European Airlines Confident of Strong Summer Demand
European airlines may face the dual challenges of the Covid-19 pandemic recovery and a war on their doorstep in Ukraine. But summer travel demand continues to look strong though another Covid surge, or geopolitical crisis, could knock it off course warned Ryanair Group CEO Michael O’Leary.
“The system is very fragile,” he said at the trade group Airlines for Europe (A4E) Aviation Summit in Brussels on March 31. “If there is further adverse news flows, that optimistic outlook will fall over.”
Ryanair ticket prices are softer for April and May travel compared to 2019 due to Russia’s invasion of Ukraine and a push to fill more of its flights, said O’Leary. He maintained expectations of mostly full flights and fares comparable to three years ago this summer.
The risk of another crisis, or Covid variant, is not stopping airlines from planning robust summer schedules. Europe’s largest airlines, including EasyJet, International Airlines Group (IAG), Lufthansa Group, and Ryanair, plan to fly at or near their pre-pandemic European capacity during the peak travel period. Long-haul flying, particularly to Asia, remains below 2019 levels for the global airlines.
Airlines are scheduled to fly just 1 percent less capacity in Europe in the third quarter, which includes the busiest summer months, compared to three years ago, according to Cirium data. However, schedules remain in flux more than a month or two out.
“If I were a potential customer, I’d book right after my speech right here,” Lufthansa Group CEO Carsten Spohr said. Easter bookings have already returned to 2019 levels, and Spohr expects summer to be the same.
Despite all the optimism, the Ukraine war is having some effect. EasyJet CEO Johan Lundgren said the fallout is worse the farther east one goes in Europe. Travel demand in Western Europe, where EasyJet operates the majority of its flights, remains strong. “We are not affected,” he said.
AirBaltic CEO Martin Gauss elaborated on a geographic differences in demand. Bookings for outbound travel from the Baltics remains strong but there is hesitancy, especially among corporate customers, to book travel to the region, he said.
And Spanish discounter Volotea, which does not fly farther east than the beach town of Varna, Bulgaria, has not felt a hit from the Ukraine war to its summer, said CEO Carlos Muñoz. “The good guys are winning,” he said, with pent-up travel demand the so-called “good guys,” and adverse macro forces, including variants and the Ukraine war, the opposing side.
Volotea sees strong demand for the spring and summer, and will fly significantly more capacity this summer than it did three years ago, added Muñoz.
“If there is one particular area of strength, particularly for Easter, it’s the beaches of Europe — Portugal, Spain, the Balearics, and Greece,” said O’Leary. The latest indication that the leisure-first pandemic recovery that has favored outdoor-oriented destinations, like beach markets, continues.
Few airline executives, other than O’Leary, spoke of the risk of another surge hitting summer demand. Even with the BA.2 variant spreading, European governments are increasingly looking towards reopening rather than closing. Switzerland on March 30 decided to drop all Covid restrictions beginning April 1. Other countries around Europe are moving in the same direction, and the airline chiefs were united in pushing for fewer restrictions than more.
“We’re a more resilient company,” said Lundgren when asked if EasyJet was ready for whatever challenge may come next.
EasyJet and Ryanair Make Progress on Expansion
Ryanair and EasyJet are targeting markets where competitors have made deep cuts to grow as Europe emerges from the Covid-19 pandemic.
Topping that list are destinations in southern Europe. Speaking at the Airlines for Europe Aviation Summit on March 31, Ryanair Group CEO Michael O’Leary named Italy where Alitalia was replaced by half-its-size ITA Airways last October, and Portugal where TAP Air Portugal has made dramatic cuts, as well as Spain and Sweden, where the Irish discounter is growing. And EasyJet CEO Johan Lundgren listed airports in Italy and Portugal, including Milan Linate and Porto, where the UK-based airline has acquired up slots.
“We have liberally spread [our new] aircraft across Europe,” said O’Leary citing the 65 Boeing 737-8200s that Ryanair plans to take in 2022.
Ryanair has long made it clear that it would grow out of the crisis. Last July, O’Leary said he had never seen as much of a growth opportunity as presented by the pandemic. He dismissed competition from EasyJet and Wizz Air, both of which also plan to grow in the recovery, pointing to the fact that Ryanair had more aircraft on order and simply could grow more.
Lundgren is more measured about EasyJet’s growth plans. Rather than focusing on aircraft deliveries — the airline will take eight Airbus A320neo family aircraft this year, and another seven in 2023 — he is focused on acquiring slots and growing at key airports, expanding EasyJet’s seasonal bases, and growth by shifting to larger aircraft. EasyJet raised £1.2 billion ($1.6 billion) in September to fund its expansion.
“We’ve got plenty of opportunities to grow,” said Lundgren. He added that the airline can grow without “entering into new markets with the risk and the time it takes for those markets to mature.”
And Wizz Air is splitting the difference. The airline is upgauging by replacing smaller A320s with new, larger A321neos that, as CEO József Váradi said in January, will lift its average seat count per flight to 250 in the coming years from 211 this summer. In addition, Wizz has a robust orderbook that parent Indigo Partners topped off in November when it ordered another 102 A321neo and A321XLR jets fro the discounter.
Portugal is one country where EasyJet and Ryanair are facing off. The country is a “trendy” destination, as TAP CEO Christine Ourmières-Widener described it at the summit, with visitor numbers rising dramatically in the years before the pandemic. However, the crisis has been tough on the country’s national carrier, and it will operate 15 percent fewer flights in the third quarter than it did three years ago, according to Cirium. Notably, European departures will be down nearly one-fifth when many of its network peers, including Iberia and KLM, will be back at 2019 levels.
