Analysis Reports

Setting aside the volatility around the Christmas/New Year holiday period, there has been no significant change in Europe's capacity recovery trend since it entered the range of 84% to 86% of 2019 capacity levels in May-2022.

In the week of 30-Jan-2023 Europe's airline seat numbers are at 85.5% of the equivalent week 2019, or a shortfall of 14.5%.

This has slipped back from 92.0% in the first week of Jan-2023 and Europe is now in sixth and last place in the regional ranking, leapfrogged by Asia Pacific, where capacity is down by 12.5% versus 2019. Africa and Middle East are down by a single digit percentage, whereas capacity in Latin America and North America is up by single digit percentages compared with the equivalent week of 2019.

For Europe, schedules are now much more stable than in the depths of the COVID-19 pandemic, and constrained capacity has been beneficial for air fares.

The reopening of Asian markets is yet another welcome sign that global air travel continues its march towards pre-pandemic levels.

In particular, China’s lifting of many of its most stringent policies is resulting in the US operators Delta Air Lines and United Airlines evaluating how they approach serving the country.  

That cautious approach is reflected in a request by the lobbying group Airlines For America to extend existing slot use waivers for certain routes to Asia, due to testing requirements and visa requirements. 

Essentially, US airline operators are taking a wait-and-see approach before deploying significant capacity back into some regions in Asia, since the full recovery in demand could take some time to materialise.

But promising trends are emerging from other regions in the Asia-Pacific. 

India’s Adani Airports continues to develop as a major player in the privatisation of the country’s airports. However, controversy with its parent Adani Group threatens to have spill-over effects on potential upcoming bids for the latest round of regional airport privatisations. 

Following troubled initial concessions of four key Indian airports in 2006 ­- where several bidders walked away - the Indian government and Airports Authority of India have made strides repairing their image to investors and restarted the privatisation process across a number of regional airports.

At the same time, influence of the early indigenous investors has waned. GMR Group and GVK, which won a number of high value and high-profile concessions in early rounds of bidding, have seen reduced success in recent years and have chased foreign projects via partnerships and collaborations.

Instead of chancing its arm in risky foreign markets like its peers, Adani Group has concentrated its attention within India. It has taken concessions at eight regional airports since 2019, also buying a majority stake in Mumbai International and the Navi Mumbai International development project.

Adani has announced it is open to investigate further privatisation opportunities, with a round of up to 11 new concessions forthcoming. However, the Indian conglomerate has also been hit with allegations of financial wrongdoing, sending its stock market valuation plummeting and putting significant pressure on founder, Gautam Adani. Though these are not likely to have any impact on the airports division.

More than any other region globally, Europeans are engaged with the concept of sustainability. According to the EU statistics agency Eurobarometer, EU citizens believe climate change is the single most serious problem facing the world, with 93% considering it to be a ‘serious’ problem, and 78% considering it to be ‘very serious’. As a percentage, 94% of Europeans say protecting the environment is ‘important’ to them, and 53% say it is ‘very important’.

This concern about sustainability has an impact on consumers’ behaviour around travel and tourism. A Eurobarometer survey from Oct-2021 found a large majority of EU citizens (82%) are prepared to change at least some of their travel and tourism habits to be more sustainable. This includes choosing transport options based on their ecological impact (36% of respondents), paying more in order to protect the natural environment (35%), and contributing to carbon-offsetting activities (34%).

It should not be particularly surprising that European airlines are among the leaders when it comes to the sustainability and the environmental performance of their business.

The Greek government’s stake in Athens Airport – it has the majority share of the equity, directly or indirectly – was always likely to be reduced once the Greek debt crisis began to recede.

Four years ago the share held by the Hellenic Republic Asset Development Fund (HRADF) was to be disposed by way of a trade sale, but that decision was overturned by the government.

Now agreement has been reached between HRADF and the largest private sector shareholder, AviAlliance, with 10% of it going to AviAlliance, which will put it in a position of control over the airport’s future direction.

