Europe's aviation capacity recovery to go into reverse in 4Q2022

Summary

• Europe has 32.1 million seats this week, down 13% vs 36.9 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 was at 84%.
• Europe's 3Q2022 is projected at 87%, while 4Q2022 has been trimmed from 86% to 85%.
• Economic conditions may be weakening, but the slowdown is unusual in being "job-rich" in many countries.
• Low unemployment is good news, but a tight labour market has limited Europe's airlines operationally.

Europe has 32.1 million seats vs 36.9 million this week in 2019, down 13%

In the week commencing 5-Sep-2022, total European seat capacity is scheduled to be 32.1 million, according to OAG schedules and CAPA seat configurations.

This is 13.2% below the 36.9 million seats of the equivalent week of 2019, and a deterioration of 0.3ppts from last week's -12.9% (week of 29-Aug-2022).

This keeps Europe in the range -12.5% to -14.4% that it has occupied since late May-2022, with the brief exception of two weeks ago (week commencing 22-Aug-2022), when it reached -11.4%.

This week's total seat capacity for Europe is split between 7.9 million domestic seats, versus 8.4 million in the equivalent week of 2019; and 24.2 million international seats, versus 28.5 million.

Europe's domestic seats are down by 6.6% versus 2019, compared with last week's -5.1%.

International seat capacity is down by 15.1% versus 2019 - unchanged from last week.

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

Source: CAPA - Centre for Aviation, OAG.

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 13.2%, Europe is 14.1ppts better than sixth-placed Asia Pacific, where capacity is down by 27.3%, and just 0.1ppts above the Middle East, where seat count is down by 13.3%.

Capacity is down by 10.5% in Africa, by 6.6% in North America, and by 4.7% in Latin America.

Middle East and Africa have taken upward steps in the trend this week, whereas Asia Pacific and Latin America have taken downward steps.

Europe and North America are broadly level on last week (29-Aug-2022).

Percentage change in passenger seat capacity vs 2019 by region, week of 30-Mar-2020 to week of 5-Sep-2022

Source: CAPA - Centre for Aviation, OAG.

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 86.9% of 3Q2019 seat numbers - very slightly up from last week's 86.9%, thanks to a 0.8% increase in Sep-2022 scheduled capacity.

…and 4Q2022 is trimmed from 86% to 85%

Looking ahead to 4Q2022, the projection has been cut to 85.3% from 86.3% last week, reversing two previous weeks of increases.

Only Oct-2022, at 88.9%, remains above the 86% to 87% range that Europe capacity has occupied almost every week since late May-2022 (excluding the brief surge to 88.6% two weeks ago).

Economic conditions may be weakening…

In last week's analysis of Europe's capacity recovery - Europe aviation: schedules trimmed as darker economic clouds gather - CAPA highlighted the gathering clouds of economic uncertainty, as signalled by softening Purchasing Manager Indices in the Eurozone and the UK.

Weak economic growth, or outright recession, typically means weaker demand for air travel.

…but the slowdown is "job-rich"

However, IATA has recently highlighted that many countries are experiencing a "job-rich" economic slowdown. This relatively unusual set of circumstances is characterised by low unemployment rates and high levels of job vacancies.

Unemployment rates fell in 26 out of 37 selected OECD countries between Feb-2022 and Apr-2022.

The countries with falling unemployment included 21 European nations, among which were all five of Western Europe's big nations (Germany, UK, France, Italy and Spain) and the Nordic countries (Denmark, Sweden, Norway, Iceland and Finland), and Turkey.

OECD average unemployment was 4.9% in Jun-2022, the lowest since 2001, and Germany's rate of 2.8% was the lowest in its history.

The early phase of the COVID-19 pandemic led to a significant drop in vacancies as jobs were lost and/or furloughed. However, the ratio of vacancies to unemployed people has recovered to exceed its pre-pandemic level in many countries, including the UK, Germany, Portugal, Austria, Switzerland and Sweden.

Vacancy/unemployment ratio*: seasonally adjusted, Jan-2020 to Jul-2022, Jan-2020=1

*Vacancies available per unemployed population.
Source: OECD Stat via IATA Economics.

Low unemployment is good news…

IATA states that more people working and earning is "unambiguously good news" for both the global economy and the air transport sector.

Indeed, low levels of unemployment should help to mitigate the negative impact of any continued economic weakness.

…but a tight labour market has limited Europe's airlines operationally

However, the tight labour market has been a contributory factor in limiting airlines' ability to fulfil originally planned schedules this summer.

In late Apr-2022, capacity for 3Q2022 (the peak summer quarter in Europe) was scheduled to be 92% of 3Q2019 levels.

The reduction to the 87% now scheduled for 3Q2022 owes little to any ongoing concerns about COVID-19 transmission and much to aviation supply chain constraints - the most acute being a shortage of labour.

Moreover, if wages do not keep pace with rising inflation - in other words, if real wages fall - then even having high numbers of people in work may not generate demand for air travel that returns to pre-pandemic levels for a while yet.