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special report:
Low-Cost Carriers
2014
June 2014
flightglobal.com/airlines | Airline Business | 23
SPECIAL REPORT
LOW-COST CARRIERS
Airbus
The latest Airline Business low-...
flightglobal.com/airlines24 | Airline Business |
LOW-COST CARRIERS SNAPSHOT
June 2014
LOW-COST LINE-UPTraffic and profitabil...
flightglobal.com/airlines | Airline Business | 25June 2014
$5.7bnOperating profits for nearly 40 airlines in
the sector re...
flightglobal.com/airlines26 | Airline Business |
passenger volumes as the company resumes
growth, but are unlikely to driv...
flightglobal.com/airlines | Airline Business | 27
“It’s all about point-to-point,” says Barclays’
Sleath on where the LCCs...
flightglobal.com/airlines | Airline Business | 29
As European low-cost carriers continue to
expand increasingly outside th...
flightglobal.com/airlines32 | Airline Business |
LOW-COST CARRIERS ASIA
June 2014
AirAsia,LionAir
ASIA’S LOW-COSTS
SPREAD ...
flightglobal.com/airlines | Airline Business | 33June 2014
■ Asiana Airlines is mulling whether
to launch a new low-cost c...
flightglobal.com/airlines34 | Airline Business | June 2014
CHINA
The low-cost market in China is expected to
boom after th...
flightglobal.com/airlines | Airline Business | 35
Central America is shaping up as a potential budget airline
battleground...
flightglobal.com/airlines36 | Airline Business |
LOW-COST CARRIERS OVERVIEW
LOW-COST CARRIER TRAFFIC
DATA COMPILED BY SILV...
flightglobal.com/airlines | Airline Business | 37June 2014
TOP 75 LOW-COST CARRIERS BY PASSENGER NUMBER: 2013
Rank Carrier...
flightglobal.com/airlines38 | Airline Business |
LOW-COST CARRIERS OVERVIEW
DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA...
flightglobal.com/airlines June 2014 | Airline Business | 39
Ryanair’s BBB+ score from S&P and Fitch puts it in good stead ...
flightglobal.com/airlines40 | Airline Business |
LOW-COST CARRIERS AIRCRAFT MARKETS
June 2014
ANALYSIS BY FLIGHTGLOBAL INS...
flightglobal.com/airlines | Airline Business | 41
Norwegian
June 2014
LOW-COST CARRIER A320/737 ENGINE
MANUFACTURER MARKET...
Flightglobal Insight
Quadrant House, The Quadrant, Sutton, Surrey, SM2 5AS, UK
Tel: +44 20 8652 8724 Email: insight@flight...
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Low Cost Air Carriers 2014

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Low Cost Air Carriers 2014

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Low Cost Air Carriers 2014

  1. 1. special report: Low-Cost Carriers 2014 June 2014
  2. 2. flightglobal.com/airlines | Airline Business | 23 SPECIAL REPORT LOW-COST CARRIERS Airbus The latest Airline Business low-cost carrier survey shows traffic and profits up again as the sector continues to grow rapidly in size, value and scope. But the model dynamics vary across the regions, between those looking to break through in Central America, the rapid spread into new markets in Asia and courting of more up-market passengers in Europe CONTENTS 24 Low-cost line-up A graphic breakdown of the biggest players in the sector 26 Getting down to business Europe’s LCCs are stepping into the mainstream to target higher-yielding traffic 32 Asia-Pacific LCCs spread wings Asian budget airline growth continues apace with at least 10 new launches near 35 Centre ground LCC airline growth comes to Central America 36 Traffic and financial data Annual survey of the leading budget sector operators 39 Ratings boost Why Ryanair looks in good shape for bond issue 40 Low-fare inventories Analysis of how the low-cost fleets are distributed globally June 2014 All our special reports are available online at: flightglobal.com/airlines
  3. 3. flightglobal.com/airlines24 | Airline Business | LOW-COST CARRIERS SNAPSHOT June 2014 LOW-COST LINE-UPTraffic and profitability among the fast-developing budget sector continued to grow apace in 2013, as the latest annual Airline Business low-cost carrier survey shows passengers for the 75 biggest players topping 800 million and profits among leading operators jumping 50% as the model continues to spread in geography and scope Based on net profits for most recent financial year TOP 10 BY REVENUE Norwegian $2.6bn Jetstar $3.4bn EasyJet $6.6bn Southwest $17.7bn JetBlue $5.4bn Ryanair $6.8bn Gol $4.1bn WestJet $3.5bn Azul $2.4bn* Vueling $1.9bn Based on operating revenue for most recent financial year * Airline Business estimate 9.9%Passengers carried among the leading 75 low-cost carriers again grew nearly 10% in 2013 and reached 801 million. While Southwest,Ryanair and EasyJet remain the biggest by a distance,there are now more than 20 airlines in the sector that fly over 10 million passengers annually TOP 10 BY NET PROFIT Air Arabia $119m JetBlue $168m Spring $119m $754mSouthwest EasyJet WestJet $260m Ryanair $702m Spirit $177m Indigo $144m AirAsia $115m $621m Norwegian
  4. 4. flightglobal.com/airlines | Airline Business | 25June 2014 $5.7bnOperating profits for nearly 40 airlines in the sector reached almost $6 billion in 2013,up on the $4 billion the same carriers made in 2012. Collective net profits for low-cost players stood just shy of $3 billion,an increase of nearly $1 billion $84bnNet revenues for nearly 50 low-cost carriers totalled $83.8 billion in the last financial year as strong growth continued. More than 20 low-cost operators now generate sales of at least $1 billion annually,reflecting how the model is maturing across the different regions Europe 31.2% North America 27.5% Asia-Pacific 29.4% Middle East 2.2% South America 9% Africa 0.6% Source: Airline Business low-cost carrier traffic survey 2013 LOW-COST CARRIER PASSENGERS SHARE BY REGION 801mTotal passengers Boeing Airbus Airbus
  5. 5. flightglobal.com/airlines26 | Airline Business | passenger volumes as the company resumes growth, but are unlikely to drive up yields. “The real change needed to push pricing – a fundamental shift into primary airports and higher frequencies – is actually happening relatively slowly. On a multi-year basis, we would assume that both unit costs and unit revenues remain relatively stable, and it is Ryanair’s top-line growth that continues to drive returns for shareholders,” he says. “So it’s an evolution, not a revolution.” Given the timing of the roll-out of consumer friendly products, it would be easy to view the shift in Ryanair approach as a knee-jerk reac- tion to its autumn profit warnings – although it remains one of the world’s most profitable European low-cost carriers’ tacit moves to target higher yielding traffic are increasingly apparent and have even seen budget model champion Ryanair reinventing itself as it eyes more growth at the expense of network rivals LOW-COST CARRIERS EUROPE GETTING DOWN TO BUSINESS REPORT GRAHAM DUNN LONDON But the transition should not be over-stated. Mainstream airports remain a small part of its network and its recent announcement of a base at Warsaw’s Modlin airport shows it has not lost its appetite for European secondary air- ports.Similarly,itsdecisiontoaxeLisbon-Faro in April, just three days after the route launched, shows its ruthless streak remains. COSTING BUSINESS Neither has it abandoned its hard line on costs. Its adherence to an ultra-low-cost business model remains and should be helped by last off the line Boeing 737 orders, and the BBB+ credit ratings from Standard & Poor and Fitch should help keep finance costs in check. “Ryanair’s strategic ‘transformation’, focused on improving customer service, con- tinues to attract headlines – as was clearly the intention. However, as often with Ryanair, we think the story is somewhat exaggerated,” says Oliver Sleath, European airlines analyst at Bar- clays. “Ryanair’s change in strategy is mostly about soft improvements that do not impact the cost base, which should help support Ryanair target to lift passenger numbers to 112 million over the next five years 40% June 2014  T he lines between low-cost carriers and their network rivals have blurred so much over recent years as to make segmenting operators by type almost academic. Yet in Europe, while mainline operators have unbundled fares and stripped away ser- vices, and low-cost carriers have ended the boarding scrum and packaged up extra frills for a price, there has always been one con- stant: Ryanair. Lowest cost, with fares and a service cul- ture to match, the budget giant has come to embody the low-cost model – the heir appar- ent to Southwest Airlines. So the evolution over the last year, which has seen Ryanair’s various dalliances with customer service evolve into a fully-fledged campaign to be liked is on the one hand pretty seismic. Booking restrictions have been eased, the website and mobile site revamped, its market- ing edge softened, customers engaged and a new proposition explicitly developed for business travellers. It has even begun creeping into more mainstream airports.
