REGIONALS Why history could LEISURE Lines blur with CARGO Implications for freighter repeat itself at US feeder Europe’s budget brigade fleet as market recovery falters

STRATEGY FOR BOARDROOMS WORLDWIDE OCTOBERXXXXXX 20152014

flightglobal.com/airlines

INTERVIEW ENRIQUE BELTRANENA Redefining low-cost the Mexican way at Volaris FROM LONDON TO QUIETER ABETTERWAYTOFLY.

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REGIONALS Why history could LEISURE Lines blur with CARGO Implications for freighter repeat itself at US feeder airlines Europe’s budget brigade fleet as market recovery falters AB INTERACTIVE STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE OCTOBERXXXXXX 20152014 6 Fresh new look for flightglobal.com flightglobal.com/airlines BRIEFING AMERICAS 8 Fresh blood may be good for United EUROPE 9 Battle lines drawn across Irish Sea ASIA 10 Challenging new start for Malaysia

INTERVIEW 11 Jetstar focuses after Hong Kong KO ENRIQUE BELTRANENA FINANCE Redefining low-cost the Mexican way 12 No cure for the summertime blues at Volaris INSIGHT 13 Bumpy road to Russian consolidation FREIGHT FALLOUT page 34 COVER STORY SPECIAL REPORT 14 Forward thinker REGIONALS A tight rein on costs and clever 22 Back in the house After restructuring, US regional digital marketing has allowed units prosper and could head down the subsidiary path Enrique Beltranena to steer Volaris 24 ACMI ache Europe’s wet-lease carriers face shrinking into profit and onto a solid path to markets, forcing them into hybrid operating models growth in Mexico and beyond 27 Regional forecast A market in transition HOW TO CONTACT US 28 rankings Our survey of the top 100 [email protected] 32 Snapshot Traffic by operator category and regions LONDON OFFICE Phone +44 (0)208 652 3842 Airline Business editor Max Kingsley-Jones FEATURES REGIONAL REPETITION Flightglobal premium news editor Graham Dunn page 22 Flightglobal premium CARGO news managing editor Niall O’Keeffe 34 Widebodies Recovery stalls SINGAPORE OFFICE Phone +65 6 780 4314 36 Rankings Our annual freight operator survey Asia managing editor Greg Waldron LEISURE WASHINGTON OFFICE 39 Fresh packaging Charter and low-cost carrier sectors Phone +1 703 836 8052 Americas managing editor Stephen Trimble converge in Europe LEADERSHIP DISPLAY ADVERTISING ENQUIRIES Phone +44 (0)208 652 3469 42 Winning formula WestJet boss Gregg Saretsky Key accounts manager Grace Hewitt FLIGHTGLOBAL PUBLISHING MANAGEMENT ANALYSIS Chief operating officer Philippa Edward Executive director content Max Kingsley-Jones 44 Q2 results Emerging problems despite fuel relief Publisher Stuart Burgess SUN SEEKERS 46 Certain uncertainties Factoring variables into SUBSCRIPTION ENQUIRIES page 39 Phone +44 (0)1444 445454 demand projection Download our 2015 media planner at: FORUM Flightglobal.com/mediacentre 49 AEA chief Khan do it alone Finding middle ground Airline Business is published monthly by Reed Business between carriers and policymakers Information. © Reed Business Information Ltd 2015. 51 A tale of two purchases Keeping up with Google ISSN 0268-7615 (Print) ISSN 2059-3449 (Online). Printed in the UK by William Gibbons and Sons Ltd. 52 Executives on the move Appointments Annual Subscription Rate: US$198/£124 Periodicals postage paid at Rahway, NJ. Postmaster send COMMENT changes to Reed Business Information, c/o Mercury International Ltd, 365 Blair Road, Avenel, NJ 07001. 54 Qantas on the bounce For a full listing of RBI magazines, BPA visit reedbusiness.com INTERNATIONAL FLYING KANGAROO flightglobal.com/airlines page 54

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flightglobal.com/airlines October 2015 | Airline Business | 5 AIRLINE BUSINESS INTERACTIVE FRESH NEW LOOK FOR FLIGHTGLOBAL.COM

he 900,000 visitors to ■ Streamlined news channels Visitors to flightglobal.com can Flightglobal’s free website to enable you to find relevant create a profile by registering Tevery month are discover- content more quickly and con- for free which enables youto ing a new look to our online offer- figure your email needs based access richer, more in-depth ing with the launch of the rede- on your interests content including analyses, signed flightglobal.com. ■ An upgraded search function digital editions and multi- Over the last five years, Flight- ■ Article pages that now offer media content. Check out all global has gone through some you additional data insight based the new features of our new exciting changes as we have on the topic site at: flightglobal.com expanded our services to help you keep on track and analyse Key improvements include streamlined news channels industry developments. We wanted to reflect those changes on our free-to-use web- site and provide a clean and sim- ple design that allows you to access our products, services and world-renowned content. Key improvements brought by the new flightglobal.com include: ■ A simplified menu to help you find all the information you need, from news to products and services ■ Mobile-friendly features, so you can navigate our content more effectively from any tablet or mobile device

EVENTS AIRLINE BUSINESS DAILY

FG CONFERENCES ROUTES ACROSS GLOBE Flightglobal’s upcoming conference line-up includes topics ranging from ur Airline Business Daily host for the 10th Route Develop- capital Belfast is hosting Routes aeropolitical and aviation programme will take in ment Forum for the entire Ameri- Europe in 2017. The 12th Routes infrastructure issues to Othree of the Routes cas region, says UBM. This will Europe will be held at Belfast’s finance and the latest regional airline/ network- mark the second visit of the net- Waterfront Conference Centre on alliance developments. This planning events next year, as well work-planning community to Las 23-25 April 2017. year’s Aviation Partnership as the World Routes forum in Vegas in recent years, as the As usual, we will produce daily Summit takes place in Chengdu, China. USA’s self-styled “party capital” papers throughout next year’s , while our Following on from this year’s hosted World Routes in 2013. World Routes event, which takes second New Generation of success at Routes regional forums, Meanwhile the Northern Irish place in Chengdu on 25-27 Sep- Airline Passenger Systems Airline Business Daily will be pub- tember 2017. The World Routes conference is held in lished at Routes Americas in forum returns to Europe in 2017, London. Both events are on Puerto Rico, Routes Asia in Manila when it will be hosted by the 29-30 September. Our US and Routes Europe in Krakow. Spanish city of Barcelona. round of the Ascend Finance These events take place on 17-19 Flightglobal is UBM Live’s offi- Forum programme arrives in February, 6-8 March and 24-26 cial partner for the Routes events. San Francisco on 12 April next year, respectively. We exhibit at all the events to November. Meanwhile the Routes organiser UBM Live demonstrate how the Flightglobal third AEA Leadership has announced that Routes Dashboard offers the best net- Summit, in partnership with Americas 2017 will be take place work-planning tools through our Flightglobal, takes place in in Las Vegas on 13-15 February. fleet and route data products, as Antwerp on 15-16 October. The city’s convention and visi- well as our premium news and

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EDWARD RUSSELL WASHINGTON DC Fresh blood may be good for United Sudden departure of chief executive Jeff Smisek could be positive step as US major seeks to tackle range of challenges

resh blood in the C-suite of majority of its 50-seat regional F is widely fleet with larger 76-seat regional seen as positive for the carrier, jets or aircraft. though two departures in the past “[He has] the experience of month raise execution concerns. many years on the Continental/ “New [chief executive] Oscar United board to maintain continu- Munoz will bring some fresh per- ity with a strategic cost and fleet spective to UAL,” says David plan that we think is headed in Fintzen, an analyst at Barclays, fol- the right direction,” says Fintzen. lowing the news that Munoz was Still, Munoz acknowledges replacing Jeff Smisek as president that he has a lot to learn during and chief executive of the Chicago- an analyst briefing shortly after based carrier on 8 September. his appointment. In addition, Henry Meyer III “In terms of China, [New York] was appointed non-executive JFK and Newark, I have a ton of chairman of the Chicago-based calls with all of these folks and carrier’s board of directors with I’ll get up to speed very quickly,” Smisek’s departure. he says when unable to answer analyst questions on the topics. MULTIPLE BENEFITS One of the biggest challenges

Fintzen’s comments are echoed ddp USA/Rex Sutterstock/United Airlines Munoz faces is reaching labour by other Wall Street analysts Smisek (left) has been replaced by rail heavyweight Munoz deals with two of the largest la- who think Munoz’s so-called bour groups at United: flight at- freshness could benefit United rience and investor returns. being dogged by technological tendants and technicians. in a number of ways, from re- The airline has widely been and operational issues that have solving its outstanding labour seen as lagging the likes of Amer- impacted customer satisfaction. deals to catching up with its ican Airlines and Michael Derchin, an analyst at peers in terms of customer expe- in improving margins, while also CRT Capital, is even more bullish. The airline has “The appointment of Munoz been dogged by may be a blessing in disguise,” he technological and says in a report. “At CSX, Munoz operational issues Joke that sparked probe helped transform the railroad into The sudden departure on 8 vice-president of communications an industry leader in customer September of United chief execu- and government affairs Irene focus, reliability and financial per- tive Jeff Smisek and two of his top Foxhall and senior vice-president formance. These are major priori- Flight attendants represented government affairs officers raises of corporate and government af- ties for UAL, in our opinion, and by the Association of Flight At- questions about the gravity of a fairs Mark Anderson – attended a Munoz could be the right man at tendants-CWA (AFA) are an im- federal investigation into United’s dinner with Samson in 2011 where the right time to take the helm at mediate concern. Negotiations interactions with the operator of the PANYNJ chairman jokingly an airline that could improve in with the union, which represents Newark Liberty International airport asked the airline to relaunch these areas.” all three of the airline’s flight atten- the Port Authority of New York and Newark-Columbia flights to im- dant groups, fell apart in August New Jersey (PANYNJ). prove access to his holiday home. BOARD EXPERIENCE after they missed an agreed July The resignations of the three United was pushing for a Port Munoz was previously president deadline for a tentative agreement. executives followed an ongoing in- Authority commitment to extend the and chief operating officer of CSX, United continues mediated ne- ternal investigation that is co-oper- PATH commuter train to Newark air- one of the largest freight railways gotiations with the International ating with a federal investigation port as well as renegotiating fees at in the USA. However, he has sat Brotherhood of Teamsters (IBT) into the PANYNJ, says the carrier. the airport at the time, reports state. on United’s board since its merger over a joint agreement. The federal investigation followed It launched Newark-Columbia with closed Michael Linenberg, an analyst the so-called “Bridgegate” scandal, flights in 2012 only to discontinue in October 2010. He joined Conti- with Deutsche Bank, sees the ap- when the Port Authority closed them after Samson resigned in nental’s board in 2004. pointment of Munoz as a poten- lanes connecting Fort Lee to the 2014. “We don’t expect it to impact Analysts are positive about Mu- tial “catalyst” for reaching agree- George Washington Bridge for politi- our operations,” says Brett Hart, noz’s familiarity with United’s ex- ments with both the flight cal reasons in September 2013. general counsel at United, referring isting initiatives. These include its attendants and technicians. Former PANYNJ chairman David to the investigation into the PANYNJ. $2 billion cost savings programme “We don’t see the news altering Samson resigned as a result of “We’d like to think a CEO dubbed project quality, its $3 bil- our fundamental outlook,” he says. the investigation in March 2014. change draws something of a line, lion share repurchase programme “[The] news could be the catalyst Reports state that Smisek and but time will tell,” says Barclays through the end of 2017 and on- for United to resolve its labour is- the other executives – executive analyst David Fintzen. going fleet renewal and upgauging sues… which would think would plans that include replacing the be positive.” ■

8 | Airline Business | October 2015 flightglobal.com/airlines BRIEFING EUROPE

OLIVER CLARK LONDON Battle lines drawn across Irish Sea Aer Lingus acquisition set to intensify competition as IAG looks to leverage carrier’s strong presence in UK regions

er Lingus officially became UK-IRELAND SEATS FLOWN – 2007-2015 both short-haul and long-haul Athe fourth string to IAG’s connections. “At the margin, bow in September, after the air- Seats (m) this may see some connecting 18 line group received acceptances traffic switch from Heathrow to for its takeover offer covering 17 Dublin, potentially freeing a more than 98% of the Irish air- handful of Heathrow slots for al- line’s share capital. 16 ternative use, most likely for The group, which already long-haul,” he adds. 15 counts British Airways, Iberia Having returned to growing and low-cost carrier Vueling 14 the Irish market since 2014, after among its number, sees Aer the country abolished its €3 trav- Lingus’s “strong presence” in the 13 el tax, Ryanair seems intent on UK as a key asset, says IAG chief further expanding its routes be- 12 executive Willie Walsh. 2007 2008 2009 2010 2011 2012 2013 2014 2015* tween Ireland and the UK.

An analysis of the schedules NOTE: *data projected for full-year SOURCE: Innovata – part of Flightglobal in the market underscores AGGRESSIVE PRICING Walsh’s point. Flightglobal’s In- Innovata schedules show that novata schedules show Aer Lin- and currency fluctuations ex- from 17.8 million in 2008 to 13.5 Ryanair is the biggest operator gus operates 37 routes between pected to be in its favour in the million in 2011, before begin- on routes from London to Ireland and the UK, connecting second half of the year – the Irish ning a steady recovery to over Ireland and on routes from Dub- 13 UK cities, including London, flag carrier is ready to go into 15 million seats by the end of lin to the UK. It is the only oper- with five points in Ireland. growth mode again, Rutter says, this year. ator between the UK and Kerry. However, Aer Lingus remains with an extra 3% of short-haul Rutter also says there are signs Chief executive Michael the second largest operator be- capacity in the third quarter and that a period of “softer” pricing O’Leary has lately been quoted tween Ireland and the UK be- more than 5% in the fourth. in London is ending and be- as saying he was planning “very hind Ryanair, with the Irish low- “Obviously, Aer Lingus has a aggressive pricing” over the win- cost giant accounting for a very strong history of being the ter. Another signal of Ryanair’s 48.2% market share, in compari- most successful airline in Eu- intentions came on 27 July, son with Aer Lingus’s 38.3%. rope in competing with Ryanair “Aer Lingus already when finance chief Neil Sorahan on short-haul routes, and we ex- has strong feeder confirmed that the carrier had IMPORTANT ROUTES pect to be able to continue to do services to and applied to operate London Even combining British Airways’ that,” says Rutter. from the UK” Gatwick-Dublin remedy slots re- and Aer Lingus’s services togeth- The commercial chief also leased by British Airways and er, the two carriers only muster a notes a general improvement in Aer Lingus to assuage European 45.5% market share. the economic outlook in the UK competition concerns. However, after a tie-up with and Ireland and “therefore the lieves that the IAG tie-up would Ryanair already has a small IAG, the market is unlikely to re- benefits of economic recovery only aid the carrier’s efforts to operation from Gatwick, serving main static long, as Aer Lingus which are flowing through the pick up more transfer passengers three Irish destinations – Dublin, and Ryanair have been signal- passenger numbers”. from the UK to feed onto its Shannon and Cork – but this ling their intention to step up This trend is borne out by long-haul routes thanks to the could represent a new period of services on key routes. Innovata schedules data, which opportunities for codeshares and growth for the Irish carrier away Aer Lingus fired the starting shows that seat capacity be- possible involvement in its from its base at London Stanst- gun in May when it disclosed tween the UK and Ireland fell North Atlantic joint venture ed. What will mark out the strat- plans to start flights between with its partners. egies of Aer Lingus and Ryanair Liverpool and Dublin from this “Aer Lingus already has in their UK-Ireland expansion winter – a move Aer Lingus strong feeder services to and strategies could be the Irish flag chief commercial officer Mike from the UK regions. Its strategy carrier’s emphasis on adding Rutter describes as “historically would be likely to see these in- points and capacity to feed its significant between the two busi- crease gradually over time,” says Dublin hub and enhance its rela- nesses”, referring to Ryanair, Gerald Khoo, a transport analyst tionship with British Airways on currently the sole operator on with brokerage firm Liberum. transatlantic routes. the route. “The IAG acquisition would be That strategy is in contrast Rutter is bullish about the op- likely to accelerate this.” with Ryanair’s model, which portunities the IAG tie-up of- Khoo expects Dublin to act as remains focused on point-to- fered for Aer Lingus to expand an “alternative hub for North point traffic. its UK short-haul operations. Atlantic connections, especially Given what has happened in Having successfully reduced its for passengers originating in the the past on routes where these

short-haul costs in the first half ddp USA/Rex Shutterstock UK regions”, which he expects two models clash, fierce compe- of the year – and with oil prices Walsh: Aer Lingus key to plans will probably lead to a growth of tition looks a certainty. ■ flightglobal.com/airlines October 2015 | Airline Business | 9 BRIEFING ASIA

AARON CHONG SINGAPORE Challenging new start for Malaysia Struggling Oneworld carrier relaunches under new corporate entity but long road remains in effort to return to sustained profit

year after Malaysia state “The longer they delay this, the Ainvestment fund Khazanah more they risk losing key market Nasional announced its radical share,” he says. “The AirAsia 12-point recovery plan for Malay- Group has more or less become sia Airlines (MAS), the carrier the de facto flag carrier for Malay- began operating under its new sia given their greater number of corporate entity. planes, visibility and clout.” Announced on the back of the Yusof feels that MAS needs to MH370 and MH17 tragedies, the think longer term, beyond its 2017 plan called for a number of key target of returning to profitability. changes. The strategy, entitled “It is amateurish to think that “Rebuilding A National Icon – by scaling down their network The MAS Recovery Plan”, fea- and cutting back costs, whilst tured four broad categories cover- relying on their Oneworld part- ing fresh policies on governance, ners for leverage, that they will be financing, leadership, human able to turn the corner. They need capital, as well as the regulatory to have a succession plan. What

and enabling environment. It Airbus happens after Mueller has com- amounted to a completely new Disposing of two unwanted A380s is likely to prove difficult pleted the job?” model for the ailing carrier. Progress has been made. MAS routes, further route rationalisa- financial mismanagement. ECONOMIC WOES has been delisted and shed some tion is also being considered. “I believe we have to reach a Aziz, meanwhile, adds that the 6,000 staff from its 20,000-mem- The carrier has already cut point where we see the revenue worsening Malaysian economy is ber workforce; new management Frankfurt, Istanbul, Kochi, Kun- measures are resonating with the the last thing the carrier needs at led by former Aer Lingus chief ming and Krabi passenger ser- market,” he said. “We have to see this critical juncture. executive Christoph Mueller has vices from Kuala Lumpur. that cost-cutting measures are “The weak ringgit against the been installed; a fleet and network Khazanah adds that it will soon showing in our profits and losses, greenback has not helped MAS at revamp has begun, most latterly disburse MYR1.3 billion ($302 and then I have enough confi- all, causing an impact on senti- including a deal to lease four Air- million) in conditional investment dence to even think about [buying ment, especially with fears of reces- bus A350s from Air Lease; and funding to the airline to pay for more aircraft].” sion looming. There is now even after receiving its new AOC in late employee termination packages less optimism for travel. The next August, it has since the start of under a rightsizing exercise. few months will be more challeng- September been operating under Including this sum, Khazanah ing than initially thought.” the new Malaysia Airlines Berhad would have disbursed about The carrier could As part of its 12-point restruc- corporate entity. MYR3.2 billion out of the MYR6 continue to face turing plan, MAS was to reduce Khazanah Nasional says billion allocated for the restructur- difficulties in fleet its fleet size. Flightglobal’s Malaysia Airlines is on track ing effort. management Ascend Fleets database, how- towards becoming a sustainably ever, shows that the carrier has profitable commercial airline. It RECOVERY PATH made no clear progress in this says fine-tuning of the carrier’s The airline has also undertaken a area. It shows that MAS operates business plan is “ongoing”, and review of its supply contracts, For all of MAS’s cost-cutting a mixed fleet of 97 aircraft, with that more than 100 projects have with deals identified for renegoti- and turnaround measures, ana- 10 Boeing 737-800s on order – been identified to “reset the oper- ation, termination or novation. lysts still say it is too early to judge exactly the same as a year ago. ating business model”. “The review and renegotiation of the airline’s restructuring progress. Aziz is fearful that the carrier These projects involve improv- supply contracts are crucial “We can’t convincingly say if will continue to face difficulties in ing revenue, optimising cost and towards setting the airline on the they are out of the woods,” says fleet management, including the putting in structures to facilitate path to recovery and sustained Mohshin Aziz, analyst at May- planned disposal of two of its six an effective restructuring of the profitability,” says Khazanah. bank Investment Bank, citing a Airbus A380s. airline. While steps have been In addition, around 98% of lack of financial data from MAS. “The A380 is not an easy aircraft taken to suspend non-profitable staff who were offered employ- “But what we know is that the to sell or lease, especially to the ment with the new company have process has been smoother than secondary market. Singapore Air- accepted the offer. Of the airline’s expected; staff are not going on lines’ first batch of A380s will have 13,000 workforce, 9,000 are on strike and that no other major their operating leases expiring 98% permanent employment while the accidents have happened.” soon, and it looks like they will not rest are on short-term contracts. Shukor Yusof, founder of avia- renew the leases. MAS will find it Staff who have Mueller was under no illusion tion advisory firm Endau Analyt- even harder to get rid of its accepted job offer about the size of the task at the ics, believes MAS has “yet to unwanted aircraft. Moreover, the from new company carrier, describing it as “techni- address the root concern” – unjustified negative sentiment of cally bankrupt” after years of future positioning. the MAS brand is still there.” ■

