Can SAS Pull Off its Controversial Plan?

Pushing Back: Inside This Issue

The Wuhan coronavirus continues to spread, putting a virtual halt to parts of China’s economy. Airlines there are feeling the pain, with empty seats that would otherwise be crammed full with holiday travelers. Airlines elsewhere temporarily suspended much of their China flying, with demand eviscerated. Yet most will likely benefit financially, with this lost demand outweighed by the virus scare’s thunderous impact on oil prices. In early January, Brent crude oil prices came close to hitting $70 per barrel. They open this week below $60.

Japanese carriers have their own international problems to confront. But helpfully, both ANA and JAL produce more revenues domestically than they do internationally. And at home, trends were more favorable.

Not more favorable though, than capacity trends in Europe, where Wizz Air continues to thrive as it expands at a 20% clip. India’s IndiGo is likewise growing 20%, extending its reach internationally as it contemplates even longer-range intercontinental flying. Will it again be interested in Air India?

In the U.S., Alaska is climbing out of a momentary funk while Hawaiian keeps margin declines to a minimum amid Southwest’s attacks. Allegiant trumpeted an unequivocally successful transition to Airbus planes. And American finally struck a contract deal with mechanics… subject to ratification.   

Verbulence

“We are really serious about our mission of building the best transportation network in the world for India”

IndiGo CEO Ronojoy Dutta

Earnings

October to December (3 Months)

• ANA: $269m; 8%
• Japan Airlines: $230m; 11%
• IndiGo: $70m; 8%
• Alaska: $181m; 11%
• Hawaiian: $50m/$46m*; 9%
• Allegiant: $61m; 20%
• SkyWest: $73m; 17%
• Wizz Air: $24m/$25m*; 5%

Net result in USD; operating margin

Net profit excluding special items (all operating figures exclude special items)

Weekly Skies

• All Nippon Airways, as discussed in last week’s issue of Skift Airline Weekly, doesn’t like being less profitable than its archrival Japan Airlines. Well, that didn’t change last quarter, when its 8% operating margin fell short of JAL’s 11%. For all of 2019, ANA’s 6% result fell short of JAL’s 10%. For both carriers, ominous trends prevail, in two key areas. Most importantly, ANA and JAL both spoke of weakness in international passenger markets and weakness in international cargo markets. Cargo was just downright awful, with ANA’s calendar Q4 revenues dropping by roughly one-fifth y/y.
  
  That’s only about 8% of the company’s total revenues though. International passengers, by contrast, generated 36% of ANA’s Q4 revenues, and suffered from slowing outbound business demand. International passenger unit revenues thus declined an uncomfortable 6% on 9% more ASK capacity. Thankfully, domestic markets did much better, accounting for 40% of revenues (ANA is indeed still larger at home than it is abroad). The carrier held capacity flat domestically, and unit revenues rose 1%. For that thank robust domestic business travel demand, the capture of domestic travel demand by visiting inbound passengers, the Rugby World Cup held in Japan, and the successful marketing of various discount fares and package tours, especially during the Golden Week holiday period.
  
  Japan did however experience some weather disruptions, notably typhoon Hagibis in October, causing flight delays and cancellations. As for ANA’s LCC Peach, responsible for 4% of company revenues, ASK capacity contracted 10% amid completion (in October) of a merger with Vanilla Air. In total, groupwide revenues shrank 1% in the quarter, on 4% more ASKs. Operating costs on the other hand, increased 1%, helped by a 7% drop in fuel outlays but hurt by up-front spending to prepare for a big expansion at Tokyo Haneda courtesy of newly available slots. ANA will convert much of its U.S. flying from Narita to the more centrally located Haneda, while also launching all-new routes to Istanbul, Milan, Moscow, Stockholm, and Shenzhen.
  
