Issue No. 829
Nascent Recovery Ushers In Era of Change
Airlines Begin to Emerge From the Crisis to New Competition and Remade Markets
Pushing Back: Inside the Issue
Welcome back! The airline industry is making its usual summer-to-fall transition in a very changed world. Leisure travel demand soared in many regions during the summer, as the pent-up demand all airline leaders predicted burst forth with people taking their summer holidays. But now in the Northern Hemisphere, schools are reopening and people are going back to work.
But not necessarily back to their offices, and that is proving to be a puzzle the airlines have yet to work out. On the one hand, some airline leaders believe corporate travel, which usually ramps up from September-November, will be like in years past, although not quite at 2019 levels. Others are more cautious, saying the booking curve remains too short to predict accurately what the trends will be. Complicating all of this is the fact that travel restrictions continue to change as countries react to new variants of the virus, and planners of trade shows and conferences still are weighing whether to hold in-person, virtual, or hybrid events for the fall.
So it is in this landscape that several airlines are re-emerging. Avianca, still in Chapter 11 bankruptcy protection, is changing up its route network to offer more point-to-point flights that bypass its hubs as it faces increased competition from budget airlines. Norwegian Air, fresh out of restructuring, is plotting a much smaller, more Nordic future, going up against SAS, a new startup, and European budget airlines. South African Airways ends its 18-month hiatus and insolvency with six routes. Meanwhile, long-ailing Philippine Airlines is just starting that journey and filed last Friday for Chapter 11 bankruptcy protection in New York. And Canada's Porter plans to launch its first flights since March 2020 just as Air Canada announces it is returning to Porter's Billy Bishop Airport base.
We trust all of you had a restful summer. Hold tight. It could be an eventful autumn.
The Airline Weekly Lounge Podcast
This week on the 'Lounge, Edward Russell and Madhu Unnikrishnan head to South Africa, where South African Airways recently testified before a parliamentary committee as it exits bankruptcy and restarts flights after an 18-month hiatus. The two also discuss why Aeroflot's domestic market is hot, Norwegian's first earnings report in a year, and why so many new entrants are trying to crack the low-cost longhaul market after so many have failed. For a full archive of the podcast, go here. A new episode drops every week.
A greatly shrunken South African Airways is prepping to restart flights later in September after an 18-month pandemic hiatus. The relaunch comes as the South African government nears a potential deal with a private consortium to come on as an equity partner in the long-ailing national carrier.
The airline will relaunch with just six routes — Johannesburg to Cape Town, as well as to Accra, Harare, Kinshasa, Lusaka and Maputo — on September 23, SAA Interim CEO Thomas Kgokolo told the South African parliament’s Committee on Public Enterprises on September 1. SAA suspended flights on March 27, 2020 when the first Covid-19 pandemic lockdowns began. The six routes represented nearly 15 percent of its capacity in 2019, according to Cirium schedule data.
During SAA’s suspension, the carrier worked through the South African equivalent of bankruptcy restructuring known as “business rescue.” In that process, the airline shed more than 3,500 staff and will relaunch with a workforce of fewer than 1,000 people. SAA reworked its aircraft agreements with lessors and will operate a limited fleet of Airbus A320 and A330 jets under power-by-the-hour agreements, in which the carrier pays only for the time aircraft fly. And SAA also received 10.5 billion rand ($729 million) in state aid that it used, among other things, to pay down debt, for employee severance packages, and to maintain liquidity during its suspension. It remains to be seen process also shed its history of political meddling and poor management.
“We are very excited about the restart,” said Kgokolo. In his presentation, he outlined how the aim of the restructuring was to build a “viable and sustainable national carrier” — something SAA has not been for many years. The relaunch gives the airline the opportunity to test the market and see what routes work with the six markets selected for their higher load factors and yields.
But SAA relaunches into a changed market. South Africans have faced three national lockdowns since the pandemic began that brought domestic air travel nearly to a halt in April and May 2020. Since then, data from the country’s largest airports operator — Airports Company South Africa, whose assets include the Cape Town and Johannesburg airports — shows passenger traffic only recovered to 46 percent of 2019 levels during the first seven months of the year. And that limited recovery occurred with SAA suspended.
And foreign carriers have looked elsewhere for domestic partners. In August, Emirates unveiled a new partnership with CemAir. And Qatar Airways executives have said they are looking for additional partners in Southern Africa. Both Emirates and Qatar offer multiple flights into South Africa.
