INTERVIEW ALAN JOYCE Turning Qantas fortunes up Down Unders3-eu-west-1.amazonaws.com/fg-reports-live/pdf/AB Issue April 2016… · ALAN JOYCE Turning Qantas fortunes up Down Under

APRIL 2014STRATEGY FOR AIRLINE BOARDROOMS WORLDWIDESTRATEGY FOR AIRLINE BOARDROOMS WORLDWIDE

flightglobal.com/airlines

AIRLINERS Can Russia and China break single-aisle duopoly?

ENGINES Time for new generation to deliver on powerful promises

BIG SPENDERS Where all the metal went last year



ALAN JOYCETurning Qantas

fortunes up Down Under

INTERVIEW

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CONTENTS

flightglobal.com/airlines | Airline Business | 5

LIGHTING UP page 42

GEOPOLITICAL DRIVE page 36

REGIONALS RISE page 41

THRUST TRUST page 44

VOLUME 32 NUMBER 3



AIRLINERS Can China and Russia break singe-aisle duopoly?

ENGINES Time for new generation to deliver on their promises

BIG SPENDERS Where all the metal went last year



ALAN JOYCETurning Qantas

fortunes up down under

INTERVIEW


AB INTERACTIVE6 Loyalty excellence takes centre stage

BRIEFINGINTERNATIONAL8 US carriers scramble for Cuban prize

AMERICAS10 Hawaiian studies idea to create offshore network

EUROPE12 Volotea grows from low-cost roots

MIDDLE EAST14 Fuel drop eases Qatar’s A380 fears

FINANCE15 Airlines weigh up borrowing options

SPECIAL REPORTAIRCRAFT AND ENGINES26 Still climbing Our annual survey of jet numbers

29 Delivery rankings Lifting the lid on 2015 shipments

31 Life changes Airliner retirement age declines

34 Widebody values flux Twin-aisle market dynamics

36 Leadership challenge China and Russia bid for slice of single-aisle business

41 Regionals on the rise We analyse last year’s deliveries in small-airliner market

42 Powering ahead The engine-manufacturing sector

44 Trust the thrust CFM’s Leap is poised for debut as P&W tackles GTF teething troubles

46 All to play for Who’s winning the battle to power the A320neo family?

ROUTES ASIA/AMERICAS18 Barriers to airline expansion was a key theme at the

Routes Asia and Routes Americas forums

ANALYSIS48 Fuel set to bring a further bounty As hedging

positions unravel, calls for efficiencies continue

50 Expansionist China set to go global International network development strategy of the country’s carriers

52 Economic outlook could trump oil lift With the cycle model broken, predicting fortunes is tough

FEEDBACK56 Keep your promises Building a strong airline brand

takes time and attention to detail

COMMENT58 Rocking the status quo

April 2016

Airline Business is published monthly by Reed Business Information. © Reed Business Information Ltd 2016. ISSN 0268-7615 (Print) ISSN 2059-3449 (Online). Printed in the UK by William Gibbons and Sons Ltd.

Annual Subscription Rate: US$198/£124 Periodicals postage paid at Rahway, NJ. Postmaster send changes to Reed Business Information, c/o Mercury International Ltd, 365 Blair Road, Avenel, NJ 07001.

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COVER STORY20 Silencing the critics After turning around record net

losses, Qantas chief Alan Joyce says the recovery owes as much to its transformation programme as it does to the falling fuel price

HOW TO CONTACT [email protected]

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AIRLINE BUSINESS INTERACTIVE

LOYALTY EXCELLENCE TAKES CENTRE STAGE

ROUTES’ ISLAND ESCAPE

Iberia, Air New Zealand and Finnair were rewarded for their innovation and leader-

ship at this year’s Loyalty confer-ence in Bangkok.

The awards, which are a key component of the annual Flightglobal/Global Flight organ-ised event, are judged by a panel of loyalty management specialists who evaluate leading initiatives.

The marketing category was won by Iberia, which created the unique ‘seismillones’ card to cele-brate six million members last year.

The campaign generated more than 10,000 entries, more than 180,000 Avios donated from cus-tomers, and more than 170,000 visualisations on Iberia’s web page.

Air New Zealand received glowing recognition by picking up the technology and manage-ment awards.

The carrier won for its major strategic reset over the past two years, developing the backbone of its management’s five-year plan and for its mobile app, which has been downloaded by

more than 600,000 devices. The ceremony was rounded off by Finnair winning the loyalty part-nership category for its tie-up with Social Party, which devel-oped “gamification” incentives through the Party Coins Game Rewards Service.

Each of the winners is invited to present a case study at this year’s Flightglobal/Global Flight Loyalty@Freddie Awards confer-ence on 27-28 April at the Mandalay Bay hotel in Las Vegas. flightglobal.com/Freddies16

The island of Tenerife, in the Canary Islands, will play host to the airline and air-

port network planning commu-nity this summer when Routes Africa touches down in June.

Celebrating its 10th anniver-sary, this year’s Routes Africa will take place on 26-28 June and will be hosted by Tenerife Tourism with the Canary Islands government. Some 250 delegates are expected to attend.

“West Africa is an important trading partner for Tenerife due to its geographical position, and there is huge potential to develop more air service to the African continent,” says director of Routes, Katie Bland.

“Hosting Routes Africa will support Tenerife’s strategy to

become an aviation hub connect-ing West Africa to Europe and North America.”

Last year’s event, which cov-ered the Middle East and African

markets, took place in Bahrain. Flightglobal and Airline Business are official partners with Routes’ organiser UBM Live.Routesonline.com

Routes Africa delegates will get to enjoy the delights of Tenerife

Image

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EVENT

CONFERENCE

This year’s SITA Air

Transport IT Summit,

organised with Airline Business, takes place on

24-26 May at Barcelona’s

Hesperia Towers hotel. This

platform for airline leaders

to address the IT community

will draw on Barcelona’s

status as a European

“Capital of Innovation”.

Speakers include SkyTeam

boss Perry Cantarutti

(below), AirAsia India CEO

Mittu Chandilya and EasyJet

CIO Chris Brocklesby.

flightglobal.com/ITSummit

Hong Kong is the venue for

this year’s Technology and

Innovation in Airline

Distribution conference,

organised by Flightglobal

and T2RL. Now in its sixth

year, the 2016 event takes

place on 11-12 May,

drawing on the host city’s

position to focus on the

dynamic Asian market and

rising passenger demand in

Australia and China.

Speakers include Hong

Kong Express chief

executive Andrew Cowen,

IATA’s NDC director Yanik

Hoyles and Flydubai CIO

Ramesh Venkat.

flightglobal.com/TIAD16

BARCELONA SUMMIT

DISTRIBUTION DEBATE

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Eyes on the prize: Loyalty innovators Air New Zealand, Iberia and Finnair were recognised in Bangkok

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340B operator Silver believes it can succeed in Cuba in the same way it has serving the Bahamas from Florida.

“With our cost structure and the costs of the 34-seater, we make those routes work year round in the Bahamas and we think Cuba will work in the same way,” says Silver chief executive Sami Teittinen. Silver is the only US carrier to apply to operate to all 10 Cuban cities authorised for international service.

While US airlines’ proposals

for Cuba service from Florida were not surprising, route appli-cations from a couple of airlines have raised eyebrows.

Denver’s Frontier Airlines, for example, has proposed daily ser-vice to Havana from its home-town, alongside thrice daily ser-vice on the popular Miami-Havana route among others. Alaska Airlines surprised with its proposal for a twice daily Los Angeles-Havana service – a route also on the wishlist of American, albeit with a less frequent weekly frequency. ■See Routes report P18-19

A deluge of requests from US carriers to serve Cuba leaves

the US transportation department with the difficult task of deciding which airlines secure the highly- coveted rights to fly to Havana, after February’s landmark agreement to re-open scheduled links between the two nations after a 56-year ban.

Twelve US passenger carriers have already filed for authority to operate an average of more than 77 daily flights to Cuba, following the signing of the historic agreement this year.

That deal covered 110 newly-authorised daily flights between the USA and 10 Cuban cities.

“It’s a good number, but nothing that creates over- capacity,” said Peter Cerda, IATA’s regional vice-president for the Americas at February’s Routes Americas forum in San Juan, Puerto Rico.

Cerda says Cuba lacks the infrastructure – including roads and hotels – needed to accommo-date a vast influx of travellers. Building those hotels and roads will take at least two to four years, he says.

“It’s going to be gradual. You don’t have the infrastructure in place. That will take time.”

Of the more than 77 daily flights requested by the airlines, more than 50 will operate to Havana. The US-Cuba air ser-vices agreement, however, allows for only 20 daily flights to the Cuban capital.

American Airlines, the carrier that is seeking the most flights, has requested at least 12 daily flights to Havana. Of these, it wants to operate 10 daily frequencies to the city from

BRIEFING INTERNATIONAL

US carriers scramble for Cuban prizeHistoric agreement between two nations has fired the starting gun on the race for access to Caribbean island

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American is the US airline seeking the most flights to Cuba

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Miami-Havana has turned out to be the most

sought-after route

110Number of newly authorised daily US-Cuba flights

April 2016

Miami. Indeed, Miami-Havana has turned out to be the most sought-after route, with four air-lines applying: American, Delta Air Lines, Eastern Airlines and Frontier Airlines. Altogether, the four carriers want to fly 16 times daily between the two cities.

STATE OF PLAYAmerican says in its application that more than 83% of the US charter flights to Havana in 2015 originated from Miami. The One-world carrier is the largest US operator of charter service to the Caribbean island nation.

Reflecting the demand for flights from Miami, the state of Florida is the key focus of US carriers’ plans to serve Cuba. This is no surprise given the number of Cubans that have migrated to Florida. Data from Washington DC-based thinktank the Migra-tion Policy Institute shows around three-quarters of Cuban immigrants in the USA have settled in Florida.

Fort Lauderdale – viewed as the alternative airport to Miami – is the second most popular origin point among the applications filed by US airlines.

Four carriers – JetBlue Airways, Southwest Airlines, Silver Airways and Spirit Airlines – want to fly to Havana from Fort Lauderdale, requesting a total of 13 daily flights.

Both Spirit and Silver are based at Fort Lauderdale airport, which is also a focus city for both JetBlue and Southwest.

Among the four competing carriers, only JetBlue has experi-ence in operating charter service

to Cuba. The airline now flies six-times weekly from Fort Lauderdale, New York and Tampa to Havana and Santa Clara. With a request for 15 daily flights to Cuba, JetBlue has the second biggest application after American. It wants to serve four Cuban destinations from Fort Lauderdale and operate to Havana from two other Florida points: Orlando and Tampa. The airline is also seeking to serve Cuba from three other points on the US east coast: Boston, Newark and New York JFK.

Dallas-based Southwest’s entire Cuba route proposal origi-nates in Florida. A Southwest spokesman tells Airline Business that the airline’s focus on Florida has resulted in some disappoint-ment expressed by airport authorities in its other focus cities, but says the carrier is being pragmatic as it banks on its strong intra-state network in the Sunshine State.

Fort Lauderdale-based Saab

MOST SOUGHT-AFTER USA-CUBA ROUTES

USA Cuba Airlines Frequencies*

Miami Havana American, Delta, Eastern, Frontier 16

Fort Lauderdale Havana JetBlue, Silver, Southwest, Spirit 13

Orlando Havana Delta, JetBlue, Southwest 4

Tampa Havana JetBlue, Southwest 4

Fort Lauderdale Santa Clara JetBlue, Silver, Southwest 3

New York JFK Havana Delta, JetBlue 3

NOTE: *Total daily frequencies SOURCE: US DOT filings

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Hawaiian Airlines is examin-ing a concept that could

eventually see it launch services in regions other than the Hawaiian Islands.

Meanwhile the airline is stud-ying near-term network develop-ments which could see it launch a few more routes in the next year, possibly including a new service to Tokyo Haneda.

The airline’s chief executive Mark Dunkerley tells Airline Business that any offshore move would not come soon and remains undefined and uncer-tain, but there may come a time when Hawaiian will have to look elsewhere if it intends to keep on expanding its horizons.

“We are looking to see, does the Hawaiian Airlines model work elsewhere?”

He adds that such a move is part of the carrier’s “big-picture, far-off-in-the-future [planning], as opposed to a here-and-now firm plan”. Executives have consid-

BRIEFING AMERICAS

Hawaiian studies idea to create offshore networkPacific carrier considers long-term plan for overseas hubs while more Asian expansion is on nearer horizon

JON HEMMERDINGER WASHINGTON DC

Dunkerley: Hawaiian will eventually outgrow its roots

Bill

yPix

“China will eventually be the

dominant source of visitors to Hawaii”

April 2016

ered an operation within the continental USA, as well as opening operations in foreign countries, he says.

“The conditions have got to be right and it certainly wouldn’t be straightforward or entirely easy. We are excited by it.”

Driving the long-term planning is a realisation that Hawaii will eventually no longer be able to accommodate increased travel demand, Dunkerley says.

ATTRACTIVE DESTINATION“We think there is no doubt that Hawaii is an attractive destination and that more people want to visit Hawaii today than there [is] housing or accommoda-tions,” he says.

Despite those limits, Hawaiian predicts demand for travel to Hawaii from Asia, particularly from China, will surge in the coming years. To meet that demand, Hawaiian has said it will renew its expansion to Asia, beginning around 2017.

“China will eventually be the dominant source of visitors to Hawaii,” Dunkerley says. “Whether it will be in five or 50 years, I don’t know, but we… want to be part of that story.”

Looking more near-term, Dunkerley says that there may be “the opportunity for a new route

or two in the next 12 months”.Hawaiian has recently taken a break from network expansion following several years in which it acquired Airbus A330s and deployed them to a raft of new international markets.

The fleet will remain relatively static until 2017 when it begins acquiring Airbus A321neos. Dunkerley says Hawaiian is stud-ying service to Haneda following a recent proposal by regulators to open daytime slots at Haneda to airlines serving routes to the USA.

Hawaiian is now “looking at the opportunities” and “doing the work” in anticipation of a procedural order that would allow airlines to file requests to operate daytime flights. Hawaiian already flies once nightly between Honolulu and Haneda, and in July begins daily service

from Honolulu to Tokyo Narita. In addition to Japan, Hawaiian also plans eventually to expand further into China, beyond the Beijing base which is currently its only foothold.

In December 2015, Hawaiian executives released a presenta-tion listing 19 cities to which the airline may eventually expand.

Among those cities were several in China, including Chengdu, Guangzhou, Hong Kong and Shanghai. Meanwhile Dunkerley thinks US regulators will look favourably on a request that Qantas be required to code-share with Hawaiian in exchange for approval of a Qantas- American Airlines joint venture.

“If competition is to be main-tained, then smaller airlines have to be able to have access to impor-tant traffic flows,” he says. ■

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Qatar Airways delayed deliveries of its four

remaining Airbus A380 orders out of concern about the economics of operating the double-deck type before the recent fuel price decline.

The four A380s – which had been scheduled to join the Gulf carrier’s fleet this year and in 2017 – were deferred by a year each, says Qatar Airways group chief executive Akbar Al Baker.

A delay was agreed with Airbus more than two years ago because Qatar needed to “pro-tect” itself against high fuel costs, he explains.

He adds that the A380 “becomes very efficient when the oil is where it is now”, speaking at March’s ITB travel

BRIEFING MIDDLE EAST

Oil fall eases Qatar’s A380 fearsGulf carrier had deferred its remaining 517-seat Airbuses over costs but fuel price decline now improves their appeal

MICHAEL GUBISCH BERLIN

Al Baker (left) now wants to get his hands on remaining A380s

Qat

ar A

irway

s

April 2016

reduction as a “double-edged sword” for airlines.

Low fuel prices serve as a tailwind for carriers to reduce operating costs but also lead to reduction in premium traffic as companies cut back travel costs, he observes.

The Doha-based Oneworld carrier operates six 517-seat A380s and has four on firm order with three options, according to Flightglobal’s Fleets Analyzer database. The airline has noti-fied Airbus when it wants to receive the remainder of its A380 orders, and the manufac-turer “will now start the process of completion” for these aircraft, says Al Baker. Qatar’s next A380 is to be delivered by the end of this year or in early 2017. ■

fair in Berlin. If the oil price stays at around $60, says Al Baker, there may be “a possibili-

ty” of Qatar exercising options for three additional A380s. How-ever, he sees the oil price


ance from Europe in 2016. “A number of well-known [European] names see the benefit of the capital markets,” it says, pointing to non-investment grade airlines with significant capital needs. This eliminates invest-ment-grade EasyJet, Lufthansa Group and Ryanair and the afore-mentioned previous issuers from the list of possibilities.

