Issue #58 - The Outlook for Airlines, Airports & Aviation in ASEAN
"I think there will be expansion, and it may come quicker than people expect."
Hello. Welcome to issue 58 of Asia Travel Re:Set…
This weekend, Singapore set social media aflame by announcing 9 new vaccinated travel lanes. These will enable quarantine-free travel to/from South Korea, the US, Canada, Denmark, France, Italy, Netherlands, Spain and the UK.
There will be strict travel conditions, PCR tests and a 3,000 daily arrivals limit for the near future. Finally, though, the ball seems like it is starting to roll. Slowly.
Will other South East Asian nations feel pressure to remove quarantine mandates? Don’t count on it.
Vaccination rates are the guide, and - realistically - only Malaysia and Cambodia are ‘in the zone’ right now. ‘Sandboxes’ will likely be a preferred policy for the time being.
Meanwhile, airlines, airports and the entire aviation supply chain in South East Asia continue to be severely impacted by 19 months of border shutdowns.
Today’s issue features highlights from an interview with Mayur Patel, Singapore-based Regional Sales Director at OAG, from The South East Asia Travel Show.
Thanks for being on board,
Gary
The Sunday Itinerary
- This Week’s Top 6
Malaysia, Singapore, China-Laos, Bali, Australia, Cambodia
- The Outlook for Airlines, Airports & Aviation in ASEAN
Highlights of a recent interview with Mayur Patel, Regional Sales Director of OAG
This Week’s Top 6
Updates from Malaysia, Singapore, China-Laos, Bali, Australia, Cambodia…
A green light in Malaysia as the adult vaccination rate hits 90%. Domestic and outbound travel are permitted for vaccinated residents from 11 October. Inbound, not yet.
Guarded optimism as Singapore announces Vaccinated Travel Lanes (VTLs) with South Korea from 15 November, plus the US, Canada and 6 European nations from 19 October. These add to current VTLs with Germany and Brunei.
High-speed rail expectations in Laos as local media reports that the “Laos-China Railway is on track to officially open on 2 December.”
Ongoing confusion regarding Bali’s ‘trial’ reopening on 14 October for tourists from 5 countries, curiously including China and New Zealand. Updates HERE.
Ultra-long-haul hype in Australia as Qantas completes the world’s longest repatriation flight spanning 17 hours, 25 minutes from Buenos Aires to Darwin.
Warm smiles in Cambodia, which topped a Rough Guides online poll as the friendliest country in the world. Philippines placed 2nd, Laos 3rd & Nepal 4th.
The Outlook for Airlines, Airports & Aviation in ASEAN
Selected highlights of a recent interview with Mayur Patel, Singapore-based Regional Sales Director of OAG, a global aviation data services provider.
“I think there will be expansion, and it may come quicker than people expect. But it’s not going to be a smooth recovery.”
ATR: How is the current aviation landscape in Singapore? We hear that Changi is getting a little busier, and 2 VTLs are up and running. What’s the overall outlook?
MP: In January 2020, Singapore Changi was the 9th largest airport in the world based on available airline seats. That has slipped to about 134th. Where Changi was linked to 173 cities in December 2019, that dropped to 97. So you can see the magnitude of change. Currently, the list of the world’s largest airports is dominated by countries with large domestic networks.
Singapore Airlines is expected to reach 33% of pre-COVID capacity in October, but it’s carrying only 4% of its pre-COVID traffic. In the long term, the airline is well positioned to bounce back, and low-cost carriers will also recover in the region and that will benefit Changi.
How quickly Changi’s hub status is reestablished is a function of borders reopening, which is largely out of its control. It will take other markets to open up before there will be any significant movement in passenger volumes to and from the airport.
“Currently, the list of the world’s largest airports is dominated by countries with large domestic networks.”
ATR: We spoke exactly one year ago, when you said: “Some airlines are probably going back 20 or 25 years in terms of growth, so they will have to readjust their network, some of the older and larger aircraft will be retired, and there may be a further reduction in staff numbers.” How do you reflect on that comment now?
MP: The statement is still valid. If you look at international air capacity, it has recovered gradually but it is still at a level similar to 2004. That’s 17 years ago. So it’s going to be a slow ride into the recovery phase.
For airlines, the issue now is about demonstrating that they can rebuild cash reserves and cash flow whilst being profitable, and that is where good management will be crucial. Large airlines have shifted their focus to maximising cargo capacity by converting some of their passenger cabins to carry dry goods. This has enabled them to recover cash and increase cargo yields.
A full recovery in capacity is unlikely before 2023, and a full demand recovery will probably be in 2024 - assuming there is no further disruption with hard lockdowns or shifts in government policies.
“A full recovery in capacity is unlikely before 2023, and a full demand recovery will probably be in 2024.”
