’ more successful
former hubs in recovering from the impact of airline consolidation.
Its strategy was to embrace a new profile as an O&D market; the airport’s
leadership has worked hard to build a service profile that fits the needs of
the region’s residents and caters to the growing technology sector in the
area.
The airline marks a major milestone during the US summer season when
China Eastern operates nonstop seasonal charter service from Shanghai.
Direct service to Asia is essentially on top of every midsize US airport’s
wish list.

2. St Louis: WOW Air flights herald new

opportunity in a mature US market
St Louis Lambert International is another example of a former hub airport
that has remade itself, charting solid passenger growth and celebrating
the return of service to Europe this year with WOW Air’s new service to
Reykjavik.

3. Duesseldorf after airberlin: New

Ryanair base, Eurowings growth
Failed Airberlin had a 21% share of seats in the Duesseldorf airport
system in Sep-2017, but more than two thirds of this capacity will be
absorbed by other airlines in Sep-2018, resulting in a total capacity
reduction of only 6%, according to data from OAG. Others are taking the
opportunity to grow, particularly at the city's principal facility, Duesseldorf
Airport (DUS).
Duesseldorf illustrates a number of key features of the current German
airline landscape: the demise of airberlin and the subsequent growth
of the Lufthansa Group, led by Eurowings; the growing ambitions in
Germany of the leading LCCs Ryanair and easyJet and their acquisitions
of former Air Berlin Group capacity; and the expansion of Germany's
non-Lufthansa Group airlines (Condor, TUIfly, SunExpress Germany and
Germania).

4. Chicago O’Hare airport transit:

potential for innovative technology
The desire to transport more passengers by rail directly into airport
terminals (or at least to airport rail stations) at the expense of the private
car is growing.
However, finding a way of doing that is not always simple. Existing lines
may be inadequate, slower-moving local trains can clog them up, and the
cost of building additional track may be prohibitive.
Innovator Elon Musk has envisaged a rapid construction tunnel network
at multiple levels, which could be a resolution to the issue confronting
Chicago’s O’Hare airport: how to get passengers from and to downtown
on public transport much faster than at present, but not more expensively.

AIRLINE LEADER | ISSUE 45 - AUG 2018 59

AIRPORTS

60 AIRLINE LEADER | ISSUE 45 - AUG 2018

PITTSBURGH
AIRPORT: Ideally located,
growing, and filling network
gaps

Summary
• Pittsburgh charts impressive passenger growth while growing its
service footprint to Europe.
• The airport is taking a positive step in its quest to add service to
Asia when China Eastern launches charter flights from Shanghai to
Pittsburgh in Aug-2018.
• Pittsburgh is also making strides in bolstering its service to the US
west coast as the region’s technology sector continues to grow.

P
ITTSBURGH INTERNATIONAL AIRPORT has been one of the
more successful former hubs, having embraced its new profile as
an O&D market; the airport’s leadership has worked hard to build
a service profile that fits the needs of the region’s residents, and
caters to the growing technology sector in the area.
The airline marks a major milestone during the US summer season when
China Eastern operates nonstop seasonal charter service from Shanghai.
That service will allow China Eastern to gain some insight about demand
patterns to a medium-sized city such as Pittsburgh. Nonstop service to Asia is
essentially on top of every midsize US airport’s wish list.