Other “well-known” European carriers with reasonably strong balance sheets could include Air France-KLM, other IAG subsidiar-ies, such as Aer Lingus and Vueling, and Virgin Atlantic.

Gerry Laderman, acting chief financial officer of United Airlines, cites the improving terms and flexibility of floating-rate debt for the $590 million in secured bank debt that the carrier raised in 2015.

The Chicago-based carrier financed an undisclosed number of aircraft, including several Boeing 787s, with bank loans, lenders said at ISTAT. “Keeping

Lenders anticipate further growth of US capital market

aircraft financing in 2016, even with potentially flat secured air-line deal volume.

Airline and lessor issuers raised about $17 billion in debt in the US capital markets in 2015, a JP Morgan presentation at March’s ISTAT Americas confer-ence in Phoenix showed.

A 38% share of respondents, anticipate the value to be about the same, at $15-20 billion, this year, an audience poll during the financial markets panel finds.

Not everyone agrees. Boeing Capital president Timothy Myers says he sees US dollar capital markets issuance surpassing $20 billion this year.

Myers points to Boeing Capital’s latest Current Aircraft Finance Market Outlook, which forecasts about $45.7 billion in overall capital markets activity – both in US dollars and foreign currencies – in 2016. This repre-sents 36% of the anticipated $127 billion needed.

Lessors will likely drive the majority of growth. Lenders point to the leasing community’s sig-nificant need for financing – especially unsecured debt but also aircraft backed securitisation (ABS) deals – to meet their air-craft commitments.

The possible spin-off of CIT Aerospace from CIT Group could provide a significant boost to vol-ume. If a spin-off is selected, the lessor is pursuing a two-track pro-cess looking at an independent list-ing or sale, the newly-independent lessor would require a new capital structure, including new debt.

In addition, AerCap has already outlined plans to raise at least $1 billion in the first half of 2016.

Lessors raised 45% of the debt in the global capital markets, about $18.7 billion, in 2015, Boeing Capital’s outlook shows.

Airline activity may be muted in 2016. JP Morgan estimates $5-10 billion in issuance during the year, while another active bookrunner forecasts $6-8 bil-

BRIEFING FINANCE

Airlines weigh up borrowing optionsAttractive bank terms and strong cashflows are giving carriers flexibility to avoid funding fleet-planning via capital markets

EDWARD RUSSELL PHOENIX

BA is one of few European airlines to use EETCs in recent years

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$45.7bnBoeing forecast for 2016 overall capital

markets activity

April 2016

For more financial coverage visit Flightglobal’s Dashboard: flightglobal.com/Dashboard

lion. Both estimates are on par with the roughly $7 billion in deals in 2015.

Numerous lenders at ISTAT point to the buoyant commercial bank market for the flat forecasts. Banks are flush with liquidity and can offer attractive, often more flexible terms, as they have done for several years.

AMPLE LIQUIDITYBritish Airways probably held off on issuing a follow-on deal to its 2013 enhanced equipment trust certificate (EETC) notes due to the availability of bank debt in 2015 and Turkish Airlines repeat-edly postponed its inaugural EETC last year due to ample liquidity in the marketplace in both 2013 and 2014.

“The banks have been very active supporting the airlines in Europe,” says Myers, a fact that has depressed demand for EETCs from that region. “[They] provide capital that’s, frankly, more straightforward, simpler and it’s well priced.”

In recent years, the only European carriers to issue EETCs are BA, Norwegian – albeit on the private market – and Turkish.

Other financiers are not as cer-tain that the bank market can absorb all of the demand from the region. One active bookrunner says it could see more EETC issu-

more options open down the road says we should continue to do some bank debt,” says Laderman. “Whatever the num-ber last year, we should do more because more banks continue to come back into the market.”

CASH RICH“The airlines are generating a tre-mendous amount of free cash-flow right now and have the ability to fund those capex pro-grammes with cash and have those unencumbered assets on their balance sheet,” says Jim Barr, head of high grade and high yield aviation research at Loomis Sayles, at ISTAT. “I think that could pull down the level of issu-ance in the public EETC market.”

Alaska Airlines, Hawaiian Airlines and JetBlue Airways have said they plan to pay cash for most, if not all deliveries in 2016 and 2017.

Delta Air Lines also plans to pay cash for a significant num-ber of deliveries this year. “Given the free cash flow and our view on… the right level of debt to have – it’s not so critical to maximise proceeds on a EETC,” says Laderman.

He declines to say what the likely split will be between bank, capital markets and cash for United’s $2.6-2.7 billion in gross capital expenditures this year.

United is actively deleverag-ing its balance sheet and has said that it will raise less debt against new aircraft this year as it has in the past, as well as pay cash for more deliveries.

“Our biggest takeaway for the global airline operators can be summed up in one word: ‘flexi-bility,’” said Andrew Didora, an analyst at Bank of America Merrill Lynch, in a report on 3 March. “In the current environ-ment, airlines have flexibility when it comes to fleet plans and financing alternatives.” ■

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high-cost destination for air travel,” Brian Challenger, chairman of the Caribbean Tourism Organisation, told Routes Americas attendees during the strategy summit.

Eduardo Iglesias, executive director of ALTA, says he would not yet encourage airlines to add flights to Brazil.

“If it was my airline I would probably say ‘wait’. Brazil needs to understand that unless they really tackle the reforms the country needs, nothing will change,” he says.

Brazil’s government has shown “no willingness at all” to address poor infrastructure and its slow customs system, Iglesias adds.

He suggests governments in Latin America and the Caribbean set up agreements to waive visa requirements for air travellers – a benefit some governments already afford cruise ship passengers.

“Why can’t we replicate that same experience with the air-lines,” Iglesias says.

Grupo Viva chief executive Joe Mohan notes travellers can take a bus between seven Central American countries for $60, but airline fees can reach $150 per passenger. He points to Cartagena as an airport that has reduced fees. Passengers at that airport used to pay $90 each but, with subsidies, the fees have been

ROUTES ASIA/AMERICAS

Infrastructure constraints continue to stymie growthBarriers to airline expansion was a key theme at this year’s Routes Asia and Routes

Americas events. Mavis Toh reports from Manila and Edward Russell from San Juan

Senior executives from across the industry have warned

that airline growth in Asia and Latin America is being constrained by external issues, with poor or insufficient infra-structure being one of the key limiting factors.

“There is a certain mismatch between the timeline of infra-structure development and the growth rate of the airline sector in particular,” Hong Kong Express chief executive Andrew Cowen told delegates during a panel at the Routes Asia strategy summit.

“What we’re seeing and under-standing is that low-cost carriers in general are creating a lot of new demand that is not really picked up in linear forecast models.”

PREDICTABILITY NEEDEchoing Cowen’s comments, Alexander Lao, vice-president of commercial planning at Cebu Pacific Air, adds that there is a need for “predictability” on the timeline of infrastructure pro-jects. He points to the need for a second airport in Manila and, more importantly, for operators to have a clear sense of when the project will be operational.

Andrew Herdman, director general of the Association of Asia Pacific Airlines, says countries in the region need to co-ordinate infrastructure growth, with the

April 2016

reduced to about $20, which has stimulated traffic.

While some countries badly need upgraded airports, Mohan advises against investing too much. Some airports need to charge $90 per person because they invested $50 million in upgrades, he says.

On another panel at the sum-mit, Terry Thornton, Carnival Cruise Lines’ vice- president of itinerary planning, called cruise lines and airlines “easy targets” and urged them to unite to bring pressure on governments in the Americas to lower taxes and fees.

“But there are so many exam-ples today of us being easy targets,” Thornton says. “The bet-ter we are aligned together the more effective we will be.” ■

Results of a feasibility study to de-

cide between two possible loca-

tions for a second airport in Manila

will “soon” be released, Joseph

Abaya, secretary of the Philippine

Department of Transportation and

Communication, told Routes Asia

delegates in Manila.

Abaya says the new airport will be

located within 20km of the city’s

business centre. It will initially have

two runways, but eventually expand

into a four-runway operation.

While acknowledging congestion

at the country’s main gateway – the

Ninoy Aquino International airport

(NAIA) – Abaya points out that work

is ongoing to optimise runway ca-

pacity, with the aim of increasing

aircraft movements and driving

passenger throughput. The

airport’s Terminal 1 and 2 have

also been rehabilitated.

Abaya tells Airline Business a

decision has not been made on

whether the new airport will replace

NAIA or operate alongside it.

Construction, on reclaimed land,

will be funded by the government,

but a private firm could take over

its operations and maintenance.

Meanwhile, Bangkok’s Don

Mueang International airport of-

ficially opened its second terminal

in March, but the additional capac-

ity is expected to be absorbed

quickly, considering the strong

growth of traffic at the city’s sec-

ondary gateway.

Terminal 2 adds capacity of 12

million, boosting the airport’s

annual capacity to 30 million. Last

year, Don Mueang handled 28 mil-

lion passengers.

Asian airports make expansion a priority

Bill

yPix

understanding that the industry will double in the next 15 years.

“This isn’t a linear game, this is a compounding effect… so this doubling period, don’t think linear, what I need for the next year, it takes longer than that to build infrastructure. You need to plan for a sizeable effect, not incremental growth.”

TAX BURDENSAt the Routes Americas forum in San Juan, senior executives pointed their fingers at burdensome taxes, inefficient customs procedures and poor infrastructure as barriers to the growth of Latin American and Caribbean airlines.

“The Caribbean is a high-fee,

Routes Americas panellists highlighted the key impediments to growth in the region

Herdman: Asian countries need better co-ordination


ROUTES ASIA/AMERICAS

April 2016

Long Beach life looks good as JetBlue and Southwest expandLong Beach is set for a boost

from JetBlue Airways and Southwest Airlines after the two US low-cost carriers confirmed their plans for the airport.

Fresh off its win of four slot pairs at the southern California airport, Southwest is eyeing a variety of regional routes. The Dallas-based carrier could use the slots to add four daily flights to the San Francisco bay area, where it has a base at Oakland International, or to other regional points where it has a large pres-ence, such as Las Vegas or Den-ver, says David Harvey, senior director of network planning and performance at Southwest.

“We’re excited to extend our LA [Los Angeles] basin product to Long Beach,” says Harvey.

Southwest serves the four other commercial airports in the region: Burbank and Los Angeles International, as well as Ontario International and Orange County.

The airline received four of the nine available pairs at Long Beach in a slot allocation by the city in February.

Delta Air Lines received two

pairs and JetBlue Airways three. Harvey is confident that four daily flights will be economically feasible for Southwest to operate – the airline typically enters new markets with between five and 10 flights.

“Over time, I think we’d be interested in a little bit larger footprint,” he says.

Airline operations in Long Beach are limited by a noise ordi-

Bill

yPix

Philippines AirAsia expects to report a profit in 2016,

despite facing slots constraints and stiff competition in Manila.

Chief executive Joy Caneba tells Airline Business that the air-line was profitable in the fourth quarter of 2015, and is confident of maintaining that performance.

This year, the carrier plans to add between three and five air-craft to its fleet, with an aim of developing Kalibo as its next hub, connecting it to China and Korea. It currently operates 12 Airbus A320s.

“Now we have to stabilise our network and route performance. With the oil price being down, it’s a time for us to improve our route performance,” says Caneba.

She adds that more aggressive growth will come in 2017, when the airline plans to expand its oper-ations into Vietnam, and second-ary cities in China, Thailand and Indonesia. Within five years, she envisions that Philippines AirAsia will have around 30 aircraft.

One of the biggest challenges for the airline is the availability of slots at Ninoy Aquino International airport, where it is “getting really tough” to get new slots. “It’s easy to put into opera-tion an aircraft, but where do you actually park it and do you have slots for routes to develop it?” says Caneba. “With the oil price down, everyone has been trying to put in as much growth as they can, everyone is racing to get slots, but when can we actually get it? It’s delaying our plans and it’s a struggle at the moment.”

Its strategy against the local giants, meanwhile, is to tap the strength of the larger AirAsia group network.

“We have already entrenched ourselves in the domestic market, and now it’s up to us to connect that to the international playing field,” says Caneba. ■

nance that was adopted in 1990, with the number of slots regularly re-evaluated based on the amount of noise generated by aircraft.

JetBlue is the largest airline in Long Beach and Dave Clark, the carrier’s vice-president of net-work planning, says it intends to use its three new slot pairs for frequency increases and poten-tially a new route.

“We absolutely intend to fly the three additional slots,” he says. The New York-based carrier has faced questions regarding its application for nine of the availa-ble slots at Long Beach, which is its west coast base, as it already has unused slots in its portfolio.

Clark says JetBlue does not want to launch new markets from the airport only to cancel them later when a long-sought interna-tional arrivals facility opens.

The Long Beach city council formally began the process of adding such a facility at the air-port in July 2015, when it approved a study.

Clark emphasises that interna-tional growth is critical to JetBlue from the airport. ■

Clark: JetBlue targeting international growth

Read more news from Routes Asia in Manila at:flightglobal.com/RoutesAsia

Philippines AirAsia targets profitability this year

Bill

yPix

flightglobal.com/airlines20 | Airline Business | April 2016

flightglobal.com/airlines | Airline Business | 21April 2016

REPORT ELLIS TAYLOR SYDNEY

PHOTOGRAPHYELENA AHMAD

Qantas chief executive Alan Joyce is savouring the sweet taste of success following his transfor-mation of the Australian national carrier.

Joyce could not be accused of ducking a challenge. The former Jetstar boss, installed in November 2008 at the helm of one of the industry’s oldest and most iconic airline brands, has taken decisive action to deal with the legacy issues that were challenging its financial sustainability.

The changes at the carrier have been wide-ranging, but are perhaps most symbolised by the call in September 2012 to drop its long-standing joint venture with British Airways on the Kangaroo route in favour of teaming with one of its largest competitors. Its partnership with Emirates signalled not only a change in strategy for its international business – Joyce describing it as an inflection point for the unit – but seemingly a wider shift towards pragma-tism across the company.

That approach polarised opinion. Indeed former Qantas executives – including Joyce’s predecessor, Geoff Dixon – questioned the strategy, and at one point there was talk of a potential takeover.

Joyce faced further pressure when net losses ballooned to A$2.8 billion, inflated by one-off costs related to its fleet writedown, in its 2014 fiscal year as it worked through further restruc-turing. Only one year later, that had turned into a net profit of A$560 million, marking the big-gest turnaround in Australian corporate history.

Two years on from a record-busting net loss, Qantas chief Alan Joyce has overseen bumper results and says the rapid recovery owes as much to its turnaround programme as it does to plunging fuel prices

SILENCING THE CRITICS

Qantas followed that stellar result with a A$925 million underlying pre-tax profit over the half-year to 31 December 2015.

Although low oil prices certainly helped Qantas, Joyce tells Airline Business that a large part of the turnaround can be attributed to the Oneworld carrier’s two-year-old trans-formation programme.

“What we’ve seen in the outcome is the financial performance, driven by revenue increasing and costs coming down, getting to record levels in the first half,” he says.

On a calendar-year basis, Joyce says that 2015 “was the record year for Qantas in its 95-year history”.

Transformation is nothing new in the air-line industry, but the pace at which Qantas has progressed with its A$2 billion pro-gramme over three years has turned heads. By the end of December 2015, the airline had achieved A$1.4 billion of that, helping to reduce CASK ex-fuel by around 8%, and it is on track to meet its goal of a 10% reduction by the end of June this year. The progress it has made already has allowed Qantas to reduce its net debt load by A$1 billion, resulting in a

return to investment-grade credit ratings from Moody’s and Standard & Poor’s.

Joyce says Qantas has always looked at ways it could improve, but several factors coalesced in 2013 that forced it to accelerate its change programme.

“We had the massive rise in oil prices, we had the Australian currency go to levels that were very disadvantageous for us, and we had a capacity war in the domestic market,” he says. “We had a perfect storm and the busi-ness needed a change to be able to cope with it, and that is why we launched the big trans-formation initiative.”

Another key objective was to get the Qantas group to a more sustainable footing where it would be less susceptible to events outside of its control.

“Our aim… has been very clear: we want to achieve a return on invested capital over 10% through the cycle. That covers our weighted cost of capital. At the moment, we are achiev-ing over 20%, 23% return on invested capital which is a fantastic return, but we are very conscious of making sure that these busi-nesses iron out the peaks and the troughs.”

