Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.
Airline passenger traffic in the US market has seen a robust recovery post-Covid and through 2023, with key segments such as US-Europe, US-Latin America and domestic US fully rebounding and surpassing capacity from the same month in 2019. In contrast, the recovery of trans-Pacific routes remains sluggish with volume still significantly below pre-Covid levels as of today.
One factor contributing to this slow recovery is the heightened political tensions between US and China – one of the main markets in Asia contributing 31% of total flights in 2019. These tensions have created unfavorable market conditions, dampening travel demand between the two countries and perhaps making routes unprofitable for US carriers. According to the Cirium SRS Analyzer, the number of US-China direct flights original-destination (OD) pairs declined by 57.8% from 64 in 2019 to 27 in 2024. Meanwhile, the number of flights dropped from over 11,600 in 2019 to below 3,800 in 2024, marking a 67.4% decrease. It is reported that American Airlines, Delta Air Lines and United Airlines requested another extension from the US Transportation Department (DOT) in September 2024 for unused flights frequencies on routes connecting China to avoid losing those routes.
Another factor to consider is that the US in-service twin-aisle fleet has hardly grown since 2019. Flights between the US and China require approximately two widebody aircraft just to service a single daily frequency.
Considering that US carriers have redeployed a lot of capacity formerly serving China to other markets in the last five years, and also retired some older aircraft during Covid, and considering slow deliveries of 787s and A350s, the US carriers wouldn’t have the necessary aircraft anytime soon to return to their full, pre-Covid China timetable even if they wanted to and the demand existed. In light of this, we do not expect US-China capacity to return to pre-Covid levels in the short-to-medium term.
US-based Airlines Fleet Overview
Source: Cirium Core
The current passenger fleet operated within the US market has grown from just over 6,200 aircraft in September 2019 to almost 7,000 in September 2024, reflecting a 2.3% CAGR. Meanwhile, the stored fleet ratio has declined from a peak of 51.9% in April 2020 to 8.6% as of September 2024, albeit still being 2.8 percentage points higher than pre-Covid levels. Both single-aisle and twin-aisle fleets maintained a below-average storage rate while turboprops and regional jets experienced a more sluggish recovery primarily due to a shortage of pilots and flight crews. The rise in inactive single-aisle aircraft since early 2024 is attributed to the temporary grounding of 47 Boeing 737 Max 9s following the door plug incident in January 2024 and A320neo GTF engine issue, which has grounded a monthly average of 32 US-operated A320neos equipped with PW1100G engine over the past nine months, most of which are from Spirit’s fleet. This situation is expected to persist until at least 2026 when the engines can be inspected, and any necessary parts can be replaced.
Overall, the size of the current fleet in the American market is expected to continue growing, with 2,586 aircraft on order and 798 aircraft on option as of September 2024.
The growth will be at a slower pace due to a stagnant production ramp-up from major OEMs, stemming from supply chain challenges and labour strikes (particularly at Boeing). The ongoing GTF engine issue will further exacerbate the under-supplied market dynamic in the near-term. However, on a positive note, the constrained supply should continue to underpin lease rate strength.
“Any sufficiently advanced technology is indistinguishable from magic”.
This quote from Arthur C. Clarke rings truer than ever as we experience unprecedented technological advancements. The world we live in today feels almost magical with everything at our fingertips. Gone are the days when a phone call would disrupt your internet connection. Technology is at the heart of everything and with the renewed interest in Artificial Intelligence (AI) due to the rise of generative AI, things have never been so magical!
Historically, aviation has been a cornerstone of technological innovation, setting the pace for advancements across various domains. We’ve seen the aircraft design evolve from the Wright Flyer to the modern-day jets and witnessed the advancements in avionics, including GPS navigation and autopilot systems that profoundly improved flight safety and operational efficiency. As e-commerce gained traction, the first airline ticket was sold online in 1995. 4 years later, you could check-in online and get your boarding pass. The passenger experience became much more seamless with AI chatbots, multiple booking options and various conveniences. However, as these foundational technologies matured, the pace of innovation in aviation began to slow down compared to the rapid advancements seen in mainstream technology.
And not all sectors of aviation equally reaped the benefits of new tech. The operational side is still fraught with challenges.
The logistics of moving goods and people from point A to point B with good performance consistently is extremely challenging as the operational landscape is ever-changing with lots of variables. Working on gut feel is no longer viable given that the global travel and economic landscape is changing rapidly. It is far too time-consuming to look for the needles (useful insights) in a haystack (mountains of data). Airlines and Airports often miss key pieces of context that often contribute to a lack of situational awareness eventually leading to operational inefficiencies. Often, the operations teams struggle to gauge their performance accurately as they lack comparative information from similar days or situations, making it hard to understand their performance within a broader context. The time and effort required to consistently perform a deep multi-layer analysis is often cost-prohibitive. This is compounded with by long feedback loops that make it incredibly challenging to understand the cause and effect of actions taken and decisions made over time.
In recent years, we have seen a resurgence in aviation innovation with the digital transformation movement that began during the pandemic.
It continued to gain momentum and was further boosted with the advent of generative AI which lends itself well to the type of use cases that call for dynamic problem solving. This is much needed and timely considering the change in passenger expectations, increasing focus on greener travel and the ever-rising demand. The need for efficiency, and cost reduction, whilst delivering an enhanced passenger experience has never been greater.
The market for AI-driven decision support tools in aviation is expanding, with airlines, airports, and service providers actively seeking solutions to optimize operations with most major airlines investing heavily in data science and analytics teams, striving to put data at the heart of key organisational decisions. The AI in aviation market was valued at $686.4M in 2022 and is projected to register a CAGR of over 20% each year between 2023 and 2032 (Wadhwani, 2023). The “Generative AI and Aviation” report by the International Air Transport Association (IATA) showcases that over 40% of its members are interested in leveraging GAI for disruption management-related use cases. While generative AI has seen widespread adoption in customer support, predictive maintenance, and pricing, its integration into operational processes remains slower. How do we unlock the efficiencies in the actual logistics of moving people and goods around?
Closer collaboration between airlines, airports and technology providers is even more crucial to unlock the data silos where every actor in the system holds a different piece of the overall puzzle. Data sharing, organisation and contextualisation will be key to unlocking the unearned gains and unmet potential in the wider ecosystem. A robust foundation of comprehensive data is needed to support predictive and prescriptive analytics that can truly enhance operations across the ecosystem.
It has always been said that Data is the new fuel, but Generative AI might just be that brand new engine that harnesses its power and propels the industry to another new era of rapid innovation and seamless experience for the passengers. In another decade or so, the experience of flying could be magical again!
Bibliography
*Wadhwani, P. (2023, August). Artificial Intelligence in Aviation Market Size. Retrieved from Global Market Insights : https://www.gminsights.com/industry-analysis/artificial-intelligence-in-aviation-market
The recent CrowdStrike IT outage on July 19, 2024, caused significant disruptions across various sectors. The global aviation industry was particularly hard hit, leading to widespread delays and operational challenges worldwide, affecting aviation operations in numerous regions.
