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Europe aviation: schedules trimmed as darker economic clouds gather

Analysis

After a brief break-out in the week commencing 22-Aug-2022, Europe's capacity recovery as a percentage of 2019 levels is back in the 86%-87% range that it had occupied for the previous 13 weeks.

Moreover, whereas that week witnessed a rare increase in seat capacity scheduled for the rest of 2022, there has been a cut to this outlook of 2ppts or more this week (commencing 29-Aug-2022).

Europe's total seat capacity is at 87.1% this week, which is a shortfall of 12.9% against the equivalent week in 2019. Europe remains fourth in the regional ranking, above Asia Pacific, where capacity is down by 23.9% versus 2019, and the Middle East, where capacity is down by 14.8%.

Capacity projected for Europe in 4Q2022 has been trimmed from 88% to 86%, below the 87% projected for 3Q2022. This comes as COVID-19, and even operational issues, could be giving way to the economy as the main concern surrounding demand for air travel.

Summary

  • Europe has 32.4 million seats this week – down 13% vs 37.2 million in the same week of 2019. Europe is fourth in the regional ranking on this measure.
  • Europe's 1Q2022 capacity was at 74% of 2019 levels and 2Q2022 at 84%. 3Q2022 is projected at 87%, while 4Q2022 has been trimmed from 88% to 86%.
  • 3Q2022 capacity projections should not be trimmed much more, but 4Q2022 may have further to fall.
  • PMI data point to a softening economic outlook. The economy is likely to resume its role as the key demand driver for air travel.

Europe has 32.4 million seats vs 37.2 million this week in 2019, down 13%

In the week commencing 29-Aug-2022, total European seat capacity is scheduled to be 32.4 million, according to OAG schedules and CAPA seat configurations.

This is 12.9% below the 37.2 million seats of the equivalent week of 2019, and a deterioration of 1.5ppts from last week's pandemic-era best of -11.4%.

This puts Europe back into the range between -12.5% and -14.4% that it occupied for 12 weeks from late May-2022 until last week's brief breakthrough.

This week's total seat capacity for Europe is split between 7.9 million domestic seats, versus 8.3 million in the equivalent week of 2019; and 24.5 million international seats, versus 28.9 million.

Europe's domestic seats are down by 5.1% versus 2019, up from last week's pandemic-era best of -2.4%.

International seat capacity is down by 15.1% versus 2019, up from last week's pandemic-era best of -13.9%.

Europe: percentage change in weekly airline seat capacity vs equivalent week of 2019, weeks commencing 06-Jan-2020 to 29-Aug-2022 

 

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

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

With capacity down by 12.9%, Europe is 11.0ppts better than sixth-placed Asia Pacific, where capacity is down by 23.9%, and 1.9ppts above the Middle East, where seat count is down by 14.8%.

Capacity is down by 11.1% in Africa, by 6.9% in North America, and by 1.8% in Latin America.

Once again, Latin America is now closer to 2019 capacity levels than any region has been since before the COVID-19 pandemic.

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

Percentage change in passenger seat capacity vs 2019 by region, week of 30-Mar-2020 to week of 29-Aug-2022

 

Europe's 3Q2022 is projected at 87%...

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 is continuing in 2022 so far.

Capacity for 1Q2022 was 74% of 1Q2019 levels and 2Q2022 was at 84% of 2Q2019 levels.

Projections for 3Q2022 are at 86.7% of 3Q2019 seat numbers – down from last week's 87.5% (week of 22-Aug-2022) thanks to a 2.5% cut in Sep-2022 scheduled capacity.

This reverses last week's unprecedented example in the pandemic era of the current quarter's schedule being increased.

…and 4Q2022 is down from 88% to 86%

Looking ahead to 4Q2022, the projection has been cut to 86.3% from 88.2% in last week's projection, reversing two previous weeks of increases.

Capacity projections for every remaining month of 2022 have been cut by 2.0 to 2.5ppts.

Only Oct-2022, at 89.8%, remains above the 86% to 87% range that Europe capacity has occupied since late May-2022 (excluding last week's brief surge to 88.6%).

3Q2022 capacity projections should not be trimmed much more…

This trimming of capacity scheduled over the rest of 2022 not only reverses the brief increase, but it is also of a significant magnitude.

Since the emergence from the most severe period of the Omicron wave of COVID-19, the regular pattern of capacity trimming tended to be at rates of 1ppt or less from one week to the next.

The pattern of previous quarters during the pandemic suggests that 3Q2022 will not change much from now, two months into the quarter.

…but 4Q2022 may have further to fall

However, capacity for 4Q2022 as a percentage of 2019 levels could have further to fall if the pattern of previous schedules one month before the start of the quarter continues.

The projection for 4Q2022 is now below where the projection for 3Q2022 was one month before that quarter began.

For every quarter from 3Q2020 to 1Q2022, capacity projections one month before the start of the quarter were above the final outcome for the quarter by double digit percentage points.

This gap broadly narrowed with each quarter and fell to 7ppts for 2Q2022. If 3Q2022 remains close to what is currently projected, this gap will be around 4ppts.

If successive quarters continue to narrow the gap, 4Q2022 may be the closest yet to its projection of one month before.

However, it could still fall by a low single digit percentage point from the current projection of 86% to, say, 83%-85%.

Europe: projected seat capacity as a percentage of equivalent quarter of 2019 one month before quarter start and at quarter start, with final outcome (2020-2022)

 

PMI data point to a softening economic outlook

Of course, in real life capacity will not have any regard to these patterns but will be driven by operational and demand factors.

CAPA has previously suggested that COVID-19 itself is no longer having a significant impact on reducing demand. Rather, operational issues relating to labour shortages and other supply chain constraints have held back the capacity recovery in Europe.

In addition, the current cuts to capacity projections for the rest of 2022 come as the economic outlook is weakening.

In a European context, this clouding of the economic horizon can be seen in softening Purchasing Manager Index data.

The S&P Global Flash Eurozone Composite PMI fell from 49.9 in Jul-2022 to 49.2 in Aug-2022. A figure below 50 signals a reduction in business activity, and this was the second successive month of falling activity after 16 months of growth.

The S&P Global/CIPS Flash UK Composite PMI fell from 52.1 in Jul-2022 to 50.9 in Aug-2022. A figure above 50 signals economic expansion and this was the 18th successive month of growing business activity in the UK.

However, this was the lowest figure in that period and only marginally above 50. If the downward trend continues, the UK could soon fall into a contraction of business activity.

The economy is the key demand driver once more

The impact of COVID-19 on demand could reassert itself if further new variants of concern were to emerge and operational issues continued to weigh on Europe's capacity recovery.

Nevertheless, European aviation is set to return to the pre-COVID era, in that economic conditions are once more likely to be the key drivers of demand for air travel.

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