Ryanair Group CEO Michael O’Leary thinks the UK brought its travel staffing issues on itself with an “inflexible” labor market since the country left the EU in 2020.
While the discounter itself does not face staffing issues, O’Leary said during the airline’s 2022 fiscal year-earnings call on May 16 that there is a shortfall in airport and catering employees across the country. Especially tough spots where the airline flies include Glasgow, Bristol, and Manchester.
“Supplier labor will continue to be an issue,” O’Leary said of the summer, adding that he expects issues to ease within the EU relatively quickly. “The UK will continue to be very challenged. The labor market is very inflexible post Brexit. You can’t bring in young Europeans.”
The UK exited the EU in January 2020 following a vote in 2016. That ended the relatively free movement of labor between countries in the bloc and the UK. The situation did not become acute for the travel industry until restrictions were eased and demand came roaring back this year. British Airways, EasyJet, and the operator of London’s Heathrow Airport have all felt the pinch and taken measures to alleviate issues this summer following overcrowded airports and cancelled flights in April.
O’Leary described the cuts at British Airways as “understandable” and “sensible.” The legacy carrier will cut its schedule at Heathrow by up to 10 percent daily, primarily on routes to Europe where it competes with discounters like Ryanair, through October. “It does play to our business strategy over the next 12 to 15 months,” he said.
Staffing is also a situation at some European airports, O’Leary said. He cited shortages in security staff at the Berlin and Dublin airports as an example. Lufthansa CEO Carsten Spohr has also warned of airport staffing issues this summer.
The situation in the UK comes as demand looks robust for the summer. Ryanair maintains plans to fly roughly 15 percent more capacity during the peak travel period than it did in 2019. In addition, O’Leary said pricing is a “modest single-digit [percentage] above where it was pre-Covid” for the September quarter. Pricing in the June quarter is slightly below levels seen three years ago.
But risks remain. O’Leary expressed the same concerns of a potential disruption to the recovery this summer that he outlined at an Airlines for Europe (A4E) conference in March. “If there’s any negative news flow either on Covid or on Ukraine or Icelandic volcanic ash, that could fall over again,” he said, adding that the Ryanair team is still “scarred” from the Omicron surge at the beginning of the year.
The risk of a downturn or recession in Europe’s largest economies also looms large for Ryanair. In an April economic outlook for Europe, International Monetary Fund (IMF) Director of the European Department Alfred Kammer said the economies of France, Germany, Italy, and the UK were projected to “barely expand, or even contract for two straight quarters this year.” Russia and Ukraine are also forecast to fall into deep downturns.
“In a recession, the low-cost providers whether it’s Primark, Ikea, Lidl in the supermarkets or Ryanair in air travel will do better,” said O’Leary. “People will fly, but they will trade down from the higher cost providers to Ryanair.”
However, the airline did not provide guidance for its fiscal year that ends in March 2023. O’Leary only said that they anticipate a “modest profit recovery” without providing details. When asked by analysts if this could mean a little over €1 billion ($1 billion) as the airline reported pre-Covid, he said the airline “hopes” this to be the case but given the uncertainty of the outlook it has no certainty.
Ryanair plans to accelerate its growth plans even with the ever present risks to the recovery. The airline has a request for proposals out for up to 50 used Airbus A320 family or Boeing 737 aircraft that would supplement its 737-8200 orderbook through 2025, said O’Leary. The addition of A320s would supplement those Ryanair subsidiary Lauda already operates. There was no update on a potential Ryanair order for the 737-10, and O’Leary repeated his comments about Airbus capturing marketshare from Boeing as the U.S. airframer continues to face issues with its commercial aircraft programs.
Ryanair lost €355 million during the year ending in March. Revenues were down just 1 percent compared with 2019 to €4.8 billion.
EasyJet Shifts Focus to Leisure Routes in Advance of Summer
EasyJet is gearing up for a busy summer, with forward bookings coming in stronger than expected and more than two-thirds of its inventory sold.
The UK discounter said forward bookings for the third quarter are 76 percent sold, and the booking curve is lengthening enough that 36 percent of fourth-quarter inventory is sold. This is a marked change from last year, when the booking curve was measured in days and a low number of weeks.
The amount of fourth-quarter inventory that EasyJet has sold is already ahead of the same period in 2019, EasyJet’s management said during the company’s fiscal first-half earnings call last week. Bookings over the last 10 weeks are 6 percent ahead of 2019.
