Outlook 2024: Europe back to normal, but yields are softening and economic outlook far from robust

Europe capacity is set to remain c96% of 2019 levels from 3Q2023 to 1Q2024

Based on data from OAG schedules and CAPA - Centre for Aviation seat configurations as of 11-Dec-2023, Europe's total seat capacity for 4Q2023 is scheduled to be at 95.8% of its 4Q2019 level.

This is virtually unchanged from the figure of 95.7% reached in 3Q2023, and only modestly higher than 2Q2023's 94.0%.

However, the outlook for 4Q2023 has been trimmed from 96.6% just before the start of the quarter, in late Sep-2023.

Capacity as a percentage of the equivalent quarter of 2019 will have improved by 9.9ppts between 4Q2022 (when it was at 85.9%) and 4Q2023. This compares with a 15.3ppt gain between 4Q2021 and 4Q2022.

The outlook for 1Q2024 is for the capacity recovery to improve only slightly, to reach 96.4%.

Intercontinental markets are leading the capacity recovery…

Whereas the intercontinental capacity recovery lagged that of intra-Europe until the end of 2022, it very faintly moved ahead in the first three quarters of 2023.

Nevertheless, intercontinental markets are more clearly outpacing intra-Europe in 4Q2023, with capacity at 97.2% of 2019 levels, compared with 95.3% for intra-Europe.

The outlook for 1Q2024 is for the intercontinental capacity to move further ahead, reaching 101.6% compared with a modest reduction to 94.4% for intra-Europe.

This reflects a reduction in short haul business traffic and a growing trend of government policy and regulation in favour of substituting short haul air travel with rail.

Europe: quarterly seat capacity as a percentage of the equivalent period of 2019, 1Q2020 to 1Q2024*

*Includes projected data as at 11-Dec-2023.
Source: CAPA - Centre for Aviation and OAG.

…with only Europe-Asia Pacific still below 100% in 1Q2024

All intercontinental markets to/from Europe, apart from Asia Pacific, are scheduled to be ahead of their 1Q2019 capacity in 1Q2024.

At the top of the recovery ranking from Europe in 1Q2024 is Europe-Africa, projected at 124.6% - up from 121.5% in 4Q2023.

North Atlantic seat capacity is projected at 104.3% in 1Q2024 (more or less unchanged from 4Q2023).

Europe-Latin America is projected at 103.9%, an improvement from 99.2% in 4Q2023. Europe-Middle East is scheduled to reach 101.7% - up from 90.4% in 4Q2023.

Europe-Asia Pacific continues to lag other markets, projected at 89.9% in 1Q2024. This is up from 85.9% in 4Q2023, and the gap to other markets to/from Europe has narrowed considerably over the past four quarters.

Europe to main world regions: quarterly seat capacity as a percentage of the equivalent period of 2019, 1Q2020 to 1Q2024*

*Includes projected data as at 11-Dec-2023.
Source: CAPA - Centre for Aviation and OAG.

Europe's top 10 groups have recovered more rapidly than the wider market, mainly led by LCCs

Europe's top 10 airline groups by seats have modestly outperformed the capacity recovery of the wider European market, as consolidation forces have favoured some of the larger groups.

In aggregate, the top 10 are scheduled to be at 98.7% of 2019 capacity in 4Q2023 (versus Europe at 95.8%) and at 99.9% in 1Q2024 (Europe 96.4%).

Within the top 10 groups, LCCs are collectively outpacing legacy airline groups.

The four independent LCC groups in the top 10 are jointly projected at 116.8% in 4Q20223 and 123.1% in 1Q2024. The six legacy groups are scheduled to be at 89.7% in 4Q2023 and 89.2% in 1Q2024.

Europe's top 10 airline groups: aggregate quarterly seat capacity as a percentage of the equivalent period of 2019, 1Q2020 to 1Q2024*

*Includes projected data as at 11-Dec-2023.
Source: CAPA - Centre for Aviation and OAG.

