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

18 July, 2022

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.

Korean Air confident of Asiana merger approvals - next challenge will be integration

Korean Air is making progress towards gaining approvals from US and European regulators for its acquisition of Asiana Airlines, increasing the chances that the deal will be completed this year.

The takeover, first proposed in Nov-2020, would potentially make Korean Air one of the top 10 largest airlines in the world.

Korean is seeking clearances from competition authorities in several countries, which represent the most important remaining steps before the deal can be finalised. Of these, the US and European Union approvals are seen as the major milestones. Korean estimates that it will take two years to completely integrate Asiana after the acquisition is finalised.

One of the challenges will be combining the two fleets and order books, which have some important differences. Merging three low cost carrier subsidiaries will also be a complex task. Any such issues are far outweighed by the positives, however. The combined airline will have a much stronger market position and will become even more of a force in the airline industry.

TO READ ON, VISIT: Korean Air confident of Asiana merger approvals - next challenge will be integration

The airlines' Scylla and Charybdis. Have they missed the sweet spot?

These days, where airlines are concerned, even the good news turns bad. Yes, the predicted bump in demand has occurred as governments put COVID behind them.

But, so far, it's not demand that is the problem. It's supply that's attracted the headlines.

Getting enough aircraft back in the air and on time has been the real killer. Around the world it's attracted enormous public angst, and as always it's mostly directed at the airlines, even if it is as much - or even more - due to airport and airways constraints on recovery.

As a result, for most, even getting back to 2019 passenger levels has been a challenge.

That means they haven't been able to reap the rewards they'd been relying on - while escalating costs make for a need to recalibrate.

Plunging share prices show the market's disillusionment with the industry.

TO READ ON, VISIT: The airlines' Scylla and Charybdis. Have they missed the sweet spot?

Michael O'Leary: flying is 'too cheap'. Ryanair to raise fares and grow demand

According to Ryanair Group chief executive Michael O'Leary, flying has become "too cheap for what it is". He finds it "absurd" that the train journey from Stansted Airport to central London is more expensive than the air fare from Dublin to Stansted.

In FY2022 Ryanair's average fare fell -27%, to EUR27, thanks to COVID-19, but had already been on a downward trend since FY2013. A rebound towards EUR40 is expected in the current financial year, with further increases expected.

In an interview with the Financial Times (2-Jul-2022), Mr O'Leary predicted that Ryanair's average fare would grow from EUR40 to between EUR50 and EUR60 over the medium term.

Ryanair's total revenue per passenger is lower than that of its competitors, and this has enabled it to meet passenger growth targets in the past. If it can maintain its relative price discount, Ryanair may be able to reconcile rising fares with its demand growth targets.

TO READ ON, VISIT: Michael O'Leary: flying is 'too cheap'. Ryanair to raise fares and grow demand

Market share shifts among Brazil's airlines prominent during pandemic recovery

Brazil's recovery from the COVID-19 pandemic continues, and May-2022 marked the first time that domestic capacity surpassed pre-crisis levels. The country's airlines have a reasonably positive outlook even as macroeconomic uncertainty looms large.

There has also been a share shift from pre-pandemic levels as LATAM has taken the lead in domestic traffic and Azul has transported the largest numbers of domestic passengers.

Before the coronavirus pandemic, GOL was the largest airline in Brazil measured by passengers carried.

Whether or not the shift will be permanent is unknown, but in the short term one of the country's major airlines, Azul, has a robust revenue outlook.

TO READ ON, VISIT: Market share shifts among Brazil's airlines prominent during pandemic recovery

Europe flight cancellations cap capacity recovery, boost load factor

In the past week there has been another batch of headlines about flight cancellations and airport capacity caps, including at British Airways, Wizz Air, KLM, Lufthansa and Heathrow Airport. Staffing shortages across much of European aviation have limited the industry's ability to meet pent-up demand as the summer peak approaches.

This helps to explain why Europe's capacity recovery as a percentage of 2019 levels has been range-bound for eight weeks.

The region's seat capacity was at 86.6% in the last week of May-2022 and is at 86.4% in the week commencing 11-Jul-2022, or a shortfall of -13.6% against the equivalent week in 2019. Europe remains fifth in the regional ranking, above only Asia Pacific, where capacity is down -21.4% versus 2019.

Europe's passenger traffic is recovering at a slower pace than capacity - at least, it was up to the most recent monthly traffic data in May-2022. Nevertheless, passenger load factors were improving, and this trend is likely continuing into the summer peak, partly thanks to cancellations.

TO READ ON, VISIT: Europe flight cancellations cap capacity recovery, boost load factor

Will they, won't they? The saga of two new airports for Lisbon drags on and on

Replacement primary/hub airports often take a long time to come to fruition, and location is typically the fundamental issue to be settled. It was true in the case of Istanbul for example, where there was the level of environmental opposition that is now the norm.

In Lisbon, Portugal's capital, two decades ago a decision was taken to replace the existing airport (then Portela, now Humberto Delgado - after an air force officer who was expelled, exiled and assassinated trying to get back into the country). Then it was abandoned in favour of converting an air force base at Montijo.

That attracted the ubiquitous environmental protest and now the government has succumbed to it, relegating Montijo to an 'assist' role if it can actually enforce the conversion, while Alcochete, just to the north, again becomes the long term prospect.

The saga looks set to run and run.

TO READ ON, VISIT: Will they, won't they? The saga of two new airports for Lisbon drags on and on

Komatsu Airport privatisation tests commercial resolve in Japan

Throughout the COVID-19 pandemic, if there were two 'certainties' in the airport sector they were the concession procedures in Brazil and Japan would be durable. Brazil's one is starting to peter out now, but the Japanese one is still only getting going, with about 10% of potential privatisations completed.

Komatsu Airport, where the local prefecture has picked up again on privatising the facility as Japan begins to open up once more, is a strange case.

On one hand the airport has historically been profitable, but on the other it has demonstrated no tendency towards the Transport and Tourism Ministry's objectives of securing low cost services and thereby improving (foreign) tourism.

If and when a formal tender is made, whoever wins it will have their hands full satisfying these objectives.

Meanwhile, a foreign intervention at this level would really set the cat among the pigeons.

TO READ ON, VISIT: Komatsu Airport privatisation tests commercial resolve in Japan

Crete's Kasteli Airport now scheduled to open in 2025, and straight into a tourist dogfight

Another of the postponed airport construction projects in Europe raised its head again as it was confirmed that the anticipated opening date for the new Kasteli/Heraklion Airport in Crete, the Greek island that attracts most tourists, is now 2025.

If and when the airport opens, it will take over the commercial traffic handled by Heraklion Nikos Kazantzakis Airport. The project includes the construction of a 72,000sqm terminal, 3200m runway and 27 aircraft parking spaces on the apron.

Kasteli is important but not critical to Crete, but is a new facility that will find itself in direct competition with another airport not far away that has been modernised by Fraport Greece, thus bringing two of the hardest punching heavyweight private sector operators into the same ring for the first time.

TO READ ON, VISIT: Crete's Kasteli Airport now scheduled to open in 2025, and straight into a tourist dogfight

SPECIAL REPORT: 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: Bolloré Logistics and AFKLMP Cargo expand SAF partnership; Iberia reduces CO2 emissions on long haul services by 17% per ASK since 2019; Aegean Airlines signs SAF supply agreement with Hellenic Petroleum Group; Vueling operates 'green flights' on Barcelona-Lyon route; Rolls-Royce secures funding to build CO2 direct air capture demonstrator.

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