Issue No. 841

Special Video Edition: Skift Aviation Forum Highlights

Airline Leaders Are Bullish on The Recovery But Warn It Could Be Bumpy

Pushing Back: Inside The Issue

What did we hear from airline leaders at the second annual Skift Aviation Forum on November 17? We heard mainly cautious optimism, although some warned that the road to full recovery will be bumpy. In this special video edition, we're bringing you highlights from the conference, so you can see for yourselves. The entire agenda and on-demand sessions are available to Airline Weekly subscribers here.

But the news marches on. South African and Kenya Airways are planning a new pan-African partnership to create a regional behemoth, but will this be enough to save the two loss-making state-owned airlines? Ethiopian Airlines is not sitting still, nor is RwandAir. Delta Air Lines is keeping its Boeing 757 and 767 fleets until it gets more clarity from the airframers on a clean-sheet mid-market airplane. And AirAsia's transformation into a digital business that happens to run some airlines is almost complete.

The U.S. celebrates Thanksgiving on the fourth Thursday in November. The roads and skies were more crowded than any time since the pandemic began, as a population eager to see loved ones after two bleak years rushed to reconnect. To those of you who celebrated, we hope you had a safe and happy holiday. And in the spirt of gratitude that is the holiday's hallmark, we want to thank all our readers for following us for another crazy year in this industry we love.

Weekly Skies

Delta Air Lines has yet to make a full decision on the future of its middle-of-the-market fleet. The carrier will continue flying its Boeing 757s and 767s through the decade with a willingness to “flex” either types numbers up or down as warranted.

“It’s hard enough to say what we’ll be flying in January, let alone what we’ll be flying in 2027,” Delta President Glen Hauenstein said during a pilot webinar earlier in November viewed by Airline Weekly. “You don’t want to get yourself in a box where you’ve committed specifically” to flying or retiring those planes.

The Atlanta-based carrier’s lack of mid-market clarity comes amid similar opacity at the world’s major airframers. Airbus stands by its lineup of the A321neo, which seats between 180-220 passengers in a standard two-class layout and has two longer-range derivatives, the A321LR and A321XLR, on the low end, and the A330-800, seating 220-260 passengers on the high end.

Boeing, on the other hand, has no clear mid-market answer since all but cancelling its New Mid-Market Airplane (NMA) program early in 2021. Only the 737-10, seating 188-204 passengers, and the 787-8, seating 248 passengers, overlap with the segment. But while Boeing dithered, airlines — including Delta — embraced the A321neo as the de facto replacement for the 757. However, most carriers still view the A330-800 and 787-8 as “too much airplane” — or having more capabilities than needed — for the mid-market segment.

For its part, Airbus maintains that the A330-800 — a re-engined A330-200 — is the ideal 767 replacement. Executives have said they can lower the maximum takeoff weight, or MTOW, to improve economics for shorter missions that the 767 is ideal for — for example, transatlantic flights between the Eastern U.S. and Western Europe.

This vacuum leaves airlines like Delta with a conundrum: What to do with their aging 757s and 767s, the current mid-market types? In 2020, American Airlines made a definitive decision: Retire the planes early that spring. But Delta and United Airlines opted to hang on to some for the foreseeable future, citing a desire to reactivate them from pandemic storage if demand came back strong — something that has occurred — while awaiting more clarity on a replacement for the upper-end of the segment.

Hence, Hauenstein’s unwillingness to specify a plan for Delta’s 767s. The airline will fly all 21 of its 767-400ERs — a jet executives have described as a “very effective airplane for us in the network” — plus 45 767-300ERs in 2022; a small reduction from the 56 -300ERs it flew at the end of 2019. When the latter aircraft leaves the fleet is an open question but will be a function of demand, and the arrival of new A330-900s and A350s, said Hauenstein.

“The 767 is a fleet that over the next five, seven, eight years will have to be retired,” he said without providing a definitive date. “Followed by the 767-400, [and] followed by the 757.”

His comments are an about face for Delta on the 767. In September 2020, the airline said the 767-300ER would be retired by the end of 2025; a date that Hauenstein would no longer commit to. The timeline was considered more of a guideline to investors than a firm date when it was unveiled.

