Industry Intelligence - catch up on CAPA’s exclusive market analysis insights

4 May, 2020

Each week, CAPA – Centre for Aviation, produces informative, thought provoking and detailed market analysis of the aviation industry. With supporting data included in every analysis, CAPA provides unrivalled and unparalleled intelligence. Here’s some of the reports published over the past week.

COVID-19: Mexico’s airlines - government support and/or consolidation?

Mexican airlines are bracing for the peak of COVID-19, estimated to occur in the country in May-2020, by instituting dramatic capacity cuts and working with suppliers to obtain short term relief for cash outlay commitments.

Those airlines are also working to preserve precious liquidity, but unlike others in many regions of the world, Mexico’s government has yet to craft an aid package for its airlines. As a result, the country’s two largest airlines, Aeromexico and Volaris, are attempting to stress the importance of government aid, as revenue has been nearly wiped out and credit markets start to tighten.

It has not yet been determined that the government will ultimately offer some aid to Mexico’s airlines, but Aeromexico and Volaris are joining a growing consensus that there will be fewer airlines operating in Mexico once the crisis is over.

TO READ ON, VISIT: COVID-19: Mexico’s airlines - government support and/or consolidation?

European airline capacity up for the first time in COVID-19 crisis

Total airline seat numbers in Europe have dropped by 87% year-on-year, according to schedules data from OAG combined with CAPA Fleet Database seat configurations.

Since the COVID-19 crisis took hold, this is the first week to witness a narrowing of the rate of decline versus the previous week (last week's drop was 90%). Capacity was up by 40% (of a low base) week on week.

Nevertheless, Europe's cuts are still deeper than elsewhere. This compares with -82% in Latin America, -79% in Middle East, -75% in Africa, -71% in North America and -60% in Asia Pacific. Latin America, Asia Pacific and Africa also slowed their rate of contraction this week, but the Middle East and North America accelerated their declines.

The small step up from the bottom in Europe's weekly scheduled capacity should be greeted with caution.

A transition from a V shape to a U shape recovery is now clear in Europe's summer 2020 filed schedules. Nevertheless, comparison with forecasts from ACI, IATA and ICAO indicates that filed schedules are slow to adjust.

Europe's summer schedules have further to fall.

TO READ ON, VISIT: European airline capacity up for the first time in COVID-19 crisis

Virgin Australia's survival is important for regional airports

Virgin Australia is one of the first of what will inevitably be many airlines going into administration, or worse, as a direct result of the current pandemic. The impact of airline failures is keenly felt also by airports, notably smaller regional ports.

Most large Australian airports are leased, from a procedure in the mid-late 1990s although many of the original firms involved have now moved on. Typically three to six or more investor companies are involved, in leases that are around 50 years (so now over 20 years into them).

A number of smaller Australian airports were heavily dependent on Virgin Australia and there is speculation as to whether some investors, notably those that aren’t Australian, might decide this is the time to discontinue some of those, particularly where services are exposed to substantial competitive threat. The larger airports are mostly better positioned to ride out the storm, with high capitalisation courtesy of multiple leaseholders and easier access to additional debt funding.

TO READ ON, VISIT: Virgin Australia's survival is important for regional airports

Brazilian airport concession programme unaffected by virus

Two contrasting stories emerging out of Latin America highlight these unique times. In Brazil, the process to privatise the airport system by way of concessions continues and, almost as a sideline, includes very small regional airports within states. One such example is in Sao Paulo State where the government hopes to attract foreign investment even in these trying times, having seen it happen in the case of primary level airports, which included Sao Paulo’s own Guarulhos Airport, the second busiest in Latin America, several years ago.

Meanwhile, in Mexico City, which is home to Latin America’s busiest, most overburdened, airport, and where a new one could have been half-completed by now, the President’s alternative plan to convert a military base for civilian use has been stopped and will have to be re-evaluated in line with future demand.

TO READ ON, VISIT: Brazilian airport concession programme unaffected by virus

CityJet insolvency highlights Europe's regional airlines' vital role

On 27-Apr-2020 the High Court of Ireland confirmed the appointment of an insolvency practitioner working for KPMG as an interim examiner for CityJet. 'Examinership' is an Irish form of protection from creditors for up to 100 days.

CityJet is a leading wet lease provider of regional jet capacity to European flag carriers, but the coronavirus crisis has pushed it into insolvency. It has also halted the company's planned merger with Air Nostrum, to form what would be Europe's largest regional airline.

Europe's regional airlines have also been thrown into the spotlight by an open letter published on 26-Apr-2020 by the European Regions Airline Association (ERA) asking all European institutions and member states for "urgent and swift help to avoid the total collapse of the sector".

