Route explosion to force consolidation?

As the Mainland, India and Southeast Asia drive network growth, the region’s full service carriers battle a yield drop. A belief that Asia-Pacific airline consolidation is approaching is taking hold.

by DOMINIC LALK  

March 1st 2017

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Airline consolidation has run its course in the U.S. and is playing out in Europe. Analysts believe the Asia-Pacific will be next on the list. Read More »

“Consolidation is definitely needed in the aviation industry. If you were to look at the U.S. airlines, consolidation and restructuring are underpinning the strong profitability we are seeing in North America,” IATA’s regional vice-president for the Asia-Pacific, Conrad Clifford told Orient Aviation.

“Will we see similar consolidation in Asia? Serious consideration needs to be given to this. Airlines that have amassed four to five additional AOCs, with all the attendant post holder and overhead costs, simply to overcome bilateral restrictions cannot make long-term financial sense,” Clifford said.

He added “consolidation could be difficult without changes to bilateral air services agreements and regulatory structures that would allow airlines to engage in cross border amalgamation”.

“At the moment, ASEAN Open Skies is probably the only likely facilitator for cross border consolidation and in the ASEAN region only,” Clifford said.

“Its involuntary consolidation, but it will happen. It has to happen,” said MAB’s Bellew in his Lunch with Orient Aviation address in Hong Kong in January.

Cathay Pacific chairman, John Slosar, concurred in an industry speech last year. He said traffic was far less concentrated around Asia’s big airlines than it is for their U.S. counterparts, following repeated mergers and restructurings that helped transform the formerly loss-making U.S. airline sector into one with healthy profits.

IATA estimated U.S. carriers earned an average US$22.48 per passenger last year, compared with US$4.89 for Asia-Pacific airlines.

Slosar said Cathay and Cathay Dragon accounted for approximately 45% of the movements in Hong Kong, while SIA accounts for about the same at its home base. But U.S. giants , American, United and Delta dominate 60%-70% of the traffic at their hubs. “So that revenue pit, I think, is pretty big,” Slosar said.

“Consolidation is taking place in more developed Asian markets. In emerging Asian markets it will be shaped by the regulatory framework, but if there are any shifts in consolidation it has a higher probability to be closer to each other as there are higher revenue and cost synergies,” Bellew said, and added he hoped this would foster “market discipline”.

The MAB boss said: “Fundamentally, network is driven by customer demand and with consolidation the expectation is that the customer instead of industry will drive that growth.”

“Consolidation will increase more and more in the form of interlining, codeshares or joint ventures. It serves to boost both parties’ networks and solve traffic right and slot constraints that will dramatically increase in the Asia-Pacific,” THAI’s vice-president of network and fleet planning, Chaiyong Ratanapaisalsuk, offered.

Dasha Kuksenko, vice-president and regional general-manager at Sabre Airline Solutions Asia Pacific, believes obstacles to cross-border ownership remain, so franchises like AirAsia and Jetstar appear to be the way LCCs would expand beyond the limits of their home market.

“Of the legacy carrier-dominated markets, China is the one with the most obvious candidates for consolidation, with a huge domestic market and many carriers with overlapping networks and relatively low market shares in their key hubs,” Kuksenko said.

Consolidation is guaranteed to take place within the HNA Group. More significantly, Beijing is reportedly considering an Air China-China Southern merger ahead of the opening of the nation’s new gateway – Beijing’s Daxing International – in 2019.

Asia-Pacific full service airlines are diversifying into technology, big data and other airlines, often outside their own alliances. Many experts have started calling the traditional airline alliances “obsolete” because of their high costs and limited flexibility.

The emergence of LCC alliances is another trend. Last year, the Value and U-FLY alliances were launched in the region, offering passengers of LCC carriers final destination luggage delivery for onward flights and ticket booking synergies.

Other forms of rethinking and evolution include cooperation at the supplier level. “We have been working on new business initiatives to drive revenue growth beyond ticket sales, such as the Airbus Asia Training Centre, which is a pilot training joint venture with Airbus,” SIA said.

For full-service carriers, a broad geographic vision with a comprehensive long-haul network can provide an effective defence against price-driven shared losses in short-haul markets with strong LCC competition. There are definitely opportunities for airlines in China and the Pacific Rim to better structure their hubs to compete with LCCs and the fast-growing network carriers in the Middle East, Kuksenko said.

