By E.A
The COVID-19 pandemic has had a significant impact on the aviation industry due to travel restrictions and a reduction in demand among travelers.
Significant reductions in passenger numbers have resulted in flights being canceled or planes flying empty between airports, which in turn massively reduced revenues for airlines and forced many airlines to lay off employees or declare bankruptcy.
Only several months into the pandemic, the crisis was already the worst in the aviation industry’s history, according to statements made in early 2020 by several news outlets.
In the Asia-Pacific region, the International passenger was down 93 percent from pre-pandemic levels last year, leaving airlines heavily reliant on freight for revenue, and the Chinese outbound tourism market remains closed.
Airline Recovery
But there are signs of a rebound this year, 2022, Skyscanner booking data shows, as countries such as Singapore, Thailand, the Philippines, Vietnam, and Australia reopen to more vaccinated tourists without quarantine.
According to the article by FlightGlobal on February 2022, senior industry leaders speaking at the Aviation CEO Forum, organized on the opening day of the Singapore Airshow by FlightGlobal with partners Experia Events and CFM International, believe that recovery is on the horizon – but that potential headwinds mean the sector is not fully out of the woods yet.
During a wide-ranging panel debate, Malaysia Airlines chief executive Izham Ismail, speaking virtually from Kuala Lumpur, said the carrier is “cautiously optimistic” about its prospects. He attributes a better-than-expected 2021 performance — the carrier was cash positive by October 2021 following a successful business restructuring — to a “yield-active focus”.
Leisure travel is expected to rebound first, followed by business and corporate travel, adds Izham.
The AirAsia group of carriers, meanwhile, expects growth from the second half of 2023, with “plans to ramp up” by 2024. By the end-2022, the group’s carriers — in Indonesia, Malaysia, Thailand, the Philippines, and India — are expected to operate two-thirds of their fleet, says AirAsia Aviation group chief Bo Lingam.
He also doubles down on the prospect of more AirAsia units in the region, hinting at two more airline joint-ventures to be announced within the year. FlightGlobal previously reported that AirAsia will announce in the next two months a new airline unit in Southeast Asia.
Lingam and Izham also call for a unified strategy among governments on reopening borders, given that the region has disparate rules and timelines on opening their borders. Fellow panelist Lim Kim Hai, chairman of Australian carrier Regional Express, says a “meaningful size” for its jet operations — which it rolled out in 2021— would be between 20 and 30 aircraft. Lim adds that the airline is aiming to take between six and 10 jets a year. Domhnal Slattery, chief executive of aircraft lessor Avolon, meanwhile is bullish about the Chinese market — still tightly shut amid strict pandemic restrictions — opening up.
Slattery says when the international borders reopen, which he predicts will be in the third or fourth quarter of this year, demand will rebound “dramatically”.
Concurring, CFM International president Gael Meheust is “convinced” that the pent-up demand to travel will lead to growth across the industry.
“This industry is resilient…when you look at the longer term, I am convinced that because of the desire of the public to travel, we are going to see a growth of the traffic that we will continuously exceed the growth of the GDP in the coming year,” Meheust adds.
Still, Robert Martin, chief executive at lessor BOC Aviation, warns that airlines will have to “raise equity…to grow, going forward”. A failure to do so, says Martin, could set the industry back two to three years, especially in light of “potential headwinds” to come.
This is especially so as a number of carriers in the region exit restructuring.
“We have three potential headwinds coming this year, as traffic will grow. Oil prices have gone back up again…interest rates are going up, and we’re seeing a lot of wage inflation and commodity price inflation that will feed through potentially in any contract,” says Martin.
Air Cargo Impact and Recovery
Brendan Sullivan, International Airline Transport Association (IATA)’s Global Head of Cargo said that “Air cargo is a critically important industry. This pandemic reminded us of that. During the crisis, it has been a lifeline for society, delivering critical medical supplies and vaccines across the globe and keeping international supply chains open. And for many airlines, cargo became a vital source of revenue when passenger flights were grounded. In 2020, the air cargo industry generated $129 billion, which represented approximately a third of airlines’ overall revenues, an increase of 10–15% compared to pre-crisis levels. Looking towards the future, the outlook is strong. We need to maintain the momentum established during the crisis and continue building resilience post-pandemic.” This statement was made at the 14th World Cargo Symposium (WCS) in Dublin in October 2021.
The outlook for air cargo in the short and long term is strong. Indicators such as inventory levels and manufacturing output are favorable, world trade is forecast to grow at 9.5% this year and 5.6% in 2022, e-commerce continues to grow at a double-digit rate, and demand for high-value specialized cargo – such as temperature-sensitive healthcare goods and vaccines – is rising.
