AIR TRANSPORT WORLD

The Magazine of Global Airline Management
Business is on the uptick for lessors
LUCRATIVE LEASING
AIR TRANSPORT WORLD

December 2013 | www.atwonline.com | A Penton Publication
REGIONAL ROUNDABAOUT GULF LEAP
Europes regional carriers find new business models Qatar Airways joins oneworld alliance
AVIANCAS
ASPIRATIONS Latin Americas newest power player
takes ight
change
Five years in the making and change has taken ight. Thanks to the collaboration of Bombardiers dedicated partners, suppliers, and employees, the CSeries aircraft is poised to bring meaningful change to the industry. Heres how: with 15% cash operating cost advantage, best-in-class cabin comfort, exceptional operational exibility and an unmatched environmental scorecard, the CSeries aircraft is the protable and responsible solution to take passenger experience to a new level. CSeries a new choice for a changed world.
Bombardier, CSeries, CS100 and The Evolution of Mobility are trademarks of Bombardier Inc. or its subsidiaries. All data and specications are estimates, subject to change in family strategy, branding, capacity, performance during the course of the design, manufacture and certication process. Performance has been estimated based on a 500 NM North American operating environment. 2013 Bombardier Inc. All rights reserved.
Volume 50 / Number 12
December 2013
This issue online www.atwonline.com/issue/December-2013
CONTENTS
20
27
On the Cover
20 AVIaNCaS aSPIRatIONS
By Aaron Karp
35
Three years after the Avianca-TACA merger, the airline is a force in Latin America.
Features
27 LUCRatIVE BUt RISKY
FLEET PLANNING By Robert Moorman
As the commercial airline business improves slowly, so does the leasing trade.
35 MaINtENaNCE INClUDED
By Henry Canaday
39
OEM engine support becomes critical to fleet planning.
39 MaNaGING UNCERtaINtY
By Karen Walker
Lufthansa Groups approach to long-term fleet management is based on building in flexibility for good or bad times.
The European regional scene is all about adaptation and finding new business models.
By Victoria Moores
45 REGIONal ROUNDaBOUt
48 FIGHTING BACK
By Victoria Moores
45
48
An Interview with Peter Davies, CEO of Air Malta.
atwonline.com | December 2013 | ATW 1
/Munich Airport is making its mark

Growth, dynamism, service these are the qualities Munich Airport stands for now more than ever with its new logo. Living ideas Connecting lives
Munich Airport is a dynamic hub with more than 220 destinations around the globe. Passengers enjoy the amazing 30-minute minimum connecting time and many other amenities that have made Munich Airport one of the best airports in Europe. Welcome to a prosperous business region, welcome to Munich Airport! munich-airport.com/brand
A i r Tr a n s p o r t Wo r l d
CONTENTS
DECEMBER 2013 | Volume 50 / Number 12
BuSIneSS/AuDIence DeveLOPmenT CONTACT INFORMATION

GROuP PubLISHeR William A. Freeman, III bill.freeman@penton.com A i r Tr a n s p o r t Wo r l d Tel: +1 301-755-0166 Fax: +1 913-514-3909 The Blair Building 8380 Colesville Road, Suite 500 Silver Spring, MD 20910 USA Tel: +1 301-755-0200 Fax: +1 913-514-3909 www.atwonline.com SR. VP, STRATegY & BuSIneSS DeveLOPmenT Warren Bimblick warren.bimblick@penton.com PReSIDenT AvIATIOn WeeK Gregory Hamilton greg.hamilton@penton.com AuDIence DEVELOPMENT SenIOR DIRecTOR Abi Ahrens TEL: +1 913-967-1686 abi.ahrens@penton.com AuDIence DEVELOPMENT MANAGER Tyler Motsinger Tel +1 913-967-1623 tyler.motsinger@penton.com
9
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51
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5 EDITORIAL
DOJ blinked because it had to By Karen Walker
16 AnALYSIS
The New Southwest? As Southwest evolves, Spirit Airlines leads a new breed of US LCCs. By Aaron Karp
9 NeWSBRIeFS
SubScRIPTIOnS
Printed in USA Copyright 2013, by Penton Media, Inc., all rights reserved. Air Transport World (ISSN 0002-2543) is published monthly by Penton Media, Inc., 9800 Metcalf Ave., Overland Park, KS 66212-2216, USA. Periodicals Postage Paid at Shawnee Mission, KS, and at additional mailing offices. Submit payment for subscriptions and/ or single copies via http://atwonline. com/catalog. One-year subscription rates start at US$69 for the digital edition, and at US$89 for US and US$129 outside the US for the print edition. Single issues are US$15/copy. The annual World Airline Report issues are US$50/copy. For subscription related questions or for alternate payment options, please contact atwplus@penton.com. Qualified subscriptions are limited to management personnel in airlines and selected industries at the discretion of the publisher. Canadian GST #R126431964 Canada Post Publications Mail Agreement No: 40612608. Canada return address: Pitney Bowes, P.O. Box 25542, London, ON N6C 6B2, Canada. Postmaster: Send address changes to Customer Service, Air Transport World, P.O. Box 2100, Skokie, Ill. 60076-7805, USA.
9 American, US Airways settle DOJ lawsuit 10 Final Airbus A350 XWB test aircraft enters FAL 11 Mexican LCC VivaAerobus orders 52 Airbus A320s 12 Delta posts $1.37 billion 3Q net profit; on pace for record year 13 Lufthansa Group 9-month net profit down 64.6% 14 15 Qatar Airways becomes first major Gulf carrier to join oneworld alliance Juneyao Airlines to launch Guangzhou-based LCC
51 TRenDS 57 CuSTOmeR SeRvIceS 57 ADveRTISeRS InDex 57 ADveRTISeRS WebSITeS 59 InTeRvIeW

Team Player Akbar Al Baker, CEO, Qatar Airways By Karen Walker
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EDITORIAL
DOJ blinked because it had to

EDITORIAL STAFF A i r Tr a n s p ort World

Editor-in-Chief Karen Walker +1 301-755-0165 karen.walker@penton.com Managing Editor Kathryn M. Young +1 301-755-0170 kathy.young@penton.com Senior Editor Aaron Karp +1 301-755-0167 aaron.karp@penton.com Senior Editor/Europe Bureau Chief Victoria Moores Tel: +44 (0) 7966 389 339 victoria.moores@penton.com Editor/ATWonline.com Linda Blachly +1 301-755-0169 linda.blachly@penton.com Data Editor Mark Nensel +1 301-755-0164 mark.nensel@penton.com Contributing Writers Polina Borodina Henry Canaday Katie Cantle Alan Dron Kurt Hofmann Michele McDonald Robert W. Moorman Cuckoo Paul Anne Paylor Edvaldo Pereira Lima Art Direction & Design Unconformity, LLC.
Karen Walker | Editor-in-Chief karen.walker@penton.com
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or reasons that may never be publicly acknowledged, the US Department of Justice came dangerously close to being exposed as a crowd-pleaser with staggeringly little fundamental knowledge of antitrust law when it hovered on the brink of taking American Airlines and US Airways to trial over their merger proposal. In the end, DOJ blinked because it had to. It settled with the airlines, avoiding what surely would have been a public debacle for the government had the trial it sought gone to court. There never was an antitrust case. Certainly not in the made-for-public-consumption statements issued when DOJ filed its lawsuit in August to stop the merger, which largely focused on such things as ancillary fees, which although unpopular, do not constitute antitrust violations. Even for those who drank the antitrust Kool-Aid, there was a large and ominous hint to DOJs shaky legal foundation when it sought to postpone the court hearing until March 2014. If DOJs case was so strong, why delay? Perhaps because DOJmaybe even the White Housesought primarily to exploit this opportunity and score a popular anti-airline vote? Everyone loves to hate the airlines, right? There is only one rational explanation for the DOJ lawsuit, which is that Doug Parkers team may have pushed too hard and arrogantly against divesture of prime slots at Washington DC and New York airports. ATW does not know if this was the case, but American and US Airways must have known going into this merger proposal that slot give-ups would be part of the deala difficult but necessary and fair means to an end. And so the onus was on DOJ negotiators to strike that deal, not to fabricate an antitrust case. The only time such a lawsuit might have made sense was years ago, when the first and second US airline mega-mergers of Delta-Northwest
and United-Continental were proposed and which sailed through DOJ. This thirdand clearly finalmega-merger can only increase competition in an existing and approved consolidated market. Even the European Commission which has a natural tendency to paint any US corporate merger as anti-competitiveapproved the AA-US Airways deal, recognizing the consumer good it will bring to bear in the transatlantic market. By getting this close to a court hearing, the US government exposed two fundamental truths about its highly damaging attitude to the airline industry. First, it has one rule for other service and transportation industriesincluding hotels, restaurants and trainsand an entirely different rule for airlines. Second, the concept of the US airline industry being deregulated is laughable. Government has an important role in ensuring and regulating air transportation safety and consumer fairness, but it way overplays its hand when it micro-manages how airlines run their businesses. That is what DOJ attempted to do with American and US Airways. ATW has no interest in promoting one US mega-merged carrier over another, but there is clearly a strong competitive case for allowing the only un-aligned legacy major carriers to join forces and balance the marketplace. In competition, three is better than two. And while DOJ said it did not regard the merged Southwest-AirTran as a competitor to AA-US Airways, this was just another telltale sign of DOJs ignorance of the industry. In the US, which is the only market DOJ has jurisdiction over, Southwest is a huge and fiercely competitive rival. For American and US Airways, the hard work of fighting for its share of the market at a price it can afford is just beginning. But in a rare coup for the airline industry, the marketplace will decide if they are worthy of that trustnot the government.
LEAP year
Were writing to confirm a date we made with our customers in 2008. The first LEAP engine began testing September 4, 2013. Right on schedule. Just like our last 21 engines. Adjust your calendars, weve made this a LEAP year. Go to cfmaeroengines.com
CFM International is a 50/50 joint company between Snecma (Safran) and GE.
Superior performance | Lower cost of ownership | Greater reliability
MORE TO BELIEVE IN
Headed for record year For daily news stories, Enters final assembly linego to atwonline.com/dailynews
A350 XWB | 10
Delta 3Q net profit | 12
Qatar Airways | 14
Joins oneworld alliance
NEWSBRIEFS
For daily news stories, go to atwonline.com/dailynews
American, US Airways settle DOJ lawsuit; merger to close in December

a very common sense deal here that addresses [DOJ] concerns and allows us to move forward with the merger, Horton said, adding that the airlines did not give up too much. I dont think this settlement is terribly different from what I would have anticipated early on, he explained. We do [still] expect to be the biggest airline in the world Its going to be a great global network. US Airways chairman and CEO Doug Parker, designated as the CEO of the new American, conceded that the merged airline would still like to have all of these assets being divested, but added that the new American will still have the greatest network in the world. He said the divestitures by no means compromise anything we talked about [in terms of overall benefits] when we announced this merger in February 2013. Parker said the overall outpouring of support [for the merger] was phenomenal after the lawsuit was filed and it couldnt help but be noticed Most noteworthy by far was employee support. US Airways president Scott Kirby said US Airways and American will essentially become a single airline for customers by Jan. 7, 2014, with reciprocal frequent flyer benefits put in place. Then well be in a normal integration process, he added. Our labor deals are largely done, so that process will be much smoother than you see in other mergers. American and US Airways said the combined carrier will operate 44 fewer daily departures at DCA and 12 fewer daily departures at LGA than the approximately 290 daily DCA departures and 175 daily LGA departures that American and US Airways operate today. The divestitures required by the settlement are not expected to impact total employment at the new American. Explaining the settlement, DOJ assistant attorney general-antitrust division Bill Baer said, The extensive slot and gate divestitures at these key airports are groundbreaking and they will dramatically enhance the ability of LCCs to compete systemwide. This settlement will disrupt the cozy relationships among the incumbent legacy carriers, increase access to key congested airports and provide consumers with more choices and more competitive airfares on flights all across the country.
AMR
US Airways and American Airlines tails Just 13 days before an antitrust trial was scheduled to start in a US federal court, American Airlines and US Airways settled with the US Department of Justice (DOJ) in November, agreeing with DOJ to divest slots and facilities at several airportsincluding 52 slot pairs at Washington National Airport (DCA)to enable the mega-merger of the two airlines to proceed. DOJ had filed a surprise antitrust lawsuit in August to stop the planned merger, but ultimately backed down and accepted a settlement the department said would enhance systemwide competition in the airline industry resulting in more choices and more competitive airfares for consumers. US Attorney General Eric Holder stated, This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key US airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country. The departments ultimate goal has remained steadfast throughout this processto ensure vigorous competition in airline travel. According to American and US Airways, the airlines have agreed to divest 52 slot pairs at DCA and 17 slot pairs at New York LaGuardia Airport (LGA). The airlines also will divest two gates and related support facilities at each of Boston Logan International Airport (BOS), Chicago OHare International Airport (ORD), Dallas Love Field (DAL), Los Angeles International Airport (LAX) and Miami International Airport (MIA). The divestitures will occur through a DOJ approved process following the completion of the merger, the airlines said. Despite the divestitures, the new American is still expected to generate more than $1 billion in annual net synergies beginning in 2015, as was estimated when the merger was announced in February [2013]. The divestures were necessary to get on with the merger, American chairman, president and CEO Tom Horton told ATW during a conference call with journalists. The impact of those divestitures is mostly going to be regional flying to small markets, Horton said, adding that the overall network strength of the combined US Airways-American and the mergers value are very much intact. Even at DCA, the new American will have more flying than US Airways does now, where it is the largest carrier, according to Horton. Though the airlines were disappointed by the DOJ lawsuit attempting to block the merger, We think weve made
Union rejection means 777X may be built outside Washington state

Boeing union workers in Washington state voted to reject a proposed labor contract extension, casting doubt on whether the 777X will be built at Boeing Commercial Airplanes facilities in the Seattle area. The rank-and-file membership of the International Association of Machinists & Aerospace Workers (IAM) District 751 voted by a 67% to 33% margin to reject an eightyear labor contract extension to 2024. Boeing had already won significant tax incentives from Washington state lawmakers to build the 777X in the Seattle area, and indicated that a positive vote by IAM workers would cement 777X production in Washington state. But after the workers rejected the labor deal, Boeing Commercial Airplanes president and CEO Ray Conner said in a statement that the company is left with no choice but to open the process competitively and pursue all options for [a location to build] the 777X We had hoped for a different outcome.
NEWSBRIEFS
Airbus
MSN5, fifth and final A350 XWB test aircraft, enters final assembly line in Toulouse
Fifth and final Airbus A350 XWB test aircraft enters FAL
Airbus announced Nov. 4 that the fifth and final member of its A350 XWB flight test fleet, MSN5, is underway with the fuselage joining process. This follows the recent arrival of the three fuselage sections at the A350 XWB final assembly line in Toulouse, France. According to Airbus, MSN5 is the second of the A350 flight test aircraft that will feature a passenger cabin. This aircraft will fly for the first time in spring 2014 and will be used essentially to perform cabin-related flight tests. It will also participate in the early long flights where the passengers are Airbus employees. This allows the cabin and related systems to be submitted to near realistic operations in order to ensure a mature cabin at entry into service. In addition, MSN5 will carry out route proving flights to demonstrate to the certification authorities that the aircraft performs perfectly in airport operations, Airbus said. To date, the two A350 XWB test aircraftMSN1 and MSN3 have clocked more than 500 flight test hours in more than 100 test flights. The A350 XWB has won more than 760 firm orders from 39 customers worldwide. First delivery will be to Qatar Airways in the second half of 2014.
MItsUbIsHI fORECasts DEmanD fOR 5,240 REGIOnal JEts

