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Low Cost Airlines

This category contains 16 posts

SUMMARY: Canada’s WestJet Airlines, is planning to start a new ultra low cost carrier (ULCC) later this year with 10 x B737-800’s. This will be the first time that a low cost carrier (LCC) that re-positioned itself into a hybrid airline, goes back and starts a ULCC and goes after a market segment they abandoned years before. This is so badly needed in Canada where the top two airlines have a duopoly and control 85% of the domestic capacity, and till today there is NO real low cost carrier (LCC) in Canada, the only major developing country in the world not to have one. In fact, NO US based low cost carrier competes in the Canadian market (yet), and its why +5 million Canadian passengers drive across the US border every year to fly from US airports to save on air travel, by using lower cost US airlines. A ridiculous passenger spillage that no one seems to care about, while the only low cost airline right now coming into Canada is Iceland’s fast growing WOW Air with very low priced deals to Iceland and Europe. The ultra low cost model is growing and even now the US big 3 airlines (DL, UA and AA) are experimenting with their new “Basic Economy” pricing, no amenities, everything ‘extra’ approach, good idea or a dilution of their brands ?

So WestJet Airlines, once Canada’s LCC is starting all over again with another LCC airline of its own ? is this to counter the growing competion from Air Canada’s “LCC” rouge, and the new Canadian planned start-ups like Canada Jetlines, Fly Too (Enerjet with Indigo partners) and NewLeaf now that foreign ownership of a Canadian … Continue reading

SUMMARY: Bombardier finally sees that “aggressive” pricing for the CSeries is a must, as the “game changer” has no new order since September, 2014 and it is now perfectly clear to all that the fuel efficiency of the CSeries will be closely matched by Airbus, Boeing, Embraer, Comac and Irkut as they will all incorporate new generation fuel efficient engines in their new aircraft programs. This year, 2016, is the make it or break it year for Bombardier, all eyes are on sales, EIS (entry into service) and production ramp up, 12 months from now the future of the company will be clearer, one way or the other. The CSeries has now lost its main competitive advantage, its value proposition (most fuel efficient airliner) and like all the others it will have to seriously discount it’s price to win any new order, and it is not prepared or capable of waging a price war. A major price war is looming as the duopoly of Airbus and Boeing, will not only have to deal with Bombardier’s CS100/300 and Embraer’s E195-E2 at the low end, but head on competition from China’s Comac C919 and Russia’s Irkut MC-21narrow-body airliners as well within the next 5 years. It is going to get ugly for Bombardier, as surely it “hopes” that Airbus and Boeing will not continue with the slow selling A319neo or Boeing the Max7 programs (a segment that is NOT very big, and was overestimated by many), but the duopoly will stay in the segment, for if anything, just to make sure Bombardier does not get a foothold in the BIG league of commercial aircraft. A price war with the likes of Airbus, Boeing and the Chinese and Russian Governments spells disaster for Bombardier in the long run, it cannot sustain regular discounts of +40% and continue as a going concern, they just cannot compete on price at this level, where even today before the new entrants arrive, discounts of 50% from List Price are ‘common’ from Airbus and Boeing on large orders . The current United Airlines requirement for 30 new 100+ seat jets will be an example of what is to come, as United is a huge Boeing customer, with 310 x B737’s (700/800/900’s) in service today and another 100 B737Max9’s on order, there is NO way hell, Boeing will allow Bombardier to win over this customer, and the deal will probably go for $US 40+/- million per unit (50% off List Price) for the B737-700 as the NG line still needs to be filled before the MAX line takes over,. To win with United Airlines, Bombardier will be required to offer a huge discount on the $US 71.8 million CS100 and the $US 82.0 million CS300, that it would create a huge loss for the company, as it has no way of getting that loss back from its product line (unlike Airbus & Boeing that delivered 1,397 aircraft in 2015) yet a major North American order for the future success of the CSeries is a MUST if the program is to have a future. Bombardier unlike the duopoly, will have a low production rate of 10 units per month by 2020, not enough to spread its costs/losses, while the duopoly is planning on producing 122+ A320/B737’s per month by 2018, a greatly reducing unit costs, and they will fight to keep Bombardier out of it’s “turf”, especially after it announced it may go with the larger CS500 (165+ seat) jet down the road, a direct challenge to the A320/B737. Anyway, Airbus believes the CSeries will become an “orphan” aircraft, “a nice little plane”, that was probably forever doomed to be a poor seller, and Airbus should know, they were the first OEM Bombardier went to, in their attempt to sell the program last year ! All the indications are there that the market is not there, up-gauging of aircraft, low sales in the 100-150 segment by all to a lack of interest from lessors. Lastly, while the CSeries will have to deal with the duopoly, the $75 million a piece Global G7000 business jet will also have to deal with the duopoly if it plans on selling a lot, as the ACJ319/320 (Airbus Corporate Jets) and the BBJ (Boeing Business Jets) are in the same segment, a segment that has averaged only 16 units a year for the past 18 years, so the G7000 may sadly not be the “game changer” either.