  6. 6. flightglobal.com/airlines | Airline Business | 27 “It’s all about point-to-point,” says Barclays’ Sleath on where the LCCs may target network carriers. “It is harder for low-cost carriers to compete in a transfer hub that is feeding long- haul – look at Frankfurt or Munich. But there are only a few fortress hubs like that, and plenty of other markets under-penetrated by LCCs where legacies are still flying pure point- to-point. Gatwick is a good example of what happens –10 years ago BA had 50% short-haul share, EasyJet 15%. Now it’s the reverse.” All of which goes to explain the gentle shift up-market by all LCCs, not just Ryanair. These carriers are positioning themselves as viable alternatives – both in frequency and product – if the national carriers continue to retrench. And in many cases, they hope their presence will hasten this retrenchment. Unlike its low-cost rivals, Ryanair – the European champion of the ultra-low-cost model – has more ground to make up in terms of positioning itself to fill the void. For exam- ple while EasyJet and Vueling have always served primary airports, much of Ryanair’s network comprises secondary airports. “I think the old Ryanair model of stimulat- ing new demand on very thin routes is prov- ing harder to come by,” observes Sleath. “Western Europe is approaching a level of saturation. There are only so many people who want to fly to the middle of nowhere.” He notes that in some cases, the airline has in part moved from a city’s secondary to pri- maryairportbecausesomeofitspricingadvan- tage has been lost when low-cost rivals began operating from the primary airport. “The num- ber of primary airports they serve has been verysteadilypickingupoverthelastfiveyears, as other LCCs have shown up in the main air- port and Ryanair found it had to discount more aggressively at the secondary airport,” says LCCs. This added weight to the view that the European market is getting full and that after more than a decade of stimulating air travel through low fares, the well is running dry. Ryanair evidently does not believe its growth is going to stop. After deliveries com- pleted on its landmark Boeing order, it could have opted to keep its capacity levels tight and increase its returns by churning its net- work in favour of the more profitable routes. Instead it has ordered 180 new Boeing nar- rowbodies to support its target of lifting pas- senger numbers by 40% over the next five years to 112 million. The thinking of LCCs seems to echo this view. Between them, EasyJet, Norwegian, Vueling, Pegasus and Wizz Air have ordered around 600 aircraft over the last 18 months. In some cases, stimulating new travellers through low-pricing in the emerging markets of Turkey and eastern Europe will drive this growth. But for the likes of EasyJet, Norwe- gian, Ryanair and Vueling, the carriers are working in the familiar short-haul EU market. And a look through recent expansion plans Growth may be tapering after a decade of stimulating demand via low fares RexFeatures “We see a great opportunity because flag carriers are cutting back” HOWARD MILLAR Chief financial officer, Ryanair June 2014 underlines they are largely betting on growing at the expense of the network carriers. It is not accidental that Ryanair’s new bases at Rome Fiumicino, Athens, Lisbon and Brus- sels National – and interest in Copenhagen – are home to European network carriers which have battled their own or national economic problems. Neither are they alone in seeing the opportunity, as Vueling’s own growth moves at Brussels and Rome illustrates – although this raises the prospect of more intra-LCC competition over the coming years (see P34). “The fundamentals have not changed for EasyJet, we are still competing with the lega- cies,” says EasyJet chief executive Carolyn McCall. The airline, which operates out of primary airports, sees it particularly well placed to push the pressure on network rivals. “Legacy carriers are taking capacity out of the market and we are the ones putting capacity in. And therefore we are controlling the capacity environment,” she says. This view is echoed by Ryanair chief finan- cial officer Howard Millar. “We see a great opportunity because the flag carriers are still in cutback mode,” he says. ROUTE RETREAT WhathasgivenLCCssomuchencouragementis therateatwhichEuropeannetworkcarriershave retreated in short-haul markets. The likes of Ali- talia, Air Berlin and Iberia have all scaled back. For example, Flightglobal’s Innovata schedules datashowsthecontrastingrateofgrowthfornet- work carriers versus EasyJet and Ryanair on short-hauloverthepastfiveyears(seetable). Much of this has been driven by the restructuring of network carriers. The carrot for the stick of labour concessions is the pos- sibility of a return to growth. But that growth seems unlikely to be driven by short-haul European routes. Any that is, will be hub- feeders and not point-to-point markets. “The capacity we have put back is aimed at improving the quality of the network. So the short-haulcapacityisdesignedtoensurewe’ve got a good feed into the long-haul network,” explained IAG chief executive Willie Walsh on Iberia’s strategy on rebuilding its network. INTRA-EUROPEAN CAPACITY EVOLUTION FOR SELECTED CARRIERS BY SEATS: 2010-14 YEAR KLM Brussels Airlines SAS EasyJet Ryanair 2010 19.16m 7.31m 31.12m 49.60m 79.32m 2011 19.17m 7.63m 31.54m 54.37m 88.80m 2012 20.71m 7.96m 32.57m 56.49m 92.80m 2013 21.26m 7.66m 34.20m 65.76m 97.30m 2014 21.96m 7.27m 37.08m 68.98m 98.99m Data for total seats each year. SOURCE: Innovata, part of Flightglobal
