The aviation industry achieved a milestone of sorts this
week, with global airline capacity recovering to 50 per cent of last year’s
volumes.
Some 60 million seats were available on scheduled flights,
according to OAG, while more than 90 per cent of routes are back in operation
and 610 airlines have now taken to the skies, compared to 717 last summer.
While it might seem odd to be heralding 50 per cent
capacity, these are the desperate circumstances in which the aviation industry
finds itself.
There are of course huge regional variations that reflect
the current status of the pandemic around the world. Moreover, growing capacity
isn’t necessarily aligned with increased demand and growing passenger numbers –
more reliable indicators of economic recovery.
Despite the positive milestone noted by OAG, air travel is
not recovering as quickly as was initially predicted.
Airline activity bottomed out in April and May, when the
number of scheduled flights was more than 90 per cent down year on year in many
European markets including Spain, Germany, France and the UK.
At the beginning of August, Spain had recovered to -45.5 per
cent, Germany to -62.7 per cent, France -49.5 per cent and the UK to -66.1 per
cent. As a region, Western Europe lead the way in terms of week-on-week growth
with a near 15 per cent increase and some 1.5 million seats added heading into
August.
In Asia, some domestic markets are now back to pre-Covid
levels – including China and South Korea – while Vietnam has surpassed last
year’s flight capacity in an achievement described by OAG as ‘stunning’.
Promising initial growth, however, is now petering out.
Speaking at the end of July, OAG senior analyst John Grant said that although
we’re currently seeing week-on-week growth, the recovery is slowing down.
“There are undoubtedly some markets where capacity is
returning to last year’s levels and others where further growth remains out of reach
pending lockdowns being eased,” said Grant.
“We’ve plateaued and we’re treading water now. The biggest
worry is not capacity, but demand.”
Indeed, IATA issued an updated forecast at the end of July
predicting that global passenger traffic will not return to pre-Covid levels
until 2024 – a year later than it had previously projected.
For 2020, global passenger numbers are expected to have
fallen by 55 per cent compared to 2019, a figure it initially set at 46 per
cent back in April. In 2021, it expects passenger numbers to rise 62 per cent
off the depressed 2020 base, but will still be down almost 30 per cent compared
to 2019. The organisation also noted that the global load factor in June was an
all-time low for the month at 57.6 per cent. For international traffic, the
figure was even worse at 38.9 per cent.
Its latest forecast cited slow virus containment in the US
and developing economies, weaker consumer confidence, and reduced corporate
travel as reasons for the bleaker outlook.
“While historically GDP growth and air travel have been
highly correlated, surveys suggest the link has weakened, particularly with
regard to business travel as video conferencing appears to have made
significant inroads as a substitute for in-person meetings,” says IATA chief
executive Alexandre de Juniac.
The various figures published by OAG and IATA confirm that
domestic travel will recover faster than international; that the latter will
not meaningfully recover until borders reopen and traveller confidence returns;
and that a lot of aircraft are flying around with far from desirable load
factors.
“Airlines are struggling to understand market behaviour and
demand. Historic data points are no longer valid,” said Grant. He suggests many
are turning to data from flight search sites for indicators of demand or
“frequently reverting to just gut feeling of what may or may not move”.
He continued: “What we are seeing and hearing is that demand
is lagging capacity quite quickly and this is the biggest dilemma for airlines.
Capacity is binary – a whole flight gets added but demand creeps up by a much
smaller percentage. “For many airlines this is resulting in a capacity strategy
where they place flights on sale and rapidly adjust services as necessary.
Accordingly, we are seeing higher than normal rates of cancellation at short
notice in some markets and many flights running with less than optimal load
factors,” he explains.
Grant notes contrasting approaches from the big three US
airlines recently, with Delta Air Lines and United adding back “considerable”
capacity week on week while American Airlines has scaled back.
On a recent shareholder call, Delta said its load factor for
June was a little over 40 per cent, although it is capped at 60 per cent to
ensure social distancing onboard.
“It’s fascinating to watch how these three airlines are
moving and adjusting capacity and it would be interesting to know how much of
those capacity changes are demand related compared to responding to competitive
capacity changes,” said Grant.
Corporate demand, he notes, will be the last sector to
recover. “This is part of the reason for British Airways retiring its B747s –
one of them had an 86-seat business class.”
In the short-term Grant says airlines are typically planning
to operate half of last year’s winter programmes and many are “not expecting
significant recovery” over the rest of 2020. “Cash reserves of airlines are
going to be extremely thin over the next few years so maybe we should be
speculating about consolidations and partnerships,” he suggests.
The pandemic is not going to disappear overnight so if the
travel industry and economies around the world are to step up the pace of
recovery, swift governmental action to remove lingering uncertainty is
required, says IATA’s de Juniac. Currently, ‘testing on arrival’ is the
solution championed by many in the industry.
“Most countries are still closed to international arrivals
or have imposed quarantines that have the same effect as an outright lockdown,”
he says. “Summer – our industry’s busiest season – is passing by rapidly, with
little chance for an upswing in international air travel unless governments
move quickly and decisively to find alternatives to border closures,
confidence-destroying stop-start re-openings and demand-killing quarantine.”