Key parts of the transformation announced in 2014 included 5,000 redundancies, cuts to capital expenditure and delivery deferrals of Boeing 787s and Airbus A320s as the airline scaled back growth. It also accelerated the retirement of its older Boeing 747-400s and 767-300s, closed its Avalon heavy mainte-nance base and implemented wage freezes on all executive positions. The carrier also set

INTERVIEW ALAN JOYCE

“We had a perfect storm and the business needed a change to be able to cope with it”


INTERVIEW ALAN JOYCE

April 2016

QANTAS AT A GLANCE

Operating revenue $m 2015 13,017Change -7.2%Change local 3.0%Operating margin 6.6%Net margin 3.6%Year-end 30 Jun 2015AB 2014 financial ranking 14 AB 2014 traffic ranking 22 RPK growth (2015) 0.9%ASK growth (2015) -1.1%Load factor (2015) 78.7%

FINE CHINA

Despite slowdown fears, Alan Joyce only sees positives ahead for the Chinese market. Chinese tourist visits to Australia have been growing at breakneck pace and capacity between the nations is expected to rise 50% as carriers such as Air China, Hainan Airlines and Qantas joint venture partner China Eastern capitalise.

“We are very optimistic about this capacity coming into Australia because every Chinese traveller, on average, takes two or three domestic trips, and we are taking the bulk of that,” says Joyce.

He points out, although China Eastern is primary partner, Qantas has a strong codeshare relationship with China Southern Airlines. Budget unit Jetstar is also muscling in. Last year it started charter services from the Gold Coast to Wuhan with the Dalian Wanda group.

“We’re moving away from a resource boom, and moving into a tourism boom,” says Joyce.

about selling back the leases on some of its airport terminals in its native Australia, to unlock value and assist with debt reduction.

Further cost improvements came from changing engineering work practices, reduc-ing waste and greater savings in procurement and fuel efficiency. It also re-geared its opera-tions to boost aircraft utilisation and overall efficiencies. This included lowering aircraft turn times, re-timing some of its scheduled services, and more back-of-the-clock flying across its carriers.

In large part, the cost cuts were aimed at narrowing the gap between Qantas and its main domestic rival, Virgin Australia, and key international competitors Singapore Airlines and Cathay Pacific.

REVENUE ADVANTAGE“We had a big revenue advantage over a lot of our competitors, but we knew we had a cost base disadvantage,” says Joyce. “We knew there were a lot of inefficiencies.” Another key task involved rejigging the company’s cul-ture, and re-energising its workforce. In turn, that meant working together with the same unions that Qantas battled in 2011, when Joyce made the call to shut the airline down for three days, forcing the government to inter-vene in contract negotiations.

“I think there was a lack of trust built up over a period of time, and [the relationship] needed the trust built back up into it,” says Joyce.

Workforce relations have improved since that time, even though the company’s transforma-tion programme saw thousands of layoffs.

As an example, Joyce points to how employees at its Melbourne call centre responded when it was announced that it would be shut down and its functions con-solidated at a centre in Hobart. A week before the shutdown, Joyce visited the site to explain to the staff why it was necessary, and received a warm reception.

“They were so engaged, because I think our guys there got the communication right. They explained why we were doing it and made sure that it wasn’t anything to do with the people there, it was just that the world is changing.”

He adds that Qantas’s yearly staff surveys show that even with all that has happened, staff engagement is at record levels. Joyce pays tribute to their efforts to re-engineer the business: “They really got behind us and helped us make the changes.”

Subsequently, service has improved across the Qantas-branded carriers, and Joyce says that its net promoter scores have been reach-ing new records over the past few months.

Not every effort has focused on cutting costs. The airline has also made investments intended to raise revenues through offering better products and services, opening up new business areas, and co-ordinating more with budget unit Jetstar.

Qantas International has been a major effort. With its market share being gobbled up by Asian and Middle Eastern competitors, its losses had overshadowed the profits of Qantas domestic and Jetstar.

Major schedule changes were made to optimise the interna-tional unit’s fleet utilisation. This included some consoli-dation of its Asian network

around the key destinations of Singapore, Hong Kong, Shanghai and Tokyo.

The 2012 Emirates deal resulted in Qantas Australia-Europe services switching to Dubai as a transit hub. The carrier also entered into deeper partnerships with American Airlines, covering US routes, and China Eastern Air-lines on China routes.

An A$2.6 billion writedown on the value of its fleet in 2015 as one reason for its heavy loss that year. As a result, however, Qantas freed itself from around A$200 million per year in fiscal drag due to fleet depreciation.

Accordingly, the results of the interna-tional division have rebounded strongly. From steady losses, the segment reported earnings before interest and tax of A$270 mil-lion over the six months to 30 December.

Joyce adds that, strategically, Qantas International is in a much better place now.

“Our cost base now is competitive against Cathay’s and Singapore Airlines. Who thought that would be the case?”

Joyce points out that the “unsung hero” in that turnaround has been its investment in hard product. It has revamped lounges in Singapore and Hong Kong, and will remodel its London Heathrow lounge. Similarly, it is part-way through a refit of its Airbus A330 fleet, which has seen the addition of lie-flat seats in business class, putting it on par with, or ahead of, its regional rivals.

Qantas has also been active on the domes-tic side with improvements aimed at pushing the business forward. Its core Boeing 737-800 fleet is midway through a refit programme that is adding new lavatories and galleys, while also allowing an extra row of economy seats to be added. It is also reducing turn times from 45 to 30min, helping to raise pro-ductivity.

Further improvements are coming to the


All Airline Business cover interviews and videos can be viewed in our digital editions:

flightglobal.com/AirlineBusiness

domestic fleet from later this year, as Qantas starts equipping the 737s and some A330s with in-flight wi-fi connectivity. Leveraging a new communications satellite, the airline aims to offer free connectivity to all domestic passengers at speeds that will allow passen-gers to stream entertainment seamlessly.

DUAL BRANDWhile much of the transformation of Qantas has been happening under its mainline-branded operations, Joyce’s long-standing dual-brand strategy with budget unit Jetstar is continuing to deliver for the group.

He says the Qantas and Jetstar brands now provide more feed to each other’s networks, while Qantas’s partners, Emirates and American Airlines, are working with the budget carrier to provide feed and connectivity in markets such as New Zealand, Southeast Asia and Japan.

In the latest half-year results, the Jetstar group contributed its strongest ever EBIT of A$262 million, surpassing even its best full-year results. A large part of that has been driven by stronger yields at its Australian operations, as well as positive contributions from its joint ventures in Singapore, Japan and Vietnam.

Joyce remains bitterly disappointed at Hong Kong’s decision last year to reject Jetstar Hong Kong’s application for a licence, which he blames on protectionism and the lobbying of rival carriers.

“It’s very clear that we met the rules of a Hong Kong operator better than Cathay Pacific did, and it’s very sad that protection-ism has drifted back in,” he says.

That aside, Joyce sees further room to tweak the dual-brand approach.

Recently, that has seen the Qantas brand return to some leisure routes that had been given over solely to Jetstar, with the two brands now flying side by side to destinations such as the Gold Coast, Sunshine Coast and Bali.

“There’s a lot more that we can do in that space. It’s an amazing structural advantage and it’s something that I think every airline around the world would love to be able to replicate.”

With Qantas now firing on all cylinders, Joyce is upbeat about the future of the Flying Kangaroo, and points to exciting growth opportunities ahead.

The next big change for the international business will come in 2018, when the airline takes delivery of its first 787-9s. Although Qantas was early to order the type, at one point it had cancelled the bulk of its orders.

Joyce says that the order for eight 787-9s announced last year came after it managed to

secure a new agreement with the Australian & International Pilots Association. He praises its president Nathan Safe for getting it through.

“He and our team negotiated a deal for pilot productivity. That was a step-change for us that allowed us to go on and order those air-craft and give a future of growth for the pilots in Qantas International,” he says.

Qantas is deciding where it will deploy the 787s. Current thinking seems to be focused on long-haul services. Joyce says that Melbourne and Brisbane to Dallas-Fort Worth are particu-larly exciting prospects, as is the potential for nonstop services from Perth to London and other points in Europe.

“Down the line with the 777-8X and air-craft like that, that technology could poten-tially open up even more destinations like Sydney-New York, Sydney to Europe direct, Melbourne to Europe direct,” says Joyce.

“For Qantas in particular, where you want to have a network reach that allows you to have a competitive advantage, these are fantastic technology changes that are very exciting.”

More immediately, however, the airline has committed to keeping two 747-400s that were due to be phased out this year, as retaining them offers more growth options.

Joyce says the decision was a “no brainer” because strong inbound tourism demand and low fuel prices made them more eco-nomic to operate.

Airlines aside, Joyce is also keen to draw upon the Qantas brand further and is seeking out entrepreneurial opportunities for the carrier.

Qantas Loyalty, which runs its Frequent Flyer programme, continues to perform strongly and has added a number of new busi-ness units, including a greater focus on cus-tomer analytics. Later this year it will enter into the health insurance market, and Joyce is upbeat about more opportunities ahead for that business.

In the meantime though, Joyce is overjoyed that the carrier has been able to deliver on what he calls the “trifecta – stronger earnings for shareholders, outstanding customer feed-back and high levels of engagement.

“I think most airlines that have gone through that transformation wouldn’t say that they’ve got all three of those right at the same time. That trifecta has been the real success of the programme.” ■

MANAGING CHANGE

Management is an art at the best of times,

but even more so when restructuring a

95-year-old business that is a national icon.

Alan Joyce says one of the keys to

managing the airline’s transformation has

been having a strong and diverse leadership

team to push it through.

“It really is amazing because you sit there,

and an issue comes up and sometimes you

think ‘why didn’t I think about that?’, but that

is why you have a diverse team,” he says.

“Somebody will think of something and that

allows you to plan the strategy better and

implement the strategy.”

Leading from the front is important as

well as communicating the outcomes to

“give people light at the end of the tunnel”,

Joyce says.

Communicating publicly was a priority and

Joyce says, at its darkest times, Qantas

made executives available to the media.

“That helped our people because they

could see that there was a face out there,

we were arguing our case and explaining

what we were doing. There were a lot of

naysayers out there, and we needed to

correct that,” he says.

The third major point he raises is allowing

the business to take calculated risks and

being open to failure.

“You don’t crucify people if things go

wrong,” says Joyce.

“You reward people for making the effort,

and if 80% of the time things are working

and being successful... when things go

wrong they admit it and fix it.

“That is the kind of management that we

want, and that is the kind of management

that we have,” he adds.


SPECIAL REPORT AIRCRAFT & ENGINES

Imagi

neC

hin

a/R

EX/S

hutt

ers

tock

Airbus and Boeing delivered another record number of single-aisle airliners last year, so it’s no surprise that China and Russia are entering the fray with narrowbodies of their own. In the engine sector, new powerplants are delivering a step-change in efficiency to airlines, along with a few initial technical headaches

CONTENTS

26 Still climbing Our annual survey highlights all the mainline jet numbers

29 Delivery rankings Flightglobal’s Fleets Analyzer lifts the lid on 2015 shipments

31 Life changes Airliner retirement age, and number being decommissioned, decline

34 Widebody values flux The market dynamics playing out in twin-aisle arena

36 Leadership challenge China and Russia bid for slice of single-aisle business

41 Regionals on the rise We analyse last year’s deliveries in small-airliner market

42 Powering ahead Our deep dive into the engine-manufacturing sector

44 Trust the thrust CFM’s Leap is poised for debut as P&W tackles GTF teething troubles

46 All to play for Who’s winning the battle to power the A320neo family?

April 2016

All our special reports are available online at :


26 | Airline Business | flightglobal.com/airlines

AIRCRAFT & ENGINES AIRCRAFT MARKETS

April 2016

STILL CLIMBINGAs Airbus and Boeing’s output continues on its upward trajectory, our annual survey highlights all the key numbers with the help of Flightglobal’s Fleets Analyzer database

NARROWBODIES DRIVE ASIA-PACIFIC LEAD

Deliveries of mainline jets rose 3% in 2015,

with Asia-Pacific again taking the lion’s share

with 623 units. Airlines in the region

accounted for almost half of all single-aisles

delivered last year, and over two-fifths of

widebodies. The North American market

moved into a solid second place, ahead of

Europe, as deliveries in the region increased

by 10% to 252 aircraft. North America’s

greater appetite for narrowbodies saw it move

ahead of Europe, after the two regions tied on

overall deliveries in 2014.

DELIVERY VALUE EXCEEDS $100BN

The airline industry spent in excess of $100

billion last year renewing its mainline jet fleets.

Using full-life base values calculated by

Flightglobal’s consultancy arm Ascend, airlines

in Asia-Pacific took delivery of $43.6 billion

worth of aircraft in 2015, over two-fifths of the

industry’s entire investment. Europe’s airlines

were the second biggest spenders, with their

deliveries valued at almost $18 billion. North

America’s airlines trailed Europe by around

$1.4 billion, investing $16.4 billion, while the

Middle East carriers spent $14.3 billion.

AIRBUS/BOEING 2015 DELIVERIES BY CATEGORY (AIRCRAFT)

Deliveries

SOURCE: Flightglobal Insight analysis using Flightglobal's Fleets Analyzer database

0

100

200

300

400

500

600

700

AfricaLatin AmericaMiddle EastEuropeNorth AmericaAsia Pacific

Narrowbody total: 965Widebody total: 402

Grand total: 1,367

623

252 243

97123

29

2015 MAINLINE DELIVERIES BY REGION (VALUE)

Asia-Pacific$43,597m

Europe$17,859m

North America$16,369m

Middle East$14,323m

LatinAmerica$5,986m

Africa$2,623m


Values calculated using Ascend 2015 full-life base values

Total: $100,758m

| Airline Business | 27flightglobal.com/airlines April 2016

0

100

200

300

400

500

600

700

800

1514131211100908070605040

10

20

30

40

50

60

70

80

Mainline jet deliveries 2004-15

BoeingAirbus

Del

iver

ies

(air

craf

t) Value share (%)

Year

BOEING POWERS AHEAD IN SPENDING

The US manufacturer extended its lead last year

as airlines across the world invested almost $60

billion in Seattle’s product line, compared with

just over $40 billion on Airbus aircraft. Boeing’s

output lead and proportionally higher shipments

of widebodies drove the manufacturer’s

advantage even higher in 2015 after a strong

performance the year before. Asia-Pacific, the

industry’s lead spender, added over $26 billion

worth of new Boeings last year, which was

around $9 billion more than the $17.4 billion the

region’s airlines invested in Airbus types.

SEATTLE SHARE RISES IN EUROPE AND ASIA

In unit terms, Boeing’s dominance over Airbus in

its home market of North America declined

slightly last year, but this was more than made

up by gains in other regions. After splitting two of

the three major markets (unit-wise) evenly in

2014, Boeing edged ahead of its rival last year.

In Asia-Pacific, it delivered 338 aircraft against

Airbus’s tally of 285, while in Europe, Boeing’s

delivery score was 127 – 11 units more than

Toulouse. However in North America, where

Boeing held a 65% share two years ago, its lead

declined three points to 62% in 2015.