  7. 7. flightglobal.com/airlines | Airline Business | 29 As European low-cost carriers continue to expand increasingly outside their home markets, it is perhaps inevitable that there will be more direct competition between rivals from the sector. New bases pit Ryanair up against Vueling in Rome Fiumicino and Brussels, and EasyJet in Athens and Lisbon. Norwegian is expanding at EasyJet’s London Gatwick base, and launching at Vueling’s Barcelona home. While there is increasing overlap Oliver Sleath, European airlines analyst at Barclays, believes the main target of the low-cost carriers is still the legacy carriers. “I don’t think that it is either Vueling or Ryanair’s intention to go and kill other LCCs, it is to take share off the legacy carriers,” says Sleath. But he adds Ryanair “probably has the ego and balance sheet and cost base” to get involved in a price war with a rival if needed. But he notes, for example, that Ryanair has been operating out of Vueling’s Barcelona home for nearly five years. The latter has continued to thrive, while Spanair was ultimately the carrier that fell. Ryanair finance chief Howard Millar, while also stressing the big opportunity is network carriers continuing to cut back, says given the size of its operation and number of airports across it network, “we’re always going to have spats somewhere”. A couple of years ago, that was Wizz at Budapest, he notes. He believes Ryanair would feel on “home ground” in any fares war because of its cost base. “Our experience of the low-fare industry is once we are in a fare war, it’s the lowest fare which win by some distance. If it’s a slugging match, it’s the person with the biggest balance sheet and lowest costs that wins,” he says. Struggling Alitalia is no doubt in the sights of both Ryanair and Vueling in their moves at Rome Fiumicino – an airport where EasyJet is already firmly established. It is “too early to say” how increased competition between the three LCCs on routes from the Italian capital will hit yields, says EasyJet chief executive Carolyn McCall. She concedes that it could take six to nine months to “shake out” the market. LOW-COST CARRIERS EUROPE Sleath. “It’s not a sudden switch, but it is hap- pening more, sometimes out of choice, some- times not. It definitely means taking share more directly off legacy carriers, and they are talking about high frequency routes much more than they did before.” For example, Ryanair chief executive Michael O’Leary, in announcing new routes to primary airports and extra flights on others from London Stansted this winter, says it is part of a push to attract more business traffic away from its competitors. “By significantly building out schedules so that we can not just improve the customer ser- vice but can go after business traffic,” he says. Ryanair CFO Millar says primary airports are likely to account for between 40-50% of its future growth, much of that driven from its new long-term deal at Stansted. MERGING MODELS All this may sound familiar to EasyJet. Its LCC rival has for a while been a very different ani- mal, and has already taken several of the steps that Ryanair is now embarking on. The airline notes that 12 million – around a fifth of its passengers – during the 12 months to March 2014 were travelling on business. Ryanair stepped up the business friendly initiatives last winter, shortly after issuing profit warnings amid a weakening demand environment. Ryanair’s Millar says that while this probably did “spur us on” to make changes, this was something it was already looking at. “We had been looking at what some of our competitors had been doing in customer ser- vice experience,” he says. “ But I give credit to EasyJet. We were watching quite closely how they were performing and what struck us…. was their load factor was improving and their average fares was improving, for not that much difference in their product. “Yes they had a better website, yes they were perceived as being warmer and cuddlier, while we were seen to be more aggressive in terms of how we dealt with passengers.” He says the feedback from its own passen- gers showed the interest in things like allo- cated seating. “I think the low-fares industry has evolved, there has been another evolu- tion. It is not just good enough to have low fares, you have to have something else.” While he acknowledges this probably hap- pened 18 months ago and that carriers like EasyJethadreactedtothischangeearlier,Millar sees Ryanair still strongly positioned. “We can catchupandcatchupveryquickly,”hesays. “They are still a different model,” says BUDGET BATTLEGROUNDS Ryanair fights EasyJet in Athens and Lisbon RexFeatures June 2014 Read more on Ryanair’s network development moves at: flightglobal.com/RyanairRoutes tion is O’Leary himself. EasyJet now has some distance from the airline’s vocal founder and shareholder Stelios Haji-Ioan- nou, who was so synonymous with its low- cost breakthrough. Likewise, the equally high-profile O’Leary has come to embody Ryanair, both good and bad. Back in 2010, O’Leary was talking of com- pleting three last challenges – breaking up the Dublin and BAA monopolies and a new air- craftorder–beforesteppingdown.Muchofthe work has now been done. So how significant is O’Learytotheairline’sfuturedevelopment? “I think the public face O’Leary is less nec- essary than it was,” says Sleath. “The focus is shifting towards [chief marketing officer] Kenny Jacobs, and there will be less need for PR stunts. But the smart-minded, hard-nosed business-man O’Leary – I think that is still quite integral. He works very hard and he’s really held the team together; up until Michael Cawley’s departure there had been very few senior management changes.” ■ McCall of suggestions that there is a merging of Ryanair’smodelwithitsown.“Theystilladhere to being ultra low-cost and their predominant network is secondary and tertiary. We are low- costandaprimary,networkstrategy.Andwe’ll havetoseewhethertheydevelopthatandwhat that does to their ultra low-cost model, which hasalwaysbeenpartoftheircompetitiveadvan- tageastheyseeit,”shesays. What is clear is the journey for Ryanair, if it intends to travel that far, will be a lengthy one. EasyJet’s transition has been steady one over a period of different management teams. McCall still sees plenty of ground for EasyJet to cover. “We have the product, the contracts with TMCs, the GDS, the sales teams, we now need toconsolidatewhatwearedoingandgrowand develop, rather than trying to do more. “I think we will continue to have a low-cost operating model and we will continue to improve everything that we do,” she says. “There is still so much we can do better. We have a big engineering contract coming up in 2015. There’s automation in airports, there are loads of stuff we can do both to improve the passenger experience and our own efficiency.” Also looming large in the Ryanair evolu-
  8. 8. flightglobal.com/airlines32 | Airline Business | LOW-COST CARRIERS ASIA June 2014 AirAsia,LionAir ASIA’S LOW-COSTS SPREAD WINGS The budget sector continues to grow strongly in the Asia-Pacific, with at least 10 new players working towards launch. Flightglobal’s Mavis Toh examines this dynamic market, where new arrivals are mainly affecting markets in Greater China, Thailand, Japan and India, while consolidation in the Philippines could also occur in South Korea ■ Chennai-based AirAsia India has received its AOC and could start operations in the second quarter of this year. INDIA Passengers carried by Lion Air in 2013, the largest Asia-Pacific low-cost carrier 34m Total passengers carried in 2013 by Asia-Pacific low-cost airlines 236m
