CAPA State of the Industry | April 2026

Transcript

Richard Maslen:Good morning, everybody. I'm Richard Maslen. I'm Head of Analysis at CAPA, and if you're expecting Jonathan, then I'm really sorry you have to deal with me for the, for the next 15 minutes, but I will bring some of Jonathan's insights into the presentation. Let me start with a simple question: when was the last time aviation felt predictable? Anybody? I don't think I've ever seen it in my, my lifetime in the industry. So, but right now we've moved beyond recovery after COVID, beyond stabilization. We've come to 2026, which is uncertainty. Uncertainty isn't a disruption now, it's an operating model. And today, over the next 10 to 15 minutes, I'm going to walk you through what's changing, why it matters, And what it means for all of us in the room. I'll argue this: the industry isn't just growing again, it's been fundamentally rewritten, and the concerns and the hurdles of the uncertainties are just too unclear to even believe. So I started with looking at what aviation is for us all, what aviation should look like, the important role it plays in the global economy, and I asked AI to produce a movie poster on what aviation should look like. And this is what it gave me. Wouldn't it be lovely if that was the case, where everything is wonderful, lots of hearts, lots of balloons, bringing people together? So I then put a few other ideas into it and said, now tell me, these are the factors of what's happened in aviation in the last 2 years. Now redesign this movie poster with those incorporated. And that's what we got instead. So our rom-com has now turned into an action thriller, which is not great for any of us that are trying to make money in the aviation sector. So welcome to aviation's new reality. Aviation has always reflected the world, and right now the world is being reassembled. Alliances are shifting, trade routes are evolving, new power blocs are forming. And the key point here is aviation isn't reacting to them, it's embedded in them. Every bilateral agreement, every overflight right, every passenger flow, they're all now politically charged. We've entered a new era defined by 3 things: reinvention, fragmentation, and persistent uncertainty. And here's the key shift. Uncertainty is no longer a disruption, it's an operating environment. That's a fundamental change in how we have to look at this industry. Let's bring that to life. In early 2026, geopolitical events in the Middle East triggered over 1,800 cancellations in a single day, nearly 20,000 flights delayed globally. That's not a disruption, that's a systemic impact. And importantly, this isn't an outlier anymore. It's a pattern. We've moved from planning for stability to managing constant volatility, which, as we all know, makes scheduling a little bit more interesting for us. But not all aviation has been moving at the same speed. Just go back. The Asian and Middle East markets ahead of the conflicts were growing a lot stronger. Mature markets like Europe and North America were beginning to plateau, and others were just stuck in neutral. This is a multi-speed recovery, and taking away anything that's happened in the last few months, it's something that's going to stay. And if you're running a global network, a global airline with flights across the world, this creates a real strategic headache. Where do you deploy capacity, and where do you not? Now let's talk about the reality everyone feels— costs. Fuel volatility is back. We've not spoken about fuel for a while. It's been nice and stable, which has been great for the industry as it's made its recovery. Now it's the number one topic and will remain that for the rest of the year, depending on what tweets are coming out from America. Labor costs are rising. Infrastructure is constrained. And layered on top of that, sustainability investment is essential but is expensive. SAF, you're paying a huge price for fuel, you're paying even more for SAF. Fleet renewal is a very capital-intensive requirement, a solution to environmental concerns, but a big, big investment. Net zero, it's still non-negotiable. It's going to happen, whether it will be in the timescale that has been predicted. So airlines are facing a familiar but intensified challenge. Costs are rising faster than revenue. Now we've seen that before, but maybe not quite at this scale. And I think keeping the movie theme that we had earlier on, we know the sequel's never as good as the original. Let's zoom in on one of the cost lines, 'cause it deserves its own set of slides. Fuel. We predicted roughly Covers about 30% of airline costs. Now, I was reminded earlier on today at a roundtable that we had that Jonathan, when he was on stage in Lisbon in December, made use of the figure 24%. I think 30% may now also be a little bit low. We may be looking more at 35% to 40%. It just shows how quickly things can change. And right now the cost is not just high, it's volatile, and the volatility is the big real problem. Because airlines can plan for high costs, but they struggle to plan for unpredictable ones. And in this environment, fuel is no longer a cost, it's a major, major risk variable. So what does this mean for airlines? First, margins are squeezed. And remember that as an industry, we're only making a 3% margin already, so there's not a lot of room there. Second, hedging strategies become critical again. The difference between winners and losers can come down to fuel strategy alone now. And third, capacity discipline is returning. We're already seeing a number of airlines scaling back flights into the summer. What will happen longer term, we don't know. It's still very early days in terms of how this is all managed. Airlines are definitely becoming more cautious. They're cutting marginal routes, delaying their expansion, focusing on yield, not volume. And growth is becoming more selective. For passengers, the impact is direct. Higher fares, not always immediately, but inevitably. We also see fewer marginal routes, those