ATW Editor's Blog

One day; two sets of airline fortunes; and a chill breeze in Asia

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Posting the news today, it was hard not to contrast the different week that Airbus, Boeing and airlines from different global regions are experiencing.

Although it’s just a snapshot in time – and both manufacturers are seeing record backlogs and are ramping up production of their narrowbodies – here’s the sum of Boeing aircraft news today:

Firm configuration for the 777-9X variant of the 777X program (and program remains on track, with 320 orders to date); Successful Canadian LCC WestJet takes delivery of its first 767-300ER, its first widebody; and LCC Norwegian announces lease for two additional 787-9s to extend its long-haul network.

And here’s today’s news for Airbus aircraft:

Malaysia-based LCC AirAsia X defers or cut deliveries of Airbus A330ceos widebodies as it looks to curb growth and strengthen its financial performance; Vietnamese government drops plans to confirm options on the four Airbus A380s it signed up for in 2009.Vietnamese flag carrier Vietnam Airlines cited "increased pressure of arranging capital for aircraft purchases" as a key factor.

The news on the Airbus side is by no means catastrophic, but it is interesting – and bruising for Airbus – that all these announcements center on widebodies, the tougher of the two markets by far with the A320neo and 737 MAX both selling well on the narrowbody side.

Also noteworthy is that the customers for those Boeing widebodies are both LCCs, one in North America and one in Europe.

With the Airbus aircraft announcements, you see the once-glittering Asian star of AirAsia now experiencing its first real struggle to maintain fast growth and yields. And an Asian flag carrier, Vietnam Airlines, acknowledging that it is having trouble raising capital for new aircraft.

The overall global picture of airline financial health – region by region -- has changed dramatically in very recent years. Where Asian carriers, established or startup – used to be the world’s moneymakers, and North American carriers could only look on with envy, that position has switched in many cases. It’s the North American carriers –the consolidated majors, the independent LCCs and the other independents like Alaska – that have stabilized and are profitable even in mature markets.

I met with Asia Pacific Airlines Association director general Andrew Herdman earlier this week while he was visiting DC. He shared some interesting insights into the current state of affairs among Asia-Pacific airlines.

Chinese airlines are doing well financially this year, benefiting from being able to rid themselves of fuel hedging policies at a time when oil prices have dropped, and they are in network expansion mode, especially on trans-Pacific routes.

Air New Zealand and Qantas are also doing well – Qantas on a rebound and ANZ turning in spectacular financials. The Japanese carriers ANA and JAL are also doing well, although ANA is in expansion mode while JAL, recently restructured, is more focused on the bottom line and maintaining profitability.

But beyond that, Herdman pointed out, it’s a much more mixed picture. “The MERS [respiratory disease] outbreak had a very serious, chilling effect on tourism and passenger demand in Korea, so the Korean airlines are still facing headwinds,” he said. “Meanwhile, the LCCs are not having an easy time of it – which is very different from the situation in Europe, where the LCCs like easyJet and Ryanair are making money. In Asia, it’s many of the LCCs that are loss making.”

On top of that, demand for air cargo remains soft and that’s an historically important sector for Asia. “People are bringing freighters back, but for the most part any growth is belly-capacity growth,” he said.

Competition across the region, meanwhile, remains fierce. Herdman pointed out that, unlike in the US where four major players dominate some 80% of the marketplace, it’s commonplace on Asian routes to see six to nine airlines competing on a single route.

The undisputed projected growth tracks for Asian air passenger traffic, especially in China, mean that the region has a strong future. The uneven patchwork we are seeing will even out, although I personally believe some of Asia’s LCCs won’t survive – just as many early North American LCCs didn’t.

And, as I said at the outset, there’s plenty of good news for both Airbus and Boeing in the current global air traffic growth market. Indeed, Airbus will open its first airliner factory on American soil Sept. 14 – an A320 final assembly line facility in Mobile, Alabama. So you can expect plenty of fanfare from that event. And then, of course, business as usual as both manufacturers fight to win – or keep – those orders.

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