Yearbook 2014 Final

8/10/2019 Yearbook 2014 Final

1/110

WORLD AVIATIONYearbook 2014

Global overview - Petrol and partnerships Analysis - Air travel correlation with GDP growth 10 regional data & analysis Key data of each regions selected airlines


2/110

Pg 2 | CAPA World Aviation Yearbook 2014

ContentsIntroduction ......................................................... p3

Main feature: Of petrol and partnerships ......... p4

Analysis: Air travel correlationwith GDP growth ................................................ p9

Southeast Asia overview ...................................... p14Selected airlines key data .................................... p23 Lion Air Garuda Indonesia AirAsia Singapore Airlines

Thai AirwaysSouth Asia overview ............................................. p28Selected airlines key data .................................... p33 IndiGo SpiceJet Air India Jet Airways

South Pacific overview ......................................... p37Selected airlines key data .................................... p42

Qantas Airways Virgin Australia Air New Zealand

North Asia overview ............................................. p45Selected airlines key data .................................... p51 China Southern Airlines China Eastern Airlines All Nippon Airways Korean Air

Japan Airlines

Cathay Pacific

Middle East overview ........................................... p57Selected airlines key data .................................... p63 Saudia Qatar Airways Emirates Etihad Airways

Africa overview .................................................... p67Selected airlines key data .................................... p71 South African Airways Ethiopian Airlines Kenya Airways

Eastern Europe overview ..................................... p74Selected airlines key data .................................... p77 Turkish Airlines Aeroflot Pegasus Airlines

Western Europe overview ..................................... p80Selected airlines key data .................................... p85 Ryanair easyJet Lufthansa British Airways Air France KLM Royal Dutch Airlines

North America overview ...................................... p91Selected airlines key data .................................... p96

Delta Air Lines Southwest Airlines United Airlines American Airlines jetBlue

Latin America overview........................................ p101Selected airlines key data .................................... p107 GOL TAM Airlines LAN Airlines

Aeromexico

Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. 2014 CAPA Centre for Aviation


3/110


AS UNFOLDS, THE TALE EMERGES OFTWO ECONOMIC WORLDS, again on divergingpaths; slow growth in Europe and North Americabrings out and accentuates the conservative voices

among those keen to preserve the status quo or merely topostpone the inevitable.

At the same time as Chinas economy slows from itspreviously high levels, casting a shadow over most of Asia,

there are signs of improvement in the mature markets. Yetone thing that is not slowing in Asia and the Middle Eastis the process of change, structural and in terms of marketaccess, as new airlines and airline types push regulatoryfrontiers.

In Asia, the rapid evolution and diversification of low costoperations is the most notable and probably most exportablechange.

Despite some asynchrony between capacity and demand,which has prompted several SE Asian airlines to delaydeliveries of new aircraft, the growing influence of long haullow cost airlines increasingly networking their operations in

ways similar to classic full service network airlines cannotbe ignored and will almost certainly spread across the world.At the same time, legacy airlines, many of them burdened

by higher cost bases and often unproductive work practices,are actively seeking ways of restructuring and redefining theirroles in a new world.

Aside from the essential steps to reduce costs, thisincreasingly involves adoption of subsidiaries operating with adifferent, low cost, model.

Amid this change, the US, still the worlds biggest marketby value and protected from outside competition has beenable to generate profits previously unheard of. Delta, theworlds largest airline, alone recorded a profit of over USD2.5

billion for the past year.Recent consolidation (enhanced massively by the

introduction of baggage and rebooking charges) has enabledthis standout performance; and the projections are forcontinued financial performance on this scale. Te differencein the US market though is that traffic growth is minimal andthat market experimentation is limited to the smaller hybridairlines.

Emerging economies meanwhile are achieving varyinglevels of growth as their economic growth stalls, dampened asthe US slows its previous monetary expansiveness.

CAPAs 2014 Global Aviation Outlook incorporates these

factors in its region by region assessment of coming months.It also records the growing pre-eminence of partnership

strategies, also on many levels and varied types. And,inevitably, recounts the always important issue of fuel prices,with their uncertain impact on the industry.

Introduction


4/110


Source: CAPA Centre for Aviation

Airline consolidation: could Europe follow North Americas path to improved margins?

Protecting the fortress and the double-edged dangers of protectionism

Airlines in Transition: Hybridisation and operating dual brands

Airline ownership & control. Why might Europe uphold something its officials call stupid?

GLOBAL analysis reports:


5/110


Te airline industry, perhaps more than any other, ishorrendously susceptible to external challenges, wheremanagements have little or no control over outcomes. Fuel pricesare the most notable economic terrorists, now accounting for nearlyfour tenths of all airline costs yet unpredictable and totallyunmanageable.

Add to that a massively disruptive combination of industryfactors that are reshaping the way airlines do business againmostly outside the ability of most airline managements to control and it becomes clear why most airlines have such a devil of a job tomake decent profits, or even any profits at all. Te disruptive forcesare driving airlines towards makeshift partnerships, necessary butstill made cumbersome by the overhang of nationalistic regulation.

Te year 2014 and beyond looks likely to be consumed by thesetwo drivers. For a few, it will be abundant with opportunity; forthe majority it could represent some of the biggest challenges theyhave ever experienced.

Tere is another factor that unavoidably influences thecourse of airline profitability: the state of the economy. Herethe news is, barely audibly as yet, getting better. Signs of

economic recovery in northern Europe and some easing ofpain in the US are welcoming more travellers back into thesky. Better economic conditions do not necessarily correlatewith improved profitability; the industrys competitivefoundations can mean simply that better demand is met bygreater competition. It can also mean upward pressure on oilprices as consumption increases.

Nonetheless, the good news is certainly that things arestarting, in a still-fragile way, to look as if demand willcontinue to strengthen in 2014. Tere are still worries:Chinas uncertain outlook for one; and the continuingwidespread instability in the Middle East, further aggravated

by Russian land grabs, also with potential implications forfuel supplies.

The external impacts:

1. Fuel pricesImprobably, through a year of perhaps the greatest, most

diverse series of upheavals in that most sensitive region of theworld, the Middle East, oil prices have refused to skyrocket.In fact, after showing some easing in the earlier part of 2013,prices have shown signs of becoming less benign.

Tis is not a good sign and, with President Putins Russiashowing signs of using energy as a lever against anyone who

gets in its way, many of the seeds are there for the sort ofspeculative bubble that occurred in mid-2008, when pricessoared to around USD140 a barrel (with a much higheraviation fuel margin).

Further increases push airlines to the limits in achievingprofitability and it is indeed a valuable indicator of theefficiencies achieved that they were no more profitablewhen oil prices hovered around USD35 in the early part ofthis century. For an airline with a USD10 billion operatingrevenue, the rough implication is that, with prices at USD105a barrel, they will be spending USD300 million annuallymore on fuel than they did back then. It would have been a

tidy profit in retrospect, but a very large additional burden toaccommodate today.

Where fuel prices will go this year is anybodys guess and despite the array of expert opinions, that is all it will be.Airlines will continue hedging and, at a high price, buying nomore than short term certainty of how much they will pay in

Of petrol andpartnerships

BRENT CRUDE PRICES MAR-2004-2014SOURCE: NASDAQ.COM

160.00

150.00

140.00

130.00

120.00

108.55

100.00

90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00

1,000,000

500,000

CB*1 : 108.55 Vol: 677419


6/110


fuel costs. Tere is nowhere to hide.However, the consensus is that prices are unlikely to fall

substantially, if at all. Te tar sands/US exporter scenario is onone side, reducing reliance on imports and with the US (andothers) eventually becoming net exporters; against this is adestabilised Middle East.

If a hoped for drop in price were to occur, a newlyinvigorated industry would enjoy at least a short burst ofgood news. A substantial drop in prices would (i) breathelife into inefficient models that were striving to achieve costreductions and (ii) change the equation significantly forLCCs short, and in particular, long haul.

Te Middle East turmoil has ensured a floor under pricesin recent months. Contrarily though, the surprising lack of anextreme impact so far may actually suggest that there is morepricing stability than we had come to expect at least on thesupply side (rightly or wrongly a lot of the pressure in the2008 fuel spike was put down to speculation and/or emotion,rather than a real supply shortage). Te conundrum isthat demand has however also been suppressed by slowereconomies - and an uptick will increase consumption levels.

Somehow things rarely seem to turn out as airlines hope.

2. (Re) defining the shape of the industryWith most variables outside their control, airlines have

few levers to pull when seeking to improve effectivenessand efficiency.Te most evident are reducing staff costs andimproving productivity and hopefully both. But the scopefor cost reduction in this way is severely limited where fuelcosts fill nearly half of the windscreen.

Every airline in the world is seeking annual (ex-fuel) unitcost reductions and if they are not they can be assured thattheir competitors are. It creates a major source of pain and

often resembles running at top speed merely to stay in thesame place.But the real area for concern for many airlines, and where

cost reductions may be squeezed into becoming a meresideshow, is in how the shape of the industry is changing.

Low cost airlines have remodelled short haul operationsacross the world; long haul low cost is becoming an extensivereality in the Asian region (and soon the North Atlantic); theGulf carriers are reshaping much of the longhaul and hubstrategies of full service airlines.