In his presentation, Kgokolo acknowledged that more work on SAA’s long-term viability is needed. For one, its Mango subsidiary entered business rescue at the end of July despite flying a reduced schedule through the pandemic. Its restructuring is in its “early stages” with the first meetings between the business rescue practitioner and both staff and creditors held on August 18, he said. The budget carrier has received 100 million rand from the 10.5 billion rand allocated to SAA to pay staff and creditors with additional funds expected.
SAA leadership plans to rejig both its fleet and route map as part of building a sustainable airline long term, said Kgokolo. This will include a “fleet reconfiguration” that, although he did not say it specifically, could include the introduction of new aircraft types that better match post-pandemic travel demand. In addition, management is looking closely at the airline’s route map that has long focused on a hub-and-spoke operation centered on Johannesburg.
Part of that long-term plan is the introduction of a strategic partner at the behest of the government. The Takatso Consortium, which includes Johannesburg-based Global Airways — owner of South African budget startup Lift Airlines — and private equity firm Harith General Partners, has completed its due diligence of a potential acquisition of a 51 percent stake in the airline and found “no material issues,” as Kgokolo put it. He did not provide any additional details of the process that is being managed by South Africa’s Department of Public Enterprises.
Aeroflot Touts Leading Global Domestic Traffic in Q2 Results
The recovery dynamism at Aeroflot continued in the second quarter. The Russian carrier and its subsidiaries, Pobeda and Rossiya, carried nearly 13 percent more domestic passenger traffic on a 17 percent increase in capacity during the period compared to two years ago. That put it ahead of the Chinese Big 3 and the major U.S. carriers in traffic recovery from the Covid-19 crisis, or as Deputy CEO for Commerce and Finance Andrey Chikhanchin put it: “We are a world champion in the global domestic recovery.” Much of that recovery was for travel to Russian regional airports and those with holiday appeal, including Kaliningrad, Murmansk and Sochi.
The domestic recovery was led in a big way by Aeroflot’s budget subsidiary Pobeda. Passenger numbers at the low-cost carrier were up 40 percent in the first half of 2021 compared to 2019. This growth was in part driven by the opening of a new Moscow Sheremetyevo base with 17 routes and 10 Boeing 737 aircraft earlier in 2021. What’s more, Pobeda turned a 2.5 billion rubles ($341 million) net profit in the second quarter. Neither Aeroflot nor Rossiya, the group’s regional and mid-market airline, saw passenger numbers grow in the first half compared to two years ago.
Overall, the group posted a 2.6 billion-ruble loss in the second quarter. This was a dramatic 98 percent improvement over the same period a year ago. Group revenues were down 31 percent year-over-two-years to 120 billion rubles during the June quarter. The biggest hit — as at every global carrier — came from the loss of international traffic that was down 77 percent year-over-two-years.
For the third quarter, Aeroflot executives expect capacity and yields to recover further from their second quarter levels. However, they did not provide details of the anticipated recovery.
The group took delivery of 13 aircraft — five Airbus A320neos, two Airbus A321neos, five Airbus A350s, and one Boeing 777 — and retired 11 aircraft — nine A320s and two Airbus A330s — during the first half of 2021. It plans to take delivery of one A320neo, one A321neo, two A350s, two 777s and 15 Sukhoi Superjet SSJ100s, while retiring two A319s, seven A320s and three A330s in the second half.
SAS Takes Wait-and-See Approach for Post-Pandemic Passenger Mix
As with most other carriers worldwide, SAS saw leisure demand rise rapidly during the summer quarter, with passenger traffic increasing 144 percent from the previous quarter. But the autumn, typically when corporate demand starts to fill the void left after summer vacationers return to school and work, is looking less rosy.
“There are question marks about the recovery speed,” new CEO Anko van der Werff said in his first earnings call after taking the helm six weeks ago. “The signals are mixed.” September through the end of November usually are strong business-travel months for the Scandinavian carrier, but van der Werff warned that booking windows remain shorter than before the pandemic, offering no clarity for how the fall will play out. It also remains unclear whether the mix of passengers — leisure and business — will be permanently different than before.
One factor clouding the prognosis is when offices will reopen in Scandinavia and throughout Europe. Businesses in Denmark have recalled workers to their offices, but Sweden and Norway lag, van der Werff said. “No one has given us a straight answer.”
