Airlines brands; Boeing mull a 737 revamp; important moves both in India and Mexico

Dino D'Amore
By Dino D'Amore April 22, 2016 18:09

Airlines brands; Boeing mull a 737 revamp; important moves both in India and Mexico

It is a big day for aviation news. A380 production is reportedly being lowered, there are record Q1 profits for most US majors but not United Airlines, which took at 38% fall in net income.

The Chicago-based carrier reported net income of $313m, or 88 cents per diluted share, down from $508m or $1.32 per diluted share, year on year. Poor Oscar Munoz, CEO of United, suffered a mauling on the earnings call where at one point he had to state: “Allow me a little more patience.” JP Morgan analyst Jamie Baker really did sum things up very nicely when he stated “Does mediocrity suffice?”

The bottom line is United does not know what it wants to be and this translates into brand image. Major airlines and airlines wishing to be market leaders must wake up and release that in this day and age everything depends on being a brand – not simply an airline. It’s no longer good enough to ferry passengers from A to B. Airlines need to become brands – household names – this is where Delta has done well and why Turkish Airlines (THY) has been able to sustain massive growth while increasing profits year on year. Emirates, Virgin, British Airways – these are all brands and household names. It is brand power that allowed Virgin America to be sold for a premium a few weeks ago. It was also the Virgin brand that carried the war to the mighty British Airways in the 1980s and it was not until Willie Walsh came along that BA’s branding and market message got back on track, which resulted in BA making a comeback to dominate the Atlantic routes.

United has lost its way with branding and market placement. It needs to decide which demographics should be targeted on core routes and begin to reach out to those people fast. This may in this case require a swift and well executed American Airlines-style rebrand before it is too late. As a foot note to this it is well worth taking the time to look again at how very well THY has done in its brand positioning and awareness quest over the past five years. It has been transformed from an average airline to challenging Emirates and other gulf carriers. That is no mean feat and is a lesson to all airline executives.

Meanwhile, there could be further good news in the pipeline for Delta Air Lines as a key committee in Mexico’s Senate yesterday ratified a deal modifying the 1960 trade agreement that will open up new routes for airlines to fly between the countries and allow for an unlimited number of flights. Mexico’s Senate must still ratify the agreement for it to take effect, but this is now a formality that will take place over the next week. In the event the ratification will remove the main hurdle to a closer tie-up between Delta and Aeromexico allowing them immunity from antitrust law so they can coordinate flight connection times and prices. This makes the purchase deal by Delta Air Lines of 49% of Aeromexico, which is due to close this summer, a real winner for shareholders. The deal is also significant for Alaskan Airlines as it, along with Virgin America, is now in a very good position to take advantage of this agreement between the US and Mexico. This news also has a knock-on effect as it should see other US airlines putting significant pressure on the likes of Volaris and Interjet during late 2016 and through 2017 and the impact on those Mexican low cost airlines could be significant.

In India, Scoot is poised to launch flights to Chennai and Amritsar from May 24, 2016 and to Jaipur on October 2. The SIA-owned long-haul LCC will now be able to start feeding SIA’s Singapore hub and taking the battle to Jet Airways, which with Etihad at the helm, has had a more or less clear run of international traffic growth over the past two years. Scoot will operate 335 seat 737-800s into Jaipur and Chennai and 375 seat 787-900s to Amritsar. Scoot plans to scale up services to Amritsar and Jaipur to four times a week from July 1 and October 28 respectively and double operations by 2017. If all goes well, we should expect Scoot to link-up with SIA’s part owned Indian domestic carrier Vistara. With 16 destinations, SIA is now the largest international airline group operating into India. SIA is now aligned with China as its number one destination and India its number two – logical thinking.

At the same time Jet Airways, SpiceJet, IndiGo and GoAir are urging the Indian government not to allow creation of overseas hubs by foreign carriers. That is a bit rich coming from Jet Airways, don’t you think?

The Indian market is returning to health as oil prices remain low and passengers carried by domestic airlines has registered a 24.03% growth during Q1 2016 year on year. Drilling down a bit we can see that Spice jet has the highest load factors of 92.3% for February 2016 falling to 91.1% for March, this is mainly because they have the lowest ticket prices. The lowest load factors are with Vistara which at 73.9% for March gives cause for concern. AirAsia has seen rapid improvements to settle at 85.5% for March which is about market average. Air Pegasus enjoyed 85.4% load factor in March 2016 but it had a massive 40.34% cancellation rate. Air Costa also had a very high cancellation rate of 18.28%, hence the regulatory involvement reported on of late.

Indian market March passenger load factor figures:
IndiGo: 85.1%
Air India: 75.7%
Jet Airways: 79.1%
JetLite: 77%
Spicejet: 91.1%
Go Air: 86.3%
Air Costa: 82.1%
AirAsia: 82.7%
Vistara: 74.7%
Air Pegasus: 76.6%
Trujet: 77.9%

Meanwhile in the manufacturing sector, as Airbus slows A380 production, Boeing is looking again at a larger 737 MAX 7 with more seats and extra range. One assumes this is to placate worries from Southwest and, dare I say it, Delta and United. Boeing has named the model under consideration the 737 MAX 7X. It would seat around 150 passengers from 126.

Dino D'Amore
By Dino D'Amore April 22, 2016 18:09