AIRLINE LEADER | ISSUE 45 - AUG 2018 61

AIRPORTS
Pittsburgh is also working to fill in
domestic network gaps to the US west
coast and scored a key win with the launch
of new nonstop service to Seattle, which is
scheduled to start in Sep-2018. The airport is
working hard to bolster flight options to the
US west coast as passengers' preference is
to avoid connections when travelling to that
region of the country.
Airline incentives and passenger levels
both grow at Pittsburgh International
Pittsburgh posted an 8% growth in
passengers year-on-year in 2018 – its
highest level of growth since 2010.
In 2018 Delta Air Lines is upgauging its
seasonal flights to Paris from a Boeing 757 to
a 767 widebody, which features 26 business
class seats. During the past year Pittsburgh
has also welcomed new service from WOW
Air, with flights to Reykjavik. Each airline
has expanded services upon their seasonal
return at the airport in 2018.
Speaking at the recent CAPA Airline
PITTSBURGH INTERNATIONAL AIRPORT ANNUAL PASSENGER NUMBERS & GROWTH*
SOURCE: CAPA - CENTRE FOR AVIATION AND AIRPORT REPORTS
10m
7.5m
Passenger numbers
5m
2.5m
0 -5%
2012 2013
■ Passenger numbers
Note: *2012 - May-2018
62 AIRLINE LEADER | ISSUE 45 - AUG 2018
Leader Summit, airport CEO Christina Cassotis stated that airlines such
as WOW and Condor stimulate traffic. The airport has used incentives
to attract new service, and (citing reports in the Pittsburgh Tribune)
CAPA has previously highlighted that more than USD4.6 million in
incentives have been awarded to airlines serving Pittsburgh since
2015.
During that period Pittsburgh has grown its number of nonstop
destinations from 37 to 65 (for the week of 11-Jun-2018).
Pittsburgh has high hopes for new charter service from Shanghai
Pittsburgh is marking a major milestone in its quest to gain service
to Asia when China Eastern launches charter service from Shanghai to
the airport in Aug-2018. The airport partnered with VisitPittsburgh and
the Idea Foundry to secure the charter flight.
The airline is operating a three class Boeing 777-300ER on the
service, and Ms Cassotis remarked that the service was a huge step
forward, particularly for nonstop service to China. “The charter-to-
scheduled service model has been successfully adopted in other parts
of the world”, she said. “We are the first US market to tap into China’s
fast-growing tourism market with this type of business model”.
It remains to be seen whether the charter service by China Eastern
will eventually result in scheduled flights by the airline to Pittsburgh,
but the airport and its partners have been steadfast in their quest
to develop service to Asia. Charter flights to China were originally
10%
Passenger numbers growth
5%
0%
2014 2015 2016 2017 2018
Year
■ Passenger numbers growth
scheduled for the summer of 2017, but according to the Post Gazette
the flights were postponed in order to give the tour operator CAISSA
Touristic more time to sell tickets for the service.
More west coast flights for Pittsburgh, and the region's tech
industry grows
Improved service to the US west coast is also a big focus for
Pittsburgh. Close to a year ago, Ms Cassotis remarked that the airline
needed more flights to San Francisco, San Diego, Seattle and Los
Angeles.
At that time, Ms Cassotis stated that gaps in west coast coverage
were frustrating for the airport’s passengers, who were working to
take advantage of spin-offs from Carnegie Mellon and the University
of Pittsburgh. She cited the growing high tech community in the
Pittsburgh area and many companies from the Silicon Valley and
Seattle that were basing operations in Pittsburgh. Large technology
companies Google, Uber and Facebook all have a presence in the
Pittsburgh region.
The airport secured a key victory in filling west coast service gaps
when Alaska outlined plans to launch service between Pittsburgh
and Seattle in Sep-2018. Pittsburgh is a finalist in the competition for
Amazon’s second headquarters, and a link to Seattle certainly does not
hurt the city’s chances in the competition.
More recently, United has stated that it plans to expand service
between Pittsburgh and its hub in San Francisco. Previously, the airline
implemented a hiatus on the route in January and February but will
AIRLINE LEADER | ISSUE 45 - AUG 2018 63
now operate the service year-round, and
plans to add a second daily frequency on
the pairing from January through October.
During the past year Spirit has joined
Southwest in operating service from
Pittsburgh to Los Angeles, filling a service
gap created by American when it cut service
on the pairing in early 2017.
The Pittsburgh region and its airport
undergo valuable transformations
Pittsburgh has transformed itself from
a steel-dependent region to a growing
technology hub, with economic contributions
from the medical and education industries.
In 2017 WalletHub ranked Pittsburgh as the
third best US city in which to live.
Pittsburgh International Airport has also
worked to respond to the city and metro
region’s transformation while undergoing its
own evolution from a hub for a major airline
to an airport that focuses on supplying the
best service footprint for its O&D passenger
base. AL
AIRPORTS

64 AIRLINE LEADER | ISSUE 45 - AUG 2018

ST LOUIS:
WOW Air flights
herald new
opportunity in a
mature US market
Summary
• St Louis sustains solid passenger growth in
2017, and is off to a strong start in 2018.
• The airport feels good about its domestic
position, but is working to add back service
to some US Midwestern markets.
• St Louis is marking a major milestone
during 2018 with the launch of new service
by WOW Air to Reykjavik, which will
create connections to several European
destinations, Tel Aviv and (eventually) Delhi.
• A new common use lounge that recently
opened in the airport’s Terminal 2 should
generate solid revenue for St Louis Lambert
and satisfy passenger desire for a lounge in
the terminal that houses Southwest and now
WOW Air.

S
T LOUIS LAMBERT INTERNATIONAL is
another example of a former hub airport
that has remade itself, charting solid
passenger growth and celebrating the
return of service to Europe this year with WOW Air’s
new service to Reykjavik.
Other European destinations are on the airport’s
wish list, and work continues to add service to
some US Midwest destinations previously in St
Louis’ network profile.
Another element of St Louis’ transformation is the
opening of a new common use lounge in Terminal