Mitsubishi is predicting demand for 5,240 regional jets in the 70- to 100-seat range by 2032 in its most recent forecast update. Over the 20-year period, the Japanese manufacturer sees average annual traffic growth of 4.7%, led by the Middle East (7%), Asia Pacific (6.1%), Latin America (5.7%) and Africa (4.8%), which is expected to outstrip the average. This will lead to demand for 5,240 new regional jets in the 70- to 100-seat range by 2032, Mitsubishi head of sales Yugo Fukuhara said, speaking at the European Regions Airline Association (ERA) General Assembly in Salzburg. By 2032, Mitsubishi predicts there will be 2,510 turboprops in operation, 5,570 regional jets, 20,030 narrowbodies and 7,230 widebodies. This represents a near-doubling of each of these segments, apart from turboprops. In 20 years, some current aircraft will remain, but new aircraft will be needed to meet demand. For the regional jet segment, we forecast a need for more than 5,000 aircraft in next 20 years, Fukuhara said. The region-by-region breakdown for the 70- to 100seat demand comprises North America (33% or 1,730 aircraft), Europe (20% or 1,040 aircraft), Asia-Pacific (19% or 990 aircraft), Latin America (11% or 600 aircraft), CIS (8% or 400 aircraft) Africa (6% or 300 aircraft) and Middle East (3% or 180 aircraft).
COMAC wins new order for 20 C919s; ARJ21 in FAL

The Industrial Bank Financial Leasing Co. ordered 20 C919s from the Commercial Aircraft Corp. of China (COMAC). According to the agreement, the Industrial Bank (China) has the option to purchase the business jet version of the C919 when COMAC begins production. The C919, the first Chinese-produced narrowbody aircraft, has delayed the launch of its maiden flight until 2015 owing to some technical difficulties, according to an agency insider. First delivery will also be delayed to 2018 or 2019 at the earliest. COMAC has received 400 orders for the C919, mainly from Chinese airlines or Chinese bank financial leasing companies. COMAC said its regional ARJ21 is in the final assembly line (FAL); first delivery is scheduled for the end of 2014.
Boeing to build 47 737s per month in 2017

Boeing will boost 737 production to 47 aircraft per month in 2017, the latest build-rate increase the manufacturer has announced on its narrowbody line. Boeing began producing 38 737NGs per month early this year and the rate is expected to rise to 42 per month in the first half of next year. By 2017, when the company is scheduled to deliver its first re-engined 737 MAX aircraft, the 737 program will build more than 560 airplanes per year and will have increased output by nearly 50% since 2010, the manufacturer said. Boeing VP and GM-737 program Beverly Wyse said the increase will lay a solid foundation as we bridge into production on the 737 MAX. Boeing has more than 3,400 unfilled orders across the 737 family, including more than 1,600 orders for the 737 MAX.
10 ATW | December 2013 | atwonline.com
NEWSBRIEFS
VivaAerobus orders 52 Airbus A320s

Mexican low-cost carrier VivaAerobus signed a purchase agreement for 52 Airbus A320 family aircraft, including 40 A320neos and 12 A320ceos on Oct. 21. VivaAerobus, part-owned by IAMSA and Irelandia Aviation, will replace its entire fleet of Boeing 737-300s to become an all-Airbus carrier by 2016, Airbus said. VivaAerobus has been a pioneer in Mexicos Bus to Air model, an initiative to convert bus passengers to air travelers. VivaAerobus CEO Juan Carlos Zuazua said the order will support our growth strategy, as it will allow us to further reduce our industry leading fares, and will increase the cost-per-seat advantage we currently have among our competitors. The carrier will make an engine selection later; the CFM International LEAP X and the Pratt & Whitney PW1000G are options on the neo.
Airbus
Airbus A320neo and A320ceo aircraft
Second Boeing 787-9 completes first test flight

The second Boeing 787-9 test aircraft completed its first test flight Nov. 7. The aircraft, ZB002, took off from Paine Field in Everett, Wash., and landed at Boeing Field in Seattle; flight time was 4 hours and 18-minutes. As the only 787-9 test aircraft to be fitted with elements of the passenger interior, ZB002 will test systems such as the environmental control system in addition to avionics and other aspects of airplane performance, Boeing said in a statement. The US manufacturer has conducted a series of ground tests on the second 787-9 since its completion in late September. Boeings first 787-9, which completed its inaugural test flight Sept. 17, is on track, the US manufacturer said in a statement. It has completed 137 flight-test hours. According to Boeing, the 787-10 development is progressing as planned. First delivery of the 787-9 to launch customer Air New Zealand is set for mid-2014. Boeing has received 396 orders for the 787-9.
Boeing 787-9 ZB002 test aircraft
JetBlue orders 35 more A321s, including 20 neos

JetBlue Airways placed a new order Oct. 29 for 20 A321neos and 15 A321ceos and also converted existing orders for eight A320ceo and 10 A320neo aircraft to eight A321ceos and 10 A321neos. Airbus said the deal marks the 10,000th order for an A320 family aircraft. JetBlue president and CEO Dave Barger said the A321 is the ideal aircraft for our high density markets. In addition, a subfleet of the A321s will power our Mint premium service on the New York-Los Angeles and New York-San Francisco markets. It is the right aircraft for JetBlues lucrative routes. The order also marks the launch of the sharklet retrofit program, which allows airlines operating A320ceos the option of optimizing their aircrafts performance with the addition of sharklet winglets.
Airbus
JetBlue Airways A321
Aerolneas Argentinas agrees to buy 20 Boeing 737-800s

Aerolneas Argentinas has signed an agreement to buy 20 Boeing 737-800s, the US manufacturer announced Oct. 21. The agreement, which Boeing said is worth $1.8 billion at list prices, will expand Aerolneas current fleet of 26 737s. Aerolneas president Mariano Gallard said the agreement is a key part of a greater plan to renew our fleet and prepare our operations to accommodate growing demand. The Boeing NextGeneration 737-800, which has more seats than our current single-aisle fleet, will give us more flexibility to operate both domestic and regional routes.
Boeing
NEWSBRIEFS
Delta posts $1.37 billion 3Q net profit; on pace for record year
Delta Air Lines reported net income of $1.37 billion for the third quarter, up 31% over a net profit of $1.05 billion in the 2012 September period, on a 6% year-over-year rise in revenue to $10.49 billion. Deltas net profit through the first nine months of 2013 was $2.06 billion, more than doubling net income of $1 billion in the first three quarters of 2012, putting the Atlantabased airline pace to improve on 2012 full-year net income of $1.01 billion and 2011 full-year net income of $854 million. Delta president Ed Bastian cited a particularly strong [third-quarter revenue] performance in Atlanta, New York and London, adding, The revenue environment appears solid through the end of the year, including strong holiday bookings. The companys third-quarter expenses increased 4% yearover-year to $8.93 billion and quarterly operating profit was $1.56 billion, up 19% from operating income of $1.31 billion in the 2012 third quarter. Deltas consolidated thirdquarter traffic rose 2% yearover-year to 54.94 billion RPMs on a 3% lift in capacity to 63.89 billion ASMs, producing a load factor of 86%, down 0.4 point. Passenger yield increased 5% to 16.85 cents. The carriers mainline thirdquarter passenger revenue increased 8.2% year-over-year to $7.57 billion. Breaking down Deltas third-quarter mainline passenger revenue performance by region, the biggest improvement came in Latin America, where the carriers revenue rose 16% year-overyear to $548 million. Domestic revenue heightened 10.7% to $4.12 billion while transatlantic revenue lifted 9% to $1.85 billion. The one area that experienced a decline was transpacific, where passenger revenue fell 5% to $1.04 billion.
Boeing
Interjet SSJ100 Delta Air Lines 737-900ER
Southwest Airlines reports $241 million 3Q net profit

Southwest Airlines reported a third-quarter net income of $241 million, more than doubled from a $97 profit in the yearago quarter. Southwest president, chairman and CEO Gary Kelly said the company is on track with its plan to fully integrate AirTran into Southwest Airlines by the end of next year and we expect to achieve approximately $400 million in annual net pre-tax synergies in 2013. Third-quarter revenue figures increased 4.5% to $4.5 billion year-over-year, as expenses dropped 2.4% to $4.2 billion, Southwest Airlines 737-800 producing an operating profit of $390 million, up significantly from a $51 million operating profit in the prior-year quarter. Yield increased 6.8% to 15.94 cents as RASM Traffic was flat at 27 billion RPMs on a 1% rose 4.5% to 13.60 cents and CASM decreased increase in capacity to 33 billion ASMs, producing 3.4% to 12.43 cents. CASM ex-fuel was down a load factor of 80.8%, down 1.3 points. 1.9% to 8.09 cents.
Rob Finlayson
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Passenger Convenience
Quicker Aircraft Turns
737NG Stowage Bin
info@komy.co.jp
www.komy.com
www.facebook.com/komymirror
NEWSBRIEFS
ANAs fiscal 1H net profit down 45.7%

All Nippon Airways parent ANA Holdings posted a net profit of 20 billion ($204.5 million) for the first half of its fiscal year ended Sept. 30, down 45.7% from the prior-year period, as expenses grew at nearly twice the rate of revenue. ANA projected an operating profit for the full fiscal year ended March 31, 2014, of 60 billion, down 45.5% from a previous forecast of a 110 billion for the 12-month period. ANAs fiscal first-half revenue increased 5.9% year-over-year to 8.16 trillion while expenses rose 11.3% to 7.72 trillion, producing operating income of 43.3 billion, down 42.5. ANAs fiscal first half domestic traffic
All Nippon Airways 787 Interjet SSJ100
increased 3.4% to 18.95 billion RPKs on a 4.8% lift in capacity to 21.14 billion ASKs, producing a load factor of 60.9%, down 0.8 point. Six-month international traffic rose 5.2%
to 15.09 billion RPKs on a 9.1% heightening of capacity to 20.18 billion ASKs, producing a load factor of 74.8%, down 2.8 points. ANA continues to see
growing demand for travel between North America and Asia, via [Tokyo] Narita, and has responded by enhancing its North American route network, ANA said.
Lufthansa Group 9-month net profit down 64.6%

Lufthansa Group reported a net profit of 247 million ($340 million) for the first nine months ended Sept. 30, down 64.6% from the year-ago period. Group total revenue for the 9-month period was 22.8 billion, down 0.23% year-overyear. Operating profit was 661 million, down 27.1% from 907 million in the year-ago period. Adjusted operating profit was 859 million, up 48% from 582 million in Sept. 30, 2012. Lufthansa A380 In a statement, the Lufthansa Group said the results were adjusted for restructuring and project costs and positive nonrecurring effects. We have significantly improved earnings in the passenger business. For the first time in five years, we are in the black with Lufthansas European trafficthanks to the progress with Germanwings. Austrian Airlines has also returned to profitability. Our progress is confirmation of the fact that, strategically, we are on the right track, Deutsche Lufthansa AG chairman and CEO Christoph Franz said. Group traffic revenue was 18.7 billion, down 0.7%. Fuel costs fell 2.9% to 5.4 billion, largely due to lower volumes. On Oct. 22, the Group adjusted its 2013 forecast and projected a full-year operating profit of 600 to 700 million, up from 524 million in 2012, due to restructuring costs, volatile exchange rates and tough market conditions. Adjusted for non-recurring restructuring and project costs amounting to 300 million, earnings are forecast to be between 900 million and 1 billion, Lufthansa said. Revenue is expected to be on a par with the previous year.
Airbus
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NEWSBRIEFS
Qatar Airways Boeing 777-300ER and Airbus A320
Qatar Airways becomes first major Gulf carrier to join oneworld alliance
Qatar Airways on Oct. 29 became the 13th member of oneworld and the first major Gulf carrier to join a global alliance. In a signing ceremony in Doha, Qatar Airways CEO Akbar Al Baker said oneworld membership is a win for the alliance, for Qatar and for the carriers customers. We are convinced that the time is right to join a global alliance group and oneworld is clearly the best, Al Baker said. Qatar, which is just 16 years old, adds 21 new cities to oneworld, bringing the alliances number of destinations to more than 900. It will increase oneworlds total RPKs by 3.3% and RPKs in the Middle East region by 90%. British Airways was the sponsor for Qatars membership and the induction process was completed within one year, the quickest ever. IAG CEO Willie Walsh said Qatars membership was without question the most significant and positive event in oneworld for a long time. Al Baker said that as a young carrier, he wanted to wait and be sure to select the best alliance for Qatar and the alliance for which Qatar could bring the most benefit. We wanted to be a part of a high-class alliance so when we were invited [to join oneworld] we very quickly accepted and we assured our oneworld partners that we will never fail them, he said. Qatars membership comes at an interesting time for oneworld and the major Gulf carriers. Qantas, a oneworld founding member, has formed a five-year alliance with Emirates. Airberlin joined oneworld March 2012 and has a strategic alliance with Etihad, which has a 29% stake in the German carrier. Oneworld CEO Bruce Ashby said that one of the reasons the alliance is now growing so fast is because it does not believe in preventing its members from forging their own bilateral relationships. Oneworld has adopted a flexible approach to bilateral relationships, he said. We believe that an alliance that prevents its customers from doing whats best for their business should go the way of the dinosaur.
Jet Airways reports 3Q loss of $145 million

while expenses jumped 20% to Rs48.51 billion. Fuel prices increased 8% during the period. Aircraft on the ground accounted for a loss of Rs1.2 billion. Jet CEO Gary Toomey said,Indian aviation has witnessed increasing cost challenges, mainly due to rupee depreciation against US dollar, high fuel prices and increase in airport charges in certain stations putting pressure on the bottom line.Jet Airways has managed to remain competitive through series of planned steps, such as discontinuing loss-making routes and stringent cost control. The ongoing initiatives will augment well for the airlines performance in the quarters to come. Jet management hopes the financial position will improve this quarter. The airline will offer more business-class seats and holiday travel trends are looking strong, company sources said. Jet is also looking to replace high-cost debt that will be repaid through equity infusion and cheaper debt.Surplus aircraft in the system will be either leased out or sold in the next few quarters. Despite Jets financial difficulties, the Indian airline sector continues to attract foreign investors. AirAsia Bhd, Singapore Airlines and Etihad have applied to the government for permission to invest in the industry.
Rob Finlayson
Jet Airways Boeing 737-800 Indias Jet Airways reported a net loss of Rs8.91 billion ($145 million) for the quarter ended Sept. 30, widened from a net loss of Rs997 million in the year-ago period. The Mumbai-based carrier was hurt by depreciating currency, high fuel prices and a sluggish Indian market. Income from operations rose marginally to Rs37.88 billion in the quarter from Rs37.6 billion a year earlier, Jet Airways said,
Kurt Hoffman
NEWSBRIEFS
Aer Lingus reports improved 3Q operating profit

