Asia-Pacific airlines to hit demand overdrive in 2024

When airline leaders from across the region gather at the 67th Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA) they will be far happier than they have been for the past three years. Most of them are back in the money. But there are more challenges ahead. Associate editor and chief correspondent, Tom Ballantyne, previews the Singapore gathering.

October 1st 2023

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As Singapore Airlines (SIA) CEO, Goh Choon Phong, prepares to welcome airline and industry leaders to the Association of Asia Pacific Airlines Assembly of Presidents in November, he has an optimistic message for delegates. Read More » “The Asia-Pacific airline industry is back on track after three debilitating years of the Covid-19 pandemic,” he declared.

Goh is right. All in all, the industry has made a remarkable recovery from the worst crisis in its history. Planes are full as the thirst for travel – both business and leisure – has returned to above 2019 levels and massive annual losses are disappearing from airline balance sheets.

SIA itself reported a record net profit of US$1.62 billion in its latest fiscal year. Korean Air (KAL) booked a $594.2 million operating profit in its fourth quarter. In August, Cathay Pacific announced an interim operating profit of US$550.22 million to June 30, 2023.

Japan Airlines (JAL) has booked a fiscal year $250 million profit and the latest published results from All Nippon Airways (ANA) revealed the airline was in the black to the tune of $646 million. Qantas Group recorded a $1.13 billion annual profit to June 30 and a reviving Philippine Airlines (PAL) unveiled a net profit of $196.9 million in its latest set of results. In China, the last country to remove closed border pandemic restrictions, airlines are returning to profit as 2024 approaches.

There is another indication of renewed confidence at the region’s airlines. While airlines are still working to return grounded planes to flying and restore full capacity, they also are ordering new aircraft to meet forecast demand.

Among them is Cathay Pacific, which recently ordered another 32 A320neo to expand and modernize its fleet. Malaysia Airlines has booked commitments for 20 A330neo. JAL has secured a deal worth at least $2.5 billion at list prices for 21 737 MAXs. Now in the black, Philippine Airlines has finalized a purchase agreement with Airbus for nine long range A350-1000s.

Then there is the unprecedented volume of orders from India mid-year. Firstly, Air India signed for 470 new Airbus and Boeing airplanes at an estimated value of $70 billion. Not long afterwards, India’s largest airline, LCC IndiGo, announced an even bigger order – for 500 A320 family aircraft.

The AAPA’s latest data, for August, charts how rapidly the recovery is progressing. Asia-Pacific airlines carried 25.7 million international passengers for the month, a 129.7% year-on-year improvement compared with the same month in 2022. At August 31, air traffic was averaging 76.5% of pre-pandemic levels. In revenue passenger kilometres (RPK), demand rose by 102.0% year-on-year. Capacity - available seat kilometres - expanded by 88.7%, leading to a 5.4 percentage point increase in international passenger load factor to 82.8%. It underscores the prediction the region’s international national and domestic air traffic will certainly be at pre-crisis levels in 2024.

Recently, AAPA director general, Subhas Menon, said despite a moderation in global economic data, demand has continued to grow in the services sectors, including travel and tourism. “Against this background, Asia-Pacific airlines saw a healthy 232% increase in international passengers carried, reaching 171 million global air travellers in the first eight months of the year,” he said.

He did, however, add a cautionary note to the positive results. “Looking ahead, forward booking trends indicate resilient travel demand in coming months. While this augurs well for the passenger business segment, airlines are facing higher costs, driven by inflation and the recent rise in jet fuel prices, which threaten to squeeze margins,” he said.

“Delays in aircraft deliveries and parts shortages may affect airline fleet deployment plans. And competition globally is intensifying in tandem with the increase in capacity. Asia’s airlines remain focused on efforts to increase productivity as the industry strives to return to profitability following three consecutive years of heavy losses.”

Several issues continue to concern airline chiefs and they will certainly be central to discussions at the Singapore Assembly. Manpower shortages, a hangover from the industry’s staff exodus after the onset of the pandemic, continue to be a problem.

Also, ongoing supply chain issues, causing aircraft delivery delays and difficulty in securing components are not yet resolved.

But these are relatively short-term challenges that will ease as 2023 comes to an end and the industry enters 2024, Menon forecasts.

An emerging challenge is that the Israel-Gaza conflict will push up the oil price, although airlines can counter the impact of higher oil prices by adding fuel surcharges to the price of airline tickets.

There also has been disquiet at some airlines about the impact of China’s slowing economy on the region as it is a critical market for Asia-Pacific carriers. Domestic flying in China is back at pre-pandemic levels, but international operations have been slow to recover, especially since the country did not open its international border until early this year - months after most nations.

But as 2023 draws to a close, airlines are slowly increasing their services into China and Chinese airlines are reviving their international networks.

It is forecast the Mainland’s international market will return to pre-pandemic performance in the next six months.

In a welcome trend, recent data out of China indicates the country’s economy has begun to recover from its slowdown. In September, exports declined by 6.2%, a slight improvement from August’s 8.8% drop, and bettering expectations of a 7.6% fall off.

This positive trend aligns with increased export orders driven by the global electronics sector, and suggests a potentially brighter trade outlook for 2024.

Asia-Pacific airline cargo business, which has been declining in the past year, also is predicting an uplift in the sector.

Like all airline industry gatherings, there are perennial issues which must be addressed and updated.

They will include reducing the volume of onerous regulations imposed on the air transport industry during the pandemic. AAPA airline leaders believe it is critical for governments to adopt a more coordinated approach to the rules of flying to sustain the industry’s recovery.

The burden, from an airline perspective, of government taxes and charges by service providers, airports and air navigation services, will have an airing as will a report card on industry efforts to reach net zero emissions by 2050.

In his message to Assembly delegates heading for Singapore, Goh points out that despite the pandemic the fundamental importance of air travel is unchanged.

“Airlines have been critical in supporting economic growth as borders reopened, facilitating a wide range of sectors from agriculture and banking to tourism and e-commerce,” he said.

“Face-to-face interactions are an essential part of doing business in our region and aviation enables that.”

Goh added deeper collaboration within the aviation industry, as well as with key stakeholders such as governments, regulators and airports, will be more important in coming years.

“Only by working together can we facilitate smoother international travel, meet our long-term sustainability and decarbonization targets and overcome the challenges that will come our way.”

Menon said it is remarkable the industry is intact considering the long time it was shuttered. “Rather than recede, the aviation sector is growing, with new airlines emerging in the region. This is testimony to the shared commitment of the industry as a whole to surviving the pandemic as well as contributing to the essential recovery of international air travel,” he said.

Delegates will be interested to know if the AAPA has attracted former members to the association such as Qantas Airways, Air New Zealand, Vietnam Airlines and Korean Air. On the positive side of the membership ledger, Air India joined the association after the Assembly met in Bangkok in November 2022. “We are always – I would not say on the prowl – but we are always looking for opportunities to extend our membership. We have been very active on this front in the last few months. We have been talking to different airlines, including the ones that have left. We are trying to bring them back,” Menon said. “We are open to no-frills airlines. We are trying to expand our membership to all business models. We want to be an association that represents the airline industry, irrespective of size, location and business model.” Subhas Menon AAPA director general