But both the 757 and 767 are good flex fleets for Delta to keep. The carrier owns most of the aircraft outright making them cheap lift to keep around and fly during peak periods, compared to newer jets that are debt financed or leased. And if demand does not meet expectations, Delta can easily retire the planes with little or no financial penalties.

Delta had commitments for 26 A330-900s and A350-900s each, plus 155 A321neos, at the end of September, its latest fleet plan shows. This includes the seven former Latam Airlines Group A350s that it leased from AerCap in July, and two additional aircraft it leased in September. The airline will begin taking delivery of a higher gross weight variant of the A350-900 that will allow it to operate nonstops to Johannesburg and Sydney without weight restrictions from around the end of 2022, said Hauenstein.

As for the 757s, Delta plans to continue flying roughly 50 -200s through at least 2027 — it operated 100 at the end of September — and its 16 -300s beyond that, the airline told pilots. It plans to introduce the A321neo in April, and use the jet to replace 757s on transcontinental routes from its Boston hub, said Hauenstein. He added that Delta could continue flying its youngest 757 until 2035, or 30 years after it was delivered in 2005.

“We are always listening to what’s going on,” Hauenstein told pilots in regards to a new Boeing model. “[Boeing is] working hard on what’s next. What we’ve heard from them is encouraging.”

He added that Delta wants to remain a “dual-source user of airplanes,” referring to models from two airframers. However, Hauenstein noted that this is more likely to occur on the narrowbody side of the ledger than the widebody side as the airline needs at least 40-50 aircraft to have a critical mass of any single type.

Delta CEO Ed Bastian told pilots in September that there was “certainly a place” for Boeing’s 737 Max in the airline’s fleet. At the time, Bastian indicated some surprise that Delta and Boeing had not yet reached a deal for the jet. The airline flew 209 737-800s and -900ERs at the end of September.

Edward Russell

Kenya Airways and SAA Launch Pan-African Partnership

Kenya Airways and South African Airways (SAA), two of Africa’s financially challenged state-owned carriers, have come together under a new strategic partnership to create the new “Pan African Airline Group” by 2023.

Under the pact, which was signed on November 23, the airlines will “work together to increase passenger traffic, cargo opportunities, and general trade.” In addition, they anticipate it will improve passenger connectivity and the “financial viability” of both carriers. The depth of the tie up, which is called a “strategic partnership” but referred to as the airlines “coming together and combining assets,” is unclear but resembles an immunized joint venture where they are able to coordinate on numerous commercial levels, including scheduling and pricing.

“With South African, we want to see how we can cover the African continent very effectively,” said Kenya Airways Group Managing Director and CEO Allan Kilavuka on the then-tentative partnership in October. “This is going to be, in my opinion, one of the most fundamental developments in African aviation for a long time to come.”

Kilavuka added that both Kenya Airways and SAA were open to other “joiners” — or other airlines — in their partnership.

But the question is whether two loss-making, state-owned airlines can come together to create an African powerhouse. Neither airline has turned a profit in about a decade, and both have taken tens of millions of dollars in government aid during and before the crisis. And in recent years, neither was known for being an innovative or stand out carrier in the market.

“They have deep in their DNA extreme professionalism and competence,” said Aviado Partners Managing Director Shakeel Adam. “Kenya Airways and South African Airways are two airlines that should survive, but they have to figure out how.”

In the past, both Kenya Airways and SAA were strong carriers, but poor management and other challenges have weakened both and allowed competitors, namely Ethiopian Airlines, to expand, he said. Adam called the partnership “very interesting,” but with the caveat being that few details of exactly what it entails have been disclosed.

A joint venture, as suggested by both airlines’ statements, could create significant commercial benefits if implemented well. However, Adam warned that Kenya Airways and SAA must make sure their basic agreements — including an interline and codeshare — are solid before embarking on a broader immunized pact.

“Being together and cooperating, we [can] consolidate the market,” said Kilavuka in October. He added that the pact will boost, among other things, growth, unit costs, efficiencies, and connectivity.