I have been quiet for awhile on Bombardier, watching what will unfold, with a heavy heart, seems that the new year is not going to be much better than last year, when Bombardier’s stock (TSX:BBD.B) lost 60.9% of its value, ROI (return on investment) was -44.0% and market capitalization is down to $2.51 billion, cash … Continue reading

UPDATE: Canada’s first ULCC (ultra low cost carrier) is Winnipeg based NewLeaf, which will launch services to 7 Canadian destinations on February 12, 2016 with Boeing B737-400’s operated by Kelowna based Flair Airlines. It is not a perfect business model to start with, but given that Naked Jet/Enerjet and Canada Jetline have not been able to get their business plans executed for the past 2 years, it is better than nothing. In fact, this model was used to run Greyhound Air between July 1996 and September 1997, when Kelowna Flightcraft operated 7 x B727-200’s under its AOC for Greyhound Air, and Winnipeg was the hub, so it has been done before, but today the market landscape is different and it just may work. NewLeaf will offer fares as low as $99 one way but also will need to supplement it’s low fares with “non-ticket” revenue from baggage, seat selection, exit row, food and beverage fees, that today at US based ULCC’s make up around 45% of total revenue or 79% of the ticket price (i.e. Spirit Airlines), so expect that on average that $99 one way ticket will become on average a $+145 one way ticket when all is done and paid, still much lower than what Air Canada and WestJet charge today. Some people still think of WestJet Airlines as a low cost airline, but that story is long gone, as WestJet realized it did not have to be a low cost airline, just come close to Air Canada’s fares and the service would win over. Today Air Canada and WestJet Airlines have roughly the same passenger yields ($/RPM) at around $cents 0.192, both have the same average load factor of +/-81%, their PRASM (passenger revenue per available seat mile) are pretty much the same at $0.155, and Air Canada is reducing its units costs while WestJet’s keep going up. It is time for Canadians to have access to LOW airline fares, and have another choice over the duopoly that runs our airline industry, as we are the ONLY country in the developed world today without a low cost airline, and while Air Canada’s ‘rouge’ is a low cost subsidiary (mostly just due to higher seating density on its aircraft) it’s fares are the same as Air Canada’s, as its role is to make more money for Air Canada and not to reduce air fares to Canadians. It is estimated that 4.8 million Canadians fly each year from US airports that are close to our border (e.g. Buffalo, Detroit, Bellingham, etc.) to save on airfare ! This is the Canadian ULCC opportunity and challenge, to get some of those passengers back. With low frequencies and just 7 airports served, NewLeaf will not threaten Air Canada or WestJet but then 20 years ago WestJet started with 3 B737-200’s and 5 destinations and look at its evolution, every company has to start somewhere. Lastly, Iceland based ULCC operator WOW Air is coming to Canada in May, 2016 and is offering great deals to Iceland at $C 99 one way and $C 149 to Europe, it is about time Canadians had low cost options and let’s hope the low cost trend spreads fast and forces the duopoly to stop ‘milking’ Canadian air travelers !

