A spot of sunshine amidst the COVID-19 airline gloom?

A spot of sunshine amidst the COVID-19 airline gloom?

The wonderful beaches and scenery of Tenerife

Spain’s beaches are once again open for business

At the end of May, Spain confirmed that it would welcome UK tourists back from the start of July and last week the UK lifted its quarantine restrictions for travellers returning from most countries in Europe, including Spain.

Spain is Britain’s biggest tourist destination and airlines are ramping up their schedules, with many Britons seemingly anxious to escape the COVID gloom and the unreliable British weather and head for the beaches.

Let’s take a data driven look at how things are going on the main London – Spain markets. My thanks go to Pablo Fernandez for assistance with data extraction and visualisations.

Airline capacity ramps up

Although airlines have begun to resume flights and capacity is being progressively increased, it remains significantly below normal levels at what would usually be peak season. For the London-Spain market, published capacity for next week is 74% below the same week last year.

Published schedules show capacity rapidly increasing in the next few weeks with capacity for the first week of August only 20% below last year. Some smaller markets show capacity almost at last year’s levels.

2020 published seats from London. Source: OAG

However, published schedules look very unreliable, even four weeks out. For example easyJet are publishing schedules which suggest they will grow compared to last year.

Airline seats from London to Spain (w/c 3rd August 2020 versus w/c 5th August 2019).

That is clearly not what is going to happen. As recently as June 24th, they guided the market to an overall system capacity for the July-September quarter at 30% of the planned pre-COVID-19 capacity. To hit that number would require 66% of the published flights for the period from 20th July to the end of September to be cancelled. Frustrated customers have noted that the airline is delaying cancelling flights until the last minute, presumably to avoid the need to provide refunds, instead showing flights on their website as “sold out”.

I’m sure there will be downward adjustments made to other carriers published schedules too, but the gaps to the likely reality look much smaller. I’d guess that capacity on London-Spain for August will end up down about 50%, but that depends in part on how bookings go over the next few days and weeks.

Will there be demand to fill the seats?

There do seem to be some encouraging signs of returning demand. UK interest levels for flights to Spain on Kayak were running at 90% below last year during the lock down. But the figures have been improving during June and were only 34% down last week.

Source: kayak.com

Google searches show the same pickup, although it is only really evident on Alicante, Barcelona, Ibiza, Malaga and Tenerife.

Source: Google trends.

But even if bookings are now picking up, all airlines will be missing many bookings that should have been taken in earlier weeks.

Price war or price hikes?

One of the big questions has always been whether airlines would dump prices in order to make up for lost time and stimulate traffic, or whether prices would rise as airlines deal with the additional costs of new procedures and capacity restrictions in the new environment.

As usual, Ryanair have predicted a price war, something they do as a matter of course in difficult times. “When this thing is over there is going to be such massive discounting going on that there will be a large spike upward in travel and tourism for a period of time.” O’Leary knows that statements like this will generate headlines and free publicity for his cheap fares, and perhaps also deter nervous investors from providing finance to prop up less financially strong competitors.

Let us look at the evidence so far on flights from London to Spain. On the 6th July, I looked at prices selling on Expedia.co.uk for a return flight from London for twelve of the biggest markets. The itinerary was for outbound on the 1st August and back on the 10th.

Let us look first at the minimum round trip available fares to get an idea of “how low” each of the carriers was prepared to go.

Source: expedia.com

Immediately evident are the low prices for all carriers for both Barcelona and Madrid, two markets which in normal times have a strong business market and a lot of capacity.

On the big tourist markets of Malaga and Palma da Mallorca, easyJet are offering some very low lead in prices, generally on their less attractively timed flights. However, most of the itineraries on sale are at much higher prices, as shown here looking at the average fare version.

Source: expedia.com

You can also see the different pricing approaches of the three biggest carriers, British Airways, easyJet and Ryanair. Averaging across the markets, British Airway’s prices are 59% higher than easyJet’s, which in turn are 19% above Ryanair’s.

AirlineAverage Price (£)
British Airways363
Air Europa109
Average prices for all markets, all itineraries

How do these prices look compared to usual?

Unfortunately, I don’t have comparable data for what pricing looked like on these markets at the same time last year. easyJet’s average passenger yield per round trip for the July-September quarter in 2019 was £128. So an average fare of £229 looks very high. However, we are only really seeing the late booking part of the yield curve, which is always a lot higher than the average as many seats are usually sold early at much lower prices.

