A variety performance

posted on 12th March 2019

Air traffic growth in Asia-Pacific is set to soar but such a diverse region comes complete with a range of challenges, writes Graham Newton.

Aviation’s centre of gravity is moving inexorably eastward, pulled by the sheer weight of traffic in Asia-Pacific.

According to the International Air Transport Association’s (IATA) 20-year forecast, by 2037 2.35 billion more passengers will fly annually on routes to, from and within Asia-Pacific. The total market size will reach 3.9 billion passengers per year, driven by a rapidly increasing population, strong economic growth in most countries and a burgeoning middle-class.

China is the powerhouse of the region and will host one billion or so extra passengers annually by 2037, becoming the world’s largest aviation market in the process. But it is not alone in its thirst for air connectivity. In the mid-2020s, as China surpasses the United States for top spot, India will overtake the United Kingdom to become the third largest market. And, by 2030, Indonesia will be just one place behind India, jumping six places up from its current position.

Thailand is another country embracing all the air transport industry has to offer and will also make the top 10 aviation markets by 2030.

Regional confidence

Both full service and low-cost carriers (LCC) are set to benefit from the surge in air traffic demand. IATA suggests that Asia-Pacific carriers will post a combined $10.4 billion net profit in 2019, up from $9.6 billion in 2018. The predicted lower cost of fuel is a key factor behind the positive figure together with outbound cargo from major manufacturing centres.

Recently announced new routes illustrate the confidence in the region’s aviation prospects. Singapore Changi Airport – one of Asia-Pacific’s world-class hubs – welcomed three new airlines (Guangxi Beibu Gulf Airlines, LOT Polish Airlines, and Shandong Airlines) and numerous new services despite already connecting the city state to more than 100 countries worldwide.

Belitung (Indonesia), Berlin (Germany), Guwahati, Pune, Vijayawada (India), Nanchang (China) and Warsaw (Poland) were among the new routes.

The new Berlin and Warsaw services have pushed Singapore’s direct European connectivity to a 10-year high with 19 cities on the destination board. At the same time, the reach of new fuel-efficient aircraft has made ultra-long-haul flights appealing. Singapore Airlines now flies to New York (Newark) on the world’s longest route and has also commenced non-stop services to Los Angeles. In fact, Singapore-US connectivity was up 21%in total in 2018, with 74 weekly services from a variety of airlines to Houston, Los Angeles, New York, San Francisco and Seattle.

Like Europe and the Americas, the South Asian and African markets also performed well for Changi last year, both regions recording double-digit growth. Among Changi’s top 10 country markets, India and Japan registered the strongest growth rising 12% and 10% respectively. These were followed by China and Vietnam, which saw annual growth of 7%. Meanwhile, six of Changi’s top 20 city routes grew at least 5%. Denpasar (Bali), London, Manila, Melbourne, Mumbai and Sydney all experienced robust demand.

“2018 was another strong year for Changi Airport,” said Lim Ching Kiat, Changi’s Managing Director, Air Hub Development. “We are pleased with the introduction of new city links, as well as the growth of long-haul routes from Changi Airport.

“Our newest terminal T4 completed its first year of operations, and served 8.3 million passengers in 2018,” he added. “Later this year, Jewel Changi Airport will open its doors to the world. With aviation facilities, retail offerings and play attractions, Jewel will augment Changi Airport’s status as an air hub. Terminal 1’s expansion will also be completed, increasing the airport’s handling capacity to 85 million passengers per annum.”

Further north, Hong Kong handled record numbers of passengers and flights in 2018; 74.7 million and 427,725 respectively. The key to maintaining the growth trend will be a third runway, expected to be operational in 2024. But 2019 will also welcome significant development. The Terminal 1 Annex Building will feature over 40 check-in counters with self-bag drop facilities, two additional baggage reclaim carousels and shops and catering outlets in an expanded Arrivals Hall.

It’s not all about long-established players, however. Vietjet is an international low-cost airline in the fast-growing Vietnamese market and the first to be privately owned. Late last year it introduced a daily Osaka service from Ho Chi Minh, a month after it began services to the same Japanese city from Hanoi in the north of Vietnam.

