Analysis Reports

The tragic crash of a Jeju Air 737-800 on 29-Dec-2024 has turned the spotlight on the South Korean LCC industry, a sector that is in the process of undergoing significant change.

It is yet to be determined what the ramifications of the crash will be for Jeju Air and other airlines.

However, even aside from that, the LCC market is in a state of flux as 2025 begins.

Jeju Air is the largest of the South Korean LCCs, although it will soon be overtaken when Korean Air's and Asiana's LCC subsidiaries are merged. And another independent LCC, T'Way, has also been boosted as a side-effect of the seismic Korean Air-Asiana deal.

Meanwhile, Eastar Jet is back on a growth track, with new ownership.

A scatter plot of European airlines showing cost per available seat kilometre (CASK) against average trip length reveals much about their relative competitive positioning.

Even after many years of convergence ('hybridisation' used to be the buzzword), such analysis highlights ongoing differences between business models and reconfirms a few truisms.

Low cost carriers (LCCs) really do have lower unit costs than full service carriers (FSCs), while ultra-low cost carriers (ULCCs) have even lower unit costs.

An annual report from OAG on the world's busiest airport to airport routes as measured by seat capacity reveals no great changes compared to 2023, with the Asia Pacific region continuing to dominate the statistics.

However, the Middle East does figure to a greater degree than it did previously, both domestically and internationally, and especially in respect of Saudi Arabia, which continues to show signs that it could become a regional air transport powerhouse.

Only one route involving both Europe and the Americas figures in the international table, and those very busy domestic and international intra-European routes of a decade ago have clearly been impacted by rail travel.

It was domestic travel that kept the US airline business running during the COVID-19 pandemic, but while that travel segment is back up to full speed now (and, unlike in Asia and Europe, faces no tangible threat from rail), it is still the case that no US domestic route figures in the global Top 10.

Not only that, the second biggest US route by capacity in 2024 (and number 1 in 2023) was between two Hawaiian islands!

As an international aviation hub, HKIA connects to about 200 destinations around the world and has been named the world's busiest cargo airport for 13 times since 2010.

The Three-runway System (3RS) at Hong Kong International Airport (HKIA) was commissioned on 28-Nov-2024.

With all three runways in operation, HKIA will be able to expand its air network and meet the target of serving 120 million passengers and handling 10 million tonnes of cargo.

Leveraging Hong Kong's unique edges and enhancing the airport's capacity, Airport Authority Hong Kong (AAHK) is developing the Airport City to a regional landmark and boosting the sea and land connectivity between HKIA and the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), reinforcing its status as the international hub for both passengers and cargo in the GBA.

This regular CAPA - Centre for Aviation report provides a summary of major developments in the aircraft interiors sector, supported by data from the CAPA - Centre for Aviation Aircraft Interiors Database and CAPA - Centre for Aviation News.

This edition provides highlights in the interiors space throughout 2024.

Russia's war in Ukraine, now almost three years old, has had a detrimental impact on its economy: with skyrocketing inflation, labour shortages (so many are on the front line), the rouble in freefall, and construction projects diminishing rapidly.

Meanwhile, with some of its gas exports curtailed, the price of its main commodity (oil) could well fall dramatically in the wake of the president-elect taking office in the US in a few weeks' time.

Perhaps President Putin expects that a peace formula could arise out of that change of government - but now seems a peculiar time, when you are still fighting a very costly war - to be committing almost USD2.5 billion to investment in a third of the nation's airports on the spurious assumption that passenger traffic is going to grow by 50% in the next five years.

While a small aviation tax is to be levied, that tax isn't going to pay for this extravagance, and Russia's extensive private sector might well be asked to make a significant contribution to this scheme.

One thing is for sure - foreign investors won't be asked to contribute any time soon, and if they were, they should make their excuses and look elsewhere.

If an algorithm was created to track the number of times premium was used in North American airline discourse over a couple of years, the results would be significantly higher than profits at some of the region's airlines.

Premium products, ranging from seats to lounge access, are cornerstones of nearly every major North American airline's strategy - regardless of business model.

As a case in point - the decision by the ULCC Frontier Airlines to introduce a first class offering.

The push into premium products is arguably more than a decade old; but various factors have accelerated the adoption of them by unlikely airlines.

Now the question for 2025 and beyond is: if there's a risk for oversupply in the premium space.

Europe's airlines can look back on 2024 as the year when they finally completed the capacity recovery from the COVID-19 pandemic. Seat capacity is scheduled to be 100.0% of 2019 levels for 2024 as a whole, according to data from OAG and CAPA - Centre for Aviation.

LCCs are leading the way, and this seems likely to continue in 2025.

In 1Q2025 Europe's capacity is scheduled to be at 101.5%, confirming the recovery but with little further increase.

Aviation supply chain constraints and the ongoing (but slow) process of European airline consolidation are likely to contain capacity growth, and this may help to support yields in 2025.

The year 2025 will bring challenges in aircraft supply, recruitment, airspace capacity and the green transition - nevertheless, Europe's airlines are now beyond the COVID-19 recovery phase.

The Asia Pacific airline industry is set to continue its international capacity growth in 2025 and finally move past the pre-pandemic benchmark, although the growth rate will be hindered by aircraft availability issues.

Airlines in this region are collectively already close to 2019 capacity levels in the international market; so it is likely that they will exceed that mark early in the new year.

Aside from a few key international markets, the factors inhibiting capacity growth are no longer demand-related. Airlines want to grow faster, but are frustrated by engine issues, delivery delays and supply chain bottlenecks.

Aircraft orders by Asia Pacific airlines have soared over the past few years as airlines look to rebuild their fleets. This trend will continue in 2025, with some key deals looming, although possibly to a lesser extent than in 2023 and 2024.

Constrained capacity will help to keep yields and revenue relatively high, although they may moderate somewhat in 2025.

Collective profits in the region are expected to rise slightly, although financial fortunes will be mixed.

Factors such as elevated costs and geopolitical tensions will continue to put financial pressure on Asia Pacific airlines.

Two of Latin America's largest airlines - LATAM Airlines Group and Avianca - are bullish heading into 2025, driven in part by their competitive cost structures and product offerings that target a range of customer classes.

Those favourable cost structures place each airline in a competitive positions vis-a-vis their long haul rivals, and the recognition that product segmentation is key to bolstering revenues should bode well for LATAM and Avianca in the future.

Of course, challenges remain for airlines operating in Latin America, including oversupply within Colombia, which should ease somewhat next year.

And changes could occur in Brazil's aviation sector if discussions regarding potential consolidation materialise into something more market-changing.