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

30 March, 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: European airline RPKs worst hit. Survival gauged in months

The Purchasing Managers' Index, published by IHS Markit and a widely used indicator of business confidence, has hit record lows in Mar-2020. The indices being historically a reliable lead indicator of air traffic growth, their collapse, both for the Eurozone and the UK, is yet another sign of the massive impact of COVID-19 on European aviation.

Meanwhile, IATA has more than doubled its estimate of the negative impact of coronavirus on world airline passenger revenue in 2020 - from USD113 billion to USD252 billion (30% of previously forecast total revenue).

This impact is expected to be felt most by airlines in Asia Pacific and Europe, while Europe is likely to suffer the greatest percentage RPK fall. Airlines eliminate variable costs by grounding aircraft, and they are doing what they can to reduce labour expenses - the biggest fixed cost.

Nevertheless, a loss for the world airline industry in 2020 now looks inevitable.

The typical European airline's liquidity was two months of revenue at the outset (similar to those in other regions).

There are some stronger airlines, but even after mitigating action on costs, survival for most in a zero demand environment is a matter of months.

TO READ ON, VISIT: COVID-19: European airline RPKs worst hit. Survival gauged in months


Qantas cuts deep, but well placed to weather COVID-19

Like almost every airline around the globe, Qantas has been blindsided by the freight train that is the Covid-19 outbreak.

The abruptness of the airline's change in outlook has been dramatic. A few months ago Qantas was comfortably on track and focusing on new aircraft orders; on 20-Feb-2020 its share price rose almost AUD1.00 to AUD6.67 following its 1H results announcement and its forward looking plans to combat the threat; by 19-Mar-2020 that price had slumped to AUD2.14.

Now the airline is announcing previously implausible measures as it cuts back its network, fleet and workforce.

The carrier has acted swiftly and has not been afraid to make drastic moves - a hallmark of the current management in everything from crisis management to labour relations.

International operations will be suspended completely, with domestic capacity cut by 60%. About 150 aircraft will be grounded, and two thirds of the carrier's 30,000 employees will be stood down.

Tough measures, but in the circumstances - entirely judicious.

TO READ ON, VISIT: Qantas cuts deep, but well placed to weather COVID-19


COVID-19. Data on virus case numbers are aviation's lead indicator

As the number of global COVID -19 coronavirus cases continues to grow, world airline capacity declines are accelerating weekly.

Asia Pacific has been hardest hit, although the rate of seat decline has slowed, mainly reflecting a flattening of the curve of COVID-19 cases in China. By contrast, the rate of fall in Europe, Middle East and Africa is accelerating. North America is relatively stable so far, while Latin America capacity is still growing (but growth has slowed).

Current OAG schedules data (combined with seat configuration data from the CAPA Fleet Database) show a year-on-year fall in global seat capacity of -14.7% for the week of 16-Mar-2020 - the fastest drop so far this year. They also project that the decline will narrow to -4.0% by the end of Apr-2020.

However, these statistics inevitably lag reality, and will do so until forward looking schedules data fully reflect recent (and still evolving) airline plans to shrink further. Moreover, demand is falling faster than capacity.

TO READ ON, VISIT: COVID-19. Data on virus case numbers are aviation's lead indicator


COVID-19: time is running out for distressed Latin airlines

The predictions for plummeting revenue for global airlines triggered by the rapid spread of COVID-19 continue to intensify, and no region of the globe will escape the devastation.

IATA's latest data show that Latin America will experience one of the starkest declines in traffic for 2020, second only to Europe's. Many airlines in the region have ceased their operations completely as countries in Latin America close their borders in order to combat the spread of COVID-19.

Airlines in Latin America are navigating the COVID-19 crisis with varying degrees of strength.

One of the region's largest operators and Colombia's flag airline, Avianca, is in a unique situation, having just completed a major restructuring of its debt and aircraft order book. However, the airline remains one of the most highly leveraged in Latin America, which could create challenges for Avianca as it works to sustain and increase its liquidity during the COVID-19 pandemic.

Avianca has now ceased all commercial passenger operations, and the revenue hit from the grounding will be intense. At this point, governments in Latin America have been slow to offer support to airlines during the crisis, and the region's major airline association is warning that some operators could have a short window for survivability without government aid.

TO READ ON, VISIT: COVID-19: time is running out for distressed Latin airlines


COVID-19 and European airlines: zero capacity becomes a reality

Ryanair CEO Michael O'Leary has summarised the priority for his airline, which applies equally to all airlines currently: to preserve cash. "If we have to operate for three, six, nine, maybe even 12 months, with no flights and no revenues how do we survive?", he said.