  Importantly it’s also co-locating some of its international and domestic flights in Haneda’s terminal 2, which will facilitate connecting traffic. It’s not neglecting Narita — from there it has new offerings to Perth, Bangalore, and Vladivostok. To further enhance its international appeal, ANA is forming new partnerships, the latest being a joint venture with Singapore Airlines (see marketing section below). It also has important JVs with United and Lufthansa, and a new partnership with Virgin Australia. But to repeat: International markets are currently in a state of despair. There’s the extreme distress case of Hong Kong. Geopolitical tensions have badly damaged demand on routes to Korea.
  
  The Japan-China market saw “fiercer competition from Chinese airlines,” depressing Q4 revenues on these routes by about 15%. ANA’s big A380-led buildup in Hawaii will surely take time to yield profits. Revenue on North American routes excluding Hawaii, meanwhile, contracted a bit, hurt most likely by weaker business demand from Japanese companies. The Japan-Europe market was no picnic either, infected with overcapacity as carriers like British Airways and Finnair opened new routes. Aeroflot, also, is a growing threat on Japan-Europe itineraries.
  
  One bright spot internationally was “avid demand avid demand for connections” between North America and points in East Asia. ANA is in fact deploying new B787-10s to cities like Singapore in hopes of capturing more of this demand. B777-9s, when they come, will likely handle big-ticket intercontinental routes like New York, Los Angeles, London, and Frankfurt. Arriving A320/21 NEOs are useful for shorthaul. This summer, Tokyo will host the Olympic games. By then ANA will have its new routes from Haneda up and running.   

Has JAL Lost its Mojo?

• Airline profitability won’t be one of the events at this summer’s Olympics. But if it were, Japan Airlines would be a contender for the gold. It once again earned a double-digit operating margin last year, likely one of just a few airlines outside the U.S. to have done so. In 2018, the only other publicly traded non-U.S. airlines with double-digit operating margins were IAG, Copa, Wizz Air, Ryanair, VietJet, Air Arabia, and Jazeera Airways.
  
  JAL, however, might be losing some of its mojo. Its 10% operating margin for 2019 marked its lowest showing since emerging from bankruptcy 10 years ago. It also sustains a trend of steady deterioration that began after a hitting a high of 16% in 2015. The next year, 14%. Then 13%. Then 12%. And then last year’s 10%. For 2019’s calendar Q4 alone, JAL’s operating margin fell to 11%, from 13% in the comparable quarter a year earlier. The cost side of the business was fine, with total operating expenses declining 1% y/y with help from cheaper fuel.
  
  But revenues dropped a steeper 3%, on flat y/y capacity (international ASKs shrank 1% and domestic ASKs rose 1%). Like ANA, JAL now produces more revenue from the Japanese domestic market than it does from routes flown abroad. And that’s a good thing, because JAL similarly saw positive trends domestically but disconcerting trends internationally. Clearly, its longtime strength in Hawaii isn’t helped by ANA’s A380 offensive; JAL in fact cut its Hawaii/Guam capacity by almost a fifth last quarter, downgauging some B777s to B787s. Revenue from China routes plummeted 17%. European revenues were down too.
  
  JAL’s commentary on the international market didn’t differ much from ANA’s: Outbound corporate demand was weak, it said, overcapacity characterized the Chinese and European markets. Korea and Hong Kong were problem areas. Cargo was awful but only 6% of total revenues. On the other hand, inbound leisure demand was more or less healthy, especially from Europe and Australia during the Rugby World Cup. The domestic market, meanwhile, benefitted from strong business and leisure demand, notably on Okinawa routes. JAL too, will be getting new longhaul Haneda slots. And it too is starting new Narita routes, to cities like Seattle, Manila, San Francisco, Bangalore, and Vladivostok.
  