And of course, travel restrictions are changing by the day as Europe reacts to the Delta variant. The European Union last week recommended that its member states re-impose restrictions on unvaccinated U.S. travelers. Van der Werff said the carrier is seeing some business demand return, but it is not yet matching leisure demand. “We are not out of the woods yet,” he said.
To illustrate the confusion of travel restrictions, van der Werff noted that he still has not visited the airline’s operations in Norway, because his U.S. vaccination documents are not recognized in that country. “This shows what the industry is up against,” he said.
But some signs are encouraging. Capacity is up 148 percent from the previous year. Load factors of 52 percent were 23 percent better than the previous quarter. Unit revenues declined 22 percent year-over-year, mainly due to the network, which has been primariliy domestic during the pandemic. Van der Werff said although the carrier is adding back flights to North America, its Asia network remains sluggish due to continued travel restrictions.
SAS has changed its orderbook as well in response to the pandemic. The carrier’s Airbus A350s now will arrive in 2024. But it continues with its plan to phase out its Boeing 737 fleet, with five exiting the fleet in the most recent quarter. The 737s are expected to leave the fleet by early next year. SAS is taking delivery of two Airbus A321LRs this year, 13 A320neos this year with 12 more to follow next year. In 2024, the carrier will take delivery of six more A320neos as well as two A350s, and four more A320neos will arrive in 2025, Chief Financial Officer Magnus Ornberg said.
Van der Werff waved off concerns about a reconstituted Norwegian Air focusing more intently on the Nordics. His focus is on SAS, he reiterated. “We have to become profitable.”
SAS reported a loss of SEK1.4 billion ($1.4 billion) in its fiscal third quarter, on revenues of SEK4 billion. Although passenger revenue declined 62 percent from the year prior, cargo revenue grew by SEK134 million.
A Much Smaller Norwegian Air Lives to Fly Another Day
Norwegian Air ended the first half of this year a leaner airline — much leaner, as it ended its longhaul ambitions and reduced its workforce by 6,000 employees. Almost one-quarter of the airline’s remaining 3,000 employees remain furloughed, though CEO Geir Karlsen believes they will be recalled by the end of October.
Norwegian Air endured quite a bit of tumult during the first half of this year, prompting questions of its very survival. In January, the carrier announced it would scuttle its longhaul routes, ending almost a decade of rampant expansion to North America, Asia, and Argentina. It shed its fleet of Boeing 787s (many of which are now being acquired by startup Norse Atlantic, which aims to take Norwegian’s longhaul mantle). After ousting founder Bjorn Kjos last year, the carrier’s board in June also booted CEO Jacob Schram, who led the airline’s through its bankruptcy proceedings, naming Karlsen, who had been chief financial officer, to the top job. And in May, Norwegian exited restructuring.
It’s a much smaller carrier than it was. The airline now has a fleet of 51 Boeing 737-800s, many of which remain parked. It started the year with 10 in operation, which rose to 40 by the end of August. Karlsen expects to have the entire fleet back in service by the end of this year. During the half and while in bankruptcy, Norwegian negotiated “power-by-the-hour” deals with its lessors, giving the airline more flexibility in how it utilizes aircraft. This will allow it to scale back during the winter slump without incurring aircraft ownership costs. But these deals also will allow Norwegian to scale up capacity quickly and at lower cost as demand returns. Lessors have agreed to power-by-the-hour deals through the end of the first quarter of next year. By then, Karlsen said, Norwegian should be well on the road to recovery and will not need the flexibility.
The carrier is making a break with its past practice and will be more aggressive in managing capacity during the winter slump, Karlsen said. “We are losing way too much money in the low season,” he said. “We will park aircraft during the winter,” he said, adding, “We are not good enough compared with the best in class,” in efficiently managing utilization during the low season.
Norwegian also plans to add more capacity next year through fleet growth. Karlsen expects the carrier to add between 10-20 aircraft by the end of next year, although he did not define a precise number nor did he identify what kind of aircraft the carrier may seek. The carrier is in active discussions with lessors for new lift, and Karlsen noted the leasing market is “heating up.” Norwegian does not currently have any aircraft on order, after having cancelled as many as 185 orders during its restructuring. It is in contentious negotiations with Boeing for financial compensation due to the Max grounding and the cancellation of Norwegian’s remaining orders. Norwegian had 18 Maxes in its fleet before the March 2019 grounding.
