Issue 85 - The Current State of Play for Airlines, Airports & Aviation in South East Asia
"It’s a mixed bag, and it varies between the 10 member countries of ASEAN."
Welcome to Issue 85 of Asia Travel Re:Set…
‘Travel Recovery’ is an oft-cited phrase in South East Asia. Governments, tourism boards, travel firms and media interpret its meaning slightly differently, but all are rolling out comparative year-on-year statistics designed to set a mood of positivity.
Airlines are at the heart of the region’s early-stage recovery, but - as worldwide - they (and airports) are encountering various operational challenges. Some are Covid-related, others are perhaps more entrenched.
So what is the current state of play?
On Friday, Hannah Pearson and I were delighted to chat with aviation analyst Shukor Yusof from his base in Johor Bahru, Malaysia, on The South East Asia Travel Show.
Shukor is a frequent media commentator, and has been a clear voice of reason on aviation issues throughout the pandemic.
So today, I have set out some of his thoughtful insights in a Q&A format.
Thanks for being onboard.
- “IN THE NEWS”
- The Current State of Play for Airlines, Airports & Aviation in South East Asia
“IN THE NEWS”
This week, Bali-based Julia Winterflood featured some comments about new tourism developments in South East Asia from my presentation at the 2022 Guangzhou International Tourism Fair Conference in this piece for Travel Weekly Asia.
The Current State of Play for Airlines, Airports & Aviation in South East Asia
On Friday, we chatted with Shukor Yusof, Founder and CEO of Malaysia & Singapore-based Endau Analytics, to discuss the emerging and entrenched challenges facing commercial aviation and air travellers in South East Asia.
[NB: For space reasons, this edition features selected interview extracts only.]
Listen to The South East Asia Travel Show’s full interview with aviation analyst Shukor Yusof, Founder and CEO of Malaysia & Singapore-based Endau Analytics.
Shukor discusses a range of issues, from jet fuel costs to vaccine protocols, ticket pricing to start-up carriers and airport investment to airline restructuring.
We also assess the future role of China and India in South East Asia’s air market, and the key lessons for LCCs and flag carriers from the past two-and-a-half years, plus much more.
Listen to The Current State of Airlines, Airports & Aviation in South East Asia, with Shukor Yusof, here:
Or search for The South East Asia Travel Show on any podcast platform!
Asia Travel Re:Set: At the turn of 2022, countries were starting to reopen, or talking about reopening, for travel. This raised expectations of a recovery. How do you view the progress made in aviation terms in the first half of 2022 in South East Asia?
Shukor Yusof: It’s a mixed bag. It’s haphazard, and it varies between the 10 member countries of ASEAN. Singapore is a triple-A rated, first-world country compared to the rest of the block, and it has done incredibly well. Singapore used these two years to help Singapore Airlines design a way to come out of the pandemic with a stronger, more solid foundation - and plan through to the end of the decade.
Some countries were unprepared and unwilling to look at the other perspectives that they should have to create some form of balance between opening up and controlling the health protocols.
“In the second 6 months of 2022 and into 2023, LCCs are going to be able to steer even further ahead of national airlines.”
ATR: What are the biggest challenges currently facing airlines across South East Asia? Are there any different challenges that LCCs and flag carriers are facing?
SY: The biggest similarity between FCCs and legacy carriers is that they all need lots of money. The airline business is all about capital - losing it and being able to sustain it in case you get lucky and make some money.
I do see that budget carriers have had the upper hand in emerging from the crisis better prepared because LCCs, by nature, are nimble. They are very quick to adapt to different situations and, as the name implies, they are generally low-cost and don’t use up as much cash as flag carriers. Flag carriers are burdened by legacy issues and un-productivity among many of their staff. They are top heavy.
One of the things that many flag carriers didn’t do during the crisis was use the opportunity to shrink the number of staff. If you look at the ratio of staff to aircraft among some carriers in South East Asia it’s really out of balance. They have far too many workers to one aircraft. Compare that to LCCs like AirAsia or Cebu Pacific, which are very light, very well-managed and they handle their finances really well.
As we go ahead in the second 6 months of 2022 and into 2023, I think LCCs are going to be able to steer even further ahead of national airlines.
“Hedging is the only thing in the airline business that comes close to being in a casino.”
ATR: The Russia-Ukraine war and the ensuing rise in fuel costs brought hedging into the spotlight. Can you explain to us why some airlines did and didn’t hedge fuel before the war?
SY: Hedging is the only thing in the airline business that comes close to being in a casino. It’s basically very heavy gambling because an airline needs a lot of capital to get into the hedges with counterparts in the marketplace. So, you are up against the house, and the house always wins. It’s something airlines really need to get a grip on.
It’s usually the flag carriers that have done worse in hedging. They typically get a lot of free taxpayers’ money from governments and they have little, or no, accountability when they lose money hedging. And many of them have lost. It’s a business that really should be outsourced, instead of allowing people in management to grapple with it.
There’s a space for third parties to handle not just hedging but mitigating FOREX risks, which is a big issue in South East Asia at the moment. In countries like Malaysia and Indonesia, the local currencies are very weak and are shrinking versus the USD - and the airline industry, like oil, is denominated in USD. When the revenue is in ringgit, rupiah or baht, you don’t have anything to fall back on except hoping for the best - and that’s not a great strategy because you’re certainly going to get hit.
“When you look at the overall landscape of the industry, there is not another country, not even India, that can turn an ASEAN country’s economy like China.”
ATR: How much of a brake on the region’s aviation recovery is China staying closed?
SY: China is key to the world economy, not just in aviation, airlines or travel, but everything. It’s all interrelated about what China is doing in the mainland now, and what China plans to do going forward. That’s a huge dilemma in our region. For the last 10 years, Chinese travellers travelled by the millions and were a huge factor in moving the economies of South East Asia. They spend huge amounts of money, and that’s completely gone. We don’t know when it’s going to come back.
When you look at the overall landscape of the industry, there is not another country - not even India, with an almost equal population size, and which is putting in good policies and infrastructure to expand its aviation sector to a new level - that can turn an ASEAN country’s economy like China.
There are few indications out of China about what exactly is the thinking in the country at the moment. So there are many question marks. It’s going to have an adverse effect on airlines, because airlines are still very much dependent on Chinese travellers, as are the travel and hospitality sectors in the region.
“That attraction with air travel, of working at airports and taking selfies with airplanes, no longer holds. People are more pragmatic.”
ATR: Aviation infrastructure and staff resources are hot topics worldwide. Are airports in the region prepared to handle a sharp increase of passengers?
SY: No, they are not. And surprisingly we’ve seen an established airport like Singapore Changi struggling in the last couple of months as passenger numbers increased. You hear stories of people waiting 50 minutes for their baggage, which was unheard of before at Changi.
If Changi has struggled, then so will other airports in South East Asia. A lot of people were laid off in the past two years, and many are reluctant to return to the industry because they had a bad experience during Covid. That attraction with air travel, of working at airports and taking selfies with airplanes, no longer holds. People are more pragmatic. They’ve seen how badly affected the airline industry was during the crisis.
So, everyone is finding it hard to recruit people, whether in Malaysia, Thailand or Indonesia. And the amounts of money that governments are putting into airports today are pitiful compared to what they are investing in some other infrastructures.
And, that’s a wrap for Issue 85.