European aviation is feeling the burden of the COVID-19 crisis much more heavily than in other world areas. Its year so far cumulative seat capacity is down by 55% – worse than in any other area.
Moreover, according to IATA, its airlines generated negative free money flow at -83% of revenue in 2Q2020, versus an average of -52% for all regions. Preliminary 3Q2020 results from the leading European airline groups, Lufthansa, IAG, and EasyJet, indicate that they have continued to burn via cash at a fast rate.
Europe‘s year-on-year cut in seat capability narrowed slightly to -62.1% in the week commencing 26-Oct-2020, the first week of the winter 2020/2021 season, in contrast with -63.4% within the earlier week. This was the first improvement within the pattern in 10 weeks, however, Europe nonetheless has the equal greatest discount in capability, tied with the Middle East on -62.1%. Africa is -58.4%, Latin America -57.4%, North America -51.5%, and Asia Pacific is -38.4%.
Globally, airlines are expected to continue to burn cash till at least the tip of the subsequent year, however, Europe‘s airways could wrestle for cash break-even for longer than that.
Europe: 11.3 million seats vs 29.8 million a year ago – down 62%
Total European seat capacity is scheduled to be 11.3 million in the week of 26-Oct-2020, according to schedules from OAG mixed with CAPA Fleet Database seat configurations.
This is a 6.3% lower week-on-week and 62.1% under the 29.8 million seats of the equivalent week year in the past in 2019.
The 62.1% year-on-year cut in whole seats this week is the 32nd week of very heavy double-digit share (more than 50%) declines in seats.
Nevertheless, it is 1.3ppts narrower than the final week’s 63.4% drop, ending the run of 9 successive weeks of deepening year-on-year share cuts.
This week’s whole is break up between 4.6 million home seats, versus 7.3 million in 2019; and 6.7 million international seats, versus 22.5 million.
Europe‘s home seats have been reducing by 37.1% year-on-year, in contrast with the final week’s -36.8%. This was the 10th successive downward step, but still the 18th week running with home capacity at greater than 50% of the final year.
However, worldwide seat capability narrowed its rate of year-on-year decline, falling by 70.2%, compared with last weeks -71.4%.
Each international and home capacity fell week-on-week, for the eighth week in a row. Domestic seat numbers fell by 4.8% and worldwide capability dropped by 7.3% week-on-week.
However, week-on-week capacity declines are to be expected, given the start of the winter season on 25-Oct-2020.
Europe and the Middle East have the deepest year-on-year capability cuts
After a week with the deepest year-on-year reduction in seat numbers of all world regions, Europe is now joined in equal final place by the Middle East, both with a reduction of 62.1%.
Africa‘s seat rely upon is down by 58.4%, Latin America‘s by 57.4%, North America‘s by 51.5%, and Asia Pacific‘s by 38.4%.
Asia Pacific has now had 16 consecutive weeks at greater than 50% of final 12 months’s capability. It’s nonetheless the one area above this threshold, though North America is now the closest it has been to reaching it since earlier than the disaster.
All areas narrowed their charge of year-on-year decline this week. This is the first time that this has occurred for the reason that week commencing 29-Jul-2020.
Future schedules continue to fall
Projected capability derived from OAG schedules for Nov-2020 is down by 12% compared with the final week and is projected to be down by 59% year-on-year, i.e. at 41% of Nov-2019 levels.
The outlook for Nov-2020 has been more than halved over the past month, however, projected capacity continues to be arguably too high. It compares with Oct-2020 at 38% of 2019’s levels, itself a deterioration from Sep-2020’s 41% and Aug-2020’s 45%.
Dec-2020 capacity has been lowered by 9% since the final week, however, is still projected to be at 55% of 2019 ranges.
Capacity for the first two months of 2021 has been lowered by 5% since the final week but is still scheduled to be at 65% of prior year seat numbers in Jan-2021 and at 68% in Feb-2021.
As CAPA has previously observed, it’s seemingly that Europe will have not more than 40% of 2019 capacity (and under 25% of passenger numbers) within the winter season.
See related report: Europe’s winter traffic <25% of last year. Expect airline bankruptcies
In spite of the narrower rate of year-on-year decline in seat capability in the week commencing 26-Oct-2020 in contrast with final week, there’s nonetheless scope for additional important cuts to future schedules filed with OAG.