According to data from the CAPA Fleet Database, Europe's regional airlines actually have a higher share of fleet in service (41%) than other airlines (30%). Nevertheless, the crisis presents enormous risk to the vital regional airline sector (particularly to those that are not part of larger airlines), which often provide essential connectivity to remote regions.

TO READ ON, VISIT: CityJet insolvency highlights Europe's regional airlines' vital role

COVID 19: Delta Air Lines works with partners during turmoil

Most facets of the global airline business have been upended by the COVID-19 pandemic, and uncertainty will continue to be the norm for at least the next few months. How much change the COVID-19 pandemic will ultimately render to the business model for airlines is yet to be fully revealed. Clearly, some elements face the possibility of permanent change.

A staple of Delta Air Lines’ business model during the past few years has been taking equity stakes in airlines located in regions where Delta needed to bolster its presence and forging JVs with those operators. It was a strategy that helped Delta strengthen its competitive position in international markets, and it was largely fruitful for the company.

But now Delta and all of its partners are facing a drastically different reality in a matter of few short weeks.

Delta remains committed to its partnerships and is pledging to work with them during the world’s recovery from the pandemic, but even where those airline partners may be at risk, Delta is not offering them financial support.

TO READ ON, VISIT: COVID 19: Delta Air Lines works with partners during turmoil

Europe only manages a piecemeal approach to airline state aid

Across the world, governments are struggling to provide financial underpinnings for their key industries. Meanwhile, and in spite of the pre-crisis existence of a single European market, European governments are each adopting their own approach to supporting airlines.

France has agreed aid for Air France (but not yet for other French airlines) and the Netherlands aims to help KLM. Lufthansa Group is seeking support from its home countries, while Virgin Atlantic has asked the UK for aid and is also seeking new investors.

Italy plans to renationalise Alitalia, Condor has state loan guarantees and Norway's proposed aid to Norwegian will almost wipe out existing equity. Varying levels of support have been agreed for Finnair, Icelandair, TAP Air Portugal, airBaltic, TAROM, Blue Air and Croatia Airlines.

TO READ ON, VISIT: Europe only manages a piecemeal approach to airline state aid

COVID-19: government aid for Latin airlines still patchy

As the duration of the COVID-19 pandemic is still unclear, airlines worldwide remain in survival mode working feverishly to sustain and grow their liquidity levels while simultaneously attempting to stem cash outflows.

IATA has forecast that Latin America’s traffic will fall by 49% year-over-year in 2020 as a result of COVID-19, with a USD18 billion drop in passenger revenue. With very low to zero revenues flowing in, it is a delicate balance to strike, and airlines are stressing to their respective governments the pressing need for financial assistance, largely in the form of loans.

Governments have offered varying responses to the pleas of airlines – particularly in Latin America.

Among the three largest aviation markets in the region – Brazil, Mexico and Colombia – the reactions to calls for support have differed significantly, with Brazil appearing to offer the most pronounced forms of financial reinforcement.

TO READ ON, VISIT: COVID-19: government aid for Latin airlines still patchy

Michael O'Leary: EU should give European airline aid, not just national

Ryanair CEO Michael O'Leary has some novel thinking regarding airline state aid in the coronavirus crisis.

He has suggested to the EU competition commissioner that government support should be provided to all EU airlines in proportion to their share of traffic in a particular country.

He may have a point. All airlines serving a country provide it with connectivity and wider benefits to the economy of that country, so perhaps any aid should be shared among them. Arguably that would be in the wider European interest.

TO READ ON, VISIT: Michael O'Leary: EU should give European airline aid, not just national

Hamburg leads as airport shops reopen - but too soon?

Slowly but surely a small number of countries are reopening to business as infection rates stabilise at the 1:1 level or fall, including Vietnam and South Korea.

In Germany, a relaxation of the lockdown rules there is underway and it has enabled shops to reopen at Hamburg Airport (amongst others), which is in a city that, according to some reports, is ‘trading as normal’.

But as ever there are fears that it is a case of too fast and too soon, while both inbound and outbound tour operators there have been dissuaded from anticipating any return to normality for a long time yet.

TO READ ON, VISIT: Hamburg leads as airport shops reopen - but too soon?

TAV first indication of airport operator's 1Q2020 financial results

The first airport financial statements for 1Q2020, the most significant quarter (so far) in air transport post-war history, are being published, and as is often the case Turkey’s TAV Airports is first off the block.

TAV has attempted to contain costs but only managed -10% while revenues fell by more than twice that amount. Nevertheless, in the growing anticipation that some international flights will recommence in Jun-2020 the statistics for this quarter do not look as bad as they might and hint at what a third quarter might look like with, hopefully, better results thereafter.

TO READ ON, VISIT: TAV first indication of airport operator's 1Q2020 financial results