AIRLINE LEADER | ISSUE 45 - AUG 2018 65

AIRPORTS
2, which is home to Southwest and the
home base of WOW’s service to Iceland.
Passengers have been requesting a lounge
in the terminal, and the project should also
drive solid revenue for the airport.
St Louis marks solid passenger growth
and looks to regain US Midwest service
St Louis logged 5.5% passenger growth
in 2017 and recently celebrated 31 straight
months of passenger growth in Mar-2018
when passenger throughput increased by
4.4%.
It has been almost a decade since
American Airlines officially de-hubbed
St Louis and during that time Southwest
has built up its service at the airport, now
representing 62% of the airport’s seats on
offer.
Southwest continues to expand from St
Louis, recently launching flights to San Jose
and Sacramento, California. The airline also
plans new service to Hartford, Connecticut
in Aug-2018.
Sun Country Airlines has announced plans
to launch services to Fort Myers and Tampa
in Oct-2018 and Nov-2018, respectively.
ST LOUIS LAMBERT INTERNATIONAL AIRPORT ANNUAL PASSENGER NUMBERS*
SOURCE: CAPA - CENTRE FOR AVIATION AND AIRPORT REPORTS
15m
Passenger numbers
10m
5m
0 -5%
2010 2011 2012
■ Passenger numbers
Note: *2010 to 2018 (2018 is year to date Jan to May YTD)
66 AIRLINE LEADER | ISSUE 45 - AUG 2018
At the recent CAPA Americas Summit in Houston, Texas, airport
director Rhonda Hamm-Niebruegge stated that St Louis is fairly well
served from a US domestic perspective, particularly with its long haul
markets. Some of St Louis’ largest markets measured by ASKs include
Las Vegas, Los Angeles, Seattle and San Francisco.
Ms Hamm-Niebruegge added the airport is looking to add back
service to some Midwest destinations that were previously served,
including Indianapolis, Indiana, and Louisville, Kentucky. Jacksonville,
Florida, was also on the airport’s wish list, and Frontier Airlines plans to
launch thrice weekly service to Jacksonville in Aug-2018.
St Louis makes a big move with new flights to Europe by WOW Air
One of St Louis’ biggest milestones in 2018 is the launch of new
flights to Reykjavik, Iceland, by WOW Air, which has been making a
huge trans-Atlantic push during the past couple of years. WOW’s other
US destinations include Baltimore, Cincinnati, Detroit, Newark, Boston,
Cleveland, Los Angeles, Pittsburgh, Chicago O’Hare, San Francisco
and Dallas/Fort Worth.
With WOW’s service St Louis passengers get one-stop access to
the airline’s European network, which includes 18 destinations. WOW
also recently announced new flights to Delhi, India, and also operates
service to Tel Aviv, Israel.
According to news outlet the St Louis Post Dispatch, area
governmental agencies offered USD800,000 in incentives to attract
WOW’s service, and also agreed to waive landing fees for 18 months.
Those types of incentives are standard in the airport business. For
example, another former hub, Pittsburgh International airport, has
10%
Passenger numbers growth
5%
0%
2013 2014 2015 2016 2017 2018
Year
■ Passenger numbers growth
ST LOUIS INTERNATIONAL AIRPORT AIRLINE
CAPACITY BY SEATS*
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
3.3% 1.4% 1.7%
6.8%
11.2%
61.2%
14.4%
■ Southwest Airlines ■ American Airlines ■ Delta Air Lines
■ United Airlines ■ Frontier Airlines ■ Alaska Airlines ■ Others
Note: * As of mid-Jun-2018
awarded close to USD4.6 million in incentives to airlines since 2015.
Ms Hamm-Niebruegge remarked that St Louis would like to expand
its roster of long haul service to Europe, highlighting Paris, Amsterdam
and London as destinations on the airport’s wish list. Demand for the
new service to Reykjavik will definitely be a gauge used by other
airlines to evaluate the addition of long haul flights from St Louis. The
airport’s other international destinations are Cancún, Mexico, operated
by Frontier and Southwest, and Toronto Pearson, operated by Air
Canada.
St Louis fulfils a major customer request for a Terminal 2 lounge
For many medium sized airports such as St Louis, the backfilling of
service cuts by full service airlines has been largely accomplished by
low cost airlines and as a result, the approach to amenities offered by
those airports has changed.
In Jan-2018 a new common use lounge, Wingtips, opened in
Terminal 2 at St Louis Lambert. The lounge is independently operated
by Airport Terminal Services, and The St Louis Post Dispatch has
reported that the airport should garner USD3.45 million in revenue
from the lounge over 10 years.
AIRLINE LEADER | ISSUE 45 - AUG 2018 67
The airport has said that a common
use lounge is one of the most requested
amenities by passengers. The lounge
resides in Terminal 2, which is home to
Southwest and WOW Air’s operations at
the airport. Ms Hamm-Niebruegge said that
feedback from WOW customers was that
the lounge would be a great amenity for the
flight to Reykjavik.
Lounge customers can purchase a single,
four hour, day pass for USD38 or an annual
membership for USD75. Corporate packages
are also available. Amenities in Wingtips
include a complimentary food buffet, juices,
espresso coffee, a range of alcoholic
beverages and WiFi. The lounge’s hours are
04:30 to 22:00 Sunday through Friday and
Saturday from 07:00 to 17:00.
St Louis and other US airports take a
rational approach to network development
St Louis is a solid example of a former
hub in the US marketplace that has worked
to adapt and remake itself in the face of a
concentrated market. It has the benefit of a
significant presence by Southwest to cover a
large swathe of the US market while working
to gather steam slowly for additional trans-
Atlantic service.
Through the ebbs and flows of the general
global aviation cycle, airports such as St
Louis are adapting to the realities of the
current market, patiently working to expand
their network profiles in rational ways. AL
AIRPORTS

68 AIRLINE LEADER | ISSUE 45 - AUG 2018

DUESSELDORF
AFTER AIRBERLIN:
New Ryanair base,
Eurowings growth

Summary
• DUS handled 24.6 million pax in 2017 and has grown every year since
2010.
• Weeze handled 1.9 million pax in 2017; growth has been more erratic.
• Airberlin's exit from Duesseldorf has stimulated others to grow.
Eurowings has extended its lead and now has one third of seats in the
city's airports.
• Ryanair/Laudamotion's combined seat share is 10.5%.