Partnerships are increasingly looked to as the final resortfor airlines under pressure. Nothing less would explainthe enormous about face by airlines like Air France in

accommodating a relationship with Etihad, or even Qantaswith Emirates.

Amid this turbulence and under severe stress in short andlong haul modes, network and point to point airlines alikehave had to begin contemplating compromises that just a yearor two earlier would have been unthinkable.

Global alliances have filled a very valuable need andcontinue to work very effectively for many airlines, butas others around them realign into more egocentricpartnerships, the pressure intensifies to adopt more specificpartnering models.

Tat airlines are having to move quickly has been a factor

both of immediate internal need and of a shrinking numberof options as competitors soak up the few partnership optionsavailable. Te dance is becoming more furious and, inessentially bilateral relationships, only so many partners areavailable.

For many this has required innovative approaches

Where uel prices will go this year isanybodys guess and despite thearray o expert opinions, that is all itwill be.

That airlines are having to movequickly has been a actor both oimmediate internal need and oa shrinking number o options

as competitors soak up the ewpartnership options available.


7/110


previously not part of their armoury. And they have had to beadopted in very quick time.

Deciding on a radical new direction which can sometimesmean casting adrift a large part of longstanding (even core)activities or existing partners is hard enough, requiringwholly new skills. Negotiating a major partnership on the runwhile continuing business as normal in these circumstancesis another enormous ask, again where there are no roadmapsand, typically a mountain of pushback from vested interestswhose status quo is threatened.

Actually then to implement them, again with all the otherday to day requirements to be met, is even more high risk anddiversionary from the main game.

Only the US majors are relatively immune from thesetrends. Comfortably ensconced in a protected domesticmarket bigger than any other in the world, refreshed byshedding weight in Chapter 11 bankruptcies and nowmerged into large dominant entities, they are enjoying almostunheard of profitability at home.

Internationally, in the key market of the North Atlanticthe big three US carriers are also enjoying the protection

of antitrust immunised partnerships with their Europeanalliance peers. Tis combination undoubtedly creates abenign environment, at least for the short term. Whether thiscreates a level of complacency and lack of innovation thatwill come back to haunt them is a story still untold. Deltahas dipped a toe in the water with its acquisition of 49%of Virgin Atlantic, but for the largest airlines in the worldto be otherwise absent from the new worlds close bilateralpartnerships must be a strategic flaw.

In short, in 2014 disruption of the established frameworkof the industry will accelerate. For any 70 year old systemwhich has remained virtually unchanged there must be a

time when old age catches up. In one respect, safety, therehas been massive progress, to the extent that major accidentsare extremely rare. But commercially, although changes areoccurring, they have been mostly around the margins untillast year. Over the past two years we reached a tipping point.echnology and social pressures have shifted the fulcrum.

Te key commercial features of the industry in a nutshellare (1) market access in its broadest sense, partly proscribedby bilateral agreements and (2) sales and distribution,dominated by intermediaries, with (still) a minority of directsales.

In this latter area issues have also been bubbling under thesurface for several years, with google and other large online

forces prowling the boundaries of sales and distribution.Sooner or later and probably quite soon a revolutionwill unfold there too; already there is much activity in theundergrowth.

Albeit with the spectre of high fuel prices in thebackground, trends are accelerating towards morelonghaul growth and competition, as new aircraft types aredelivered and as industry fundamentals change thanks toliberalisation, cross border joint ventures, equity alliances and,increasingly, to the effects of partnering.

Tis new environment embraces not only the Gulf airlines,but also how Chinas airlines start to become more important

in point to point carriage and, increasingly, in sixth freedomtransfer operations.

Very shortly, they will also become designers of the futurepartnership system; even if they dont aggressively pursueexpansion internationally with their own metal, the attractionof the Chinese market to outsiders is pressing foreign airlines

Over the past two years we reacheda tipping point. Technology andsocial pressures have shifed theulcrum.


8/110


to court the few available Chinese partners that are available.Here again there is at least for the time being a limitednumber of dance partners.

Other features in the mix are contributing to the upheaval.Long haul low cost, previously the domain of Southeast

Asia is surfacing on the North Atlantic.Tis previouslyderided concept of long haul low cost involves adoptinga range of new measures (like seeking out more efficientcrewing approaches, as well as using aircraft like 787s accompanied by the essential underlying low cost mentality)Will it work on the North Atlantic (yes!) and who else willfollow Norwegian, Air Canada rouge and WestJet?

Te arrival of this previously Asian phenomenon on theNorth Atlantic surely contains the seeds of something muchbigger. After all it used to work 40 years ago, with LakerAirways and so-called charter airlines between the UK andNorth America.

Tis will further increase pressure on the global allianceson longhaul, including on the closed JVs, especially if fuelprices were to fall.And the impact will not be limited to theNorth Atlantic, nor just to the global alliances; all longhaul

airlines will feel the heat. But members of global allianceswill continue to see the need to compromise with and oftenpartner with the Gulf airlines.

Hybridisation is accelerating as both LCCs and full serviceairlines look to adopt low cost models with full serviceprofiles.As a result, the dual brand concept is now becomingpopular in Europe as well, but the main full service airlinesare still having to undergo the upheaval of restructuring tokill costs and increase efficiencies.

LCCs around the world are expanding most notablyin Asia; in SE Asia they now account for 60% of all intra-regional seats.Te nebulous spectre of excess capacity is

being raised as massive order books convert to deliveries, butdeferrals now seemingly more acceptable to manufacturers may hold this risk in check.

Te movement is slowly moving northwards. China hasannounced it will allow new domestic LCCs to establishthere and as others expand in the region there is the platformfor a very large growth surge. Te northern markets ofChina, Japan, Korea and aiwan are becoming much moreconnected.

Te resulting traffic volume in 2014 will not transformthe world, but the changes will provide the foundation for awhole new wave of low priced growth and, accompanyingit, a cycle of further liberalisation.

In Europe the large LCCs, easyJet and Ryanair aresignificantly profitable, despite sluggish economic growththere; Mexico is lively and turbulent, with 61% of itsdomestic market capacity on LCCs; India (72% of seats) andthe Philippines (92%) markets are dominated by LCCs.

2014 holds no promise of being more boring than theprevious year. Fuel price rises may silently erode the bestlaid plans, but there is much greater certainty that forgingpartnerships will occupy a lot more time at airline boardmeetings. Te platform has been laid for this evolution andits balance has now tilted.

The platorm has been laid or thisevolution and its balance has nowtilted.


9/110


CAPAS EXTENSIVE COUNTRY RANKINGSDATABASE provides rich pickings for analysis ofthe relationship between the wealth of a countryand the penetration of air travel in that country.

Not surprisingly, our analysis confirms that the two areclosely correlated. Countries with higher GDP per capitatend to have higher numbers of airline seats per capita.

Establishing a correlation does not indicate the direction ofcausality, which works in both directions. Economic wealthdrives air travel, but air travel also helps to drive economicwealth. However, the correlation is not perfect and levels ofpenetration can be affected by geographical, political, fiscaland infrastructural factors. Tis leads to some countrieshaving a significantly higher or lower number of airline seatsper capita than might be expected simply from their level ofGDP per capita.

Who are the out-performers, in terms of the penetration ofair travel, and who are the under-performers? What are thecharacteristics of each group? How do the main regions ofthe world compare?

And what role can governments play? - in some cases, they

can potentially make a significant difference.

The penetration of air travel is correlated withGDP per capita

CAPAs databases include data from OAG on seat capacityby country, together with population and GDP data from theInternational Monetary Fund. We can use this to calculateGDP per capita and airline seats per capita for the 177countries for which all the necessary data is available. Ascatter plot showing airline seats per capita (for the weekof 9-Jun-2014) against GDP per capita is presented in the

graph on the left.Te chart demonstrates a number of points. First, thereis a vast discrepancy in the level of penetration of air travel(measured by airline seats per head of population) across thecountries of the world. Setting aside countries for which wehave insufficient data to perform our calculations, the leastpenetrated nation is the Democratic Republic of Congo,with just 377 weekly seats per million of population, and thehighest is Qatar, with 618,362 seats per million people.

Te most fundamental point highlighted by the chartbelow is that, in general, a higher level of GDP per head ofpopulation is associated with a higher level of penetration ofair travel (the correlation is quite strong, as indicated by the R

squared value of 0.7). Tat said, there is also a huge range ofdifferent levels of penetration even within a narrow band ofGDP per capita, and so there are also other factors affectingthe propensity to fly.

Te density of the chart in the bottom left cornerhighlights that there are a large number of countries withbelow average levels of wealth and of air travel penetration.Only 34% of the countries on the chart have GDP per capitaabove the global mean, but these countries account for 70%of the total number of seats. Only 45% of the countries havemore airline seats per capita than the global mean, but theyaccount for 70% of total seats.

Te disproportionate impact of the wealthier and higherpenetrated countries drags up the global averages, but manyof the worlds nations are still playing catch-up when it comesto air travel.

Analysis:The air travel correlation

with GDP growth;Pinpointing the countries

where regulatory

intervention are most likely

to make a difference.

