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.
Total seat numbers in Europe have dropped 86.5% year-on-year in the week commencing 11-May-2020, according to schedules from OAG, combined with CAPA Fleet Database seat configurations.
This is very fractionally better than the previous week’s 87.1% decline, but the third successive week very close to -87% after hitting a low of -90.4% in the week of 20-Apr-2020.
Europe’s cuts are the deepest among world regions (just). Seat count in Latin America is down by 86.4%, fractionally better than in Europe. It has been reduced by 79.8% in Middle East and in North America, 78.1% in Africa and 55.6% in Asia Pacific.
European airline capacity continues to bump along the bottom. Moreover, the U shape in the capacity recovery anticipated by Europe’s filed airline schedules is still widening.
More positively, the widening of the ‘U’ is starting to slow, and lockdown restrictions in much of Europe are starting a gradual and cautious process of easing. This is a positive and necessary development for European aviation demand to return.
However, the easing of restrictions is unlikely to follow a straight line. Considerable uncertainty remains ahead.
TO READ ON, VISIT: Europe’s airline capacity bumps along the bottom; lockdowns ease
The US ULCC Spirit Airlines continues to operate at a fraction of its original schedule, with the US summer season about to start at the end of May-2020, but the airline is expressing some cautious optimism about bookings and pricing.
However, the slight move upward in those metrics is off a very low base, as the COVID-19 pandemic has essentially wiped out demand in a matter of weeks.
Spirit is joining other airlines worldwide in attempting to determine the optimal size for its company in the aftermath of the crisis. As it works through those evaluations, the airline is one of many engaging with Airbus about deferring deliveries of aircraft, and Spirit expects to push back some deliveries scheduled for 2020 and 2021.
TO READ ON, VISIT: COVID 19: Spirit Airlines sees light on the horizon
London Gatwick is facing the risk that after COVID-19 it may lose all three of its leading long haul airlines – Norwegian Air, British Airways and Virgin Atlantic (jointly responsible for two thirds of its long haul seats in summer 2019).
Norwegian is grounding its entire fleet until a planned 2Q2021 relaunch with lower capacity (particularly in long haul). BA is reportedly considering closing its Gatwick base to consolidate on its larger London Heathrow operation. Virgin Atlantic has announced the closure of its Gatwick base after 36 years to focus on Heathrow.
Gatwick had 15% of UK long haul seats and almost a quarter of UK long haul routes in summer 2019. The airport had one sixth of UK-North America seats, and almost half of the UK-Latin America seats. It also served destinations in Asia Pacific and sub-Saharan Africa, albeit with limited capacity.
The absence of the three airlines from Gatwick would not only put a serious dent in the airport’s long haul network. It would also leave a big hole in the UK’s long haul alternatives to Heathrow.
TO READ ON, VISIT: Norwegian, BA & Virgin’s Gatwick exit would dent UK long haul aviation
Brazil’s largest domestic airline, GOL, is taking all the necessary steps to weather the COVID-19 crisis, including gutting its capacity and building up liquidity. The airline is also reassessing its fleet, and because there is still no visibility of how long it will ultimately take for demand to return to its pre-crisis levels, GOL has opted to cancel a number of its Boeing 737 MAX deliveries.
GOL has also received compensation from Boeing related to the grounding of the MAX that has helped the company strengthen its liquidity. And even though it has decided to shrink its MAX order book, GOL believes there could be opportunities to accelerate its fleet transition to the MAX once the crisis is over.
TO READ ON, VISIT: COVID 19: Brazil’s GOL remains bullish on the 737 MAX
While airport privatisation procedures and deals have been suspended around the world, the timescale is only slightly amended in Japan, where the next one, that of Hiroshima Airport, has only been put back by a matter of months.
Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) plans to delay the schedule for privatising Hiroshima International Airport by three months, due to the impact of coronavirus on air travel.
The airport is now scheduled to begin private operation in Jul-2021, rather than Apr-2021.
Japan is a country where the notion of privatising airports had not advanced as far as it had in some economically comparable countries. Government deficit was a major reason, but the need to boost tourism and the growth of LCCs were main driving forces for a change of mind in that respect. The concept of privatisation as a “good thing” is now broadly agreed upon by political parties and there is common ground and a common purpose: to increase tourism.
