Analysis Reports

Even before officially taking office in Dec-2023, Argentina's President Javier Milei expressed his desire to privatise some of the country's government-owned entities, including its flag carrier Aerolineas Argentinas.

Now Mr Milei is moving to speed up the process, but it's unclear if he'll be successful in his efforts, as the airline's unions demand higher pay and the country's legislators need to put their stamp of approval on the process.

More broadly, potential acquirers of Aerolineas Argentinas would need to conduct a careful risk-reward analysis.

Any acquisition would be rife with labour strife, and there is a distinct possibility that Argentina's political winds could quickly shift.

However, the airline is the largest operator in an emerging market, with significant opportunities to grow and stimulate traffic.

A proposed investment deal between Qatar Airways and Virgin Australia could have collateral network benefits for both airlines, thanks to a planned fleet move that would increase their access to important international markets.

Qatar Airways has confirmed that it plans to acquire a 25% stake in Virgin Australia. An investment of about that much had been rumoured for months, but another part of the agreement was more surprising, and provides additional insight into the expected advantages.

The airlines unveiled plans for Virgin Australia to wet-lease widebody aircraft to operate multiple routes to Doha under their partnership.

While details of the fleet arrangement are yet to be defined, it offers the opportunity for Qatar Airways to increase feed into its network from lucrative Australian markets, and boosts Virgin Australia's access to a major hub for onward international connections.

The proposed deal between the airlines sheds more light on Virgin Australia's intended ownership structure, as well as a shift in strategy regarding international operations.

From a political perspective, there will be lots of scrutiny on the regulatory response to the proposal, given that competition in Australia's international market has been a hot topic recently.

Russia's government has forecast that the nation's airlines will handle 6.9% fewer passengers in 2024 compared with 2023. The forecast total of 98.1 million passengers for 2024 would be 23.4% below the traffic handled by Russia's airlines in 2019.

Russia led the rest of Europe in the initial recovery from the COVID-19 pandemic and showed signs of returning to its old dynamism. Total passenger traffic had expanded by 2.6 times in the decade up to 2019.

However, the situation was altered by the invasion of Ukraine in late Feb-2022.

Since then, the Russian market has lagged Europe in its capacity recovery, with Western sanctions weighing on international traffic and capacity in particular.

The government of Russia is not expecting its airlines to catch up any time soon. Looking ahead to 2027 it forecasts that Russian airlines will carry 98.8 million passengers - barely changed from 2024's figure.

Lufthansa has criticised Germany for its "excessive government levies", which make the country "unattractive" for aviation.

Further, Ryanair has blamed Germany's lagging air traffic recovery on "high access costs (air traffic tax, security fees, air traffic control fees) and airport charges".

Airline seat capacity in Germany is scheduled to reach only 87% of 2019 levels in 2024, compared with 102% for Europe as a whole. Germany is the only one of Europe's five biggest markets not to exceed 2019 capacity levels in 2024.

It is rare for Lufthansa and Ryanair to agree, but both have welcomed Sweden's decision to abolish aviation tax, and have urged Germany to follow suit.

For many Asia Pacific airlines, the Australian market has been one of the fastest to recover and return to a growth trajectory in recent years.

Part one of this analysis focused on how Thai Airways, Philippine Airlines (PAL) and Air India have all increased their capacity in the Australian market beyond 2019 levels, and that they see the potential for further expansion.

Part two will look at Vietjet, which is in a different category, because unlike the others it did not operate to Australia before the COVID-19 pandemic.

However, it has quickly surpassed these three airlines in terms of weekly flight numbers to Australia.

This part of the analysis will also look at the airlines' interest in the new Western Sydney International Airport, and some of the challenges they see in the Australian market.

Executives from these airlines discussed their Australian operations during the CAPA Airline Leader Summit Asia Pacific in Brisbane on 12-13-Sep-2024.

In the period from the late 1990s to the mid-2010s low cost airports and terminals were popular throughout Europe, and to a lesser degree in Asia Pacific (and nowhere else).

They arose as a direct consequence of the very rapid rise in the number of low cost airlines and the new routes they began to fly, and were demanded by the management of those airlines to keep their costs as low as possible.

