Remember China? That one country with the early domestic recovery, then not, then back, then not (repeat another three times).

Turns out, China’s international recovery is not living up to its quick-responding domestic counterpart. In fact, international flying looks nothing like the ups and downs of the domestic recovery - which were, in reality, much steeper moves as flights were canceled on short notice without being reflected in the schedule. Yet, scheduled domestic capacity has exceeded 20% of 2019 levels, a return outpacing many large domestic markets.

Yet, the international capacity beyond China’s borders still has a long way before it can be considered recovered - about twice as far.

Despite a rapid return in 2023 and the end of Zero Covid in the country, international flying has quickly returned. At less than 10% of 2019 levels entering the year, international capacity now equates to 54% of pre-pandemic numbers and is trending up.

Which begs the question: is this a glass half-full or glass half-empty story? It depends. While the trend is in the positive direction with ample room to continue, the drought has been so long the prospect of structural damage must be raised.

Not all regions have recovered equally when departing China. Other Asian neighbors in the region are still down 40%. Europe offers a slightly better story but with direct capacity still down a third. The Middle East, never one for being shy with capacity, has returned to within 9% of the ASKs of 2019.

Notable is Africa, with its large and growing ties to China. The continent of Africa has seen scheduled capacity directly to China increase beyond 2019 levels, albeit from small overall numbers.

Then, there’s North America - down 89% in transpacific capacity from China since 2019. Still caught in a political tit-for-tat, flight-for-flight spat, the number of ASKs not being produced in the market is substantial.

North America typically represents 20% of China’s international ASKs, the third largest region in better times. But this potential recovery into North America is not driven by market economics but rather political wrangling that leaves a large question hanging over its recovery.

What room is left for a China recovery without North America? Likely about another 25%. But without a solution to the political roadblocks, it becomes impossible to forecast recovery in the market.

What if?

What if the China to U.S. and Canada market reopens fully? What aircraft types would be the winners?

Considering the almost immediate capacity requirements and the inevitable rush to capture market share, the A330-300 and 777-300ER would likely be the greatest beneficiaries. Leading into 2019, the A330 was already largely responsible for an outsized proportion of the traffic, mostly from Chinese carriers. With many aircraft redeployed on shorter international routes and even domestic routes, the A330 could see a boon in demand should that corridor suddenly open.

Or…

Status quo could reign. Not terrible for the A330 as demand has already proven to be very - well - less bad.

United’s turn

United joined the Q3 party with an impressive $1.74 billion operating profit, just shy of Delta’s $1.98 billion. The story was much the same - international yields good, domestic RASM… um, did we mention our international yields?

But despite the solid results, United took a pounding on Wall Street, down nearly 10% on guidance that Q4 isn’t exactly as stellar as they thought. The reason? Fuel is more expensive, labor is more expensive, and flights to Israel have been indefinitely stopped.

Of course, very visible bad news often invites the opportunity to bury other challenges. (It appears Wall Street may have caught on to our research two weeks ago - see U.S. fares are falling - international safe haven not expected to last.) A 10% drop in market capitalization in one day based on softer guidance is nothing to sneeze at.

Caught in the collateral damage was Delta Air Lines. Based on United's guidance, DAL shares were trading down nearly 4.5% at market close. When asked for comment on United’s day after dodging their own bullets last week, Delta Air Lines executives simply replied, “Any ideas on how to get the cork back into the champagne bottle? Oh, and send Scott the bill.”

No, not really.

Aircraft Intelligence Monthly

Topics covered in the October AIM:

• Latest PW1000 inspection estimates

• CFM56-7B shop visit costs versus LEAP-1B

• Growing concentration risk in OEM backlogs

• Widebody replacement cycle

• Global fares and traffic by region

• Brazilian market dynamics - things are getting interesting again

Visual Approach Research subscribers have access to the full report. You can learn more about subscribing here: https://visualapproach.io/pricing/

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