This year cargo demand is expected to exceed pre-crisis (2019) levels by 8% and revenues are expected to rise to a record $175 billion, with yields expected to grow by 15%. In 2022 demand is expected to exceed pre-crisis (2019) levels by 13% with revenues expected to rise to $169 billion although there will be an 8% decline in yields.
“The surge in demand for air cargo and attractive yields are not without complications. Pandemic restrictions have led to severe global supply-chain congestion and created hardships for aircrew crossing international borders. Resourcing and capacity, handling and facility space and logistics will be an issue. This will create further operational challenges for our industry that must be planned for now. But we have demonstrated resilience throughout the crisis and with that same focus we will overcome these challenges,” said Sullivan.
Business Aviation Impact and Recovery
Business aviation enables the flexibility to conduct a flight operation, especially at short notice, anywhere in the world.
It was less affected by the pandemic than airline traffic because top executives’ travel is often considered essential.
With the reduction of commercial flights, the private charter has slightly increased due to the demand for higher safety levels. But was eventually limited by travel restrictions and widespread stay-at-home orders.
The business aviation sector is expected to thrive further in the coming years, according to various industry reports. According to the 2020 Honeywell Global Business Aviation Outlook, there will be up to 7,300 new business jet deliveries worth US$235 billion from 2021 to 2030, as well as an average 4-5% annual growth in the rate of deliveries through 2030. According to the report, the Middle East and Africa will have higher purchase plans, with an increase in operators who will purchase new jets.
Ukraine-Russia War Impact on Southeast Asia Aviation Industry
The war in Ukraine, sanctions against Russia, and airspace restrictions have dampened projections in the Southeast Asian region where Russians became the largest and most spendthrift group of visitors to many top destinations during the pandemic, displacing Chinese unable to travel due to their country’s strict border controls.
The fallout is already being felt in popular destinations such as the Thai resort island of Phuket, where Russians account for 51,000 of the 278,000 foreigners who visited the island between November and February, according to the Tourism Authority of Thailand.
Russians’ spending on food, accommodation, transport and tours has provided a vital economic stimulus for the island, where tourism accounted for 60 percent of gross domestic product before the pandemic.
But with the value of the rouble plunging to record lows, the number of Russians who can afford to travel overseas is set to shrink. Just getting there is likely to be a challenge.
Singapore Airlines, one of the few airlines offering regular international flights to Bali, announced an immediate and indefinite suspension of its service between its hub of Changi Airport and Moscow.
Tourists from Russia and Ukraine will not be alone in facing new challenges flying to Southeast Asia as a result of the conflict, but will also affect oil prices.
Russia accounts for about 10 percent of the world’s supply of crude oil, and markets are bracing for serious disruptions due to sanctions and possible retaliation by Moscow. In March 2022, the global benchmark hit $115 per barrel just days after breaching the crucial $100 mark for the first time since 2014.
Airlines could struggle to obtain sufficient supplies of fuel.
The effects of the Ukraine conflict are also causing significant schedule and routing problems.
Airlines in Southeast Asia tend to have a greater scope for routing alternatives than those in Northeast Asia.
In addition to these operational hurdles, larger risks are also present for Asian airlines. The fact that some of their European partners have suspended Asia routes will be a blow, and if the conflict continues then demand for flights into and out of Europe could be significantly affected. Prolonged warfare would also be a drag on the global economy and would erode travel sentiment.
Even if the physical conflict moderates, it is highly likely that commercial sanctions and retaliation will continue for some time, jeopardizing the use of Ukrainian and Russian overflights. This will cause major readjustments to flying schedules as markets open up.
Conclusion
Global air traffic is only slowly recovering from its coronavirus low. Around the world, planned airline seat capacity was still around 30 percent lower as of March 14, 2022 than on March 11, 2019 (before fleets were grounded due to Covid-19).
Numbers from travel data service Official Airline Guide also show where below-average recovery has taken place. Trailing all others is the South East Asian market – still almost 85 percent unrecovered due to the lack of tourists that normally flock to the region. The Southwest Pacific displays the second-to-worst result with seat numbers around 64 percent below pre-corona capacity.
Several country borders have remained sealed shut, most notably in China and Japan. While Singapore and the Philippines led a sharp uptick in bookings.
According to the travel firm, ForwardKeys, they showed Singapore and Philippines bookings were at 72% and 65% of 2019 levels, respectively, while Thailand was at just 24%.
“The ongoing recovery in air travel is excellent news for the global economy, for friends and families whose forced separations are being ended, and for the millions of people who depend on air transport for their livelihoods,” said Willie Walsh, IATA’s Director-General.
