In the last few weeks major airlines have been sharing their Q2 results and in most cases they report “record” or “highest ever” levels of profitability and then continue to explain that demand remains strong, but the rest of the year remains uncertain as doubts about a recovery in corporate demand linger.
As always, the devil is in the detail of any quarterly results and the real interest lies in resources, with snippets of comment around delayed aircraft deliveries, new aircraft orders, investment in technology. A common theme in the latest set of results has been productivity, with many airlines CEOs keen to show how productivity has grown through the pandemic recovery. This made us think about what really is happening with airline productivity, and indeed how it is measured.
How Do We Measure Airline Productivity?
We’ve compared the second quarter of 2019 versus 2023 in terms of Available Seat Kilometres (ASK’s), capacity and scheduled flights to look at how airlines have been adjusting their productivity post pandemic. There are some interesting results and of course different ways to interpret the data! Measured purely on ASK production,as the table below highlights, United Airlines are the world’s largest carrier with nearly 121 billion ASKs from April to June, a modest increase of 1.8% over the four year period.
Dropping down into second place are American Airlines, who by virtue of a 5.2% reduction in capacity have lost that pole position, Delta Air Lines are just behind American with an ASK gap of less than half of a percentage point so closer than in previous years. Interestingly across the twenty largest airlines only six have increased their ASK production above Q2 2019 levels with Turkish Airlines leading the six with 29% growth because of both their long-haul expansion, network additions to Central Asia and operation of some larger aircraft on medium range sectors. In second spot from a growth perspective is Ryanair who appear to have recovered faster than others with a 17.6% increase in ASKs. The low-cost sector seems to be pushing forward faster than the legacy segment with three of those six growth carriers operating LCC services.
Measuring ASKs in isolation provides just one interpretation of airline size and as the next table shows, add the number of scheduled flights to the analysis and suddenly Emirates take first position in the table with their combination of A380’s and other wide-bodied aircraft spread across a truly global long-haul network. Both Emirates and second placed Qatar Airways are yet to fully recover their 2019 levels of frequency and therefore report slightly less ASK per scheduled flight, which would indicate that they have not materially adjusted their fleet structures or networks.
Such analysis by ASKs per flight also reveals that both Singapore Airlines and Cathay Pacific are down on ASKs per scheduled flight, but for different reasons. In the case of Singapore Airlines, the carrier operated some 2,580 A380 services in Q2 2019 but only scheduled 1,470 this year, a near 40% adjustment with a resultant impact on ASKs per flight. For Cathay Pacific the issue has been more around frequency of services to key destinations on their network, In Q2 of 2023 the airline scheduled some 1,152 flights between Hong Kong and the United States; in 2019 it was over double that figure at 2,442, a significant difference on ultra-long-haul services.
Combining the ASK data with the number of scheduled flights can also highlight structural changes in an airline’s operation and then the impact on productivity. Air Canada are a case in point having made significant adjustments to their operating fleet during the pandemic and vacated many short-haul domestic markets. The airline has seen a 30% increase in ASK’s while recording a 32% reduction in scheduled flights, proportional in nature and perhaps suggesting that looking at profitability may be a worthwhile piece of analysis.
Fastest Growing Airlines
Analysing purely the largest twenty global airlines can miss out the movers, so we have widened the analysis to look at the top 100 global airlines to spot some of the up-and-coming carriers that have recovered well through the pandemic and also perhaps some of the strugglers that are still getting there.
Again, proving the fact that assessing any airline’s performance requires looking at multiple data points Air Europa would, at least on ASK’s per scheduled flight, appear to have seen the greatest change with their 64% improvement on 2019 performance. In this case a 39% drop in scheduled flights and a 64% improvement can only be achieved by a combination of fewer short-haul flights as the airline has transitioned to more wide-bodied long-haul services.
Perhaps more reflective of how the data can be used are the results for Pegasus Airlines who with a 34% growth in ASKs per flight are both increasing their scheduled flight count and operating longer average sector lengths, thus driving up their ASK production. Similarly, carriers such as Air India and WestJet have been reshaping their networks and some of the results can be seen through the data.
At the other end of the spectrum it is inevitable that there are some airlines that continue to either struggle or are perhaps later in their recoveries, as their core markets were slower to reopen. Interestingly, three of the airlines in the table of slowest recovering airlines below are Chinese based with historically large international networks that have yet to be fully reopened, whilst of course Cathay Pacific are very dependent on the China market. Although flipping international capacity to domestic services in China during the pandemic allowed for more flying, those shorter haul sectors and subsequent impact on ASK’s can be seen in the data.
For Etihad the recent return of the A380 on services to London and a new management team which is seemingly looking for network development should result in improved ASKs per scheduled flight in the second half of the year, although with such capacity increases the impact on RPK’s (Revenue Passenger Kilometers, another potential measurement) will be interesting.
Ultimately, the interpretation of any set of trading results needs careful analysis and access to data forms an important part of that process; as is always the case, there are some data points that look better than others for any set of airlines. And of course, we shouldn’t forget that every trading announcement treads a fine line between commentary, investor/market guidance and boarder market sentiment all of which makes guessing what happens next fraught with danger!