Recovery of Airline Traffic in Asia-Pac Still Lagging

Asia’s rapid growth in the commercial aviation sector in recent decades has been the envy of many airline and airport managers in other parts of the world. Asia-Pacific countries jointly accounted for nearly 35 percent of the world’s revenue passenger kilometers (RPK) in 2019, up from 24 percent in 2004, and six of the region’s airports ranked among the world’s 15 busiest airports by passenger throughput traffic compared to just two in 2004. But Covid-19 has taken the shine off the aviation powerhouse, at least temporary. North America re-emerged as the leading region in passenger traffic in 2020, with a 32.6 percent share of industry-wide RPKs, compared with 27.5 percent share for Asia-Pacific airlines, International Air Transport Association (IATA) data shows. Asia-Pacific airlines’ international passenger traffic, measured in RPKs, plunged 80.3 percent in 2020 compared with 2019, marking the deepest decline for any region.

Their fate appeared equally grim last year. While global passenger demand showed signs of a recovery in 2021 overall, travel demand in Asia-Pacific further weakened. Passenger traffic in terms of RPKs in the region fell 61.9 percent in 2020 compared with 2019 and 66.9 percent in 2021. The deterioration proved even more substantial on cross-border routes. “The region’s previous experience dealing with the 2003 SARS outbreak and slow vaccination roll-out in many countries meant governments have a low risk tolerance for disease spread,” explained Philip Goh, IATA’s regional vice president for Asia-Pacific. “Ironically, however, the initial success in curbing the Covid-19 spread also subsequently hampered a faster upturn in Asia.”

Asia-Pacific airlines’ international passenger traffic plummeted 93.2 percent in 2021 compared to 2019, which again marked the deepest decline for any region. Full-year capacity, measured in available seat kilometers, dropped 84.9 percent compared with 2019. Seat load factor averaged a paltry 36.5 percent. The Asia-Pacific region “has continued to lag significantly behind the rest of the world,” commented IATA director general Willie Walsh. “And that’s, I would say, solely down to the restrictions on international travel that have been imposed by governments in that part of the world,” he added, while citing yet another set of depressing figures. In 2019, international travel within Asia represented 13.3 percent of global international travel, ranking it as second biggest market after the intra-Europe market. In 2021 Asia’s share fell to 1.5 percent, Walsh noted. “So, it just actually shows the total collapse of international travel in that region.”

“Asia had a really awful year,” confirmed Brendan Sobie, CEO of Singapore-based independent analysis and consulting firm Sobie Aviation. “Initially, [2020] domestic travel surged back in many Asia-Pacific markets, though in 2021 there was a huge setback due to Delta, particularly in the second and third quarter. There was some improvement in the last quarter but when considering the whole of the year, various domestic markets in Asia did not recover as well as some other domestic markets outside of the region. Domestic demand in Asia-Pacific excluding China and Korea was way below the domestic average in 2021,” he said.

Domestic air travel In India fell by 41.8 percent in 2021 compared with 2019, IATA data reveals. Australia and Japan suffered from on-and-off strict travel rules that kept full-year domestic RPKs in those countries at 58 percent and 62 percent below their respective performances in 2019. Conversely, Russia recorded growth in RPKs on domestic routes in 2021, with RPKs on average 24.2 percent above 2019 levels, while US domestic RPKs fell by just 23.8 percent in 2021 compared with 2019 levels. Mainland China performed better than other Asia-Pacific domestic markets, and domestic RPKs exceeded pre-crisis levels in April and May amid successful pandemic containment but small virus outbreaks preceded sweeping restrictions as the government pursued a zero-Covid policy, pushing demand deep into contraction territory on several occasions. In 2021, China’s domestic passenger traffic fell 24.4 percent compared to 2019.