Last year, Star Alliance introduced the “connecting partner model”; a leaner, more flexible membership model at the alliance and found a strategically important launch partner in Shanghai’s successful Juneyao Airlines.

In February, Etihad Aviation Group and Lufthansa Group broke new ground as they signed a comprehensive “commercial partnership agreement” (MRO), catering and code sharing. The CEOs of both companies said the partnership was critical to competing effectively in today’s “complex and highly competitive global market”.

China continues global route assault As Chinese carriers expand aggressively to North America, Australasia, Europe and within Asia, a growing number of airline leaders predict consolidation is approaching in the world’s largest future aviation market. In the meantime, non-stop air capacity between China and the U.S grew more than 250% in the last decade, from just above 845,000 one-way seats in summer 2007 to a forecast three million plus for the same months this year, reported OAG in its schedules data. Nine airlines offer scheduled non-stop services between China and North America, up from four in 2014. In the last two years, Mainland carriers have launched 51 long-haul destinations, with a majority of this growth flying on trans-Pacific routes. The state-controlled ‘Big Three’ – Air China, China Eastern Airlines and China Southern Airlines – accounted for the largest aggregate passenger expansion, although growth was exponentially bigger at China’s Hainan Airlines, its affiliates and at the smaller, private or semi-private carriers. Mainland aviation is in its golden years of expansion, with growth only hampered by infrastructure, air space and ATC constraints. But even the news is good in this sector. In February, China announced its intention to build 74 civilian airports by 2020 in its 13th Five-Year Civil Aviation Development Plan. Several of China’s airlines are very profitable. They can afford costly route launches in the hope of securing new markets once they mature and have a chance of making money. But the airlines also need to move fast. The CAAC’s “one route, one airline” policy calls for relentless manoeuvring and quick action. A large proportion of the networks of airlines g operating in Greater China are investments where the majority of the airlines have the benefit of government support, powerful investors or cashed-up owners to call on in bad times. Meanwhile, the expansion continues. Air China has launched 13 long-haul routes to North America from Beijing including Havana, Montreal, Honolulu, Washington DC, New York Newark and San Jose. It has commenced services to Auckland, Vienna, Minsk, Barcelona and Budapest since 2014 and soon will add Beijing-Zurich and Shanghai-Barcelona to its network. Air China will become the largest airline flying between China and U.S. this summer when it overtakes its Star Alliance fellow, United Airlines. The Beijing carrier’s capacity to the U.S. will increase 7.9% year-on-year -its slowest growth in a decade - with the beginning of the North Atlantic summer schedule in late March. It has confirmed added frequencies to Newark New York and Washington DC and reduced frequency to Houston. A decade ago, United dominated the U.S.-China market with a 45 % market share. This summer, the U.S. carrier is forecast to hold 20.8%, despite added capacity of 23.2% since 2012 and the opening of monopolistic routes from San Francisco to Chengdu, Hangzhou and Xian. Air China’s rapid ascent has been followed by HNA Group’s signature carrier, Hainan Airlines. Hainan has opened routes to Boston, Los Angeles, San Jose, Calgary, Sydney, Tel Aviv, Paris, Rome, Prague and Manchester. Last December, it commenced a Beijing-Las Vegas direct service, the first route connecting the Mainland with the gambling hotspot. It also launched flights from Xian and Chongqing to Sydney, Changsha and Xian to Melbourne and Chongqing to Auckland. It plans to link Chengdu’s Shuangliu International and Chongqing’s Jiangbei International with routes to Los Angeles from March, followed by New York JFK in June. Following a visa relaxation for Mainland