  It’s also forming joint ventures, the latest being one with Malaysia Airlines. It’s thus far been unable to secure U.S. regulatory approval for a separate JV with Hawaiian, but the two carriers are still trying. Perhaps most daringly, JAL is launching an all-new low-cost carrier called Zipair, with plans to eventually operate longhaul routes to North America and elsewhere. It will start more modestly with flights to Bangkok in May, followed by Seoul in June. JAL, of course, maintains a low-cost Jetstar venture with Qantas as well. Other strategic highlights include deployment of new A350-900s on domestic routes, using B787-8s on domestic routes for the first time, optimizing and upgrading widebody cabins, deepening its distribution and technology partnership with Amadeus, renewing its domestic regional fleet with ATRs, and developing partnerships with American, IAG, Finnair, China Eastern, and others.
  
  It’s also expanding third-party service offerings like maintenance and ground handling. And it’s exploring new business domains like business jet flying, cargo drones, and supersonic aircraft development. For now, though, at the center of its mind is the worrying deterioration of its international business, leading it to lower its revenue forecast for the fiscal year that ends next month.

Indigo’s Year of Magical Thinking

• Two decades ago, IndiGo didn’t even exist. Today it’s the largest airline in a country with 1.3b people. Even more impressive than its extraordinary growth? Its extraordinary record of profitability, no small feat in a market like India, where taxes are high, infrastructure poor, and Air India relentlessly subsidized. In 2016, its first full calendar year after becoming a publicly traded company, IndiGo earned an 11% operating margin. That rose to 14% in 2017.
  
  Unfortunately, 2018 was a nightmare year for all Indian carriers, owing to fuel inflation, rupee depreciation, brutal fare wars — not even IndiGo could escape suffering a negative 3% operating margin that year. In 2019, however, it was back in the black, with a 6% posting. And that figure would have been considerably higher were it not for a blowup in calendar Q3 maintenance costs caused by a delayed transition to A320 NEOs from A320 CEOs.
  
  That remained an issue last quarter (October to December), which was further tainted by a near-double-digit increase in non-fuel unit costs, a sharply slowing Indian economy, and weakness in primary domestic markets. It’s in these metro-to-metro markets where the demise of Jet Airways was arguably more curse than blessing, because of all the healthier competitors (i.e. SpiceJet and Vistara) that took its place.
  
  Nevertheless, IndiGo emerged with an 8% calendar Q4 operating margin, even as it maintained a voracious 19% y/y increase in ASK capacity. Critical to its fortunes last quarter: Cheaper fuel, with total outlays dropping 2% despite all that new flying. Total operating costs rose 18% but no problem: Revenues rose 25%. The airline also did well on domestic routes involving secondary cities, where pricing battles with low-cost carriers weren’t as intense. Examples of such cities include Patna, Lucknow, Bhubaneswar, and Coimbatore — management is now coming up with a plan to better connect these sorts of cities nonstop, bypassing a big city airport like Mumbai, Delhi, or Chennai.
  
  International markets were likewise a bright spot, minus a few trouble areas like Hong Kong. Flights outside of India are a growth focus and now contribute almost a quarter of overall revenues. They also facilitate growth in cargo revenues, lower costs (due to lower fuel taxes abroad), and CASK efficiencies tied to longer stage lengths. Currently, roughly half of IndiGo’s new flying is now international, mostly involving the Arabian Peninsula and the ASEAN region. It flies to Istanbul as well, with codesharing help from Turkish Airlines. Another codeshare partner is Qatar Airways, an oft-rumored candidate to invest in IndiGo.
  
  But here’s the more interesting question: Will IndiGo invest in Air India? It declined to comment. But it did briefly entertain buying the state-owned carrier during the government’s first attempt to privatize it in 2017. And it acknowledges an ongoing interest in flying longhaul international, perhaps with widebodies. It’s already taken the step of ordering A321 XLRs, with more than 220 seats and enough range to connect India with cities as far flung as Seoul, Bali, and Barcelona. Not the U.S. though, but IndiGo says it’s not interested in that market, even if it flew widebodies — making money in the India-U.S. market requires hefty yield premiums, it said, to offset the extensive fuel burn.
  