Boein

g

AIRBUS/BOEING 2015 DELIVERIES BY REGION (AIRCRAFT)

Deliveries

0

50

100

150

200

250

300

350

AfricaLatin AmericaMiddle EastEuropeNorth AmericaAsia-Pacific

Airbus total: 628Boeing total: 739

Grand total: 1,367


AIRBUS/BOEING 2015 DELIVERIES BY REGION (VALUE)

Value $bn

0

5

10

15

20

25

30

AfricaLatin AmericaMiddle EastNorth AmericaEuropeAsia-Pacific

Airbus total: $41,683mBoeing total: $59,075m

Grand total: $100,758m


Values calculated using Ascend 2015 full-life base values

AIRBUS SLIPS BACK AS RIVAL ADVANCES

The gulf between the two mainline protagonists

in airliner deliveries widened during 2015 as

Boeing shipped over 100 more units than its

rival. Boeing delivered 739 airliners, a 5% rise on

its 2014 tally, worth $59.1 billion. Airbus’s

airliner production was essentially flat –

increasing from 621 units to 628 (data excludes

non-commercial operators). Last year marked a

significant milestone in the single-aisle market

as Boeing’s entire 737 output rose above that of

the Airbus A320 family for the first time in more

than a decade (although deliveries to

commercial operators were slightly lower, with

477 737s versus 488 A320s).

flightglobal.com/ab | Airline Business | 29

AIRCRAFT & ENGINES MARKET ANALYSIS

AIRLINER DELIVERY RANKINGSDATA COMPILATION AND ANALYSIS BY ANTOINE FAFARD FLIGHTGLOBAL INSIGHT

April 2016

Commercial operators took delivery of almost 1,370 aircraft from Airbus and Boeing last year as the two manufacturers again raised the mainline-jet production benchmark to a new high. Our analysis, powered by Flightglobal’s Fleets Analyser and Ascend Values databases, identifies who spent the big bucks on new metal in 2015 and reveals how the output was distributed by world region

2015 DELIVERIES: TOP 10 BY VALUE

Rank Airline Value ($m)

1 Emirates Airline 5,129

2 American Airlines 4,474

3 China Eastern Airlines 3,884

4 Qatar Airways 3,025

5 Turkish Airlines (THY) 2,838

6 United Airlines 2,675

7 China Southern Airlines 2,552

8 Korean Air 2,255

9 Air China 2,230

10 All Nippon Airways 1,948

TOTAL FOR ALL 2015 DELIVERIES = $100,758mNOTES: Data for deliveries to airlines. Values calculated using Ascend 2015 full-life base values. SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

2015 DELIVERIES: TOP 10 BY UNITS

Rank Airline Units

1 American Airlines 70

2 China Eastern Airlines 65

3 Air China 36

4= United Airlines 34

4= China Southern Airlines 34

6 Turkish Airlines (THY) 33

7 Hainan Airlines 30

8 Emirates Airline 26

9 Ryanair 24

10= Delta Air Lines/EasyJet 23

TOTAL NO. OF 2015 DELIVERIES = 1,367NOTE: Data for deliveries to airlines. SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

2015 DELIVERIES: TOP FIVE AIRLINES BY VALUE AND REGION

ASIA-PACIFIC ($43,597m/623) EUROPE ($17,859m/243) NORTH AMERICA ($16,369m/252)Rank Airline Value ($m) Units Rank Airline Value ($m) Units Rank Airline Value ($m) Units

1 China Eastern Airlines 3,884 65 1 Turkish Airlines (THY) 2,838 33 1 American Airlines 4,474 70

2 China Southern Airlines 2,552 34 2 Lufthansa 1,420 13 2 United Airlines 2,675 34

3 Korean Air 2,255 15 3 British Airways 1,155 7 3 FedEx 1,597 18

4 Air China 2,230 36 4 Ryanair 1,118 24 4 Delta Air Lines 1,355 23

5 All Nippon Airways 1,948 16 5 EasyJet 1,067 23 5 Southwest Airlines 885 19

MIDDLE EAST ($14,323m/123) LATIN AMERICA ($5,986m/97) AFRICA ($2,623m/29)Rank Airline Value ($m) Units Rank Airline Value ($m) Units Rank Airline Value ($m) Units

1 Emirates Airline 5,129 26 1 LAN Airlines 1,290 13 1 Ethiopian Airlines 1,149 10

2 Qatar Airways 3,025 21 2 Avianca Brazil 843 16 2 Kenya Airways 496 6

3 Etihad Airways 1,820 15 3 Avianca 639 9 3 Air Algerie 384 5

4 Saudia 1,463 9 4 Aeromexico 635 9 4 Tunisair 194 2

5 Kuwait Airways 716 10 5 TAM Linhas Aereas 611 10 5 Royal Air Maroc 119 1

NOTE: Values calculated using Ascend 2015 full-life base values. Total value/units delivered for each region in brackets SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

2015 NARROWBODY DELIVERIES

Rank Airline Units

1 American Airlines 55

2 China Eastern Airlines 53

3 Air China 29

4= China Southern Airlines/Ryanair 24

6= United Airlines/EasyJet 23

Rank Region Units

1 Asia-Pacific 454

2 North America 189

3 Europe 180

4 Latin America 79

5 Middle East 51

6 Africa 12

NARROWBODY TOTAL 965SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

2015 WIDEBODY DELIVERIES

Rank Airline Units

1 Emirates Airline 26

2 Qatar Airways 21

3 FedEx 18

4= American Airlines/THY/Korean Air 15

7 All Nippon Airways 13

Rank Region Units

1 Asia-Pacific 169

2 Middle East 72

3= Europe 63

3= North America 63

5 Africa 18

6 Latin America 17

WIDEBODY TOTAL 402SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

2015 DELIVERIES: TOP FIVE AIRLINES BY MANUFACTURER

AIRBUS: BY VALUE AIRBUS: BY UNITSRank Airline Value ($m) Rank Airline Units

1 Emirates Airline 3,396 1 American Airlines 37

2 China Eastern Airlines 2,009 2 China Eastern Airlines 36

3 American Airlines 1,781 3 EasyJet 23

4 Qatar Airways 1,556 4 Turkish Airlines (THY) 21

5 Turkish Airlines (THY) 1,499 5= Avianca Brazil/Vueling 16

AIRBUS TOTAL AIRLINE DELIVERIES = 621 ($41,581m)BOEING: BY VALUE BOEING: BY UNITSRank Airline Value ($m) Rank Airline Units

1 American Airlines 2,693 1 United Airlines 34

2 United Airlines 2,675 2 American Airlines 33

3 ANA - All Nippon Airways 1,948 3 China Eastern Airlines 29

4 Korean Air 1,939 4= Ryanair/Air China 24

5 China Eastern Airlines 1,876 5 Hainan Airlines 23

BOEING TOTAL AIRLINE DELIVERIES = 739 ($59,075m)NOTE: Values calculated using Ascend 2015 full-life base values. SOURCE: Flightglobal Insight analysis using Fleets Analyzer database


A320 and Boeing 737 family aircraft have been disassembled before reaching their 15th anniversary of delivery.

Morris says the volume of disassembled narrowbodies indicates “this early part-out phenomenon is far from the exception to the rule that many commentators argue”.

SURPLUS TO REQUIREMENTSCrucially, the proportion of premature re-tirements has grown as its number remained relatively stable – 42 aircraft were prema-turely decommissioned last year – while the overall volume of retirements fell by a third between 2013 and 2015.

Morris believes the increased share of rel-atively young aircraft retirements is a result of a “production surplus” of new equipment entering airline fleets.

Especially in the wake of the 2008 financial crisis, aircraft – which may have originally been ordered for predicted fleet growth – were delivered in a period of soft traffic demand and consequently used for replacement rather than expansion. This led to decommissioning of mid-age aircraft that could have otherwise

continued operating in service. However, Morris also believes that despite

increased air traffic demand in recent years, certain aircraft owners – typically lessors or financiers who don’t operate the equipment – chose to disassemble rather than remarket maturing aircraft as they can realise better re-turn from part sales than continued operation.

He argues that aircraft retirement age has become an instrument of responding to traf-fic demand fluctuations as manufacturers’ production output has been stable despite economic downturns. “Obviously demand [for air travel] is still cyclical,” says Morris. But he adds: “If [aircraft] production doesn’t cycle, then something else has to cycle. And for the last three to four years, the new sup-ply side cycle is [aircraft] economic life.”

The trend of declining retirements may be reversed as manufacturers plan to further raise production, which could lead to in-creased replacement of old aircraft. But if air travel demand softens, Morris suggests, in-creased aircraft production rates could also result in more premature retirements than is anticipated today. ■

| Airline Business | 31

While the number of airliners being decommissioned each year is slowing down, strangely the average age at which aircraft are being retired is also reducing

AIRCRAFT & ENGINES RETIREMENTS

LIFE CHANGES

REPORTMICHAEL GUBISCH LONDON

Aircraft retirements have sharply declined since 2014 as airlines keep ageing equip-ment in service as a result of low fuel prices and strong pas-

senger demand. This would suggest a corre-sponding rise in aircraft age when equip-ment is eventually withdrawn from service. But the opposite is the case.

The average aircraft retirement age has fallen too. In fact, that decline began during the financial crisis in 2008 – long before the number of annual retirements started falling – and it has been driven by an increase in aircraft being prematurely decommissioned.

Based on western-built commercial jets, Flightglobal’s Fleet Analyzer database shows the number of retirements increased more than 16-fold from 46 aircraft in 1990 to 751 in 2013, albeit with fluctuations due to several economic downturns during that period.

But after a decommissioning peak in 2013, the number of retirements fell to 466 last year. This was the first time since 2007 that less than 500 aircraft were retired.

Rob Morris, head of consultancy with Flightglobal’s advisory service Ascend, be-lieves the overall decline is no surprise as air travel demand has been strong while aircraft manufacturers’ production and delivery has been “broadly stable”.

Meanwhile, the average aircraft retirement age has steadily declined from a peak of around 32 years in 2008 to 25 years in 2015. The volume of premature retirements has sig-nificantly increased over the past six years and reached 58 aircraft in 2013.

Much of that rise has been driven by the removal from service of 50-seat regional jets which struggled to find market application in the high fuel price environment of a few years ago. But since 2008, nearly 100 Airbus

April 2016

SOURCE: Flightglobal's Fleets Analyzer database

No. of aircraft Age

JET AIRLINER RETIREMENT TRENDS (1990-2016)

0

5

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20

25

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35

40Avg. age at retirementAvg. age at economic retirement*

NOTE: Data for western-built jets (all roles) retired. *Economic retirement is based on date aircraft last entered storage

0

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YTD

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1999

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1997

1996

1995

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1993

1992

1991

1990

>15 years old at retirement <15 years old at retirement

airbus.com© AIRBUS, 2016. All rights reserved. Airbus, its logo and the product names are registered trademarks.

How do I ensure that my passengers enjoy a truly memorable experience?

Airbus is the answer.

Ask for Airspace by Airbus.Airspace creates a whole new

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George Dimitroff, who is head of valuations at Flightglobal’s consultancy arm Ascend, examines the market dynamics playing out in the twin-aisle arena

AIRCRAFT & ENGINES VALUES

WIDEBODY VALUES FLUX

777-300ER values are expected to remain strong until the next decade when the 777X arrives

Boe

ing

The “big twins” and their values have been a bit of a trending topic in the last six months or so, and with good reason. There has been a lot of controversy gener-

ated by comments like that made by Delta Air Lines chief executive Richard Anderson about acquiring a Boeing 777-200ER for $7.7 million, so now is a good time to assess some of the factors driving demand and prices in the twin-aisle market.

For several years after the Asian financial crisis of 1997 there was a continual under- ordering of new-technology twin-aisle air-craft. There was the dotcom bubble around 2000, then 9/11 and SARS in 2003 and it

was only around 2004-2005 that orders for twin-aisle aircraft started picking up again, largely led by the rapidly expanding Gulf carriers and further boosted by the launch of the Boeing 787. Combined with rising fuel prices at the time, this helped induce a new replacement cycle, with rising orders for 787s, Airbus A350s, and the then still-young Airbus A330 (which has sold more units since the launch of the 787 than before it).

When this replacement cycle ordering began 10-12 years ago, the twin-aisle fleet consisted mostly of Boeing 747s, 767s, 777 Classics and early A330s and Airbus A340s. Newer A330s and 777s were “like gold dust” at the time, to quote one industry vet-

eran. It is difficult to fathom this year will mark 24 years since the first A330 flew and 22 years since the 777’s debut. Of course, there have been many upgrades and improvements to the reliability, efficiency, and performance of these aircraft since they first entered service, but the fact is they are no longer in the prime of youth.

The order backlog for twin-aisle aircraft has certainly caught up with the slack from the 1997-2004 period. Today, a lot of the new-technology aircraft that were little more than drawings when they started being sold a dec-ade ago are now entering service. Thus the effects of that replacement cycle are starting to be felt.

Both the 777 and the A330 have had very good residual value behaviour in the past two downturns; but they have also experi-enced very little used aircraft trading until now, especially in the case of the 777.

Is the decline in values of 777 Classics a surprise? Not really; Ascend has been anticipating it for some time. Although the aircraft still does a fantastic job in service with many of its original operators, it has a few things that limit its liquidity: one of them is the availability of three different power-plants (as in the case of the A330) – and the market share of each of these three is fairly even (30/30/40% for General Electric, Pratt & Whitney and Rolls-Royce). So, the active

April 2016

SOURCE: Flightglobal’s Fleets Analyzer database

Cumulative percentage of in-service fleet

A330 AND 777 FLEET DISTRIBUTION

777A330

0%

20%

40%

60%

80%

100%

100806040201

No. of operators


population of 777-200/200ER and 777-300 air-craft with any one engine type is very small (just 165 aircraft with GE, 165 with P&W and 214 with R-R engines) – especially compared to the larger and newer 777-300ER, or much more populous 767-300ER.

MARKET CONCENTRATIONOf all the 777s built, the -300ER model repre-sents a 45% share and no other variant/en-gine combination has more than a 12% share. But of greater concern, perhaps, is that 50% of the 777 fleet is operated by just nine airlines, and 75% of the fleet is with 19 airlines. That is a fairly small market and represents a lot of concentration – another barrier to liquidity.

A convenient way to visualise liquidity is to chart a type’s in-service fleet by number of operators. In the chart on the facing page, a flatter curve stretching further to the right in-dicates better liquidity. As can be seen, the A330 fares much better: 50% of the fleet is with the 18 largest operators and 75% is with 36 operators. Altogether there are around 100 A330 operators and that list is growing as used aircraft find their way (usually on lease) into new airlines that have not operated the type before. Overall, the numbers tend to indicate the A330 family is, in theory, twice as liquid as the 777 family.

Even when demand is strong, a spike in availability could cause serious headaches for

lessors, as witnessed by the default of Japan’s Skymark Airlines on all its A330s early last year. The main lesson learnt was that any air-craft, however “new” it may be, is viewed as “used” by any potential buyers or lessees once it has been configured for its original customer and left the factory. Even if it is less than a year old, any potential new operator looks at reconfiguring the aircraft and this can be as costly and as time consuming as dealing with a 10- or 15-year-old machine. It also highlights the importance of having a popular interior layout, rather than a niche one. The impact of such a spike in availability can be very harmful to lease rates, even if the aircraft type remains in demand. Distressed aircraft under pressure to be placed quickly can see monthly rentals up to a third lower than pre-vious market rates, and also affect other les-sors going through the scheduled lease return and remarketing process without having experienced a default themselves.

The spike in 777 availability in 2015 was considerable. The number of stored 777s tri-pled, from 15 to 45, and included aircraft from Malaysia, Kenya, Transaero and others.

Ascend has been monitoring all these changes in the twin-aisle market very closely. There were several necessary and difficult downward revisions to -200ER values and we expect more, gradual declines this year.

We expect that in the next five years, values and lease rates for older 777 Classics and older A330s will continue to decline as lease returns and part-outs increase. There will inevitably be a secondary market for some aircraft – but not for all. We expect the first 777-300ERs to start coming off lease in the coming years, and the first A380s to do so before 2020. We do not expect much pain to be felt for 777-300ER values until the early

to mid-2020s, when the 777X will be in ser-vice in some numbers and more -300ER re-placement occurs.

AFTERMARKET DEMANDContrary to tradition, it seems that most after-market interest for used large twin-aisle air-craft might actually come from first-tier carriers in the Western hemisphere. Most of the usual suspects – second-tier carriers in developing markets – already have new air-craft ordered directly from the manufacturers. Aside from Delta, which has been shopping for used 777-200ERs, Virgin Atlantic has ex-pressed an interest in leasing used 777-300ERs, as has IAG chief executive Willie Walsh, who is also interested in used A380s.

Although these may turn out to be good deals for a few lucky lessors looking for new clients, we do not believe that they are adequate to absorb anywhere near the full amount of capacity coming from airlines retir-ing the types. So, many aircraft will be broken up, which will increase the supply of spare engines and parts, and reduce maintenance costs for existing operators.

History has shown us that the optimal sized widebody aircraft for the secondary market is in the 200-300-seat range, depending on con-figuration. This is because most new operators entering long-haul operations for the first time need something small to begin with and an air-craft with relatively low operating costs. Historically this has been the 767-300ER, but focus is now shifting to the A330-200/300 (which has created a number of new secondary market operators in the last few years), and in the more distant future it will probably be the 787-8 and -9. Anything bigger than 300 seats tends to be a tougher proposition when it comes to the secondary market. ■Liquidity? Check; all clear for take-off

Around half of the A330 fleet is flown by the 18 largest customers

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LEADERSHIPCHALLENGEWith Airbus and Boeing having dominated the commercial jet market for decades, will the ambitious upstarts in China and Russia be capable of threatening the world order?

This year is a significant one for the mainline jet sector: during 2016, not one but two all-new 150-seat airlin-ers powered by next generation engines will stake their claim for a

slice of a market that for two decades has been the preserve of Airbus and Boeing.

China’s Comac C919 was the first of these shiny new machines to break cover, rolling out in Shanghai in November. As China’s aer-

ospace industry gets ready to fly the CFM International Leap-1C-powered twinjet, Russia’s bid for single-aisle success is poised to make its debut. The Irkut MC-21, the proto-type of which should emerge from the com-pany’s plant in Irkutsk in June, is powered by the Pratt & Whitney PW1400G, a derivative of the PW1000G geared turbofan.