But, despite the tumult, Norwegian predicts the rest of the year and the first half of 2022 will be a period of recovery. The booking curve is lengthening, but remains shorter than it was before the pandemic. Demand started to recover in June and strengthened through August. September bookings are “still not enough, but it’s very good,” Karlsen said. Fares also are rising. “We are seeing very good signs,” Karlsen said. “They are still not good enough, but definitely moving in the right direction.” Credit card holdbacks remain problematic, but Karlsen expects this situation to return to normal by early next year.
Norwegian ended the first half of the year with NOK7.5 billion ($863 million) in cash, with the bulk of its debt “taken out” during the restructuring process, Karlsen said. “We have created a company with the right fleet, the right balance sheet, and the right debt.” One item of value the carrier highlighted is its slots at London Gatwick, which it hopes to keep and expects to rise in value as the pandemic recedes, Karlsen said.
Norwegian reported a pre-tax profit of NOK1.5 billion, compared with a NOK4.8 billion pre-tax loss in the first half of last year. Capacity was down by 94 percent compared with last year, as the carrier ceased longhaul flying. Revenues at the much smaller Norwegian were NOK591 million, down 92 percent from last year’s NOK7.1 billion. Unit revenues, however, were up by 22 percent, Karlsen said.
U.S. Airlines May Have Already Seen Worst of the Delta Variant
Several major U.S. airlines have reported worse-than-expected August performance amid the surge in Covid-19 cases caused by the Delta variant across the country. But the bite of the latest surge may prove short-lived as case numbers in early hotspots have already peaked and Americans try to cram in one last summer trip this September.
“While the Delta-variant has caused August to underperform expectations and the anticipated step function improvement in business travel likely to be delayed, encouragingly, the demand impact has not been as big as prior Covid waves,” wrote Raymond James Analyst Savanthi Syth in a report on August 29.
Citing restaurant data, Syth noted that where the surge has peaked consumers are “quickly returning to ‘normal,’” where normal is pre-surge levels.
And, in a report on August 26 citing similar Covid-19 case trends, Cowen Analyst Helane Becker said the trend “could drive a demand rebound as travelers look to squeeze in a vacation before the end of summer.”
A last-minute bump in September leisure travel could be one reason why American Airlines declined to revise its guidance for the rest of the year after missing revenue its forecast in August. Speaking on August 25, American Chief Revenue Officer Vasu Raja reiterated that the recovery is and will be “very choppy” but added that, despite the slowdown, “there will still be a recovery.”
This is not to say airlines will avoid a fall slowdown. Historically, capacity decreases after Labor Day as leisure demand drops with kids returning to school. Business travel typically picks up some of that slack but not enough to avoid schedule reductions; however, it is unclear when this will occur due to later-than-expected return to office plans at many large companies. In 2019, domestic capacity decreased 10 percent from August to September, according to Cirium schedule data.
This nexus of historic trends and the Delta variant all come at the same time. Barring Becker’s possible last minute leisure travel surge scenario, airlines were already pruning their schedules for the seasonal slowdown. Cirium data show capacity dropping 8.6 percent from August to September in published schedules this week, slightly more than the 8.2 percent drop in schedules last week.
Southwest Airlines cited operational challenges as the main driver in its decision to cut more than 5,000 flights from its schedule this fall. However, the cuts simply reduce the amount of capacity growth the carrier planned this fall with its schedule still back to 2019 levels, Syth wrote in a report on August 27. Southwest has added 18 new destinations to its map, and greatly expanded its Hawaii flying, in a drive to capture new travelers and expand its domestic share coming out of the crisis.
Frontier Airlines and Spirit Airlines have also revised down their growth plans for the fall due to the surge in Covid-19 cases. However, the latter was also battered by severe operational issues due to staffing issues in early August. The combined fallout of the variant and its operational distress put the kibosh on Spirit’s expectations of a third-quarter profit.
More U.S. carriers, including giants Delta Air Lines and United Airlines, are expected to provide updated fall guidance — including just how much the variant hit the broader industry — after Labor Day.
Chinese Big 3 Lose $2.6 Billion in First Half
Air China, China Eastern and China Southern posted 17.1 billion yuan ($2.6 billion) in combined losses during the first half of 2021. While touted repeatedly as one of the first domestic markets to recover from the Covid-19 crisis, the “sporadic spread and local clusters” of the virus — as China Eastern put it — hit results at all three airlines.
