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Europe aviation recovery slips. Winter schedules may be trimmed

Analysis

Europe's capacity recovery has slipped to its lowest level as a percentage of 2019 levels since mid May-2022. In the week of 31-Oct-2022 seat numbers are at 84.4%, which is a shortfall of 15.6% against the equivalent week in 2019.

Europe remains fifth in the regional ranking, above Asia Pacific, where capacity is down by 27.5% versus 2019. 

Although Europe's seat numbers as a percentage of 2019 levels are at a 26-week low, the capacity recovery remains broadly within its range of more than five months.

However, recent booking data indicates that USD strength has been a contributory factor in damping demand from the eurozone to other markets.

With 4Q2022 capacity currently projected at 90%, schedules may have further to fall.

Summary

  • Europe has 25.1 million seats this week – down 16% vs 29.8 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%. Just over 86% is projected for 4Q2022 and 90% for 1Q2023.
  • Weaker EUR has softened bookings from the eurozone to the US and, to a lesser extent, to other markets.

Europe has 25.1 million seats vs 29.8 million in this week of 2019 – down 16%

In the week commencing 31-Oct-2022 total European seat capacity is scheduled to be 25.1 million, according to OAG schedules and CAPA seat configurations.

This is 15.6% below the 29.8 million seats of the equivalent week of 2019, and a deterioration of 2.3ppts from last week's -13.4%.

This week's performance is the lowest since the week of 9-May-2022, when capacity was down by 16.0% from 2019 levels, and at the bottom end of the range of -16% to -14% that has continued for more than five months. 

This week marks the start of the winter schedule, when capacity is typically lower than in the summer. However, the week-on-week decline in seat count is 11.9%, compared with a 9.5% fall in the equivalent week of 2019.

This week's total seat capacity for Europe is split between 6.2 million domestic seats, versus 7.3 million in the equivalent week of 2019; and 18.9 million international seats, versus 22.5 million in 2019.

Europe's domestic seats are down by 14.7% versus 2019, compared with last week's -10.4%.

International seat capacity is down by 15.9% versus 2019, compared with last week's -14.3%.

Europe: percentage change in weekly airline seat capacity vs equivalent week of 2019, week of 06-Jan-2020 to week of 31-Oct-2022

 

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

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

With capacity down by 15.6%, Europe is 11.8ppts better than sixth placed Asia Pacific, where capacity is down by 27.5%, but 6.8ppts below the Middle East, where seat count is down by 8.8%.

Capacity is down by 3.7% in North America and by 3.0% in Africa.

Latin America's seat numbers are now 2.6% above the equivalent week of 2019 – the best performance by any region during the pandemic era.

All regions apart from Europe have taken upward steps in the trend this week, with Europe the only one to take a downward step.

Percentage change in passenger seat capacity vs 2019 by region, week of 30-Mar-2020 to week of 31-Oct-2022

 

Europe's 4Q2022 capacity is projected at just over 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 86.5% – only slightly down from 86.6% last week but the fourth successive week of minor trimming as the capacity recovery's momentum continues to ebb.

Current schedules for 1Q2023 project capacity in the first quarter of next year stepping up to 90.1% of 1Q2029 seat numbers.

Weaker EUR has softened bookings from the eurozone to the US

As CAPA has noted previously, the flattening of the capacity recovery curve for European airlines is now driven more by economic uncertainties than by the COVID-19 pandemic, while operational constraints also play a part.

Europe's airlines face slower 2023 GDP growth than other regions. Moreover, they face added cost pressures resulting from the strength of USD, given the high proportion of operating costs denominated in the US currency.

See related CAPA report: Europe aviation: it's the economy, not COVID, weighing on the recovery

There is also a revenue headwind for Europe's leading airlines resulting from the strength of USD and the related weakness of EUR and GBP.

A weaker currency makes it more expensive for locals to travel to areas where the currency is strong. This can affect international bookings by travellers in the weaker currency market, only partly mitigated by inbound bookings from the stronger currency region.

Data from Direct Data Solutions and MacroBond, published by IATA, illustrate this point for European airline passenger bookings.

Bookings between the US and the eurozone as percentage of 2019 level (left hand axis) and USD/EUR exchange rate (right hand axis)

 

As at mid Oct-2022, the EUR had fallen by almost 14% against the USD since the start of 2022, and this led to a softening of demand for travel from the eurozone countries to the US.

At the start of 2022 bookings from the eurozone to the US were approximately at 40% of 2019 levels. There was a strong recovery to more than 100% by the middle of Apr-2022, but the weakening of EUR was then accompanied by a fall in bookings from the eurozone to the US to only a little more than 80% in mid Oct-2022.

However, bookings in the other direction – from the US to the eurozone – held up much better from Apr-2022 to Oct-2022. Although bookings in this direction have eased back from their Jun-2022 high of more than 120%, they remained above 100% in mid Oct-2022.

US travellers have benefited from the weaker EUR, whereas European travellers have been put off. The North Atlantic capacity recovery has modestly outpaced the overall European capacity recovery since May-2022.

See related CAPA report: North Atlantic aviation recovery proves to be robust

These bookings data show that the demand recovery has been stronger for US-originating passengers.

…and, to a lesser extent, to other markets

Against other currencies, the EUR has suffered less, falling by just 3% against an inflation-adjusted and trade-weighted basket of currencies of trading partners.

Nevertheless, there has still been some damping of demand, albeit to a lesser extent, for bookings from the eurozone to other markets.

Bookings from the eurozone to the rest of the world* as percentage of 2019 level (left hand axis) and EUR index** (right hand axis)

 

Bookings from the eurozone to the rest of the world (excluding the US and the eurozone) recovered from 40% of 2019 levels at the start of the year to 96% in Apr-2022.

They eased back when EUR fell during the month of Apr-2022, but have stabilised at approximately 76% as at mid Oct-2022.

The above charts and data do not include the UK, which is Europe's largest aviation market. However, given that GBP has been even weaker versus USD, similar effects are likely to have been felt in the UK.

Schedules may have further to fall

The above charts indicate that mid Oct-2022 bookings from the eurozone to the US were little more than 80% of 2019 levels, while bookings from the eurozone to the rest of the world were 76%. Seat capacity was running well ahead of 80% (89% on the North Atlantic and 87% for Europe overall) at that time.

Capacity projections for 4Q2022 have been trimmed very slightly in recent weeks, but they remain above these recent booking levels.

Bookings (which are for all future periods) and capacity projections are not a direct like-for-like comparison, but this suggests that schedules may well be trimmed further.

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