Yearbook 2014 Final

WORLD AVIATION
Yearbook 2014
Global overview - Petrol and partnerships
Analysis - Air travel correlation with GDP growth
10 regional data & analysis
Key data of each regions selected airlines
Contents
Introduction.......................................................... p3
Main feature: Of petrol and partnerships.......... p4
Analysis: Air travel correlation
with GDP growth................................................. p9
Southeast Asia overview....................................... p14
Selected airlines key data..................................... p23

Lion Air

Garuda Indonesia
AirAsia

Singapore Airlines

Thai Airways
South Asia overview.............................................. p28

IndiGo
SpiceJet

Air India

Jet Airways
South Pacific overview.......................................... p37

Qantas Airways

Virgin Australia

Air New Zealand
North Asia overview.............................................. p45

China Southern Airlines

China Eastern Airlines

All Nippon Airways

Korean Air

Japan Airlines

Cathay Pacific
Africa overview..................................................... p67


South African Airways

Ethiopian Airlines

Kenya Airways
Eastern Europe overview...................................... p74

Turkish Airlines
Aeroflot

Pegasus Airlines
Western Europe overview...................................... p80
Ryanair
easyJet
Lufthansa

British Airways

Air France

KLM Royal Dutch Airlines
North America overview....................................... p91

Delta Air Lines

Southwest Airlines

United Airlines

American Airlines
jetBlue
Latin America overview........................................ p101
GOL

TAM Airlines

LAN Airlines
Aeromexico
Middle East overview............................................ p57

Saudia

Qatar Airways
Emirates

Etihad Airways
Pg 2 | CAPA World Aviation Yearbook 2014
Except where otherwise noted, content on this site is licensed under a Creative Commons AttributionNonCommercial-NoDerivs 3.0 Unported License. 2014 CAPA Centre for Aviation
Introduction A
S 2014 UNFOLDS, THE TALE EMERGES OF

TWO ECONOMIC WORLDS, again on diverging
paths; slow growth in Europe and North America
brings out and accentuates the conservative voices
among those keen to preserve the status quo or merely to
postpone the inevitable.
At the same time as Chinas economy slows from its
previously high levels, casting a shadow over most of Asia,
there are signs of improvement in the mature markets. Yet
one thing that is not slowing in Asia and the Middle East
is the process of change, structural and in terms of market
access, as new airlines and airline types push regulatory
frontiers.
In Asia, the rapid evolution and diversification of low cost
operations is the most notable and probably most exportable
change.
Despite some asynchrony between capacity and demand,
which has prompted several SE Asian airlines to delay
deliveries of new aircraft, the growing influence of long haul
low cost airlines increasingly networking their operations in
ways similar to classic full service network airlines cannot
be ignored and will almost certainly spread across the world.
At the same time, legacy airlines, many of them burdened
by higher cost bases and often unproductive work practices,
are actively seeking ways of restructuring and redefining their
roles in a new world.
Aside from the essential steps to reduce costs, this
increasingly involves adoption of subsidiaries operating with a
different, low cost, model.
Amid this change, the US, still the worlds biggest market
by value and protected from outside competition has been
able to generate profits previously unheard of. Delta, the
worlds largest airline, alone recorded a profit of over USD2.5
billion for the past year.
Recent consolidation (enhanced massively by the
introduction of baggage and rebooking charges) has enabled
this standout performance; and the projections are for
continued financial performance on this scale. The difference
in the US market though is that traffic growth is minimal and
that market experimentation is limited to the smaller hybrid
airlines.
Emerging economies meanwhile are achieving varying
levels of growth as their economic growth stalls, dampened as
the US slows its previous monetary expansiveness.
CAPAs 2014 Global Aviation Outlook incorporates these
factors in its region by region assessment of coming months.
It also records the growing pre-eminence of partnership
strategies, also on many levels and varied types. And,
inevitably, recounts the always important issue of fuel prices,
with their uncertain impact on the industry.
GLOBAL analysis reports:

Source: CAPA Centre for Aviation
Airline consolidation: could Europe follow North Americas path to improved margins?
Protecting the fortress and the double-edged dangers of protectionism
Airlines in Transition: Hybridisation and operating dual brands
Airline ownership & control. Why might Europe uphold something its officials call stupid?
Of petrol and
partnerships
The airline industry, perhaps more than any other, is

horrendously susceptible to external challenges, where
managements have little or no control over outcomes. Fuel prices
are the most notable economic terrorists, now accounting for nearly
four tenths of all airline costs yet unpredictable and totally
unmanageable.
Add to that a massively disruptive combination of industry
factors that are reshaping the way airlines do business again
mostly outside the ability of most airline managements to control
and it becomes clear why most airlines have such a devil of a job to
make decent profits, or even any profits at all. The disruptive forces
are driving airlines towards makeshift partnerships, necessary but
still made cumbersome by the overhang of nationalistic regulation.
The year 2014 and beyond looks likely to be consumed by these
two drivers. For a few, it will be abundant with opportunity; for
the majority it could represent some of the biggest challenges they
have ever experienced.
There is another factor that unavoidably influences the
course of airline profitability: the state of the economy. Here
the news is, barely audibly as yet, getting better. Signs of
economic recovery in northern Europe and some easing of
pain in the US are welcoming more travellers back into the
sky. Better economic conditions do not necessarily correlate
with improved profitability; the industrys competitive
foundations can mean simply that better demand is met by
greater competition. It can also mean upward pressure on oil
prices as consumption increases.
Nonetheless, the good news is certainly that things are
starting, in a still-fragile way, to look as if demand will
continue to strengthen in 2014. There are still worries:
Chinas uncertain outlook for one; and the continuing
widespread instability in the Middle East, further aggravated
by Russian land grabs, also with potential implications for
fuel supplies.
The external impacts:
BRENT CRUDE PRICES MAR-2004-2014

SOURCE: NASDAQ.COM
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1. Fuel prices
Improbably, through a year of perhaps the greatest, most
diverse series of upheavals in that most sensitive region of the
world, the Middle East, oil prices have refused to skyrocket.
In fact, after showing some easing in the earlier part of 2013,
prices have shown signs of becoming less benign.
This is not a good sign and, with President Putins Russia
showing signs of using energy as a lever against anyone who
gets in its way, many of the seeds are there for the sort of
speculative bubble that occurred in mid-2008, when prices
soared to around USD140 a barrel (with a much higher
aviation fuel margin).
Further increases push airlines to the limits in achieving
profitability and it is indeed a valuable indicator of the
efficiencies achieved that they were no more profitable
when oil prices hovered around USD35 in the early part of
this century. For an airline with a USD10 billion operating
revenue, the rough implication is that, with prices at USD105
a barrel, they will be spending USD300 million annually
more on fuel than they did back then. It would have been a
tidy profit in retrospect, but a very large additional burden to
accommodate today.
Where fuel prices will go this year is anybodys guess
and despite the array of expert opinions, that is all it will be.
Airlines will continue hedging and, at a high price, buying no
more than short term certainty of how much they will pay in
Where fuel prices will go this year is

anybodys guess and despite the
array of expert opinions, that is all it
will be.
That airlines are having to move

quickly has been a factor both of
immediate internal need and of
a shrinking number of options
as competitors soak up the few
partnership options available.
fuel costs. There is nowhere to hide.

However, the consensus is that prices are unlikely to fall
substantially, if at all. The tar sands/US exporter scenario is on
one side, reducing reliance on imports and with the US (and
others) eventually becoming net exporters; against this is a
destabilised Middle East.
If a hoped for drop in price were to occur, a newly
invigorated industry would enjoy at least a short burst of
good news. A substantial drop in prices would (i) breathe
life into inefficient models that were striving to achieve cost
reductions and (ii) change the equation significantly for
LCCs short, and in particular, long haul.
The Middle East turmoil has ensured a floor under prices
in recent months. Contrarily though, the surprising lack of an
extreme impact so far may actually suggest that there is more
pricing stability than we had come to expect at least on the
supply side (rightly or wrongly a lot of the pressure in the
2008 fuel spike was put down to speculation and/or emotion,
rather than a real supply shortage). The conundrum is
that demand has however also been suppressed by slower
economies - and an uptick will increase consumption levels.
Somehow things rarely seem to turn out as airlines hope.
2. (Re) defining the shape of the industry
With most variables outside their control, airlines have
few levers to pull when seeking to improve effectiveness
and efficiency. The most evident are reducing staff costs and
improving productivity and hopefully both. But the scope
for cost reduction in this way is severely limited where fuel
costs fill nearly half of the windscreen.
Every airline in the world is seeking annual (ex-fuel) unit
cost reductions and if they are not they can be assured that
their competitors are. It creates a major source of pain and
often resembles running at top speed merely to stay in the
same place.
But the real area for concern for many airlines, and where
cost reductions may be squeezed into becoming a mere
sideshow, is in how the shape of the industry is changing.
Low cost airlines have remodelled short haul operations
across the world; long haul low cost is becoming an extensive
reality in the Asian region (and soon the North Atlantic); the
Gulf carriers are reshaping much of the longhaul and hub
strategies of full service airlines.
Partnerships are increasingly looked to as the final resort
for airlines under pressure. Nothing less would explain
the enormous about face by airlines like Air France in
accommodating a relationship with Etihad, or even Qantas
with Emirates.
Amid this turbulence and under severe stress in short and
long haul modes, network and point to point airlines alike
have had to begin contemplating compromises that just a year
or two earlier would have been unthinkable.
Global alliances have filled a very valuable need and
continue to work very effectively for many airlines, but
as others around them realign into more egocentric
partnerships, the pressure intensifies to adopt more specific
partnering models.
That airlines are having to move quickly has been a factor
both of immediate internal need and of a shrinking number
of options as competitors soak up the few partnership options
available. The dance is becoming more furious and, in
essentially bilateral relationships, only so many partners are
available.
For many this has required innovative approaches
Over the past two years we reached

a tipping point. Technology and
social pressures have shifted the
fulcrum.
previously not part of their armoury. And they have had to be

adopted in very quick time.
Deciding on a radical new direction which can sometimes
mean casting adrift a large part of longstanding (even core)
activities or existing partners is hard enough, requiring
wholly new skills. Negotiating a major partnership on the run
while continuing business as normal in these circumstances
is another enormous ask, again where there are no roadmaps
and, typically a mountain of pushback from vested interests
whose status quo is threatened.
Actually then to implement them, again with all the other
day to day requirements to be met, is even more high risk and
diversionary from the main game.
Only the US majors are relatively immune from these
trends. Comfortably ensconced in a protected domestic
market bigger than any other in the world, refreshed by
shedding weight in Chapter 11 bankruptcies and now
merged into large dominant entities, they are enjoying almost
unheard of profitability at home.
Internationally, in the key market of the North Atlantic
the big three US carriers are also enjoying the protection
of antitrust immunised partnerships with their European
alliance peers. This combination undoubtedly creates a
benign environment, at least for the short term. Whether this
creates a level of complacency and lack of innovation that
will come back to haunt them is a story still untold. Delta
has dipped a toe in the water with its acquisition of 49%
of Virgin Atlantic, but for the largest airlines in the world
to be otherwise absent from the new worlds close bilateral
partnerships must be a strategic flaw.
In short, in 2014 disruption of the established framework
of the industry will accelerate. For any 70 year old system
which has remained virtually unchanged there must be a
time when old age catches up. In one respect, safety, there
has been massive progress, to the extent that major accidents
are extremely rare. But commercially, although changes are
occurring, they have been mostly around the margins until
last year. Over the past two years we reached a tipping point.
Technology and social pressures have shifted the fulcrum.
The key commercial features of the industry in a nutshell
are (1) market access in its broadest sense, partly proscribed
by bilateral agreements and (2) sales and distribution,
dominated by intermediaries, with (still) a minority of direct
sales.
In this latter area issues have also been bubbling under the
surface for several years, with google and other large online
forces prowling the boundaries of sales and distribution.
Sooner or later and probably quite soon a revolution
will unfold there too; already there is much activity in the
undergrowth.
Albeit with the spectre of high fuel prices in the
background, trends are accelerating towards more
longhaul growth and competition, as new aircraft types are
delivered and as industry fundamentals change thanks to
liberalisation, cross border joint ventures, equity alliances and,
increasingly, to the effects of partnering.
This new environment embraces not only the Gulf airlines,
but also how Chinas airlines start to become more important
in point to point carriage and, increasingly, in sixth freedom
transfer operations.
Very shortly, they will also become designers of the future
partnership system; even if they dont aggressively pursue
expansion internationally with their own metal, the attraction
of the Chinese market to outsiders is pressing foreign airlines
The platform has been laid for this

evolution and its balance has now
tilted.
to court the few available Chinese partners that are available.

Here again there is at least for the time being a limited
number of dance partners.
Other features in the mix are contributing to the upheaval.
Long haul low cost, previously the domain of Southeast
Asia is surfacing on the North Atlantic. This previously
derided concept of long haul low cost involves adopting
a range of new measures (like seeking out more efficient
crewing approaches, as well as using aircraft like 787s
accompanied by the essential underlying low cost mentality)
Will it work on the North Atlantic (yes!) and who else will
follow Norwegian, Air Canada rouge and WestJet?
The arrival of this previously Asian phenomenon on the
North Atlantic surely contains the seeds of something much
bigger. After all it used to work 40 years ago, with Laker
Airways and so-called charter airlines between the UK and
North America.
This will further increase pressure on the global alliances
on longhaul, including on the closed JVs, especially if fuel
prices were to fall. And the impact will not be limited to the
North Atlantic, nor just to the global alliances; all longhaul
airlines will feel the heat. But members of global alliances
will continue to see the need to compromise with and often
partner with the Gulf airlines.
Hybridisation is accelerating as both LCCs and full service
airlines look to adopt low cost models with full service
profiles. As a result, the dual brand concept is now becoming
popular in Europe as well, but the main full service airlines
are still having to undergo the upheaval of restructuring to
kill costs and increase efficiencies.
LCCs around the world are expanding most notably
in Asia; in SE Asia they now account for 60% of all intraregional seats. The nebulous spectre of excess capacity is
being raised as massive order books convert to deliveries, but
deferrals now seemingly more acceptable to manufacturers
may hold this risk in check.
The movement is slowly moving northwards. China has
announced it will allow new domestic LCCs to establish
there and as others expand in the region there is the platform
for a very large growth surge. The northern markets of
China, Japan, Korea and Taiwan are becoming much more
connected.
The resulting traffic volume in 2014 will not transform
the world, but the changes will provide the foundation for a
whole new wave of low priced growth and, accompanying
it, a cycle of further liberalisation.
In Europe the large LCCs, easyJet and Ryanair are
significantly profitable, despite sluggish economic growth
there; Mexico is lively and turbulent, with 61% of its
domestic market capacity on LCCs; India (72% of seats) and
the Philippines (92%) markets are dominated by LCCs.
2014 holds no promise of being more boring than the
previous year. Fuel price rises may silently erode the best
laid plans, but there is much greater certainty that forging
partnerships will occupy a lot more time at airline board
meetings. The platform has been laid for this evolution and
its balance has now tilted.
Analysis:
The air travel correlation
with GDP growth;
Pinpointing the countries
where regulatory
intervention are most likely
to make a difference.
APAS EXTENSIVE COUNTRY RANKINGS

DATABASE provides rich pickings for analysis of
the relationship between the wealth of a country
and the penetration of air travel in that country.
Not surprisingly, our analysis confirms that the two are
closely correlated. Countries with higher GDP per capita
tend to have higher numbers of airline seats per capita.
Establishing a correlation does not indicate the direction of
causality, which works in both directions. Economic wealth
drives air travel, but air travel also helps to drive economic
wealth. However, the correlation is not perfect and levels of
penetration can be affected by geographical, political, fiscal
and infrastructural factors. This leads to some countries
having a significantly higher or lower number of airline seats
per capita than might be expected simply from their level of
GDP per capita.
Who are the out-performers, in terms of the penetration of
air travel, and who are the under-performers? What are the
characteristics of each group? How do the main regions of
the world compare?
And what role can governments play? - in some cases, they
can potentially make a significant difference.
The penetration of air travel is correlated with

GDP per capita
AIRLINE SEATS PER CAPITA (VERTICAL AXIS) VERSUS GDP PER CAPITA
(HORIZONTAL AXIS) BY COUNTRY
SOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014),
INTERNATIONAL MONETARY FUND
CAPAs databases include data from OAG on seat capacity

by country, together with population and GDP data from the
International Monetary Fund. We can use this to calculate
GDP per capita and airline seats per capita for the 177
countries for which all the necessary data is available. A
scatter plot showing airline seats per capita (for the week
of 9-Jun-2014) against GDP per capita is presented in the
graph on the left.
The chart demonstrates a number of points. First, there
is a vast discrepancy in the level of penetration of air travel
(measured by airline seats per head of population) across the
countries of the world. Setting aside countries for which we
have insufficient data to perform our calculations, the least
penetrated nation is the Democratic Republic of Congo,
with just 377 weekly seats per million of population, and the
highest is Qatar, with 618,362 seats per million people.
The most fundamental point highlighted by the chart
below is that, in general, a higher level of GDP per head of
population is associated with a higher level of penetration of
air travel (the correlation is quite strong, as indicated by the R
squared value of 0.7). That said, there is also a huge range of
different levels of penetration even within a narrow band of
GDP per capita, and so there are also other factors affecting
the propensity to fly.
The density of the chart in the bottom left corner
highlights that there are a large number of countries with
below average levels of wealth and of air travel penetration.
Only 34% of the countries on the chart have GDP per capita
above the global mean, but these countries account for 70%
of the total number of seats. Only 45% of the countries have
more airline seats per capita than the global mean, but they
account for 70% of total seats.
The disproportionate impact of the wealthier and higher
penetrated countries drags up the global averages, but many
of the worlds nations are still playing catch-up when it comes
to air travel.
AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE)

VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY
Increasing wealth has a bigger impact on raising

air travel in poorer countries
The trend line that gives the best fit to the data points in
the above scatter plot is very slightly concave: it does not
rise in a straight line, but it gently flattens as it moves to the
right across the chart. This suggests that increasing wealth
(measured by GDP per capita) has a bigger impact on raising
the penetration of air travel in poorer countries than it does
in richer countries.
The chart below shows the same data as the previous chart,
but uses a logarithmic scale on the vertical axis (which shows
seats per capita). This not only accentuates the flattening of
the trend line as GDP per capita rises, but also stretches out
the lower end of the scale for seats per capita making it easier
to distinguish the separate data points in this crowded part
of the chart. We have also added some labels to selected data
points, indicating which country they represent.
Other factors also have an impact

Countries that are below the trend line on the above chart
have the potential to increase their rates of air travel in two
ways.
First, as for all countries, the number of airline seats per
head in these countries should increase as GDP per head
grows. For those that are also below the global average for
GDP per head, this potential is particularly strong.
Second, the countries below the trend line have the
potential to increase air penetration to catch up with other
countries of a similar wealth, but who already have higher
rates of air travel.
This process of catch up might be achieved in a variety of
ways, including regulatory change (including liberalisation
of market access), infrastructure development and taxation
policy. On the other hand, geographical and other structural
factors may mean that this potential is greater for some
countries than it is for others.
The BRIC emerging economies are under-penetrated by air travel

Note that all of the so-called BRIC countries (Brazil,
Russia, India and China) sit below the trend line in the chart
above (and they also have a level of airline seats per capita
that is below the global mean).
Among the four, India would seem to have the greatest
potential to improve the penetration of air travel, but needs
reform and further development on issues such as fuel tax and
infrastructure if this potential is to be realised.
For Brazil, the development of airport infrastructure may
benefit from recent privatisations and the stimulus of the
2014 Football World Cup and the 2016 Olympics and the
airline industry is continuing to develop distribution channels
that are adapted to the Brazilian market. Infrastructure
development has also been (and continues to be) an
important theme in both Russia and China, where recent
regulatory and legal changes should stimulate the growth
of the LCC sector and give a further boost to air travel
penetration.
The MINT grouping is more diverse

Moving on from the BRIC countries, the more recently
identified group of MINT countries (Mexico, Indonesia,

Nigeria and Turkey) are more diverse in terms of their
aviation markets. Whereas all the BRIC countries are among
the worlds largest airline markets by total number of seats
(only Russia is outside the top 10 and it ranks 13th), among
the MINTs only Indonesia and Turkey are at a similar rank
(they are 11th and 12th respectively; Mexico is 20th and
Nigeria 56th).
Unlike the BRICs, which are all below trend line on
our chart, the MINTs include two countries, Turkey and
Indonesia, that sit above the line. These two already have
more airline seats per head than might be expected purely
from their levels of GDP per head.
In the case of Turkey, this reflects the success of its national
carrier, Turkish Airlines, in attracting global connecting traffic
through its Istanbul hub. Indonesias position, only slightly
above the trend line, probably reflects the geographical
imperative of aviation as a means of transport in the
archipelago and the success of the LCC sector in tapping into
demand.
Mexico occupies a similar position on the chart to that of
Brazil, while Nigerias is not too far from Indias.
VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY: THE OUTPERFORMERS

VERSUS GDP PER CAPITA (HORIZONTAL AXIS) BY COUNTRY: THE UNDERPERFORMERS
Island nations and city states are the outperformers

Next, we reproduce the same chart, but this time we label
the out-performers - those countries at the upper frontier
of the scatter plot that also have a level of air seats per head
that is above the global mean. These nations have the highest
level of airline seats per head for their level of GDP per head.
These out-performers fall into two categories: island nations
and what might be termed city states.
The islands, which include Maldives, Bahamas, Cyprus,
Malta and Iceland, rely on air travel (and often inbound
tourism) for their links with the rest of the world and this
has given rise to a much more developed aviation market
than would otherwise be expected in equivalently wealthy
countries.
The city states include true city states Hong Kong and
Singapore and also Gulf nations Bahrain, UAE and Qatar.
In these countries, aviation markets have been stimulated by
government policy in addition to demographic features such
as large expatriate populations.
The under-performers
The under-performers highlighted in our next chart (see
graph on left) form the lower frontier of our scatter plot. They
can also be divided into two sub-groups.
The first consists of countries that have above average levels
of airline seats per capita, but that nevertheless have a lower
level than might be expected from their GDP per capita (in
other words, they are below the trend line on the chart).
This group includes some of the worlds biggest aviation
markets, such as the US, Germany, France and Japan.
Comparison with other countries that are similarly wealthy
suggests that they could be even bigger if they could move
up closer to the trend line. On the other hand, the position
of the line is perhaps artificially dragged upwards by the
presence of the islands and city states of the out-performer
group, where the penetration of air travel is boosted by the
geographic and political features mentioned earlier.
The more serious under-performers are those countries

that have a below average number of airline seats per capita
and also sit below the trend line on the scatter plot. These
include land-locked African countries the Democratic
Republic of Congo, Chad, Lesotho and Swaziland, as well as
Turkmenistan, Slovakia and Slovenia.
Their under-performance may be a function of a number
of different factors, such as the political backdrop, a lack of
infrastructure, or being served indirectly by the airlines of
neighbouring countries. On paper, at least, this group has the
greatest potential to increase the penetration of air travel.
AIRLINE SEATS PER CAPITA (VERTICAL AXIS) VERSUS GDP PER CAPITA
(HORIZONTAL AXIS) BY REGION
SOURCE: CAPA CENTRE FOR AVIATION, OAG (SEAT DATA FOR WEEK OF 9-JUN-2014)
Regional differences: Middle East outperforms;

North America underperforms
By aggregating the data for the countries of each major
world region, we present a final scatter plot of airline seats
per capita against GDP per capita by region (see below). This
highlights a number of points.
First, Africa is substantially under-penetrated by air travel,
with only just more than one fifth of the global average
number of airline seats per head of population. This is broadly
consistent with the continents level of GDP per capita.
African countries occupy the lowest 11 places in the world
ranking of airline seats per capita.
Second, although Asia Pacific is the largest world region
in terms of the total number of seats, it is still a small market
relative to the size of its population, with only 56% of the
global average number of airline seats per head. Asia Pacific
is a very diverse region, with both developed and emerging
markets. It includes Maldives (the country ranked number
three in the world by seats per capita) and Bangladesh
(ranked 171 on this measure).
Third, Latin America is not far from the world average on
both GDP per capita and airline seats per capita, but is still
a little behind on both measures. Its aviation markets have
potential to benefit both from GDP growth and from the
additional boost to penetration levels that could result from
infrastructure development and regulatory reform.
Fourth, the Middle East as a region is outperforming
strongly in terms of airline seats per capita compared with
GDP per capita. It is only slightly wealthier than average
(GDP per capita 7% above the global mean), but has 68%
more seats per head than the world average. This reflects
government policy and the success of the super connector
airlines in the Gulf.
Fifth, Europe is a modest out-performer, with a higher
level of air travel penetration than might be expected from its
level of GDP per capita (particularly Western Europe). This
reflects the liberalised internal market of the European Union
(its aviation market and other markets, including that for
labour), relatively well developed aviation infrastructure and
the consequent development of the LCC sector.
Sixth, North America is underperforming in terms of
airline seats per capita against GDP per capita, when
compared with other regions. It has more than five times
the global mean level of GDP per capita, but less than four
times the global mean number of airline seats per capita. This
probably reflects the diminishing power of GDP alone to
stimulate penetration of air travel as aviation markets mature.
As we have seen earlier, there are island nations and city
states with similar levels of wealth to that of North America,
but where the number of airline seats per capita is much
higher, but they benefit from additional geographical and

policy stimuli.
Governments do have a large role to play

This report provides a glimpse of what can be gleaned from
analysing CAPAs country ranking database. It confirms the
correlation between the number of airline seats per head and
GDP per head, both at the country level and at the regional
level. Countries such as island nations have geographical
advantages that boost aviation markets.
While nations cannot do much about their geographical
location, their governments can play a large part in achieving
higher levels of penetration of air travel, or in holding it back.
Air travel in countries such as the Gulf states of Qatar and
the United Arab Emirates has been increased by government
policy and the consequent strategic growth of their national
airlines. This has led to the Middle East regions strong
outperformance in terms of airline seats per capita compared
with its GDP per capita.
Europe also achieves a higher level of air travel per head
than might be expected from its level of GDP per head, in no
small part due to its liberalised internal market.
By contrast, a number of countries underperform
significantly compared with their GDP per head. In such
cases, as in countries like India governments can often do
much to improve the penetration of air travel through their
stance on factors such as improved regulation, market access,
taxation and infrastructure.
In very mature markets, such as North America, it seems
that the very high levels of penetration of air travel are less
susceptible to further stimulation from growth in GDP per
head.
Perhaps the final frontier for governments in such cases
is to open up their domestic markets to global competitors.
This is something the incumbent airlines will mostly
resist strongly, but equally it is important to recognise that
regulators do have the power to unlock further growth
through regulatory intervention.
See related reports:
Indias Civil Aviation Agenda: CAPA proposals for the
new administration to restart the industry
Airline ownership & control. Why might Europe uphold
something its officials call stupid?
World airline industry in cyclical upswing - but in search
of USD125 billion annually in financing
SOUTHEAST ASIA analysis reports:

Southeast Asia low-cost airline fleet to expand by almost 20% in 2014. Are more deferrals needed?
Garuda adjusts 777-300ER route plans to focus on Japan while dropping Australia-London one-stops
Garuda & Citilink 1Q losses widen. Potential Singapore Airlines investment poses intriguing option
AirAsia further slows fleet expansion as 1Q profit falls - with the potential to accelerate later
AirAsia drives rapid growth at Malaysias Johor Bahrus Senai Airport, further encircling Changi
AirAsia X drives 43% transit traffic at Kuala Lumpurs KLIA. Can Singapore follow the same recipe?
AirAsia India to launch on 12-Jun-2014. The LCCs greatest test or its most lucrative opportunity?
Myanmar international aviation outlook: after two years of rapid expansion, growth starts to slow
Cebu Pacific Air profits drop; PAL, Philippines AirAsia remain in the red. But outlook is improving
Singapore Airlines incurs 4QFY2014 operating loss, adds premium economy as latest strategic response
Singapore Airlines seeks to expand its partnership portfolio further following a spate of new deals
Tigerair restructures after recording a FY2014 loss. A Singapore Airlines takeover seems sensible
SilkAir 737 MAX fleet to open up network options while boosting Boeings narrowbody presence in Asia
Nok Air and Thai AirAsia profits fall in 1Q but continue rapid growth in response to new competition
Southeast
Asia
SOUTHEAST ASIA HAS EMERGED AS ONE OF THE

WORLDS FASTEST GROWTH MARKETS. Low-cost
carriers have been at the forefront of growth and now account
for nearly 60% of traffic within the region. Several have
massive orders, with significant numbers still arriving in 2014
despite some deferrals. A dominant theme of the competitive
environment is the rapid escalation of the market share battle
between the big LCC groups particularly AirAsia and Lion
Air, plus to a lesser extent Tigerair, Jetstar and the emerging
VietJet.
The regions LCCs have been ambitiously adding capacity,
putting pressure on yields and load factors. Southeast Asias
full service groups have also been focusing on regional
growth, both within Southeast Asia and the wider Asia
Pacific market. While demand is relatively robust, there
are signs of overcapacity throughout including in most
domestic and short-haul international markets, as well as in
some medium-haul markets, particularly Southeast AsiaAustralia.
2014 is shaping up to be a challenging year for the
Southeast Asian aviation market. The region will again
have some of the worlds highest growth rates but lacks
the capacity discipline and rational behaviour exhibited by
airlines in other regions.
The short-haul market has become challenging, with the
rate of capacity growth far outstripping demand. There is
a risky element of strategic growth here too a process
that airline CFOs usually abhor as airlines jostle to secure
scarce airport slots and to establish first (or second) mover
advantage. The result is to jeopardise short-term profitability.
TOP 10 AIRLINES WITHIN SOUTHEAST ASIA
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG | MAY-2014
RANKING CARRIER NAME
SEATS
Lion Air
1,053,478
Garuda Indonesia
473,450
AirAsia
470,520
Vietnam Airlines
358,595
Malaysia Airlines
347,038
Cebu Pacific Air
323,967
Thai AirAsia
226,800
Thai Airways
217,782
Indonesia AirAsia
10
Sriwijaya Air
200,700
183,210
CAPACITY BY CARRIER TO/FROM/WITHIN SOUTHEAST ASIA

Lion Air
1,058,000
Garuda Indonesia
557,922
AirAsia
543,240
Malaysia Airlines
524,369
Thai Airways
493,138
Singapore Airlines
473,605
Vietnam Airlines
407,767
Cebu Pacific Air
377,201
Thai AirAsia
Singapore
281,520
Other
0M
3,969,379
1M
2M
3M
4M
5M
SOUTHEAST ASIA TOP 10 AIRPORTS
RANKING AIRPORT NAME
SEATS
Jakarta Soekarno-Hatta International Airport
Kuala Lumpur International Airport
809,696
Singapore Changi Airport
649,644
Manila Ninoy Aquino International Airport
555,351
Bangkok Suvarnabhumi International Airport
536,412
Bangkok Don Mueang Int'l Airport
466,704
Surabaya Juanda Airport
444,575
Ho Chi Minh City Tan Son Nhat Airport
438,579
Denpasar Bali Ngurah Rai Airport
317,205
10
Hanoi Noi Bai Airport
307,400
1,308,360
The Singapore market in particular is experiencing

overcapacity, putting pressure on yields, load factors and
profitability. Rapid expansion by Singapores largest lowcost carrier, Tigerair, has been the main driver of the current
capacity situation. Tigerair Singapores ASKs were up 24%
in CY2013 as it added four aircraft, bringing its feet to 25
A320s. The carrier added two more aircraft in early 2014
but further fleet expansion has sensibly been put on hold as
the Tigerair Group has cancelled nine A320 orders and is
planning to sub-lease eight A320s.
The capacity added into the Singapore market during
2013 was clearly too much and it will take time to be fully
absorbed even with further growth being halted. In the
quarter ending 31-Dec-2013, Tigerair Singapores average
fares were down 16% while yields were down 11% and load
factor slipped a shocking 11.6ppts to 73.4%. The outlook for
2014 is now slightly brighter as it is no longer adding several
aircraft but the carrier continues to grapple with falling yields
and load factors.
Singapores other local LCC, Jetstar Asia, has not been
expanding at the same speed, with ASKs up by only about 5%
in 2H2013. The Jetstar Asia fleet, including aircraft operated
by subsidiary Valuair, expanded by only one aircraft in 2013
to 19 A320s. Jetstar Asia will not add any aircraft in 2014 as
the Qantas Group has announced the suspension of further
growth at Jetstar Asia. But Jetstar Asia will still be impacted
Continued red ink may start to test

the holding power of a couple of
airlines.
SOUTHEAST ASIA FLEET
SOURCE: CAPA FLEET DATABASE | MAY-2014