Air China reported a nearly 7.7 billion yuan loss, the largest among the three carriers. Revenues fell 40.6 percent to nearly 40 billion yuan during the six month period compared to 2019. Traffic at the Beijing-based carrier was down 49 percent year-over-two-years, though domestic traffic decreased just 11 percent. System capacity was down 42 percent and domestic capacity 3 percent.
China Eastern lost 5.4 billion yuan, second highest of the three airlines. Revenues decreased 39 percent to 37.7 billion yuan in the first half versus 2019. System traffic at the Shanghai-based carrier was down 44 percent on a 35 percent drop in capacity, while domestic traffic was down 14 percent on flat capacity.
China Southern posted the best results of the lot with an only nearly 4 billion yuan loss during the first half. Revenues at the Guangzhou-based carrier decreased 29 percent to 51.6 billion yuan year-over-two-years. System traffic was down 39 percent on a 31 percent drop in capacity, while domestic traffic was down 12 percent on a 3 percent drop in capacity.
One highlight of the period for China Southern was the growth of its hub at Beijing Daxing airport, which opened in September 2019. By the end of June, the airline was operating more than 400 flights a day from the airport to 40 domestic destinations. It plans to open a second international hub at Daxing to complement its Guangzhou gateway once China eases border restrictions.
In Other News
- Long-ailing Philippine Airlines finally succumbed. The carrier filed for Chapter 11 bankruptcy protection in New York late last week, just as the U.S. began a three-day holiday weekend. Details will emerge, but PAL is expected to seek to reduce its fleet and its debt load. PAL downsized early in the pandemic, and reduced its fleet by more than 30%. But it wasn’t enough to stem its losses. The carrier said it expects to file for reorganization in its home country as well. PAL’s troubles aren’t new: The carrier has lost money consistently for several years.
- Icelandic startup Fly Play unsurprisingly lost money during the first half of 2021, a period during which it only flew three days. The airline posted a $1.8 million net loss on revenues of $43,409. But it was an “excellent” start according to CEO Birgir Jónsson, one of the many former Wow Air executives leading Play. The airline boosted its cash reserves to $65 million today from $42 million at the end of June after its IPO in early July. And load factors inched up to more than 46 percent in August from nearly 42 percent in July — albeit still far short of achieving the 90 percent-plus load factors most ultra low-cost carriers need to succeed. Play has applied for a foreign air carrier permit to begin flights to the U.S. East Coast next spring, and signed leases for five Airbus A320neos plus one A321neo for delivery through end-2022. How could the airline not succeed copying the strategy of Wow Air that failed so spectacularly in 2019?
- Following the European Union’s decision to remove the U.S. from its “safe” countries lists, KLM threw some shade at the Netherlands’ new mandatory 10-day quarantine for arrivees, even those with their jabs. After saying Covid-19 health and safety was “paramount,” it said restrictions need to be “effective and proportionate.” “Other EU member states, such as Italy, France and Belgium are not putting a triple lock on the door for travelers from the U.S.,” KLM said. As a result of the new restrictions, the airline has suspended plans to resume flights to Las Vegas, Miami and Orlando this winter.
- Delta, the variant and not the airline, has taken a bite out of Alaska Airlines‘ third quarter. The carrier has lowered its revenue forecast by up to two percentage points to down 19-21 percent compared to 2019, and expects half the cash flow from operations — flat to $50 million — than it did six weeks ago. All of this is the result of a, to paraphrase, “moderate deterioration” of bookings since Covid-19 case counts rose due to the variant. The good news is that pre-tax margins — a proxy for pre-tax profitability — are still forecast as positive.
- July traffic worldwide was down 53 percent from 2019, but that’s an improvement over July, when traffic was down 60 percent from 2019, IATA reports. The sharp divide between international and domestic travel continued, despite easing travel restrictions. In July, international traffic was down 74 percent compared with 2019, while domestic demand was down 16 percent. The most startling exception was Russia, where domestic traffic exceeded 2019 by 29 percent. Cargo, of course, is a starkly different story. Freight demand was 9 percent higher than the same month in 2019, even as capacity fell by 10 percent from the same month. Cargo is expected to remain a force, as business confidence indices are rising and the inventory-to-sales ratio remains low as the peak holiday retail season approaches, IATA said.