The CEO of HRADF, Dimitrios Politis, said recently that the fund had reached an agreement with AviAlliance and AviAlliance Capital to proceed with an initial public offering (IPO) for the fund's 30% stake in Athens International Airport. Mr Politis added that the stake was expected to be valued at between EUR800 million and EUR1 billion.

Air France-KLM's Transavia has grown its capacity relative to 2019 faster than Vueling and Eurowings, which are the other low cost brands of the three big legacy groups in Europe. 

Moreover, Transavia's growth has outpaced that of all the leading independent low cost airlines in Europe. In 2022 it flew 127% of its 2019 capacity, a higher percentage than all of the others.   

Nevertheless, Europe's three leading independent LCC groups – Ryanair, easyJet and Wizz Air – remain significantly larger by absolute seat numbers than the legacy group low cost subsidiaries.

Furthermore, their collective growth compared with 2019 has been stronger, reaching 98% of 2019 capacity in 2022 versus 90% for the legacy subsidiaries in aggregate. Both categories of LCC outpaced the total European market, which reached 82% last year.

This pattern is set to continue in 1H2023, with the three leading independent LCCs and the three low cost subsidiaries of the legacy groups scheduling more than 100% of their 1H2019 capacity (with the independents still outpacing the subsidiaries), while the total Europe market is projected at 91%.

Due to the recent relaxation of COVID-19 restrictions, Cathay Pacific is achieving the strong capacity gains it was targeting – although the airline’s recovery phase could be complicated by competition and labour headaches.

The airline began ramping up its capacity rebound in 4Q2022 following the Hong Kong government’s decision to drop its remaining quarantine requirements.

Moves to restore cross-border traffic flows with mainland China in Dec-2022 provided further impetus.

Although Cathay Pacific had the most to gain from these reopening steps, other airlines will also increase services to Hong Kong. The airline's CEO has warned that competition could intensify in the longer term.

And labour action from flight attendants could signal that unions may want concessions as the airline gains strength.

The World Travel & Tourism Council (WTTC) has published a report on a topic that is slightly unusual: namely, the economic value of tourism to cities, taking into account its contribution to GDP and employment as well as the usual traveller ‘spend.’

The main conclusion is inescapable.

While ‘old world’ cities in Europe still top the list, as well as North American resort cities such as Orlando and Las Vegas, there is a shift in favour of Asia Pacific. Beijing, for example, is expected to more than double its tourism sector value to USD77 billion in the next 10 years, leapfrogging the current first-placed Paris.

Where actual tourist spend alone is concerned, the top two cities in 2022 were Dubai and Doha, both helped by the Soccer World Cup being played in Qatar.

Again, Asia Pacific cities are expected to overtake or challenge them in the next 10 years.

Mexico had reached some level of stability before 2020 as the country’s passengers were divvied up among two ultra-low cost carriers – Volaris and Viva Aerobus – and the country’s only full service operator – the Aeromexico Group. 

Due to Mexico’s more relaxed COVID-19 policies, the country’s ULCCs resumed their capacity growth by the end of 2020, and Aeromexico emerged from Chapter 11 restructuring in late 2022. 

But as 2023 gets under way: potential new entrants, a proposed government-owned airline, and a regional operator with aspirations to operate electric aircraft, could inject some new dynamics into the market that at some point could potentially create overcapacity in Mexico’s aviation sector. 

Air India is moving closer to finalising the aircraft orders it needs to support its growth ambitions. These deals will further expand the massive backlog of narrowbodies destined for the Indian market.

The airline is expected to place orders for about 500 new aircraft, as Air India’s new owner carries out its plans for a long term upgrade and expansion of its fleet. Reuters reports that the total will comprise more than 420 narrowbodies and 70 widebodies, split between Boeing and Airbus. 

If these numbers are correct, it means that Indian airlines will soon have more than 1,200 narrowbodies on order collectively. While there is undoubtedly huge potential in the Indian market, these orders will also increase competitive pressure.

Air India’s goal is to strengthen its market share in the international and domestic arenas, as well as improving the standard of the existing fleet. The impending (and recent) fleet moves show that the new owners are obviously committed to invest the vast sums needed to achieve these goals.