AIRLINE SEATS PER CAPITA (VERTICAL AXIS) VERSUS GDP PER CAPITA(HORIZONTAL AXIS) BY COUNTRYSOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014),INTERNATIONAL MONETARY FUND


10/110


Increasing wealth has a bigger impact on raisingair travel in poorer countries

Te trend line that gives the best fit to the data points inthe above scatter plot is very slightly concave: it does notrise in a straight line, but it gently flattens as it moves to theright across the chart. Tis suggests that increasing wealth(measured by GDP per capita) has a bigger impact on raisingthe penetration of air travel in poorer countries than it doesin richer countries.

Te chart below shows the same data as the previous chart,but uses a logarithmic scale on the vertical axis (which showsseats per capita). Tis not only accentuates the flattening ofthe trend line as GDP per capita rises, but also stretches outthe lower end of the scale for seats per capita making it easierto distinguish the separate data points in this crowded partof the chart. We have also added some labels to selected datapoints, indicating which country they represent.

Other factors also have an impact

Countries that are below the trend line on the above charthave the potential to increase their rates of air travel in twoways.

First, as for all countries, the number of airline seats perhead in these countries should increase as GDP per headgrows. For those that are also below the global average forGDP per head, this potential is particularly strong.

Second, the countries below the trend line have thepotential to increase air penetration to catch up with othercountries of a similar wealth, but who already have higherrates of air travel.

Tis process of catch up might be achieved in a variety of

ways, including regulatory change (including liberalisationof market access), infrastructure development and taxationpolicy. On the other hand, geographical and other structuralfactors may mean that this potential is greater for somecountries than it is for others.

The BRIC emerging economies are under-pene-trated by air travel

Note that all of the so-called BRIC countries (Brazil,Russia, India and China) sit below the trend line in the chartabove (and they also have a level of airline seats per capitathat is below the global mean).

Among the four, India would seem to have the greatestpotential to improve the penetration of air travel, but needsreform and further development on issues such as fuel tax andinfrastructure if this potential is to be realised.

For Brazil, the development of airport infrastructure maybenefit from recent privatisations and the stimulus of the2014 Football World Cup and the 2016 Olympics and theairline industry is continuing to develop distribution channelsthat are adapted to the Brazilian market. Infrastructuredevelopment has also been (and continues to be) animportant theme in both Russia and China, where recentregulatory and legal changes should stimulate the growth

of the LCC sector and give a further boost to air travelpenetration.

The MINT grouping is more diverse

Moving on from the BRIC countries, the more recently

AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE)VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRYSOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014),INTERNATIONAL MONETARY FUND


11/110


identified group of MIN countries (Mexico, Indonesia,Nigeria and urkey) are more diverse in terms of theiraviation markets. Whereas all the BRIC countries are amongthe worlds largest airline markets by total number of seats(only Russia is outside the top 10 and it ranks 13th), amongthe MINs only Indonesia and urkey are at a similar rank(they are 11th and 12th respectively; Mexico is 20th andNigeria 56th).

Unlike the BRICs, which are all below trend line onour chart, the MINs include two countries, urkey andIndonesia, that sit above the line. Tese two already havemore airline seats per head than might be expected purelyfrom their levels of GDP per head.

In the case of urkey, this reflects the success of its nationalcarrier, urkish Airlines, in attracting global connecting trafficthrough its Istanbul hub. Indonesias position, only slightlyabove the trend line, probably reflects the geographicalimperative of aviation as a means of transport in thearchipelago and the success of the LCC sector in tapping intodemand.

Mexico occupies a similar position on the chart to that of

Brazil, while Nigerias is not too far from Indias.

Island nations and city states are the out-performers

Next, we reproduce the same chart, but this time we labelthe out-performers - those countries at the upper frontierof the scatter plot that also have a level of air seats per headthat is above the global mean. Tese nations have the highestlevel of airline seats per head for their level of GDP per head.Tese out-performers fall into two categories: island nationsand what might be termed city states.

Te islands, which include Maldives, Bahamas, Cyprus,Malta and Iceland, rely on air travel (and often inboundtourism) for their links with the rest of the world and thishas given rise to a much more developed aviation marketthan would otherwise be expected in equivalently wealthycountries.

Te city states include true city states Hong Kong andSingapore and also Gulf nations Bahrain, UAE and Qatar.In these countries, aviation markets have been stimulated bygovernment policy in addition to demographic features suchas large expatriate populations.

The under-performers

Te under-performers highlighted in our next chart (seegraph on left) form the lower frontier of our scatter plot. Teycan also be divided into two sub-groups.

Te first consists of countries that have above average levelsof airline seats per capita, but that nevertheless have a lowerlevel than might be expected from their GDP per capita (inother words, they are below the trend line on the chart).

Tis group includes some of the worlds biggest aviationmarkets, such as the US, Germany, France and Japan.Comparison with other countries that are similarly wealthysuggests that they could be even bigger if they could move

up closer to the trend line. On the other hand, the positionof the line is perhaps artificially dragged upwards by thepresence of the islands and city states of the out-performergroup, where the penetration of air travel is boosted by thegeographic and political features mentioned earlier.

AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE)VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY: THE OUT-PERFORMERSSOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014),INTERNATIONAL MONETARY FUND

AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE)VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY: THE UNDER-

PERFORMERSSOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014),INTERNATIONAL MONETARY FUND


12/110


Te more serious under-performers are those countriesthat have a below average number of airline seats per capitaand also sit below the trend line on the scatter plot. Teseinclude land-locked African countries the DemocraticRepublic of Congo, Chad, Lesotho and Swaziland, as well asurkmenistan, Slovakia and Slovenia.

Teir under-performance may be a function of a numberof different factors, such as the political backdrop, a lack ofinfrastructure, or being served indirectly by the airlines ofneighbouring countries. On paper, at least, this group has thegreatest potential to increase the penetration of air travel.

Regional differences: Middle East outperforms;North America underperforms

By aggregating the data for the countries of each majorworld region, we present a final scatter plot of airline seatsper capita against GDP per capita by region (see below). Tishighlights a number of points.

First, Africa is substantially under-penetrated by air travel,with only just more than one fifth of the global average

number of airline seats per head of population. Tis is broadlyconsistent with the continents level of GDP per capita.African countries occupy the lowest 11 places in the worldranking of airline seats per capita.

Second, although Asia Pacific is the largest world regionin terms of the total number of seats, it is still a small marketrelative to the size of its population, with only 56% of theglobal average number of airline seats per head. Asia Pacificis a very diverse region, with both developed and emergingmarkets. It includes Maldives (the country ranked numberthree in the world by seats per capita) and Bangladesh(ranked 171 on this measure).

Tird, Latin America is not far from the world average onboth GDP per capita and airline seats per capita, but is stilla little behind on both measures. Its aviation markets havepotential to benefit both from GDP growth and from theadditional boost to penetration levels that could result frominfrastructure development and regulatory reform.

Fourth, the Middle East as a region is outperformingstrongly in terms of airline seats per capita compared withGDP per capita. It is only slightly wealthier than average(GDP per capita 7% above the global mean), but has 68%more seats per head than the world average. Tis reflectsgovernment policy and the success of the super connectorairlines in the Gulf.

Fifth, Europe is a modest out-performer, with a higherlevel of air travel penetration than might be expected from itslevel of GDP per capita (particularly Western Europe). Tisreflects the liberalised internal market of the European Union(its aviation market and other markets, including that forlabour), relatively well developed aviation infrastructure andthe consequent development of the LCC sector.

Sixth, North America is underperforming in terms ofairline seats per capita against GDP per capita, whencompared with other regions. It has more than five timesthe global mean level of GDP per capita, but less than fourtimes the global mean number of airline seats per capita. Tis

probably reflects the diminishing power of GDP alone tostimulate penetration of air travel as aviation markets mature.

As we have seen earlier, there are island nations and citystates with similar levels of wealth to that of North America,but where the number of airline seats per capita is much

AIRLINE SEATS PER CAPITA (VERTICAL AXIS) VERSUS GDP PER CAPITA(HORIZONTAL AXIS) BY REGIONSOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014)


13/110


14/110


SOUTHEAST ASIA analysis reports:Source: CAPA Centre for Aviation

Southeast Asia low-cost airline fleet to expand by almost 20% in 2014. Are more deferrals needed?Garuda adjusts 777-300ER route plans to focus on Japan while dropping Australia-London one-stops

Garuda & Citilink 1Q losses widen. Potential Singapore Airlines investment poses intriguing option

AirAsia further slows fleet expansion as 1Q profit falls - with the potential to accelerate later

AirAsia drives rapid growth at Malaysias Johor Bahrus Senai Airport, further encircling Changi

AirAsia X drives 43% transit traffic at Kuala Lumpurs KLIA. Can Singapore follow the same recipe?

AirAsia India to launch on 12-Jun-2014. The LCCs greatest test or its most lucrative opportunity?

