In his CONNECT 2023 annual review, JLS Consulting director John Strickland focused on a return to growth, albeit slower than some expected.
A big recovery was seen in Europe in 2022 with the region’s airline industry getting back to around 88% of movement levels and traffic levels that it had in 2019. So declared John Strickland, director of JLS Consulting, in his annual review of the shape of the industry facing CONNECT delegates as they began their negotiations in Tangier.
“Eurocontrol, which looks at air traffic movements, has actually revised its forecasts down rather more cautiously, with 2019 levels now expected by 2025. It looks at recent challenges for air traffic management. One of those, the invasion of Ukraine, has no end in sight, sadly. It’s had a major impact on air traffic, directly to and from Ukraine and particularly, for example, Siberia overflight,” Strickland noted.
“ACI also produced a new forecast for the next few years and it also sees the recovery not fully taking place until 2025 rather than 2024, the date expected up to now by IATA. So IATA, too, put the date back by a year, pointing out that economic factors are weakening in Europe,” he added. “The ACI figure for the number of passengers lost by European airports in 2022 was phenomenal, with 220 million fewer passengers compared with 2018.”
Away from the Europe market, China, Russia and the US all experienced good recoveries, although China still had lots of restrictions. “Profitability was good in the US, but no other region was profitable,” Strickland commented.
Also, many aircraft which should have been in service by now are not. Around 1,700 single-aisle and 700 twin aisle aircraft ought to be earning revenue. “Boeing and Airbus have had difficulty in getting supplies for manufacturing. The undelivered aircraft are a major headache. Even the big guys like Ryanair, Wizz Air and easyJet are struggling with deliveries this summer and trying to plan their summer timetables for fleets which are not yet fully delivered. In fact, it’s not even clear as to when they will be delivered.”
The good news is that consumers do want to travel. “People have money in their pockets. They saved unintentionally during Covid and they want to spend it on travel. That’s seen enormous pressure on ticket prices. I’m amazed every time I see quarterly earnings. I see the double digit yearly increases more than I’ve ever seen in my entire career,” Strickland confirmed.
But while the desire to travel remains, there are obstacles. “A lot of data shows retail really slowing down, with people really watching their wallets because income is being consumed in higher gas, electricity and petrol places in particular,” he warned. “Although we don’t know really what the shape of the summer is going to be – whether people will travel as normal, do without travel, reduce the duration, take smaller trips or go somewhere less expensive – the evidence so far is good.”
Looking at Europe’s key low-fare airlines, Strickland reported that Ryanair had returned to profit. “If anybody’s going to do well, you would expect it to be Ryanair. It turned around a loss last year to significant profit, but expected to lose money from January to March 2023 – a weak season traditionally, more so with Easter in April, not late March,” he explained. “However, load factors are up, volumes are up, and it’s one of the best hedged airlines, well protected from fuel price increases. Plus it is expecting to have around 80 new 737 MAXs coming into the fleet this summer.”
Strickland expects a better year for easyJet after it made a loss in its last financial year. “Bookings look very strong and yields are well up. It was a more cautious recovery, because the airline has a smaller fleet than pre-Covid having disposed of a number of aircraft and ended leases,” he observed.
“The airline’s challenge without that capacity will be about moving capacity around to provide new routes. There is an orderbook coming through though, which includes upgauging – something it really needed to do. There are so many A319s in the fleet and about 40% of those will be replaced in the next few years, not only with A320s, but more and more with A321s,” he added.
Wizz Air continues to grow strongly, too. It will have 500+ aircraft in the fleet in the coming decade and will pass 200 this year. The airline expected a significant loss at the end of March based greatly on no hedge on fuel.
“To a greater extent than easyJet, Wizz is upscaling to A321 aircraft, both the Neo and Neo LR,” Strickland remarked. “Also, very interesting with the carrier is that it’s going east with expansion. It’s looking to grow far more in Abu Dhabi, and now Saudi Arabia, brand new markets completely different to Europe. These are ripe markets for expansion.
“Saudi Arabia wants to grow from around 100 million to something like 400 million air passengers a year. They have the means and the population to support that growth and Wizz Air sees the opportunity to benefit from that,” he added.
Moving on to major European carriers, Strickland noted that Air France KLM also reported restored profitability and an operating level as good, if not better, than 2019 levels. “Given the headaches the group has had with long haul flights in particular, that’s positive,” he commented.
“Transavia is a big area of growth for Air France KLM, a very strong low-cost carrier within that group. It will have 35% more capacity planned in the year ahead. There are some constraints though, as part of Transavia’s growth will come from filling in slots at Paris Orly where Air France has cut back its HOP! service. It’s not a complete free-for-all.
“Finnair is an airline that has suffered massively. If you’d asked me three or four years ago, what could possibly go wrong with the airline’s Asian strategy, I’d have said ‘Nothing’, and that Asia is always going to grow. But who knows? Covid came and Siberian overflight problems came and everything’s imploded,” Strickland reported.
“Finnair did an amazing job in redeploying aircraft to head west across the Atlantic, but it can never fill as many planes westbound as airlines like Icelandair or Play out of Iceland or many central European hub carriers can because of their geography. It’s done its best to restore Asian routes which don’t rely on Siberian overflight. In some cases, it accepted it would fly longer – some flights have increased in length by 14% – to avoid Siberia operations, but there is still enormous uncertainty,” he warned.
On startup carriers, Europe has seen a very mixed picture. “One thing that’s been the case through Covid is there’s been plenty of aircraft. Anybody wanting to start an airline could acquire high quality used aircraft or brand new from manufacturers where orders have been cancelled or delayed for production lines.
“Two of the recent efforts are already gone. Sadly, Flyr and Flybe Mk 2, both failed. Despite the fact these aircraft are available, good deals are pricey, too. They didn’t manage to meet the strategic objectives as small airlines, nor protect themselves in terms of fuel hedging, plus a host of other factors,” Strickland explained.
“Still with us are Play and Norse Atlantic. I think Play is arguably on firmer foundations, with smaller aircraft in a fleet of not more than 10 aircraft. This year, it will offer point-to-point and connecting traffic through its base at Keflavik Airport in Iceland. It could well turn around to profitability this year,” he predicted.
“Norse Atlantic has more challenges, with bigger 787s to fill. They’ve got about 15 of these aircraft, actually leased out about five of them for the next couple of years as it recognises they will be hard to fill,” Strickland reported.
Admitting to being financially cautious, Strickland still feels that 2023 is going to be a much better year for most airlines than 2022. “It’s going to require a great deal of focus though, on cost of operation, watching economic trends, efficiency and adjusting to the challenges of manpower,” he concluded.