10 | Airline Business | October 2015 flightglobal.com/airlines ELLIS TAYLOR SINGAPORE Jetstar focuses after Hong Kong KO Australian carrier’s low-cost brand to build on existing units after three shareholders give up battle to launch joint venture

antas’s Jetstar-branded affili- star carriers – Singapore based Qates in Asia are focusing on Jetstar Asia and Jetstar Pacific in consolidating profits, now that Vietnam, both of which appear to plans to launch a joint venture have turned a corner financially carrier in Hong Kong have been over the past year. kyboshed by authorities there. Hong Kong’s Air Transport LOWER YIELDS Licensing Authority found that Last year, Jetstar Asia made a loss the proposed carrier would have as it was caught up in a low-yield violated its Basic Law, with con- downdraft, as regional competitors trol of the carrier residing outside such as Tigerair, Lion Air and of Hong Kong. Despite protesta- AirAsia added large amounts of tions and threats of an appeal, the capacity. That seems to have eased three shareholders behind the though, with Qantas noting the air- company – Qantas, China East- line delivered a full-year profit,

ern Airlines and Shun Tak Hold- Airbus marking a A$45 million turna- ings – have all decided to cut Jetstar has struggled to find success in the greater China market round from the previous year. their losses and walk away. Vietnamese joint venture Jetstar The loss of the Hong Kong star ventures to where we want Pacific also appears to be finding venture, which Qantas supported them, but Jetstar overall is per- financial traction. Qantas says the for years and ploughed millions forming exceptionally well.” Joyce insists carrier became profitable during of dollars into, leaves a major The low-cost group delivered that there is still the half year ended 30 June, and it hole in Jetstar’s pan-Asia strategy. earnings before interest and tax a growth plan continues to diversify away from Jetstar Hong Kong had hoped of A$230 million ($161 million) for Jetstar its focus on domestic flying. The to bring the Australian low-cost for the year ended 30 June. A airline has also started to work brand into the greater China mar- large portion of that came from more closely with 70% share- ket. So far, the brand has had lim- the rebound in its Australian holder Vietnam Airlines. ited success in the market, and its operations, but also positive flights from Osaka and Narita to Still, outside observers note Jet- only mainland China presence is results from its joint ventures in Hong Kong. Further expansion to star Pacific has squandered first- through Jetstar Asia’s services to Singapore, Vietnam and Japan. Taiwan, South Korea and the mover advantage, having been Shantou, Huangzhou and Hai- Much of that growth will be Philippines appears likely, overtaken by VietJet Air in the kou. That will be enlarged some- incremental, with no new aircraft although services to China would domestic market. It has also lagged what with Jetstar’s Australian expected in the Jetstar group in likely be the biggest prize. on international expansion, but arm’s new services between the the near term. That expansion will require this should be a major growth area. Gold Coast and Wuhan using Nevertheless, Joyce insists that JAL and Qantas to pump up to The Hong Kong news is a blow, Boeing 787-8 aircraft. there is still a growth plan for Jet- Y10 billion ($83 million) into the as it keeps Jetstar away from being star, and that Jetstar Japan has carrier. It will also face a new a major player on the doorstep of EXISTING FOCUS particularly strong prospects. threat next year from the reborn Asia’s largest travel market. On the With Hong Kong out of the pic- Data from Flightglobal’s sched- AirAsia Japan, while further other hand, it will avoid invest- ture, Qantas chief executive Alan ules specialist Innovata shows it growth from competitors Vanilla ments into a unit that could lose Joyce said in late August that it is the largest domestic low-cost Air or Peach at Tokyo Narita money for years. Provided other will focus instead on improving carrier, commanding around 7% could push yields down. units build on recent profits, Qan- its existing operations: “We of total capacity. Although late to Japan aside, Joyce insists that tas shareholders should expect the won’t be starting any new ven- the party, the carrier recently there are opportunities for good news to keep rolling. ■ tures until we’ve got all the Jet- ventured internationally with growth at the two other Asian Jet- See Qantas on the bounce P54

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LAURA MUELLER LONDON No cure for the summertime blues Financial market turmoil at the end of August has left airlines facing even more uncertainties about the economic outlook

irlines that had hoped the ficient growth for an export-led Aclose of summer would pre- economy such as China.” sent a clear picture about the He adds: “Those main financial state of the financial markets institutions involved in leasing will be hugely disappointed by are all directly, or indirectly, con- the even deeper sense of global trolled by the state... Even if those uncertainty and market volatil- banks have all underestimated the ity now prevailing. amount of bad loans, a financial Financial markets were sent meltdown excluded, China will into a tailspin in August by Chi- always support the weakest [state- na’s stock-market rout and its sur- controlled institutions]. prise devaluation of the yuan against the US dollar. INVESTMENT INCENTIVE Also, reduced Chinese demand “Will we see less aggressiveness for commodities has devastated in China’s buying of [aircraft] port- commodity-exporting countries, folios or businesses in aviation? I many of which are emerging mar- don’t think so – most of the recent kets, such as , and their cur- buyers have had an incentive to

rencies. EPFR Global, a data pro- Rex Shutterstock diversify their investment abroad, vider, estimates that investors China’s stock market collapse coincided with a strong US dollar and that will continue.” have yanked $44 billion out of His thoughts echo Shenzen- emerging-market equities and Not only does a strong dollar However, despite global market listed Bohai Leasing’s recent bonds since mid-July. make operating costs swell for turmoil, China’s investor appetite takeover over of Avolon in a Unfortunately for many airlines, airlines that generate revenue in for aviation remains firmly intact, move that values the Irish lessor this turbulence has coincided with a different currency, such as the argues DVB Bank board member at $7.6 billion. a very strong greenback. euro, but also, it could force Bertrand Grabowski. At $31 per share, the deal repre- The only certainty, it seems, is such airlines to pay more to sents a 3% cut to the previous that the sharp rise in the US dollar their lenders. offer on 10 August, reflecting during the past several months A French banker indicates recent volatility across the global does not look set to reverse any- European banks “may suffer a Banks may have to equity markets. time soon. slight increase in their liquidity reduce their net The offer equates to 1.7 times costs in US dollars” as a general margins in order to Avolon’s book value and allows DOLLAR HEADACHE consequence of the current mar- remain in the race Bohai to diversify out of the yuan While most aviation financiers ket situation. and into highly coveted US dollar have shrugged off these market jit- If prolonged, this situation cash flows. ters in the name of benign interest could affect the cost of borrowing It also allows Bohai to merge rates and fuel prices and a likely for airlines and lessors, he says. “The domestic market will con- Hong Kong Aviation Capital, its lifting of sanctions in Iran, there is “Banks may have to reduce tinue to grow and China’s order- existing leasing entity, with Avo- no denying that a strong US dollar their net margins, after the deduc- book is well dimensioned for the lon to create a larger global leasing is a headache for many. tion of the liquidity cost, in order embedded and somewhat reason- force, should it choose to. to remain in the race in a com- able growth expected,” he says. However, to further settle Avo- petitive market where you have The economic situation does lon’s nerves during a time of roll- also non-European banks that not surprise him. “China clearly ercoaster financial markets, 3% may be less affected by the dollar entered a bubble phase a few years which does not look set to ease liquidity issue,” he says. “If the ago, based on cheap liquidity and anytime soon, Bohai agreed to Fall in Avolon’s value liquidity cost in US dollars keeps investment mainly in real estate increase its deposit by $100 mil- between August offer increasing, banks will have to and the stock market. Modest lion to $350 million, which will and September deal translate part of this into their growth in overseas client markets remain with Avolon should the future quotes.” was not helpful in providing suf- deal collapse. ■

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12 | Airline Business | October 2015 flightglobal.com/airlines INSIGHT TRANSAERO Bumpy road to Russian consolidation

Evgeny van der Geest, a senior analyst with Flightglobal’s Ascend consultancy, examines the hurdles ahead for airline integration as Aeroflot acquires debt-laden Transaero, with severe fleet cuts expected for both operators

s Russia braces itself for a brought by the creation of an inte- Abrutal winter, with economic grated carrier, there lies the signifi- conditions to match, Transaero cant weight of the Transaero debt and its prospective new owner mountain owed to state-banking Aeroflot must prepare for a simi- institutions like Vnesheconom- larly arduous journey toward bank and Sberbank. integration and ultimate business transformation. STATE ASSISTANCE The initial obstacles to be sur- With the nation’s carriers queuing mounted – approval by share- up for assistance from govern- holders and the competition au- ment, it makes sense for the au- thorities – pale into insignificance thorities to simplify negotiations compared with those lying further – and perhaps reduce the level of down the road. One that looms payouts – by effecting market con- large is the mismatch between the solidation, albeit that UTair’s situ- carriers’ fleets. ation had seemed more dire than

Transaero’s 98 in-service air- AirTeamImages Transaero’s. Likewise, the move craft – 91 of which are Boeings – Transaero’s and Aeroflot’s fleets will have to be streamlined dovetails with a narrative of state- have an average age of 16 years, directed integration and stream- versus a mere five years for Aer- In any negotiations with Airbus lining within Russia’s aerospace oflot’s 163 aircraft, which com- on these, Aeroflot can be at least With UTair in the red, industry generally. prise 118 Airbus jets, 25 Boeings emboldened with the knowledge Russia may soon However, it is equally a blow to and 20 Sukhoi Superjets. that the European airframer will market competition. With UTair Swingeing fleet cuts must surely be keen on retaining a Russian have only two-and- deep in the red, Russia may soon lie ahead, and Transaero’s 13 customer in the interests of a di- a-half airlines be a country of two-and-a-half air- 737-500s seem the prime candi- versified customer base for the lines, with only S7 as a sizeable dates for phase-out. Those nar- ultra-large type. independent and the shadow of rowbodies have an average age More broadly, Aeroflot-Transae- the state extending ever further. of 19 years, and likely don’t re- ro will need to rationalise various host of regional carriers that have But if Aeroflot-Transaero can tain much residual value. dollar-denominated lease deals, been subsumed by Aeroflot since be seen as a victory for pragma- Transaero and Aeroflot both op- given the impact on revenue of the the early 1990s. tism in the face of adverse market erate fleets of much newer 737- sharply depreciated rouble. At middle-management levels, conditions, it is very far from a 800s, and both fly A321s too, Before any long-haul fleet plan perhaps, a coming-together of like quick fix. Industry watchers and though Aeroflot has many more can be finalised, however, there minds is possible, but there has passengers should prepare for a of these than Transaero. are huge cultural challenges to already been a strong hint that big tedious, long-drawn-out process, address. Even aside from its focus changes will happen higher up knotted with complexity. The FLEET DECISIONS on leisure-market charter flying, the managerial chain. Almost im- only cold comfort for the Russian Decisions on how to streamline Transaero is a very different ani- mediately after news of the puta- government may lie in the the long-haul fleet are for the mal from state-owned Aeroflot. tive Aeroflot deal broke, it knowledge that it may be easier longer term. Transaero’s in-ser- Under the leadership of Olga Ple- emerged that Pleshakova had to embark on this journey now, vice widebody fleet of 45 aircraft shakova – who has featured in been succeeded as Transaero chief rather than be forced to take ac- – 14 747s ,18 767s and 13 777s – Fortune’s list of the 50 most pow- executive by Dmitry Yerzakovich. tion later in 2016, after that inevi- is bigger than Aeroflot’s, which erful women in business – She will now chair the airline. table bad winter. ■ consists of 13 777s and 22 A330s, Transaero has had the air of a The Russian government’s mo- See Appointments P52 though the flag carrier also has confident, modernising private- tivation in moving to secure the A350s on order. A big question sector independent, and a philo- future of Transaero is multifacet- Find out more about Ascend’s mark overhangs the fate of sophical clash seems inevitable ed. Beyond the potential integra- range of services at: Transaero’s four on-order A380s. as the airline joins the powerful tion benefits which could be flightglobal.com/consultancy

Keep track of the latest developments in IN ASSOCIATION WITH in-flight connectivity www.flightglobal.com/connectivity flightglobal.com/airlines October 2015 | Airline Business | 13 INTERVIEW ENRIQUE BELTRANENA

REPORT GHIM-LAY YEO MEXICO CITY

PHOTOGRAPHY EDGAR LADRON THE GUEVARA/CSM FORWARD THINKER A tight rein on costs and clever digital marketing strategy has allowed Enrique Beltranena to steer Volaris back into profit and onto a solid path to growth in Mexico and beyond

olaris chief executive Enrique Beltranena has a memento in his office that doesn’t quite gel “We don’t have widebodies V with the modern confines of the but we still produce higher airline’s headquarters in the revenue than any of Santa Fe business district of Mexico City. our competitors” It’s a 20-year-old company newsletter dat- ing from April 1995, with a younger Beltrane- na smiling from its cover, accompanied by a growth and growth,” he says of Volaris’s com- message to employees at Guatemalan airline ing years. “If anything, we will be making it Aviateca. Beltranena, then in his early 30s, much more of an ultra-low-cost carrier.” was general director at the carrier, which was Following a 2014 marked by weaker con- part of Central American airline group Taca. sumer sentiment and depreciation of the “I’ve been around,” Beltranena says, proud- Mexican peso, Mexico’s carriers have found ly showing the newsletter to Airline Business. themselves in a stronger position in 2015 as In his almost three decades in the airline in- yields strengthened. dustry, Beltranena’s last 10 years are arguably the Volaris swung back to the black in the last most significant of his career. The now 52-year- three quarters with positive operating results, old was at the helm of Volaris when it launched and operating revenue grew 24% to Ps4.1 bil- flights in March 2006. Rapid expansion and a lion ($240 million) in the second quarter. 2013 initial public offering later, the carrier now Beltranena attributes the airline’s strong serves more than 60 destinations, predominantly financial showing to its relentless focus on in Mexico and the USA, with a fleet of more than costs, which he says is lacking at Volaris’s 50 Airbus A320-family aircraft. main rivals Aeromexico and Interjet. Not too bad, considering that the last dec- In August, Volaris held a majority ade has not been the most glorious in Mexi- 36% share of capacity on flights within can aviation history. Several airlines have Mexico, Innovata data shows. This is ceased operations, most notably Mexicana, more than six percentage points ahead which went bankrupt. of Aeromexico. Interjet held a 21% But Volaris has only been expanding its foot- share of capacity, and VivaAerobus’s print, and if you ask Beltranena what’s next in share stood at just under 12%. the airline’s second decade, he will tell you “While our average fare is half that they are just getting started. “Growth, of Aeromexico’s average fare, our

14 | Airline Business | October 2015 flightglobal.com/airlines flightglobal.com/airlines October 2015 | Airline Business | 15 INTERVIEW ENRIQUE BELTRANENA

revenue per departure is higher than Aer- Volaris began charging for carry-on bags in omexico’s revenue per departure – 195 pesos 2013 when it rolled out a new reservations sys- versus 193 pesos,” says Beltranena. “That tem, and started selling food and beverages, seat- tells you a lot. We manage a uniform fleet, we assignment fees and fare-club memberships. don’t have widebodies, we don’t have that Beltranena believes there is room to grow kind of stuff and we still produce higher reve- ancillary revenue further, and the airline nue than any of our competitors in Mexico.” plans to tackle this by offering new products Volaris has done this while keeping its costs and dynamically pricing ancillary fees down. The carrier in the second quarter report- through targeted marketing. ed a record low in its unit cost excluding fuel, “What we are doing today is digital market- which dipped to 4.9 cents. This year, Volaris ing. We are learning a lot about the patterns of completed a seat densification project to further our customers. For example, we are identify- drive down unit costs, adding five seats to each ing segments that use more luggage, or use of its A320s for a total of 179 seats on board. different types of luggage, or who use seat se- “Interjet keeps on trying to be a legacy car- lection but not checked luggage. All these rier. They maintain their pitch while we in- combinations are things we are learning now crease our pitch,” says Beltranena. with our new digital marketing information Earlier in 2015, Volaris added its first two and this is coming along very well. That al- A321s and the airline is on the lookout to add lows us to do far more targeted selling. In the more of the largest A320-family variant. Belt- MEXICAN WAVE beginning, it was kind of a generalistic ap- ranena says the airline is in talks with lessors to proach of selling ancillaries.” acquire more aircraft. An updated fleet plan After years of congestion at Mexico City Volaris carried more than 9.8 million pas- from June shows that Volaris plans to eventually International airport, Mexican carriers will sengers in 2014, up 10% from a year ago and operate 10 A321s and six A321neos in 2021. It finally get a new airport in the capital, almost thrice the number of passengers it currently has eight A321neos on order, Flight- scheduled to open in phases from 2019. transported in 2009. global’s Ascend Fleets database shows. “It’s something that Mexico needs,” says Beltranena reckons that about a third of Vola- Enrique Beltranena. “It’s very difficult to grow ris’s passengers were previously bus passengers, he larger A321s will allow Volaris what we have today because we physically and the airline aims to switch more bus passen- to optimise its slots at Mexico City cannot add flights.” The airline, however, is gers to the air with its promise of low fares. International airport, which is slot- cautious about what a new airport would do In the recent year, the airline has taken to Tconstrained. “If you remember the to costs. “As an ultra-low-cost carrier, it has Mexico’s bus terminals each quarter, hunting way we did it at Mexico City, we to be a competitive airport for us. And we still down passengers leaving on bus journeys of five started flying with A319s and we upgauged to don’t know where it’s going to be at.” hours and above. “We offered them an exchange A320s once the markets matured. We have Rising airport costs in Mexico are among for a Volaris ticket,” says Beltranena. The carrier certain markets that are maturing enough that Volaris’s concerns, and Beltranena believes gives away about 20,000 tickets each time. they can afford the A321,” says Beltranena. In Mexican carriers are at a disadvantage The effort has paid off, he believes. “This addition, the A321’s unit costs are also attrac- compared with their US counterparts. whole thing generates a lot of dynamics,” says tive to Volaris, he notes. Mexico City’s secondary airport, Toluca, Beltranena. “We keep on tracking these pas- Aside from adding more seats and taking also poses challenges for low-cost airlines. sengers and we get their information.” Volaris larger gauge aircraft, Volaris is pushing to “For Toluca, we need to truck the fuel there has seen about $20 million of incremental grow its ancillary revenue. Non-ticket reve- and it makes Toluca more costly on a per revenue in each quarter from these former bus nue in 2014 rose 32% to $18.90 per passenger, unit basis,” says Beltranena. travellers, says Beltranena. “It’s working pret- Volaris’s financial statements show. In the first ty well. When you analyse the size of the six months of 2015, this figure rose 31.3% growth, Volaris in the last five years has by far year-on-year to $21.70. the greatest growth of the market.” VOLARIS AT A GLANCE “I think we can get up to the level of high The airline prices its fares at levels to lure $30s in two, three years, which puts us pretty Operating revenue $m 2014 1,050 passengers away from lengthier bus trips. A much at the level of Wizz or a little bit higher Change $ 3.9% Volaris round-trip fare from Mexico City to than Ryanair,” says Beltranena. He points out Change local 8.0% Guadalajara, for example, costs about $120 for that Volaris will never hit the same figures as a 1h 20min flight each way. In comparison, a Operating margin 1.5% US ultra-low-cost carriers and round-trip bus journey between the two cities Net margin 4.3% , because Mexican regulations costs just $20 less and takes up to 7h each way. Year-end 31 Dec 2014 prevent local airlines from charging passen- Volaris is not the only Mexican low-cost gers for the first checked bag. AB 2014 financial ranking 105 carrier seeking to convert bus passengers to

While ancillary fees have long been a staple AB 2014 traffic ranking 95 the skies – its rival VivaAerobus is also doing at low-cost carriers around the world, the con- RPK growth (2014) 8.0% the same. Partly owned by a Mexican bus op- cept is relatively new in Latin America, ASK growth (2014) 8.5% erator, VivaAerobus is also marketing to cost- which still has a low penetration by budget Load factor (2014) 82.2% conscious passengers at bus terminals in a bid airlines compared with other regions. to switch them to its flights.