A
IRBERLIN HAD A 21% share of seats in the Duesseldorf airport
system in Sep-2017, but more than two thirds of this capacity
will be absorbed by other airlines in Sep-2018, resulting in a
total capacity reduction of only 6%, according to data from OAG.
Others are taking the opportunity to grow, particularly at the city's principal
facility, Duesseldorf Airport (DUS).
Ryanair opened its 86th European base at DUS in Jun-2018, with one
aircraft based at Germany's third biggest airport. It has launched three new
Spanish routes from DUS to Alicante, Malaga and Palma, which it also serves
from the much smaller Duesseldorf Weeze Airport. It is now going head to
head with DUS market leader Eurowings on these routes.
Duesseldorf illustrates a number of key features of the current German
airline landscape: the demise of airberlin and the subsequent growth of the
Lufthansa Group, led by Eurowings; the growing ambitions in Germany of
the leading LCCs Ryanair and easyJet and their acquisitions of former Air
Berlin Group capacity; and the expansion of Germany's non-Lufthansa Group
airlines (Condor, TUIfly, SunExpress Germany and Germania).

AIRLINE LEADER | ISSUE 45 - AUG 2018 69

AIRPORTS

Ryanair is competing head to head with
Eurowings on its new routes
Ryanair's new routes from DUS to Alicante,
Malaga and Palma are also operated by
Eurowings (and Norwegian). Laudamotion, in
which Ryanair has an equity stake, has also
launched DUS-Malaga and DUS-Palma this
summer.
The most competitive of these routes,
DUS-Palma, also includes Condor, TUIfly,
SunExpress Germany, Sundair and Hahn Air
in addition to Eurowings, Norwegian and
Ryanair this summer.
Eurowings also operated from Weeze to
Palma in the first two months of the summer
2018 season only.
Ryanair has a 24.9% stake in Laudamotion,
currently controlled by former motor racing
champion Niki Lauda, and an agreement
to increase this to 75% subject to regulatory approval. Laudamotion
partially took on the capacity of the bankrupt NIKI – a former Air Berlin
Group company (and also originally founded by Niki Lauda).
Duesseldorf Airport handled 24.6 million pax in 2017 and has
grown every year since 2010
Duesseldorf Airport is the main airport for Duesseldorf, the capital
of North Rhine-Westphalia. It is seven kilometres north of the city and
approximately 20km from Essen, at the heart of Germany's largest
metropolitan area.
Duesseldorf is Germany's number three airport by passenger
numbers after Frankfurt and Munich. Duesseldorf handled 24.6 million
passengers in 2017, an increase of 4.8% on 2016 and the eighth
successive year of growth. Its YTD growth for Jan-Apr 2018 is -9.2%,
reflecting the demise of airberlin.
Duesseldorf Weeze handled 1.9 million pax in 2017; growth has
been more erratic
Duesseldorf Weeze Airport is in the Niederrhein region,
approximately 70km north-west of Duesseldorf and close to the Dutch
border. Weeze Airport mainly serves the Dutch regions of Eindhoven,

ANNUAL PASSENGER NUMBERS FOR DUESSELDORF AIRPORT AND DUESSELDORF

WEEZE AIRPORT*
SOURCE: CAPA FLEET DATA BASE
30m 75%

50%

Passenger numbers growth

20m
Passenger numbers

25%

0%
10m

-25%

0 -50%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Year
■ Duesseldorf Airport ■ Duesseldorf Weeze Airport
-- Duesseldorf Airport growth -- Duesseldorf Weeze Airport growth
Note: *2008 to 2018 (2018 is year to date Jan to May)

70 AIRLINE LEADER | ISSUE 45 - AUG 2018

DUESSELDORF AIRPORT SYSTEM*: TOP 10 AIRLINES RANKED BY SEATS*
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG

Sep-2017 Sep-2018
250,000 250,000

200,000 200,000

150,000 150,000

100,000 100,000

50,000 50,000

0 0
Eurowings

airberlin

Ryanair

Luthansa

NIKI

SunExress

Condor

TUIfly
Turkish
Airlines
British
Airways
All Others

Eurowings

airberlin

Ryanair

Luthansa

NIKI

SunExress

Condor

TUIfly
Turkish
Airlines
British
Airways
All Others
Note: *Week of 11-Sep-2017 and 10-Sep-2018

Nimwegen and Arnheim, and the German Ruhrgebiet area. Weeze is Airberlin was the number two airline in
Germany's number 15 airport by passenger numbers. Duesseldorf last year, after the market leader
Weeze handled 1.9 million passengers in 2017, which was an Eurowings (note that Germanwings' capacity
increase of 1.7% versus 2016. Unlike the steady and regular growth is included with Eurowings in this ranking).
at its larger neighbour, Weeze Airport's growth has been much more Eurowings' capacity was almost all at DUS,
erratic, oscillating between expansion and contraction. The 2017 with only a small presence at Weeze (where
passenger count was 1.0 million below its 2010 peak of 2.9 million. it has no presence in Sep-2018).
In 2018, YTD passenger growth for Jan-Apr is 8.9%, although Ryanair's Weeze capacity made it the
capacity data from OAG indicate a year-on-year reduction in seat number three airline in the city's airport
numbers in the summer schedule. system, just ahead of fourth ranked
According to OAG, Ryanair is the only airline operating from Weeze. Lufthansa and fifth placed NIKI, in summer
Its move into DUS is consistent with its strategic shift over recent years 2017.
to add more primary airports to its network. Eurowings has extended its lead in
Airberlin's exit from Duesseldorf has stimulated others to grow Duesseldorf
The biggest change in the Duesseldorf airport landscape over the In Sep-2018 Eurowings is increasing
past year is the bankruptcy and exit of airberlin. This has stimulated its capacity by 20% to extend its lead in
growth by many other airlines. Duesseldorf and Lufthansa is growing by 17%
Total Duesseldorf capacity in the peak summer season week of to move into second place. Condor is more
2018 (the week of 10-Sep-2018) has been reduced by 6% versus the than doubling its seat count (an increase of
equivalent week of last year. 111%) and jumps from seventh to third place.
Nevertheless, the reduction by 47,000 weekly seats compares with Ryanair has shifted some capacity from
airberlin's 169,000 weekly seats, indicating the extent to which the Weeze to DUS this summer but its total
impact of its exit from Duesseldorf has been limited by the growth of capacity in Duesseldorf is slightly lower, by
others. 4% year-on-year, and it slips to fourth place.