Kenya Airways and SAA face stiff competition in creating a pan-African network. Ethiopian — the continent’s largest carrier by far — has built a formidable African franchise at its Addis Ababa base, though it is unclear how its home country’s internal unrest will affect the airline’s recovery. And RwandAir, which benefits from a significant investment from Qatar Airways, has similar ambitions to turn its Kigali base into a major connecting point for African air traffic. Whether Kenya Airways’ Nairobi hub and SAA’s Johannesburg hub can be transformed into regional mega hubs remains to be seen.

In addition, neither Kenya Airways nor SAA made any mention of how the partnership could impact their alliance memberships with SkyTeam and Star, respectively. Historically, cross-alliance partnerships have been discouraged — if not outright barred — at both alliances.

Kenya Airways is scheduled to fly just 44 percent of its 2019 capacity in the fourth quarter, while SAA just 4 percent — it only resumed flights in September after an 18-month suspension — according to Cirium schedule data. For comparison, Ethiopian plans to fly 65 percent and RwandAir 57 percent of their 2019 capacity.

Edward Russell

AirAsia’s Digital Businesses Throw It a Life Preserver

AirAsia expects a V-shaped recovery for its airlines to begin soon, even as strict travel restrictions remain in much of the group’s home region. The group is encouraged by the gradual loosening of restrictions in Indonesia, Malaysia, the Philippines, and Thailand.

Still, capacity across all of its operating groups was just 11 percent of 2019 in the September quarter. This is expected to rise to about 60 percent in the fourth quarter, as restrictions begin to ease. The Philippines began loosening some of its pandemic rules in October, and travel has already begun to rebound. AirAsia expects similar surges at its other operating airlines as restrictions in their home countries relax. Bookings for the year-end holidays are strong, the company said in announcing its third-quarter financial results last week.

Load factors across the group were relatively strong, at around 75 percent, but on dramatically lower capacity than in 2019. By comparison, U.S. carriers are reporting load factors about as high on capacity only 10-20 points below pre-pandemic levels.

“As a group, we have taken advantage of the downtime in flying to tap new revenue streams and fully transform ourselves into an investment holding company with a portfolio of synergistic travel and lifestyle businesses,” AirAsia Group CEO Tony Fernades said. “In just over a year and a half, Asia Digital Engineering, AirAsia Superapp, Teleport, and BigPay have gained significant traction and established a strong presence in our key markets.”

In fact, AirAsia’s digital products generated 60 percent of the group’s revenues in the third quarter. The group had begun to build out its digital and lifestyle business before the pandemic, but its transformation into a digital logistics and lifestyle group accelerated during the lockdown. Earlier this year, the company added ridesharing to its roster of digital businesses, and has added more airlines to its booking portal, the AirAsia Superapp. The user base of its BigPay mobile banking business grew by 170 percent year-over-year, the company said. AirAsia’s Teleport cargo and e-commerce shipping subsidiary began operating its first dedicated Boeing 737-800 converted freighter this month.

Cost cutting remains the order of the day at the airlines, however. Employee costs were down 38 percent in the quarter, due to leaves of absence, attrition, and pay cuts. Excluding staff costs, AirAsia reduced other operating expenses by 11 percent compared with last year by keeping spending on IT, marketing, and other airline expenses down, the company said.

AirAsia has raised RM337 million ($80 million) in financing this year, can exercise an up to a RM500 million loan from Malaysian banks, and has access to further loans of up to $150 million. The company got a $100 million investment in its BigPay unit. AirAsia has restructured its aircraft leases with lessors and expects its lease rates to be lower on future leases. “While we continue to evaluate further funding, potential monetization and other corporate exercises, as for now we expect to have sufficient liquidity until year end and throughout 2022,” Fernandes said.

AirAsia Berhad reported third-quarter revenues of RM296 million, or 37 percent down from last year and 20 percent down from the second quarter. Airline revenues were down 70 percent from last year, to RM118 million. The Teleport cargo subsidiary tripled its revenues to RM157 million. The group reported a RM281 million loss for the quarter, which narrowed by 38 percent from last year.

