Asia-Pacific patchwork

posted on 5th April 2022
Asia-Pacific patchwork

The destructive impact of the Covid-19 pandemic and the travel restrictions that were implemented in response to it have combined to impede aviation’s recovery across the Asia Pacific. (By Tony Harrington, Queensland, Australia)

Before Covid, the closest an Airbus A380 ever came to Alice Springs was about 40,000 feet, as it passed over the arid town in the centre of Australia, usually en route between Sydney or Melbourne and the major hubs of Asia or the Middle East.
But as travel restrictions and border closures forced airlines to gradually ground their fleets, ‘The Alice’, as it is known, became one of the biggest parking lots for commercial jets in the Asia-Pacific (APAC) region, as airlines sought hot, dry climates in which to store surplus aircraft, and minimise the risk of corrosion from rain or moisture while they stood idle.
At the peak of the pandemic, a storage zone next to Alice Springs Airport hosted more big jets than many international hubs, its visitors including Singapore Airlines A380s, Cathay Pacific Boeing 777s, Jetstar and Scoot B787s, and lines of others – an aviation Wonderland in Alice exhibiting spectacular outback monuments to the airline industry’s greatest crisis.
Now, as air transport slowly begins to recover, these aircraft are starting to depart, each exit a sign of incremental resurgence. But the anti-Covid measures of Asia-Pacific governments being among the most aggressive and disparate in the world, coupled with the already-weak positions of many operators, and then the arrival of the Omicron, the consolidated recovery of APAC aviation is seriously lagging behind the rest of the world.
‘Asia Pacific’ is a generic descriptor for a diverse collective of almost 40 nations, ranging from the two most populous, China and India, to tiny island states like Nauru in the south-west Pacific, whose total area of 21 square kilometres could easily fit within the perimeters of Alice Springs Airport, and still leave space to park planes.
Together, APAC countries comprise the world’s biggest single air travel market, their domestic, intra-region, and international long-haul services collectively estimated by the International Air Transport Association (IATA) to deliver almost 39% of global passenger traffic.
As the region with the largest and fastest-growing population, APAC’s aviation market has by far the strongest growth potential, though granular analysis reveals a messy mix of domestic and international markets, characterised by enormous cultural, social, geopolitical, economic and demographic differences and needs.

Regional differences
“We’d argue that there are as many as eight regions within Asia Pacific,” said Timothy Ross, head of investor relations for major aircraft lessor BOC Aviation, a Singapore-based subsidiary of Bank of China with a global portfolio of 520-plus aircraft owned, managed or on order. “This region is massively different, depending on which market you’re talking about – north Asia, south-east Asia, the Indian sub-continent, Oceania. Describing it as one region is like calling Africa one country.”
That complexity is replicated in the vastly varying performances and strategies of aviation players across APAC, which are roughly following a global pattern of bumpy but steady domestic recovery, and the opposite for international operations, with connectivity between countries upended by uncoordinated, unpredictable, and uneven government responses to the pandemic.
Aviation data group OAG reported in January that eight of the top 10 domestic routes were in Asia Pacific, reflecting the strength of intra-market recovery, while only two APAC routes, Hong Kong-Taipei and Singapore-Kuala Lumpur, featured among the busiest international sectors.
Subhas Menon is executive director of the Association of Asia Pacific Airlines, a collective of 14 key operators. “When the pandemic first started, we thought that the Asia-Pacific region, being the first to confront the crisis, would be the first to emerge from it,” said Menon, a former senior executive of Singapore Airlines, and chief executive of its now-integrated regional subsidiary Silk Air.
“It was looking pretty good,” he said. “But Asia-Pacific governments are easily spooked. Once Omicron appeared they immediately reacted. They put the brakes on. If we can get back to 30-40% of 2019’s international demand in the first part of 2022 then hopefully governments will get more confident in dealing with this, and realise you can’t operate borders on a stop-start basis.”
Tony Webber, a former chief economist for Qantas, and now head of Sydney-based consultancy Air Intelligence, said the skittish behaviour of regulators, particularly in the APAC region, had created an additional impediment to airline recovery in 2022. “[There is] hesitancy around governments re-imposing border or travel restrictions while you’re away, and fear of not being able to get back home,” he said.
Omicron’s arrival just as regional recovery was gaining traction intensified regulator reactions, caused airline capacity to porpoise, and heightened customer anxiety, he said, further slowing recovery in Asia-Pacific nations, particularly in inherently nervous markets like Japan and Korea, stalling the new year turnaround that APAC’s airline sector so desperately needed. That instability has persisted into the new year, with capacity elasticity increasingly shifting from seasonal to sudden.