Well, Canada finally has another low cost champion, as NewLeaf Travel Company Inc. (http://www.FlyNewLeaf.ca) announces it will begin operating Boeing B737-400 commercial flights to 7 Canadian cities for as little as $99 one way under the AOC of Flair Airlines of Kelowna, B.C. on Friday, February 12, 2016, only 1 week short of the 20th … Continue reading

SUMMARY: The good airline news out of Europe is that TAP Portugal is finally 61% privatized and in good hands for the future while the Irish Government gives the go ahead for IAG’s buyout of Aer Lingus. The bad news is that Lithuania’s small national airline, Air Lituanica becomes the 5th European airline this year to shutdown (27 in 2014), while Croatian Airlines and Adria Airways nervously wait for their privatization as it is “swim or sink” time for them and others like LOT, TAROM, Estonian Air, Czech Airlines, AirBaltic, etc. as they have all taken or will take their last “one time” EU allowed state aid packages, and from now on for most, if they run out of money, they have NO choice but to file for bankruptcy. The low cost carriers (LCC) in Europe continue to grow at a fast pace and challenge the existence of national carriers as incumbents cannot muster any significant competitive response against the LCC onslaught in Europe. Meanwhile, fully government owned AirBaltic of Latvia becomes the launch customer for Bombardier’s CS300 (20 on order, 13 + 7 options), the $US 1.44 billion aircraft cost and launch customer designation is not realistic from an airline based in Latvia that lost $US 220 million since 2010, bailed out by the Government in 2011 and has made only $US 11 million in net profit in the past 2 years on revenues of $US 688 million (a slim 1.6% net profit margin), it is a barely a financially viable carrier without the new and expensive CS300’s. The airline has 24 aircraft today (B737-300/500, Q400’s) making it the 36th largest airline in Europe (following ‘big’ names like Onur Air and Norwind Airlines ?) is this a joke ? Bombardier has NO “better” customer for the launch of the CS300 ? the quality of its current customer order book is sad indeed after Lufthansa and Korean. It reminds me of the Sukhoi SSJ-100 tragic launch customer Armavia (of Armenia), which was an absolute PR and marketing disaster, as it accepted the 1st aircraft, could not finance the 2nd aircraft, and then went bust. Anyway, the plight of the small/medium government owned and private airlines in Europe continues, what is their future ? or is there one ? Air Serbia pulls off an incredible corporate turnaround in 1 year under its “white knight” equity partnership with Etihad Airways, but other airlines may not be so lucky, time to look at new business models for survival before the wave of European bankruptcies begins as surely 50 European countries cannot all have a national airline !

The European airline industry is tough, unstable and very dynamic, the latest casualty is little known Air Lituanica of Lithuania, which is the 5th European airline victim in 2015 (not counting Russia), following Cyprus Airways, EuroLot (Poland), Tend Air (Romania) and Wizz Air Ukraine into the history books. The European airline industry is in trouble … Continue reading

SUMMARY: Canada’s charter airlines struggle, CanJet Airlines (owned by IMP) future in serious doubt while Air Transat limps along in its recovery, but Air Canada’s Rouge is growing and on its heels. Meanwhile the 3 ultra low cost airline candidates struggle to raise money, with Jet Naked (Enerjet) lost its 3 star ULCC (ultra low cost carrier) executives and now Enerjet is being sued by them for breach of contract. Meanwhile, NewLeaf Travel Co. Inc. ties up with Flair airlines to operate 2 x B737-400’s for it, IF and WHEN it raises sufficient start-up capital. Over in Vancouver, Canada Jetlines orders 5 and options another 16 Boeing B737Max7’s before it even has start-up financing in place ?? Interesting developments in this segment, and worth watching, as Canada needs a ultra low cost airline (ULCC) to offer low cost air travel to Canadians. Canada is the ONLY large country left without a LCC, and is controlled by a duopoly. Troubled CanJet Airlines has the potential to be a ULCC and save itself from doom, but right now it looks like no ULCC will start-up in Canada this year and CanJet will most likely be shut down, leaving NO low cost champion in Canada, and 34 million Canadians are prisoners to only 2 airlines domestically, a country that is only 2% smaller than all of Europe put together !

The first 4 months of 2015, have brought mixed results for some of Canada’s airlines. In big trouble is one of Canada’s leisure and ad hoc charter airlines, Halifax based CanJet Airlines, owned by IMP Group International, a diversified conglomerate owned by the Rowe family, that now employs 4,500 employees in 6 Divisions in Aerospace … Continue reading

