A “very good year” predicted for Asia-Pacific airlines

Asia-Pacific airlines still lag the world in recovery from COVID and airline leaders made it clear at the IATA AGM there are major regional challenges to overcome.

June 1st 2023

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If anyone thought obstacles such as supply chain issues, manpower and the network rebuilding post the COVID crisis are almost over, they need to think again. Read More » As passenger numbers rise and more capacity becomes necessary, many carriers are facing difficulties in keeping sufficient aircraft available to meet passenger demand.

The biggest issues of all persist: supply chain delays and shortages of spare parts. Korean Air CEO, Walter Cho, said while waiting for delivery of many of the aircraft it has ordered it is having to return some of its own planes it did not plan to keep flying.

“Another issue is engine shortages,” Cho said. “Several of our aircraft are sitting in our hangars with no engines on them. This is a serious matter right now. We are talking with the manufacturers, but we don’t see a quick resolution as yet.

“But we believe we can cope with it for the next couple of years until the supply chain issue comes down a little more.”

Air New Zealand CEO, Greg Foran, a member of the AGM’s CEO Insight panel, said spare parts were his particular challenge. “As recently as a few months ago, we ended up taking delivery of some brand new A321s for our domestic business and literally within a few minutes of them landing we were taking parts off those planes to keep some other ones operational,” he said.

“We keep a close watch on exactly how many parts we are robbing off a plane to put on another one and they are running about double what they were traditionally. It is across the entire supply chain.”

Sufficient spare parts are a huge issue at Air India, said CEO Campbell Wilson, also a member of the Insight Panel. “We are noticing it most acutely because we had 13 787s grounded for many years as Air India could not pay for spare parts. It was robbing aircraft to keep others flying. We needed to procure 30,000 spare parts to get these aircraft up and running. And that is not including anything to do with cabin interiors,” he said.

“If I had 30,000 out of stock I probably wouldn’t be in business,” quipped Foran. “I was running at 104 and was worried about that. So 30,000 makes me feel pretty good. Thank you Campbell.”

Cathay Pacific chairman, Patrick Healy, in a separate briefing, said his airline’s biggest bottleneck was recertification of staff. “As you know, the restrictions Cathay Pacific faced during COVID were particularly onerous. We had aircrew quarantines in place until September last year. So recertification is one of the key bottlenecks. But like airports and airlines all over the world there are many bottlenecks in bringing capacity back after such a long break.”

Despite these challenges, the 2023 outlook for the region’s airlines is good. IATA forecasts losses at the region’s airlines will likely halve to US$6.9 billion, from $13.5 billion in 2022. It should be noted, however, that some exceptional carriers, particularly Singapore Airlines, and more recently Qantas Group, are reporting all-time record profits.

In a briefing on the region, IATA Asia-Pacific regional director, Philip Goh, said: “For April we are looking at 82% of 2019 total capacity. This is driven by a very strong domestic recovery. It is now 102% [plus] of 2019 numbers in the Asia-Pacific. International is a bit lower. It is 66% of 2019, but in January it was 56% so there is a strong recovery in that sector. In a nutshell, it’s very, very good.”

IATA’s regional director for North Asia, Dr Xie Xingquan, was just as optimistic as Goh. “China’s domestic capacity is above 2019 levels. In April and May it was 10% higher than 2019 levels. For international traffic, North Asia is lagging behind the rest of the world. As of today, its passenger traffic is 40% of 2019 numbers, but the pace is resuming faster and faster,” he said.

Everyone agreed there needs to be an increase in flight connectivity. “Crucially, it needs to come back,” said Goh. “There are so many factors involved with airlines putting back capacity. It is not all they are doing or not doing. There is the infrastructure, the airports and the ground handling agents to service them.

“There are a multitude of factors to overcome, whether it’s manpower, aircraft or supply chain. All these hurdles. If we can improve that connectivity and maintain and absorb pent-up demand then I think it will be a good recovery story.”

Goh said constraints on growth included manpower shortages. “Some people chose not to come back to the industry, which is very sad, but the industry is going all out to attract people to aviation. Hopefully we will overcome this and make sure people are going through the right training to get the job done. Everyone is working to overcome the manpower hurdles. It will just take some time to get it all sorted out,” he said.

COVID hangover in the region also is an issue. “In terms of COVID-related restrictions, there are some countries in the Asia-Pacific that still have them. About 10 countries I think,” Goh said. “Some, like India, Indonesia and the Philippines, we continue to advocate that their governments sunset those restrictions because they are no longer required. Hopefully, everybody will remove the remaining restrictions soon.”

While the situation varies across the region, most carriers are working hard to resolve complex problems. Cathay Pacific’s Healy pointed out that while three years of COVID created an enormous challenge for the entire industry, it was probably more so for Cathay Pacific because of Hong Kong’s level of pandemic restrictions.

“Since Hong Kong and the Chinese Mainland opened up in January, demand has been astronomical. We have been building back capacity as quickly as we can. We exceeded 50% of pre-pandemic capacity by March 31 and now serve more than 70 destinations. We are confident we will hit our target of 70% of pre-COVID capacity by year-end and we are on target to be fully recovered to 100% at the close of 2024.

“We have put those plans in place. Together with the opening up in January, things are going pretty much according to the plans that we made at that time. Recovery is going very well.”

Healy also pointed to opportunities, particularly at Hong Kong’s international airport. “It used the downtime of COVID very smartly and accelerated improvement plans. The airport installed a lot of new technology during the downtime. It now has facial recognition at all check-in gates, which is tremendous. Really world class technology,” he said.

“And of course, the third runway, which everyone is looking forward to immensely, is on track for completion at the end of 2024 or early 2025. There will be the complete three-runway system fully in operation in Hong Kong. Capacity will progressively increase in the wake of that and give us enormous growth opportunities.”

KAL’s Cho echoed the experience of his industry peers, describing demand as very strong, especially on long-haul routes to Europe and the U.S. “We are utilizing every resource we can to manage it, but once China [fully] opens up there will be even more of a surge in demand to travel to China. We will be able to manage that as well.

“Due to the supply chain issues our aircraft are not fully in operation, but we believe we can manage by utilizing existing aircraft a little more to match supply with demand this summer. This year we see a very strong result and we expect a very good year on the passenger side. We have full connectivity now, but our routes to China are not open fully. However, we see it coming soon and once they open up, it will be in full function again.”

IATA’s Xie said despite narrowing their losses, Mainland carriers are facing some pressure on operations. The desire to travel and the demand for air tickets have risen in the Mainland market, but so has air capacity, affecting the load factor and ticket prices, he said.

“Air ticket prices quickly fell after the May Day holiday, but costs have not dropped significantly,” Xie said.

Visa restrictions, capacity caps and Russian airspace over flights are other issues stemming the restoration of capacity in and out of China. IATA hopes governments still with restrictions can reciprocate the relaxation of policies elsewhere and resume air transport connectivity. China’s international flights have yet to reach 50% of 2019 levels, but Xie said optimistic projections have China’s overseas air traffic recovering to pre-pandemic numbers in the first quarter of 2024.