2000
1,590
1,586
1500
1000
500
228
0
In service
In storage
On order
SOUTHEAST ASIA BREAKDOWN FOR AIRCRAFT IN SERVICE

2.0%
8.7%
13.8%
51.9%
23.5%
Narrowbody Jet
Regional Jet
Widebody Jet
Turboprop
Small Commercial Turboprop
SOUTHEAST ASIA CAPACITY SEATS SHARE BY ALLIANCE

10.6%
14.2%
59.7%
15.5%
Unaligned
SkyTeam
Star Alliance
oneworld
as the Singapore short-haul market continues to suffer

from overcapacity despite the recent adjustments, leading to
continued pressure on yields and profits.
Singapore Airlines (SIA) full service regional subsidiary
SilkAir has also been growing rapidly, with ASKs up by about
14% in CY2013. The carrier plans more double-digit capacity
growth in 2014 as it is expanding its fleet by four aircraft.
SilkAir began 2014 with 24 A320 family aircraft and will
end the year with 20 A320s and eight 737-800s. SilkAir, in
Feb-2014, took the first of at least 54 737s, which will enable
the carrier to double its fleet by 2021 and continue growing
capacity at an annual double-digit rate.
It is not just the LCCs that are hurting from the
competition. SilkAir yields were down 10% in 4Q2014 as
load factor also slipped by 5.3ppts to 70%.
Parent company SIA has been pursuing much slower
growth, with mainline ASKs up by only about 2% in
CY2013. Similar low single-digit growth is expected for
2014. SIAs yields have been down slightly in recent quarters
(about 2% to 3%) as the carrier has had to lower fares to
stimulate demand and maintain its load factor.
The SIA Group is focusing expansion almost entirely on
Asia Pacific, using SilkAir, new medium/long-haul LCC
subsidiary Scoot and SIA mainline. Scoot added two 777s
in 2013, giving it a fleet of six aircraft, but will take a hiatus
from expanding in 2014. The carrier will add one aircraft this
year, a 787-9 in 4Q2014, but has dropped its initial plan to
use it as a growth aircraft and has instead decided to use its
first 787 to replace one of its 777-200s.
While demand for services within Asia Pacific continues to
grow, capacity has been added too quickly, particularly in the
Singapore-Indonesia and Singapore-Australia markets. Scoot
serves three Australian routes and has significantly reduced
capacity to Australia by cutting frequencies and combining
some Sydney and Gold Coast flights. Qantas has also decided
to drop its Perth-Singapore service. More adjustments are
likely.
As Singapore has a population of only about 5 million and
is a relatively mature aviation market compared with other
ASEAN countries, there is perhaps limited opportunity for
additional stimulation in the local market. Transit traffic
remains a large and very important component, but with
other hubs in Southeast Asia also seeing capacity growth
outstripping local demand, competition for transit passengers
has become more intense.
Passenger traffic at Singapore Changi was up only 5% in
2013, marking the first time in four years that double-digit
growth was not achieved. Passenger growth is expected to dip
further in 2014, to between 3% and 5%.
Asia traffic for Changi, which was up 7% in 2013, will
again lead the way in 2014 but at the expense of yields.
Capacity is growing at a rate far exceeding supply, putting
pressure on yields and profitability. It will be a challenging
year for all five of Singapores passenger carriers.
Malaysia
Malaysias rapid growth from 2013 is unlikely to be

sustained. The country was one of Asias fastest growing
markets in 2013, driven by the launch of Lion Air Group
subsidiary Malindo and rapid expansion by the countrys
three main existing carriers. 2014 will see more rapid
expansion not at the torrid speed from 2013 but at a rate
which will likely exceed demand, putting further pressure on
yields and profitability.
SOUTHEAST ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER

300
250
200
150
100
50
72
CARAVAN
DHC6
CRJ
A320
A330
SSJ
ARJ21
A350
A380
737
20
28
20
27
20
26
20
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
777
787
SOUTHEAST ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICE

17.5%
29.3%
2.6%
4.2%
8.1%
8.4%
21.4%
8.6%
A320
737
A330
72
777
CARAVAN
747
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTHEAST

ASIA: 2011 TO 2014*
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
*Year to Month indicated
80
57.8%58.9%
60
52.0%
40
30.9% 30.7%
32.4%
26.8%
23.2%
18.1%
20
13.6%
9.8%
3.3%
0
4.6% 4.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
Passenger traffic at Malaysia Airports grew by 18% in 2013

to 80 million, including a 17% increase in international traffic
and a 20% increase in domestic traffic. Malaysia Airports
manages all but one of Malaysias main airports.
Malaysia Airlines (MAS) was the fastest growing
Southeast Asian flag carrier in 2013, with passenger figures
up 29% to 17 million. MAS increased ASKs by 17%,
driven primarily by expansion of its domestic and regional
international operation. The carrier was able to grow RPKs
by 27%, pushing up load factor by 6.3ppt to 81%. But MAS
adopted an aggressive pricing strategy, significantly increasing
the number of tickets sold at low LCC-like fares as it
responded to the launch of Malindo and intense competition
from AirAsia and foreign carriers. It does not have the cost
base to allow this sort of pricing over an extended period.
MAS incurred a USD360 million loss in 2013 as yields
tumbled by 13%, including by 16% in 4Q2013.
This is a dangerous strategy, despite being cossetted by its
government. MAS outlook for 2014 is relatively bleak as
yields and profits remain under pressure. Capacity levels will
increase further, with a focus on the regional international
market. While the rate of capacity growth will be slower than
the 17% figure from 2013, it is expected to again be double
digits (approximately 10% to 12%). Competition is too
intense to expect an improvement in yields and the MH370
incident makes an already challenging situation even more
difficult.
LCC capacity in Malaysia continues to grow rapidly,
putting pressure on all carriers. In 2013, Malaysias LCC fleet
grew by more than 30% from 73 to 99 as 26 aircraft were
added, including 11 aircraft at Malindo, eight at AirAsia
and seven at AirAsia X. Malindo, which launched services
in Mar-2013, is expected to add about eight aircraft in 2014.
Most of its expansion will be in the international market,
starting with several South Asia routes that were launched
in 1Q2014, followed in the second half by the anticipated
launch of services to North Asia.
Growth at Malaysia AirAsia and AirAsia X is expected to
be similar to 2013 levels, when Malaysia AirAsia recorded
an 11% increase in ASKs while AirAsia X ASKs were up
by 19%. But yields will continue to be under pressure. At
Malaysia AirAsia, the average fare was down 18% and
revenue per ASK was down 10% in 4Q2013. At AirAsia X,
revenue per ASK was down 15% in 4Q2013, including a 22%
drop on routes in which AirAsia X and competitors both
added capacity. This is an indication of the stiff competition
in the Malaysian market and the broader Southeast Asia
market.
AirAsia X is only planning to add three aircraft in the
Malaysian market in 2014 (as four of its seven additional
A330s are allocated to Indonesia and Thailand) while
Malaysia AirAsia plans to grow its feet by only four aircraft.
While these numbers are significantly down compared with
2013, both carriers added several aircraft in late 2013, which
will result in large capacity increases on a full-year basis
for 2014. As group AirAsia has significantly slowed down
expansion in 2014 by deciding to sell 12 of its oldest A320s
and deferring seven deliveries. But this did not lead to a
significant adjustment in its Malaysia capacity plans as most
of the aircraft that have been removed from the initial fleet
plan for 2014 had been intended for Indonesia and India.
Competition between the AirAsia, MAS and Lion groups
will further intensify in 2014 as Malindo expands into new
international markets. MAS will likely struggle as current
Capacity is growing at a rate far

exceeding supply, putting pressure
on yields and profitability. It will
be a challenging year for all five of
Singapores passenger carriers.
fare levels are unsustainable given its higher cost structure.

Malindo is unlikely to meet its goal in the short to medium
term of reaching break-even. Both AirAsia carriers are
attempting to cut costs and increase transit traffic in 2014 as
part of a bid to improve profitability despite the challenging
market conditions. AirAsia has a strong position in its home
market but faces some of its biggest challenges in recent
years.
Thailand
18%
PASSENGER TRAFFIC GROWTH AT MALAYSIA

AIRPORTS IN 2013
In Thailand, three new carriers will launch despite

challenging market conditions. Competition between the
AirAsia and Lion groups has also increased in the local
market. Thai Lion launched services in late 2013 with a fleet
of two aircraft and is planning to add at least eight aircraft in
2014. Three other LCCs are planning to launch services in
2014 Thai AirAsia X, Thai VietJet and NokScoot giving
Thailand seven LCCs, which is more than any country except
the US, which has eight.
The timing for the launches is far from ideal as yet another
political crisis, including frequent protests in Bangkok, has
significantly impacted demand in late 2013 and 1Q2014,
with worrying signs that it will not go away quickly. In the
past, the Thai market has recovered rapidly once restored
to stability. But there is a dangerous amount of new
capacity being added which will put pressure on yields and
profitability even under a more stable environment.
Thailands two main LCCs, Nok Air and Thai AirAsia, are
expanding as fast as Thai Lion. Thai AirAsia plans to add six
more A320s in 2014, giving it a fleet of 41 aircraft. It added
eight A320s in 2013 as ASKs were up 23%. Of the four
AirAsia short-haul franchises in Southeast Asia, Thai AirAsia
is growing the fastest as only two aircraft have been removed
from the original fleet plan for 2014, which envisioned eight
additional aircraft. AirAsias decision not to pursue a more
significant slowdown of growth in Thailand is somewhat
surprising given the unfavourable market conditions and is
an example of strategic growth as new competitors enter the
market.
Nok plans to add four aircraft in 2014, growing its feet to
20 aircraft (excluding small turboprops, which were dropped
entirely in early 2014 as they were operated by another carrier
that Nok has severed ties with). Overall, capacity at Nok is
expected to increase by more than 20%, representing only
a slight slowdown to 2013 when the level was up by 46%.
Both Nok and Thai AirAsia have remained profitable with
net profit margins of about 10% in 2013. But yields have
been dropping in recent quarters and market conditions
will deteriorate further in 2014 as more capacity floods the
market despite the unstable political environment. Revenue
per ASK was down by 6% at Nok in 2013 and by 2% at Thai
AirAsia. Thai AirAsia revenue per ASK was down 10% in
4Q2013, with the carriers average fare slipping 13%.
New Thai Airways regional unit Thai Smile, which
launched services in 2012, has also been expanding rapidly,
adding six A320s in 2013. Thai Smile plans to add another
seven A320s in 2014 for a total of 17 aircraft. Thai Smiles
ASKs more than tripled in 2013, albeit on a very low base,
while group ASKs were up 8% year-on-year. Similar high
single-digit capacity growth at the group is expected again in
2014. While Thai Smile will expand rapidly, there will only be
modest growth at Thai Airways. The carrier plans to shrink its
mainline fleet by six aircraft in 2014, as 13 aircraft are slated
to be phased out five A300s, five A330s and three 737-400s
Market conditions in
Indonesia have not
been helped by a sharp
devaluation of the
Indonesian Rupiah in late
2013, leading to a sudden
surge in costs, challenging
profitability.
while seven aircraft are delivered, including the carriers

first four 787-8s and three additional 777-300ERs. Thais
mainline ASKs were up 8% in 2013 but there are signs of
overcapacity as passenger yield was down 2% and load factor
slipped 2.5ppts including 5.3ppts in 4Q2013.
Independent regional carrier Bangkok Airways, with its
more conservative and focused strategy, is also in expansion
mode and plans to add five A320 family aircraft in 2014 for
a total of 22. The carrier already added two A320s at the end
of 2013 along with two A319s earlier in the year. Bangkok
Airways also operates eight ATR 72-500s, which it will start
replacing in 2H2014 with recently ordered new-generation
ATR 72-600s. But growth in the turboprop fleet is not part
of the carriers fleet plan.
Thai VietJet, meanwhile, plans to launch services by the
end of 2014 with an initial focus on the domestic market.
The combination of Thai VietJets entry along with rapid
expansion from Nok, Thai AirAsia, Bangkok Airways and
Thai Smile poses a huge risk of overcapacity in Thailands
domestic and short-haul international market.
Thailands medium/long-haul market is also poised to
become significantly more competitive in 2014 as new
widebody LCCs Thai AirAsia X and NokScoot are launched.
Thai AirAsia X plans to launch services in 2Q2014 with
an initial fleet of two A330s while NokScoot aims to begin
operations in 2H2014 with an initial fleet of two 777-200s.
With Thailand becoming the first market to have two local
medium/long-haul LCCs, overcapacity in some markets such
as Thailand-Japan is possible over the medium to long term.
But this is not a big concern for 2014 as the two new
carriers will start small and there is a lot of room for LCCs
to penetrate Thailands medium/long-haul market compared
with the more mature and much more competitive short-haul
market, where 2014 could prove to be a bloodbath.
Indonesia
Indonesia will also experience more growth despite a

challenging environment. Market conditions in Indonesia
have not been helped by a sharp devaluation of the
Indonesian rupiah in late 2013, leading to a sudden surge in
costs, challenging profitability. So far two Indonesian carriers,
Indonesia AirAsia and Tigerair Mandala, have responded
by slowing down expansion and cutting domestic capacity.
But the main domestic players continue to expand at an
aggressive rate.
Indonesia AirAsia has suspended fleet expansion and is
now planning to keep its fleet stable at 30 A320s in 2014.
The carrier originally planned to add six aircraft and the
adjustment in Indonesia is one of the main drivers of AirAsia
Groups decision to seek delivery deferrals and the sale of
some existing aircraft. Indonesia AirAsia added eight A320s
in 2013 for a total of 30, driving a 33% increase in ASKs.
Indonesia AirAsia still plans to pursue international
expansion in 2014 but this will come at the expense of its
domestic operation. The carrier plans to decrease the portion
of its capacity allocated to the domestic market from 40%
to only 30%. Indonesia AirAsia is already a relatively small
domestic player, with about a 5% share of the market, while it
is Indonesias largest international carrier.
Tigerair Mandala has suspended 11 of its 19 routes since
the beginning of 2014 and has reduced its fleet from nine
A320s to only four aircraft. The carrier initially planned to
add three aircraft in 2014 for a total of 12 A320s. Tigerair
Mandala hopes to restore some capacity later in the year but
AirAsia has a strong position in its

home market but faces some of its
biggest challenges in recent years.
The situation in the PhilippineMiddle East market looks

particularly ugly for 2014.
this hinges on an improvement in market conditions and the

potential sale to new owners.
Even if Tigerair Mandala does not recover and exits the
market, the impact will not be significant given its relatively
small size. The void left when much larger Indonesian carrier
Batavia exited in early 2013 was quickly filled by other
Indonesian carriers. Existing carriers should also be able to
fill most of the void left by Indonesian government-owned
regional carrier Merpati, which suspended operations in early
Feb-2014. Indonesias two main airline groups, Lion and
Garuda, have rapidly expanded regional aircraft operations
and continue to quickly grow their narrowbody fleets.
Garuda mainline ASKs were up 15% in 2013, including
16% domestic and 14% international growth, as the fleet
expanded by 15 aircraft. Double-digit growth is expected in
2014 as the Garuda mainline fleet grows by about another 20
aircraft.
A large portion of the fleet growth is at Garudas new
regional sub-brand Explore, which operates the carriers
new CRJ1000 and ATR 72 fleets. Garuda took its first five
CRJ1000s in 2012, added seven more in 2013 and will take
four more in 2014. Garuda took its first two ATR 72-600s in
late 2013 and will add six of the type in 2014.
Garudas new 777-300ER fleet will also grow from four to
seven aircraft in 2014. Garuda began operating 777-300ERs
in mid-2013 and in early Jun-2014 began using the type
to operate non-stop fights to Amsterdam. But Garuda has
dropped previous plans to also launch non-stop services to
London and will instead only serve Gatwick as a tag to its
Amsterdam service, which previously was operated as a onestop via Abu Dhabi using A330-200s.
Garuda budget subsidiary, Citilink, meanwhile plans to add
eight A320s for a total of 32. Capacity levels will also increase
as the carrier increases utilisation of its A320 fleet. Some of
the additional capacity will be allocated to the international
market as Citilink plans to expand into the international
market in 2014, initially with services to Malaysia, Singapore
and Australia.
Citilink added 10 A320s in 2013, driving year-on-year
ASK growth of 75%. Citilink has been facing some of the
same challenges as smaller Tigerair Mandala, incurring an
operating loss of USD60 million in 2013 while Garuda
mainline remained in the black.
Current market conditions are particularly challenging
for budget carriers in the domestic market. Yet Citilink
and domestic market leader Lion Air continue to expand
rapidly. The Lion group is privately held but claims to have
grown LCC passenger traffic by 15% 2013 to 32.9 million
(this includes Lion Air and Wings Air but excludes new
full-service subsidiary Batik Air, which carried 800,000
passengers in its first year of operations). The Lion group
plans to add 50 to 52 aircraft in 2014 with approximately 15
aircraft allocated to its affiliates in Malaysia and Thailand,
leaving 35 to 37 aircraft for Indonesia. This includes 15 to
17 737NGs for Lion, about 10 ATR 72s for Wings and 10
aircraft (four 737s and six A320s) for Batik. But these figures
are subject to change as the year unfolds; Lion has a very
flexible feet strategy and only finalises allocations among its
five carriers a few months prior to delivery.
While Indonesia AirAsia is taking a hiatus from fleet
expansion, new sister carrier Indonesia AirAsia X plans
to launch services in 2H2014 with an initial fleet of two
A330-300s. Indonesia AirAsia is less impacted by the rupiah
devaluation given the carrier has a much larger portion
of foreign passengers than its competitors. AirAsia has a

small and shrinking domestic operation in Indonesia but is
already the countrys largest international player, a position
the group aims to cement by launching the countrys first
medium/long-haul LCC. As is the case with Thailand, there
are opportunities to penetrate Indonesias medium/long-haul
market, while a bloodbath could emerge in the short-haul
market particularly domestically.
Philippines
Conditions in the Philippines domestic market are relatively more

favourable, thanks to consolidation.
In the Philippines, domestic market rationality returns,

but potential overcapacity looms in international markets.
Conditions in the domestic market are relatively more
favourable, thanks to consolidation.
Philippines AirAsia and Zest Air merged in early 2013.
Both carriers integrated their operations in 2H2013 and
now both operate under the AirAsia brand. The two carriers
began 2014 with a combined fleet of 17 A320s but the group
has decided not to pursue any feet growth in the Philippines
this year, keeping the fleet stable at about 17 aircraft. As with
Indonesia, AirAsia plans to reduce domestic capacity in the
Philippines while growing its international operation.
Market leader Cebu Pacific announced in Jan-2014 the
acquisition of Tigerair Philippines, which will leave two
LCC players (AirAsia and Cebu Pacific) compared with five
(AirAsia, AirPhil Express, Cebu Pacific Tigerair, Zest) at the
beginning of 2013.
AirPhil adopted the full service regional model after it
was rebranded PAL Express in early 2013. The transition
resulted in the PAL group having one rather than two brands
on domestic trunk routes, resulting in a significant cut in
domestic capacity for the PAL group and flat growth for the
overall Philippine domestic market in 2013. The additional
consolidation with AirAsia/Zest and Cebu Pacific/Tigerair
results in an improved outlook for 2014, ending a period of
irrational competition and overcapacity in the Philippine
domestic market.
Cebu Pacific plans to expand its fleet in 2014 by only four
aircraft one A320 and three A330s for a total of 52.
But the carrier aims to move four of its A320s over to new
subsidiary Tigerair Philippines, which had operated five
A320 family aircraft that are in the process of being returned
to Tigerair Philippines. With the Tigerair Philippines
fleet leaving the Philippines, the overall LCC fleet in the
Philippines will shrink slightly and end 2014 at just under
70 aircraft. Cebu Pacific, which grew domestic ASKs by 8%
in 2013, plans to increase domestic ASKs by 9% in 2014,
excluding Tigerair Philippines.
While domestic market conditions have improved,
overcapacity has now surfaced in the Philippines
international market. The situation in the Philippine-Middle
East market looks particularly ugly for 2014. Cebu Pacific
launched services to Dubai in Oct-2013 and its new longhaul unit is planning to add four to five new destinations in
the Middle East in 2014, as well as one in Australia, as it
expands its A330-300 fleet from two to five aircraft. PAL
and PAL Express, meanwhile, launched services to five
destinations in the Middle East in 2H2013 and plan to add
at least a couple more in 2014.
Overcapacity is also possible in the Philippines-Japan
market, as several Philippine carriers rush to add capacity
following a new air services agreement between the two
countries. Competition is also intensifying in the regional
international market within Southeast Asia a common
trend driven by rapid and at times overambitious expansion

of budget carriers, as well as growth by full service regional
subsidiaries.
Southeast Asias five smaller markets

Myanmar is another frontier market
with tremendous potential. But the
domestic market is over-served and too
fragmented.
Vietnam, Myanmar, Cambodia, Laos and Brunei,

Southeast Asias smaller markets, have similar challenges. All
five markets face potential overcapacity in 2014.
In Vietnam, competition from LCC VietJet Air is putting
pressure on Vietnam Airlines and the flag carriers budget
subsidiary Jetstar Pacific. VietJet Air plans to double its fleet
in 2014 from 10 to 20 A320s. There are huge opportunities for
growth in Vietnam but overcapacity is a risk for the domestic
market and on some short-haul international routes.
Myanmar is another frontier market with tremendous
potential. But the domestic market is over-served and too
fragmented, with seven carriers and a few more planning
to launch in 2014. Foreign carriers dominate Myanmars
international market, which has doubled in size since Aung
San Suu Kyis National League for Democracy won landmark
elections in early 2012. But Myanmar now faces overcapacity
and below average load factors as airlines have rushed too fast
in the wake of the market opening up.
Cambodia and Laos are smaller markets with growing
demand but have similar challenges due to rapid growth by
local carriers and several new services from foreign carriers.
Brunei, Southeast Asias smallest market, is more stable and
Royal Brunei could be the only flag carrier which experiences
an improvement in profitability in 2014 as it transitions its
entire long-haul operation to 787s by the end of the year.
But Royal Brunei is not about to become profitable anytime
soon. A majority of Southeast Asias main flag carriers and
LCC groups were profitable in 2013 but will likely see profits
fall in 2014 as stiff competition puts pressure on yields.
The overall fundamentals of the Southeast Asian market are
excellent as the regions GDP and middle class continue to
grow at healthy rates. There can be no doubt that the upside
for economic and air traffic are extreme. But coordinating
capacity expansion with such high rates of change is
extraordinarily difficult. The tendency to add excessive levels
of capacity in individual markets is further encouraged by
strategic goals, where emerging LCC groups are vying for
pan-Asian pre-eminence, while also making sure that they
and the full service airlines will be able to secure slots for
future expansion at limited-space airports.
In many markets, the expansion has predictably been too
fast, leading often to irrational competition. Even with the
fleet and capacity adjustments implemented in 1H2014,
some consolidation is possible in 2H2014, particularly among
the smaller and weaker carriers. But the predominant trend
will be aggressive competition between all types of carriers.
And potentially a lot of red ink as the battle for dominance
continues.
Southeast Asia
Selected Airlines
LION AIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

80
1. Lion Air
60
40
20
IN STORAGE
0
60
Airbus A320200NEO
109
Airbus A321-200NEO
65
ATR 72-212A(72600)
25
Boeing 737-300
Boeing 737-400
Boeing 737-800
26
17
201
68
79
Boeing 747-400
Boeing 787-8
Boeing/McDonnell
Douglas MD-82
Boeing/McDonnell
Douglas MD-90-30
96
12
561
Total:
28
26
27
20
20
24
25
20
20
23
20
21
20
22
20
20
19
20
17
18
20
20
15
16
20
20
14
20
20
787
*For group, not individual carrier. Excludes new aircraft that are coming from leasing
companies.
2500
No. of Weekly Frequencies
Boeing 737-900ER
737
3000
ON ORDER
Airbus A320-200
Boeing 737-9
72
SOURCE: CAPA FLEET DATABASE
IN SERVICE
A320
LION AIR STAGE LENGTHS
LION AIR FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
0
20
Lion Air is an Indonesian hybrid airline based at Jakarta-Soekarno-Hatta

International Airport. Commencing operations in 2000 and based in Jakarta,
Lion Air is the largest privately-owned airline in Indonesia. The carrier
operates a network of scheduled passenger services throughout South East
Asia and the Middle East.
2000
1500
1000
500
-500
10
Flight Time (Hours)
LION AIR TOP 10 INTERNATIONAL ROUTES BY SEATS

17,892 seats
SIN - CGK
CGK - KUL
8,946 seats
5,964 seats
PEN - KNO
CGK - JED
4,522 seats
2,982 seats
SIN - SGN
PEN - MES
2,646 seats
KUL - BDO
2,646 seats
576 seats
SZB - HDY
432 seats
KNO - HDY
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
22.5k
Southeast Asia
Selected Airlines
GARUDA INDONESIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
40
2. Garuda
Indonesia
30
20
10
A330
72
737
18
20
17
20
16
20
15
A320
777
CRJ
*Excludes new aircraft that are coming from leasing companies
GARUDA INDONESIA STAGE LENGTHS

1750
1500
1250
Garuda Indonesia is the national airline of Indonesia, based at Jakartas

Soekarno-Hatta International Airport. The carrier operates an extensive
domestic and regional network of services throughout Asia, Australia and
the Middle East. In Jun-2010, Garuda resumed services to Europe (initially
Amsterdam via Dubai) after an extended EU imposed ban.
Garuda has undergone a thorough restructuring in what it labelled The
Quantum Leap, which involved a dramatic redesign of the airlines strategic
direction, network, brand and fleet. The airline launched an IPO in 2011 which
was substantially under-subscribed at the relatively aggressive pricing
sought. In Apr-2012, the government announced that talks were under way
for a consortium of local investors to absorb the overhang, still held by the
underwriters.
Garuda Indonesia stated that in line with the airlines efforts to develop
and strengthen its network, especially in the domestic market, it is
launching a new sub-brand Explore along with the introduction of the
ATR 72-600 aircraft into the fleet. In addition to the sub-brand Explore,
Garuda Indonesia is also introducing the brand Explore Jet to operate its
Bombardier CRJ1000 NextGen fleet, serving the airlines network in both
eastern and western Indonesia.
Garuda Indonesia is the 20th member of the SkyTeam alliance.
20
20
14
1000
750
500
250
-250
10
12
Flight Time (Hours)
GARUDA INDONESIA FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
GARUDA INDONESIA TOP 10 INTERNATIONAL ROUTES BY SEATS

Airbus A320-200
15
Airbus A320200NEO
10
CGK - SIN
Airbus A330-200
11
CGK - JED
Airbus A330-300
CGK - HKG
Airbus A330-300E
17
CGK - BKK
ATR 72-212A(72600)
22
Boeing 737-300
Boeing 737-500
Boeing 737-800
67
10
Boeing 747-400
Boeing 777-300ER
Bombardier CL-6002E25(CRJ1000NG)
13
Total:
113
85
21,922 seats
7,536 seats
6,799 seats
5,460 seats
CGK - PVG
4,396 seats
CGK - NRT
4,396 seats
DPS - SIN
4,368 seats
CGK - KUL
4,368 seats
4,032 seats
CGK - PEK
DPS - MEL
4,032 seats
0k
5k
10k
15k
20k
25k
30k
Southeast Asia
Selected Airlines
AIRASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

50
3. AirAsia
40
30
20
10
28
26
27
20
20
24
23
22
25
20
20
20
20
21
20
20
20
19
20
17
16
15
18
20
20
20
20
20
20
14
A320
AirAsia is a low cost carrier based at Kuala Lumpur International Airport,

Malaysia. The carrier, which was formed out of Tune Air in 2002, is led by
CEO Tony Fernandes and pioneered the cross-border joint venture in Asia,
establishing Thai and Indonesian units with bases in Bangkok and Jakarta.
The airline has also partnered with other airlines and investors to create
ventures in Japan and the Philippines. AirAsias extensive domestic and
regional network includes services within Malaysia and to China, Southeast
Asia and the Subcontinent.
Airbus A320-200
Airbus A320200NEO
Total:

1500
1250
IN SERVICE
AIRASIA STAGE LENGTHS
1000
AIRASIA FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
*For group, not individual carrier. Excludes new aircraft that are coming from leasing
companies.
IN STORAGE
ON ORDER
76
67
264
76
331
750
500
250
-250
Flight Time (Hours)
AIRASIA TOP 10 INTERNATIONAL ROUTES BY SEATS

25,920 seats
KUL - SIN
KUL - DMK
17,640 seats
12,600 seats
KUL - SGN
KUL - HKT
10,080 seats
SIN - PEN
10,080 seats
KUL - HKG
10,080 seats
KUL - TRZ
7,560 seats
KUL - DPS
7,560 seats
KUL - KNO
7,560 seats
CAN - KUL
7,560 seats
0k
5k
10k
15k
20k
25k
30k
35k
Southeast Asia
Selected Airlines
SINGAPORE AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
25
4. Singapore
Airlines
20
15
10
A330
A350
A380
777
21
20
20
20
19
20
18
20
17
20
16
20
15
20
20
14
787
Based at Singapore Changi Airport, Singapore Airlines is the national

carrier of Singapore. Using a fleet of wide-body Boeing and Airbus aircraft,
including the A380 of which Singapore Airlines was the launch customer,
Singapore Airlines operates an extensive network across Asia, North
America, Australasia, Europe, Africa and the Middle East. Singapore Airlines
joined the Star Alliance on 01-Apr-2000.
SINGAPORE AIRLINES STAGE LENGTHS

300
250
200
SINGAPORE AIRLINES FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
150
IN SERVICE
IN STORAGE
ON ORDER
Airbus A330-300E
27
10
Airbus A340-500
Airbus A350900XWB
70
Airbus A380-800
19
Boeing 777-200ER
29
22
30
104
120
Boeing 777-300
Boeing 777-300ER
Boeing 787-10
Total:
100
50
-50
10
15
Flight Time (Hours)
SINGAPORE AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

39,552 seats
SIN - CGK
SIN - HKG
32,816 seats
SIN - PVG
21,578 seats
SIN - SYD
21,224 seats
20,328 seats
SIN - BKK
SIN - LHR
19,244 seats
18,760 seats
SIN - MEL
SIN - DPS
16,464 seats
SIN - MNL
16,338 seats
SIN - PER
16,212 seats
0k
5k
10k
15k
20k
25k
30k
35k
40k
45k
50k
Southeast Asia
Selected Airlines
THAI AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

10
5. Thai Airways
A350
777
18
20
17
20
16
20
15
20
Based at Bangkoks Suvarnabhumi Airport with secondary hubs in

Phuket and Chiang Mai, Thai Airways is the national airline of Thailand and
majority-owned by the Thai Ministry of Finance. Using a fleet of narrow and
wide-body Airbus and Boeing aircraft, Thai Airways operates an extensive
network of domestic and regional services throughout Thailand and Asia and
international services to Europe, North America, Australia and New Zealand.
Thai Airways is a founding member of Star Alliance.
20
14
787
THAI AIRWAYS STAGE LENGTHS

