Analysis Reports

CAPA is pleased to announce the initial speaker line-up for the inaugural CAPA Qatar Aviation Aeropolitical and Regulatory Summit in Doha on 5-6 February 2019. 

The two day Summit will bring together aviation regulators, airlines and global suppliers with an interest in aviation market access for high-level discussions as well as a Gala Dinner hosted by Qatar Airways.

San Diego International airport is enjoying record passenger numbers and several new route additions during 2018 are fuelling that growth.

Those rising passenger numbers are forecast to continue for the foreseeable future and the airport is working towards expanding Terminal 1 by 11 gates, as well as adding a new roadway to ease some of the traffic congestion that passengers face in reaching San Diego International.

But some community groups believe more needs to done to ease congestion on travel to the airport, with one local government official proposing the construction of a cable operated tramway. It could take some time to reach consensus on the best remedy for improving transit to the airport but overall, finding ways to accommodate growth is a good problem to face.

Latin American airlines continue to face a level of uncertainty in 2019 as new governments in the region’s two largest markets settle in and navigate trade disputes, geopolitical issues and a potential global economic slowdown.

Currency devaluation in Brazil and Argentina and volatile oil prices are combining to force Latin operators to take a cautious approach to 2019, but domestic demand in each of those markets appears to be stable as customers opt for domestic instead of international travel.

The growth of Latin American ULCCs and low cost airlines continues unabated as new start-ups in Chile and Argentina work to grow their respective market shares domestically; however, yields in those markets are likely to remain under pressure well into 2019.

Although public transport between Paris’ Charles de Gaulle Airport and the city is adequate, with journey times of 30-40 minutes on the suburban RER rail line that operates directly from the airport, it does not compare well with, say, the forthcoming (2019) Elizabeth line or the Heathrow Express in London, which offers a journey time of only 15 minutes.

With the 2024 Olympic Games in Paris on the horizon, a decision was taken several years ago in favour of the ‘CDG Express’, to have a journey time of around 20 minutes over a distance of 32 km. Now a consortium has been selected to operate it.

There are numerous political overtones to this deal, from the selection of an entirely French partnership to the fact that it has been given the green light, not by the Transport Ministry but by the Environmental one.

The opening of Muscat International Airport’s new international terminal earlier this year, which effectively made it a new airport, throws it in competition with some of its peer airports, not only for hub traffic but as a catalyst to increasing tourism.  

Although taking on the big hubs in the region is a huge challenge, the support of the national airline – which has now been bundled with the airport authority as the same organisation – will be crucial, both in doing that and in attracting more visitors to Oman, which has a more diverse tourist offering than the UAE and Qatar.  

There is also the prospect of some form of privatisation on the horizon, possibly including an IPO, with foreign investors and perhaps operators also gaining a stake.

Southeast Asia has been a market of rapid growth but meagre profits over the past few years and the outlook for 2019 is more of the same. In fact, profitability will likely slip further following a deterioration in market conditions in 2H2018.

Of 20 publicly traded airlines or affiliates based in Southeast Asia, only six were in the black for 3Q2018 and 19 recorded a decline in profitability compared to 3Q2017. Intense competition and a generally price sensitive population made it difficult for airlines to pass on higher fuel costs.

While fuel prices have again been on the decline in 4Q2018, it is uncertain where fuel costs will end up in 2019. What is certain is that competition will remain fierce in Southeast Asia, pressuring yields as airlines struggle to find profitable markets for deploying additional aircraft.

Korea's dynamic LCC sector is poised for more rapid growth following a major aircraft order from the market leader Jeju Air. On 19-Nov-2018 Jeju Air announced an order for 40 firm 737 MAX 8s and 10 options, marking the largest ever aircraft deal from a Korean LCC.

Like most other Korean LCCs, Jeju Air has historically favoured older, secondhand aircraft that came with lower operating costs – the MAX's additional range options and more attractive operating economics will need to make up for the significantly higher acquisition cost. Jeju Air is rolling out a fresh slogan, "New Standard, New Plane" to accompany the new arrival.

Korea now has eight LCCs and one of the highest LCC penetration rates in Asia Pacific. With Jeju Air using the MAX to pursue more growth and fly further, South Korea's international LCC penetration rate will likely exceed 40%.

It seems as if the ULCC movement in Canada was stuck in the development phase for years. But with WestJet’s debut of its new ULCC subsidiary Swoop in Jun-2018, and the transition of Flair Airlines to the ultra low cost business model, operators brandishing the ULCC banner have finally materialised in the country.

Jetlines’ start date has moved around several times, but after three CEO changes during the past couple of years the company plans to make its market debut in 1H2019. As it works toward finally launching operations, Jetlines continues to stress that the Canadian market is ripe for more than one ultra low cost operator.

Those three airlines, Swoop, Flair and Jetlines, will largely remain in a build-up phase in 2019, but their fleet levels will continue growing into 2020. That could be the period when the market could send signals about the optimal number of ULCCs for Canada’s aviation market.

India is the world's third largest market by departing passengers, but it remains highly under-penetrated even relative to other emerging markets. Its vast population suggests significant potential for growth. Moreover, international capacity accounted for only 33% of seats in the week of 03-Dec-2018, its growth having been constrained by bilateral restrictions. 

In addition, compared with its domestic market India's international market has a relatively low share of LCC seats (around 25% versus around 69% in the week commencing 03-Dec-2018). Using a threshold of 4,000km to define long haul, there are only two long haul routes operated by low cost airlines, representing around just 1% of all long haul seats to/from India. And both of these routes are only just above the long haul threshold. India will see its first genuine long haul LCC operation later this week, when WOW air launches Reykjavik-Delhi service on 06-Dec-2018, with a sector length of 7643 km. 

The majority of India's foreign tourist arrivals are from long haul source markets, led by the US, UK, Canada and Australia, most of whom make at least one stop to/from India due to the limited capacity on direct services. 

Long haul low cost currently represents a negligible share of the Indian airline market, but the conditions exist for it to grow rapidly over time. Indian LCCs are likely to be the key drivers of this segment over the next few years, even though they do not currently operate any long haul routes. Foreign long haul LCCs are also likely to increase their presence in India subject to bilateral relaxation in the case of certain markets.  

Scoot plans to pursue further rapid expansion over the next few years, resulting in significant market share gains in Singapore. The Singapore Airlines low cost subsidiary plans to grow its network to nearly 80 destinations by the end of 2020 and its fleet to 70 aircraft by the end of 2021.

Scoot currently serves 65 destinations with a fleet of 45 aircraft. Scoot has a 14% share of seat capacity in Singapore and a 43% share of LCC capacity. Scoot is now more than twice the size of Singapore’s other local LCC, Jetstar Asia.

Jetstar’s share of Singapore’s LCC market has shrunk from over 27% in 2010 – when it was as large as Scoot's predecessor Tigerair – to less than 20% currently. Its market share will shrink further and could dip below 15% as Jetstar Asia has no plans to resume expansion, whereas Scoot is poised to grow by another 50% over the next few years. Scoot’s share of the total Singapore market will likely exceed 20% by 2022 but Jetstar's share could shrink below 6%.