While Western manufacturers are supply-ing the lead powerplants, both new types

have engine options developed indigenously, albeit with the participation of international suppliers. The same is true for many of the primary systems, such as the avionics, flight controls and auxiliary power units.

The two twinjets are very similar in general configuration and size to the Airbus A320, incorporating single-aisle six-abreast cabins. And both feature fly-by-wire flight controls and have advanced cockpits equipped with

REPORTMAX KINGSLEY-JONES LONDON

AIRCRAFT & ENGINES NEW TWINJETS

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China’s challenger: Comac’s C919 rolled out in Shanghai in November

April 2016


150-SEAT AIRLINER COMPARISON

C919 MC-21-300 A320neo 737 Max 8

MTOW (t) 78.9 76 75.5 82.2

Seating (2-class) 156 163 150 162

Range (nm) 3,000 2,700 3,700 3,500

Service entry 2018 2018 2016 2017

Engines CFM Leap orACAE CJ-1000

P&W PW1000G or Aviadvigatel PD-14

CFM Leap or P&W PW1000G

CFM Leap

SOURCE: Flightglobal/Ascend/Manufacturers

reliability. However neither type, nor their manufacturer, offers any real degree of innova-tion over the Airbus and Boeing products and thus, it is hard to see them becoming a major player with these projects.”

POLITICALLY MOTIVATEDFor his part, Teal Group’s vice-president of anal-ysis Richard Aboulafia is clear that he views the motivation behind these new aircraft as political rather than a perceived market requirement.

“There’s nothing like the prospect of a gov-ernment-managed, funded, and supported wan-nabe jetliner that inspires airlines to say, ‘thanks, but we’ll take a pass on these’,” he says.

“Back in the Cold War, we had ‘Captive Nations Week’, aimed at showing support for those luckless, grey depressing countries behind the Iron Curtain. Perhaps now we should have ‘Captive Airlines Week’ aimed at supporting airlines forced by government fiat to buy jets designed and built by those very governments. Thankfully, the number of air-lines in that unenviable position is quite small... even in China, the airline industry is finding ways to assert itself. The agreement to build A320neos in Tianjin and the agreement to finish 737 Max aircraft in China gives Chinese airlines an excuse to continue buying what they want... Western jetliners.”

Aboulafia is also not convinced that the Russian airlines will be forming a long queue for a locally designed and developed airliner, even if it has Western partners. “Well, we will

Max. But this in itself is unlikely to be enough to convince significant numbers of prospec-tive operators to acquire the aircraft on a global basis,” says Rob Morris, who heads up consultancy at Flightglobal’s Ascend division.

“Because in addition to these, airlines will expect reliability to be as good as today’s A320 and 737. This requires programme targets to be met – and neither manufacturer had managed to demonstrate any track record in this regard to date – then series production needs to be delivered, and most critically, product support on a global basis to ensure training, spares, air-worthiness, ‘AOG’ and finance support etc, are all managed to ensure that 99%-plus dispatch

sidesticks – active in the case of the MC-21.Both have metal fuselages, with the C919 adopting composites for the aft fuselage, fin and horizontal stabilisers. China has taken a less risky approach to Russia for the wing structure, plumping for aluminium whereas Irkut’s twinjet has gone with composites.

SINGLE VARIANTAs things stand, the C919 is offered as a single variant, which seats 156 passengers in a two-class layout or 180 in a high-density configu-ration. Smaller and larger variants are pro-posed, but there’s nothing firm yet.

Irkut offers two flavours of MC-21. The baseline -300 typically seats 163 passengers in a two-class layout or up to 211 in a high- density configuration, while the -200 accom-modates 135 seats or up to 176 passengers in similar arrangements.

Both types have racked up orders from mainly local airlines and lessors. Flightglob-al’s Fleets Analyzer database shows the Rus-sian jet has 181 orders from eight customers (including 50 from flag carrier Aeroflot) and a further 79 options and commitments. Comac has secured orders for 282 C919s (from 13 customers including 10 in China) and a fur-ther 232 commitments. Significantly two major lessors have each committed to take 20 C919s: BOC Aviation – the Singapore-based leasing arm of Bank of China – and GECAS, which is owned by CFM engine partner GE.

Assuming they complete their development and flight-test programmes on schedule, both twinjets are slated to enter service in around two years. And as they now crystallise from drawing board to reality, and flight-testing looms, the aviation world is starting to sit up and take more notice. But do they offer a genu-ine threat to Airbus and Boeing’s re-engined single-aisles, with which they share power-plant and systems technology, or are they sim-ply national vanity projects that are little more than sophisticated job-creation schemes?

“On paper both the MC-21 and C919 appear fully competitive in performance and economic terms with the A320neo and 737

“The MC-21 and C919 appear fully competitive

in performance”ROB MORRIS

Head of consultancy, Ascend

April 2016

IRKUT MC-21 KEY FEATURES

1 Composite wing structure

2 Metal fuselage structure

3 Fly-by-wire flight controls

4 Six-abreast cabin with 18in-wide seats

5 Two-crew flightdeck with active sidestick controllers and Rockwell Collins avionics (with

Avionika-Russia and Irkut as integrator)

6 Pratt & Whitney PW1400G engines (28-31,000lb thrust) with Aviadvigatel PD-14 as option

7 Hamilton Sundstrand APS3200 or Aerosila TA18-200M APU

Two-variant family comprising baseline 163-seat (two-class) MC-21-300 followed by smaller

135-seat (two-class) MC-21-200

SOURCE: Ascend Flightglobal Consultancy


AIRCRAFT & ENGINES NEW TWINJETS

Irkut

April 2016

see. Back in the 1990s, Russian airlines were told to keep buying Ilyushin Il-96s and Tupolev Tu-204s. They simply responded with a straightforward question: ‘Does the government want a modest jetliner business or a healthy airline industry?’

WESTERN ALLURE“The government relented, and Russian air-lines got the Western jets they wanted. That killed the Tu-204 and Il-96.”

While these two new programmes are debuting almost simultaneously, one has a technical advantage over the other – at least on paper – says Ascend senior consultant Richard Evans. “The MC-21 is a much more advanced aircraft than the C919. It has a com-posite wing and an aspect ratio similar to the Bombardier CSeries, so it is arguably more advanced than even the A320neo.

“However, history suggests Russian types are generally higher in operating empty weight, and the new wing must represent an execution risk. If the MC-21 makes its cost and weight targets – which is not completely impossible – it might be a technical threat to the A320neo and 737 Max.”

But even these technical innovations might

not be enough for success in the world market, says Evans, as he believes airlines outside Russia would be very wary of support, reliability and maintenance cost etc, “so a market threat is unlikely”.

The prospects for the C919 offering a genu-ine threat to Airbus and Boeing are even more limited as it offers no significant step over the original A320, says Evans.

Morris thinks that the new twinjets could hamper Airbus and Boeing sales at Chinese and Russian airlines: “But even in those markets, operators need a fully competitive and reliable product and thus even that will be a tough chal-lenge to overcome. But it is likely that there will be some market share taken from Airbus and Boeing in those markets, albeit small.”

The latest Flightglobal Fleet Forecast predicts that some 2,000 of the two new types will be delivered in the next 20 years (1,250 C919s and 750 MC-21s), representing 8% of the entire sin-gle-aisle market during that timeframe. Serial production of the C919 will be on a new assem-bly line which is due to be completed at Shang-hai Pudong airport in 2016, and is expected to be capable of 150 aircraft a year by 2020.

However Evans warns that one needs to look beyond the delivery numbers: “The record of

Russian and Chinese manufacturers is that air-craft are delivered, but they do not necessarily stay in service. Many Tu-204/214s or Xian MA60s are parked, or in service at very low uti-lisation rates, leading to the conclusion that reli-ability and spares support is poor, and/or the aircraft are not competitive – such that the air-line would rather fly Western-built types.”

VALUE PERCEPTIONAnother challenge for these airliners if they are to make a dent in the global market con-cerns their perception in current and future value terms among appraisers and the finan-cial community.

“Clearly asset-based financing – as we do – is relying on aircraft value and liquidity,” says DVB Bank managing director of aviation research Bert van Leeuwen.

“Both types have not yet reached a stage where we can be comfortable about these key factors. Chinese lessors/airlines have taken posi-tions in the C919, seemingly based on national interests, so that doesn’t mean too much.

“So I wouldn’t expect any ‘Western’ parties to take asset risk on these new designs in the near to medium term, unless based on very strong financial guarantees.”

Ascend’s full-life base value for a 2017 A320neo or 737 Max is around $51 million. “Neither the C919 nor MC-21 currently shows signs of the [A320/737’s] level of market pene-tration, thus values are likely to be significantly lower and are hard to estimate,” says Morris.

He sees the biggest challenge for both these projects as being able to deliver on promises. “In that regard, neither manufacturer has a proven track record of either innovation or delivery in the commercial sector. Thus, it’s hard to see them breaking the market signifi-cantly with these products.” ■

The prototype MC-21 will roll out in June

COMAC C919 KEY FEATURES

1 Aluminium wing structure

2 Aluminium-lithium fuselage structure

3 Six-abreast cabin (156-seat, two-class layout)

4 Composite aft fuselage, fin and horizontal stabilisers

5 Two-crew flightdeck with sidestick controllers. Primary avionics and flight displays supplied by GE

Aviation/AVIC Avionic Systems joint venture Aviag

6 Fly-by-wire flight controls (Honeywell in collaboration with local joint venture; Parker Aerospace

supplying primary actuation system)

7 Honeywell 131-9 (C9C) APU (in collaboration with Harbin Dorgan Engine Group)

8 CFM International Leap-1C engines (28-30,000lb thrust) with AVIC Commercial Aircraft Engines

CJ-1000A offered later. Nexcelle supplying integrated propulsion system

Composites represent around 12% of C919 structure (mainly moving parts)Potential future variants include 140-seat shrink, and 180-seat stretch derivativesSOURCE: Ascend Flightglobal Consultancy

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AIRCRAFT & ENGINES REGIONAL AIRLINERS

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2015 REGIONAL AIRCRAFT DELIVERIES BY CATEGORY

NOTE: Data for ATR, Bombardier, Embraer and Sukhoi. Excludes corporate and military operators.

0

20

40

60

80

100

120

140

Middle EastAfricaLatin AmericaEuropeAsia-PacificNorth America

Regional jet total: 164

Turboprop total: 110

Total deliveries: 274


126

68

34 34

7 5

2015 REGIONAL AIRCRAFT DELIVERIES BY MANUFACTURER


0

20

40

60

80

100

120

140

Middle EastAfricaLatin AmericaEuropeAsia PacificNorth America

ATR: 81

Embraer: 101

Bombardier: 72

Sukhoi: 19

NOTES: Data for ATR, Bombardier, Comac, Embraer and Sukhoi. Excludes corporate and military operators.

Comac: 1


126

68

34 34

7 5

Turboprop110


Jet164


NOTES: Data for ATR, Bombardier, Comac, Embraer and Sukhoi.Excludes corporate and military operators.

2015 REGIONAL AIRCRAFT DELIVERIES

Mitsubishi14%

Total deliveries: 1,594

Embraer32%

ATR17%

Bombardier*22%

Sukhoi4%

Comac**10%


NOTES: *Bombardier's backlog includes CSeries. **Comac ARJ21.Data at 31 December 2015, exludes corporate and military operators.

REGIONAL AIRCRAFT BACKLOG

TOP FIVE REGIONAL CUSTOMERS 2015

Rank Operator Deliveries

1 SkyWest Airlines 25

2 Mesa Airlines 21

3= PSA Airlines/Compass Airlines 20

5= Azul/Republic Airlines 18

TOTAL NUMBER 2015 DELIVERIES 274NOTES: Data for ATR, Bombardier, Comac, Embraer and Sukhoi. Excludes corporate and military operators. SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

REGIONALS ON THE RISE DATA COMPILATION & ANALYSIS ANTOINE FAFARD FLIGHTGLOBAL INSIGHT

There is much activity in the small-airliner sector as a raft of new types progress through their development programmes. Bombardier’s all-new CSeries is due to make its service debut in the middle of the year with launch operator Swiss, while flight-testing is underway on the Mitsubishi MRJ and about to begin on the Embraer E-Jet E2. Analysis using Flightglobal’s Fleets Analyzer database highlights the leading metrics, showing that during 2015 jets remained the more popular choice and North America the clear leader in new deliveries

A summer debut is planned for the CSeries

Turboprop deliveries were strong in all regions except North America during 2015

42 | Airline Business | flightglobal.com/airlines

AIRCRAFT & ENGINES POWERPLANT MARKETS

April 2016

ENGINE MANUFACTURER RANKING

2015 deliveries Backlog*

Rank Manufacturer Engines Share Engines Share

1 CFM International 1,482 52% 12,428 49%

2 General Electric 504 18% 2,086 8%

3 International Aero Engines 448 16% 696 2%

4 Rolls-Royce 292 10% 2,770 11%

5 Engine Alliance 84 3% 136 1%

6 Pratt & Whitney 14 1% 2,538 10%

Undecided - - 4,786 19%

TOTAL 2,824 25,440NOTES: *At 31 December 2015. Data for installed engines based on Airbus/Boeing types. Excludes corporate and military operators. SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

A330 ENGINE MANUFACTURER SHARE


Manufacturer Aircraft Share Aircraft Share

General Electric 20 20% 36 11%

Pratt & Whitney 7 7% 20 6%

Rolls-Royce 72 73% 222 65%

Undecided - - 61 18%

TOTAL 99 339NOTES: *At 31 December 2015. Excludes corporate and military operators. SOURCE: Flightglobal Insight analysis using Flightglobal’s Fleets Analyzer database

A380 ENGINE MANUFACTURER SHARE



Engine Alliance 21 78% 34 24%

Rolls-Royce 6 22% 76 54%

Undecided - - 30 22%


767 ENGINE MANUFACTURER SHARE



General Electric 16 100% 76 100%

Pratt & Whitney 0 – 0 –


A320 FAMILY ENGINE MANUFACTURER SHARE

CFM International54%

InternationalAero Engines

46%

2015 deliveries share Backlog* Share

InternationalAero

Engines6%

Pratt &Whitney

23%Undecided

38%

CFM International33%

NOTES: *At 31 December 2015. Excludes corporate and military operators.



Total backlog: 5,576

787 – ENGINE MANUFACTURER SHARE

Rolls-Royce37%

GeneralElectric63%

GeneralElectric48%

Rolls-Royce32%

Undecided20%


NOTES: *At 31 December 2015. Excludes corporate and military operators.



Total backlog: 773

POWERING AHEADDATA COMPILATION AND ANALYSIS BY ANTOINE FAFARD FLIGHTGLOBAL INSIGHT

This year is a significant one for the engine manufacturers, as the two new-generation powerplants make their service debut. Pratt & Whitney kicked things off in January when its PW1000G geared turbofan entered service on the A320neo. It will be swiftly followed on the Airbus twinjet by the all-new rival offering from CFM International, the Leap-1A. Meanwhile in Seattle, the Leap is key to the enhancements now in flight test at Boeing on its 737 Max and is the initial powerplant option on Comac’s C919, which should fly this year. Life is even more hectic for P&W. It is preparing the PW1500G for service-entry on the Bombardier CSeries this summer, while testing is under way on the PW1000G-powered Mitsubishi MRJ and about to start on the similarly-equipped Embraer E-Jet E2. The GTF is also the lead powerplant on Irkut’s MC-21, which will roll out in mid-2016. Here the latest market trends are examined using Flightglobal’s Fleets Analyzer database

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| Airline Business | 43flightglobal.com/airlines April 2016

Airbus

AIRBUS/BOEING FLEET BY ENGINE MANUFACTURER

0

2,000

4,000

6,000

8,000

10,000

12,000

EngineAlliance

Rolls-RoycePratt &Whitney

GeneralElectric

InternationalAero Engines

CFMInternational

Airbus total: 8,397Boeing total: 12,273

Grand total: 20,670

NOTES: In-service and parked fleet at 31 December 2015. Boeing data includes former MDC types. Excludes corporate and military operators


10,376

2,8762,4472,792

2,076

103

REGIONAL AIRCRAFT ENGINE MANUFACTURER MARKET SHARE

General Electric 53%

Pratt &Whitney***

40%Powerjet

7%

General Electric30%

Pratt &Whitney***

66%Powerjet

4%


Total backlog: 1,594

NOTES: NOTES: *Airframe. **At 31 December 2015.Excludes corporate and military operators. ***Including P&W Canada.Data for firm orders for ATR, Bombardier (including CSeries), Comac, Embraer, Mitsubishi and Sukhoi.


