How does the airline market stand after a tough two years? John Strickland, managing director of JlS Consulting, gave his perspective on the state of the global industry to delegates in Tampere.
Aiming to put an optimistic, but realistic, viewpoint on the industry’s state, Strickland reported that domestic markets are the areas which have generally been recovering strongly, but noted that not many are large. International traffic recovery has been slower, but is picking up.
“We saw that the trans-Atlantic market opened up in two stages, beginning in September last year when the EU and the UK allowed travellers to come over to this side of the Atlantic. Then in November, the US authorities let in European travellers, which brought a massive spike in bookings. And we’ve seen that in other markets,” he commented. “The trans-Atlantic looks to be heading for a bumper summer. The CEO of United Airlines has talked about the possibility, providing we don’t have another highly infectious variant following Omicron.
“Even in Europe, the good news is we’re getting close to pre-crisis levels of booking. We’re seeing a massive improvement,” Strickland added.
Staffing levels remain a challenge. Many people were let go, many were furloughed. Getting people back is challenging as there’s a need to refresh and simulator capacity is nearly always full. Beyond the onboard crew, ramp services are also suffering from staff shortages.
Another issue is slots. The rule of 80% usage of slots by airlines was loosened up but is coming back. A big step up is coming this summer with the EU having said airlines will need to fly 64% of their slots to keep them; the UK is going higher with a figure of 70%. It will be a fine balance between protecting the rights of incumbent airlines who spent years building their schedules and the need for airports to see that capacity is used effectively, which may involve new carriers taking on slots.
One noticeable trend in the recovery has seen network carriers focussing on point-to-point leisure services, going after visiting friends and relations (VFR) traffic.
Virgin and British Airways, neither of which had flown for some years to markets like Pakistan from the UK, put capacity back in. Qantas, which hasn’t gone to Italy for years, is starting a flight to Rome for summer and has also started flying to India – basically VFR communities from Australia.
“The change and frequency of change is stunning. And some of the network planners at CONNECT have probably been run ragged trying to keep up with that,” Strickland observed. “Within Europe, British Airways operated a larger short-haul leisure programme out of London Heathrow and Gatwick last summer than they’d done even in 2019. They took advantage of displaced aircraft to do that.
“Similarly, Lufthansa went up by over 60% in a number of leisure destinations. At one point in summer 2021, the airline was flying to all the Canary Islands out of Frankfurt, something they’d never done and I mean, Lufthansa as opposed to Eurowings,” he added.
“On the other side of that coin, an airline that’s been challenged on the long-haul side is Finnair. They made a virtue of their geography, developing an enormous Asian network through a fantastic hub at Helsinki Airport. I looked at that a few years ago and thought what could go wrong with that? It’s fantastic. Then the pandemic happened.
“They finally had a big fleet of efficient, comfortable A350s, but what could they do with it? They’ve had to adapt, switching capacity to the North Atlantic, where they’ve opened up two new routes for summer to Seattle and Dallas. They can’t do that as easily as some airlines in other parts of Europe; HEL is not a natural place to which they can fly feed from so many markets. They even set up a new overseas base, next door at Stockholm Arlanda. But they’re still facing the challenge of Asia not opening up yet,” Strickland explained.
Traffic volume is one thing but traffic mix is another key factor. Leisure traffic recovered because people always want to go for holidays and to visit their friends and relations. The big question is what’s going to happen with business travel. “That’s not just in the sense of people travelling for business, but the cabin they travel in. That’s ultra important for airlines on the long haul side – filling premium cabins, particular business class and to some extent premium economy, which is very uncertain,” Strickland elaborated.
Although occupancy of these cabins has been quite high in recent months, it has been for more premium leisure – not a like-for-like replacement, because such customers are always going to pay somewhat less than an undiscounted business class ticket bought by a corporate traveller. So even though premium, revenue will be lower.
Looking at aircraft fleets, Strickland noted the shift to single-aisle aircraft flying long-haul services with the Airbus A321LR and XLR as game-changers. JetBlue, for example, has come to Europe with such aeroplanes.
The environment effects of aviation could not be overlooked in any industry review. “We in the industry have to be concerned about it and have to be active. We’ve had some positive steps and have agreed to get to net zero by 2050, but that is nearly 30 years away,” Strickland exclaimed. “We talk about hydrogen and electric technology, but none of this is easily available for use in the coming few years. The only way the industry can reduce its footprint other than having another pandemic and being grounded is with SAF – sustainable aviation fuels – which can be loaded onto aircraft just as kerosene. At the moment, there’s not enough of it available, and it’s expensive.
“We really need the industry not to just stick its his head in the sand – just debating it and doing nothing – but to engage as strongly as it can, with governments and agencies around the world to make sure that, equally, they also don’t procrastinate and don’t just beat industry up with more taxes, but rather help with investment to speed up,” Strickland argued.
He drew a parallel with the pandemic, observing that if society could go from having no vaccine to deal with the pandemic to having several and roll them out at a much faster pace, then the same sort of effort could help create greener, more sustainable aviation at a more rapid rate as well.
There’s no doubt, I think the industry is going through structural change. Nobody should think we’re going back to 2019 in shape or form. We’ve got to adapt and move quickly and energetically to handle what’s ahead of us. What is clear to me is that the winners are the ones who take the right opportunities – maybe where someone else doesn’t even see that it exists – and innovate and adapt ideas, while still focusing on cost, the environment and efficiency.