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

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.

Domestic aviation markets. The ‘good’, the ‘bad’ and the ‘ugly’

The COVID-19 crisis has thrown aviation and travel markets into chaos. Steep declines in airline capacity have been recorded and all eyes are on markets showing signs of recovery.

It is generally recognised that international operations will be more complex and limited than domestic markets, where standardisation of processing is possible. Internationally, consensus on inflight and airport standards will be slow in coming.

But ‘green shoots’ are expected first in countries with large domestic aviation markets.

Those that bring COVID-19 outbreaks under control will be the first to recover. Others will watch closely to see how these fare and whether the opening up of air travel is accompanied by new waves of infection.

The good the bad and the ugly classification is essentially a spectrum of risk. The “good” markets are lower risk, those which appear to be cautiously opening up, as coronavirus cases trend downwards or are already very low.

TO READ ON, VISIT: Domestic aviation markets. The ‘good’, the ‘bad’ and the ‘ugly’

Indigo Partners MD, Bill Franke, and COVID 19: LCCs best placed

Industry veteran and Managing Director of Indigo Partners William (Bill) Franke believes the two most pressing issues airlines are facing as they attempt to recover from the sudden onset of the COVID-19 pandemic are ensuring that they can achieve breakeven cash flow, and ensuring that passengers feel safe to travel.

During CAPA’s fourth online Masters Class Mr Franke stated that airports and airlines needed to convince passengers through a series of actions before a vaccine is available that it is safe to travel, and a more coordinated effort, which is largely absent today, is necessary.

There will obviously be some marketplace changes as airlines work to adapt to a post COVID-19 reality, but Mr Franke remains bullish on the resiliency of the ULCC model. It is yet to be determined whether Indigo will ultimately be successful in its pursuit of Virgin Australia, but Mr Franke believes the Australian market is interesting, and needs two airlines.

In many cases, airlines are scurrying to rework their order books, which will create pressure on aircraft prices.

From now, Indigo feels reasonably comfortable with its large order book with Airbus, and Mr Franke said that airframers and lessors were working to find solutions that would work for everyone. However, there will inevitably be some pressure on aircraft pricing in the near term.

TO READ ON, VISIT: Indigo Partners MD, Bill Franke, and COVID 19: LCCs best placed

CAPA: 60% recovery in domestic Australia capacity by end-2020

Based on a combination of analysis of government statements, airline projections and underlying demand, CAPA’s Airline Capacity Model projects a slow, phased recovery in domestic air capacity in Australia through the remainder of 2020. Reaching 37% of last year’s volume by early July, Prime Minister Scott Morrison has foreshadowed a return to intra-state travel under the Federal Government’s three phase plan to ease coronavirus restrictions.

CAPA – Centre for Aviation (CAPA), the world’s most trusted source of market intelligence for the aviation and travel industry, is pleased to announce the launch of its Airline Capacity Model, developed to provide the aviation and travel industry with a robust and granularguide for future air capacity projection.

TO READ ON, VISIT: CAPA: 60% recovery in domestic Australia capacity by end-2020

COVID 19: US low cost airlines – advantages over full service carriers

US low cost and ultra low cost operators have a more positive outlook about a recovery in demand than their larger global airline peers, as they believe their simplified fleets and less complex network structures could be advantages in an environment where COVID-19 continues to reshape the industry for the short to medium term.

Airlines including JetBlue, Spirit and Frontier believe their targeted passenger bases – leisure, VFR (visiting friends and relatives) and cost conscious consumers – will rebound before corporate customers, a factor which they believe will give them an edge when a recovery begins in earnest.

Although those airlines are showing a certain level of optimism, most of those operators remain realistic about the long road to recovery, despite the general consensus that demand has bottomed out.

TO READ ON, VISIT: COVID 19: US low cost airlines – advantages over full service carriers

Airline domestic route rankings highlight Asia-Pacific recovery

Changes in the global rankings of domestic air routes illustrate that at least for now, Asia-Pacific markets are generally weathering the COVID-19 crisis better than those in other regions.

Having been severely affected early in the pandemic, domestic markets in Asia appear to have bottomed out sooner, and can reasonably be expected to be leaders in the airline industry’s recovery.

Asia-Pacific city pairs have featured heavily in lists of the busiest domestic routes in recent years, and the pandemic has amplified their dominance. Remarkably, only four of the current top 100 domestic routes – as measured by capacity – are from outside the Asia-Pacific region, according to schedule data from CAPA and OAG.

This dynamic is partly due to the fact that some of the key domestic markets in Asia have not declined as much as they have elsewhere. And others in this region that were hit harder – such as China and South Korea – are now recovering.

The picture will remain volatile in the medium term as countries resume domestic flights at different times, which will affect the rankings.

It is also important to note that just because seats are being added back does not mean they are full, and load factors and demand remain weak. In many cases airlines have been flying routes with little or no passenger demand in order to maintain essential freight links.

