Catch up on CAPA’s exclusive Market Analysis pieces – ANA, JAL, Peach Airlines, Vanilla Air and more

3 April, 2018

Each week, CAPA - Centre for Aviation, produces informative, thought provoking and detailed market analysis of the aviation industry. With supporting data included in every analysis, CAPA provides unrivalled and unparalleled intelligence.

Japan domestic aviation, ANA & JAL: LCCs, freight to grow

All Nippon Airways and Japan Airlines are shifting away from their domestic heartland as they prepare for international revenue to overtake domestic revenue. In the long term ANA will reduce its domestic network by 3% by maintaining frequencies but using smaller aircraft. JAL will grow its domestic market by 3%, but through upgauging as it reduces its domestic fleet.

LCCs are an important and fast growing development. There will be a net increase of 20 narrowbody aircraft in ANA's LCC fleet, including long range narrowbodies. JAL has a minority stake in Jetstar Japan, which will grow its fleet, but JAL also wants to deepen its involvement in the LCC sector.

Cargo is gaining more attention, and ANA has made a partnership with Nippon Cargo Airlines. ANA will take two 777Fs - its first long range freighters.

JAL would like to re-enter the freight aircraft business, but lacks pilots.

To read on, visit Japan domestic aviation, ANA & JAL: LCCs, freight to grow

Aviation open skies: protectionism, conflicts of interest and outdated ideas

In many ways, the US and the UK face a "back to the future" scenario as they work to secure an open skies agreement prior to Brexit. Such terms as Bermuda II are being cast about as the governments attempt to ensure sustained service in one of the world's most lucrative aviation markets.

Those negotiations are taking place in the age of President Donald Trump, his wildly fluctuating trade policy, and overall scrutiny of open skies agreements in the light of the years-long campaign by Big 3 US airlines to counteract what they deem to be unfair subsidies to Gulf airlines.

The bilateral between China and the US, which is also a leading market with high value, is busting at the seams. Given all the moving parts of trade policy and the general capriciousness of the US presidential administration, a high degree of uncertainty predominates over two of the most important markets from the US.

To read on, visit Aviation open skies: protectionism, conflicts of interest and outdated ideas

As ANA's LCCs Peach & Vanilla merge, Qantas and JAL need to align strategy

In the early history of dual brand strategies in Asia airlines often took only a minority stake in an LCC. This half way house has proven strategically weak, since the lack of full ownership and control prevented the parent airline from using its LCC for strategic, integrated purposes. That was also at a time when conservative minds at the big two Japanese airlines were not fully convinced of the future for LCCs.

From a similar background, Singapore Airlines eventually paid dearly to take full control of Tigerair, and now All Nippon Airways will again pay a premium to increase its stake in Peach Aviation. All up, ANA is spending USD400 million, which values Peach at USD1 billion, but ANA may need to pay a further USD300 million for full control.

LCC subsidiary history also includes nuanced chapters where multiple brands, often overlapping, prevailed. As Japan's LCC market becomes more dynamic, with existing and forthcoming local and foreign operators, ANA is putting its house in order to compete more effectively.

Peach will take over the 100% ANA-owned LCC Vanilla Air. Peach will logically be the surviving brand from the merger, which is to be completed in 2019. That is a relatively quick time frame, given the Japanese market, but underscores the strategic urgency after such a long wait while ANA negotiated with Peach's other two shareholders.

To read on, visit As ANA's LCCs Peach & Vanilla merge, Qantas and JAL need to align strategy

Latin America aviation: FSCs, LCCs and ULCCs stimulating demand

Latin America is one of the most promising aviation markets in the world, with ripe opportunities for passenger stimulation.

Airlines operating across all business models in the region are contemplating what the right formula is for capitalising on passenger growth, and as a result, low cost operators are growing in the region. During 2017, a raft of new airlines made their debut and experienced reasonably solid market reception, and low cost airlines are now formidable operators in Latin America's three largest air travel markets - Brazil, Mexico and Colombia.

One prevalent trend in Latin America is the hybridisation of some low cost airlines as they work to move upmarket and capture more lucrative business passengers.

For example, Brazil's first LCC GOL captured a 35% share among Brazil's business passengers in 2Q2017. Some ULCCs are breaking traditional moulds as well. Volaris, which has one of the lowest unit costs in the region, is forging a codeshare with Frontier - a first for ULCCs operating in the Americas.

As airlines operating under various business models adapt to changing conditions, costs will remain the distinguishing factor for the ULCC model in Latin America. It remains to be seen in Latin America and worldwide whether the fare segmentation adopted by full service airlines and the hybridisation of low cost airlines will result in sustained success, but ULCCs have no intention of relinquishing their cost advantage.

To read on, visit Latin America aviation: FSCs, LCCs and ULCCs stimulating demand