- Vistara, the TATA Group-Singapore Airlines joint venture in India, won its final approval to operate to the U.S. from the Transportation Department. The order is effective immediately. Vistara previously had said it planned to start flights in September, but given travel restrictions in place in both the U.S. and India, it is unlikely to begin flights this month. Local news reports in India say the airline could launch its U.S. service in December.
Eastern Airlines is making a bet — a very big bet — that the seemingly insatiable demand for package freight is here to stay and will only grow. The Wayne, Pa.-based airline’s bet is to the tune of 35 Boeing 777 passenger-to-freighter conversions, expected to join its fleet in the next few weeks.
The carrier has taken delivery of 10 of the 35 aircraft and expects the next 25 to be delivered in the next 8-12 weeks, CEO Steve Harfst told Airline Weekly. The passenger 777s will be converted in-house at Eastern’s wholly owned maintenance facility, FMS, based at the Kansas City International Airport. Each conversion is expected to take about two weeks.
Harfst declined to disclose the terms of the deal, but said Eastern bought the aircraft directly from airlines downsizing the widebodies from their fleets. Values for used 777s vary, and the widebody’s value has taken a hit as airlines retire their larger aircraft in response to the Covid-19 pandemic. But even at the low end, if Eastern paid less than $10 million per aircraft — a price Delta Air Lines is reported to have paid for a used 777 in 2016 — its deal would be worth $350 million or, more likely, even more.
Harfst said the deal has been fully financed by the privately held company’s investors but declined to elaborate.
Eastern is putting its chips squarely on package freight. “We wanted to get into the market quickly,” Harfst said. “There’s a huge imbalance right now between supply and demand.” The carrier is not making any structural changes to the airframe nor will it cut cargo doors into the aircraft — which explains why the conversion process takes only two weeks. Because of this, Eastern’s 777 freighters cannot carry heavy cargo, like cars, but will accommodate a package payload of 80,000-103,000 pounds on the main deck and 122,000-166,000 on the lower deck, according to the company’s website for prospective cargo customers. Range varies, with the -200s capable of 5,165 miles full payload, the -200ERs with a range of 7,665 miles, and the -300s, 6,000 miles. Eastern may decide to cut cargo doors later if demand for larger cargo warrants it. “These aircraft can do short range and long range with a lot of volume,” Harfst said.
When the pandemic struck, belly-hold cargo capacity plummeted as airlines grounded international flights. Airlines rushed to fill the void by temporarily converting passenger aircraft to carry cargo, and about 2,500 of these “preighters” continue to operate worldwide. But as travelers return, airlines are reconverting preighters back to passenger operations. Eastern’s approach is more permanent: The airline is stripping out the seats, lavatories, galleys, overhead bins — any passenger amenity — but keeping the airframe’s structure intact. “We aim to take a slice of that preighter market,” Harfst said.
In fact, four of the 35 aircraft — two -200ERs and two -300s — will remain in passenger configuration and are expected to join the fleet later this year. Eastern now operates scheduled and charter passenger flights with a fleet of 10 Boeing 767s. Eastern operates primarily low-frequency visiting friends and relatives (VFR) markets from New York and Miami to South America, but the range of the 777s opens up new VFR markets beyond South America, although Harfst said the carrier has not disclosed plans on future destinations.
The cargo aircraft are expected to start joining the fleet in the first quarter of next year, pending regulatory approval. Eastern plans to operate 8-10 of the aircraft by the end of 2022 and expects to add up to 10 additional freighters to its active fleet each subsequent year, depending on demand, until all 35 are in service.
IATA reports that cargo demand in July, the latest month for which it has data, was up 9 percent from July 2019. Meanwhile, cargo capacity is down 10 percent, due to the shortage of belly-hold capacity. Any airline that has freighters is pressing them to their fullest possible capacity and utilization, a Qatar Airways executive told Airline Weekly earlier this year.
As the world’s economy recovers from the pandemic, demand for air freight is expected to grow even faster, IATA predicts. Maritime shipping’s travails — including backed-up ports on both sides of the Pacific and shortages of shipping containers — only will fuel air cargo’s near-term growth. And the trend toward e-commerce, which saw explosive growth during the pandemic, is only expected to stay, further boosting air freight’s prospects.