routes that 50/50 whether they'll be successful. The risks won't be there now in taking those, and those that have started already, we may find will close a lot earlier, and airlines won't give the time to make them work. Less frequency will be in some markets. The ability of choice for passengers will be reduced. There'll be more unbundling. Airlines will look elsewhere for revenue— seats, bags, flexibility— and the ticket then becomes just a starting point on what is a much wider platform of offers. Which that means already what we're seeing, that that cheap flight you booked will not be cheap anymore at the end of the booking cycle. At an industry level, the impact goes even further. Fuel drives inflation across the system. Airlines pass on these costs. Airports feel pressures. Economies feel the ripple effect. We also see slower growth in more price-sensitive markets, and perhaps most importantly, increased tension with sustainability goals, because fuel, when it's already expensive, investing in an even more expensive option becomes even harder. So the industry faces a difficult balancing act: cost, growth, sustainability. And you can't optimize all those 3 at the same time. Let's shift to something more positive— technology. AI is no longer experimental. It's in aviation. 94% of airlines we see are now using it. But here's the real shift. We're moving from AI as a tool to AI as infrastructure. It's now shaping pricing, operations, customer experience, and increasingly offering a very strong competitive advantage to those that do it well. We're moving from AI-assisted aviation to what will be AI-led aviation. And for those still running legacy systems, good luck. The main thing we see is passengers haven't stopped traveling. They're traveling different, which is also a great opportunity. But they're also traveling smarter. They're more selective, more price sensitive, and more demanding. Premium is still strong, but in different ways, but it is fragmenting a lot. We're seeing luxury behavior without also wanting to pay the luxury prices. So airlines are having to adapt their offering. Flexibility, personalization, and targeted value are all very key. Not just a seat, Passengers want a tailored experience now more than ever. The network playbook is being rewritten currently as well. At one end, you have the A321XLR opening on long, thin routes. It's made a big impact in some markets, whereas in some others, maybe it's not proving as big a product as what was first imagined. I think the jury's still out on, on what will happen with that. On the other end, we're seeing a bit of excitement now as Qantas's first A350-1000 has been moving around around the Airbus facilities. It's going to be interesting to see when that comes into service, the offers that Qantas have on board and how successful that will be. But what is clear is that with these aircraft, hubs are beginning to be squeezed from both sides. So I guess the question is, do you consolidate or do you decentralize? I think you have to do both. So I've mentioned about sustainability. Sustainability is no longer a PR strategy. It's now a cost line. Now it needs to be worked on. But the reality is changing. SAF represents a low amount of supply, and it still costs significantly more than traditional fuel. And yet net zero by 2050 still remains the goal. So the industry is navigating a difficult tension— ambition versus affordability. And this will increasingly shape strategy, investment, and regulation in the years ahead. So the industry faces a brutal equation: increasing ambition, increasing costs, and less uncertainty. Balancing that together is a challenge. So what does this all mean for us, the decision makers here in the room? I think it's 3 things to me. Agility will beat scale, flexibility will beat optimization, but resilience will beat everything. The winners in 2026 won't be the biggest, but they'll be the ones that can adapt the fastest. Despite everything, the growth is still there, and this is what aviation proves, that despite the biggest hurdles that it faces, it can still come out the other end providing for what we do. We bring people together, we boost the economy, we make a really good, good impact, and hopefully the rom-com that we saw at the start at some point may become a brighter side of traveling. But the risks are now higher, the margins are now tighter, and the decisions matter more. This is real high stakes now, and every decision cannot be taken lightly. So I'll leave you with this. Aviation has always been resilient. It survived wars, crises, pandemics, and now more than ever, it's now in its most complex phase yet. But that complexity gives us an opportunity. Because in a fragmented world, the value of connection has never been greater. So 2026, yes, it will be turbulent, but those that are ready to adapt, it will also be incredibly rewarding. Now, for those of you that like Jonathan's numbers, I thought I have to make sure I include some because I know there's sometimes a lot of excitement about those. So there's some, some interesting numbers there on the industry. You can access this slide and it will be made available to you, so don't worry. Thank you. But for me, the, the key stats here are we're an industry where fuel is around 30% of costs and the margins are just 3%, and that's what we have to remember and focus on. So that's it from me. There's some great sessions ahead of us where we'll be discussing a lot of key factors that are influencing the industry. We've got some great speakers and there's a lot of great content for you to enjoy. So I hope you really, really can get a lot out of what's going to be discussed over the next day and a half. If you want to speak to me about anything, I will be around. Just come and find me or grab any of the CAPA team. I'm happy to talk about what CAPA feels about the industry and our views moving ahead. So thank you very much, everybody. Thank you, Richard.

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