Analysis Reports

In the (still continuing) wake of the demise of Monarch Airlines 18 months ago, airports across the UK will be concerned at unfolding events at Flybe, which was taken over a few months ago but has still found it necessary to cancel flights and to enter into discussions with a number of airports concerning its future plans.

Flybe is in the process of consulting with a number of its employees over plans to restructure and reduce jet operations at multiple bases across its network. Flybe services may be at risk at numerous airports across the UK, and in some cases that could make a serious impact on operations.

This report relates the impact Flybe has on provincial air travel in the UK and its importance to many airports, and considers which of them might be at risk if Flybe’s situation does not improve.

The Cabo Verde islands have been attracting tourists in ever-increasing numbers during the past decade, offering a concoction of the true Africa and high-class western-style hotels and resorts. Tourism has supplemented the well established travel to and from the islands by ex-pats but hasn’t really helped the national airline, which has faced mounting problems.

Just as that that tourism growth has levelled off, a deal is about to be sealed by which Icelandair, with its huge experience of hub and spoke, sixth freedom operations, will take operational control of Cabo Verde Airlines, with a new strategy to build a hub and spoke airline using Cape Verde as a connecting hub between continents.

That requires cooperation with the airports, of course, and Cape Verde isn’t Iceland, with its islands well spread out and having differing political and social needs.

While the capital city is on one island, the main commercial centre (for centuries) is on another, and another two islands account for most of the tourism. Even the majority of the police force comes from one island and on another annual tourist visitors outnumber locals by many hundreds to one.

So it is strange that the government has chosen this moment to announce that the airports will be concessioned out, and by the end of 2019. A concessionaire might offer useful funds that can be used for other purposes, but equally might have different ideas from those of the state operator ASA about how to run its airports.

This report examines some of the difficulties of putting a concession procedure into place, and one in which firms might be interested.

Passenger levels at Nashville International airport have soared during the past few years, fuelled in part by job growth supported by a sustained robust economy in the region. 

The airport continues to welcome new services from its largest operator – Southwest Airlines – but during the past couple of years has also secured new flights from the ultra low cost operators Frontier, Allegiant and Sun Country. JetBlue has also begun services from Nashville, and Alaska has also expanded from the airport. 

Perhaps Nashville’s biggest win during the past couple of years is the return of trans Atlantic flights after British Airways launched flights to London Heathrow in 2018. It was a years-long process to secure the service, and the airport is no doubt working to expand its roster of long haul flights. 

The sudden collapse of WOW air, the LCC that took on Icelandair at its own game and lost, is likely to prompt a review of infrastructure needs at Keflavik Airport, which is the only international air gateway to the island.

The state airport operator Isavia has been criticised for its tardiness in preparation for the anticipated continuing increase in tourists especially, but WOW air’s collapse will take plenty of the sting out of that. Isavia says it will be examining the consequences that WOW air's withdrawal may have.

Isavia had predicted that there would be a fall in passenger numbers brought about by route consolidation alone this year (10% in the summer), and early statistics (Jan-Feb, around 6%) have supported that prediction, although not quite to the degree that Isavia imagined.

This collapse also prompts the question which airline(s) – if any – will take up WOW air's capacity and fly its routes, and whether the entire aviation/tourist enterprise of Iceland might start to head back towards the ‘niche’ territory where it contentedly sat for decades.

In Italy, local airlines have a lower seat share than in any other major European market. Moreover, Italy is one of only two countries in Western Europe's top 10 where the leading airline is not indigenous: Ryanair leads in both Italy and Spain. However, in Spain, number two Vueling and number three Iberia are both part of IAG and their combined seat share is more than Ryanair's. That leaves Alitalia with the most fragile market position of a national airline in a major market.

Italy is firmly among Western Europe's top five countries by population, GDP, tourist arrivals and airline seat numbers. However, its GDP per capita and hence, the propensity for air travel as measured by airline seats per capita, are both low within this group of five.

