All Nippon Airways (ANA) is in the process of moving several of its North American flights to Tokyo’s Narita International Airport to offer better connections across its Asian network. The move reverses an almost decade-long trend of shifting flights to the city’s close-in Haneda Airport.
Like most of its peers in the region, ANA’s international network is operating at a fraction of its pre-pandemic capacity. North America flights remain relatively strong, but business traffic remains down significantly, while visiting friends and relatives and leisure traffic has begun to rebound. Moving North America flights from Haneda — an airport popular with Tokyo-bound business travelers — capitalizes on these trends and leverages as much of ANA’s international network as feasible, ANA said in its financial results for the nine months ending in December.
The move, however, reverses the long-term trend toward more Haneda flights, both by Japanese and U.S. carriers. In the 2010s, Delta Air Lines spearheaded a long-fought battle between the Japanese and U.S. governments for more access to Haneda and, following the receipt of five additional slot pairs there in 2019, dismantled the hub at Narita that it had inherited from Northwest Airlines.
ANA’s move is the latest salvo in what is the slowest-moving game of ping pong in the airline industry. Narita opened with great fanfare in the 1970s to alleviate congestion at Haneda, which then served as a domestic-only airport until the early 2000s when limited international flights resumed. And when the Japanese government opened a few slots for longhaul international flights in 2010, U.S. carriers pounced. And now the cycle, at least temporarily while business travel remains down, reverses.
ANA flew only about 10 percent of its pre-pandemic international passenger traffic last year, due to both the Delta and Omicron variants and government travel restrictions. Load factors on its international flights averaged 25 percent, up about 3 points from the previous fiscal year.
The domestic network performed much better, especially after Japan lifted its state of emergency in September and eased some travel restrictions. After that, the carrier saw demand for its domestic flights jump sharply. Demand in the last quarter of 2021 was the strongest the carrier has seen since the pandemic began, and passenger traffic in the quarter reached 50 percent of pre-pandemic levels. ANA said it shifted its schedules to operate more weekend and holiday flights in the quarter to capture more leisure travel demand.
Peach, the company’s low-cost subsidiary, had a particularly strong December quarter with passenger traffic exceeding pre-pandemic levels. For the last nine months of 2021, the discounter’s capacity was 50 percent higher than in the same period in 2020.
Peach and cargo helped fuel ANA to a profitable final quarter of the year. The cargo operation reported its fifth consecutive record quarter. Revenues for the nine months were ¥238 billion ($2.1 billion), up 134 percent from last year. ANA forecasts continuing high cargo demand in this fiscal year as maritime transport is expected to remain constrained. Because of this but unlike most other airlines around the world, ANA will continue operating preighters — or passenger aircraft with the seats removed — to transport automotive parts, semiconductors, and vaccines.
ANA reported an operating loss of ¥116 billion in the last nine months of the year on revenues of ¥738 billion. For the fiscal year that ends on March 31, ANA forecasts revenues of ¥1 trillion, or a 332 percent increase from the previous fiscal year. The results are expected to generate an operating loss of ¥125 billion. ANA did not offer capacity guidance for this fiscal year.
Cargo Props Up JAL
Cargo is the hottest ticket on Japan Airlines (JAL), as the airline benefits from snarled maritime freight lines. The carrier believes this trend will continue in 2022 in what it believes is a structural shift away from surface transport.
In the last nine months of 2021, JAL reported freight revenues of ¥161 billion ($1.4 billion), up 177 percent from the same period in 2020. Demand was particularly strong for automotive parts and semiconductors on routes between Asia and North America. The carrier expects cargo revenue to reach ¥201 billion for the full fiscal year, which ends in March. The Omicron variant has clouded JAL’s full-year passenger outlook, but the carrier is leaving its revenue target of ¥766 billion unchanged on the strength of cargo demand.
Overall cargo capacity was down, due to fewer longhaul international passenger flights, but JAL supplemented this lack of belly-hold capacity with preighters and chartered freighters, the carrier said.
Like its rival ANA, JAL saw domestic demand take off in October, after Japan lifted its restrictions on internal travel. When the choppiness resulting from the Omicron variant subsides, JAL expects domestic demand to rebound “rapidly,” the carrier said. JAL updated its capacity guidance for February to 68 percent of what it planned for the month, which translates into a reduction of 273 flights per day. Domestic revenues in the period were 59 percent lower than in 2019 and capacity down 35 percent.