The Omicron variant caused bookings to dip and operational chaos at EasyJet as it grappled with crew absences due to the surge, CEO Johan Lundgren said. But the discounter saw bookings rebound quickly in February. Easter load factors were as high as 90 percent, he said.
EasyJet has refocused its network during the pandemic and has trimmed underperforming routes, allocating more capacity to high-performing markets, Lundgren said. Leisure routes are performing particularly well, and capacity on those routes and domestic flights is at 113 percent and 104 percent of 2019, respectively. EasyJet has moved 47 aircraft from underperforming routes to better routes, he added.
EasyJet has further benefited from what Lundgren called a “rich retrenchment” of European legacy carriers. He estimates that 7-8 percent of capacity in Europe is gone, which will be to EasyJet’s gain as the summer approaches. A key example is at London’s Gatwick Airport, where British Airways pulled down during the pandemic. EasyJet will have 90 aircraft operating to the airport in the summer, up from 73 before prior to the crisis, he said.
The carrier is in the midst of a fleet upgauging. It is retiring its 99 Airbus A319s, and replacing them with A320s and A321s, Lundgren said. Each A320 offers a 19 percent seat increase over the A319, while the A321s have 50 percent more seats. Upgauging is of particular advantage at constrained airports, like Gatwick and Milan’s Linate, Lundgren added. The A319s are expected to leave the fleet by 2027. In the half, EasyJet returned six aircraft on lease with a lessor that had Russian affiliations, he said.
Despite the positive momentum, EasyJet reported a loss of £545 million ($680 million) in the six months that ended in March. Revenues rose 524 percent from last year to £1.5 billion. The carrier expects to operate 90 percent of its 2019 capacity in the June quarter and 97 percent of 2019 in the September quarter.
Singapore Airlines Sees Traffic Surge as Restrictions Fall
Singapore’s decision to ease most of is Covid-19 travel restrictions in April benefited the country’s eponymous airline. Singapore Airlines‘ traffic surged in April, and forward bookings for the summer are approaching 2019 levels, the carrier said in its most recent quarterly update on May 18.
Singapore began reopening last year through its Vaccinated Travel Lane program, that granted entry without quarantines to citizens of approved countries who had been vaccinated against Covid-19. But the program still required pre-departure and entry testing. Nevertheless, Singapore Airlines saw demand rebound quickly after the program launched, fueling it to profits of S$10 million ($7.2 million) for the second half of the fiscal year ending in March. Load factors similarly surged from 17 percent in the first half of the fiscal year to more than 43 percent in the last six months.
In April, load factors rose to more than 77 percent. This was driven by the country’s decision that month to drop mandatory testing requirements for vaccinated passengers, as well as countries in the region, including Malaysia and Thailand, also easing restrictions. However, key markets in Northeast Asia, including China, where some key cities are locked down, and Japan remain constrained.
In the second half of its fiscal year, Singapore Airlines resumed service to Australia, India, Indonesia, and South Africa, and brought back its Airbus A380 flights to Delhi, Mumbai, and New York. By the end of March, the airline’s destinations had risen to 93 cities in 36 countries from 86 destinations three months earlier. Still, that is short of the 137 destinations in 37 countries that Singapore Airlines served in 2019.
Singapore Airlines, hamstrung by not having a domestic market, drastically scaled back its passenger operations during the depths of the pandemic. Although the government provided liquidity, the airline laid off or furloughed more than 4,000 employees in 2020.
Cargo, however, continued to be a lifeline for Singapore Airlines. The cargo network expanded to 100 destinations, up from 98 in the third quarter. Cargo revenue set another quarterly record at S$4.3 billion, up 60 percent from the prior fiscal year, while capacity rose 50 percent year-over-year. The unit’s strength was driven by continued surface shipping constraints, driving yields to record highs. However, lockdowns in China and the Ukraine war — and the ensuing spike in fuel prices — are clouding the cargo unit’s future growth, but Singapore Airlines believes near-term yields will remain strong.
The cargo unit will take delivery of seven Airbus A350Fs in 2025 to replace its Boeing 747-400Fs. During the last fiscal year, the cargo unit signed a deal to operate five Boeing 777Fs for DHL on routes between the U.S. and North Asia for e-commerce and package delivery. The aircraft will be crewed by Singapore Airlines staff and will be based at Changi Airport.