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flightglobal.com/subscribe/airline-business/tablet/ INTERVIEW ENRIQUE BELTRANENA

But VivaAerobus’s network is significantly into Central America is something that makes smaller, and Beltranena believes Volaris is grow- all the sense in the world, with the high-yield ing its market share quicker than its competitor. fares in Central America. We strongly think we “We are completely different from VivaAero- can do a very good job there.” bus,” says Beltranena. “The fact is we don’t With Volaris’s growth outside of Mexico, it is own any bus companies, we can hit the bus natural to ask if Volaris plans to partner with a companies straightforward.” foreign carrier, especially with competitor Aero- mexico’s plan to form an immunised joint ven- nlike its Mexican low-cost rivals, ture with SkyTeam partner Delta Air Lines. Vol- Volaris has rapidly expanded its aris had previously partnered with Dallas-based network in the USA and now , in a deal that had allowed U serves more than 20 cities in its Southwest passengers to book flights to select northern neighbour – more than Volaris destinations from some of Southwest’s double its number of US destinations in 2013. cities. But that tie-up ended in 2013. Volaris’s US growth has been the main Beltranena says the deal had not made “eco- driver of its capacity increases, with interna- nomic sense” to Volaris and adds that the carri- tional capacity rising almost 35% year-on- ers had differing opinions on whether to share year in the second quarter. US- ancillary revenue. The Volaris-Southwest part- denominated revenue makes up about 30% of nership never led to a full codeshare, even Volaris’ revenue, the airline’s chief financial HOBBY HORSE though both had initially planned for that. officer Fernando Suarez said in July. Despite Southwest’s recent growth into Mex- The airline’s US destinations are concen- Enrique Beltranena helped get Volaris off ico, Beltranena indicates that a revival of a deal trated in the states of California and Texas, al- the ground in 2006, but the mental with the US carrier is unlikely. “Our relation- though it also serves Denver, Chicago and transformation into a low-cost carrier ship with Gary [Kelly, Southwest chief execu- New York JFK among others. mindset began in his last two years at tive] and the team is fantastic and we highly re- Beltranena declines to specify where Volaris Central American airline group Taca, where spect Southwest and they highly respect us. I could launch services to next in the USA, but he was chief operating officer. think we both understand where we are at.” points out that the airline has plenty of room to Beltranena was then tasked with a Volaris remains open to partnering with grow. The airline says it has potential to add as project to simplify operations at Taca, other US carriers, but Beltranena cautions that many as 126 domestic routes and 140 interna- although that plan never took off as Taca the potential benefit must far outweigh any tional routes that it currently does not serve. merged with Avianca. cost that the airline will bear. The airline’s ex- Of the 140 potential new international routes, “Taca was like a lab,” says Beltranena. “I isting reservations system does not have inter- most are in the leisure segment, says Beltranena. was mentally developing myself into an lining or codesharing abilities, for example, The airline’s US growth so far has been focused ultra-low-cost carrier mentality.” and would require upgrades. on the visiting friends and relatives market. Almost a decade later at Volaris, “We are open to hear about it [a partner- In 2016, Volaris will have even more reason Beltranena says he does not miss the days ship],” he says. “To codeshare something to expand services in the USA when a liberal- of working at a legacy carrier. “I’m a simple with someone with fares priced as low as ised US-Mexico comes guy,” he says. ours, it has to be something really big to make into effect. Beltranena says the new treaty will “Volaris is something that was created sense from an economic perspective.” allow Volaris to add more flights to cities where from scratch with a very thoughtful Beltranena has the same perspective when services by Mexican carriers are currently re- strategy which eliminates complexities it comes to Volaris potentially playing a role stricted, such as Houston and New York. and barriers in order to establish a in the consolidation of the Latin American Looking further ahead, Volaris also plans to low-cost carrier.” airline industry, which has seen several high- add Canada and South America to its route When not running Volaris, Beltranena profile mergers in the last decade. map at some point. Beltranena declines to keeps busy with his family. The 52-year-old While Volaris is open to consolidation, Bel- comment on when this would be. “We are father of four enjoys paragliding and tranena reiterates that the airline has no plans doing one thing at a time,” he says. watching NASCAR races. to deviate from its low-cost roots. The airline, however, made its first foray into He has clearly passed on the aviation bug “It certainly has to fit with our business Central America when it began services to Gua- to his children – his son loves all things model. We strongly think the model is doing a temala City in June followed by San Jose in aviation, and his daughter is interning at great job, it’s working very well in terms of pen- Costa Rica in September. The two destinations Volaris in the summer while studying to be etration of the market, it’s growing in the mar- are Volaris’s first international points outside of an industrial engineer. ket,” he says. “If we do something in terms of the USA, and Beltranena indicates that the car- “I’d be drinking coffee at home in the an alliance, we would be open to it, but it has rier could grow further in Central America. morning, and my kids will ask me, are you to be something that at least fits with the model “The decision to start Central America drinking aircraft fuel? But to be honest with we are operating and can help us.” ■ [flights] is kind of in phases,” he says, adding you, I still stand up in the morning like I’m that obtaining traffic rights to operate in Central going to do my hobby. I don’t work here. All Airline Business cover interviews, along with America is a process that takes time. “We This is my hobby.” videos, can be viewed in our digital editions: strongly think that pushing the low-cost model flightglobal.com/AirlineBusiness

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AIRLINE | AIRPORT | SCHEDULES | NETWORK | FLEET SPECIAL REPORT REGIONALS

CONTENTS

22 Back in the house After restructuring, US 27 Regional forecast Flightglobal’s latest regional units are prospering and could outlook highlights a market in transition head down the subsidiary path again 28 Regional airline rankings Our annual 24 ACMI ache Europe’s wet-lease carriers survey covering the top 100 operators face shrinking markets, forcing them to 32 Regional airline snapshot We break out turn to hybrid operating models traffic by operator category and regions Embraer

US regional airlines are prospering as the sector transitions, which could prompt moves to bring some back in-house. Meanwhile, as the increasingly competitive market in Europe makes it tough-going for some of the smaller ACMI players, they are re-evaluating their business models All our special reports are available online at : flightglobal.com/airlines flightglobal.com/airlines October 2015 | Airline Business | 21 REGIONALS AMERICAS

REPORT EDWARD RUSSELL WASHINGTON DC BACK IN THE HOUSE After reshaping, and in many cases, disposal by the major carriers, restructured US regional units are prospering and could make a return to the subsidiary role

ust a few years ago US mainline carri- operations,” said Hunter Keay, an analyst ers saw their wholly-owned regional “It might make sense to with Wolfe Research, in a May report. “Since subsidiaries as drags to their busi- consider bringing regional then, post-merger cost structures at the big J nesses, adding cost and complexity three airlines have become so complicated to an already low margin game. The feeders back in-house” [and high], that it might make sense to con- result was a stream of spin-offs, sales and shut HUNTER KEAY sider bringing one of these now-outsourced downs that saw the bulk of regional operations Analyst, Wolfe Research regional feeders back in-house.” shift to independent contract carriers. He suggests that with the market capitalisa- The tables may be turning. American Air- Delta’s subsidiary Endeavor is a similar tions of the publicly-traded regional carriers lines’ and Delta Air Lines’ subsidiaries appear story. When the Atlanta-based mainline car- – SkyWest Inc and – under to be bucking the industry trend, performing rier acquired then-named Pinnacle Airlines a billion dollars, mainline carriers could fund well operationally and facing few of the diffi- out of Chapter 11 bankruptcy in 2013, it such a deal with some of the excess cash flow culties recruiting pilots that challenge so many planned to shrink the airline and make it an they are generating from low fuel prices. independent regional airlines in the USA. all-CRJ900 operator. For example, American alone anticipates “PSA, Piedmont and Envoy, which were $4.35 billion in fuel savings this year alone – always quality operations, they’re all now at a CHANGING TIMES more than enough to purchase either of the very cost-competitive footprint,” said Kenji Those plans changed as the financial turna- publicly-traded carriers. Hashimoto, senior vice-president of regional round of Minneapolis-based Endeavor took American had planned to divest or spin off carriers at American, in May. This is follow- hold, says its chief executive Ryan Gumm. The Envoy, then known as American Eagle Air- ing the reorganisation of Envoy through the carrier has kept 40 Bombardier CRJ200s that it lines, prior to its November 2011 bankruptcy mainline carrier’s Chapter 11 bankruptcy pro- planned to remove and is in “conversations” filing. However, Hashimoto put those plans to cess that ended in December 2013, and new with Delta about the possibility of growing its rest in a June 2014 interview when he said or amended pilot agreements at each carrier. fleet with additional 76-seat aircraft. they did not have “any interest in spinning As a result, American is making aircraft With both American and Delta interested [off] any of our wholly-owned regionals”. investments at all three airlines, he says. This in growing their wholly-owned feed – could Instead, the airline would focus on improving includes concentrating Bombardier aircraft at the model be making a comeback in the USA? the product and integrating the operations fol- PSA, including 30 new CRJ900s, shifting some “Prior to the current airline cycle, network lowing its 2013 merger with US Airways. Embraer ERJ-145s to Piedmont from Envoy and airlines shed in-house regional feeder opera- Delta has owned a number of regional sub- placing at least 40 new Embraer 175s at Envoy. tions in an effort to cut costs and simplify sidiaries prior to Endeavor. It shut down

22 | Airline Business | October 2015 flightglobal.com/airlines American is making aircraft investments at its regional partners, including putting 30 new CRJ900s with PSA

30-seat turboprops from our flying as a result of these shortages and small cities are seeing reduced or lost service as a result.” Further regional fleet reductions, including accelerating the retirement of 50-seat regional jets, could occur if the regional pilot shortage does not improve, he adds. Endeavor and American’s wholly-owned carriers face few of the industry’s pilot issues. The problem follows requirements by the US Federal Aviation Administration mandating that pilots have 1,500h of flight time instead of 250h to fly for a scheduled carrier in 2014. “It’s harder for all of our 10 regional part- ners to hire pilots than historically,” says Hashimoto. “[However], those that do a little bit better are those who have some kind of growth that is relevant to the new hire pilot.” One of the most important things Envoy, Piedmont and PSA can offer new hires is a guaranteed path to a job flying a mainline air- craft at American, he says. Attractive pay and base locations, and reasonably quick times to upgrade to the left seat or a larger aircraft are also drivers. Gumm cites similar reasons for Endeavor’s success attracting pilots to its operation. The Minneapolis-based regional carrier offers new-

PSA Airlines hire pilots the “most money” of any regional airline, including an up to $20,000 per year wholly-owned citing high unit costs “UAL is upgauging 50-seat regional jets in signing bonus for four years, and is the “largest in September 2012 – interestingly announc- part because its regional partners are having supplier of pilots to Delta in the world”, he says. ing plans to purchase Endeavor only four problems hiring pilots,” he writes. “Owning a Endeavor’s pilots contract guarantees that at months later – and sold to regional airline would enable UAL to offer least 144 pilots will be given jobs at Delta this Pinnacle in 2010 and Atlantic Southeast Air- flow-through agreements, where regional year, 180 in 2016 and 240 in 2017, he adds. lines (ASA) to SkyWest Inc in 2005. pilots can jump to the mainline operation Being owned by a mainline carrier is not a Continental Airlines, before merging with without losing seniority.” prerequisite for regionals to attract pilots. Sky- United Airlines in 2010, spun off its wholly- This has become an even bigger issue since West executives said in July that they are “keep- owned subsidiary ExpressJet Airlines in 2002. July, when Republic announced that it would ing up with our [pilot] staffing” requirements. United never owned a regional carrier. shrink schedules and reduce its fleet as a However, the airline has been shrinking the result of pilot hiring and retention difficulties. fleets of its operating subsidiaries – ExpressJet KEY BENEFITS The Indianapolis-based regional carrier oper- Airlines and SkyWest Airlines – under a previ- Keay notes that United would gain the most ates Embraer 170s and E175s for United. ous plan to eliminate unprofitable flying and from acquiring a regional partner, citing opera- “We have regional carriers struggling to improve operations. This has likely helped it tional and product improvements that could staff airplanes,” says Brian Znotins, vice-pres- meet staffing needs, including the addition of occur, as well as – more importantly – pilots. ident of network at United. “We’ve eliminated new E175s for and United. The ability of regional carriers to keep costs low will remain paramount. Both American and Delta have placed new aircraft with inde- pendent airlines, including American’s place- ment of 20 E175s with Trans States-owned Compass Airlines and Delta’s placement of seven Bombardier CRJ700s with GoJet Airlines. “They are getting investment of aircraft because they have a quality operation and a cost-effective foundation,” says Hashimoto, Delta subsidiary Endeavor summing up what American is seeking from does not face pilot issues its regional partners – independent or common in the industry ■ Endeavor wholly-owned. flightglobal.com/airlines October 2015 | Airline Business | 23 REGIONALS STRATEGY

REPORT MICHAEL GUBISCH LONDON

ACMI ACHE Wet-lease carriers across Europe are facing shrinking markets in an increasingly competitive industry, leaving them no choice but to turn to hybrid models to stay afloat

hen it was acquired along “The ACMI [aircraft, crew, maintenance the commercial risk in the area of ticket sales. with parent CityJet by turna- and insurance] market got considerably Flightglobal’s Ascend Fleets database shows round specialist Intro Avia- smaller and more competitive over the last that VLM has eight Fokker 50 turboprops in Wtion in April 2014, VLM’s year,” White tells Airline Business, though he service, plus one in storage, and earlier this plan was to double its busi- notes that business with charter customers – year assigned three to ACMI operations. ness by focusing on wet-leasing and charters. typically tour operators and corporate clients Just over six months later, the Belgian turbo- – is “booming in the 50-seat sector”. GROWING TREND prop operator’s managing director Arthur Allocating sufficient capacity for ACMI oper- It is not the only European wet-lease carrier White became the majority shareholder ations is a challenge, says White. Under an that is diversifying its businesses in a bid to through a management buyout. Instead of con- ACMI deal, the provider supplies the aircraft protect itself from market fluctuations and in- centrating on wet-lease and charter operations, and crew while ensuring maintenance and in- creased competition. he has decided to diversify VLM’s business by surance requirements – or a combination from Denim Air, for example, is in a predica- building up a scheduled route network. these four ingredients – but the customer carries ment similar to VLM’s. The market for the

WHY BMI REGIONAL IS TIGHTENING LINKS WITH LOGANAIR

Privately-owned BMI Regional aims to realise cost rate cultures; rather, greater productivity and Loganair has been profitable for 15 years, says savings through a new group structure that more efficient use of suppliers are targeted. Simpson. He asserts that the group does not re- strengthens ties with Scottish sibling Loganair. Together, BMI and Loganair generate annual quire additional investors to, for example, replace And further advantages could result if another revenue of around £190 million and carry some BMI Regional’s Embraer ERJ-145 jet fleet. But he airline is added to the group or external share- 1.1 million passengers per annum. does not rule out the possibility of new investors holders come on board as part of industry consoli- The latest publicly available records for BMI taking interest in the group. “Consolidation is an dation, says group chief Peter Simpson. Regional show that the carrier made a loss of near- inevitability [in Europe’s regional airline sector],” Simpson joined BMI as chief executive in ly £15 million on revenue of almost £67 million he says. While the continent’s legacy network March. The following month, the airline’s owners during the financial year ended March 2014 as the airlines have been streamlined – with the forma- Peter and Stephen Bond established a new hold- airline transported around 365,000 passengers. tion of Air France-KLM, IAG and Lufthansa Group ing company named Airline Investments and ap- However, that was the first year in which BMI – the regional airline industry has lagged behind. pointed Simpson as group chief. Regional operated fully independently from British The delay has partly been a result of low-cost Efficiencies worth more than £1 million ($1.5 Airways, which had acquired BMI from Lufthansa in airline growth in Europe, where budget carriers million) are foreseen resulting from “natural syn- 2012. BMI Regional argues that the 2013/2014 have launched routes traditionally operated by ergies”, Simpson indicates. These will not in- loss was a result of restructuring costs – bases regional airlines, argues Simpson. volve compulsory redundancies among the 960 were closed and crew relocated – as well as invest- He is certain that Airline Investments will be af- staff members or changes to the airlines’ corpo- ments needed to build an independent network. fected in one way or another by consolidation, and

24 | Airline Business | October 2015 flightglobal.com/airlines The market for Denim’s regional aircraft is declining

foresees scope for further 737s – or Airbus Meanwhile, the winter period – when ACMI A320-family types – at a later stage. rates decline as demand falls – is becoming The fleet shift toward these types is intend- longer. “We have to make money during those ed to deliver a wider customer base of tour four to five [summer] months in order to sur- operators. It will increase competition, as the vive the winter period,” says Kiernan, adding: two narrowbody types are operated by a range “That is becoming increasingly difficult.” of ACMI providers, but put Denim in a posi- Today, long-term contracts tend to be limited tion where it goes up against budget carriers to wet leases of widebodies, says Kiernan. But such as EasyJet and Ryanair. he adds that such deals are “very few and far between”. Ad-hoc charters generate around MAKING CENTS 40% of Titan’s revenue – which the airline fore-

AirTeamImages UK operator Titan Airways has replaced 737 sees reaching around £80 million ($125 mil- Classics with A320s to cut its fuel bill, but also lion) for the full year 2015 – and still represents Dutch wet-lease specialist’s regional aircraft is because the latter have become standard a lucrative business for the airline. But it does “drastically” declining, chief executive Ron- equipment for many customers, says its com- require significant resources to keep fuelled air- ald Janssen tells Airline Business, and that for mercial chief Alastair Kiernan: “The operators craft and crew on to be available with- its Fokker 100 is “almost dead”. themselves know the cost of those [A320s] in 2.5h of the airline’s Stansted base. The issue is largely one of perception, he ar- down to the nearest cent… That is important.” VLM’s White argues that operators need to gues. While the legacy 100-seat twinjet is finan- He says competition has risen because the have a hybrid model as it has become “very dif- cially attractive and still provides high technical crucially important summer peak season has ficult to operate purely on ACMI”. As the model reliability rates at competitive maintenance been shortened. Where leisure carriers and tour leaves all commercial risk with customers, he costs, tour operators are not chartering the air- operators traditionally chartered aircraft be- says, “it is only attractive for an airline to use an craft because it is seen as outdated, says Janssen. tween April and October, that period now runs ACMI provider in times of rapid expansion or Three-quarters of Denim’s revenue – which from June until September, says Kiernan. Lei- contraction [when flexible capacity is needed]”. reached around €15 million ($16.6 million) last sure carriers are managing their capacity re- But since Europe’s aviation market has grown year – is generated through ad-hoc charters. Its quirements more carefully than in the past, he “very steadily” and airlines that previously used fleet includes an Embraer ERJ-145 regional jet, adds: “We are not seeing a real fall in market de- wet-lease providers started offering excess ca- an ATR 42 and a Fokker 50 turboprop. In order mand. What we are seeing is a fall in the period pacity, ACMI rates have been driven “down to to attract more long-term contracts and stabilise where carriers require to take an aircraft.” the point where people are expecting you to fly the business, Denim plans to introduce a Boeing This has led to greater concentration during for cost [alone] or even under cost”, says White. 737 for scheduled charters, in co-operation with the peak season, and operating aircraft for ACMI contracts can provide “very good, tour operators, and expects ad-hoc charters’ other carriers becomes less economical with very solid work”, he asserts. “If I could fill all share of revenue to decline to just under half. shorter lease periods. “It doesn’t make a huge the aeroplanes with that work, I would.” But The 737 will join Denim’s fleet either for the amount sense for us to take on aircraft and he adds: “The basic fact is that everyone else winter 2015/2016 schedule or, at the latest, then fly them only for a period of three to four had the same idea over the years, and that is next year’s summer timetable, says Janssen. He months,” argues Kiernan. to get someone else to take the risk.” ■

says the new holding structure was implemented prefer flight frequency and convenient departure to accommodate change, be it the introduction of times to a lower-cost ticket on a budget airline. additional investors or other airlines. But in order This has enabled it to continue operating its for the group to play an active role in the consolida- 18-strong fleet of 49-seat ERJ-145 jets and 37- tion, he argues, BMI Regional and Loganair need seat ERJ-135s. But Simpson acknowledges that to control costs and maximise asset utilisation. partnerships with larger carriers have been “vital”. Partnerships with other airlines have been cen- He seems unconcerned about the danger of tral for both. BMI Regional independently operates over-dependence on larger groups. Lufthansa a range of routes under its brand. But large parts ended its co-operation with regional partners of its network are codeshare routes feeding Contact Air and Augsburg Airways in 2012 and

Lufthansa’s hubs in Frankfurt and Munich, and to 2013 respectively. However, Simpson points out BMI Regional Brussels Airlines’ home base in the Belgian capi- that – unlike the two – BMI Regional’s Lufthansa Simpson consolidates BMI Regional tal. Loganair operates routes under a franchise codeshares run under its own commercial risk. deal with UK regional carrier Flybe, and has code- While the next aircraft type for BMI Regional is nance contract covering the ERJ-145’s Rolls- shares with former partner British Airways. to have 80-90 seats, Simpson says: “I don’t see Royce AE 3007 engines earlier this year with the BMI Regional’s scheduled services concentrate us out of the 50-seat category in five years’ time.” manufacturer. Simpson expects the type to offer on thin routes aimed at business travellers who The carrier signed a five-year, hour-based mainte- niche market opportunities for “many years”.

flightglobal.com/airlines October 2015 | Airline Business | 25

REGIONALS FLEET FORECAST

Regional battle lines drawn Ascend’s Richard Evans examines Flightglobal’s long-term forecast, which highlights how lower end of market is in transition

his year’s Flightglobal Fleet In contrast to the single-aisle rth Forecast predicts the deliv- REGIONAL AIRCRAFT DELIVERIES BY VALUE – 2015-2034 sector, there is no great debate 28.1 Tery of 41,000 new commer- ATR 42/72 about increased production rates cial turboprop and jet aircraft Other 13% or possible overcapacity develop- over the next 20 years, worth an turboprops ing in this sector. The forecast sug- estimated $2.8 trillion in 2015 15% gests average annual production of delivery value. Within this total, Sukhoi 350 aircraft a year, which is similar the regional aircraft market Superjet to the output of the sector in the makes up over 7,000 deliveries, 4% 1980s and 1990s, although the worth almost $200 billion. This delivery value is much higher. His- figure includes both regional jets tory has shown that this could not and turboprop aircraft. This sec- sustain all the competing manufac- tor is experiencing a transition $197bn turers, and led to the exit of BAE period, with new entrants seek- Total value Bombardier Systems, Fairchild Dornier, Fokker ing sales, and the US market see- SOURCE: Flightglobal Ascend???? Q400 and Saab from the crowded market ing major airline consolidation. 3% place. This time around, several of Unlike the single-aisle market, the new manufacturers have gov- Mitsubishi Bombardier there are over 10 manufacturers ernment financial backing, and MRJ CRJ competing for market share, with 18% commercial sales volumes are not 3%Africa ATR winning the battle against 1.1% the only measure of success. Bombardier in the turboprop seg- Embraer E-Jet Other regional jets Comac ARJ21 The forecast does not attempt to ment and Embraer set to face new 41% 2% 3% predict the timing of global or competition in the large regional regional economic cycles. The jet space. Bombardier has focused SOURCE: Flightglobal Fleet Forecast 2015-2034 regional aircraft market remains its efforts and cash on penetrating highly dependent on demand in the small narrowbody sector with the developed world, especially the CSeries twinjet (which the medium term, but there may be an rules, the new Embraer E175-E2 for jets. The major airlines in North forecast categorises as a single- opportunity for a new large turbo- and Mitsubishi MRJ90 are heavier America and Europe are still aisle, rather than regional aircraft), prop to be developed early in the than permitted, therefore relaxa- recovering from the recession, and and faces the prospect of being next decade. This makes up most tion in scope is required to fully are seeing improvements in prof- marginalised in the 70- to 100-seat of the 15% shown as “other turbo- exploit their range capabilities. its, especially in the USA. This, regional aircraft market. props” in the chart above, as well combined with new products This sector covers a wide range as including some smaller types. SWITCH AHEAD entering production, gives opti- of aircraft sizes, so it is useful to The US market remains the pre- The forecast highlights the switch mism for the overall sector, consider forecast market share in serve of regional jets, rather than from Bombardier to Mitsubishi in although not every individual pro- terms of value as well as delivery turboprops. The market here is the regional jet market, with the gramme is guaranteed to succeed, units. Despite comprising around highly dependent on develop- all-new MRJ family predicted to given the number of players. ■ 3,000 of the 7,000 forecast deliv- ments in pilot scope-clause con- displace the CRJ as the primary eries, turboprops make up less tracts with the three major network competitor to Embraer. Embraer is than one-third of the market forecast to be the largest manufac- value for new aircraft. turer, delivering almost 2,500 jets over the next 20 years. Flightglobal REMOTE APPEAL ATR will continue to However, the large regional jet Turboprops are generally smaller win the lion’s share market is far from a duopoly going Fleet Forecast and cheaper aircraft than regional of deliveries over forward, as the sector also includes 2015 – 2034 jets. This gives them some advan- the medium term the Sukhoi Superjet and the Independent outlook of the global commercial passenger tages in terms of lower operating Comac ARJ21 from China. The for- and freighter aircraft market costs, and particularly lower trip mer now has over 50 aircraft in ser- costs. In fact, the ATR 72 has been vice, but the ARJ21 has seen major especially successful in emerging airlines. Recently, airlines have delays and is likely to remain a markets, offering the lowest-cost replaced many smaller regional niche product. Turkey is also set to way of serving remote areas, jets with a combination of larger enter the fray, with a relaunched where government financial sup- regional jets flown under scope 30-seat 328TP and 328Jet, and talk Ascendworldwide.com port to air service is often a factor. rules, but also small single-aisles of a new 60- to 70-seat jet and tur- For more on our forecast The forecast predicts that ATR flown by the US majors’ own boprop. Ukraine’s Antonov also report, and to download a will continue to win the lion’s pilots. As a further example of their has ambitions with its turboprop summary: flightglobal.com/ share of deliveries over the importance, under current scope and jet aircraft. products/FleetForecast flightglobal.com/airlines October 2015 | Airline Business | 27 REGIONALS TRAFFIC

DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA RESEARCH TEAM REGIONAL AIRLINE RANKINGS Our annual survey covering traffic data in 2014 for the top 100 regional operators and groups

TOP 100 REGIONAL AIRLINES BY PASSENGER NUMBERS: 2014 (1-50)

Ranking Airline Country Passenger numbers Passenger traffic Capacity Load factors Fleet Notes 2014 (2013) Thousand Change (%) RPK (m) Change (%) change (%) Percent Change Total 1 (1) ExpressJet Airlines USA 30,950 -6.1 25,608 -5.6 -7.3 81.2 1.5 342 2 (2) SkyWest Airlines USA 27,786 2.4 24,953 3.7 2.2 83.4 1.2 340 3 (3) Envoy USA 16,128 -9.2 12,133 -17.0 -18.6 77.0 1.5 164 4 (6) Republic Airlines USA 13,293 28.8 10,267 31.2 28.9 79.4 1.4 140 5 (5) Hop France 13,000 4.0 100 6 (4) Endeavor Air USA 12,070 -8.8 9,689 0.1 -1.7 78.8 1.5 116 7 (10) Tianjin Airlines China 9,941 23.4 10,985 31.5 26.1 83.4 3.4 85 ICAO 8 (7) Jazz Canada 9,900 2.1 123 9 (8) USA 8,609 1.0 6,968 7.7 7.5 82.9 0.2 112 10 (9) Lufthansa CityLine Germany 8,559 3.7 5,280 2.1 2.1 74.1 0.0 50 11 (14) Aeromexico Connect Mexico 7,496 13.6 75.6 3.3 65 12 (12) USA 7,455 5.0 3,551 2.0 3.8 79.4 -1.4 52 13 (11) Flybe UK 7,178 -2.6 3,670 -1.7 -10.4 73.0 6.5 67 CAA 14 (13) KLM cityhopper est Netherlands 7,000 5.0 4,500 12.0 11.6 80.0 0.3 47 Airline Business estimate 15 (15) USA 6,156 1.4 3,615 4.9 1.9 78.3 2.2 71 16 (16) USA 5,762 -4.8 6,194 2.4 0.1 77.7 1.7 110 17 (19) PSA Airlines USA 5,567 14.3 3,180 7.1 1.9 80.6 4.0 84 18 (17) QantasLink Australia 5,538 4.4 3,557 4.2 9.4 62.1 -3.1 18 19 (21) Bangkok Airways Thailand 4,790 14.8 3,691 33.8 39.2 65.3 -2.6 29 20 (20) GoJet Airlines USA 4,292 -0.4 4,129 1.5 2.6 79.2 -0.8 51 21 (23) Compass Airlines USA 4,046 6.9 4,716 3.5 -1.8 81.0 4.1 54 22 (24) Air Nostrum Spain 3,772 2.5 2,024 -0.1 -1.8 64.0 1.1 35 23 (22) Iran Aseman Airlines est Iran 3,500 -8.8 2,700 -11.9 -12.7 90.0 0.8 23 Airline Business estimate 24 (26) SilkAir Singapore 3,495 3.2 5,743 5.1 4.2 70.4 0.6 30 25 (25) Wings Air Indonesia 3,425 -1.4 1,257 14.6 16.8 82.2 -1.6 43 26 (27) TransAsia Airways Taiwan 3,418 4.7 3,457 9.5 3.5 72.9 4.0 22 27 (18) USA 3,335 -33.8 1,967 -27.0 -29.6 75.9 2.7 28 (35) Chengdu Airlines China 3,229 22.4 4,223 23.3 20.0 86.7 2.3 19 ICAO 29 (29) China Eastern Airlines WuhanChina 3,149 7.9 4,354 9.5 7.4 75.9 1.5 30 (28) USA 3,014 -3.4 812 -3.2 -10.7 74.7 5.8 38 31 (30) Austral Lineas Aereas est 2,900 0.0 2,900 0.0 74.4 0.0 22 Airline Business estimate 32 (31) UNI Air Taiwan 2,757 -1.6 1,269 -0.3 -1.5 75.4 0.9 16 33 (39) Binter Canarias Spain 2,752 14.0 14 34 (38) Sky Airline 2,746 11.7 2,894 14.4 11.9 68.7 1.5 16 35 (33) Japan TransOcean Air Japan 2,680 -0.7 2,219 0.8 -2.9 71.5 2.7 11 36 (36) Wideroe est Norway 2,650 1.5 825 3.6 1.4 58.9 1.3 41 Airline Business estimate 37 (32) Air Baltic Latvia 2,636 -5.9 2,748 -7.1 -8.7 70.3 1.2 24 38 (43) Chang An Airlines China 2,612 27.6 3,813 24.0 23.1 87.4 0.6 4 ICAO =39 (33) Nordic Regional Airlines est Finland 2,500 -7.4 26 Airline Business estimate =39 (37) Porter Airlines Canada 2,500 0.0 26 41 (44) FireFly est Malaysia 2,400 20.0 18 Airline Business estimate 42 (41) USA 2,392 8.5 1,492 1.2 0.6 82.5 0.5 51 43 (40) Eurowings est Germany 2,300 0.0 6 Airline Business estimate 44 (42) Avianca Peru 2,241 2.3 4 45 (45) Mandarin Airlines Taiwan 2,174 9.1 1,642 19.3 18.9 75.2 0.3 8 46 (54) Hebei Airlines China 1,935 34.4 2,403 20.1 11.9 79.5 4.5 12 =47 (46) Air Nelson est NZ 1,900 0.0 900 0.0 0.0 69.2 0.0 23 Airline Business estimate =47 (48) Japan Air Commuter est Japan 1,900 5.6 900 12.5 12.0 65.0 0.0 21 Airline Business estimate =49 (50) Air Corsica France 1,711 0.4 9 =49 (56) BA CityFlyer UK 1,711 24.7 1,365 20.2 17.2 71.0 1.8 19 CAA

NOTES: estAirline Business estimate for indicative purposes * Hop comprises Airlinair, Brit Air, Regional and Air France Paris Orly operations

28 | Airline Business | October 2015 flightglobal.com/airlines TOP 100 REGIONAL AIRLINES BY PASSENGER NUMBERS: 2014 (51-100)

Ranking Airline Country Passenger numbers Passenger Traffic Capacity Load factors Fleet Notes 2014 (2013) Thousand Change (%) RPK (m) Change (%) change (%) Percent Change total 51 (51) J-Air est Japan 1,650 3.1 24 Airline Business estimate 52 (47) Aserca Airlines est 1,600 -15.4 650 -13.6 -8.3 76.5 -4.7 8 Airline Business estimate 52 (52) MASWings Malaysia 1,600 6.7 20 54 (49) Air Dolomiti Italy 1,599 -8.6 778 -14.6 -11.0 64.9 -2.2 10 55 (59) Yamal Airlines Russia 1,450 11.5 2,900 13.6 13.0 72.6 0.4 74 FAVT 56 (53) NAYSA Spain 1,419 -2.6 238 -3.4 -7.3 69.6 2.7 ICAO 57 (57) SA Express est South Africa 1,400 3.4 1,050 5.7 4.0 65.0 1.4 24 Airline Business estimate 58 (63) Stobart Air Ireland 1,312 17.8 14 59 (58) Malmo Aviation est Sweden 1,300 -1.4 600 -0.6 -3.2 75.0 2.0 13 Airline Business estimate 60 (61) Arkia est Israel 1,250 1.0 1,200 -0.2 0.4 82.0 -0.4 12 Airline Business estimate 61 (62) Air Caraibes Guadeloupe 1,235 0.3 6,121 1.8 2.4 87.0 1.9 8 DGAC 62 (64) SCAT est Kazakhstan 1,200 9.1 14 Airline Business estimate 63 (55) CommutAir USA 1,148 -18.6 386 -10.5 -12.8 75.9 1.9 21 64 (60) Taimyr Air - NordStar Russia 1,105 -11.1 2,869 -14.6 -12.5 74.3 -1.8 29 FAVT =65 (68) Airlink est South Africa 1,100 10.0 800 14.3 13.6 64.0 1.0 39 Airline Business estimate =65 (66) CityJet Ireland 1,100 4.9 18 67 (100) Aurora Russia 1,051 222.0 1,745 389.6 329.0 75.1 9.3 18 FAVT 68 (67) Braathens Regional* Sweden 1,050 0.9 420 4.0 9.8 60.0 -3.3 48 69 (65) Regional Express Australia 1,044 -1.5 388 -2.7 -4.0 54.9 0.7 18 =70 (68) Trans Maldivian Airways est Maldives 1,000 0.0 45 Airline Business estimate =70 (70) InselAir est Curacao 1,000 1.7 650 6.0 4.2 68.4 1.1 6 Airline Business estimate 72 (86) Kalstar Aviation Indonesia 977 55.9 462 129.7 139.8 57.5 -2.5 13 73 (74) SATENA 900 13.9 346 14.2 15 74 (81) Passaredo Transportes Aereos Brazil 887 22.1 521 23.7 20.5 66.9 1.7 15 75 (73) LIAT est Antigua & Barbuda 850 6.2 13 Airline Business estimate 76 (72) Canair Spain 833 3.8 153 6.1 1.5 73.5 3.1 5 ICAO 77 (79) Easyfly Colombia 797 7.3 186 7.6 15 78 (75) Nordavia - Regional Airlines Russia 763 -0.3 971 -2.2 -4.2 75.1 1.5 10 FAVT 79 (80) USA 757 2.3 127 7.7 3.8 61.0 2.2 6 80 (78) Avianca est Ecuador 750 0.7 450 -0.4 0.3 65.0 0.0 9 Airline Business estimate 81 (85) Grand China 742 14.3 3 82 (76) Air Tahiti French Polynesia 736 -3.0 9 DGAC 83 (82) est Tanzania 700 1.7 350 5.2 3.3 66.7 1.2 8 Airline Business estimate 84 (71) Trigana Air Indonesia 683 -15.0 271 -15.0 -3.9 69.6 -9.1 17 85 (77) USA 671 -11.6 226 -10.0 -17.7 50.1 4.3 26 86 (83) Israir Israel 650 -0.4 650 0.2 0.2 85.0 0.0 4 Estimated 87 (90) Loganair UK 643 11.9 194 25.7 24.9 65.7 0.4 28 CAA 88 (91) Rusline Russia 626 10.5 599 -14.0 -11.3 68.4 -2.1 19 FAVT 89 (86) Star Peru Peru 625 -0.4 8 90 (83) Express Air Indonesia 605 -7.1 549 -13.3 -19.4 62.7 4.4 15 91 (94) RwandAir Rwanda 600 20.0 9 92 (89) Montenegro Airlines Montenegro 557 -4.9 6 93 (92) Aeromar Airlines Mexico 552 1.5 16 94 (95) Aurigny Air Services UK 519 6.4 136 18.3 20.5 67.8 -1.3 9 CAA 95 (93) Eastern Airways UK 510 0.2 237 7.6 2.5 54.6 2.6 25 CAA 96 (88) Etihad Regional Switzerland 502 -15.9 285 -26.1 -11.2 49.8 -10.1 7 ICAO 97 (97) SATA Air Acores Portugal 465 -0.5 115 4.9 -1.0 64.1 3.6 6 98 (98) RAC - Ryukyu Air Commuter Japan 443 9.9 5 99 (99) Air Caledonie New Caledonia 435 8.2 75 8.8 18.0 60.9 -5.2 4 100 (96) USA 429 -8.7 146 -2.8 -11.0 60.9 5.1 13

NOTES: estAirline Business estimate *Stobart Air formerly Aer Arann; Avianca Ecuador formerly Aerogal; Etihad Regional formerly Darwin Airline flightglobal.com/airlines October 2015 | Airline Business | 29 What is today’s best aircraft investment that ensures profitability?

airbus.com

© AIRBUS, 2015. All rights reserved. Airbus, its logo and the product names are registered trademarks. Airbus Widebody aircraft. Offering standard 18 inch wide seats in economy. Unrivalled low operating costs of the A330, 25% less fuel burn with the A350 XWB, up to 65% more profit per flight with the A380. Airbus is the answer. REGIONALS TRAFFIC

DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA RESEARCH TEAM ANALYSIS BY FLIGHTGLOBAL INSIGHT REGIONAL AIRLINE SNAPSHOT A breakdown by operator type and geography of our traffic survey for the leading 100 carriers

TOP 100 REGIONAL AIRLINES: HISTORIC TREND

Measure Units Latest year Annual change for previous rankings 2014 change 2013 2012 2011 2010 2009 2008 2007 2006 2005 Passengers thousand 339,070 2.3% 3.5% 4.1% 3.4% 6.6% 0.1% -0.6% 6.2% 6.8% 11.0% Passenger traffic RPK million 242,712 4.4% 3.3% 5.0% -2.8% 3.1% -4.9% -1.7% 5.5% 9.7% 14.4% Seat capacity ASK million 316,438 2.9% 2.6% 2.8% -4.1% -1.5% -5.1% -2.0% 5.4% 6.4% 10.7% Load factor percentage 76.7% 1.1pp 0.5 1.6 1.0 3.3 0.1 0.2 0.0 3.0 2.1 Fleet units 3,602 78 3,524 3,507 3,748 3,681 3,679 3,726 3,755 3,680 3,609 NOTES: Based on the Top 100 ranking as it appeared each year. Airlines included in the ranking may change between years. Change figures have been rebased to include only those carriers which reported in both years. RPK = revenue passenger kilometre ASK=available seat kilometre 1 mile = 1.609km.

TOP 100 REGIONAL AIRLINES SUMMARY BY REGION: 2014

Region Passengers Traffic RPK Capacity ASK Load Fleet Carriers Thousands Change change change factor units number Africa/Middle East 9,200 -0.8% -2.7% -2.2% 78.2% 119 7 Asia-Pacific 66,458 9.9% 16.1% 13.7% 74.9% 576 28 Europe 72,573 3.2% 5.2% 3.9% 71.2% 747 30 Latin America 24,579 5.8% 6.3% 6.6% 73.9% 220 14 North America 166,260 -1.1% 0.1% -1.7% 79.6% 1,940 21 GRAND TOTAL 339,070 2.3% 4.4% 2.9% 76.7% 3,602 100

LARGEST REGIONAL AIRLINES: EUROPE LARGEST REGIONAL AIRLINES: NORTH AMERICA

Rank Airline Country Pax (thousands) Top 100 rank Rank Airline Country Pax (thousands) Top 100 rank 1 Hop France 13,000 5 1 ExpressJet Airlines USA 30,950 1 2 Lufthansa CityLine Germany 8,559 10 2 SkyWest Airlines USA 27,786 2 3 Flybe UK 7,178 13 3 Envoy USA 16,128 3 4 KLM cityhopper Netherlands 7,000 14 4 Republic Airlines USA 13,293 4 5 Air Nostrum Spain 3,772 22 5 Endeavor Air USA 12,070 6 6 Binter Canarias Spain 2,752 33 6 Jazz Canada 9,900 8 7 Wideroe Norway 2,650 36 7 Mesa Airlines USA 8,609 9 8 Air Baltic Latvia 2,636 37 8 Horizon Air USA 7,455 12 9 Nordic Regional AirlinesFinland 2,500 39 9 Air Wisconsin USA 6,156 15 10 Eurowings Germany 2,300 43 10 Shuttle America USA 5,762 16

LARGEST REGIONAL AIRLINES: ASIA PACIFIC LARGEST REGIONAL AIRLINES: LATIN AMERICA

Rank Airline Country Pax (thousands) Top 100 rank Rank Airline Country Pax (thousands) Top 100 rank 1 Tianjin Airlines China 9,941 7 1 Aeromexico Connect Mexico 7,496 11 2 QantasLink Australia 5,538 18 2 Austral Lineas Aereas Argentina 2,900 31 3 Bangkok Airways Thailand 4,790 19 3 Sky Airline Chile 2,746 34 4 SilkAir Singapore 3,495 24 4 Avianca Peru Peru 2,241 44 5 Wings Air Indonesia 3,425 25 5 Aserca Airlines Venezuela 1,600 52 6 TransAsia Airways Taiwan 3,418 26 6 Air Caraibes Guadeloupe 1,235 61 7 Chengdu Airlines China 3,229 28 7 InselAir Curacao 1,000 70 8 China Eastern Airlines China 3,149 29 8 SATENA Colombia 900 73 9 UNI Air Taiwan 2,757 32 9 Passaredo Transportes Brazil 887 74 10 Japan TransOcean Air Japan 2,680 35 10 LIAT Antigua & Barbuda 850 75

LARGEST REGIONAL AIRLINES: AFRICA/MIDDLE EAST

Rank Airline Country Pax (thousands) Top 100 rank 1 Iran Aseman Airlines Iran 3,500 23 2 SA Express South Africa 1,400 57 3 Arkia Israel 1,250 60 4 Airlink South Africa 1,100 65 5 Precision Air Tanzania 700 83 6 Israir Israel 650 86 7 RwandAir Rwanda 600 91

32 | Airline Business | October 2015 flightglobal.com/airlines REGIONAL AIRLINES GROUPS BY PASSENGERS CARRIED: 2014 REGIONAL AIRLINER DELIVERIES

Rank Group Subsidiaries Passengers (m) Aircraft ATR Bombardier Embraer 1 SkyWest Airlines ExpressJet Airlines 31.0 Sukhoi Viking Air SkyWest Airlines 27.8 140 2 Republic Airways Republic Airlines 13.3 121 120 Shuttle America 5.8 Chautauqua Airlines 3.3 100 3 Air France-KLM Hop 13.0 Total deliveries 297 KLM Cityhopper 7.0 80 4 Envoy 16.1 61 5 Lufthansa Regional Lufthansa Cityline 8.6 60 Eurowings 2.3 40 Air Dolomiti 1.6 6 Delta Airlines Endeavor Air 12.1 23 20 17 17 7 Trans States Holdings GoJet Airlines 4.3 13 12 11 13 6 3 Compass Airlines 4.0 0 Trans States Airlines 2.4 Africa Asia Europe Latin Middle North 8 Hainan Airlines Tianjin Airlines 9.9 Pacific America East America NOTE: Data for Western regional types (plus Sukhoi Superjet) 9 Jazz 9.9 SOURCE: Flightglobal’s Ascend Fleets database delivered to airlines during 12 months to 30 June 2015 10 Mesa Airlines 8.6 11 US Airways Express PSA 5.6 REGIONAL AIRLINER BACKLOG Piedmont 3.0 12 Grupo Aeromexico Aeromexico Connect 7.5 Orders ATR Bombardier Embraer Sukhoi Viking Air Mitsubishi 13 Alaska Air Horizon Air 7.5 500 14 Flybe 7.2 490 15 Japan Airlines Japan Transocean 2.7 Japan Air Commuter 1.9 400 J-Air 1.7 16 Air Wisconsin 6.2 300 17 QantasLink Total 5.5 AirLink 195 184 Eastern Australia 200 176 Sunstate Airlines Total backlog 1,351 18 Bangkok Airways 4.8 100 89 61 19 Air Nostrum 3.8 50 40 21 16 20 Iran Aseman Airlines 3.5 11 6 12 0 21 Singapore Airlines SilkAir 3.5 Africa Asia Europe Latin Middle North Undisclosed 22 Lion Air Wings Air 3.4 Pacific America East America 23 Transasia Airways 3.4 NOTE: Data for Western regional types (plus Sukhoi SOURCE: Flightglobal’s Ascend Fleets database Superjet) on order with airlines at 30 June 2015 24 Chengdu Airlines 3.2 25 China Eastern China Eastern Wuhan 3.1 GLOBAL REGIONAL AIRLINER FLEET DISTRIBUTION Note: Groupings include wholly or substantially-owned regionals but not affilitates. Aircraft Jet total fleet 3,466 Turboprop total fleet 4,959 3500 3,214