Europe: Key airports in London, Paris, and Frankfurt were affected, causing a ripple effect through European airspace.
North America: Major hubs like Atlanta, New York, Los Angeles, and Chicago saw significant disruptions, affecting both domestic and international flights.
Asia-Pacific: Busy transit points such as Tokyo, Singapore, and Sydney experienced significant delays and cancellations, impacting both regional and long-haul flights.
Latin America: Airports in cities like São Paulo, Buenos Aires, and Mexico City were not spared, with many flights being delayed or canceled.
Flight Cancellations
Airlines around the world, including major carriers like American Airlines, British Airways, Delta Air Lines, Lufthansa, and United Airlines, faced the cancellation of thousands of flights. This widespread disruption affected not only countless passengers but also posed significant operational challenges for the airlines..
According to Cirium data, out of 411,009 globally scheduled passenger flights over a 72-hour period, approximately 16,896 flights were canceled, representing just over 4% of global flights.
This cancellation rate was double that of the previous week, which stood at 1.9%.
Delta Air Lines, for instance, encountered a backlog in customer service and rescheduling, as reported by CNBC. American Airlines faced crew availability and logistical challenges, leading to numerous delays and cancellations, as highlighted by The Wall Street Journal. United Airlines had to navigate a complex web of cancellations and reassignments, straining their resources and impacting overall efficiency, according to Forbes.
This cascade of disruptions underscores the intricate logistics of the airline industry and the pressing need for robust contingency plans to manage such widespread issues effectively.
Even flights that were not canceled experienced significant delays. These delays rippled through busy airports, further disrupting scheduled operations and inconveniencing passengers. Travelers found themselves stranded for hours, and in some cases, days, as airlines scrambled to restore their operations. Long waits at terminals, missed connections, and the general uncertainty compounded frustrations, leaving many passengers stressed and exhausted.
These delays affected not only immediate travel plans but also had lasting impacts on schedules and commitments, emphasizing the necessity for more resilient and responsive airline recovery strategies.
One of the most immediate and visible impacts of the outage has been the stranding of travelers. Thousands found themselves stuck in airports with limited information on when they might be able to continue their journeys. Many of these travelers were left with no choice but to bed down in the terminals, using makeshift sleeping arrangements as they awaited re-accommodations. The scene was one of frustration and fatigue, as people spread out on benches, floors, and any available space, trying to find some semblance of comfort amid the chaos. Airport staff worked tirelessly to assist and provide updates, but the uncertainty left many feeling anxious and stranded far from their destinations.
Travel Refunds and Waivers
To tackle the significant challenges posed by recent travel disruptions and to sustain customer trust, airlines have rolled out a comprehensive strategy including widespread travel refunds, waivers, and vouchers for affected passengers. This proactive approach is vital for maintaining positive customer relations during difficult times.
Major airlines like American Airlines, British Airways, Delta, Lufthansa, and United not only issued refunds but also introduced flexible rebooking options to accommodate passengers whose travel plans were disrupted. These measures allowed travelers to adjust their itineraries without additional fees, fostering a sense of security and flexibility amid uncertainty.
While these efforts are necessary for rebuilding and maintaining customer trust, they inadvertently introduced another layer of complexity to the already strained operations of airlines. The influx of refund requests has placed a significant burden on customer service departments, requiring them to manage a high volume of inquiries efficiently. This situation has necessitated the development of streamlined processes to handle rebooking logistics effectively, ensuring that passengers receive timely updates and assistance.
Beyond managing requests, airlines must ensure clear and informative communication. Keeping passengers informed about their options and refund statuses is crucial to prevent frustration and dissatisfaction.
Airlines are diligently working to balance addressing immediate customer needs with maintaining operational efficiency, all while adapting to evolving travel regulations and safety protocols.
These efforts underscore the need for airlines to enhance operational capabilities and customer service strategies. By doing so, they can navigate current complexities and emerge stronger, fostering long-term customer loyalty.
Industry Response
The airline industry’s response to the CrowdStrike IT outage has been comprehensive, focusing on managing the immediate crisis while also strategizing for long-term resilience.
Immediate Measures
The first line of response was to cancel flights to prevent further complications and manage the surge of stranded travelers in airports. Airlines have also focused on providing timely information and support to affected passengers.
Compensation
To maintain customer trust and alleviate frustration, airlines have issued travel refunds, waivers and vouchers. These measures aim to compensate for the inconvenience caused and offer flexibility to passengers whose travel plans have been disrupted.
Operational Adjustments
In addition to these compensations, airlines are revisiting their IT infrastructures to prevent future outages. This includes assessing current systems, investing in more robust technologies, and developing contingency plans to ensure smoother operations in the face of similar disruptions.
What Does a CrowdStrike-type Event Mean for the Airline Industry
Technology has significantly benefited aviation, enabling it to meet the growing demand for air travel. However, the CrowdStrike IT outage has exposed the industry’s vulnerability due to its heavy dependence on technology. While the immediate priority involves addressing cancellations, delays, and customer compensation, the incident underscores the urgent need for airlines to develop more resilient IT systems.
To prevent or lessen the effects of technology outages, airlines need to implement several crucial measures:
Invest in redundant systems: Airlines must consider implementation of dual or even triple redundancy in their IT infrastructure. This means having backup systems, leveraging different vendors, ready to take over immediately if the primary system fails, ensuring minimal disruption to operations.
IT vendor accountability: Airlines are at the mercy of their IT providers in many cases. Implementing more stringent Service Level Agreement’s (SLA) ensuresIT providers share in the pain and the financial impact that their actions have on their airline customers in terms of operational costs and customer compensation.
Enhance cybersecurity measures: Frequent and rigorous cybersecurity assessments and upgrades are essential. Investing in advanced security protocols, including intrusion detection systems, regular vulnerability testing, and employee training on cybersecurity awareness will enable airlines to prevent breaches that could lead to outages.
Develop comprehensive response plans: Airlines would benefit by regularly updating incident response plans that detail the procedures to follow during a technology outage. These plans should include clear lines of communication, designated response teams, and step-by-step protocols for managing situations efficiently.
Foster inter-departmental collaboration: A technology outage can affect various departments, from operations to customer service. Cultivating closer collaboration between IT, operations, and customer service teams allows airlines to streamline response efforts and ensure everyone is prepared to handle the fallout.
Implement continuous monitoring: Proactive monitoring of IT systems can help identify potential issues before they escalate into significant problems. Airlines can leverage real-time analytics to keep an eye on system performance and receive alerts for unusual activity.
Testing and simulation exercises: Regularly conducting tests and simulations of systems can prepare airlines for potential outages. These exercises should mimic real-world scenarios to ensure response teams can effectively handle disruptions with minimal impact.
Engage with technology partners: Airlines must build closer relationships with their technology providers to ensure they have priority support during outages. This collaboration can lead to quicker resolutions and shared insights on improving system resilience.