2015 deliveries* Backlog**

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issues that prompted Qatar Airways in December to withdraw as A320neo launch op-erator, Deurloo says. Further hardware up-grades will address the most prominent flaw.

COOLING CYCLEIn turbofan engines, superheated air can become trapped inside the casing after engine shutdown. Restarting with that air inside can cause component deformations which can lead to more extensive damage. To prevent problems, a cycle of cooling air is run through the engine igniting the fuel. For most engines this takes less than 1min for each engine. CFM says the cooling cycle for the Leap is within a few moments of the 50s cycle for the CFM56.

A damper is installed on the third and fourth shaft bearings, starting with the geared turbofan engines destined for the 11th

As a new generation of powerplants come online, all eyes will be on the CFM Leap when it debuts on the A320neo this year while rival Pratt & Whitney works to iron out problems suffered during the introduction of its geared turbofan

AIRCRAFT & ENGINES NEW POWERPLANTS

TRUST THE THRUST

REPORTSTEPHEN TRIMBLEPHOENIX

Sometimes the revolution begins with a whimper instead of a bang. After investing $10 billion over nearly 30 years in geared turbofan engine technology, the entry into

service of the first pair of Pratt & Whitney PW1100Gs on a Lufthansa A320neo seemed more tentative than triumphant.

With zero fanfare, Lufthansa on 25 January loaded passengers on an A320neo for a flight from Frankfurt to Munich, making for one of the most anti-climatic moments in aviation history. The silence was made more awkward by coming two years late. Delays to the Mitsubishi MRJ and the Bombardier CSeries family pushed the arrival of the geared turbo-fan engine from late 2013 to early 2016 and al-lowed Airbus to introduce the first all-new centreline engine to enter the single-aisle mar-ket in nearly 30 years.

For some customers, however, the long-awaited PW1100G was still not quite ready for primetime. P&W’s main engine rival – CFM International – will no doubt face similar scru-tiny when the first Leap-1A-powered A320neo enters service this year. But the PW1100G’s eight-month lead on the Leap-series engines meant it was the first to feel the pressure.

P&W plans to begin deliveries of PW1100Gs with upgraded software “soon”, said Rick Deurloo, senior vice-president of sales, market-ing and customer support, speaking at March’s ISTAT Americas conference.

Those upgrades should address 80% of the

April 2016

A320neo off the production line – the first 10 will be retrofitted with the damper, which should help stiffen the shaft against thermal deformations. How much the teething troubles will cost P&W in the long run is unclear. The competing Leap-1A for the A320neo will not enter service until this year, so no comparison is possible. But P&W officials point to other as-pects of the PW1100G’s performance, citing a comment by Airbus chief executive Fabrice Bregier that fuel burn is “perfect” and a claim by Lufthansa fuel efficiency is slightly better than expected.

Although the Leap-1A has yet to enter ser-vice, the non-geared alternative to the P&W re-mains on the schedule set by CFM at pro-gramme launch in July 2008. The Leap-1A received airworthiness certification in late No-vember, fulfilling CFM’s pledge, more than

Mits

ubis

hi

Delays to the CSeries and MRJ (above) meant P&W’s GTF debuted on the A320neo


added a second stage to the high-pressure tur-bine. Internal cooling was reduced by inserting heat-resistant ceramic matrix composites in the shrouds of the first stage of the high pres-sure turbine. Despite the upgrades, questions lingered about the Leap-1’s ability to meet fuel specifications. Airbus and Boeing officials have said the engines should meet promised levels by the time aircraft are ready to enter ser-vice. Within months of the entry-into-service date of the Leap-powered A320neo, CFM offi-cials insist the verity is already in.

In an interview at CFM headquarters in Cincinnati, CFM executive vice-president Allen Paxson adds the same engines delivered to Airbus have demonstrated fuel burn results on GE Aviation’s flying testbed.

“I am confident the engines we have deliv-ered to Airbus are on specification,” he says.

Airbus has not named the launch operator for the Leap-powered A320neo, but CFM expects to deliver engines to six airlines within three months of entry into service, Paxson says. The Leap-1B engines on the first 737 Max 8 had completed 22 test sorties within a month

CFM is confident of Leap-1B performance on the 737 Max, which Boeing began flight-testing on 3 February

Boe

ing

“We are running the engines now and they are

right on specification”ALLEN PAXSON

Executive vice-president, CFM

April 2016

seven years earlier, to reach that milestone by 2016. “The Leap achieved either the exact date set four years ago or we were able to be ahead of schedule,” says Jean-Paul Ebanga, chief ex-ecutive of CFM.

The certification campaign for the Leap-1B that powers the Boeing 737 Max is ongoing. One “minor” certification test remains as of early March, and final approval from the US Federal Aviation Administration is expected within weeks, said Ebanga at the ISTAT Ameri-cas conference. In addition to being on time, CFM officials assert both engines for the A320neo and 737 Max are meeting promised fuel burn performance.

BIG FANSP&W achieved a 20% reduction in specific fuel consumption, mostly by inserting a gearbox between the low-pressure turbine and the inlet fan, allowing designers to increase the length of the fan blades and raise the ratio of air by-passing the engine core from about 6:1, in the International Aero Engines V2500, to about 12:1 in the PW1100G.

CFM relies on a conventional architecture with the low pressure turbine driving the front fan. That limited expansion of the bypass ratio from 6:1 to 10:1, but CFM compensated by increasing the efficiency of the engine core. CFM added a stage to the high-pressure com-pressor, raising the pressure ratio from the 30:1 class in the CFM56 to the 40:1 class in the Leap-1 series. As pressure loads rose, CFM

of the type’s first flight, on 3 February, Paxson says. “We are running the engines now on the ground and they are right on specification – and I’m talking ten-thousandths of a percent,” he adds. “We are very, very confident. Is it done? No, because we have not delivered it. But the engines are drinking the amount of fuel to meet our spec level. We are very confident the -1A and the -1B will meet the committed level of performance.”

A version of the Leap-1A is developed for the Comac C919. CFM delivered the first Leap-1Cs to the Chinese narrowbody programme last year, as the C919 was scheduled to be first to enter flight tests. First flight of the C919 is scheduled in the third quarter.

P&W’s development work is ramping up. The PW1500G is set to enter service this year on the Swiss International Air Lines Bombardier CS100. Russian manufacturer Irkut expects P&W to certificate the PW1400G engine for the MC-21 in the second quarter, al-though first flight has slipped to at least the end of this year. Although the Mitsubishi MRJ com-pleted first flight in November, the PW1200G-powered airliner is set to enter service at around the same time as the Embraer E190-E2, powered by the PW1900G. The PW1700G se-lected for the E175-E2 is set to enter service two years later. P&W has delivered the first pair of PW1900Gs to the E190-E2, ahead of first flight in the second half. ■Additional reporting by Dominic Perry in Cincinnati


Airb

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April 2016

A320NEO FAMILY CUSTOMERS – ENGINE SELECTION

0 5 10 15 20 25 30 35 40

Selected both

Selected one

Undecided

Selected P&W

Selected CFM

SOURCE: Flightglobal's Fleets Analyzer databaseNo. of customers

ALL TO PLAY FORChris Seymour, head of market analysis at Flightglobal’s Ascend consultancy, examines how Pratt & Whitney and CFM are faring in the battle to win A320neo customers

With the Airbus A320neo entering service, how suc-cessful have the two engine manufacturers been in win-ning customers to power

the re-engined twinjet family? Unlike the Boe-ing 737 Max, where CFM International has exclusivity, there is a choice of two power-plants for the Neo: incumbent CFM (the GE/Snecma joint venture has been on the A320 programme with its CFM56 since the start) offers the new-generation Leap-1A engine against Pratt & Whitney’s PW1000G geared tur-bofan, which for the Neo is designated PW1100G-JM. Pratt & Whitney is a newcomer to the A320 programme in its own right, but has been involved from the early days through the International Aero Engines consortium and became majority shareholder in 2012 when it acquired Rolls-Royce’s stake.

By March, analysis of Flightglobal’s Fleets Analyzer database showed the Neo family had

AIRCRAFT & ENGINES COMPETITION

amassed 4,502 firm orders from 60 airlines and lessors. Of these, engine choices have been an-nounced for 2,856 aircraft, 63%.

Where a choice has been made, the Leap-1A has won 1,544 orders – 54% – against 1,312 for the PW1100G-JM. In customer terms, the P&W engine has 30 versus 23 for Leap and also leads direct airline orders, 22 versus 15. Nine lessors have ordered from CFM and eight from P&W.

The key wins for CFM, whose Leap-1A enters service in 2016, are AirAsia (304), Lion Air – a recent customer (183), EasyJet (130) and American Airlines (100), while lessor GECAS usually only orders aircraft with GE content and has 120 Neos on order. Pratt & Whitney’s leading customers are Indigo (180), Turkish (92), AerCap (90), GoAir (72) and JetBlue (70).

LESSORS IMPORTANTOperating lessors are an important component of the Neo customer base and to the success of a new type. With 984 orders, 11 lessors have a

22% share of the orderbook. Their engine choices are 34% Leap, 28% P&W and 38% undecided. However excluding GECAS, which only orders CFM, the lessor share swings to 32% P&W. Most will order a mix of engines to meet demand and maximise portfolio liquidity.

To date 31 customers – 52% – have only chosen one engine type, for 1,969 orders (44%); 12 have chosen the Leap for 1,226 orders against 19 for 743 of the P&W engine. A further seven customers have ordered 335 air-craft with one choice (87 CFM and 248 P&W), but have another 561 orders where a choice has yet to be made. These include IndiGo and Avianca. Eight customers have chosen both en-gines for 552 orders, 58% of which are for P&W. They hold another 229 orders with no engine selected.

All are lessors except one: Lufthansa, which is following the same practice it has on the A320ceo family, where it uses the CFM56 and V2500. While Lufthansa only has the V2500 on the A321ceo, for the next generation it has cho-

CFM has 54% of orders where choice is made


A320neo launch operator Lufthansa is the only airline

to have selected both engines to power its new fleet

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April 2016

A320NEO FAMILY ORDERS BY ENGINE SELECTION

Were mixed, now chosen

one mfr292

Stayed loyal to existing mfr 1,489

Changed mfr392

Chosenmix of mfrs

552

New customer131

Undecided1,646

SOURCE: Flightglobal's Fleets Analyzer database

Total orders = 4,502

sen a mix for A320neos and A321neos. Lessors are flexible and must use liquid assets, so they usually select both engines where a choice is available, to maximise attractiveness to lessees.

CUSTOMER LOYALTYThe engine business is fiercely competitive and customer loyalty is crucial. To date, 18 customers with either the CFM56 or V2500 on the A320ceo family have stayed with the same suppliers for almost 1,500 neos.

Nine CFM A320ceo customers have ordered 995 Leap-powered A320neos with a further 100 ordered by Avianca yet to make a choice. Nine customers with V2500s powering their A320ceos stayed with P&W on the Neo, accounting for almost 500 orders – 38% of their backlog. Again, one customer – IndiGo –has yet to reveal a choice for 250 orders.

The number of customers who have changed supplier from their A320ceo fleet is relatively small – just eight airlines (five CFM and three PW) for 392 aircraft: 9% of the back-log. Six operators using both CFM56s and V2500s on their A320ceo fleet have decided on one supplier for 254 Neos – the largest being American, which chose the Leap despite oper-ating almost 250 V2500 versus 150 CFM56 air-craft. LATAM Group, with slightly more CFM56 types as a result of the LAN and TAM merger, has decided on the P&W engine.

Airbus and Boeing are fiercely competitive in the single-aisle market and the battle to win cus-tomers is intense. However, of the 60 A320neo family customers, only five are new to the A320 programme, accounting for just 185 orders – 4% of the backlog. This is indicative of “aircraft fam-ily loyalty” when it comes to new orders.

Norwegian has 100 orders for Neos and has selected P&W for half; it has been an all-737

single-aisle operator to date but has chosen both Max and Neo for future needs; albeit the airline’s initial Neos will be leased to other operators through its Irish-based leasing entity.

Korean Air is a recent A321neo customer and has chosen P&W, as has Hawaiian, which is adding 16 A321neos to its widebody fleet to serve US West Coast cities. Azul, in Brazil, is stepping up from Embraer E195s to 35 Leap-powered Neos. Israeli charter operator Arkia will replace 757s with A321neos but has yet to choose an engine for its four. Interestingly, none of these customers are switching from the 737 to the Neo, although Airbus has seen Air Canada and SilkAir switch in the opposite di-rection, from the A320ceo to the 737 Max.

ON THE FENCEThere are still 13 airlines and lessors who have not made a choice for a combined 373 aircraft, including Wizz Air (110) and IAG (102 for sub-sidiaries British Airways, Iberia and Vueling).

A further 479 aircraft have been ordered by unannounced customers, with choices to be revealed. Many of these orders are believed to be for Chinese customers.

The engine battle in the A320ceo sector is not done, with a fifth of the approximately 1,000 aircraft remaining on backlog still to play for. The CFM56 has been selected for around 45% of the A320ceos on order, and the V2500 for around a third, while the remaining 21% of the backlog is yet to be allocated.

LOOKING AHEADIn terms of sales, neither the Leap nor the PW1100G has a clear advantage and there are still almost 1,650 orders where a decision is yet to be made. Looking further ahead, Ascend’s Flightglobal Fleet Forecast is predicting demand for at least 9,800 Neos in the next 20 years, which equates to an open market for 5,300 more aircraft. There is an expectation that the better seat-mile costs of the A321neo will lead to a continued upsizing of the type. P&W has promised to deliver a performance improvement package in 2019 with a 2% reduction in specific fuel consumption and has launched a 35,000lb-thrust (160kN) version which has enabled Airbus to launch the long-range A321neo LR, with 30 orders already from Air Lease. CFM is expected to also develop upgrades in future on the Leap.

Currently the P&W engine has a 58% share of the A321neo order choice and if that share can be maintained then the overall engine mar-ket share over the longer term may just swing in favour of P&W. It could be a reverse of what is currently on the A320ceo, where CFM cur-rently has a 56% share.

However it is unlikely that either engine will gain a significant lead over the other, as the market for single-aisles is broad and diverse. ■


EUROPEAN FULL-YEAR FINANCIAL RESULTS 2015

Group/airline Group revenue ($m) Operating result ($m) Operating margin Net result ($m)2015 change 2015 2014 2015 2014 2015 2014

Air France-KLM 28,741 4.5% 900 -142 3.1% -0.5% 140 -238

Finnair 2,563 1.7% 134 -80 5.2% -3.2% 99 -91

Icelandair Group 1,140 2.4% 135 79 11.9% 7.1% 111 66

IAG 25,207 13.3% 2,556 1,135 10.1% 5.1% 1,672 1,106

Lufthansa Group* 35,351 6.8% 2,004 1,291 5.7% 3.9% 1,873 61

Norwegian 2,763 15.1% 43 -173 1.5% -7.2% 30 -131

Pegasus 1,293 12.4% 89 118 6.8% 10.3% 41 52

Turkish Airlines 10,684 20.8% 1,088 640 10.2% 7.2% 1,088 661

TOTAL 107,742 9.0% 6,949 2,868 6.4% 2.9% 5,053 1,486NOTE: *Operating result for Lufthansa is adjusted EBIT

jected collective European carrier net profits would rise to $8.5 bil-lion. The signs remain positive.

“Nothing special, nothing trau-matic, we are not seeing any spe-cial weakness because of the [financial] markets turmoil at this point [in] time,” says IAG finance chief Enrique Dupuy. “That’s why we are saying we are expecting an absolute operating profit increase similar to what we have seen in 2015.” That puts the group on track for an operating profit of €3.25-3.3 billion for 2016.

Lower fuel costs are undoubt-edly playing a part – IATA esti-mated the global airline fuel bill was down a fifth in 2015 – but Europe’s recovering carriers have been quick to cite other factors.

“If you look at the results in 2015, we only captured a fraction of the fuel benefit in the last quar-ter, because of hedging and because we pay for our fuel in dol-lars,” says Iberia chief executive Luis Gallego. “All the improve-ment in the result, until now, [is] not linked with fuel.”

Others stressed improved for-tunes did not remove the need for efficiencies. This has been a com-mon refrain from Air France-KLM and Lufthansa, and the boss of the former, Alexandre de Juniac, reiterated the sentiment after its full-year profit. “In spite of the favourable environment created by lower fuel prices, we confirm our ambition to improve competitiveness within an eco-nomic and geopolitical context that remains very uncertain,” says de Juniac.