Gregory Jamet, Chief Commercial Officer at Kansai Airports, said: “We hope more locals and tourists from Japan and Vietnam will enjoy travelling and trading between these two countries thanks to Vietjet’s fun and affordable flights. We expect that the airline will continue to expand its flight network to Kansai Airport, delivering even more convenience and exciting experiences to their customers.”

Japan Airlines has recognised the value in the service and will codeshare the Hanoi flight. It also codeshares on Vietjet’s domestic routes and has itself just launched a new route connecting Hanoi and Tokyo (Narita).

Vietjet already serves more than 23 million passengers annually and flies to some 66 international destinations. The airline has begun to receive and operate the Airbus A321neo, which the company believes will reduce fuel costs 16%. Vietjet’s fleet has an average age of just 2.82 years, highlighting the youthful enthusiasm of the region.

A bumpy road ahead?

All this is not to say Asia-Pacific will enjoy unfettered growth in the decades ahead. There are varying levels of regulatory maturity in the region making for a complicated aviation outlook.

Conrad Clifford, Regional Vice President, Asia-Pacific, IATA, believes infrastructure capacity, the lack of aviation policy, government consultation and geopolitical tensions are some of the high-level challenges that airlines are facing in the region.

Take infrastructure capacity, an issue both in the air and on the ground. “The state of readiness across Asia varies,” says Clifford. “We have some who are ahead of the curve, such as Singapore, South Korea, Malaysia, which have already added infrastructure at their hubs. At the other end of the spectrum, we see Bangkok, Jakarta and Manila, which are still struggling to develop their infrastructure plans.

“If the infrastructure is not able to support the growth, the anticipated increase in demand and the social and economic benefits that comes along with it will not materialize,” he continues.

One positive development is multi-nodal air traffic flow management (ATFM), which is already allowing the free flow of air traffic between some Asia-Pacific destinations. The better management of airspace capacity afforded by ATFM should point countries towards the value of convergence and harmonisation.

But more must be done, according to Clifford. The lack of appropriate infrastructure is a result of a lack of regulatory framework, he says. Ensuring the requisite infrastructure requires a policy environment that will facilitate the anticipated demand for aviation services.

There are some hopeful signs. China has demonstrated forward thinking with its investment in infrastructure, especially with Daxing Airport opening this year. And in January 2019, India unveiled its Vision 2040 for the aviation sector, although the country is still struggling to expand capacity, especially at Mumbai airport. Japan has loosened visa controls to attract more tourists while Seoul’s Incheon airport managed to keep its charges for airlines and passengers stable even though their runway and terminal capacity was increased.

“Effective regulation, harmonisation of standards and interoperability are needed,” suggests Clifford. “That’s where ASEAN (The Association of Southeast Asian Nations) could potentially be an initial enabler for common licensing, operating standards and seamless air traffic management across the region. And IATA can be a conduit between ASEAN and the industry to harmonise the regulation.”

ASEAN has a Transport Strategic Plan for 2016–2025. Elements in the plan cover traffic rights, licensing, safety, security, and operating permits.

Clifford concludes that if Asia-Pacific could develop a unified regulatory regime, like Europe or the United States, it would help to further unlock aviation growth by negating the cost and complexity of compliance with a number of national regimes.

This will not be easy to achieve given the region’s diversity, but the rewards would make the effort worthwhile. 3.9 billion passengers every year is a sizeable prize.

The rise of LCCs

Low cost airlines arrived late to the Asia-Pacific aviation party but are making up for lost time. According to CAPA, at the turn of the century there were only two small LCCs operating in Asia-Pacific – Philippines-based Cebu Pacific and New Zealand’s Freedom Air – whereas they now account for nearly 30% of overall capacity.

And there is still plenty of room for growth. China, in particular, is an underserved market in LCC terms. In 2018, LCCs accounted for only 10% of seat capacity in the Chinese domestic market, largely due to regulatory constraints. Nevertheless, this is still a jump from the 2% penetration in 2008.

Another major Asia-Pacific market, Japan, also has a domestic penetration rate (17%) below the global average. But, like China, it has a notable international LCC presence; 26% versus China’s 14%.

Overall, reports CAPA, seven Asian markets now have domestic LCC penetration rates above 50%: India, Indonesia, Malaysia, the Philippines, South Korea, Thailand and Vietnam.