Introduction:
This article references IATA’s report on Jul.9th and OAG’s Webinar in Jul.10th, aiming to use IATA’s forecasting structure find when will be the turning point in terms of revenue.

Cathay Pacific is currently under reforming, shot taken in Hong Kong

On Jun.9th, IATA updates the semi-annually report: “Air Industry Economics Performance”, as a macro analysis, with both charts and PowerPoint. The conclusion is that “turning point has come” with a four-phase recovery model. Meanwhile, as the cash burn and liquidity crisis, airlines are forced to burden more debt, even bankrupt or reforming. To make the situation worse, the low confidence leads to low increment in RPK, and the ratio of RPK/ASK is far lower than previous year. (Please reference: http://www.martinview.cn/?p=365) Those factors cause structural shock in business model and further burden airlines. With the lack of effective demand, airlines must find balance with profitability and load factors.

On Jun.10th, OAG held “More than point-to-point: How airlines will start to rebuild networks starts” online webinar. Except from the various ways of restart, OAG provides detailed data about how the market is like currently.

Source: IATA Economics analysis based on data provided under license by FlightRadar 24. All rights reserved. Date: 2020.6.2

IATA has already published a report says “air travel reaching a turning point” in Jun.2nd, with some data to proof the capacity has touchdown and ready for YoY increase. As the lowest flights implemented was on Apr.21st and current recovers 30% from bottom, it seems that the darkest moment has gone.

Source: IATA Economics analysis based on data provided under lisence by FlightRadar 24. All rights reserved. Date: 2020.6.2

Sort by regions, IATA shows how Asian market recovers. South Korea and Vietnam market get back in March and Early April. In China, as Martinview’s article has analyzed, keep a slow but steady growth.

Source: OAG. “Global Scheduled Flights Change year-over-year”

In Jun.2nd report, some really positive trends have occurred, all data shows a rapid recovery. But IATA’s estimation is a bit too positive, as OAG’s data point out. More importantly, the recovery of capacity doesn’t necessarily mean that in profitability.

Source: OAG.”2020 – Scheduled Departing Flights by Country and By Week”

First, IATA samples regions that was influenced less by the pandemic. As IATA provides the sum of “daily flights”, is not weighted by regions, some regions with big market will strongly influence the whole landscape. Take two countries, China and France, for an example, due to the difference in proportion, a 4.6% increase in Chinese market is same as 35% in France market, speaking of total numbers. Chinese market has performed differently as other locations, which will drag the whole picture to another direction.

The scope matters. Source: OAG

Second, when talking about revenue, ASK and RPK have fundamental difference. ASK counts the seats provided, whereas RPK counts the seats making revenue. In the same previous article (http://www.martinview.cn/?p=365), IATA uses weekly / daily flights to measure recovery, which is basically the same as ASK with different unit of measurement. Higher ASK means more planes are flying with a higher utilization, but can’t explicitly show airline’s loss comes to the bottom line. From the RPK trend shows below, a toboggan is still on the way, the dotted lines after late April are still speculations.

Source: IATA Economics using data from IATA Statistics. Date: 2020.6.9

So, why in drastically increment of ASK doesn’t pushes RPK rebound?

Admittedly, ASK can affect RPK, but only marks the highest possible RPK. If the on-board rate is changing, RPK won’t go accordance to ASK. During this pandemic, airlines should balance business travelers and leisure travelers’ need. Currently, a low-fare strategy is implemented for a higher on-board rate, which in turns increase the RPK and fleet utility. But even after that, the YoY trend is not positive at all, which might be a result of decreasing of international flight and the weight of different parts.

As RPK is the product of on-board passenger that is paying with the miles, it can’t reflect how the price is changing. According to IATA, a 23% YoY decrease in air fare is observed in May, which shows the still-falling trend.

Source: IATA Economics using data from DDS

In short, from IATA and OAG’s data, we can find that:
1. In supply side, globally speaking, the rebound occurs in late April, with an ASK higher than pre-Pandemic. But due to weight, some more discussion is needed for regions separately.
2. In economics aspects, as the confidence is still from the bottom, on-board rate is far lower. The changeover in financial market is still on the way


Reference:
Pearce, Brain. (2020. Jun.2nd). Air Travel Reaching a Turning Point. IATA Economics Team.
https://www.iata.org/en/iata-repository/publications/economic-reports/air-travel-reaching-a-turning-point/
Pearce, Brain. (2020. Jun.9th). Outlook for the airline industry 2020-2021. IATA Economics Team.
https://www.iata.org/en/iata-repository/publications/economic-reports/airline-industry-economic-performance-june-2020-presentation/

Leave a comment

Your email address will not be published. Required fields are marked *