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

14 September, 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.

Singapore an early mover in restoring international aviation links

Singapore has emerged as one of the leaders in the Asia-Pacific region in terms of easing cross-border travel restrictions imposed due to the coronavirus pandemic. The government has taken a range of steps to begin restoring traffic flows in selected markets, including negotiating travel corridors for official and long-stay workers and reducing quarantine requirements. Some transit flights via Singapore have also been allowed to resume.

While significant health-related restrictions still apply, these are significant steps. They stand out particularly due to the lack of progress by other states in restoring international links. Many Asia-Pacific governments say they are in discussions with other countries regarding travel corridors, but only a handful have resulted in formal agreements. A second wave of coronavirus cases across the region has helped cool enthusiasm on opening borders.

Singapore has shown a willingness to look for ways that international travel can be restored to certain markets in a safe manner. As an early mover on this front, Singapore represents an interesting case study for the rest of the Asia-Pacific region.

TO READ ON, VISIT: Singapore an early mover in restoring international aviation links

US airlines' demand stalls just as payroll support ends

Demand for air travel in the US continues to remain stalled, which is creating a state of limbo for most of the country's airlines as they work to determine their optimal size for a prolonged period of uncertainty. A widespread vaccine appears to be the only catalyst for the start of a full recovery.

With little movement in demand, and stalled efforts in the US Congress to craft legislation that includes an extension of payroll support funding, US airlines are bracing for involuntary furloughs on 1-Oct-2020. Operators are working with labour groups to reach agreements in order to avoid lay-offs, but as demand remains stagnant, airlines will ultimately become overstaffed.

The country's airlines are also continuing the face the grim reality that revenues will be pressured for the foreseeable future, and that weakness could force airlines to extend their targets of achieving break-even cash burn.

All of those factors are coalescing to create a tough autumn for US operators that have already endured the toughest six-month stint in modern aviation history.

TO READ ON, VISIT: US airlines' demand stalls just as payroll support ends

Europe's LCCs led airline recovery; now provoke capacity slide

The COVID-19 crisis has led to a tightening of European capacity on routes within Europe, thereby increasing the importance of the continent's LCCs. Low cost airlines led the recovery on routes within Europe, but as demand for air travel falters, recent LCC retrenchment has also prompted a slide in European capacity.

The year-on-year cut of -58.3% in Europe's total airline seat numbers in the week commencing 7-Sep-2020 is only slightly deeper than last week's -57.8%.

However, this is the third consecutive downward movement after 11 positive weeks before that. Moreover, the month of Sep-2020 is already projected to suffer a bigger year-on-year percentage drop than Aug-2020, partially reversing the recovery that began in Jun-2020.

Europe's cut is deeper than North America's -55.8% and Asia Pacific's -41.4%. Latin America once again has the deepest cut, at -66.6%, followed by Africa at -64.3% and the Middle East at -61.6%.

Europe's low cost airlines are showing that they are more nimble than their legacy competitors in adjusting capacity to demand, both up and down.

TO READ ON, VISIT: Europe's LCCs led airline recovery; now provoke capacity slide

Latin American LCCs take 58% market share as COVID-19 bites

Much of Latin America has been closed off to domestic and international aviation since Mar-2020 in order to curb the spread of COVID-19. And while the region remains a hotspot for the virus, some countries are starting to restart commercial airline flights.

Domestic operations never fully ceased in Latin America's two largest aviation markets - Brazil and Mexico. But the largest full service airlines in those countries, LATAM Airlines Brazil and Aeromexico, are now in Chapter 11 bankruptcy protection, working to rightsize their operations to adjust to the new reality of COVID-19.

Before the pandemic, low cost operators in Brazil and Mexico were the largest domestic airlines in each country, respectively, and now their share could expand further as full service airlines move through the restructuring process.

TO READ ON, VISIT: Latin American LCCs take 58% market share as COVID-19 bites

Europe's airline capacity goes into reverse

After four weeks of stagnation at approximately 45% of 2019 capacity levels, seat numbers in Europe slid back to 42% in the week commencing 31-Aug-2020.

The year-on-year cut of -57.8% in Europe's airline seat numbers was deeper than the -55.2% drop of the week of 24-Aug-2020. This was the second consecutive downward movement after 11 positive weeks, but while the previous week's slip was only fractional, the current capacity is down by 6.5% w-o-w.

Europe's cut is deeper than North America's -52.3% and Asia Pacific's -41.8%. Africa now has the deepest cut, at -66.9%, followed by Latin America at -64.7% and the Middle East at -62.5%. Europe is the only region with a clear downward step this week.

The volatility surrounding European nations' international travel restrictions is weighing on the recovery.