3000 Total fleet 8,425 2500

REGIONAL AIRLINE RANKINGS NOTES AND DEFINITIONS 2000 1,831 1,490 The Top 100 Regional Airline Rankings and analysis is based on the leading 100 regional 1500 carriers ranked by passenger numbers carried in 2014. DEFINITIONS: Although there are no hard rules, a regional carrier has been defined by the 958 scope and type of operations. This includes operations flying predominantly within a single 1000 793 region, avoiding the main trunk routes or in a feeder role and largely using smaller aircraft types with fewer than 100 seats. Operations with a majority of mainline aircraft have been excluded although some operations within the ranking may operate mainline types. 500 OPERATIONS: Figures are for individual, identifiable airline operations in their own right, and 139 groupings are shown separately in the tables above. 0 SOURCE: Airline data has largely been sourced from company replies or records. Estimates are North Europe Asia Latin Africa Middle used for significant carriers for which no figures were made available. The data has been compiled by Flightglobal’s data research team and analysed by Flightglobal Insight. America Pacific America East SOURCE: Flightglobal’s Ascend NOTE: Data for regional types in commercial service at Fleets database 1 August 2015 (includes freighters but excludes parked aircraft) flightglobal.com/airlines October 2015 | Airline Business | 33 CARGO WIDEBODIES

RECOVERY STALLS Chris Seymour, head of market analysis at Flightglobal’s Ascend consultancy arm, examines the latest cargo trends after the sector’s roller-coaster ride in recent years

he air cargo market experienced a cord number of passenger widebodies deliv- tough time during the recession. Optimism has been ered, with the firm backlog sufficient to dou- Cargo traffic fell nearly 10% across tempered by mixed ble the current belly-hold capacity. While T 2008 and 2009, rebounded 19% in results in 2015, with around 40% of these aircraft are for replace- 2010, but then stagnated for three ment needs, it does imply a significant step- years. In 2014, it finally saw a return to sus- demand slowing in June up in available cargo capacity. tained growth, with IATA announcing that freight-tonne kilometres (FTKs) were up 4.5%. CONVERSIONS COLLAPSE A return to growth coincided with an eco- been almost flat since 2007. Looking at the widebody freighter fleet, which nomic recovery in the USA, as well as the US In fact, almost all the recent increases in serves the core long-haul and high-capacity dollar appreciating against almost every cur- available capacity have come from passenger sectors, deliveries of over 300 of the new Boe- rency – making imports cheaper. Falling fuel widebody belly holds. In terms of total avail- ing 777F, 747-8F and Airbus A330-200F air- prices also helped, with some relief on cost able tonnage, air cargo capacity provided by craft occurred at a time of weak cargo de- pressures. The highest FTK growth in 2014 was in-service aircraft fell by 7% from 2007 to mand. This wave of new capacity led to a by airlines based in Asia and the Middle East. 2009, but has recovered and now exceeds collapse in conversions, as well as a sharp in- However, the optimism has been tempered 2007’s levels by 6%. The year 2014 saw a re- crease in aircraft being parked in the desert. by mixed results as 2015 progresses. IATA data for the first half of 2015 showed a 3.5% WIDEBODY FREIGHTERS – 10-YEAR FLEET DEVELOPMENT growth in traffic against a 5.4% rise in capaci- Fleet ty but demand has been slowing, to just over 1,000 1% in June. Weaker world trade, especially in demand out of China, has been observed and load factors have fallen. Airlines in Asia-Pa- 950 cific, North and Latin America as well as Eu- rope all reported that their freight business was smaller in June 2015 than in the same 900 month of 2014. Only the Middle Eastern and African airlines recorded growth in FTKs. In terms of aircraft units, the all-cargo fleet 850 has been almost static for the past 15 years, although there has been a gradual shift from narrowbodies to widebodies, meaning there 800 has been a steady increase in available capac- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* ity. However, dedicated freighter capacity has NOTE: Data for year-end in-service fleet except* (mid-year). SOURCE: Flightglobal's Ascend Fleets database

34 | Airline Business | October 2015 flightglobal.com/airlines Middle Eastern carriers, led by the likes of Qatar Airways, have doubled their cargo fleets in the last 10 years Qatar Airways

The latter mainly arose from a reduction in WIDEBODY FREIGHTER BACKLOG the older-generation fleet, including Boeing MD- 11s, MD-10s, Airbus A310s, A300s and convert- Boeing 777F Boeing 767-300F ed 747-400s. This is continuing, as focus has moved to the newer generation types. Overall, the number of widebody freighters in service has grown by only 14 aircraft in the past 18 months, to 985, with tonne capacity up just 1%. TOTAL: 172 Boeing 747s still account for around 40% of tonne-capacity, but production of the 747-8 is falling to just one per month. It has the highest capacity in the market and offers flex- -8F ibility with its nose door, but the smaller 777F Airbus A330-200 P2F is proving to be favoured at more airlines. It has now overtaken the MD-11 as offering the P2F Boeing 767-300 P2F Airbus A330-200F most tonnage capacity after the 747. Eva Air is the latest new customer for the 777F. Boeing NOTE: Data comprises firm orders for new aircraft and contracted conversions of used aircraft SOURCE: Flightglobal's Ascend Fleets database has also seen increased demand for the 50t 767-300F, with a recent FedEx follow-on the market and the fleets of AirBridge Cargo in to freighter) conversion programme is under de- order for 50 a welcome boost. Russia and Turkish Airlines are growing. velopment at ST Aerospace and EFW, with There has also been a shift in the cargo air- Egyptair the launch customer for two. Boeing line scene. Middle Eastern airlines have been RISING IN THE EAST continues to talk about a 777 cargo conversion especially active, doubling their fleet in the Much of the long-haul cargo market hinges on but with no immediate signs of a launch. past 10 years. This has been led by the Gulf the Asian market, with over 190 widebody The 2020s are expected to see new-build hubbers, with Emirates, Etihad and Qatar Air- freighters and some stored aircraft now com- freighter versions of the Airbus A350 and ways all building fleets as they seek to repli- ing back into service. Korean Air, Cathay Pa- Boeing 787 and 777-8X, but the next 10 years cate their success in the passenger market. cific, China Airlines and NCA have the largest will be focused on the existing types. They now operate over 35 widebodies be- fleets, while the three largest Chinese opera- The 2015 Flightglobal Fleet Forecast is pre- tween them alongside Saudia, which has 20. tors, China Southern, China Cargo and Air dicting 20-year demand for over 800 conver- European airlines have had mixed fortunes. China Cargo have been renewing their fleets, sions and 500 new deliveries in the widebody Air France-KLM is slashing its freighter fleet especially with 777Fs. sector. Even though belly capacity will take and British Airways exited its own operations There is a moderate revival in conversions around half the market, demand for maindeck in favour of taking capacity on Qatar Airways. occurring with 767s, especially into China and freighters will still be a key component for Cargolux and Lufthansa remain committed to for the future, the Airbus A330 P2F (passenger world trade flows. ■ flightglobal.com/airlines October 2015 | Airline Business | 35 CARGO RANKINGS

AIRDATA COMPILED BYCARGO SILVA ISHAK FLIGHTGLOBAL DATA RANKINGS RESEARCH TEAM ANALYSIS BY FLIGHTGLOBAL INSIGHT Our annual freight operator survey, covering traffic and revenue data for the industry’s leading players in 2014, shows a mixed picture but with a strong pick-up in traffic for some carriers notably in China

TOP 100 RANKINGS BY TRAFFIC: 2014 (1-50)

Ranking Carrier Country Cargo traffic Cargo revenue Nominal yield Share of group by Notes 2014 (2013) RTK (m) Change (%) $m Change (%) c/RTK RTK (%) Revenue (%) 1 (1) FedEx Express USA 16,097 -0.8 27,239 0.4 169.2 100 100 2 (2) UPS Airlines USA 11,208 2.9 5,705 0.2 50.9 100 98 3 (3) Emirates Airline UAE 11,200 9.7 3,348 9.2 29.9 33 14 4 (5) Cathay Pacific Hong Kong 9,788 14.9 3,275 7.3 33.5 51 24 ICAO 5 (4) Lufthansa Cargo Germany 8,612 -1.4 3,210 -1.1 37.3 100 100 6 (6) Korean Korea 8,258 5.7 2,709 6.5 32.8 57 24 7 (11) Qatar Airways Qatar 6,350 21.5 1,396 16.2 22.0 42 16 8 (7) Singapore Airlines Cargo Singapore 6,347 -1.1 1,731 -3.1 27.3 100 100 9 (8) KLM Netherlands 5,873 -0.3 1,984 -2.9 33.8 39 16 10 (10) Cargolux Luxembourg 5,843 10.6 100 11 (13) China Airlines Taiwan 5,313 9.5 1,421 8.4 26.7 31 12 (15) Air China China 5,181 14.1 1,424 11.1 27.5 34 8 Inc Dalian Airlines 13 (9) USA 5,168 -2.9 1,685 4.9 32.6 97 94 14 (12) China Eastern Airlines China 4,800 -1.2 1,187 -4.1 24.7 30 8 Inc Shanghai Airlines 15 (18) China Southern Airlines China 4,707 16.8 1,164 11.5 24.7 28 7 ICAO 16 (14) British Airways UK 4,458 -4.0 983 -8.8 22.1 24 5 17 (20) Etihad Airways UAE 4,313 18.1 1,106 19.2 18 (17) Air France est France 4,100 -1.9 3,534 -5.6 86.2 11 Airline Business estimate 19 (16) EVA Air Taiwan 4,065 -5.0 1,029 -4.5 25.3 27 20 (23) All Nippon Airways Japan 4,034 20.8 1,507 4.0 37.4 11 21 (19) Asiana Airlines South Korea 3,950 -1.9 41 0 22 (25) United Airlines USA 3,631 12.7 938 6.3 25.8 12 2 23 (26) Turkish Airlines Turkey 3,547 18.9 973 11.7 27.4 25 9 24 (21) Delta Air Lines USA 3,441 0.3 934 -0.3 27.1 2 25 (24) est China 3,300 0.6 Airline Business estimate 26 (27) AirBridgeCargo Russia 3,248 18.2 948 12.1 29.2 100 100 FAVT 27 (22) LAN Airlines est Chile 3,220 -3.9 Airline Business estimate 28 (30) Nippon Cargo Airlines Japan 2,895 17.2 895 1.2 30.9 100 100 29 (28) American Airlines USA 2,862 6.8 717 6.9 25.1 13 3 30 (36) USA 2,851 65.2 31 (29) Thai Airways Int’l Thailand 2,453 -4.4 725 -8.7 29.6 32 12 32 (34) Japan Airlines Japan 2,078 13.1 764 -3.7 36.8 30 6 33 (33) Malaysia Airlines Malaysia 2,016 1.2 ICAO 34 (32) USA 1,933 -3.1 502 -20.6 26.0 100 76 35 (31) Qantas Australia 1,873 -9.9 872 -8.6 46.6 6 36 (38) Air Canada Canada 1,711 8.3 453 -1.1 26.5 4 37 (39) Swiss Switzerland 1,620 5.6 31 38 (35) Saudia Saudi Arabia 1,617 -7.3 26 AACO 39 (37) USA 1,575 -3.1 152 -44.7 9.7 100 100 FTK is AB estimate 40 (40) Virgin Atlantic Airways UK 1,502 -0.9 364 3.1 24.2 33 8 UK CAA 41 (41) TNT Airways Belgium 1,426 2.2 100 42 (42) TAM Linhas Aereas Brazil 1,097 -2.2 0.0 17 43 (50) Avianca Colombia 1,052 25.5 834 11.6 79.3 18 includes TACA 44 (49) Ethiopian Airlines Ethiopia 1,032 19.4 366 15.8 35.5 26 15 45 (43) South African Airways South Africa 1,030 -5.6 0.0 35 46 (45) Iberia Spain 999 -0.8 333 -4.0 33.3 22 6 47 (54) Yangtze River Express China 956 44.2 100 ICAO 48 (46) Air New Zealand est New Zealand 950 1.8 238 -3.6 25.1 6 Airline Business estimate 49 (48) Finnair Finland 912 2.7 281 -5.4 30.8 29 9 50 (51) ABX Air est USA 800 -0.6 278 5.7 34.8 100 91 Airline Business estimate

36 | Airline Business | October 2015 flightglobal.com/airlines TOP 100 CARGO AIRLINE RANKINGS BY TRAFFIC: 2014 (51-100) TOP 100 CARGO AIRLINES: ALPHABETICAL LISTING

Ranking Airline Country Cargo traffic Cargo revenue Airline Rank Airline Rank 2014 (2013) RTK (m) Change (%) $m Change (%) ABX Air 50 Iberia 46 51 (53) Jet Airways India 754 3.6 Aeroflot 55 IndiGo 94 52 (57) Hainan Airlines China 748 19.4 Air Canada 36 Japan Airlines 32 =53 (52) DHL Air UK 694 -6.8 Air China 12 Jet Airways 51 =53 (55) Air India India 694 8.0 Air France 18 Kalitta Air 34 55 (47) Aeroflot Russia 682 -25.9 221 -27.5 Air Hong Kong 60 Kenya Airways 82 56 (70) Sky Lease Cargo est USA 675 93.5 69 16.9 Air India 53 KLM 9 57 (58) Garuda Indonesia Indonesia 639 8.7 227 10.7 Air Mauritius 85 Korean Air 6 58 (56) SAS Sweden 606 -3.9 190 -3.6 Air New Zealand 48 Kuwait Airways 79 59 (61) Vietnam Airlines est Vietnam 600 14.9 AirBridgeCargo 26 LAN Airlines 27 60 (59) Air Hong Kong Hong Kong 579 2.4 Alitalia 65 LOT Polish Airlines 99 61 (60) US Airways USA 555 2.2 159 3.2 American Airlines 29 Lufthansa Cargo 5 62 (65) Cargolux Italia Italy 521 18.4 98 Malaysia Airlines 33 63 (62) Israel 485 -1.5 70 -0.6 All Nippon Airways 20 MasAir 89 64 (64) Shenzhen Airlines China 473 6.2 Antonov Airlines 92 MNG Airlines 85 65 (63) Alitalia est Italy 450 -2.3 Asiana Airlines 21 Nippon Cargo Airlines 28 66 (68) Egyptair Egypt 413 10.9 ATI - Air Transport Int'l 100 Oman Air 76 67 (66) Transaero Airlines Russia 384 -2.3 Atlas Air 13 Pakistan Int'l Airlines 97 68 (69) SriLankan Airlines Sri Lanka 373 5.0 Austrian 69 Philippine Airlines 75 69 (71) Austrian Austria 370 11.0 Avianca 43 Polar Air Cargo 30 70 (72) TAP Portugal Portugal 342 5.0 British Airways 16 Qantas 35 71 (75) Sichuan Airlines China 338 12.7 Brussels Airlines 88 Qatar Airways 7 72 (73) Cargo Air Lines est Israel 330 2.0 Cargo Air Lines 72 Royal Jordanian 91 73 (80) USA 328 28.5 Cargolux 10 SAS 58 Cargolux Italia 62 Saudia 38 74 (76) Xiamen Airlines China 314 11.9 Cathay Pacific 4 SF Airlines 77 75 (74) Philippine Airlines est Philippines 300 -6.2 176 26.6 84 Shandong Airlines 90 76 (79) Oman Air Oman 290 9.4 66 4.8 China Airlines 11 Shenzhen Airlines 64 77 (77) SF Airlines China 289 5.3 China Cargo Airlines 25 Sichuan Airlines 71 78 (86) Grupo Aeromexico Mexico 287 31.7 China Eastern Airlines 14 Singapore Airlines Cargo 8 79 (82) Kuwait Airways Kuwait 271 9.3 67 3.1 China Southern Airlines 15 Sky Lease Cargo 56 80 (44) Global Supply Systems UK 267 -74.0 Coyne Airways 93 South African Airways 45 81 (84) Dragonair Hong Kong 256 10.0 143 1.4 Delta Air Lines 24 Southern Air 39 82 (81) Kenya Airways Kenya 250 -2.0 DHL Air 53 Southwest Airlines 87 83 (78) Volga-Dnepr Airlines Russia 221 -17.7 604 -18.8 Dragonair 81 SriLankan Airlines 68 84 (67) Centurion Air Cargo USA 207 -46.4 352 -16.8 Egyptair 66 Swiss 37 =85 (87) MNG Airlines est Turkey 200 1.8 El Al 63 TAM Linhas Aereas 42 =85 (89) Air Mauritius Mauritius 200 7.0 55 0.1 Emirates Airline 3 TAP Portugal 70 87 Southwest Airlines (91) USA 193 6.3 175 6.7 Ethiopian Airlines 44 Thai Airways Int'l 31 88 (93) Brussels Airlines Belgium 191 9.6 Etihad Airways 17 TNT Airways 41 89 (88) MasAir Mexico 190 0.0 EVA Air 19 Transaero Airlines 67 90 (95) Shandong Airlines China 185 9.4 FedEx 1 Turkish Airlines 23 91 (90) Royal Jordanian Jordan 183 0.5 60 3.4 Finnair 49 United Airlines 22 92 (96) Antonov Airlines Ukraine 174 3.3 Florida West Int'l 96 UPS Airlines 2 93 (94) Coyne Airways UK 172 0.6 Garuda Indonesia 57 US Airways 61 94 (99) IndiGo India 171 41.6 Global Supply Systems 80 Vietnam Airlines 59 95 (97) Gulf Air Bahrain 164 5.4 Grupo Aeromexico 78 Virgin Atlantic Airways 40 96 (85) Florida West Int'l Airways USA 160 -28.4 28 -26.3 Gulf Air 95 Volga-Dnepr Airlines 83 97 (83) Pakistan Int'l Airlines Pakistan 156 -33.7 45 -27.4 Hainan Airlines 52 Xiamen Airlines 74 98 (98) Amerijet International USA 149 2.8 211 7.7 Hawaiian Airlines 73 Yangtze River Express 47 99 (100) LOT Polish Airlines Poland 138 23.5 33 22.2 100 (92) ATI - Air Transport Int’l USA 128 -26.6 46 -37.0 NOTES AND DEFINITIONS: est Freight traffic estimates, based on historical, fleet and industry data, are made for indicative purposes. Cargo traffic: Includes freight and mail, scheduled and charter measured in RTK=revenue tonne km, 1 mile=1.609km, 1 US ton=0.9 metric tonne, 1 imperial ton=1.016 metric tonne. Cargo revenues: Shown in US$, but with change shown in local currency, where available. Revenue figures for major consolidators, including FedEx and UPS, include only their air transport operating divisions. Yields: Nominal yields are shown as a straight division of cargo revenues by RTK. These may vary from operational figures given by individual carriers. Major consolidators include flying as part of a high-value door-to-door service. Airline Business SOURCES: Returns to the Airline Business/Flightglobal database and regulatory filings. This and all surveys are available on Flightglobal’s dashboard: flightglobal.com/dashboard flightglobal.com/airlines October 2015 | Airline Business | 37 CARGO RANKINGS

ACI TOP 50 AIRPORTS: 2014 RANKINGS BY CARGO TONNAGE TOP CARGO AIRLINES GROUPS BY REVENUE: 2014

Ranking City Airport Code Country Freight (t) Ranking Airline Cargo revenue 2014 (2013) thousands Change (%) $m Change (%) 1 (2) Hong Kong International HKG Hong Kong 4,376 6.0 1 FedEx 27,239 0.4 2 (1) Memphis Memphis International MEM USA 4,252 2.9 2 UPS Airlines 5,705 0.2 3 (3) Shanghai Pudong International PVG China 3,102 8.6 3 Lufthansa Group 3,720 -1.0 4 (5) Anchorage Stevens Int'l ANC USA 2,493 3.0 4 Air France-KLM Group 3,534 -5.6 5 (6) Seoul Incheon International ICN South Korea 2,474 3.3 5 Emirates Airline 3,348 9.2 6 (4) Dubai International DXB UAE 2,368 -3.1 6 Cathay Pacific Group 3,275 7.3 7 (7) Louisville International SDF USA 2,221 3.5 7 Korean Air 2,709 6.5 8 (9) Tokyo Narita International NRT Japan 2,098 6.0 8 Cargolux 2,155 8.3 9 (10) Taipei Taiwan Taoyuan Int'l TPE Taiwan 2,073 6.2 9 Singapore Airlines Cargo 1,731 -3.1 10 (8) Frankfurt International FRA Germany 2,051 1.8 10 LATAM Airlines Group 1,713 -8.1 11 (11) International MIA USA 1,972 3.3 11 Atlas Air Worldwide 1,685 4.9 12 (12) Paris Charles de Gaulle CDG France 1,896 1.1 12 ANA Group 1,507 4.0 13 (13) Singapore Changi SIN Singapore 1,844 0.3 13 Air China 1,424 11.1 14 (15) Los Angeles International LAX USA 1,744 3.7 14 China Airlines 1,421 8.4 15 (14) Beijing Capital International PEK China 1,740 0.5 15 Qatar Airways Group 1,396 16.2 16 (16) Amsterdam Schiphol AMS Netherlands 1,633 6.7 16 IAG 1,308 -8.3 17 (17) London Heathrow LHR UK 1,499 5.3 17 Asiana Airlines 1,302 1.8 18 (18) Guangzhou Baiyun International CAN China 1,346 8.5 18 China Eastern Airlines 1,187 -4.1 19 (21) Chicago O'Hare International ORD USA 1,308 11.7 19 China Southern 1,164 11.5 20 (19) Bangkok Suvarnabhumi Int'l BKK Thailand 1,233 -0.1 20 Etihad Airways 1,106 19.2 21 (20) New York JFK JFK USA 1,223 1.7 21 EVA Air 1,029 -4.5 22 (22) Indianapolis International IND USA 1,067 -0.1 22 Turkish Airlines 973 11.7 23 (24) Tokyo Haneda International HND Japan 1,024 15.0 23 TNT Airways 950 0.0 24 (26) Doha International DOH Qatar 980 13.2 24 AirBridgeCargo 948 12.1 25 (23) Shenzhen Baoan International SZX China 964 5.5 25 United Continental 938 6.3 26 (25) Leipzig Leipzig/Halle LEJ Germany 906 3.2 26 Delta Air Lines 934 -0.3 27 (28) Abu Dhabi International AUH UAE 797 12.8 27 Nippon Cargo Airlines 895 1.2 28 (50) Dubai World Central DWC UAE 758 262.5 28 American Airlines Group 875 5.4 29 (29) Kuala Lumpur International KUL Malaysia 754 10.7 29 Qantas Group 872 -8.6 30 (27) Cologne Bonn CGN Germany 739 3.1 30 Japan Airlines 764 -3.7 31 (33) Istanbul Atatürk Int'l IST Turkey 728 15.5 31 Thai 725 -8.7 32 (31) Osaka Kansai Int'l KIX Japan 723 9.6 32 Volga-Dnepr Airlines 604 -18.8 33 (30) Luxembourg Luxembourg LUX Luxembourg 708 5.1 33 Avianca Holdings 565 11.9 34 (32) Mumbai International BOM India 686 7.3 34 Kalitta Air 502 -20.6 35 (38) Delhi Indira Gandhi Int'l DEL India 683 16.6 35 Malaysia Airlines 500 -3.3 36 (37) Cincinnati Northern Kentucky Int'l CVG USA 651 10.6 36 Air Canada 453 -1.1 37 (35) Bogota El Dorado International BOG Colombia 637 2.3 37 Ethiopian Airlines 366 15.8 38 (34) Jakarta Soekarno-Hatta Int'l CGK Indonesia 626 -0.4 38 Virgin Group 364 3.1 39 (39) Dallas/Ft Worth International DFW USA 617 7.6 39 Centurion Air Cargo 352 -16.8 40 (36) Newark Liberty International EWR USA 607 0.6 40 Finnair 281 -5.4 41 (41) Liege Liège LGG Belgium 591 5.3 41 ABX Air 278 5.7 42 (40) Atlanta Hartsfield Int'l ATL USA 556 -1.7 42 Air New Zealand Group 238 -3.6 43 (42) Chengdu Shuangliu International CTU China 548 9.2 43 Jet Airways 231 5.5 44 (45) Manila Ninoy Aquino Int'l MNL Philippines 520 13.8 44 Garuda Indonesia (Group) 227 10.7 45 (43) Oakland International Airport OAK USA 498 4.1 45 Aeroflot 221 -27.5 46 (44) São Paulo Guarulhos Int'l GRU Brazil 482 3.0 46 Amerijet International 211 7.7 47 (46) Milan Malpensa MXP Italy 460 9.1 47 SAS Group 190 -3.6 48 (47) Toronto Pearson International YYZ Canada 441 8.4 48 Grupo Aeromexico 185 15.9 49 (48) Houston George Bush IAH USA 433 7.9 49 Philippine Airlines 176 26.6 50 (49) Brussels National BRU Belgium 428 8.4 50 Southwest Airlines 175 6.7