travellers, Hainan and its siblings - Beijing Capital Airlines (BCA) and Tianjin Airlines - are considering an assault on the UK market and have confirmed five new nonstop routes in 2017. They are to London from Changsha, Chengdu, Shenzhen, Qingdao and Tianjin/Xian. “A pricing penetration strategy will be adopted by Tianjin Airlines to win the UK market,” said general manager, Robert Chen. BCA has requested rights from its Beijing hub to Mexico City, Helsinki and Zagreb, in addition to Shenyang-Qingdao-Melbourne and Hangzhou-Qingdao-Vancouver, complementing existing A330 services to Copenhagen, Madrid and Male. Tianjin Airlines installed long-haul services into its network in 2016, with twice-weekly Tianjin-London-Gatwick, twice-weekly Tianjin-Moscow and three times a week Tianjin-Auckland flights, all operated by A330-200s via Chongqing. It plans to add Xian-London in May, Tianjin-Melbourne in September and Tianjin-Paris by year end. Growth at China Eastern and China Southern has been slower but still impressive with the opening of routes to Australasia, Europe and North America from their hubs and from their future ‘dormant’ second-tier city hubs. They have prioritized growth to North and Southeast Asia by deeply penetrating routes increasingly popular with China’s growing middle class including Bangkok, Phuket, Jeju, Osaka, Tokyo, Seoul, Kota Kinabalu, Danang and Cebu and broke new ground with with Luang Prabang, Cam Rah and Phu Quoc. China Eastern has added seven long-haul destinations to its route map since 2015: Auckland, Toronto, Amsterdam, Brisbane, Madrid, Prague and Chicago and increased services to New York, San Francisco, Los Angeles and Vancouver after it strengthened its partnership with Delta Air Lines last year. Earlier this year, it expanded its links to Australia with the signing of a significant “commercial agreement”, its tie up with Qantas Airways. The Shanghai airline, Asia’s second largest carrier, transported 115 million passengers in 2016 and started A330 routes from Kunming, Hangzhou, Nanjing and Wuhan to Sydney. It also has up to double daily flights from Shanghai to Sydney and Melbourne, services which have been up gauged to the B777-300ER, aircraft that offer passengers first and business class on both routes. The airline plans to develop Kunming into its “Southwestern” gateway in line with China’s ‘One Belt One Road’ policy. Eastern also has nonstop flights from Kunming to the U.S. in its sights, adding to Paris, Dubai, Moscow, Vancouver and Sydney. Kunming’s Changshui International Airport has welcomed HNA’s long haul LCC, Lucky Air, which has requested rights from the Civil Aviation Administration of China (CAAC) to introduce Kunming to Los Angeles and Moscow, initially using A330s from Hainan, but possibly tapping Hainan’s B787-9 order book next year. China Southern added six long-haul destinations to its network in the last 24 months including Christchurch, San Francisco, Toronto, Rome and Nairobi and boosted frequency and capacity to Los Angeles, New York and Vancouver. In April, it will launch three flights a week from Guangzhou to Mexico City, via Vancouver. It is only the second route by a Mainland carrier into South America; Air China flies Beijing-Madrid-Sao Paulo three times a week. Southern operates to Sydney, Melbourne, Adelaide and Brisbane from Guangzhou but also flies to Sydney from Shenzhen. More recently established carriers, Ruili Airlines and Donghai Airlines, have said they will launch flights to Australia, the U.S. and Europe when they receive their first B787-9s, from 2018. Shanghai’s Juneyao Airlines, Shenzhen Airlines, Longjiang Airlines (LJ Air) and Loong Air have had intercontinental routes on their radars from 2020 after taking delivery of long-haul aircraft. Sichuan Airlines, a private carrier headquartered in Chengdu, connects its home base and Chongqing with A330 flights to Sydney and Melbourne and flies from Shenyang and Zhengzhou to Vancouver. It also has Prague and Dubai in its network and will launch a Chengdu-Auckland route in June, making it a serious competitor on the Kangaroo Route, particularly with its incoming A350 