Madhu Unnikrishnan

In Other News

  • Latam Airlines Group filed its reorganization plan with a U.S. bankruptcy court last week. According to the airline, the plan would allow it to exit bankruptcy with $2.67 billion in liquidity and $7.26 billion in debt, and includes an $800 million equity offering to existing shareholders upon confirmation. Latam’s three largest shareholders — Delta, Qatar Airways, and the Cueto family — back the plan, according to Bloomberg. The plan notes that Azul, which has expressed interest in taking over the group, sent a “non-binding and preliminary overview regarding certain terms relating to a potential transaction” to Latam on November 11.
  • American and JetBlue asked the U.S. District Court for the District of Massachusetts last week to dismiss the U.S. Justice Department’s suit against their Northeast Alliance. In their motion, they called the suit “defective,” and argued that the regulator has not shown actual harm to consumers from their partnership.
  • When Qantas said it would return to India after a nine-year hiatus, it wasn’t kidding. The airline has unveiled plans for a second nonstop to the subcontinent: Melbourne to Delhi four-times weekly from December 22. The route complements Qantas’ previously unveiled Sydney-Delhi route that begins December 6. The new Indian service will operate via Adelaide on the outbound leg, but nonstop to Melbourne on the return.
  • Ryanair is adding 15 new routes from the UK next summer. The discounter will connect Birmingham, Bournemouth, Liverpool, London Luton, London Stansted, and Manchester to 12 destinations around Europe, including Brussels Charleroi, Madeira, Vienna, and Zadar. Ryanair did not provide a start date for the routes but the IATA Summer 2022 schedule begins at the end of March. The additions complement a new base in Newcastle that will sport two Boeing 737s from March.
  • And Transavia France is adding another holiday route this winter: Paris Orly-Cairo flights begin on December 18. The route will operate weekly through the winter schedule, which ends in March.
  • Aegean Airlines swung to a €51 million ($58 million) profit in the September quarter, from a €28 million loss last year. The carrier attributed the healthy quarter to strong tourist traffic to and within Greece. This was Aegean’s first profitable quarter since the pandemic began, the carrier said.
  • French shipping conglomerate CMA CGM will expand the fleet of its new CMA CGM Air Cargo subsidiary with a memorandum of understanding for four Airbus A350Fs. The commitment is the second the European airframer has received for the A350F, which it launched with an order for seven aircraft from Air Lease Corp. at the Dubai Airshow earlier in November. CMA CHM Air Cargo also has commitments for five Airbus A330-200Fs and two Boeing 777Fs.
  • Air Canada agreed to pay $4.5 million to settle U.S. Transportation Department complaints that the carrier delayed refunds to passengers. The levy is the highest the department has assessed against any airline. In the settlement, Air Canada agreed to pay $2.5 million to passengers whose tickets were not refunded and $2 million to the U.S. Treasury.
  • Staying in Canada, Air Transat unveiled what it’s calling a “virtual interlining platform” that allows passengers to book through tickets on both EasyJet and Avianca. The Canadian carrier says the new platform essentially adds 135 new destinations to its route network and hopes more airlines join the system.

Edward Russell & Madhu Unnikrishnan

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Air Lease Corp. Executive Chairman Steven Udvar-Hazy on the Future of Aerospace

Air Lease Corp. Executive Chairman Steven Udvar-Hazy discusses Boeing’s delivery problems, whether Airbus can ramp up production, and why so many airlines are turning to operating leases. In his discussion with Editor Madhu Unnikrishnan, Udvar-Hazy pulled a few punches in his assessment of the industry, and he recounts how it has changed since he began selling operating leases out of the trunk of his ’56 Oldsmobile from a Santa Monica payphone.

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How Domestic Networks Are Adapting and Evolving

Three domestic U.S. network planners — United‘s Ankit Gupta, Southwest‘s Adam Decaire, and JetBlue’s Scott Laurence — discuss the challenges and opportunities of planning routes during a pandemic with Airlines Reporter Edward Russell.

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United Airlines CEO Scott Kirby on Competing on Quality

United Airlines CEO Scott Kirby says the carrier will compete with its rivals on quality. This is a bold claim, as he acknowledged, but one the airline is prepared to fulfill. Kirby discussed the new United and his love of network planning with Editor at Large Brian Sumers.

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