The equivalent figure for Ryanair’s July-Sep quarter in 2019 was £92 of fare revenue per round trip, so Ryanair’s current average fares to Spain of £193 are slightly more than double that.

BA certainly have a few lower lead-in fares, but with an average round trip fare of £363, they are clearly going for a yield maximisation strategy at this stage. The decision to concentrate flights at Heathrow may also be limiting their ability to compete on price, with per passenger airport fees much higher at Heathrow than at other London airports.

In conclusion

My overall conclusion is that carriers seem to be trying to keep late booking yields relatively high. easyJet are trying hard to stimulate volume on the big markets with some good headline prices, but are also trying to protect yields by restricting availability to their least attractively timed flights.

That is positive for yields but I think the upturn in bookings won’t be enough to fill all the flights now on sale and we will see some significant cancellations closer to departure, especially for easyJet.

Of course, there remain many more deeply troubled parts of the market. Business traffic will not return in September as strongly as it normally would. Also troubling for long haul airlines, top markets such as the US, India and China remain subject to travel restrictions and recent news from the US suggests that isn’t going to change any time soon. That doesn’t bode well for Virgin Atlantic’s rumoured £900m rescue deal.

So even if capacity and volumes will be significantly down on last year, the UK-Spain market does seem to be a somewhat sunnier spot amidst all the gloom.

British Airways pilot deal, what does it tell us?

Another victim of COVID-19?

British Airways reportedly reaches union deal for pilot reductions

According to media reports, a deal has been reached between British Airways and its pilots which will see pilot numbers reduce by 650, with 350 permanent job losses and 300 pilots placed into a “rehire pool” on 50% pay. Working pilots will take a 15% pay cut, half of which is permanent and half will “snap back” once all the pilots in the rehire pool have been brought back.

What does this deal say about BA’s short and longer term plans for capacity and for its attempt to rebuild profitability in a post COVID world?

Implications for capacity

650 pilots represents about 15% of BA’s pilot force. Capacity reductions during 2020 have been and will continue to be much greater than that. So I think that 15% lines up with reduction in the number of flights that BA is planning for summer 2021, compared to the pre-crisis level. The flying reduction might be a little more than this due to “natural attrition” of pilots every year. The reduction in flying could be less, if the deal contains any pilot productivity elements, although that looks unlikely to me.

The “rehire pool” suggests that BA intends to add back close to half of those flights quite quickly, maybe within 1-2 years, depending on how well demand recovers and how the competitive environment develops.

Is this the end for the 747-400?

In terms of overall capacity, it is highly likely that BA will be skewing its flight reductions towards the larger aircraft types, trying to retain its overall network shape whilst aligning seat count to reduced demand. Almost certainly the ageing 747-400 fleet will bear the brunt of the reductions, consistent with reports that the majority of the “pooled” pilots will be from that fleet. When they return from the pool, I’m sure they will be retraining for different aircraft types.

The big question is the future of BA’s largest aircraft type, the A380, of which it has 12. Air France KLM have already taken the decision to retire its A380s and Lufthansa have reduced their fleet and withdrawn them from Frankfurt, although it may still operate the aircraft from Munich from 2022. Personally, I think that BA will continue to operate the A380, preferring to accelerate the retirement of the entire 747-400 fleet whilst minimising capital spend on new aircraft. BA has just started taking delivery of A350-1000 and 787-10 aircraft, which will be the most fuel efficient of all its wide-body aircraft types. I would expect BA to continue taking deliveries of these types, albeit at a reduced rate.

What does the deal mean for unit costs?

Taking into account the impact of focusing reductions on larger aircraft, I would expect BA’s seat capacity to fall by more than its number of flights or flying hours. So a 15% reduction in pilots probably equates to at least a 20% overall reduction in capacity, which would align with the reduction in demand expected by most commentators for next year compared to pre-COVID levels.

Whilst the pilot pool is in place, the cost per operating pilot would be reduced under this deal by 10.9%. This is less than the headline 15% pay cut due to the non-flying pool pilots getting half salary. That means that pilot pay costs during this phase fall by 24%, which should be at least in line with the capacity cut. That will be needed, as it is clear that average yields will be down too. Business travel seems certain to recover more slowly than leisure and prices will be under pressure as airlines fight to rebuild their businesses and stimulate demand.

Once the pooled pilots have been brought back, total pilot costs will be down 15%, with cost per pilot down 7.5%. Again, a helpful contribution to counteract ongoing yield pressures.