AIRLINE LEADER | ISSUE 45 - AUG 2018 71

AIRPORTS

Laudamotion retains the fifth spot held
by its predecessor NIKI, in spite of a 26%
capacity reduction at DUS. Ryanair's
investment in Laudamotion mitigates its own
lack of growth in the Duesseldorf system.
TUIfly is increasing its DUS capacity by
45% to move into sixth place from eighth last
summer, while SunExpress slips from sixth to
seventh with a 10% capacity cut.
British Airways moves up to eighth from
ninth, with a 4% capacity increase, and Austrian Airlines' 54% expansion
takes it to number nine from 16th last summer. The Sep-2018 top 10 is
completed by Turkish Airlines, although its 2% capacity cut means that
it has slipped one place in the ranking.
The Lufthansa Group as a whole is growing its seats in Duesseldorf
by 22% year-on-year in the week of 10-Sep-2018.
Notable just outside the top 10 are Emirates, with a 17% increase in
capacity at number 11 and easyJet, a new entry into DUS at number 12.
This follows easyJet's launch of its Berlin Tegel service with capacity
acquired from airberlin.

DUESSELDORF AIRPORT SYSTEM: TOP 10 AIRLINES BY SHARE OF SEATS*

SOURCE: CAPA - CENTRE FOR AVIATION AND OAG

Sep-2017 Sep-2018

Eurowings: 32.6%
All others: 23.3% Eurowings*: 25.5%

All others: 29.6%

British Airways: 1.9%

Turkish Airlines: 2.0%
TUIfly: 2.6% Turkish Airlines: 2.0%
Condor: 3.1% Austrian Airlines: 2.1%
Lufthansa: 7.2%
SunExpress: 3.1% British Airways: 2.1%
airberlin: 21.4% SunExpress:3.0%
NIKI: 5.1%
TUIfly: 4.0% Condor: 6.9%
Lufthansa: 5.7%
Ryanair: 6.4% Laudamotion: 4.0% Ryanair: 6.5%

Note: *Week of 11-Sep-2017 and 10-Sep-2018. Duesseldorf Airport plus Duesseldorf Weeze Airport.

72 AIRLINE LEADER | ISSUE 45 - AUG 2018

 Germania is at number 13 with a 94% capacity increase at DUS, and
SunExpress Germany is at number 14 with an 88% expansion.
Airberlin had 21% of seats in Duesseldorf in Sep-2017; Eurowings will
have 33% in Sep-2018
Airberlin had a 21% share of seats in Duesseldorf in Sep-2017, but
two thirds of this capacity has been absorbed by other airlines in Sep-
2018, resulting in a total capacity reduction of only 7%.
Eurowings has increased its seat share in the city's airport system
from 25.5% in Sep-2017 to 32.6% in Sep-2018. Lufthansa's share is up
from 5.7% to 7.2%, and Condor's has grown from 3.1% to 6.9%.
Ryanair/Laudamotion's combined seat share is 10.5%
Ryanair's share is stable at 6.5% (versus 6.4% a year ago) and
Laudamotion's 4.0% is less than NIKI's 5.1% share last summer. TUIfly
increases its share from 2.6% to 4.0%, and Austrian Airlines' share
grows to 2.1% from 1.3%.
The combination of Ryanair and Laudamotion adds up to 10.5%,
taking the extended Ryanair above Condor and Lufthansa into
second place. The two will operate as separate brands, but once
Ryanair assumes majority control it will have the chance to integrate
Laudamotion over time.
The Lufthansa Group remains comfortably ahead, with a seat
share up to 43.1% in Sep-2018 versus 33.1% in Sep-2017, but Ryanair's
overall position in Duesseldorf is strengthened by its investment in
Laudamotion and its entry into DUS.
Further changes to the competitive landscape in Duesseldorf are
likely
Duesseldorf has been a little more affected by airberlin's demise
than has the German market overall. The 6% reduction in seat
capacity in the city this summer compares with 1% growth in Germany
overall in 2018. However, airberlin had 21% of seats in Duesseldorf,
AIRLINE LEADER | ISSUE 45 - AUG 2018 73
compared with 10% in Germany overall.
This demonstrates the resilience of the
city's aviation market and the rapidity of the
competitive response to airberlin's exit.
As with elsewhere in Germany, the
Lufthansa Group is benefitting from the
opportunity to assume much of airberlin's
capacity, led by its low cost Eurowings
subsidiary.
Europe's two biggest LCCs, Ryanair
and easyJet, have also (in different ways)
acquired former Air Berlin Group capacity.
easyJet took on a number of airberlin aircraft
at Berlin Tegel, and Ryanair invested in
Laudamotion.
Airberlin's collapse has also given fresh
impetus to Germany's other airlines (Condor,
TUIfly, SunExpress Germany and Germania).
Although the competitive response to
airberlin's exit from Duesseldorf has been
rapid, the landscape is likely to change
further before it settles.
DUS is Germany's biggest airport for low
cost capacity and LCCs have more than half
of its seats, but leading European LCCs such
as easyJet, Norwegian and Vueling only
have a small presence.
With total Duesseldorf capacity still
reduced, year-on-year, further changes can
be expected as airlines seek to plug the gap. AL
AIRPORTS