Then they began to die out (although many of the original terminals remain today) as a result of the hybrid nature of airlines, who moved towards each other in their operational level expectations - and that was reflected in terminal design.

Now Warsaw's Chopin Airport may get a new budget terminal, the first for quite a while in Europe, to help solve a specific capacity issue. The funny thing is that it had one before now, a building which also saw service as a supermarket and furniture store.

Asia Pacific airlines have ramped up their services to Australia to leverage a boom in international travel demand, and many are targeting further expansion in this market as they look to grow their widebody fleets.

Several overseas-based airlines have already boosted their Australian capacity beyond pre-pandemic (pre-COVID-19) levels. This has strengthened the country's role as one of the most important markets for Asian airlines, helping them offset the slower recovery in other countries, such as China.

Philippine Airlines, Thai Airways, Vietjet and Air India are among those airlines that are bullish about Australia, and senior executives from these airlines discussed this market during the CAPA Airline Leader Summit Australia Pacific held in Brisbane on 12-13-Sept-2024.

They talked about their current presence in the Australian market, where and when additional growth might come, and the potential for overseas airlines to serve the new Western Sydney International Airport.

The executives also outlined some of the constraints that will need to be overcome for this growth to occur, in areas such as bilateral rights, visa processes and aircraft availability.

Part one of this analysis will cover Thai Airways, Philippine Airlines and Air India, and the second part will look at Vietjet, Western Sydney Airport and growth challenges.

Airline seat capacity to/from/within Europe is set to be 101.7% of 2019 levels in 4Q2024, according to data from CAPA - Centre for Aviation/OAG. This will be the third successive quarter above 2019 levels, but the trend has been little more than flat since 2Q2024 when the 100% threshold was first breached.

Intercontinental markets to/from Europe are set to reach 105.6% in 4Q (up from 102.2% in 3Q), with intra-Europe at 100.3% (down from 101.3% in 3Q). Low cost airlines continue to grow their seat share in Europe, recovering more strongly from the COVID-19 pandemic.

The fairly static capacity picture is the result of ongoing supply chain constraints. Logic would suggest that this should be good news for yields. Indeed, air fare inflation was positive once more in both the EU and the UK in Aug-2024, after three months of falling prices. However, it is too early to extrapolate from one month of data.

Corporación América Airports has been around for decades, although it is still better known by the name of the division Aeropuertos Argentina, the first one, which came along when an ailing textile company was looking for, and found, the main chance.

It is fair to say that it is not too well known outside South America, despite having airport assets in Italy and Armenia and pitching for others in Europe at the present time.

Its Argentinean division, and the one in Brazil that looks after the capital's airport there, are the primary drivers of the business.

But latterly it has been looking to expand in Africa, which can be dangerous territory for the uninitiated.

Its financial affairs appear to be in good order, and are strengthening in each reporting period after the COVID-19 pandemic.

A SWOT analysis reveals that it has more strengths than weaknesses, and the opportunities/threats trade-off will mainly be influenced by its attempted excursions into Africa.

Two years after its privatisation, Air India is making good progress on the initiatives launched by its new owner, Tata Group, to overhaul the airline and set it up for dramatic expansion.

Air India attracted significant attention in 2023 when it placed orders for 470 aircraft. Although this move highlighted its long-term aspirations, there has also been a lot of work under way on shorter term projects - such as merging with other Tata airlines, upgrading the existing fleet, and building new training and maintenance facilities.

There is undoubtedly huge growth potential in the Indian market. However, Air India has to improve in many areas to take advantage of this, CEO Campbell Wilson said during the CAPA Airline Leader Summit Australia Pacific held in Brisbane on 12-Sep-2024.

Tata "bought an airline [in 2022] that had been under government ownership for 70 years and had not had the investment it needed," Mr Wilson said. "The last two years has been about stabilising [the airline], because it was in terminal decline."

Air India's efforts have been aimed at halting this decline, and putting the right foundations in place to support its growth strategy.

Improving the cabin product has been a priority - via new deliveries, leases and retrofit programmes. And the mergers that are poised for completion will streamline the group's airline operations, allowing for more efficient expansion.