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Airlines ready for bumper summer as travellers look past surging ticket prices for now

Airlines ready for bumper summer as travellers look past surging ticket prices for now

European airlines’ summer bookings are strong heading into peak travel season as the post-pandemic desire to travel offsets inflationary pressures reducing consumer purchasing power, higher airline operating costs, and rising ticket prices. However, meeting this demand smoothly over the coming months will present logistical challenges due to problems caused by skilled labour shortages, capacity constraints, and the ongoing threat of industrial action.

Air ticket sales in Europe between May and September 2023 are at around 91% of 2019 levels, while North America is around 99%, according to International Air Transport Association (IATA) data, as the post-pandemic desire to travel offsets cost-of-living concerns. Domestic European air passenger capacity has fully recovered to pre-pandemic levels. It is a remarkable recovery for the global aviation industry, which collectively lost $138 billion in 2020. This summer will be the first peak travel season since the World Health Organization lifted its health emergency and countries dropped vaccination requirements and quarantines. In addition to pent-up demand, the travel boom is attributed to consumers’ preference for experiences aligned with hybrid working which has provided greater flexibility for people to travel and combine work with leisure. For example, American Airlines Group said in its Q1 earnings call that 35% of its volume in the first quarter came from travellers taking “blended trips”. 

The reopening of China's air travel markets in January and the continued easing of travel restrictions has also supported the broad-based recovery in global passenger traffic in 2023 but risks towards the end of the year are still skewed to the downside. The resilience of passenger demand will be tested later this year, as the cumulative impacts of higher interest rates and cost-of-living concerns weigh on households’ willingness to look past high ticket prices, which remain elevated due to higher fuel prices, airline input costs, and capacity constraints.

Low-cost carriers Ryanair and EasyJet have seen a surge in summer demand, with reported passenger growth up 74% and 41%, respectively. In the 12 months to March 2023, Ryanair swung back to profit, while EasyJet’s losses narrowed. Ryanair plans to operate its largest ever summer schedule, capitalising on regional capacity constraints and the return of Asian and American travellers to Europe due to the strong US dollar. EasyJet expects to operate at pre-pandemic capacity for the peak European summer season.

European airlines’ confidence in traffic growth has spurred orders for new aircraft, with 377 aircraft deliveries expected in 2023, representing a 20% increase, according to IATA estimates. However, the industry continues to absorb protracted delivery delays by the two largest plane makers. Boeing warned in April that recent production flaws on a significant number of 737 Max aircraft will cause delays. It follows delivery delays for Boeing’s 787 Dreamliners in late February, attributed to a supplier analysis error, which had only restarted deliveries in August 2022 after separate delays. Ryanair said Boeing’s delivery delays may impact the timing of its projected annual air passenger growth, while Southwest Airlines in the US plans to reduce its flying schedule and hiring this year as Boeing is delivering 20 fewer jets than expected.

Airbus has started notifying airlines about delivery delays into 2024 for its best-selling A320neo family of jets, reports Reuters, with several hundred of the single-aisle planes set to be postponed by as much as three months. Last December, Airbus warned the plane maker would not be able to meet its annual delivery target, citing a “complex operating environment”. Manufacturers are under pressure from bottlenecks in supply chains that date back to the outbreak of Covid almost three and a half years ago. Airbus deliveries fell below rival Boeing’s for the first time on a quarterly basis since 2018.

Europe’s capacity constraints have broader origins, including restricted engine availability for new aircraft, while high fuel costs have dissuaded some airlines from normalising capacity from Covid-era fleet reductions. Transavia, the low-cost airline of the Air France KLM Group, cancelled 545 flights across Europe between May and August due to a shortage of available aircraft limiting passenger capacity.

The rapid upswing in air traffic this summer presents significant logistical challenges that the aviation industry must meet to minimise passenger delays, which risks quickly softening future demand. Airline schedules must be closely aligned with restricted airport capacity, including air traffic control, ground handlers and border control. In the US, a lack of air traffic controllers has forced American Airlines, Delta Air Lines, United Airlines and JetBlue Airways to cut flight schedules by 10% this summer, according to CNN.

Potential further industrial action also risks disruption, while carriers must also continue to navigate airspace constraints due to the war in Ukraine. In late May, around 2,000 security guards employed at Heathrow Airport went on a three-day strike over low wages. Heathrow’s offer of a 10% pay rise fails to compensate workers which have suffered a 24% cut in real wages since 2017, according to Unite. “Strike action is now set to escalate throughout the summer,” warned Unite general secretary Sharon Graham. Elsewhere, baggage handlers in Italy were set to go on strike on 4 June in a dispute over employment contracts, while EasyJet, Ryanair and Jet2 pilots are considering summer strikes in Spain. In France, air traffic controllers (ATC) concluded three months of industrial action on 1 June, affecting flights all over Europe. In almost six weeks to 9 April 2023, there were 34 days with industrial action affecting air transport in Europe, impacting an estimated 237,000 flights, according to EuroControl. More broadly, the strikes in France in the first quarter impacted around 30% of flights across the continent, according to EuroControl, demonstrating the outsized impact one country’s industrial action can have on the wider European aviation network. The UK had 209 daily departing flights affected by French strikes, with Ryanair being the most affected carrier. The low-cost carrier said more than 50 days of ATC strikes caused over 3,700 cancelled flights, affecting more than 666,000 passengers, in the first four months of 2023.

The protracted industrial action across Europe exposes the fragility of summer travel growth hopes. Ironically, the aviation industry rarely experiences a smooth journey.

If your business, or portfolio company, is directly impacted by the challenges in the aviation sector and would like to discuss your strategic options, do get in touch and let us see how we can assist.

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