600
THAI AIRWAYS FLEET SUMMARY AS AT MAY-2014
500
Airbus A300B4600R
IN SERVICE
IN STORAGE
5
ON ORDER
0
AIRCRAFT
400
300
Airbus A330-300
Airbus A330-300E
15
Airbus A330-300X
Airbus A340-500
Airbus A340-600
Airbus A350900XWB
10
Airbus A380-800
ATR 72-201
Boeing 737-400
Boeing 747-400
12
Boeing 747400(BCF)
Boeing 777-200
BKK - SIN
Boeing 777-200ER
BKK - ICN
12,334 seats
Boeing 777-300
BKK - KIX
12,194 seats
Boeing 777-300ER
BKK - RGN
12,096 seats
Boeing 787-8
BKK - KUL
Boeing 787-9
BKK - HND
89
17
23
BKK - FRA
Total:
200
100
-100
10
12
14
Flight Time (Hours)
THAI AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

23,590 seats
BKK - HKG
BKK - NRT
15,554 seats
14,798 seats
10,872 seats
10,528 seats
9,768 seats
BKK - PVG
9,324 seats
0k
5k
10k
15k
20k
25k
30k
SOUTH ASIA analysis reports:

Air India finally to enter the Star Alliance. Lufthansa now looks to escalate Gulf carrier rhetoric
CAPA India Aviation Outlook FY2015: Losses accumulate but AirAsia India, Tata-SIA undeterred
Indias airlines lost USD1.65 billion in FY2013. CAPA India Aviation Outlook 2013/14: Part 4
SriLankan Airlines raises global profile and expands oneworld presence in South Asia
South Asia A
TOP 10 AIRLINES WITHIN SOUTH ASIA
SEATS
IndiGo
587,700
SpiceJet
345,060
Air India
338,832
Jet Airways
306,244
GoAir
167,220
JetLite
83,606
Pakistan International Airlines
50,058
SriLankan Airlines
45,880
Maldivian
23,368
10
Buddha Air
22,538
CAPACITY BY CARRIER TO/FROM/WITHIN SOUTH ASIA

IndiGo
616,500
Air India
454,452
Jet Airways
428,180
SpiceJet
357,888
Emirates
176,508
GoAir
175,860
Pakistan International Airlines
115,562
SriLankan Airlines
102,081
Qatar Airways
85,914
Other
1,166,129
0k
250k
500k
750k
1,000k
1,250k
1,500k
SOUTH ASIA TOP 10 AIRPORTS
SEATS
Delhi Indira Gandhi International Airport
746,672
Mumbai Airport
653,098
Bangalore Bengaluru (Kempegowda) International Airport
296,368
Chennai Airport
261,696
Kolkata Netaji Subhas Chandra Airport
260,857
Hyderabad Rajiv Gandhi International Airport
212,984
Ahmedabad Airport
100,064
Pune Lohegaon Airport
90,182
Goa International Airport
85,998
10
Kochi Airport
80,823
S THE INDIAN NATIONAL ELECTION

completes a major shift to a new BJP government,
with market-changing airline partnerships in train
and major new entrants arriving, the year ahead
promises to be no less eventful than any over the past decade.
The new government will have to address deep structural
shortcomings in the sector. Airlines continue to bleed while
the competitive environment intensifies with the appearance
of new entrants. Creative strategies are going to be needed;
equally there are massive strides to be made in improving
infrastructure to accommodate the inevitable high traffic
growth levels.
Indias airlines posted combined losses of around USD1.7
billion in the year ended 31-Mar-2014. Air India again
incurred the largest loss at close to half of the total. Jet
Airways and SpiceJet both reported record full-year losses.
GoAir was earlier expected to end the year with a
breakeven result or a modest profit but is also likely to have
gone into the red. IndiGo will be the only carrier to report
full-year profitability, but this too will be significantly lower
than CAPAs earlier estimates. Nevertheless, as the only
consistently profitable airline in India, the time may be
approaching to leverage this achievement and an IPO is
possible in FY2015.
Start-up carriers will place downward pressure on yields
and risks will peak for some carriers in FY2015. Indias
incumbent carriers can expect no respite on the competitive
front in FY2015, with several new carriers expected to launch
operations. AirAsia Indias entry into the market on 12Jun-2014 sparked a round of heavy discounting with fares
on some routes falling to below USD10 one-way including
taxes and surcharges. Apart from AirAsia India, Tata-SIA
is expected to commence services in 3Q2014, and a further
two to three start-ups are reportedly awaiting licences to
commence national and regional operations. The introduction
of additional capacity when load factors are already soft, and
the consequent downward pressure on yields, is likely to hurt
all carriers. Continued red ink may start to test the holding
power of a couple of airlines.
Downsizing by SpiceJet and freezing by Jet and Air India
on domestic routes will help in moderating capacity growth.
Fortunately the incumbent carriers are planning only modest
capacity increases this year. Jet Airways and Air India are
likely to freeze their domestic operations at close to current
levels for the near term. GoAir will take one more aircraft
in mid-2014 and then does not have any aircraft scheduled
for delivery until the first of its A320neos start to arrive in
2016, although it has been evaluating leasing some aircraft to
support growth in the interim.
And SpiceJet is conducting a detailed review of its
operations which has already resulted in a short-term
reduction of its domestic narrowbody operations. Question
marks continue over its long-term plans in the regional
segment, which has to date faced significant operational
and reliability issues. Domestic growth will be driven by
IndiGo which is expected to deploy six additional aircraft,
and AirAsia India, Air Costa and Tata-SIA which combined
could induct 18-20 aircraft. This is dependent upon the rate at
which AirAsia decides to expand which is currently uncertain.

airlines.
SOUTH ASIA FLEET

800
700
584
600
500
500
400
300
200
63
100
In service
In storage
On order
SOUTH ASIA BREAKDOWN FOR AIRCRAFT IN SERVICE

8.7%
2.1%
14.6%
58.9%
15.8%
Narrowbody Jet
Regional Jet
Widebody Jet
Turboprop
SOUTH ASIA CAPACITY SEATS SHARE BY ALLIANCE

3.1%
8.4%
17.5%
71.0%
Unaligned
Star Alliance
oneworld
SkyTeam
In FY2015, the high-cost operating environment and

the continued weakness in the economy would suggest that
domestic traffic growth will be moderate, in the range of
6-8%, albeit slightly higher than the 5.2% achieved last year.
However, there is considerable uncertainty about the
potential impact of the new market entrants. If fares wars
are sustained, traffic growth could be stimulated above this
underlying rate; although this would be at the expense of
airline balance sheets. Domestic traffic performance could
therefore be volatile from month to month. But there may be
signs of a more sustained recovery from 3Q2015 onwards as
economic confidence has increased following the election of
the new government in May-2014.
International traffic on the other hand has been a strong
and steady performer over the last decade, even during
periods where domestic traffic has dropped into negative
territory. In FY2015 growth of around 10% is expected and
may approach 15% if the 5 year/20 aircraft rule is lifted and as
a number of bilaterals are relaxed.
Indian airlines are expected to post combined losses of
USD1.3-1.4 bn in FY2015. Losses could track further
upwards as some airlines have substantial major maintenance
checks scheduled this year, the cost of which will be higher
than the reserves currently held by lessors.
These profitability projections are subject to significant
external factors. We have assumed oil at an average of
USD110/barrel for the year (and this may be impacted by
instability in the Middle East) and an exchange rate in the
range of INR58-60 to the US Dollar. It also assumes that
pricing discipline will by and large be maintained. Extended
periods of aggressive discounting could lead to further
deterioration in financial performance.
Airline cash balances are in some cases at dangerous levels.
As at the end of FY2014 CAPA estimates that Indian carriers
combined had INR32.5 billion (USD585 million) of cash
on hand. With annual industry turnover in excess of USD10
billion this represents the equivalent of less than three weeks
revenue. And since almost 80% of the cash balances were
accounted for by just two carriers IndiGo and Jet Airways
the situation at some airlines is even more precarious.
One carriers cash balances are understood to have at times
dropped to the equivalent of less than one days revenue with
operations being sustained by borrowing from travel agents
against future ticket revenue.
Indian carriers, other than IndiGo, are likely to require
capital infusions of USD1.6 billion in FY2015 just to
stabilise their operations, let alone for investment in aircraft.
Air India accounts for more than half of this requirement.
Inability to access sufficient funds when required may impact
the operational integrity and customer proposition of some
carriers.
Foreign investors may take a wait-and-see approach for
now, with no new transactions likely until at least 3QFY2015.
Further foreign airline investment transactions involving
existing Indian carriers consequently appear unlikely in the
short term given recent losses and in light of the increasing
intensity of competition in the market. SpiceJet has reportedly
signed a terms sheet with a UAE-based investor, however
the ongoing challenges in the market may make it difficult to
close this deal.
GoAir, which has also been in the market for some time, is
similarly expected to face challenges in securing an investor in
the near term.
SOUTH ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

60
40
20
A320
A330
A350
777
787
737
20
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
YUN7
SOUTH ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICE

20.0%
31.2%
3.1%
4.3%
4.3%
5.7%
5.8%
A320
737
25.7%
DHC6
777
72
DHC8
A330
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTH ASIA:

2011 TO 2014*
80
60
57.0%
47.3%
62.3%
58.7%
50.0% 50.0%
42.8%
38.6%
40
22.7%
20
5.8%
0
0.1% 0.9%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
IndiGo remains the leading bright spot in Indian aviation,

with a potential IPO in 3Q2015 likely to attract significant
interest. IndiGo has successfully established itself as a
sustainably profitable airline, albeit its result in FY2014 was
below earlier expectations. The time may be approaching to
leverage this achievement and an IPO is likely in FY2015,
possibly in the third quarter. If it proceeds it is expected to be
the largest ever aviation IPO in India. CAPA estimates that
IndiGo could raise USD350-400 million from the flotation.
The offer is likely to preceded by a strong statement about
its future growth prospects with IndiGo expected to place
another large order for 200-250 aircraft at Farnborough in
Jul-2014 to meets its equipment requirements post-2025. The
carrier has a current fleet of 79 aircraft with an order book of
186.
For some carriers, the financing of aircraft already on
order may be challenging. Given the ongoing difficulties in
the operating environment and with the failed Kingfisher
experience still fresh, some banks and lessors remain
concerned about the level of risk in the Indian market,
especially as the provisions of the Cape Town Convention are
yet to be formally incorporated into the Indian Civil Aviation
Regulations.
Air Indias entry into Star Alliance is a positive
development however the new government must take
a serious look at the national carriers future. Air India
has made significant improvements across operational,
commercial and financial metrics over the last two years and
this is reflected in the decision by Star Alliance to formally
induct the carrier as a member on 11-Jul-2014.
However funding and ownership issues need to be
addressed. Realistic capital requirements are likely to exceed
earlier budgetary commitments. The Governments fiscal
deficit means it is already facing challenges in honouring
the funding that it has committed to the national carrier.
Under its proposed turnaround plan, Air India is expected to
require a further USD3.9 billion of funding before returning
to profitability. With the internal and external operating
environments having become even more challenging since the
turnaround plan was developed, these estimates are likely to
be conservative.
As a result, a practical and dispassionate approach requires
that all options be on the table, including privatisation.
The new government is expected to outline a clearer long
term bilateral policy. In FY2014, Jet Airways, Etihad and
Emirates were the primary beneficiaries of bilateral largesse
in terms of new access rights. Bilateral agreements with
Singapore and Dubai have also been renegotiated to permit
carriers to operate A380 equipment, previously barred from
Indian skies. The India-Germany bilateral is expected to be
similarly updated.
Additional Indian entitlements granted to Gulf carriers
are likely to be utilised to feed their rapidly expanding US
networks. And with the US pre-clearance facility in Abu
Dhabi expected to be joined by a similar one in Dubai next
year, and probably Doha thereafter, the Gulf carriers will
offer a very competitive and convenient product on IndiaUS routes. This is expected to hurt Air India as well as those
European airlines which are heavily dependent on US traffic
to support their India services.
Indias airport privatisation programme had stalled in the
lead up to the elections, and the sector is now awaiting an
indication from the government on how it plans to proceed.
The Airports Authority of India planned to award PPP
INDIAN DOMESTIC & INTERNATIONAL PASSENGERS FY2005 TO FY2014

(ESTIMATED)
SOURCE: CAPA CENTRE FOR AVIATION, AIRPORTS AUTHORITY OF INDIA
ANNUAL EQUITY INFUSIONS IN AIR INDIA APPROVED BY GOVERNMENT

TO FY21
SOURCE: CAPA CENTRE FOR AVIATION
US
CAPITAL INFUSIONS REQUIRED BY INDIAN CARRIERS
1.6lion OVER THE NEXT 12-18 MONTHS

bil
concessions for 15 of its most profitable airports, starting

with Chennai, Kolkata, Ahmedabad, Guwahati, Jaipur
and Lucknow. However the tender process for these first
six airports has been stuck since Oct-2013 due to a lack of
preparedness with respect to the concession agreement and
the approved tariff structure.
The most significant greenfield airport project in India
is that for the second airport in Mumbai. Request for
Qualification documents for the repeatedly-delayed Navi
Mumbai Airport project were finally issued on 5-Feb-2014,
although a Request for Proposal document is not expected to
be sent to short-listed parties until at least Sep-2014.
Meanwhile the project continues to face a number of
challenges. These relate to land acquisition, the need for
complex preparatory earthworks at the proposed site and the
absence of convenient surface connectivity between Greater
Mumbai (home to the majority of the residents in the
Mumbai Metropolitan Region) and the airport. Meanwhile
cost estimates continue to be revised upwards as the
complexities of the project become more apparent.
The new government is however expected to provide a
strong push to encourage the development of 50-100 lowcost airports designed to increase regional connectivity to Tier
III towns. This is expected to be supported by a new regional
airline policy consisting of a package of incentives and
concessions to address the viability challenges that airlines
seeking to address this segment of the market have faced.
Indias regulatory uncertainty remains both a key concern
and disincentive to serious investors. The unpredictability and
lack of transparency in Indias regulatory framework remains
the greatest strategic challenge in the market. For example, on
the issue of new airline licences, there are no defined criteria
for whether, how and when applications will be assessed;
the process seems to differ depending upon the applicant.
The arbitrary nature of the timing and process of regulatory
approvals makes planning virtually impossible for start-up
airlines. And the economic regulation of airports is still
subject to some uncertainty.
Indian aviation will require billions of dollars of investment
over the next decade. But serious investors will be deterred
until India is able to develop a more structured and
predictable framework.
Indias newly-elected government has come to power
with a burden of expectation that it will revive the economy.
The administration has the opportunity to take some quick
and decisive steps to assist the aviation industry. Foremost
amongst these is a reduction in sales tax on fuel. This will
inspire confidence and signal intent while solutions to deeperrooted problems are developed. If the government is prepared
to finally take aviation seriously, it has the ability to take
decisions that will transform the performance the sector to
the benefit of the entire Indian economy.
South Asia
Selected Airlines
INDIGO PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

30
25
1. IndiGo
20
15
10
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
Commencing operations in 2006, IndiGo is a low-cost carrier based in

Gurgaon, India. The carrier, which is owned by Rahul Bhatias InterGlobe
Enterprises, operates an extensive domestic network and international
services to Bangkok, Dubai, Kathmandu, Muscat and Singapore.
20
14
A320
INDIGO STAGE LENGTHS
INDIGO FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
Airbus A320-200
1500
IN SERVICE
IN STORAGE
ON ORDER
16
Airbus A320200NEO
150
Airbus A321-200
20
78
186
Total:
1250
78
1000
750
500
250
-250
Flight Time (Hours)
INDIGO TOP 10 INTERNATIONAL ROUTES BY SEATS

5,040 seats
DEL - BKK
DEL - KTM
2,520 seats
BKK - CCU
2,520 seats
BOM - MCT
2,520 seats
MAA - SIN
2,520 seats
DXB - BOM
2,520 seats
DXB - DEL
2,520 seats
DXB - TRV
2,520 seats
DXB - MAA
2,520 seats
DXB - COK
1,800 seats
0k
1k
2k
3k
4k
5k
6k
7k
South Asia
Selected Airlines
SPICEJET PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

12
10
2. SpiceJet
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
SpiceJet is an Indian low cost carrier based at Indira Gandhi International

Airport, New Delhi. SpiceJet one of Indias largest airlines, serving domestic
destinations across India. The airline commenced international operations
in Oct-2010 and now provide services to Afghanistan, Maldives, Nepal, Oman,
Saudi Arabia, Sri Lanka and the UAE.
737
SPICEJET STAGE LENGTHS
SPICEJET FLEET SUMMARY AS AT MAY-2014

1000
AIRCRAFT
Boeing 737-8
IN SERVICE
IN STORAGE
ON ORDER
42
12
Boeing 737-900ER
Bombardier DHC8Q-402(NG)
15
Total:
55
54
800
0
34
Boeing 737-800
600
400
200
-200
Flight Time (Hours)
SPICEJET TOP 10 INTERNATIONAL ROUTES BY SEATS

4,224 seats
DEL - KTM
DXB - DEL
2,688 seats
AMD - DXB
2,688 seats
DXB - COK
2,304 seats
1,536 seats
PNQ - SHJ
DEL - KBL
1,152 seats
AMD - MCT
1,152 seats
CMB - IXM
1,092 seats
CMB - MAA
1,092 seats
MLE - COK
1,092 seats
0k
1k
2k
3k
4k
5k
6k
South Asia
Selected Airlines
AIR INDIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

5
3. Air India
777
18
20
17
20
16
20
15
20
14
0
20
Air India is the state-owned national carrier of India with its main hubs
at Delhi and Mumbai airports. It established an international LCC subsidiary,
Air India Express, in 2005 and merged with Indian Airlines in Aug-2007. Its
network covers domestic and regional destinations, as well as international
services to Asia, the Middle East, Europe, and North America.
787
AIR INDIA STAGE LENGTHS
AIR INDIA FLEET SUMMARY AS AT MAY-2014

1000
AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
21
Airbus A320-200
17
Airbus A321-200
20
Airbus A330-200
Boeing 747-400
Boeing 777-200LR
Boeing 777-300ER
12
Boeing 787-8
13
14
Total:
92
10
17
800
Airbus A319-100
600
400
200
-200
10
15
Flight Time (Hours)
AIR INDIA TOP 10 INTERNATIONAL ROUTES BY SEATS

8,372 seats
DEL - LHR
DEL - ORD
4,788 seats
BOM - EWR
4,788 seats
DEL - JFK
4,788 seats
RUH - BOM
4,788 seats
DEL - KTM
4,438 seats
4,230 seats
CCJ - JED
DEL - SIN
3,584 seats
DEL - FRA
3,584 seats
DEL - HKG
3,584 seats
0k
2k
4k
6k
8k
10k
12k
South Asia
Selected Airlines
JET AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

12
10
4. Jet Airways
AIRCRAFT
IN SERVICE
20
17
20
20
20
20
737
787
IN STORAGE
ON ORDER
1500
Airbus A330-300
ATR 72-212A(72500)
13
ATR 72-212A(72600)
Boeing 737 MAX
50
Boeing 737-700
Boeing 737-800
54
Boeing 737-900
Boeing 737-900ER
Boeing 777-300ER
Boeing 787-9
10
88
71
1250
Airbus A330-200
Total:
16
JET AIRWAYS STAGE LENGTHS
15
JET AIRWAYS FLEET SUMMARY AS AT MAY-2014
14
A330
18
Based in Mumbai, Jet Airways is one of the largest airlines in India with
hubs at Mumbai, Delhi, Chennai and Brussels airports. The carrier operates
an extensive domestic and regional network within the subcontinent as well
as services to Europe, the Middle East, Southeast Asia and North America.
1000
750
500
250
-250
10
12
Flight Time (Hours)
JET AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

8,736 seats
BOM - LHR
BOM - DXB
7,300 seats
BOM - BKK
4,368 seats
DEL - LHR
4,368 seats
BOM - KTM
4,128 seats
BOM - KWI
4,088 seats
BOM - AUH
4,088 seats
SIN - BOM
4,088 seats
SIN - MAA
4,088 seats
SIN - DEL
4,088 seats
0k
2k
4k
6k
8k
10k
12k
SOUTH PACIFIC analysis reports:

As many as 10 Southeast Asian LCCs are poised to enter Australia, further pressuring incumbents
The Qantas-Virgin Australia capacity/fare war is not over: WA decreases offset east coast growth
Qantas responds to deterioration: cuts 5,000 jobs & 50 aircraft but changes are overdue
Qantas pressing need to solve the Asian network dilemma, now its European restructure is in place
Qantas-Jetstar and SIA-Scoot dual-brand strategies challenged by SE Asia-Australia over-capacity
Virgin Australia: an important crossroad in our industrys history and 1H2014 loss as expected
Air New Zealand 2014 outlook: Long-haul expansion resumes as 787-9s and 777-300ERs are delivered
Air New Zealand enters its 75th year after posting largest profits and establishing growth platform
South
Pacific
TOP 10 AIRLINES WITHIN SOUTH PACIFIC
SEATS
Qantas Airways
674,590
Virgin Australia
489,263
Jetstar Airways
325,431
Air New Zealand
303,716
Tigerair Australia
90,360
Regional Express
44,574
Air Niugini
44,540
Air Tahiti
25,570
Fiji Airways
22,292
10
Airlines PNG
14,940
CAPACITY BY CARRIER TO/FROM/WITHIN SOUTH PACIFIC

Qantas Airways
763,564
Virgin Australia
513,468
Jetstar Airways
367,404
Air New Zealand
304,055
Emirates
90,734
Tigerair Australia
84,960
Singapore Airlines
84,814
Air Niugini
49,428
United Airlines
49,104
Other
589,739
0k
200k
400k
600k
800k
SOUTH PACIFIC TOP 10 AIRPORTS
SEATS
Sydney Kingsford Smith Airport
736,254
Melbourne Tullamarine Airport
623,636
Brisbane Airport
514,050
Auckland International Airport
309,116
Perth Airport
244,619
Adelaide Airport
174,904
Christchurch International Airport
136,262
Wellington International Airport
134,480
Gold Coast Airport
116,390
10
Cairns Airport
101,738
1,000k
AUSTRALIA-NEW ZEALAND AVIATION effectively

embraces a single market. But the contrast between
performance of their respective airlines over the past year
could scarcely be starker.
Qantas and Virgin Australia are headed for their worst
annual losses ever in the FY2014; yet Air New Zealand is on
track to make its best profit yet.
A common theme is, however, towards stronger and closer
international partnerships, often involving equity.
The coming year promises more of the same, with
the turbulence that has characterised the competitive
environment continuing to provide challenges to each of
them.
Air New Zealands reward for finding a better balance
was a record first half (six months to 31-Dec-2013) result of
NZD180 million (USD151 million) before tax, representing
a 7.7% margin, exiting from loss-making routes, higher
trans-Tasman load factors than competitors, and a more
streamlined fleet. Air NZ increased profitability on flat
revenue despite decreased capacity.
Unlike the much disputed Australian domestic market, Air
New Zealand thoroughly dominates its home territory, where
it generates the great bulk of its revenue.
It also holds a net advantage on the very large but highly
competitive market between Australia-New Zealand, where
its lower cost base and higher average load factors position it
well.
At the same time, the carrier also enjoys a 25% equity
share in Virgin Australia, securing an indirect stake in the
much larger business market across the Tasman Sea. Air New
Zealand is projecting a full-year profit, to 30-Jun-2014, of
over NZD300 (USD254) million.
Alliances are proving critical to Air NZ, unsurprising for
an end-of-line carrier, and have largely been enabled by the
New Zealand governments willingness to approve Air NZs
alliance applications. Its recently announced alliance with
Singapore Airlines supports its economics to Singapore as
well as onward connections to Europe and augurs well for an
emerging Asian strategy too.
These partnerships and ultimately long-haul growth
come after a period of not growing the network as Air NZ
optimised its long-haul network following losses associated
with the global financial crisis.
Air NZ is planning an average 5% capacity growth per
annum over the next five years, including an aggressive
8% in the near future. This hinges heavily on New Zealand
as a tourism destination, and a 6% visitor increase in 2013
is supportive of that objective. The listed airline remains
73% government owned, after renationalisation in 2001
designed to ensure the countrys tourism industry would be
effectively served. This reflects both the relative commercial
unattractiveness to other airlines of long-haul operations to
New Zealand, but also attractive corollary that the airline is
often able to fly under the radar where other airlines are
unable to mount sustainable operations into the relatively
small and price sensitive market.
Although its domestic market looks like remaining largely
intact, there are some potential threats internationally on its

airlines.
SOUTH PACIFIC FLEET

1200
1000
878
800
600
400
221
200
41
0
In service
In storage
On order
SOUTH PACIFIC FLEET BREAKDOWN FOR AIRCRAFT IN SERVICE

10.1%
13.0%
33.3%
13.4%
30.2%
Narrowbody Jet
Regional Jet
Turboprop
Widebody Jet
As many as 10 new Asian airlines

will be entering the market or
adding extra capacity over the next
two years.
SOUTH PACIFIC CAPACITY SEATS SHARE BY ALLIANCE

3.7%
17.2%
48.8%
30.3%
Unaligned
oneworld
Star Alliance
main non-stop route, to the US: United has announced a new

non-stop 787 service between Los Angeles-Melbourne, a
market which Air NZ has exploited successfully via its home
Auckland base; and rumours continue that Qantas oneworld
partner American will commence New Zealand operations.
There has been nothing under the radar about the
Australian market in recent times. A 46% increase in foreign
airline capacity over the past four years bears testimony to
that. It has been a very attractive market, with high levels
of outbound travel, something that has continued to push
Qantas international position into substantial losses.
The international market is not going to get any less
difficult; CAPA has identified as many as 10 new Asian
airlines that will be entering the market or adding extra
capacity over the next two years. These are mostly short-haul
operators, but they also include long-haul low-cost airlines
such as AirAsia X and its Indonesian identity, Indonesia
AirAsia X. Although they are unlikely to attack long-haul
markets like Europe, they will make one-stop access to a
burgeoning Asian market a highly attractive option to any
network that Qantas can develop.
But it was a surge of both domestic and international
capacity that largely contributed to Qantas underlying
PBT loss of AUD252 (USD226) million in the first half,
traditionally the stronger period. With a political bunfight
continuing over whether or not to end the outdated
ownership and labour protection provisions of the 20 year old
Qantas Sale Act, management announced 5000 full-time jobs
were to be eliminated over the next three years and 50 aircraft
orders and existing fleet to be cut or deferred.
This is a larger restructure than previous momentous
changes, reflecting a situation where negative conditions are
not just heightened but, according to CEO Alan Joyce, the
worst the company has seen in its history.
SkyTeam
The conditions have also galvanised Qantas to make

overdue changes. After bringing needed efficiency to its front
line employees, Qantas was left with a bloated back office.
Overall, Qantas staff are paid considerably more than at
Virgin Australia but are less productive.
There are capacity adjustments and, for now at least, a single
route cancellation (Singapore-Perth) to the international
network; more is required, but while staff are being cut,
there needs to be greater synchrony with airline operations if
efficiencies are not to be further eroded. A380 orders will be
deferred again. Ironically they may well end up with partner
Emirates.
Likewise for Jetstars last three 787s that it will defer; the
LCC subsidiary is focusing on short-haul flying, wise as more
efficient long-haul LCC capacity ramps up.
Jetstar remains intact including growth at Jetstar Japan
and continuing to work to launch Jetstar Hong Kong, but
Singapore based Jetstar Asia will suspend growth for the
time being. The highly profitable Qantas Loyalty programme
also remains part of the group, overall smart moves that may
not be welcome to unions (and some investors). Qantas will
SOUTH PACIFIC PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

40
30
20
10
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
72
DHC6
DHC8
A320
737
777
787
SOUTH PACIFIC MOST POPULAR AIRCRAFT TYPES IN SERVICE

19.4%
34.3%
14.1%
4.6%
4.8%
737
DHC8
11.7%
5.0%
A320
6.2%
SAAB340
100
A330
72
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN SOUTH PACIFIC:

2011 TO 2014*
50
40
37.4%
39.0% 39.4%
35.0%
30
28.1%
30.2%
31.1%
31.5%
22.6%
19.5%20.2%
20
14.9%
9.3%
10
3.8%
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
receive AUD112 million from an agreement with Brisbane

airport to sell and lease back its terminal, something that is
under consideration for Melbourne and Sydney too.
In Apr-2013, Qantass massive step towards rationalising its
international operations involved virtualising them through
an extensive partnership with former enemy Emirates; this
was a first step towards emulating the near-ideal virtual model
that Virgin Australia has developed through its equity and
operating partnerships with Air New Zealand, Etihad (20%)
and Singapore Airlines (20%), as well as a metal neutral JV
with Delta on American routes.
Meanwhile, at home, Virgin Australia has become not
just a virtual but a truly lethal competitor, eating away at the
larger carriers market share, attracting an increasing share of
corporate travellers and generally forcing a higher cost Qantas
into a discount war that has sapped the previous profitability
of the domestic market.
With the purchase of 60% of Tigerair Australia (and a large
part of the remainder owned by partner Singapore Airlines),
Virgin can now also lay claim in the domestic market to
a similar two-brand model to that of Qantas-Jetstar. The
resurgent Tigerair will ensure that leisure-oriented capacity
continues to increase significantly this year, while Virgin still
has more to say in the wider market share battle conversation.
The blame for Qantas woes are inevitably being laid
at the current managements door; but even if partially
justified, the main problem is the same one that plagues most
legacy airlines around the world, in this case compounded
by the end-of-the-line phenomenon that makes longhaul international service less sustainable almost in direct
proportion to the rate at which liberalisation is occurring. It
can also be argued that previous managements should have
taken bolder steps to cut unit costs. Whatever the cause, the
simple fact is that Qantas must change radically if it is to
survive as a viable full service airline.
The remainder of 2014 looks like more of the same. Qantas
will be in downsize mode, but forced at the same time to
grow domestic capacity, so long as it continues to adhere to
a strategy of maintaining its 65% share effectively meaning
that it must add two seats (or one ASK) for every one that
Virgin-Tigerair does. The capacity and therefore yieldreducing battle appears likely to continue, now against the
background of a softening economy and slackening leisure
demand. Temporarily at least Qantas has said it will not
expand capacity in the Sep-2014 quarter, as national budget
concerns have greatly dampened consumer confidence. This
leisure demand is likely although not certain - to pick
up once the initial shock passes through the system, but by
signalling its intentions there may be at least a brief lull in
expansion.
Virgin Australia, even with its strong equity backers (and
debt guarantors), cannot look to continue being loss-making
forever although it has now made clear to Qantas that it
can no longer be bullied into submission, so long as Virgin
The strategic bottom line for the

Australian and New Zealand
airlines alike is thus in establishing
deep and enduring airline
partnerships.
46
INCREASE IN FOREIGN AIRLINE CAPACITY OVER THE

PAST FOUR YEARS IN THE AUSTRALIAN MARKET
has its big brothers standing behind it. There is a poker game
being played out now, with hands greatly more equal than
previously. This may occasion a reshaping of strategies.
For Qantas, recreating the mythical level playing field with
Virgin now means removal of the restrictions in the Sale Act,
perhaps allowing it to establish a similar ownership structure
to Virgin Australias. This decision rests in the flaky hands of
politicians and even if the changes are made, they are unlikely
to make a major difference to Qantas until late in the year, at
the earliest. But it is a near certainty that the current media
noise will have been picked up at other airline managements;
it will not be surprising if Qantas becomes the target of some
interested buyers.
Air NZ remains committed to Virgin in the long term,
which must add pressure for Virgin to exit the red. The
CEOs of Air NZ and Singapore Airlines are taking a seat on
Virgins board, alongside Etihad. One outcome is that Air NZ
might be able to demonstrate the benefit of having exposure
to each part of the common market.
Aside from the perilous financial one, the strategic bottom
line for the Australian and New Zealand airlines alike is thus
in establishing deep and enduring airline partnerships, as
soundly and quickly as possible. Virgin Australia is furthest
along this route and is leveraging the benefits very effectively.
Always exciting and full of new surprises, the market is
unlikely to disappoint in 2014.
As noted above, there is also an ever present danger in the
Australian market of further entry by Asian LCCs such as
Lion Air. This has the potential to continue to encourage the
incumbents to cover as much of the field as possible, implying
that capacity growth must continue, even if it does endanger
profitability.
South Pacific
Selected Airlines
QANTAS AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