It remains locked in attempts to secure productivity gains at Air France. Fresh talks have failed to break the deadlock and pilots union SNPL further criti-cised the carrier’s plans after the results. “The excellent results, and their upward trend, should enable the group and employees [to] face the future more serenely,” it argues.

While Lufthansa lifted group

Strong profits underline the extent to which European airlines thrived last year,

with some reaching record highs and other erstwhile loss-makers back in black.

Airline body IATA in December forecast 2015 will be the most profitable year in absolute terms for the industry. It projected net profits of $33 billion as airlines, albeit not universally, benefit from lower fuel costs and solid demand. That includes $7 billion in net profits from European carri-ers – a record in absolute terms, though not by margin. Results dis-closed by European airlines recently, while overshadowed by US counterparts, illustrate the strength of performance and sug-gest things have got better still since IATA’s forecast.

IAG was again the leading light among European operators. It lifted full-year operating profit 65%, before exceptional items, to a record high of €2.3 billion

ANALYSIS EUROPE/ASIA FULL-YEAR FINANCIALS

Airline profits jump beyond fuelA strong last quarter helped European and Asia-Pacific carriers post impressive results in 2015, and with the benefits of lower oil prices likely to filter through, the prospects for the year ahead are largely encouraging

GRAHAM DUNN LONDON GREG WALDRON SINGAPORE

April 2016

($2.5 billion). Its carriers posted a profit, including a reinvigorated Iberia, which made its best operat-ing profit for almost a decade.

Others too are in record-break-ing territory. Turkish Airlines’ net profit topped the billion-dollar mark for the first time, while low-cost unit Ryanair is on course for record full-year profit after an improved third quarter. It is guid-ing at the high end of its €1.18-1.23 billion range.

Several challenged European carriers returned to profit. One-world carrier Finnair, Norwegian and Czech Airlines all returned to the black – the latter for the first time since 2008.

BACK IN BLACKPerhaps most high-profile, Air France-KLM put long-running labour challenges at its French operation aside to return to profit. The SkyTeam carrier turned round operating losses into an €816 million profit. It also posted

its first net profit since 2010. Few airlines in Europe reported any-thing other than improvement. Unsurprisingly, given the turmoil in the Russian economy and avia-tion, Aeroflot incurred a net loss of Rb6.5 billion ($88 million) under international accounting standards. But even this repre-sents an improvement of more than 60% on 2014.

Given a steady economic back-drop, and with European carriers likely to tap more savings this year as fuel hedges that capped gains from falling oil prices unwind, the prognosis is positive for 2016. IATA in December pro-

EUROPEAN AIRLINE GROUP FINANCIAL RESULTS OCTOBER-DECEMBER 2015


Air France-KLM 6,863 2.2% 162 -183 2.4% -2.7% 303 339

Finnair 633 5.9% 92 -45 14.5% -7.5% 72 -51

Icelandair Group 230 11.9% -1 -19 -0.4% -9.1% 0 -15

IAG 6,205 14.4% 596 -21 9.6% -0.4% 363 334

Lufthansa Group* 8,381 4.9% 134 198 1.6% 2.5% -54 -462

Norwegian 613 15.6% -73 -125 -11.9% -23.5% -43 -113

Ryanair 1,437 17.4% 136 77 9.5% 6.3% 111 53

TOTAL 24,362 7.4% 1,046 -116 4.3% -0.5% 752 86NOTE: *Operating result for Lufthansa is adjusted EBIT

$6.9bnCollective operating profits for European

carriers in 2015


More results insight on the Flightglobal Dashboard:flightglobal.com/Dashboard

ASIA-PACIFIC AIRLINE GROUP FINANCIAL RESULTS OCTOBER-DECEMBER 2015


AirAsia 514 44.8% 187 50 36.3% 14.0% 129 -100

All Nippon Airways 3,773 3.5% 247 258 6.5% 7.1% 160 137

Japan Airlines 2,765 -0.9% 412 374 14.9% 13.4% 332 324

Jet Airways 853 7.7% 104 33 12.2% 4.2% 71 10

Korean Air 2,456 -1.7% 124 131 5.1% 5.3% 129 -216

Singapore Airlines 2,796 -3.8% 204 104 7.3% 3.6% 195 144

TOTAL 13,157 1.3% 1,279 950 9.7% 7.3% 1,016 299NOTES: Results are for airline groups including non-aviation businesses. All figures are in US dollars exchanged at average rate for period. All changes given in local currency terms and previous year net profits at constant current rates. SOURCE: Flightglobal

ASIA-PACIFIC HALF-YEAR FINANCIAL RESULTS JULY-DECEMBER 2015


Air New Zealand 1,777 12.3% 302 155 17.0% 9.8% 223 88

Qantas 6,080 5.0% 786 303 12.9% 5.2% 494 148

Virgin Australia 1,910 11.8% 67 -12 3.5% -0.7% 45 -34

TOTAL 9,766 7.6% 1,155 445 11.8% 4.9% 762 201SOURCE: Flightglobal

ASIA-PACIFIC FULL-YEAR FINANCIAL RESULTS 2015


AirAsia 1,660 16.7% 403 210 24.2% 14.8% 138 21

Asiana Airlines 5,098 -0.8% 84 86 1.6% 1.7% -72 56

Cathay Pacific 13,202 -3.4% 860 572 6.5% 4.2% 774 406

Korean Air 9,957 -3.2% 531 328 5.3% 3.2% -483 -181

Thai Airways 5,487 -1.2% -38 -669 -0.7% -12.1% -379 -453

TOTAL 35,403 -1.8% 1,839 528 5.2% 1.5% -22 -151NOTES: Results are for airline groups. All figures are in US dollars exchanged at average rate for period. All changes given in local currency terms and previous year net profits at constant current rates. SOURCE: Flightglobal

adjusted operating profit 55% to €1.8 billion in 2015, it projects only a slight improvement for 2016 as it sees lower fuel costs countered by falling yields amid increased competitive pressure. “They will provide a welcome tailwind for our 2016 results, too; but cost discipline remains one of our paramount tasks. We will not be unduly influenced by the cur-rent low fuel costs,” says chief financial officer Simone Menne. “We must lower the unit costs at our hub airlines.”

UPWARDS IN ASIAAsia-Pacific carriers recorded healthy profits in their reporting periods up to 31 December, with carriers from Australia and New

Zealand doing particularly well.By far the star of the region’s

carriers was Qantas, which more than doubled operating profits for its first half, to $786 million.

That made 2015 the best in the carrier’s 95-year history, an exu-berant group chief executive Alan Joyce told reporters at a briefing. Revenue, meanwhile, rose 5% to $6 billion and net profits more than doubled, to $494 million.

The carrier attributed the result to lower expenditure and unit costs, in which cheaper fuel was a major factor.

Qantas’s rivals also had strong results for the last six months of 2015. Air New Zealand’s half-year operating profit doubled to $302 million, while Virgin Australia returned to the black with an operating profit of $67 million.

Moving north, Asia-Pacific car-riers reporting full-year results also made a good showing. AirAsia, Cathay Pacific, and Korean Air posted strong operat-ing profits in 2015. Of the three, Cathay Pacific was most impres-sive, generating an operating profit of $860 million for 2015.

Although it failed to turn a profit, Thai Airways International sharply narrowed its full year operating loss to $38 million – a big improvement on losses of $669 million during a politically troubled 2014. Thai made only lit-tle progress in cutting net losses.

TRANSFORMING FIGURESIt attributed losses to costs associ-ated with its transformation plan, aircraft disposal impairments, and reduced foreign exchange gains.

For 2016, Thai downplays the impact of safety concerns related to the country’s regulatory regime, but sees challenges, including China’s economy – which hurts trade – Europe’s economic weak-ness, and terrorism.

Several of the region’s carriers had strong quarters for the October-to-December period. AirAsia, All Nippon Airways, Japan Airlines, Jet Airways, Korean Air, and Singapore Airlines man-aged to post operating profits for the last quarter. Cumulatively, this came to $1.3 billion, compared with $950 million a year earlier.

Japan Airlines had the largest quarterly operating profit – $412 million. This was slightly up on the same period last year. JAL’s operating expenses slid 3.5%, led by fuel price falls. That was offset by cost increases from the weakness of the yen against the dollar.

India’s Jet Airways had an excellent quarter with operating profit quadrupling to $104 mil-lion. Jet’s quarterly net profit grew sevenfold to $71 million.

Jet Airways attributed the lift to cheaper aviation fuel, improved aircraft utilisation and increased codeshare traffic from key partner Etihad Airways. Operating costs, excluding fuel, fell almost 5%, and were down 15% including fuel. ■

$1.8bnCollective full-year profit for carriers in Asia-Pacific


kets. Addressing this could be a way to deal with the challenge of Gulf carriers. Through proper planning and partnerships, Gulf carriers could support Chinese airlines in connecting to Africa, where service is insufficient.

There are signs of liberalisa-tion by Chinese aviation regula-tors attempting to ease market access, such as the recent roll-out of pilot schemes to tackle slot allocation. Although there is clearly a lot of work for regula-tors before new policies are launched, it is a good sign changes are being made to facili-tate needs in the market.

The need for rapid network growth implies rising demand on operators’ fleets over a short period of time, creating new demand for aircraft sourcing and requiring flexibility in switching aircraft portfolios. This may apply particularly to Chinese carriers that are fast developing their network. ■

North Asia, a protected market, is a different story for Gulf carri-ers. Over five years, the three major Gulf carriers have made little headway in deploying new capacity to China. Restrictions have been imposed by the Chinese aviation authority, ham-pering approval for slots for Gulf carriers. The reason is the fear Chinese flag carriers may lose market share to other regions, such as Europe and Asia, as Gulf carriers provide such a strong hub network to them.

As a result, Chinese carriers are cautious about flying to the Gulf. Since 2011, there has been almost no increase in capacity except for China Southern Airlines, which is increasing connections to the Middle East from 57 in July 2011 to 107 in July 2016, using multiple hubs in Guangzhou, Beijing, Urumqi, Wuhan and Shenzhen.

POTENTIAL DEMANDThis deadlock is unlikely to be broken soon but it is fundamen-tal to understand there is poten-tial demand to drive network growth in this market. We believe Chinese carriers face a lack of direct connections and adequate offerings to the European market, both from major hubs and secondary mar-

China’s growth story may be old news but there are always new initiatives

emerging from this dynamic marketplace which could have a global impact.

The recent boom and busts on the Shanghai stock exchange prompted fears about the slow-down of the airline industry in China and the Asia-Pacific re-gion. There has been debate over how much a developing stock market’s behaviour is relevant to the real economy – including air travel – which is driven by the economy and consumer power. Instead of being concerned about the relation between the two, we take a direct approach to analyse current and future growth pat-terns of airlines in the country.

DEVELOPMENT SLOWINGWhen we look at capacity num-bers from Flightglobal’s Innovata schedules data, they show net-work development for Asia- Pacific domestic routes is expected to slow from 7.6% year-on-year growth in Decem-ber to marginally over 3%, year-on-year, in June, despite a leap in early 2016. The figures for June 2016 are subject to a delay in airline submission of capacity data and are not final but still reflect the trend.

This slowdown is driven by changes in the growth pattern of North Asian countries, particu-larly China and Japan. For inter-national routes, Chinese carriers are more aggressive, with dou-ble-digit growth common for routes to markets such as Japan, Korea and Thailand. Chinese carriers are serious about long-haul network expansion, even as the government is pushing a national strategy to “go interna-tional”. We compared different approaches by Chinese carriers in intercontinental markets in the USA and Middle East. Poor profitability on long-haul routes had made Chinese carriers hesi-

ANALYSIS NETWORKS

Expansionist China set to go globalJoanna Lu, head of advisory in Asia for Flightglobal’s Ascend consultancy, examines the global network development strategy of the country’s carriers as they move ahead of US airlines on services between the two nations

SEATS FLOWN FROM GULF HUBS (2011 VS 2016)

NOTE: *Data for airline seats on flights between United Arab Emirates/Qatar and China (including Hong Kong) and Japan, as well as Macau and South Korea

SOURCE: Innovata – part of Flightglobal

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

YemenAirways

HainanAirlines

CathayPacificAirways

SichuanAirlines

AirArabia

ChinaEasternAirlines

KoreanAir Lines

Air ChinaLimited

ChinaSouthernAirlines

EtihadAirways

QatarAirways

Emirates

July 2016*July 2011*

April 2016

There are signs of liberalisation by Chinese aviation

regulators

tant about them, but the situa-tion began to change as they started to benefit from lucrative domestic and regional routes, and as outbound long-haul tour-ism boomed. For the first time, in 2015, Chinese carriers over-took US carriers in seat capacity on China-US routes. This has enhanced hub competition in Asia-Pacific for US connections. Tokyo’s advantage in access to the USA is being undermined. By February, China Eastern, Air China and China Southern will hold 45% of increased seat capacity between Asia- Pacific and North America, compared with the same month in 2011.

In the Middle East, Gulf carri-ers have shaken up the industry, particularly in dominating access to the Asia-Pacific region. Intercontinental capacity is growing fastest in absolute terms between Asia-Pacific and the Middle East, in part driven by partnerships between major Gulf carriers and Asian operators, fur-ther closing the gap on Europe and North America as the big-gest markets for airlines in the region. In five years, Gulf carri-ers have doubled seat capacity to Southeast Asia and they account for 90% of the market between Southeast Asia and Gulf states.

But there are challenges.

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ARAB AIRLINES (AACO MEMBERS): JANUARY*

Passenger traffic RPK Capacity Load factorsmillion change change percent change

Intra Arab world** 5,318 -4.1% 9.0% 49.2% -6.7

With other regions 42,726 3.9% 10.1% 68.2% -4.0

TOTAL MONTH 48,044 3.0% 9.9% 65.4% -4.4FULL-YEAR 533,144 8.1% 12.5% 65.5% -2.6NOTES: *Estimates. **Includes domestic. SOURCE: Arab Air Carriers Organisation.

EUROPEAN MAJORS (AEA MEMBERS) TRAFFIC: JANUARY

Region Pax traffic RPK Capacity Load factors Freight FTKmillions change change percent change million change

Domestic 2,728 4.2% 2.8% 74.3% 1.0 1 6.5%

Intra-Europe 11,259 4.4% 4.2% 68.1% 0.1 18 -6.7%

North Atlantic 10,449 9.9% 12.0% 80.7% -1.6 470 -1.0%

Mid Atlantic 3,956 5.9% 4.9% 89.4% 0.9 95 -15.7%

South Atlantic 3,552 0.2% -0.3% 87.4% 0.5 122 -3.3%

Far East/Australia 12,041 4.5% 3.2% 81.1% 1.1 766 2.3%

Sub Saharan Africa 4,713 10.2% 5.0% 79.7% 3.7 141 -8.0%

N.Africa/M.East 2,666 2.1% 2.7% 72.3% -0.4 61 -1.5%

TOTAL MONTH 51,376 5.7% 5.0% 77.7% 0.5 1,814 1.3%FULL-YEAR 722,255 4.6% 4.6% 80.6% 0.0 28,055 -0.4%SOURCE: Association of European Airlines

52 | Airline Business |

With the traditional “cycle” model no longer working and policymakers disconnected, forecasting is an inexact science

Economic outlook could trump oil lift

In Airline Business last year, we suggested central bankers and

nance n sters were t s-t c n t e r ew t at, a ng

ssed t e recast r , t e w rld s ec n es w uld be back n track by However immediately before

February’s G20 meeting in Shanghai, the IMF made perti-nent, if belated, observations about future economic prospects. These included a “rising stress in emerging nations” and that the gyrations in financial markets resulted in “higher risks of a derailed recovery at a moment when the global economy is high-ly vulnerable to adverse shocks”.

While the IMF did not take the opportunity to reduce its forecast for global growth of 3.4% for 2016, it did concede a downgrade was likely when it publishes new forecasts in April. The forecasts may be of interest in their own right but in terms of how much lower the figure is, greater atten-

JET KEROSENE SPOT PRICES

Month Fuel price Change over period¢/US gal 1 month 1 year

Mar 167.5 -6.2% -42.1%

April 172.6 3.0% -40.6%

May 186.1 7.8% -35.8%

June 178.4 -4.1% -38.9%

July 158.8 -11.0% -44.7%

Aug 140.5 -11.5% -50.5%

Sep 142.2 1.2% -47.8%

Oct 141.1 -0.8% -43.0%

Nov 135.1 -4.3% -42.0%

Dec 111.4 -17.5% -40.4%

Av.15 155.5 -42.8%Jan 92.1 -17.4% -40.2%

Feb 98.6 7.1% -44.8%

NOTES: Prices are world average = median of Europe/Singapore cargo and US pipeline spot prices in US¢/gallon.