Myanmar international aviation outlook: after two years of rapid expansion, growth starts to slow

Cebu Pacific Air profits drop; PAL, Philippines AirAsia remain in the red. But outlook is improving

Singapore Airlines incurs 4QFY2014 operating loss, adds premium economy as latest strategic response

Singapore Airlines seeks to expand its partnership portfolio further following a spate of new deals

Tigerair restructures after recording a FY2014 loss. A Singapore Airlines takeover seems sensible

SilkAir 737 MAX fleet to open up network options while boosting Boeings narrowbody presence in Asia

Nok Air and Thai AirAsia profits fall in 1Q but continue rapid growth in response to new competition


15/110


SOUTHEAST ASIA TOP 10 AIRPORTSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

RANKING AIRPORT NAME SEATS

1 Jakarta Soekarno-Hatta International Airport 1,308,360

2 Kuala Lumpur International Airport 809,696

3 Singapore Changi Airport 649,644

4 Manila Ninoy Aquino International Airport 555,351

5 Bangkok Suvarnabhumi International Airport 536,412

6 Bangkok Don Mueang Int'l Airport 466,704

7 Surabaya Juanda Airport 444,575

8 Ho Chi Minh City Tan Son Nhat Airport 438,579

9 Denpasar Bali Ngurah Rai Airport 317,205

10 Hanoi Noi Bai Airport 307,400

SOUTHEAST ASIA HAS EMERGED AS ONE OF THEWORLDS FASTEST GROWTH MARKETS. Low-costcarriers have been at the forefront of growth and now accountfor nearly 60% of traffic within the region. Several havemassive orders, with significant numbers still arriving in 2014despite some deferrals. A dominant theme of the competitiveenvironment is the rapid escalation of the market share battlebetween the big LCC groups particularly AirAsia and LionAir, plus to a lesser extent igerair, Jetstar and the emergingVietJet.

Te regions LCCs have been ambitiously adding capacity,putting pressure on yields and load factors. Southeast Asiasfull service groups have also been focusing on regionalgrowth, both within Southeast Asia and the wider AsiaPacific market. While demand is relatively robust, thereare signs of overcapacity throughout including in mostdomestic and short-haul international markets, as well as insome medium-haul markets, particularly Southeast Asia-Australia.

2014 is shaping up to be a challenging year for theSoutheast Asian aviation market. Te region will again

have some of the worlds highest growth rates but lacksthe capacity discipline and rational behaviour exhibited byairlines in other regions.

Te short-haul market has become challenging, with therate of capacity growth far outstripping demand. Tere isa risky element of strategic growth here too a processthat airline CFOs usually abhor as airlines jostle to securescarce airport slots and to establish first (or second) moveradvantage. Te result is to jeopardise short-term profitability.

SingaporeTe Singapore market in particular is experiencing

overcapacity, putting pressure on yields, load factors andprofitability. Rapid expansion by Singapores largest low-cost carrier, igerair, has been the main driver of the currentcapacity situation. igerair Singapores ASKs were up 24%in CY2013 as it added four aircraft, bringing its feet to 25A320s. Te carrier added two more aircraft in early 2014but further fleet expansion has sensibly been put on hold asthe igerair Group has cancelled nine A320 orders and isplanning to sub-lease eight A320s.

Te capacity added into the Singapore market during2013 was clearly too much and it will take time to be fullyabsorbed even with further growth being halted. In thequarter ending 31-Dec-2013, igerair Singapores average

fares were down 16% while yields were down 11% and loadfactor slipped a shocking 11.6ppts to 73.4%. Te outlook for2014 is now slightly brighter as it is no longer adding severalaircraft but the carrier continues to grapple with falling yieldsand load factors.

Singapores other local LCC, Jetstar Asia, has not beenexpanding at the same speed, with ASKs up by only about 5%in 2H2013. Te Jetstar Asia fleet, including aircraft operatedby subsidiary Valuair, expanded by only one aircraft in 2013to 19 A320s. Jetstar Asia will not add any aircraft in 2014 asthe Qantas Group has announced the suspension of furthergrowth at Jetstar Asia. But Jetstar Asia will still be impacted

Continued red ink may start to testthe holding power o a couple oairlines.

SoutheastAsiaTOP 10 AIRLINES WITHIN SOUTHEAST ASIASOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

CAPACITY BY CARRIER TO/FROM/WITHIN SOUTHEAST ASIASOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

1,058,000

557,922

543,240

524,369

493,138

473,605

407,767

377,201

281,520

3,969,379

Lion Air

Garuda Indonesia

AirAsia

Malaysia Airlines

Thai Airways

Singapore Airlines

Vietnam Airlines

Cebu Pacific Air

Thai AirAsia

Other

0M 1M 2M 3M 4M 5M

RANKING CARRIER NAME SEATS

1 Lion Air 1,053,478

2 Garuda Indonesia 473,450

3 AirAsia 470,520

4 Vietnam Airlines 358,595

5 Malaysia Airlines 347,038

6 Cebu Pacific Air 323,967

7 Thai AirAsia 226,8008 Thai Airways 217,782

9 Indonesia AirAsia 200,700

10 Sriwijaya Air 183,210


16/110


as the Singapore short-haul market continues to sufferfrom overcapacity despite the recent adjustments, leading tocontinued pressure on yields and profits.

Singapore Airlines (SIA) full service regional subsidiarySilkAir has also been growing rapidly, with ASKs up by about14% in CY2013. Te carrier plans more double-digit capacitygrowth in 2014 as it is expanding its fleet by four aircraft.SilkAir began 2014 with 24 A320 family aircraft and willend the year with 20 A320s and eight 737-800s. SilkAir, inFeb-2014, took the first of at least 54 737s, which will enablethe carrier to double its fleet by 2021 and continue growingcapacity at an annual double-digit rate.

It is not just the LCCs that are hurting from thecompetition. SilkAir yields were down 10% in 4Q2014 asload factor also slipped by 5.3ppts to 70%.

Parent company SIA has been pursuing much slowergrowth, with mainline ASKs up by only about 2% inCY2013. Similar low single-digit growth is expected for2014. SIAs yields have been down slightly in recent quarters(about 2% to 3%) as the carrier has had to lower fares tostimulate demand and maintain its load factor.

Te SIA Group is focusing expansion almost entirely onAsia Pacific, using SilkAir, new medium/long-haul LCCsubsidiary Scoot and SIA mainline. Scoot added two 777sin 2013, giving it a fleet of six aircraft, but will take a hiatusfrom expanding in 2014. Te carrier will add one aircraft thisyear, a 787-9 in 4Q2014, but has dropped its initial plan touse it as a growth aircraft and has instead decided to use itsfirst 787 to replace one of its 777-200s.

While demand for services within Asia Pacific continues togrow, capacity has been added too quickly, particularly in theSingapore-Indonesia and Singapore-Australia markets. Scootserves three Australian routes and has significantly reduced

capacity to Australia by cutting frequencies and combiningsome Sydney and Gold Coast flights. Qantas has also decidedto drop its Perth-Singapore service. More adjustments arelikely.

As Singapore has a population of only about 5 million andis a relatively mature aviation market compared with otherASEAN countries, there is perhaps limited opportunity foradditional stimulation in the local market. ransit trafficremains a large and very important component, but withother hubs in Southeast Asia also seeing capacity growthoutstripping local demand, competition for transit passengershas become more intense.

Passenger traffic at Singapore Changi was up only 5% in

2013, marking the first time in four years that double-digitgrowth was not achieved. Passenger growth is expected to dipfurther in 2014, to between 3% and 5%.

Asia traffic for Changi, which was up 7% in 2013, willagain lead the way in 2014 but at the expense of yields.Capacity is growing at a rate far exceeding supply, puttingpressure on yields and profitability. It will be a challengingyear for all five of Singapores passenger carriers.

MalaysiaMalaysias rapid growth from 2013 is unlikely to be

sustained.Te country was one of Asias fastest growing

markets in 2013, driven by the launch of Lion Air Groupsubsidiary Malindo and rapid expansion by the countrysthree main existing carriers. 2014 will see more rapidexpansion not at the torrid speed from 2013 but at a ratewhich will likely exceed demand, putting further pressure onyields and profitability.

SOUTHEAST ASIA FLEETSOURCE: CAPA FLEET DATABASE | MAY-2014

SOUTHEAST ASIA BREAKDOWN FOR AIRCRAFT IN SERVICESOURCE: CAPA FLEET DATABASE | MAY-2014

SOUTHEAST ASIA CAPACITY SEATS SHARE BY ALLIANCESOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

51.9%

23.5%

13.8%

8.7%

2.0%

Narrowbody Jet Widebody Jet Turboprop Small Commercial Turboprop

Regional Jet

59.7%

15.5%

14.2%

10.6%

Unaligned SkyTeam Star Alliance oneworld

1,590

228

1,586

In service In storage On order0

500

1000

1500

2000


17/110


Passenger traffic at Malaysia Airports grew by 18% in 2013to 80 million, including a 17% increase in international trafficand a 20% increase in domestic traffic. Malaysia Airportsmanages all but one of Malaysias main airports.

Malaysia Airlines (MAS) was the fastest growingSoutheast Asian flag carrier in 2013, with passenger figuresup 29% to 17 million. MAS increased ASKs by 17%,driven primarily by expansion of its domestic and regionalinternational operation. Te carrier was able to grow RPKsby 27%, pushing up load factor by 6.3ppt to 81%. But MASadopted an aggressive pricing strategy, significantly increasingthe number of tickets sold at low LCC-like fares as itresponded to the launch of Malindo and intense competitionfrom AirAsia and foreign carriers. It does not have the costbase to allow this sort of pricing over an extended period.MAS incurred a USD360 million loss in 2013 as yieldstumbled by 13%, including by 16% in 4Q2013.