Educate and train staff: Regular training sessions for employees on emergency protocols and the importance of IT resilience can empower them to act quickly and efficiently during an outage.
By prioritizing these strategies, airlines can strengthen their technological infrastructure and more effectively manage unexpected disruptions like the CrowdStrike incident. This approach ensures smoother operations and enhances customer satisfaction when facing technology challenges.
Cirium and RouteZero have unveiled a pioneering partnership to integrate Cirium’s EmeraldSky, specifically designed for corporate travel. This innovative offering represents a major leap forward in enabling companies to monitor, improve and report their air travel emissions reductions with unmatched accuracy and transparency.
RouteZero
Historically, corporations estimated the environmental impact of their air travel programs using broad assumptions based on scheduled air services. These rough estimates hindered accurate emissions tracking, and the reduction of their carbon footprints, leading to costly offsetting. The new partnership between Cirium and RouteZero transforms this process by offering post-flight emissions monitoring and reporting via EmeraldSky. This service provides precise, actionable insights based on actual flown operations, including the specific aircraft used, load factors, and the fuel consumption and CO2 emissions.
Through this collaboration, corporations will benefit from highly accurate insights into their air travel emissions, powered by the EmeraldSky emissions system, which is applied after each flight. EmeraldSky is not just another methodology; it is a groundbreaking system that leverages exclusive data from the actual tail number of the aircraft used, incorporating critical details such as aircraft age, engine type, winglets, tarmac time, load factor and flight duration. Combined with our precise methodology tailored for the aviation and aerospace sectors, EmeraldSky has demonstrated an impressive accuracy margin of up to 99% of flown emissions compared to actual airline-recorded fuel and emissions measurements.
“Leading companies are making radical, proactive changes to the way they travel to enable them to meet their Net Zero goals. Deploying RouteZero, customers travel more miles to meet more customers whilst cutting emissions. Using the most robust and accurate data available, empowers travelers to get to their destination in the most sustainable way, whilst getting their companies closer to Net Zero. Decarbonization is possible if we work together,” said Dan Brown, CEO of RouteZero.
“The level of precision and accuracy of Cirium’s EmeraldSky CO2 emissions calculations for flights far exceeds estimates available today and leveraging this flight emission system via RouteZero enables corporations to fulfill their sustainability objectives faster and more cost effectively,” said Jeremy Bowen, CEO of Cirium.
This innovative service not only enhances the accuracy of emissions reporting but also helps corporations better align their travel practices with their sustainability initiatives. By leveraging Cirium’s comprehensive flight emissions data and RouteZero’s expertise in sustainability, RouteZero’s service powered by EmeraldSky sets a new standard for environmental stewardship in corporate travel management.
Get more information about the RouteZero and Cirium’s EmeraldSky and hear how it can benefit your corporate travel program.
About Cirium Cirium® is the world’s most trusted source of aviation analytics. The company delivers powerful data and cutting-edge analytics to empower a wide spectrum of industry players. It equips airlines, airports, travel enterprises, aircraft manufacturers, and financial entities with the clarity and intelligence they need to optimize their operations, make informed decisions, and accelerate revenue growth.
Cirium® is part of LexisNexis® Risk Solutions, a RELX business, which provides information-based analytics and decision tools for professional and business customers. The shares of RELX PLC are traded on the London, Amsterdam and New York Stock Exchanges using the following ticker symbols: London: REL; Amsterdam: REN; New York: RELX.
About RouteZero RouteZero is dedicated to helping corporations achieve their sustainability goals through innovative solutions and technologies. By providing accurate and reliable emissions data, RouteZero empowers businesses to take meaningful action towards reducing their environmental impact. For further information please visit RouteZero.com.
Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.
Tim Li, Aviation Analyst, Cirium Ascend Consultancy
Since July’s Farnborough air show, the Airbus A330neo has recorded 57 new firm orders and 60 options from four customers, surpassing all other models as the most ordered widebody aircraft in the past four weeks. This begs the questions: Is the A330neo – Airbus’s ‘middle child’ – making a comeback, and how so? Furthermore, how will a change in operator base affect the development of the type?
Until recent weeks, Airbus’s order books have been dominated by the A320neo family and the A350, with backlogs of over 7,000 and 650 aircraft to date respectively. However, the A330neo is finally making its presence felt, especially with options from Flynas, additional orders from Virgin Atlantic, and particularly striking, new firm orders for 20 aircraft from VietJet Air and 30 from Cathay Pacific. These orders push the A330neo total order tally to 360 aircraft, with a current backlog of more than 200. This also positions Cathay as the second biggest airline customer for the A330neo programme, following Delta Air Lines and preceding TAP Air Portugal.
Among all these new orders, Cathay Pacific’s is a particularly big shot in the arm for the previously moribund A330neo programme. As the fifth largest A330ceo operator, Cathay is expecting these A330neos to “progressively replace” its existing fleet of A330ceo and 777 classics, a motive which Airbus believed would bring orders from its vast A330ceo operator base due to its “low-risk” and commonality when it launched the re-engined family a decade ago. Looking back, 21 of the 51 airline A330ceo operators with more than five A330ceos originally selected the Boeing 787 as their next generation mid-gauge widebody – a clean-sheet design that entered service some seven years before the A330neo.
Airbus A330neo and Boeing 787 Fleet Size of the Top 51 A330ceo Operators
Source: Cirium Fleets Analyser
Cathay was one of the remaining 20 operators with a fleet of more than five A330ceos that had not placed orders for either the 787 or the A330neo. While ‘significant price concessions’ undoubtedly played a role in this final decision, one can infer that Cathay had the bargaining power to negotiate a similar discount from Boeing for the 787 or Airbus for more A350s. Therefore, it appears that primary drivers for Cathay to opt for the A330neo were the smaller backlog and more-favourable mix of operating and ownership costs and payload-range performance.
The A330neo’s smaller backlog enables an earlier delivery timeline compared with the 787 and A350. OEMs have struggled for some time to crank up their production rate to go through their backlogs.
The 787 backlog is 780 aircraft currently. Coupled with concerns over Boeing’s quality control arising from multiple incidents recently, even if Boeing was to increase its production rate to 10 per month, the earliest availability would not be until the end of the decade. In contrast, delivery for A330neo is achievable as early as 2028, given a delivery rate of four per month. Given that Cathay’s oldest aircraft is now 24 years old, beginning replacement three years earlier seems timely.
Expected Number of Delivery and Current Yearly Delivery Rate
Source: Cirium Fleet Analyser, Airbus, Boeing
Although Cathay’s 48-strong A350 fleet can support all its operations, the airline needed an optimal solution to scale up capacity for its high-demand regional network. This is where the A330neo comes in. Ascend’s opinion on current delivery value suggests that an A330-900 is 33% cheaper than an A350-900. Even though the type is currently a less popular option comparing to the A350, it has seen lower volatility during downtime as its new generation technology allows a more efficient operation which is more attractive to operators when demand softens. Furthermore, the operating cost is reduced due to its commonality with the rest of Cathay’s Airbus fleet.
