Mueller to move on: Spirit flying high; worries for Arik Air

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By admin April 19, 2016 17:23

Mueller to move on: Spirit flying high; worries for Arik Air

Malaysia Airlines chief executive officer and managing director Christoph Mueller is to leave his executive position in September 2016. Khazanah Nasional Bhd, which is the sole shareholder of the airline, confirmed today that it was informed by the MAB board of directors about Mueller’s intention to leave.

“While we would have wanted Mueller to continue as planned, we also respect and ultimately agree to his decision to leave ahead of the end of his three-year contract, due to a change in his personal circumstances,” read a statement issued today by Khazanah. Mueller can be proud of what he has achieved in Malaysia. MAB, the umbrella under which Malaysian Airline System Bhd operations are held, including assets and liabilities has already posted a monthly profit this year and is on course for full year profitability by 2018.

Meanwhile in Nigeria, the aviation fuel shortage is becoming acute with only two days of fuel remaining at Lagos. Since last week, Nigerian domestic airlines have faced severe aviation fuel shortages for scheduled flights after Total, a major supplier, imported two ships of aviation fuel but was directed to wait until the ships with petrol were discharged. Thus major airfields will run dry before new supplies reach them as things stand. Non domestic carriers such as British Airways have been taking on additional fuel at Heathrow and even Malta to avoid problems. The end result for passengers is additional weight limits on luggage imposed so aircraft can carry additional fuel without running a loss on the route.

As domestic airlines start to truck fuel around Nigeria to keep services running, there is a potential risk coming to the fore in that fuel being carried by lorry is being let to settle for the minimum two hour period only before aircraft refueling in some cases and this is running a fine line between safe and unsafe conduct.

In all this Arik Air is caught between passengers blaming it for late departures and cancellations and zero assistance from authorities. Arik has been prioritizing international flights over domestic ones of late to prevent any loss of market share to foreign carriers – a wise move. But how long can Arik continue in this way before it has to start purchasing fuel in London and Johannesburg at terrific exchange rate losses?

Nigerian authorities have around 30 hours to get the fuel carriers into port and unloaded before domestic operations grind to a halt in parts of the country. Keep an eye on this story as if nothing is done the cost to Arik Air will be great. The airline is already having significant troubles with its unions and this latest disruption to services might result in the airline needing to suspend profitable routes – something it can ill afford.

In the USA, Spirit Airlines reports that it has increased its operating-margin guidance to 21.5%, from a range of 19% to 20.5%. Spirit said total revenue per available seat mile fell about 14%, which was better than expected. Last week, Spirit reported March traffic increased 25.1% as load factor rose to 88.5% from 88.1% a year earlier, and yesterday Spirit said its average ticket revenue per passenger segment declined sequentially in the first quarter.

The low oil price environment has damaged the ultra-low-cost carrier (ULCC) in the USA that is for sure. The legacy carriers – if we can call them that anymore – have been able to cut fares and fight the ULCCs toe to toe on many key routes but Spirit is thus far weathering this onslaught well. As Saudi Arabia and Iran quibble over oil production, the price will stay low and one has to wonder if all the ULCCs in the USA have the same following that Spirit enjoys that will allow them to continue growing. We must also consider if the current environment is toxic for any ULCC IPO in the USA. It certainly seems so. In after-hours trading, Spirit shares rose 1.9% to $51.

Finally in today’s little round-up, it is welcome news that LATAM Airlines Group and Interjet have reached a codeshare agreement, allowing passengers from LAN Airlines, LAN Peru and TAM to access greater and better connections between Mexico and South America through Interjet. This new codeshare reinforces the connectivity that LATAM Airlines Group provides within Mexico. In this section last week, we commented on the Latin American market and the need for LATAM and others to connect more to the stronger Mexican and US markets – this codeshare should assist both airlines greatly. It is yet another signal, if any were needed, of how LATAM is very quick to adjust to conditions.

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By admin April 19, 2016 17:23