Airline Weekly - August 10, 2015
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Airline Weekly - August 10, 2015

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Cover Story

Devaluation Sensation: Everybody seems to be visiting Japan, and airlines are loving it

Skymark Airlines never made it beyond Japan’s borders. Too bad, because what it would have found is a Japanese international market that’s on fire.

Stricken with grandiose visions while earning strong domestic profits at the start of this decade, Skymark—until a few years ago the country’s only low-cost carrier—ordered giant A380s with eyes on overseas markets like New York and Frankfurt. Before the first A380 ever arrived, a weaker yen and more LCC competition drove Skymark into bankruptcy, eventually opening the door for its legacy rival All Nippon to step in as a savior (see page four).

But Skymark is a domestic story. For All Nippon and Japan Airlines, as well as the country’s upstart LCCs, the bigger story is a giant influx of international travelers flying into Japan. According to Japan Tourism Marketing, arrivals rose an astonishing 46% y/y in the first half of 2015, and an even more incredible 84% from the same period two years ago.

One obvious driver of the influx is yen weakness—Japan is now a much cheaper place to visit for citizens of many countries. On top of that, the cost of a holiday in Japan is getting cheaper because airfares are getting cheaper, all the more so because of government rules that automatically trigger lower fuel surcharges when fuel prices fall.

Eager to jumpstart a long-moribund economy, Japan’s government is doing its part to stimulate inbound tourism with funds for marketing campaigns and the like. All Nippon and Japan Airlines, themselves eager to earn more foreign currency revenues from points abroad, have done their part to promote Japan’s tourism sector too.

The country is also getting help from unfortunate events elsewhere in Asia. Tourists have shunned Korea, a competing destination, for most of this year because of the MERS virus scare. That’s certainly the case for Chinese tourists, who are also avoiding the ASEAN region in the wake of last year’s disappearance of a Malaysia Airlines plane flying to Beijing, filled with mostly Chinese nationals.

It’s indeed China that’s most responsible for the boom in inbound tourism to Japan. All the stars are aligning behind this trend, including the cheap yen, the MERS virus and the Malaysia Airlines incident, yes, but... (385 of 1,541 words)

Also Inside this Issue:

Down under, there stands a lonely figure in a dark place. As all the world’s airlines report profits for the April-to-June quarter, Virgin Australia swims alone in the red, not with giant loss margins—but loss margins nonetheless. Domestic markets are at best a bit above break even for Virgin, while international markets sputter amid competitive and economic headwinds. Once a simple LCC with a simple fleet and a simple network, Virgin Australia is today a hallmark of complexity, to no good avail.

As All Nippon prepares its first flights to Australia, it’s also growing its network to China, pouncing on a market that’s currently booming, as described in this week’s cover story. Not long ago, remember, the Japan-China market was less booming than swooning.

Spain, with its sub-1% GDP growth, isn’t exactly booming—its economy is still smaller than it was before the global financial meltdown that started in 2008, as The Economist noted. But that 1% makes it a star in Europe—and one of several reasons why Iberia is bucking the European trend and playing offense on longhaul. With its labor costs and fuel costs both down sharply, the world is its oyster.

Feeling similarly bullish are airlines in the Philippines, as Philippine Airlines showed with its solid Q2 margins. Not feeling so lucky last week was Delta, which lost the Skymark sweepstakes to All Nippon and reported another month of falling unit revenues. But with the sort of profits it has been reporting, Delta can live with a week of misfortune here and there.

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