Tis is a dangerous strategy, despite being cossetted by itsgovernment. MAS outlook for 2014 is relatively bleak asyields and profits remain under pressure. Capacity levels willincrease further, with a focus on the regional international

market. While the rate of capacity growth will be slower thanthe 17% figure from 2013, it is expected to again be doubledigits (approximately 10% to 12%). Competition is toointense to expect an improvement in yields and the MH370incident makes an already challenging situation even moredifficult.

LCC capacity in Malaysia continues to grow rapidly,putting pressure on all carriers. In 2013, Malaysias LCC fleetgrew by more than 30% from 73 to 99 as 26 aircraft wereadded, including 11 aircraft at Malindo, eight at AirAsiaand seven at AirAsia X. Malindo, which launched servicesin Mar-2013, is expected to add about eight aircraft in 2014.

Most of its expansion will be in the international market,starting with several South Asia routes that were launchedin 1Q2014, followed in the second half by the anticipatedlaunch of services to North Asia.

Growth at Malaysia AirAsia and AirAsia X is expected tobe similar to 2013 levels, when Malaysia AirAsia recordedan 11% increase in ASKs while AirAsia X ASKs were upby 19%. But yields will continue to be under pressure. AtMalaysia AirAsia, the average fare was down 18% andrevenue per ASK was down 10% in 4Q2013. At AirAsia X,revenue per ASK was down 15% in 4Q2013, including a 22%drop on routes in which AirAsia X and competitors bothadded capacity. Tis is an indication of the stiff competition

in the Malaysian market and the broader Southeast Asiamarket.

AirAsia X is only planning to add three aircraft in theMalaysian market in 2014 (as four of its seven additionalA330s are allocated to Indonesia and Tailand) whileMalaysia AirAsia plans to grow its feet by only four aircraft.While these numbers are significantly down compared with2013, both carriers added several aircraft in late 2013, whichwill result in large capacity increases on a full-year basisfor 2014. As group AirAsia has significantly slowed downexpansion in 2014 by deciding to sell 12 of its oldest A320sand deferring seven deliveries. But this did not lead to a

significant adjustment in its Malaysia capacity plans as mostof the aircraft that have been removed from the initial fleetplan for 2014 had been intended for Indonesia and India.

Competition between the AirAsia, MAS and Lion groupswill further intensify in 2014 as Malindo expands into newinternational markets. MAS will likely struggle as current

SOUTHEAST ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ONORDERSOURCE: CAPA FLEET DATABASE | MAY-2014

SOUTHEAST ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICESOURCE: CAPA FLEET DATABASE | MAY-2014

29.3%

21.4%

8.6%

8.4%

8.1%

4.2%

2.6%

17.5%

A320 737 A330 72 777 CARAVAN 747 Other

72 CARAVAN A320 A330 A350 A380 737 777 787

DHC6 CRJ SSJ ARJ21

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

0

50

100

150

200

250

300

LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTHEASTASIA: 2011 TO 2014*SOURCE: CAPA - CENTRE FOR AVIATION AND OAG*Year to Month indicated

3.3% 4.6% 4.0%

9.8%

13.6%

18.1%

23.2%

26.8%

30.9%30.7%32.4%

52.0%

57.8%58.9%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jan-

May

2014

0

20

40

60

80


18/110


fare levels are unsustainable given its higher cost structure.Malindo is unlikely to meet its goal in the short to mediumterm of reaching break-even. Both AirAsia carriers areattempting to cut costs and increase transit traffic in 2014 aspart of a bid to improve profitability despite the challengingmarket conditions. AirAsia has a strong position in its homemarket but faces some of its biggest challenges in recentyears.

ThailandIn Tailand, three new carriers will launch despite

challenging market conditions. Competition between theAirAsia and Lion groups has also increased in the localmarket. Tai Lion launched services in late 2013 with a fleetof two aircraft and is planning to add at least eight aircraft in2014. Tree other LCCs are planning to launch services in2014 Tai AirAsia X, Tai VietJet and NokScoot givingTailand seven LCCs, which is more than any country exceptthe US, which has eight.

Te timing for the launches is far from ideal as yet anotherpolitical crisis, including frequent protests in Bangkok, has

significantly impacted demand in late 2013 and 1Q2014,with worrying signs that it will not go away quickly. In thepast, the Tai market has recovered rapidly once restoredto stability. But there is a dangerous amount of newcapacity being added which will put pressure on yields andprofitability even under a more stable environment.

Tailands two main LCCs, Nok Air and Tai AirAsia, areexpanding as fast as Tai Lion. Tai AirAsia plans to add sixmore A320s in 2014, giving it a fleet of 41 aircraft. It addedeight A320s in 2013 as ASKs were up 23%. Of the fourAirAsia short-haul franchises in Southeast Asia, Tai AirAsiais growing the fastest as only two aircraft have been removed

from the original fleet plan for 2014, which envisioned eightadditional aircraft. AirAsias decision not to pursue a moresignificant slowdown of growth in Tailand is somewhatsurprising given the unfavourable market conditions and isan example of strategic growth as new competitors enter themarket.

Nok plans to add four aircraft in 2014, growing its feet to20 aircraft (excluding small turboprops, which were droppedentirely in early 2014 as they were operated by another carrierthat Nok has severed ties with). Overall, capacity at Nok isexpected to increase by more than 20%, representing onlya slight slowdown to 2013 when the level was up by 46%.Both Nok and Tai AirAsia have remained profitable with

net profit margins of about 10% in 2013. But yields havebeen dropping in recent quarters and market conditionswill deteriorate further in 2014 as more capacity floods themarket despite the unstable political environment. Revenueper ASK was down by 6% at Nok in 2013 and by 2% at TaiAirAsia. Tai AirAsia revenue per ASK was down 10% in4Q2013, with the carriers average fare slipping 13%.

New Tai Airways regional unit Tai Smile, whichlaunched services in 2012, has also been expanding rapidly,adding six A320s in 2013. Tai Smile plans to add anotherseven A320s in 2014 for a total of 17 aircraft. Tai SmilesASKs more than tripled in 2013, albeit on a very low base,

while group ASKs were up 8% year-on-year. Similar highsingle-digit capacity growth at the group is expected again in2014. While Tai Smile will expand rapidly, there will only bemodest growth at Tai Airways. Te carrier plans to shrink itsmainline fleet by six aircraft in 2014, as 13 aircraft are slatedto be phased out five A300s, five A330s and three 737-400s

Capacity is growing at a rate arexceeding supply, putting pressureon yields and profitability. It willbe a challenging year or all five oSingapores passenger carriers.

18%PASSENGER TRAFFIC GROWTH AT MALAYSIAAIRPORTS IN 2013


19/110


Market conditions inIndonesia have notbeen helped by a sharpdevaluation of theIndonesian Rupiah in late

2013, leading to a suddensurge in costs, challengingprofitability.

while seven aircraft are delivered, including the carriersfirst four 787-8s and three additional 777-300ERs. Taismainline ASKs were up 8% in 2013 but there are signs ofovercapacity as passenger yield was down 2% and load factorslipped 2.5ppts including 5.3ppts in 4Q2013.

Independent regional carrier Bangkok Airways, with itsmore conservative and focused strategy, is also in expansionmode and plans to add five A320 family aircraft in 2014 fora total of 22. Te carrier already added two A320s at the endof 2013 along with two A319s earlier in the year. BangkokAirways also operates eight AR 72-500s, which it will startreplacing in 2H2014 with recently ordered new-generationAR 72-600s. But growth in the turboprop fleet is not partof the carriers fleet plan.

Tai VietJet, meanwhile, plans to launch services by theend of 2014 with an initial focus on the domestic market.Te combination of Tai VietJets entry along with rapidexpansion from Nok, Tai AirAsia, Bangkok Airways andTai Smile poses a huge risk of overcapacity in Tailandsdomestic and short-haul international market.

Tailands medium/long-haul market is also poised to

become significantly more competitive in 2014as newwidebody LCCs Tai AirAsia X and NokScoot are launched.Tai AirAsia X plans to launch services in 2Q2014 withan initial fleet of two A330s while NokScoot aims to beginoperations in 2H2014 with an initial fleet of two 777-200s.With Tailand becoming the first market to have two localmedium/long-haul LCCs, overcapacity in some markets suchas Tailand-Japan is possible over the medium to long term.

But this is not a big concern for 2014 as the two newcarriers will start small and there is a lot of room for LCCsto penetrate Tailands medium/long-haul market comparedwith the more mature and much more competitive short-haul

market, where 2014 could prove to be a bloodbath.

IndonesiaIndonesia will also experience more growth despite a

challenging environment. Market conditions in Indonesiahave not been helped by a sharp devaluation of theIndonesian rupiah in late 2013, leading to a sudden surge incosts, challenging profitability. So far two Indonesian carriers,Indonesia AirAsia and igerair Mandala, have respondedby slowing down expansion and cutting domestic capacity.But the main domestic players continue to expand at anaggressive rate.

Indonesia AirAsia has suspended fleet expansion and is

now planning to keep its fleet stable at 30 A320s in 2014.Te carrier originally planned to add six aircraft and theadjustment in Indonesia is one of the main drivers of AirAsiaGroups decision to seek delivery deferrals and the sale ofsome existing aircraft. Indonesia AirAsia added eight A320sin 2013 for a total of 30, driving a 33% increase in ASKs.