In conclusion

Overall, this looks to me like a carefully crafted deal which should help BA get back to profitability, provided that demand recovers at least as well as expected in 2021 and government restrictions are lifted to allow airlines to meet that demand.

Profits are certainly going to be needed, as BA will need to start rebuilding its balance sheet after what looks set to be a brutal 2020 of eye-watering losses and rapidly mounting debt levels.

Sharing my photos

Dreamliner delivery flight
Dreamliner delivery flight

Sharing my photos

Going through my twitter feed this morning, I came across a tweet from British Airways suggesting that people upload their “stunning cloud photos taken from a British Airways flight” to the BA Business Life gallery. OK, I thought, I’ve got a couple of good ones, including this shot I took from on board BA’s first Boeing 787 delivery flight, just after leaving Seattle. Going to the Business Life site I clicked on the terms and conditions. The first clause was pretty much as expected:

1. By submitting your photographs you agree to grant Cedar Communications and British Airways a perpetual, royalty-free, irrevocable, non-exclusive, sub-licensable right and license to use, reproduce, modify, adapt, publish, create derivative works from, distribute, make available to the public…. etc etc

But then I got to clause 1.2:

1.2. To the extent permitted by law, you waive your moral rights (e.g. the right to be identified as the author or to object to derogatory treatment) in your Content.

WTF? No attribution is already a pretty nasty clause. But waiving my rights to object to derogatory treatment? Well, since British Airways is part of International Airlines Group, my employers, I won’t criticise them. I guess the terms and conditions are spelt out clearly and nobody is obliged to submit their photos if they don’t want to. But it certainly put me off and so I am sharing this photo via my blog, where I don’t have to waive my rights just to share a photo with the world.

And on the off-chance that BA would like to reuse this photo and is prepared to discuss less onerous terms, I think you know where to find me!

IAG becomes a reality

IAG Merger

IAG Merger

Shares in International Airlines Group (IAG) commenced trading today. IAG has been created as the new holding company for British Airways and Iberia, following the merger of the two companies.

The final legal steps were completed over the weekend, the end of a long and complex transaction process.

The IAG team also moved into our new accommodation on Friday, just along the road from Waterside, the BA headquarters building near Heathrow.

Congratulations to everyone who has worked so hard to bring IAG finally to life. Its been a long road but we got there in the end. In the words of Louis L’Amour, “There will come a time when you believe everything is finished. That will be the beginning.”

First flight on OpenSkies

Boarding pass

Boarding pass

Went on my first flight with OpenSkies last month. Being based in London, there hadn’t been much occasion to use the service before. But heading out to New York for a Board meeting, I decided to take the time to make a quick detour via Paris.

The service was excellent in every way. Great seats, food and wine and good service on the ground too. Of particular note was the friendliness and professionalism of crew. Overall, superb.

For more information pop over to the OpenSkies website on https://www.flyopenskies.com/splash



We finally secured approval this week for an immunised deal with our alliance partners American Airlines and Iberia. It has been a long time coming. The final step was to secure approval from the US Department of Transport, which was granted last Tuesday evening, fourteen years after we first attempted to get a deal approved with American.

Better late than never.

Busy week

BA Iberia merger

BA Iberia merger

Last week was a busy one. On Sunday, I flew out to Mexico for a oneworld meeting and to welcome Mexicana into the alliance. I flew back via Madrid and arrived back in London just as the merger agreement between BA and Iberia was announced.

It’s taken a long time to get there, but fantastic news. Time to start learning Spanish!

London City New York, first flight

BA1, ready to depart

BA1, ready to depart

I was at London City airport this morning to see off the first BA flight to New York. It took me over an hour and a half to get there from my office near Heathrow. Which is the point really – if you live or work on the east side of London, that’s how much advantage you get from using this new service compared to flying from Heathrow.

What a week



Another set of flights moved across to terminal 5 this week, the biggest move since the first day. All went smoothly. The same cannot be said for the financial markets last week. ‘A week is a long time in politics’, they say. Nowadays a week is a long time, period.

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We switched a further 15 longhaul flights to T5 today – the first since the less than successful opening day. The media were on hand to write the “more chaos at T5 story” but left disappointed. It was a fabulous day for the airline and more importantly for our customers. The terminal and our operation worked pretty much flawlessly. One of the best days I can remember. I couldn’t resist snapping a photo in our operations centre today. Delayed flights show in red, early or on-time flights in green. Fantastic.

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