74 AIRLINE LEADER | ISSUE 45 - AUG 2018

CHICAGO O’HARE
AIRPORT TRANSIT:
Potential for innovative
technology

Summary
• The city of Chicago has been seeking a private company to build and
operate a high-speed rail connection between downtown and O’Hare
Airport.
• There were few takers, but now The Boring Company proposes a
tunnel through which electric pod cars would operate between the
two locations in a few minutes.
• It is the latest idea from Elon Musk, the founder of Tesla Inc, the
multinational corporation.

T
HE DESIRE TO TRANSPORT more passengers by rail directly
into airport terminals (or at least to airport rail stations) at the
expense of the private car is growing.
However, finding a way of doing that is not always simple.
Existing lines may be inadequate, slower-moving local trains can clog them
up, and the cost of building additional track may be prohibitive.
The American innovator Elon Musk is never far away when an innovative
solution is called for. Troubled by road vehicle congestion around Los
Angeles, he has envisaged a rapid construction tunnel network at multiple
levels, which may be a resolution to the issue confronting Chicago’s O’Hare
airport: how to get passengers from and to downtown on public transport
much faster than at present, but not more expensively.

AIRLINE LEADER | ISSUE 45 - AUG 2018 75

AIRPORTS
The technology is in its very early stages
but airports and prospective ‘hyperloop’ rail
operators will be watching the outcome of
this project with keen interest.
The Boring Company, part of the business
empire of Tesla CEO Elon Musk, has won
in a bid to build a multibillion dollar high-
speed express train to Chicago's O'Hare
International Airport. Competitors included
Mott MacDonald, the UK engineering firm,
and JLC Infrastructure, an infrastructure fund
backed by the former basketball star Earvin
"Magic" Johnson.
The Chicago proposal arose out of Los
Angeles’ infamous road traffic congestion
The Boring Company is an infrastructure
and tunnel construction company which
was founded by Mr Musk in 2016, reputedly
after he objected to traffic problems around
Los Angeles and limitations with the two-
dimensional transportation network. His
O’HARE AIRPORT WITH THE TWO BLUE LINE STATIONS (T1/T5) AND THE O’HARE
TRANSFER STATION (MARKED)
SOURCE: GOOGLE MAPS
76 AIRLINE LEADER | ISSUE 45 - AUG 2018
solution is 3-D transport, which means flying cars or tunnels. With the
advent of drones flying cars cannot be far off, but according to Mr Musk
tunnels are preferable as they are “weatherproof, out of sight, and
won’t fall on your head”.
The concept is a large network of tunnels with many levels. These
would “fix” congestion in the city, no matter how large it grew, simply
by continuing to add levels. But that would require both a higher
tunnelling speed and a considerable reduction in costs – which can be
as high as USD1 billion per mile – by a factor of 10 or more, which is the
company’s goal.
Such fast-to-dig, low cost tunnels “would also make Hyperloop
adoption viable and enable rapid transit across densely populated
regions, enabling travel from New York to Washington DC in less
than 30 minutes”. In the case of Chicago, the intention is to build a
mechanism that will enable travel from downtown Chicago to O'Hare
International Airport in a matter of minutes.
In theory, there is no practical limit to how many layers of tunnels can
be built, so any level of traffic flow can be addressed. The cost will be
tackled by reducing the tunnel diameter from the current standard of
28 feet to less than 14 feet by placing vehicles on a stabilised electric
skate.
ARTIST’S PROJECTION OF THE PROPOSED O’HARE AIRPORT STATION
SOURCE: THE BORING COMPANY
Chicago’s current rail network not serving the airport as well as it
could
According to the CAPA Air-Rail report (2017), Chicago O’Hare is one
of several examples in the US where there are rail lines running to/from
or through the airport but where they appear to lack coordination.
The Blue Line is part of the Chicago 'L' network, the ‘elevated’
rapid transit system serving the city and some of its surrounding
suburbs. It operates 24/7 out of an underground station at O’Hare to
downtown but it travels via 15 stations before it reaches the central
business district and its rail line ‘Loop’ (a circle similar to the London
Underground Circle Line).
There are also commuter trains that stop at the O’Hare Transfer
station, about 1.5km from the terminals, and from where a shuttle bus
operates to the Airport Transit System (a 4.3km/2.7 mile automated
people mover). However, trains run only on weekdays.
One solution: rapid transport down the expressway
For some time the city has been looking into a plan for how to fund
an O’Hare Express train that would take business people, tourists, the
local population (it is in a heavily built-up area), and other travellers
AIRLINE LEADER | ISSUE 45 - AUG 2018 77
between downtown and the airport (a
distance of 17 miles/27km) in 20 minutes or
less, which is between half and a third of the
time it can take on the Blue Line. It would
operate at least every 15 minutes and at
a price less than a taxi or shared ride fare
(which is a similar situation to London before
the Heathrow Express, and Paris now, before
the CDG Express line is built).
It was not, however, expected to compete
with the USD5 single fare on a Chicago
Transit Authority Blue Line train.
It had been suggested that lines could run
down the centre of the Kennedy Expressway,
which goes directly from the airport to
downtown, parallel with the Blue Line, or that
a Union Pacific Railroad line nearby might be
used.
AIRPORTS
It was widely believed that the city would
seek out a private company to cover line
construction costs and operate the system,
possibly with public money going into
the stations at the airport and downtown.
Evaluations of potential routes, designs, a
construction timeline and cost estimates
were made, ready for a tender scenario to
start in 2017.
In Feb-2017 the Mayor reiterated that
he planned to introduce such high-speed
express trains and that the project was
expected to cost between USD750 million
and USD1.5 billion. Estimates have the
price of a one-way ticket at around USD30
to USD35 (the taxi fare is approximately
USD40). But there was limited interest
amongst potential operators because there
was no public funding element.
The proposed technology is at the cutting
edge, but only embryonic
All that has been thrown into confusion by
this proposed development, and there are
concerns about the technology.
The Boring Company was launched only
18 months ago and is working with unproven
78 AIRLINE LEADER | ISSUE 45 - AUG 2018
futuristic ideas. Apart from a test tunnel that the company is digging in
the Los Angeles suburb of Hawthorne, it lacks construction experience.
Indeed, the mechanism itself is still under consideration.
In 2017 Mr Musk reportedly tweeted his ideas for the Chicago
project: “Electric pods for sure, rails maybe, maybe not.” One academic
was scathing, saying “Elon Musk is looking for a place to prove his
technology works, and Chicago is rolling out the red carpet for him.”
It does appear, at least, that no government funding is involved. The
winner is therefore forced to finance the entire construction cost, and
presumably, that includes the stations.
The city of Chicago will now negotiate exclusively with Boring over
details of the project for one year. A final go-ahead requires approval
from the city council.
The consensus has it that the project will evolve several times before
any digging commences.
Other cities will be watching closely
The “visionary” Elon Musk has largely been able to pursue and fulfil
visions that others say are too difficult (although there are reservations
about his electric trucks for example, despite initial orders from the
likes of PepsiCo and UPS).
But this particular venture will test the credibility of his designs to
the limit, and will be watched closely by other cities where airports
are situated 15 miles or more from downtown and where passenger
traffic flows are heavy between the airport and downtown (they are not
always). Potential Hyperloop operators will also show a keen interest,
of course. AL
 SAVE
THE
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United States, but from across the globe. This high level
forum will explore the strategic issues facing the region’s
18-19 March, Denver aviation industry and is a must attend for those seeking to
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Our aim is to make
a difference
CAPA launched in 1990, with a mission to make a strategic difference
in aviation knowledge, delivered with the highest levels of intellectual
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This has been our guiding force since 1990, during which time we
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We are proud to have been ahead of the curve in predicting critical

