After several years of above-average growth rates, airlines have tempered their expansion this summer. While that is evident across the industry as a whole, there are several notable hot-spots where players have reined in their activity.
Against a relatively benign economic backdrop, and with demand for air travel expanding, airlines have increased capacity at above-trend rates in recent years.
Global seat capacity has largely been growing at between 5.5% and 6%, while ASK growth has typically been around the 7% mark over the last five years.
But analysis of Cirium schedules data for September shows airlines across the industry increasing seat capacity by 3.4% and their ASKs by 4.1%. That trend has similarly been seen in August and July, the data shows.
Many factors are no doubt contributing to this, among them demand concerns amid a fragile economic and geopolitical backdrop, a desire to consolidate after recent growth, and supply issues such as the grounding of the Boeing 737 Max.
While plenty of markets continue to grow at above-average rates, there are a number of segments where some of the recent strong growth has been curtailed.
HEAT DROPS IN EUROPE
After rapid growth over recent years, a notable feature this summer has been slower capacity growth on routes within Europe.
Airlines within the region have been increasing capacity at a rate of between 5.5-6% over the last five years – and in terms of ASKs by close to 8%.
But Cirium schedules data for September shows seat capacity on routes within Europe rising only 1.6% and by 2.5% in terms of ASKs.
While that in part reflects some of the airline casualties in Europe over the past 12 months – which has taken the likes of Cobalt, Flybmi, Germania, Primera, SkyWork and Wow Air out of the market – the previous years have similarly seen big European operators like Air Berlin, Niki and Monarch stop flights.
Notably, however, last summer much of this capacity within Europe – particularly leisure traffic linking Germany and Austria to European holiday resorts – was picked up by rivals bidding to fill the market opportunity.
In September 2018, six of the 20 biggest operators on intra-European routes increased seat capacity in excess of 9%. This September only one carrier did so. That airline, UK leisure operator Jet2, lifted seat capacity 11% in September. That, though, is less than half the almost 25% seat growth it showed last September.
EasyJet added the most amount of capacity in September 2018 – in absolute terms – though Eurowings’ growth would top that of the UK carrier if capacity switched from Lufthansa Group sibling Germanwings were included. EasyJet’s place at the top of the list reflects its rapid growth at Berlin Tegel using assets acquired from Air Berlin. By contrast, it has increased seats only 3% this September.
More constrained growth this summer had already been flagged by some carriers, notably those fearing a repeat of the service disruption and knock-on compensation payments stemming from a torrid summer of air space delays and industrial action. Lufthansa, for example, had outlined plans to cap capacity in favour of adding greater resilience to its network. In September, Lufthansa’s European seat capacity was fractionally down. A year previous it had been growing at 8.5%.
A further factor in the lower capacity growth in Europe has been the grounding of the Max aircraft. Notably, Norwegian had 18 of the aircraft in service at the point of the grounding, while Ryanair had been due to take its first in April.
This is even before the impact of the grounding of the collapse of European tour group Thomas Cook.
LCCS SLOW ON ATLANTIC
After the high-profile raft of new route launches, and carriers and brands that entered the emerging long-haul low-cost market on transatlantic routes, the past year has been a more chastening one.
Primera collapsed a year ago, before most of its plans to connect several continental European cities with the North American east coast came to fruition. Wow Air, which had built its low-cost transatlantic model on the location on Iceland, fell in January – though US investors are now planning to relaunch this carrier this winter. Meanwhile, Norwegian – the trailblazer in the market – has been in retrenchment mode since last summer.
Norwegian had already taken steps to trim its transatlantic routes as part of extensive restructuring efforts, even before the prolonged grounding of the Max – the use of which a number of its routes was predicated on – prompted further route cancellations. Most recently there came the news that it is cancelling all its flights between Ireland and the USA from 15 September.
“As the airline moves from growth to profitability, we have conducted a comprehensive review of our transatlantic operations between Ireland and North America, and considering the grounding of the Boeing 737 Max aircraft, we have concluded that these routes are no longer commercially,” says Matthew Wood, senior vice-president long-haul commercial at Norwegian.
The airline began operating six routes from Dublin, Cork and Shannon to the USA in July 2017. Norwegian has been wet-leasing aircraft in order to maintain its schedules since the grounding of the Max earlier this year. However, the continued uncertainty over when the aircraft will be able to return to the skies means that “this solution is unsustainable”.
The carrier had earlier this summer announced it was scrapping its Boeing 787-operated winter service from London Gatwick to Las Vegas.
The demise of Primera and Wow Air – combined with slowing growth among other players in the segment – means capacity on routes between Europe and North America is down in September compared with the same month in 2018.
Analysis of Cirium data shows the number of flights by carriers in this segment – Eurowings, Level, Norwegian, WestJet as well as Primera and Wow Air – is down a quarter compared with September 2018. Deployment of larger aircraft and longer-sector routes mean capacity reductions by other metrics is less pronounced. Seat capacity is just over 14% lower than September 2018 and ASK capacity a little under 7% down.