The main tool at airlines' disposal for preserving cash is to make drastic cuts to capacity.

Total seat capacity in Europe has dropped by 59.1% year-on-year for the week commencing 23-Mar-2020, according to the latest schedules data from OAG combined with CAPA Fleet Database seat configurations. Domestic capacity has almost halved, reduced by 48.3%, and international capacity has been slashed by 62.9%.

Italy has the biggest percentage cut - reduced by 87.5% year-on-year - while Finland, Spain, Germany, Denmark, Greece and Belgium are also shrinking capacity by more than 70%. Of Europe's top 20 airline groups, 18 are showing cuts, and most of them very substantial.

However, data for some still do not appear to reflect full details of some recent announcements. The rate of reduction is certain to increase. At some point, zero capacity could even become a reality for European aviation.

TO READ ON, VISIT: COVID-19 and European airlines: zero capacity becomes a reality


COVID19: Latin American airlines now dramatically cut capacity

The intensity of the COVID-19 coronavirus has upended the global airline industry, and now airlines in Latin America are starting to face the severity of the virus' rapid spread.

Airlines operating in the region are taking action that mirrors those of operators across the world, including slashing capacity to unheard-of levels. Copa is warning of the most dramatic actions, including the possibility of a complete temporary shutdown of operations in Apr-2020.

In South America, Brazil has the largest number of confirmed COVID-19 cases, and demand appears to have diminished quickly in the country's domestic market. Its three largest airlines - GOL, LATAM Airlines Brazil and Azul - are instituting dramatic capacity reductions starting immediately. Those cuts are continuing over the next couple of months until there is more clarity around when the severity of the COVID-19 pandemic will diminish.

TO READ ON, VISIT: COVID19: Latin American airlines now dramatically cut capacity


COVID-19: bailouts for airport investors? Only China plans expansion

Much is made of the disastrous impact of the current COVID-19 coronavirus pandemic on the airline sector, but airports are suffering too, of course, and those organisations which invest in airports must reappraise their strategies. The remorseless progress of the coronavirus globally is threatening the world's air transport and tourism industries in 2020 and beyond.

A company does not easily come back from disasters of this order, even if the mechanics and infrastructure of the industry remain in place.

In most countries the majority of airports are still state-owned (central, regional or local government); in others, the private sector runs the show. Those private sector investors entered the business because it was perceived as a safe haven for pension funds, for example, with perhaps relatively low returns but proven longevity.

Now, the airports, like the airlines, will hit severe cash flow problems quickly, if they have not already. While some airport development projects will continue because too much time and energy has already been invested to do otherwise, others will inevitably be delayed and possibly for years, rather than months. That is hardly an enticing prospect to a potential investor.

For some, perhaps many, airport investment is not going to look like the long term cash cow it was up until January of 2020.

TO READ ON, VISIT: COVID-19: bailouts for airport investors? Only China plans expansion


COVID-19: will the virus pandemic hasten consolidation in Mexico?

At some point, nearly every region of the world will face the major crisis created by the COVID-19 coronavirus pandemic, which is now continuing its march into Latin America. Although cases in Latin America have not yet reached the levels in other countries, the region's aviation markets are beginning to see a precipitous slide in demand.

Three of Mexico's larger airlines are either cutting capacity or pulling down part of their operations, and it is likely that the country's other operators will begin to adjust their schedules, since restrictions on travel between Mexico and US are now fully in place.

Most of Mexico's major airlines appear to be on a reasonably solid footing for emerging from the evaporation of demand created by the devastation of the COVID-19 outbreak, but some operators are in stronger positions than others. And the occasional calls for consolidation in the country's aviation market could be accelerated by the COVID-19 pandemic.

TO READ ON, VISIT: COVID-19: will the virus pandemic hasten consolidation in Mexico?


Bristol Airport (UK): expansion plans halted for a second time

During 2019 the focus was very much on environmental opposition to airport expansion as part of the response to 'climate change', and also on the air transport business' tardiness to react cohesively to spokespeople for the environment. In the space of a few short weeks this year the entire ball game has changed, as dodging the COVID-19 coronavirus has become the priority.

But environmental issues remain important, even while the travel and tourism industries are doing their best to stay in one piece and to avoid the loss of aviation companies - airlines, airports, supporting infrastructure - and of millions of jobs.

In some cases the environmental issues are paramount. One such place is Bristol, UK, where local councillors won't even let the airport build a new car park while public transport access is inadequate.

TO READ ON, VISIT: Bristol Airport (UK): expansion plans halted for a second time