Year so far 2020 capacity has fallen more in Europe than in any other area
As noted above, Europe is not solely on the bottom of the pile when ranked by the percentage of 2019 capacity for the week commencing 26-Oct-2020.
However, it’s by itself in final place when global areas are ranked by their cumulative 12 months so far capability (for the primary 44 weeks of 2020, as much as and together with the week of 26-Oct-2020) as a share of capability as much as the equal week of final 12 months.
Europe‘s year so far seat rely on is down by 54.6% year-on-year and its whole capacity has been pushed into third place by North America, whose capacity is down by 43.7%. The Asia Pacific, which stays the most important aviation region by 12 months so far seat numbers, has suffered a cumulative drop of ‘only’ 37.3%.
The smaller areas – Latin America, the Middle East, and Africa – have all undergone a capacity decline of approximately 51% year-on-year so far in 2020.
Europe‘s airlines suffered the worst cash burn in 2Q2020
Europe‘s airlines additionally suffered the most important unfavorable free money movement as a share of income in 2Q2020, in accordance with data from IATA. According to the airline trade commerce physique, in 2Q2019 free money movement (which is web money movement from operations much less capital expenditure) was modestly optimistic for all areas, aside from Latin America.
Globally, the airlines in IATA‘s pattern generated an optimistic cash flow from operations equivalent to 13.4% of revenue and spent 9.9% of revenue on capex, giving free cash flow of 3.5%.
North America had the perfect free money movement as a share of income, at 6.9%, and Asia Pacific managed 2.7%. Europe simply managed a optimistic determine of 0.9%, producing money movement from operations at 11.3% of income and spending 10.4% of income on capex.
A 12 months later…
12 months on, in 2Q2020, all areas slumped to heavily negative free money flow.
The airways in IATA‘s international pattern suffered a mean money outflow from operations of -34.5% of income as they might not cut back money prices as a lot because of the drop in income. Though they reduce CAPEX in absolute terms, it elevated as a share of a lot diminished revenue to 17.6%.
As a result, on average free money flow was -52.1% of income globally in 2Q2020.
European airways in IATA‘s pattern had the worst money movement from operations, at -63.1% of income, and spent 20.0% of income on CAPEX. As a result, they suffered free cash flow at -83.1% of income.
Europe‘s airways could wrestle for money break-even past the tip of 2021
2Q2020 marked the depth of the crisis, with capacity at its lowest ranges, and this was when free cash flow was at its most negative. IATA expects international money burn (i.e. negative free money flow) to have reduced from USD51 billion in 2Q2020 to around USD42 billion in 3Q2020 and to cut back to around USD35 billion in 4Q2020.
Nevertheless, this remains a very high rate of money burn, highlighting the challenges of cutting cash prices in line with income, and of producing enough income to cowl the costs of returning capability. IATA‘s outlook foresees unfavorable free money movement, albeit in a decreasing scale, for each quarter till at the very least the tip of 2021.
Preliminary 3Q2020 outcomes from a few of Europe‘s largest airline teams have revealed continued high ranges of money burn.
IAG‘s liquidity fell from EUR8.1 billion on the finish of 2Q2020 to EUR6.6 billion on the end of 3Q2020, in spite of a EUR750 million cost from Amex and proceeds of EUR380 million from sale and leaseback.
Lufthansa Group‘s liquidity fell from EUR11.Eight billion in 2Q2020 to EUR10.1 billion at the end of 3Q2020.
EasyJet estimated its calendar 3Q2020 money burn at “less than GBP700 million”, less than the GBP774 million in 2Q2020, however still very high compared with an income of c.GBP620 million.
IATA doesn’t break out its quarterly money burn forecasts via to the tip of the subsequent 12 months by area. Nevertheless, Europe is starting from a decrease base than the global common, each in terms of its year so far capability and its very unfavorable 2Q2020 free money movement.
Main European airline teams have revised their capability plans downwards recently. Ryanair plans winter capacity at 40% of 2019 ranges (versus 60% beforehand deliberate), IAG plans 4Q2020 at 30% of 2019 ranges (reduce from 40%), whereas Lufthansa and EasyJet are aiming for 25%.
Capacity cuts are clearly geared toward decreasing prices and limiting operations to routes that generate a optimistic money contribution. Nevertheless, demand stays each low and very unstable, which means that income is far more durable to foretell than the price for any stage of capability.
The proof means that, in a mixture, Europe‘s airways could wrestle to attain cash break-even beyond the tip of 2021.