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Aviation is a truly fascinating industry and over the coming years,

CAPA will continue on its mission of providing leadership in aviation
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Our aim is to make a difference.

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AIRLINE LEADER | ISSUE 45 - AUG 2018 83

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| ISSUE 45 - AUG 2018 85
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86 AIRLINE LEADER | ISSUE 45 - AUG 2018
good summary of what’s happening in the aviation world. – Director of Aviation Marketing, Airport Member
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INTROD
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AIRLINE
ISSUE 43
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CAPA’s bi-monthly strategy journal for airline GLOBAL

REVIEW FLEET & FINAN

CEOs, provides independent insights on the DIDYOU

2018: CING

AIRLINE
ISSUE 44 | MAR-APR 2018
Northea
Chinese st Asia
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only.
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the role airlines begin to

KNOW?
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only.

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issues that matter to airline management. Each

Asian Air
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LEADER
ISSUE 44 MAR-APR 2018

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THE STRATEGY JOURNAL FOR AIRLINE CEOS

analysis, regional insights and CEO interviews. 22/3/18

11:00 am

South East Asia is the world’s leading region for

widebody LCC operations, followed by Western
Europe & North America.

42% of Europe’s aircraft orders are

from LCCs although Europe lags
Asia Pacific in total LCC orders
Source: CAPA Fleet Database

LCCS DIVERSIFY,
IN DIFFERENT
Readers can easily stay abreast of the
Stay
Keep ahead of the industry with a CAPA Membership DIRECTIONS
CAPA Membership delivers the very latest insights into the global Meanwhile, Full
Service Airlines
challenges and changes shaping the
commercial fleets market and more
adopt contrasting

informed
strategies

evolution of the aviation industry. centreforaviation.com

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AIRLINE LEADER | ISSUE 45 - AUG 2018 87

 CAPA Data
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CAPA Profiles Aviation Data Tools

Your portal for aviation data We do the leg work, you take the credit

Access our extensive CAPA Profiles for the A variety of analytical data tools for
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Our Profiles contain the most up to and historic seat capacity per airline on
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• Schedules airports in terms of their monthly and
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• And more manufacturer/ aircraft type
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growth over the past 10 years by country/
region
Our suite of
Profiles cover: 5700+ • Codesharing - find the codeshare
agreements for all airlines operating to a
airports specific country/airport

5900+ 3200+
airlines
suppliers

800+ 7000+ I didn’t realise all this traffic data was

airport investors MRO contracts here. The data is much more up-to-date

2600+ than other results we usually use - I’ll be

using this from now on.
MRO capability - Air Service Development Manager,
updates Airport Member
 Find the information you need quickly for actionable insights.
Intuitive, comprehensive and up to date.

