SPECIAL REPORT: ROUTE DEVELOPMENT
Changing dynamics Domestic routes, traditionally the undervalued siblings of more lucrative international services, are leading aviation’s fight back from COVID. But how long is this likely to last? OAG’s senior analyst, John Grant, investigates.
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he last eighteen months have been the most challenging in the history of commercial aviation, balance sheets have been wrecked, demand shattered, and perfectly good aircraft broken up for scrap. Jobs have been lost, years of experience and knowledge leaving the industry for ever and talk of another pilot shortage looming very quickly. And yet there is a near record number of new airline start-ups planned this year, experimental routes being tested and a boom in both cargo demand and operators. The speed with which our industry has moved is staggering; changes in networks, fleets, refinancing, constant schedule changes and creative revenue generation has underpinned many airlines still operating services today. But one part of the survival story has gained little analysis and press coverage. It might be functional rather than exciting, but domestic markets have been central to both airline survivals and the financial strength of some carriers. It is no coincidence that many of the airlines that are struggling to recover, global brands such as Singapore Airlines, Cathay Pacific, KLM and the Middle East’s ‘Big Three’, would have loved large domestic markets in the last eighteen months; the fact that they haven’t, explains some of the challenges they now face. The key question is, of course, is the ‘domestic flip’ a long-term change or a short-term solution before normal services are resumed.
Domestic capacity has always dominated Intuitively we all know it, domestic capacity has always been larger than international; it’s just hard to get excited about a new service between two cities in the US Midwest or France when you can talk about a London – Perth non-stop.
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AIRPORT WORLD/ISSUE 3, 2021
In the good times before COVID-19, domestic capacity accounted for around 60% of all global capacity with around 280 million seats a month. Today, that capacity share hovers at around 80%, although in absolute numbers is down around 260 million seats a month. By means of contrast, international capacity currently sits at around 90 million seats a month; less than half of the pre-pandemic levels and with a sluggish recovery curve still expected may linger below the 100 million mark for the remainder of the summer season. In the majority of regional markets, the balance between legacy and low-cost airline capacity has become well established, and any adjustments in capacity have been marginal. A notable exception in the last few months has been in the US market where the low-cost share of capacity has increased by just under three percentage points as carriers such as Frontier, Allegiant and Spirit continue to develop their presence and challenge the legacy carriers. That position may change back to the more normal levels of share once legacy carriers have access to international markets and rebuild connecting traffic, but for the moment it is a growing position for those carriers and one that they claim is profitable.
Big Is beautiful One of the early insights from the pandemic was that those countries with large domestic markets were likely to be more resilient from a capacity perspective, although in some cases demand proved to be a very different story (see Table 1). Large geographic distances, poor alternate or time evasive competing travel options and a historic reliance on flying resulted in some of those countries such as China, The United States, India and, perhaps surprisingly, Japan, absorbing the impact of COVID-19 better than many.
