Summary
- Full recovery of commercial aviation in Asia-Pacific is now expected to arrive earlier than predicted.
- Strong performance of airlines across the region, including low-cost and full-service carriers, as travel restrictions go and supply chain constraints ease.
- China's reopening is driving growth, but outbound travel is still affected by economic conditions and supply chain issues while inbound traffic is booming.
At the start of this year, most forecasts predicted that the full recovery of commercial aviation in Asia-Pacific would not come until the end of 2024. However, with travel restrictions now a thing of the past and the consistently high demand for travel driving growth, it seems that a full recovery to pre-pandemic levels will arrive much nearer the start of next year than the end.
Yesterday, the Association of Asia Pacific Airlines (AAPA) released its July Traffic Results, which showed that 27.2 million international passengers were carried by the region's airlines in the month. This was a 146% increase on the 11 million carried in July last year and 84% of the 32.5 million carried in July 2019. The average passenger load factor reached 83.7% last month and climbed ahead of the 82.4% load factor reported in July 2019.
While the gradual easing of travel restrictions in China is a major factor it is not the only game in town. Airlines across the region, including full-service carriers like Singapore Airlines, Air India, and Qantas and low-cost carriers like AirAsia, Vietjet, and Scoot, are performing strongly and building up capacity as supply chain constraints finally start to ease.
AAPA's Director General talks to Simple Flying
To get a clearer picture of what's happening in the region, Simple Flying today spoke with AAPA Director General Subhas Menon. He started by telling us several factors have contributed to the recovery picking up speed, starting with the airlines returning more aircraft to service.
Menon pointed out that in the early part of the year, there was a big gap between the rate of growth of the flights and the rate of growth of demand, but with airlines adding more aircraft, that gap has narrowed. He added:
"The second point is China where air travel is doing well and domestic demand has already exceeded 2019 levels. While China's reopening is contributing to the growth I still think it's highly unlikely we will hit full recovery by the end of this year and it's more likely it will be between the first quarter and first half of 2024 before Asia-Pacific gets back to 2019 levels."
On China, Menon highlights a discord between inbound and outbound traffic, with outbound travel from China negatively affected by the economic situation within the country. He said that the internal economic conditions are not really conducive for travel and that, in general, many Chinese are cautious about spending, and it may take some time for the government's stimulus measures to have an impact.
Conversely, inbound traffic is booming now that restrictions have gone and international airlines are racing to add more capacity. The major Chinese carriers are also dealing with extended supply chain issues and have been unable to return all their aircraft to service which also impacts outbound travel. Menon also cites the current trade tensions between the West and China as not helping to ease supply chain issues.
The July AAPA report also showed that international cargo markets continue to slow, with demand falling for the seventeenth consecutive month in Asia-Pacific. As a result, the average international freight load factor for the region's airlines declined by 5.5 percentage points to 60.9% in July, although the situation may not be as troublesome as it sounds.
"Freight is a weather vane of the economy and when the economy falls so does freight. Also, there is a mismatch between the global economy and air travel - the economy is on a downward trend but air travel is on an upward trend which is a kind of nice anomaly to have. Before COVID freight contributed around 20% of airline revenue and during the pandemic that climbed closer to 40% but now it has come back to around 20% again."
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Profitability and the debt mountain
One thing that he is pleased about is that in the first quarter, airline profitability has turned the corner, with many making operating profits, although net profits are suffering under a mountain of debt. He explained that IATA (International Air Transport Association) predicts that airlines will make an aggregated profit of $10 billion in 2023, representing a margin of just 1.2%, compared to aggregated losses of $189 billion during the pandemic.
Clearing that debt will take time, but Menon is confident that the quick return to operational profits is a sign that airlines have already turned the corner and recovery is well underway. He concluded our discussion by saying:
"It has been a quick recovery and at the beginning of the year IATA was talking about late 2024 to early 2025 for the region to get back to 2019 levels. Now we are looking at the first part of 2024 and momentum is not going to slacken because the demand pattern has been very resilient all through the year and future bookings are now higher than they were for 2019."
It has been a slow and steady approach all through this year, but the pace is picking up now that capacity is rapidly returning and China is open for business. The mood in Asia-Pacific has changed, and the results will soon start showing up in AAPA's monthly traffic reports.
Are you happy with how Asia-Pacific airlines are performing? Let us know in the comments.