Irish carrier Aer Lingus has reported a third-quarter operating profit of 94.9 million ($128.1 million), up 4.4% from 90.9 million in the year-ago period. The airline said the results were achieved despite challenging conditions. Fare revenue in the long-haul sector was up 12.4% to 131.3 million, but short-haul fare revenue was down 5.8% to 259.9 million year-over-year. Gross cash was also down 5.8% to 933.2 million for the quarter ended Sept. 30. Gross debt decreased by a similar amount57.1 million or 10.4%to 492.6 million from 549.7 million in the same period last year. Despite a third-quarter capacity increase of 2.9%, operating costs inched up 0.4%, but systemwide load factor fell 0.6 point Aer Lingus Airbus A330-300 from 86.1% to 85.5% year-over-year. RPKs rose 2.1% to 4.7 billion during the third quarter. Aer Lingus CEO Christoph Mueller said: We do not expect any with the exception of some weakness expected in November, improvement in the short-haul environment for the rest of 2013, which was previously communicated. We maintain our current which remains characterized by heavily discounted fare offerings guidance for full year 2013 operating profit, before net exceptional across Europe. The 2013 outlook on long haul remains positive items, to be around 60 million.
Juneyao Airlines to launch low-cost carrier

Shanghai-based Juneyao Airlines is planning to launch a Guangzhou-based low-cost carrier (LCC)initially to be named Jiuyuan Airlinesto tap into the labor market in the Pearl River region. Juneyao chairman Wang Junjin said it has submitted an application to the Civil Aviation Administration of China (CAAC) and is awaiting approval. Wang said Juneyao would hold more than a 70% stake in the new entity, which will be operated separately. Juneyao operates a fleet of 33 aircraft, which is expected to expand to 50 by 2015.
Rob Finlayson
Juneyao Airlines Airbus A320
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ANaLYSIS
The New Southwest?

As Southwest evolves, Spirit Airlines leads a new breed of US low-cost carriers By Aaron Karp
re the USs new, fastgrowing ultra low-cost carriers (LCCs)in particular Spirit Airlines and Allegiant Airstealing customers from the godfather of LCCs, Southwest Airlines? ATW asked Spirit, Allegiant and Southwest in November at the Boyd Group International Aviation Forecast Summit in Baltimore about competition between the new LCCs and Southwest. Our biggest competitor is Amazon.com or Best Buy, Spirit CEO Ben Baldanza said. Allegiant VP-network affairs Lukas Johnson seconded, We actually dont really compete with anyone Were flying surplus, stimulate-able traffic that no one [including Southwest] is going after Were taking away traffic from Home Depot or taking people away from their couch. Southwest agrees. It appears that it is new customers entering the market [on Spirit and Allegiant] as opposed to [those carriers] stealing [from Southwest or other airlines]. Certainly they are bringing new customers into the market, Southwest VP and chief marketing officer Kevin Krone said. For much of its history, Southwest was the carrier targeting passengers who otherwise likely wouldnt fly. What catapulted Southwest to success was a very simple, one-size-fits-all product, Krone explained. But Southwest, founded in 1971, is now the USs largest domestic carrier and a big part of its business has become competing directly against legacy airlines such as American Airlines and Delta Air Lines for premium passengers. Today when you fly on Southwest Airlines, we offer you a lot of services, Krone said. Now we offer things like
our business select premium product Weve had to be smarter and think about segmenting [passengers] a little differently. Southwest, he said, is selling a more segmented, thoughtful product offering compared to during its strong growth years of the 1980s and 1990s. Allegiants Johnson noted, Southwest has really cut out a lot of the short-haul flying [for which the carrier was once well known]. They decided they needed to start reaching out to more and more business clients. Southwest soon will embark on international expansion for the first time, initially by transferring AirTran-branded international flights to Southwestbranded flying in 2014. In late 2015, the Dallas-based LCC will open a new, $156 million international terminal at Houston Hobby Airport (financed by Southwest) to accommodate flights to the Caribbean, Mexico and northern South American cities. Krone acknowledged that beyondUS flying means the carrier will have to engage in a lot more complex operations than before.
It also means that Southwest now looks more like Delta than Spirit or Allegiant. In the past, youd never mix up Deltas and Southwests financial metrics, JP Morgan airline analyst Jamie Baker said. Today, the fact of the matter is Delta has better metrics in most categories Southwest seems to be going through somewhat of an identity crisis right now. Cheap Seats Spirit, which has become famous (or infamous) for packing passengers into its Airbus A320 family aircraft as tightly as possible and charging low base fares with fees added for nearly all services, doesnt shy away from what it is offering passengers. A cheap seat for a cheap ass, Baldanza joked. More seriously, he added, Were the Ryanair of North America, if you will. The reality is were seeing a growing acceptance of what we do. Customers are choosing to nickel and dime themselves Were actually very similar to the original Southwest. Were positioned where Southwest was in 1985 or so.
To comment on this story or email the author, go to atwonline.com. QQ
There are differences between the business models of Fort Lauderdale, Fla.-based Spirit and Las Vegas-based Allegiantthe formers fleet is comprised of leased, newer A320 family aircraft while the latters consists mostly of owned, aging MD-80sbut there are a number of commonalities. Both are consistently profitable, are operating at a cost level well below the rest of the US industry and are growing aggressively in a mature market in which most airlines, including Southwest, have barely grown for years aside from mergers. Spirit had a 20.3% operating margin in the 2013 third quarter and its September quarter traffic rose 27% year-over-year to 3.24 billion RPMs. Load factor was 89.1%. Spirit plans to continue the fast pace of growth going forward predicting a 15% capacity boost in 2014 over 2013 and an average annual capacity increase of 22% for the two-year period spanning 2014 and 2015. We feel good about our growth because we think there are a lot of places we can grow, Baldanza said, noting that Spirit currently has just a 1.2% share of the US market. The absorption rate for our kind of business model is much, much greater than we have today Ryanair has 11% of Europe. Why not the same [market share] in the US for ultra LCCs? Allegiant plans to grow capacity 13%-15% year-over-year for 2013 and 10%-14% in the first quarter of 2014. Johnson pointed out that Allegiants third quarter fuel-cost per passenger was $54, the same as Southwest even though Allegiant operates much less efficient aircraft. Really, really high load factors and high-density aircraft in a single configuration lead to a low per-passenger fuel cost, Johnson said. Spirits third-quarter per passenger fuel cost led the US industry at a mere $45. Perhaps most importantly, say Spirit and Allegiant, is not promising passengers anything more than a safe, cheap trip. When you survey customers and ask them what they care about, price is by far the number one thing, Baldanza said.
FROM ATWONLINE.COM
HOT TOPICS: READER COMMENTS FROM OUR WEBSITE

Which is better: A380 or 747I? Maybe both: With 650 passengers, there will be little or no room for cargo on the A380; the 747 should be able to accommodate signicant cargo even with a full passenger load, particularly in a mixed-class conguration. Ryanair rolls out customer service improvements: In the meantime, Ryanair made huge prots out of lucrative charges at the cost of irritating millions of customers. I would say it is now too late that Ryanair has started to take care of its customers. Interjet Superjet 100s operating at 100% dispatch reliability: This is an interesting statement. Russian ag carrier Aeroot with its 12-strong Superjet eet still is able to achieve only 4.5 hours per aircraft a day, though the reason could be the airlines network. US DOT nes United Airlines $1.1 million for storm-related delays in 2012: To adopt workable plans to protect passengers from lengthy tarmac delays should be submitted quickly to the authorities concerned. But why did a big carrier like UA not do this important step? ECs Hedegaard gives ICAO emissions agreement a poke in the eye: That is sure the problem with the EC. They seem to be hell-bent on poking the eyes of the aviation community at any opportunity. It is a shame, if then the rest of the countries will go all out for war against this new tax. It must be an indication of how dire the nancial coffers of the EU are. Korean Air nalizes Boeing deal, orders one 787: Korean has made good choices considering its considerable freight business to US. This may suggest future 747400F replacements will be 747-8Fs and perhaps a few 777-XFs? IAM members reject Boeing deal: 777X may be built outside Washington state: I think the workers get it very well...its the same circus that happened with the airlines staff salaries and benets and pensions beaten into the ground so that the employer can get an advantage over the competition. There are states in the south where minimum salaries of $5-an-hour prevail. How can anybody make a decent life? Unions arose to try to protect against this type of exploitation, to improve the lot of the workers. Boeing in Washington wanted an eight-year contract extension, which would have effectively been a pay freeze. But they are a successful company, which has the means to pay its workers a decent wage. Better to work on plant efciencies than make the employees suffer. American, US Airways plan to close merger in rst half of December: This will be denitely benecial for both the airlines. This will help them to establish a good market. Qantas, JAL up stakes in Jetstar Japan to boost growth: A move in line with Qantas Group board objectives. Qantas Airways is reported not to return to a protable status until FY14/15. The projection is that the long-awaited eet renewal investment will occur for the older less fuel efcient aircraft. This Qantas & JAL equity injection secures a promising future in the Japanese domestic market. This JV expands on the Qantas Group pioneering success as the rst major legacy airline to establish and maintain its own protable LLCs.
Quote of the month
The 777X is a paper aircraft and the A350 will be here from next year [on the market] I like to choose a stable, robust aircraft.Japan Airlines chairman Masaru Onishi
atwonline.com | December 2013 | atw 17
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Aviancas
T
here were two moments in 2013 signaling Aviancas arrival as a formidable player in the global airline industry. The first came in June at the Paris Air Show, where the Colombian carriers first ATR 72-600emblazoned with Aviancas liverywas prominently displayed throughout the event. The airline formally took delivery of the aircraft in a champagne-soaked handover ceremony under sunny skies at Le Bourget. The second moment came in November in New York, where CEO Fabio Villegas and other members of Aviancas management team gathered on the oor of the New York Stock Exchange (NYSE) to mark the companys initial public oering (IPO) and the beginning of Aviancas stock trading on the NYSE. High-prole appearances covered by international media in places like Paris and New York werent even far-fetched dreams for the Bogota-based airline back in 2004, when Avianca was rescued from bankruptcy restructuring by Bolivian-born Brazilian entrepreneur
Aspirations
Three years after the Avianca-TACA merger, the airline is a force in Latin America By Aaron Karp
German Efromovich, whose involvement in aviation was then limited to his Rio de Janeiro-based Synergy Group conglomerate owning the small Brazilian regional carrier OceanAir. When it entered bankruptcy restructuring in March 2003 after years of heavy losses, Avianca was in default on aircraft payments and lessors were beginning to repossess aircraft. It was fast running out of money, holding less than $500,000 in cash on hand, according to Seabury Group, which served as the airlines nancial adviser during the reorganization. Little known in international aviation circles, Efromovich put together a $63 million bid for Avianca, winning out over a $60 million bid by Panamas Copa Airlinesa more signicant development than was understood at the time in 2004 and one that continues to shape the contours of the Latin American airline market. (Copa countered by acquiring AeroRepublica, the second largest carrier in Colombia after Avianca. That airline now operates as Copa aliate Copa Airlines Colombia.) Synergy became majority owners of Avianca in 2004 and assumed more than $200 million in debt. Efromovich then boldly predictedmostly to skeptic shrugsthat he would turn the loss-making Colombian ag carrier into an airline that would reach far beyond its borders and be one of Latin Americas top carriers. Three years after the merger of Avianca and El Sal22 ATW | December 2013 | atwonline.com
vadors Grupo TACA and nine years after the bankruptcy rescue, the Avianca Holdings parent company (about 70%-owned by Efromovichs Synergy Group) has a string of airlines, making it Latin Americas second biggest airline company after TAM and LAN Airlines parent LATAM Airlines Group. Brand unity In addition to Avianca, one of the worlds oldest airlines with roots dating back to 1919, and San Salvador-based TACA, Avianca Holdings also controls Costa Ricas LACSA, Taca Peru, Guatemalas Aviateca, Ecuadors Aerogal, Brazils OceanAir (a Synergy holdover), Taca de Honduras and Colombian freight carrier Tampa Cargo (now known as Avianca Cargo). What had been called AviancaTaca Holdings since the 2010 merger formally rebranded earlier this year to Avianca Holdings and announced its intention to integrate TACA and the other airline subsidiaries under a single brand, Avianca. OceanAir, for example, is now known as Avianca Brazil. When looked at as a unied brand, Avianca oers an extensive network that makes it a powerful competitor to LATAM. Our strategically located hubs in Bogota, Lima and San Salvador provide coverage of the domestic markets in Colombia, Peru and Central America, which is unique for a single airline, and support a broad international network connecting the Andean
Latin America is a developing area now and customers are expecting more from airlines.
Alexander Bialer, Avianca board member
Region, Central America, the Caribbean, North America and Europe, Avianca Holdings said in a ling with the US Securities and Exchange Commission (SEC) made in advance of its IPO. Our strong presence within the Andean region and Central America enables us to consolidate regional passenger trac in our hubs and provide connectivity to international destinations, making us a leader in terms of international air passengers carried from our home markets to both North America and South America. Avianca Holdings carriers operate more than 730 daily scheduled ights to over 100 destinations in Latin America, North America and Europe. Avianca joined Star Alliance in 2012, giving its passengers access to a global network comprised of 27 airlines. Avianca has formal codesharing arrangements with Aeromexico, United Airlines, US Airways, Air Canada, Iberia, Lufthansa, Satena and Sky Airline. Aviancas combined eet totals 151 aircraft, including six freighters. The passenger eet is dominated by 95 Airbus A320 family aircraft and the group carriers also have nine A330s, 12 Embraer E-190s and 29 turboprops in the fold. Avianca began taking delivery of ATR 72-600s, of which it has 15 on rm order, this year. Protable growth Growth has been steady. In the 11 months after the Avianca/TACA merger was nalized Feb. 1, 2010, the airline group operated 21.07 billion RPKs. In 2011, RPKs totaled 26.37 billion and, in 2012, grew another 10.2% to 29.07 billion. The growth is expected to continue with a robust order book of new aircraft coming on board over the next six years. In addition to the ATR 72-600s, it has 15 Boeing 787s, 37 A320ceo family aircraft and 33 A320neo family aircraft on order. The rst three 787s will arrive in 2014 and the last three of the 15 Dreamliners are slated for delivery in 2019. I think well continue to grow because all of the countries were serving are growing, Alexander Bialer, a member of the Avianca board of directors, told ATW at the ATR 72-600 handover ceremony in Paris.
Latin America is one of the fastest-growing air trac regions in the world and I think were playing our role and taking our share of it, and hopefully improving our share as we go. But theres room for everyone in this market. We just want to be focused on being seen as the airline of choice. He noted the decision to add ATR next-generation turboprops to its eet was driven by rising expectations among the passengers Avianca is targeting. We have been expanding the company over the last few years, he said. Latin America is a developing area now and customers are expecting more from airlines. So we have provided them with more comfort, more reliable service and more capacity [The ATR 72-600] is the perfect aircraft to serve all these [short-haul] markets that, because of distance, are inappropriate for a jet, yet people demand the comfort of a jet. One of Aviancas primary planks is providing premier customer service, which it believes can serve as a dierentiator in a region where top service is far from standard. Superior customer service is a
FACT FILE
Avianca Holdings Selected Financial and Operating Results

