Analysis Reports

The German government's decision to reduce its air travel tax back to 2024 levels has been widely welcomed by the aviation industry in Germany. The annual cost saving for airlines in Germany will be an estimated EUR350 million.

The government has changed its mind on this issue more than once. The latest decision is a win for a campaign led by airlines, including Lufthansa and Ryanair, and German aviation trade bodies.

It follows high profile recent examples of European nations abolishing air passenger taxes altogether, such as Sweden and Hungary. This suggests that acceptance of the case for lowering air passenger taxes is growing across Europe.

Lower taxes ease the burden on airlines, stimulating economic growth and helping aviation to invest in the green transition.

Thai Airways is pursuing multiple avenues to secure the aircraft it needs to rebuild its fleet and target a greater share of international connecting traffic.

A recent downturn in Thailand's tourism highlights the importance of Thai Airways' plans to strengthen its focus on connecting other markets via its Bangkok hub.

This approach should make the airline less vulnerable to inbound demand fluctuations, CEO Chai Eamsiri said during the CAPA Airline Leader Summit - Asia in Singapore on 30-Oct-2025.

The airline cut back its fleet dramatically during a major restructuring effort launched in 2020.

Now it is looking to add aircraft better suited to its strategy, as it seeks more leased aircraft in the short term and negotiates the conversion of options to expand its long term order book.

The South American airline group Abra wasted little time in broadening its reach, after breaking off talks with Azul to merge with its fellow Brazilian airline GOL.

Abra has now moved on to Sky Airline, officially starting the process to bring the Chilean operator into its fold; it's a progression that moved quickly as Abra pondered what to do with a convertible loan it held in Sky.

With the latest development, the Abra Group will have strong positions in many of Latin America's key markets, with the potential to amp up competition with LATAM Airlines Group.

According to data from CAPA - Centre for Aviation/OAG, AJet is scheduled to increase its northern winter 2025/26 seat capacity by 75%, compared with last winter. This continues the low-cost airline's record of outpacing the growth of its parent, Turkish Airlines.

Although it began life as AnadoluJet as long ago as 2008, its incorporation into a fully fledged subsidiary, and rebranding as AJet in 2023, have increased its visibility and given it an additional focus. It is an additional strategic asset in competing with Pegasus Airlines, which is the largest LCC in Türkiye.

Turkish Airlines fleet targets for 2033 indicate that AJet's growth will continue to outpace the group's for several more years.

The post-pandemic environment has proven particularly conducive to low-cost carriers in the Asia Pacific region, as this business model continues to grow more quickly than that of traditional airlines.

LCCs are well suited to this region, which features many markets with rapidly rising demand, driven by a growing middle class. The massive numbers of aircraft orders placed by Asia Pacific LCCs in the region are testament to their confidence in further expansion.

Of course, LCCs have been evolving in recent years, with airlines expanding the traditional LCC model to include bundled fares, widebody aircraft, premium seating, and an increased focus on connecting traffic.

This is blurring the lines between models somewhat, and allows the LCCs to target new market segments.

There is great disparity between different markets within the vast Asia Pacific region. LCC penetration is still highest in Southeast Asia and the Indian subcontinent, and is relatively low in North Asia.

This means there is still significant potential for the average LCC share to expand in Asia Pacific.

The continued growth of LCC widebody operations is noteworthy, with Asia Pacific LCCs leading the way with this approach.

Many of the points discussed here were included in a state-of-the-industry presentation at the CAPA Airline Leader Summit - Asia in Singapore on 30-Oct-2025.

Aena, the partially privatised national operator of Spain's airports, has allocated almost EUR13 billion under the DORA, the law that governs the framework for managing the country's airports, for the next round of investment from 2027 to 2031.

The Madrid and Barcelona airports will be the main beneficiaries, as usual, but they are significant on a European, and even global (in the case of Madrid) scale.

Also benefitting will be Málaga and Alicante airports, the two main ones supporting Spain's massive coastal tourism industry; but not Palma, the country's third busiest airport, where major works are coming to a conclusion from the previous round.

Collectively, it is the largest round of investment by Aena in 20 years. It is clear that investment will be governed by actual traffic and future projections.

That raises questions about the smaller airports (there are 46 in all). They are protected by a cross-subsidisation scheme, but the original protection provided by the DORA, a decade on from Aena's partial privatisation, seems to be waning.

It has been close to a year since Canadian carriers had to quickly pivot sizeable amounts of US transborder capacity to other markets as dizzying changes to trade policies and intensifying geopolitical positions rapidly dampened demand.

A complete recovery from demand erosion is far from certain, but Canada's largest airline, Air Canada, believes a bottoming of that demand erosion is starting to occur.

Arguably, even as US transborder demand in Canada lags behind historical levels, the market remains strategic for Canadian carriers, despite geopolitical uncertainty becoming the new normal for airlines during the last year.

Eurostar has operated a monopoly cross-Channel passenger rail service between France and the UK for over 30 years, attracting passengers away from air services, but also expanding the entire market.

Now the Virgin Group, which operated UK domestic rail services northwards out of London's Euston Station until 2019, says it will begin a cross-Channel service of its own - from 2030, if possible.

It will target the three key cities of Paris, Brussels and Amsterdam initially, with the possibility of other European destinations later, and of direct services from Birmingham and Manchester to those three cities.

The whole London-northern mainland Europe market expanded following the introduction of Eurostar services in 1994 and rail won out on city-to-city, door-to-door travel, but less so the further the travel distance and the time taken.

And travel time is one of many equations that will have to be taken into consideration for the proposed regional UK services, along with the practicalities of the operation, fare and service levels and politics, which dictates which infrastructure is - and isn't - built.

The effect of low-cost airlines is one of the elements that counted against regional services when they were last considered - over two decades ago - and those airlines have continued to proliferate ever since.

Icelandair Group has reported a positive net profit only once since 2017 (in 2023, when its net margin was just 0.7%).

In addition to the challenges of the COVID-19 pandemic, faced by all airlines, it has also had to contend with two successive low-cost airline competitors. First WOW air, and then PLAY, mimicked Icelandair's North Atlantic connecting strategy over the Reykjavik hub.

However, both have left the market, and Icelandair now faces "a more rational capacity environment". Following weakness in North America-Europe yields, it is de-emphasising trans Atlantic connecting traffic in favour of more point-to-point capacity to/from Iceland.

It is also focusing on cost efficiency and fleet rationalisation.

Its goal to return to profitability in 2026 may be achievable.

While the pace of aircraft orders from Asia Pacific airlines has eased after two years of strong activity, there are still potential orders on the radar that could boost the region's total this year 2025.

There have been several notable aircraft deals already in 2025, and negotiations are under way for other major orders.

Although this year's activity is down somewhat from the wave of orders in 2023 and 2024, it still represents a continued healthy appetite for fleet investment.

There is a range of factors motivating Asia Pacific airlines to pursue aircraft orders. Some are restarting investment that was put on hold while they regained financial health.

With medium term delivery slots becoming scarcer, airlines are aware they need to lock in orders before delivery dates are pushed out even further.

Politics plays a part in a few cases, as placing large orders with Boeing will help some countries reduce trade imbalances with the US.

Other airlines are content to wait until the market cools a little, and shifts the advantage back towards the buyer.

But in general, it has been shopping season for Asia Pacific airlines.