Some Casualties, But No Massive Wave of Airline Failures

“Even though Asia has been hit so badly and the consequences of Covid disastrous for the sector, there has been virtually no airline consolidation and no market exits,” Sobie remarked. “Airlines have been able to survive and restructure thanks to support from their owners, private shareholders or governments, or suppliers,” he said, noting that leasing companies, in particular, have been very supportive. “They worked with airlines to defer payments and renegotiate leases. Lessors were careful to avoid large insolvencies because it is hard to repossess and remarket aircraft these days.”

Goh noted that government support and strong management of capital and liquidity helped most airlines to survive the crisis. “Governments across the region recognized the severity of the crisis and have largely provided support to the industry, some more than others,” he explained. “In this regard, Australia, Japan, New Zealand, and Singapore, stand out. Governments there were quick in rolling out support measures to the aviation industry…Relief measures and aviation support packages include loan facilities and wage support programs to keep airline employees on the payroll, reducing layoffs during the massive downturn.”

Aid schemes, however, differed according to the ownership, asserted Sobie. While legacy carriers benefited from state capital injections and subsidies, their privately-held counterparts—Asia counts many low-cost carriers or ultra-low-cost carriers owned by private shareholders—received no substantial direct support from governments and obtained only generic, non- company or airline-specific relief measures.

Back to Square One?

The pandemic has prompted far-reaching restructuring of various airlines in Asia across business and ownership models. Some of those airlines, many of which were already highly leveraged before Covid-19, turned to the courts—local or foreign—to restructure their debts and try to reach agreements with their creditors. Hoping to stave off bankruptcy, Garuda Indonesia entered a court-supervised restructuring process in December, joining the likes of Malaysia Airlines, Thai Airways, and Nok Air in Thailand, AirAsia X, and Philippine Airlines.

However, Sobie doubts whether all the turnround initiatives will lead to a more financially robust airline industry in the Asia-Pacific. “The market is seeing a hibernation or a rationalization of existing capacity to a certain degree, but on the other hand we continue to see new airlines coming in,” he told AIN. “Some believe this is potentially a good time to start a new airline, with access to cheap leasing rates for aircraft, surplus crew, and available slots at key airports. There are a lot of eager investors, which is surprising because the airline industry does not deliver high returns, certainly not in Asia-Pacific.” In 2019, airlines in the region earned on average $2.9 per passenger; European airlines recorded a $5.42 net profit per passenger and American carriers $17.

In Malaysia, SKS Airways took to the skies in January and MYAirline plans to launch services this year after Malaysia’s civil aviation industry regulator, MAVCOM, approved the ULCC’s air service licenses late last year. A project for a new domestic LCC in Australia, Bonza, secured an investment from Miami, US-based investment firm 777 Partners and plans to start operations this year with new Boeing 737 Max 8s. Super Air Jet, an Indonesian LCC reportedly backed by some Lion Air shareholders, commenced operations in August last year while three existing charter or regional airlines in the country—Pelita Air, Indonesia Air Transport, and TransNusa—want to enter the scheduled passenger market.

“Will we go back to square one, to a market with overall too many players, overcapacity, and weak balance sheets? Unfortunately, I do believe this is the most likely scenario,” concluded Sobie.

IATA’s latest forecast, released at the airline trade body’s AGM in October and thus before the emergence of the Omicron variant, projects that airlines’ cumulative net loss will amount to $201 billion over the three-year period from 2020 to 2022. Airlines in the Asia -Pacific will account for about a third. “So, it is a challenging time,” said Goh, though he remained upbeat that demand will pick up in the region and airlines will be able to reduce losses. The October outlook projected Asia-Pacific airlines will trim their combined financial losses from the $11.2 billion loss in 2021 to a smaller $2.4 billion loss this year.

“In the last quarter of 2021, momentum and recovery were building as more governments relaxed border measures to enable international air travel to restart. But subsequent re-tightening obviously has delayed and retarded the pace of recovery,” said Goh. “But I believe travel restrictions reimposed in response to Omicron will be relaxed once governments gain confidence from data that they can cope with Omicron’s transmission without crippling their health care system. Hence, it is likely to be a temporary speed bump. It shall pass.”

Leave a Comment

Your email address will not be published.