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Europe aviation: capacity recovery dips amid healthy bookings & yields

Analysis

Europe's capacity recovery has again slipped as a percentage of 2019 levels.

In the week of 7-Nov-2022 seat numbers are at 83.8%, which is a shortfall of 16.2% against the equivalent week in 2019. This is the lowest level for this measure since Apr-2022.

Europe remains fifth in the regional ranking, above only Asia Pacific, where capacity is down by 27.4% versus 2019. Other regions are down by a single digit percentage, whereas Latin America capacity is up by 2.0% compared with the equivalent week of 2019.

European airline load factor narrowed the gap to 2019 levels in Sep-2022, after two months of the gap widening.

Moreover, leading European airline groups have all pointed to a winter outlook of robust forward bookings and yields. It seems that tighter capacity is benefitting Europe's airlines.

Summary

  • Europe has 24.0 million seats this week, down 16% vs 28.6 million in the same week of 2019. Europe is fifth in the regional ranking on this measure.
  • Europe's 1Q2022 capacity was at 74% of 2019 levels, 2Q2022 at 84% and 3Q2022 at 87%; at this stage 86% is projected for 4Q2022 and 90% for 1Q2023.
  • There may be some further trimming of winter schedules, but leading European airlines talk of strong forward bookings and yields.
  • European airline load factor narrowed the gap to 2019 levels in Sep-2022, after two months of the gap widening.

Europe has 24.0 million seats vs 28.6 million this week in 2019 – down 16%

In the week commencing 7-Nov-2022 total European seat capacity is scheduled to be 24.0 million, according to OAG schedules and CAPA seat configurations.

This is 16.2% below the 28.6 million seats of the equivalent week of 2019 – a deterioration of 0.6ppts from last week's -15.6% (week of 31-Oct-2022) and 2.8ppts below the level of two weeks ago (week of 24-Oct-2022).

This week's performance is the first time that capacity has fallen below the range of -16% to -14% since the week of 25-Apr-2022, when capacity was down by 18.4% from 2019 levels.

This week's total seat capacity for Europe is split between 6.1 million domestic seats, versus 7.4 million in the equivalent week of 2019; and 17.9 million international seats, versus 21.3 million.

Europe's domestic seats are down by 17.3% versus 2019, compared with last week's -14.7%.

International seat capacity is down by 15.9% versus 2019, the same as last week's performance.

Europe: percentage change in weekly airline seat capacity vs equivalent week of 2019, weeks of 06-Jan-2020 to 07-Nov-2022 

 

Europe remains fifth in the regional ranking by capacity as percentage of 2019's

Europe stays in fifth place in the ranking of regions measured by seats as a percentage of 2019 levels this week.

With capacity down by 16.2%, Europe is 11.2ppts better than sixth placed Asia Pacific, where capacity is down by 27.4%, but 7.3ppts below the Middle East, where seat count is down by 8.9%.

Capacity is down by 5.3% in North America and by 4.4% in Africa.

Latin America's seat numbers are 2.0% above the equivalent week of 2019 – the third time in the past four weeks that it has been above 2019 levels.

North America, Africa, Latin America and Europe have taken downward steps in the trend this week, while Asia Pacific and Middle East are broadly flat on last week.

Percentage change in passenger seat capacity vs 2019 by region, week of 30-Mar-2020 to week of 7-Nov-2022

 

Europe's 4Q2022 capacity is projected at 86% of 2019 levels and 1Q2023 at 90%

According to data from OAG and CAPA, Europe's capacity as a percentage of 2019 levels improved with each successive quarter of 2021.

It was 27% in 1Q2021, 34% in 2Q2021, 64% in 3Q2021 and 71% in 4Q2021.

The improvement has continued in 2022 so far, albeit at a slowing rate. Capacity for 1Q2022 was 74% of 1Q2019 levels, 2Q2022 was at 84%, and 3Q2022 was at 87%.

Looking at 4Q2022, the projection is 86.3%, which is only slightly down from 86.5% last week, but the fifth successive week of minor trimming.

Current schedules for 1Q2023 project capacity in the first quarter of 2023 stepping up to 90.2% of 1Q2019 seat numbers (this has risen slightly from 90.1% last week and 89.5% two weeks ago).

There may be some further trimming of winter schedules…

Previous CAPA analysis has suggested that European winter schedules may still have further to fall. 

The pace of schedule trimming over recent weeks has been modest, but there has nevertheless been trimming. Capacity plans for 4Q2022 were as high as 87.8% of 4Q2019 as recently as mid Sep-2022, since when they have eased back to the current outlook of 86.3%.

With the final quarter of 2022 now approaching its half way point, the final outcome is unlikely to change very significantly, but the momentum remains downwards.

There has been some evidence of capacity levels running ahead of bookings into Oct-2022, and this could lead to further trimming of schedules if this trend continued.

See related CAPA report: Europe aviation recovery slips. Winter schedules may be trimmed

…but leading European airlines talk of strong forward bookings and yields

However, in their results statements for calendar 3Q2022 the leading European airline groups sounded a little more positive about the outlook for the winter schedule (which runs through to the end of 1Q2023).

The three large legacy groups – IAG, Air France-KLM and Lufthansa Group – and the two leading ultra-LCCs – Ryanair and Wizz Air – all reported very healthy unit revenue for 3Q2022 and strong forward bookings for the winter schedule.

This is evidence of the strength of pent-up demand after the COVID-19 pandemic period, with yields and load factors benefitting from constrained capacity.

Although easyJet has not yet reported results for calendar 3Q2022, it has said that its outlook includes booked load factors ahead of 2019 levels and robust yields.

European airline load factor narrowed the gap to 2019 levels in Sep-2022

Traffic figures from IATA for Sep-2022 (the most recent month for which data are available across the industry) show that European airline load factor narrowed the gap to 2019 levels after widening in Jul-2022 and Aug-2022.

European airlines' load factor reached 84.7% in Sep-2022.

This was 1.9ppts below the Sep-2019 level, the second narrowest gap to the equivalent month of 2019 during the pandemic era, after a 1.5ppt gap in Jun-2022. The gap to 2019 load factors had narrowed from 10.0ppts in March to 5.7ppts in April, 3.0ppts in May and 1.5ppts in Jun-2022.

However, it widened to 2.1ppts in Jul-2022, and now 2.9ppts in Aug-2022, before narrowing again in Sep-2022.

European airlines: monthly passenger load factor (percentage), 2019 to 2022

 

Tighter capacity has benefitted Europe's airlines

The tighter capacity environment – brought about by constraints on recruitment and aircraft supply chains – that currently characterises the European airline industry has benefitted load factor and yield.

There are some concerns about the macroeconomic outlook, which could start to erode demand levels (although the low cost airlines may benefit from trading-down by travellers), although Europe's airlines have not yet talked of this happening.

Either way, although the return to 100% of 2019 capacity levels will be seen as a sign of full recovery from the COVID-19 pandemic, the benefits of capacity discipline are clear.

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