  9. 9. flightglobal.com/airlines | Airline Business | 33June 2014 ■ Asiana Airlines is mulling whether to launch a new low-cost carrier in a market already crowded with budget operators. SOUTH KOREA ■ Spring Airlines Japan has received its AOC and plans to launch in June. JAPAN ■ Juneyao Airlines has received approval to set up its new Guangzhou-based low-cost unit Jiuyuan Airlines. ■ Hainan Airlines and China Eastern Airlines plan to convert their respective subsidiaries, West Air and China United Airlines, into low-cost operations. CHINA ■ TransAsia Airways wants to launch Taiwan’s first budget carrier with V Air in September. ■ China Airlines has partnered with Tigerair to form Tigerair Taiwan. TAIWAN ■ Qantas, China Eastern Airlines and Hong Kong conglomerate Shun Tak Holdings are still awaiting approval for an AOC for Jetstar Hong Kong. HONG KONG ■ Thai AirAsia X will begin operations using A330s in June. ■ Nok Air and Scoot joint venture, NokScoot, aims to launch in the second half using 777-200s. ■ Thai VietJet Air, a joint venture between Thai carrier Kan Air and low-cost operator VietJet Air, is on track for launch this summer. It follows the launch of Thai Lion Air last December. THAILAND Number of South Korean LCCs flying before possible launch of Asiana unit 5
  10. 10. flightglobal.com/airlines34 | Airline Business | June 2014 CHINA The low-cost market in China is expected to boom after the Civil Aviation Administration of China’s policy shift promoting the develop- ment of home-grown LCCs. This is in response to a growing number of foreign budget operators flying into the country. LCCs account for a less than 5% market share in China – far below the 80% share budget operators in Europe and the USA have on routes under 3h. Shanghai-based Juneyao Airlines has received regulatory approval to set up its new low-cost unit, Jiuyuan Airlines. The carrier plans to start domestic services from its base in Guangzhou using Airbus A320s, before launching regional services. Full-service carriers Hainan Airlines and China Eastern Airlines are working to convert their respective subsidiaries – West Air and China United Airlines – into low-cost opera- tions. Hainan and its partners have pledged to invest CNY2 billion ($320 million) in West Air, in a move to enhance its market competi- tiveness. West Air is based in Chongqing, while China United operates out of Beijing. China Southern Airlines, meanwhile, says it is paying “a lot of attention” to develop- ments in the LCC sector, and is evaluating whether to jump on the bandwagon. The country’s only low-cost operator, Spring Airlines – which has for years faced difficulties in getting approval for aircraft pur- chases – expects the policy changes to move the carrier forward in its fleet expansion plans. The carrier has also issued a prospec- tus as it gears up for a launch on the Shanghai Stock Exchange. TAIWAN After years of mulling over whether to enter the low-cost market, two Taiwanese carriers have decided to take the plunge at the same time. With domestic travel well covered by Taiwan’s high-speed rail network, the LCCs will have to focus on regional routes. Although there is a strong demand for cross- straits flights, there is also a cap on the num- ber of such weekly services, which could prove challenging for LCCs to secure slots. TransAsia Airways intends to launch V Air – Taiwan's first budget carrier – in September. V Air will operate services to Northeast and Southeast Asia. Meanwhile, flag carrier China Airlines has partnered with Singapore-based Tigerair to form Tigerair Taiwan. The carrier plans to grow to a fleet of 12 jets by 2017, and is gear- ing towards a September/October launch. It will start off with services to countries with open skies agreement with Taiwan, including Japan, Korea, Malaysia, Thailand, Singapore and Macau. HONG KONG In Hong Kong, Qantas, China Eastern Airlines and Hong Kong conglomerate Shun Tak Hold- ings are awaiting approval from the local gov- ernment for an AOC for their planned LCC Jetstar Hong Kong – an application for which was put in last year. The airline’s launch has been met with opposition right from the start, with Cathay Pacific, Hong Kong Express and Hong Kong Airlines arguing that the new venture does not meet regulatory requirements, as control will come from Australia. The carrier has at least six Airbus A320s in storage in Toulouse. With Jetstar Hong Kong’s progress halted, Hong Kong Airlines’ sister carrier Hong Kong Express safely remains the first and only LCC in the territory. THAILAND The Thai market will see jostling for position this year, with the expected entrance of three new LCCs. In the long-haul low-cost market, Thai AirAsia X will begin operations using A330s in June, with services to Seoul Incheon. This will be followed by Tokyo Narita and Osaka Kansai later this year. Hot on its heels will be NokScoot – planned to launch in the second half of 2014, using Boeing 777-200s. The Nok Air and Scoot joint venture says it will oper- ate long- and medium-haul services from Don Mueang International airport. On short-haul, Thai VietJet Air – a joint venture between Thai regional carrier Kan Air and Vietnamese low-cost operator VietJet Air – remains on track for launch in summer 2014. The airline plans to start with domestic services before expanding internationally out of Bangkok’s Suvarnabhumi airport. The entrance of these players follows that of Thai Lion Air in December 2013. JAPAN Spring Airlines Japan has received its air operator’s certificate from the Japanese authorities, and will launch on 27 June. The carrier – a joint venture between Spring Air- lines and unnamed Japanese partners – will start with a fleet of three 737s on services from Tokyo Narita to Hiroshima, Saga and Taka- matsu. The carrier will join Peach Aviation, Jetstar Japan and Vanilla Air as the fourth low- cost carrier in the Japanese domestic market. SOUTH KOREA In South Korea, Asiana Airlines is consider- ing whether to launch a new LCC in a market already crowded with budget operators. The Star Alliance carrier says it is open to adopting a multi-brand strategy, and that the new LCC is likely to be based in Seoul to cap- ture traffic to and from the nation's capital. Asiana already has a 46% stake in another Korean budget operator, Air Busan. There are currently five home-grown budget players in South Korea: Jin Air, Air Busan, Jeju Air, T’way and Eastar Jet. The