4
1. Qantas Airways
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
20
14
737
Qantas Airways is operated as part of the publicly listed Qantas Group. It

is the national airline of Australia with major hubs in Sydney and Melbourne
and secondary hubs in Perth and Brisbane. Using a large fleet of narrow
and wide-body Airbus, Boeing and Bombardier aircraft, Qantas operates
an extensive domestic and regional network within Australia as well as
international services to New Zealand, North America, Asia, South Africa and
Europe. Qantas is a founding member of the oneworld alliance.
QANTAS AIRWAYS STAGE LENGTHS

2500
2000
AIRCRAFT
QANTAS AIRWAYS FLEET SUMMARY AS AT MAY-2014
1500
IN SERVICE
IN STORAGE
ON ORDER
Airbus A320-200
Airbus A330-200
10
Airbus A330-300
10
Airbus A380-800
12
Boeing 737-400
Boeing 737-800
62
Boeing 747-400
Boeing 747-400ER
Boeing 767-300ER
13
Total:
121
24
13
1000
500
-500
10
QANTAS AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

12,584 seats
DXB - LHR
LAX - SYD
11,802 seats
10,752 seats
AKL - SYD
SIN - SYD
8,766 seats
DXB - SYD
6,776 seats
MEL - DXB
6,776 seats
LAX - MEL
6,776 seats
AKL - MEL
6,720 seats
6,276 seats
HKG - SYD
NRT - SYD
5,026 seats
0k
15
Flight Time (Hours)
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
South Pacific
Selected Airlines
VIRGIN AUSTRALIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
16
14
2. Virgin Australia
12
10
8
6
4
2
21
20
20
20
19
20
18
20
17
20
16
20
VIRGIN AUSTRALIA STAGE LENGTHS

2000
1500
IN STORAGE
ON ORDER
IN SERVICE
1250
Airbus A330-200
Boeing 737-700
Boeing 737-8
32
62
23
Boeing 777-300ER
Embraer
ERJ190-100IGW(AR)
17
Total:
93
55
-250
Boeing 737-800
15
737
1750
VIRGIN AUSTRALIA FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
Brisbane-based Virgin Australia is Australias second-largest airline and

one of the rare airlines successfully to have made a full transformation from
LCC to full service airline. Virgin Australia commenced operations in 2000 as
Virgin Blue, wholly owned by the Virgin Group, the countrys first surviving
true LCC, but has since moved away from that market. Under the leadership
of new CEO, John Borghetti, the airline rebranded in May-2011. Virgin Australia
now operates a full service model, targeting higher-yielding corporate traffic,
while seeking to maintain its core leisure market share and low-cost base.
20
14
1000
750
500
250
10
15
Flight Time (Hours)
VIRGIN AUSTRALIA TOP 10 INTERNATIONAL ROUTES BY SEATS

BNE - WLG
4,654 seats
BNE - AKL
4,654 seats
4,332 seats
SYD - LAX
BNE - DPS
3,580 seats
DPS - MEL
3,580 seats
PER - DPS
3,222 seats
SYD - DPS
3,222 seats
BNE - LAX
2,888 seats
SYD - NAN
2,864 seats
AKL - OOL
2,506 seats
0k
1k
2k
3k
4k
5k
6k
South Pacific
Selected Airlines
AIR NEW ZEALAND PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
10
3. Air New Zealand
A320
777
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
The national carrier of New Zealand, Air New Zealand is based in Auckland
and uses a fleet of narrow and wide-body Airbus and Boeing aircraft. Air New
Zealand operates a domestic and regional network within New Zealand and
the Pacific and international services to Australia, Asia, North America and
Europe. Air New Zealand is member of the Star Alliance.
787
AIR NEW ZEALAND STAGE LENGTHS
AIR NEW ZEALAND FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
2000
IN SERVICE
IN STORAGE
ON ORDER
22
Boeing 737-300
Boeing 747-400
Boeing 767-300ER
Boeing 777-200ER
Boeing 777-300ER
Boeing 787-9
10
49
17
Total:
1500
Airbus A320-200
1000
500
-500
10
15
Flight Time (Hours)
AIR NEW ZEALAND TOP 10 INTERNATIONAL ROUTES BY SEATS

12,580 seats
AKL - SYD
LAX - AKL
9,240 seats
7,726 seats
AKL - MEL
AKL - BNE
6,028 seats
SFO - AKL
4,706 seats
LAX - LHR
4,648 seats
4,256 seats
AKL - HKG
AKL - RAR
3,846 seats
3,664 seats
AKL - NRT
AKL - NAN
3,632 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
NORTH ASIA analysis reports:
North Asian aviation 2014 outlook: cracks in the wall of inertia - but it is yet to fall
North Asias airlines add capacity in 2014 as underdogs play catch up and short haul focus increases
13 Chinese airlines could each have a fleet of over 100 aircraft by 2020
Chinas reforms match frugality with low-cost airline innovation as a new script unfolds
Chinese airlines pioneer new international strategies: JVs to overcome internal limitations
China Southern Airlines to move long-haul focus from growth to sustainability and partnerships
Cathay Pacific annual results: after a lost year, Cathay sees itself back on track - but to where?
Cathay Pacific and Singapore Airlines cautiously welcome new hubs as Qatar & Turkish enter the fray
New runways for Tokyo Haneda and Narita airports would allow Japan to catch up to other Asian hubs
All Nippon Airways expects stronger 2014 performance due to efficiency and more international flying
JAL 2013 profit dented by yen depreciation and retrofit costs, but still an enviable 13% margin
Skymark Airlines will need significant strategic changes to avoid heavy A380 operating losses
Japans expanding LCCs drive growth but need cultivating; Spring Airlines and AirAsia re-entry loom
Asiana Airlines losses continue in 1Q2014 as capacity growth drags down yields despite fuel savings
Korean Air returns to profit in 1Q2014 on the back of yield recovery and cost discipline
Jin Air may become a long-haul low cost operator in 2014/15 and take the lead in Koreas LCC market
TransAsia Airways, growing at 20%+, now needs to ensure sustainability among strong competition
TransAsia names LCC V Air and Wei Hang. Cuddly bear becomes the dual brands low price image
China Airlines and TransAsia to start LCC subsidiaries as low-cost carrier fever spreads to Taiwan
North Asia
TOP 10 AIRLINES WITHIN NORTH ASIA
SEATS
1,847,660
1,751,022
All Nippon Airways
1,282,288
Air China
1,251,122
Japan Airlines
843,384
Hainan Airlines
635,514
Shenzhen Airlines
610,903
Xiamen Airlines
588,162
Sichuan Airlines
474,362
10
Shandong Airlines
430,218
CAPACITY BY CARRIER TO/FROM/WITHIN NORTH ASIA

1,977,515
1,792,228
Air China
1,409,056
All Nippon Airways
1,395,615
Japan Airlines
976,020
Hainan Airlines
631,316
Korean Air
624,928
Xiamen Airlines
607,516
Shenzhen Airlines
554,957
Other
0M
8,006,897
2M
4M
6M
8M
10M
NORTH ASIA TOP 10 AIRPORTS
SEATS
Beijing Capital International Airport
1,809,010
Tokyo Haneda Airport
1,721,660
Guangzhou Baiyun Airport
1,090,674
Shanghai Pudong Airport
987,739
Shanghai Hongqiao Airport
978,839
Kunming Airport
822,726
Shenzhen Airport
821,250
Hong Kong International Airport
816,009
Chengdu Airport
801,207
10
Xian Airport
763,179
NORTH ASIA IS HOME TO MANY OF THE WORLDS

MOST VISIBLE airlines based on size (China Southern),
market capitalisation (Air China), profitability ( Japan
Airlines) and prestige (Cathay Pacific).
The regions airlines face an encouraging 2014, and are
certainly likely to fare much better than European peers.
The singular uniting theme for long-haul North Asian full
service carriers is the strong market to North America, where
corporate and premium travel is improving, while competitors
are fewer than on European routes.
China inevitably has become the cornerstone of the market
and what happens in that massive economy will shape the
region both in terms of growth and in the reshaping of the
airline industry.
Elsewhere the characterisation is more nuanced. Exchange
rates are sharply impacting Japan, where the yen is down
about 17%, while helping Chinese carriers with the
appreciating yuan. Regional tensions continue to plague
bilateral markets such as Japan-Korea and China-Japan.
In a region where LCC penetration is still very low (but
growing), there is increasing sensitivity about unprofitable
short-haul routes: Asiana (with a recently appointed CEO,
formerly with subsidiary LCC Air Busan) will introduce a
new single-class configuration, while Taiwans China Airlines
and TransAsia plan new LCC subsidiaries, adding more dualbrand strategies to the region. Except in Japan, liberalisation
has occurred more slowly in the still-largely protectionist
North Asia.
2014 will be a reflective, even possibly pivotal, year
for liberalisation within the region. Jetstar Hong Kong
continues to press for an operating licence while AirAsia is
exploring Korea and again Japan for subsidiaries. Foreigners
fear Taiwans newfound pro-LCC attitude will embrace
only existing Taiwanese airlines subsidiaries. And China,
concerned that airline growth may not reach previous
levels, has recently adopted a pro-LCC policy that supports
establishment of private low-cost operations, to speed things
along.
In Northeast Asia many factors are taken for granted.
Economies are growing, despite occasional slowdowns. The
middle class, and therefore travelling potential, continues to
increase exponentially. There are literally hundreds of millions
of Chinese achieving the economic ability and desire to
travel abroad in waves never before experienced.
Thus a distinct, and relatively new, uniting factor is the
improving strength of the North American market. Demand,
including from the corporate and premium sectors, is high.
Competitors are fewer than to Europe, and some of the
biggest carriers benefit from two broad joint ventures, those
between ANA and United, as well as between JAL and
American Airlines.
Southeast Asian carriers are beyond the reach of profitable
non-stop services to North America. Operating limitations
from the need for an extra stop as well as constrained bilateral
fifth freedom rights continue to limit Southeast Asian
capacity to North America. These features help immunise
their northern neighbours from added competition.
Southeast Asian carriers have a stronger presence in
the financially weaker long-haul markets of Europe, with
increasing pressure from Gulf carriers and a generally
crowded marketplace; even Norwegian is entering with
its long-haul 787 operation. Meanwhile, North Asian
carriers are fortunate to enjoy closer alignment with a wellperforming market. Additionally, Europe is open for many
NORTH ASIA FLEET

5k
4k
3,529
3k
2k
1,122
1k
140
0k
In service
In storage
On order
NORTH ASIA BREAKDOWN FOR AIRCRAFT IN SERVICE

2.9% 0.9%
4.9%
27.4%
63.9%
Narrowbody Jet
Widebody Jet
Regional Jet
Turboprop
NORTH ASIA CAPACITY SEATS SHARE BY ALLIANCE

11.3%
31.9%
25.9%
30.9%
SkyTeam
Unaligned
Star Alliance
oneworld
within A330 range, making the market more accessible.

Despite existing over-capacity and yield pressure, nearly
every major carrier in the Northeast Asia-North America
market will grow capacity during 2014, many American
Airlines, ANA, EVA Air at double-digit rates.
Every Northeast Asian carrier with widebody aircraft will
fly to North America, except domestic Japanese carriers Air
Do and Skymark, as well as regionally focused Hong Kong
Airlines, TransAsia and Mongolias MIAT. Skymark, which
suffered delays on its first A330s for domestic all-premium
service, planned to have A380s for a New York JFK service
in late 2014, but interior problems have pushed this back to
2015. Sichuan Airlines made North America (Vancouver) its
first long-haul destination. Xiamen Airlines may also follow
suit when its 787s are operating.
The result is the addition of more than 60% new capacity
on China-US routes between Sep-2011 and Sep-2014, the
bulk of it coming from Chinese carriers, notably Air China
and China Eastern.
For the Northeast Asia region as a whole to the US,
the increase over this period is a more modest, but still
significant, 28%, from 241,000 weekly seats to 310,000,
according to OAG data.
Europe-bound travel from China shows a relatively
substantial 51% increase over the 2011 to Sep-2014 period.
Much of the growth has come from Air China and KLM.
Europe-Japan growth has predictably been much more
limited, up only 17% over the three-year period to 69,000
seats weekly later this year again with KLM conspicuous
for its expansion.
But in short-haul, Northeast Asia lags in the liberalisation
that has characterised Southeast Asia in becoming such a
vibrant and dynamic market. This mainly impacts low-cost,
but also full service carriers: as a sign of the versatility and
experimentation in the south, the low-cost Lion Air Group
in 2013 launched hybrid full service carrier Malindo Airways
in Malaysia. The LCC penetration for travel within Southeast
Asia (58%) for the full year of 2013 was six times that for
travel within Northeast Asia (9%).
The advancement of LCCs in North Asia has been limited,
to the benefit of incumbents, unlike Southeast Asia where
LCCs, with low unit cost and higher frequency, have made
many short-haul routes unprofitable for full service airlines.
That challenge has generally been met by full service carriers
crafting strategies to complement their existing business
with low-cost subsidiaries rather than see their markets
irreversibly lost.
Northeast Asia had one liberalisation push at the end
of the last decade as Japan undertook significant reforms
partially prompted by JALs bankruptcy, coinciding with
the long awaited Tokyo big bang, as both Narita and
Haneda added new capacity, in part to overcome sagging
tourist flows. One outcome was a long overdue change of
regulatory direction, allowing the launch of three LCCs, all
in partnership with an existing Japanese carrier: Jetstar Japan
with JAL, as well as AirAsia Japan (now Vanilla Air) and
Peach Aviation with ANA. Jetstar Japan and Peach had only
minority interests from the full service airline, together with
other third party investors.
The granting of a licence to Chinese LCC Spring Airlines,
in partnership with Japanese companies to establish locally,
is further evidence of liberalisation progressing steadily,
as are the numerous open skies agreements and expanded
bilaterals Japan has signed that benefit the country, adding
NORTH ASIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

300
250
200
150
100
50
A320
ARJ21
A330
AN148
A350
A380
AN158
MRJ
737
CRJ
747
777
CSERIES
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
787
YUN7
C919
72
NORTH ASIA MOST POPULAR AIRCRAFT TYPES IN SERVICE

11.5%
2.3%
3.7%
32.8%
4.8%
7.8%
8.0%
29.1%
737
A320
A330
777
747
767
E190
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN NORTH ASIA:

2011 TO 2014*
14
12
11.2%
10
9.5% 9.3%
8
6.8%
5.9%
6
3.9%
4
2.7% 2.7%
1.8%
2
0.8%
0.4% 0.4% 0.3% 0.6%
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
to short-haul competition and tourism. By contrast the

rest of Northeast Asia continues with conservative bilateral
strategies.
Jetstar Hong Kong could finally secure approval against
local opposition in 2014, after being announced in Mar2012. More speculative is AirAsia Korea, which has not yet
prevailed in that protected market. AirAsia plans to return to
Japan in 2015 with a base at Nagoya.
Taiwan has finally encouraged the development of local
LCCs about a dozen foreign LCCs already serve Taiwan
and in Dec-2013 TransAsia and then China Airlines
announced they would launch an LCC; in China Airlines
case, in partnership with Tigerair. The market remains
potentially lucrative to foreign LCC groups, but they are
sceptical whether Taiwans appearance of an open door to
LCCs is applicable to those not partnering with a local
carrier.
Imbalances between attitude and actions are also a concern
in China, which in late 2013 formally announced it must
encourage private capital in aviation as well as the fostering of
new carriers and in particular LCCs. But with airlines being
seen by Beijing as serving national interests, and the general
can-do attitude of China, the country is unlikely to cede
valuable territory to foreign companies looking to establish
local joint ventures. Government-led reforms in Chinas
sector are, however, ushering in a number of worthwhile
changes and new carriers, both private and LCCs.
As is typically the case, there is much to be gained from
liberalisation, but the influence of incumbents and nationalist
sentiments still inhibit change.
Four more dual-brand LCC/full service strategies will
be introduced in 2014. Short-haul services are starting
to experience the impact of incremental LCC operations.
Asiana is, for example, trialling an all-economy A320
configuration for thin short-haul services to Japan. This raises
the proposition that if moving from a dual-brand to singleclass aircraft is good for a route, further concentration on
cost-cutting is even better. The answer for four carriers has
been to establish dual-brand strategies.
China Eastern will have an LCC in the form of China
United Airlines, Juneyao with Jiu Yuan, China Airlines with
Tigerair Taiwan and finally (for now) TransAsia with its own
planned LCC subsidiary. China Southern is also exploring a
LCC with subsid Chongqing Airlines.
This will represent nearly a doubling in the number of
dual-brand strategies in North Asia. Although prevalent
in Southeast Asia, in the north they have previously been
confined to Asiana with Air Busan, Korean Air with Jin Air,
ANA with Peach and (now) Vanilla Air, JAL with Jetstar
Japan and Hong Kong Airlines with HK Express.
The range of integration at these existing dual-brand
strategies varies considerably. Peach is adamant ANA is an
interested, not controlling, shareholder. JAL and Jetstar Japan
take a strategic approach where each gives and takes. HK
Express is largely maintaining independence.
The small footprint of Air Busan and Jin Air shows
however that they are deployed only where necessary while
minimising full service cannibalisation even if they could
make more profit than their full service parents. This may
change if Air Busan does proceed with a planned IPO in
2015. Long haul operations from Korean LCCs will also add
to the dynamics of the market.
The new dual-brand strategies will likely be even more
diverse: China Eastern and Juneyao are planning for their
CHINA TO UNITED STATES, SEATS PER WEEK, ONE WAY, 19-SEP-2011 TO

31-AUG-2014

80k
Seats per week
60k
40k
20k
0k
Jan-12
United Airlines
Delta Air Lines
Spring Airlines
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Air China
American Airlines
Hainan Airlines
Hawaiian Airlines
CHINA TO WESTERN EUROPE, SEATS PER WEEK, ONE WAY, 19-SEP-2011 TO

31-AUG-2014
125k
Seats per week
100k
75k
50k
25k
0k
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Air China
Lufthansa
Air France
Finnair
British Airways
SWISS
SAS
Hainan Airlines
Virgin Atlantic Airways
Austrian Airlines
Alitalia
JAPAN TO UNITED STATES, SEATS PER WEEK, ONE WAY, 19-SEP-2011 TO

31-AUG-2014
SOURCE:CAPA - CENTRE FOR AVIATION AND OAG
150k
125k
Seats per week
100k
75k
50k
25k
0k
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Delta Air Lines

Japan Airlines
United Airlines
All Nippon Airways
American Airlines
Hawaiian Airlines
China Airlines
Singapore Airlines
Korean Air
Malaysia Airlines
LCC to operate well outside of their home base. Route

overlap will be minimal. The LCCs will effectively be a new
type of carrier to put in a competitors backyard. The question
for the medium and long term is how much future overlap
is permitted and if the carriers can or need to adopt a more
comprehensive dual-brand strategy where the LCC flies
alongside most of the full service carriers routes.
LCC units in Taiwan will have to be more integrated, if
only because geography confines them to a realistic operating
base of Taipei. China Airlines is mindful of the necessity of
short-haul connections for its long-haul network, but is also
well aware of many leisure point-to-point routes an LCC
could take over today. Segmentation will be challenging at
TransAsia, which operates only regional services and carries
mainly point-to-point traffic. Its small size 11 jet aircraft
is a further challenge to have scale. There is no easy solution.
Either overlap will be large or opportunities will be missed.
Both could use their LCCs on leisure-oriented secondary
city pairings between Taiwan and mainland China, where
existing full service carriers are challenged for profitability.
Such considerations make it easy for EVA Air to say an LCC
is not appropriate and it will not pursue one.
These will prove to be interesting case studies to the
dual-brand strategy textbook yet to be written. Further
contributions will be made from additional dual-brand
strategies that are surely on their way, especially in China.
Exchange rate changes close doors and open windows
but not at the same time. Exchange rates can be both friend
and foe. The appreciating Chinese yuan has greatly benefited
Chinese airlines net profits, even making many overlook
under-performing operating results. The declining Japanese
yen is so far a negative story for most carriers. Japan is an
outbound market: 2012, the most recent full year for which
statistics are available, saw 8.4 million foreign visitors to
Japan, while 18.5 million Japanese travelled overseas.
One argument is that if a weakening yen means fewer
Japanese are travelling, more foreigners can visit Japan. That
reflects the old adage of a door closing but window opening.
Unfortunately these do not happen simultaneously; there
is usually a lag. The yens depreciation is likely here for the
medium to long term, but Japan has years in some cases
possibly a decade ahead of it to recolour its reputation as an
expensive destination. Further, even three years after the great
east Japan earthquake and resulting tsunami and nuclear
power plant issues, some still perceive Japan to be unsafe.
The pressure is greatest on Japanese carriers. The Japanese
market has been strongly loyal to them, often paying fares
considerably even ridiculously higher than foreign peers
because ANA and JAL are Japanese and offer Japanese
service. Any growth in foreign visitors compensating for
declining Japanese tourists will not share the same affinity for
ANA and JAL.
ANA and JAL are further pinched as the depreciating yen
arrives just as they seek a larger international profile; ANA
expects to have more international than domestic ASKs after
2015. Foreign carriers recognise the situation was too good
and enjoyed the benefits of the high yen while they could
but now the inevitable reality returns.
ANA and JALs key long-haul market, to the US has, in
contrast to the China-US growth, been very muted, with only
around a 10% increase in the three years from 2011 to Sep2014. The pair of metal neutral JVs ANA-UA and JAL-AA
will almost certainly ensure that yields are protected in this
way (and, hopefully, also financial returns). This gives comfort
The outlook for 2014 is positive and fresh

opportunities remain.
as ANA and JAL plan more North American growth,

especially with the 787 to mid-size cities.
Within the region, tensions are confined but continue to
raise concerns. The China-Japan market suffered significant
decreases in Sep-2012 after Japan nationalised the disputed
islands of Senkaku/Diaoyu. 1Q2014 seat capacity is still
down 4.5% compared with pre-crisis levels in 2012.
But this does not reflect weaker load factors that airlines
have experienced. JNTO data shows Japanese passengers to
China declined 21% in the first 10 months of 2013. Oct2013 registered 8.6% growth compared with Oct-2012, but
this was after a 27% decrease in Oct-2012 compared with
Oct-2011.
Japan and Korea, meanwhile, have their own territorial
dispute over the Takeshima/Dokdo islands, with tensions
further inflamed by other factors, including the visit by
Japanese prime minister Shinzo Abe to the Yasukuni war
shrine. Seat capacity in 1Q2014 was down 4.3% compared
with pre-crisis 1Q2013 levels.
Japanese passengers to Korea were down 24% in the first
10 months of 2013 compared with 2012. Passenger numbers
were even down in Oct-2013, whereas Japanese passengers
to China in Oct-2013 recorded a slight year-on-year gain.
Korean passengers were up 27% in the first 10 months of
2013, but the growth was not enough to offset declines in
Japanese passengers.
The total Japan-Korea market saw 4.7 million visitors in
the first 10 months of 2012 but only 4.4 million in the same
period in 2013. Depending how ongoing relations evolve
the Yasukuni shrine visit has flamed feelings and is still recent
the Japan-Korea market could rebound in 2014, much
faster than the Japan-China market.
Strong growth by Korean passengers has translated to some
better performance by JAL on Japan-Korea routes than on
Japan-China routes, but this is probably at the expense of
yield. Earlier in 2013, Asiana experienced deteriorating yields
to Japan. Other carriers in the market did not disclose yields
but likely had performances similar to Asianas.
These two political conflicts are the main ones involving
North Asian countries, but they are not alone. A smaller
conflict between China and the Philippines emerged in 2012
as well, and there are numerous historical differences that
could, very potentially, turn into another conflict. But most
countries seem eager to limit the extent of such issues, seeing
them as non-sequiturs that cause harm.
The outlook for 2014 is positive and fresh opportunities
remain. A level of robustness is necessary for an industry
characterised by volatility. Upsets in 2014 are, unfortunately,
likely. The crises of 2013, such as a bird flu scare in eastern
China and ongoing territorial issues, were handled well.
There are still lingering impacts but a way forward can be
seen. Unfortunately, it is now clouded for some by the
declining yen and aggressive new competitors, some in the
form of LCCs that carriers have previously not had much
direct exposure to.
The outlook for North Asian markets is positive in 2014,
yet it is not as strong as it could be. 2014 may prove another
year of missed opportunities. The stuttering spread of
liberalisation may not be sufficient to allow the potential to
be recognised. But the potential remains, implying that once
the chains are released, the pace of change will be that much
greater.
North Asia
Selected Airlines
CHINA SOUTHERN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT

ON ORDER*
30
25
1. China Southern
Airlines
20
15
10
A320
Established in 1988, China Southern Airlines is the largest airline in

China and has hubs in Guangzhou and Beijing. The carrier operates an
extensive domestic network within China, as well as international services
to the Middle East, Asia, Africa, Europe, North America and Australia. China
Southern has been a member of the SkyTeam alliance since 2007. China
Southern Cargo is the cargo subsidiary of China Southern Airlines. The cargo
subsidiary joined the SkyTeam Cargo alliance in November 2010.
IN STORAGE
777
787
19
20
18
20
17
737
C919
CHINA SOUTHERN AIRLINES STAGE LENGTHS

4k
ON ORDER
Airbus A319-100
40
Airbus A320-200
111
Airbus A321-200
65
13
Airbus A330-200
16
Airbus A330-300E
10
11
Airbus A330-300X
Airbus A380-800
IN SERVICE
A330
3k
CHINA SOUTHERN AIRLINES FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
16
20
15
20
20
14
2k
1k
0k
-1k
10
15
Flight Time (Hours)
Boeing 737-300
10
Boeing 737-700
33
Boeing 737-800
106
16
Boeing 747-400F
Boeing 757-200
14
ICN - DLC
7,518 seats
Boeing 777-200
CAN - BKK
7,485 seats
Boeing 777-200ER
CAN - SYD
7,434 seats
Boeing 777-300ER
CAN - LAX
Boeing 777F
CAN - SGN
Boeing 787-8
CAN - MEL
Comac C919
CAN - ICN
5,012 seats
Embraer EMB-145LI
CAN - KIX
5,012 seats
20
457
18
67
Embraer ERJ190100LR
Total:
CHINA SOUTHERN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

7,084 seats
6,436 seats
5,740 seats
4,904 seats
ICN - SHE
CAN - DXB
4,592 seats
0k
1k
2k
3k
4k
5k
6k
7k
8k
9k
10k
North Asia
Selected Airlines
CHINA EASTERN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
40
2. China Eastern
Airlines
30
20
10
A320
Shanghai-based China Eastern Airlines is one of Chinas big three stateowned airlines, with hubs at Shanghais Pudong and Hongqiao airports, as
well as Kunming Airport in southwest China. The airline operates a fleet of
Airbus, Boeing, Embraer and Bombardier aircraft to support an extensive
network, serving over 350 domestic routes and 40 international destinations,
including cities in Australia, Europe, Korea, Japan, North America and
Southeast Asia. China Eastern merged with Shanghai Airlines in 2010 and
joined China Southern in the SkyTeam Alliance in Jun-2011.
A330
737
777
20
20
19
20
18
20
17
20
16
20
15
20
20
14
C919
CHINA EASTERN AIRLINES STAGE LENGTHS

5k
4k
AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
Airbus A300B4600R
Airbus A319-100
25
Airbus A320-200
146
14
Airbus A321-200
34
11
Airbus A330-200
24
Airbus A330-300E
Airbus A330-300X
Airbus A340-300X
Airbus A340-600
Boeing 737-300
16
Boeing 737-700
42
Boeing 737-800
34
51
Boeing 777-300ER
20
Bombardier CL-6002B19(CRJ200ER)
Comac C919
Embraer EMB-145LI
350
12
125
Total:
CHINA EASTERN AIRLINES FLEET SUMMARY AS AT MAY-2014
3k
2k
1k
0k
-1k
15
CHINA EASTERN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

17,580 seats
HKG - PVG
PVG - SIN
11,386 seats
10,746 seats
PVG - ICN
PVG - KIX
9,490 seats
8,688 seats
PVG - NRT
PVG - CJU
6,888 seats
PVG - TPE
6,864 seats
TAO - ICN
6,594 seats
PVG - NGO
6,594 seats
PVG - FUK
6,462 seats
0k
10
Flight Time (Hours)
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
22.5k
North Asia
Selected Airlines
ALL NIPPON AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
20
3. All Nippon
Airways
15
10
A320
Founded in 1952, Tokyo-based All Nippon Airways (ANA) is a major

Japanese airline with hubs at Tokyo/Narita, Tokyo/Haneda, Kansai and Osaka
airports. ANA operates an extensive domestic and international network,
with scheduled service to over 50 domestic destinations and 25 international
destinations across Europe, South Asia, East Asia and North America. In
addition to its mainline operations, ANA also controls several subsidiary
passenger carriers, including its regional airline, Air Nippon, charter carrier,
Air Japan, and LCC Air Next.
737
777
787
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
20
14
MRJ
ALL NIPPON AIRWAYS STAGE LENGTHS

4k
3k
AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
Airbus A320-200
15
Airbus A320200NEO
Airbus A321-200NEO
23
Boeing 737-500
Boeing 737-700
12
Boeing 737-700ER
Boeing 737-800
25
Boeing 747-400D
Boeing 767-300
21
Boeing 767-300ER
26
Boeing
767-300ER(BCF)
Boeing 767-300F
Boeing 777-200
16
Boeing 777-200ER
12
Boeing 777-300ER
19
Boeing 787-8
27
Boeing 787-9
30
Mitsubishi MRJ90
15
192
15
96
Boeing 777-300
Total:
ALL NIPPON AIRWAYS FLEET SUMMARY AS AT MAY-2014
2k
1k
0k
-1k
10
15
Flight Time (Hours)
ALL NIPPON AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

12,852 seats
HND - GMP
NRT - PVG
11,466 seats
7,576 seats
NRT - ORD
NRT - JFK
7,390 seats
HND - BKK
7,302 seats
HND - FRA
6,804 seats
HND - SIN
6,776 seats
HND - TSA
6,748 seats
NRT - PEK
6,720 seats
NRT - HKG
6,720 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
North Asia
Selected Airlines
KOREAN AIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

25
4. Korean Air
20
15
10
A330
A380
737
747
777
787
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
Established in 1962, Korean Air is the largest airline and flag carrier of
South Korea. From its base at Seoul Incheon International Airport, Korean Air
serves extensive domestic and international networks. The carriers cargo
division, Korean Air Cargo, is the third largest cargo airline in the world
and it also wholly owns a low cost airline subsidiary, Jin Air. Korean Air is a
founding partner airline of the SkyTeam alliance.
CSERIES
KOREAN AIR STAGE LENGTHS
KOREAN AIR FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
1500
IN SERVICE
IN STORAGE
ON ORDER
1250
Airbus A330-200
Airbus A330-200(HGW)
Airbus A330-300
Airbus A330-300X
10
Airbus A380-800
Boeing 737-800
19
Boeing 737-900
16
Boeing 737-900ER
Boeing 747-400
14
Boeing 747400(BCF)
Boeing 747-400ERF
Boeing 747-400F
Boeing 747-8
10
Boeing 747-8F
Boeing 777-200ER
18
Boeing 777-300
Boeing 777-300ER
12
12
Boeing 777F
Boeing 787-8
Boeing 787-9
10
Bombardier CS300
10
146
60
Total:
Airbus A300B4600R
1000
750
500
250
-250
10
15
Flight Time (Hours)
KOREAN AIR TOP 10 INTERNATIONAL ROUTES BY SEATS

17,488 seats
ICN - HKG
ICN - LAX
13,142 seats
ICN - BKK
12,951 seats
HND - GMP
12,868 seats
12,546 seats
ICN - NRT
ICN - PVG
11,556 seats
10,396 seats
ICN - FUK
ICN - JFK
9,772 seats
9,464 seats
ICN - MNL
ICN - KIX
9,256 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
22.5k
North Asia
Selected Airlines
JAPAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