Indonesia AirAsia still plans to pursue internationalexpansion in 2014 but this will come at the expense of itsdomestic operation. Te carrier plans to decrease the portionof its capacity allocated to the domestic market from 40%to only 30%. Indonesia AirAsia is already a relatively smalldomestic player, with about a 5% share of the market, while it

is Indonesias largest international carrier.igerair Mandala has suspended 11 of its 19 routes since

the beginning of 2014 and has reduced its fleet from nineA320s to only four aircraft. Te carrier initially planned toadd three aircraft in 2014 for a total of 12 A320s. igerairMandala hopes to restore some capacity later in the year but


20/110


this hinges on an improvement in market conditions and thepotential sale to new owners.

Even if igerair Mandala does not recover and exits themarket, the impact will not be significant given its relativelysmall size. Te void left when much larger Indonesian carrierBatavia exited in early 2013 was quickly filled by otherIndonesian carriers. Existing carriers should also be able tofill most of the void left by Indonesian government-ownedregional carrier Merpati, which suspended operations in earlyFeb-2014. Indonesias two main airline groups, Lion andGaruda, have rapidly expanded regional aircraft operationsand continue to quickly grow their narrowbody fleets.

Garuda mainline ASKs were up 15% in 2013, including16% domestic and 14% international growth, as the fleetexpanded by 15 aircraft. Double-digit growth is expected in2014 as the Garuda mainline fleet grows by about another 20aircraft.

A large portion of the fleet growth is at Garudas newregional sub-brand Explore, which operates the carriersnew CRJ1000 and AR 72 fleets. Garuda took its first fiveCRJ1000s in 2012, added seven more in 2013 and will take

four more in 2014. Garuda took its first two AR 72-600s inlate 2013 and will add six of the type in 2014.

Garudas new 777-300ER fleet will also grow from four toseven aircraft in 2014. Garuda began operating 777-300ERsin mid-2013 and in early Jun-2014 began using the typeto operate non-stop fights to Amsterdam. But Garuda hasdropped previous plans to also launch non-stop services toLondon and will instead only serve Gatwick as a tag to itsAmsterdam service, which previously was operated as a one-stop via Abu Dhabi using A330-200s.

Garuda budget subsidiary, Citilink, meanwhile plans to addeight A320s for a total of 32. Capacity levels will also increase

as the carrier increases utilisation of its A320 fleet. Some ofthe additional capacity will be allocated to the internationalmarket as Citilink plans to expand into the internationalmarket in 2014, initially with services to Malaysia, Singaporeand Australia.

Citilink added 10 A320s in 2013, driving year-on-yearASK growth of 75%. Citilink has been facing some of thesame challenges as smaller igerair Mandala, incurring anoperating loss of USD60 million in 2013 while Garudamainline remained in the black.

Current market conditions are particularly challengingfor budget carriers in the domestic market.Yet Citilinkand domestic market leader Lion Air continue to expand

rapidly. Te Lion group is privately held but claims to havegrown LCC passenger traffic by 15% 2013 to 32.9 million(this includes Lion Air and Wings Air but excludes newfull-service subsidiary Batik Air, which carried 800,000passengers in its first year of operations). Te Lion groupplans to add 50 to 52 aircraft in 2014 with approximately 15aircraft allocated to its affiliates in Malaysia and Tailand,leaving 35 to 37 aircraft for Indonesia. Tis includes 15 to17 737NGs for Lion, about 10 AR 72s for Wings and 10aircraft (four 737s and six A320s) for Batik. But these figuresare subject to change as the year unfolds; Lion has a veryflexible feet strategy and only finalises allocations among its

five carriers a few months prior to delivery.While Indonesia AirAsia is taking a hiatus from fleet

expansion, new sister carrier Indonesia AirAsia X plansto launch services in 2H2014 with an initial fleet of twoA330-300s. Indonesia AirAsia is less impacted by the rupiahdevaluation given the carrier has a much larger portion

The situation in the Philippine-Middle East market looks

particularly ugly or 2014.

AirAsia has a strong position in itshome market but aces some o itsbiggest challenges in recent years.


21/110


of foreign passengers than its competitors. AirAsia has asmall and shrinking domestic operation in Indonesia but isalready the countrys largest international player, a positionthe group aims to cement by launching the countrys firstmedium/long-haul LCC. As is the case with Tailand, thereare opportunities to penetrate Indonesias medium/long-haulmarket, while a bloodbath could emerge in the short-haulmarket particularly domestically.

PhilippinesIn the Philippines, domestic market rationality returns,

but potential overcapacity looms in international markets.Conditions in the domestic market are relatively morefavourable, thanks to consolidation.

Philippines AirAsia and Zest Air merged in early 2013.Both carriers integrated their operations in 2H2013 andnow both operate under the AirAsia brand. Te two carriersbegan 2014 with a combined fleet of 17 A320s but the grouphas decided not to pursue any feet growth in the Philippinesthis year, keeping the fleet stable at about 17 aircraft. As withIndonesia, AirAsia plans to reduce domestic capacity in the

Philippines while growing its international operation.Market leader Cebu Pacific announced in Jan-2014 the

acquisition of igerair Philippines, which will leave twoLCC players (AirAsia and Cebu Pacific) compared with five(AirAsia, AirPhil Express, Cebu Pacific igerair, Zest) at thebeginning of 2013.

AirPhil adopted the full service regional model after itwas rebranded PAL Express in early 2013. Te transitionresulted in the PAL group having one rather than two brandson domestic trunk routes, resulting in a significant cut indomestic capacity for the PAL group and flat growth for theoverall Philippine domestic market in 2013. Te additional

consolidation with AirAsia/Zest and Cebu Pacific/igerairresults in an improved outlook for 2014, ending a period ofirrational competition and overcapacity in the Philippinedomestic market.

Cebu Pacific plans to expand its fleet in 2014 by only fouraircraft one A320 and three A330s for a total of 52.But the carrier aims to move four of its A320s over to newsubsidiary igerair Philippines, which had operated fiveA320 family aircraft that are in the process of being returnedto igerair Philippines. With the igerair Philippinesfleet leaving the Philippines, the overall LCC fleet in thePhilippines will shrink slightly and end 2014 at just under70 aircraft. Cebu Pacific, which grew domestic ASKs by 8%

in 2013, plans to increase domestic ASKs by 9% in 2014,excluding igerair Philippines.

While domestic market conditions have improved,overcapacity has now surfaced in the Philippinesinternational market. Te situation in the Philippine-MiddleEast market looks particularly ugly for 2014. Cebu Pacificlaunched services to Dubai in Oct-2013 and its new long-haul unit is planning to add four to five new destinations inthe Middle East in 2014, as well as one in Australia, as itexpands its A330-300 fleet from two to five aircraft. PALand PAL Express, meanwhile, launched services to fivedestinations in the Middle East in 2H2013 and plan to add

at least a couple more in 2014.Overcapacity is also possible in the Philippines-Japan

market, as several Philippine carriers rush to add capacityfollowing a new air services agreement between the twocountries. Competition is also intensifying in the regionalinternational market within Southeast Asia a common

Conditions in the Philippines domestic market are relatively morefavourable, thanks to consolidation.


22/110


trend driven by rapid and at times overambitious expansionof budget carriers, as well as growth by full service regionalsubsidiaries.

Southeast Asias five smaller marketsVietnam, Myanmar, Cambodia, Laos and Brunei,

Southeast Asias smaller markets, have similar challenges.Allfive markets face potential overcapacity in 2014.

In Vietnam, competition from LCC VietJet Air is puttingpressure on Vietnam Airlines and the flag carriers budgetsubsidiary Jetstar Pacific. VietJet Air plans to double its fleetin 2014 from 10 to 20 A320s. Tere are huge opportunities forgrowth in Vietnam but overcapacity is a risk for the domesticmarket and on some short-haul international routes.

Myanmar is another frontier market with tremendouspotential. But the domestic market is over-served and toofragmented, with seven carriers and a few more planningto launch in 2014. Foreign carriers dominate Myanmarsinternational market, which has doubled in size since AungSan Suu Kyis National League for Democracy won landmarkelections in early 2012. But Myanmar now faces overcapacity

and below average load factors as airlines have rushed too fastin the wake of the market opening up.

Cambodia and Laos are smaller markets with growingdemand but have similar challenges due to rapid growth bylocal carriers and several new services from foreign carriers.Brunei, Southeast Asias smallest market, is more stable andRoyal Brunei could be the only flag carrier which experiencesan improvement in profitability in 2014 as it transitions itsentire long-haul operation to 787s by the end of the year.

But Royal Brunei is not about to become profitable anytimesoon. A majority of Southeast Asias main flag carriers andLCC groups were profitable in 2013 but will likely see profits

fall in 2014 as stiff competition puts pressure on yields.Te overall fundamentals of the Southeast Asian market areexcellent as the regions GDP and middle class continue togrow at healthy rates. Tere can be no doubt that the upsidefor economic and air traffic are extreme. But coordinatingcapacity expansion with such high rates of change isextraordinarily difficult. Te tendency to add excessive levelsof capacity in individual markets is further encouraged bystrategic goals, where emerging LCC groups are vying forpan-Asian pre-eminence, while also making sure that they and the full service airlines will be able to secure slots forfuture expansion at limited-space airports.

