Is capacity between Australia and the US normalising?
The Australia-United States market has been one of the most interesting major air travel markets to/from Australia since the COVID-19 pandemic. While capacity and passenger numbers have returned strongly in most major markets several have lagged. In most cases, the lag has been due to slow border reopening in other countries (e.g. China and Hong Kong). In two specific cases - the US and Japan - a slow return in demand was due to currency fluctuations that have led to vastly different market changes.
The relative strength of the US Dollar weakened Australia-US travel. As our in-depth analysis in May highlighted, the dominance of the Australian point-of-sale led to a sharp decline in capacity between the countries as Australians reduced travel to the US owing to it being relatively more expensive as a destination. While US based carriers may have anticipated an increase in US point-of-sale travellers in return this didn’t materialise leading to an over capacity in the market.
Thanks to a treasure trove of public data we were able to analyse airline performance by route and by direction on a monthly basis. This showed how United Airlines made a big play with a dramatic increase in capacity. However, many seats went empty with United posting a load factor of just 49% and 48% to and from the US in November 2023. On one route, their load factor was as low 38% and 39% to and from the US in November.
United’s performance wasn’t unique! All airlines suffered from market-level over capacity and saw their load factors decline, however United’s performance was extraordinary as they were responsible for much of the additional capacity. Qantas, American and Delta’s saw load factors in the 60s and 70s during the same time as they managed capacity more pragmatically.
What about Japan?
The relative strength of the Australian Dollar versus the Japanese Yen has made Japan relatively cheaper for Australians and Australia relatively more expensive for Japanese visitors.
Unlike the Australia-US market, Australia-Japan market is more buoyant. So while Japanese demand to Australia declined, Australian demand to Japan has increased. A more balanced point-of-sale has meant demand flows have adjusted dynamically.
While not a comprehensive analysis, we covered the increase in passenger number to Japan in August:
Our detailed analysis in May sought to understand United’s strategy and highlighted airline level capacity. United had a lot of long haul capacity that needed to go somewhere given their exposure to the slower recovering Asian market. The analysis considered a range of novel data to establish the Australian point-of-sale bias that wouldn’t have been obvious to readers.
So why are we returning to it now? Firstly, our previous analysis was incomplete as it was limited by data availability. Data was only available through January 2024. With data now available through July 2024, it’s an opportune time to consider the complete NW 2023-24 season.
Secondly, we are now able to get a better picture of airline scheduling for the NW 2024-25 season. As the schedule has taken shape, it’s given us some insight into how airlines are reacting to the NW 2023-24 season performance and what their goals may have actually been.
This is particularly interesting given Qantas’s recent announcement of an expansion in US flying, albeit a year from now with the A380 returning to Sydney-Dallas and an increase in frequency of Melbourne-Dallas. Why are the notoriously conservative Qantas increasing capacity when everyone was bleeding? Let’s dive in …