Harfst is optimistic that demand will only grow. The carrier is in talks with freight forwarders and retailers, but Harfst did not disclose who the first customers will be. “There’s a fundamental shift in the cargo market,” He said. “Belly-hold cargo is not coming back tomorrow, and even when it returns to pre-pandemic levels, cargo demand is expected to grow,” he said. “The market reaction has been very positive.”
This market has proved irresistible to airlines as the pandemic scythed through passenger demand. Regional carrier Mesa Air Group last year added its first three mainline aircraft, Boeing 737-400s, to carry cargo for DHL. Sun Country flies Boeing 737-800Fs for Amazon and recently increased that fleet to 13 aircraft. WestJet expects its first 737-800Fs to join its fleet next year, and Air Canada is converting some of its 767-300ERs into freighters. Cargo has provided a vital source of revenue during the pandemic, and some, like Korean Air, have been profitable throughout the crisis on the strength of freight.
Harst acknowledged that the market has become crowded, but stressed that demand far outstrips supply. And unlike the carriers that have added 737Fs, Eastern’s 777 freighters are capable of flying both shorthaul and transcontinental routes. “Our 777s can carry three times as much freight as a 737 freighter,” and are capable of flying between the U.S. and Asia, he said. “This gives us a unique capability.”
- Malaysia, one of the last remaining holdouts on re-certifying the Boeing 737 Max, last week lifted its ban on the type. The country’s civil aviation regulator said it had accepted the FAA’s recommendations on fixes to the Max’s flight control software and will allow the type to fly in its airspace after operators make the modifications. Malaysian Airlines has 25 of the type on order. Malaysia grounded the Max in March 2019.
- Airbus stole a march on its archrival when all-Boeing operator Jet2.com ordered 36 A321neos. The aircraft will be configured with 232 seats, and an announcement on engine selection is expected soon, the airframer said. “Traditionally having been operating non fly-by-wire aircraft, we note with great satisfaction that after having tested a couple of leased A321s and run a comprehensive evaluation, Jet2.com is forward looking and investing in modern and future proof Airbus fly-by-wire technology,” said Christian Scherer, Airbus chief commercial officer. The U.K.-based discounter currently operates 34 Boeing 737-800s.
- Speaking of orders and deliveries, Ryanair and Boeing said they ended negotiations after the two sides couldn’t agree on pricing for 737-10 the Irish discounter had planned to order. Ryanair CEO Michael O’Leary said even without the order, the carrier has enough aircraft in the pipeline to fuel its planned growth for the next five years. “Boeing have a more optimistic outlook on aircraft pricing than we do, and we have a disciplined track record of not paying high prices for aircraft,” O’Leary said. He couldn’t help adding a swipe at the airframer by saying, We do not share Boeing’s optimistic pricing outlook, although this may explain why in recent weeks other large Boeing customers such as Delta and Jet2, have been placing new orders with Airbus, rather than Boeing.” No word on if Ryanair planned to call its -10s “Gamechangers.”
- Emirates is expected to take the last three of its 118 Airbus A380s in November. The deliveries mark the end of the line for the double-deck superjumbo.
- Canada’s Porter Airlines is completing a cabin refresh ahead of its planned September 8 relaunch. Its 29 de Havilland Dash 8-400s now feature Expliseat TiSeat E2 seat, which the carrier said are 50 percent lighter than the seats they replaced and will reduce aircraft weight by 1,000 pounds. And because they’re slimmer, Porter said legroom will increase, as the carrier is keeping its 78-seat configuration. Porter also refreshed carpeting, lavs, and switched to LED lighting on its Dash-8s. Porter suspended flights on March 21, 2020 in response to the Covid-19 pandemic and has delayed its restart several times. The carrier recently announced an order for up to 80 Embraer E195-E2s, its first jet aircraft. No word yet whether Porter’s famed raccoon spokescritter, Mr. Porter, also will get a few new stylish outfits to match the cabin refresh.
Avianca sees the proliferation of discount carriers as its main competitive threat as it emerges from its Covid-19 pandemic induced restructuring. And for good reason, JetSmart, Viva Aerobus, Viva Air Colombia and Volaris have all used the crisis to expand deeper into Avianca’s territory from Colombia to Costa Rica and El Salvador.