Value Trends of A330-900 neo and A350-900
Source: Cirium Value Time Series, On Delivery Market Value as of 22nd August 2024
With all the above in mind, which of the remaining A330ceo operators would be expected for another major A330neo replacement order? Among the next 10 biggest A330ceo operators that have neither the 787 nor the A330neo, Air Transat and Aer Lingus are switching strategy to narrowbody long haul; Asiana is merging with Korean Air which operates 787s; Aeroflot is under sanction; Swiss’s fleet is younger and its mother group Lufthansa opted for the 787 though “had no immediate plans to introduce 787s to its fleet”, and Philippine Airlines just streamlined its fleet after recovering from Chapter 11. This leaves just Iberia, Sichuan Airlines, Brussels Airlines and Discover Airlines, with Sichuan the only one that does not have to follow a parent group decision. Operating both types simultaneously is unlikely either, with Virgin Atlantic being the only example, potentially joined by Hainan Airlines which hinted that in its stock exchange filing in April this year. The “Big Three” Chinese operators can be on watch as well since their 787 fleets are relatively small, though that also depends on the recovery pace of the Chinese aviation market.
Instead of viewing it strictly as a replacement for the A330ceo, the A330neo presents itself as an ideal type for operators looking to scale up their network and operations.
Prime examples include TAP, Condor, Cebu Pacific, ITA Airways and the newly joined VietJet Air. Notably, none of these top 10 A330neo operators have ever had a fleet of more than 10 A330ceos. The induction of the A330neo not only allows them to expand into the long-haul market, even for LCCs, but it also boosts the capacity of their trunk routes.
These observations suggest that the A330neo operator base may end up being quite different from the A330ceo’s, composed of a higher proportion of mid-tier credit and smaller scale operators, particularly given the model is still in the early stages of its product cycle. This may dissuade some of the more conservative banks from financing the aircraft, leading to less presence in SLB, JOL/JOLCO or other financial markets, and potentially impacting its liquidity and value in the long term.
London, 3 September, 2024: Cirium is now Condor’s new partner for aviation analytics, with the new agreement making Cirium the airline’s single source of external aviation data, providing end-to-end data services.
The partnership between Cirium, the aviation analytics firm, and Condor, will empower the German carrier to further improve its operations, driving quality insights aimed at improving the businesses efficiency and overall customer satisfaction.
As part of this new agreement, Cirium will provide the airline with three key data sets: historical flight data, schedules data, and real-time flight data.
Having utilised Cirium’s historical flight data for two years, Condor’s decision to now integrate Cirium’s additional suite of products presents a unique opportunity to further streamline operations, driving direct improvements for both the business and its customers.
This investment in data will enable the business to swiftly identify operational trends, allowing for quick solutions that reduce costs and enhance efficiency. It will empower teams to optimise fleet management, network planning, connections, and crew scheduling, driving significant improvements across all aspects of operations.
Cirium’s highly regarded flight schedules product is also part of the deal, offering deeper insights into service opportunities and market demand. With the up-to-date data, Condor will be able to optimise network and crew planning, boosting efficiency and profitability across the business.
The addition of Cirium’s real-time flight data will also provide live updates on aircraft around the world, meaning flights can be tracked and monitored with greater detail.
This will support Condor’s investment in its customer experience proposition, with Cirium’s live flight data feeding directly into customer-facing digital platforms, giving travellers precise departure and arrival times so they can plan their onward journeys. The addition of real-time flight data will also transform disruption management, offering even faster rebooking options to those with missed connections.
“We are very excited to announce this expanded collaboration with Condor, a leading global leisure airline. Condor has been a client of Cirium, benefiting from our historical flight data, and this strengthened partnership is a testament to both the quality of our data and the dedication of the Cirium team. Through this extended relationship, we will provide Condor with the most precise and reliable industry data, helping them enhance operational performance and, most importantly, deliver timely insights to their passengers worldwide,” said Jeremy Bowen, CEO of Cirium.
As Germany’s most popular leisure airline, Condor has been flying customers to the world’s most beautiful destinations since 1956. With a fleet of over 50 aircraft, the airline serves around 90 destinations from Germany and Switzerland. This partnership with Cirium marks the latest step in Condor’s ongoing commitment to operational excellence and customer satisfaction.
Cirium is the world’s most trusted source of aviation analytics, delivering powerful data and cutting-edge analytics to empower a wide spectrum of industry players.
Equipping airlines, airports, travel enterprises, aircraft manufacturers, and financial entities, the company provides the clarity and intelligence needed to optimise operations, make informed decisions and accelerate revenue growth.
To learn more about Cirium’s products, and how they can benefit your business, visit www.cirium.com
About Condor As Germany’s most popular leisure airline, Condor has been taking its guests to the world’s most beautiful holiday destinations since 1956. Condor operates a fleet of over 50 aircraft, which are maintained by the company’s own maintenance operation, Condor Technik GmbH, according to the highest safety standards at the Frankfurt and Dusseldorf locations. In spring 2022, Germany’s most popular leisure airline unveiled its new brand identity. This illustrates the development from a leisure airline to a unique and unmistakable vacation brand. The new design was unveiled with the first A330neo, which has been operated by Condor since December 2022. As the German launch customer, Condor will then be flying 21 A330neo long-haul aircraft. Thanks to state-of-the-art technology and maximum efficiency, the latest-generation 2-liter aircraft is the European front-runner with 2.1 liters per passenger per 100 kilometers and maximum customer comfort. Condor will also receive 43 brand-new short- and medium-haul aircraft of the A32Xneo family from 2024.
About Cirium Cirium® is the world’s most trusted source of aviation analytics. The company delivers powerful data and cutting-edge analytics to empower a wide spectrum of industry players. It equips airlines, airports, travel enterprises, aircraft manufacturers, and financial entities with the clarity and intelligence they need to optimize their operations, make informed decisions, and accelerate revenue growth.
Cirium® is part of LexisNexis® Risk Solutions, a RELX business, which provides information-based analytics and decision tools for professional and business customers. The shares of RELX PLC are traded on the London, Amsterdam and New York Stock Exchanges using the following ticker symbols: London: REL; Amsterdam: REN; New York: RELX.
Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.
The Hong Kong Airport Authority’s initiative to incentivize airlines to establish new routes and increase flight frequencies is a strategic measure aimed at enhancing the region’s competitive edge. However, while this approach is a positive development, it may prove insufficient in addressing the broader challenges of manpower shortages and regional connectivity. Compounding these issues, some foreign carriers have withdrawn services from China, citing unfair competition due to restrictions on using Russian airspace. These unfavourable conditions in Greater Bay Area (GBA) airports raise questions about the region’s near-term prospects.
