Increasing Signs of Recovery in All Markets

Global airline capacity has bounced back this week quicker than an Olympic ski boarder, with airline capacity now at 78.9 million from the previous week's depressing 73.7 million. A 7% increase in capacity week-on-week built upon China going for gold with a staggering 33% increase in scheduled airline seats, but other countries have contributed as well and deserve their podium finishes.

Along with this week’s capacity increases, there is also a return to more normal levels of capacity adjustment in the next three-month period. While some 5.8 million seats have been removed through to the end of April, that is 0.005% of total capacity suggesting increasing confidence in the market as we race through the shortest month of the year. In April 2020 global airline capacity slumped to 153.6 million and this year currently stands at 394.2 million, a comfortable doubling of capacity (+156%) which is a positive message although we are of course still looking at around a 16% shortfall against the April 2019 level.

A new four million increase in weekly airline capacity across North East Asia (well China in truth) represents one of the largest and quickest market recoveries that we have seen throughout the two years of the crisis. The 25% increase in seats places the region at the top of the global table with a 43,000 seat advantage over North America, although the region remains some 20% below its 2019 levels where capacity has returned to 13% below two years earlier.

In any other week, the additional 768,000 seats on offer in Western Europe (+6.4%) or indeed North Africa with a near 13% weekly increase would be claiming many of the headlines but this clearly isn’t a “normal” week. Another positive piece of data this week is that only one of the seventeen geographic regions is reporting a decline in weekly capacity with Southwest Pacific dropping around 36,000 seats this week as various outbreaks and developments in the region have impacted supply. Still, New Zealand finally has a plan that will see full access to the rest of the world by October; so only another eight months waiting then; still at least they now have a plan!

Finally, another real positive development and one that could have gone unnoticed is that one region is now reporting more scheduled capacity than that on offer two years ago, Central/West Africa. The market has been active in recent months with a combination of new airlines and aircraft deliveries adding more and more capacity and although the market is one of the smaller geographic regions covered it does bode well for a wider African recovery in the next few months.

A one-third increase in capacity in any market week-on-week would be an exceptional recovery, when that happens in the second-largest country in the world then China’s latest capacity numbers are exceptional; especially when most of that airline capacity is in the domestic market. What is very clear is that the additional capacity is not being used to fly in spectators to the various winter Olympic venues where load factors look lower than any airline will operate this week. Not surprisingly China is getting ever closer to its capacity “breakeven” point compared to two years ago; and let’s not forget that the market has almost totally flipped to domestic capacity which stands at 15.7 million compared to 14.7 million. For the major Chinese airlines who once operated international networks of some scale and size the key question remains profitability and that will certainly not be in the same region as it used to be however creative the measurements.

The near 15% increase in UK capacity week-on-week is completely overshadowed by the changes in China but the addition of over a quarter million extra seats this week highlights just how quickly a capacity can be added back when virtually all travel restrictions are eased in a market with the 11th February seeing the last remaining testing requirements removed. It also means that there are probably hundreds of thousands of lateral flow testing kits in the UK about to be advertised on eBay! Another celebratory note from the UK market is that this week’s capacity growth is both in percentage and absolute terms slightly ahead of France, something to celebrate perhaps with a glass of Champagne.

And finally, a huge shout out to Colombia where capacity is now a very impressive 17% above the 2019 level and slightly ahead of February 2020. A strong domestic market, increasing low-cost activity, limited travel restrictions and a buoyant economy are all factors; if that growth is sustainable over time is another question.

Although the top four airlines in the world remain unchanged week-on-week there is quite a bit of movement below as airlines in both China and Europe are adding more and more capacity back. China Southern have moved back into the top five with a 45% increase over last week taking the carrier slightly ahead of Ryanair who themselves have added another 7% more seats this week. Other notable capacity increases amongst the Chinese carriers includes Air China (+51%) and Xiamen Airlines (+46%) but even those levels of growth are “easily” beaten by one carrier this week.

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EasyJet have this week added back nearly 420,000 seats, a 52% increase in capacity. Another 120,000 seats on sale in the United Kingdom, 79,000 in France and 42,000 in Italy represents a strong recovery message although of course not all of those seats will be filled this week; but more and more will be as the half-term holiday season picks up. Keeping such a capacity increase in perspective easyJet remain just half the size of Ryanair and as we know in the low-cost market network scale, critical mass and operating costs are the key factors in surviving.

In conclusion, this week looks positive, with plenty of airline capacity being added back taking us above the levels seen earlier this year and perhaps beginning to trend in the right direction. This week is also the week when most airlines can consign 2021 to history with year-end and 4th quarter results being published by many carriers; nothing can change history, but analysts will be looking at how airlines have managed the Omicron variant and most importantly forward booking numbers, especially in the front-end cabins.

Typically, disruptive but equally honest, Michael O’Leary at Ryanair has suggested that for many carriers’ ultra-low fares will become a thing of the past and that escalating cost and limited fuel hedging may create some challenges although of course not for one particular airline! His assessment may be right, they normally are, but with so much capacity coming back and despite all the pent-up demand it is hard to believe that Wizzair, Air Asia, Southwest, GOL and others will not offer some incredible lead in fares and seek to build ancillary revenues further. Airlines are after all just digital retailers.

Next week’s capacity stands at 81.7 million, if we can stay above 80 million then it’s another positive point passed; are we through the worst of Covid-19... only time will tell!

Stay safe everyone.