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.
Cathay Pacific has gained short term breathing room by securing the massive government-led bailout package that it needs to survive. Now it must turn its focus to the long term by reshaping the company to ensure that it can compete in the post-coronavirus industry landscape.
The financial support package is worth up to HKD39 billion (USD5 billion), the majority of which will come from the Hong Kong government. The bailout includes what is believed to be the government’s first direct investment in a private company. This underlines the importance of Cathay to Hong Kong’s economy, and the scale of the package illustrates the magnitude of the airline’s predicament.
Once again, the appetite of governments to intervene to help their airlines is one of the biggest factors in determining which Asia-Pacific carriers will emerge in the best shape when the COVID-19 crisis eases.
Airlines like Cathay Pacific and Singapore Airlines will have an advantage in that respect, although they still have work to do to ensure they realign themselves to the new market realities.
TO READ ON, VISIT: Bailout keeps Cathay Pacific alive, but restructure now essential
US airlines believe there are glimmers of hope during the busy summer travel season as some pent-up demand has materialised, but the encouraging signs should not be interpreted as there being a full recovery under way.
Despite some positive trends, the 2Q2020 revenue of most US airlines is projected to fall precipitously year-on-year, and will remain pressured as they continue injecting low fares into the market to stimulate demand.
There is little visibility into demand beyond Jul-2020, and the country’s airlines are continuing their work to stave off cash burn and to build up liquidity. United has become the first US airline to use its loyalty programme to secure a loan, but American seems likely to follow as it works to secure a loan from the US government.
TO READ ON, VISIT: COVID-19: demand grows, but US carriers still stockpiling cash
The concept of the ‘hyperloop’ high speed rail in a tube has been around for almost a decade, although progress towards even a working model is slow. Hyperloop is a sealed tube or system of tubes with low air pressure through which a pod containing passengers or freight may travel substantially free of air resistance or friction.
One of the many potential locations for it is the Netherlands, where a development company wishes to connect Amsterdam Schiphol Airport with airports in neighbouring countries in order to reduce its environmental footprint while freeing up slots for long haul services.
It is a very ambitious – and long term – project, but one which fits Schiphol’s approach to short haul air services.
TO READ ON, VISIT: Schiphol Airport plans to substitute Hyperloop for short haul routes
Led by Brazil, Latin America has become a hotspot for the COVID-19 outbreak. Behind Brazil are Peru and Chile, which continue to see their cases climb, and it is unpredictable when the curve will flatten in the region.
Before the pandemic, Chile had posted solid domestic passenger growth, and the market was benefitting from the establishment of low cost and ultra low cost airlines to challenge the long-dominant leader, LATAM Airlines Group.
The COVID-19 crisis has resulted in LATAM filing for Chapter 11, and it is still highly uncertain whether the Chilean government will extend financial support to the country’s airlines.
Similarly to numerous countries in the region, Chile faces major economic challenges that could create headwinds for the country’s airlines as they work to rightsize their operations in light of significantly diminished demand.
TO READ ON, VISIT: COVID-19 and aviation: Chile’s climbing cases add more uncertainty
The very modest European airline capacity recovery is continuing, albeit still at very low levels.
According to schedules from OAG combined with CAPA Fleet Database seat configurations, in the week commencing 15-Jun-2020 seat numbers in Europe are down by 81.6% year-on-year, which is 2.0ppts narrower than last week’s 84.7% drop.
Europe again has the second deepest year-on-year capacity cut, after Latin America’s 82.7% decline. Seats have dropped by 76.6% in Africa, 71.7% in North America, 71.0% in Middle East and 49.5% in Asia Pacific.
This describes the current picture; more important for European aviation is the outlook. Schedules filed by airlines for the rest of the summer are regularly being trimmed, but still overstate the likely reality, a problem that has prompted CAPA to develop its own capacity forecast models.
A disadvantage for Europe compared with Asia Pacific and North America in the initial domestic-led recovery phase is the small scale of its domestic markets. For this reason, it is vital for Europe to coordinate and facilitate access to intra-Europe international markets, which make up half of the continent’s seats.
TO READ ON, VISIT: Europe’s airline capacity recovery. Intra-Europe international is key
According to IATA, air cargo traffic measured in cargo tonne kilometres fell by 27.7% year-on-year in Apr-2020. This extended the period of negative growth to its 18th consecutive month.
Whereas declining cargo volumes had previously reflected weakening global trade and slowing economic growth, the Apr-2020 figure demonstrated the devastating impact of COVID-19.