Despite these efforts, Hong Kong International Airport (HKG) continues to operate below pre-pandemic capacity levels. Cirium data indicates that seat capacity departing from Hong Kong in Q2 2024 is 29% lower than in the same period in 2019. HKG is grappling with significant reductions in flights across all regions, with the most pronounced declines seen in routes to Africa, Europe, and Australasia. These challenges may be attributed to various factors, including political instability, economic pressures, and increased competition from neighbouring airports. However, the primary obstacle remains the persistent shortage of human resources.
For instance, Cathay Pacific has revised its forecast for achieving full passenger capacity recovery, now aiming for the first quarter of 2025 rather than the end of 2024. This delay is attributed to a shortage of pilots and cabin crew. Additionally, ground handling service providers are grappling with staffing deficiencies, which are causing them to either reject flights from foreign carriers or impose excessively high service fees. These labour shortages are notably impeding the city’s connectivity and hindering its overall recovery within the global aviation industry. As a result, ticket prices are expected to stay high, with limited route options available to travellers.
The Departing Seat Capacity of Major GBA Airports
Source: Cirium Core
On the other side, the seat capacity of other two major Greater Bay Area (GBA) airports, Guangzhou Baiyun International Airport (CAN) and Shenzhen Bao’an International Airport (SZX), have exceeded the pre-COVID levels, thanks to the strong domestic market recovery. CAN shows overall growth in flight and seat capacity, with particularly strong growth in the Asian markets. However, there is a notable decrease in flights to North America and Australasia. The available-seat-kilometres (ASK) indicates that the recovery of the inter-continental traffic at CAN is still lagging. SZX has seen significant growth, particularly in flights to Asia, Europe, and the Middle East, reflecting its increasing importance as an international hub. However, it also experienced a sharp decline in Australasia and North America.
The Capacity in Terms of Available-seat-kilometres (ASK) of Major GBA Airports
Source: Cirium Core
Flight Capacity by Region From Major GBA Airports
Source: Cirium Core
Hong Kong is encountering intensified competition from within the Greater Bay Area (GBA), where international airlines are increasingly choosing direct routes to other regional hubs, potentially diverting traffic away from the city. To address this challenge, it is essential for Hong Kong to create a financially appealing environment for airlines to maintain their operations. A key component of this strategy involves addressing the ongoing staffing shortages, including those for pilots, cabin crew, and ground handlers. The government’s Labour Importation Scheme for the aviation sector is expected to alleviate these resource constraints in the near term, thereby supporting Hong Kong’s competitive position in the region. CAN and SZX both demonstrated growth between Q2 2019 and Q2 2024, with CAN increasing by 6.85% and SZX by a significant 18.39%. This suggests that both airports have been strengthening their positions as key regional hubs. The sharp growth in Shenzhen may indicate a strategic shift, potentially capturing market share from Hong Kong. However, both airports have seen a decline in flights to North America, reflecting the impact of geopolitical tensions. Overall, the expansion in these two GBA underscores their growing importance in the region, even as they navigate the challenges posed by shifting global dynamics.
Global legislators – particularly those in Europe – are pulling on the levers of government to ensure aviation is subject to increasing regulatory change to reduce carbon emissions and encourage a transition towards operating more sustainably.
It’s crucial aviation financiers understand the regulations, and their impact, not simply for compliance but to capitalize on emerging opportunities.
The Sustainability Regulations Landscape
Since 2013, aviation emissions have increased by 26% and are expected to continue to grow, with passenger numbers projected to double to 8.2 billion in 2037.
By 2050, aviation could consume a quarter of the global carbon budget for limiting global temperature rise to 1.5oC.
EU Member States aim to reduce net emissions by at least 55% by 2030 compared to 1990 and will become carbon emissions neutral by 2050.
Against this backdrop, key regulatory frameworks have been implemented to reduce greenhouse gas emissions and mitigate the environmental impact of air travel. These include the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)and the European Union Emissions Trading System (EU ETS) among others. Additionally, countries including the UK and US have introduced national initiatives to reduce aviation emissions including the UK’s Jet Zero Strategy and the US’s Sustainable Aviation Fuel (SAF) Grand Challenge.
With CORSIA aiming to create a globally unified approach to offsetting aviation emissions and flight emissions within the EU also being regulated by the EU ETS European carriers are facing a unique challenge.
Adopted by the International Civil Aviation Organization (ICAO), CORSIA was developed and set the baseline levels for emissions exceeding 85% of 2020 levels. Its implementation aims to help the aviation industry reach its aspirational goal to make international flight growth carbon neutral and for airlines to have net zero carbon emissions by 2050. The mandatory phase of CORSIA is set to begin in 2027, with individual airlines accountable for their emissions by 2030.
The EU Emissions Trading System (EU ETS) requires airlines operating in the European Economic Area to monitor, report, and verify their emissions and to surrender allowances equal to their emissions annually. This means from 2026, airlines will face the full cost of emitting carbon, as free allowances taper down to zero on intra-EU flights where the cap has been steadily above 80% since 2012.
American multinational investment bank, Morgan Stanley, has predicted this could lead to substantial rise in carbon costs which will be passed on via higher ticket prices.
Additionally, under the Refuel EU legislation, tankering must be reduced so 90% of annual fuel comes from an EU airport ensuring airlines are not using cheaper fuel outside the EU. From 2025, aviation fuel suppliers will also have to blend 2% SAF and kerosene, increasing to 70% by 2050.
Regulation Implications for Aviation Finance
Regulations such as these present both challenges and opportunities for financiers but what is clear is the continually changing regulatory landscape has financial impact. Airlines face higher operating costs due to the need to purchase carbon credits or emissions allowances whilst embracing new and emerging technologies.
With any financial health impact there also comes a threat to the ability to meet lease or loan obligations and aircraft leasing and finance agreements now need to consider potential financial impacts of compliance with CORSIA, EU ETS and other regulations.
Financiers must factor these costs in when structuring finance agreements and deals or when assessing airline creditworthiness. The costs also need to be accounted for when considering potential impact on aircraft valuation and lease terms because of the growing demand for aircraft capable of using SAFs, which can reduce lifecycle emissions significantly.
As a result, we are seeing investments in SAF infrastructure and technology development becoming increasingly attractive and while funding SAF projects and the transition of fleets to SAF-compatible models can be a significant investment opportunity, financing structures may need to adapt to support such initiatives.
The UK government’s strategy focused on advancements in technology, operations, and SAFs to achieve net-zero aviation by 2050 and the US Sustainable Aviation Fuel (SAF) Grand Challenge encourages financiers to consider funding opportunities for aligned innovations and those that could benefit from government incentives.
Financiers are also encouraged to consider certification status when evaluating SAF-related investments. The International Sustainability and Carbon Certification (ISCC), acertification system for the sustainability of raw materials and products, can also enhance the credibility and marketability of SAF projects, influencing investment decisions.
Diversification and Funding
More broadly speaking, portfolio diversification to include more sustainable assets that can reduce exposure to regulatory risks is increasingly important.