Financial (US $, 000) Operating Revenue Operating Profit Net Profit Operating Passengers (000) ASKs (000) RPKs (000) Load Factor (%) ATKs (cargo) (000) RTKs (cargo) (000) Source: Avianca Holdings
2013 1st Half 2,223,100 138,000 147,506 11,924 18,858,000 14,995,000 79.5 654,000 375,000
2012 Full Year 4,269,656 280,898 38,257 22,425 36,545,000 29,072,000 79.6 1,198,000 748,000
2011 Full Year 3,794,428 202,383 99,876 19,909 33,136,000 26,368,000 79.6 1,087,000 695,000
FACT FILE
Avianca Current Fleet

Type Airbus A318 Airbus A319 Airbus A320 Airbus A321 Airbus A330 Embraer E-190 ATR 42 Cessna 208 Fokker F27 Airbus A330F Boeing 767-300 Boeing 767-200 Total Fleet Source: Avianca Holdings Operating Fleet 10 29 51 5 9 12 8 12 9 1 1 4 151
FACT FILE
Avianca Fleet On Order

Type Boeing 787 Airbus A319 Airbus A320 Airbus A321 Airbus A320neo Airbus A319neo Airbus A321neo Airbus A330 Airbus A330F ATR 72 Total On Order Source: Avianca Holdings On Order 15 14 17 6 10 19 4 1 3 15 104
cornerstone, Avianca said in the SEC ling. We believe we can dierentiate ourselves from our competitors by combining worldclass operating performance with a warm, Latin American service culture We also intend to leverage our LifeMiles frequent yer program to increase customer loyalty and attract new customers by providing top quality benets, including priority seat availability, check-in and baggage handling and VIP lounge access. Avianca Holdings has been protable since the merger, earning net income of $38.3 million in 2011 and $99.9 million in 2012. Net prot through the rst half of 2013 was $147.5 million. Revenue grew 12.7% year-over-year in 2012 to $4.27 billion. Revenue for the rst six months of 2013 totaled $2.22 billion. Avianca Holdings, which remains majority-controlled by Synergy Group, raised $409 million in the November IPO by oering 27.2 million shares priced at $15 each. Villegas said the funds will be put toward eet modernization, calling Avianca trading on the NYSE a key milestone in the [Avianca Holdings group of ] airlines consolidation and globalization process. We have no doubt that this capitalization will drive our intended modernization and growth plans, while simultaneously reassuring the reliability the investment community expects as a result of our companys value and strength. Future plans Avianca noted in its pre-IPO SEC ling that it has grown signicantly post-merger. We believe we have already achieved many revenue-enhancing synergies from the integration of Aviancas and Tacas networks, which was the initial focus of the combination, Avianca stated. We are now ready to implement a second stage of our integration plan focused primarily on achieving costoriented synergies from greater operating and administrative eciencies and economies of scale. Avianca will seek cost synergies by consolidating maintenance procedures across the regions we serve and optimizing our ight operations, increasing aircraft utilization through interchangeability of aircraft, better crew planning and more
ecient use of our regional hubs. We also intend to achieve synergies by unifying our IT platforms in nance, maintenance and operations. The company cites its position on the map as a big strength going forward. We have a leading presence in the Colombian domestic market and also in the market for international passenger service within the Andean region and Central America, a region with approximately 136million inhabitants as of Dec.31, 2012, and what we believe to be dynamic and growing economies, it said. Our passengers carried increased 27.4% in 2011 and 12.9% in 2012, outperforming Latin America average growth We believe our strong presence in the regions in which we operate positions us well to benet from economies of scale and grow from a position of strength. Avianca said it expects to add new destinations, routes and ight frequencies in Latin America to meet or stimulate demand for our services, in particular by adding new long-haul and other international destinations to be served from our Bogota and Lima hubs We also expect to continue to evaluate selectively additional growth opportunities through strategic alliances with other airlines as well as potential acquisitions and strategic opportunities that would complement our existing operations. The airline group is also planning to grow its cargo business. It now operates one Airbus A330F and ve Boeing 767Fs. Avianca has a signicant opportunity to increase our footprint in the cargo business by leveraging our leadership position in Colombia to grow in other Latin American markets, the company told prospective investors. We plan to enhance our competitiveness in the cargo sector by adding three new Airbus A330-200 freighters [by the end of 2013] dedicated exclusively to cargo transport. In addition, our modernized passenger eet will have greater cargo capacity and allow us to continue to earn incremental revenues by complementing our cargo routes with cargo transported in the bellies of our passenger ights. Edvaldo Pereira Lima contributed to this article.
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FLEETS
Lucrative
By Robert W. Moorman
but Risky
As the commercial airline business improves slowly, so does the leasing trade
n improving economy worldwide, record orders for new commercial airliners, plus an emerging market for used equipment is for now improving the aircraft leasing business. But industry analysts worry about overcapacity of new aircraft with marginal airline growth expected in some areas for the foreseeable future. On the demand side, the developing economies are slow, but things appear to be getting better, Norman C.T. Liu, president and CEO of GE Capital Aviation Services (GECAS) said. On the emerging side, things are slower than before. GECAS has just under $50 billion in assets. Operating leases account for $35 billion roughly; debt nancing, $8 billion; and around $3 billion in spare engine leasing. One reason for the improving fortunes of leasing companies is the growth of operating leases, even among legacy airlines. For years, operating leases were
the nancing vehicle of choice for undercapitalized new starts. How much of a legacy airlines or lessors eet is on operating leases today depends largely on who you ask. Anywhere between 35% and 50% is what ATW is hearing. Operating leases represent about 40% of the [commercial aircraft] market and it is trending toward 50%, CIT Aerospace president Tony Diaz said. CIT had 161 commercial aircraft on order as of March 31, 2013, with deliveries scheduled through 2029. Legacy carriers in the US have not done a lot of operating leases historically, in part, because the capital markets are stronger in the US. That is still true in some cases, Diaz said, but major airlines like the exibility of operating leases, which dont appear as debt on the balance sheet. Operating leases are not a panacea, but they enable a carrier to grow without assuming more debt.
BOEING ANNOUNCED from the 2013 Paris Air Show that CIT Aerospace has placed an order for 30 737 MAX 8s.
DORIC ORdEREd 20 Airbus A380s at Paris.
If you want to grow at 8% per year, you can probably do pure equity purchases, but if you want to grow 15%-20%, youd better do some leasing, said John Feren, EVP Aviation Capital Group (ACG), the aircraft leasing arm of Pacic Life Insurance Co. ACG has over 250 owned and managed commercial aircraft leased to 90 airlines in 40 countries. In late October, the US 10-year lease rate stood at around 2.7%, which is higher than it was six months ago, but still a very good rate, said Steve Fortune, founder of Fortune Aviation, a commercial aircraft trading and leasing rm. The jet leasing business is strong thanks to a happy combination of eager customers and eager cash providers, said Richard Aboulaa, VP analysis at The Teal Group. Financiers have access to money at very lower rates, and there arent a lot of other great investment opportunities. Most of the growth in the leasing business is in blue chip narrowbodies, such as the Airbus A320/ A321 and Boeing 737-800, and will likely continue for the next generation A320neo and 737 MAX aircraft. Narrowbodies represent around 40% of GECAS eet value. Widebodies represent around 20% of GECAS leasing portfolio, Liu said. While operating leases are gaining in popularity among airlines, it is unlikely they will supplant debt nancing anytime soon. Some of my peers might say there is a massive shift to operating leasing, Liu said. I dont see that much change at major carriers, particularly with the
airlines availing themselves to the bond market. Others agree. The capital markets have come back very nicely, with the number of Enhanced Equipment Trust Certicate (EETC) transactions on the rise, Feren said. EETC transactions, in which a trust certicate is sold to investors to nance an aircraft purchase, had been the province of US major carriers. But now, a number of international airlines have done EETC transactions quite successfully, Feren said. Those companies include the International Airlines Groupparent of British Airways and IberiaAir Canada, Emirates and Virgin Atlantic Airways. Overcapacity Concerns The record number of orders for new equipment has lessors excited, but some industry analysts worry about aircraft overcapacity in light of some legacy carriers current strategy of shrinking capacity to maintain protability. Orders and deliveries are growing quite substantially, but I am not positive that the demand will be there, said Adam Pilarski, SVP at Avitas, an aviation consulting rm. Were already in a bubble environment. There are a number of potential problems on the macro level and, if they occur, it could cause the bubble to burst, he said. Aboulaa took another view. Despite the potential risk of overcapacity, jet nance returns are still higher than most other investment opportunities, Aboulaa said. This dynamic has
FLEETS
helped boost the jetliner market to a new peak, with a record level of transactions funded by third-party nanciers. Domestic capacity of Airlines for America (A4A) member airlines rose just .8% from January to September 2013 versus the same period in 2012, according to gures compiled by A4A. Capacity over the Atlantic and Pacic oceans dipped -1.7% and -0.8%, respectively, while Latin America rose 7.1%. For 2012, worldwide ASKs rose 4.2% over 2011 to 6.9 trillion, according to IATA. For North America (US and Canada), ASKs rose 0.5% to 1.77 trillion. Most lessors doubt there will be a surplus of white tails hanging about or put on the used market once the initial lease has expired. From the airline perspective, the orders seem sized sensibly, Liu said. For many network carriers, the orders will replace existing aircraft. In emerging markets, the new aircraft will support growth, he added. Another point: airlines seem more deliberate and conservative in their order patterns these days. The biggest thing that has changed is the balance between growth and replacement, Feren said. Diaz shares this view. The US airlines have been able to sustain protability because they have showed capacity discipline in controlling growth. Yet the overall pie of aircraft needed is still growing, primarily because of tremendous demand in Asia, China in particular, and India, he said. [Boeing announced in late October 2013 it had secured commitments for up to 200 MAX aircraft from numerous Chinese customers.] Ten years ago, 70% of the airline orders were for growth and 30% were to replace aircraft, Feren said. By 2008, the numbers were 60%/40%, respectively, and the replacement gures continue to rise. There is another factor that could help reduce the possibility of overcapacity of new commercial aircraft. Leasing companies have a tremendous amount of power within the aircraft manufacturing and sales market. They own a sizable portion of the backlog for Boeing and Airbus aircraft. Over 50% of the Boeing 737-800s and Aibus A320 family of aircraft are owned by leasing companies, according to ACG. Consequently, input from lessors will help balance scales to help prevent against over-ordering. But what could turn the leasing market onto a more traditional track of debt nancing over operating leases is for interest rates to spike and fuel prices to go down. Then you will see a shift of second and third-tiered carriers taking older aircraft again because they would lose the advantage of low-cost nancing and the better fuel economy of new airplanes, Fortune said.
New Opportunities Leasing companies have found revenue opportunities in the slightly used aircraft market. Some airlines are looking at used equipment as a bridge vehicle until their Neos and MAXs arrive, Liu said. So larger carriers are willing to have ve- to seven-year operating leases. Pockets of demand exist for this type of equipment, several lessors said.
SLOW FREIGHTERs
Steve Fortune is brief and blunt on the state of the freighter leasing business: There isnt one. The freighter market is in the worse shape I have ever seen it, said the founder of Fortune Aviation, which specializes in aircraft acquisition and passenger-to-freighter-conversion management. The number of widebody conversions is extremely small, he said. Many widebody aircraft are parked today, including various Boeing 747 models and Airbus A300s. Fortune cites the less-than-stellar world economy as the principal reason for the lack of freighter lift, which adversely affects leasing. Another problem for the all-freighter trade is that passenger airlines are putting additional, larger aircraft on long-haul routes. I think this is contributing to the glut in capacity, said Brandon Fried, executive director at the Airforwarders Association. The reality is that the passenger fleet is getting bigger and putting a dent in the all-freighter market. The passenger aircraft with ample belly cargo space include the Boeing 747-400s, 777s and 787 Dreamliners. The ultra-large Airbus A380 is not considered ideal for belly cargo, Fried said. The wing-box is so large that it constricts the belly cargo. The 787 is considered an ideal aircraft for carrying belly cargo on very long, thin routes, he added. On the narrowbody side, the picture is slightly better, Fortune said. A number of narrowbody aircraft, such as Boeing 757s and McDonnell Douglas MD-80s are being converted to freighters, but the numbers are smaller than in years past. Lease rates are steady for freighters, but higher than for passenger aircraft because freighters fly fewer hours per year. Fortune is working on financing an MD-80 freighter, which logs around 11,000 flight hours per year. Compare that to Delta Air Lines [passenger] MD-80s/90s, which record twice as much flight time annually, Fortune said. Robert W. Moorman
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The jet leasing business is strong, thanks to a happy combination of eager customers and eager cash providers.
Richard Aboulafia, VP analysis at The Teal Group
ILFCS FIRM contract for 50 additional Airbus A320neo Family aircraft announced at Paris increases its total firm neo order tally to 150.
Take the case of American Airlines. American has sold and leased back several of its new aircraft orders to leasing companies. Part of the reason was Americans desire to horde cash as it goes through a period of uncertainty. But American and other legacy carriers also like the exibility of operating leases, according to leaders of several leasing companies. If an airline is transitioning from one aircraft type to another, and wants to eliminate the residual risk, the carrier can engage in a sale-leaseback agreement and let the lessor absorb the risk. Southwest Airlines is another carrier that will engage in a sale-leaseback arrangement to achieve better eet management, Diaz said. Southwest will lease used aircraft to add capacity because it cant get new equipment from the aircraft manufacturer fast enough. It takes four- to ve-years lead-time to order and receive a new Boeing airliner, Diaz said. What were seeing is perfectly good 10-year-old A320s and 737s coming o lease because carriers are being oered new equipment by manufacturers at rates lower than the aircraft they were leasing presently, Fortune said, which further seeds the used aircraft leasing market. Financing vehicles Banks are starting to lend money for the acquisition of new aircraft. But there is a lack of nancing available for aircraft that are four and ve years old, Diaz said. And there is still the prevalent problem that banks dont understand the airline business.
Another new nancing vehicle is being oered. Doric Lease Corp., an asset management company, is attracting retail investors for nancing Airbus A380s. Doric has worked on a number of transactions in which investors buy a piece of an A380. The nancing vehicle remains untested, but lessors consider this a novel approach for airlines to secure nancing for their equipment. In conjunction with Nimrod, an investment fund specialist, Doric sold shares to investors, who get quarterly dividends tied to A380 lease revenues, providing the airlines pay. Once the A380 comes o lease, the investors get the proceeds when the A380s are sold. Not everyone is buying into this concept. A380 residual values are likely to be hugely disappointing to these investors, said Aboulaa. Doric is a nancial lessor, with little experience in remarketing aircraft. Theres no guarantee of any kind of secondary market, which would be devastating for a lessor. ATW could not reach Doric for comment on its new nancing vehicle. At the 2013 Paris Air Show, Doric announced an MOU to acquire 20 A380s in a deal valued at $8 billion. Airbus is projecting a need for 29,220 new passenger aircraft, according to its Global Market Forecast 2013-2032, a 4.7% growth per year. And Boeings forecast is equally rosy. If these projections are correct, lessors too will benet for many years to come, provided airlines balance capacity between growth and replacement.
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FLEETS
Maintenance
INClUdEd
OEM engine support becomes critical to fleet planning By Henry Canaday
ong-term support of engines costs far more than the initial purchase, and engine maintenance is the largest element in aircraft maintenance costs. Engine support options are a critical consideration in fleet planning. Engine manufacturers lead the way in oering maintenance and overhaul packages, charged per ight hour, commonly referred to as power-bythe-hour. These arrangements convert some xed infrastructure costs into variable costs per revenue-
earning ying. But they come at a price and must be examined against alternatives: all or partial in-house maintenance; ight-hour contracts with independent providers; and one-o repairs. Rolls-Royce pioneered power-by-hour support. GE Aviation, Snecma, CFM International and Pratt & Whitney oer similar deals, with more exibility. GE and Pratt have developed long-term support plans aimed at increasingly important leased aircraft and engines.
Rolls-Royce head of customer marketing services Mark Kerr divides customers into those that manage and perform maintenance themselves and those that use providers to plan and deliver engine maintenance. Self-managers obtain Rolls foundation services, some free and some not. These include customer support, technical support and readiness planning. Self-managers also get operational support, technical knowledge and basic tools to manage eets. For example, self-managers get an Engine Management Program to create best-practice overhaul work-scopes. If they transmit Engine Health Monitoring data, they receive basic EHM service from Rolls OSyS unit to plan engine management and maintenance. They get online access to Aeromanager to order parts and request training or overhaul slots, plus service bulletins and airworthiness directives. And they get answers to technical queries, troubleshooting and technical solutions. Under TotalCare, Rolls absorbs all the costs and risks of engine management and maintenance, for which operators pay additional charges. Customers pay when engines y a xed rate per ying hour. TotalCare monitors and looks after engine condition and includes full EHM, deployed non-routine line maintenance, engine-shop maintenance and engine durability and reliability improvements. High TotalCare uptake About 90% of operators with Trent engines use TotalCare. Kerr expects the program will be as popular on newer engines. TotalCare allows operators to exploit Rolls engineering knowledge and eet-wide data. Kerr estimates it would take an airline 90 years to accumulate the ying hours Rolls monitors each year. One result: Customers with TotalCare have engines that stay on-wing longer, about 25%, than those choosing to self-manage. For engines on leased aircraft, Kerr says Rolls foundational services typically satisfy the lessor, and operators can add optional services, such as line replaceable unit (LRU) management, transportation, and non-dedicated spare engine service, to customize TotalCare for specic needs. As with Rolls, if an airline chooses to buy a GE engine without a maintenance package, it receives a minimum level of service, guarantees and warranties and access to GEs operating center. At overhaul time, it can choose any shop certied by regulators and licensed by GE. GEs OnPoint covers basic engine overhauls, including parts, labor, repairs, tests, eet management and remote diagnostics. OnPoint general manager Mahendra Nair said, customers can choose one or
more of these services. The package can also include OnPoints maintenance cost per hour (MCPH) program, one- or two-way transportation, upfront or a la carte on-wing support, coverage of life limited parts, LRUs and foreign object damage. Customers that do overhauls in-house can also choose material-by-hour support, sending all or a portion of materials to GE for repair. Of 27,000 GE engines operating, 9,000 are under OnPoint and 80-85% of these are MCPH. These portions are increasing as CFM LEAP and GEnx
FLEETS
relatively small portion of the PML ight-hour charges monthly and then pays the rest at shopvisit time, accommodating a lessors preference to hold maintenance reserves. The base prices are xed up front by a table in the PML contract that takes into account operating conditions of each airline lessee: leg length, thrust ratings, ambient temperature and so forth. CFM can then sign an activation agreement with each airline lessee to authorize maintenance be performed under the PML agreement. CFM has already signed a master PML agreement with GE Capital Aviation Services and hopes to get a couple of airlines signed up under this contract by year end. It is in discussions with two other major aircraft leasing companies, plus engine lessor ELFC. Snecma also oers a exible set of rate-peright-hour contracts as well as Time & Materials support. Pratt & Whitneys primary oer is its eet management program (FMP) for airlines or leasing companies that want overhauls done in Pratts network, Pratt director of service programs Jim Pennito said. The manufacturer also oers materials management (MMP) to carriers that want to do overhaul disassembly, assembly and testing in their own shops. FMP and MMP, charged per hour, represent 95% of Pratts long-term support. FMP and MMP have been oered mostly for Pratt PW4000s and IAE V2500s, engines that customers plan to operate for a while. They cover half of ight hours own by PW4000s, evenly split between FMP and MMP, and 60% of V2500 hours, all FMP. For older JT8Ds, JT9Ds and PW2000s, Pratt oers material-repair agreements. Variations are allowed under FMP and MMP. Some customers pay monthly, others at time of shop visits. Agreements can cover dierent time periods or numbers of shop visits. engines are ordered. GEs support has worked slightly dierently for engines on leased aircraft, as eventual operators are not known at the time of sale, and operating conditions aect the ight-hour rate GE can charge. Brian Ovington, principal market manager for engine services, said GE has begun to oer lessors a product that integrates the interests of their lease contract with GEs OnPoint agreements made directly with airlines. CFM has also introduced a Portable Maintenance for Lessors (PML) program. The lessor pays a GTF support program Pratt oers FMP and MMP on geared turbofan engines, typically with a 15-year term. The programs have captured almost all of the 80% of GTF customers that are airlines, but not the 20% that are lessors. So, like GE, Pratt has been developing a program for leasing companies that puts operating conditions in a matrix and will adjust the hourly rate according to how engines are eventually own. Pennito says he is close to a deal on these terms with one leasing company.
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FLEETS
MANAGING uncertainty
By Karen Walker
Lufthansa Groups approach to long-term fleet management is based on building in flexibility for good or bad times.
he head of Lufthansa Groups fleet management team takes a highly analytical approach to filling the future new aircraft requirements of the airlines that make up the Group. Looking out to 2025, Lufthansa has crunched all the numbers, calculated the best and worst case scenarios, and has planned for a fleet that will give the Group the most flexibility regardless of circumstance. Lufthansa Group EVP eet management Nico Buchholz told journalists in a New York brieng in November that the Groups strategy for new aircraft acquisitions is based on rm orders that will enable 3% growth through 2025. We see three scenarios of growth through that time1%, 3% or 5%, Buchholz said. Our basic scenario assumes a growth path of 3%, but at the same time we have the exibility to adapt if things go bad or good. So we have the exibility for 1% or 5%.
We can do that through either retiring more aircraft or doing more roll-over. More growth will be covered by new aircraft options and also keeping aircraft in service longer. We have a completely breathing production system through 2025. Lufthansa Group has 295 new aircraft on order for delivery between 2015 and 2025. They include four Airbus A380s, 25 A350s, three A330s, 15 Boeing 747-8s and 45 777s. Also in that total, valued at approximately 36 billion ($48.3 billion) at list prices, is a mix of Airbus A320s, Bombardier CSeries and Embraer E-195s. The goal is to have fewer aircraft types and a more homogenous eet structure across the Group, Buchholz said. He also pointed out that the key drivers for airlines in their eet choices have changed. Speed, range and size were the historic drivers of the industry, he said. Todays airline focuses on economic and
FLEETS
ecologic awareness. You need low seat-mile costs and high performance. It is a much more complex and much more complicated market. Lufthansa Group focuses on having the best class cost position over the life cycle of the aircraft and continuous, sustainable aircraft procurement. Those are the two key topics for us. That focus on continuous, sustainable aircraft procurement was part of the reason behind Lufthansas decision to buy the CSeries jetliner. Buchholz said the CSeries order was part of Lufthansa Groups wider determination to maintain a competitive airframe OEM environment. We had a requirement in that market segment but we also knew that we would get a signicantly better product from Airbus and Boeing [if we bought the CSeries], he said. However, Buchholz also acknowledged he would like to see Bombardier log more CSeries sales. We are not worried yet, but we need to see it happen and we are focused a lot on the entry into service date for that, he said. So we want Bombardier to deliver [CSeries] -100s and -200s and to get a couple more sales. We think there is potential to stretch it further. Bombardiers maiden CSeries airliner ight was conducted from Montreal-Mirabel Sept. 16. First ight was originally planned for the end of 2012, but in November that year Bombardier announced a six-month postponement to the end of June 2013, citing delays in nal assembly of the aircraft. First Forward Thinking Beyond maintaining a competitive OEM landscape, however, Lufthansa Group focuses on life cycle costs and adaptability. We work to understand the merits of our aircraft over the long term. We play the what ifs?, which include what if fuel prices double? Load factors of 65% used to be good. Now, an airline with 65% load factors would be dead. So we get involved with the manufacturers very early on because once an aircraft is being produced you cant change much and you certainly cant change the big things, including life cycle costs. It becomes a bit like buying a car. The only way you can reduce your fuel burn is to lift your foot. Lufthansa has a unique quick-change policy for its aircraft cabins. It can shrink or grow its business class cabins in one day at its Frankfurt hub, enabling it to react rapidly to market changes. The system comes out of its Lufthansa Technik unit and it is important to Group operations, but its another factor in the emphasis on close and early talks with OEMs on new aircraft. It also requires a lot of forward thinking and sometime means spending more upfront for the right long-term costs. For example, the quick-change system is more dicult to accomplish and is less costeective if aircraft oors have to be reinforced before adding seats. We have to think forward and maybe put a dollar more in at the front to save in the future, Buchholz said. We also focus a lot of reliability. Every single unit has to work because otherwise you get disruption and that is costly. We have to evaluate all criteria, including ight performance and operating costs. Buchholz added that for Lufthansa, dispatch reliability is expected to be above 99%. In its eet procurement decisions, Lufthansa also factors in the knowledge that its customer products will probably change three times over the life of the aircraftanother reason why in-built exibility is important. We also look at engine exibility. Engine choice can be decisive for exibility, Buchholz said. With the A330 engine, two out of the three choices had the protability we needed. Even when there is no engine choice, there is choice because we can choose another aircraft. Buchholz also dismisses the idea that older aircraft are more expensive to operate. The technical reliability of our 747-400 eet has increased slightly over time and there is hardly any capital cost against them, he said. There is no dispatch reliability/age correlation. The -400 works very well on reliability. If you maintain them properly, there is no reason why they should not be a reliable operation.
Even when there is no engine choice, there is choice because we can choose another aircraft.
Nico Buchholz, Lufthansa Group EVP eet management