Wizz Air is leading the recovery as a percentage of 2019 capacity

Among the four LCCs, only easyJet is not yet back above its 2019 capacity levels (it is projected at 95.9% in 4Q2023 and 90.7% in 1Q2024).

Leading the recovery in terms of capacity as a percentage of 2019 levels is Wizz Air Group, currently scheduled to reach 201.4% in 1Q2024.

Due to supply chain issues concerning engines, not yet fully reflected in OAG schedules data, short term aircraft groundings will reduce this to somewhere in the region of 180% (source: CAPA - Centre for Aviation calculations based on Wizz Air outlook given on 9-Nov-2023).

Nevertheless, this is still comfortably ahead of all other top 10 groups and higher than Ryanair's projected 125.6% and Pegasus' 119.3% in 1Q2024.

Among the legacy airline groups, only Turkish Airlines is scheduled to be above 2019 capacity levels both in 4Q2023 and 1Q2024 (111.3% and 119.3% respectively).

IAG is scheduled to reach 101.7% in 1Q2024, but is at 97.6% in 4Q2023.

Air France-KLM is projected at 94.7%, and Lufthansa Group at only 81.4% in 1Q2024.

SAS Group is set to be at only 71.8%, and Aeroflot Group at just 54.6% in 1Q2024.

Europe's top 10 airline groups: quarterly seat capacity as a percentage of the equivalent period of 2019, 1Q2020 to 1Q2024*

Note: "Wizz Air revised" is based on Wizz Air outlook 9-Nov-2023, not yet reflected in OAG schedules.
*Includes projected data as at 11-Dec-2023.
Source: CAPA - Centre for Aviation and OAG.

Europe's airlines are forecast to be above 2019 capacity in 2024, but supply chain challenges remain

IATA expects European airlines to exceed 2019 capacity in 2024 as a whole in ASK terms, reaching 107%. It also expects RPKs to recover to above 2019 levels, reaching 105%.

Aside from geopolitical uncertainties, the key challenges for Europe's airlines remain in the supply chain. Specifically, issues connected with the supply of aircraft, engines, parts and labour are likely to persist well into 2024.

These issues have contributed in no small measure to Europe's underperformance in the capacity recovery towards pre-pandemic levels compared with other regions.

Only Asia Pacific's capacity is at lower percentages of 2019 levels moving into 2024, while all other regions are at or above 100%.

Air travel price inflation is easing

Even with capacity and traffic below 2019 levels, most of Europe's airlines have enjoyed a strong revenue recovery to higher than their turnover of four years ago, thanks to strong yields. Indeed, capacity constraints have contributed to the strength of yields.

According to data from Eurostat, the price of passenger air transport in the EU was 36% higher in Oct-2023 than in Oct-2019. In the UK, the increase was 56% over the same time frame, based on data from the Office of National Statistics.

This is an indicator of the importance attached to flying by European consumers, many of whom have prioritised overseas holidays, even as the wider economic backdrop has been more challenging.

Nevertheless, the pace of air fare inflation has slowed markedly into the later stages of 2023 - it was 4.5% year-on-year in the EU and 7.9% in the UK in Oct-2023 (at the time of writing, the most recent month available), after spending much of the past two years in double digit territory.

This slowing of price increases for air travel reflects an easing back of fuel prices from their peak and may also signal that demand is losing some of its buoyancy.

The outlook for economic growth remains below trend

Although most economic forecasters expect GDP growth in 2024 to be higher than in 2023, most also agree that it will be below long term trend rates. The overhang of pent-up demand during the pandemic has helped to boost demand in 2022 and 2023, in spite of slowing GDP growth.

However, at some point the long held relationship between economic growth and air traffic growth must surely resume.

Nevertheless, it seems fairly likely that the outperformance by Europe's leading low cost airlines in capacity and traffic growth is set to continue in 2024 - particularly for Ryanair, Pegasus and, in spite of its aircraft/engine supply chain challenges, for Wizz Air.