  It’s also highly competitive with many connecting options via Europe, the Gulf, East Asia, and so on (a sample Expedia flight search for Washington-Mumbai showed connections via Dubai, London, Doha, Beijing, Istanbul, Addis Ababa, Toronto, Zurich, and Amsterdam, to name a just a few). What lies ahead for IndiGo in 2020? Encouragingly, January looks good, following a strong December. But calendar Q1 overall is an off-peak period, especially March. Note furthermore that it was last February when Jet started cutting capacity, giving IndiGo a momentary boost in yields that it won’t see this year. Exposure to mainland China isn’t much, but the airline does serve Chengdu and Guangzhou, two markets that were off to a promising start before the current coronavirus scare. Much more concerning is IndiGo’s swelling non-fuel unit cost base. Maintenance on older A320s is one reason.
  
  But it also faces NEO engine issues that hamper its ability to maximize aircraft utilization. It faces higher labor costs too, including those related to its Agile ground handling subsidiary launched in late 2018. Eventually, unit costs should drop as more NEOs arrive and CEOs phased out. “If Airbus would give us airplanes faster, we’d take them faster,” said CEO Ronojoy Dutta, who once served as United’s president. He added:
  
  “Aircraft utilization has been held back recently because of pilots in training as well as the numerous engine changes. But come June of 2020, we will be in a position to increase aircraft utilization.” That’s good news. And so is the fact that ancillary revenues are growing, with more products and services coming. The carrier already has impressive scale with its fleet fast approaching 300 planes. Expect ASKs to grow another 20% this year.

Alaska’s Q4 Recovery

• In the U.S., Alaska Airlines continues its recovery from a relatively weak period that stretched from roughly the fourth quarter of 2017 through the first quarter of 2019. For all of 2018, recall, its operating margin slipped below 10%, from 17% a year earlier. It somehow managed margins in the neighborhood of 25% during 2015 and 2016. But it ran into trouble with cost spikes, overzealous growth, transcon troubles, and integration complexities emanating from its 2016 takeover of Virgin America. It also got itself embroiled in a vicious California turf war with Southwest, while trying to fend off Delta’s aggressions back home in Seattle.
  
  Many of those challenges have subsided, and Alaska was back to earning excellent profit margins this spring and summer. Last quarter (October to December), was pretty strong too, headlined by an 11% operating margin. That was roughly in line with what Southwest and JetBlue reported. But it handily beat its own Q4, 2018 figure of just 7%. Revenues y/y rose 8% while operating costs dropped 2%, aided by a 2% decline in fuel outlays. Alaska’s return to strength is partly linked to its sharp slowdown in growth, with ASM capacity rising just 4%. It rose just 2% for all of 2019, in which operating margin rose to 12%.
  
  In the past year or so, Alaska has closed markets like Mexico City and Havana, downscaled its ambitions in San Francisco, and leased out New York LGA and Washington DCA slots to Southwest. Other reasons for Alaska’s recovery include benefits from the MAX supply shortage, efforts to win more corporate business, the introduction of basic economy fares, and the harvesting of more Virgin merger synergies. Importantly, critical transcon markets turned from source of trouble to source of strength — New York and California transcon markets in particular saw some of Alaska’s highest y/y gains in unit revenue. That seems to be the consequence of better pricing, optimized fleet scheduling, and an increase in premium sales.
  
  Alaska, remember, elected not to put lie-flat seats on its transcon planes, a decision that initially looked to be causing lost market share to JetBlue and the Big Three. It says now, however, that the first-class and premium economy seats it did choose to offer are generating big revenue gains. First-class revenue rose 19% y/y in Q4, on 14% more seats. Premium-class revenues rose 16% on 15% more seats. Overall, premium products now account for 22% of Alaska’s revenue, up from 7% before offering a premium economy product. Another stat: “RASM from our premium products was 54% higher than generated by our main cabin, and a 6-point improvement from the fourth quarter of 2018.” These figures should continue to rise with more ex-Virgin planes still to convert to the new layout.
  