38 | Airline Business | October 2015 flightglobal.com/airlines LEISURE STRATEGY

REPORT OLIVER CLARK & GRAHAM DUNN LONDON FRESH PACKAGING The blurring of lines between traditional charter and low-cost carriers in Europe has led to the evolution of airlines from both worlds as they strive to meet holiday market demand

ong-held assumptions that the rise Norwegian does not disclose specific fig- TUI continue? Carl Denton, managing direc- of European low-cost carriers ures but does say Norwegian Holidays tor of SvenCarlson Aviation Consulting, says would lead to the death of the “played a role” in contributing to the 24 mil- it is “certainly possible” that the LCC could go L package charter business look ever lion passengers it carried over the past year. it alone and set up a dedicated business but less convincing these days. Since October 2013, Hungary-based LCC notes that “they, like Ryanair, follow more of a In August, LCC Norwegian struck deals Wizz Air has offered flight and hotel packages mixed leisure/city model which may weaken with UK tour operators Nielson Travel, Bal- through its online Wizz Tours division. their position”. kan Holidays and Skiworld to operate charter Flights are operated by Wizz Air and over He adds: “Those airlines who have focused flights from London Gatwick to ski destina- 30,000 hotels are provided by the company’s more on leisure only, such as Jet2, have pros- tions in France, Spain and Bulgaria during the partner, Expedia Affiliate Network. The flight pered in this market, but only in the UK. winter season. and hotel packages marketed under the Wizz There are mutual dependencies being created Norwegian will also operate charter flights Tours brand are sold by Travellink, which by bed providers and seat providers, but this to the Canary Islands on behalf of TUI, also provides customer service as well as the also exposes the risk of restricted supply. Thomas Cook and Vitaltours as part of the booking services for the Wizz Tours website. new agreement. As noted in the case of Norwegian, in many Like many European airlines, Norwegian instances, LCCs are actually working with tra- “It is essential that in the has its own tour operator division – Norwe- ditional tour operators and travel agents to longer term, airlines have gian Holidays – which allows customers to provide package products that they compete combine flights with hotel bookings and car with through their scheduled services. access to bed stock” rentals. Working with companies such as EasyJet’s tour operator arm – EasyJet Hol- CARL DENTON Expedia, Hotelbeds and Tourico, Norwegian idays – is a joint partnership with Hotelo- SvenCarlson Aviation Consulting Holidays has access to more than 300,000 pia, itself a division of tour giant TUI. Hotel- hotels worldwide. opia provides the accommodation while the “As such, it is essential that in the longer “Norwegian is one of the fastest-growing UK carrier contributes seats across its term, airlines need to have access to bed airlines in Europe, with Norwegian Holi- scheduled network. stock, and as they grow, they will look to days contributing to that growth,” Norwe- source this independently. I see the Hotelopia gian’s commercial director Thomas Ram- SHREWD OPERATOR relation[ship] as a marriage of convenience for dahl explains. Last year, EasyJet Holidays transitioned from the time being.” “Charter flights are beneficial for airlines being an online travel agent to becoming a full- Denton believes all LCCs that operate lei- and the tour operator. Some destinations fledged tour operator. At the time, Travel Weekly sure routes must diversify into packages lest aren’t suited to year-round services so charter quoted general manager Mandy Round as say- distribution be taken out of their control and flights allow us to offer seats to tour operators ing she wanted the business to become “a strong into that of online travel agencies and “bed- throughout the entire season, which covers number three” tour operator across Europe. banks”, but notes that “this should not materi- our operational cost,” he adds. So will the close relationship with rival ally affect the big vertically integrated tour

flightglobal.com/airlines October 2015 | Airline Business | 39 LEISURE STRATEGY

operators who already control large parts of their product and distribution and do this very effectively within their sector”. But there is one LCC that, for the moment, remains steadfastly a scheduled operator: Ryanair. While customers can book hotels and car hire through partnerships with book- ing.com and Car Trawler respectively, the air- line does not offer its own packaged products and does not charter its flights.

INTERESTING PROPOSITION But marketing chief Kenny Jacobs hints that this could change in the future. “I would say we are open to it,” he says. “It’s probably on the list of things that, before, we said we would never do... I would say now it’s gone off that list on to the ‘That could be interesting at the right point in time’ [list], but not any time soon. – and charter is a bigger deal in particular to complete the transition of its Dutch and “The charter business works mostly at the markets in Europe than others – we might French divisions, which include Arkefly, to the peak season, and if you look at the traffic and look at it at some point in time,” he adds. TUI.com brand, with Jetairfly to be rebranded the load factors that we’ve got, we don’t have Meanwhile, the traditional tour operator next year and Thomson at a later date. a need to do it. We are able to fill our own giants TUI and Thomas Cook continue with Through these efforts, the company hopes planes without having to do it, so there is a bit restructuring plans to make their businesses to achieve savings of €50 million ($56 mil- of ‘Why would we do it?’ Everything is work- profitable and sustainable in the long term. lion) by 2018-2019 via common purchasing ing perfectly in the key summer months and Germany-based TUI Group has decided to for its five carriers. there is a bit of: ‘If it ain’t broke, don’t fix it.’ drop its Arkefly, Jetairfly and Thomson Air- The future of French airline brand Cor- “If we do have more of a need in the com- ways brands as part of a merger of its airlines sair, of which TUI is seeking to dispose, ing years or, we think, in a particular market into one division. The tour operator is working remains unclear.

PROFITS TO CROWN NEW MONARCH

This time last year Monarch Airlines was battling to “My view is: airline turnarounds need to be controlled by two minds: the scheduled mind, finalise crucial labour deals and investment talks done quickly. You should do it in one year if you which is very planned and very long term; and to give it breathing space to secure its future and can. That implies cutting a little deeper than then the charter mind which is very unplanned complete its evolution from charter to scheduled some might say, but I think it was necessary for and very short term. The basic idea being: [as] a leisure carrier. us to do that at that stage last year.” summer airline you can use your aircraft better A year later, after the entry of a new investor and The new strategy involved simplifying its unprof- in winter by having a charter function. [That] is a complete revamp, the UK carrier is on course to itable model in which it operated a mix of sched- sound idea theoretically, provided that you put post a profit within 12 months of restructuring and uled and charter flights, both short- and long-haul. sufficient effort to make the schedule work. But believes it has a sustainable way to adapt to new if you start relying on the charter business, then market expectations. In the process, it has shelved LACK OF SCALE you never grow your scheduled business, and charter flights completely, overhauled its network, “Long-haul was only operating with two aircraft. the two things start to conflict with one another, cut its fleet by a third and reset its labour costs. You probably need eight to make it work,” says and I think that started to happen in Monarch. “Effectively what we have done is take £200 Swaffield. “So long-haul was a problem.” “My own personal view is that the charter million [$307 million] out of the cost base per If scale rather than ideology was at the root model is structurally flawed now. I don’t believe annum, and then created a business which is of the decision to drop long-haul, the move to it has a great future... So we made the decision simpler and easier to manage,” says chief execu- axe charter operations from this summer was to bite the bullet and remove it completely rather tive Andrew Swaffield, who joined the airline in altogether more fundamental. “Charter was than continue the slow decline, and I think it’s April 2014 and has overseen its transformation. basically dying. Monarch had recognised that paid dividends.” “We have given ourselves two injections. One from around 2006, and had begun the move Central to that decision has been a focus on is the business model, which is simpler; and one from 100% charter to – when I came last April building year-round flying. “Most European air- is cost base, which is significantly lower, and – 15%,” he says. lines are skewed to the summer anyway, but in that’s what’s enabling us to deliver a turnaround “There was no doubt that maintaining a rump our case it was more extreme. We were six from loss to profit in one year, which is very grati- of charter at 15% came at quite a considerable times bigger in the peak of summer than in the fying,” he says. complexity. What you’ve got is one asset being trough of winter. So what needed to happen was

40 | Airline Business | October 2015 flightglobal.com/airlines Rival leisure carrier Thomas Cook, which operate only from their registered country to has also combined its airlines into one divi- Tunisia. Egypt and Tunisia are similar in many sion, has continued to expand its operations ways, in particular their resilience and support as its financial state improves. by tour operators who diversified into these destinations as they were initially pushed out MORE SERVICES of the traditional short-haul destinations.” As part of its summer 2016 schedule, the UK- Charter operations are not just the preserve based carrier will add services from Manches- of tour operators and, increasingly, low-cost ter to Los Angeles and Boston, and will boost operators, but remain a popular model for the frequencies to Cancun and New York. traditional network carrier. From London Gatwick, it will add a new SunExpress – a joint venture between Luf- route to Cuba’s Cayo Coco. It will also increase thansa and Turkish Airlines which provides services from London Stansted to Orlando. both scheduled and leisure charter flights, pri- Both TUI and Thomas Cook noted in their marily between Germany, Turkey and Egypt latest financial results the impact of the recent – continues to grow its business. terrorist attack on holidaymakers in Tunisia. The Antalya-based carrier says passenger Despite that event and continued turmoil in numbers increased 18% to 3.6 million during

Norwegian North Africa, Denton says the market will the first half of the year, although it posted a recover. “It has only taken until last summer for net loss of $14.6 million for the last six Chris Browne, who is stepping down from Tunisia to see a recovery close to pre-Arab months of its financial year. her position as TUI’s chief operating officer for Spring volumes and recent events have taken Commercial director Andreas Thams says aviation, told Airline Business in June that the them back to square one. Despite this, the market charter operations make up 40% of the carrier’s travel company was seeking to identify the and destination has shown great resilience and total traffic and adds that “we are constantly “best practice” strengths of each carrier, which tour operators are committed to the destination. contracting new business in this field”. could then be used as the basis for a series of “Furthermore, from a tour-operator perspec- So does the SunExpress executive see char- benchmarks for the whole airline group. tive, it is relatively free from the low-cost opera- ter flights as a dying business that will be swept In the third quarter ending 30 June, the tors, who only recently began to show interest away by the LCCs? “Definitely not. If you have travel operator posted an EBITDA of €194 once the market had recovered. Furthermore, a look at the tour-operator share of the SunEx- million, a 19% improvement on the same regulatory restrictions currently prevent a full press business and our growth in the past period a year before. open-skies operation to Tunisia... Airlines [can] years, the answer appears obvious.” ■

an absolute single-minded focus on year-round “We are very committed to flying more in the flying, and really that has to be scheduled. winter, so what underpinned our fleet decision was Otherwise, you never get focused enough. not flying too much fresh air around in the winter “We had a reasonable number of routes so that we could maximise the summer,” says where we flew regularly as a charter that we de- Swaffield. “Faced with the choice, we would rather cided to make into scheduled when we restruc- leave a bit of money on the table in the summer tured. Consumers now are used to looking for and have a more efficient aircraft in the winter. flights on the internet and if you fly as a charter, “As we transition completely by 2020, we would they can’t find you,” he says. “So our view is if hope that steep summer-winter curve would be you operate a scheduled service, more consum- much less, and would start to resemble low-cost ers will find it. You can still sell through tour op- carriers rather than a traditional charter carrier.” erators if you want to; you can let them buy The blurring of business models means that allocations, and still package it yourself through whatever the origins of the European network,

your own tour operator. There is nothing incom- Monarch charter or low-cost operators, all increasingly share patible with tour operators in our view. Swaffield is leading a simplified Monarch common ground. “The simpler business model of not doing LOWERING THE RISK sometimes a bit lumpy – it can all go in one go, three things and trying to do one thing really well “We have scheduled routes that we had as a or all come in one go.” – I suppose you could say is a hallmark of a low- charter, but that we are now selling to a broader That focus on year-round flying was also behind cost carrier model. We have certainly learned a market, which is a lower-risk model for us.” a fleet decision, which was confirmed on securing lot from those guys,” Swaffield says. He adds: “It’s much easier to manage the investment from 90% shareholder Greybull Capital ““Nothing is easy in this market,” he adds. profile of a direct scheduled airline. You usually in October 2014. The airline will replace its fleet of “It’s very competitive. If you have the right cost put it on sale a year in advance, you can monitor predominantly Airbus A321s with 30 Boeing 737 base, have the right fleet and understand your the bookings. With the charter business it is Max 8s, becoming an all-Boeing operator by 2020. customer, you can be very successful.”

flightglobal.com/airlines October 2015 | Airline Business | 41 FOCUS LEADERSHIP

WINNING FORMULA In the first of a series of reports examining how the industry’s top players succeed, Spencer Stuart’s Michael Bell and Thierry Lindenau, and LEK Consulting’s John Thomas speak to WestJet boss Gregg Saretsky

cross the global airline spectrum, all disciplined approach at WestJet: how we tion to add on creature comforts as they wish. only a handful of airlines prove operate, how we make investment decisions “Though our roots are in the low-cost world, successful in delivering attractive – everything is focused on generating a 12% the changing nature of the airline industry has Aand consistent financial results. return on invested capital (ROIC) – it is that compelled us to pursue a hybrid business Following our scene-setting Air- simple. If something can’t meet that hurdle, model. To support this, we continue to focus line Business article “Behind the curtain” this we simply won’t pursue it. For example, we not only on cost reduction, but also on targeting May, which outlined plans for this series on don’t believe in loss-making routes. further opportunities for margin expansion. high-performing airlines, our first article high- “Each part of the organisation needs to per- “Our focus does not detract from a genuine lights WestJet from among this peer group. form at that level, and this expectation is clear- mindset of caring for the customer and ensur- From its humble roots as a 1990s low-cost ly communicated throughout the organisation. ing exceptional guest services that in turn carrier in western Canada, to currently the coun- And against this laser-focused goal of 12% drives high customer satisfaction scores.” try’s second-largest airline, Calgary-based West- ROIC, we have actually been able to achieve a Jet has morphed into the model “hybrid” carrier, 15.8% ROIC so far this year. [Editor’s note: in What distinguishes WestJet’s employment maintaining key aspects of the LCC model its latest quarterly earnings, WestJet raised its culture from competing carriers? while steadily building connectivity throughout ROIC target from 12% to 13-16%.] “At WestJet, we live and breathe employee en- Canada, as well as select international destina- gagement as a means to meet our organisational tions. Under chief executive Gregg Saretsky, alignment objectives between staff and manage- WestJet has parlayed its vast and highly loyal “At WestJet, we live ment. Eighty-five percent of our workers partici- customer base and unique employee-owner- and breathe employee pate in the company’s employee share purchase ship platform into a high-performance airline, plan, and our people account for some 13% of delivering approximately C$1.1 billion ($830 engagement” our total shareholder base – so you can see why million) in economic profits (returns in excess GREGG SARETSKY they are key constituents of who we are. of cost of capital) over the past decade along Chief executive, WestJet “We have generous matching schemes that with a material share of the Canadian travel encourage employees to increase their share market, according to LEK Consulting research. “Our strategic focus allows us to maintain a participation. This is supplemented by a profit In this Q&A, Saretsky provides insight into low-cost environment, and in turn offer our cus- sharing programme that pays out twice annual- the factors that have helped fuel his airline’s re- tomers consistently low fares. Even when we ly and accounts for roughly 12% of an employ- markable financial success. His key themes line unbundled our products as a means to increase ee’s base salary on average. Since the pro- up very well with our hypotheses of what drives margins, we did it in association with lower gramme’s inception, we have paid out more outstanding airline economic performance. fares. For instance, we launched our transatlan- than C$400 million. In addition, there are own- tic Dublin service at the unheard of price of ers’ performance awards based on non-financial What do you consider to be one of the key C$99, which was facilitated by the unbundling metrics such as maintaining an injury-free envi- factors behind WestJet’s success? of the product. In other words, we work to keep ronment, on-time performance, guest satisfac- “There is a very clear strategic focus and over- our base fares low, then give customers the op- tion (‘did we show we cared?’) and cost reduc-

42 | Airline Business | October 2015 flightglobal.com/airlines employees supported it. Encore just marked its second birthday this summer and has been ac- cretive to earnings right from the start. “Keeping an open dialogue with all WestJet- ters is also very important. For instance, each January, I conduct a town-hall meeting with staff [spouses are also invited] and we lay out our plans for the airline. We also have numer- ous online forums, monthly webcasts and a blog that I publish regularly. Plus, employees can by- pass their superiors and come see or email me at any time. What’s more, each senior WestJet leader is assigned a designated base through which they can engage with employees at least twice each year. It’s fair to say that we have a very flat organisation. That said, it will be our mission to maintain this kind of engagement as we grow from 12,000 to 20,000 employees.”