14
12
5. Japan Airlines
10
Based in Tokyo, Japan Airlines (JAL) is one of Japans two major flag
carriers with hubs at Tokyos Narita International Airport, Tokyo International
Airport, Nagoyas Chubu Centrair International Airport and Osakas Kansai
International Airport. Operating a large fleet of Boeing narrow and widebody aircraft, JAL has an extensive domestic network with regional and
international services to Europe, Canada, the United States, South America
and Australia. JAL is a member of the oneworld alliance. JAL exited
court-administered restructuring in late Mar-2011, after repaying all of the
reorganisation debts owed in a one-time payment on 28-Mar-2011.
IN SERVICE
23
20
22
20
21
20
20
20
19
18
20
17
20
16
15
20
20
787
JAPAN AIRLINES STAGE LENGTHS

3000
2500
2000
AIRCRAFT
A350
JAPAN AIRLINES FLEET SUMMARY AS AT MAY-2014
20
20
14
IN STORAGE
1500
ON ORDER
Airbus A3501000XWB
13
Airbus A350900XWB
18
Boeing 737-800
11
Boeing 767-300
17
Boeing 767-300ER
32
1000
500
-500
10
15
Flight Time (Hours)
Boeing 777-200
15
Boeing 777-200ER
11
Boeing 777-300
Boeing 777-300ER
13
Boeing 787-8
15
10
GMP - HND
10,332 seats
Boeing 787-9
20
NRT - PVG
10,332 seats
121
61
NRT - HNL
Total:
JAPAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

10,032 seats
HND - SIN
8,022 seats
BKK - HND
8,022 seats
HND - TSA
6,888 seats
NRT - MNL
6,888 seats
JFK - NRT
6,244 seats
5,600 seats
NRT - PEK
KIX - TPE
5,600 seats
0k
2k
4k
6k
8k
10k
12k
14k
North Asia
Selected Airlines
CATHAY PACIFIC PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

20
6. Cathay Pacific
15
10
A330
A350
747
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
As the national carrier of Hong Kong SAR and based at Hong Kong
International Airport, Cathay Pacific is majority-owned by logistics
corporation Swire Pacific with significant shareholdings from Air China
parent CNAC. Using a fleet which includes widebody Boeing and Airbus
aircraft, Cathay Pacifics extensive network consists of services throughout
Asia, Europe, North America, Canada, Australia and New Zealand. Cathay
Pacific is a founding member of the oneworld alliance and wholly-owns
short-haul operator Dragonair.
777
CATHAY PACIFIC STAGE LENGTHS

400
CATHAY PACIFIC FLEET SUMMARY AS AT MAY-2014
350
IN SERVICE
IN STORAGE
300
ON ORDER
AIRCRAFT
250
Airbus A330-300
11
Airbus A330-300E
15
Airbus A330-300X
11
Airbus A340-300X
11
Airbus A3501000XWB
26
Airbus A350900XWB
22
Boeing 747-400
11
-50
Boeing 747-400ERF
Boeing 747-400F
Boeing 747-8F
13
Boeing 777-200
Boeing 777-300
12
Boeing 777-300ER
39
14
21
137
91
Total:
150
100
50
10
15
Flight Time (Hours)
Boeing 747400(BCF)
Boeing 777-9X
200
CATHAY PACIFIC TOP 10 INTERNATIONAL ROUTES BY SEATS

73,205 seats
HKG - TPE
HKG - SIN
36,000 seats
32,209 seats
HKG - BKK
HKG - ICN
24,330 seats
HKG - MNL
23,937 seats
HKG - NRT
18,785 seats
KIX - HKG
18,468 seats
HKG - LHR
18,112 seats
15,740 seats
HKG - KUL
HKG - SYD
13,988 seats
0k
10k
20k
30k
40k
50k
60k
70k
80k
90k
MIDDLE EAST analysis reports:

Arab Air Carriers show that not all are created equal, but the rest of the world can learn from them
Etihad Residence highlights the UAE airline ascension in first class travel, while others cut back
Dubai International Airport: The worlds biggest in 1Q2014, but runway works reduce full year 2014
Emirates increases competition with Etihad and Qatar as it adds Chicago to its US network
flydubai has its second consecutive annual profit as network continues to overlap with Emirates
Air Arabia lags flydubai in the battle for Middle East LCC supremacy, but opportunities abound
Qatar Airways all-business London service. An attempt more likely to succeed than others were
Saudi Arabia aviation: an evolving market is about to undergo another rapid transition in 2014
Middle
East
TOP 10 AIRLINES WITHIN MIDDLE EAST
SEATS
Saudia
399,279
Qatar Airways
160,436
Emirates
Iraqi Airways
122,224
flydubai
119,259
flynas
95,700
Gulf Air
89,408
Iran Aseman Airlines
85,757
Iran Air
72,681
10
Air Arabia
67,240
137,170
CAPACITY BY CARRIER TO/FROM/WITHIN MIDDLE EAST

Emirates
966,302
Saudia
600,273
Qatar Airways
556,353
Etihad Airways
332,706
flydubai
171,612
Air Arabia
156,784
Gulf Air
137,262
Iraqi Airways
137,210
flynas
135,324
Other
2,186,336
0k
500k
1,000k
1,500k
2,000k
2,500k
MIDDLE EAST TOP 10 AIRPORTS
SEATS
Dubai Intl Airport
471,488
Riyadh King Khaled Intl Airport
344,894
Jeddah King Abdulaziz Intl Airport
Doha Intl Airport
246,592
331,416
Tehran Mehrabad Airport
212,910
Kuwait Intl Airport
171,812
Bahrain Intl Airport
160,567
Dammam King Fahd Intl Airport
137,446
Abu Dhabi Intl Airport
109,739
10
Amman Queen Alia Intl Airport
104,187
3,000k
THE MIDDLE EAST CONTINUES TO DEFY global

trends, witnessing growth in demand and an expansion of
capacity at rates not seen in any other global market. Airlines
in the region will continue to outstrip global expansion in
passengers and capacity in 2014, cashing in on regional and
global economic growth, improving international passenger
traffic flows and increasing aircraft production. The main
battlefront will move to the US as protectionist reaction
grows.
At the forefront of the regions phenomenal success are the
Gulf sixth-freedom carriers, chiefly Emirates, Etihad Airways
and Qatar Airways. All three continue to exploit their natural
geographic advantage, which puts more than two thirds of
the worlds population within an eight-hour flight from
Dubai. Accompanied by supportive ownership and regulatory
regimes, they are growing local markets and applying new
aircraft technology and service standards to generate global
success.
The past two years have been about much more than their
intrinsic strengths however. From being outsiders to the
European established airlines, all three were admitted if not
welcomed with open arms into the inner sanctums of the
leaders of the global alliances, Star Alliance excepted. This has
shifted the course of alliance and partnership thinking, as well
as deepening their impact on global aviation.
Even SkyTeam leader Air France, the most virulent
opponent of the Gulf airlines, was eased into an increasingly
cosy partnership with Etihad. Emirates meanwhile joined
with oneworlds Qantas also a former staunch critic and
Qatar actually moved into the oneworld alliance, once its
competitors agreed to the compromise. Basically the position
arrived at applied the fine principle of si non cecidit, iunge.
Between them the three handled approximately 70 million
passengers in 2013 and are targeting double-digit passenger
growth for 2014, as they continue to add aircraft and
destinations. As their network power increases, each is now
targeting the Americas, as well as thickening routes in their
longer standing markets in Africa, Asia and Europe.
But there are differences that are much more than nuances,
each pursuing quite different business strategies. Emirates,
the Middle Easts largest airline, favours organic growth for
its fleet and network, augmenting this with local partnerships,
but only in codeshares.
Etihad Airways is building its unique and possibly
industry-altering equity alliance, which has now stretched
to seven airlines, with Alitalia also in the pipeline for 2014.
Even Malaysia Airlines has been rumoured as a potential
target for part acquisition. The carrier has created a massive
virtual network and fleet, aligning its schedules, fleet planning
and marketing (and even frequent flyer programmes) with
partners to achieve mutually beneficial goals. Etihad will look
to continue to expand its portfolio of codeshare and equity
partners until revenue from such agreements reaches about
25% of total income.
Qatar Airways joined oneworld in late 2013, with strong
support from IAG/British Airways, the only one of the
Big Three to so far enter a global alliance. The carriers
membership in oneworld gives it access to more than 1000
Despite the amount of capacity

arriving in the region, growth has
not been haphazard.
MIDDLE EAST FLEET

1500
1,211
1250
956
1000
750
500
250
109
0
In service
In storage
On order
MIDDLE EAST FLEET BREAKDOWN FOR AIRCRAFT IN SERVICE

4.8%
1.6%
9.2%
48.0%
36.4%
Widebody Jet
Narrowbody Jet
Regional Jet
Turboprop
MIDDLE EAST CAPACITY SEATS SHARE BY ALLIANCE

8.1%
14.9%
14.9%
62.1%
Unaligned
SkyTeam
oneworld
Star Alliance
destinations and will funnel many oneworld passengers

through Qatar Airways Doha hub. Its presence is another
example of how the Middle Easts airlines have been
increasingly drawn into the global alliance network.
The Big Three carriers are not doing all of the Middle
Easts heavy lifting alone though. National airlines and
smaller privately owned carriers are also expanding, if not
in quite the same spectacular fashion. These airlines, such
as Gulf Air and Oman Air, are covering the fast expanding
intra-Middle East and intra-Arabian markets, but they are
also expanding in the long-haul segment.
Carriers such as Middle East Airlines, Saudia and Royal
Jordanian Airlines are maintaining their anchor roles as
national airlines, but are also expanding and using their
alliance partnerships to generate traffic and revenue, the first
two in SkyTeam and Royal Jordanian in oneworld.
In addition to the full service airlines in the Middle East,
the regions small low-cost carrier segment continues to
stand out in terms of growth and also profits. Although the
sector remains under-developed by global standards, regional
LCCs are already evolving and hybridising, introducing
business-class cabins, new services and even taking on the
low-cost long-haul market for the first time.
According to IATA, growth in passenger traffic for airlines
in the Middle East was 12.1% for 2013 better than double
the global average. Growth was strong in both business and
leisure travel to regions such as Europe. Meanwhile, the
overall growth in international passenger traffic returned to
its long-term historical trend above 5% as global economies
and business confidence continued to recover, oil prices eased
marginally and airlines conservatively added capacity.
Growth for Middle East carriers in 2013 reflected not only
the recovery in international markets, but also the strong
performance of lynchpin regional economies such as the
UAE and Saudi Arabia. With a young population, increasing
propensity to travel, ongoing regional liberalisation and
expanding tourism opportunities, regional traffic growth is
proving just as an important component of the Middle Easts
expansion as long-haul routes are.
Long-term expansion is clearly in the pipeline. Airlines in
the region have a remarkable 960 aircraft on order, including
more than 600 widebodies, equivalent to 25% of the global
backlog, or twice as many as on order in North America.
Aircraft order books are unsurprisingly dominated by
Emirates, Etihad and Qatar, with 615 mostly widebody
aircraft on order between them. Low-cost carriers account
for better than 140 of the 330 narrowbodies on order in the
region, indicating the segment will continue to expand in
importance.
Despite the amount of capacity arriving in the region,
growth has not been haphazard. Airlines in the Middle East
have generally matched capacity to demand. Regional ASKs
expanded 12.4% in 2013, marginally higher than RPKs, and
load factors remained near all-time highs, at about 77%.
Regional yields remain below global averages, but consistent
profitability is emerging as a trend in the Middle East,
particularly as more privately owned airlines join the market.
Accompanying this, regional governments continue to
prioritise aviation, seeing the industry as a catalyst for local
development and diversification, delivering trade, tourism and
technological and economic growth.
Airline growth has also gone hand-in-hand with
infrastructure development in the region. Airport
infrastructure investment in the GCC nations alone over
MIDDLE EAST PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

200
150
100
50
787
33
32
20
31
A350
20
30
20
29
20
28
A330
20
27
20
26
20
25
A320
20
24
20
23
20
22
20
21
777
20
20
20
19
737
20
18
CRJ
20
17
20
16
20
15
20
20
20
14
A380
MIDDLE EAST MOST POPULAR AIRCRAFT TYPES IN SERVICE
the past 10 years has exceeded USD35 billion and this

investment only continues to grow to accommodate more
traffic. IATA estimates another USD40 billion is being
invested in aviation infrastructure by what it describes as
far sighted Gulf-region governments, which will allow
the airlines to sustain their double-digit traffic growth.
Infrastructure development is being concentrated at the
largest airports in the region, including Dubai, Doha, Jeddah,
Riyadh, Abu Dhabi, Muscat, Kuwait, Damman and Manama.
Dubai International is already on track to overtake London
Heathrow as the worlds largest airport for international
passenger traffic by 2016, even with the dilutionary effect
that the opening of the nearby Al-Maktoum International
Airport to passenger traffic late in 2013 will cause. Dubai
is undergoing an expansion that will see USD7.8 billion
invested to increase its capacity from 60 million to 90
million passengers per annum by 2018. Meanwhile, London
Heathrow faces capacity constraints and a drawn-out
Government controlled airports

have been less willing to move to
take advantage of non-aeronautical
sources of revenue, keeping fees and
charges above global averages.
22.5%
25.4%
3.9%
4.1%
20.2%
5.8%
8.1%
A320
777
A330
10.0%
737
A300
MD-80
A380
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN MIDDLE EAST:

2011 TO 2014*
20
15.9%15.8%
15
13.3%
11.6% 11.3%
10
7.4%
8.3%
5.6%
5
3.5%
1.9%
0
0.1%
0.9%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
commission on the future of its development, with final

recommendations not due until summer 2015.
Despite the positives, invisible infrastructure and
regulatory barriers and inefficiency are hindering growth.
Not everything is smooth sailing for the airlines of the
Gulf. While airport infrastructure has seen unmatched
levels of development (regional governments may indeed be
overinvesting in airport capacity), airspace congestion is a
point of increasing concern. Airlines, airports, government
and other stakeholders have been urging for years that action
be taken to remedy bottlenecks that have started to emerge in
regional airspace, the invisible infrastructure.
Gulf-region ANSPs have already moved to introduce new
air corridors and are working to reduce restrictions on civil
aviation movement through military zones and introducing
better techniques and technologies to improve the capacity
and quality of air transport management. This may not be
enough though, merely spreading the bottlenecks beyond
the Gulf to neighbouring countries. More radical ideas, such
as the establishment of a pan-Middle East or pan-Arabian
air traffic control body similar to EUROCONTROL, have
already been proposed to ensure that airspace does not
throttle growth.
Also reining in growth potential is the heavy-handed
approach to regulation across most of the Middle East.
A few markets such as the UAE, Kuwait and increasingly
Saudi Arabia and Jordan, are encouraging deregulation and
commercialisation, but overall Middle Eastern governments
exercise tight control on bilateral air traffic rights, capacity
allocation, airport tariffs and fares, seeking to protect usually
inefficient and unwieldy flag carriers.
The region has a higher than average degree of government
ownership of airports and airlines. The privatisation of several
major national airlines has been completed or is ongoing,
but the processes have been long and drawn out, with
MIDDLE EAST AND GLOBAL INTERNATIONAL RPK GROWTH APR-2011 TO

DEC-2013
SOURCE: CAPA CENTRE FOR AVIATION AND IATA
25%
20%
15%
10%
5%
Ap
Ju
r-1
1
n11
Au
g11
Oc
t-1
1
De
c-1
Fe 1
b12
Ap
r-1
2
Ju
n12
Au
g12
Oc
t-1
2
De
c-1
2
Fe
b13
Ap
r-1
3
Ju
n13
Au
g13
Oc
t-1
3
De
c-1
3
0%
Middle East
International
MIDDLE EAST CARRIERS CAPACITY (ASKS) AND PASSENGER DEMAND

(RPKS) GROWTH MAY-2011 TO JAN-2014
SOURCE: CAPA CENTRE FOR AVIATION AND IATA
25%
20%
15%
10%
5%
Ma
y-1
1
Ju
l-1
1
Se
p11
No
v-1
Ja 1
n12
Ma
r-1
Ma 2
y-1
2
Ju
l-1
2
Se
p12
No
v-1
2
Ja
n13
Ma
r-1
Ma 3
y-1
3
Ju
l-1
3
Se
p13
No
v-1
3
Ja
n14
0%
ASKs
1%
12.
RPKs
GROWTH IN PASSENGER TRAFFIC FOR AIRLINES IN

THE MIDDLE EAST IN 2013
considerable social and political dissatisfaction associated

with any restructuring or downsizing. Regional governments
continue to prop up loss making carriers, although subsidies
are slowly being reduced or phased out all together for many
state-owned airlines.
Government controlled airports have been less willing
to move to take advantage of non-aeronautical sources of
revenue, keeping fees and charges above global averages.
Unlike Europe or Asia, there are few secondary or privately
operated airports in the Middle East to provide alternatives
to the major hub airports.
With such high levels of growth, skills needs are escalating
dramatically and training too remains a concern, across the
industry as well as at public institutions, to ensure that the
region not only has the operational skills but also sufficient
national oversight and safety regulatory competence to
accompany its expansion.
These constraints have created particularly high barriers to
entry for new airlines and foreign investment in the Middle
East airline sector is almost non-existent. Privately owned
LCCs have found the Middle East environment particularly
difficult, with several failures in the past few years. Of the
four LCCs in the region, flydubai is state owned and Air
Arabia was established by the Sharjah government, although
it has since moved to public ownership.
Further industry deregulation will continue, but the pace
will be slow. The talk is not always matched by the walk.
Saudi Arabia, as an example, has approved two new airline
operating licences for this year, but is not yet willing to fully
open its domestic market to large-scale competition. Opening
up the market to deregulation is expected to produce vigorous
competition, resulting in expansion of the regional market,
with better and lower cost services.
The Middle Easts aviation transport market will continue
to grow and to evolve, but increasingly the region is turning
into one of haves and have-nots. With massive investment
from interested governments, the region is assured a prime
position as a new centre of gravity for aviation. In the short
space of a decade, regional passenger traffic has more than
doubled, but power has been increasingly concentrated in
the hands of a few, fast growing carriers. The smaller airlines
of the region are adapting to the changing circumstances,
and there are signs of a new maturity emerging in regional
governments concerning their national airlines. The massive
subsidisation of loss-making state-owned airlines appears to
be drawing to a close, as the smaller national carriers privatise
or rationalise and restructure their operations.
The pace of deregulation remains slow and there is little
momentum to accelerate the change. Private carriers continue
to flourish in the limited spaces made available, but private
start-ups remain scarce in a region that should be welcoming
them.
The new global battlefront of the three major long-haul
Gulf carriers will move to the US in 2014. Now that much of
the venom has been removed from the attacks by European
airlines and replaced by partnerships, this year the heart
of the confrontation looks likely to migrate to the US. The
While airport infrastructure has seen

unmatched levels of development,
airspace congestion is a point of
increasing concern.
GLOBAL WIDEBODY ORDERS BY REGION
reaction of the major US airlines and the trade association

Airlines for America (A4A) to the Gulf airlines recent and
proposed increases in capacity and routes have been very
similar to those of the European carriers prior to the de facto
reconciliations of the past two years that is, protectionist,
accompanied by good doses of misleading information.
Delta in particular has adopted the crusade to resist further
incursions in every way possible.
Even though the US airlines are less impacted in terms of
hub challenges than their European counterparts, the steep
difference in international inflight standards of the US majors
as compared with Emirates, Etihad and Qatar, still makes the
threat to the status quo a real one.
The perceived threat is greatest where it raises the
competitive bar on North Atlantic routes, where the nowpowerful trio of antitrust immunised partnerships has
provided a platform for more rational competitive behaviour,
allowing at least a temporary profitability to emerge.
This is where Etihads initiatives in particular have drawn
the most ferocious fire. Spurious but no less ferocious
arguments against allowing preclearance in Abu Dhabi
(followed by Dubai) have been rejected by US authorities
(the risk was of diversion of Indian traffic via the Gulf, rather
than through the US carriers European partners hubs). But
the strongest opposition has been against initiatives to use
such liberal measures espoused in the first place by US
negotiators as third country codeshares and others.
That aside, there seems little reason why the expansion of
the Gulf carriers should slow in any way in 2014.
Middle East
Selected Airlines
SAUDIA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

12
10
1. Saudia
IN SERVICE
IN STORAGE
ON ORDER
Airbus A320-200
35
Airbus A321-200
15
Airbus A330-300
16
SAUDIA STAGE LENGTHS

2000
1500
500
Airbus A330-300E
12
Boeing 747-300
Boeing 747-400
Boeing 747-8F
Boeing 777-200ER
23
Boeing 777-300ER
12
JED - CAI
Boeing 787-9
DXB - RUH
Boeing/McDonnell
Douglas MD-11F
JED - DXB
Embraer ERJ170100LR
15
125
16
-500
10
15
Flight Time (Hours)
SAUDIA TOP 10 INTERNATIONAL ROUTES BY SEATS

16,520 seats
16,368 seats
10,166 seats
CAI - RUH
6,444 seats
JED - CMN
5,782 seats
RUH - LHR
5,670 seats
RUH - MNL
5,629 seats
JED - CGK
5,301 seats
JED - LHR
5,214 seats
JED - KHI
5,130 seats
0k
20
15
Boeing 747-200F
Total:
787
1000
SAUDIA FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
777
Based in Jeddah, Saudia is the national airline of Saudi Arabia and is

wholly owned by the Kingdom of Saudi Arabia. The airline operates a network
of domestic and regional services within Saudi Arabia and the Middle East as
well as Asia, Europe and North America from its main base at Jeddah-King
Abdulaziz International Airport.
Previously named Saudi Arabian Airlines, the carrier formally joined
the SkyTeam alliance on 29-May-2012, becoming the alliances 16th global
member and first member from the Middle East. Saudi Arabian also used the
occasion to re-brand, adopting its old name of Saudia.
Saudia has its own cargo division, Saudi Airlines Cargo, which services
over 20 destinations with a dedicated cargo fleet.
20
20
14
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
Middle East
Selected Airlines
QATAR AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

60
50
2. Qatar Airways
40
30
20
10
777
22
21
20
A380
20
A350
20
A330
20
A320
19
20
18
20
17
20
15
16
20
Founded in 1993 and re-launched in 1997, Qatar Airways, based in Doha,

is the national flag carrier, wholly owned by the Qatari government. Qatar
Airways is one of the Middle Easts big three network airlines, with
aggressive fleet and route network expansion plans. The carrier operates an
extensive network of regional services in Asia and the Middle East together
with international services to Australia, Europe, Africa and North America.
Qatar Airways joined the oneworld global alliance on 30-Oct-2013.
20
20
14
787
QATAR AIRWAYS STAGE LENGTHS

700
QATAR AIRWAYS FLEET SUMMARY AS AT MAY-2014
600
IN SERVICE
IN STORAGE
ON ORDER
Airbus A319-100LR
Airbus A320-200
31
Airbus A320200NEO
35
Airbus A321-200
10
Airbus A321-200NEO
14
Airbus A330-200
16
AIRCRAFT
500
400
300
200
100
Airbus A330-200F
Airbus A330-300
13
Airbus A3501000XWB
37
Airbus A350900XWB
43
DOH - LHR
20,797 seats
Airbus A380-800
10
DOH - DXB
20,679 seats
Boeing 777-200LR
DOH - KWI
Boeing 777-300ER
25
DOH - BKK
Boeing 777F
DOH - BAH
Boeing 787-8
13
17
DOH - CDG
13,258 seats
132
166
DOH - DMM
13,218 seats
Total:
-100
10
QATAR AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

19,080 seats
18,760 seats
15,156 seats
DOH - AUH
12,622 seats
12,136 seats
DOH - KUL
DOH - MCT
11,010 seats
0k
15
Flight Time (Hours)
5k
10k
15k
20k
25k
Middle East
Selected Airlines
EMIRATES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

60
50
3. Emirates
40
30
20
10
Founded in 1985, Emirates Airline is the national carrier of the emirate

of Dubai, United Arab Emirates, and is based at Dubai International Airport.
The worlds largest airline as measured by international passengers carried,
Emirates is among the fastest-growing airlines in the world, pursuing an
aggressive expansion strategy across all continents. The airline operates
a large fleet of all-widebody Boeing and Airbus aircraft and is the largest
customer for the Airbus A380. Emirates provides an extensive network of
services within the Middle East as well as to Africa, East Asia, South Asia,
Australasia, North America, Europe and South America. Emirates SkyCargo is
the air freight division of Emirates serving over 40 destinations.
33
32
20
31
20
30
20
29
20
28
20
27
20
26
A380
20
25
20
24
20
23
A350
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
20
20
14
777
EMIRATES STAGE LENGTHS

500
400
AIRCRAFT
IN SERVICE
IN STORAGE
Airbus A330-200
21
ON ORDER
0
EMIRATES FLEET SUMMARY AS AT MAY-2014
300
200
Airbus A340-300X
Airbus A340-500
Airbus A3501000XWB
20
Airbus A350900XWB
50
-100
Airbus A380-800
47
93
Boeing 777-200
Boeing 777-200ER
Boeing 777-200LR
10
Boeing 777-300
12
Boeing 777-300ER
94
58
Boeing 777F
10
216
224
Total:
100
10
EMIRATES TOP 10 INTERNATIONAL ROUTES BY SEATS

35,210 seats
DXB - LHR
DXB - BKK
26,306 seats
24,424 seats
DXB - KWI
DXB - BOM
22,026 seats
21,126 seats
DXB - JED
DXB - KHI
20,720 seats
18,524 seats
DXB - CDG
DXB - SIN
17,402 seats
DXB - LGW
17,402 seats
DXB - MAN
17,402 seats
0k
15
Flight Time (Hours)
5k
10k
15k
20k
25k
30k
35k
40k
45k
Middle East
Selected Airlines
ETIHAD AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

35
30
4. Etihad Airways
25
20
15
10
Founded in 2003, Etihad Airways is the national carrier of the emirate of

Abu Dhabi, United Arab Emirates, and is based at Abu Dhabi International
Airport. Operating a fleet of narrow and wide-body Airbus and Boeing
aircraft, Etihad operates a rapidly expanding network of services within
the Middle East and to Europe, Asia, North America, Canada and Australia.
In addition to its core activity of passenger transportation, Etihad earns
significant revenue from its cargo operation, Etihad Crystal Cargo. Etihad
Airways forms part of the Etihad Aviation Group.
A330
A350
A380
IN SERVICE IN STORAGE
25
20
24
20
23
ETIHAD AIRWAYS STAGE LENGTHS

250
150
ON ORDER
Airbus A319-100
Airbus A320-200
22
Airbus A320-200NEO
10
Airbus A321-200
Airbus A321-200NEO
26
Airbus A330-200
22
Airbus A330-200F
Airbus A330-300E
Airbus A340-500
Airbus A350-1000XWB
22
Airbus A350-900XWB
40
Airbus A380-800
10
AUH - BKK
Boeing 777-200LR
AUH - LHR
Boeing 777-300ER
20
AUH - JED
Boeing 777-8X
AUH - MNL
10,332 seats
Boeing 777-9X
17
AUH - JFK
10,332 seats
Boeing 777F
AUH - BAH
8,810 seats
Boeing 787-10
30
AUH - CGK
8,764 seats
Boeing 787-9
41
AUH - MAN
94
218
AUH - CDG
100
50
-50
10
15
Flight Time (Hours)
ETIHAD AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

15,498 seats
14,008 seats
11,692 seats
8,540 seats
8,176 seats
AUH - KWI
7,616 seats
0k
787
Total:
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
A320
200
ETIHAD AIRWAYS FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
20
14
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
AFRICA analysis reports:

Africas ailing national airlines survive on USD2.5 billion of government subsidy. Not sound policy
EgyptAir plans further restructuring as losses mount. But outlook may brighten as Egypt stabilises
Kenya Airways to focus on Asia, with new Beijing and Shanghai routes, as 787s and more 777s arrive
Air Austral makes a remarkable return to profit, now with strong market positions on most routes
Air Seychelles returns to Paris while expanding partnerships and achieving second year of profits
South African Airways seeks UAE stop on Beijing & Mumbai with support from Emirates or Etihad
South African Airways premium economy product to be part of its long-haul restructuring: SAA Part 2
South African Airways pursues more growth in Africa including potential Ghana JV: SAA Part 3
Zambia provides fastjet with easier affiliate option than South Africa, Ghana, Kenya or Nigeria
Africa
TOP 10 AIRLINES WITHIN AFRICA
SEATS
218,946
Ethiopian Airlines
119,207
Kenya Airways
97,882
Arik Air
91,678
EgyptAir
91,496
Comair (South Africa)
76,220
Royal Air Maroc
74,375
Mango
56,484
Aero
54,268
10
Air Algerie
52,431
CAPACITY BY CARRIER TO/FROM/WITHIN AFRICA

EgyptAir
271,293
266,526
Royal Air Maroc
194,383
Ethiopian Airlines
186,559
Air Algerie
135,064
Kenya Airways
123,752
British Airways
107,866
Emirates
107,564
Air France
104,763
Other
1,863,483
0k
500k
1,000k
1,500k
2,000k
2,500k
AFRICA TOP 10 AIRPORTS
SEATS
Johannesburg Oliver R Tambo Intl Airport
374,012
Cape Town International Airport
168,999
Lagos Murtala Muhammed Airport
144,767
Nairobi Jomo Kenyatta International Airport
120,113
Durban King Shaka Int'l Airport
107,221
Cairo International Airport
102,352
Addis Ababa Bole Airport
100,279
Abuja Nnamdi Azikiwe International Airport
96,554
Casablanca Mohammed V Airport
83,069
10
Accra Kotoka Airport
66,568
IT IS TEMPTING TO REPEAT THE TRUISMS that

Africa continues to offer extraordinary potential upside.
With many of the worlds fastest growing economies and
weak surface transport infrastructure, aviation is an obvious
opportunity to support and accelerate that growth. Yet
unhelpful government interference and poor planning
continues to slow the promised expansion, leaving service
levels mostly weak and prices generally high.
There are however some bright spots as well as glimmers
of optimism: Ethiopian continues to expand with new fleet
generations, with five 787s in service, eight more to come
and talk of negotiations for another 10 777Xs; South African
Airways is full of hope that its new turnaround plan will
succeed (although it has a long way to go); Kenya Airways,
accepting its first 787 in Apr-2014, is recovering well from
last years catastrophic fire at its Nairobi Airport hub; and
would-be pan African LCC fastjet appears to be establishing
a viable foothold although it remains a fragile existence.
The other of the biggest four African flag carriers,
EgyptAir, is inevitably suffering the effects of continuing
uncertainty in its home country, although its governments
protective policies ensure that the carrier retains a two thirds
market share at its Cairo Airport base, but overall Egyptian
airport traffic numbers were down 20% in Feb-2014, a
casualty of the tourism downturn and airlines cutting services.
Long-haul operations are being squeezed by new
services by the Gulf carriers, at least on eastbound and
some European routes, making life increasingly difficult for
airlines drawing regional traffic through their home hubs
for long-haul onward carriage. As the Gulf carriers increase
the number of their spokes into their own hubs, airlines
such as Ethiopian and Kenya Airways lose their connectivity
advantages.
South African Airways (SAA) problems are different.
Unable to be a major collection hub due to its geographic
position, it has sought to develop a more regional presence.
It has instead chosen to partner with Etihad. This strategy
may well be adopted by others. Kenya Airways, part of the
SkyTeam alliance and a close partner of KLM, is increasingly
drawing closer to Etihad too. A reciprocal codeshare
agreement giving access to each others networks and paving
the way for greater collaboration and cost savings, was
established in Feb-2014.
Under its new strategic plan, adopted in late-2013,
SAA will increase operations within Africa while cutting
unprofitable long-haul routes and potentially handing more
domestic routes to low-cost subsidiary Mango. SAA could
also start operating alongside new partner Etihad on the
Johannesburg-Abu Dhabi route, using the capacity freed
up from axing highly unprofitable long-haul services, as it
increases its reliance on partnerships to provide a stronger
network beyond Africa.
However, the airlines new management is making further
noises to government about the need to address its weak
balance sheet, a product of extended carelessness by its
shareholder, accompanied by constant meddling. Part of
the new programme provides for a ZAR5 billion (USD468
million) government loan guarantee, but management says
Long-haul operations are being

squeezed by new services by the Gulf
carriers.
AFRICA FLEET
the airline does not have a sufficient capital base to take on

new debt. According to CAPAs Fleet Database, SAA has a
relatively modest 16 A320-200s on order.
The airlines new plan embraces principles, albeit tending
towards motherhood, that would seem appropriate for others
in the region to note. These include:

1750
1500
1,282
1250
1000
750
500
250
191
143
In service
In storage
On order
AFRICA BREAKDOWN FOR AIRCRAFT IN SERVICE

12.3%
37.6%
13.2%
However, the major hurdle that most governments will

have to overcome is the clearly unsustainable economic
condition of many airlines, with few original ideas to extract
them from this condition.
Africas unenviable record of government interference
in the continents aviation system is demonstrated by the
17.1%
19.8%
Narrowbody Jet
Widebody Jet
Support the countrys development agenda, achieve

and maintain commercial sustainability and foster
performance excellence;
Create an integrated airline group, SAA Group
Holdings, incorporating SAA, Mango and SA Express
under a single holding company structure to improve
asset utilisation, operational efficiency and capital
allocation;
Implement a new network, alliance and fleet strategy to
develop SAA as a full-service premium carrier, Mango
as a LCC and SA Express as a regional feeder airline.
This plan will allow the group to meet current and
projected demand, produce capacity through alliances
and implement integrated fleet planning;
Develop a Whole of State Aviation Framework to
ensure consolidated policy approach to aviation in South
Africa to maximise the growth potential of its airlines.
Turboprop
Regional Jet
AFRICA CAPACITY SEATS SHARE BY ALLIANCE
(Nigeria) is an airline graveyard due

to the governments misconceived
protectionist policies.
8.5%
11.0%
54.4%
26.2%
Unaligned
Star Alliance
SkyTeam
oneworld
fact that no less than nine carriers are surviving only with
significant support of their respective governments through
a variety of financial support mechanisms collectively worth
about USD2.5 billion.
In most cases this support serves only to distort any
prospect of a level playing field, preventing privately owned
carriers from competing effectively. Nigeria was even
planning to take this a stage further as state support of
private carriers is being undermined by a desire to relaunch
a government owned national flag carrier, Nigeria One. The
recent sacking, by President Goodluck Hanson, of high
profile Minister of Aviation Stella Oduah in Feb-2014,
followed by the replacement of all senior management of the
main civil aviation bodies in Mar-2014, hardly augurs well
for a good short-term outlook for that major countrys airline
system.
Nigeria is a market that on economic and population
fundamentals should support a booming aviation industry.
But instead it is an airline graveyard due to the governments
misconceived protectionist policies. The combination of
interference and hostile attitudes towards private carriers
looks set to jeopardise prospects indefinitely.
In other cases, such as Uganda, new state-owned airlines
are planned to compete with successful privately owned
operators in markets that often lack sufficient demand to
AFRICA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

80
60
40
20
21
20
19
737
777
20
A380
20
A350
SSJ
20
18
20
17
16
A330
DHC6
20
DHC8
A320
42
YUN7
20
15
20
20
14
747
787
72
AFRICA MOST POPULAR AIRCRAFT TYPES IN SERVICE

23.6%
45.7%
9.8%
4.9%
4.4%
3.6% 4.0%
737
A320
DHC8
B1900
4.1%
CARAVAN
72
CRJ
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN AFRICA: 2011 TO

2014*
11.7% 11.8%
12
9.9%
10
10.3%
10.8%
10.5%
9.1%
6.9%
6
4
2.6%
2
0.3%
0
3.1% 3.3%
1.7%
0.6%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
support them both. Whatever the motives and many

of them are questionable at best the outcome is sadly
predictable.
While SAA has represented Africas most extensive
turnaround effort, Royal Air Maroc (RAM) at the opposite
end of the continent has been the most expensive to tax
payers in recent years. The flag carrier received a USD193
million bailout in 2011 and has access to a further USD900
million of on-going funding until 2016 as it repositions itself
to compete with an influx of LCC competition from Europe,
in particular Ryanair, resulting from Moroccos open skies
agreement with the EU aimed at boosting tourist arrivals by
1 million annually.
This conflict of objectives perhaps encapsulates many of the
problems that African governments have in their attitudes
towards maintaining a viable airline industry.
Despite this, private money has shown it is willing to
address some of the potential opportunities in the continent.
Low-cost intra-African operations would be a massive boon
to regional economic development, but the one genuine
LCC model, Tanzania based fastjet, is running into severe
headwinds as it seeks to expand into other countries. Plans to
grow in Zambia and South Africa are under way and a recent
GBP1 million injection of funds offered some short-term
relief; it may need more if it is to weather the stiff opposition
it is meeting in the air and on the ground, but the positive
news is that things are improving.
Africa Selected Airlines
1. South African
Airways
SOUTH AFRICAN AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
8
With hubs at Johannesburg and Cape Town, South African Airways (SAA)
is the flag carrier of South Africa and ranks among the largest airlines on
the African continent. The carrier is wholly-owned by the South African
government and operates an extensive network of services throughout
Africa and international services to North America, South America, Asia,
Australia and Europe. SAA became a member of the Star Alliance in 2006.
16
20
15
20
20
14
A320
SOUTH AFRICAN AIRWAYS STAGE LENGTHS

1250
SOUTH AFRICAN AIRWAYS FLEET SUMMARY AS AT MAY-2014

Airbus A319-100
IN SERVICE
IN STORAGE
11
ON ORDER
Airbus A320-200
16
Airbus A330-200
Airbus A340-200
Airbus A340-300E
Airbus A340-300X
Airbus A340-600
Boeing 737-300(F)
Boeing 737-800
12
Total:
54
16
AIRCRAFT
1000
750
500
250
-250
10
15
Flight Time (Hours)
SOUTH AFRICAN AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

6,797 seats
JNB - LUN
JNB - LHR
6,720 seats
6,640 seats
JNB - WDH
JNB - HRE
6,268 seats
6,070 seats
JNB - GBE
JNB - GRU
5,832 seats
JNB - JFK
4,438 seats
JNB - FRA
4,438 seats
4,120 seats
JNB - MUC
JNB - LAD
4,120 seats
0k
1k
2k
3k
4k
5k
6k
7k
8k
9k
2. Ethiopian
Airlines
ETHIOPIAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
16
14
12
10
8
6
4
2
Addis Ababa-based Ethiopian Airlines is the national airline of Ethiopia.

One of the leading airlines on the African continent, Ethiopian Airlines serves
more than 60 international destinations across Africa, Asia, Europe, The
Middle East, and North America, as well as operating an extensive domestic
and international cargo network. Ethiopian Airlines became a member of Star
Alliance in Dec-2011.
A350
737
777
19
20
18
20
17
20
16
20
15
20
20
14
787
ETHIOPIAN AIRLINES STAGE LENGTHS

250
ETHIOPIAN AIRLINES FLEET SUMMARY AS AT MAY-2014

IN SERVICE
IN STORAGE
ON ORDER
Airbus A350900XWB
12
Boeing 737-400(F)
Boeing 737-700
Boeing 737-800
AIRCRAFT
200
150
100
50
Boeing 757-200
Boeing
757-200(ETOPS)
Boeing 757-200(F)
(ETOPS)
Boeing 757-200PF
Boeing 767-200
Boeing 767-300ER
12
Boeing 777-200LR
Boeing 777-300ER
Boeing 777F
ADD - CAN
Boeing 787-8
ADD - NBO
Boeing/McDonnell
Douglas MD-11(F)
Boeing/McDonnell
Douglas MD-11ER(F)
Bombardier DHC8Q-402(NG)
de Havilland of
Canada DHC-6-300
62
30
Total:
-50
10
15
Flight Time (Hours)
ETHIOPIAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

10,458 seats
ADD - DXB
5,586 seats
5,460 seats
ADD - LOS
4,494 seats
ADD - PEK
4,494 seats
ADD - ABV
4,494 seats
JNB - ADD
4,494 seats
ADD - EBB
4,165 seats
3,870 seats
ADD - PVG
ADD - JRO
3,850 seats
0k
2k
4k
6k
8k
10k
12k
14k
3. Kenya Airways
KENYA AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

8
The Pride of Africa

2
KENYA AIRWAYS FLEET SUMMARY AS AT MAY-2014
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
777
787
KENYA AIRWAYS STAGE LENGTHS
AIRCRAFT
0
20
Addis Ababa-based Ethiopian Airlines is the national airline of Ethiopia.

Pride
Africa
One of the leadingThe
airlines
on theof
African
continent, Ethiopian Airlines serves
more than 60 international destinations across Africa, Asia, Europe, The
Middle East, and North America, as well as operating an extensive domestic
and international cargo network. Ethiopian Airlines became a member of Star
Alliance in Dec-2011.
IN SERVICE
IN STORAGE
ON ORDER
Boeing 737-300(F)
Boeing 737-700
Boeing 737-800
Boeing
737-800(ETOPS)
Boeing 767-300ER
Boeing 777-200ER
Boeing 777-300ER
Boeing 787-8
Embraer ERJ170100LR
Embraer ERJ170100STD
Embraer
ERJ190-100IGW(AR)
14
Total:
62
30
600
500
Boeing 737-300
400
300
200
100
-100
12
KENYA AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

6,720 seats
NBO - DAR
NBO - EBB
6,576 seats
NBO - JNB
6,568 seats
NBO - BOM
5,098 seats
NBO - AMS
4,508 seats
NBO - LHR
4,508 seats
NBO - KGL
3,144 seats
NBO - BJM
3,096 seats
NBO - BKK
3,024 seats
NBO - JUB
3,024 seats
0k
10
Flight Time (Hours)
1k
2k
3k
4k
5k
6k
7k
8k
9k
EASTERN EUROPE analysis reports:

Wizz Air: London share listing planned after three-fold profit increase for the ultra-LCC
Russias low air travel penetration augurs well for the aviation market - and for Aeroflot
Aeroflot SWOT analysis. Russias national champion is well positioned to confront new challenges
Dobrolet nears take-off, but can Aeroflots LCC subsidiary achieve the required cost structure?
Massive capacity expansion is planned for Istanbul airports, with competing private interests
Turkish Airlines: capacity and network growth stay strong in 2013; profit growth is more challenging
Turkish Airlines suffers bigger 1Q losses, but continues to focus on profit, profit, profit
Pegasus Airlines must not let worsening quarterly profitability become a new trend
Ukraine International Airlines to cut fleet by 25% but network expansion continues
Eastern
Europe
N GENERAL, EASTERN EUROPE TENDS TO

OUTPACE THE WESTERN PART OF the continent,
with Turkey and Russia preeminent among the major
leaders.
Turkey, home to high growth LCC Pegasus Airlines and
Europes fastest growing FSC Turkish Airlines, saw the
highest growth in the number of flights in 2013 and will be
looking to retain its quasi-Gulf expansion status in 2014.
Istanbul Ataturk was the only airport in Europes top 10 to
experience an increase in the number of flights. Both leading
Turkish carriers plan to continue double digit growth in 2014.
The strength of demand in Eastern Europe is also evident
in Russia, for example, where IATA says domestic RPKs grew
by 9.6% in 2013. The relatively low penetration of air travel in
Eastern and Central Europe, compared with Western Europe,
should ensure that its growth remains superior to that of the
West for some time to come. For Russia this should be the
case as Aeroflots new LCC subsidiary enters the market and
the Government moves to reduce regulatory constraints on
the sector.
Eurocontrol expects countries in Eastern Europe once
again to enjoy the continents highest growth, led by Armenia
(12%), Moldova (11.0%), Georgia (9.6%), Belarus (7.0%),
Ukraine (6.4%) and Turkey (6.1%).
TOP 10 AIRLINES WITHIN EASTERN EUROPE
SEATS
Turkish Airlines
656,451
Aeroflot
490,281
Pegasus Airlines
357,264
S7 Airlines
211,097
Aegean Airlines
153,988
UTair Aviation
128,738
Transaero Airlines
123,937
Onur Air
79,098
Ural Airlines
65,078
10
Atlasjet
59,334
CAPACITY BY CARRIER TO/FROM/WITHIN EASTERN EUROPE
EASTERN EUROPE FLEET

Turkish Airlines
SOURCE: CAPA FLEET DATABASE | WEEK STARTING 05-MAY-2014
1,287,410
Aeroflot
3000
760,454
2,355
2500
Pegasus Airlines
465,777
Ryanair
367,038
Wizz Air
2000
329,040
1500
Lufthansa
281,960
S7 Airlines
255,531
Transaero Airlines
223,485
Aegean Airlines
222,364
1000
500
229
Other
3,411,046
0k
500k
800
In service
1,000k 1,500k 2,000k 2,500k 3,000k 3,500k 4,000k 4,500k
SOURCE: CAPA FLEET DATABASE | WEEK STARTING 05-MAY-2014
4.0%
SEATS
Istanbul Ataturk Airport
621,998
Moscow Domodedovo Airport
425,683
Moscow Sheremetyevo Airport
419,887
Istanbul Sabiha Gokcen Airport
381,822
Ankara Esenboga Airport
225,853
Athens International Airport
214,457
Moscow Vnukovo Airport
211,589
Saint Petersburg Pulkovo Airport
197,542
Izmir Adnan Menderes Airport
164,819
10
Antalya Airport
152,343
On order
EASTERN EUROPE BREAKDOWN FOR AIRCRAFT IN SERVICE
EASTERN EUROPE TOP 10 AIRPORTS

In storage
10.3%
11.0%
56.6%
18.0%
Narrowbody Jet
Turboprop
Regional Jet
Widebody Jet
EASTERN EUROPE CAPACITY SEATS SHARE BY ALLIANCE
EASTERN EUROPE MOST POPULAR AIRCRAFT TYPES IN SERVICE
6.7%
14.8%
25.1%
35.3%
48.7%
2.5%
3.2%
3.5%
29.8%
Unaligned
Star Alliance
SkyTeam
A320
oneworld
737
21.9%
3.9%
AN24
4.5%
AN26
TU154
CRJ
A330
EASTERN EUROPE PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN EASTERN

EUROPE: 2011 TO 2014*
200
20
Other

*Year to Month indicated; Excluding Russia
150
16.1%
15.3%
15
11.5%
100
10
6.7%
50
5.3% 5.1%
5
2.9%
A330
777
A350
A380
CRJ
CSERIES
787
747
SSJ
E190
E195
25
20
24
23
20
20
22
20
21
20
20
19
20
20
18
20
17
20
16
15
A320
737
20
20
20
14
AN148
TU204
42
MS21
YUN7
0.6%
0
7.1% 7.0%
0.9%
2.8%
1.6%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
Eastern Europe
Selected Airlines
TURKISH AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
60
50
1. Turkish Airlines
40
30
20
10
A320
A330
737
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
Based at Istanbuls Ataturk International Airport, with secondary hubs at

Esenboga International Airport and Adnan Menderes International Airport,
Turkish Airlines (THY) is the national airline of Turkey and the countrys
largest carrier. The carrier operates a network of domestic and regional
services throughout Turkey and the Middle East and international services
to Europe, Africa, North America, South America and Asia. Turkish Airlines
is a member of the Star Alliance. Turkish Cargo, the airlines freight division,
serves over 30 destinations.
777
TURKISH AIRLINES STAGE LENGTHS

2500
TURKISH AIRLINES FLEET SUMMARY AS AT MAY-2014
2000
IN SERVICE
IN STORAGE
ON ORDER
Airbus A310-300(F)
Airbus A319-100
14
Airbus A320-200
30
43
25
Airbus A321-200NEO
60
Airbus A330-200
11
Airbus A330-200F
Airbus A330-300E
15
15
Airbus A340-300
Airbus A340-300X
Boeing 737-700
Boeing 737-8
40
Boeing 737-800
61
24
Boeing 737-9
10
Boeing 737-900ER
10
Boeing 777-300ER
15
20
216
203
Airbus A320200NEO
Airbus A321-200
Total:
AIRCRAFT
Airbus A310-200
1500
1000
500
-500
10
20
TURKISH AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

17,466 seats
IST - TLV
IST - LHR
15,642 seats
12,808 seats
IST - JFK
IST - CDG
12,612 seats
IST - ECN
11,906 seats
IST - FRA
11,838 seats
11,566 seats
IST - DUS
IST - AMS
11,154 seats
10,802 seats
IST - BRU
IST - IKA
10,337 seats
0k
15
Flight Time (Hours)
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
22.5k
Eastern Europe
Selected Airlines
AEROFLOT PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

40
2. Aeroflot
30
20
10
A350
737
777
787
20
20
19
20
18
20
17
20
16
20
15
A320
SSJ
AEROFLOT STAGE LENGTHS

1500
1250
Aeroflot is the national airline of Russia with its main base at Moscow
Sheremetyevo International Airport. Formerly wholly-state owned, the airline
has been partially privatised and continues to be the dominant carrier in the
country, accounting for about 20% of the Russian passenger market. The
Russian Government continues to hold 51.17% of the airlines equity. Legal
entities and individuals own the rest. Aeroflot operates an extensive network
of domestic services within Russia, as well as international services to
Europe, Asia, the Middle East and North America. Aeroflot is Russias largest
air carrier; it accounts for over 42% of international scheduled and 13.7% of
domestic traffic in Russia (with its subsidiaries, around 20%). Aeroflot is a
member of SkyTeam.
Aeroflot has been a leading voice behind consolidation in the Russian
airline industry, and has supported the Governments plan to address the
fragmentation of the airline industry that has been a central feature since
the fall of the Soviet Union. Aeroflot has taken over management control
of four Russian airlines including Rossiya, Orenair, Vladivostok Avia and SAT
Airlines.
20
20
14
1000
750
500
250
AEROFLOT FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
Airbus A319-100
Airbus A320-200
63
10
Airbus A321-200
26
Airbus A330-200
Airbus A330-300E
17
Airbus A350800XWB
Airbus A350900XWB
14
Boeing 737-700
10
Boeing 737-800
30
Boeing 737-900ER
Boeing 767-300ER
Boeing 777-300ER
Boeing 787-8
22
Boeing/McDonnell
Douglas MD-11(F)
Ilyushin IL-96-300
Sukhoi RRJ-95B
11
12
147
124
Total:
-250
10
Flight Time (Hours)
AEROFLOT TOP 10 INTERNATIONAL ROUTES BY SEATS

11,128 seats
SVO - SIP
SVO - CDG
10,500 seats
SVO - KBP
9,932 seats
SVO - JFK
9,856 seats
SVO - PEK
9,856 seats
SVO - EVN
9,324 seats
SVO - LHR
9,116 seats
SVO - PVG
9,052 seats
8,534 seats
SVO - TLV
SVO - PRG
8,220 seats
0k
2k
4k
6k
8k
10k
12k
14k
Eastern Europe
Selected Airlines
PEGASUS AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
20
3. Pegasus Airlines
15
10
Istanbul-based Pegasus Airlines is a privately-owned low-cost airline

based at Istanbul Sabiha Gken International Airport. Using a fleet of
narrow-body Boeing 737 and A320 family aircraft, Pegasus operates an
extensive network of domestic and regional services throughout Turkey,
Europe and the Middle East.
A320
22
20
21
20
20
20
19
20
18
20
17
20
16
20
20
15
737
PEGASUS AIRLINES STAGE LENGTHS
PEGASUS AIRLINES TFLEET SUMMARY AS AT MAY-2014
1250
AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
1000
57
Airbus A321-200NEO
18
Boeing 737-400
Boeing 737-800
47
Total:
52
77
Airbus A320-200
Airbus A320200NEO
750
500
250
-250
Flight Time (Hours)
PEGASUS AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

14,553 seats
SAW - ECN
7,938 seats
SAW - TLV
5,670 seats
SAW - STN
ESB - ECN
5,481 seats
SAW - ORY
5,292 seats
SAW - CGN
5,292 seats
SAW - AMS
5,292 seats
ECN - ADA
5,292 seats
4,140 seats
SAW - CPH
AYT - ECN
3,780 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
WESTERN EUROPE analysis reports:

European airline restructuring: survival strategies for 2014
Airline consolidation: could Europe follow North Americas path to improved margins?
Ryanair reports a rare fall in annual profit, but aims for rapid rebound and goes in search of yield
EasyJet narrows its winter losses as it attracts more business travellers
Lufthansas 1Q2014 losses narrow, but its new CEO has a busy agenda, with helpful partners scarce
Lufthansa pilot strike highlights labour issues for Europes legacy carriers. Its time to wake up
British Airways adjusts its post-Qantas JSA Asian network and partnerships; Qatar Airways to be next
British Airways and bmi: two years after integration, BA has grown some services, reduced others
IAGs 1Q losses narrow. Discipline over capacity, capital and costs provides momentum
Virgin Atlantic Airways sees more than a little red, but things were much simpler 30 years ago
Iberia: six successive years of losses. Now will 2014 finally see a return to profit?
Air France-KLM: 1Q losses narrow, but needs more cargo restructuring. Will financial targets slip?
KLM looks to grow partnerships in Asia, which are becoming larger targets than North Americas
Transavia France to add destinations, but Air France-KLMs LCC vision remains relatively limited
SAS yield decline outweighs cost cuts to give wider losses in 2Q. Market share versus profitability?
Norwegian Air Shuttles record 1Q loss: fighter pilot, lawyer, novelist needed?
Western
Europe
TOP 10 AIRLINES WITHIN WESTERN EUROPE
SEATS
Ryanair
1,757,700
easyJet
1,310,448
Lufthansa
1,032,375
SAS
690,747
Air France
686,860
British Airways
airberlin
562,324
Norwegian Air Shuttle
562,096
Vueling Airlines
471,636
10
402,543
618,974
CAPACITY BY CARRIER TO/FROM/WITHIN WESTERN EUROPE

Qantas Airways
763,564
Virgin Australia
513,468
Jetstar Airways
367,404
Air New Zealand
304,055
Emirates
90,734
Tigerair Australia
84,960
Singapore Airlines
84,814
Air Niugini
49,428
United Airlines
49,104
Other
589,739
0k
200k
400k
600k
800k
WESTERN EUROPE TOP 10 AIRPORTS
SEATS
Barcelona El Prat Airport
809,602
London Heathrow Airport
808,704
Frankfurt Airport
772,052
Amsterdam Airport Schiphol
757,709
Adolfo Suarez Madrid Barajas Airport
741,534
Paris Charles De Gaulle Airport
731,579
Rome Fiumicino Airport
656,188
Munich Airport
638,030
London Gatwick Airport
606,719
10
Oslo Airport
579,691
1,000k
EUROPE CONTINUES TO BE A DIVIDED

CONTINENT, with Western Europe being home to most
of the bigger airlines, while Eastern Europe enjoys the more
rapid growth in air traffic. On short/medium-haul, the LCC
business model continues to demonstrate its superiority over
FSCs, although the sharpness of the dividing lines has been
blurred by the Big Three legacy groups strategic moves in the
LCC segment.
Losing share within the continent, their long-haul
profitability is underpinned by Atlantic joint ventures with
North American partners, a model now also pursued by
Virgin Atlantic. Gulf carrier competition continues to affect
their long-haul operations to the East, although a discernable
shift in attitudes may see further new developments in this
direction in 2014.
Another, different, geographic dividing line defines the
economic outlook too, as northern Europe shows signs of
improvement, prompting hopes of increased business and
discretionary travel.
Overall RPK growth for European airlines, legacy and
LCC combined, slowed to 3.8% in 2013, from 5.3% in 2012,
according to IATA. This is forecast to rise to 4.7% in 2014,
which is below IATAs world RPK growth forecast of 6.0%
for 2014 (versus 5.2% achieved in 2013).
The increased emphasis by full service carriers on longhaul relative to short-haul meant that growth in AEA
passenger-km, up 2.7%, was again higher than growth in
AEA passenger numbers, up 1.6% in 2013. Indeed, longhaul passenger numbers were up by 3.5%, while short-haul
traffic grew by only 1%. AEA average load factor reached an
all-time high of 79.9%, up 0.7 ppts against 2012. Members
of the European Low Fares Airline Association saw
passenger numbers grow by 6.3% (adjusting for changes in
membership) and load factor gain 1.2 ppts to 83.5% in 2013
(12 months to Jun-2013).
Statistics from Eurocontrol show that traffic picked up
during the course of the year, with 1Q2013 experiencing
5% fewer flights than a year earlier, but equalling and then
exceeding the prior year in the summer and autumn. Overall,
however, 2013 saw the total number of flights in European air
space fall by 0.8% compared with 2012. By contrast with the
growth in most countries in Eastern Europe, Spain, Germany,
Italy and France saw a significant reduction in the number of
flights in 2013.
Eurocontrol forecasts an increase of 1.4% in the number of
flights in 2014, reversing two years of declines, with Eastern
Europe again outpacing the West. Growth in the number
of flights is forecast to be more muted in the major Western
countries of France (2.0%), Germany, (1.7%), UK (1.3%),
Italy (0.9%) and Spain (a decline of 0.6%).
In 2013, positive growth in passenger traffic in spite
of a fall in the number of flights was the result of higher
load factors and larger average numbers of seats per aircraft.
If these trends continue in 2014, then passenger growth
should again outpace the growth in flights and should also
be stronger than in 2013, as forecast by IATA. In addition,
growth in passenger traffic should reflect the relative strength
of East versus West as identified by Eurocontrol.

airlines.
WESTERN EUROPE FLEET

6k
5k
4,350
4k
3k
2k
1,318
1k
210
0k
In service
In storage
On order
WESTERN EUROPE BREAKDOWN FOR AIRCRAFT IN SERVICE

3.3%
10.4%
10.6%
55.8%
19.8%
Narrowbody Jet
Widebody Jet
Turboprop
Regional Jet
WESTERN EUROPE CAPACITY SEATS SHARE BY ALLIANCE

14.6%
14.7%
47.3%
23.3%
Unaligned
Star Alliance
oneworld
SkyTeam
In the freight markets, Europes airlines carried 1.8% more

freight tonne-kms in 2013 than in 2012, according to IATA
data, reversing the 2.9% decline of 2012 and growing slightly
faster than the world average of 1.4% in 2013.
Europe played its part in making 2013 a record year for
aircraft orders, with a number of leading airline groups
placing long-awaited orders. Ryanair placed an order for
175 new Boeing 737-800s, easyJet for 135 Airbus A320s
(of which 100 were for the neo), Lufthansa for 100 A320
family aircraft and 59 widebodies (34 Boeing 777-9Xs and
24 Airbus A350-900s). Even IAG, until recently very reticent
to add to the groups fleet, committed to 98 firm orders (30
A320 and 32 A320neos for Vueling, 18 converted Boeing
787 options and 18 A350s for BA) and a further 158 options
on Airbus narrowbodies.
Europes fastest growing FSC, Turkish Airlines, placed
orders in 2013 for up to 117 Airbus narrowbodies (including
35 options over A321neo aircraft) and up to 95 Boeing
narrowbodies (including 25 options over 737 MAX8s). It
aims to grow its fleet to 436 aircraft in 2021 from 232 at
the end of 2013, with most of the planned growth coming
from the short/medium-haul fleet. A significant order for
widebodies is expected, but not in 2014 as THY continues
to focus primarily on the more than 40% of worldwide
international traffic that is within narrowbody range of its
Istanbul hub.
The LCCs faster growth relative to the FSCs looks set to
continue in 2014. Ryanair will take delivery of the first of its
175 new aircraft in Sep-2014 and plans seat growth of about
3% this year, slightly slower than the 5% planned by easyJet.
While this planned growth by the big two European LCCs
is in a similar range to that envisioned by some of the leading
FSCs, the likes of Norwegian Air Shuttle, Vueling, Wizz Air
and Pegasus are seeking double digit growth. Turkish Airlines
remains the notable exception to the generalisation that FSC
growth is relatively slow, as it continues to pursue LCC-like
double digit capacity growth.
Ryanair will have additional reasons to regard 2014 as an
important year, during which it will take its first delivery
under the new Boeing order, and decide whether or not to
press the button on an anticipated 737MAX order. For years
the icon for believers in the purist LCC model, Ryanair
will be a somewhat changed beast by the end of the year.
Allocated seating; a new user-friendly website; a less penal
approach to passengers who need to check in bags or reprint
their boarding pass at the airport; new distribution channels
including a dedicated mobile app and GDS partners; and a
greater presence in primary airports all of these should be
in place in the coming months.
For Norwegian, 2014 will be the first full calendar year of
long-haul operations and a test of whether its long-haul lowcost model can become firmly established, particularly on the
North Atlantic as it launches new US routes from London
Gatwick this summer. It will have 12 out of its 14 long-haul
routes operating to the US.
Norwegians long-haul adventure is just one example
of how the business models of Europes LCCs and FSCs
are continuing to move towards common ground in 2014.
Vueling has long been known for additional product features
and easyJets push to attract business passengers is now three
or four years old.
Moreover, the Big Three legacy flag carrier groups will
further evolve their LCC subsidiaries. Air France-KLMs
Transavia France subsidiary is to add new routes and aircraft;
WESTERN EUROPE PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER
250
200
150
100
50
72
28
27
737
20
26
20
25
747
20
24
777
20
23
20
22
20
21
A380
20
20
20
19
A350
20
18
20
17
A330
CSERIES
20
16
20
15
A320
CRJ
20
20
20
14
787
E175
WESTERN EUROPE MOST POPULAR AIRCRAFT TYPES IN SERVICE

29.4%
30.7%
3.1%
3.1%
4.0%
4.0%
4.5%
A320
737
A330
21.3%
777
747
DHC8
A340
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN WESTERN

EUROPE: 2011 TO 2014*
50
40
37.1%
32.9%
38.3% 38.5% 37.8%38.3%
33.8%
29.6%
30
24.6%
21.6%
19.1%
20
15.0%
9.1%
10
5.4%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
Lufthansas Germanwings will add Duesseldorf to the list

of German airports converted to its brand from the parent
company in point to point non-hub flying; and IAG will
experience its first full year of owning Vueling, which will
open bases at Rome Fiumicino, Palermo and Brussels on a
stand-alone basis.
Russias national carrier, Aeroflot, is to join the Big
Three in establishing a LCC subsidiary with the launch
of Dobrolet. Although there are currently no domestic
LCCs in Russia, and LCCs account for only 4% of seats
on international routes to/from the country, Russia looks
set to be a growth market for LCCs, with flydubai, easyJet
and Wizz Air already operating there and Ryanair having
obtained rights.
Although Europes airlines are generally on an improving
trend in terms of financial results, this hides wide disparities
in margins and balance sheet strength. Almost every FSC
in the region is in the middle of an on-going restructuring
programme to reduce their cost base. In addition, some are
using their geographical location to pursue a niche network
strategy, for example Finnair to Asia, TAP Portugal and Air
Europa to Latin America and Icelandair to North America.
The Lufthansa Group, Air France-KLM and IAGs Iberia
are notable examples of those that are battling to secure a
more stable platform for future profitability.
For airlines such as SAS, Alitalia, LOT Polish Airlines,
Virgin Atlantic and flybe, the restructuring battle is still (to a
greater or lesser degree) one of survival; profit improvement
measures may not be enough. SAS has made progress
with its cost reduction, but clearly feels that an additional
liquidity cushion is necessary, suggesting that its restructuring
programme may not deliver fully on its targets.
Virgin Atlantics future looks more secure now that it is
developing a joint venture on the Atlantic with its 49% owner
Delta. However, to date, Delta has not provided fresh funds
and its restructuring programme remains very important to
restoring profits and shoring up its balance sheet.
Gulf-based Etihad has begun to play an increasingly
important role in Europe now. Alitalia now looks set to
receive an investment from Etihad, which has said that it is in
the final stages of due diligence.
Other European carriers airberlin, Darwin Airline
(now Etihad Regional) and Air Serbia have already
received investment from Etihad, whose Equity Alliance,
supplemented by bilateral codeshares, continues to extend the
Abu Dhabi carriers reach into Europe and beyond. (Etihad
also has a stake in Aer Lingus, but the Irish carrier did not
receive new funds, nor was it in financial distress.)
2013 saw significant shifts in the attitudes of the major
European legacy carriers towards their competitors from the
Gulf, as well as some changes in the strategic stance of the
Gulf carriers towards global partnerships. Qatar Airways
joined oneworld (sponsored by British Airways) and Air
France-KLM started to codeshare with Etihad.
Lufthansa and Emirates, who entered into a JV
agreement with Qantas, both hinted that they may be
open to some form of partnership with one another in the
future. Lufthansa remains the only one of the Big Three in
Europe not to have embraced one of the Gulf Three carriers;
meanwhile pressure to address its strategic options towards
the Middle East and Asia Pacific is growing following the
end of Lufthansas codeshare with Star Alliance partner
Turkish Airlines.
The AEAs last estimate for its members aggregate
Europe remains the least profitable

of the worlds major aviation
regions.
Almost every FSC in the region is in the middle of an ongoing restructuring programme to reduce their cost base.
EBIT figure was close to break-even in 2013. For Europe

as a whole, IATA predicts a net margin of 1.3% for 2014,
compared with 0.2% in 2013. This includes the LCCs, who
are not members of AEA, and who look set to outpace the
legacy carriers on both traffic growth and profits.
Nevertheless, even with the contribution of the LCCs to
regional profitability, Europe remains the least profitable of
the worlds major aviation regions (among all the regions,
only Africa has lower margins than Europe).
For many of Europes legacy carriers, 2014 could be the
year of reckoning for their restructuring programmes, either
providing the much needed platform for future financial
health, or leaving little alternative to closure or seeking
acquisition.
Western Europe
Selected Airlines
RYANAIR PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