Japan’s airport privatisation got off to a slow start, and the authorities are adamant it will now stick to its timescale, come what may.
TO READ ON, VISIT: Hiroshima Airport privatisation delayed, but only by 3 months
The last CAPA report into Berlin Brandenburg Airport (Dec-2019) declared that it was finally set to open in Oct-2020 and asked: “What can go wrong now?” Well, now we know.
The story of Brandenburg’s financing and construction, and the huge problems it encountered with its electrical wiring and fire control systems, is a long one, and has been chronicled many times by CAPA. In Dec-2019 it was reported that there were concerns that the new airport might even be demolished and rebuilt on account of the technical issues it had faced.
Terminal 1 has now been certified to handle passenger operations upon commissioning of the airport on 31-Oct-2020. FBB can now start preparations for operational readiness and airport transfer (ORAT) activities at the terminal. At the same time, final interior renovations for retail concessions will be carried out in the coming months.
The opening date is ‘reconfirmed’ with the news that the terminal building, which once had thousands of faults, has been cleared to handle passengers, but the new challenge will be to convince airlines to return and carry on where it all left off.
TO READ ON, VISIT: Berlin Brandenburg Airport’s terminal certified for opening – at last
Panama’s Copa Holdings entered the crisis spurred by the COVID-19 pandemic in better shape than some of its peers in Latin America, but the company still faces challenging times. And as a result, Copa is joining airlines worldwide in attempting to build ample liquidity at the same time as contemplating its future size in a post pandemic world.
Similarly to many other airlines, Copa could emerge from the crisis as a smaller company, and the airline is already taking steps in that direction by outlining its evaluation of whittling its fleet down to two types – Boeing 737-800s and the 737 MAX.
In the short term, Copa is planning to restart operations on 1-Jun-2020, offering just a fraction of the capacity it had originally aimed to deploy during that period. The company aims to build back up slowly over the rest of 2020, but its operations will continue to be significantly reduced, year-on-year.
TO READ ON, VISIT: COVID-19. Copa Airlines: attempting to determine its optimal size
Fraport has published its 1Q2020 financial statement and report. Fraport Group operates airports or facilities in Germany (Frankfurt Airport), elsewhere in Europe, in Russia, Africa, Asia, North America and Latin America.
In 1Q2020 the business operator was heavily impacted by the virus pandemic. For the first time since the group’s IPO in 2001, its net profit (group result) was in negative territory.
In common with others, it experienced a sharp downturn in business in the last month (Mar-2020) but not enough to wreck the quarter. Revenue declined “significantly”, according to Fraport, but the revenue figure could have been worse. It was only in the last two weeks of Mar-2020, at the end of the reporting period, that wholesale cancellation of flight schedules began at Frankfurt and other key airports in the group, for example those in Greece.
According to Fraport’s CEO Dr Stefan Schulte, Fraport is “continually reassessing whether the steps now being taken to trim costs will be enough to safely pilot our enterprise though this crisis”.
The next quarter is expected to be worse.
TO READ ON, VISIT: Fraport’s revenue declines into negative in 1Q2020 – outlook uncertain
The US ULCC Frontier Airlines has a brighter outlook than most other airlines working to survive through the COVID-19 pandemic. The company believes it will have its entire fleet back in operation in Jul-2020, and most of its network restored.
It is a far different view from those expressed by Frontier’s competitors. The consensus is that demand will not reach pre-pandemic demand levels for two to three years at a minimum, which is resulting in most airlines working to determine how to size their companies in a post-pandemic world.
Of course, Frontier is a much smaller airline than the global operators that are parking aircraft and accelerating fleet retirements. But once the crisis is over, airlines will be competing fiercely for a smaller pool of passengers, which could result in an abundance of low fares in the market to entice travel.
That will continue to create pressure on revenues for Frontier and all airlines for the foreseeable future.