Is WestJet’s talent primarily home grown, or do you engage in outside recruitment as well? “We believe in stable leadership and maintain- ing a strong culture of promoting from within. However, we also appreciate having a fresh per- spective – accordingly, our goal is 75% internal promotion and 25% external hires. For a 20-year-old airline, our longest-serving senior executive has ‘only’ 10 years with the company. “My predecessor, Clive Beddoe, actively re- cruited outside of the airline industry with the belief that having people with diverse back- grounds provided a different approach in an

Alan Maudie/Airline Business industry that had chronically underperformed.” tion. When you combine profit share, the they do it willingly, as part of their dedication to To sum up, what do you consider to be the Employee Share Participation Program, as well creating an exceptional guest experience. core tenets of WestJet’s business model? as stock price appreciation, the average employ- “We also strongly encourage employee par- “Three things: creating a remarkable experi- ee has approximately 35% upside per annum. ticipation in the company’s various idea-shar- ence for our guests, maintaining a disciplined “Furthermore, the fact that WestJet employ- ing programmes. One of our recent initiatives approach to meeting our ROIC target, and also ees have a voting seat on the board further un- was called ‘Ideas That Make Cents’, which fostering employee engagement through an en- derpins their alignment with management. An sought to cut C$100 million from our cost vironment of trust while encouraging employ- employee representative remains in the board- base over a three-year period. With the help of ees to have an ownership stake in the business. room even after I leave for executive sessions – our employees, we were able to realise C$125 “The fact that we are one of the few invest- one could argue that our employees have even million in savings in just two years.” ment-grade credits in the industry with a better access to the board than I do as CEO! “ sound balance sheet could give us a sense of What are some other byproducts of WestJet’s invincibility — however we also realise that a How has the company benefited from having employee-engagement approach? new competitor could arrive tomorrow and these kinds of incentives? “We believe that organisational alignment and make our lives extremely difficult! “Due to the overall level of employee engage- active employee engagement allows us to take “Therefore we continually have to ask our- ment, we have minimal turnover and a very low bold steps. A great example of this was the intro- selves why we are in the business. And the an- sick leave rate. Given that we are now more than duction of our regional carrier Encore in 2013, swer is to continue providing a satisfying expe- 20 years old and our pay scales max out at the which could have been quite controversial rience on behalf of our customers. That’s what 5-7 year mark, a large percentage of our employ- given its potential impact on mainline crews. gets our employees out of bed every day.” ■ ees are currently at the top of their pay tenure. “To avoid this, we kept employees in the loop But because they view themselves as owners of throughout the entire decision-making process John Thomas is a managing director and partner at LEK the business, they continue to be highly produc- – explaining why we were doing this, how it Consulting, a global strategy firm which advises a range of clients on key strategic issues. Michael Bell and tive. For instance, our flight crews are required would change the airline, what it would mean Thierry Lindenau are consultants within the aviation, to stay behind and groom their own aircraft, sav- to them and so forth. Ultimately the decision to aerospace and defence practice of executive search ing the airline huge sums in the process. Yet launch Encore was put to a vote, and 91% of our consulting firmSpencer Stuart flightglobal.com/airlines October 2015 | Airline Business | 43 ANALYSIS Q2 RESULTS

GREG WALDRON SINGAPORE GHIM-LAY YEO WASHINGTON DC Emerging problems despite fuel relief Profits among Asia-Pacific carriers strengthened in the second quarter bolstered by low oil prices, but economic challenges in key markets such as Brazil and China are affecting the fortunes for some in the growth regions

hile economic news has China Eastern Airlines, and China Clouds still been growing bleaker in Southern Airlines – each sur- hang over the emerging markets of passed operating profits of $900 W Thai Airways Asia-Pacific and Latin America, million, with Air China topping after losses fortunes have brightened, at least $1 billion. All three benefited widened for airlines in the former region in from sharply lower fuel prices. the last quarter. “The global aviation industry Asia-Pacific operators generally was generally healthy with sus- reported good results in the sum- tained growth in demand amid mer. Notably in China, where eco- relatively low oil prices. During nomic fears have spilled over to the first half, the group pursued its global markets, the picture for its strategic goals by.... proactively airlines over the first half of the seizing market opportunities, year was of improved profitability. achieving a relatively strong result

Earnings for carriers in greater in both passenger and cargo ser- Boeing China in the first half racked up vices,” says Air China. impressive cumulative operating Operating profits for the second earlier. Rival All Nippon Airways and China routes. profits of $3.6 billion, nearly quarter also generally improved in enjoyed an operating profit of $137 ANA adds it will continue to quadruple that of the same the region. Japan Airlines posted a million for the quarter, up from just optimise capacity to meet demand period last year. first quarter operating profit of $3 million a year earlier. Both cite on its domestic network, while China’s big three – Air China, $297 million, nearly double a year robust demand on Southeast Asia continuing to grow its interna- tional network via its dual hubs at ASIA-PACIFIC AIRLINE GROUP FINANCIAL RESULTS APRIL-JUNE QUARTER 2015 Tokyo’s Haneda and Narita Inter- Group/airline Group revenue ($m) Operating result ($m) Operating margin Net result ($m) national airports. 2015 change 2015 2014 2015 2014 2015 2014 Singapore Airlines enjoyed a ANA Group 3,394 7.0% 137 3 4.0% 0.1% 69 29 strong first quarter for the 2016 fis- AirAsia 362 1.1% 67 48 18.4% 13.3% 66 100 cal year, almost trebling operating Asiana Airlines 1,119 -8.0% -71 -9 -6.3% -0.7% -117 -22 profits to $83 million. Lower fuel Eva Air 1,062 2.3% 75 36 7.1% 3.5% 57 8 prices helped, it says, but it also Japan Airlines 2,559 1.6% 297 153 11.6% 6.1% 267 121 warned that weaker demand for flights to Europe and the Americas Jet Airways 845 13.5% 51 -10 6.0% -1.3% 35 -34 could hurt yields. Korean Air 2,474 -3.9% -6 -24 -0.3% -1.0% -198 250 Southeast Asia’s leading low- Singapore Airlines 2,785 1.4% 83 29 3.0% 1.1% 76 36 cost carrier, AirAsia, reported sec- Thai Airways 1,141 -14.0% -374 -236 -32.8% -17.8% -416 -229 ond quarter operating profit of $67 Total 15,740 0.3% 258 -10 1.6% -0.1% -160 259 million, up $19 million from a year earlier, mainly on the back of ASIA-PACIFIC AIRLINE GROUP FULL-YEAR FINANCIAL RESULTS JULY 2014 - JUNE 2015 increased travel demand from Group/airline Group revenue ($m) Operating result ($m) Operating margin Net result ($m) China, and falling fuel prices. 2015 change 2015 2014 2015 2014 2015 2014 The biggest loser in the region Air New Zealand 3,755 5.9% 885 765 23.6% 21.6% 249 201 for the three months to June was Qantas Airways 13,017 3.0% 863 -3,104 6.6% -24.6% 461 -2,340 Thai Airways, whose operating Virgin Australia 3,909 10.3% -44 -269 -1.1% -7.6% -77 -291 losses widened to $374 million on Total 20,681 4.8% 1,704 -2,608 8.2% -13.2% 633 -2,431 a straight calculation of the carrier’s revenue minus its expenses. Still, ASIA-PACIFIC AIRLINE GROUP HALF-YEAR FINANCIAL RESULTS JANUARY-JUNE 2015 the beleaguered flag carrier reports

Group/airline Group revenue ($m) Operating result ($m) Operating margin Net result ($m) it is getting a lift from lower fuel 2015 change 2015 2014 2015 2014 2015 2014 costs and cost cutting measures. Air China 8,339 3.9% 1,066 377 12.8% 4.7% 730 74 Two of the three key carriers in Cathay Pacific 6,499 -0.9% 305 203 4.7% 3.1% 275 64 Australia and New Zealand China Eastern Airlines 7,497 3.8% 921 258 12.3% 3.6% 573 2 reported strong profits in the finan- cial year to 30 June, cumulatively China Southern Airlines 8,580 6.2% 962 125 11.2% 1.5% 658 -131 amounting to US$1.7 billion. EVA Air 2,122 6.0% 160 30 7.5% 1.5% 125 -17 Qantas’s $863 million operating Korean Air 5,023 -2.4% 162 -9 3.2% -0.2% -183 135 profit rebounded from a loss of Total 38,060 2.8% 3,576 983 9.4% 2.7% 2,178 126 $3.1 billion a year earlier. It says it SOURCE: Flightglobal benefited from cost-cutting

44 | Airline Business | October 2015 flightglobal.com/airlines measures, and used its results dis- LATIN AMERICA GROUP FINANCIAL RESULTS APRIL-JUNE QUARTER 2015 closure to firm orders for eight Boe- ing 787-9 aircraft. Meanwhile, Air Group/airline Group revenue ($m) Operating result ($m) Operating margin Net result ($m) 2015 change 2015 2014 2015 2014 2015 2014 New Zealand’s FY2015 operating Avianca Holdings 1,061 -7.3% 1 50 0.1% 4.4% -23 -22 profit jumped 24% to $885 million Copa Holdings 538 -20.1% 49 131 9.1% 19.5% 64 118 on lower unit costs. The odd man out was Virgin Gol 688 -35.6% -81 17 -11.8% 1.6% -115 -65 Australia, which posted a full year Grupo Aeromexico 728 -8.8% 26 16 3.6% 2.0% 7 -7 operating loss of $44 million. This LATAM Airlines Group 2,413 -20.8% 17 15 0.7% 0.5% -50 -59 though was an improvement from Volaris 265 3.8% 23 -7 8.5% -2.9% 23 -6 a $269 million loss a year earlier. TOTAL 5,693 -18.5% 35 222 0.6% 3.2% -94 -40

LATIN CONCERNS worse,” says LATAM’s director of cut for the second half. The airline 2% to 4% previously. Economic concerns, particularly investor relations Gisela Escobar. had grown domestic capacity 2% International flights, which around Latin America’s key market LATAM, the parent of Brazil’s in the first half of 2015, and had make up a substantial portion of Brazil, have been mounting in the TAM, is now targeting a 3.5-5% initially planned to keep domestic both Mexican airlines’ networks, region. Mexican carriers were the operating margin for the full year, capacity flat for the full year. helped boost their results. Aer- bright spot in a challenging second down from 6-8%. Both TAM and Gol have reiter- omexico lifted international pas- quarter for the region’s airlines, Even ahead of the release of its ated that they will cut only flight senger numbers a fifth in the which ended the first half of 2015 results, LATAM announced that it frequencies, and will not drop des- period. The SkyTeam carrier says with little optimism. would cut domestic Brazilian tinations from their network. international passenger revenue Weak macroeconomic growth capacity by up to 4% in 2015. contributed more than half of its and depreciating currencies were TAM chief executive Claudia BEYOND BRAZIL total passenger revenue. again blamed for lacklustre finan- Sender has said TAM’s domestic The impact of Brazil is not lim- At Volaris, international capac- cial results. Key players LATAM operations will be 8-10% smaller ited to just its airlines. Copa, ity grew a third, as the airline Airlines Group and Avianca both by the fourth quarter. which had about a fifth of its focuses on growing its US network. ended the quarter in the red, albeit TAM’s unit revenue fell 12% in capacity in Brazil in the second Blankenstein says depreciation of slightly narrowing their losses. the second quarter when meas- quarter, said it saw a “material the Mexican peso has not affected Brazil’s Gol chalked up the ured in Brazilian reais, says load factor drop” in the South demand for travel to the USA. The worst performance among Latin LATAM. In US dollars, the metric American country in June – a airline continues to see new oppor- America’s six publicly listed air- was down more than a third to 6 month that performed worse than tunities in serving more secondary lines, with net losses deepening to cents, due to a 36% devaluation of expected for the airline. US cities, says Blankenstein. R355 million ($100 million). the Brazilian real, says LATAM. Challenges in Brazil, as well as With the challenging macroeco- Even Panama’s Copa Airlines, Gol similarly will reduce in other parts of Latin America, nomic environment in Latin which has traditionally been the domestic capacity by up to 1% this led to Copa revising downwards America, some airlines are taking strongest financial performer year, which will result in a 2-4% its operating margin, unit revenue actions on the fleet front to pare among its peers, did not escape and capacity guidance for the sec- capacity in the coming quarters. unscathed. It was still profitable in ond time so far in 2015. This is the Avianca says it will phase out its the second quarter, but its net profit second straight quarter that the entire fleet of 12 Embraer 190s, in tumbled 46% to $64.1 million. Panamanian airline has slashed an effort to reduce fleet complexity Aeromexico and Volaris eked its guidance. and cut costs. Four of the aircraft out profits in the second quarter, a Chief executive Pedro Heilbron have been grounded, and the reversal from net losses a year ago. appears pessimistic that a recov- remaining eight will leave in the Weakness in Brazil – Latin ery is near. “The economic slow- next six to 18 months. America’s biggest domestic market down and currency weakness will Avianca will also defer five out – was cited as a major challenge by persist through the third quarter of 11 aircraft deliveries in 2016. Latin America’s airlines. The carri- and potentially rest of the year.” LATAM plans to defer 2016 air- ers’ executives blamed the coun- While local currency deprecia- craft deliveries, and will put off try’s recession and severely depre- tion was also a concern for Mexi- taking delivery of three narrow- ciated currency for their weak co’s airlines, both Aeromexico and bodies and one widebody next yields. Volaris reported stronger consumer year. The airline group is also stud- LATAM and Gol, the main oper- “The economic sentiments at home. Volaris chief ying deferring deliveries of wide- ators in the country, both slashed slowdown and commercial officer Holger Blank- bodies in 2017 and 2018. ■ their 2015 domestic capacity tar- currency weakness enstein says domestic yields have gets in recent weeks. will persist” been relatively strong. The airline See the Flightglobal Dashboard “In Brazil, we have numbers PEDRO HEILBRON now plans to grow domestic capac- for full coverage on earnings at: that have gotten increasingly Chief executive, Copa ity by up to 7% this year, up from flightglobal.com/dashboard flightglobal.com/airlines October 2015 | Airline Business | 45 ANALYSIS MARKET OUTLOOK 3.1% 50% 5.7% Annual global GDP growth prediction Twelve-month decline in jet kerosene Total planned capacity growth used by Boeing in its latest 20-year spot price since August 2014, (ASKs) on North Atlantic routes market forecast according to ICIS during October 2015

Being certain about uncertainties Boeing’s 20-year airliner demand projection is a base case; factoring in variables and risks helps to create a fuller picture

CHRIS TARRY that while “global growth falls PLANNED CAPACITY GROWTH – NORTH ATLANTIC: OCTOBER CTAIRA short of our expectations... we Airline Weekly capacity ASK Weekly frequency Weekly seats offered ANALYSIS BY have pledged to take decisive ac- FLIGHTGLOBAL tion to keep the economic recov- million change total change no. thousands change INSIGHT ery on track and we are confident Delta Air Lines 1,395 5.2% 823 +0 209 4.5% the global economic recovery will British Airways 1,308 -2.5% 703 -20 194 -2.7% gain speed”. United Airlines 1,295 -0.1% 859 -26 192 -0.6% Some observers have suggest- Lufthansa 1,292 4.9% 522 +14 176 4.6% n the last column we said that ed that this may be a case of not American Airlines 842 7.8% 530 +42 124 7.9% most economic forecasts were wanting to let the facts get in the Air Canada 731 9.6% 426 +41 117 9.2% Itoo optimistic and would have way of a good story. Virgin Atlantic 708 22.9% 311 +63 104 22.8% to be adjusted; since then we have Boeing’s latest 20-year airliner- Air France 686 0.7% 292 +12 100 0.2% not only seen considerable stock- demand forecast has a seemingly US Airways 484 14.0% 308 +32 76 13.2% market turmoil amid concerns inexorable increase in the num- KLM 447 0.6% 208 -4 63 -0.4% over emerging markets and China, ber of aircraft it expects will be TOTAL MARKET 12,195 5.7% 6,648 +290 1,799 5.4% but also downgrades to economic needed. The numbers forecast forecasts, which have inevitably suggest there will be a need for been accompanied by increasing some 38,050 aircraft (8,830 wide- total for new aircraft deliveries of alone the cost) – Boeing is clear uncertainty about the future. bodies, 26,730 single-aisles and some 9,540. that its 20-year forecast is a guide The economy, even at a local 2,490 regional jets). This com- The purpose of any forecast is to long-term business planning. level, is not a controlled laborato- pares with the forecast last year that it provides one input among In the latest forecast, Boeing’s ry experiment, but we have seen for a total of 36,770 aircraft (8,600 many for decision-making, and expectation is that GDP will grow the G20 finance ministers state widebodies, 25,680 single-aisles in this respect – and particularly at an average of 3.1% a year over after a meeting during September and 2,490 regional jets). given production lead times (let the period. This is compared with

JET KEROSENE SPOT PRICES ASIA LEADS At a global level, the growth/re- Month Fuel price Change over period placement split for new aircraft is Traffic growth trend ¢/US gal 1 month 1 year 58%/42%. Growth is also partly Sep 272.6 -3.9% -8.7% 20 achieved by larger aircraft and Oct 247.4 -9.2% -16.3% more seats on existing aircraft, as Nov 232.7 -5.9% -20.3% well as higher load factors. Unsur- 15 Dec 186.8 -19.7% -38.2% prisingly, the growth/replacement Av.14 272.1 -8.1% split is not spread evenly across Jan 154.0 -17.6% -47.9% the world. A large share of the 10 Feb 178.7 16.0% -39.9% growth component for short-haul Mar 167.5 -6.2% -42.1% aircraft is accounted for by expect- Apr 172.6 3.0% -40.6% ed demand from Asia, where the 5 Growth rates (%) May 186.1 7.8% -35.8% narrowbody fleet is forecast to in- Jun 178.4 -4.1% -38.9% crease from 4,130 aircraft in 2014 Jul 158.8 -11.0% -44.7% to 11,730 aircraft in 2034, and 0 where new deliveries are estimat- Dec Jan Feb Mar Apr May Jun Jul Aug 140.5 -11.5% -50.5% ed to be 10,370. The correspond- NOTES: Prices are world average = median of Europe/Singapore cargo and US pipeline ing figures in the previous forecast spot prices in US¢/gallon. were a fleet of 3,820 in 2013 in- SOURCE: ICIS creasing to 10,850 by 2033, and a

46 | Airline Business | October 2015 flightglobal.com/airlines PLANNED CAPACITY GROWTH BETWEEN REGIONS – INNOVATA SCHEDULE DATA: OCTOBER

Regions Region/ Weekly capacity ASK Weekly frequency Weekly seats offered subregion million change total change no. thousands change North America Total West Europe 12,195 5.7% 6,648 +290 1,799 5.4% North America Total Asia 7,110 7.8% 2,342 +165 679 7.7% North America Caribbean 1,286 4.9% 4,136 +113 610 4.9% Central 1,620 15.1% 5,424 +609 740 15.9% South America 1,987 11.5% 1,748 +165 357 12.7% Total Latin Am 4,894 10.8% 11,308 +887 1,707 11.1% West Europe East Asia 5,086 6.1% 1,998 +110 580 6.5% Southeast Asia 2,594 -0.3% 805 +5 267 -0.2% CTAIRA’s analysis in respect of South Asia 1,278 -0.9% 720 -6 197 0.9% replacement demand in the nar- Total Asia 8,957 3.1% 3,523 +109 1,045 3.6% rowbody segment suggests a re- West Europe Latin America 4,604 4.5% 1,800 +81 543 4.7% quirement for some 10,700 air- craft over the 2015-2034 period, West Europe Middle East 5,262 11.9% 5,619 +614 1,357 12.6% which is broadly similar to Boe- Asia Middle East 6,823 10.8% 7,372 +914 1,766 13.3% ing’s forecast outcome and pro- TOTAL SELECTION 49,846 7.2% 38,612 +3,060 8,895 8.9% vides a reasonably certain under- WORLD 162,621 6.9% 659,783 +25,149 92,489 5.9% pinning to the forecasts. NOTES: Data is based on schedules for 5-11 October 2015 against 6-12 October 2014 extracted from SRS Analyser. Figures reflect airlines operating nonstop unrestricted scheduled passenger services. East Asia = China, Hong Kong, Japan, the Koreas, Macau, Mongolia and Taiwan. South Asia = The variable or risk element is Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Southeast Asia = Brunei, Cambodia, Indonesia, Laos, Malaysia, the extent to which the forecast Myanmar, Philippines, Singapore, Thailand and Vietnam. Central America = Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama. South America = All countries south of Central America. North America = Continental USA and Canada only. Middle East = Bahrain, Iran, growth materialises, and here it is Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen. worth looking at some of the sen- sitivities – albeit at a high level. As a rate of 3.2% that was used in last uncertainty increases, a range of a starting point, we have focused year’s forecast. In terms of the traf- outcomes may be more helpful. on the growth component of the fic outcomes, the long-term growth So while this might be Boeing’s Some airlines are Boeing forecast and assumed that rate for passenger traffic (revenue base case, it would be interesting already deferring traffic in both the short-haul and passenger-km) from the latest fore- to know what the associated high near- and medium- long-haul segments grows at a cast is 4.9%; this compares with and low cases are and the as- term deliveries similar rate of 4.9%. This rise in 5.0% last year. These year-on-year sumptions underlying them. traffic is expected to be accommo- changes appear to be fine-tuning dated for by a combination of rather than anything more funda- ORDER COVERAGE 16,000 new aircraft and more mental, and they suggest a broadly For aircraft manufacturers, the aisle backlogs approaching seats per aircraft. similar overall GDP/traffic multi- volume end of the business is the 10,000 aircraft, some 37% of the In terms of relative importance plier of 1.6 times. narrowbody sector, and here it is 20-year demand forecast by Boe- we estimate that the increased While so-called point esti- worth considering some of the ing is already covered by orders seats per aircraft will account for mates might give the impression nearer and medium/longer-term (for replacement and also growth) around one percentage point of of greater precision, the reality is factors impacting on this market. – although we don’t know how the forecast traffic growth. that as the forecast period be- The latest figures from the manu- many of these are already in the If we look at the implied rela- comes greater and, by definition, facturers suggest that with single- production schedules. tionship between GDP, traffic

Capacity growth trend Freight growth trend

20 25 20 15 15 10 10 5 0 5 -5 Growth rates (%) Growth rates (%) -10 0 -15 Dec Jan Feb Mar Apr May Jun Jul Dec Jan Feb Mar Apr May Jun Jul

A4A AEA AAPA AACO ALTA flightglobal.com/airlines October 2015 | Airline Business | 47 ANALYSIS MARKET OUTLOOK

US MAJORS (A4A MEMBERS) PASSENGER STATISTICS: JULY*

Region Pax traffic RPK Capacity Load factors Freight FTK* million change change percent change million change Domestic USA 79,862 5.7% 5.3% 88.8% 0.4 1,452 4.1% 58% North Atlantic 19,482 5.3% 3.9% 85.3% 1.1 833 -3.9% Proportion of new aircraft being procured for growth, rather than replacement, according to Latin America 13,024 6.7% 4.4% 86.9% 1.9 192 2.2% Boeing’s long-term forecast Trans Pacific 10,580 2.9% 1.4% 85.8% 1.2 920 -3.8% All international 43,085 5.1% 3.4% 85.9% 1.4 1,945 -3.3% TOTAL MONTH 122,947 5.5% 4.6% 87.7% 0.8 3,397 -0.3% growth and demand for aircraft, YEAR-TO-DATE 724,332 3.5% 3.8% 83.8% -0.2 20,433 0.6% taking into account the impact of NOTE: *Freight data is June as July n/a. SOURCE: the increase in aircraft size, each For manufacturers, percentage point of growth repre- the volume end of US MAJOR PASSENGER YIELD: A4A AIRFARE REPORT sents a need for some 4,000 air- the business is the Route 2015 craft over the period. Using the narrowbody sector Unit Jan Feb Mar Apr May Jun Jul 1.6 times GDP/traffic multiplier, Domestic ¢/RPK 10.34 10.50 10.91 10.65 10.32 10.54 10.47 and all other things being equal, a change 0.6% -0.8% 0.6% -1.9% -3.6% -5.5% -3.5% variation of 0.5% in the forecast North Atlantic¢/RPK 9.37 9.48 9.19 8.80 8.97 9.61 9.28 GDP rate over the period would current price level – rather than change 3.6% 3.7% 0.2% -0.3% -5.1% -6.4% -6.1% show as a reduction or increase cutting prices to absorb supply – in the aircraft needed of some is always the preferred option, the ASIA-PACIFIC AIRLINES (AAPA MEMBERS) INTERNATIONAL TRAFFIC 3,200 units, or 160 aircraft a year. key questions now are how many Month Passenger traffic RPK Capacity Load factors Freight FTK Turning to the present, some deliveries are likely to be post- million change change percent change million change airlines are already focused on de- poned and over what period? And May 80,870 9.6% 6.7% 76.3% 2.0 5,460 2.9% ferring near- and medium-term what implications might this have Jun 80,960 6.6% 6.1% 77.8% 0.3 5,348 -0.5% deliveries. And this is an activity for the production rate increases Jul 88,918 8.6% 6.2% 80.9% 1.8 5,358 -2.2% that is likely to increase as, not- that are still under consideration? YEAR-TO-DATE 573,269 8.2% 6.5% 78.2% 1.2 37,466 4.0% withstanding the benefit of cheap- Of course, only time can deter- er fuel, company-specific factors mine the accuracy of a particular SOURCE: Association of Asia Pacific Airlines such as operating environment, long-term forecast and the degree LATIN AMERICAN AIRLINES (ALTA MEMBERS): JULY local exchange rates and financial of confirmation bias. However, performance have changed ad- more pressing for most is the here Pax traffic RPK Capacity Load factors Freight versely since orders were placed. and now. As 2015 progresses the Region million change change percent change million change * Redirecting deferred deliveries outlook is becoming less certain. Total Intra-LatAm 18,250 7.5% 5.4% 81.8% 1.6 127 -7.3% is nothing new for manufacturers. But for those executive teams that Total Other Int’l 8,186 11.7% 11.8% 86.3% 0.0 260 -5.8% But given that matching supply are able to respond, this uncertain- TOTAL SYSTEM 26,436 8.8% 7.2% 83.2% 1.2 388 -6.3% more closely with demand at the ty also represents opportunity. ■ YEAR-TO-DATE 163,223 6.4% 5.5% 79.8% 0.6 2,730 -7.3% NOTE: *Domestic and International flights. SOURCE: ALTA EUROPEAN MAJORS (AEA MEMBERS) TRAFFIC: JULY