But November schedules data, taking into account cuts at Norwegian this winter, shows capacity more sharply down in the long-haul low-cost segment. Flight capacity is 46% lower than November 2018, while seat and ASK capacity are 40% and 37% lower respectively. That is even before the impact of Primera – which stopped flying at the end of September 2018.
Cirium schedules data shows 22 routes between Europe and North America that Norwegian will not operate this winter – though four of these are the switching to primary airports as part of efforts to improve yields – notably moving from Oakland to San Francisco.
British Airways had itself launched its own London Gatwick flights to Fort Lauderdale and Oakland to compete with Norwegian. It too has since switched these flights to Miami and San Francisco.
British Airways’ sister carrier Level has increased its capacity on routes to the USA, notably adding a service from Paris Orly to Las Vegas.
Lufthansa in August outlined plans to add more long-haul flights through a partnership with budget arm Eurowings. From Frankfurt – Lufthansa’s main hub – Eurowings will operate five weekly flights to Phoenix from 29 April and a thrice-weekly service to another US destination, Anchorage in Alaska, from June.
Eurowings is meanwhile set to start twice-weekly flights to Las Vegas on 6 April, and thrice-weekly services to Orlando on 7 April. Airbus A330-200s will be deployed on both routes.
Group chief commercial officer of network airlines Harry Hohmeister says Lufthansa is expanding its long-haul programme in co-operation with Eurowings because demand for tourism routes is “rising sharply”.
There is, however, an organisational change as the group is transferring commercial responsibility for Eurowings’ long-haul routes to Lufthansa Group Network Management. That is part of change under which Eurowings’ commercial focus will be on its short-haul operations.
INDIAN DOMESTIC GAP
No market has experienced more drastic change than the Indian domestic sector. A market where double-digit growth has been the norm went from seat capacity growth of 18% in September last year to a fractional fall for the same month this year.
That reflects the grounding of the second-biggest carrier in the Indian market, Jet Airways. The airline was forced to suspend flights amid mounting financial challenges earlier this year. Thus far efforts to resurrect that carrier have failed to come to fruition.
Given that Jet accounted for around 15% of seat capacity in the Indian domestic market in September 2018, it says much for the demand in the country that all but a fraction of this capacity had been replaced as of September.
In absolute terms SpiceJet has added the most seats in the Indian domestic market – just ahead of the country’s biggest operator Indigo. SpiceJet has lifted its domestic capacity almost a third since last September. That marks quite a shift in its focus, as the carrier had increased its domestic capacity only 3% in the previous year.
Notably, low-cost carriers in the Indian domestic market have been prominent in filling the gap vacated by Jet. Alongside Indigo and SpiceJet, Indian low-cost carriers AirAsia India, GoAir and Vistara have all increased capacity by more than a fifth compared with September 2018.
CUTS ON KOREA-JAPAN
Airlines have recently been shifting capacity amid a worsening Japan-South Korea trade spat. The neighbouring countries are culturally and historically linked, and a close look at visitor arrivals shows both have much to lose from the trade row.
Tourism has been the main driver of growth in air capacity between both countries. According to official data, 19.2% of all visitors to South Korea in 2018 were from Japan, while South Koreans accounted for 24.2% of visitors to Japan. For each country, more than 90% of visitors from the other were tourists.
In contrast, their more populous neighbour China accounts for 31.2% of all visitors to South Korea and 26.9% to Japan. Of these, 77% and 89%, respectively, are tourists.
As the latest statistics by South Korea’s Ministry of Land, Infrastructure and Transport (MOLIT) attest to, the number of South Korean passengers flying to Japan increased by 4% year-on-year to 611,000 in the first half of 2019, while the number of flights rose by 7.7% to 66,000.
But that is set to change as Japan acts on taking South Korea off its list of preferred trading partners. “Air passengers are expected to decrease after July due to recent export regulations,” MOLIT says. “We plan to monitor the market situation closely as it will affect the growth of passengers in the second half of the year, as the trend of weakening flight and tourist demand from Japan will continue,” it adds.
Accordingly, Korean carriers have started to initiate some near-term capacity cuts on Japanese routes, but Cirium schedules data shows that greater reductions are planned in the fourth quarter, when the number of seats in the market is set to fall by 2.9%, relative to the same period last year.
First among low-cost carriers was T’way Air, with routes between South Korea’s Busan, Daegu, Muan and Japan’s Oita, Saga, Kumamoto set to be suspended in the coming months. Eastar Jet and Jeju Air have also flagged cutting some routes, mainly from Busan.
Korean Air is cutting capacity on flights to Japan and will shift its focus to other markets, particularly China. The Busan-Osaka route will be suspended from 16 September, while Jeju links to Tokyo Narita and Osaka follow from the start of November. It will also temporarily suspend three routes out of Seoul Incheon. Earlier, it announced the suspension of Busan-Sapporo flights, citing a decline in demand.
Asiana is set to drop seat capacity 8% over the fourth quarter, but that is offset by growth at its low-cost unit Air Seoul.
Japanese carriers, which have less capacity in the market, have not responded in the same way – at least, not yet. Japan Airlines is set to upgauge seat capacity on a number of flights. ANA and its discount carrier Peach are keeping capacity broadly unchanged.