The international network remains a fraction of its pre-pandemic size, due to continued travel restrictions in the Asia-Pacific region. In aggregate, international capacity was down 60 percent from the same period in 2019, and revenues from the international network were down 88 percent. But compared with 2020, capacity was up 130 percent, and revenues were 150 percent higher.
JAL continues its fleet modernization, retiring one Boeing 777-200ER, three 767s and one 737-800. It added six Airbus A350s and two 787-9s in the last nine months of calendar year 2021.
JAL reported revenues of ¥500 billion for the nine months through December 31, 2021. This was a 40 percent improvement from the same period in 2020, but generated a loss of ¥183 billion.
Ryanair Feels Omicron’s Bite
The Omicron variant took a big bite out of Ryanair’s December quarter with the fallout is lingering through at least February, said Group CEO Michael O’Leary. But the mental toll may last longer as O’Leary is now “wary” of what the pandemic could throw airlines way ahead of what is set to be a strong summer.
Ryanair’s recovery was moving forward apace in October and November, but the arrival of Omicron and European governments’ “panicked” — to paraphrase O’Leary — responses stopped the recovery in its tracks. Passenger numbers fell to 9.5 million in December, or 1.5 million short of Ryanair’s 11 million target — and behind the 10.2 million people it carried in November. The airline was forced to cut its January schedule by one-third and February by 15 percent as a result.
“Being cautious is the sensible way forward,” said O’Leary, who is normally brash and outspoken, during Ryanair’s December quarter results call. He added that all of the indicators still point to a strong recovery in 2022, particularly for Easter and the summer, but said the outlook is “hugely uncertain.”
Ryanair currently plans to fly roughly 15 percent more capacity this summer than it did three years ago. The growth will be supported by the addition of 65 new Boeing 737-8200s — 24 of which are due from January through June — and significant network investments across Europe including in Austria, Italy, and Portugal. Capacity is scheduled to increase nearly 158 percent in Austria, 37 percent in Italy, and 19 percent in Portugal year-over-three-years during the third quarter, according to Cirium data.
Italy has been in Ryanair’s crosshairs for more than a year amid Alitalia’s retrenchment and replacement with significantly smaller ITA Airways in October, and cuts by EasyJet. Wizz Air has been a figurative punching bag for O’Leary as it has struggled to grow as rapidly as executives have promised. For summer 2022, Ryanair will base 92 aircraft in Italy — up 67 aircraft last summer — including at new bases in Turin and Venice. In Portugal, Ryanair hopes to take share from retrenching TAP Air Portugal where it has expanded in Lisbon and will open a new base in Madeira this summer. And in Austria, Ryanair will base 20 aircraft in Vienna — compared to eight last summer — but competes with Austrian Airlines and Wizz that both have their own growth plans.
But it’s not all expansion for Ryanair. The airline will close its Frankfurt base in March in a move that O’Leary attributed solely to increases in airport costs. “We’re happy to grow in Germany … But frankly, we have better uses of our aircraft this year and this summer and into 2023,” he said. Ryanair’s German capacity will be down 21 percent compared to 2019 in the third quarter, Cirium shows.
And the geopolitical tensions in Ukraine have raised questions about Ryanair’s growth there as well. O’Leary said that, in the event of any “disruptions” — a euphemism for a possible Russian invasion and EU reaction — the airline can “pivot” aircraft and capacity elsewhere in Europe. “We remain committed to Ukraine as long as Ukraine is looking westward,” he said.
Ryanair is happy with the performance of the 737 Max to date, which O’Leary described as “exceptional.” This, however, does not mean he is happy with Boeing, with which talks broke down over a potential Max 10 order last fall. O’Leary described Boeing’s sales team as “asleep” following big wins for Airbus from KLM and Qantas orders for nearly 300 narrowbody jets. “For an OEM that’s losing so many customers to its Airbus opposition, it’s remarkable that they haven’t been camped outside our offices here trying desperately to restart our discussions on the Max 10,” he said. O’Leary’s comments came hours before Qatar Airways unveiled a memorandum of understanding for up to 50 737-10s on January 31.
