CAPA State of the Industry | April 2025

Transcript

Lori Ranson:Hello, everyone. Thanks for being here. These are some of the airlines we'll be hearing from during the next couple of days, and we're looking forward to some really interesting discussion. I think we can all agree that when we think about the current state of the industry, it's different now than it was at the start of the year, as geopolitical tensions have created economic uncertainty, and there are different opinions about how trade policies could ultimately affect air travel demand. And yesterday, the US announced another wave of tariffs, which further spooked markets. Here we have capacity between Canada and the US, and it's a topic that's recently gotten a lot of attention. Even before yesterday, airlines were adjusting their capacity in the market in the short term. For the summer season, 2-way seats between the 2 countries have fallen 3.1% compared with schedules filed at the beginning of this year. Earlier this week, Air Canada said by mid-March, transporter bookings were down 10% year over year for the next 6 months. It has cut flights from Vancouver to Dulles scheduled to start in June, and WestJet is cutting flights from Calgary to New York LaGuardia and Edmonton to Orlando that were supposed to launch in May. Both carriers are leaning into international service, and WestJet is making a transatlantic push from Halifax this summer with its 737-8s. CAPA stats show WestJet's going to represent nearly 31% of Halifax's 2-way seat capacity to Western Europe in early August. Porter just announced it's bulking up some domestic routes this summer as some US frequencies drop. Its domestic flying for that period now represents 80% of total network capacity, compared with 75% earlier this year. Even with those adjustments, Porter says its U.S. presence this summer is still 25% higher year over year. Digging into seat share for this week, CAPA stats show 2-8 seats from Canada to the U.S. are down roughly 2% year over year. Air Canada's have fallen by 8%, with Flair's down 18%, and WestJet's decrease is 5%. So this is the data that we have at this point in time, but, you know, going forward, there's gonna be some churn. I'd argue, though, that airlines have become much more adept at being able to redeploy assets when demand patterns shift versus 10 to 20 years ago. But trade policies are changing at a dizzying pace, spooking consumer sentiment, which could ultimately affect discretionary spending. This is just a snapshot of US-Mexico capacity. No huge changes yet, but Volaris is seeing some hesitancy in transporter VFR travel and is making adjustments to capacity and fares. But it believes this is just a temporary trend. CAPA shows seats between Mexico and the US for this week are up about 7% year over year. And for Mexico's 3 largest airlines, Aeromexico seats are up 14.5%. Viva is logging an increase of 41%, and Volaris is 32%. Some US carriers are pulling down seats, but we're also coming off the sun market peak, so those airlines are probably making adjustments based on seasonal demand. For the early July time period, 2-way seats are nearly up 10%, but again, just given the current environment, there could be some flux in schedules, and airlines could have to make capacity and network adjustments. This is a slide from ASM, and it shows traffic data from November to January, and it just shows that demand was healthy at the start of the year, so if some of the economic uncertainty is dialed back, then airline shares could rebound. This is US system capacity for the moment. All the US majors spooked markets last month after revising Q1 financial targets either down or near their bottom of previous guidance. They cited weather events, a drop in government demand, and fallout from the accident at Washington National in January. Now those airlines are making adjustments in revenue management given demand for close-in bookings is under pressure. They believe these trends are going to be short-lived, but if consumers remain worried about a recession or their employment, peak demand this summer could potentially take a hit. Right now, they don't see any softening in long-haul demand, so we'll see if that remains a buffer for weakness elsewhere. It seems like the investment community is mixed on whether trends are short-term or not. Some believe the noise in Q1 was driven more by safety incidents and weather events, More than economic trends, while others are taking a very cautious approach about the outlook beyond the first quarter. For now, domestic capacity for late August is down slightly from the peak in 2023 and up less than 1% year over year. And again, depending on what happens in the coming months, we'll see how capacity shifts in the U.S. domestic market. This is Canada's overall system capacity. up roughly 6% from mid-July. Just a little bit of