Balancing risk
IATA described APAC’s tentative recovery as “the lowest among regions”, and while predicting continued reduction in global air travel during January and February, frustratedly and pointedly added: “Bookings for travel within Asia, once one of the largest markets globally, remain insignificant amid risk-averse behaviour by governments.”
Singapore was one of the most proactive responders to Covid. Late last year, as confidence in recovery trickled back, the island state established Vaccinated Traveller Lanes for eligible passengers from 27 countries. But just as the programme started, so did Omicron, causing the sudden suspension of new ticket sales over Christmas-New Year, and limiting access beyond that, further impeding recovery at one of APAC’s busiest air transport hubs.
Australia and New Zealand also had a world-watched ‘travel bubble’, which drove significant growth in air passenger journeys, and raised hopes of similar arrangements to reactivate growth in 2022. But it, too, was increasingly disrupted by Covid, until New Zealand, fighting to contain its own infection rates, deflated the deal until April 2022.
“I think one thing that we’ve learnt over the past two years is that Covid makes fools of those who want to make long-term forecasts,” said BOC Aviation’s Ross. “We’re very encouraged by the public’s desire to get back on aeroplanes. But recovery is uneven, non-linear.”
BOC Aviation says it’s clear a global comeback is starting, albeit patchy, and slower in south-east Asia than elsewhere, with domestic passenger volumes worldwide getting close to pre-pandemic levels. “I’m not about to put a number on it,” said Ross, “but we’re entering 2022 probably with greater confidence than we started 2021.”
Boeing Commercial Airplanes, in its recently released 20-year forecast of global air traffic growth, said: “Today, roughly one-quarter of world air travel is flown within Asia, the highest share of intra-regional air traffic globally. Boeing forecasts intra-Asia traffic’s share will increase to nearly half of all global air travel over the next 20 years.”
Growth, not just recovery, is already happening on APAC domestic routes.
China, the world’s largest aviation market, has all but grounded international passenger flights, as it pursues a zero-Covid policy. But internally, both there and in other APAC nations with sizeable domestic networks, air travel is, for the most part, climbing as airlines perfect the practice of flying a fine, zig-zag line between short-term caution and longer term optimism.

Home encouragement
Raul Villeron, vice-president, Asia Pacific for regional jet maker Embraer Commercial Aircraft, said Omicron had dimmed hopes of recovery in the first half of 2022. “However,” he said, “we have seen encouraging signs of domestic aviation growth in Asia Pacific,” particularly through deployment of regional jets, not just to maintain or incrementally restore service on key routes, but also to pioneer new non-stop operations in Vietnam, China, Japan, and Australia.
Pre-pandemic, he said, the Vietnamese archipelago of Con Dao was served by direct flights from only two destinations. But during 2021, Embraer E-jets were used to expand that market to six direct destinations and a daily average of 10 flights. Growth has also been facilitated by regional jets within China and Japan, while in Australia, through a capacity deal with Alliance Airlines, Qantas plans to deploy up to 18 E190s on new direct routes or downsized existing sectors.
While APAC, like every market, has been concussed by Covid, one standout in the region has been India, where industry capacity is nearing pre-Covid levels. Low-cost carrier IndiGo, with almost 55% market share, continues to display robust intent, while investment titan TATA has just taken control of perpetually troubled Air India, flagging hope after decades on the cusp of collapse.
IndiGo has been one of the industry’s success stories during Covid. It increased its domestic network from 60 to over 70 destinations; inked major commercial partnerships with American and Air France-KLM; updated its fleet with new A320s, A321neos and ATR72 turboprops; and signalled expansion of its international network – which, pre-pandemic, absorbed 25% of its capacity, and is now targeted to reach up to 40%. IndiGo has also ventured into dedicated cargo with letters of intent for four A321 jets converted from passenger planes to freighters.
Another surging APAC low-cost player, VietJet, has renegotiated and recommitted to orders for 119 new Airbus neo narrowbodies and three widebody A330s, while Qantas will replace its domestic B717s and B737-800s with up to 134 A320neo and A220 family jets over the next decade, with firm orders for the first 40 to be formalised by mid-2022.
Among these will be 20 A321XLRs, with range not just for every route in Australia, but also destinations throughout south-east and north Asia, until now served almost exclusively by widebody jets. This would potentially enable smaller gauge re-entry into suspended markets, more frequent flights in place of or alongside widebodies, and establishment of new routes.
“I do believe that we’re at the beginning of the end,” Air Asia Group chief executive Tony Fernandes told CNBC’s Squawk Box Asia programme, in a discussion of Covid’s impact on APAC travel. “At this time last year, we had no planes flying,” he said. “Now we’ve got a large chunk of our fleet flying domestic Malaysia, Thailand and Indonesia.”
He sees international recovery beginning around March, and through a rebranded holding company, Capital A, has flagged plans for two new low-cost carriers in south-east Asia.
Brad Moore is regional general manager, Australia and New Zealand, for the global ground handling company Swissport, whose APAC activities are extensive, diverse and serve as another key barometer of industry health.
In Australia and New Zealand, supporting domestic passenger flights is the biggest part of Swissport’s business, while elsewhere in the region, particularly Japan and Korea, international passenger and freight operations dominate.
“We know from experience that when border restrictions are relaxed, the volume of travellers comes back in a flood,” said Moore. “There’s enthusiasm by the airlines to return capacity to the market. But Omicron has thrown a new curveball, and that’s the impact on staff numbers.