Italy is the smallest of Western Europe's top five aviation markets by seat numbers, behind the UK, Germany, Spain and France. It is also the only one without an airline ranking among Europe's top 10 by 2018 passenger numbers: Alitalia ranks 15th by this measure.

On 2-May-2019 Alitalia approaches the second anniversary of its extraordinary administration and, on 31-Mar-2019, yet another deadline slipped for securing its future with new investors.

It has been quite some time since a US start-up airline has successfully achieved longevity. But two aspiring operators are hoping to reverse that trend in a marketplace were consolidation has created a select few airlines with high levels of market concentration. 

Those potential new entrants – Moxy and XTRA – are led by high profile industry veterans, who believe there are inherent opportunities to build a network around secondary markets in the US as a result of consolidation in the market. 

There is little doubt that the US could use some fresh competition in its aviation sector. But those new competitors face rivals that are arguably far more formidable than they were in the past. And it remains far from certain that Moxy and XTRA can build defensible networks for the long haul. 

WOW air ceased operations on 28-Mar-2019. The pioneering the low cost connecting model used its Reykjavik hub for one-stop Europe-North America services. From a start-up in 2012, it had 31% of Iceland's seat capacity in 2018. It only entered the North Atlantic in Mar-2015, but quickly became its second largest LCC (behind Norwegian), with 1.6% of seats in 2018.

A CAPA SWOT analysis on WOW air in Sep-2017 identified over-expansion as one of the LCC's greatest risks. Losses in 2017 gave some indication of its financial stresses, but a provisional sale to Icelandair in early Nov-2018 appeared to provide relief.

When this deal and another with Indigo Partners evaporated, WOW air's funding problems rapidly escalated, in spite of a significant cut to its fleet and network.

Russia was Europe's number seven aviation market by seats in 2018, after the big five Western European countries (UK, Germany, Spain, France and Italy) and Turkey. Seat numbers in the Russian market grew by 11% in 2018, faster than in any of the other top seven countries.

As with elsewhere, passenger traffic growth is related to GDP growth in Russia, but with a much higher multiplier compared with the global market. Although geopolitical and macroeconomic factors have sometimes dented demand for international air travel to/from Russia, its domestic market has enjoyed robust and reliable growth for several years.

After the collapse of the former number two airline Transaero in 2015, which accelerated the Aeroflot-led consolidation of Russia's airline industry, the top five became a top four.

Aeroflot Group remains Russia's leading airline group by some distance, followed by S7 Group, Ural Airlines and UTair Group. LCC share is small, but growing, led by Aeroflot subsidiary Pobeda. However, the consolidation process appears to have reached a plateau.

JetBlue Airways’ final decision to declare plans to enter the trans Atlantic market with service to London from its Boston and New York JFK focus cities was hardly a surprise. The airline has been dragging out the decision for years, and during that time has taken members of the three large trans Atlantic JVs to task for their market concentration. 

Even as Jetblue has finally firmed up plans to operate in the trans Atlantic market, key questions remain, including which London area airports will join its roster of destinations and the specific time scale for launching the new flights. 

The risks for JetBlue in its trans Atlantic undertaking are not insignificant: the market is arguably the most contested in the world, and there’s a long list of value airlines that have attempted to break into the market with unsuccessful outcomes. But in many ways JetBlue had no choice but to advance its model into longer haul international markets as questions were growing about its ultimate long term strategy. 

It has been nearly two decades since LCCs began to penetrate the Middle East and Africa markets. Comair was the pioneer in Africa, launching its budget brand kulula.com in 2001, and Air Arabia was the pioneer in the Middle East, launching operations in 2003. 

While the LCC sector in the Middle East and Africa have since expanded, the LCC model has hardly proliferated in the way that it has in other regions. There are only 200 aircraft currently operated by LCCs based in the Middle East and Africa. 

There are now 14 LCCs based in eight countries throughout the Middle East and Africa. However, most are small, and the main players are concentrated in three markets – Saudi Arabia, South Africa and the UAE. 

LCC growth seems inevitable, but overcoming challenges, particularly in Africa’s highly protective aviation market, will not be easy.