Aircraft may require upgrades to meet new standards, impacting financing deals and residual value calculations. Aircraft residual value could also be influenced by environmental performance with older, less efficient aircraft potentially facing a decline in value, while newer, more sustainable models command a premium.
There is also a rise in Sustainability-Linked Loans and Green Bonds. The loans offer favorable terms for borrowers meeting specific sustainability targets, such as reducing emissions or increasing the use of SAFs and the issuance of green bonds dedicated to financing sustainable projects in aviation is growing. These bonds attract investors focused on ESG criteria.
These financial instruments not only support environmental goals but also attract investors focused on sustainable portfolios.
Strategic Responses
Aviation finance professionals must adopt strategic responses to navigate regulations effectively. This includes incorporating ESG Criteria into investment decisions including evaluating the environmental impact of aircraft and operations and ensuring transparency in reporting.
Collaboration with airlines, manufacturers, and regulators is key to stay ahead of regulatory developments – through engagement in industry forums and working groups providing valuable insights and influencing policy-making.
Financiers must develop and promote financing products that support the transition to sustainable aviation which could include green leasing options, financing for SAF projects, and investments in carbon offset programs.
Focus should also turn to incorporating sustainability risks into broader risk management frameworks including assessing the potential financial impact of regulatory changes and the transition to low-carbon aviation.
Moving forward, financing agreement clauses should also account for future regulatory changes and their potential impact on asset values and operating costs.
EmeraldSky
As sustainability regulations continue to evolve, the sector must remain agile and proactive which is where EmeraldSky by Cirium comes in.
EmeraldSky represents a ground-breaking integration of data, analytics, and innovative methodology, delivering unparalleled precision in measuring aircraft and flight CO2 emissions.
This is why Cirium’s EmeraldSky will be crucial in providing industry-leading data to enable airlines to make data-based decisions to ensure flights operate with optimal efficiency and reduce emissions where possible.
It offers a precise and comprehensive perspective on aircraft and flight CO2 emissions as well as fuel consumption for every flight and aircraft. It takes in account every essential factor, such as aircraft model, engine type, age, flight duration, passenger count, and even cargo capacity, to ensure a highly accurate and comprehensive emissions assessment.
Harnessing EmeraldSky, means businesses can secure a competitive advantage and contribute to a greener and cleaner future for their own operations and the industry as a whole.
To learn more about this innovative game-changing methodology, visit Cirium.com/EmeraldSky.
Looking Ahead
Sustainability regulations are reshaping the aviation landscape and the shift towards greener aviation poses inevitable challenges and opportunities for aviation finance professionals.
We will see the sector accelerate towards achieving net zero emissions by 2050 and by understanding the regulations and their implications, financiers can not only ensure compliance but strategically position themselves to support and benefit from the industry’s transition to a more sustainable future.
The connection between sustainability regulations and aviation finance is becoming increasingly complex and critical but provides an opportunity for the aviation finance community to contribute significantly to the global efforts to combat climate change, while unlocking new opportunities for growth and innovation.
Staying informed and adaptable is crucial to navigating the current regulatory landscape, ensuring that both compliance and competitiveness are achieved as the sector journeys towards a more sustainable future.
Attending ISTAT EMEA in Istanbul? Book a meeting with our team to discover how Cirium enables data-based decision-making with reliable and comprehensive environmental flight intelligence.
Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.
Max Kingsley-Jones, Head of Advisory, Cirium Ascend Consultancy
A total of 260 new orders and order commitments were disclosed during the Farnborough air-show week in late July. Although this was the lowest volume of show announcements for many a year Cirium Ascend estimates that the combined value of all the new deals is worth close to $26 billion (in Base Full-Life Value terms).
The vast majority of the show announcements – 245 – were for the “big two”, with the remaining 15 being for regional turboprops (ATR and De Havilland Aircraft). Two-thirds (164) of the mainline aircraft orders and commitments were on the Airbus books.
Cirium fleets data shows that there was a relatively high volume of widebody announcements during the week, with total orders and commitments for twin-aisles (including freighters) edging single-aisles,126 to 119. Total twin-aisle orders and commitments were worth $18.8 billion, versus $7 billion for the single-aisles.
Farnborough Airbus/Boeing Announcements by Aircraft Category & Value
Source: Cirium Fleets Analyzer, *Includes factory freighter. Data includes firm orders and commitments to order
The emphasis this year on the twin-aisle market is unsurprising, given the excessively long lead times that now exist across the single-aisle production lines. The industry has been relatively under ordered on twin-aisles post Covid, but backlogs are now beginning to extend out towards the end of the decade.
Together, Airbus and Boeing disclosed 91 new firm orders along with 154 commitments to order.
Boeing closed on its rival in value terms (44%) thanks its relatively high proportion of twin-aisle/freighter announcements.
The biggest show announcement in terms of total units came from Saudi low-cost operator Flynas, which disclosed commitments for 90 aircraft – 75 A320neo family aircraft and 15 A330-900s. There was a noticeable absence of the usual raft of Middle East show announcements – although Qatar Airways disclosed a pre-existing order for 20 777-9s placed back in March. Emirates was the only other announcement from the region, placing a new firm order for five 777F factory freighters.
However, Asia-Pacific operators compensated, with their combined announcements for 106 aircraft from four operators accounting for 43% of show deals by unit. These included JAL (11 A321neos, 20 A350s and 10 787s), Korean Air (20 777-9s and 20 787s), VietJet Air (20 A330-900s) and Drukair (five A320neo family).
Farnborough Airbus/Boeing Announcements by Region & Aircraft Category
Source: Cirium Fleets Analyzer, *Includes factory freighter. Data includes firm orders and commitments to order
Other world regions were less represented, with Virgin Atlantic’s order for seven A330-900s being one of just two European announcements, Luxair being the other with two 737-10 Max orders. Just one US customer deal was announced – a commitment for four 777Fs from Miami-based National Airlines. Abra Group – parent of Gol and Avianca – was the sole Latin American announcement: a commitment for five A350s. In Africa, Berniq Airways of Libya placed orders for six A320neo family.
There was none of traditional flurry of leasing company announcements at this year’s show, with only Macquarie AirFinance announcing an order (20 737-8 Max).
Embraer was absent in terms of commercial order show announcements but was well represented in the aircraft display with its E-Jet E1 converted freighter, E2 passenger variant and C-390 airlifter present and did receive orders from the Netherlands and Austria for the latter. CEO of the Brazilian OEM’s commercial arm, Arjan Meijer, stated during the show that despite the radio silence, various deals for at least 300 aircraft are currently under negotiation.
On July 21st, at the prestigious Airline Strategy Awards in London, I had the privilege of meeting Mr. Ole Orver, the Chief Commercial Officer of Finnair. Mr. Orver was there to accept the 2024 Executive Leadership Award for the European region on behalf of the Finnair team. Inspired by this encounter, I want to share insights into Finnair’s journey and transformation over the past few years.