Cargo strength
“In Australia, where most of our work is domestic, almost everybody has been stood back up as the market has returned,” said Moore. “In Japan and Korea, though, it’s a very different story. International borders are largely closed for passenger traffic. But cargo is strong, so our check-in staff are being redeployed on freight and logistics. In some cases, they’re ‘on loan’ from us to other employers.”
He believes APAC aviation will rebalance in the second half of 2022, once restrictions ease again, adding that Swissport has just secured new international contracts across the region to support carriers including American, Hawaiian, Finnair, Turkish, Cebu Pacific and Fiji Airways.
But international aviation, while slowly growing back, has been – and remains – seriously challenged across APAC.
Pre-pandemic, many long-haul operators were already experiencing trauma, particularly in south-east Asia where national carriers including Malaysia Airlines, Garuda Indonesia, Thai International and Philippine Airlines had all undergone life-saving restructures, some more than once. Meanwhile others, such as Qantas International, had endured a long-term decline of fares, market share and profitability, largely from capacity and price wars with lower cost Asian airlines and surging Gulf carriers.
Cathay Pacific, once proud and powerful within and beyond APAC, has also suffered serious damage, but of a different kind to others. The rise of mainland China has created more airlines, diminishing the importance of the once-vital Hong Kong gateway, Cathay’s hub, by overflying it with direct, competing operations.
Now, the enormous political upheaval in Hong Kong has critically damaged its remaining appeal as both a destination and a stopover hub. And with China’s zero-Covid strategy extending to Hong Kong, Cathay’s crisis continues to deepen, with just 2% of its pre-pandemic capacity scheduled for the start of 2022.
Not to mention the worrying uncertainty about Taiwan. What will happen there?
Notably absent from the list above is Singapore Airlines (SIA). Not only is it emerging from Covid in reasonable shape: it might even return in better shape, serving not only its previous global network, but also potentially becoming a strong long-haul surrogate for its struggling neighbours.
Star Alliance member SIA recently reactivated a deep commercial partnership it had struck before Covid with oneworld’s Malaysia Airlines, including extensive codeshare access to Malaysia’s domestic routes and reciprocal attachment of its flight numbers to long-haul SIA services. (The two were once one as Malaysia-Singapore Airlines, or MSA, and there are some who argue that they should be again.)
As well, SIA has just signed a similar agreement with SkyTeam member Garuda Indonesia, giving SIA codeshare access to Garuda’s internal Indonesia flights, Garuda the right to code on long-haul services by SIA, and both the potential for other collaboration.
“This whole situation resonates very well for Singapore Airlines,” said John Grant, a partner at global air transport consultancy Midas Aviation. “The Singaporeans think long term, not short term. They don’t need a second invitation to an opportunity. They can serve everywhere non stop with their fleet of new aircraft. And their domestic market, as such, is akin to the European Union.”
But he sees even bigger APAC evolution, as legacy carriers struggle, low-cost carriers thrive, and new entrants potentially take advantage of a big pool of good but unrequired aircraft, attractive lease rates or purchase prices for new or returned fleet, and access to under-utilised airports, under-served routes, and under-employed aircrew. In Australia, start-up airline Bonza has just secured a fleet of B737 Max jets.
“Airlines are staying in markets but offering once-a-day services where previously they had three or four, or four times a week instead of daily,” said Mr Grant. “That leaves room for start-ups to come in and disrupt the market for two to three years. But they’ll also distract the recovery of the legacy carriers.”
Change is occurring everywhere, but in a market the size of APAC, the scale of opportunity is enormous for those confident, competent and cashed up enough to explore new directions, he said.
“Covid has given every existing airline a chance to reset its business for the future. It’s a fascinating time,” said Grant. “The uncertainty creates opportunity for everyone, and that’s why it’s so exciting. If ever there was a time, then this is the time we should see some airline consolidation.”