In many markets, the expansion has predictably been too

fast, leading often to irrational competition. Even with thefleet and capacity adjustments implemented in 1H2014,some consolidation is possible in 2H2014, particularly amongthe smaller and weaker carriers. But the predominant trendwill be aggressive competition between all types of carriers.And potentially a lot of red ink as the battle for dominancecontinues.

Myanmar is another frontier market

with tremendous potential. But thedomestic market is over-served and toofragmented.


23/110


Southeast AsiaSelected Airlines

1. Lion Air

Lion Air is an Indonesian hybrid airline based at Jakarta-Soekarno-Hatta

International Airport. Commencing operations in 2000 and based in Jakarta,

Lion Air is the largest privately-owned airline in Indonesia. The carrier

operates a network of scheduled passenger services throughout South East

Asia and the Middle East.

LION AIR FLEET SUMMARY AS AT MAY-2014SOURCE: CAPA FLEET DATABASE

AIRCRAFT IN SERVICE IN STORAGE ON ORDER

Airbus A320-200 0 0 60

Airbus A320-200NEO

0 0 109

Airbus A321-200NEO 0 0 65

ATR 72-212A(72-600)

0 0 25

Boeing 737-300 0 2 0

Boeing 737-400 0 8 0

Boeing 737-800 26 0 17

Boeing 737-9 0 0 201

Boeing 737-900ER 68 0 79

Boeing 747-400 2 0 0

Boeing 787-8 0 0 5

Boeing/McDonnellDouglas MD-82

0 1 0

Boeing/McDonnellDouglas MD-90-30

0 1 0

Total: 96 12 561

*For group, not individual carrier. Excludes new aircraft that are coming from leasing

companies.

LION AIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*SOURCE: CAPA FLEET DATABASE | MAY-2014

LION AIR STAGE LENGTHS

SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

LION AIR TOP 10 INTERNATIONAL ROUTES BY SEATSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

A320 72 737 787

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

0

20

40

60

80

Flight Time (Hours)

No.ofWeeklyFrequencie

s

0 2 4 6 8 10-500

0

500

1000

1500

2000

2500

3000

17,892 seats

8,946 seats

5,964 seats

4,522 seats

2,982 seats

2,646 seats

2,646 seats

576 seats

432 seats

SIN - CGK

CGK - KUL

PEN - KNO

CGK - JED

SIN - SGN

PEN - MES

KUL - BDO

SZB - HDY

KNO - HDY

0k 2.5k 5k 7.5k 10k 12.5k 15k 17.5k 20k 22.5k


24/110



2. Garuda

Indonesia

Garuda Indonesia is the national airl ine of Indonesia, based at Jakartas

Soekarno-Hatta International Airport. The carrier operates an extensive

domestic and regional network of services throughout Asia, Australia and

the Middle East. In Jun-2010, Garuda resumed services to Europe (initially

Amsterdam via Dubai) after an extended EU imposed ban.

Garuda has undergone a thorough restructuring in what it labelled TheQuantum Leap, which involved a dramatic redesign of the airl ines strategic

direction, network, brand and fleet. The airline launched an IPO in 2011 which

was substantially under-subscribed at the relatively aggressive pricing

sought. In Apr-2012, the government announced that talks were under way

for a consortium of local investors to absorb the overhang, still held by the

underwriters.

Garuda Indonesia stated that in line with the airlines efforts to develop

and strengthen its network, especially in the domestic market, it is

launching a new sub-brand Explore along with the introduction of the

ATR 72-600 aircraft into the fleet. In addition to the sub-brand Explore,

Garuda Indonesia is also introducing the brand Explore Jet to operate its

Bombardier CRJ1000 NextGen fleet, serving the airlines network in both

eastern and western Indonesia.

Garuda Indonesia is the 20th member of the SkyTeam alliance.

GARUDA INDONESIA FLEET SUMMARY AS AT MAY-2014SOURCE: CAPA FLEET DATABASE


Airbus A320-200 0 0 15

Airbus A320-200NEO

0 0 10

Airbus A330-200 11 0 0

Airbus A330-300 6 0 0

Airbus A330-300E 1 0 17

ATR 72-212A(72-600)

3 0 22

Boeing 737-300 3 0 0

Boeing 737-500 3 2 0

Boeing 737-800 67 0 10

Boeing 747-400 2 0 0

Boeing 777-300ER 4 0 6

Bombardier CL-600-2E25(CRJ1000NG)

13 0 5

Total: 113 2 85

*Excludes new aircraft that are coming from leasing companies

GARUDA INDONESIA PROJECTED DELIVERY DATES FOR AIRCRAFT ONORDER*SOURCE: CAPA FLEET DATABASE | MAY-2014

GARUDA INDONESIA STAGE LENGTHS


GARUDA INDONESIA TOP 10 INTERNATIONAL ROUTES BY SEATSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

A320 A330 72 737 777 CRJ

2014

2015

2016

2017

2018

0

10

20

30

40

Flight Time (Hours)


s

0 2 4 6 8 10 12-250

0

250

500

750

1000

1250

1500

1750

21,922 seats

7,536 seats

6,799 seats

5,460 seats

4,396 seats

4,396 seats

4,368 seats

4,368 seats

4,032 seats

4,032 seats

CGK - SIN

CGK - JED

CGK - HKG

CGK - BKK

CGK - PVG

CGK - NRT

DPS - SIN

CGK - KUL

CGK - PEK

DPS - MEL

0k 5k 10k 15k 20k 25k 30k


25/110



3. AirAsia

AirAsia is a low cost carrier based at Kuala Lumpur International Airport,

Malaysia. The carrier, which was formed out of Tune Air in 2002, is led by

CEO Tony Fernandes and pioneered the cross-border joint venture in Asia,

establishing Thai and Indonesian units with bases in Bangkok and Jakarta.

The airline has also partnered with other airlines and investors to createventures in Japan and the Philippines. AirAsias extensive domestic and

regional network includes services within Malaysia and to China, Southeast

Asia and the Subcontinent.

AIRASIA FLEET SUMMARY AS AT MAY-2014SOURCE: CAPA FLEET DATABASE


Airbus A320-200 76 0 67

Airbus A320-200NEO

0 0 264

Total: 76 0 331

*For group, not individual carrier. Excludes new aircraft that are coming from leasing

companies.

AIRASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*SOURCE: CAPA FLEET DATABASE | MAY-2014

AIRASIA STAGE LENGTHS


AIRASIA TOP 10 INTERNATIONAL ROUTES BY SEATSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

A320

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

0

10

20

30

40

50

Flight Time (Hours)


s

0 1 2 3 4 5-250

0

250

500

750

1000

1250

1500

25,920 seats

17,640 seats

12,600 seats

10,080 seats

10,080 seats

10,080 seats

7,560 seats

7,560 seats

7,560 seats

7,560 seats

KUL - SIN

KUL - DMK

KUL - SGN

KUL - HKT

SIN - PEN

KUL - HKG

KUL - TRZ

KUL - DPS

KUL - KNO

CAN - KUL

0k 5k 10k 15k 20k 25k 30k 35k


26/110



4. Singapore

Airlines

Based at Singapore Changi Airport, Singapore Airlines is the national

carrier of Singapore. Using a fleet of wide-body Boeing and Airbus aircraft,including the A380 of which Singapore Airlines was the launch customer,

Singapore Airlines operates an extensive network across Asia, North

America, Australasia, Europe, Africa and the Middle East. Singapore Airlines

joined the Star Alliance on 01-Apr-2000.

SINGAPORE AIRLINES FLEET SUMMARY AS AT MAY-2014SOURCE: CAPA FLEET DATABASE


Airbus A330-300E 27 0 10

Airbus A340-500 0 3 0

Airbus A350-900XWB

0 0 70

Airbus A380-800 19 0 5

Boeing 777-200ER 29 2 0

Boeing 777-300 7 0 0

Boeing 777-300ER 22 0 5

Boeing 787-10 0 0 30

Total: 104 5 120


SINGAPORE AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ONORDER*SOURCE: CAPA FLEET DATABASE | MAY-2014

SINGAPORE AIRLINES STAGE LENGTHS


SINGAPORE AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

A330 A350 A380 777 787

2014

2015

2016

2017

2018

2019

2020

2021

0

5

10

15

20

25

Flight Time (Hours)


s

0 105 15-50

0

50

100

150

200

250

300

39,552 seats

32,816 seats

21,578 seats

21,224 seats

20,328 seats

19,244 seats

18,760 seats

16,464 seats

16,338 seats

16,212 seats

SIN - CGK

SIN - HKG

SIN - PVG

SIN - SYD

SIN - BKK

SIN - LHR

SIN - MEL

SIN - DPS

SIN - MNL

SIN - PER

0k 5k 10k 15k 20k 25k 30k 35k 40k 45k 50k


27/110



5. Thai Airways

Based at Bangkoks Suvarnabhumi Airport with secondary hubs in

Phuket and Chiang Mai, Thai Airways is the national airline of Thailand and

majority-owned by the Thai Ministry of Finance. Using a fleet of narrow and

wide-body Airbus and Boeing aircraft, Thai Airways operates an extensive

network of domestic and regional services throughout Thailand and Asia and

international services to Europe, North America, Australia and New Zealand.