ight was subsequently delayed to the end of July, but Bombardier missed that deadline because of software upgrades and additional integration work. Firm orders for the CSeries stand at around 177 against Bombardiers goal of 300 by entry into service; 63 of the 110-seat CS100 variant and 114 of the 135/160-seat CS300 variant. Lufthansa Group has a rm order for 30 CSeries jets plus 30 options. The aircraft are planned to be used by Swiss International Air Lines as replacements for its RJ100s. The aircraft will be powered by Pratt & Whitneys new PW1000 geared turbofan. Buchholz said that for Lufthansa, evaluation of the CSeries engine performance was a critical part of their review. We evaluated the engine of the CSeries for two years before we evaluated the aircraft because we felt the engine was a crucial technology, he said.
Airbus, its logo and the product names are registered trademarks.
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Youd never accept this.
So why would you accept this?
Personal space isnt any less personal on a twelve hour long-haul ight. Yet some aircraft manufacturers are dreaming about matching our economics by reducing the width of their standard economy class seat in many cases less than the seat width found on many commuter aircraft. This shouldnt be the standard for personal space. Thankfully, these days you have a choice. Demand the Airbus standard for personal space. With the 18 inch standard economy class seat on the A330 and A350 XWB and the 18.5 inch economy class seat offered standard on the A380, itll make a massive difference. So, the next time youre feeling squeezed on a plane, at least now youll know why: Its not you, its the seat.
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regional roundabout
The European regional scene is all about adaptation and finding new business models By Victoria Moores
ver the last 12 months there has been a shake-up among Europes regional carriers. SAS has sold Wideroe, Air France has created the amalgamated regional brand HOP! and put CityJet on the auction block, bmi regional has completed its first year as an independent, and UK regional Flybe has hit hard times. What is driving this change? SAS was forced to sell Norwegian regional Wideroe as a pure cash-generation exercise following its near-collapse late in 2012. It was a matter of survival. If we had been in a dierent nancial position, we wouldnt have gone down this path, but we need to demonstrate to the bank consortium that we can reduce our cost base and build cash quickly, SAS CEO Rickard Gustafson told ATW in February. A group of Norwegian investors has now acquired 80% of Wideroe and SAS is planning to divest the remaining 20% in 2016. This reluctant disposal formed part of SAS 4XNG plan, which is one of the many Restructuring Plan 2.0s being rolled out, placing regionals under further scrutiny. Similarly, Air France is demanding an 18% cost reduction from its regionals under its Transform 2015 program. Its three French regionalsBrit Air, Regional and Airlinairwere unied under the HOP! brand in March. They retained their individual air operators certicates (AOCs), but have essentially become fully owned wet-lease suppliers. HOP! provides the airlines with pooled-back oce functions and also has its own AOC so it can sell tickets under
its A5 designator. We needed to nd a solution to adapt our eet and labor [costs] to the real size of the market, HOP! EVP restructuring and strategy Philippe Micouleau told ATW in Salzburg. We are close to our objective of reducing our capacity and global costs. We just leave it to the management [of each airline]. They have to be protable while selling to us at a dened transfer price per ight hour. By creating HOP! Air France has dodged the thorny issue of integrating the diverging labor agreements, eets and bases of its regionals. It has also stripped out three veteran brands and turned them into production platforms. But is this enough? I respect where Air France is coming from, but this is a bit like trying to get an elephant to ballet dance, said Patrick Edmond, principal at strategic
I respect where Air France is coming from, but this is a bit like trying to get an elephant to ballet dance.
Patrick Edmond, e2consult principal.
aviation advisory rm e2consult. If all you have is an elephant and you know youre going to have a ballet performance, you will do your best to teach the elephant to ballet dance, but that doesnt necessarily mean its going to be an elegant performance of Swan Lake. On one hand, you have the market saying is this too little, too late. On the other you have the Air France Group, which I greatly respect, but it is quite slow moving. I think HOP! is Air France and its subsidiaries moving pretty much as fast as they can at the moment. Things are also moving slowly for Air Frances Irish regional, CityJet, which was put up for sale last summer. Germanys Intro Group emerged as a likely buyer, although exclusive negotiations ended in September without a deal. That said, CityJet CEO Christine Ourmieres was seen speaking with Intro executives at the ERA General Assembly in October, indicating they could still be in the frame. I am hoping the sale will be concluded as soon as possible, for the team, and ahead of the 2014 summer season. I think the end of the calendar year could be possible, Ourmieres told ATW in Salzburg. Regional Independence While waiting news of its potential new owners,
CityJet has reinvented itself as an independent carrier. From April 1, 2014, it will operate scheduled ights under its own WX code for the rst time since it was acquired by Air France. With guidance from consultancy rm Conztanze, Ourmieres is also overseeing the roll-out of new revenue management, accounting and departure control systems. This has been a fantastic opportunity to reinvent ourselves as we move out of the Air France cocoon, Ourmieres said. We have done it now so that by the [2014] summer season we can take a more independent approach to the market. CityJet is following a similar path to that of bmi regional, which became independent when bmis mainline business was acquired by British Airways. Last year was a bit of a haze of activity, bmi regional CEO Cathal OConnell told ATW. We had to create all of our infrastructure from scratch. It was like needing an engine change in ight. OConnell believes the secret to success as an independent regional lies in providing high-frequency links for the business market, taking passengers directly from A to C, avoiding a connecting hub. The biggest challenge is making sure regional carriers recognize what they are. You have to respect the operating economics of regional aircraft and nd ways
FLEETS
to compete with what your aircraft allows you to do that your competition cant. This gets to the heart of the regional model, serving niche business routes on a high-frequency, point-to-point basis when the total trac cannot justify a larger aircraft. However, successfully identifying these routes is a challenge. That is the sweet spot for regionals and it is complimented by hub feed, which regionals have a big part in. Those are the focus niches the regionals have to chase. The days when regional carriers were isolated from low-cost carrier driven market realities are over. A regional carrier cant charge 200 ($268) a seat on a market that is anywhere close to a low-cost carrier, charging fares from 30. Low-cost carriers have durably set price expectations. The value proposition for regionals, which was always a little bit challenging, is getting even more challenging, Edmond said. While regionals may not be able to match a lowcost carrier fare, business travelers will pay a premium to avoid an overnight stay, but this does not work for a low frequency, high price service. Getting home that evening is a real inuencer, said OConnell. Flybe restructures Demand-led pricing pressure means regionals are under increasing pressure to optimize their cost base,
so could someone step in to become the regional version of easyJet or Ryanair, akin to Azul in Brazil, setting up a country-agnostic brand and gaining the scale needed to oer low regional fares? Regional heavyweight Flybe is the only one to have come close, but recently it has demonstrated that scale is not a magic remedy. With its acquisition of BA Connect, coupled with an ambitious aircraft order book, Flybe became the poster child for regional low-cost operations. But this year it has been forced to cut 300 jobs, roll out a 35 million ($46.8 million) restructuring plan, sell its Gatwick slots and overhaul its senior management team. Flybe has had a bit of a stumble more recently and I hope and believe they will get their act together, Edmond said. My personal take at the moment is that if a meteorite were to wipe out 20 aircraft on ight line at Southampton, theyd probably open the champagne. They are just a little bit over-dimensioned at the moment. They could subsequently sell tickets to the crater as a tourist attraction. Flybe has set up a franchise operation for Finnair. Likewise, Aer Arann is franchise ying for Aer Lingus. Europes majors seem to be increasingly looking for franchise partners where the regional is willing to take on some of the risk. They need feed and this still hinges on a number of routes in Europe which only suit regional carriers, OConnell said. The model I see is an evolution where the regional carriers continue to take commercial risk, but they have a close feeder relationship with the network carrier that mitigates that risk. I was talking with one regional airline CEO and his comment was that the majors are desperate to have us feed them, Edmond said. That suggests to me there is scope for a little bit of negotiation on who takes the risk. If regionals are suering and closing down, its a risk for the European network carriers because if they cant get feed into their hubs, the giant sucking sound of passengers being sucked into the Middle East will just get louder. The ght for survival and cost containment is undoubtedly the common denominator linking all the changes the regional sector has seen over the last 12 months. It is undisputed that regionals play an essential role linking Europes regions and economies, but they also have to be sustainable in todays market place. Unfortunately regional airlines have to operate in the world we have, rather than the world they would like it to be. Virtue tends not to be lucrative, otherwise social workers would be paid more than bankers, Edmond noted.
Rob Finlayson
interview:
Peter Davies, CEO Air Malta
Fighting Back
When Peter Davies joined Air Malta in March 2011, the airline was technically insolvent and in dire need of a rescue loan, which the European Commission had just approved. Drawing on his experience as CEO of UK regional Air Southwest, Caribbean Airlines and SN Brussels Airlines, Davies has already made significant headway in narrowing Air Maltas losses. by victoria moores
How is the turnaround progressing? We are half way through the restructuring plan and on track nancially, in terms of reducing the losses. For the year ending March 31, 2013, we had a 13 million [operating] loss ($17.5 million), the previous year was -30 million and the year before that was over -35 million, so we are headed in the right direction. We have achieved this by losing 500 people out of a sta of 1,300, changing really outdated processes and procedures, and weve got a new pricing policy in place. The rst half of this year is looking pretty good. Weve got some big hurdles to jump in the future and we have every condence that will be achieved. What are the main items that still need to be addressed? We need to start looking at the eet. Our leases begin to run out in 2016-19, so were in the process of deciding on our future network and that will determine the eet. We have ve A319s and ve A320s at the
moment, but were talking to Airbus, Boeing, Bombardier and Embraer to see what the options are. At the moment the gauge is about right, but Malta and Air Malta have ambitions that might not necessarily be met by the type of aircraft we currently have. We are looking at larger aircraft because of distances and the sort of loads that we carry, but we are too small to have a mixed eet. However, if we grow, which is naturally what we want to do, then at some point a mixed eet becomes nancially justiable. I would say the range were looking at is 120- to 220-seat narrowbodies. You operate 10 Airbus A320 family aircraft now. How many aircraft do you see in the future Air Malta eet? If you take the total number of aircraft well need in three or four years time, with the sort of network I think we can build as a company, then youre looking at 18 to 21 aircraft. Our issue is that Malta is a very seasonal destination and you have to be very
ThE mESSaGE iS SimPLE: aS SOON aS wE GEt tO PROFit, wE aRE UNDER OUR OwN CONtROL, aND I CaNt wait FOR that tO haPPEN.
conscious of what you do with those aircraft during the winter. Ive got some good ideas about how you could use that equipment during that time. What are the timelines for the order? Weve been working on the network for some time now and we have started conversations with aircraft manufacturers over the last nine months, so we are some way into that process. Certainly by April next year well be in a position to make a recommendation to the board in terms of the short- and long-term view. Its then up to the shareholderthe governmentto decide how they want to go. Certainly by this time next year the company should be in a position where it knows what it is doing and will have started, if not concluded, negotiations. Some of these airplanes are not available until 2016, when our rst leases come up, so theres a two-step approach. As far as I am concerned you would be looking at [deliveries in] 2017, 2018 onwards. If theres a need to supplement our eet with aircraft that can give us immediate commercial advantage, then obviously well take those. We really cant aord to make a mistake, so we want to make sure we get it right and take our time. How do you see Air Maltas network developing? The EU-approved restructuring plan restricts how many ASKs we are allowed to operate until we break even. The message is simple: as soon as we get to prot, we are under our own control, and I cant wait for that to happen. Then we will become ambitious in terms of new routes. Weve just started ying to Algeria and we are looking at Egypt and Casablanca. I think there are some sub-Saharan Africa opportunities, too. Huge volumes of commodities that go into Chinese manufacturing come out of West Africa. Malta could therefore be a fantastic distribution and logistics point. Its not just about going north to people who want to go on holiday. We also ought to be able to sell Malta as a country [to] middle-income India, middle-income China, and other parts of Asia. There are millions of people who have the opportunity to y now, and therefore connections over the Middle East will become important for us, so were certainly looking at that. Your contract ends in six months. What have been your greatest successes and disappointments during your time with Air Malta? My own contract ends on March 31 and theres a number of interesting opportunities on the horizon Im looking at. I have achieved what I wanted to achieve, in terms of making sure we are on track with the business plan and nancially. I am particularly pleased we have created a new management team involving Maltese people and established Air Malta more rmly in the international market. We have initiated a cultural revolution in the company, which has gained some traction, but not enough as far as I am concerned. I still maintain that the biggest competitor to Air Malta is Air Malta. We need to get over this feeling internally that life owes us a living. This is a hard-nosed business and competitors are trying to get rid of us, so we have got to ght back. If you were king of aviation for one day, what would you change? I would create a law that allows us to operate as a business, lifting the rules and regulations that apply to aviation but not to other industries like the electronics industry. I think too many people still see airlines as instruments for raising taxes. Aviation has now replaced the tobacco industry. We are now seen as the [industry on which taxes should be raised], instead of cigarette smokers.
The Magazine of Global Airline Management
ATWs 2014 Classic Airliner Calendar