TO READ ON, VISIT: COVID 19: Frontier Airlines has a more bullish view than most
Italy was hit by coronavirus, and suffered airline schedule cuts, before Europe’s other big markets. It has also been the first market where capacity has started to rise again. Weekly seat count is up almost threefold over the past three weeks (but has still dropped 77.5% year-on-year in the week of 4-May-2020). This makes it number one in Europe this week.
Italian airlines have a decreasing presence in the much-reduced Italian market and the crisis has the potential to wipe them out entirely. Italy plans to fight this by renationalising Alitalia.
The more important question is whether it might be better to save public funds and allow the market to meet demand in the recovery? Italy’s annual seat count grew by 31% in the five years to 2019, bettered only by Spain among Western Europe’s five big markets, but growth was driven by foreign airlines (mainly LCCs).
Italy is historically Europe’s number five aviation market by annual seats, behind UK (the largest), Germany, Spain and France. Once the recovery is under way, Italy is likely to remain one of Europe’s major markets, even if its time as number one proves only temporary.
TO READ ON, VISIT: Italy: Europe’s #1 by airline seats – briefly. Alitalia bailout looms
In comparison with others, two of Mexico’s three publicly listed airport groups appear not to have been too badly affected yet by the current COVID-19 situation, reporting consistent financial results for the first quarter of 2020; international traffic has not fallen too dramatically and domestic traffic has increased.
OMA (Grupo Aeroportuario del Centro Norte) reports a small fall in revenues of only 2.3%, and its net profit soared by 28%. GAP (Grupo Aeroportuario del Pacífico) advises that its revenues actually increased by 35% in the period, with a net profit increase of 29%.
However, traffic results from the third one, ASUR, which has a greater exposure to foreign assets, present a warning. Although ASUR had not revealed its own 1Q2020 result at the time of writing, in 1Q2020 it reported a 95.7% reduction in passenger traffic in Mexico, 94.5% in Puerto Rico, and 99.9% in Colombia, attributed to the impact of the pandemic.
Exposure to foreign airport ‘assets’ can have unexpected consequences.
TO READ ON, VISIT: COVID-19: Mexican airports not so badly affected – yet
Airport financial reports are now coming thick and fast for 1Q2020, a quarter which opened brightly for most of them but finished disastrously.
One of the latest is that of Heathrow Airport Holdings, which once had seven airports in London and the wider UK but now is reduced to operating only London Heathrow Airport – although that remains the busiest one in Europe, for now. When many regional UK airports have all but closed, Heathrow has to remain open to keep what remains of the UK economy ticking over.
Services are being rescheduled for as soon as this month, but with the airport’s third runway all but written off, it is likely to come under renewed attack from the environmental lobby, having been reduced to one runway, a couple of terminals and just a few thousand passengers each day.
TO READ ON, VISIT: Heathrow Airport: 1Q2020 revenue down 13%, capacity reduced
Southwest Airlines is adopting a slightly different approach to managing its capacity during the COVID-19 pandemic. The company’s capacity cuts during the next few weeks are not as deep as those of its competitors, a decision driven by its conclusion that it is easier to take capacity out of the system than add supply back into its schedule.
The airline is working to preserve as many itineraries as it possibly can throughout the crisis and at this point, the majority of those itineraries remain intact. But Southwest is stressing that it will take more capacity out of its operations if demand continues to be weak.
Southwest is also joining other airlines in working to ensure that passengers feel comfortable travelling over the next weeks and months, including the company capping bookings on an aircraft so passengers can practise social distancing.
But at some point, airlines need to strike a balance between social distancing and maintaining the affordability to travel by air.
TO READ ON, VISIT: COVID-19: Southwest Airlines: nuanced crisis management
Sweden’s main airport operator was already facing up to tough challenges in 2020 before it was hit – like every other operator – by the coronavirus, the ‘beast from the east’. Those challenges came in the form of the locally headquartered global environmental movement.
On the face of it, the organisation’s first quarter 2020 financial results do not look to be too bad, but they were alleviated by the sale of a hotel, which boosted the bottom line.
As is the case with all other operators, Swedavia is coming to terms with ‘the new normal’, whatever that turns out to be, but is determined to help kick-start the economy as soon as it can.
TO READ ON, VISIT: Swedavia’s 1Q2020 financial report: hotel sale saves the day