80
1. Ryanair
60
40
20
19
20
18
20
17
20
16
20
15
20
14
0
20
Ryanair is Europes largest airline, the largest low-cost carrier, and one of
the worlds largest airlines as measured by international passengers carried.
Ryanair has its largest base at London Stansted Airport, and second-largest
base at Dublin Airport. Ryanair currently operates a network covering
over 40 bases and 1,100 routes (with over 1,300 daily departures) across 26
countries, connecting some 155 destinations. Ryanair operates a fleet of over
250 B737-800 aircraft, with a large order backlog and employs more than
8,000 people.
737
RYANAIR STAGE LENGTHS

4000
RYANAIR FLEET SUMMARY AS AT MAY-2014
3500
3000
IN SERVICE
IN STORAGE
ON ORDER
Boeing 737-800
297
180
Total:
297
180
AIRCRAFT
2500
2000
1500
1000
500
0
-500
Flight Time (Hours)
RYANAIR TOP 10 INTERNATIONAL ROUTES BY SEATS

20,790 seats
STN - DUB
DUB - LGW
11,718 seats
11,340 seats
DUB - MAN
STN - CIA
10,962 seats
DUB - BHX
10,584 seats
STN - BCN
10,584 seats
STN - MAD
10,584 seats
STN - BGY
10,584 seats
9,450 seats
DUB - EDI
DUB - LPL
9,072 seats
0k
5k
10k
15k
20k
25k
Western Europe
Selected Airlines
EASYJET PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

30
25
2. easyJet
20
15
10
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
Based at London Luton Airport, with its busiest base at London Gatwick
Airport, easyJet was founded by Sir Stelios Haji-Ioannou and is listed on the
London Stock Exchange. The carrier has experienced rapid growth since its
establishment in 1995, having expanded due to a combination of acquisitions
and base openings triggered by consumer demand for low-cost air travel.
Using a fleet of Airbus and Boeing narrow-body aircraft, easyJet operates an
extensive network throughout Europe as well as to northern Africa and Israel
supported by over 15 hubs spread throughout Europe.
A320
EASYJET STAGE LENGTHS

4k
EASYJET FLEET SUMMARY AS AT MAY-2014

IN SERVICE
IN STORAGE
ON ORDER
Airbus A319-100
140
Airbus A320-200
60
46
100
200
146
Airbus A320200NEO
Total:
AIRCRAFT
3k
2k
1k
0k
-1k
Flight Time (Hours)
EASYJET TOP 10 INTERNATIONAL ROUTES BY SEATS

15,528 seats
MXP - CDG
14,640 seats
GVA - LGW
14,232 seats
AMS - LGW
BCN - LGW
13,680 seats
11,616 seats
FCO - ORY
AGP - LGW
11,376 seats
MXP - LGW
11,352 seats
NCE - LGW
11,280 seats
10,128 seats
MAD - LGW
FCO - LGW
10,032 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
Western Europe
Selected Airlines
LUFTHANSA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

40
3. Lufthansa
30
20
10
A320
A350
A380
747
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
With its headquarters in Cologne and primary hubs at Frankfurt and

Munich airports and secondary hubs in Berlin, Dusseldorf, Hamburg, Stuttgart
and Milan, Lufthansa is one of the largest airlines in Europe. Operating a
large fleet of narrow and wide-body Airbus, Boeing and Embraer aircraft,
Lufthansa operates an extensive network of regional services within
Germany and Europe as well as Asia, the Middle East, North America, South
America and Africa. A publicly listed company, Lufthansa is a founding
member of Star Alliance.
777
LUFTHANSA STAGE LENGTHS

6k
LUFTHANSA FLEET SUMMARY AS AT MAY-2014
5k
IN SERVICE
IN STORAGE
ON ORDER
AIRCRAFT
4k
Airbus A319-100
32
Airbus A320-200
60
33
64
Airbus A321-100
20
Airbus A321-200
42
Airbus A321-200NEO
40
Airbus A330-300E
Airbus A330-300X
10
Airbus A340-300
Airbus A340-300X
18
Airbus A340-600
12
12
Airbus A350900XWB
25
Airbus A380-800
11
FRA - VIE
Boeing 737-300
MUC - LHR
Boeing 737-500
FRA - FCO
Boeing 747-400
18
BRU - FRA
FRA - PRG
Boeing 747-8
13
FRA - AMS
Boeing 777-9X
20
FRA - VCE
278
12
193
Airbus A320200NEO
Boeing 747-400M
Total:
3k
2k
1k
0k
-1k
10
LUFTHANSA TOP 10 INTERNATIONAL ROUTES BY SEATS

27,086 seats
FRA - LHR
FRA - CDG
15
Flight Time (Hours)
22,720 seats
21,652 seats
FRA - BCN
19,600 seats
18,108 seats
16,672 seats
15,182 seats
14,648 seats
13,748 seats
13,684 seats
0k
5k
10k
15k
20k
25k
30k
35k
Western Europe
Selected Airlines
BRITISH AIRWAYS PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

12
4. British Airways
10
777
22
20
20
21
20
A380
20
A350
19
20
18
20
17
20
16
20
15
20
14
0
20
British Airways (BA) is the national carrier of the United Kingdom, a

subsidiary of publicly-listed International Consolidated Airlines Group (IAG),
and is based at London Heathrow Airport with a secondary base at London
Gatwick Airport. Using a fleet of wide and narrow-bodied Airbus and Boeing
aircraft, BAs extensive network, including that of franchise partners Sun
Air (Turkey) and Comair (South Africa), includes services to Europe, North
America, Latin America, Canada, Africa, Asia and Australia. BA is a founding
member of the oneworld alliance.
787
BRITISH AIRWAYS STAGE LENGTHS

2500
BRITISH AIRWAYS FLEET SUMMARY AS AT MAY-2014
2000
IN SERVICE
IN STORAGE
ON ORDER
Airbus A319-100
44
Airbus A320-200
53
Airbus A321-200
18
Airbus A3501000XWB
18
Airbus A380-800
Boeing 737-400
13
Boeing 747-400
47
Boeing 767-300ER
18
Boeing 777-200
Boeing 777-200ER
43
Boeing 777-300ER
10
Boeing 787-10
12
Boeing 787-8
Boeing 787-9
22
260
12
65
Total:
AIRCRAFT
Airbus A318-100
1500
1000
500
-500
15
BRITISH AIRWAYS TOP 10 INTERNATIONAL ROUTES BY SEATS

37,514 seats
LHR - JFK
LHR - MAD
22,016 seats
17,208 seats
LHR - FCO
LHR - AMS
16,780 seats
16,232 seats
LHR - BOS
LHR - BCN
15,452 seats
LHR - GVA
14,840 seats
LHR - TXL
14,556 seats
14,020 seats
LHR - NCE
LHR - CDG
13,720 seats
0k
10
Flight Time (Hours)
5k
10k
15k
20k
25k
30k
35k
40k
45k
50k
Western Europe
Selected Airlines
AIR FRANCE PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

20
5. Air France
15
10
A320
A350
A380
777
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
A subsidiary of the Air France-KLM Group and based in Paris, Air France is
the national airline of France. The airline merged with Dutch flag carrier KLM
in 2004, forming one of the worlds largest airline groups. The airline is based
at Paris Charles de Gaulle Airport, with smaller hubs at Paris-Orly, Lyon and
Nice airport. Air France operates an extensive global network, serving almost
200 destinations across North America, South America, Asia and Africa. Air
France is a founding member of SkyTeam.
787
AIR FRANCE STAGE LENGTHS

4k
AIR FRANCE FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
3k
Airbus A300B4-200
Airbus A318-100
18
Airbus A319-100
39
Airbus A319-100LR
Airbus A320-200
44
Airbus A321-100
Airbus A321-200
20
Airbus A330-200
15
Airbus A340-300
Airbus A340-300X
10
Airbus A350900XWB
25
Airbus A380-800
Boeing 747-400
CDG - JFK
Boeing 747-400ERF
CDG - LHR
Boeing 747-400M
CDG - BCN
Boeing 777-200ER
25
CDG - GVA
Boeing 777-300ER
37
CDG - FCO
Boeing 777F
CDG - MAD
Boeing 787-9
37
CDG - AMS
238
73
CDG - TXL
Total:
2k
1k
0k
-1k
15
AIR FRANCE TOP 10 INTERNATIONAL ROUTES BY SEATS

21,764 seats
18,938 seats
17,338 seats
16,612 seats
15,766 seats
15,440 seats
13,592 seats
13,264 seats
12,002 seats
CDG - LIN
CDG - MUC
11,866 seats
0k
10
Flight Time (Hours)
5k
10k
15k
20k
25k
30k
Western Europe
Selected Airlines
KLM ROYAL DUTCH AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT

ON ORDER*
2
6. KLM Royal Dutch

Airlines
16
20
15
20
20
14
777
Based in Amsterdam, KLM is the national airline of the Netherlands. Part of

the Air France-KLM Group, KLM operates an extensive network which includes
services within Europe and to Asia, Africa, North America, Central and South
America and the Middle East. KLM is a founding member of the SkyTeam
alliance.
KLM ROYAL DUTCH AIRLINES STAGE LENGTHS

2500
KLM ROYAL DUTCH AIRLINES FLEET SUMMARY AS AT MAY-2014
2000
IN SERVICE
IN STORAGE
ON ORDER
12
Airbus A330-300
Boeing 737-700
18
Boeing 737-800
25
Boeing 737-900
Boeing 747-400
Boeing 747-400ERF
Boeing 747-400M
17
Boeing 777-200ER
15
Boeing 777-300ER
Boeing/McDonnell
Douglas MD-11
117
Total:
AIRCRAFT
Airbus A330-200
1500
1000
500
-500
10
KLM ROYAL DUTCH AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

19,086 seats
AMS - LHR
AMS - CDG
13,780 seats
13,232 seats
AMS - JFK
AMS - BCN
12,776 seats
AMS - TXL
12,024 seats
AMS - MAN
11,964 seats
AMS - MAD
11,900 seats
AMS - FCO
11,900 seats
AMS - CPH
11,796 seats
AMS - ARN
11,656 seats
0k
15
Flight Time (Hours)
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
22.5k
25k
NORTH AMERICA analysis reports:

US airlines mostly post encouraging 1Q2014 results; but its a long and winding road to stability
Dallas/Fort Worth airport secures Shanghai and Hong Kong services, seeks Beijing and maybe Istanbul
North American hybrid airlines offer a range of possibilities as consolidation takes hold: Part 2
Delta Air Lines 2014 network strategy entails bypassing Tokyo and leveraging partnerships
Allegiant Airs strong fundamentals remain intact even as costs continue to rise; US ULCCs Part 1
Delta Air Lines continues to work towards achieving investment-grade with strong 1Q2014 results
Delta Air Lines loss at Dallas Love Field is Seattles gain, but Alaska Air still feels more pain
JetBlue Airways hybrid model remains enigmatic as cost creep outpaces revenue production
Southwest Airlines continues work to drive network strength in the US market
Southwest Airlines paradox - strong fundamentals confronted by a challenged business model
Spirit Airlines joins the dots in 2014, with also some new growth in Kansas City; US ULCCs Part 3
United Airlines: time to deliver as sceptics look for improved fortunes in 2Q2014
Air Canada eyes healthy demand in the summer season after racking up losses in 1Q2014
WestJet continues attempts to recoup its revenue slide as new international service debuts
Porter Airlines plans remain in limbo as its competitors work to sustain their long-term viability
North
America
TOP 10 AIRLINES WITHIN NORTH AMERICA
SEATS
Delta Air Lines
3,549,840
Southwest Airlines
3,283,031
United Airlines
2,674,725
American Airlines
2,145,360
US Airways
2,005,329
Air Canada
737,596
Alaska Airlines
650,044
JetBlue Airways
619,280
WestJet
449,032
10
Spirit Airlines
278,993
CAPACITY BY CARRIER TO/FROM/WITHIN NORTH AMERICA

Delta Air Lines
3,928,824
United Airlines
3,357,796
Southwest Airlines
3,292,146
American Airlines
2,692,052
US Airways
2,179,842
Air Canada
JetBlue Airways
Alaska Airlines
WestJet
910,820
735,220
685,083
474,587
Other
0M
3,965,852
1M
2M
3M
4M
5M
NORTH AMERICA TOP 10 AIRPORTS
SEATS
Hartsfield-Jackson Atlanta International Airport
Chicago O'Hare International Airport
1,369,723
Dallas/Fort Worth International Airport
1,280,940
Los Angeles International Airport
1,211,229
Denver International Airport
1,127,587
Charlotte Douglas International Airport
974,009
Las Vegas McCarran International Airport
941,795
Phoenix Sky Harbor International Airport
923,904
San Francisco International Airport
879,182
10
Minneapolis St Paul International Airport
747,291
1,955,191
DESPITE RECENT STRONG RETURNS, SIGNS OF

COST AND CAPACITY CREEP ARE POLLUTING THE
NORTH AMERICAN INDUSTRY.
Most North American airlines entered 2014 on relatively
sound footing, buoyed by solid FY2013 profits, a stabilising
US economy and lower fuel prices, albeit still in the USD90
to USD100 per barrel range. Carriers executing the spectrum
of business models full service, hybrid and ultra lowcost are busy building out their strategies in the hopes
that a foundation is laid for the industry to thrive, rather
than merely survive. The only clouds on the horizon are
proposed increases in capacity and upward cost pressures.
With nearly three years of profitability on record, discussions
among management teams at North American carriers are
gravitating toward shareholder returns, something largely
unheard of during the previous decade. In 2013, Delta
returned USD350 million in cash to shareholders, and targets
total returns of USD700 million by May-2014. Alaska Air
Group issued its first dividend in 21 years during 2013
while Canadian hybrid carrier WestJet increased its 1Q2014
quarterly shareholder dividend by 20%.
Despite the foundations North American airlines have laid
in order to sustain profitability, capacity and costs have been
growing at the majority of carriers during 2014.
But those airlines are taking great care to emphasise the
capacity uptick is largely driven by migration to larger-gauge
jets rather than a return to the days of airlines dumping
irrational supply into the market place. At the moment
revenue momentum seems strong enough to offset the unit
cost pressure that both low-cost and full service carriers face
this year, but if conditions soften, airlines may have to temper
capacity growth to protect their profits.
Even as weakness in the emerging markets created some
jitters in early 2014, the three large US network carriers
were bullish regarding demand, particularly in the domestic
market. Delta, United and American (including results for
US Airways) increased domestic yields during 4Q2013 by
9%, 6% and 4%, respectively. Each carrier seemed encouraged
by positive demand trends heading into 2014, and for the
moment have no plans to revise their capacity guidance for
the full year.
Of the three major US carriers, the new American has
the largest planned capacity increase for 2014 of 3.5%.
The carrier estimates 2.6ppt of the planned increase results
from the operation of higher density aircraft that American
believes is P&L positive given the incremental revenue from
higher density aircraft goes straight to its bottom line. United
plans it first consolidated capacity increase in three years
during 2014 of 1% to 2%. Similar to American, the carrier
states the rise is driven by aircraft upgauging as it takes
delivery of higher density narrowbodies and regional jets,
and the addition of slimeline seats to existing aircraft. Delta
expects flat to 2% capacity growth during 2013 again driven
by a years-long scheme to replace 50 seat jets with higherdensity aircraft.
In 2014, Delta aims to continue sharpening its competitive
edge against its full service peers. The airlines major
initiatives include turning the corner to profitability in New
The threat of ULCC entry remains

as yields increase and the majors
reduce hub coverage.
NORTH AMERICA FLEET
12k
10k
8,401
8k
6k
4k
2,272
2k
547
0k
In service
In storage
On order
NORTH AMERICA FLEET BREAKDOWN FOR AIRCRAFT IN SERVICE

7.1%
13.3%
43.7%
13.6%
22.3%
Narrowbody Jet
Turboprop
Regional Jet
Widebody Jet
NORTH AMERICA CAPACITY SEATS SHARE BY ALLIANCE

19.6%
34.2%
22.0%
24.2%
Unaligned
oneworld
Star Alliance
SkyTeam
York at its hubs in JFK and LaGuardia, bolstering its own

branded feed at its Asian gateway in Seattle and reversing
losses at the Trainer oil refinery it purchased in 2012. High
hopes for Trainer were steadily dampened throughout the
course of 2013 as the business bled USD116 million for the
full year.
Obviously Americans largest task in 2014 will be the
integration with US Airways; that includes network
optimisation, crafting a blueprint for migration of technology
platforms and navigating the often thorny task of combining
labour groups. Plans are already under way to rebank the
Miami hub during late 2014 followed by similar changes in
Dallas/Fort Worth and Chicago OHare. These are not small
challenges and with so much in flux at American during
2014, any predictions of the carriers performance are best
shelved until 2015 at the earliest. However, it does appear
that American aims to study lessons learned from previous
mergers in order to avoid pitfalls experienced by other
carriers. The proof always lies in execution, and American in
2014 faces considerable scrutiny as the integration progresses.
Uniteds shareholders are welcoming its declaration that
2013 was the year it left integration challenges behind.
But those investors are also justified in harbouring some
scepticism given the carrier still needs to deliver on USD1.2
billion merger synergies it promised four years ago when it
tabled plans to merge with Continental. There are signs of
positive momentum as United achieved its stated return on
invested capital (ROIC) goal of 10% during 2013.
But challenges in 2014 include a unit cost creep of 1% to
2% and delivering a unit revenue performance that mirrors its
peers. United has improved its passenger unit revenue metrics
relative to its peers after running at a deficit for most of 2012
and some of 2013. American, Delta and United all recorded
FY2013 passenger unit revenue growth of roughly 3%,
which bodes well for Uniteds recent revamp of its revenue
management system.
The one-time US low-cost pioneer Southwest Airlines
expects a 2% to 3% jump in unit costs excluding fuel during
FY2014, which is in line with estimates provided by major
airlines Delta and United. Southwest concludes much of the
cost pressure it faces during 2014 stems from integration with
AirTran, which it expects to complete this year. Notably, the
carriers estimates do not include any projections from new
labour contracts. Southwest is in the midst of negotiations
with all its organised labour groups, and cracks are emerging
in its historical favourable relations, illustrated by the carriers
suspicions of a work slow-down in Jan-2014 by some
employees at Chicago Midway.
On a broader scale Southwest remains outside of any of
the three emerging business models, something the carrier
believes helps to preserve its renegade image. But with a
narrower cost gap versus its legacy peers and fewer amenities
than hybrid carriers, Southwest finds itself at a crossroads
in terms of its evolution. No one is questioning its still-loyal
following, but with the US reaching full-scale maturity,
Southwest needs a sure-fire strategy to sustain its leading
position in the market.
The threat of ULCC entry remains as yields increase
and the majors reduce hub coverage. As consolidation has
reduced competition, established ultra low-cost carrier Spirit
Airlines refocussed its attention back into the domestic
market and a reformulated Frontier Airlines was quick to step
into the hole being left at Cleveland as United vacates its hub
there.
NORTH AMERICA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

350
300
250
200
150
100
50
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
767
E190
737
E175
777
MRJ
787
A320
A330
A350
DHC8
CRJ
NORTH AMERICA MOST POPULAR AIRCRAFT TYPES IN SERVICE

18.7%
35.2%
11.8%
4.9%
11.4%
5.0%
737
CRJ
A320
6.7%
6.2%
757
EMB145
CARAVAN
MD-80
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN NORTH

AMERICA: 2011 TO 2014*
40
30
24.0%
24.9%
26.0%
27.1%
28.5% 28.0% 28.7%
29.7% 30.1% 30.1%30.3%
21.9%
20
19.8%
17.6%
10
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
Spirit Airlines too expects some cost pressure in 2014

driven by new US pilot duty and rest time regulations and
its average 22% growth rate during the next couple of years.
However, its projected 4Q2013 unit costs excluding fuel and
special items were in the USD5.98 cent to USD6.03 cent
range, well below Southwest and all other US carriers.
Spirit also expected 3% unit revenue growth year-on-year
in the quarter, which shows positive demand among its
targeted passenger base of customers that normally can not
afford air travel except for Spirits low fares.
The three US hybrid carriers Alaska, Hawaiian and
JetBlue also enjoyed profitability during 2013. All of
those airlines continued their trend of higher than average
capacity growth during 2013, with Alaska and JetBlue each
recording an approximate 7% year-on-year increase in supply.
Hawaiians roughly 14% jump in capacity was mainly driven
by its long-haul growth largely centered in Asia.
Alaska and JetBlues higher than average capacity growth
did not pressure each carriers profits in 2013. Alaskas net
income jumped 61% to USD508 million while JetBlue
increased 31% to USD168 million. Both carriers also expect
unit costs to rise in FY2014 a 1% rise at Alaska and a 3%
to 5% increase at JetBlue. Alaskas increase appears driven
by one-time items such as IT and marketing spend, while a
rise in pilot wages accounts for a large portion of JetBlues
increase.
JetBlue believes it can achieve a 7% return goal in 2014
after falling short of ROIC targets in 2012 and 2013. While
Alaskas robust balance sheet allows the carrier to discuss
concrete shareholder returns, JetBlue is in the midst of paring
down its debt. JetBlue is a much younger company than
Alaska, but as investors get a whiff of sustained profitability,
their appetite for at least a blueprint of shareholder return is
growing.
The major cloud hanging over Alaska during 2014 is its
diminishing relationship with Delta at Alaskas Seattle hub.
By Sep-2014 Delta will compete with Alaska head-on in
numerous domestic markets from Seattle to feed its long-haul
trans-Pacific flights, and is opting to operate those services
with its own metal rather than tap a long-standing codeshare
with Alaska. Executives at Alaska believe the carrier can
withstand the added competitive pressure from Delta; but
backfilling the annual USD200 million-plus revenue the
Delta codeshare fetches for Alaska is a daunting task for the
carrier.
Hawaiians stated goals for 2014 are maturing the
approximately 10 long-haul markets it has introduced since
2010. Most are to date delivering a negative burden. By
4Q2014 Hawaiian estimates new markets should account for
only 8% of its international capacity deployment, compared
with 30% during 4Q2012. The carrier also expects to drop its
capacity growth to 5% in 2014 versus a 14% hike in supply
during 2013. In the medium term Hawaiian declared it will
generate positive free cash flow during 2016 after taking
delivery of all 22 A330 widebodies it has on order.
Canadas two major airlines, Air Canada and WestJet, also
enter 2014 on reasonably sound footing, which is key as each
carriers new business enterprise Air Canadas long-haul
low-cost carrier Air Canada rouge and WestJets regional
subsidiary Encore log a full year of operations in 2014.
Since Encores launch in mid-2013, WestJet has
announced the new airline has performed better than
expectations, and estimates roughly 50% to 60% of Encores
passengers connect to its mainline services, which should
.5%
THE LARGEST CAPACITY INCREASE FOR 2014,

PLANNED BY THE NEW AMERICAN
ultimately be a positive force for the carriers revenue growth.

WestJet is also warning of cost pressure in 2014, having
revised its full year unit cost guidance upwards to a 1.5% to
2.5% rise versus previous estimates of flat to 1% growth.
Air Canada plans a hefty 9% to 11% rise in its capacity
during 2014, with international growth representing the
bulk of its expanding supply. The carrier is adding six Boeing
787-8s to its mainline operations in 2014, while rouge should
end the year with six 767s. Air Canada is also operating
five higher-density, 458-seat Boeing 777-300ERs this year
to markets featuring a higher level of economy passengers,
including Hong Kong and Paris.
The establishment of rouge and Air Canadas operation
of higher density aircraft are factors cited in the airlines
ambitious goals of slashing its unit costs by 15% in the
medium term.
After a tumultuous previous couple of years, Air Canada
entered 2014 with a strengthening balance sheet and falling
debt levels, which improves its ability to compete with
WestJet, who is feeling out the potential for trans-Atlantic
service with new seasonal narrowbody service from Toronto
to Dublin via St Johns beginning in Jun-2014. If WestJet
turns a favourable performance in its foray into true longhaul markets, rouge faces a formidable competitor on its
lower-yielding trans-Atlantic services.
Mastery was the buzzword of choice for executives at
Hawaiian Airlines as they outlined the carriers goals for
2014. Perhaps that sentiment is appropriate for the North
American market as a whole this year as each of the regions
carriers needs to accomplish pivotal tasks to prove their
respective business models of choice have staying power
throughout the unpredictable rises and falls of a business
cycle.
Airlines operating in North America deserve some credit
for their accomplishments during the last few years to create
a rational airline industry. But it is still too early to declare a
complete and successful turnaround in the North American
market.
For the short term, the main challenge for airlines will be
to master sustainability amid rising costs and a still fragile
demand recovery.
North America
Selected Airlines
DELTA AIR LINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

50
40
1. Delta Air Lines
30
20
10
A320
A330
32
31
20
30
20
29
20
28
20
27
787
20
26
737
20
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
20
14
0
20
Based in Atlanta, Delta Air Lines

merged with Northwest Airlines in Oct2008 to form one of the largest airlines in the world. Operating an extensive
fleet of Boeing and Airbus aircraft, Deltas network includes extensive
domestic services within the United States as well as international services
to Central and South America, the Middle East, Asia, Australia, Africa and
Europe. The airlines main hub is Hartsfield-Jackson Atlanta International
Airport, which ranks among the worlds busiest - largely due to Deltas
dominant presence at the facility. Delta also has hubs in New York, Detroit,
Minneapolis, Memphis and Salt Lake City in the USA and international hubs at
Amsterdam, Tokyo and Paris. Delta is a founding member of SkyTeam.
CRJ
DELTA AIR LINES STAGE LENGTHS
DELTA AIR LINES FLEET SUMMARY AS AT MAY-2014
15k

AIRCRAFT
IN SERVICE
IN STORAGE
12.5k
ON ORDER
57
Airbus A320-200
69
Airbus A321-200
30
Airbus A330-200
11
Airbus A330-300
10
Airbus A330-300E
21
Boeing 717-200
27
Boeing 737-700
10
Boeing 737-800
73
Boeing 737-900ER
20
80
Boeing 747-400
16
Boeing 757-200
96
31
Boeing 757-200(ETOPS)
36
Boeing 757-300
16
Boeing 767-300
15
Boeing 767-300ER
58
Boeing 767-400ER
21
Boeing 777-200ER
Boeing 777-200LR
10
Boeing 787-8
18
SJU - JFK
Boeing/McDonnell Douglas DC-9-51
31
ATL - SJU
Boeing/McDonnell Douglas MD-82
117
Boeing/McDonnell Douglas MD-90-30
65
STI - JFK
ATL - AMS
Bombardier CL-600-2B19(CRJ100LR)
Bombardier CL-600-2B19(CRJ200ER)
Bombardier CL-600-2B19(CRJ200LR)
Bombardier CL-600-2D24(CRJ900ERNG)
17
754
86
155
Total:
Airbus A319-100
10k
7.5k
5k
2.5k
0k
-2.5k
10
15
Flight Time (Hours)
DELTA AIR LINES TOP 10 INTERNATIONAL ROUTES BY SEATS

15,312 seats
AMS - DTW
ATL - CUN
12,666 seats
12,030 seats
MSP - AMS
11,183 seats
11,013 seats
LHR - JFK
9,744 seats
ATL - MEX
9,688 seats
ATL - LHR
9,604 seats
8,320 seats
7,997 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
North America
Selected Airlines
SOUTHWEST AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
50
2. Southwest
Airlines
40
30
20
10
27
26
20
25
20
20
23
24
20
22
20
21
20
20
20
19
20
17
18
20
20
20
16
15
20
20
20
14
737
SOUTHWEST AIRLINES FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
Boeing 737-300
122
11
Boeing 737-500
15
Boeing 737-7
30
398
56
Boeing 737-700
Boeing
737-700(ETOPS)
Boeing 737-8
170
Boeing 737-800
56
47
Total:
591
18
303
SOUTHWEST AIRLINES STAGE LENGTHS

10k
8k
Southwest Airlines is an American low-cost carrier headquartered in

Dallas, Texas. The archetype low-cost airline that inspired the low-cost
movement around the world, Southwest is ranked amongst the largest
airlines in the world as measured by passengers carried. Southwest is one
of the worlds most consistently profitable airlines, adhering closely to its
low-cost tradition but differentiating itself through well-regarded customer
service and free baggage checks. Southwest remains one of the most
influential airlines in the world, with an enormous fleet of Boeing 737NG
aircraft which operate over 3500 services each day to over 70 destinations
across the United States.
6k
4k
2k
0k
-2k
Flight Time (Hours)
SOUTHWEST AIRLINES INTERNATIONAL ROUTES BY SEATS

6,454 seats
SJU - MCO
4,452 seats
SJU - BWI
4,004 seats
SJU - FLL
2,386 seats
SJU - TPA
2,288 seats
SJU - ATL
0k
1k
2k
3k
4k
5k
6k
7k
8k
North America
Selected Airlines
UNITED AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

60
50
3. United Airlines
40
30
20
10
A320
A350
737
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
0
20
Based at Chicago OHare, with secondary hubs in Denver, Houston,

Newark, Cleveland, LAX, San Francisco and Washington Dulles, United Airlines
is one of the worlds largest airlines. Using a large fleet of narrow and
wide-body Airbus and Boeing aircraft, United Airlines operates an extensive
domestic and regional network of services within North America as well as
international services to Central America, South America, Asia, Australia,
Europe and Africa. United Airlines is a founding member of the Star Alliance
and announced a merger with Continental Airlines in May-2010.
787
UNITED AIRLINES STAGE LENGTHS
UNITED AIRLINES FLEET SUMMARY AS AT MAY-2014
12.5k
AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
10k
55
10
Airbus A320-200
97
Airbus A350-1000XWB
35
Boeing 737-500
Boeing 737-700
34
Boeing 737-800
99
Boeing
737-800(ETOPS)
31
Boeing 737-9
100
Boeing 737-700(ETOPS)
Airbus A319-100
7.5k
5k
2.5k
0k
Boeing 737-900
12
Boeing 737-900ER
89
50
Boeing 747-400
24
Boeing 757-200
54
Boeing
757-200(ETOPS)
54
Boeing 757-300
11
Boeing
757-300(ETOPS)
10
Boeing 767-200ER
Boeing 767-300ER
35
Boeing 767-400ER
-2.5k
10
UNITED AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

15,518 seats
IAH - CUN
EWR - LHR
14,878 seats
11,572 seats
IAH - MEX
SFO - NRT
10,472 seats
SFO - FRA
10,472 seats
IAD - LHR
16
GUM - NRT
Boeing
777-200(ETOPS)
19
ORD - FRA
9,044 seats
Boeing 777-200ER
55
IAH - LHR
8,923 seats
Boeing 787-10
20
Boeing 787-8
10
11
Boeing 787-9
24
707
10
258
Total:
15
Flight Time (Hours)
10,052 seats
9,856 seats
ORD - LHR
8,736 seats
0k
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
20k
North America
Selected Airlines
AMERICAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON

