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Market insights

  1. Post-pandemic non-linear recovery continues

    The market recovery has continued as anticipated, albeit laced with obstacles with periodic negative impacts on the growth path. Such, often inter-related obstacles remained those driven by government policies (including Covid-related restrictions), various economic factors as well as the ongoing war situation in Ukraine.  On the whole, global air traffic figures show a close to 80% YoY growth in April, and are now over 60% of pre-pandemic April 2019 levels. 

  2. European summer of growth driven by low-cost carriers

    European aviation is heating up for summer as booking numbers surge, reflecting passengers’ accumulated demand throughout the pandemic.  In particular, low-cost carriers such as Wizz Air and Ryanair, which have experienced large passenger growth already, are expecting further increases during the summer.Wizz Air carried over 4.3 million passengers in June, up 179% compared to the same month last year. The European budget carrier says it boosted its capacity, as measured in available seat-kilometres, by 107% year on year and has seen load factors increase by 22 points to 86%. Wizz Air expects fares to be 160% of pre-pandemic 2019 levels, resulting in stronger yields, on 140% more capacity than 2019.  In June, the Ryanair Group carried 15.9 million passengers, a threefold increase from 5.3 million in June 2021. Ryanair operated more than 88,500 flights in June with a load factor of 95%, compared with 72% in the prior year.

  3. Disruption across several regions

    Beyond such growth figures, however, European as well as broader international markets are facing a summer of disruption as staff shortages increasingly impact airports and airlines following the shedding of employees during the pandemic to cut costs. A tight labour market post-Covid has resulted in many staff leaving the sector altogether, attracted to rival industries by higher wages. Research from Oxford Economics found that by September 2021 the aviation industry in Europe was employing 2.3 million fewer people than pre-pandemic, with contracted staff, such as ground handlers, down by 29%. In April, London Heathrow, one of Europe's busiest airports, warned that it had 12,000 vacancies across the airport, and that it was seeking a further 1,000 security officers to cope with the recovery. It highlighted that immigration control could represent a chokepoint as demand ramps up. Also in April, Swedish airport operator Swedavia noted that staff shortages will in some cases limit summer capacity, whilst Schiphol in Amsterdam has been hit by strikes by baggage handlers disrupting services.

  4. Strong summer demand despite absenteeism

    These issues are exacerbated by higher levels of absenteeism due to the pandemic. EasyJet in particular noted an absenteeism spike and delays receiving identification security checks on new staff contributing to the cancellation of hundreds of flights in early June. EasyJet noted that it does not have an overall problem with recruitment and that these issues should not persist into the summer. British Airways, on the other hand, is less confident that the issue is short-term and has reportedly pared back its scheduling for the summer on some routes to reflect weaker staffing levels. Meanwhile Wizz Air, which expanded coming out of the pandemic, has raised staff wages and aggressively campaigned for new staff in order to meet expansion challenges. Despite efforts to increase headcount it is likely that the ongoing staffing issues will result in higher queues, delays and cancellations this European summer. Such problems are not limited to Europe. In Australia, the country's three busiest airports and its largest airline, Qantas, are warning of crowds during peak travel periods in July. The carrier has trimmed schedules due to high fuel costs and to minimize potential disruptions. In the U.S., it is reported that summer schedules have been reduced by ~15% from plans at the beginning of the year across the industry, due to staffing limitations and that the pilot shortage continues to cause disruption. Nonetheless, across the industry, including national carriers, charter and low-cost carriers, executives are forecasting strong summer demand. Airlines have not yet experienced adverse financial consequences associated with increased costs and labour disruptions as they benefit from pent-up demand and higher fares.

Derek Wong
Derek Wong, Head of Aviation Debt Fund

Summer traffic in North America and Europe will be strong, sustained by robust demand for leisure travel during the holiday period despite challenges in ramping up operational capacity. Airlines are bringing back aircraft that have been stored during Covid-19, including some A380’s.

Wong adds: “Aircraft values for types such as the A320ceo, A320neo and 737 Max have seen improvements too. Outlook beyond the summer is less certain given the macro-economic environment marked by high inflation, rising interest rates, fuel price volatility and recessionary concerns. The Chapter 11 filing by SAS is a reminder that not all airlines are out of the woods. As the market enters a new phase of uncertainty, we expect Investec’s focus on capital preservation while generating premium returns will continue to yield dividends.”


