Special Report
Asia-Pacific global airline influence accelerates
Asia-Pacific airlines are bounding towards global airline dominance. In this months special report, Orient Aviation outlines the socio-economic factors operating across the Asia-Pacific that are dictating the future size and shape of this regional aviation power house.
June 1st 2015
When the International Air Transport Association (IATA) recently released its first 20-year passenger growth forecast it confirmed the trend airline analysts have long identified. Read More » The Asia-Pacific, despite some performance stumbles along the way, is on a growth trajectory that will see the region become the world’s airline market sooner rather than later.
In the next two decades, global passenger numbers are predicted to climb to 7.3 billion a year, a 4.1% average annual growth rate, doubling the 3.3 billion passengers who flew in 2014. By 2030, with 5.5% annual air passenger expansion, China will overtake the U.S. as the world’s largest passenger market (defined by traffic to, from and within) and will account for 1.3 billion passengers a year, 856 million air travelers more than in 2014.
China is not the only expansion story in the Asia-Pacific. The ninth largest market, India, will have 367 million passengers annually by 2034, an extra 266 million compared with today. It will overtake the U.K. (148 million extra passengers in a total market 337 million) and become the third largest market in the world around 2031.
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Indonesia will enter the top ten around 2020 and achieve sixth place by 2029. In 2034, it will have a passenger market of 270 million passengers.
But there will also be some losers. Reflecting a declining and ageing population, Japanese air passenger numbers will grow 1.3% per year and decline from the world’s fourth largest market in 2014 to ninth in 2033.
The IATA forecast, produced in association with Tourism Economics, analyzed passenger flows across 4,000 country pairs. It said routes to, from and within the Asia-Pacific will see an extra 1.8 billion annual passengers by 2034, for an overall market of 2.9 billion passengers.
In relative terms, the region will increase its size, compared with other regions, to 42% of global passenger traffic by 2032. With an annual average growth rate of 4.9%, the region will be joint highest with the Middle East, which will remain a far smaller market than Asia. The figures are in stark contrast to North America, which will expand by 3.3% annually. Europe will have a growth rate of 2.7% a year.
In 2050, if current growth continues, Asia’s per capita income could rise 600% in purchasing power parity (PPP), matching Europe and other Western economies. In the next two decades, around three billion Asians will enter the global middle-class, the vast pool of consumers who are airline passengers.
But there are several serious hurdles to overcome if the region’s airlines are to take full advantage of the opportunities ahead.
There are concerns about the region’s safety reputation and not only because of several recent incidents and accidents. The persistent failure of some regulatory authorities – Thailand, Indonesia, India and the Philippines among them – to keep pace with ever increasing oversight requirements has resulted in several downgrades by the Federal Aviation Administration and the European Union that have contained growth at the airlines operating in these countries.
Infrastructure, or lack of it, remains an operating and safety issue. Despite multi-billion dollar investments in new and existing airports, both airports and the region’s air traffic management systems cannot keep up with demand for extra flights.
Personnel shortages, from the cockpit to air traffic control operators to technicians and engineers at both airlines and MRO facilities are a continuing problem. Airbus’ latest global market forecast projected Asia-Pacific airlines would need 2,253 new jets to 2033. There are 1,600 aircraft operating in Southeast Asia. It is the only region in the world with as many aircraft on order as already are in service.
Each new plane needs as many as a dozen pilots. Training facilities have been investing in expansion, but right now the figures don’t add up to providing sufficient crew for all the aircraft ordered by carriers in the region.
Boeing forecast the Asia-Pacific would require 216,000 new pilots in the next 20 years. It is the largest number of collective flight crew in the world and is estimated to be make up 40% of the global demand.
Traditional airline models are also being re-defined. Full service airlines are constantly adjusting their strategies to meet fast developing challenges, especially from budget airlines. In some countries such as the Philippines, Thailand and South Korea LCCs have captured almost 50% of the local market. Some of that business is lost business from full service carriers.
While Asia-Pacific airlines undoubtedly are amongst the best in the world for their service standards they have not been able to entirely thwart LCCs’ penetration into traditional markets. More recently, long-haul budget carriers are making inroads on routes formerly flown only by full service airlines.
As a result, full service airlines will continue to launch or set up joint ventures with budget carriers to be part of the expanding LCC sector.
Some Asia-Pacific carriers have been forced to change. Malaysia Airlines (MAS) and Thai Airways International (THAI) are undergoing major downsizing and restructuring exercises to survive.
MAS’s remaking has followed two previously inconceivable accidents in last year while THAI is undergoing a financial revamp after management lost its way during a period of political unrest in the country. The proliferating budget carrier competition in its THAI’s market did not help.
There are likely to be similar challenges in other countries across the region. China’s LCCs are in an early stage of development and Korean budget airlines are gaining a large share of a market once the domains of Korean Air and Asiana Airlines.
When the region’s airline leaders met in November last year for the annual Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA), the body’s director general, Andrew Herdman, said most economies across the Asia-Pacific were growing relatively strongly, with the region’s airlines reporting passenger and freight traffic increases.
“Although Asia-Pacific airlines continue to invest heavily in the latest generation of fuel efficient aircraft to meet traffic growth demands, there is an increasing concern about the need for corresponding long term investments in related aviation infrastructure, including airport terminals, runways and air navigation services,” he said. “Governments have key roles to play in coordinating such investments and ensuring that the necessary regulatory oversight of the industry keeps pace with growth.”
At the same time, Asian carriers have sought to contain a yield decline as competition intensifies because of a long running, regional capacity surplus. The dramatic decline in the price of fuel since June last year is helping to arrest that decline.
AAPA figures for the 2014 calendar year showed healthy growth in international air passenger demand. Air cargo reported a revival in demand after three consecutive years of decline.
A total of 256.1 million international passengers flew on the region’s carriers during the year, representing an annual increase of 4.8% over the previous year. Sustained growth in Asian regional economies, and robust trade activities supported by stronger U.S. markets, helped underpin business and leisure travel demand.
However, the combined 4.7% increase in international passenger traffic, in revenue passenger kilometer (RPK) terms, was slightly outpaced by a 6.0% expansion in available seat capacity, which led to a 1.0 percentage point decline in the average international passenger load factor to 77.0% for the year.
Overall, Herdman said, the outlook for the coming year remains broadly positive, with sustained growth in the global economy continuing to drive air travel demand, whilst lower oil prices will also help to keep air travel affordable, said Herdman.
“Looking ahead, no-one can forecast where the price of oil will settle, but airlines have put fleet and network planning as one of their priorities. Over the next two decades, the arrival of more and more fuel-efficient aircraft such as B787s and B777s as well as A350s will play a major role in cost reduction.”
The latest figures from the AAPA, for March, reveal growth is being sustained although the 11.3% increase in international passenger carried benefitted from the region-wide Lunar New Year holiday.
“Overall, for the first quarter of 2015, we saw an encouraging 9.4% increase in international passengers carried by Asia-Pacific airlines reaching an aggregate total of 67.7 million, substantially higher than the 4.9% growth of the previous year,” said the AAPA. “During the same period, Asian airlines saw international air cargo demand grow by 8.4%, partly boosted by the dispute affecting maritime shipments at U.S. West Coast ports.”
In the next two decades Asia-Pacific airlines will face many familiar challenges and probably a few no-one has considered yet. But they have shown great resilience in handling crises and change, which is likely to continue.
