Winter airline capacity reflects on global trends
October 30, 2024
As the seasons change, global airline winter capacity trends look positive. However, fleet shortages, supply chain issues and geopolitical challenges will continue to impact the sector.
Capacity for the year to the end of 2024 is projected to be 6.4% ahead of 2023, and 3.1% ahead of 2019 according to analysts at OAG, a global air travel data provider.
During the second half of this year, much of the capacity discipline seen through 2023 and the early part of 2024 which resulted in outstanding airline profits has began to break down, with more capacity being added, observes John Grant, the chief analyst at OAG. These factors aligned with a weaker economic situation in some places is creating softer yields, he stated.
“It’s a concern at any time of the year, but certainly going into the winter,” said Grant. The good news for airlines is that the price of oil is cheap at this moment with reports of a glut of oil for 2025,” he continued.
Grant thinks an extreme spike in oil prices in the next 12 months is unlikely, unless, perhaps, another geopolitical event occurs.
Regional Capacities
OAG data portrays a fairly upbeat scenario versus last winter with pockets of strong growth in Asia-Pacific, Europe and Latin America and some steadiness in other markets like the Middle East, Africa and North America.
The lack of significant growth in the Middle is because the region bounced back quicker than any other part of the world so that capacity was already up and back. “Also, anyone following the discussions between Boeing and Emirates and indeed with Qatar Airways, we will know the frustration the airlines have at the aircraft manufacturing for non-delivery of new aircraft, including the new 777, which is important for them,” Grant commented.
Winter capacity in Europe is slightly down on pre-Covid 2018 levels and Grant alludes this to constraints at airports, capacity caps and some markets losing their domestic activity.
“In Germany, for example, domestic traffic and services have been dramatically cut because Lufthansa’s network is being rationalised. “Basically, we have lost five years of growth in the European market,” Grant stated.
In the US market, the airlines, particularly low-cost operators have been taking deliveries and bringing that capacity in. Grant reckons its now a battleground between the legacy and the ultra-low-cost (ULCC) airlines . “The legacy operators are better able to move capacity into international sectors. We are seeing more European capacity coming from United, Delta and from American Airlines because it takes them away from competing with the ULCCs,” Grant alluded.
In fact, United has launched its largest winter schedule ever with a focus on Africa, Southern Europe and Latin America [internationally]. The airline will extend services to Greece, Spain, Italy, and Portugal this winter. United will also extend several seasonal routes into the autumn and winter months, including nonstop service to Milan and Rome from Chicago O’Hare and Madrid from Washington Dulles now flying until December 2024 and daily flights between Washington/Dulles and Lisbon, now extended to January 2025.
Grant believes the legacy US carriers have enough capacity and hub strength to revenue manage and complete for those ultra-low fare passengers alongside carriers like Spirit, Frontier and Allegiant.
“They [legacy] can put themselves in and out of a market much quicker than those low-cost carriers. So, I think subtle switching of capacity to international markets has been very positive for the legacy airlines -but it is left a trail of carnage behind it where airfares are coming down,” Grant added.
Grant believes the ULCCs are somewhat struggling because they do not have the critical mass at particular airports and in some instances, competing head on across the ramp with a legacy carrier. Rumours are circulating that Spirit Airlines is preparing for some sort of refinancing programme so perhaps indicative of the pressure on ULCCs.
Elsewhere, OAG data indicates vast volumes of Chinese capacity and demand still in the domestic market with international capacity for China now down at 9%. There was a sense that post-pandemic travel had fully reopened in China but as the data shows, in capacity terms, its not happening yet.
Observers might see a peak period of demand around Chinese New Year, but again, it will probably be more domestic than international, and if it is international, it is likely regional.
However, some Chinese airlines have turned their attentions to Europe in response to a slew of European airlines dropping China services largely due to overflight issues over Russia and Ukraine that make those services uneconomic.
Chinese airlines have a competitive advantage of flying over Russian airspace, with an operating cost base that is 30 to 40% cheaper than their European counterparts. The longer routing to reach these markets will typically have a three-hour extended block time in some cases.
British Airways, Virgin Atlantic and Lufthansa are some of the carriers’ pulling services out of China due to load factors of circa 55% and dropping fares. “Chinese airlines believe they’ve spotted an opportunity to generate some hard dollars or euros and have flooded the market, but the market hasn’t responded,” Grant indicated.
Supply Chain Issues
Covid-induced supply chain challenges still persist, certainly through the winter. Some of the issues flagged up include the availability of skilled resources, fleet shortages and some maintenance aspects. In fact, according to OAG, 7% of the global fleet are out for maintenance and suggestively, that figure at the higher end.
Reportedly, around 420 Pratt & Whitney powered A320Neo’s are still parked waiting on engine shop availability following troubles with the GTF powerplant. The problems are so crucial that an airline like Volaris in Mexico has 40% of its fleet grounded because of engine issues – allegedly.
There is also a lot of capacity coming from subleasing activity with Finnair being a typical example, “They have leased aircraft out to nearly everyone,” Grant noted. He highlighted services from Singapore to Australia with Qantas operated by Finnair aircraft and their leasing activities extend to the short haul fleet too.
“The irony of heading to the winter is, this is normally a period when airlines accelerate their maintenance work and bring more aircraft in for maintenance, but it is not the case this year,” Grant concluded.