The discounter had orders for 169 737-8200s at the end of December. The aircraft are due by the end of Ryanair’s 2025 fiscal year in March 2025.
Ryanair lost €96 million ($108 million) in the December quarter. Revenues were down 30 percent year-over-two-years to €1.47 billion during the period.
The carrier widened its loss forecast for the 2022 fiscal year to €250-450 million on account of Omicron. Ryanair previously forecast a €100-200 million loss for the year ending in March. The airline also reduced its outlook for passenger counts to just under 100 million people for the year from just over; however, the new guidance falls within its original 90-100 million annual passengers forecast before being bumped up in November.
IndiGo CEO Dismissive of Tata-Air India Deal
The CEO of IndiGo, India’s largest airline, is seemingly unconcerned with the country’s changing competitive landscape calling the shifts simply “noise.”
Ronojoy Dutta was referring to the Tata Group’s acquisition of Air India that closed on January 27, and the imminent launch of startup Akasa by former Jet Airways CEO Vinay Dube in May. Dutta, who spoke during IndiGo’s December quarter results call, artfully pivoted away from commenting on how either competitive move could affect his airline, and emphasized what IndiGo was doing as it emerged from the coronavirus crisis.
“If you run a great quality airline, our brand name is getting stronger, if you keep your costs under control, I see all the rest of it as noise in the system,” he said.
And IndiGo can, to a degree, look down on the shifting competitive landscape from on high. The airline controlled a 54 percent share of the Indian domestic market — more than four times its closest competitor Air India — in 2021, according to Indian government data. And, to top off a volatile year of ups and downs that tracked Covid-19 cases, IndiGo posted a profit of 1.3 billion rupees ($17.4 million) in the December quarter, its first quarterly profit since the pandemic began in March 2020.
This is not to say Dutta sees an easy road ahead of IndiGo. The airline has pared back March quarter capacity by 10-15 percent from where it was in the December quarter — 23 billion available seat kilometers (ASKs), or 89 percent of 2019 levels — in response to the surge in Omicron variant cases. He expects the recovery to pick up again by March after a brief hit by the variant because of, to use the cliche that many airline executives have embraced during the pandemic, “pent-up demand.” Bookings began a slow recovery after January 15, Dutta added.
“We are clearly in a volatile environment … with traffic recovering and declining lockstep with Covid cases,” he said.
IndiGo is not sitting idly by waiting for the pandemic to end. The airline is moving forward with its fleet renewal program that will see it remove its last Airbus A320ceo aircraft and replace it with an A320neo-family model by the end of 2022. This will allow it to reduce maintenance and fuel expenses — India is known for its high jet fuel prices — and increase utilization that will also achieve cost savings. IndiGo had 283 aircraft at the end of December, including 56 A320ceos, and 192 A320neos and A321neos.
In addition, the airline is actively working to expand its international footprint. The airline signed a reciprocal codeshare with Air France-KLM during the December quarter that Dutta said will “improve connectivity and gain access to new markets.” The deal follows a similar tie up with American Airlines that was unveiled in September.
These codeshare deals come as IndiGo’s international operations are “performing better than [they] did before the Covid,” said Dutta. That outperformance will likely ebb once international capacity restrictions ease and more flights are added back, but he still sees growth outside of India as the “biggest opportunity” for the airline. IndiGo is currently flying a limited international schedule to the Middle East, including Kuwait, Qatar, and the United Arab Emirates, as well as to Singapore and neighboring Bangladesh, Nepal, and Sri Lanka, according to Cirium schedules
Domestically, IndiGo has seen significant success expanding in smaller Indian markets. Dutta called this growth a “tailwind” to its domestic operation, and added that the demand in these cities has “surprised” him. This performance will factor into IndiGo’s ongoing evaluation of whether or not to expand its fleet of 35 ATR turboprops in 2022.
Beneath the headline profit, revenues at IndiGo came in at 94.8 billion rupees, or nearly 92 percent of 2019 levels, in the December quarter. Expenses recovered to 93.5 billion rupees, or 96 percent of two years ago. Unit costs excluding fuel fell 11 percent to 2.6 rupees compared to the same quarter in 2020, but were up 8 percent versus 2019. System passenger traffic was down 19 percent year-over-two-years.