Fast Facts Reports

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Profiles provide our CAPA Members with

the ability to develop Fast Facts Reports that
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PDF format that can be easily printed
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such as:

• Fleet graphs or tables

• Schedules analysis tables and graphs
• Cargo analysis graphs
• Traffic graphs
• Financial results, tables and graphs
• Latest news
• Company information and contacts

Overview

British Airways
British Airways (BA) is the national carrier of the United
Kingdom, a subsidiary of publicly-listed International
Consolidated Airlines Group (IAG). BA’s extensive
network, including that of franchise partners SUN-AIR
and Comair (South Africa), includes services to Europe, Part of International Airlines Group (IAG)
North America, Latin America, Canada, Africa, Asia and
Australia. Using a fleet of wide and narrow-bodied Status In service
aircraft, the carrier operates freight and passenger
services from it's three London hubs - Heathrow Network International and domestic

CAPA Members
Airport, Gatwick Airport and London City Airport. BA is
a founding member of the oneworld alliance. Ownership Fully privately owned, listed

British Airways Codeshare Partners IATA BA

Aer Lingus Japan Airlines ICAO BAW

airBaltic LAN Airlines Business Model Full Service Carrier

use Fast Fact

airberlin Meridiana Alliance oneworld
This report was generated on 14-Jun-2017
Alaska Airlines Qantas Airways British Airways Plc,
Waterside,
American Airlines Qatar Airways Address PO Box 365,
Harmondsworth,
Bangkok Airways Royal Jordanian UB7 0GB

reports for:
Overview ................................................................................................................1
Cathay Pacific S7 Airlines

Client
Main Hub London Heathrow Airport
Destinations..........................................................................................................2
Latest News ..........................................................................................................8 China Eastern Airlines TAAG Country United Kingdom
Contacts ............................................................................................................... 11
Fleet...................................................................................................................... 12 Finnair TAM Airlines Region Europe : Western Europe
Schedules Analysis........................................................................................... 15
Cargo Analysis................................................................................................... 18 Flybe Vueling
Traffic................................................................................................................... 20
Iberia

meetings
Example
Financial .............................................................................................................. 21

© 2017 CAPA - Centre for Aviation. All rights reserved. from

page 1
of Fast
Fact
report
Conference
Page 1

Internal
British Airways: Fleet
Fleet

preparation
British Airways fleet aircraft as at 12-Jun-2017 British Airways projected delivery dates for
British Airways fleet summary for aircraft as at 12-Jun-2017 aircraft on order purchased from OEMs and

reports and
350

leased from lessors new aircraft order pipelines

300
Aircraft In service In storage On order 267 as at 12-Jun-2017
250 30

Data
Airbus A318-100 1 1 0
Number of aircraft

200 25
Number of aircraft on order

Airbus A319-100 44 0 0 150 20

from
projects
100 15
Airbus A320-200 67 0 0 71

50 10

Airbus A320-200neo 0 0 25 1
5

page
0
In service In storage On order
Airbus A321-200 18 0 0 Aircraft status
0
17

18

19

20

21

22
20

20

20

20

20
20

Source: CAPA Fleet Database

Airbus A321-200neo 0 0 10 Year

12 & 13
Instant
Orders include those placed directly by the operator and by lessors
assigned to the operator, from 12-Jun-2017 onwards. A320 787 A350

Airbus A350-1000XWB 0 0 18
Source: CAPA Fleet Database

of Fast
Orders include those placed directly by the operator and by lessors
Airbus A380-800 12 0 0 assigned to the operator, from 12-Jun-2017 onwards.

Boeing 747-400 36 0 0

Fact
British Airways fleet breakdown for aircraft in British Airways average fleet age for aircraft in

and
Boeing 767-300ER 7 0 0 service as at 12-Jun-2017 service as at 12-Jun-2017
30
Boeing 777-200 3 0 0

report
25
22.5
Boeing 777-200ER 43 0 0 20.8
20
Average age (years)

Boeing 777-300ER 12 0 0 15.1

consistent
48.7% 15 13.2
12.6
51.3%
Boeing 787-10 0 0 12
10

Boeing 787-8 8 0 4 5 3.3

2.1

Boeing 787-9 16 0 2 0
747 767 777 787 A320 A380 All
Widebody Jet Narrowbody Jet Aircraft model
Total: 267 1 71

reporting
Source: CAPA Fleet Database Source: CAPA Fleet Database
Source: CAPA Fleet Database
Orders include those placed directly by the operator and by lessors Orders include those placed directly by the operator and by lessors
Orders include those placed directly by the operator and by lessors assigned to the operator, from 12-Jun-2017 onwards.
assigned to the operator, from 12-Jun-2017 onwards. assigned to the operator, from 12-Jun-2017 onwards.

AIRLINE LEADER | ISSUE 45 - AUG 2018 89

Page 12 Page 13
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Group, Leasing Member

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CAPA Fleets is invaluable for our daily operations. We use it extensively for
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- General Manager, Aircraft Finance Division, Aviation Strategic Investments
Group, Leasing Member
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