Both EasyJet and Ryanair plan double-digit departure growth in Portugal in the September quarter compared to 2019, Cirium shows. And in Porto, a city where TAP’s cuts are particularly deep, EasyJet operate 49 percent more flights this summer, and Ryanair nearly 7 percent more. O’Leary said his carrier would be even larger in Portugal this summer were it not for what he has described as “slot squatting” by TAP in Lisbon.
And in Italy, both airlines have made strides that play to their strength. EasyJet will offer three times more departures from Milan’s close-in Linate airport in the third quarter than it was in 2019, and Ryanair flights from the country — where it has added numerous new bases, including in Turin and Venice — will be up 44 percent, Cirium shows. And, keeping to form, O’Leary brushed off Wizz’s expansion in the country and said the airline is “struggling” in the country.
Europe’s three big discounters plan to be larger in the third quarter than they were three years ago. EasyJet capacity is scheduled up nearly 7 percent, Ryanair up almost 16 percent, and Wizz up more than 42 percent, according to Cirium. However, schedules remain in flux more than one or two months out, and the airlines’ summer plans could change.
Jet Airways Ready for Second Act
The wait for India’s Jet Airways to hit the runway might get a little longer. But the new promoters of the airline maintain the restart activities are “progressing well.”
While the Jalan-Kalrock Consortium, which won the right to restructure Jet Airways, makes a statement almost every quarter on resuming operations, the progress so far hasn’t been encouraging. However, Akasa, the other airline set to launch in India, has already announced it would be launching its first commercial flight in the month of June.
Jet Airways went bust in 2019 and was revived after its new promoters — a consortium of entrepreneur Murari Lal Jalan and serial entrepreneur Florian Fritsch-backed Kalrock Capital — infused cash into it. Jalan has repeatedly said the earliest the airline could resume commercial flights was 2022.
Dubbing the process of restarting an airline “a complex exercise that must be done meticulously, in coordination with the regulatory authorities,” the consortium in its statement this month said that the process is underway. “The timeline reflects the typical duration of an air operators certificate process. However, we fully expect to have the proving flight and air operator’s certificate well in advance of the filed timelines.”
The airline has said that it is working closely with India’s civil aviation ministry and the Directorate General of Civil Aviation on the approval process and timelines for proving flight, following which Jet Airways’ air operators certificate (AOC) will be revalidated. “The resumption of scheduled services will follow soon thereafter,” the airline said in a statement this month.
However, what’s interesting is that the consortium clarified last December that the revalidation process had been initiated in August 2021 and was on a fast track. Jet had an existing AOC valid until 2023, which was only suspended in 2019 due to the financial health of the company then.
The consortium at that point had said that the time required for getting its AOC revalidated would be substantially less difficult than obtaining a fresh AOC by a new company.
The delay, according to reports, was because the airline had earlier requested for a waiver of the certification process to get its AOC back. India’s Directorate General of Civil Aviation rejected the request. As a result, Jet will now have to operate proving flights with the aircraft with which they plan to restart services.
Reiterating its commitment towards the revival of Jet Airways, the consortium in a statement noted that it is working with multiple aircraft lessors as well as aircraft manufacturers to source aircraft that will be inducted into the Jet Airways fleet over the next three to five years.
The airline this month also announced two major appointments. Sanjiv Kapoor, Vistara’s former chief strategy and commercial officer, will be taking over as the CEO of Jet 2.0 from April, while Vipula Gunatilleka, who had served as the CEO of SriLankan Airlines till January 2022, took over as the chief financial officer this month.
When the airline does takeoff, it plans to start flights with six narrowbody aircraft and aims to have more than 50 aircraft in its fleet fleet in three years, and more than 100 in its five-year plan.
The consortium had also clarified that it is confident to get the initial slots required to begin operations in this summer.
In Other News
- The New Zealand government has extended its Maintaining International Air Connectivity (MIAC) subsidy program with Air New Zealand another year to March 2023. The airline will operate around 60 flights per week to key destinations, including certain cities in Australia, Hong Kong, Los Angeles, and Vancouver, under the program. Air New Zealand anticipates roughly NZ$180 million ($124 million) in related cargo revenues from MIAC. The carrier will begin ramping up its long-haul passenger flights with the easing of New Zealand’s border restrictions on May 2, including new nonstop flights to New York from September.
- In U.S. government news, the U.S Transportation Department named Billy Nolen acting FAA administrator. Previously association administrator for aviation safety, Nolen took the role when Administrator Steve Dickson left at the end of March. FAA still is looking for a permanent replacement. Nolen previously served in safety leadership at both WestJet and Air Canada.
- Fred Smith is stepping down as CEO of the little company he founded in 1973, FedEx. The former U.S. Marine Corps and Vietnam veteran famously came up with the idea for FedEx as an undergraduate at Yale University (and apocryphally was told it would never succeed). In the process, Smith created an industry, disrupted the way the world works, and has overseen the company’s expansion to a $92 billion enterprise. Current FedEx President Raj Subramaniam will take the top job when Smith leaves on June 1.
- KLM named Marjan Rintel as its new CEO, the first woman to lead the company. Rintel currently leads the Netherlands’ passenger rail operator. She takes over from Pieter Elbers, who is stepping down on July 1.
- And in Turkey, Pegasus Airlines also named its first female CEO, Güliz Öztürk. The carrier is promoting her from commercial chief on May 1, when current CEO Mehmet Nane moves on to become vice chairman of Pegasus’ board of directors. Öztürk has worked at Pegasus since 2005 when she joined from Turkish Airlines.
- In other people moves, Erno Hilden becomes chief financial officer of SAS in April. Previously, he was CFO of Finnair and an executive overseeing privatization at Saudia.
- Southwest Airlines and its 6,000 customer service employees reached a tentative agreement on a new contract, the IAM said. The union is finalizing the terms of the deal before it goes to members for a ratificaiton vote.