Nevertheless, cargo traffic is strongly outperforming passenger traffic. IATA even expects cargo revenue to grow in 2020 (by 8%, versus a 61% fall for passenger revenue).
Visibility on airline revenue performance is currently limited pending 2Q2020 results reporting. Data from the two leading Taiwanese operators, which report monthly, give some additional reference points.
China Airlines’ cargo revenue was up by 153% in May-2020, and EVA Air’s was up by 161%. Much of the revenue growth was driven by yield strength. These results cannot necessarily be extrapolated to all airlines, but they illustrate cargo’s strength in the depths of the crisis.
However, although air cargo is proving more robust than the passenger side of the business, it will not be enough for the world airline industry to avoid a record loss in 2020.
TO READ ON, VISIT: Air cargo revenue to grow in 2020, as total airline revenue halves
Many of the world’s biggest airports have been reticent about saying how the pandemic will affect their long term infrastructure planning, but Singapore Changi Airport has been more forthcoming, admitting that its huge T5 project is under review. The fifth terminal was due to be completed in the 2030s and would be capable of accommodating 50 million passengers per annum in its initial phase.
A recent statement by the Singaporean Transport Minister, Khaw Boon Wan, is ominous for the industry: he has reported that his government will delay construction of a fifth terminal at Singapore Changi Airport for at least two years while it assesses COVID-19 impacts.
Changi was once the undisputed hub for the southern portion of the eastern hemisphere, but its full service network power has been partially eroded by other hubs in its region, and possibly undermined more so by the emergence of Dubai International Airport, and to a lesser degree by others in the Middle East.
There is no indication that the Changi Terminal 5 project will be curtailed, let alone cancelled, but a delay of this nature suggests that it could be.
TO READ ON, VISIT: Singapore Changi Airport’s Terminal 5: government review is ominous
Although demand in the US market continues to remain at historical lows, most of the country’s airlines are seeing some movement off the bottom, as the normally busy summer travel season is now in full swing and popular leisure destinations in Las Vegas and Orlando are starting to open up for tourists.
The US ultra low cost operator Allegiant Air, which operated approximately 70% of its original schedule in early Jun-2020, was already seeing some positive trends before the partial reopening of large leisure destinations. Generally, the company believes a solid percentage of the US population wants to travel.
However, Allegiant is also understandably taking a cautious approach as it navigates the US slowly opening up after weeks under quarantine. Demand has risen from the bottom, but a complete rebound remains tough to predict.
As a result, Allegiant is working to rightsize its fleet, and reduce its daily cash burn.
TO READ ON, VISIT: COVID 19: Allegiant Air – cash burn improves as bookings improve
In the week commencing 8-Jun-2020, seat numbers in Europe were down by 84.7% year-on-year, according to schedules from OAG combined with CAPA Fleet Database seat configurations, which is 1.5ppts narrower than last week’s 86.3% drop.
Europe now has the second deepest year-on-year capacity cut, after Latin America’s 85.3% decline. Seats have dropped by 81.0% in Africa, 73.0% in North America, 72.7% in Middle East and 51.4% in Asia Pacific.
Unless there is a second wave of the COVID-19 pandemic, Europe appears to have moved beyond the very worst of the capacity cuts. Nevertheless, it is still at a very low level of capacity.
Moreover, schedules data for the rest of the summer 2020 season are still projecting unrealistically high levels of capacity. For example, OAG/CAPA data for the week of 6-Jul-2020 project seats at 89% of 2019 levels. This is a fiction compared with announced plans from leading European airline groups to operate between 20% (Air France-KLM) and 60% (Wizz Air) of last year’s capacity in 3Q2020.
TO READ ON, VISIT: Europe’s airline capacity climbs, but the schedules outlook is fiction
Kansai Airports was one of the first Japanese privatisations and is a consortium of Japanese and French companies that took over the two Osaka airports in 2015, then Kobe Airport in 2016. The consortium has published its financial report for FY2019, which includes the first three months of 2020.
The airports, and especially Osaka Kansai, were badly affected by a typhoon in 2018, followed by wholesale flight cancellations from Mar-2020 brought about by the COVID-19 pandemic.
The financial report from Kansai Airports is insightful because it covers a period following the effects of the typhoon, then followed by the pandemic, and thus indicates the extent of those impacts by external events.
TO READ ON, VISIT: Kansai Airports: riding the storm of a typhoon and a virus