Region Pax traffic RPK Capacity Load factors Freight FTK millions change change percent change million change ANALYSIS ON TAP Domestic 3,606 12.3% 10.6% 80.7% 1.3 3 6.0% Keep up to date on market Intra-Europe 19,474 6.5% 4.9% 82.8% 1.3 61 13.2% data with analysis and special North Atlantic 15,619 6.5% 4.8% 89.5% 1.5 606 0.1% reports on Flightglobal Mid Atlantic 3,706 0.9% -0.7% 90.5% 1.4 95 -19.4% Dashboard. Subscribers can South Atlantic 3,729 -2.3% 0.0% 86.0% -2.0 211 0.9% access regular monthly Far East/Australia 15,168 8.5% 5.4% 89.7% 2.6 1,016 -3.5% analysis of key markets, Sub-Saharan Africa 4,636 2.6% 3.8% 82.4% -0.9 219 -3.7% including a range of region- N.Africa/M.East 3,101 21.5% 15.4% 77.2% 3.8 76 7.4% specific airline capacity, traffic TOTAL MONTH 69,079 6.7% 5.1% 85.9% 1.3 2,422 -0.5% and fleet data summaries. YEAR-TO-DATE 426,484 3.9% 3.9% 80.1% 0.0 16,581 -0.7% There is also analysis of key SOURCE: Association of European Airlines trends across the airline, route development, finance, ARAB AIRLINES (AACO MEMBERS): JULY* manufacturing and maintenance sectors. For more information on Passenger traffic RPK Capacity Load factors Subscribers can download Flightglobal Dashboard and its million change change percent change Flightglobal Insight’s industry premium news visit: Intra Arab world** 5,344 2.4% 8.8% 48.3% -3.0 reports. These include the flightglobal.com/dashboard With Other Regions 41,137 20.3% 16.6% 71.6% 2.2 various Airline Business special Find out about Flightglobal TOTAL MONTH 48,482 18.0% 15.3% 68.0% 1.6 reports, together with our other Insight’s report portfolio at: YEAR-TO-DATE 308,272 9.5% 13.7% 66.8% -2.6 annual surveys. flightglobal.com/Insight NOTES: *Estimates. **Includes domestic. SOURCE: Arab Air Carriers Organisation.

48 | Airline Business | October 2015 flightglobal.com/airlines FORUM AEA SUMMIT AEA CHIEF KHAN DO IT ALONE Europe’s airline lobby faces the arduous task of forging consensus between carriers and policymakers, but its leader believes it will succeed, even as key members exit to form their own grouping

thar Husain Khan, chief ways. IAG is nearly 10%-owned executive of the Associa- by Qatar Airways. In another blow Ation of European Airlines to the AEA’s membership, Air Ber- (AEA), is hopeful that the new lin announced in April that it was roundtable format of this year’s leaving the association, as did Ali- Aviation Leadership Summit, talia. Both airlines are partially which takes place in Antwerp on owned by Etihad. 15-16 October, will force stake- Despite the recent announce- holders and policymakers to ment by five European airline reach agreement on some key groups – Air France-KLM, issues ahead of the European EasyJet, IAG, Lufthansa and Ry- Commission’s forthcoming new anair – that they plan to establish aviation package. a new lobbying group later this After a difficult few months, year to present a set of common which have seen IAG members goals to European regulators, Hu- British Airways and Iberia leave sain Khan assures that those air- the association and team up with lines, which also remain AEA other European carriers to estab- members, “are still very active in lish a new airline lobbying group, the AEA”, and “we haven’t seen Husain Khan says the AEA is any decline” in that activity. “buckling down and focusing on the job of providing the right rep- UNITED FRONT resentation for our airlines”. “The AEA has always been very much in favour of consolidating MESSAGE DISCIPLINE the airline message,” says Husain Key to that strategy is this year’s Khan, adding that he “welcomes” summit, at which airline chief ex- this latest initiative “to speak ecutives will be very deliberately with one voice”. seated alongside Europe’s policy- As for the association’s long- makers at a large roundtable to er-term future, he has this to say: try and hammer home a four-pil- “There has been all kinds of

lar approach to European trans- BillyPix speculation about AEA but it’s port policy devised by the AEA. Husain Khan wants to drive a policy to raise competitiveness far too early days to be very con- “This is the first time a Euro- clusive as to where we’ll be a pean airline association has or- The first of these pillars re- one has an equal chance of suc- year from now.” ganised a roundtable of such quests that regulations be drafted ceeding and competing,” says Returning to the task in hand – magnitude,” says Husain Khan, in a global context, rather than Husain Khan, noting that the convincing European regulators to adding that the format for the dis- just a “narrow” European con- AEA “has always been in favour adopt as many items as possible cussions “is going to have quite text, because the continent is of liberalisation”. from the AEA’s wish list in the an impact”. “part of a global system” when it For this reason, he says he was new aviation package – Husain “We want to address how we comes to the aviation industry. surprised by IAG’s decision earli- Khan says he is “fairly optimistic” can draft a policy to increase the Secondly, the AEA wants to er this year to leave the associa- that real progress can be made. competitiveness of European car- see an end to the “overburden- tion. IAG stated at the time that it “Politics can be very difficult riers on the global stage,” he says. ing” of Europe’s aviation industry took a different position to other but the Commission has struck The AEA is calling for this policy by regulatory initiatives such as AEA members on certain issues the right chord… by allowing all to be based around four pillars emissions trading and passenger- – chief of which was the issue of stakeholders to pitch in. The derived from its Flightpath 2019 rights legislation. global liberalisation, which it de- things we’re asking for are doa- strategy, which the association Third on the list is tackling scribed as “fundamental to our ble – we’re not asking for the developed just over a year ago. what Husain Khan describes as future growth”. moon, we’re asking for a frame- “overtaxing at a European and work,” he says. national level”, which he be- GULF ROW “I’m pretty optimistic that the lieves is “very detrimental to the While IAG has not specifically de- key elements will be picked up, The AEA is ‘buckling industry”. The fourth pillar re- tailed its policy clash, fellow AEA but it’s going to be a long and te- down and focusing lates to creating a level playing member Lufthansa recently backed dious process.” ■ on providing airline field on which Europe’s airlines the highly-public USA stance al- representation’ can compete on the global stage. leging unfair competition from the Find out more about this year’s “We believe we need to three large Gulf carriers – Emirates, event in Antwerp at: achieve a situation where every- Etihad Airways and Qatar Air- flightglobal.com/AEASummit flightglobal.com/airlines October 2015 | Airline Business | 49 Times are changing… So is Flightglobal.com

We have given our website a complete make-over bringing you an easier navigation to find the news and insights you need on the airline industry. Plus, explore in depth how our products and services can help you.

Check it out at www.flightglobal.com FORUM FEEDBACK A TALE OF TWO PURCHASES Volantio’s Azim Barodawala says airlines must start taking simple steps to improve digital marketing and keep pace with the mighty Google

Prior to visiting a client piece, the technology does exist for air-

recently in Dubai, I had Volantio lines to extract live prices/availability limited time to make and deliver them into dynamic ads. Air- two purchases – a new lines should not miss this opportunity. suitcase and my . The pro- Second, once you’ve actually got a cess of buying both provided an excel- qualified customer to click on your ad, lent contrast in effective and ineffective bring the sale closer to them. Stop send- online marketing – and the opportuni- ing them on a wild goose chase around ties that exist for airlines to improve. your site to find what they want. If The pathway to purchase the bag you’ve done the first step correctly, you was crisp, accurate, and conversion- know exactly what they want. Send oriented. My search on Google for “in- them to a results page that does not ternational carry-on luggage” quickly force them to redo their search (as I had revealed multiple highly targeted paid “Technology exists to do on both Delta and Turkish). Re- results. Clicking on one of these results for airlines to extract duce the time and clicks from landing directed me to a page with relevant, in- live prices. They on your site to completing the pur- stock products and prices. From chase. When purchasing my bag, I was search to purchase, the process took should not miss this in the cart within two clicks. less than 5 minutes. opportunity” For the flight, the pathway to pur- AZIM BARODAWALA TOUGH DECISION chase was a meandering smorgasbord of Chief executive, Volantio Finally, don’t ignore the vast majority mediocrity. None of the paid results for of customers who are still planning, my “Flights from Atlanta to Dubai on 10 paid search are more than 400 basis but are not yet ready to purchase – up September” search met my require- points worse than industry averages to 98% of your visitors. Customers on ments. Delta Air Lines’ paid result (1.4% for travel versus 5.6%, according most airline sites are only given two lacked pricing and dropped me onto its to Wordstream). Cost/click can be up to options – buy right now, or abandon. generic homepage, a waste given the $1 to $2 depending on the route. A 100 Travel is one of the most expensive considerable information I had provid- basis point improvement, therefore, products purchased online. Buying a ed. Turkish Airlines showed me a promo would result in a cost-per-acquisition $150 bag is quite different to buying a page for flights from Miami to Dubai, decrease of roughly $30. This is not $1,500 airline ticket, and the decision without bookable fares. Air France’s ad some theoretical pot of gold. process can be much longer. Give your showed pricing, correctly identified my There are at least three concrete en- customers other options to engage origin and destination, and landed me hancements that airline marketers can with your brand while they are still on a page with pricing matching the start making immediately in order to planning (for example, signing up for Google ad… Unfortunately the flight improve performance and reduce ac- alerts and newsletters), to increase the only departed in January 2016. quisition costs. likelihood that they ultimately pur- First, be specific and relevant with chase directly from you. MAJOR OPPORTUNITY ad text, including live pricing. My The good news for airlines is that the The only company to show me a rele- Delta advertisement said “Delta technology now exists to make major vant advertisement was Google sweeps BTN’s 2014 Air Survey for strides to improve digital marketing Flights. The tool – while not perfect – fourth year”. While this is certainly quality and effectiveness. The bad news directed me to a number of bookable nice to know (I guess), what I really is that OTAs, meta- options with live pricing, meeting my wanted to know was the price of the search sites, and Google criteria. I clicked through one of the flight. Google’s interface supports dy- Flights are not standing ■ The home of Airline links and purchased with one of their namic pricing, where ads automatical- still. The race is on. Business on the web advertised partners. ly update with the airline’s latest pric- Azim Barodawala is chief executive of Volantio, is on the Airlines The current state of airline search en- es. Google Flights itself shows highly a leading provider of scalable, cloud-based Channel of gine marketing – when compared with accurate prices. marketing automation solutions for airlines. He flightglobal.com: other verticals such as retail and even While live airline pricing and availa- was previously head of strategy at Jetstar and flightglobal.com/ Google Flights – represents a major op- bility is a complex combinatorial prob- a project leader with Boston Consulting Group airlines portunity. Travel conversion rates from lem that is outside the scope of this [email protected] flightglobal.com/airlines October 2015 | Airline Business | 51 FORUM APPOINTMENTS

IN BRIEF EXECUTIVES ON THE MOVE

Skymark Airlines has appointed Nobuo Sayama as “The search will now start for carrier held talks with a possible its executive chairman and a successor to be appointed at investor. Masahiko Ichie as chief the next AGM in Dublin in June Mikosz has headed the Polish executive in a management 2016,” adds Conesa, who him- flag carrier for the past two years, changeover under its self will be succeeded as IATA having previously served a sepa- rehabilitation programme. chairman by IAG chief execu- rate term as interim chief, and Sayama is a director of tive Willie Walsh at the conclu- has overseen an extensive Integral Corporation, the sion of that conference. restructuring programme. private equity firm that will Max Kingsley-Jones London The Polish treasury’s under- take a 50.1% stake in the secretary of state, Wojciech carrier. Hideo Yaguchi has EUROPE Chmielewski, who supervises been named as Skymark’s HOHMEISTER SET FOR the airline, says he received the senior managing director. NEW LUFTHANSA ROLE resignation “with surprise”. Long-standing Swiss Interna- Chmielewski says he has been

Olaf Sachau has become chief BillyPix tional Air Lines chief Harry discussing a possible capital executive at lessor Intrepid Tyler: Five years at helm Hohmeister looks set to move to increase as part of a plan to Aviation, replacing Frank Pray. a new role within parent Luf- attract a strategic partner, adding Doug Winter has also been INTERNATIONAL thansa Group next year. that the company is in promoted to the newly created IATA SEEKS NEW CHIEF Hohmeister’s future position “advanced talks” with a poten- position of president and AS TYLER STEPS DOWN was expected to be approved dur- tial investor. commercial chief. The search has begun for IATA’s ing the group’s supervisory board The treasury credits Mikosz new helmsman after confirma- meeting on 16 September, ac- with achieving “very good Dublin-based operating lessor tion that Tony Tyler will retire in cording to Zurich-based business results” from the “difficult pro- Accipiter Holdings has June 2016 following a five-year magazine Bilanz. cess” of restructuring LOT. recruited Aisling McCarthy stint as director general. Hohmeister, who has been It also adds that LOT has from boutique financial The former Cathay Pacific Swiss’s chief executive since promising opportunities for advisory firm Stratos, as chief executive took over from 2009, is considered a candidate long-term growth through vice-president of marketing. the enigmatic Giovanni Bisig- to take over the helm of the development of a Warsaw- nani at the fractious 2011 IATA group’s low-cost division Eurow- based hub in conjunction with Vueling has appointed David AGM in Singapore. Having wit- ings. That carrier is being merged a strategic partner. Blancas as its new nessed firsthand the dissent with sister airline Germanwings David Kaminski-Morrow London commercial chief, four among the IATA “troops” at that to form an expanded entity to months after the position’s Singapore event, Tyler set about operate pan-European and long- TRANSAERO GETS NEW previous occupant departed a reform of the organisation to haul flights CHIEF IN RESHUFFLING to take up a similar role at Air make it feel more inclusive to all under the Dmitry Yerzakovich has taken Berlin. Blancas arrives after its members. He has also Eurowings over from Transaero’s long-term a two-year spell as adopted a less-confrontational brand name. chief executive Olga Pleshakova, commercial chief at LOT. approach to the wider aviation Eurowings amid the proposed acquisition of industry than his predecessor. has been the airline by Aeroflot. Ashwani Lohani takes over A British national, Tyler was managed by Pleshakova has been elected to

from Rohit Nandan as Air born in Egypt in 1955 and gradu- BillyPix Jochen Wal- chair the Russian carrier, in turn India chairman and managing ated from Oxford University in Harry Hohmeister lisch since replacing her husband, Alexan- director for a period of three jurisprudence. He began his 2012. But he der Pleshakov, who sought to years. Nandan’s tenure ended Cathay career in 1978 when he was joined on 1 August 2015 by step down on 31 August. in August following an moved within parent Swire former Lufthansa CityLine chief Yerzakovich had been serving extension of one year. Group to join the airline. He was Michael Knitter as second man- as the company’s head, in an act- appointed chief executive in aging director, responsible for ing capacity, from this date, Malaysia Airlines has named 2007 and joined IATA as boss Eurowings’ operations. while Transaero’s management Nik Azli as executive counsel four years later. Meanwhile Bruno Gehrig, explored options for resolving its and Charles McKee as head Bisignani’s intense travel chairman of Swiss, is being suc- financial problems. of marketing. Meanwhile regime was legendary, and Tyler ceeded by Reto Francioni, who Transaero insists that the man- former Flybe and EasyJet has found himself continuing formerly led the parent group of agement changes are “not related” executive Paul Simmons will with that tradition despite a Frankfurt’s stock exchange. Fran- to the governmental commission become commercial chief stated intention to reduce the cioni was chief executive of which sat on 1 September, after from December, replacing amount of globetrotting. Deutsche Borse until May. which the carrier disclosed an Hugh Dunleavy. IATA chairman Andres Michael Gubisch London acquisition plan from Aeroflot. Conesa, also chief executive of David Kaminski-Morrow London Singapore Airlines has Aeromexico, credits Tyler with LOT CHIEF QUITS AMID INVESTOR DISCUSSIONS named Peter Seah Lim Huat being “a very effective leader of We feature a CEO in every as deputy chairman. IATA” and expresses “regret” LOT’s chief executive Sebastian issue of Airline Business: that he is leaving. Mikosz resigned in August as the flightglobal.com/interviews

52 | Airline Business | October 2015 flightglobal.com/airlines flightglobal.com/airlines October 2015 I Airline Business I53 COMMENT QANTAS ON THE BOUNCE Australia’s has proven its critics wrong, swinging to a net profit of A$560m for the year to June, but the road ahead is still fraught with difficulty as the leadership attempts to further transform the airline amid a slowing economy

antas boss Alan Joyce year battle to set up Jetstar Hong Kong, wasn’t lying when he after authorities there denied its appli- said that the airline is cation for a licence. Q delivering “one of the On the domestic front, the capacity war biggest turnarounds in between Qantas and Virgin has ended,

Australian corporate history”. Chameleons Eye/Rex Shutterstock but a new front in premium product is One year after receiving brickbats opening up. Qantas has been refurbish- from many – including Airline Busi- ing its Airbus A330s – which operate ness – for the airline’s record A$2.84 on transcontinental and international billion ($1.98 billion) net loss, Joyce services – with new proudly revealed a net profit of A$560 seats. In an effort to trump that, Virgin million for the year ended 30 June. All of the Qantas has also started rolling out new seats on All of the Qantas group’s flying divi- group’s flying its A330s, which operate on the same sions have finally bounced back into divisions have transcontinental routes. the black (before interest and taxation), For the year ahead fuel costs are ex- as capacity moderated, yield improved finally bounced back pected to be down over the 2016 fiscal and costs came down across the board. into the black...but year, while the early repayment of debt Joyce was quick to point out that a the Flying Kangaroo’s should reduce its interest bill. Working lot of the improvement came from the against it is a slowing economy and the ongoing “Qantas Transformation” pro- next hop may dual-edged sword of the falling Aus- gramme. The initiatives – which be harder tralian dollar, which is likely to offset ranged from changes to fuel policy further gains from lower fuel prices through to redundancies and revenue while also improving inbound tourism benefits – added A$894 million to the lead to some rebalancing of the Emir- to Australia. bottom line. ates partnership. Although Qantas has That will leave the transformation Not all of the improvements were of waxed lyrical about the network bene- programme to do more heavy lifting, Qantas’s own doing, however. Lower fits, many customers have been disap- with an A$450 million target for the fuel costs and the removal of Austral- pointed that their opportunities to fly 2016 fiscal year. A further 1,000 jobs ia’s carbon tax combined delivered a on Qantas metal have been cut back are set to be eliminated, while efficien- A$577 million benefit. severely, especially for those heading cy gains are set to drive a projected 6% Still, the turnaround in its interna- to Europe. fall in non-fuel unit costs. tional operations, which have dragged Pleasing for Joyce has been Jetstar’s Having carefully managed the pro- for a number of years, was impressive. rebound in earnings. Albeit driven by cess thus far, Joyce and his team will For the first time since the global finan- the Australian operations, the various likely have a tough time convincing cial crisis, the business delivered posi- parts of Jetstar’s Asian empire were unions that a now-profitable carrier tive earnings for the full year, as com- able to deliver varying levels of profit still needs to shrink itself further, petitor capacity growth slowed and it over the year, albeit without the figures while at the same time talking up lowered unit costs through working being publicly disclosed. growth prospects. the fleet harder. Joyce also wisely confirmed that While the Flying Kangaroo has re- Joyce has rewarded the hard work of Qantas is walking away from its three- bounded, its next hop may be harder. ■ the international business, now being run by former group chief financial of- ficer Gareth Evans, with an order for ANDROID EDITION eight Boeing 787-9s. These will re- The tablet edition of Airline Business place its five oldest 747-400s, but will is now available for android mobile not lead to any major growth in seat devices as well as for iPads, desktops The home of Airline Business capacity. It is intended, however, that and laptops. Digital editions are on the web is on the Airlines they will be used for long, thin routes available every month in tablet and Channel of – allowing the “Flying Kangaroo” to print replica format. Sign in here to flightglobal.com: spread its wings again. download your free digital editions: flightglobal.com/ Hopes will be high that it will also flightglobal.com/AirlineBusiness airlines

54 | Airline Business | October 2015 flightglobal.com/airlines

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