fleet. Xiamen Airlines from Fujian, flies business and first class from Sydney to Fuzhou and Xiamen with B787s and between Xiamen and Melbourne, providing onward connectivity to its Amsterdam route. In 2017, following on from Xiamen to Seattle and Vancouver, the airline launched Fuzhou-JFK last month and plans Xiamen-JFK and Xiamen-Los Angeles from June. This incredible pace of expansion is an unprecedented challenge to Hong Kong as a regional transfer hub and for Cathay Pacific Airways and its regional subsidiary, Cathay Dragon. Mainland passengers no longer need to transit through Hong Kong and onto Cathay Pacific reach Europe, Australia, the U.S. or Taiwan. In 2017, the airline is heading for a full-year loss at the airline level, the result of expensive fuel hedging contracts, an expensive-to-operate over-capacity airport and cutthroat competition from HNA’s Hong Kong Airlines, its LCC offshoot, HK Express and improving Mainland carriers that have lower fares. Hong Kong Airlines and HK Express have one by one picked Cathay and Cathay Dragon’s routes and diminished yields. The airline’s shares have declined more than 30% since 2014. In August, Cathay said yields for the first six months of 2016 declined by a destructive 10.1%. In January, Cathay launched its largest business review in two decades, promising a strategy change starting “at the top”. The HNA threat is real. Hong Kong Airlines operated 23 A330s in February. It has nine additional -300s and 15 A350-900s on order, double its long-haul fleet. It inaugurated a daily flight to Auckland in November and will add a daily Vancouver rotation from June. It also flies to Cairns and the Gold Coast. By 2018, the carrier could be a serious contender on the Kangaroo Route as it weighs routes to Australasia and Europe. In late February, Hong Kong Airlines, HNA Aviation, HK Express and Virgin Australia submitted an application for authorisation of a proposed alliance on flights between Hong Kong, the Mainland and Australia. The airlines plan to code share on each other’s intercontinental and domestic networks and co-operate in route planning, sales, distribution and marketing and frequent flyer programs. In the meantime, Cathay continues adjustments to its network. It injected B777-300ER capacity to Australia and added routes to its network that are relatively devoid of competition, including Madrid, Barcelona, Tel Aviv, Manchester and Boston. A major issue for the full service carrier is improving its premium cabin business. The airline is believed to be introducing a “cart-less” dine-on-demand business class service, to be debuted on Hong Kong –Gatwick in May. Taiwan, following the collapse of TransAsia Airways and V Air, is looking at an uncertain 2017 despite the news that Beijing has agreed ex-Mainland China transfer traffic onto Taiwan’s airlines, although the rights are limited to flights from Nanchang, Kunming and Chongqing. Privately-owned EVA Airways and government-controlled China Airlines (CAL) have treaded carefully to avoid overlap, but have expanded rapidly in the past two years. Since 2014, EVA has added flights to Houston and Chicago, increasing its North American passenger network to eleven destinations and boosted existing routes with significant frequency increases, including up to triple daily flights to Los Angeles and double daily San Francisco rotations. The Evergreen carrier has reaffirmed its trans-Pacific commitment with an order for 24 B787-10s and two additional B777-300ERs. It has 30 -300ERs, more than Air China, China Eastern and China Southern and on a par with Singapore Airlines (SIA). CAL has launched routes to Christchurch and Melbourne and in 2017, its new chairman, Ho Nuan-hsuan, wants his airline to become the Taiwanese market leader in Europe by offering more non-stop services to the continent than EVA. CAL is banking on the latest addition to its fleet, the long-range A350-900, which will replace its A340-300s to Amsterdam, Rome and Vienna and convert its one stop flights, via Bangkok, to non-stop services. CAL will resume previously unprofitable flights to London’s Heathrow with the A350 this year.