  More two-class E175s are coming as well. Even during the more troubled times of the last few years, Seattle’s super-strong economy served it well. Same for its growing loyalty program and large pool of airline partners. Does Alaska have any MAXs itself? No, but it was supposed to have received its first in June 2019 and would have ended the year with three. It expected another seven this year, having at one point deferred some deliveries as part of its growth slowdown. It continues to take A321 NEOs that Virgin ordered.
  
  More acute concerns at the moment include the new Southwest competition it faces in Hawaii and increasing congestion at its hubs, especially Seattle, never mind some relief capacity at nearby Paine Field. It also expressed unhappiness with Q4 unit cost trends. The eventual arrival of MAXs will help with that. And perhaps not just the modest 32 it has on order. The airline is looking to replace 61 ex-Virgin A319s and A320s with larger-gauge MAX 9s, MAX 10s, or A321 NEOs. It’s also considering options for the future of its regional fleet.  
  
  For now, demand looks strong for Q1, with pricing “stable.” Management is now building a five-year business plan that seeks to make Alaska the “Go To airline for people living up and down the West Coast.”

Hawaiian Feels the Effects of Competition

• It was perhaps inevitable. Hawaiian was making so much money in its namesake state that others were bound to notice. As mentioned, ANA noticed. But more importantly to Hawaiian, Southwest noticed, prompting the giant LCC to open routes from various points in California. Not stopping there, it’s flying inter-island routes too. Sure enough, Hawaiian’s operating margin slipped last year, from 13% to 11%.
  
  The same was true for just the fourth quarter, never mind a sizeable drop in fuel prices. Hawaiian’s Q4 operating margin fell to 9% as revenues increased not quite 2% y/y, while operating costs increased by a bit more than 2%. ASM capacity rose 4%. To be clear, these are still excellent numbers considering the competitive onslaught, reflecting still-strong demand from booming West Coast economies like the San Francisco Bay area and Seattle (all those big-pocketed Amazon and Google executives have to take vacations somewhere).
  
  Just as importantly, Japan continues to be a big-money market for Hawaiian, headlining an international network that the carrier characterized as “strong” last quarter. International passenger unit revenues, in fact, jumped an impressive 9% with a boost from strong premium demand. No wonder why it’s adding even more Japan flying, like a revived route to Fukuoka and another Honolulu-Tokyo Haneda frequency, this one conducive to more domestic connections with partner JAL. And yeah, it’s still not taking no for an answer from the U.S. Transportation Department, with respect to its pending JAL joint venture — the two have amended their application to address concerns and could implement their JV as early as the end of 2020 if ultimately approved. Hawaiian separately expanded its codesharing with Virgin Australia.
  
  The Hawaiian leisure market is helpfully not exposed to the China downturn — the state receives few Chinese tourists. Korea, management said, is impacted some this quarter by the Lunar New Year holiday. But Japan, Australia, and New Zealand bookings are holding up well. Same for bookings from North America. Southwest’s assault on inter-island hops is a concern for sure. But demand is strong, and Hawaiian thinks it has superior schedules, a loyalty program more relevant to Hawaiians, more backup planes to support reliability, and B717s ideally sized for the market. The airline is so enamored of those B717s that it’s extending their leases, obviating the need for replacements for at least another five years.
  
  For longer routes to the U.S. west coast, A321 NEOs are a big help. For even longer missions like New York, Sydney, and Tokyo, B787-9s are on the way. It mentioned the likelihood of eventually flying more than just the 10 it’s already ordered. Hawaiian’s ability to maintain strong margins has a lot to do with its growing loyalty plan, its ancillary revenues, and its new onboard premium offerings.
  
  It’s now improving its mobile apps, upgrading airport facilities, developing new routes like Boston, investing in IT, negotiating a new contract with flight attendants, and better revenue managing its new basic economy fares. Q1, no doubt, is challenging with Southwest adding more flights. Hawaiian itself is stepping up growth, with ASMs expected to rise 8% to 11% this quarter, and 6% to 9% for the year. The airline will have more to say at an investor day event it’s hosting next month.

