The big three US legacy airlines have published their first-quarter results, and there seems to be a consensus that although the domestic market shows signs of softening, outbound international markets remain strong, with Europe a notable strength.

Ahead of the European airlines reporting their quarter-one results, we've analysed the summer season data to assess whether the transatlantic market is indeed holding up.

Despite the gloom and concern of some, transatlantic capacity from Europe to the United States has increased since the 3rd March, with approx. 33.1 million one-way seats currently planned for the April – October period, up from 32.9 million eight weeks ago. This represents a modest 0.3% increase, and perhaps not quite the expectation of many. Indeed, for most of the major airlines (as the chart below highlights) it’s business as usual, at least from a production perspective.

Among the very largest airlines, capacity changes in the last eight weeks have been minimal - less than 2% either way - suggesting that they are either happy with the capacity they have on sale, or are equally making the best of the current market conditions. And across the whole market, only two carriers deviate notably from this trend; Fly Play, the Icelandic LCC have added 19% more capacity, while La Compagnie have dropped nearly a quarter of their planned operation.

For many airlines the recent sudden and sharp changes in market sentiment means they have to ride out the turbulence. Sudden knee jerk reactions to wide-bodied capacity are rare in the summer season and with flights having been on sale for a long time it is likely that every flight has bookings already paid and ticketed for. Reprojecting those passengers and all the work that would entail is a lot of work, especially when there are few other places with unserved market demand from Europe.

Overall Capacity Unchanged but Airfares Shifting Down

With capacity largely unchanged it’s worth looking at average airfares to see if they have reduced compared to last year, which would indicate a softening in demand - the proposition being that airlines are having to stimulate more demand through lowering fares. In the chart below we have plotted the changes in capacity with changes in economy-class airfares across the twenty largest routes from Europe to the United States.

On three quarters of the routes, average airfares have fallen, with the most notable drop on New York–Rome and Madrid–New York, where fares have fallen by nearly 15%.

A closer look at seven routes with capacity reductions reveals airfares have also fallen, which is not what those airlines would like to see happen: 

• DFW – LON is now purely an American Airlines route since BA dropped their summer services and capacity is down by 12.5% and airfares by 10.1%.
• Similarly, CHI – LON has a 12.8% drop in capacity with average airfares some 5.1% below last summer’s levels.

Of course, there are always exceptions to the rule and in this case the London market appears to remain strong. With minimal changes to capacity average airfares from London to Washington, Miami and Orlando are significantly higher than last year. One possible explanation is that forward bookings to these key summer destinations were already strong as consumers sought to secure cheaper airfares than last year. Buying an airline ticket at any time can be a gamble given the dynamic way in which supply and demand works, on this occasion a few bargains may be around.

Summer Expectations: Solid, If Not Spectacular

Forecasting route profitability or an airlines financial result is at best an estimate and frequently all about intuition. To date there is no alarm from most airlines and those reductions in airfares are all part of the normal pricing and revenue management dynamics that we see every day. While airfare may be slightly down, current fuel prices are also down, standing at -14% against last year’s levels and for many carriers who have not hedged, this helps offset much of that reduction in airfares. My suspicion is that while the Europe – US market may not be quite the stellar performer that it was last year it will still be very good for the airlines and at the same time there may finally be a few bargains out there to be had.