Like all airlines, Finnair was hit hard by Covid-19. It was unique, however, in getting hit with a second major blow just as Covid was starting to fade. In 2022, the Russia-Ukraine war meant Finnair could no longer fly through Russia’s airspace, disrupting its routes to Asia. It wasn’t the only airline affected. But for Finnair, Asia was critical. Its Asian network was a powerful competitive advantage and the key driver of its profitability. Suddenly, flights took a lot longer to get from Finnair’s Helsinki hub to cities like Tokyo, Hong Kong, and Singapore.
Mike Malik, Chief Marketing Officer of Cirium and Ole Orver, the Chief Commercial Officer of Finnair
Remarkably, Finnair found a way out of its dilemma. Last year, it earned a EUR 254 million net profit, a nice way to celebrate its 100th anniversary! In fact, the company achieved its target of a 5% operating margin approximately 12 months ahead of schedule.
Finnair’s turnaround story started with a new business plan announced in the fall of 2022, a few months after the Russian airspace closure. It said at the time, “We now must compete without geographical advantage.” Before, flying through Helsinki was a convenient shortcut for many journeys between Europe and Asia. Now it had to compete in markets where it had less of a competitive advantage.
It reacted by cutting costs, leasing out some of its excess planes, enhancing its digital services, increasing ancillary sales, investing in new product upgrades, and working with its oneworld alliance partners. With Qatar Airways, it formed a joint venture, in which the Gulf carrier agreed to purchase passenger seats and cargo space on new routes between Doha and Scandinavia. Finnair added new flying to India as well.
The momentum continues. Finnair reported a EUR 18 million net profit for the April-to-June period of 2024. It said furthermore that it will generate another operating profit for the full year.
The airline is now led by a new CEO, Turkka Kuusisto. He’ll look to maintain the success of Finnair’s turnaround, in the face of many intense challenges.
These include cost inflation, high interest rates, geopolitical tensions, slowing demand, and tough competition. In addition, Russia’s airspace remains closed and some markets like China are still far from recovered.
Finnair is still significantly smaller than it was before Covid. As Cirium’s Diio airline planning system shows, the airline is flying 14% fewer seats in this year’s July-to-September quarter than it was five years earlier. One reason for this is that Russia used to be one of its largest markets.
Finnair in 2019 flew to five Russian cities (Moscow, St. Petersburg, Kazan, Samara, and Yekaterinburg). It no longer flies to any of these.
Between Helsinki and Asia, meanwhile, seat capacity is down by 46% from 2019. The decline is 90% for China, where it now serves only Shanghai. It previously flew to Beijing, Guangzhou, Xian, Chongqing, and Nanjing.
Finnair shifted some of its widebody flying to North America, where it’s still smaller that it was pre-Covid but only by 3%. It even added new routes like Dallas-Fort Worth and Seattle, to go along with New York JFK, Los Angeles, and Chicago. On the other hand, it hasn’t reentered San Francisco.
Cirium Diio can also identify Finnair’s largest markets in Europe outside of Finland. Number one, measured by total seat capacity, is Germany. That’s followed by Sweden, the U.K., Italy, Denmark, Norway, and Poland. Japan and China ranked in the top five before Covid, with Russia not far behind.
Finnair’s transformation since the twin crises of COVID-19 and the closure of Russian airspace is nothing short of exceptional.
Their resilience is a testament to outstanding leadership and a dedicated team. It’s a turnaround story that both Mr. Orver and the entire Finnair team can rightfully take immense pride in.
Carbon emissions reporting is becoming increasingly vital for corporate responsibility, especially for companies with managed business travel. In this era of growing environmental consciousness, understanding the impact of global regulations on carbon emissions has become crucial. Let’s dive into how these regulations can influence businesses and the benefits they bring.
Carbon Emissions Reporting involves quantifying an organization’s greenhouse gas emissions into three scopes:
Scope 1: Direct emissions from owned or controlled sources. Scope 2: Indirect emissions from purchased energy generation. Scope 3: Other indirect emissions, including business travel.
Increasing Global Regulations
Regulatory bodies worldwide are introducing strict rules on carbon emissions reporting to hold companies accountable for their environmental impact.
European Union’s Corporate Sustainability Reporting Directive (CSRD): Mandates large companies in the EU to regularly publish reports on their environmental impact, including climate impact from business travel.
California’s Climate Corporate Leadership and Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261): Requires companies to disclose their entire scope of emissions, including those from operations and supply chains, as well as financial institutions’ portfolios.
Benefits of Compliance
Compliance with Regulations: By understanding and adhering to carbon emissions regulations, companies can avoid penalties and legal risks associated with non-compliance.
Optimizing Carbon Offset Efforts: Knowledge of emission reporting allows businesses to identify areas where they can reduce their carbon footprint effectively.
Cost Reduction: By optimizing carbon offset efforts, companies can minimize costs associated with emission reduction strategies.
Enhancing Brand Image: Demonstrating commitment to environmental sustainability through accurate reporting helps improve a company’s brand image among consumers who prioritize eco-consciousness.
Attracting Investors: Companies that actively manage their carbon emissions are more appealing to the investment community as sustainable practices align with long-term financial stability.
Cirium’s groundbreaking work in accurately measuring aircraft and flight emissions plays a vital role in the pursuit of sustainable practices and responsible corporate behavior, ultimately helping businesses align their operations with global ESG objectives.
Case Study Example – RELX’s Flights Dashboard
RELX, a global information and analytics company, is using innovative solutions to measure and track flight emissions:
The flights dashboard, powered by Cirium’s aviation analytics, provides accurate fuel burn figures.
This data allows RELX to make informed decisions to reduce emissions, choose lower-emission airlines/routes, and set carbon reduction targets.
Changing Travel Behaviors at RELX
The introduction of the Flights Dashboard has triggered positive changes at RELX:
Considering financial and carbon costs for in-person meetings and finding a balance.
Measuring the impact of travel year-on-year and setting reduction targets.
Introducing an internal carbon price as an incentive to reduce unnecessary travel and support environmental projects.
By actively managing their carbon emissions, organizations can contribute to a sustainable future while enjoying the benefits of compliance. So, let’s embrace these changes and create a greener tomorrow together!
Learn more about building sustainable travel programs.
Andrew Doyle, Senior Director – Market Development, Cirium
The potential operational and financial risks associated with flying aircraft into a heavily sanctioned country such as Russia were drawn into focus in late March when a water truck damaged the aft lower fuselage of a parked Airbus A380 at Moscow’s Domodedovo Airport.
Luckily, this Emirates aircraft could be safely ferried back to its Dubai base four days later for repairs and was returned to revenue service two days after that.
However, this raised the question: how many foreign-registered – and indeed lessor-managed – aircraft are at potential risk of being stranded in sanctioned countries (or those on the US Office of Foreign Assets Control list), were they to sustain damage that could not easily be repaired in situ?
