As the summer season reaches its peak over the next few weeks it seems that the pandemic is now a thing of the past and revenge spending appears as strong as it was in the early stages of the travel recovery. 

Global airline capacity will reach 512 million in July compared to the 524 million of July 2019, a mere 12 million gap or 2.3% adrift of pre-pandemic levels. However, that assumes no real market growth would have occurred between 2019 and now - cautiously that could have been in the region of 50 million more seats, but let’s ignore that small point. So, a gap of just 12 million against a backdrop of a changing market, more low-cost capacity share, modal shifts and some relatively small but fast emergent markets in Central Asia leaves me asking what happened to those 12 million seats, where are the gaps and of course are they ever going to be filled?

Finding The Gaps

The first place to look is the major country markets, the top twenty accounted for 75% of global capacity in July 2019 but now account for nearly 86% which would perhaps play to the big always get bigger theory, especially in a recovering market. But it’s not quite that simple. At the very top of the table there is no change with the USA still the largest market in the world followed by China in second place but at some distance back - and remember that we were expecting China to claim top spot about now. Below that India has taken third spot from Japan who are now in fourth, while Spain has snuck above the UK to claim fifth, so some churn occurring. 

Throughout the pandemic we regularly noted that every region and country was having their own event and even today across the major markets (as the table below shows) there are major variances in recovery. In China for instance the mix of capacity changed dramatically during the pandemic with - at times - virtually no international capacity, this month 5% of Chinese capacity will be to international destinations, but at 4.4 million seats it’s just half of pre-pandemic levels although ten times larger than last year; it’s amazing how you can “spin” data!

For both Japan (-11%) and South Korea (-23%) any further recovery remains dependent on the rebuilding of connectivity to China and as noted above that has a very long way to go, so we shouldn’t expect any significant change in their respective recoveries for some time. A secondary factor for both countries remains the closure of Russian airspace to some airlines which adds a considerable amount of time to their journeys and of course cost. India’s rise to third reflects the rapid growth in capacity both domestically and through the expansion of Air India services to the UK, North America, and Australia as they seek to build a credible hub operation in Delhi.

The collapse of airline capacity from Germany (-20%) is based upon a series of factors. Lufthansa’s slower return to operations than many other carriers has put them behind the game and domestic capacity in the country is now only half of that reported in July 2019 as modal switching to train is encouraged where possible. Overlay those structural factors with the continual threat of ATC disruption in the country this summer and Germany is proving to be a harder market to operate in than had previously been the case. 

Looking at capacity by each country provides a degree of insight as to how the summer is shaping up but drilling down a bit deeper provides a clearer picture of where those actual capacity gaps really are. And one market that stands out as still having a long way to recover is China.

When A Fourfold Increase Isn’t Enough!

The surprise and sudden announcement by China of its reopening in January caught everyone off guard but also raised an expectation that international capacity would flood back and indeed it has, but not quite to what we previously saw. 

Since January there has been a four-fold increase in international capacity from China - equating to 4.5 million seats in January – so, a spectacular recovery in any normal context, but China isn’t any normal market as we know!

China’s strong recovery still leaves many country-to-country markets levels significantly below pre-pandemic points as the table below shows. Across all the top twenty country markets from China capacity reductions compared to pre-pandemic levels range from just a 1% shortfall in the case of the UK to a 63% shortfall in France, two neighbouring countries at either end of the spectrum. The UK market at this time of the year traditionally has a high proportion of student/VFR (visiting friends and relatives) demand and has always been majority served by Chinese-domiciled carriers, whereas the French market has a smaller reliance on those student flows.

Political influence also plays a role in the China market recovery and approved destinations and country markets are being reset by the authorities providing some opportunities for soft politics to impact the recovery. That point is perhaps best noted by the absence of the world’s largest market, the USA, not featuring in the table above and in most cases, it would be unusual not to see the world’s two largest country markets appearing in the same table. So, what’s happened?

China – USA Capacity Recovery Stutters

Well in truth it never re-started! Political relations between the US and China were strained even before the pandemic and despite some recent high-profile visits have not thawed. For the US-based airlines, alternate markets such as European expansion have resulted in only the minimum levels of service being operated whilst for the Chinese-based carriers demand remains stubbornly low, partly perhaps because of some eye-watering airfares that are currently on offer. Interestingly the “Big Three” US carriers only now operate to Shanghai, reflecting the commercial demand for the second city in China.

This summer season will see just 266,000 seats on sale each way compared to the 2019 season when 3 million one-way seats were available. Such a large differential in supply between the world’s two largest aviation markets highlights both how much further the recovery must go in some places but just as importantly how much politics can influence aviation. 

So, as you wait patiently in the security queue or watch the satellite pictures to see when the next weather front and subsequent delays are about to affect your holiday, it’s worth reflecting on how strong the recovery has been in the last eighteen months and how demand seems just as strong as ever. But also, just think about those markets where big changes have occurred, because of politics, environmental requirements, or purely demand and realise that we aren’t quite there yet...

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