There is certainly a new regime in the Americas aviation business following a period of consolidation, but will it bring a brighter future for the new entrants and older legacy businesses? Ahead of this year’s Routes Americas, The HUB sat down with Nigel Mayes, the newly appointed SVP Consulting & Product Development at ASM – the World Route Development Consultants, to gain some market insight on the region from Routes’ official consultant. Here is what he had to say:
“At the start of 2014, there appears to be renewed optimism across all the Americas and for very different reasons. In North America the merger of American Airlines and US Airways completes the consolidation of the large full service carriers, the continued consolidation of carriers has reduced capacity, re-aligned schedules and increased network performance of the Majors.
“In Latin America consolidation has also been a theme with the merger of LAN Airlines and TAM (June 2012) to create two dominant carriers, with Avianca being the other, but the Latin American passenger market is also rapidly expanding driven by economic growth within the region. The strength of the Latin American market combined with ever increasing low-cost carrier growth from the North America is driving the recovery in the Caribbean.
“Strong economic growth in Latin America has driven passenger demand to and within the region over the past few years. Economic growth in Latin America is currently 3.6 per cent for the last two years compared to the global average of 2.6 per cent. For 2014 the economic growth projections are set to marginally improve and continue to be above global averages. As incomes rise so will people’s propensity to travel and it is expected that Latin America’s middle class will grow to represent more than half of the population of 2032, a population that is currently 560 million (excluding the Caribbean).
“According to the schedules data, it is expected that the growth in scheduled seat capacity in the region will be 4 per cent comparing June 2014 with June 2013. Of the top 10 country markets in Latin America by seats the three fastest growing markets are Costa Rica (19 per cent), Bolivia (9.8 per cent) and Argentina (9.3 per cent). Brazil has the largest volume growth, but as the largest market by far, is only a 4 per cent growth.
“Looking further forward, the future demand for travel looks set to continue, according to the latest Airbus Global Market Forecast report, Latin American traffic growth in the next 20 years is expected to outperform the world average of 4.7 per cent with an annual growth rate of 5.2 per cent and they predict the Latin American market will require over 2,300 new aircraft in the next 20 years. The key issue for Latin America is whether infrastructure and airport capacity can grow alongside the anticipated growth over the next two decades.
“The North America market is the “Goliath” of the Americas market and is the single largest aviation market in the world, accounting for 25 per cent of the world’s RPKs, compared to Latin America that accounts for 5 per cent. As the American and Canadian economies stabilise and there is an expected increase in GDP for 2014 of 3 per cent and 2.4 per cent respectively which is above the average for the last 10 years.
"It appears the airline industry is also optimistic as scheduled seat capacity for June 2014 compared to June 2013 is 5 per cent up. The airline industry is right to be more optimistic with the American Airlines and US Airways merger approved in December 2013, the consolidation of the full service carrier appears competed and the American full service carriers are in the final phase of the right sizing process.
“Although the merger process has created greater stability, there have been casualties, in the last few years it has been Memphis International Airport, Pittsburgh International Airport and St Louis Lambert Airport and more recently United has announced that it will downsize the Cleveland hub which is not surprising given its proximity to its Chicago hub.
"The question now is will the American – US Merger result in consolidation in Philadelphia and Charlotte hubs? Does the combined carrier really need six American hubs, New York, Chicago and Miami (American Airlines) and Charlotte, Philadelphia and Phoenix (US Airways)?
“Whilst the Full Service Carriers right size, there is a rise in activity from the low cost carriers which is creating new opportunities for destinations both JetBlue and WestJet have increased capacity June 2014 versus June 2013 by 7 per cent and 9 per cent, respectively.
"The low-cost carriers continue to aspire to differentiate themselves creating new hybrid carriers, with Jetblue announcing at the end of last year that they will offer a lay flat bed on transcontinental flights. Other LCCs such as Southwest, Alaska, WestJet, Spirit and Allegiant continue to seek new international markets.
“Although the smallest of the three regions in the Americas accounting for only 2 per cent of the regions capacity, the seat capacity in the Caribbean is set to grow 5.6 per cent working at June 2014 versus June 2013, the highest percentage of the Americas region, albeit from a small base.
"The growth comes after a number of difficult years and is being driven by the low cost carriers increasing their market share in the region. Jetblue continues it expansion in the region, with a 37 per cent increase in seat capacity.
“The full service scheduled carriers have a mixed experience in the region with Delta increasing seat capacity by 45 per cent, but American and United reducing capacity by 12 per cent and 10 per cent respectively. With GOL developing a Caribbean hub in the Dominican Republic at Santo Domingo Las Americas International Airport, the Caribbean is also getting a boost from the economic growth in the Latin American market, GOL has increased its capacity by 35 per cent.
“At the start of 2014 the outlook for the airline industry in the entire Americas appears to be better than it has been in the last 6 years. Economic growth in Latin America is driving capacity growth, in North America consolidation will ensure the recovery is more sustainable in the long-term and the Caribbean is benefiting from the ever ambitious low-cost carriers and the emergence of Latin American as a real source market. Only time will tell if this optimism materialises!"