To find the answer I used Cirium tracked utilisation data together with our recently launched Asset Watch tool to identify foreign-operated and lessor-managed Airbus and Boeing widebodies which had visited Russian airports during the month of May, and how long they had spent on the ground there.
Altogether, 155 western-built passenger and cargo widebodies were flown into Russia during May by Central and East Asian, Middle Eastern and African airlines, logging a total of 963 visits and 2,940 hours of ground time.
Cirium fleet data showed that 55 of these widebodies were under management by 18 different lessors, accounting for 264 of the flights and 982 hours of ground time. Historical data suggests that statistically on an annual basis between two and three foreign-operated widebodies could be expected to sustain some level of damage while on the ground in Russia (assuming one incident per roughly 5,000 arrivals).
My first chart is a ‘tree map’ that breaks down the 155 aircraft cited above by master series, and ranks them by total hours of ground time spent at Russian airports during May, as well as listing the associated number of operators, lessors, flights and ground hours:
My second chart focuses on the subset of 55 tails under lease management, and shows how many times each visited a Russian airport during the month, and how much time that specific aircraft spent on the ground:
The full data set showing individual aircraft information including manager and flight-by-flight ground stays for all commercial aircraft worldwide can be accessed via Asset Watch.
LEARN MORE ABOUT ASSET WATCH WITH CIRIUM’S PRODUCT DEMONSTRATION. WATCH ON DEMAND.
Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.
Joanna Lu, Head of Consultancy Asia, Cirium Ascend Consultancy
Japan, celebrated for its rich cultural heritage, technological innovation, and scenic beauty, has consistently attracted significant international tourism. There have recently been reports of critical fuel supply issues at regional and major airports like Narita, typically attributed to an influx of inbound travel. However, closer examination indicates that these challenges stem more from supply chain disruptions and labour shortages exacerbated by Japan’s aging population and stringent immigration policies, than from the increase in travel alone.
The Japan National Tourism Organization (JNTO) reports a significant increase in tourists from South Korea, Taiwan, and other Asian countries. However, with a lag in outbound tourism from China to Japan, it is essential to examine evolving travel patterns and identify the current top destination markets for Japan. This analysis focuses on Japan’s international travel landscape, specifically seat capacity scheduled on key routes over the next two months and compares these trends with pre-pandemic levels.
Utilizing Cirium’s schedule data, we observe shifts in airline capacity dynamics in the post-pandemic era. The Chinese market remains a significant gap for Japan, with a 6% decrease in seat capacity in Q3 compared to 2019. However, South Korea has become Japan’s largest international destination market, showing a 10% increase in seat capacity compared to Q3 2019.
Additionally, Japan sees new market opportunities with Australia and Vietnam, projecting 29% and 9% growth in Q3 2024 versus 2019 levels, respectively.
When examining the city level, significant variations across different routes indicate shifts in demand patterns.
Strong Recovery in Key Markets
The almost 20% increase in departing seats in July and August to Seoul underscores robust recovery, driven by cultural ties and expanded business engagements between Japan and South Korea. Increased diplomatic efforts and eased travel restrictions have also contributed to this surge. Currently, travel between Korea and Japan is quite accessible, with both countries having resumed visa-free travel for short-term visits. South Korean and Japanese citizens can travel between the two countries without a visa for stays up to 90 days for tourism or business purposes.
Resilience in Business and Tourism Hubs
Taipei has seen seats increase by 8% in July and 4% in August, signalling a resurgence in business travel and tourism, buoyed by the reopening of international conferences and exhibitions and robust tech industry collaborations between Japan and Taiwan. Shanghai’s seats are up by 2% in both July and August. Bangkok sees an increase in August, reaching pre-Covid levels, although seats are still down by 27% in July. Singapore’s seat capacity is up by 4% in both July and August, reflecting its resilience in facilitating regional travel, supported by robust air connectivity and strategic business ties with Japan. The city-state’s efficient handling of pandemic challenges has reinforced its appeal as a gateway for travellers to and from Japan. The Hong Kong market hasn’t fully recovered, being roughly 14% down in seat capacity mainly due to aircraft supply shortages at Cathay Pacific.
Challenges in Traditional Outbound Markets
However, traditional outbound markets such as Busan, Manila, and Honolulu have seen declines in departing seats compared to 2019 due to reduced Japanese outbound travel. Busan faces reduced demand amid competition from Seoul’s expanded connectivity, while Manila and Honolulu contend with decreased tourist spending power amidst economic uncertainties.
Addressing the fuel supply shortage issue, this is likely driven by supply-side constraints rather than demand-side factors.
Overall international seat capacity out of Japan in Q3 remains around 7% lower than 2019 levels, with domestic seat capacity down by 2%.
While the total seat capacity out of Japan (both international and domestic) in Q3 2024 is 6% higher than the same time last year, there is insufficient evidence to attribute the current shortage to surging inbound travel demand.
Jet fuel, a product of crude oil refining, presently sees declining production due to decreased demand for gasoline and other petroleum products amid energy-saving measures and decarbonization efforts in Japan. Japanese oil wholesalers are consolidating and reducing the number of refineries, with only 20 active refineries as of June 2024 compared to 49 in 1983. Consequently, fuel must travel further to reach airports, compounded by labour shortages impacting both maritime and land transportation operators. Technical issues at Japan’s largest refiner, ENEOS’s Kashima refinery, further exacerbate the situation.
Fuel shortages are already causing problems at airports across Japan, particularly regional ones. Cirium schedule data by airport reveals significant variations in flight number growth across regional airports, explaining the severity of issues at certain locations. Cirium Ascend Consultancy will continue to monitor the situation but believes the primary driver of the crisis is not the rapid recovery of travel to Japan.
Japan’s travel industry faces a complex landscape of recovery, resilience, and challenges. Addressing these issues will require strategic planning and collaboration across various sectors to ensure sustainable growth and stability in the face of evolving travel dynamics and supply chain constraints.
This brief was originally published in Cirium Dashboard. Cirium Dashboard features analysis, insights together with schedules, fleets, traffic and financial data, premium reports and in-depth industry news.
Air France is warning that it expects to take a €160-180 million ($172-194 million) hit to revenues during its peak summer period as a result of the impact of the Olympic games.
In a market update, the French carrier and its low-cost subsidiary Transavia warn that they “are currently experiencing pressure” on unit revenues as tourists look to avoid Paris this summer and locals push back their holidays until after the upcoming games.
Bookings to and from the French capital, which will host the international sporting event between 26 July to 11 August, are “lagging behind other major European cities”, says Air France in a market update.
Travel from the city to other destinations is also lower than usual, which the company attributes to French residents “postponing their holidays until after the Olympic games or considering alternative travel plans.”
Air France has not provided guidance on the games’ impact on its overall capacity.
Travel to and from France is expected to normalise after the Olympic games, with encouraging demand levels projected for the end of August and the month of September.
Air France notes that the Paris tourism board has seen a similar dynamic play out for hotel bookings in the city.
