This week we have seen the US Airways/AA merger effectively go through and that will of course change the landscape quite a bit in the US market, not because of US Air/AA so much but due to the large numbers of slots that have been seemingly allocated to low-cost airlines only, which does indeed seem unfair to the likes of United and Delta and others who are being frozen out of the impending bid process. Of course JetBlue, Virgin America, Southwest and others will now have to set aside a considerable amount of cash to fund any potentially winning bids, but the real story here, as mentioned on this matter four weeks ago, is how Southwest needs to try and gain those East coast slots while JetBlue and Virgin America need to keep a hold on their East coast core by strengthening their advantage in the region. Add to the mix Spirit Airlines and its need to gain further reach in the New York and DC areas and you have a mix that will create quite a premium for the slots and that means good news for US/AA. Will Frontier and Allegiant enter the fray? The latter most surely must try to do so.
The other story is a very old one and one that we have indeed done bored you to tears with here, and that is aircraft lessor impairments and the residual value risk. This is a story that every person reading this is all too well aware of, and something that all lessors tapping the capital markets should have been quick to point out to investors as the key risk in play.
As aircraft impairments filter through the books of airlines and lessors such as ILFC it is indeed time to move on from the discussions about economic life, as we all know that this is something that is fluid and pinning all aircraft to 25 years is a joke. The discussion therefore must move to concentrate on individual aircraft types, what is creating the problems and how to solve the same.
That is why, in the spirit of zero grandstanding here at these offices, we here initiated the A340 day in London on the 4th December jointly with Airbus, Rolls Royce and CFM, which is effectively sold out at this time. The OEMs are well aware that they need to assist in any reasonable way, and I believe they will. Read the full write-up from the event exclusively in the December issue of Airline Economics (subscribe today to ensure you receive your own copy by clicking here).