In the March quarter, Singapore Airlines took delivery of one A350-900 and three Boeing 737-8s. Its Scoot subsidiary took delivery of three Airbus A321neos. At the end of the year, Singapore Airlines mainline flew 123 passenger aircraft and seven freighters, and Scoot flew 53 passenger aircraft.
As demand returns, Singapore Airlines is recalling staff and replacing employees who left during the pandemic. So far, management said the airline has not faced difficulties with recruitment.
Although Singapore Airlines reported a profit for the last six months of the fiscal year, the group reported a loss of S$610 million for the year ending in March. This was a 76 percent improvement over last year’s S$2.5 billion loss, however. Revenues doubled to S$7.6 billion. Of those, passenger revenues were S$2.1 billion, while cargo revenues were S$4.3 billion. Traffic for the year spiked 615 percent, while capacity grew by 216 percent.
Spirit’s Board Rejects JetBlue, Again
Not once, but twice. Spirit Airlines’ board rejected JetBlue Airways’ second offer and is urging shareholders to accept Frontier Airlines’ original bid.
Spirit’s board stands firm in its belief that a merger with JetBlue would not survive regulatory scrutiny, given JetBlue already being under the federal government’s microscope for its northeast alliance with American Airlines. The federal government sued JetBlue and American last year, alleging the alliance is anticompetitive.
JetBlue brushed off these concerns when it made its first offer, but Spirit’s board remains unconvinced. “After several weeks and counting, Spirit concluded that the consummation of the proposed JetBlue combination, with the [northeast alliance] remaining in place, seemed almost inconceivable — especially given the cavalier manner in which JetBlue intends to address the significant regulatory risk,” Spirit said in a statement last week.
Moreover, Spirit doesn’t believe the relief measures offered by JetBlue would go far enough to satisfy regulators, especially if JetBlue sticks to the northeast alliance. Furthermore, Spirit believes JetBlue’s offer is just a way to derail any merger with Frontier. “Spirit believes JetBlue’s proposals and offer are a cynical attempt to disrupt Spirit’s merger with Frontier, which JetBlue views as a competitive threat,” Spirit said.
JetBlue in an incendiary statement said Spirit’s board is riven with conflicts of interest and is “distorting” the facts. “Regarding regulatory approval, Spirit would have you ignore the current regulatory climate to think that approval of their Frontier deal is assured. That is simply not true,” JetBlue said.
“The Spirit Board of Directors took the right step in urging its shareholders to reject JetBlue’s proposal and vote for the merger with Frontier,” Frontier CEO Barry Biffle said. “We continue to believe that JetBlue is worried about increased competition and put forward a proposal for a transaction that, simply put, can’t be completed.”
But in an interesting wrinkle to the merger drama, organized labor has come out in support of the Spirit-Frontier deal. The head of the Transport Workers Union (TWU) John Samuelson urged shareholders to vote against JetBlue’s offer. “JetBlue has proven itself to be an abusive employer by disregarding the well-being of its workforce, and refusing to abide by its existing union contracts,” he said. The union represents workers at both JetBlue and Spirit.
Meanwhile, the Association of Flight Attendants said it supported the Frontier bid, provided flight attendant jobs and seniority lists were preserved. The Air Line Pilots Association, for its part, said it is “agnostic.”
Spirit shareholders are scheduled to vote on the merger offers on June 10.
IATA Chief Calls for More Gender Diversity in Aviation
The last two years have been brutal for airlines, and as signs of recovery appear on the horizon, the aviation industry should look to close the gender gap in the sector, said IATA Director General Willie Walsh.
Only seven of the world’s top 100 passenger airlines are led by women — and this number has been the highest in five years, according to FlightGlobal.
Noting the perception of the aviation industry as a male-dominated, Walsh said it is imperative to change this notion, especially at a time when there is a battle for talent. “We need to not just attract, but also retain the best talent so that we can build on the progress that we’ve made,” Walsh said while delivering the keynote address at the Changi Aviation Summit in Singapore last week.
Bridging the gender diversity gap would also ensure sustainable financial business and a sustainable environmental business for the future, the IATA chief said.
Touching upon recovery, Walsh noted that while international travel in 2021 stood at only 25 percent of 2019 levels, the first quarter of this year touched 48 percent of 2019 levels. This was even better in Europe, North America, and Latin America, where the recovery reached 60 percent of 2019 levels. However, Asia continues to lag. While international travel in Asia in 2021 was only at 7 percent of where it was in 2019, the progress in the first quarter of this year only stands at 17 percent.