New partnerships shape Australasian market The South Pacific is an unlikely to experience significant route expansion this year. Predominant players, Air New Zealand (Air NZ) and the Qantas Group, have to digest and adjust to the arrival of competitive forces in their territory before embarking on an expansionary push. The airlines’ previous monopolies on ex-Australia and New Zealand trans-Pacific routes are over. American Airlines and United Airlines made sure of that when they added destinations and capacity to Australia last year. In addition to new competition Greater China, Australasia’s most noteworthy route addition will be Qantas’ landmark nonstop service between Perth and London. The B787-9 route is planned for commencement in early 2018. There is a view the mature Down Under market could be defined by consolidation outside the traditional alliances. Qantas started the trend with its tie-ups with Emirates Airline and China Eastern Airlines. Australia’s ‘other carrier’, Virgin Australia, is hoping to seal an alliance with its new Chinese equity partner, the HNA Group. Virgin Australia is one of the world’s most diversified carriers, with SIA, Etihad, the Virgin Group, HNA and Nanshan Group, owner of Qingdao Airlines, all shareholders in the carrier. Hoping for a more favourable ruling from the new U.S. DoT administration, American and Qantas plan to re-file their joint venture application for antitrust immunity on flights between the U.S. and Australia. Their initial request was denied in November.

North Asia must counter China’s market grab Japanese and South Korean carriers continue to find themselves in an environment where they have to make strategic decisions at the behest of China. The golden years of effortlessly siphoning off Mainland long-haul transfers are over and airlines from Japan and South Korea had to diversify their market propositions. Flag carrier Japan Airlines (JAL) could be tempted into reconquering lost market share to rival All Nippon Airways (ANA). Following its Chapter 11-style bankruptcy in 2010, JAL was bailed out by the government and restructured but with handicapping conditions that expire this April. In the past six years ANA has emerged as Japan’s largest airline with a clear focus on expanding its long-haul and regional networks, with new routes to Munich, Seattle, San Jose, Dusseldorf, Wuhan, Phnom Penh, Vancouver, Houston, Brussels, Sydney and Mexico City. JAL only added Boston, San Jose, Helsinki and Dallas under bankruptcy protection. ANA has worked diligently at evolving from Japan’s largest domestic player to its premier international carrier, The airline has signed successful joint ventures with United Airlines and Lufthansa, which are larger, more consistent and stronger relationships than JAL’s partnerships with American Airlines and IAG/Finnair. ANA has acquired an 8.8% equity in Vietnam Airlines, outbidding JAL and securing early-mover advantages in the world’s tenth largest aviation passenger market by 2035. It has launched two low-cost carriers in Japan - joint venture Peach Aviation and wholly-owned Vanilla Air – before rival budget carriers curbed opportunities. At press time, the three shareholders in Peach announced a share transfer that took ANA Holdings’ equity in the LCC from 28.3% to 67%. Peach has 18 A320ceos, with another five and ten neos on direct order. Vanilla operates 11 A320ceos and last September was the first Japanese budget airline to launch fifth-freedom flights from Taipei to Ho Chi Minh City. It is 100% owned by  ANA Holdings.  JAL’s exposure to the budget market is limited to its 33% equity in Jetstar Japan, which despite a fleet of 20 A320s is a much smaller international operation that flies to Hong Kong, Manila and Taipei. It cancelled a Shanghai launch in January. The AirAsia Group has big plans for Japan when AirAsia Japan is re-launched at this stage in June. It would immediately add a portfolio of international destinations from its Nagoya base. More significantly, the group’s long-haul low-cost airline, AirAsia X, has confirmed a fifth freedom Kuala Lumpur-Osaka-Honolulu A330 route from June. The airline is expected to add routes to the U.S. via Japan in late 2017, to Las Vegas, Los Angeles and San Francisco. The onslaught of new Mainland and Taiwanese non-stop services has been particularly challenging for Asiana Airlines and Korean Air, which has relied on carrying China-North America transfer traffic for years. Both Asiana and Korean launched only one new destination in the past two years. Asiana now serves Rome and Korean has added Houston to its network. This challenging environment has reunited old foes. Korean and Delta Airlines last year resumed their codeshare partnership, following years of mutually punitive relations. The real route explosion in South Korea is at the LCCs. After a decade in existence they hold almost a quarter of South Korea’s air travel business and are gearing up for long-haul growth. Asiana has Air Busan and Air Seoul, which took over unprofitable regional routes and mended its bottom line this financial year. Korean has Jin Air, which operates B777 wide bodies to Hawaii. It is expected to inherit some of its parent’s low-yielding intercontinental routes that are popular with tourists. Secondary and tertiary airports in South Korea continue to experience double digit growth, giving LCCs more opportunities in terms of cost and diversification away from the congested national hubs. South Korea is home to six LCCs: Jeju Air, Jin Air, Air Busan, Air Seoul, T’Way Air, Eastar Jet. Cheongju’s K-Air and Busan-headquartered Nambu Air are expected to go to market this year.