Global air travel resumed its strong recovery trend in April, despite the impact of the war in Ukraine and travel restrictions in China. Air traffic, as measured by Revenue Passenger Kilometres (RPKs), an indicator of global passenger demand, grew by 79% YoY. Passenger numbers are now ~63% of pre-pandemic April 2019 levels, a circa 4% improvement from March. 

Air passenger traffic chart

Sources: IATA Economics, IATA Monthly Statistics

Domestic air travel has seen RPKs relatively flat industry-wide, declining 1% YoY in April, driven predominately by China. Domestic RPKs are ~74% of pre-pandemic April 2019. The performance of key domestic markets was mixed across regions. In the US, RPKs were 98% of pre-pandemic April 2019 levels, with capacity decreases resulting in increased load factors of 88% country-wide. RPK growth accelerated in Brazil, India, Japan and Australia reflecting the lifting of travel restrictions and rising consumer confidence. However, the decline in China has deepened, as persistent strict travel restrictions resulted in a RPK decline of 81% YoY.

International air travel recovery has continued at pace across all regions, with RPKs increasing 332% YoY in April.  Regionally, European airlines continued to lead the international recovery in April, with RPKs ~74% of pre-pandemic April 2019, a 10% increase from March. Airlines based in Europe have not been impacted significantly by the war in Ukraine and international travel within Europe exceeded pre-pandemic levels by ~5% in April. Asia Pacific posted significant RPK gains, up 290% YoY reflecting relaxation of entry conditions for foreigners. Latin America, North America and the Middle East also posted RPK gains.

International RPKs by route, from pre-COVID 2019 chart

Source: IATA Economics, IATA Monthly Statistics by Route

IATA noted that the recovery has proceeded at a similar pace for both Premium and Economy (including premium economy) classes. Seat capacity, as measured by Available Seat Kilometers (ASKs), has continued to ramp-up, increasing 46% YoY in April. Industry wide passenger load factors are up too, reaching 78% in April, 95% of pre-pandemic April 2019. Whilst domestic load factors have exceeded international load factors during the pandemic, the gap is narrowing. Lockdowns in China have hampered domestic travel growth, while international travel demand has been boosted by the lifting of travel restrictions elsewhere.

International RPKs by route, from pre-COVID 2019 chart

Source: IATA Monthly Statistics by Route

IATA has reported an increase in international forward bookings. More flexible travel conditions and a strong desire to travel are encouraging customers to plan ahead for the summer and further. However, high inflation and low consumer confidence in the OECD and Eurozone, coupled with increasing crude oil prices, are expected to negatively impact travel.

Dad with child at airport

How has the market responded?

  • In June, Saudi Arabia’s $620 billion public investment fund launched AviLease, a new aircraft lessor, as part of its efforts to diversify the economy and boost non-oil related economic growth. The leasing company aims to be a leading institution across the aviation leasing value chain by maintaining an optimal portfolio of assets concentrating on new-generation narrow and widebody aircraft.
  • Recent debt capital market deals include:
    • 9 June, Carlyle Aviation Management Limited priced $522.5m asset backed securities, AASET 2022-1, to acquire a portfolio of 25 aircraft (8x737-800, 1x777-300ER, 11xA320, 4xA320neo and 1xA321). The issuance has a 6% coupon and priced at 350bps spread for an all-in yield of 6.558%. The transaction has a single tranche, rated A3 and A by Moody’s and Kroll, respectively.
    • 23 May, BOC Aviation priced $300m private placement notes; the issuance has a coupon of 4.33%
    • 23 May, AVIC Leasing priced $450m unsecured notes due in 2025. The issuance has a coupon of 4.050% and is rated A- and Baa1 by Fitch and Moody’s, respectively
    • 8 May , China Eastern Airline priced RMB15bn via private placement bonds to finance 38 aircraft (24xARJ21-700s, 6xA350-900s 4xCOMAC C919s and 4x787-9s)
    • 5 May, Global Jet Capital priced $609m asset backed securities, marking the first aviation ABS in 2022 after a pause of nearly two quarters. The issuance has a coupon of 4.445%, 5.192%, and 6.413% on Class A, B and C, respectively. The Class A was rated A and A- by S&P and KBRA, respectively; the Class B was rated BBB and the Class C rated BB by both S&P and KBRA
    • 12 April, CES Financial Leasing priced RMB500m medium-term notes. The issuance is unrated with a coupon of 3.24% due in 2025
  • Capital market activity has slowed amid rising inflation and interest rates. We expect stronger airlines and lessors to return in due course, especially for issuers located in those areas recovering quicker from the impact of Covid and unaffected by the war. 

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