Hong Kong authorities late yesterday rejected Jetstar Hong Kong’s application for an AOC, sighting that the airline’s primary place of business and decision making was not in Hong Kong, stating: “Jetstar Hong Kong cannot make its decisions independently from that of the two foreign shareholders”. This is a blow to the brilliant JetStar model, but it should not be the end of trying to set something up in Hong Kong.
So what now for what was a promising joint venture between Qantas, China Eastern Airlines and Shun Tak Holdings? The latter, Shun Tak Holdings, should have helped secure an AOC after it joined the venture in 2013, paying US$66m for a one third share of the airline. This investment seems to have gone up in smoke now, but Shun Tak Holdings could yet rebrand the airline and do a deal with Qantas and China Eastern to take full control and gain an AOC with relative ease. Key to this hypothetical work around would be that the Shaun Tak airline will have a JV/code share feeder agreement with JetStar/Qantas/China Eastern from the word go, with an option for the other two parties to invest at a later stage. Now if all three involved parties are thinking logically about matters and can reach an agreement at speed then resurrecting something meaningful and profitable out of the ashes of JetStar Hong Kong should not be too difficult. Connecting the JetStar network to Hong Kong from Japan, South Korea and mainland China would be a highly-profitable business and as such Pansy and Stanley Ho should not give up because of this setback.
Cathay Pacific stated: “It is the right decision for Hong Kong…The Air Transport Licensing Authority decision ensures that important Hong Kong economic assets, its air traffic rights, are used for the benefit of the people and the economy of Hong Kong.”
Meanwhile in the USA, it is confirmed that US travel to overseas markets totaled 2.55m in April 2015, up 5% on the same month last year and 6% for the year to date. Interestingly passengers going to European and Caribbean destinations, the two largest international air travel destinations by a huge margin, were up 7% each; Asia and Oceana followed with both regions up 4% each. Middle East and South American travelers were up 3% each, but African travelers were down a very large 10%, mainly due to the Ebola fallout, political instability in the North and the slowing South Africa economy. But it was surprising to see that Central American transits down 2% for April 2015 year on year at 209,000 travellers.
The star market is USA/Mexico. Transits between the USA and Mexico were up 13% at 659,000 for April 2015 (year on year) – that is enough to fill 156 average A320s per day. We should also consider the USA Canadian air travel market as for April 2015 as this market is up 8% year on year to 228,000 passengers – this further gives weight to the Canada Jetlines venture and investors should be giving due consideration to a ULCC operating between the USA and Canada just as they have with the Mexican market over the past five years.
But across in Russia it is a mixed bag: Russian airlines carried 31.4m passengers during the first five months of 2015, up 12.1% year on year with May showing a 16.1% increase alone. International passenger traffic on the other hand is dire: Russian International passenger traffic was down 14.1% for the first five months of 2015, down a further 12.1% for May 2015 (year on year) alone, but Russian authorities state that in five months, 12.1% in May.
For the same January-May period, we now have the winners and losers: Aeroflot carried 9.6 million passengers, up 8.6% year on year. Saint Petersburg-based Rossiya, an Aeroflot Group member, carried 1.87 million passengers alone, up 15.9% year on year. UTair carried 1.9 million passengers for the period, down a massive 37.3%; and Transareo carried 4.26 million passengers, down 1.3% year on year. S7 Airlines saw passenger numbers fall 2% year on year to 2.8 million. The S7 result is interesting as within these reported numbers is included Globus Airline, (a member of S7 Group) and their passenger traffic was up 17.9% in January-May to 839,638 passengers carried. Globus is doing well as it operates primarily to domestic Russian holiday destinations with many flights on a charter basis, taking into account the fact that this airline is also now running a young 737-800 fleet we can argue that margins should be good at this time. Other than state-run airlines, this is the one airline in Russia that is a safe bet at this time as long as the domestic holiday charter business is continued and grown during this period as the Aeroflot LCC Pobeda will deploy its 13 737-800s and take few prisoners over the coming months in the domestic scheduled market.