Korean domestic market is already dominated by LCCs, and also well served by an efficient high-speed rail network. New Korean operators are therefore seen as likely to set their sights on capturing a slice of the international market. INDIA AirAsia India in May secured its air operator’s permit, clearing the last major hurdle for the Chennai-based carrier to start operations. It comes after the country’s directorate general of civil aviation rejected arguments from vari- ous parties objecting to the airline’s launch. The low-cost joint venture between AirA- sia, Tata Sons and Telestra Tradeplace – to be based in Chennai – could start operations in the second quarter of 2014, as it has already taken delivery of its first of 10 A320s. In July, Singapore Airlines and its Indian partner Tata Sons are also expected to launch a full-service operation based in New Delhi. SIA has long held ambitions of playing a greater role in India, and is now poised to challenge flag carrier Air India in the full-ser- vice market. Venturing into India could be risky, how- ever, as airlines have to contend with the high levels of taxation on jet fuel, spare parts and maintenance. Other challenges include deal- ing with New Delhi’s bureaucracy and archaic regulations. ■ LOW-COST CARRIERS ASIA Number of jets Tigerair Taiwan plans to operate by 2017 after launching this autumn 12 A complete collection of our special reports is available online at: flightglobal.com/airlines
  11. 11. flightglobal.com/airlines | Airline Business | 35 Central America is shaping up as a potential budget airline battleground, with as many as three start-ups planning debuts – but regulatory hurdles and the ever-alert market incumbents could yet stand in the way of progress LOW-COST CARRIERS LATIN AMERICA CENTRE GROUND REPORT DAVID KNIBB VANCOUVER VivaColombia is tipped for fast expansion SantiagoCorreaLaverdeColombiaAerospotters June 2014  L atin America has lagged behind other regions in terms of low-cost carrier penetration, but the business model is now spreading from Bra- zil, Colombia and Mexico to other countries – especially in Central America. El Salvador-based Veca Airlines has secured its air operator’s certificate (AOC) and plans to launch services before 28 June, start- ing with two leased Airbus A319s configured for single-class service. Initial routes will include the capital cities of neighbouring nations. “There is a big need for new entrants in Central America,” says chief executive Edgar Hasbun. Veca – a Spanish acronym for “economical Central American flights” – is privately held by a group of Salvadorian entrepreneurs and affil- iate companies of energy group Alba Petroleos. Alba funded a market analysis last year to determine if a new low-cost entrant was feasi- ble,anddidnotinvestuntilitsawtheresultsof that study. It appears Veca will be the first low- cost operator based in Central America. Another potential low-cost entrant is Ticos Air, which plans to base itself in Costa Rica. The airline’s operational start date is less cer- tain, however. UNSPECIFIED DELAYS Ticos had hoped to secure all approvals in time to launch flights last December, but that process was delayed for unspecified reasons. Local reports suggest that sole proprietor Gino Renzi – a former hotel manager and television executive who openly admits his lack of avia- tion experience – is seeking other investors after the death of his initial partner. VivaColombia has also been tipped with potential interest in El Salvador. The carrier is on a fast expansion track – only two years after its launch, it already gained approval for international flights, which will start later this year to Panama City and Lima, Peru, and ear- lier this year was reported to be holding dis- cussions with aviation officials in El Salvador. If so, the carrier will become one of several foreign budget carriers – such as Mexico’s Interjet – that fly in and out of the region. Turboprop operator Transportes Aereos Guatemalans is adding low-cost flights from Guatemala to El Salvador. Depending on pas- senger response, TAG says it could extend its network into other parts of Central America. The region is ripe for low-cost operators. Central American aviation policies and proce- dures are more closely integrated – and as lib- eral as any others in Latin America. Intra- region stage lengths are short, and potential new entrants face a better reception than in Venezuela, Argentina or Bolivia, where gov- ernments favour their own airlines. MARKET POTENTIAL Grupo TACA, which dominated Central America along with Panama’s Copa, merged into Avianca four years ago and has disap- peared. This produced some rationalisation, such as closing TACA’s old hub in Costa Rica in favour of one Central American hub in San Salvador. How much these changes have cre- ated a vacuum is unclear, but the start-ups think there is enough market potential. Both Veca and Ticos like to boast that they have hired a number of former TACA staff laid off after the merger with Avianca. Tico’s Renzi also appeals to national pride in a com- ment about Copa and Avianca, pointing out that the choices of Costa Ricans are limited to airlines from Panama and Colombia. Copa and Avianca might dispute it, but Veca’s Hasbun contends that “air travel in Cen- tral America is currently very expensive”. When Alba funded last year’s market analysis into a potential budget airline, project advisor JoseLuisMerinoremarked:“ElSalvadorneeds to open up the world with opportunities for cheap flights. It is sometimes cheaper to go to Spain than to fly to Costa Rica or Panama.” Any new Central America entrant knows it cannot ignore Copa and Avianca. Veca’s strat- egy will not be to compete for the same traffic with these incumbents, says Hasbun, but to stimulate demand with lower fares. Veca’s goal, he explains, is to “create a new market”. “We see no problem with new entrants, pro- vided they comply with regulations and enter the market on equal terms,” says Avianca. Copa’s senior vice-president commercial planning, Joe Mohan, sounds less sanguine. “Low prices are not the focus of Copa,” he admits to local media reporters, but any new competitor changes the market balance. Even experienced airlines must work, Mohan stresses, to maintain their on-time perfor- mance and service standards. ■ LEADING LATIN AMERICAN CARRIERS 2013 Airline Country Pax Change Gol Brazil 36.3m -0.6% Azul Brazil 13.3m 31.5% Volaris Mexico 8.9m 20.7% Interjet Mexico 8.4m 15.9% VivaAerobus Mexico 3.8m 3.9% VivaColombia Colombia 1.8m 229.0% SOURCE: Airline Business low-cost carrier survey Read more on the Latin American market and its related MRO business in the CCMA daily: flightglobal.com/CCMA14