ABSTRACT: Canada Jetline and Jet Naked are racing to be Canada’s first ULCC (ultra low cost carrier), both looking to start this summer but funding the initial $50 million start up costs is dragging on, yet Canada Jetline orders 5 x B737-Max7’s and purchase rights on 16 more but delivery is not till 2021 and start up will be with old B737-300’s, can one of them do the same that Westjet Airlines did 19 years ago when it WAS a low fare airline with 3 x B737-200’s ? and when Air Canada failed to crush it early on with its failed LCC ZIP, presently Air Canada is busy with its low cost but not low fare subsidiary Rouge, while Westjet is building up its regional network with Encore and its wide-body fleet with B767-300’s (???) for flights to Europe and Hawaii, current distractions at AC and WJ are good for the ULCC hopefuls, Canada needs a LCC as we live in the ONLY major country in the world without a locally based LCC we can turn to for low fares as the duopoly here (AC and WJ have yields of +/- 19 cents/RPM) and have NO incentive to lower theirs, it is why +4.9 million Canadians drive to US border airports to fly on US carriers every year !

Canada’s new ULLC (ultra low cost carrier), I prefer to use the term low fare airline (LFA), but anyway Canada Jetlines Ltd has signed an agreement with Boeing for 5 new B737-Max7 airliners for delivery in 2021, and has purchase rights for 16 more, while it is in the midst of raising $ C 50 … Continue reading

ABSTRACT: IAG (International Airline Group) acquires Ireland’s Aer Lingus and gains 23 valuable slots at Heathrow, while oneworld partner Qatar Airways buys 10% of IAG, Europe’s highly fragmented airline industry with 200+ airline groups where the top 5 airlines by traffic have a 46% market share compared to 87% in the highly consolidated and concentrated US market, and a new stage of European consolidations will soon begin, as state aid is all but gone now, and already in 2015 both Cyprus Airways and EuroLOT are shut down, Lufthansa Group and Air France-KLM Group both struggle with sustainable profitability and many of the remaining small carriers are waiting for a “white knight” before they go bankrupt, meanwhile most of the recent European airline acquisitions have been from outside of Europe, the industry is changing, and many airline bankruptcies are expected as there are no more “white knights” around like Etihad Airways to rescue the weak and struggling airlines.

The Irish national carrier, Aer Lingus is being acquired by IAG (International Airline Group, LSE:IAG), the 6th largest airline group in the world with revenue of $US 24.7 B (billion) and the parent of British Airways, Spain’s Iberia and LCC Vueling, valuing the airline at Euro 1.36 billion (+/- $US 1.53 billion). Under current CEO … Continue reading

ABSTRACT: Porter Airlines, now 8 years in operation and Canada’s 3rd largest scheduled airline has been in a state of semi-oblivion since 2011 when it received the last of its current 26 Q400’s, but the latest sale of its Passenger Terminal at Billy Bishop Toronto City Center Airport (CYTZ) for a reported C$ 750 million now gives Porter the money to move forward with its purchase of 12 plus 18 options for the Bombardier CS100’s, just needs to ‘influence’ Toronto’s City Council to allow jets into the airport and lengthen the runway by 400 meters, Bombardier desperately needs this Canadian/North American order for its struggling program, the political obstacles will surely be taken care off, so it is now very likely that Toronto’s City Council will approve of the lifting of the jet ban, agree to the runway extension and the CSeries will be in Porter’s livery one day as money always talks in politics and business, though Toronto will have another major airport right in downtown Toronto that will have to handle +4.5 million passengers ! but is the CS100 strategy the right one for Porter Airlines ? get the strategy wrong and it will bankrupt the airline in no time and can anyone ever change the airline duopoly in Canada ?

Porter Airlines, Canada’s 3rd largest scheduled airline (though it has less than 2.5% of the C$ 13 billion a year Canadian domestic and trans-border market) was heading into its 9th year of operation in a state of oblivion, as its fleet of 26 Bombardier Q400’s (74 passenger seats) and 1,400 employees has remained constant since … Continue reading

UPDATE: India’s LCC Spicejet was grounded today, due to fuel now being COD (cash on delivery), the writing has been on the wall for 5 quarters, action was taken too late, and yet the airline still ordered $US 4.2 billion worth of 42 Boeing B737-8MAX aircraft in March ! The Indian market is high risk for any local airline and off course for any lessor or OEM planning to deliver aircraft into the market and why troubled companies need to acknowledge there is a problem as soon as possible, then diagnose the problems and deal with them right away, do not ignore them, or pay the price of failure.