Budget carriers maintain hold on passenger growth Southeast Asian aviation today hardly resembles its former self of a decade ago. Singapore Airlines (SIA) still stands out as the industry’s fabled rich kid on the block, but the full service carrier is feeling the heat from LCC competition. Malaysia Airlines Berhad (MAB) is expected to carry 14.4 million passengers in 2017, half the projected passenger count of its fiercest local rival, low-cost AirAsia. Thai Airways International (THAI) today transports fewer passengers than it did two years ago. Both carriers had been haemorrhaging money as a result of past undisciplined network planning, questionable contracts with suppliers and bloated workforces. MAB, and to a lesser extent THAI, are on the road to recovery. Demand is on the rise, boosted by a growing middle class, rising discretionary incomes and relatively robust economies, but with order books outgrowing the size of the current active fleet, supply will again easily exceed demand in 2017, shrinking yields and profitability. In Malaysia, all airlines are planning to expand in 2017, leading to a fare dog fight and placing downward pressure on already low yields. AirAsia is planning to accelerate expansion as it strategically responds to a revived MAB and an unwavering Malindo Air. The latter, a Lion Air subsidiary, intends to add seven aircraft to its fleet this year and enter the long-haul market with daily flights to Jeddah. “Right now, we can see quite clearly that in the long-haul market there’s gross overcapacity. A lot of very big planes are coming into the market place offering very many seats,” said MAB CEO and group managing director, Peter Bellew. “I think we’re at a very difficult point: overcapacity, extraordinary low fares, Brexit. It is going to be extremely difficult,” he said. For low-cost long haul AirAsia X, 2017 could be a breakthrough year the carrier. With 76 A330neos and A350s on order, it plans to launch flights to the U.S. West Coast and possibly a return to London and Paris in the next two years. Sister carrier, Thai AirAsia X, is launching a Bangkok-Frankfurt route this northern summer and promises the starting airfare would be below €200 (US$215). As more fuel-efficient aircraft go to market, ultra-long-range flights are trending again. SIA in October resumed nonstop Singapore-San Francisco A350 flights, a precursor for direct services in 2018 to Los Angeles and New York City with A350ULRs. THAI shares SIA’s ambitions and told Orient Aviation it was considering the A350ULR for nonstop routes from Bangkok to Vancouver and San Francisco. SIA and THAI both acknowledge the impact of China’s route explosion on aviation in the region and agree that LCCs are not going to disappear any time soon. “The recent emergence of airlines from the Middle East and those from other markets such as China is indeed providing more intense competition, as has the emergence of low-cost carriers in Southeast Asia,” said SIA divisional vice president public affairs, Nicholas Ionides. “We have not sat still in the face of the challenges and have proactively embarked on multiple strategic initiatives aimed at making the SIA Group more flexible and nimble, providing us with new engines of growth,” Ionides said and outlined SIA’s investments in SilkAir, Scoot and Tigerair and joint ventures, Vistara and NokScoot. THAI’s Chaiyong said: “THAI has three airline brands – THAI, Thai Smile and Nok Air – so we can cover all market segments from premium to LCC.” The THAI executive is aware of China’s route explosion. He said: “We try to take share from that flow [China to U.S.] as much as we can, but due to limitations with our fleet we can’t grow as much. Our strategy is to increase frequency in existing markets to daily or double daily rather than opening new destinations.” Owing to shrinking premium yields, SIA and THAI are expected to add long haul routes mostly through their budget vehicles, Scoot and NokScoot. Scoot will become the first serious budget contender on the Kangaroo Route when it inherits SIA’s low-yielding seasonal Athens shuttle in June. The LCC plans to gradually add more destinations across Europe, including Italy, Spain and the UK, complementing its mature schedules to Sydney, Melbourne, Perth and the Gold Coast. Scoot wants to siphon off some of the lucrative Australia-India market. It has introduced flights from its Singapore hub to Amritsar, Chennai and Jaipur, carefully avoiding cannibalization with SIA. But the LCC’s read-and-butter business will remain medium-range services to Japan and South Korea. NokScoot wants to tap the same markets from its Bangkok base, but its growth has been stunted by regulators. Both ICAO and the FAA in the U.S. have downgraded safety ratings for Thai-based carriers from Category 1 to Category 2, for failing to comply with international standards. This ruling cancelled NokScoot’s plans for new schedules and routes to Japan and South Korea, which it considered its primary markets at launch in 2014. It lists flights to Tokyo and Osaka on its website, but they are operated by Singapore-registered Scoot. NokScoot had to refocus on the Mainland market. It serves Tianjin, Shenyang, Dalian and Qingdao with its three B777-200ERs. A route bonanza to Japan is expected when the sanctions are lifted, possibly following a June ICAO re-audit. Indonesia is a huge market, but it consistently fails to deliver on its potential. Slower than expected economic expansion and damaging regulatory constraints have slowed growth. A route explosion will not originate from Indonesia this year because the market is not mature enough. Nevertheless, Garuda Indonesia plans to return to the U.S. in November, most likely five times a week from Jakarta to Los Angeles via Tokyo. Back in the red in 2016, Garuda is likely to delay plans to return to Frankfurt or Paris this year. As Thailand, Malaysia and Indonesia battle overcapacity, growth in ASEAN’s other markets continues to come in double digits, which has created strong intra-ASEAN traffic that mostly has benefitted LCCs. Vietnam has the greatest potential for passenger growth, but saturation is imminent and will hopefully lead to more modest growth at the airlines. Vietnam Airlines is still the country’s largest carrier, with more than 20 million passengers in 2016. VietJet Air has grown from one million passengers in 2012 to 15 million last year and its appetite for international growth appears unlimited. Vietnam Airlines is likely to launch Vietnam’s first nonstop services to the U.S. late this year or early in 2017.