ORDER*
80
4. American Airlines
60
40
20
ON ORDER
17
Airbus A321-200
15
67
Airbus A321-200NEO
100
Boeing 737-8
100
Boeing 737-800
233
73
Boeing 757-200
57
23
Boeing
757-200(ETOPS)
29
Boeing 767-200ER
10
Boeing 767-300ER
58
Boeing 777-200ER
47
Boeing 777-300ER
12
Boeing 787-8
12
Boeing 787-9
30
Boeing/McDonnell
Douglas MD-82
89
11
Boeing/McDonnell
Douglas MD-83
71
25
20
24

7k
Embraer E175STD
60
631
50
457
5k
4k
3k
2k
1k
0k
-1k
10
15
Flight Time (Hours)
AMERICAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

14,336 seats
MIA - SJU
LHR - ORD
13,643 seats
13,468 seats
MIA - GRU
JFK - LHR
13,020 seats
12,786 seats
MIA - CUN
DFW - CUN
11,798 seats
11,592 seats
DFW - LHR
DFW - MEX
9,800 seats
9,366 seats
MIA - CCS
MIA - SDQ
9,099 seats
0k
20
23
20
22
20
20
20
20
19
20
18
20
17
20
16
20
21
787
6k
Airbus A319-100
Total:
777
AMERICAN AIRLINES STAGE LENGTHS
IN STORAGE
737
IN SERVICE
15
A320
AMERICAN AIRLINES FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
14
0
20
A subsidiary of AMR Corporation, American Airlines (AA) is based at

Dallas Fort Worth with hubs in Chicago, Miami and New York. AAs extensive
network includes domestic and regional services within North America and
international services to Europe, Asia, Central America and South America.
AA is a founding member of the oneworld alliance. The carrier filed for
bankruptcy protection on 29-Nov-2011. As part of its restructuring plan, the
carrier unveiled a new livery and branding in Jan-2013.
AMR Corporation and US Airways Group announced the completion of their
merger to officially form American Airlines Group on 09-Dec-2013 while AMR
emerged from restructuring with full recovery to American creditors.
2.5k
5k
7.5k
10k
12.5k
15k
17.5k
North America
Selected Airlines
JETBLUE PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

40
5. jetBlue
30
20
10
22
21
20
E190
20
A320
20
20
19
20
18
20
17
20
16
20
15
20
jetBlue is a low-cost carrier based at New York JFK International Airport,

with secondary bases at Boston Logan, Fort Lauderdale-Hollywood, Orlando
International, Washington Dulles and Long Beach airports. Using a fleet of
Airbus A320 and Embraer E-190 aircraft, jetBlue has an extensive network
that serves destinations in the United States, the Caribbean, and Central and
South America.
20
14
JETBLUE STAGE LENGTHS

1750
JETBLUE FLEET SUMMARY AS AT MAY-2014

1500
AIRCRAFT
IN STORAGE
ON ORDER
130
Airbus A320-200NEO
30
Airbus A321-200
47
Airbus A321-200NEO
30
Embraer ERJ190-100IGW(AR)
60
23
Total:
196
133
1250
Airbus A320-200
IN SERVICE
1000
750
500
250
-250
Flight Time (Hours)
JETBLUE TOP 10 INTERNATIONAL ROUTES BY SEATS

JFK - SDQ
10,760 seats
JFK - STI
10,740 seats
10,500 seats
SJU - JFK
SJU - MCO
9,100 seats
7,000 seats
SJU - FLL
SJU - SDQ
6,300 seats
SJU - TPA
5,700 seats
SJU - BOS
5,700 seats
5,600 seats
NAS - FLL
JFK - PUJ
4,760 seats
0k
2k
4k
6k
8k
10k
12k
14k
LATIN AMERICA analysis reports:

Gol presses forward with international expansion as it records losses in 1Q2014
Profitability eludes Brazils Gol for a third consecutive year and a turnaround still looks distant
Avianca Brazil slows domestic growth. Perhaps time to expand into the international market
LATAM Airlines Groups merger pains are aggravated by currency woes across multiple markets
LAN Airlines cuts Chile domestic capacity, as World Cup traffic slump adds another hurdle for LATAM
Aviancas strength in growth markets helps lift its 2013 financial performance
Latin
America
TOP 10 AIRLINES WITHIN LATIN AMERICA
SEATS
Gol
967,336
TAM Airlines
815,604
LAN Airlines
601,120
Avianca
516,916
Azul
444,900
Aeromexico
330,887
COPA
247,272
Aerolineas Argentinas
221,340
Interjet
221,076
10
Volaris
208,704
CAPACITY BY CARRIER TO/FROM/WITHIN LATIN AMERICA

Gol
1,032,024
TAM Airlines
900,964
LAN Airlines
648,699
Avianca
597,082
Azul
519,225
Aeromexico
431,345
American Airlines
385,305
COPA
297,310
Aerolineas Argentinas
255,314
Other
3,182,101
0k
500k
1,000k 1,500k 2,000k 2,500k 3,000k 3,500k 4,000k
LATIN AMERICA TOP 10 AIRPORTS
SEATS
Sao Paulo Guarulhos International Airport
724,512
Mexico City Juarez International Airport
654,682
Bogota El Dorado International Airport
530,363
Sao Paulo Congonhas Airport
442,348
Brasilia International Airport
Lima Jorge Chavez International Airport
335,407
Rio de Janeiro Galeo International Airport
331,650
Santiago International Airport
320,284
Buenos Aires Aeroparque Jorge Newbery Airport
255,972
10
Rio de Janeiro Santos Dumont Airport
254,381
405,113
ITH THE FIRST WAVE OF AIRLINE

CONSOLIDATION COMPLETE, LATIN
AMERICAN aviation enters a new phase in
2014.
As the worlds eyes turned to Brazil and the World Cup,
the majority of Latin Americas airlines believe the year holds
promise as air travel growth within the region has yet to reach
its full potential. Even though Latin Americas two largest
markets began the year on tenuous grounds, Latin Americas
large airlines have built fairly sound business models and
seem prepared to exhibit capacity discipline if market
conditions worsen.
Now that the two major mergers between Star Alliances
Avianca-TACA and LAN-TAM (the latter of which is in
oneworld) have officially closed, the stage is set for Latin
America to exhibit a new equilibrium that should help the
region profitably reach its growth potential.
But Latin American carriers entered 2014 with far from
identical outlooks depending on their respective countriesof
origin. In many cases, externalities, notably economic
conditions, are creating great uncertainty, with Argentina and
Venezuela heading the list of problem countries.
Airlines in the regions largest markets, Brazil and Mexico,
are however hoping for improved economic conditions to
bolster softness in demand created by fiscal uncertainty at
home.
Brazils major airlines were adopting a cautious view of
the FIFA World Cup beginning as currency depreciation,
infrastructure challenges and pricing caps threatened to create
a non-event for carriers.
Mexicos largest carriers also hope for a rebound in the
domestic market during 2014 after slowing economic growth
in 2013 created softness in demand and eroded pricing
traction. After low-cost rival Volaris completed a successful
initial public offering, both VivaAerobus and Interjet made
rumblings of completing IPOs during 2014, but VivaAerobus
at the last minute cancelled its public debut, citing market
volatility.
Colombia shows continued promise during 2014, unlike
Brazil and Mexico, whose slowing domestic air travel growth
reflected the tenuous states of each countrys economy
during 2013. Colombia, in contrast, recorded a 14% jump in
domestic passengers during 2013 to 21.5 million. For the first
two months of 2014, domestic passenger growth in Colombia
was roughly 12%.
Colombia in particular has a changing set of competitive
dynamics in 2014 as upstart low-cost carrier VivaColombia
opens a base in Bogota and enters key trunk routes served by
larger carriers Avianca and LAN Colombia.
At the same time Avianca Holdings (which includes
all of TACAs operations) faces stiffer competition in the
Colombian market. It has reached a steady-state market share
of 15% in Peru and is tempering its growth within Ecuador,
citing softened domestic demand. Artificial barriers erected
by the Argentinian government continue to protect money
losing, state-owned Aerolineas Argentinas, which is opting to
expand in its safe home market and near-international routes.
Brazil, however, remains the regions largest market, still
with enormous upside. But there is pause for breath. Brazils
economy reached a zenith shortly after it campaigned
successfully in 2009 to host this years World Cup and the
2016 summer Olympics. The countrys GDP growth had
soared in 2010 to 7.5%, but by 2012 sagged to 0.9% and
increased to a tepid 2.5% in 2013. As Brazils dimming
economic prospects began to suppress domestic demand, the
LATIN AMERICA FLEET

2500
2,049
2000
1500
1000
623
500
237
0
In service
In storage
On order
LATIN AMERICA BREAKDOWN FOR AIRCRAFT IN SERVICE

7.5%
14.2%
47.5%
14.2%
16.6%
Narrowbody Jet
Widebody Jet
Regional Jet
Turboprop
LATIN AMERICA CAPACITY SEATS SHARE BY ALLIANCE

12.8%
15.4%
45.2%
26.7%
Unaligned
oneworld
Star Alliance
SkyTeam
countrys airlines found themselves in a state of over-supply.

During CY2013 ASKs in Brazils domestic market actually
fell 3% as traffic grew a mere 1.4%, according to regulator
ANAC hardly the stuff that emerging market dreams
are made of. This is in contrast to the 3% capacity growth
in CY2012 and a nearly 7% increase in traffic. Prospects
for Brazil looked more promising at the start of 2014, as
domestic traffic increased 8.7% year-on-year during the first
four months of the year.
Loss making Gol was the first carrier to spring into action
to slash supply in 2012, and continued to decrease its ASK
growth by 6.4% during the first nine months of 2013. While
the carrier still continues to post top-line losses, it has
recently recorded some positive margin improvement and is
stepping up efforts to clean up its balance sheet and improve
its leverage ratios.
TAM initiated its domestic ASK reductions later than
Gol, evidenced by TAMs FY2012 capacity reduction of just
1% compared with 5% for Gol. During 2013 Gols overall
domestic capacity grew 5% while TAM, now part of the
behemoth LATAM Airlines Group, cut Brazilian ASKs by
8%.
TAMs parent, LATAM Airlines Group, has officially
declared its operations within Brazil have rebounded,
evidenced by its 19% improvement in unit revenues in
3Q2013. LATAM is leveraging its scale to eliminate TAMs
currency challenges in the Brazilian market the BRL fell
13% against the USD in 3Q2013 by mid-2014. LATAM
is reducing its BRL exposure by moving TAMs debt and
aircraft obligations to LATAMs balance sheet, which is
denominated in USD.
Gol has no large umbrella parent company to protect it
from the sagging currency; but at the end of 9M2013 Gol
estimated it had hedged 70% of foreign exchange exposure
for the following three months. Additionally, Gol believes it
can begin to improve load factors during 2014 after opting
to trade loads for yields during a large portion of 2013. Gol
CEO Paulo Kakinoff has stressed opportunities are available
to sustain yields while boosting loads as the carrier declares it
is strengthening its focus on corporate customers.
Even as Brazils largest airlines opted to rationalise supply,
the carriers fastest growing airlines continued their rapid
growth. Azul grew its capacity 31% and traffic by 32% in
CY2013 and Avianca Brazil also boosted its supply by 31%
while enjoying traffic growth of 35%.
Azul aims to access the public markets during 2014 after
shelving plans for an IPO in 2013. It is an interesting move
given projected GDP growth for Brazil of just 2.5% this year,
an underwhelming forecast for an emerging market. The
carrier has already outlined a BRL20 million hit (USD8.3
million) from capping its fares during the World Cup, which
doesnt bode well for a market where domestic demand is
languishing. Avinaca Brazil has also publicly declared it
would cap fares during the tournament.
Brazils two largest carriers have yet to commit to fare
limits, presumably because corporate demand could be
crimped during the event as business travellers may eschew
the festivities. Pressure is also mounting on airports in cities
hosting the World Cup to ensure their readiness for the
tournament, but doubts are growing over Brazils ability to
update its infrastructure in time for footballs premier event.
Mexicos airlines are hoping for an economic rebound
to improve their yields. They too face a level of uncertainty
heading into 2014 as the countrys GDP growth rate fell to
under 2% in 2013. Growth in Mexicos domestic air travel
LATIN AMERICA PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER

100
75
50
25
737
777
787
72
A320
A330
20
24
20
23
20
22
20
21
20
20
20
19
E195
SSJ
20
18
20
16
E190
AN158
20
17
20
15
20
14
A350
LATIN AMERICA MOST POPULAR AIRCRAFT TYPES IN SERVICE

23.5%
36.5%
3.2%
3.2%
3.2%
A320
737
E190
20.4%
4.2%
72
5.9%
767
CARAVAN
42
Other
LCC CAPACITY SHARE (% OF TOTAL SEATS) FOR WITHIN LATIN AMERICA:

2011 TO 2014*
50
40
30
28.3%
29.9%
31.8% 31.6%
34.4%33.9%
21.7%
20
17.6%
14.3%
10
5.7%
7.2% 7.8%
9.6%
3.2%
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
JanMay
2014
market slowed to 7% during 2013, versus double-digit 10%

growth in 2012. Weakened demand resulted in soft yields for
the countrys publicly traded airlines Aeromexico and Volaris
during 2013 as each carrier worked to maintain its respective
load factor. Weakness in pricing traction continued into early
2014 as Volaris average fare sank 21% during 1Q2014 and
Aeromexico recorded a 13% decline in yields during the first
three months of 2014.
Some of Aeromexicos softness in yields was deliberate
as the carrier is attempting to bolster loads in the Mexican
domestic market after losing market share to Volaris and
Interjet, and to a lesser degree VivaAerobus, during the last
few years. Those carriers worked furiously to seize on gaps left
by now defunct carriers, most notably Mexicana.
Grupo Aeromexico, which includes Aeromexico Connect,
essentially sustained its leading market share during CY2013,
accounting for 36% of the domestic market compared
with 37% the year prior. Interjet retained its 24% share
year-on-year in 2013 while Volaris grew its share 3ppt to
23%. VivaAerobus kept its share consistent at roughly 12%
from CY2012 to CY2013. For the 12M ending Mar-2014,
Aermexicos share remained at 37% while Interjet and Volaris
maintained their 24% and 23% respective shares. VivAerobus
also maintained its 12% share during that period.
But it appears VivaAerobus has ambitions to increase its
stature in the Mexican market after placing an order for 52
Airbus narrowbodies during late 2013. Some of the aircraft
are pegged to replace its current fleet of 19 older Boeing
737-300 classics, but the higher-density Airbus narrowbodies
12 current generation A320s and 40 A320neos could also
result in VivaAerobus tripling its capacity by 2021 when it
completes deliveries of the new jets.
VivaAerobus, Volaris, Interjet and Aeromexico are basing
their business models in varying degrees on capturing bus
traffic as discretionary income among Mexicos middle class
grows. Mexicos four largest carriers now have approximately
228 aircraft on order, compared with a cumulative total of
281 aircraft for Gol and LATAM Airlines Group.
While Mexicos market shows promise, the immediate
goal for 2014 is building and sustaining demand as the
Mexican economy ended 2013 on shaky ground. And carrier
confidence in a complete rebound during 2014 is tenuous at
best, evidenced by VivaAerobus cancelled IPO.
VivaColombia will take on Avianca and LAN in 2014 with
a new base in Bogota. If conditions in the Mexican market
worsen, VivaAerobus has the flexibility to perhaps transfer
some of its incoming aircraft to sister carrier VivaColombia,
which emerged as Colombias first full-fledged lowcost carrier in 2012. Both carriers are partially owned by
investment firm Irelandia, which is headed by Ryanair
founder Declan Ryan. After operating below the radar during
2013, VivaColombia is now working to establish a base in the
countrys largest market, Bogota, upping competition with
Colombias largest and second-largest carriers Avianca and
LAN Colombia. The airline introduces its first international
route on 1-Aug-2014 when it introduces flights to Panama
City (operating to Panama Pacific International airport) from
Bogota and Medellin.
Mr Ryan has tabled ambitious goals for VivaColombia,
estimating the carrier could operate a fleet of 50 aircraft (it
presently operates five A320 narrowbodies). Conditions in
Colombia might warrant Mr Ryans ambition with 14%
passenger growth in the country in 2013, Colombia seems
ripe for the type of traffic stimulation ushered in by the Viva
groups pure-play low-cost carrier philosophy.
74 %
CHILEAN DOMESTIC MARKET SHARE BELONGING

TO LAN
After operating below the radar during 2013, VivaColombia in 2014 is working to
establish a base in the countrys largest market, Bogota.
Aviancas response to VivaColombias entry into major

Colombian trunk routes should be interesting as Aviancas
market share during 2Q2013 fell to 55% from 60% the year
prior. While Avianca reported in mid-2013 that Colombia
was one of the groups most profitable markets, the company
could experience yield erosion within Colombia in 2014 as it
might find itself matching VivaColombias fares in order to
sustain passenger loyalty.
Avianca also appears to be capping its domestic share in
Peru at 15%. TACA began targeting Perus domestic market
in 2010 and rapidly built up share to its current levels, but it
appears Avianca has no further expansion plans after recently
declaring it would not expand its fleet in Perus capital and
largest market Lima.
The company has also downgraded its hub in San Jose,
Costa Rica (a legacy TACA hub) to a focus city, which
benefits Panamas Copa and US carriers Delta and JetBlue.
In late 2013, Copa emerged as San Joses largest carrier after
adding a ninth daily flight to its strong hub in Panama City.
Copa, with the help of a supportive government, has built
Panama City into a powerful hub that connects to both
strategic Latin American markets and numerous routes in
North America.
After the consolidation shake-out in Latin America that
created Avianca Holdings and LATAM Airlines Holdings,
Copas fate as a stand-alone carrier was called into question.
But with the power of its hub in Panama City and a strong
financial performance it has recorded operating margins
above 17% since 2004 Copa is proving that under the
right conditions independent carriers can still thrive in Latin
America. It plans ASK growth of 10% during 2014 as new
service to Fort Lauderdale, Georgetown and Montreal debuts
in 2014.
Meanwhile, Avianca has also curtailed its growth within
Ecuador after concluding that the elimination of a fuel
subsidy and the opening of a new airport farther away from
Quitos city centre weakened demand within the country.
Aviancas rivals in the domestic Peruvian and Ecuadorean
markets, LAN Peru and LAN Ecuador ,continue their
unabated growth within those markets.
Peru and Ecuador were LATAM Airlines Groups fastest
growing markets in 3Q2013 as ASKs within those regions
increased 18% and 35%, respectively, year-on-year.
Argentinas government continues to hold tight to its
protectionist ideals, ensuring a rocky road for its airlines.
LAN Argentina faces a much different scenario. Its growth in
the domestic market remains hampered by the governments
protection of renationalised flag carrier Aerolineas
Argentinas. The latest affront occurred in 2013 when
Argentinas government attempted to evict LAN Argentina
from its maintenance base, which would have resulted in the
carrier exiting the domestic market.
In response to increasing domestic demand and the
governments constant thwarting of growing competition
within Argentina, Aerolineas, now embraced within
SkyTeam, has ordered 26 Boeing 737-800s. Presently
Aerolineas has 50 aircraft in operation, including Airbus
A330/A340 widebodies and Embraer 190s operated by its
subsidiary Austral.
Even as Aerolineas benefits from favourable protection
from Argentinas government, the carrier has lost roughly
USD2 billion since it was renationalised in 2008, and its
profitability targets have consistently been missed. Although
the airline has made improvements in re-fleeting and grown
both revenues and passengers carried since the government
17%
COPAS OPERATING MARGIN SINCE 2004
Outside the two largest markets,

Brazil and Mexico, a main theme
throughout Latin America has been
the strong growth in the domestic
markets.
14%
DOMESTIC GROWTH FOR 2013 IN CHILE AND COLOMBIA
reassumed control, it is time for Argentinas government

to loosen the tight reins it holds on domestic air travel
and infuse real competition into the marketplace. But the
government has bigger things on its mind as the economy
teeters towards another potential collapse.
In the financial disaster stakes, post-Chavez Venezuela is
causing considerable pain to several airlines among them
Copa and American as tiered devaluation is imposed by
the government. Repatriating funds at well below official
exchange rates is a painful exercise for foreign airlines; Copa
reportedly has USD300-400 million tied up in the country,
while American is USD700 million in the same straits. Like
Argentina, Venezuela is a strong supporter of protectionist
strategies; while these are not necessarily the root of the
problem for airlines, it may be more than coincidence that
the countries share other serious shortcomings. Most airlines
serving Venezuela have significantly cut their operations to
the country beginning in Jul-2014 American Airlines is
cutting its weekly flights from the US to Venezuela from 48
to 10. Copa Airlines in May-2014 began cutting its seats on
offer to Venezuela by 40%.
The outlook for Chile is more upbeat. Chile has been the
fastest growing market in Latin America in recent years,
quietly outperforming much larger Brazil and Mexico, despite
being one of the largest markets in the world lacking LCCs.
Passenger traffic in Chile grew by 8% in 2013 to 16.5 million,
driven by a 14% increase in domestic traffic to 9.5 million as
international traffic grew by only 2% to 7 million.
More rapid domestic growth is expected in 2014 as Chiles
economy remains robust, with expected GDP growth of
about 4%. LAN will again be the main beneficiary as the
carrier has a dominating 74% share of the Chilean domestic
market. LATAM also flew 66% of passengers in Chiles
international market in 2013. Chiles second carrier, Sky
Airline, has been growing rapidly but is still very small,
accounting for only a 22% share of the domestic market and a
5% share of the domestic market in 2013.
As one of Latin Americas last remaining independent
full service carriers, Sky is a potential takeover target for one
of the regions groups, particularly Avianca. But LATAMs
domination of its home market makes it very challenging for
a competing group or new entrant, despite Chiles generally
favourable economic conditions and a stable political
environment.
Outside the two largest markets Brazil and Mexico, a
main theme throughout Latin America has been the strong
growth in the domestic markets. The 14% domestic growth
for 2013 in Chile, where domestic growth was in the 18% to
19% range in 2010 to 2012, was matched in Colombia and
surpassed in Peru. Colombia reported 14% domestic growth
in 2013 to 21.5 million while Peru recorded 15% growth to
8.3 million.
Argentina also had double digit domestic growth in
2013 of 12% to 12.5 million as Aerolineas focused capacity
expansion on the domestic market. Only Colombia had
international growth (14%) that kept up with domestic
growth. Peru reported 11% international growth while Chile
recorded international growth of only 2% and Argentina
experienced a 3% drop in international passenger traffic.
These are encouraging features for the region; not only
is there substantial upside internationally, but the major
domestic markets are showing considerable resilience as
national economies gain scale and maturity.
Latin America
Selected Airlines
GOL PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

20
1. GOL
15
10
Listed on the New York Stock Exchange, GOL Linhas Areas Inteligentes
(Gol) is based in Sao Paulo, Brazil. The LCC has smaller hubs in Sao Paulos
Congonhas International Airport, Rio de Janiero International Airport and
Brasilia International Airport. Gol is a major player in South America, with
over 40% of the Brazilian domestic market. Gol operates a fleet of Boeing
737NG aircraft supporting an extensive domestic network within Brazil
and services to 61 destinations in ten countries across Central and South
America.
IN STORAGE
ON ORDER
Boeing
737-700(ETOPS)
Boeing 737-8
60
100
23
135
83
Total:
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
GOL STAGE LENGTHS

3500
IN SERVICE
30
Boeing 767-200ER
2500
Boeing 737-700
Boeing 737-800
737
3000
GOL FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
20
14
2000
1500
1000
500
-500
Flight Time (Hours)
GOL TOP 10 INTERNATIONAL ROUTES BY SEATS

7,728 seats
GRU - AEP
EZE - GRU
4,416 seats
4,048 seats
CCS - GRU
GRU - MVD
3,680 seats
3,312 seats
EZE - POA
CCS - PUJ
2,944 seats
GRU - COR
2,576 seats
GRU - VVI
2,576 seats
MVD - POA
2,576 seats
EZE - FLN
2,576 seats
0k
1k
2k
3k
4k
5k
6k
7k
8k
9k
10k
Latin America
Selected Airlines
TAM AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

30
25
2. TAM Airlines
20
15
10
Based at Sao Paolo-Guarulhos International Airport, TAM Airlines is listed

on the New York and Sao Paulo Stock Exchanges, and is the national airline
and largest carrier in Brazil. TAM has an estimated 50% of the domestic
market share and 75% of the international market share. Using a fleet
of narrow and wide-body Airbus and Boeing aircraft, TAM operates an
extensive network of domestic and regional services within South America
and international services to North America and Europe. TAM ended its
membership of Star Alliance on 30-Mar-2014, joining oneworld on the
following day.
IN STORAGE
Airbus A319-100
26
91
Airbus A320200NEO
18
Airbus A321-200
12
36
Airbus A330-200
Airbus A340-500
Airbus A350900XWB
27
Boeing 767-300ER
Boeing 777-300ER
10
156
83
22
20
TAM AIRLINES STAGE LENGTHS

2500
1000
500
-500
10
Flight Time (Hours)
TAM AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

11,278 seats
SCL - GRU
MIA - GRU
10,498 seats
7,964 seats
GRU - JFK
GRU - AEP
7,308 seats
EZE - GRU
5,210 seats
GRU - MCO
5,129 seats
GRU - CDG
5,068 seats
GRU - FRA
5,068 seats
GRU - LHR
5,068 seats
GRU - MVD
4,524 seats
0k
21
20
20
20
19
20
20
17
20
16
20
15
18
777
1500
ON ORDER
Airbus A320-200
Total:
A350
IN SERVICE
A320
2000
TAM AIRLINES FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
20
14
2k
4k
6k
8k
10k
12k
14k
Latin America
Selected Airlines
LAN AIRLINES PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

40
3. LAN Airlines
30
20
10
21
20
22
20
787
20
A320
20
19
20
18
17
20
16
15
20
20
Based in Santiago, LAN Airlines is the national airline of Chile. One of the
largest airlines in Latin America, LAN Airlines uses a fleet of Boeing and
Airbus narrow and wide-body aircraft and operates an extensive network
within Central and South America as well as Australia, the Pacific, North
America and Europe. LAN is a prominent player in South American aviation.
It is one of the most consistently profitable airlines in the industry, and has
subsidiaries in Argentina, Peru, Ecuador and a cargo subsidiary. LAN is a
member of the oneworld alliance.
20
20
14
LAN AIRLINES STAGE LENGTHS

1750
1500
LAN AIRLINES FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
IN SERVICE
IN STORAGE
ON ORDER
1000
Airbus A319-100
Airbus A320-200
43
22
Airbus A320200NEO
20
Airbus A321-200
18
Airbus A340-300X
Boeing 767-300ER
31
Boeing 787-8
17
Boeing 787-9
10
87
87
Total:
1250
750
500
250
-250
10
15
Flight Time (Hours)
LAN AIRLINES TOP 10 INTERNATIONAL ROUTES BY SEATS

20,668 seats
SCL - LIM
EZE - SCL
14,800 seats
9,070 seats
EZE - LIM
SCL - AEP
7,056 seats
6,672 seats
SCL - MDZ
SCL - GRU
6,352 seats
LIM - MIA
6,188 seats
LIM - LAX
6,188 seats
5,746 seats
SCL - MIA
SCL - MVD
4,762 seats
0k
5k
10k
15k
20k
25k
Latin America
Selected Airlines
AEROMEXICO PROJECTED DELIVERY DATES FOR AIRCRAFT ON ORDER*

12
10
4. Aeromexico
Wholly-owned by Grupo Financiero Banamex, Aeromexico is based in

Mexico City and operates an extensive regional network within Central and
South America, as well as to Asia, North America and Europe. Aeromexico,
together with subsidiaries Aeromexico Connect (regional division) and
Aeromexico Travel (charter division), are the largest domestic airline in
Mexico and, until Mexicanas apparent demise in Aug-2010, was the secondlargest international airline behind Mexicana. Aeromexico is a founding
member of SkyTeam.
Boeing 737-700
IN STORAGE
0
60
20
Boeing 767-200ER
Boeing 767-300ER
Boeing 777-200ER
Boeing 737-800
Boeing 787-8
Boeing 787-9
60
71
Total:
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
AEROMEXICO STAGE LENGTHS

2500
1500
ON ORDER
26
Boeing 737-8
787
IN SERVICE
737
2000
AEROMEXICO FLEET SUMMARY AS AT MAY-2014

AIRCRAFT
20
20
14
1000
500
-500
10
15
Flight Time (Hours)
AEROMEXICO TOP 10 INTERNATIONAL ROUTES BY SEATS

9,795 seats
MEX - LAX
MEX - JFK
9,674 seats
5,910 seats
MEX - MIA
MEX - ORD
5,790 seats
MEX - LAS
5,640 seats
MEX - IAH
5,610 seats
5,044 seats
MEX - MAD
MEX - LIM
4,596 seats
4,200 seats
LAX - GDL
MEX - EZE
4,058 seats
0k
2k
4k
6k
8k
10k
12k

Yearbook 2014 Final

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WORLD AVIATION

Africa overview..................................................... p67

Middle East overview............................................ p57

Pg 2 | CAPA World Aviation Yearbook 2014

Pg 3 | CAPA World Aviation Yearbook 2014

S 2014 UNFOLDS, THE TALE EMERGES OF

GLOBAL analysis reports:

Pg 4 | CAPA World Aviation Yearbook 2014

The airline industry, perhaps more than any other, is

The external impacts:

BRENT CRUDE PRICES MAR-2004-2014

Pg 5 | CAPA World Aviation Yearbook 2014

Where fuel prices will go this year is

That airlines are having to move

fuel costs. There is nowhere to hide.

Over the past two years we reached

Pg 7 | CAPA World Aviation Yearbook 2014

previously not part of their armoury. And they have had to be

The platform has been laid for this

to court the few available Chinese partners that are available.

Pg 8 | CAPA World Aviation Yearbook 2014

APAS EXTENSIVE COUNTRY RANKINGS

The penetration of air travel is correlated with

Pg 9 | CAPA World Aviation Yearbook 2014

CAPAs databases include data from OAG on seat capacity

AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE)

Increasing wealth has a bigger impact on raising

Other factors also have an impact

The BRIC emerging economies are under-penetrated by air travel

The MINT grouping is more diverse

Moving on from the BRIC countries, the more recently

identified group of MINT countries (Mexico, Indonesia,

AIRLINE SEATS PER CAPITA (VERTICAL AXIS, LOGARITHMIC SCALE)

Pg 11 | CAPA World Aviation Yearbook 2014

Island nations and city states are the outperformers

The more serious under-performers are those countries

Pg 12 | CAPA World Aviation Yearbook 2014

Regional differences: Middle East outperforms;

higher, but they benefit from additional geographical and

Governments do have a large role to play

Pg 13 | CAPA World Aviation Yearbook 2014

SOUTHEAST ASIA analysis reports:

Pg 14 | CAPA World Aviation Yearbook 2014

SOUTHEAST ASIA HAS EMERGED AS ONE OF THE

TOP 10 AIRLINES WITHIN SOUTHEAST ASIA

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

RANKING CARRIER NAME

Cebu Pacific Air

CAPACITY BY CARRIER TO/FROM/WITHIN SOUTHEAST ASIA

Cebu Pacific Air

SOUTHEAST ASIA TOP 10 AIRPORTS

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

RANKING AIRPORT NAME

Jakarta Soekarno-Hatta International Airport

Kuala Lumpur International Airport

Singapore Changi Airport

Manila Ninoy Aquino International Airport

Bangkok Suvarnabhumi International Airport

Bangkok Don Mueang Int'l Airport

Surabaya Juanda Airport

Ho Chi Minh City Tan Son Nhat Airport

Denpasar Bali Ngurah Rai Airport

Hanoi Noi Bai Airport

Pg 15 | CAPA World Aviation Yearbook 2014