Catch up on CAPA’s exclusive Market Analysis pieces – Melbourne Avalon Airport, AirAsia X, Ryanair and more

18 March, 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.

US airline foreign ownership; time for a rethink

Proposed legislation in the US Congress to eliminate foreign ownership restrictions on airlines will no doubt resurrect arguments by labour that foreign ownership could jeopardise national security and the overall integrity of the US airline industry.

Perhaps those age-old arguments by labour groups, led by the Air Lines Pilots Association (ALPA), are as outdated as the ownership laws themselves. Expanding the long term pool of investors for US airlines could broaden the investor base in the US airline industry, which could prove beneficial for airlines constantly battling knee-jerk reactions from Wall Street if they deviate from the current airline playbook.

US airline ownership laws date back to the 1920s, and the country's restrictions are arguably the most prohibitive in the world. The recent proposal for legislative change, while unlikely to materialise into an actual policy shift, presents an opportunity to engage in meaningful discourse about ownership restrictions in the context of an evolving global airline business.

To read on, visit US airline foreign ownership; time for a rethink

Melbourne Avalon Airport: AirAsia X to spike new growth phase

Melbourne Avalon Airport has offered airlines, particularly LCCs, an alternative option to Melbourne Tullamarine since it was privatised two decades ago. However Avalon has, until now, struggled to carve out a significant role in the Australian market.

In Feb-2018 Avalon secured the breakthrough it had been seeking for several years by gaining AirAsia X as its first international airline. AirAsia X will move its two daily Melbourne flights from Tullamarine to Avalon later this year, as soon as Avalon completes construction of a new international terminal.

Avalon's traffic could double in 2019, driven mainly by the new flights from AirAsia X, as well as potential domestic expansion. Jetstar is Avalon's only domestic airline, but high load factors on Jetstar's 49 weekly departures from Avalon indicate that the airport is underserved, and could support more services from Jetstar or other Australian airlines.

To read on, visit Melbourne Avalon Airport: AirAsia X to spike new growth phase

UK-Germany aviation: Ryanair moves in

The UK and Germany are Europe's two biggest markets by total airline seat capacity. However, the market between these two European aviation giants ranks as only the continent's third largest country pair, after UK-Spain and Germany-Spain.

The UK-Germany market has a solid year-round appeal, but lacks the strong summer seasonal spikes of the two larger country pairs. In summer 2018 the capacity growth on UK-Germany will outpace both UK-Spain and Germany-Spain for the first time in years, but only because the two larger markets are contracting.

There was barely any growth on UK-Germany in 2013 and 2014, but capacity and the number of routes have increased since then. Curiously, however, this growth has been achieved with fewer airlines and airports in this market.

The Lufthansa Group is the leading player on UK-Germany, but its capacity developments have concentrated on transfers from Lufthansa - first to Germanwings and then to Eurowings - and its capacity will be flat this summer. Ryanair is the only significant airline in this market that is growing in summer 2018, although Flybe and bmi regional have also grown rapidly since 2014.

To read on, visit UK-Germany aviation: Ryanair moves in

China-Canada aviation in Tourism Year 2018. Of airlines and economic value

The year 2018 is the Canada-China Year of Tourism and follows 2017's Australia-China Year of Tourism, when Australia liberalised traffic rights for Chinese airlines, effectively under an open skies regime.

Canada and Australia appear at opposite ends of the liberalisation (or protectionism) spectrum: Canada would probably not want to add traffic rights for Chinese airlines but feels political pressure, given that the tourism year needs to demonstrate developments. Chinese airlines have maximised their traffic rights, while Air Canada is using approximately half of the Canadian entitlement. Qantas/Jetstar meanwhile occupy only 10% of Australia-China capacity and Chinese inbound tourism reached 1.4 million in 2017; this contrasts with Air Canada's 37% market share, as the largest airline in the market, and Canada's inbound tourism of a little under half Australia's.

Air Canada hopes to finalise a JV with Air China in May-2018. Details are few, and neither airline's government has transparency on such matters.

There appear to be significant anti-competitive concerns: Air Canada and Air China account for 56% of nonstop Canada-China seat capacity and have a monopoly on the Beijing-Vancouver route. That is the largest city pair, and there is no significant viable alternative on another airline.

To read on, visit China-Canada aviation in Tourism Year 2018. Of airlines and economic value

Cargo and LCCs: Cebu Pacific case study shows cargo can pay

Air cargo is often an afterthought for low cost airlines. While cargo is important for most full service network airlines it has typically not been viewed as a core component of the LCC model.

Some LCCs refuse to carry cargo entirely, worried it would increase turnaround times and costs, outweighing any revenue gains. Several LCCs outsource their cargo capacity to third party specialists, generating revenues that typically account for less than 3% of total revenues.

However, cargo can be a much bigger revenue contributor for LCCs with little cost or risk if managed appropriately. The Philippine LCC group Cebu Pacific provides one of the best examples of an LCC cargo strategy that fully leverages the potential benefits. Cargo has consistently accounted for 6% to 7% of total revenues at Cebu Pacific - even before the airline group began operating widebody aircraft.

To read on, visit Cargo and LCCs: Cebu Pacific case study shows cargo can pay

Japan/Korea-Europe airline service: Korea leads Japan, but lacks Russian overflight rights

Korea has less than half of Japan's population, yet Korean Air and Asiana Airlines are twice as large in Europe as All Nippon Airways and Japan Airlines.

Despite this leadership position, Korea's airlines want to grow even more in Europe. Asiana is adding scheduled service to Barcelona and Venice in 2018, while Korean Air added Barcelona in 2017. Yet Korea is held back by a lack of Russian overflight rights. While this persists, Korean Air is unlikely to use incremental additions for its long haul LCC, Jin Air, which is otherwise well suited to serve more leisure-oriented European markets.

While Korean airlines are unable to realise full demand for Europe, Seoul is unlikely to grant more traffic rights for Gulf airlines, which mostly carry European connecting passengers on flights to Seoul.

Japan has available overflight rights and a need to grow in Europe in order to meet the country's aggressive tourism targets. Japanese tourism is working with Air France-KLM, but Japanese aviation must do more to expand its footprint in Europe.

To read on, visit Japan/Korea-Europe airline service: Korea leads Japan, but lacks Russian overflight rights

Canada-Latin America air market: visa changes and improving conditions

Changes in Canada's visa policies for Mexico and Brazil helped boost overnight arrivals from those countries in 2017, according to Destination Canada. The largest increase in air capacity occurred between Canada and Mexico, driven in part by the expansion of services by Mexican airlines.

Despite expansion by Mexican airlines, seats dedicated to leisure routes continue to represent a significant amount of capacity between Mexico and Canada. There are some changes occurring in the Canada-Mexico market, as Aeromexico is dropping recently launched flights to Calgary. Its codeshare partner WestJet is launching service in the market shortly after Aeromexico's exit.

Destination Canada foresees prospects improving for air travel to Canada from Brazil. Although air capacity overall was lower in 2017, an increase during the last three months of the year is an encouraging trend. Air Canada has cited a turnaround in the Brazilian market after cutting service to the country during Brazil's economic downturn.

In the future, Brazil could be in WestJet's sights as it studies where to deploy the Boeing 787-9 widebodies that begin their WestJet operations in 2019.

To read on, visit Canada-Latin America air market: visa changes and improving conditions