Wizz Air has followed Ryanair in announcing lower capacity than previously planned this autumn, but LCCs are generally still ahead of the competition. Aeroflot's LCC subsidiary has even managed year-on-year growth in passenger numbers for Jul-2020, demonstrating the importance of a large domestic market and low costs.

TO READ ON, VISIT: Europe's airline capacity goes into reverse

Colombia reopens. Will air travel demand materialise?

The decision by Colombia's government to resume some commercial aviation operations is being welcomed by the industry. But with the country's COVID-19 case counts continuing to rise, the Colombian government will be monitoring the resumption of commercial flights carefully.

Just how fast demand will rebound in Colombia is tough to determine, given that the country's commercial aviation sector has been shut down for nearly six months.

Before the pandemic Colombia was the third largest aviation market in Latin America, behind Brazil and Mexico. And the country's airlines no doubt hope to ensure Colombia maintains its status in Latin American aviation.

TO READ ON, VISIT: Colombia reopens. Will air travel demand materialise?

Pobeda's return to traffic growth points way for Aeroflot Group

Aeroflot's LCC subsidiary Pobeda was the only significant European airline to carry more passengers in Jul-2020 than in the same month a year previously. By the final week of Aug-2020, Aeroflot Group had returned 63% of its prior year seat numbers into the market, compared with 45% for the European airline market as a whole.

The group is benefitting from the Russian domestic market, which is Europe's biggest and was back above 2019 capacity levels in Aug-2020. Pobeda's growth also demonstrates the importance of low cost short/medium haul operations in a recessionary environment and one with only limited long haul opportunities.

Aeroflot Group is looking beyond the recovery into the medium to long term. It aims to more than double annual passengers to 130 million by 2028, with Pobeda significantly the group's main growth driver. Aeroflot itself aims to reinforce its premium branding with a five star Skytrax rating. Heavy 1H2020 losses were a reminder that there is still a crisis to face, but the group increased its liquidity (partly thanks to state aid).

In spite of near to medium term uncertainties, Aeroflot's future as Russia's leading airline group looks assured.

TO READ ON, VISIT: Pobeda's return to traffic growth points way for Aeroflot Group

JetSMART Chile sees opportunities in crisis

Before the COVID-19 pandemic, ULCC JetSMART Chile had carved out a solid presence in the country after its debut in Jul-2017. Of course, the virus has upended the aviation industry worldwide, but JetSMART remains in a relatively favourable position to weather the crisis.

The airline is adding back some capacity in Sep-2020, and the latest government data show that while Chile's passenger levels remain severely depressed, JetSMART Chile's share has grown in comparison to its rivals.

It is not clear if that will remain the case whenever demand reaches normal levels in Chile and Latin America, but JetSMART's ambitions to spread its ultra low cost brand across South America remain intact as Latin America's full service carriers work to restructure under Chapter 11 bankruptcy protection.

TO READ ON, VISIT: JetSMART Chile sees opportunities in crisis

Airports of Thailand to take over more Thai regional airports?

Airports of Thailand (AoT) has been a part public, part private, operator of six airports, including the main two in Bangkok, since an IPO in 2004. So while there are both institutional and individual investors in it, in some ways it continues to act at best like a corporatised entity, and the government, still a 70% shareholder, pulls the purse strings.

One example of that is the way in which it continues to be concerned about the welfare of some of the country's smaller airports, which are managed by the Department for Airports, as if it were behaving as a social welfare office. AoT says it has the money to develop them, whereas the DfA does not.

But while some of these airports it yearns for have business prospects, some do not. The unavoidable question is - why does AoT not consider bigger airports in its own backyard, or even abroad, to diversify the income streams, as its own president believes to be absolutely necessary?

TO READ ON, VISIT: Airports of Thailand to take over more Thai regional airports?

Covid-19 continues to wreak havoc on Canadian aviation

Canada's initial travel restrictions have been firmly in place since Mar-2020, and have created challenges for the country's airlines, adding another obstacle for operators as they work to navigate deeply depressed demand.

Canadian operators have routinely pushed for the lifting of some restrictions, urging the country's government to adopt a more science-based approach in managing travel during the Covid-19 crisis.

That work to persuade the government to adopt different tactics in managing Covid-19 has resulted in Canada's two largest airlines aiming to conduct voluntary Covid-19 test trials for passengers; however, it is not clear if those efforts will be successful in changing the government's stance on quarantine requirements.

As the travel restrictions remain in place, Canada's airlines are also facing rising fees from the nation's privatised air traffic services provider, Nav Canada. The increases are occurring as Canadian operators are working to slash costs and bump up weak revenues in order to whittle down cash burn.

TO READ ON, VISIT: Covid-19 continues to wreak havoc on Canadian aviation