Leeham News and Analysis
There's more to real news than a news release.
United: the road back
By Bjorn Fehrm
Introduction
February 1, 2017, ©. Leeham Co: A headline from one year ago read: “UNITED’S QUEST TO BE LESS AWFUL: A bungled merger. A corruption scandal. Three CEOs in a year. But hey, at least the snacks are free again.” (Bloomberg 14 January 2016).
“Things have changed, but not everything is fixed yet,” said Gary Laderman, United’s SVP Finance, Procurement and Treasurer, at the Airline Economics Growth Frontiers conference in Dublin last week.
Figure 1. United’s new Boeing 777-300ER. Source: Chris Edwards/Woodys Aeroimages.
Laderman then candidly went through the history, the fixes and why there is more to come. Read more
SkyWest MRJ90 commitment unchanged
Jan. 24, 2017, © Leeham Co.: SkyWest Airlines, which stunned the aviation community in 2010 with an agreement to order 100 Mitsubishi MRJ90s and options for 100 more, is sticking with the airplane so far in the wake of another delay.
The Japanese company Monday announced a new delay of two more years, making a total of seven. Entry-into-service with launch customer ANA is now slated for 2020. Before this announcement, SkyWest was slated to receive its first airplane in 2019.
“Our conditional firm orders of the MRJ aircraft remain unchanged, and are dependent on flying contracts and scope availability,” a spokeswoman said in an email to LNC.
Mitsubishi lists the SkyWest order as firm on its web site.
A380, from flagship to LCC mass transport
By Bjorn Fehrm
January 23, 2017, ©. Leeham Co: The Airbus A380 was introduced as the flagship aircraft for an airline’s fleet. Legacy carriers with a large long-haul network introduced the aircraft on the routes with the most traffic in the network. After an initial rush of inductions, only Emirates continued to buy the aircraft in larger numbers. The aircraft had become too large for the airlines which sought frequency over capacity at their hub airports.
Airbus and its leasing partner, Amedeo, are convinced the aircraft will have a second spring when airport congestion has grown in the next decade. Until then, both are seeking the market niches that will keep production at minimum one aircraft per month.
We sat with Amedeo’s CEO, Mark Lapidus, at the Air Finance Journal conference in Dublin to find out what market will require a new or used A380. Lapidus has spent the last two years in meetings with the world’s major airlines, discussing all aspects of operating an A380. He presented some surprises.
Pontifications: Airbus, Boeing single-aisle production rates solid
By Scott Hamilton
Jan. 23, 2017, © Leeham Co.: The global economy is softening and airlines are deferring airplanes, but we don’t see Airbus or Boeing trimming aircraft production for their single-aisle airplanes.
Over-sales and rising fuel prices support today’s A320 and 737 production rates and the increased rates previously announced by Airbus and Boeing.
While oil prices are low compared with the pre-Great Recession levels, Embraer’s John Slattery noted that fuel costs went up more than 48% last year alone. Fuel now costs more than $50/bbl. West Texas Intermediate Crude was selling at $51.08 Thursday, off $1.40. There will be ups and downs, but the trend is up.
Slattery, the president of Embraer Commercial airplanes, believes “fuel efficient fleets will become more critical in the coming years,” he wrote in a Tweet Jan. 7.
Filling the Middle Of the Market gap
By Bjorn Fehrm
January 17, 2017, ©. Leeham Co: Airbus and Boeing had completely different views about the product strategy for the “Middle of the Market” sector (MOM), both for today and the future.
Officials presented their views on how to fill the “Middle of the Market gap” at the Air Finance Journal conference in Dublin.
The Airbus view is: “We got it all covered”.
Boeing’s view is: “Not so fast, there is more to it than meets the eye.” Read more
The aircraft market will double in 20 years
By Bjorn Fehrm
January 17, 2017, ©. Leeham Co: The market for passenger aircraft will double over the next 20 years, says Angus Kelly, the CEO of the world’s largest aircraft lessor, AERCAP. He forecast this growth, which is in sync with those from Airbus and Boeing, in his keynote speech at the Airline Economics Growth Frontiers 2017 conference in Dublin.
Kelly linked the growth with the increase in Global air travel. He started by showing what happened in the air travel industry during 2016, Figure 1.
Figure 1. Air transport market 2016 key facts. Source: AERCAP. Click to enlarge.
Passenger travel grew with 5.6% and airlines were more profitable. Negative news was a slowing GDP in China and a widebody market that had a continued slowdown.
Read more
Fuel prices going forward
By Bjorn Fehrm
Source: Google images.
January 16, 2017, ©. Leeham Co: Oil has now doubled in price since the lowest point a year ago, with a present level of $50-$60/barrel. What is the trend going forward?
We are at the Growth Frontiers 2017 conference in Dublin, where Paul Horsnell, Head of Commodities research at Standard Chartered and Mike Corley, Mercatus Energy Adviser, gave their view on the future of oil prices.
The air transport market has seen a worldwide passenger and profitability growth over the last 12 months. The driving factors are increased appetite for air travel, especially in Asia, and cheap fuel.
Is Emirates in trouble?
Introduction
Jan. 12, 2017, © Leeham Co.: There are a growing number of articles around the Emirates airline that points to recent weaknesses in the airline’s operating model. Here are just two:
- “Is Emirates Airline running out of sky” asks Bloomberg?
- Is the Emirates Airline Growth Story at An End? writes Forbes.
We decided it was time for a deeper look at this locomotive from the Arab Emirates. Is Emirates in trouble? How solid is it?
We studied the economics for the last decade and took a deep look at the fleet needs, including, has Emirates committed to too many aircraft being delivered over the next several years?
They have just deferred Airbus A380’s for the first time. Used to be they could not get them fast enough?
Summary:
- Emirates has been profitable since start 1985.
- Its unprecedented growth in revenue and passengers has slowed down.
- The low fuel price has kept profits up for now, but yield and load factors are down.
- With a flexible fleet structure and a strong balance sheet Emirates has a strong position to weather any storm going forward.
2017, a tougher year for European airlines?
By Bjorn Fehrm
January 5, 2017, ©. Leeham Co: The last two years have seen increased profits for the airline industry. Lower priced fuel gave the industry time to breath and to finally earn a reasonable Return on Invested Capital (ROIC).
Earnings as a percent of revenue for the industry has been increasing from 5% on a worldwide basis in 2014 to around 10% for 2016, Figure 1.
Figure 1. Airline industry profits. Source; IATA presentation October 2016.
The US and European airlines have been topping the earnings with 18% on revenue for the third quarter of 2016. There are many signs this will not continue in 2017, especially for European airlines. Read more
Deferrals grow as airlines fight to keep bottom line
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Introduction
Jan. 09, 2017, © Leeham Co.: Airlines have deferred or are thinking about deferring more than 400 airplanes in the near term, a review of decisions and deliberations that have been made during the last 12 months.
LNC tracked announcements last year of deferrals and statements by airlines that they are thinking about doing so.
We began identifying macro-level issues last week in our posts about emerging concerns for the 787 and LNC’s Outlook for 2017.
Reasons vary widely for the deferrals, these reports indicated. Low oil prices. Slowing economies. Declining financial results. Worries about two of the three top Middle Eastern carriers. A capital squeeze in China. Pressure on long-haul carriers from the emerging sector of low cost, long-haul airlines. Preserving capital expenditures to keep the bottom line in the black.
Today we detail the deferrals we tracked.
Summary
Read more
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Posted on January 9, 2017 by Scott Hamilton
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