  12. 12. flightglobal.com/airlines36 | Airline Business | LOW-COST CARRIERS OVERVIEW LOW-COST CARRIER TRAFFIC DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA RESEARCH TEAM June 2014 The evolving budget sector operators continued to outpace industry growth in 2013 as passenger numbers jumped another 10%. While the LCC giants grew relatively modestly, there was no shortage of more expansive airlines P  assenger growth for low-cost carriers has risen by nearly 10% over the past 12 months, as the model continues to spread within mature and emerging markets. This year’s Airline Business low-cost car- rier survey shows the leading 75 airlines, operating within the increasingly diverse sec- tor, carried just over 800 million in 2013. The established operators Southwest, Ryanair and EasyJet,which carried 275 million passengers between them last year, had rela- tively moderate growth – indeed Southwest passenger numbers fell fractionally. But there was double-digit growth for a host of other low-cost carriers, notably the likes of Lion Air, AirAsia and Indigo in Asia-Pacifc and expanding European opeators Norwegian, Pegasus and Vueling. While Gol continued to pull back capacity last year, another Brazilian carrier Azul grows apace – not just in size, but in future also into long-haul markets. Other Latin carriers, like Interjet and Volaris of Mexico also grew fast. The leading 75 LCCs operate a combined fleet of 3,572 aircraft. Interestingly, after a fur- ther flurry order activity, they have all but the same amount of aircraft on order. ■ TOP 75 LOW-COST CARRIERS BY PASSENGER NUMBER: 2013 Rank Carrier Country Passengers Traffic Capacity Load factors Fleet Source 2013 2012 (m) Change % RPK Change % change % Percent Change Current Orders 1 1 Southwest Airlines USA 133.2 -0.6 168,078 1.5 1.7 80.0 -0.2 676 302 includes AirTran 2 2 Ryanair Ireland 81.7 3.0 83.0 0.8 298 180 3 3 EasyJet UK 60.8 4.1 67,573 3.6 2.8 91.0 0.7 199 145 4 4 Gol Brazil 36.3 -7.3 34,684 -4.7 -4.3 69.9 -0.3 132 83 5 5 Lion Air Indonesia 34.1 10.4 99 524 6 6 JetBlue Airways USA 30.5 5.2 57,660 6.8 6.9 83.7 -0.1 196 134 7 7 AirAsia Malaysia 21.9 11.0 25,333 11.4 11.3 80.2 0.1 78 323 8 8 Norwegian Norway 20.7 17.1 26,881 32.1 32.4 78.3 -0.2 87 260 9 10 IndiGo India 19.2 21.7 22,856 20.4 22.6 79.3 -1.4 78 186 DGCA 10 9 WestJet Canada 18.5 6.1 31,522 7.3 8.6 81.7 -1.0 105 90 11 12 Vueling Airlines Spain 17.2 16.3 17,109 24.9 21.9 79.6 1.9 82 64 12 11 Jetstar Australia 16.8 9.0 28,673 10.7 10.8 79.1 -0.1 73 94 12 13 Pegasus Airlines Turkey 16.8 23.9 16,231 27.8 22.7 80.5 3.2 42 77 14 14 Cebu Pacific Air Philippines 14.4 8.3 12,927 12.1 14.3 79.8 -1.6 50 44 15 15 Wizz Air Hungary 13.5 11.6 86.1 0.4 46 66 16 19 Azul Brazil 13.3 31.5 11,615 32.7 31.1 80.2 1.0 92 23 17 16 SpiceJet India 12.8 16.0 13,458 18.6 19.2 73.7 -0.4 55 59 DGCA 18 18 Spirit Airlines USA 12.4 19.1 19,310 24.2 22.2 86.6 1.4 57 114 19 17 Frontier Airlines USA 10.7 -0.3 15,861 -6.9 -8.7 90.7 1.8 54 80 US DOT 20 21 Thai AirAsia Thailand 10.5 26.5 10,829 25.7 23.4 83.6 1.5 37 21 20 Spring Airlines Est China 10.0 10.0 40 5 AB estimate 22 22 Germanwings Germany 9.2 18.0 8,137 15.7 13.2 81.5 1.8 71 ICAO 23 23 Volaris Mexico 8.9 20.7 14,486 17.4 17.9 82.6 -0.3 47 64 24 24 Interjet Mexico 8.4 15.9 8,337 20.9 20.1 74.7 0.5 48 53 25 28 Indonesia AirAsia Indonesia 7.9 34.3 9,293 32.5 32.6 76.6 0.0 30 4 26 32 Anadolu Jet Turkey 7.7 44.7 28 27 25 Allegiant Air USA 7.2 3.6 11,471 9.4 8.8 87.5 0.5 70 28 33 FlyDubai UAE 6.8 38.1 34 101 29 26 Skymark Airlines Japan 6.7 -0.1 68.0 -1.3 33 14 30 29 Transavia Airlines Netherlands 6.5 11.4 12,254 8.9 7.4 83.5 1.2 36 2 31 27 Virgin America USA 6.3 1.8 15,791 -1.0 -2.2 80.2 1.0 53 40 32 30 Monarch Scheduled UK 6.1 13.1 12,989 12.6 14.8 86.0 -1.7 32 31 Air Arabia UAE 6.1 15.1 12,400 15.1 17.9 80.0 -2.0 32 19 34 37 Nok Air Thailand 5.9 41.6 3,567 45.3 45.7 84.0 -0.2 19 4 35 43 Citilink Indonesia 5.3 86.8 4,198 87.5 74.8 77.0 5.3 25 56 36 35 Tigerair Singapore 5.1 15.4 9,326 16.3 25.5 78.1 -6.2 26 10 Tiger Singapore only 36 36 GoAir India 5.1 22.0 4,902 23.5 23.2 75.8 0.2 19 73 DGCA 38 39 Jeju Air South Korea 4.6 19.9 15 7 39 34 PAL Express Philippines 4.5 -3.4 20
  13. 13. flightglobal.com/airlines | Airline Business | 37June 2014 TOP 75 LOW-COST CARRIERS BY PASSENGER NUMBER: 2013 Rank Carrier Country Passengers Traffic Capacity Load factors Fleet Source 2013 2012 (m) Change% RPK Change% change% Percent Change Current Orders 40 40 VivaAerobus Mexico 3.8 3.9 21 52 41 41 Jetstar Asia Singapore 3.6 9.7 5,897 -8.6 -8.0 79.0 -0.5 17 42 42 Flynas Saudi Arabia 3.5 22.3 4,591 9.8 8.9 70.4 0.6 24 27 43 66 Vietjet Air Vietnam 3.4 307.4 11 64 Launched Dec 11 44 38 JetKonnect India 3.3 -14.5 2,862 -16.3 -13.8 72.7 -2.2 23 DGCA 44 45 Air Busan South Korea 3.3 21.3 12 44 46 West Air (China)Est China 3.3 22.6 13 AB estimate 47 47 AirAsia X Malaysia 3.2 22.5 15,857 16.6 19.0 82.1 -1.7 16 47 47 50 Iberia Express Spain 3.2 46.5 22, 86.8 12.3 15 ICAO, launched May 12 49 51 Tigerair Australia Australia 3.1 48.4 3,615 46.2 36.8 87.3 5.6 13 6 50 44 KululaEst South Africa 3.0 7.1 11 AB estimate 51 49 Jin Air South Korea 2.8 18.3 11 51 61 PeachEst Japan 2.8 117.1 12 5 AB estimate 53 48 Air India ExpressEst India 2.3 -4.2 18 AB estimate 54 55 T'way South Korea 2.2 18.3 7 54 75 AirAsia Philippines Philippines 2.2 615.2 2,425 617.5 551.9 67.5 6.2 1 3 Inc Asia Zest (May-Dec 13) 56 52 Air OneEst Italy 2.1 5.0 9 AB estimate 56 69 Tigerair Mandala Indonesia 2.1 199.3 2,913 232.5 202.7 76.0 6.8 9 Mandala relaunch Apr 12 58 56 FireFly Malaysia 2.0 17.6 14 8 59 54 Jetstar Pacific Airlines Vietnam 1.9 1.3 1,856 3.3 2.8 90.9 0.4 7 59 57 Sun Country Airlines USA 1.9 14.9 4,009 16.0 14.6 71.2 0.9 17 2 US DOT 61 53 Air Do Japan 1.8 -8.3 1,641 -7.2 -3.5 70.7 -2.8 13 61 58 Mango South Africa 1.8 14.1 1,979 17.5 10.5 82.6 5.0 9 61 70 VivaColombia Colombia 1.8 229.2 838 229.0 5 Launched May 12 64 62 Star Flyer Japan 1.7 46.3 1,553 42.9 43.1 65.7 -0.1 10 1 65 64 Jetstar Japan Japan 1.6 54.0 1,516 27.9 41.9 72.1 -7.9 18 4 Dec 12 v Jun 13 year-end 66 74 Tigerair Philippines Philippines 1.4 265.0 1,323 236.6 170.5 78.9 15.5 4 67 60 Solaseed AirEst Japan 1.4 6.7 13 AB estimate 68 59 Blue AirEst Romania 1.3 -6.3 8 AB estimate 69 63 Jazeera Airways Kuwait 1.1 1.0 8 1 70 65 Blu-ExpressEst Italy 1.0 0.0 5 AB estimate 70 72 ScootEst Singapore 1.0 100.0 6 20 AB estimate 72 67 Sverigeflyg Sweden 0.8 9.7 72.0 -1.0 72 