TO READ ON, VISIT: Airline domestic route rankings highlight Asia-Pacific recovery

COVID 19: JetBlue Airways’ advantages for weathering the storm

JetBlue Airways is joining other US airlines in expressing some cautious optimism that plummeting demand triggered by the COVID-19 pandemic has bottomed out. However, the company is also warning that it has no idea about the timing and shape of a recovery.

In the meantime, JetBlue is using universal strategies adopted by airlines worldwide to survive the crisis – deep capacity cuts, operating a fraction of its fleet, and working to bolster its liquidity to withstand the continuing uncertainty stemming from the pandemic.

But JetBlue believes it could emerge from the crisis at an advantage, given its tilt towards leisure customers. Nevertheless, all airlines will be working to attract those passengers, because business demand is expected to lag the start of any recovery in the leisure segment, which will create challenges for all airlines in being able to attain pricing traction.

TO READ ON, VISIT: COVID 19: JetBlue Airways’ advantages for weathering the storm

Wizz Air to recover in one year, vs 2-3 for airline industry – Varadi

At CAPA’s online Masterclass on 6-May-2020, Wizz Air CEO and founder Jozsef Varadi presented a bullish view. In spite of the frustrations of multiple and fragmented travel restrictions across Europe, most people were “excited about travel opportunities” and he expected “normal capitalism” to return.

Wizz Air’s strong cash position (more airlines should be “managed for cash and not just paper profit”) should see it through an extended crisis.

It plans to grow its fleet from 121 aircraft currently to 145 within a year. Mr Varadi sees opportunities for the airline to stimulate demand with its low cost model and to benefit from the exit of weaker airlines. Growth will continue to focus on Wizz Air’s Central/Eastern Europe core, but will also include Western Europe and markets further east.

Government bailouts “preserve inefficiencies”, but Mr Varadi predicts that Wizz Air will recover in around one year, compared with two to three years for the airline industry as a whole.

TO READ ON, VISIT: Wizz Air to recover in one year, vs 2-3 for airline industry – Varadi

COVID 19. Will Avianca successfully emerge from Chapter 11?

Avianca Holdings’ decision to seek Chapter 11 bankruptcy protection was hardly surprising. Despite making some progress in restructuring debt during the past year, Avianca entered the crisis spurred by the COVID-19 pandemic in a weaker position than many airlines. With little government support and debt coming due, bankruptcy was the company’s only choice to attempt to weather the crisis.

Before the crisis, Avianca was overhauling its operations, focusing on bolstering Bogotá as a connecting point and expanding international operations from the airport. But obviously that strategy will be put on hold for the foreseeable future as borders remain closed and international demand is not forecast to rebound for a number of years.

At this point there is no certainty that Avianca, Colombia’s largest airline, will ultimately emerge from bankruptcy intact.

If one of the oldest airline brands ceases to exist the likelihood of any operator stepping in to fill the void left by Avianca is low, since airlines are in the midst of working to determine their optimal size in a post COVID-19 environment.

TO READ ON, VISIT: COVID 19. Will Avianca successfully emerge from Chapter 11?

COVID 19: Brazil’s Azul – advantages in multi fleet strategy

Brazil’s Azul believes the use of multiple fleet types is creating an advantage as the company navigates the crisis created by the COVID-19 pandemic.

Brazil’s government has mandated that airlines operate essential air services during the COVID-19 pandemic. Azul has a range of aircraft at its disposal, spanning from nine-seat Cessna Caravans to 214 A320neo family jets, to match capacity with demand that is starting a slow recovery in the country. Azul’s current assumption is that it should be operating 40% of its original schedule in Dec-2020.

Although Azul has always operated a lower cost, hybrid model in Brazil’s market, it has not adopted the conventional strategy of point-to-point operations, and operates a hub structure in the country.

A diverse fleet and a network that optimises connections have been mainstays of Azul’s strategy for most of its 12 years of operations, and those elements continue to serve the airline favourably as it works to optimise its schedule in what remains a challenging operating environment.

TO READ ON, VISIT: COVID 19: Brazil’s Azul – advantages in multi fleet strategy

COVID-19: CAPA lists airports’ varied sanitary protection measures

Most of the discussion around the future of air travel has focused on the in flight experience, such as achieving some form of social distancing, sanitary controls and the resulting operating economics.

But for passengers, the entire journey is only as safe as its weakest link, between origin and destination. A key ingredient of that journey is passing through at least two airports, on departure and arrival. And ideally, that experience should be standard – and safe.

It is clear that a new industry segment is forming, the same way as it did to tackle security and environmental issues. Airports are going to have to make extensive changes to the way passengers are handled. One obvious element of that is avoiding queues.

It is going to be big and expensive and someone – in one way or another, the passenger – is going to have to pay for it.

TO READ ON, VISIT: COVID-19: CAPA lists airports’ varied sanitary protection measures