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November 2006
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Order online now at www.ATWOnline.com Or complete the order form and mail or fax to: Penton Media 24653 Network Place Chicago, IL 60673 Fax: +1 913-514-3893 The ATW 2014 calendar features original photos, suitable for framing, of some of the worlds most fascinating classic aircraft including: de Havilland DH-104 Dove Channel Airways Avro York Dan-Air Nord 262 Lake Central 1049E Super Constellation Air India Douglas DC-7 Spantax McDonnell Douglas DC-9 Allegheny Douglas C-54 Air France British Aerospace 146 American Boeing 377 Stratocruiser Transocean Nihon Aircraft Manufacturing Company YS-11 ANA Tupolev TU-104 Aeroflot McDonnell Douglas DC-9-30 Southern Airways Convair 600 Texas International ADDITIONAL FEATURES INCLUDE: Descriptive text and history for each photo Key industry dates Roll out and first flight dates for historical aircraft Size: 14 x 10 (36 x 25cm) ORDER YOUR COPY TODAY!
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MAY DAY A AY Y 2014 S M T W T F 1 2 S 4 5 3 6 7 8 9 10 11 12 13 14 15 16 18 19 17 20 21 SpeedN 22 23 25 26 24 Aerosp ews 2nd Annual 27 28 ace Manufa 29 30 Confere cturing 31 nce, Charles Place Hotel, Charles ton April 1-2 ton, SC, Fokker 70 rst ight 1993
2014
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Photo: Harry
Spanta x DC-7
Sievers collecti on
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737 rst ight 1967 777 rollout 1994
Airbus A310
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Armstro rst ewng Whitworth Apollo 1949 Douglas DC-8 Super ight 1967 63 rst
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rst ight Boeing 747-100 1969 rst ight Boeing 737-700 1997 rollout 2004 Embraer E-190
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Achievement ATW IndustryPacic Hotel, Awards, Pan Singapore
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(C-54) Douglas DC-4 1942 rst ight Airshow Singapore Feb. 11-16
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of airlines, II, a new class in World War certificated Following carriers, were airline was to bring the local service main purpose process, the US. Their and, in the smaller cities, service to to exit a number trunk airlines systems by to allow the Airbus A380 their rstroute on ight 2005 points deHavil service airlines. of smaller rst land local DH-106 the to1958 ight service Comet 4 them geographic rollout 1987 transferring exclusive with Airbus A320-100 a relatively Each had ed trunk carriers connect . area that typically their own route systems beyond ATW201 es territori 4-Cal_v2 Indianapolis, .indd artered in 11 headqu carriers. As Lake Central, t of these the smalles 1933 it provided, rst ight Indiana, was of service Boeing B-247 of the type in Ohio rst ight 14 points an example Tupolev TU-334 ed to serve g many 1999 LC was authoriz large state), includin Freighter rst lle 747-8 arly Boeing and Zanesvi (not a particul Portsmouth ight 2010 as Findlay, service in ed airline cities such not seen schedul of the new that have with most was the case was the Douglas decades. As initial aircraft quantities carriers, their e in large type for was availabl ion of the DC-3, which massive product the g II. followin War during World the military there was (DC-6) matured, Douglas XC-112A grew and with 1946 rst ight As these carriers the venerable Three replace economics. a desire to with better equipment built Nord more modern the Frenchin this was its smaller One entrant selected for anton in Lake Central 262, which here at Akron-C the 1 is seen later livery; routes. N2621 the airlines s slogan 1968, wearing Central MD-90 April Lake Douglas McDonnell 1993 tail reflects 1968, LC On July 1, heart on the rst ight d 1987 with a Heart. rst ight then acquire Airbus A320 The Airline The Nords (such as Allegheny. with names merged into livery, along their French a unique purple reflecting eny) dAllegh Claudette
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In the words of transp Morgan, ortation the writer David of the Lockh Douglas DC-7 P. and the eed Const latter versio the sky ellation one mome ns were Doye nt, and This was ns of dinosaurs due the next. when new, to the fact that their key in attributes range, were the form of super ior speed obviated entered by the jet and wides aircraft that these piston pread service only a few -powered years after market. Since their types had come onto the for shorte economics r-haul servic were not Constellatio suitable es, many DC-7s (and ns) were or sold either conve to secon rted to dary airline uses such s for non-tr freighters as inclus aditional ive tour charters. Founded in 1959 , Spant Air Taxi) ax (origin fit this ally Spani category, participant sh and was in what a signifi became for packa cant a burge ge holida oning marke ys in Spain to the Canar t , includ William y Island ing trips E. Boeing and other s for reside prototype buys points in nts of the DC-5, names the Rover 1940 with Dougl northern UK it Europe. as Beginning equipment, DC-3s, Spant ax upgra in the form ded to larger DC-7s as of Dougl its busin as DC-6s ess grew. story of its first Interestingly and jet, the Conva resemblanc , the ir 990, e to that bore some lasting of the DC-7, long in in terms its prima of not ry intend EC-BSQ ed servic was a DC-7C e. Belgiums delivered SABENA originally in Novem in 1956 ber 1970 . It is seen to the EuroA at here irport Basel what is now known Physically -Mulhouseas located Freiburg. in Franc by both the e, it is operated the termi French and the nal has Swiss, although separate country. sections The secur for each ity perso (above the fire nnel at extinguishe the left giving the r) appea photograph er a thorou r to be gh inspe ction.
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Douglas McDonnell ight 1965 L-10 Electra Lockheed 1934 rst ight
DC-9 rst
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TRENDSAircraft Values | 52
Deliveries | 53
Traffic | 54
TRENDS
US denied Boardings 2013