SOURCE: ICIS

tion will be focused not only on what the forecasts for future years might be but also on the extent to which they are considered credi-ble and reasonable.

Models tend to work because the cells are correctly connected; their approximation to reality tends to be determined by the assumptions made generally and in terms of the nature of causal factors driving them. The under-lying problem – evident for some time and widely accepted – is best described as a lack of demand.

There may be all sorts of fancy verbiage about economic head-winds and a tendency, particular-ly in Europe, to turn the money-printing presses on through “quantitative easing”, combined with a move to negative interest rates to stimulate spending and inflation. In this respect, the latest announcement from the European Central Bank did not disappoint.

BROKEN CYCLEThe reality is, the traditional eco-nomic cycle was broken a long time ago and historic relation-ships – cause and effect – on which policy initiatives appear to be based, broke down long ago. It is worthwhile recalling Einstein’s definition of insanity as repeating the same action and expecting a different outcome.

In the July 2012 edition we sug-gested that, in many cases, given the traditional economic cycle had broken down, what we were seeing was, and would continue to be, short-lived economic bub-bles and no sustainable follow-through of sustained growth. For the most challenged economies after the 2008/9 downturn this has been the case. We have seen no reason to change this view and what we are seeing is a slowdown in the structural growth rate in China and further disappointment in Latin America, notably Brazil.

More recently the Bank of International Settlements – the bank for central bankers – appears to have questioned the wisdom of

policymakers, particularly in re-spect of negative interest rates.

The concern is whether they would drive spending by compa-nies and consumers and their impact on exchange rates, not least as lower domestic interest rates (generally) will see a fall in the value of currency.

This is likely to prompt higher inflation through the cost of im-ports rising and will make ex-ports cheaper. In both cases the outcome depends on the net bal-

ance between imports and ex-ports. Despite the actions of policymakers, the one rather im-portant missing component for growth is sufficient demand at current price levels.

From a behavioural perspec-tive, the more we are told it is get-ting difficult the less likely we are to spend, reinforcing the decline irrespective of whether or not money is cheap – an outcome that provides yet another example of policymaker disconnect.

ANALYSIS MARKET OUTLOOK

April 2016

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ANALYSIS BYFLIGHTGLOBAL INSIGHT

GRAPHIC BYPAUL RIGNALL


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MORE ONLINEFor more market indicators,

including expanded traffic,

capacity, fuel and share price

data, download our digital

Airline Market Outlook in

Flightglobal Dashboard’s

Reports section

Perhaps unsurprisingly, the future economic outlook for many is best described by a slightly inclined letter “L”.

What then for the aviation industry? We can feed these into traffic models and contemplate the impact on yields needed to hold volumes constant against a background where industry capacity is forecast to increase 5% in 2016. Of greater importance is how the relationship between air-line revenue and money value GDP will change this year and into 2017. Here, not only will we see a lower-than-expected rate of growth (exacerbated by prevailing low rates of inflation), but also a contraction in the relationship reflecting the combination of con-sumer caution (as an input) and lower fares (as an output).

ATTRACTIVE FARESJust as the rate of economic growth is not uniform, neither is capacity growth. The availability of attractive airfares is evidence the rules of economics apply to the airline industry as well as every other business.

For financially stronger air-lines, a benefit from lower fuel prices will be evident this year and next as hedging positions unwind. But oil is trading close to $40 a barrel, up 20% from February. While nobody really knows where it goes over the short

US MAJOR PASSENGER YIELD: A4A AIRFARE REPORT

Route 2015Unit Mar Apr May Jun Jul Aug Sep

Domestic ¢/RPK 10.91 10.65 10.32 10.54 10.47 9.94 9.77

change 0.6% -1.9% -3.6% -5.5% -3.5% -6.8% -5.6%

North Atlantic¢/RPK 9.19 8.80 8.97 9.61 9.28 8.55 8.81

change 0.2% -0.3% -5.1% -6.4% -6.1% -8.5% -8.8%

ASIA-PACIFIC AIRLINES (AAPA MEMBERS) INTERNATIONAL TRAFFIC

Month Passenger traffic RPK Capacity Load factors Freight FTKmillion change change percentchange million change

Nov 79,920 8.7% 5.7% 76.8% 2.1 5,786 -2.4%

Dec 89,777 7.6% 7.1% 78.6% 0.4 5,593 -0.3%

Jan 91,491 9.9% 7.1% 79.6% 2.1 5,122 -0.7%

FULL-YEAR 1,000,311 8.2% 6.4% 78.3% 1.3 65,046 1.9%SOURCE: Association of Asia Pacific Airlines.

LATIN AMERICAN AIRLINES (ALTA MEMBERS): JANUARY

Pax traffic RPK Capacity Load factors FreightRegion million change change percent change million change

Total intra-LatAm* 18,472 2.7% 2.9% 81.4% -0.1 115 -9.1%

Total other int’l 8,357 9.4% 6.8% 84.7% 2.0 259 2.8%

TOTAL SYSTEM 26,829 4.7% 4.1% 82.4% 0.5 374 -1.2%FULL-YEAR 282,675 5.8% 5.4% 79.8% 0.3 4,731 -8.2%NOTE: *Domestic and international flights. SOURCE: ALTA

US MAJORS (A4A MEMBERS) PASSENGER STATISTICS: JANUARY*

Region Pax traffic RPK Capacity Load factors Freight FTK*

million change change percentchange million change

Domestic USA 49,628 4.3% 2.5% 80.8% 1.5 1,706 1.4%

North Atlantic 6,319 -3.8% -2.5% 72.5% -1.0 711 0.3%

Latin America 9,836 5.4% 5.0% 81.1% 0.3 161 -1.9%

Trans Pacific 6,664 5.0% 2.2% 82.6% 2.1 891 -3.3%

All international 22,819 2.5% 1.9% 78.9% 0.5 1,763 -1.7%

TOTAL MONTH 72,448 3.8% 2.3% 80.2% 1.2 3,469 -0.2%FULL-YEAR 944,111 4.5% 3.8% 83.6% 0.5 38,053 -0.4%NOTE: *Freight data is December as January n/a. SOURCE: Airlines for America.

| Airline Business | 53

and medium term – let alone the longer term – the ability to absorb lower fares will continue to reduce. This will be exacerbated by meaningful increases in non-fuel costs, evidenced by a raft of announcements of labour agree-ments in the USA and elsewhere and an already weaker-than- expected economic outlook where further downgrades will be the rule rather than the exception.

Although industry profits may be higher this year than last, it is important not to forget the adage that it is how you do in the better times which determines how you do when the going gets tougher. The tangible signs we are watch-ing for are weaker-than-expected revenue performance on one side, and worse-than-expected cost per-formance on the other, with an increasing divergence from current expectations as we move through 2016 and into 2017.

So there is no time like the pre-sent to consider what the out-comes might be when things dete-riorate, and how to respond. ■

April 2016

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The traditional economic cycle was broken a long time ago


Africa

Asia-Pacific

Europe

Latin America

Middle East

North

Ameri

ca

ANALYSIS MARKET OUTLOOK

April 2016

Capacity Snapshot

Focus on: Africa

A monthly breakdown of airline capacity across different regions using data from Flightglobal’s schedules specialist Innovata, and illustrating the fastest-growing regional markets

NOTE: Data based on one week of schedules data, February 2016 against February 2015. Figures reflect airlines operating nonstop unrestricted scheduled passenger services.

March Capacity:

158.2bn ASKs/wk 6.4%vs Mar 2015

5.0bn ASKs/wk 2.8% YoY

Weekly capacity ASK

Region Millions Change

Europe 1,790 3%

Intra-region 1,667 6%

Middle East 985 6%

Asia-Pacific 338 7%

North America 159 5%

Latin America 44 13%

Asia-Pacific


Africa

Asia-Pacific

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Middle East

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Latin America

Africa

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Europe

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Pan-African low-cost carrier

Fastjet has made some

progress in attempts to

develop the model in the

region, increasing seat

capacity by 72% and

introducing more than 6,000

additional weekly seats from

its first base operation

in Tanzania.

While remaining the most

popular region from Africa,

last year’s terrorist attacks in

North Africa have hit

European capacity. The

biggest cuts in capacity have

been to Egypt and Tunisia,

where for example available

seats have been halved in

the UK market to Egypt

compared with the same

period in 2015.

A mixture of African and

Middle Eastern carriers

contributed to 6% ASK

growth between the two

regions. Nile Air, Saudia,

Egyptair and Etihad have all

effected seat growth of at

least 20%. Emirates has

actually reduced flights,

although maintained

positive seat growth of 1.3%

by using larger equipment

types.

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KEEP YOUR PROMISES

FORUM FEEDBACK

Building a strong airline brand takes time and attention to detail, and entails delivering on customer expectations, explains SimpliFlying chief executive Shashank Nigam

April 2016

Shashank Nigam is chief executive of airline marketing strategy specialist SimpliFlying. His new book Soar explores what makes the best airline brands tick simplisoar.com

The home of Airline Business on the web

is the Airlines

channel of

flightglobal.com:

flightglobal.com/Airlines

Our brand engagement with a can of Coke is about 10 minutes. And with Starbucks it is

perhaps an hour. But with an airline, our brand engagement can last any-where from two to 24 hours, depend-ing on how long the flight is. Add in the online booking process and other pre-travel phases, and aviation has many times the number of brand touch points as traditional brands.

Yet most airline marketers tend to apply the same generic marketing principles that are applied to other consumer brands. Things are different when it comes to aviation marketing. How many times have you seen a beautiful advertisement depicting a passenger relaxing on a flat bed and being served gourmet food? Yet the re-ality for most passengers is sitting at the back of the cabin, packed in like sardines and trying to get work done on a laptop with dinosaur hands. There is seldom an attentive flight at-tendant putting a duvet over them. Right there, the brand promise fails. Airlines almost always over-promise, and under-deliver. This is why it is im-portant to study a few airline brands that do it right.

If you fly Indigo, the largest domes-tic airline in India, you’ll notice how often it emphasises its on-time perfor-mance during a flight. When boarding is complete, the flight attendant announces: “Boarding complete for an on-time departure.” Another ann-ouncement asks passengers to collect their rubbish and pass it to the crew to ensure the on-time departure of the next flight by reducing the work for the cleaning crew.

Upon landing, the pilot clearly states the time the flight landed, and whether it arrived early or on time. Some might find the repetition exces-sive, but not when you realise that this is the core brand promise of the airline.

At a recent industry conference, the Jet Airways chief executive stated that “on-time performance is a hygiene fac-tor”. The context was that it is not a brand differentiator and something every airline needs to do.

Ironically, his largest competitor – Indigo – has managed to build a strong airline brand in India on the simple promise of arriving and departing on time. It is common in India for people to always be in a rush, and yet almost always arrive late. In this context, an airline that is on time makes a refresh-ing change. In fact, Indigo even re-named the acronym IST as Indigo Standard Time, rather than Indian Standard Time.

The competition wonders why Indigo does well – it’s because it prom-

ises something simple to the passenger and then delivers well on it, rather than promising the world.

Another strong airline brand is Sin-gapore Airlines. At the other end of the spectrum from Indigo, it promises the world to passengers. The ‘Singapore Girl’ flight attendants are renowned for providing good service, having an eye for detail and going the extra mile to ensure passenger needs are met.

When I recently flew SIA from New York, upon waking I found a flight at-tendant beside me with a tray of hot towels. She asked if I would like to freshen up, and I happily obliged. I was then immediately served a choice of drinks by another crew member. She then asked if I would like to have my breakfast.

After briefly leaving my seat, the bed was turned into a seat and the table set with a cover, ready for breakfast to be served. The best part is this was not an exception – Singapore Airlines flight attendants are trained to do this.

SIA is well known for having the longest training for the in-flight crew in the world, at 15 weeks. Crew mem-bers are trained to anticipate the needs of passengers and be proactive. They have an internal joke, that the “cabin should never look like a Christmas tree”, meaning service should be deliv-ered before the call button lights up.

To succeed in the long term, airlines need to exceed brand expectations. This can be achieved by setting simple expectations, like on-time perfor-mance at Indigo, or by offering a high level of service, like at SIA. The key to success is consistently over-delivering on the brand promise. Unfortunately, few air-lines do it well right now. ■

“The key to success is over-delivering on

brand promise. Unfortunately, few airlines do it well”

SHASHANK NIGAMChief executive, SimpliFlying

Sim

pliF

lyin

g

flightglobal.com/airlines April 2016 I Airline Business I 57


This year will bring some fasci-nating developments for the “tin lovers” as two all-new mainline jets, one backed by the might of China and the

other by Russia, enter the fray. As outlined in this month’s special

report, these new 150-seaters are both aimed squarely at the incumbent Air-bus and Boeing single-aisles that have been fighting it out in a duopoly for nigh-on two decades.

China’s Comac C919 should fly before the year is out. The Russian Irkut MC-21 is due to break cover in the summer, and could also be air-borne this year. Both are equipped with versions of the engines that power the Airbus A320neo and Boeing 737 Max and both are slated to enter service within a corresponding time-frame – by the end of 2018.

It is refreshing for the industry to witness the arrival of two apparently well-funded designs that can genu-inely challenge the status quo in the narrowbody sector, although probably not for a while on a global scale. They are both state-backed and aimed ini-tially at the easily won “captive cus-tomers” in their home markets. But if they are to pose a real threat – and be chosen by, rather than foisted upon, operators – the organisations that are developing them must offer more than the latest technology.

“Is there a good reason or reward for any airline to take the risk of the new designs?” asks DVB Bank’s Bert van Leeuwen. A similar question was lev-elled at the CSeries eight years ago when Bombardier launched its assault on the bottom end of the mainline jet market. In that case, Airbus moved quickly to see off the threat before it built a critical mass of orders.

Ironically, Airbus was the last air-craft manufacturer to battle into the mainstream, enduring almost two dec-ades of struggle before finally being taken seriously by its peers.

ROCKING THE STATUS QUO

COMMENT

Everyone loves an underdog, but can China and Russia’s new jets overcome all the obstacles and mount a genuine assault on the airliner establishment? If so, then the innovative thinking may need to extend beyond the technology

After all the political wrangling, the A300B was an industry joke,

with Freddie Laker saying it was “like

a horse designed by a committee and

would, therefore, fly like a camel”

Airbus

April 2016

MAGAZINE ON THE MOVE In every issue, Airline Business

interviews an industry leader,

scrutinises the big issues and

analyses the key metrics. To

download your digital edition for iPad,

laptop, desktop and Android devices

free of charge, visit:

flightglobal.com/AirlineBusiness

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Like these new single-aisles, “national project” was a label once placed on the original Airbus Industrie project, the A300B. Government-backed, this was developed both to meet European air-lines’ need for a 300-seat “air bus” and to re-establish the region’s airliner manu-facturing industry as a multinational partnership under a centralised manage-ment structure.

When it finally emerged in Toulouse in 1972, after years of political wran-gling, it was viewed as a bit of a joke. Renowned airline entrepreneur Freddie Laker famously said of the A300B that it would be “like a horse designed by a

committee and would therefore fly like a camel” (a comment he subsequently withdrew when he ordered 10!). When the A300B was rolled out of the hangar and parked alongside its Toulouse neighbour, Concorde, few would have placed money of the podgy twinjet being the aircraft that truly represented Europe’s aerospace future.

In fact the A300B did share one trait with Concorde: both were unique in concept. Unlike the C919 and MC-21, Airbus’s first airliner was truly innova-tive. For the A300B was the world’s first “big twin” and, once it proved its capa-bilities, made the short-range variants of the Lockheed TriStar and McDonnell Douglas DC-10 trijets obsolete. It also went on to inspire a considered response from Boeing, with the 767.

But innovation in design and con-cept were not enough to make the A300B a success. It was clever com-mercial thinking that got Airbus onto the first rung of the ladder.

When Europe’s politicians weren’t interfering, Airbus was trying to over-come strong resistance from across the pond where the US industry was feeling threatened. But for global success, a US customer was vital. Enter Frank Borman and Eastern Airlines, with whom Airbus did a “sporty” lease deal for some A300 whitetails. An order for 23 aircraft fol-lowed and the rest, as they say, is history.

The new boys – Bombardier included – would do well to learn from that experience and remember that successful innovation isn’t just about the tin. ■

fligh

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Documents

INTERVIEW ALAN JOYCE Turning Qantas fortunes up Down Unders3-eu-west-1.amazonaws.com/fg-reports-live/pdf/AB Issue April 2016… · ALAN JOYCE Turning Qantas fortunes up Down Under