AirAsia India has reported a loss for the first full quarter (July-September 2014) of Rs29 crore. In a press release, AirAsia India points out that low load factors combined with a higher than expected cost per passenger kilometre are the two main features of the first quarter of operations along with some high start-up costs. All of this was expected and everyone will be watching to see if the “we will turn into profit by the end of September 2014” statement from AirAsia India will be proved correct.
Following the launch sale surge, load factors fell away somewhat during August and September but even so the average was 75%. Now some might take this as a warning sign that the cost base is too high for the current ticket prices on offer and this venture is going to be hard work to run in the black during the first 12 months. Taking into account the seats offered for sale and the total revenue gained from the same against the costs listed, it can be argued that AirAsia India is losing some Rs2,248 per passenger flown during the period. While ticket prices fell at one point to Rs699 per seat. The airline now expects to add two additional aircraft in December 2014, bringing its fleet to four aircraft in all. The current daily aircraft utilisation (average) is just under 11.50 hours and its turnaround time is 29 minutes; 9 minutes above the target set at launch, but this is still not bad.
We cannot make any decisions on the AirAsia India business model until the first financial year results are published but right now things look more or less the same as many of the other Indian domestic operators: costs are under control and load factors are reasonable but tickets are too cheap. AirAsia is not known for ticket price increases and thus we have to watch the ancillary revenues on this new airline.
In the Americas it will soon be easier for US and Mexican carriers to add new routes between the two nations. The USA and Mexico have confirmed that they will end current restrictions that cap the number of passenger airlines that can fly on any one route between the nations. The agreement, which was announced on Friday, will become effective on January 1, 2016, the US State Department said in a statement.
This is great news for cargo airlines and for airlines looking to expand into operations between the two countries, but is it good for some of the incumbent airlines? They are sure to see the likes of JetBlue and other LCCs and ULCCs enter the market depressing ticket prices as they do. Currently only two US airlines and two Mexican airlines can operate on a single route between the two countries. The new agreement will remove the numerical limitations on the number of airlines that may provide passenger services on all US-Mexico city pairs.
Meanwhile in the USA, it is Thanksgiving week and yet again the weather is dampening US airline demand, this time with snowfall, which is a terrible shame. The situation is exasperated by airlines waiving their rebooking fees, which will hit United more than most given that New York and Chicago look set to be worst hit of the major hub locations. The six-day Thanksgiving holiday period, from tomorrow through to November 30, should be one of the busiest times for US airlines with around 3.5m passengers expected to take to the skies.
Now with all this snow causing so much of a problem maybe today is a good day to take a closer look at how the professionals manage to operate on time when surrounded by the white stuff for most of the year – Alaska Airlines.
Alaska Airlines ranked third in on-time performance for the last quarter, with 85% of flights arriving on time. For the last few quarters, Hawaiian Airlines and Alaska maintained the top two positions. However, in 3Q14, Delta overtook Alaska to gain the second position as it improved performance to 85.6% from 83.4% in the second quarter, a very impressive figure for such a large airline.
Alaska Airlines’ passenger revenue increased by 6.9% during 3Q14, primarily due to a 7.5% increase in revenue passenger miles (RPMs) on the back of an 8% increase in ASKs which sent load factors down 0.5% from 86.5% to 86%. Three new routes were added during the period. Alaska Airlines’ revenue, generated per available seat mile (ASM) declined to 13.03 cents during the period from 13.17 cents in 3Q13. This decline followed a decrease in yield (or price paid per passenger per mile) and capacity utilization. In 3Q14 the yield dropped to 15.14 cents from 15.23 cents in 3Q13. That all puts unit revenues above those of JetBlue (12.03 cents) but still some way off United, Delta, Southwest and American – Delta remaining the market leader with 14.83 cents. Over the next quarter investors will be watching to see how Alaska’s attempts to increase premium traffic are progressing. At this time business and first classes make-up close to 12% of revenue with first class revenues up by 9% during 3Q14 with growth in demand currently outstripping capacity increases for the class.
At the same time though Alaska Airlines saw interline and codeshare revenue decline by 5%. Revenue from codeshare agreements with Delta fell by a massive 53% to $38 million during the quarter. This decline resulted from overlapping routes and increased competition from Delta at Seattle-Tacoma International Airport. Alaska Airlines managed to claw-back close to 85% of this lost revenue during 3Q14 from its own distribution channels and through increased codeshare and interline revenue from American and United.
Alaska Airlines management moved swiftly and decisively to hedge against Delta competition at Sea-Tac but going forward it is the competition brought by Delta that investors will be watching. Alaska’s market share by seat at Seattle-Tacoma Airport was 50%, followed by Delta with 13.1% but Delta is attacking this market aggressively and have already sent Alaska market share down to 47.2% as Delta’s share increased to 17% during the past quarter. Delta now plans to increase its number of gates at Sea-Tac from 11 to 30 with 150 flights per day by 2017…... Can Alaska Airlines withstand this onslaught by the mighty Delta?
Alaska will need to expand out of trouble. The launch of seven new nonstop routes from Salt Lake City, two from Seattle, and one from Portland, Oregon. In 2Q14 have helped along with the three new rou8tes from Sea-Tac, but it is a question now of getting aircraft delivered soon enough to expand in the here and now.
Now although Alaska’s operating margin decreased from 30.2% in 3Q13 to 21.6% in 3Q14, the airline still has one of the best net margins in the industry at 13.7% which is an improvement of 3.6% on last year (mainly due to fuel price decreases).
All in all Alaska remains highly investable and is set for huge expansion. It remains to be seen if at some point ticket prices will start to fall, it could be suggested that they must in a war for market share, but the US market is doing well to avoid such scenarios at this time and the move for premium traffic at Alaska is another example of dodging the price war option – Indian airlines take note!