Airline InVolUntarY DBs* Per 10,000 Pass. Jan.-sePt. 2013 JetBlue Virgin America Hawaiian Alaska American Delta US Airways Endeavor Air * American Eagle United Southwest Frontier AirTran ExpressJet SkyWest Mesa Totals 0.01 0.05 0.17 0.42 0.45 0.59 0.63 0.86 1.07 1.10 1.19 1.24 1.28 1.91 2.29 2.67 0.92 1.12 1.92 0.87 0.90 0.83 2.11 2.15 2.49 0.98 Jan.-sePt. 2012 0.01 0.06 0.18 0.61 0.73 0.42 0.73
1. July . 2. June *Includes RegionalairliNES operations. toP 20 REPORTING Source: ATW Research, direct airline reports.
SYSTEM TRAFFIC/JanUarY-OCTOBER 2013

RANK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Airline United Airlines Delta * Air France KLM AMR Corp. Emirates 1 Southwest Airlines Lufthansa China Southern Airlines British Airways Air China 1 China Eastern Airlines US Airways LATAM Airlines Group Qantas Group 1 Air Canada Cathay Pacific 1 Turkish Airlines Singapore Airlines JetBlue Thai Airways 1
1
RPKs (000) 278,283,650 265,557,347 192,941,000 187,398,292 155,954,721 140,475,896 131,697,000 124,714,590 110,344,000 106,659,200 91,233,380 89,155,924 88,512,000 81,962,000 77,981,794 77,939,709 76,985,220 71,465,800 48,108,000 47,683,000
* Denied Boardings. Source: US DOT
1. January-September 2013. * Includes Regional operations. Source: ATW Research, direct airline reports.
WORLD AIRLINE TRAFFIC

JanUarY-SePteMBer 2013
EurOpe RPKs (mil.) ASKs (mil.) Pass. (000) Pass. LF (%) FTKs (mil.)
Source: AEA
2013 668,139 828,109 280,537 80.7 24,501
2012 % CHG 650,574 815,067 275,847 79.1 24,283 2.7 1.6 1.7 0.9 0.9
AsIa-PaCIfIC RPKs (mil.) ASKs (mil.) Pass. (000) Pass. LF (%) FTKs (mil.)
Source: AAPA
2013 606,421 771,729 163,496 78.6 43,242
2012 % CHG 578,676 740,607 154,983 78.1 43,984 4.8 4.2 5.5 0.5 -1.7
US * RPKs (mil.) ASKs (mil.) Pass. (000) Pass. LF (%) FTKs (mil.)
* January-July. Source: US DOT BTS.
2013 790,180 950,275 435,000 83.3 51,052
2012 % CHG 778,756 943,035 433,000 82.6 52,686 1.7 0.8 0.4 0.7 -3.1
LatIN AMerICa RPKs (mil.) ASKs (mil.) Pass. (000) Pass. LF (%) FTKs (mil.)
Source: ALTA
2013 181,110 234,392 118,495 77.3 3,703
2012 % CHG 169,042 221,199 111,530 76.4 3,555 7.1 6.0 6.2 0.8 4.2
TRENDS
US CONsuMer COMPlaiNts
sePteMBer 2013
Southwest ExpressJet Alaska Delta Mesa Endeavor * AirTran Hawaiian JetBlue American Eagle SkyWest Virgin America US Airways American United Frontier
Aircraft OrDers OctOBer 2013

MaNufacturer
AIRBUS
TYPE
A319
OrDereD By
OHA CENTRE STREET AIRCRAFT HOLDCO
TOtal 1 6 52 35 6 7 1 2 4 31
8 10 5 20 1 2 42 5 6 1 2 1 5 10 20 1 2 3 289
AIRBUS AIRBUS
n.a.
A320 A320 A321 A330 A330 A330 A330 A330 A350

A350 ATR 42 ATR 72 737 737 737 737 747 777 787 787 DHC8 CS100 CS300 C919 E-195 E-195 DHC6
EASYJET VIVAAEROBUS JETBLUE AIR CHINA CHINA EASTERN CHINA SOUTHERN HAINAN AIRLINES SAS JAPAN AIRLINES
SAS NORDIC AVIATION CAPITAL NORDIC AVIATION CAPITAL AEROLINEAS ARGENTINAS BOEING BUSINESS JET EL AL UNDISCLOSED KOREAN AIR KOREAN AIR KOREAN AIR UNDISCLOSED LUXAIR CDB LEASING CDB LEASING INDUSTRIAL BANK FINANCIAL LEASING AURIGNY AIRLINES BELAVIA AIR SEYCHELLES
2013 2012
AIRBUS AIRBUS AIRBUS AIRBUS AIRBUS AIRBUS AIRBUS
11.27
AIRBUS ATR ATR BOEING
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Ranked by complaints per 100,000 passengers. Source: US DOT. * Endeavor Air, formerly Pinnacle Airlines, was ranked for the rst time in January 2013.
BOEING
AIRCRAFT VALUES
Aircraft ATR 42-300 ATR 42-500 ATR 72-200 ATR 72-500 DHC-8-300 DHC-8-Q400 Year Built 1992 2004 1992 2004 2000 2009 FBV @ 1.5% Inflation 2013* $2.5 $6.8 $3.5 $8.9 $7.3 $14.0 2018** $1.1 $4.4 $1.5 $5.9 $4.3 $9.7 2023** $0.1 $2.9 $0.1 $3.9 $2.6 $6.7 2028** $0.0 $1.5 $0.0 $2.1 $1.0 $4.3
BOEING BOEING BOEING BOEING BOEING BOEING BOMBARDIER BOMBARDIER BOMBARDIER COMAC EMBRAER EMBRAER VIKING Grand Total
Values assume half-life, half-time condition. * Current Market ValueMost likely trading price under current market, 2013=new conditions, rounded to nearest US$ million. ** Future Base Valuevalue in a balanced market, inated at 1.5% p.a., rounded to nearest US$ million. Source: AVITAS, Inc.
IATA PasseNGer Traffic GrOWtH By ReGiON

JaNuary-SePteMBer 2013
RPK (%)
Africa Asia Pacific Europe Latin America Middle East North America Industry Source: IATA 6.8 7.2 3.5 6.1 11.0 2.0 5.0
Source: AerData. Visit aerdata.com.
ASK (%)
4.8 6.7 2.1 4.8 11.5 1.5 4.3
PLF (%)
70.7 78.1 81.0 77.7 78.3 83.8 80.1
TRENDS
AIRCRAFT DELIVERIES
OCTOBER 2013
CURRENT OPERATOR
DELTA DELTA DELTA ALL NIPPON AIRWAYS AIR EUROPA SPICEJET GARUDA INDONESIA SHANGHAI AIRLINES THAI LION AIR THAI LION AIR CHINA SOUTHERN CHINA SOUTHERN JET AIRWAYS SHANDONG AIRLINES SHENZHEN AIRLINES HAINAN AIRLINES MALAYSIA AIRLINES QANTAS XIAMEN AIRLINES MALAYSIA AIRLINES FLYDUBAI COPA AIR CHINA AEROFLOT OKAY AIRWAYS SKYMARK AIRLINES CHINA EASTERN AIR CHINA EL AL ALASKA AIRLINES UTAIR UNITED AIRLINES UNITED AIRLINES ALASKA AIRLINES NIPPON CARGO AIRLINES AIR ASTANA FEDEX GARUDA INDONESIA GARUDA INDONESIA BRITISH AIRWAYS SAUDI ARABIAN THAI AIRWAYS Int'l. CATHAY PACIFIC AIRWAYS KENYA AIRWAYS EMIRATES ROYAL BRUNEI AIRLINES ROYAL BRUNEI AIRLINES CHINA SOUTHERN CHINA SOUTHERN AEROMEXICO AEROMEXICO AIR INDIA QATAR AIRWAYS LAN CHINA EASTERN CORPORATE OWNER AMERICAN AIRLINES AMERICAN AIRLINES CHINA WEST AIR JETSTAR HONG KONG AIR CHINA JETSTAR HONG KONG JETSTAR HONG KONG BRITISH AIRWAYS ETIHAD AIRWAYS VOLARIS
TYPE
MODEL
ENGINE
CFM56-7B27E CFM56-7B27E CFM56-7B27E CFM56-7B24/3 CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B24E CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B24E CFM56-7B CFM56-7B CFM56-7B27E CFM56-7B26E CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM56-7B27E CFM56-7B CFM56-7B CFM56-7B27E CFM56-7B27E GEnx2B67B PW4060 CF6-80C2B6F GE90-115BL2 GE90-115BL2 GE90-115BL2 GE90-115BL2 GE90-115BL2 GE90-115BL2 GE90-115BL2 GE90-110B1 Trent 1000 Trent 1000 GEnx-1B64 GEnx-1B64 GEnx-1B70 GEnx-1B70 GEnx-1B67 GEnx-1B64 Trent 1000-A V2527M-A5 CFM56-5B7/3 CFM56-5B6/3 CFM56-5B6/3 CFM56-5B4/3 V2527-A5 CFM56-5B4/3 V2527-A5 V2527-A5 V2527-A5 V2527-A5 V2527E-A5
CURRENT OPERATOR
SILKAIR JETSTAR JAPAN TIANJIN AIRLINES LAN AIR FRANCE SPIRIT AIRLINES TIGERAIR THAI SMILE INDIGO GOAIR GOAIR THAI AIRASIA JETSTAR ASIA JETSTAR IBERIA EXPRESS LAN ETIHAD AIRWAYS VIETJET AIR CHINA EASTERN AIRASIA THAI SMILE INDIGO CHINA SOUTHERN JAZEERA AIRWAYS CHINA EASTERN ASIANA UTAIR JETBLUE AEROFLOT US AIRWAYS US AIRWAYS FINNAIR EVA AIR PHILIPPINE AIRLINES PHILIPPINE AIRLINES AVIANCA CARGO SAUDI ARABIAN US AIRWAYS PHILIPPINE AIRLINES DRAGONAIR AIR CHINA PHILIPPINE AIRLINES CHINA EASTERN BRITISH AIRWAYS THAI AIRWAYS Int'l. KOREAN AIR EMIRATES AZUL LINHAS AEREAS WINGS AIR FLYME JET TIME LIAT AVIANCA ENDEAVOR AIR ENDEAVOR AIR ENDEAVOR AIR MASWINGS HORIZON AIR WESTJET ENCORE DONGHAI AIRLINES CORPORATE OWNER AIR CHARTER SCOTLAND REPUBLIC AIRLINES REPUBLIC AIRLINES REPUBLIC AIRLINES JETBLUE
TYPE
MODEL
ENGINE
V2527E-A5 V2527-A5 CFM56-5B4/3 CFM56-5B4/3 CFM56-5B4/3 V2527-A5 V2527-A5 V2527-A5 V2527-A5 CFM56-5B4/3 CFM56-5B4/3 CFM56-5B6/3 V2527-A5 V2527-A5 CFM56-5B4/3 CFM56-5B4/3 V2527-A5 CFM56-5B4/3 V2527-A5 CFM56-5B6/3 V2527-A5 V2527-A5 V2527-A5 CFM56-5B4/3 V2533-A5 V2533-A5 CFM56-5B3/3 V2533-A5 CFM56-5B3/3 V2533-A5 V2533-A5 V2533-A5 CFM56-5B3/3 V2533-A5 V2533-A5 Trent 772B-60 Trent 772B-60 Trent 772B-60 Trent 772B-60 Trent 772B-60 Trent 772C-60 Trent 772B-60 Trent 772C-60 Trent 970-84 Trent 970-84 GP7270 GP7270 PW127M PW127M PW127M PW127M PW127M PW127M CF34-8C5 CF34-8C5 CF34-8C5 PT6A-34 PW150A PW150A AE 3007A2 AE 3007A2 AE 3007A2 CF34-8E CF34-8E CF34-8E CF34-10E6
737 900ER 737 900ER 737 900ER 737 800 737 800 737 800 737 800 737 800 737 900ER 737 900ER 737 800 737 800 737 800 737 800 737 800 737 800 737 800 737 800 737 800 737 800 737 800 737 800 737 700 737 800 737 800 737 800 737 800 737 800 737 900ER 737 900ER 737 800 737 900ER 737 900ER 737 900ER 747 8F 767 300ER 767 300F 777 300ER 777 300ER 777 300ER 777 300ER 777 300ER 777 300ER 777 300ER 777 200F 787 8 787 8 787 8 787 8 787 8 787 8 787 8 787 8 787 8 A319 100 A319 100CJ A319 100 A319 100 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200
A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A320 200 A321 200 A321 200 A321 200 A321 200 A321 200 A321 200 A321 200 A321 200 A321 200 A321 200 A321 200 A330 200F A330 300 A330 200 A330 300 A330 300 A330 200 A330 300 A330 200 A380 800 A380 800 A380 800 A380 800 ATR7 600 ATR7 600 ATR7 600 ATR7 600 ATR7 600 ATR7 600 CRJ9 900 CRJ9 900 CRJ9 900 DHC6 400 DHC8 400 DHC8 400 E135 135BJ E135 135BJ E135 135BJ E175 200LR E175 200LR E175 200LR E190 100AR
Source: AerData. Visit aerdata.com.
TRENDS
AIrlINE TraffIc BY REGION