Allegiant Bounces Back

• Allegiant wasn’t kidding when it said its fleet transition would deliver big improvements financially and operationally. For two years while phasing out its MD-80s, the remarkable LCC from Las Vegas managed just excellent rather spectacular profits — its operating margins for 2017 and 2018 were only about 15%, down from 18% in 2016 and ridiculous 29% in 2015 (the year of the big fuel price collapse).
  
  The old MD-80s are all gone now, replaced by A319s and A320s, most of them used but some ordered new directly from Airbus. The result: A much more reliable operation and a 2019 operating margin that bounced upward to 20%. It earned 20% in just the fourth quarter too (or 21% excluding its non-airline businesses and investments, most importantly the Sunseeker hotel it’s building in Florida). A 12% y/y increase in total Q4 revenues doubled its 6% y/y increase in operating costs. Also nearly doubling was Allegiant’s rate of capacity growth, with Q4 ASMs up 9%.
  
  In the current quarter, it will grow somewhere between 14% to 17%, its highest pace of expansion since 2016. And that’s without compromising its unique low-utilization business model, in which it flies planes pretty much only during peak times, days, and seasons. Allegiant paid a little more on average than most of its peers for fuel last quarter — about $2.19 per gallon. But with prices down, its fuel bill still dropped slightly, even with that 9% bump in capacity. Demand for leisure travel to places like Florida and Las Vegas has been and continues to be strong. Earlier this month, the carrier announced 44 new routes on a single day, including its first ever from Boston, Chicago Midway, and Houston Hobby. It sees these as destination cities, marketed to small-city travelers in places like Grand Rapids, Mich., and Knoxville, Tenn.
  
  As it enters more and more cities, Allegiant is becoming more of a national brand, supported by ample spending on marketing. Sports marketing, in particular, is an Allegiant favorite, even buying the naming rights to the new Las Vegas stadium opening for the NFL’s Raiders. Its latest deal is with the Indianapolis Colts. The idea is to improve name recognition so that travelers come directly to its own website and mobile apps, removing the need for third-party agencies and GDSs. In fact, Allegiant itself wants to be the agent — or better-said, the platform — such that hotels, rental car companies, event managers, and even restaurants will pay for access to its website and fast-growing e-mail marketing database. They would ideally even pay Allegiant extra to be seen prominently on its online store.
  
  If all this sounds like something out of Silicon Valley, well, it is — Allegiant explains how Apple became a trillion-dollar company not just by selling iPhones and iPads but also by creating a platform that connected billions of consumers with media and entertainment companies, who pay dearly to participate. In the meantime, Allegiant is working to make shopping for travel as frictionless as shopping on Amazon. Already, revenue third-party sales are rising at a 20% clip. A key commercial focus this year is adding more hotel and rental car offerings. Another is growing its MasterCard offering. The Sunseeker hotel plans to open in June 2021. Air ancillaries continues to grow, now averaging more than $50 per passenger.
  
  One “source of immense strength” is its fixed-fee charter flying, with sports teams and government agencies, for example. It’s in this business where the absence of the MAX at other carriers really helps. The carrier is trying to develop bundled fare offerings. And for the record, five of its eight busiest airports next quarter by seats, according to Cirium schedule data, are in Florida. Its fastest-growing non-Florida airports by total seats added next quarter: Cincinnati, Nashville, and Grand Rapids.

SkyWest Reports Strong Quarter

• The U.S. regional giant SkyWest, having shed its underperforming ExpressJet subsidiary, produced extremely strong profits in 2019. Operating margin was 17% for both the fourth quarter and the entire year. A decade ago, SkyWest envisioned a regional market with more flexible pilot scope restrictions, prompting it to order 100 of Embraer’s next-generation E2-E175s. That relaxation never happened though, and the E2s remain to heavy to comply with current scope provisions. Fortunately for SkyWest, its E2 order wasn’t binding, and it finds itself still buying the old E1 jets.
  