In spite of IATA’s optimism about the recovery this year and into 2023, Walsh rued that the Asia-Pacific region will lag this recovery as China continues to pursue a zero-Covid policy. “Asia has a long way to go,” Walsh said urging destinations to remove the requirements for tests and quarantine for vaccinated travelers. “Science supports these initiatives and we have two years of rich data. We, at IATA, are convinced that this science supports the removal of testing and quarantine for unvaccinated travelers.”
Where mask mandates are removed for indoor environments and public transport, it should also be removed for air transport, Walsh noted.
Perfectly timed with Japan’s announcement of “test tourism” on Tuesday in which the destination would be allowing small group tours from later this month, Walsh urged the destination to reopen to international travelers. “It would be great to see countries like Japan take the bold decision to remove restrictions on international tourists and rebuild the fantastic work that the country did in growing their tourism industry.”
With sustainability as the key focus for the aviation industry, Walsh lauded the airline industry’s commitment to reach net zero by 2050 and added that Asia should see the move to sustainable aviation as an opportunity.
“The excellent initiative by Singapore with the International Advisory Panel on sustainable aviation hubs, is an example of how we can work together to ensure that this important target is met,” he said.
In Other News
- Air France-KLM and shipping giant CMA CGM will form a 10-year strategic partnership that will effectively create a single air freight unit across the companies. Under the pact, they will jointly design and operate an air cargo network with their fleet of 10 freighter aircraft, including six at Air France-KLM and four at CMA CGM Air Cargo. Air France-KLM’s orders for four new freighters, and CMA CGM’s for eight freighters; both orderbooks include the new Airbus A350F. Air cargo proved a lifeline for airlines during the pandemic, and has continued to outperform passenger businesses in the recovery amid supply chain issues disrupting maritime shipping. This performance prompted CMA CGM’s entry into the air freight business last year. As part of the partnership, CMA CGM will buy an up to 9 percent stake in Air France-KLM.
- In C-suite changes, IndiGo and Gol both named new CEOs last week. Pieter Elbers, the outgoing CEO of KLM, will take the helm of India’s largest airline, IndiGo, when current CEO Ronojoy Dutta retires on September 30. Elbers will bring deep knowledge of running a diverse network airline to the discounter.
And at Gol, Vice President of Operations Celso Ferrer will replace Paulo Kakinoff as CEO on July 1. Kakinoff, who has led the airline since 2012, will remain a member of Gol’s board. The carrier describes the transition as part of its “well-structured” leadership succession plan. - United Airlines updated its revenue guidance for the second quarter in a filing with the U.S. Securities and Exchange Commission. The carrier now expects unit revenues to be 23-25 percent higher than in 2019, updating previous guidance of 17 percent higher. Unit costs excluding fuel are expected to be 16-17 percent higher than 2019, and fuel will cost $4.02 per gallon, versus prior guidance of $3.43. United expects to fly 14 percent less capacity than in 2019, updating prior guidance of 13 percent less.
- Wizz Air has signed up for another new opportunity, this time in the Mediterranean. The discounter plans a new subsidiary and base in Malta by October. Wizz has not disclosed the number of aircraft located in Malta, or new routes from the airport yet. Wizz serves Malta from eight destinations currently, including Belgrade, Budapest, and Warsaw, Cirium schedules show.
- Mesa Air Group has about 200 pilots in its pipeline, but it is struggling to get them through the roughly 90-120-day training period before they can fly the line, Chief Financial Officer Torque Zubeck said at an industry conference. Attrition to mainline carriers is the highest he’s ever seen, or about two to three times the usual rate. The regional is touting its Boeing 737 cargo operation for DHL as a recruitment tool. Zubeck said DHL provided the first two 737s, and Mesa added a third. Finally, the company’s European subsidiary, Gramercy, will get its necessary certifications in the third quarter and will operate from Malta, Zubeck said.
- Sun Country Airlines credits its unique business model as a hedge against the ebbs and flows of demand during the pandemic. Its cargo operation for Amazon and charter operation, which includes sports teams, casinos, and the U.S. military as clients, keep the revenue flowing even when demand drops off, Chief Financial Officer David Davis said. However, right now, the leisure-focused airline is seeing demand and fares that are “very, very high,” he said. Sun Country deploys its pilots across all its businesses, giving it flexibility in crew scheduling, he added.