As the global aviation industry appears to be picking up more sustainably, one region in particular is attracting a great deal of interest. Asia is slated to see huge growth in the coming years – but it must overcome several problems if it is to make the most of that trend
Conrad Clifford, regional vice president, IATA Asia Pacific, remarked at this year’s IATA Ground Handling Conference (IGHC) held in Bangkok in May that global trade and tourism has seen “astonishing success” over the last 20 years.
Aviation in 2016 transported 3.7 billion people and 54 million tonnes of cargo on over 40 million safe flights. US$35 billion was invested into the industry and the return on that investment (ROI) stood at over 9%, more than 3% higher than the cost of capital – meaning real returns for investors. It had been a similar picture in 2015.
As to the global forecast for 2017, Clifford predicted 7.9% ROI, still above cost of investment. Cargo has been experiencing an uptick in spite of the challenges posed by protectionism, 3D printing and the lower cost of other modes of transport; e-commerce will increase and express favours air freight, he said.
Those industries are particularly important on the Asia sector – and the passenger market in that region is also on the up.
Another speaker at IGHC, Jardine Aviation Services Group CEO David Walker, noted that Asia “continues to see huge growth and is cause for a ‘glass-half-full’ perspective”.
According to Boeing, China is predicted to spend $1.1 trillion over the next 20 years – ordering over 7,200 aircraft – and will overtake the US as the world’s largest aviation market.
Indeed, Randy Tinseth, vice president of marketing at Boeing Commercial Airplanes comments that “China’s continuous economic growth, significant investment in infrastructure, growing middle class and evolving airline business models” mean that the country’s fleet size will grow at a pace well above the world average, and almost 20% of global new aircraft demand will be from airlines based in China.
The Asia Pacific region as a whole will take delivery of 15,000 new aircraft over that same period, Walker says.
Future growth in aviation is tilted towards emerging markets, Clifford believes. Over the next seven years, China is expected to become the number one passenger market; over the next eight years, India will move up to number three; in 20 years’ time, Indonesia will rise to fifth, while Japan will drop from fourth to sixth. India and Indonesia are experiencing rising GDP and a growing middle class, for whom air travel is both affordable and attractive.
Thailand, meanwhile, is overtaking Turkey and Brazil in some growth forecasts.
Southeast Asia’s low-cost carriers held a combined 50% market share in 2016 – up from just 5% only a decade ago.
So, the aviation business is booming in Asia and confidence is high. But the region is not without its problems and challenges.
Obstacles
One major issue is the reduction in the availability of manpower, Walker explains. Cheap labour is fast disappearing due to the rapid development of Asian economies; employment in ground handling is no longer seen as aspirational, and it is necessary to offer ever-higher salaries to attract new blood into the industry.
On top of the difficulties in attracting staff, handlers face increasing pressure to reduce turnaround times. Most low-cost carrier flights must disembark, for instance, 180 passengers and admit the same again, plus five tonnes of bulk-loaded cargo each way, within 40 minutes. Bulk loaded cargo is heavy and dangerous – it would be much better to move it as palletised cargo on widebodies, Walker suggests.
Handlers must operate safely while trying to balance an impossible equation: actual flight arrival times do not always correspond with scheduled arrival times, yet handlers are pushed to perform their tasks faster and faster.
A further challenge is the growing congestion, both on the ground and in the air, that comes as a result of activity outstripping available space and can be complicated by bad weather – which can be severe in this region. This is particularly acute in China, Walker considers. Air traffic controllers are under strain, and any disruption leaves passengers dissatisfied.
Authorising night-time flights might offer a solution; then again, they would be cheaper for passengers but would cost handlers much more in staffing.
In general, the region’s infrastructure is still trying to catch up with the huge growth in passenger volumes. Many Asia-Pacific airports are at saturation point already, Clifford says. Hong Kong, for instance, saw growth of 3% in both passenger and cargo throughput in 2016, with over 70 million passengers and 4.5 million tonnes processed that year.
The airport’s Three-Runway System, intended to help the gateway cope with continuing growth in demand, is scheduled to become operational in 2024 – but Walker warns that Hong Kong will have a slot problem before then.
He also points to the rising price pressure affecting Asian aviation. Airfares are dropping, but costs – especially wages – are rising. Therefore, efficiencies and economies of scale are absolutely necessary.
In terms of profitability there is a substantial regional imbalance, Clifford observes. North American carriers can expect to make $20 per passenger as mergers have led to the necessary efficiencies and economies of scale. Capacity discipline and charging passengers for ‘extras’ are also helping carriers in this region to improve their profitability.
In contrast, airlines in the Asia Pacific area make a profit of just $4 per passenger. The market there is in buoyant growth mode, which means there are lots of empty seats, and big losses for airlines.
Head offices and procurement departments tend to focus on keeping spending down, but this can result in a local station’s operational needs being overlooked or inadequately met, Walker goes on. There can be a disconnect in terms of the resources needed to meet service level agreements (SLAs). Micro-management and very strict SLAs can restrict flexibility, so it is perhaps better to focus on the end goal rather than stipulate exactly how it should be achieved.
In addition, the current ‘silo’ approach to the goals of safe flights, on-time performance and good customer service needs to change so that all stakeholders are aiming in the same direction.
There are opportunities to balance all these elements. Collaboration and integration across the industry are fundamental. More specifically, Walker says handlers must plan to fail – that is, be as flexible as possible and work to common training standards for each aircraft type. Pooling equipment and resources, meanwhile, would help to flatten peaks and troughs and lower investment costs.