In the reorganization plan Bogotá-based Avianca filed with a U.S. Chapter 11 bankruptcy court in August, the airline said competition from low-cost carriers has “compelled [it] to further adapt its business model” to meet the growing threat. One way it is doing this is adding seats on its narrowbody jets where Airbus A320s will have up to roughly 186 seats — the same number as on many of its budget rivals.
Avianca also is hitting back against the new competition by diversifying its route map. The airline is adding a slew of point-to-point routes that offer nonstop options to travelers that bypass its Bogotá — long the center of Avianca’s hub-and-spoke operation — and San Salvador hubs. Most recently, Avianca unveiled plans to connect Cali and Medellin with Buenos Aires, as well as Bogotá with Cordoba, Argentina, with either Airbus A319s or A320neos, in a request to Colombian authorities. The new routes would quadruple the size of its network to Argentina where it only flies Bogotá-Buenos Aires today.
And earlier in August, Avianca unveiled plans for 22 new international routes that largely bypass its hubs. Bucaramanga, Cali and Medellin, Colombia; Guayaquil and Quito, Ecuador; and San José, Costa Rica, will all see new service to points in the Caribbean, northern Latin America and the U.S.
Point-to-point service has long been the hallmark of ultra low-cost carriers. The airlines fly to meet demand and not through a set hub. For example, while in Chile JetSmart offers many routes to Santiago, it also offers the most nonstops — five to Latam Airlines’ two — from the coastal college town of Concepcion in September, according to Cirium schedule data. And closer to home for Avianca, El Salvadoran authorities recently signed off on Volaris’ new local subsidiary that will fly nonstop routes from the country — likely from San Salvador — to places other than Mexico. Volaris management has indicated that new service to the U.S. is likely.
“Avianca expects to build on its core strengths, including its … brand recognition [and] its market leadership position in the vibrant Latin American airline market … in order to emerge from these Chapter 11 cases as an elite competitor for years to come,” the airline said in its reorganization plan. These are assets that will undoubtedly benefit it as it goes up against the raft of new budget competitors.
- The Lufthansa Group is expanding its presence in Kiev. Budget arm Eurowings has begun flights connecting the Ukrainian capital with Dusseldorf. The group now flies up to 70 times a week to Kiev to its hubs in Austria, Germany and Switzerland.
- Italy’s new national carrier Italia Transporto Aereo (ITA) has outlined its service plans for the U.S. following its October 15 launch. Initially, the carrier that replaces Alitalia will serve Boston, Miami and New York JFK from Rome Fiumicino; as well as JFK from Milan Malpensa, according to its application for a foreign air carrier permit with the U.S. DOT. ITA plans to add service to Los Angeles and Washington Dulles from Rome in 2022; and Chicago O’Hare and San Francisco from Rome in 2023. ITA will initially fly former Alitalia Airbus A330s on its U.S. routes.
- Amid continued questions over the future status of Latam Airlines Brasil, the carrier is adding new service between São Luís and Teresina in northeastern Brazil. The carrier will go up against its main domestic rivals Azul and Gol, the former also being an unwanted suitor in parent Latam Airlines Group‘s U.S. Chapter 11 restructuring.
- Touting the European traffic recovery, Ryanair will add 14 new routes from London this October. The discounter will connect Gatwick to Malaga; Luton to Fuerteventura, Gran Canaria, Grenoble, Naples, Shannon and Turin; and Stansted to Helsinki, Oragea (Romania), Stockholm, Tampere, Trapani, Treviso and Zagreb.
But it’s not all growth for Ryanair. The additions come less than a week after the carrier disclosed that it will end all service to Northern Ireland by October. This includes ending service to Belfast City that resumed in June after an 11-year hiatus. Ryanair blamed the UK’s air passenger duty for the move but many in the industry have also cited the intense competition with EasyJet in the market.
- And the European discount war is on: Wizz Air is also on the move strengthening its presence in North Macedonia. The airline will connect Ohrid with Friedrichshafen, Germany, and the capital Skopje with Billund, Bologna and Turin from December. Wizz, like Ryanair, has double digit growth plans for the recovery.
- WestJet will return to Scotland next spring. The Canadian carrier will add new routes connecting Toronto and Glasgow from May 20, and Toronto and Edinburgh from June 2. The additions will complement WestJet’s seasonal Halifax-Glasgow route that is also due to resume next spring after three-year hiatus. WestJet has previously flown Boeing 737 aircraft on routes to Scotland.