In a normal year, this is when airlines bank as much cash as possible storing every possible penny away for the winter season; aviation has always been seasonal, and capacity moves from market to market as temperatures rise and drop. One of the most lucrative markets is the Transatlantic and this year full access to that market is more vital than ever, otherwise why would all the major legacy airline CEOs gather to lobby politicians.
Following last week’s lack of activity, airlines have been adding capacity back over the last seven days as the weird and wonderful world of commercial aviation continues its slow recovery. In a week when Qantas can offer pleasure flights to the moon but cannot cross more than the New Zealand border and where Wizz Air realised that competing in some domestic markets is not worth the hassle, global capacity grew by some 6.4% week-on-week.
Over 1,400 new air routes have been scheduled to operate in 2021, the highest for a number of years, undoubtedly reflecting both the current uncertainty and a desire from some airlines to use this period to experiment with their networks. Amongst all of the bad news and route losses, airlines’ appetite to experiment has to offer a glimmer of hope for regional airports, who most typically benefit from this type of airline network experimentation.
Although global capacity remains broadly flat week-on-week with some 62.1 million seats scheduled, a slight decline on last week it has been a busy week in terms of market sentiment and expectations for the Summer Season. Whilst the US domestic market continues to grow, and passenger throughput as measured by the US TSA hovers around 65% of 2019 levels the rest of the world seems to be struggling once again.
A collective whip around amongst European-based airlines has raised the cash to buy a new set of light bulbs and the UK Government has finally run out of excuses; this week they will announce the easing of travel restrictions from the UK, or at least they should be.
Domestic airline capacity, and TSA volumes, a proxy for flight demand have increased significantly in the last few months and forward-looking airline capacity data is extremely positive; exciting times (at last) but what can we read in the schedules data and looking forward what is all of this likely to mean in the coming years. We’ve had a look at some key data points. In January 2020, surrounded by uncertainty, limited confidence in vaccine roll out programmes and Covid-19 infection rates, US airlines were naturally cautious but equally thinking positively about the first half of the year. In truth, the first quarter of 2021 was a damp squib, the second quarter looks a bit soft but better than Q1 with increasing confidence about the second half of the year.
The headline numbers suggest that global airline capacity has seen a slight recovery back to 61.9 million seats this week, a 1.2% increase. However, as the weekly airline capacity was being finalized further significant capacity cuts were yet to be supplied by many of the major Indian airlines and Fiji was about to enter a lockdown; the Fiji numbers are minor but India normally accounts for around 2.6 million seats so in truth global airline capacity is probably down week on week. Hopes for that airline capacity bounce we are all hoping for and subsequent release of pent-up demand remain some way off.
Another one million additional seats added back week-on-week, carry on at this rate and capacity will be back to pre-pandemic levels by this time next year; if only it was that simple. Whilst the recent pattern of capacity growth is positive, new spikes of COVID in Eastern Europe and particularly Lower South America continue to cause concern whilst Japan’s airlines have announced capacity cuts of over 30% for April across their domestic networks.
Optimism continues to build in the recovery with weekly capacity increasing once again week-on-week with some 57.9 million seats or nearly 58 million planned over the next seven days as the Summer Season is now only two weeks away. It may only be a 1.4% increase on last week’s capacity and we remain at 54% of pre COVID capacity levels but a steady climb in the right direction appears underway. In March some 19,502 unique airport pairs will be operated by the 407,500 scheduled flights delivering an average frequency of 25 flights per route; it’s amazing what trivia numbers can produce!
It was only ever likely to be for a week, but China has snatched back the title of the world’s largest aviation market from the United States with a stellar 32% increase in capacity week on week and a more modest 4% growth in the last two weeks. Total weekly capacity is now back at 52.6 million although that only takes us to just above half the capacity levels reported before Covid-19.
Wow, where did that come from! A near 27% reduction in capacity and the loss of over 3.2 million domestic seats in one week has handed the United States the title as the world’s largest aviation market something no one probably expected. It may be a short-lived gift from China as part of their New Year festivities but nevertheless a dramatic turnaround in just seven days.
Often referred to as the world’s largest mass migration, Chunyun, or the Spring Festival, can see as many as 3 billion trips being made in a more normal year. Coinciding with student breaks, and benefitting from a week of public holidays, vast numbers of students are joined by migrant workers and others returning home to spend time with their family. In more recent years, the Spring Festival is also a time when many have chosen to go on vacation, or return from overseas, causing a spike in both domestic and international air travel.
The Tokyo Olympics didn’t happen in 2020 and now the question is will they happen in 2021. Obviously, the primary concern for the organisers is the risk of spreading covid-19, but to what extent does the event also rely on the world of global aviation being at least partially recovered.
Fifty-two weeks ago, we wrote a short blog highlighting some of the regional capacity changes in Asia as a result of a small, localised outbreak of a new virus. At the time we thought that there could be some impact on global aviation, perhaps like a SARS or Ebola time impact. We were so wrong! A year later and we are reporting on what has become the single most destructive event in aviation history; it has to end soon, surely?
The flattest seasonal holiday season has been reflected in the latest global capacity which has broadly remained around sixty million seats a week since the middle of December. The early Christmas present of breaking that sixty million, was just that, a present and this week’s 59.6 million is perhaps likely to be as good as we can expect in the next few weeks.
It’s hard to believe that Beijing’s newest airport has been open for a year already. And what a year it has been for the industry – certainly not one that any airport would have wished for in it’s inaugural year. We know however that China’s domestic air market has recovered from the COVID crisis, at least in terms of capacity – and in the month of November, domestic capacity was 10% above November 2019 levels.
Since the week commencing the 5th October the US market has reflected a very different trend pattern to the rest of the world as the chart below highlights. Whilst the rest of the world has seen a steady decline in capacity and is now 9 points lower than at the beginning of September, the United States has seen a thirteen-point improvement; a twenty-two-point swing to use pollster terminology.
If you have over 100 aircraft scheduled for delivery in 2020/21 and a further 106 that are currently inactive then you have plenty of capacity. But where do you operate those aircraft? Southwest seems to have found part of the solution with their recent announcement of entering the Chicago O’Hare (ORD) and Houston Intercontinental (IAH) markets from early next year.
Traditionally the next week is one of the most impressive displays of the success of the airline industry, the Big Three US carriers announce their third quarter earnings which cover the July to September period; the peak months of travel in many markets. Last year United Airlines reported net income of US$1.0 Billion, Delta Air Lines adjusted revenues of US$12.6 Billion and American Airlines paid some US$44 million in dividends in the quarter.