AEA long term trends: some observations
October 2013
Opposite are some traffic and capacity graphs showing AEA trends going back to 1992, the start of Europe’s deregulated era. RPKs, ASKs and load factors have all been smoothed seasonally by using 12 month rolling averages. Trend lines (polynomial) have been added.
Starting with the North Atlantic, the trend clearly indicates a plateau in traffic, most evident since the beginning of the financial crisis from 2008 which coincided with the final stages of North Atlantic consolidation. With three or four virtual airlines now dominating the overall market, and dividing up the market into near-monopolistic mega-hub systems — LHR, CGD/AMS and FRA/MUC/ZRH — there is no real incentive to increase capacity.
Despite the recession load factors have continued to increase, now averaging 85%, ten points higher than a decade ago. All the three network carriers now happily report strong unit revenues and profitability in this key market (see, for instance, LH’s comments on pages 1-5). This is tempting for new entrants — Norwegian’s new 787 Gatwick-JFK operation is in service, albeit with some technical hitches.
The South Atlantic displays the positive exponential curve that so many industry forecasts rely on; it is also an illustration of the key strategic reason for the BA-Iberia merger. It is also worth noting the relative size of this market: capacity and traffic this year on the South Atlantic are roughly at the same level as on the North Atlantic 20 years ago.
The intra-Europe market is the great dilemma for the European network carriers — vital for providing feed to/from the intercontinental network but consistently loss making (see again LH article in this issue). For the AEA carriers, traffic growth has been more or less static for ten years as the LCCs have grown their market share. However, the AEA carriers are utilising their short-haul equipment much more efficiently; average load factor has leapt 20 percentage points over the past 20 years, but at 75% is still 10 percentage points lower than that achieved by the leading LCCs. It may be that the AEA carriers will never match the LCC performance here as intercontinental feed requirements and lack of seasonal flexibility means they cannot match capacity as closely to demand as the LCCs.
Finally, the Europe-Far East segment has shown steady linear growth for the AEA carriers but has not tracked the spectacular growth trends in the overall market, as the super-connectors have captured this traffic. Load factors, as on the North Atlantic, are in the mid-80s, which must be close to maximum, but whereas this translates into higher unit revenues on the North Atlantic, yields and revenues on the Far East routes are conditioned by the continuous massive expansion of the super-connectors.