Allegiant Costs Rise on Flyer Compensation
During a choppy fourth quarter, Allegiant Air reported a net profit of $10.7 million, a small haul by the company’s historical standards, but not shabby for a period in which travel companies struggled with fallout from Omicron, the newest Covid-19 variant.
Still, on one metric, Allegiant lagged its goals. For the fourth quarter, the carrier’s CASM ex-fuel was 7.52 cents, or 11.6 percent higher than during the same period two years earlier. That’s a sharp increase for a company that prides itself on near-fanatical devotion to controllable costs.
Some of it is a function of capacity. The more seats Allegiant flies, the lower its unit costs tend to look in comparison. But executives admitted they’ve been facing some stubborn cost increases from irregular operations. The biggest chunk of those costs, they said, come from compensation to customers booked on delayed or cancelled flights.
In just the fourth quarter, the company spent about $23 million on customer compensation. In 2019, the company spent $4-5 million on irregular operations-related compensation for the entire year, Chief Financial Officer Greg Anderson said. Without the extra compensation, Anderson said, Allegiant’s CASM-ex fuel would have been roughly equal to 2019. “Omicron ripped through and that put some pressure on us on the IROPs side,” Anderson said. “And that customer compensation program, that stings for us, to be candid.”
Executives blamed much of the operational trouble on the virus, saying the airline cancelled flights amid an unusually high number of employee sick calls. Drew Wells, senior vice president for revenue, said it had about 1,100 controllable cancellations in the fourth quarter, with about 450 coming in the period’s last 11 days. “Weather was obviously impacted, but the majority of that,” came from Covid, he said. “Our crew sick calls were north of 30 percent over a five-day period. it was just such a shock to the system.”
December may have been the worst of it, but Allegiant struggled with higher costs from irregular operations in other periods last year, as well. Last summer, the airline cancelled almost 1,600 flights, compared with only 146 in 2019. Then, the airline blamed a confluence of factors, including staff shortages, issues sourcing jet fuel, and wildfires in the Western United States.
With Omicron receding, Allegiant told investors to expect first quarter CASM ex-fuel of roughly 6.85 cents, which would be about 3 percent higher than the same period in 2019. While compensation has been an issue, Anderson noted that other costs have risen considerably over the past two years. Ground handling, he said, has become considerably more expensive, while airport charges are expected to increase 7 percent from 2021 to 2022.
Anderson also called out catering, saying costs have increased 10 percent, though he said Allegiant is able to recoup those costs because it charges customers for everything.
To combat the increases, Allegiant has become more efficient. Executives said the company will have 42-43 full-time employees per aircraft this year, down from 48 before the pandemic.
On revenue, Allegiant was far closer to its 2019 numbers, with total revenue per seat mile decreasing only 3.4 percent. Executives said they were bullish about spring and summer revenue, especially the upcoming spring break period.
“The peak spring break week will be reflective of pre-pandemic revenue in terms of load and the amount of revenue carried by flight,” Wells said. “It probably should be above and beyond, but it’s really hard to tell,” he said.
Wells added that, while it is early, summer bookings are “showing great promise.”
Icelandair Is at a ‘Turning Point,’ CEO Says
For Icelandair, the fourth quarter started with demand down due to the Delta variant and ended with the Omicron variant hitting hard. But despite these bookends, the carrier reported a strong period, with load factors rebounding back to 70 percent and passenger traffic 10 times higher than in the same quarter in 2020.
In the fourth quarter of last year, Icelandair operated 65 percent of its 2019 capacity, up from half in the third quarter. Just as the effects of the Delta variant began to subside, the U.S. reopened for vaccinated travelers in early November, giving Icelandair significant boost in the quarter. The Omicron variant resulted in some booking softness in December, lasting into January, but CEO Bogi Nils Bogason said bookings have begun to rebound.
This will hurt first-quarter 2022 results, Bogason said, but the airline is optimistic that the carrier will be profitable this year. “What a ride the last two years have been,” he observed.