color, even with some of the transborder weakness, carriers feel pretty good about demand patterns elsewhere. Air Canada sees solid 6-freedom demand and good trends on the transatlantic. It said it can adjust revenue management algorithms to be more open to US inbound and 6-freedom traffic, both of which look pretty favorable. Latin America is charting solid capacity growth, and while there may be some pockets of oversupply and currency pressure remains an overhang, carriers feel positive about the demand environment. Some of the big items to watch are the outcome of potential consolidation in Brazil between Azul and GOL and the potential privatization of Aerolíneas Argentinas. IATA stats for February are also encouraging, showing traffic in Brazil's domestic market jumped 8% year over year while demand for Latin America grew 6.7%. Here in the Caribbean, we've got some positive data points. The Bahamas recorded more than 11 million visitors last year, the highest in its history, and Bonaire Airport also said its traffic last year was 23% higher than pre-pandemic levels. Of course, taxation remains a challenge, and it's a barrier to the region reaching its potential, but statements from the governments of Montserrat and Antigua and Barbuda Advocating for tax reduction are encouraging, even if a lot of work remains in cutting aviation taxes here in the Caribbean. This is where the order backlog stands. North America accounts for 18% of the backlog, and CAPA's fleet database shows a total of 3,330 aircraft on order. Latin America has a 4% share with and 722 aircraft on order. This is just commercial aircraft orders by type. The spike in June 2023 was driven by record-breaking orders at the Paris Air Show. There was also a jump in December of that year as Airbus recorded a banner month with gross orders of more than 800 aircraft. There are some moving parts with this slide, including the fact that some airlines have enough aircraft on order at the moment, and with all the financial uncertainty, there could be just a period of wait and see. The backlog is also so large that narrow-body slots are sold out until roughly 2030 unless carriers opt for leased aircraft. Breaking orders down by region, United is at the top in North America with close to 700 orders. Southwest is a little over 500, and American is at 356. And for Latin America, Volaris is the leader with 129 aircraft, followed by LATAM at 108 and GOL at 92. Combined, Azul and GOL would have a fleet of more than 300 aircraft, and Azul has also touted a combination of the 2 carriers would create scale in other areas, including feed and access to capital. Here we have deliveries from December to February for Airbus and Boeing. This year arguably still remains very choppy. But I think there's an argument to be made that while the supply chain is still very fragile, maybe there's some stabilization happening, and I think we can have a debate about that here at the conference. Airbus recently said overall suppliers are on a positive trend, and it remains on track for A320neo family production rates of 75 a month in 2027. It's working to build 14 A220s a month in 2026, and 12 A350s in 2028. It's still targeting 820 commercial deliveries this year compared to 766 last year. Airbus has previously warned of lower deliveries in the first quarter, mainly from challenges at CFM, and it delivered 53 aircraft in the first few months of the year, and it looks like if March deliveries are going to total 70, But still, overall deliveries in Q1 are gonna be down year over year. The story's different for Boeing, who hasn't offered full-year delivery guidance. Yesterday's Boeing CFO said he's not pressuring the team to do it fast, but to do it right. It's working to reach its target of 38 MAX jets a month this year, and you know that's the cap agreed to with the FAA after the Alaska incident. last year. It does have targets to increase 787 production from 5 a month last year to 7 this year and 10 in 2026, but that hinges on not just supply chain issues but reducing KPI quality issues. Boeing did deliver 89 aircraft in the first 2 months of this year, and its CFO recently pointed to steady improvement in the supply chain. But shortages of small components and interiors continue to be challenging, and some tariffs could also adversely affect smaller-tier suppliers, making the timing of supply chain stabilization even tougher to predict. This is just a brief overview of where the Americas industry stands at this point in time. While there's a certain level of uncertainty, some of the region's airlines have a certain level of resiliency to withstand the short- to medium-term headwinds. But the severity of those challenges is a big question mark on the industry going forward. So that's all from me. Thank you very much. Thank you.

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.