With the ongoing conflict in the Middle East and fuel prices remaining volatile as a result, airlines are making schedule reductions and even retiring expensive-to-operate aircraft early to recover their profit margins.
Various airlines have cut their schedules this week – including Lufthansa Group and Cathay Group most recently.
BNP Paribas Equity Research analyst Matt Akers noted that April scheduled flights are around 7% below pre-conflict levels and May are down around 3%.
Last week, April global flights were down around 6.5% and May was down around 2%, meaning schedule cuts have increased over the past week.
“Longer term, it is possible that additional older aircraft could be retired as high fuel prices make them less profitable to fly, however prior oil price shocks have had little impact on industry performance,” said Akers.
Yesterday, Lufthansa announced that it was accelerating fleet reductions amid the increased the fuel prices. The airline group is removing all 27 of the CRJ aircraft from Lufthansa CityLine, shutting down its regional airline subsidiary. The group is also removing four A340-600s and two 747-400s by the end of summer.
Lufthansa already had these fleet simplification and modernisation plans in place, but the fuel price surge, along with pressures from strike action, led it to expedite an initial reduction package.
Cathay Pacific also noted it would cut capacity from mid-May to end-June to combat the rising fuel costs.
However, passenger demand – rather than diminishing – appears to have shifted out of the Middle East to other parts of the world. Both Cathay and Lufthansa had noted increased demand for transit flights amid the disruption.
Akers said the bank’s checks with companies in late March had indicated “little to no change in customer behaviour so far”.
Additionally, the capacity cuts seen by BNP Paribas are largely in the Middle East, which saw a 45% reduction in scheduled flights in April and down 18% in May so far, compared with pre-conflict schedules.
Akers estimates that flights from the largest Middle East hubs are running around 35% below pre-conflict levels on a daily basis.
Asia saw the second largest schedule reductions but at only a fraction compared to the Middle East. April and May schedules in the region are down 5.8% and 2%, respectively.
Europe is down around 4.3% and 1.1% in April/May. North America has been largely insulated, as expected, with schedule in April and May reduced around 2% each.