Aviation’s changing markets

Global connectivity is undergoing subtle changes as the airlines adjust their schedules to the post pandemic market, writes OAG’s chief analyst, John Grant.

The great pandemic recovery is complete, well unless you are still waiting for the elusive Chinese international traveller to reappear, then most markets in the world are back to 2019 capacity levels and a few are even ahead.

That does, of course, ignore the four years of lost capacity growth and presumably subsequent demand, although to be fair, Boeing and Airbus may have struggled to deliver the required levels of new aircraft.

So, panic over, it’s all back to normal with the big airlines remaining profitable, the inevitable churn of start-up carriers, airline mergers, Chapter 11 filings, airports pouring more concrete and sustainability back at the top of everyone’s agenda. But are things really back to normal or have things changed forever?

Changing market structures

While the headline numbers may look pretty similar to four years ago, 5.5 billion scheduled airline seats in 2023 compared to the 5.7 billion of 2019, the actual structure of that capacity has changed.

Faster out of the blocks thanks to the likes of Ryanair and some ultra-US low-cost carriers (LCCs), there is no doubt that the low-cost sector has gained capacity share over the traditional legacy sector.

A 3.4% gain in share to 34.6% of global capacity in 2023 versus 2019 may seem modest, but it equates to 132 million more seats per annum, while the legacy market is still some 345 million adrift of the high-water mark of 2019.

Can we expect the LCC share to creep higher? Probably, but not to a point where it overtakes the legacy share, although famous last words springs to mind!

Markets are also changing as aviation grapples with sustainability, and particularly with the dilemma of inter-modal connectivity. The combination of government pressure and profitable operations makes domestic services in markets with alternate train networks increasingly unsustainable.

In Germany, domestic capacity has halved from 35 million seats in 2019 down to 17 million in 2023, and in France, a 20% reduction in domestic seats may have been enforced on some airlines, but there’s no turning back.

Elsewhere, in the Netherlands, the government’s obsession with reducing air transport movements at Amsterdam Schiphol is a bit like “turkeys voting for Christmas” in an aviation economy so dependent on connecting traffic; the recent short-term concessions are purely concessions and quite what the economic impact on the country will be seems an irrelevance, unless you are KLM or Schiphol!

Changing market structures are part of aviation’s evolution, of course. Forty years ago, for instance, who would have thought that Dubai would be the centre of global connectivity or that Doha would be a powerful hub airport.

Likewise, could anyone ten years ago have expected India to be growing as rapidly as it has in the last five years or that the booming Chinese domestic market would be challenged by High-Speed Train (HST) services that are a fraction of the cost of an airline ticket and hugely time effective?

Technology has also impacted markets; the corporate traveller – or at least finance directors – love video conferencing, leaving airlines with vacant business class capacity, HST services are increasingly popular; and next generation aircraft are extending operating ranges for airlines around the world, which begs the question of what will happen to that most valuable of traveller – the connecting passenger.

The importance of connectivity

There are many routes that would either not exist or operate at the levels of frequency they do today without connecting traffic, and there are just as many airports that would see their businesses nearly halved without that valuable connecting traffic.

Without doubt, a successful airport/airline relationship is a pre-requisite for connecting traffic, as is a very liberal approach to air service agreements, and it’s no surprise that airports such as Amsterdam Schiphol (AMS), Singapore Changi (SIN) and Dubai International (DXB) have led the field.

The table above shows a selection of global hub airports, and is designed to illustrate their respective dependencies on their base carriers, which range from a near total reliance on Qatar Airways in the case of Doha (85%) and American Airlines (82%) at Dallas/Fort Worth through to more balanced shares at locations such as Amsterdam (51%) and Singapore with a 35% share.

It’s hard to believe that a four times daily Southampton or Teesside service to Amsterdam would be warranted without large amounts of connecting traffic or that London–Doha requires ten flights a day jetting off to any point in the world except Doha!

Airports that rely on connecting traffic are, of course, at the mercy of intense competition, whilst the airlines face a daily challenge with ticket prices, which remain the key routing criteria for most economy travellers who aren’t attracted by expansive lounges or the tax-free shopping at airports.

Confirming that point, Swissair, Sabena and Malev in Europe all trod that path to failure at one point or other leaving airports stranded with plenty of space and sudden requirements for recovery plans.

Changes of strategy can also change an airport’s strategic value. American Airlines, for example, has quietly cut back its presence at Chicago O’Hare by 23% since 2019, dropping over 17,500 flights per annum; all perfectly timed for a new runway that opened in 2020!

The increasing importance of new technology

Many have forecast the demise of hub airports, A350s and B787s were supposed to encourage the development of the long and thin routes, and they have to a degree, although from hubs rather than smaller market to smaller market.

Similarly, the A320XLR family and eventually the Boeing equivalent have accessed emergent mid-range markets that previously neither had the right aircraft types for operation or were perhaps too early in their development, proving right place and right time can be so important.

Turkish Airlines’ expansion into Central Asia since 2019 has been nothing less than remarkable and built off the use of narrow-bodied next generation aircraft operating sectors of up to five and a half hours, which allows for round crew trips which is both cost and resource effective with many overnight sectors.

Indeed, in the last four years, Turkey’s national carrier has expanded its network from 2,835 flights in 2019 to 4,593 in 2023, a 62% increase whilst adding six new destinations to their operation.

With connectivity via Russia now difficult for many travellers, Turkish have not only built a large local market, but benefit from connecting flows to North America and Western Europe, in part based on the efficiency of new aircraft technology.

Air India’s aspirations for a super hub in Delhi and their complete network reorganisation and new fleet orders is predicated on the basis of creating connectivity, using their fleets of narrow-bodied aircraft to complement their long-haul trunk routes.

By 2030, India will rank first in terms of population, Delhi will have risen to at least the third largest city on the planet, and the disposable income and desire for travel amongst residents will fuel a surge in travel.

Subtle changes, very few game changers

Every day somewhere something changes in aviation, it may be a new electric power tug, a new aircraft delivery (well, maybe) or a new route launch. All these small initiatives increase the economic value that the industry creates every day, change occurs slowly and, most importantly safely, which is why the power of hubs and especially super-hubs will grow and grow for the foreseeable future.

Naturally, there will always be challengers seeking to disrupt. The Kingdom of Saudi Arabia’s Saudi Vision 2030 and ongoing Riyadh and Jeddah developments, for example, may in the future challenge the current status quo in aviation, and nobody yet can say what impact electric vertical take-off and landing (eVTOL) technology will have on the industry.

However, perhaps reassuringly for the industry, with no game changing ‘big bang’ events on the horizon, aviation’s competitive landscape will continue to gravitate towards hub airports.