S7 Airlines

S7 Airlines Part 2: history of growth in fleet, pax, revenue & profit shows benign market structure

Part 1 of CAPA's analysis of the S7 Airlines Group examined its network and competitive positioning, particularly with respect to the Russian market leader Aeroflot Group. Away from its Moscow Domodedovo hub, S7 has pockets of strength serving cities in Asia from regional Russian airports.

This second part of the report on S7 highlights its respectable track record of growth in its operations and profitability since the establishment of its subsidiary Globus in 2008. In 8M2016 its passenger growth rate accelerated to 25%, after a 6% increase in 2015. Although demand for international air travel to/from Russia has slumped due to geopolitical developments, S7 has benefited from growth in the domestic market and from capacity cuts by foreign competitors on international routes. It has also benefited from the 2015 collapse of Transaero (although Aeroflot has gained more from this).

Airlines plan Europe summer 2016 seat capacity: growth accelerating due to LCCs and new models

Airline seat growth from Europe is set to accelerate to 8% this summer, up from 6% in summer 2015, according to the latest schedules data from OAG. This will be the highest summer growth rate in six years. With summer 2016 starting in less than three weeks, the data are now fairly solid (although, of course, they are always subject to further change).

Capacity to Africa will fall and Asia Pacific will experience slowing growth from Europe, but every other region will experience an acceleration this summer. Intra-European seats will grow by 8%, with growth led by LCCs (including the low cost subsidiaries of the big legacy groups).The Middle East will continue to have the highest rate of capacity growth from Europe, but there will also be double-digit growth to Latin America and to North America.

This acceleration of capacity growth on the North Atlantic is partly due to the emergence of new competition, but also seems to be the result of incumbents switching capacity from elsewhere. This should perhaps be a source of some concern to the immunised JVs.

SriLankan Airlines raises global profile and expands oneworld presence in South Asia

SriLankan Airlines joined oneworld on 1-May-2014, becoming the first South Asian carrier to become a member of a global alliance. While SriLankan is the second smallest of oneworld’s 15 members, it boosts the alliance’s presence in an important growth market.

SriLankan also caps a period of ambitious expansion for oneworld, which has added four members in a span of only 15 months. The alliance’s total passenger traffic has increased by over 70% since 2011.

For SriLankan, oneworld boosts its profile globally and positions the flag carrier for long-term growth. SriLankan is not pursuing significant expansion – at least for now – and will initially focus on leveraging its oneworld membership to boost its positioning in the increasingly competitive Asian market and improve its profitability.

Aeroflot Group: LCCs in Russia have been notable for their absence. Aeroflot will start one

The Aeroflot Group is the leading airline group in the Russian Federation by some distance. Its airlines have strong market positions at its hubs across the country, which extends from Europe to within a short distance of China, Korea and Japan. The group has been profitable for over twenty years and its passenger traffic is growing at double digit rates.

Its market position has benefited from a government “national champion” policy, through the 2011 acquisition of a number of state-owned regional carriers. Nevertheless, its 2012 profits were diluted by losses in the newly acquired subsidiaries.

In an attempt to address this, its two carriers in Russia’s Far East are to be merged. Moreover, the major European country with the lowest LCC penetration looks as if it may soon have its very own no-frills airline after Aeroflot’s recent announcement that it plans to establish a new LCC subsidiary.