  The first-generation E175s indeed remain extremely popular with the U.S. Big Three and Alaska. Last week, in fact, SkyWest ordered another 20 for American’s network. The Utah-based carrier is perhaps even more surprised by the sustained demand for aging CRJs. That demand is strong enough to justify investing in their longevity and operational reliability. This will lead to a temporary jump in expenses this year but position it well in 2021 and beyond. In the year to Q4, 2019, by the way, SkyWest added 10 new E175s and seven new CRJ-900s. It expects to end 2020 with 178 E175s, 190 CRJ-200s, 94 CRJ-700s, and 40 CRJ-900s.
  
  Who are its chief competitors? Republic, most prominently. But also vying for business are lower-cost providers like Mesa. In some cases, the Big Three opt for what you might call outsourcing in-house, in other words, assigning regional missions to wholly-owned regional subsidiaries (i.e. Delta’s Pinnacle and American’s Envoy).

Wizz Air is a Superstar

• There’s just no debate anymore. Wizz Air is a superstar. How could it not be after posting a 16% operating margin last year? And remember, it’s expanding capacity by more than 20%, all the while amassing more economies of scale. It’s still a highly seasonal airline for sure, just like Europe’s most celebrated airline superstar: Ryanair. But so what? The dazzling 33% operating margin Wizz Air earned this summer was more than enough to offset any modest wintertime losses.
  
  As it happened, with demand conditions excellent and supply conditions greatly constrained, Wizz didn’t even lose money in Q4. It earned a solid 5% operating margin, up from break even in the same quarter a year ago. Revenues rose 25% y/y on 22% more ASK capacity, while operating costs rose 23%. Wizz didn’t see the kind of fuel deflation that U.S. carriers enjoyed, due to the strong dollar and carbon taxes. But its 29% increase in Q4 fuel outlays was not too far above its increase in capacity. Labor costs, helpfully, only rose 15%.
  
  This is one area where you can see the economies of scale, as much of its growth comes via upgauging to A321 NEOs that use the same pilots as A320s. The airline’s ambitions, of course, are not confined to Europe. Wizz will soon team with Abu Dhabi’s government to expand from the Gulf region, using exactly the same brand and inflight service. Flights should begin around late October or November. The new Gulf venture could grow to about 50 aircraft by 2030, Wizz believes, and ultimately to about 200 aircraft. It’s also a candidate to receive some of the A321 XLRs Wizz ordered. The Middle East won’t be entirely new turf — it already flies to Dubai, for example, and offers more seats to and from Israel than any foreign airline.
  
  It’s indeed more excited about prospects to its east, as opposed to more mature markets in western Europe. Russia is one new area of focus, taking advantage of recently liberalized flying rights from St. Petersburg. It’s hoping Ukraine joins the EU open skies regime. Among its 105 new routes announced since April are several to Armenia. Closer to home, Wizz remains bullish on the crowded Vienna market, where it claims to be the only airline making money — others are now retreating from the market. Why exactly is Wizz Air making so much darn money? The “incredibly competitive pricing” it received from Airbus for its A321 NEOs is surely one reason.
  
  Its mastery of the ancillary game is another (that’s the source of 47% of its total revenues). It does however face some momentary frustrations, including A321 delivery delays — it’s taking some A320 NEOs from Airbus instead, just to get more capacity faster, especially while MAXs are still grounded at rivals. Another frustration involves all the state aid doled out to dying airlines — it mentioned Alitalia, Flybe, Condor, LOT, and Romania’s Tarom. CEO Josef Varadi, increasingly adopting a Michael O’Leary-like penchant for verbal tongue lashings, laughed off the LOT-Condor merger, calling the two “nonsense airlines.”
  
  He also incidentally blasted Lufthansa by name for flying around empty business class seats. Well, he can say what he wants, with its airline now expected to earn net profits somewhere in the neighborhood of $390m this fiscal year that ends in March. That’s after raising its forecast due to stronger-than-expected demand. Summer bookings, though it’s early, look promising.