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

30 November, 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.

Travel restrictions shrink European aviation, but not COVID-19

Throughout 3Q2020 a patchwork of travel restrictions and quarantines was in place across Europe, aimed at limiting COVID-19 transmission.

However, a Nov-2020 analysis by ACI Europe shows no correlation between infection rates and air passenger traffic, based on data from this period. This suggests that travel restrictions are not effective where community transmission is already present.

Nevertheless, quarantines and restrictions continue to erode European aviation. Airline seat capacity in the continent remains in an increasingly distant last place behind the other regions. Europe's year-on-year cut in seat capacity widened to -73.8% in the week of 23-Nov-2020 - its biggest cut since Jun-2020, and 13.2ppts below the Middle East on -60.6%. Africa is on -58.5%, Latin America at -50.0%, North America at -42.0%, and Asia Pacific is on -37.9%.

In spite of attempts at the EU level to promote a common approach to testing, European nations are divided on this issue, just as they are on travel restrictions. Pending fully available and widely administered vaccines, European aviation will continue to wither unless a commonly agreed system of testing air travellers is introduced.

TO READ ON, VISIT: Travel restrictions shrink European aviation, but not COVID-19

Rising COVID-19 cases soften US air travel demand

Just a few weeks ago US airlines were buoyed by an uptick in bookings for the upcoming Thanksgiving holiday season. But shortly after that, daily COVID-19 cases in the country crossed the 100,000 threshold, and now that number is inching closer to 200,000 new cases every day.

As a result the sentiment has obviously changed, with two of the country's largest airlines citing a slowdown in bookings as public health agencies urge US citizens not to travel for the Thanksgiving holiday period.

All of this is occurring as the industry welcomes positive news in the development of vaccines for COVID-19, but the reality is that demand will continue to ebb and flow for many months until a vaccine is widely available and a reliable distribution chain is created. That's why the industry cannot afford to takes its focus off a push for affordable and fast testing if the needle on demand is to be moved.

TO READ ON, VISIT: Rising COVID-19 cases soften US air travel demand

Russian aviation: Pobeda's growth will spark LCC competition

Right across the globe, long haul traffic and business travel are suffering the most in the COVID-19 crisis, while short haul and leisure traffic (more specifically, visiting friends and relations) are leading the recovery. This works to the strengths of low cost operators, and Europe's big LCCs (with the exception of Norwegian) are mainly performing better than their full service competitors.

Russia has Europe's biggest domestic market, where capacity grew back above 2019 levels in the peak summer weeks of 2020. This has helped Russia to become Europe's biggest aviation market by total seats, with 50% of 2019 capacity operating in the week of 23-Nov-2020. This is more than any other leading European country, and compares with an average of 26% for all Europe.

The strength of Russia's domestic market, and increased price sensitivity among consumers, has given a boost to Pobeda, Russia's only LCC. Since Jul-2020 the Aeroflot Group subsidiary has achieved positive year-on-year growth in passenger numbers for four successive months. Other Russian airlines are now considering the LCC model too.

TO READ ON, VISIT: Russian aviation: Pobeda's growth will spark LCC competition

All Nippon and JAL: widebody LCCs to broaden international offering

COVID-19 has prompted major strategic reviews by Japan's two largest airlines, and one of the most significant results is an increase in focus on LCCs. This includes the establishment or expansion of widebody low cost operations to serve international markets.

Both All Nippon Airways and Japan Airlines are trimming back their mainline fleets by advancing the retirement of widebody aircraft. In contrast, their LCC units are being boosted.

This reflects changes in demand outlook that the airlines foresee. Premium business travel is expected to remain weaker for longer, with leisure traffic and travel for friends and family visits predicted to bounce back faster when border restrictions are eased. ANA believes - as do many other airlines - that virtual meeting technology will be a long term drag on business travel.

TO READ ON, VISIT: All Nippon and JAL: widebody LCCs to broaden international offering

KLM CEO straps in for aviation's bumpy recovery

"We're heading for a very cold winter", KLM CEO Pieter Elbers told CAPA Live on 11-Nov-2020, but added that, "with the vaccine and some of the measures, we're optimistic".

KLM has received a state aid package totalling EUR3.4 billion, of which EUR2.4 billion was a bank loan 90% guaranteed by the Dutch state and EUR1 billion was a direct loan from the government. State approval of the aid required union agreement to a 15% staff cost reduction, and KLM is cutting its workforce by 5,000 by the end of 2020.

This ensures KLM's survival through the most challenging phase of the COVID-19 crisis and gives it the opportunity to benefit from improved demand, particularly long haul, when it comes. It is operating more of its fleet and network than most European legacy airlines - a necessity for a hub carrier with almost no domestic market.

For now, Mr Elbers remains cautious, telling CAPA Live: "My internal focus is we have crisis management for the last six to nine months. We're now in the phase of recovery. It's not going to be linear recovery, it's going to be a bumpy recovery".

TO READ ON, VISIT: KLM CEO straps in for aviation's bumpy recovery

Schiphol Group-Oaktree tie-up seeks North America airport deals

Airport privatisation in the US is at a crossroads, and depends on the as-yet unresolved presidential election for its future direction.

But that has not prevented the slightly unusual pairing of one of Europe's leading airport operators with a US alternative investment fund which specialises in turning around firms that are on their knees; both of them seeking potential deals in North America. Unusual, but a sign of the times, and possibly the first of many.

How many such deals will actually arise in the U.S. is unclear, but a new market could emerge in Canada, where many regional airports are in clear and present danger.

TO READ ON, VISIT: Schiphol Group-Oaktree tie-up seeks North America airport deals

Consortium bid for Budapest Airport; more political than it appears?

The relationship between what is now a private wholly owned (by foreign interests) capital city airport and the political party that has been in power in Hungary since 2010 is an unstable one. When it was originally privatised in 2005, Budapest Ferenc Liszt Airport was threatened with renationalisation by that party, which was not then in power.

Another 15 years on, an unlikely sounding and unsolicited bid for the airport put together by a partially owned state oil company and other (so far unnamed) consortium members has led to the suggestion that the government might have chosen this moment to make a move for the airport.

Whatever the truth of the matter, the bidder(s) are ranged against a formidable opponent, which has invested heavily in it.

TO READ ON, VISIT: Consortium bid for Budapest Airport; more political than it appears?

SPECIAL REPORTS: Aviation Sustainability and the Environment

This regular weekly CAPA report features a summary of recent aviation sustainability and environment news, selected from the 300+ news alerts published daily by CAPA. This week's issue includes: IATA launches aviation carbon offsets trading platform, with JetBlue completing first trade; IATA calls on governments to support SAF development; Embraer and EDP enter partnership for electric aircraft research; Lufthansa Cargo commits to five sustainability goals under United Nations framework; and United Airlines reports consumers more mindful than ever of environmental impacts.

TO READ ON, VISIT: SPECIAL REPORTS: Aviation Sustainability and the Environment