Airline capacity expanding ‘too quickly’

Government policies are making it hard for airlines to plan schedules effectively, piling further pressure on cash reserves
Iata, Airline capacity, Capacity

Airlines are increasing capacity at a quicker rate than passenger demand is recovering, causing carriers to burn through dwindling cash reserves and threatening to destabilise finances.

That is according to the International Air Transport Association (IATA), which has said that quarantine measures and uncoordinated government policies are making it tough for airlines to plan flight schedules and deploy the correct level of capacity.

IATA’s chief economist, Brian Pearce, said on a media call on Tuesday that the widening gap between bookings and airline schedules means airlines are “probably burning cash as a result of the potentially disappointing slow improvements in demand”.

"That leaves airline finances in a relatively fragile situation as governments are starting to pull back on the support given,” he told reporters.

Global airlines have begun to increase their networks, for example Emirates is now operating at over half of its pre-pandemic level and expects to be back to 100% by summer 2021. But many carriers have found themselves consistently cancelling scheduled flights because demand remains too low and unpredictable.

Passenger demand was sluggish in its recovery in July, according to new data from IATA, with global demand 80% down compared to July 2019. While this was a slight improvement on an 87% year-on-year reduction in June, the growth was primarily driven by domestic markets in Russia and China.

Demand among Middle East carriers fell by more than 93% in July. Capacity was down 86% year-on-year in July and load factor sank 43 percentage points to 38%. 

“The crisis in demand continued with little respite in July,” said Alexandre de Juniac, IATA’s CEO. “With essentially four in five air travellers staying home, the industry remains largely paralysed. Governments reopening and then closing borders or removing and then re-imposing quarantines does not give many consumers confidence to make travel plans, nor airlines to rebuild schedules.”

There was some indication that demand for business travel is recovering slowly. Pearce said: "The number of premium tickets are actually growing at a similar pace to the growth of economy tickets... there might be some evidence that we're seeing some business travel albeit at relatively low levels."

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