Thai Airways is a founding member of Star Alliance.

THAI AIRWAYS FLEET SUMMARY AS AT MAY-2014SOURCE: CAPA FLEET DATABASE


Airbus A300B4-600R

5 5 0

Airbus A330-300 8 3 0

Airbus A330-300E 15 0 0

Airbus A330-300X 1 0 0

Airbus A340-500 0 3 0

Airbus A340-600 6 0 0

Airbus A350-900XWB

0 0 10

Airbus A380-800 6 0 0

ATR 72-201 0 2 0

Boeing 737-400 5 0 0

Boeing 747-400 12 4 0

Boeing 747-400(BCF)

2 0 0

Boeing 777-200 8 0 0

Boeing 777-200ER 6 0 0

Boeing 777-300 6 0 0

Boeing 777-300ER 9 0 5

Boeing 787-8 0 0 6

Boeing 787-9 0 0 2

Total: 89 17 23


THAI AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*SOURCE: CAPA FLEET DATABASE | MAY-2014

THAI AIRWAYS STAGE LENGTHS


THAI AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

A350 777 787

2014

2015

2016

2017

2018

0

2

4

6

8

10

Flight Time (Hours)


s

0 2 4 6 8 10 12 14-100

0

100

200

300

400

500

600

23,590 seats

15,554 seats

14,798 seats

12,334 seats

12,194 seats

12,096 seats

10,872 seats

10,528 seats

9,768 seats

9,324 seats

BKK - HKG

BKK - NRT

BKK - SIN

BKK - ICN

BKK - KIX

BKK - RGN

BKK - KUL

BKK - HND

BKK - FRA

BKK - PVG

0k 5k 10k 15k 20k 25k 30k


28/110


SOUTH ASIA analysis reports:Source: CAPA Centre for Aviation

Air India finally to enter the Star Alliance. Lufthansa now looks to escalate Gulf carrier rhetoric

CAPA India Aviation Outlook FY2015: Losses accumulate but AirAsia India, Tata-SIA undeterred

Indias airlines lost USD1.65 billion in FY2013. CAPA India Aviation Outlook 2013/14: Part 4

SriLankan Airlines raises global profile and expands oneworld presence in South Asia


29/110


CAPACITY BY CARRIER TO/FROM/WITHIN SOUTH ASIASOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

616,500

454,452

428,180

357,888

176,508

175,860

115,562

102,081

85,914

1,166,129

IndiGo

Air India

Jet Airways

SpiceJet

Emirates

GoAir

Pakistan International Airlines

SriLankan Airlines

Qatar Airways

Other

0k 1,000k250k 500k 750k 1,250k 1,500k

AS THE INDIAN NATIONAL ELECTIONcompletes a major shift to a new BJP government,with market-changing airline partnerships in trainand major new entrants arriving, the year ahead

promises to be no less eventful than any over the past decade.Te new government will have to address deep structural

shortcomings in the sector. Airlines continue to bleed whilethe competitive environment intensifies with the appearanceof new entrants. Creative strategies are going to be needed;equally there are massive strides to be made in improvinginfrastructure to accommodate the inevitable high trafficgrowth levels.

Indias airlines posted combined losses of around USD1.7billion in the year ended 31-Mar-2014.Air India againincurred the largest loss at close to half of the total. JetAirways and SpiceJet both reported record full-year losses.

GoAir was earlier expected to end the year with abreakeven result or a modest profit but is also likely to havegone into the red. IndiGo will be the only carrier to reportfull-year profitability, but this too will be significantly lowerthan CAPAs earlier estimates. Nevertheless, as the only

consistently profitable airline in India, the time may beapproaching to leverage this achievement and an IPO ispossible in FY2015.

Start-up carriers will place downward pressure on yieldsand risks will peak for some carriers in FY2015. Indiasincumbent carriers can expect no respite on the competitivefront in FY2015, with several new carriers expected to launchoperations. AirAsia Indias entry into the market on 12-Jun-2014 sparked a round of heavy discounting with fareson some routes falling to below USD10 one-way includingtaxes and surcharges. Apart from AirAsia India, ata-SIAis expected to commence services in 3Q2014, and a further

two to three start-ups are reportedly awaiting licences tocommence national and regional operations. Te introductionof additional capacity when load factors are already soft, andthe consequent downward pressure on yields, is likely to hurtall carriers. Continued red ink may start to test the holdingpower of a couple of airlines.

Downsizing by SpiceJet and freezing by Jet and Air Indiaon domestic routes will help in moderating capacity growth.Fortunately the incumbent carriers are planning only modestcapacity increases this year. Jet Airways and Air India arelikely to freeze their domestic operations at close to currentlevels for the near term. GoAir will take one more aircraftin mid-2014 and then does not have any aircraft scheduled

for delivery until the first of its A320neos start to arrive in2016, although it has been evaluating leasing some aircraft tosupport growth in the interim.

And SpiceJet is conducting a detailed review of itsoperations which has already resulted in a short-termreduction of its domestic narrowbody operations. Questionmarks continue over its long-term plans in the regionalsegment, which has to date faced significant operationaland reliability issues. Domestic growth will be driven byIndiGo which is expected to deploy six additional aircraft,and AirAsia India, Air Costa and ata-SIA which combinedcould induct 18-20 aircraft. Tis is dependent upon the rate at

which AirAsia decides to expand which is currently uncertain.

Continued red ink may start to testthe holding power o a couple oairlines.

South AsiaTOP 10 AIRLINES WITHIN SOUTH ASIASOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

SOUTH ASIA TOP 10 AIRPORTSSOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

RANKING CARRIER NAME SEATS

1 IndiGo 587,700

2 SpiceJet 345,060

3 Air India 338,832

4 Jet Airways 306,244

5 GoAir 167,220

6 JetLite 83,606

7 Pakistan International Airlines 50,058

8 SriLankan Airlines 45,880

9 Maldivian 23,368

10 Buddha Air 22,538

RANKING AIRPORT NAME SEATS

1 Delhi Indira Gandhi International Airport 746,672

2 Mumbai Airport 653,098

3Bangalore Bengaluru (Kempegowda) Interna-tional Airport

296,368

4 Chennai Airport 261,696

5 Kolkata Netaji Subhas Chandra Airport 260,857

6 Hyderabad Rajiv Gandhi International Airport 212,984

7 Ahmedabad Airport 100,064

8 Pune Lohegaon Airport 90,182

9 Goa International Airport 85,998

10 Kochi Airport 80,823


30/110


SOUTH ASIA FLEETSOURCE: CAPA FLEET DATABASE | MAY-2014

SOUTH ASIA BREAKDOWN FOR AIRCRAFT IN SERVICESOURCE: CAPA FLEET DATABASE | MAY-2014

SOUTH ASIA CAPACITY SEATS SHARE BY ALLIANCESOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014

58.9%

15.8%

14.6%

8.7%

2.1%

Narrowbody Jet Widebody Jet Turboprop Small Commercial Turboprop

Regional Jet

71.0%

17.5%

8.4%

3.1%

Unaligned Star Alliance oneworld SkyTeam

584

63

500

In service In storage On order0

100

200

300

400

500

600

700

800

In FY2015, the high-cost operating environment andthe continued weakness in the economy would suggest thatdomestic traffic growth will be moderate, in the range of6-8%, albeit slightly higher than the 5.2% achieved last year.

However, there is considerable uncertainty about thepotential impact of the new market entrants. If fares warsare sustained, traffic growth could be stimulated above thisunderlying rate; although this would be at the expense ofairline balance sheets. Domestic traffic performance couldtherefore be volatile from month to month. But there may besigns of a more sustained recovery from 3Q2015 onwards aseconomic confidence has increased following the election ofthe new government in May-2014.

International traffic on the other hand has been a strongand steady performer over the last decade, even duringperiods where domestic traffic has dropped into negativeterritory. In FY2015 growth of around 10% is expected andmay approach 15% if the 5 year/20 aircraft rule is lifted and asa number of bilaterals are relaxed.

Indian airlines are expected to post combined losses of

USD1.3-1.4 bn in FY2015. Losses could track furtherupwards as some airlines have substantial major maintenancechecks scheduled this year, the cost of which will be higherthan the reserves currently held by lessors.

Tese profitability projections are subject to significantexternal factors. We have assumed oil at an average ofUSD110/barrel for the year (and this may be impacted byinstability in the Middle East) and an exchange rate in therange of INR58-60 to the US Dollar. It also assumes thatpricing discipline will by and large be maintained. Extendedperiods of aggressive discounting could lead to furtherdeterioration in financial performance.

Airline cash balances are in some cases at dangerous levels.As at the end of FY2014 CAPA estimates that Indian carrierscombined had INR32.5 billion (USD585 million) of cashon hand. With annual industry turnover in excess of USD10billion this represents the equivalent of less than three weeksrevenue. And since almost 80% of the cash balances wereaccounted for by just two carriers IndiGo and Jet Airways the situation at some airlines is even more precarious.One carriers cash balances are understood to have at timesdropped to the e

Yearbook 2014 Final

Documents

Transcript of Yearbook 2014 Final