As expected LCC Spicejet is grounded, its fate is unknown at this time, but very doubtful it will fly again, surely all lessors of the B737-800/900ER’s and Q400’s are there now, looking to get their assets out. There are 15 x Bombardier Q400’s with Spicejet, and up to 39 Boeing B737-800/900ER’s scattered around the country, … Continue reading

ABSTRACT: India’s LCC (low cost carrier) SpiceJet is in trouble, finally restructuring after 5 consecutive quarters of losses, just today it’s stock dropped 13.8%, as lessors start repossessing aircraft, yet 9 months ago it made a $US 4.4 billion order for 42 Boeing B737-8 MAX, now out of money ? where is the financial planning ? is the restructuring too late, again ? when will India’s airline industry be profitable with such low yields and high costs ? time for Air India to go bankrupt finally ? and yet LCC IndiGo is making money and orders 250 Airbus A320neo’s ready to dominate the Indian market with up to 528 Airbus A320/321’s by 2026 !

The airline industry in India is a bloodbath, everyone except LCC (low cost carrier) IndiGo and possibly GoAir is bleeding cash, with high operating costs and very low yields, the market is now facing another major bankruptcy after Kingfischer Airlines with SpiceJet in big trouble. India is the most under served airline market in the … Continue reading

Canada’s cozy airline duopoly is about to face new challengers in the form of newly emerging ULCC’s (ultra low cost carriers) Jet Naked (Enerjet) and Canada Jetlines that want a piece of the Low Price Segment in the $11.2 billion a year domestic and transborder market, and free Canadians from high fares !

Well, it is official, we now know of 2 ULCC (ultra low cost carriers) that plan to enter the Canadian market in the near future, as Calgary based Enerjet, owned by WestJet co-founder Tim Morgan and now operating 3 B737-700’s on charters has announced its intent to enter the Canadian ULCC market with Jet Naked, … Continue reading

UPDATES to Previous Block Articles – July 2, 2014 – ULCC hopefulls Jet Naked (Enerjet) and Canada Jetlines

July 2, 2014 – updating information from the July 1st article on the Canada’s new ULCC hopefuls Having has some time to digest the news, and giving it more thought, I have to think that that Jet Naked (Enerjet) with CEO Tim Morgan (ex-COO at WestJet) has the 1st move advantage here. Enerjet has an … Continue reading

Is the Overly Optimistic LCC Bubble in Southeast Asia about to Implode after a Splurge of Speculative aircraft orders and a Spree of new LCC’s Recklessly adding too much capacity too quickly ?

Too much of a good thing is not always good in the long run, in Southeast Asia you have LCC’s (low cost carrier) that have over expanded and added to much capacity and ordered too many aircraft and signs of trouble are now popping up, and fast.  The rise of low cost travel in SE … Continue reading

PART 2 of 2 – A Look at the Business Models of the 2 established US based ULCC (Ultra Low Cost Carriers) Spirit Airlines and Allegiant Air as well as newcomer Frontier Airlines

In this part of my discussion of LCC, I will examine the business models and strategies of the 3 ULCC in the US market today (Spirit Airlines, Allegiant Air and new comer to the ULCC club Frontier Airlines), as well examining and bench marking their financial performance against each other. This topic can become a … Continue reading

PART 1 of 2 – The Evolution of the LCC (Low Cost Carrier) Business Model in North America: WHO are the LCC’s ? WHAT is their Strategy ? WHERE are the big cost savings ? and WHY are there so many different LCC Business Models ? and which LCC’s are the best performers ?

For 2013, the U.S. airlines, both FSC (full service carriers) like Delta Air Lines (DL), American Airlines (AA) and United Airlines (UA), US Airways (US) and Alaska Airlines (AS) the 6 U.S. based LCC (low cost carriers) like Spirit Airlines (NK), Allegiant Air (G4), Virgin America (VX), JetBlue Airways (B6), Southwest Airlines (WN) and Frontier … Continue reading

WestJet Airlines Search for a Sustainable Business Model, means more trouble for Air Canada and other Canadian Carriers

Calgary based WestJet Airlines has reported another good year for 2012. Revenue topped $CDN 3.42 billion resulting in Net Earnings of $CDN 242 million (7.1% net margin), and 2013 is shaping up to be a big year for the airline. The airline has 100 B737NG aircraft (16 x B737-600’s, 69 x B737-700’s and 18 x … Continue reading