68 Smartwings Czech Republic 0.8 11.1 4 AB estimate 72 71 Wizz Air Ukraine Ukraine 0.8 43.7 1,250 36.9 39.9 85.0 -0.2 3 AB estimate (partial) 75 73 Mihin Lanka Sri Lanka 0.5 26.2 1,486 28.4 28.7 74.9 -0.2 3 4 ICAO TOTALS 801.4m 9.9 3,572 3,544 NOTES: Southwest Airlines 2012 and 2013 includes AirTran; Solaseed formerly Skynet Asia Airways. Est Estimates based on historical, capacity and fleet data, and partial data where available, used for indicative purposes where published figures unavailable. Figures primarily for scheduled traffic and calendar year. SOURCE: Company replies/records; fleet data: Flightglobal’s Ascend Online database 2013 TOP 10: THE AMERICAS Rank Airline Pax (m) Change 1 Southwest Airlines 133.2 -0.6 2 Gol 36.3 -7.3 3 JetBlue Airways 30.5 5.2 4 WestJet 18.5 6.1 5 Azul 13.3 31.5 6 Spirit Airlines 12.4 19.1 7 Frontier Airlines 10.7 -0.3 8 Volaris 8.9 20.7 9 Interjet 8.4 15.9 10 Allegiant Air 7.2 3.6 2013 TOP 10: EUROPE Rank Airline Pax (m) Change 1 Ryanair 81.7 3.0 2 EasyJet 60.8 4.1 3 Norwegian 20.7 17.1 4 Vueling Airlines 17.2 16.3 5 Pegasus Airlines 16.8 23.9 6 Wizz Air 13.5 11.6 7 Germanwings 9.2 18.0 8 Anadolu Jet 7.7 44.7 9 Transavia Airlines 6.5 11.4 10 Monarch Scheduled 6.1 13.1 2013 TOP 10: ASIA-PACIFIC Rank Airline Pax (m) Change 1 Lion Air 34.1 10.4 2 AirAsia 21.9 11.0 3 IndiGo 19.2 21.7 4 Jetstar 16.8 9.0 5 Cebu Pacific Air 14.4 8.3 6 SpiceJet 12.8 16.0 7 Thai AirAsia 10.5 26.5 8 Spring Airlines 10.0 10.0 9 Indonesia AirAsia 7.9 34.3 10 Skymark Airlines 6.7 -0.1
  14. 14. flightglobal.com/airlines38 | Airline Business | LOW-COST CARRIERS OVERVIEW DATA COMPILED BY SILVA ISHAK FLIGHTGLOBAL DATA RESEARCH TEAM June 2014 Profitability improved in the budget sector in 2013, jumping around 50% to nearly $6 billion among leading carriers 2013 FINANCIAL RESULTS FOR SELECTED LOW-COST CARRIERS Airline Country Revenue Change Operating Result Operating margin (%) Net result Period $m (%) 2013 2012 2013 2012 2013 2012 end Southwest Airlines USA 17,699 3.6 1278.0 623.0 7.2 3.6 754.0 421.0 Dec 13 Ryanair Ireland 6,763 7.5 884.3 924.9 13.1 14.7 702.0 733.1 Mar 14 EasyJet UK 6,644 8.9 775.5 524.1 11.7 8.6 621.1 403.7 Sep 13 JetBlue Airways USA 5,441 9.2 428.0 376.0 7.9 7.5 168.0 128.0 Dec 13 Gol Brazil 4,107 -0.7 122.0 -462.2 3.0 -11.2 -332.3 -772.1 Dec 13 WestJet Canada 3,539 3.1 386.1 376.1 10.9 11.0 259.7 242.6 Dec 13 Jetstar Australia 3,353 5.0 140.7 210.6 4.2 6.6 Jun 13 Group revenues Norwegian Norway 2,634 18.5 163.9 69.7 6.2 3.1 53.9 78.9 Dec 13 Azul Est Brazil 2,400 14.0 -40.6 -1.9 -195.9 Dec 13 AB estimate Vueling Airlines Spain 1,876 31.9 182.1 46.4 9.7 3.3 36.6 Dec 13 IndiGo India 1,736 45.9 182.3 13.0 10.5 1.1 144.4 26.6 Mar 13 AirAsia Malaysia 1,685 2.2 321.8 334.0 19.1 20.3 114.7 256.8 Dec 13 Spirit Airlines USA 1,654 25.5 282.3 174.0 17.1 13.2 176.9 108.5 Dec 13 Lion Air Est Indonesia 1,600 23.1 Dec 13 AB estimate Pegasus Airlines Turkey 1,481 18.6 131.5 107.6 8.9 8.6 45.8 70.5 Dec 13 Virgin America USA 1,425 6.9 80.9 -31.7 5.7 -2.4 10.1 -145.4 Dec 13 Wizz Air Hungary 1,392 19.0 332.0 157.0 112.4 34.1 Mar 14 Frontier Airlines USA 1,349 -5.9 51.4 29.4 3.8 2.1 77.0 4.7 Dec 13 US DOT Germanwings Est Germany 1,250 21.1 Dec 13 AB estimate Spring Airlines China 1,075 12.9 70.4 49.1 6.5 5.2 119.2 99.1 Dec 13 SpiceJet India 1,058 -0.7 -142.4 -16.2 -13.5 -1.5 -164.8 -35.1 Mar 14 Volaris Mexico 1,011 13.6 24.6 28.8 2.4 3.2 20.6 15.5 Dec 13 FlyDubai UAE 1,007 33.2 60.7 41.4 Dec 13 Allegiant Air USA 996 9.6 154.7 132.3 15.5 14.6 91.8 78.4 Dec 13 Cebu Pacific Air Philippines 962 6.8 56.7 63.2 5.9 7.0 12.0 84.9 Dec 13 Interjet Mexico 900 14.2 78.9 10.0 38.1 Dec 13 Air Arabia UAE 867 12.5 93.5 89.1 10.8 11.6 118.5 115.7 Dec 13 Skymark Airlines Japan 856 -17.1 -24.9 56.1 -2.9 5.4 -18.4 45.4 Mar 14 Thai AirAsia Thailand 773 21.5 73.6 65.0 9.5 10.2 63.5 58.3 Dec 13 AirAsia X Malaysia 733 14.2 11.2 15.9 1.5 2.5 -27.4 11.0 Dec 13 Anadolu Jet Est Turkey 600 33.3 Dec 13 AB estimate Tigerair Singapore 582 -16.6 -41.3 5.9 -7.1 0.8 -176.8 -36.6 Mar 14 Group revenues Lucky Air China 567 8.2 16.7 44.0 Dec 13 Indonesia AirAsia Indonesia 554 17.9 -11.9 41.8 -2.1 8.9 -35.4 20.4 Dec 13 Sun Country Airlines USA 410 13.6 3.2 15.9 0.8 4.4 2.4 14.8 Dec 13 Jeju Air South Korea 394 13.9 3.5 Dec 13 Solaseed Air Japan 368 -0.6 23.4 8.3 6.3 2.2 13.2 6.8 Mar 13 Nok Air Thailand 367 38.0 35.6 16.8 9.7 6.3 34.5 16.3 Dec 13 Star Flyer Japan 334 10.6 -30.8 0.4 -9.2 0.1 -30.8 3.5 Mar 14 Citilink Indonesia 273 -60.2 -31.5 -22.1 -43.2 -48.5 -28.4 Dec 13 Jin Air South Korea 259 17.2 6.5 12.9 2.5 5.8 8.7 Dec 13 Air Busan South Korea 254 4.7 1.9 Dec 13 Jazeera Airways Kuwait 231 3.1 72.6 66.1 31.4 29.5 58.7 49.8 Dec 13 Mango South Africa 162 4.3 2.7 4.6 Mar 13 T'way South Korea 152 3.7 Dec 13 LOW-COST CARRIER FINANCIALS FREE SPECIAL REPORTS Flightglobal Insight produces FREE special reports covering various aerospace topics with market analysis, technical information and graphics. Find out more and download our reports at
  15. 15. flightglobal.com/airlines June 2014 | Airline Business | 39 Ryanair’s BBB+ score from S&P and Fitch puts it in good stead for a €500m bond issue LOW-COST CARRIERS FINANCE RATINGS BOOST REPORT LAURA MUELLER LONDON Financiers are never slow to knock on Ryanair’s door when it needs aircraft funding RexFeatures Ryanair’s growth in passenger numbers, projected by S&P 2-3%  I t was only a matter of time before Ryanair, which has built its airline empire on low costs, would make a move for the capital markets to access some of the cheapest funding going these days. In March, Standard & Poor’s granted the car- rier a “BBB+” rating, which is three notches above junk, making it “the highest-rated airline in the world”, says Howard Millar, Ryanair’s finance chief. Fitch followed with a similar rat- ing in mid-May, describing Ryanair’s capacity to meet financial commitments as “solid”. Better ratings will allow the budget carrier to “achieve lower cost financing”, ensuring the carrier has “the lowest costs and the low- est fares in Europe”, Millar indicates. Supporting the investment grade rating is the carrier’s return on capital, which has aver- aged roughly 13% during the past six years, S&P notes in its rating analysis. Ryanair’s passenger numbers – which S&P believes will grow 2-3% this year and 1-2% in 2015 based on the carrier’s “increasing route offering and improving economic conditions” – also figure in the rating analysis. The carrier’s “operating efficiency”, which is driven by a “keen focus on costs”, is another key ingredient supporting the BBB+ rating, says