Airline Pass. (000) % Chg. RpKs (000) % Chg. Load Factor % FTKs (000) % Chg. Jan. thru
AFRICA
El Al Emirates Tunisair 5,906 32,298 2,875 58,451 8,736 32,708 77,480 28,612 12,459 35,830 2,763 14,895 894 9,276 -0.6 16.0 -4.4 7.4 -10.0 -0.8 6.6 14.6 28.8 1.9 2.6 3.8 2.9 1.2 13,808,000 155,954,721 4,057,961 106,659,200 20,718,000 47,267,664 124,714,590 42,795,995 34,586,700 81,962,000 4,452,400 71,465,800 933,434 12,885,000 3.7 16.7 -7.8 9.5 1.7 5.0 10.1 1.2 27.9 -1.9 6.4 3.2 -0.2 2.5 83.2 NA 70.2 81.7 84.1 66.0 80.3 66.8 80.8 76.0 69.3 79.2 NA 79.1 68,900 7,639,430 NA 3,676,000 NA NA 3,494,200 NA 1,471,400 NA NA 5,383,029 1,024 NA -2.0 12.9 NA 1.7 NA NA 3.0 NA 6.8 NA NA -5.4 -16.7 NA Sept. Sept. Sept. Sept. Sept. Sept. Oct. Sept. Sept. Sept. Oct. Oct. Oct. Oct.
Asia-Pacific
Air China Air New Zealand ANA China Southern Airlines Japan Airlines Malaysia Airlines Qantas Group Silkair Singapore Airlines
eUrope
Adria Airways Aer Lingus
Airberlin
Air France KLM Austrian Airlines British Airways 4 Brussels Airlines
27,709
66,245 9,643 NA 4,998
-5.8
1.2 -1.5 NA 1.0
42,378,300
192,941,000 15,029,000 110,344,000 8,293,830
-4.3
2.2 -2.3 3.4 5.5
85.5
84.2 78.9 81.9 70.0
NA
8,348,000 NA 3,825,000 139,886
NA
-5.2 NA -6.3 11.0
Oct.
Oct. Oct. Oct. Oct.
Croatia Airlines Finnair
Iberia 4 Lufthansa Lufthansa Cargo SAS SWISS
1,589 7,921
NA 65,254 NA 22,848 14,554
-8.0 6.4
NA 1.2 NA 1.0 0.7
1,184,294 21,260,800
35,245,000 131,697,000 NA 28,276,659 32,667,000
-8.2 7.0
-17.0 2.5 NA 5.0 4.0
69.3 80.6
79.7 79.6 NA 74.3 84.0
1,326 740,100
817,000 NA 7,219,000 4,661,731 1,285,000
-7.2 -4.3
-15.9 NA -0.8 11.0 2.9
Oct. Oct.
Oct. Oct. Oct. Oct. Oct.
Turkish Airlines Utair Vueling 4
40,597 8,243 NA
NA NA 8,940
24.0 13.7 NA
NA NA -0.4
76,985,220 15,723,199 11,189,000

19,301,081 25,198,900 20,269,000
23.7 16.5 NA
17.4 -9.3 4.1
79.6 78.2 81.8

76.5 68.2 73.4
NA NA NA
NA NA NA
NA NA NA
NA NA NA
Oct. Oct. Oct.

Oct. Sept. Oct.
Latin america
Copa Airlines Gol Grupo Aeromexico
LATAM Airlines Group

Volaris
55,279
7,337
4.1
21.8
88,512,000
11,867
3.3
18.2
80.6
83.2
3,663,000
NA
0.5
NA
Oct.
Oct.
NortH america
Air Canada Alaska Airlines Allegiant AMR Corp. 1 Delta 3 Frontier Airlines Hawaiian Airlines JetBlue Republic Airways SkyWest Inc. 2 Southwest Airlines NA 16,536 5,950 91,153 138,768 8,912 8,350 25,444 26,755 50,963 90,205 NA 6.8 5.8 0.9 -0.3 -1.0 6.0 5.4 4.0 3.6 -1.8 77,981,794 35,209,747 9,017,517 187,398,292 265,557,347 13,217,299 18,442,995 48,108,000 26,935,332 42,913,692 140,475,896 1.9 7.8 11.7 1.6 0.8 -8.0 14.0 6.7 -4.0 5.8 0.9 83.4 86.3 89.1 82.8 84.0 91.0 81.8 84.3 83.0 81.0 79.9 NA NA NA 2,187,795 2,862,178 NA NA NA NA NA NA NA NA NA 2.2 -1.9 NA NA NA NA NA NA Oct. Oct. Oct. Oct. Oct. Oct. Oct. Oct. Oct. Oct. Oct.
Spirit Airlines
United Airlines US Airways WestJet
NA
116,804 47,485 NA
NA
-1.5 4.6 NA
15,844,241
278,283,650 89,155,924 26,225,000
24.1
-0.6 5.3 7.4
86.8
83.8 85.2 81.9
NA
2,643,822 NA NA
NA
-12.3 NA NA
Oct.
Oct. Oct. Oct.
1. Combined American Eagle, Executive Airlines and American Connection. 2. Combined traffic for SkyWest Airlines, Atlantic Southeast Airlines and ExpressJet Airlines. 3. Includes Regional operations. 4. Subsidiary of IAG. To submit your airline traffic data to ATW, please contact Kathy Young at kathy.young@penton.com. For more airline traffic, visit ATWOnline, Data & Research. Source: ATW Research and direct airline reports.
TRENDS
JET FuEL PRICE MoNIToR

NoVEmbER 8, 2013
SHARE IN WORLD INDEX Jet Fuel Price Asia & Oceania Europe & CIS Middle East & Africa North America Latin & Central America 100% 22% 28% 7% 39% 4% CTS/ GAL. 285.2 285.6 290.1 282.5 281.6 289.2 $/BBL $/MT INDEX VALUE 2000=100 327.5 342.7 328.2 354.4 314.4 336.4 VS. 1 WEEK AGO -1.7 -3.7 -1.9 -2.7 -0.3 -1.0 VS. 1 MONTH AGO -3.3 -3.3 -3.3 -3.0 -3.3 -4.2 VS. 1 YR. AGO -4.3 -3.2 -4.0 -2.8 -5.2 -5.0
119.8 119.9 121.8 118.7 118.3 121.4
944.1 947.5 960.0 936.2 933.2 935.2
Impact on the global airline industry's fuel bill this year: New fuel price average for 2013 Impact on 2013 fuel bill
Source: IATA
$124.3/b -$3 billion
SPoT CAsH MARKETs - A TEN-YEAR ComPARIsoN PRICE PER GALLoN IN US $

Nov. 4, 2013 2.779 NOV. 5, 2012 2.888 NOV. 4, 2011 3.067 NOV. 4, 2010 2.346 NOV. 4, 2009 2.02 NOV. 4, 2008 2.14 NOV. 5, 2007 2.641 NOV. 6, 2006 1.722 NOV. 4, 2005 1.766 NOV. 4, 2004 1.319 NOV. 4, 2003 0.764
US Gulf Coast Kerosene-Type Jet Fuel Spot Price. Source: U.S. Energy Information Administration.
US MIsHANDLED BAGGAGE
SEPTEmbER 2013
US ONTImE PERFoRmANCE
sEPTEmbER 2013
Virgin America JetBlue Delta Endeavor * Frontier US Airways American Hawaiian Alaska United Mesa Southwest ExpressJet AirTran American Eagle SkyWest 0
n.a.
2013 2012
1.0
0.8
0.6
0.4
0.2
Hawaiian Delta Endeavor * n.a. US Airways Alaska AirTran Virgin America United Mesa American ExpressJet SkyWest JetBlue American Eagle Frontier Southwest
6
2013 2012
0.0
20
40
60
80
100
Ranked by reports per 1,000 passengers. Source: US DOT. * Endeavor Air, formerly Pinnacle Airlines, was ranked for the rst time in January 2013.
Ranked by % of arrivals ontime at all reported airports. Source: US DOT. * Formerly Pinnacle Airlines.
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INDEX OF COMPANIES AND ADVERTISERS

Airbus .......................................................... 42, 43 www.lovea380.com AJW .....................................................................56 www.ajw-aviation.com ATW Awards Reservations....................................4 awards.atwonline.com ATW Calendar .....................................................66 www.atwonline.com ATW Plus .............................................................41 store.atwonline.com Boeing ......................................................... 30, 31 www.newairplane.com/737MAX Bombardier ....................................................... C2 www.cseries.com CFM.................................................................. 6, 7 www.cfmaeroengines.com Delta TechOps ....................................................33 www.CompleteFleetDTO.com Domodedovo.........................................................8 www.dme.ru Embraer............................................................. C4 EmbraerCommercialAviation.com Engine Alliance ..................................................58 www.enginealliance.com IAE ......................................................................34 www.pure-v-engine.com Kelowna ..............................................................15 www.flightcraft.ca Komy ...................................................................12 www.komy.com Lisbon Airport .....................................................26 routelab.ana.pt Munich Airport .....................................................2 www.munich-airport.com/brand PowerJet .............................................................44 www.powerjet.aero Pratt & Whitney..................................................25 pw.utc.com Pratt & Whitney Canada ....................................38 www.pwc.ca/dphm Rolls-Royce ................................................. 18, 19 www.rolls-royce.com SpeedNews Suppliers Conference.....................56 www.speednews.com UATP ...................................................................13 www.uatp.com Xian Aircraft Intl Corporation .......................... C3 www.modernark.cc
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interview:
Akbar Al Baker, CEO Qatar Airways
Team
Qatar Airways became the 13th airline to join oneworld in October, making it the first of the major Gulf carriers to join a global alliance. In a signing ceremony in Doha, Qatar Airways CEO Akbar Al Baker said oneworld membership was a win for the alliance, for Qatar and for the carriers customers. Qatar, which is just 16 years old, adds 21 new cities to oneworld, bringing the alliances number of destinations to more than 900. It will increase oneworlds total RPKs by 3.3% and RPKs in the Middle East region by 90%. British Airways was the sponsor for Qatars membership and the induction process was completed within one year, the quickest ever. IAG CEO Willie Walsh said Qatars membership was without question the most significant and positive event in oneworld for a long time. Qatars membership comes at an interesting time for oneworld and the major Gulf carriers. Qantas, a oneworld founding member, has formed a five-year alliance with Emirates. Airberlin joined oneworld March 2012 and has a strategic alliance with Etihad, which has a 29% stake in the German carrier. Karen Walker attended the oneworld event and recorded key comments by Al Baker to a group of journalists, delivering his unique combination of shrewd observation and sharp wit. What was Qatars thinking behind joining a global alliance and selecting oneworld?
We are convinced that the time is right to join a global alliance group and oneworld is clearly the best. We wanted to wait and be sure to select the best alliance for Qatar and the alliance for which Qatar could bring the most benet. It is a win for oneworld, for Qatar and particularly for our customers. It gives them a wider range of point-to-point connectivity. We wanted to be a part of a high-class alliance so when we were invited [to join oneworld] we very quickly accepted and we assured our oneworld partners that we will never fail them. right. We will place an order [at the Dubai Air Show in November], but I wont tell you what.
What about Qatars interest in the Boeing 78710, the largest version of the Dreamliner?
We are not interested. The size and economics of the -10 are very similar to the [Airbus] A350-9, plus it sits slightly over.
Qatar is the launch customer for the Airbus A350 with 80 A350s on order43 -900s and 37 -1000s. How condent are you on the rst delivery happening next year?
The rst A350 is contractually scheduled to be delivered in the second half of 2014. I think [Airbus] will surely
Is Qatar interested in ordering the Boeing 777X?

The answer is X. We have to wait for when the time is
Kurt Hofmann
Player
THeRe wiLL be aLLiaNceS KNocKiNg oN dooRS oF tHe GULF caRRieRS, bUt tHeY HaVe miSSed tHe beSt oNe.
deliver it at that time. They dont have any lithium batteries on their plane. The rst A380 is scheduled to be delivered in April 2014.
Do you see more partnerships between [British Airways parent] IAG and Qatar?
The alliance is exactly about serving its partners so that we complement each other and serve each others passengers and this will provide a huge expansion to the alliance.
So we have many synergies and we can work as a team. But we also compete. Its not an issue for us at all [what Emirates and Etihad do]. This is a global industry and you cannot isolate pockets of it. There is a saying: If you cannot beat them, join them.
Is the market large enough for three Gulf hubs and all its airline players?
The world population is growing and the middle-class populations are growing in places like India, Brazil and China. I was discounted when I relaunched Qatar in 1997, and one CEO said he had no time for an airline that had a goat for its logo. But that just showed his ignorance because our logo is the most beautiful antelope and we have outstripped him big time. There is room for all.
What is your observation on Emirates forging a ve-year alliance with oneworld founding member Qantas and the possible implications?
You never know. Maybe Emirates will one day join oneworld.
What are your views on the China market?

China is going to be the biggest aviation market in the world and also the largest economy in the world. All airlines look at China as a strategic region and so does oneworld and Qatar. Chinese tourists are coming to Qatar in a big way and the numbers are growing. Our government has a very strong strategy to grow tourism in Qatar.
What about the rumors that you may soon retire as Qatar CEO?
I am a soldier of my government and as long as my ruler wants me to be here, I will be. There are people who would like Qatar Airways to disappear by spreading these rumors.
Is Qatar Airways protable?

We have always been protable as a Group, and as an airline we have been protable for three years now.
Is Qatar concerned about low-cost carrier competition?

You can see what happened to [Japans] AirAsia X; they were very upbeat but they didnt take o. I think the low-cost carrier model on long-haul does not work and even for many short-haul markets it does not work. Long-haul LCCs do not work because the costs to operate are higher and you need the yield. You have to pack people in like [in] a sardine can.
What about the timing for an IPO?

We are delaying the IPO until our growth strategy is delivered.
In 2014, Qatar Airways will host the IATA AGM in Doha. Are there particular issues you would like to see focused on at that meeting?
I am on the board of governors of IATA now and we have joined oneworld. I used to have to shout to be heard when I was on the outside, but now I will raise my issues internally. But at the AGM, we would like carriers that are part of IATA to stop criticizing other airlines and concentrate instead on making our business strategies as an industry. Its about eciencies and ineciencies; its not about Gulf carriers.
Does Qatar expect other Gulf carriers to join global alliances?

There will be alliances knocking on doors of the Gulf carriers, but they have missed the best one. People who rst were shunning us now want us, but I cannot sleep in the same bed with two wives. We have a very close relationship with Emirates and we interline with Etihad.
EmbraerCommercialAviation.com
Continuous improvement. Continued.

The newly enhanced E175. Its the result of our commitment to continuous improvement of our E-Jets family. This ongoing optimization of an already successful platform is our way of ensuring best-in-class performance gets even better. Lower fuel burn, longer service intervals, lower noise levels, upgraded avionics, and an even more rened cabin combine to keep us well ahead of any competitor which means the E175 history of success is a story to be continued.
1000+ E-JETS. 65 AIRLINES. 45 COUNTRIES.

AIR TRANSPORT WORLD - December 2013

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