The next few years will see Icelandair revamp its fleet. It plans to retire its 13 remaining Boeing 757s by the end of the decade, and is deciding whether to continue building its Boeing 737 Max fleet or pivot to the Airbus A321neo family. Icelandair plans to spend this year finalizing its plan and talking to airframers about future needs. “The 757 is nearing the end of its life,” Chief Financial Officer Ivar Kristinsson said. “We have a few options for the future.”
During the quarter, about 45 percent of Icelandair’s passengers visited Iceland itself, and about 30 percent connected via Reykjavik onward to Europe, Bogason said.
Icelandair plans to operate 80 percent of its 2019 capacity this year, or about 420 weekly flights. To handle summer demand, the carrier will add a connecting bank at its main hub between May-September. During the peak summer months, Icelandair will operate 35 aircraft.
Icelandair reported $193 million in fourth-quarter revenues, or triple its fourth-quarter 2020 results. Unit revenues were 97 percent of 2019’s in the quarter. But the carrier reported a fourth-quarter net loss of $39 million for the quarter and $104 million for the year. Cargo revenues of $24 million were higher than in 2019.
E-Commerce Boosts UPS
UPS had another great year, despite snarled supply chains in the latter half of 2021 that both helped and hurt the company. On the one hand, its air freight unit benefited, but on the other, all logistics providers were hit by the backups in surface transport.
“The external environment is challenging due to the ongoing impacts of the pandemic, labor tightness, upstream supply chain jams, and rising inflation,” CEO Carol Tome said during the company’s fourth-quarter and full-year earnings call.
Despite the challenges Tome mentioned, UPS reported a record year in 2021, fueled by a structural shift in retail. Like many airlines and other logistics firms, UPS saw its package delivery business soar as consumers increasingly shifted to e-commerce for goods. Package deliveries were strong until December, when the effects of the Omicron variant were felt in logistics. Consumers also may have shifted their holiday shopping to October out of concerns over empty store shelves in December, Cowen & Co. analyst Helane Becker wrote.
And like airlines, UPS is seeing its business traffic — although freight, not passengers — expand on the strength of increased spending by small- and medium-sized businesses. Business from this market grew by 18 percent, comprising 26 percent of U.S. domestic package volume, UPS said.
The company is expanding its air fleet this year. It’s taking delivery of two Boeing 747-8Fs and has signed an agreement for 19 Boeing 767 conversions. The latter will be delivered between 2023-2025.
UPS reported fourth-quarter revenues of $27.8 billion, up 12 percent from 2020, and full-year revenues of $97 billion, up 15 percent from 2020. Operating profit for the quarter was up 91 percent to $3.9 billion, and for the full year was $12.8 billion.
In Other News
- El Al and Arkia Israel Airlines have agreed to a non-binding memorandum of understanding to merge. If they can agree to terms, Arkia would become a wholly-owned subsidiary of El Al and continue to operate under its own brand, Reuters reported. Arkia shareholders would receive a 10-14 percent stake in El Al as part of the deal. The question is whether Israeli regulators would approve the deal that would give the national flag carrier control of the domestic market, as well as a larger share of the international market.
- The looming pilot shortage looms no longer for U.S. regional SkyWest, which now anticipates to cut capacity between 10-15 percent this year. The regional had staffing plans in place to handle the shortage. But it didn’t foresee that 6,000 mainline pilots would retire or leave the industry during the Covid-19 pandemic, resulting in mainline carriers avidly hiring SkyWest’s aviators, especially captains, CEO Chip Childs said. “Pilot attrition was anticipated and planned for in our models and strategies,” he said. “However, the rapid increase in captain attrition was not.”
Despite the staffing issues, the Omicron variant, and adverse weather in key parts of its network in December and early January, SkyWest had a good December quarter. The regional reported a net income of $4.3 million on revenues of $777 million in the quarter, and a net income of $112 million on $2.7 billion in full-year revenues. - Indian startup Akasa plans to begin flights in May, CEO Vinay Dube told Bloomberg. The airline, which is backed by Indian billionaire Rakesh Jhunjhunwala, is making a big play for the Indian market with plans to fly 20 Boeing 737 Maxes by the end of its first year, or summer 2023. The carrier ordered 72 of the aircraft at the Dubai Airshow in November.