S&P. This allows the carrier to operate at “significantly lower cost per passenger and cost per available seat-mile than its peers”. CUSTOMER RATINGS However, one aspect that did not go unno- ticed was Ryanair’s “reputation of less- friendly customer service”. S&P says this could “slow down passenger volume growth”, especially during good eco- nomic conditions when people are willing to spend more money on flights. The ratings agency acknowledges Ryanair is “taking meas- ures” to become a more customer-friendly ser- vice. “We will continue to monitor how this will affect demand in the near future.” While a corporate rating makes perfect sense for Ryanair, as it opens new doors in the world of financing, it was by no means an essential move. As Europe’s largest carrier by passenger numbers, and a ferocious buyer of new aircraft, backed by a solid balance sheet, Ryanair, unlike many carriers, can call the shots in the aviation finance market. When word gets out that Ryanair needs funding, financiers and the US Export- Import Bank come running with offers of support, even before the ink on a formal funding request can dry. The opposite is true for many of Ryanair’s competitors – which find themselves, cap in hand, at the mercy of the banks and the export credit agencies, willing to accept whatever financing is dealt. Ryanair issued a $194 million Ex-Im- backed pre-funded bond in September 2012, smashing all previous records with the lowest spread for such a financing at that time. The bond priced at mid-swaps plus 65 basis points for a coupon of 1.741%. The transaction was “over three times oversub- scribed”, says Citi, which along with BNP Paribas acted as bookrunners on the deal. No doubt Ryanair could have happily car- ried on issuing similar financings, and possi- bly at even cheaper pricing in today’s ultra- competitive finance markets, but the carrier is looking to move into another space altogether. Market sources suggest Ryanair is eager to tap the bond market without the help of an export credit agency – a move that is made easier with the help of a credit rating. BOND ISSUE Ryanair is looking at a €500 million ($680 mil- lion)bondissueinearlysummer,beforeitstarts taking delivery of 175 new Boeing 737-800s in September. The additional rating from Fitch now clears the way for the airline to raise capi- talinthismanner. Thentreasurer,JimDempsey,saidinJanuary that Ryanair was looking at the enhanced equipment trust certificate (EETC) market to fund aircraft. He said the carrier was “toying” with the idea, but noted a problem with these financingsisthattheyareUS-dollardependent. “Our business is based in euros… so we would like to see the development of a euro- based EETC, or a local currency-based EETC, to eliminate the currency risk,” he said. Dempsey acknowledged the carrier is inter- ested in pursuing the capital markets “in the next couple of years” to take advantage of the “favourable” interest-rate environment. However, with an interest rate hike on the cards,thecarrier,withitsfirmfocusoncostcut- ting, undoubtedly knew it was wise to get the ratingunderitsbeltsoonerratherthanlater.■
  16. 16. flightglobal.com/airlines40 | Airline Business | LOW-COST CARRIERS AIRCRAFT MARKETS June 2014 ANALYSIS BY FLIGHTGLOBAL INSIGHT LOW-FAREINVENTORIES Using Flightglobal’s Ascend Online database, we break out the sector’s fleet and orderbook by category and region, and examine the competitive landscape in the engine market where Pratt & Whitney is moving in on CFM’s domination Total Fleet: 3,301 Fleet SOURCE: Flightglobal Insight analysis using Ascend Online database (April 2014) LOW-COST CARRIER A320/737 SHARE A320neo 737NG A320ceo 1,507 1,582 212 577 1,533 743 533 737 Classic 737 Max Total Backlog: 3,386 Backlog LOW-COST CARRIER FLEET BREAKDOWN BY AIRCRAFT CATEGORY Fleet SOURCE: Flightglobal Insight analysis using Ascend Online database (April 2014) 0 200 400 600 800 1,000 1,200 1,400 AfricaMiddle EastLatin AmericaEuropeAsia-PacificNorth America 1,248 1,036 991 349 100 38 Mainline Total: 3,489 Total Fleet: 3,762 Turboprop Total: 101 Regional Jet Total: 172 LOW-COST CARRIER A320/737 FLEET BREAKDOWN Fleet SOURCE: Flightglobal Insight analysis using Ascend Online database (April 2014) 0 200 400 600 800 1,000 1,200 AfricaMiddle EastLatin AmericaAsia-PacificEuropeNorth America A320ceo Total: 1,507 Total Fleet: 3,301 737 Classic Total: 212 737NG Total: 1,582 1,059 949 916 249 97 31 LOW-COST CARRIER A320/737 ORDER BACKLOG Backlog SOURCE: Flightglobal Insight analysis using Ascend Online database (April 2014) 0 200 400 600 800 1,000 1,200 1,400 1,600 Middle EastLatin AmericaNorth AmericaEuropeAsia-Pacific A320ceo Total: 577 A320neo Total: 1,533 Total Backlog: 3,386 737 Max Total: 743 737NG Total: 533 1,479 783 742 240 142
  17. 17. flightglobal.com/airlines | Airline Business | 41 Norwegian June 2014 LOW-COST CARRIER A320/737 ENGINE MANUFACTURER MARKET SHARE Total Fleet: 3,301 International Aero Engines CFM International 2,693 605 Fleet SOURCE: Flightglobal Insight analysis using Ascend Online database (April 2014) Pratt & Whitney Undisclosed Total Backlog: 3,386 2,102 493 207 584 Backlog 3 LOW-COST CARRIER A320 ENGINE MANUFACTURER MARKET SHARE Fleet Total Fleet: 1,507 SOURCE: Flightglobal Insight analysis using Ascend Online database (April 2014) 902 605 Total Backlog: 2,110 826 207 493 584 Backlog International Aero Engines CFM International Pratt & Whitney Undisclosed NORTH AMERICA TOP DOG IN FLEET RANKING Analysis by Flightglobal Insight shows that the global fleet of low-cost airlines comprises over 3,760 aircraft. North America’s carriers account for a third, with 1,248 aircraft in service. Although Asia-Pacific trails in the current fleet stakes, with 1,036 aircraft, it is geared for the strongest growth. Its airlines have almost 1,500 orders, which represents 44% of the total backlog of 3,386 aircraft. The Airbus A320 and Boeing 737 families account for the bulk of the low-cost fleet and CFM International dominates the engine market with an 82% share. However, its share of the backlog is smaller, at 62%. Flightglobal has adjusted the airline criteria this year to reflect the changing landscape in the low-cost arena. The most significant change is the exclusion of Air Berlin, which causes a reduction in European data compared with earlier surveys.
  18. 18. Flightglobal Insight Quadrant House, The Quadrant, Sutton, Surrey, SM2 5AS, UK Tel: +44 20 8652 8724 Email: insight@flightglobal.com Web: www.flightglobal.com/insight

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