ATR: Despite a very difficult 19 months, we haven’t seen many airline closures or consolidations. What are the reasons for this, and could the situation change?
MP: We’ve seen strong government support without which we’d probably have seen some massive bankruptcies in the first 6 months of this crisis. Many carriers in the region are government backed, and they represent the backbone for a lot of national economic activity. So, keeping them up and running is crucial to the entire economy, and for maintaining links with other countries worldwide. This is a crucial factor why governments have stepped in.
However, since the pandemic began, we have seen a small variety of bankruptcy protections, mergers and acquisitions and ownership changes in the region.
For example, Asiana Airlines and Korean Air are merging to save the South Korean aviation industry, which is very important to the nation’s economy. We saw the voluntary administration of Virgin Australia. The new owner is restructuring the business to become a value-based airline with a sharper focus on the domestic market. More recently, Philippine Airlines filed for bankruptcy protection in the US.
CLICK HERE to listen to the full interview with Mayur Patel on The South East Asia Travel Show, as we discuss the year so far for airlines and airports in ASEAN, and look ahead to the final quarter of 2021, and into 2022.
ATR: How are airlines in the region currently planning for 2022 ?
MP: The industry is resetting, and after it has reset then we can expect to see the rebuild start to take shape. Airlines will focus on pulling some of the excess costs out of their systems and bringing down cash-burn rates, while adjusting their fleet strategy to take a good foothold as the recovery develops.
I think there will be expansion, and it may come quicker than people expect. But it’s not going to be a smooth recovery. There will be bumps along the road.
The market conditions in Asia Pacific pre-COVID were positive in nearly every instance, and the fundamentals have not really changed. There is pent-up demand for air travel, and people across the region will want to get away from the homebound lifestyles they’ve lived in the past 18 months when they get the opportunity.
“The industry is resetting, and after it has reset then we can expect to see the rebuild start to take shape.”
ATR: What are the primary concerns in the regional aviation market right now?
MP: I think getting the supply-and-demand balance correct, and being able to operate profitably. Also, cargo in the operational mix is now very crucial. The biggest worry is to bring down the cash-burn rate, and look at new opportunities where airlines can operate profitably while addressing cost structures very carefully.
There is concern about whether business travel will recover, as that accounts for a large proportion of the revenue that airlines generate. Will a portion of business travel never recover? That’s a crucial question airlines will have to ask, and then modify their services or frequencies to different destinations accordingly.
Plus, aircraft reconfiguration. How do you look at your premium-to-leisure passenger mix? How will airfares operate, and the bundling offered to leisure and business travellers? Will the LCC sector grow faster than full-service?
So there are a lot of considerations for airlines as they assess what the recovery will look like. Most airlines are looking just at the next 4-6 weeks right now. There’s no point doing a 6-12 month network plan, because so many changes can happen.
“There is concern about whether business travel will recover.“
ATR: Are we likely to see new airlines emerging in ASEAN and Asia Pacific?
MP: Yes, for sure. The crisis has allowed new entrants to look at the market and see that a lot of airline employees have lost their jobs, or are on furlough, so the labour cost from recruitment is very good. Aircraft lease costs and ownership costs are also coming down. More importantly, airports are looking to start new services to destinations where they’ve lost ground in the past 18 months.
In Indonesia, Super Air Jet, which is backed by Lion Air’s co-founder, is betting on the millennial core market segment, and is planning to compete directly with Indonesia AirAsia and Citilink.
India has become a hotspot for new carrier startups. Akasa Air is planning to launch a new ultra-low-cost carrier with up to 70 aircraft. And there is the Jet Airways revival, which is sensing new market opportunities. The Air India privatisation will see the Tatas take a large stake in the national carrier. This throws up the question of how they will integrate their stake-holding in Air India with Vistara and AirAsia. And what happens to Singapore Airlines’ 49% stake in Vistara?
In North Asia, Greater Bay Airlines in Hong Kong recently took delivery of its first aircraft but is still waiting for an air transport licence from the air transport licensing authority. It sees a need for an LCC serving Hong Kong to secondary and primary cities in mainland China and points in South East Asia. It will be interesting to see how this progresses given the congestion that existed in Hong Kong before the pandemic started.
CLICK HERE to read my previous in-depth interview with Mayur Patel, OAG Regional Sales Director, published in Asia Travel Re:Set #8 – "Some Asian Airlines Are Going Back 25 Years," on 30 September 2020.
And, that’s a wrap for Issue 58.
Until next Sunday, find me on Twitter, LinkedIn, the Asia Travel Re:Set website.
Meantime, Tuesday’s The South East Asia Travel Show will chat through the COVID-19 challenges for ASEAN’s travel trade media with Bali-based Julia Winterflood.
Have a great week,
Gary