Analysis Reports

Although international travel recovery remains a distant prospect, some Asia-Pacific countries are looking ahead and developing scenarios for reopening borders. Such roadmaps will help give the airline industry clarity on how the international market might re-emerge when the COVID-19 pandemic finally subsides.

Australia, Singapore and Thailand have all revealed their approach to removing restrictions once vaccination rates reach certain levels – and in the case of Thailand, first steps have already been taken. All three countries have been hit by new COVID-19 outbreaks that have set back their recovery efforts, but they also recognise the importance of laying the groundwork to move to a new normal.

Key details are yet to be set for the Australia and Singapore plans, such as timelines and vaccination rates required.

However, these two and Thailand are some of the key Asia-Pacific aviation markets, and their planning moves may prompt others in the region to follow their example.

The Cape Verde islands, in the Atlantic Ocean off the West Coast of Africa, need a competent air service to keep them connected, as there is no obvious high-speed transport alternative.

The main airline that provides that service has also been tasked with international flights for far-flung expatriates, building international business and tourism, and offering a mid Atlantic hub where it was possible, almost as a sideshow.

Latterly the airline that specialises in exactly that in the North Atlantic, Icelandair, was recruited to oversee the future development of the Cape Verdean airline, but that arrangement seems to have floundered, with the government seeking to regain its shareholding, at least temporarily.

At least the Transport and Tourism Minister has been quick to step in. On the back of a recent consultant's report he has committed to improving the domestic air hub at the island of Sal, utilising PSO route support where necessary, and to use that as a springboard to beefing up an international hub.

There is some potential for that to happen at Sal, which is well situated for several international travel flows, but it has been the intention of numerous previous administrations (including the construction of a new airport for that purpose) and endless studies over the years. The time for action is now.

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Europe's airlines are losing the battle against new aviation taxes and increased costs associated with mitigating their climate change impact. On 14-Jul-2021 the European Commission (EC) announced proposals to reduce net greenhouse gas emissions by at least 55% by 2030 relative to 1990.

Perhaps the most significant proposal for aviation is the ending of jet fuel's exemption from taxation for intra-EU flights. Aviation's free allowances within the EU's emissions trading scheme (ETS) will also be phased out. In addition, a growing proportion of sustainable aviation fuel (SAF) taken on at EU airports will be mandated.

Earlier this year the UK adopted a recommendation by the independent Climate Change Committee (CCC) to include international aviation in its CO2 emissions targets. The CCC's recommendations also include aviation tax reform to constrain growth, no net increase in airport capacity, and encouraging continued online communications in place of business travel.

The UK government is in the process of developing its Aviation Decarbonisation Strategy and the CCC is likely to be influential.

Within the past few weeks there have been takeover attempts launched for Sydney Airport, a publicly stock-market listed company, on the basis of greater economic certainty for investors, and for part of Budapest Airport, the latter emanating from the Hungarian government and for outright political reasons.

After a lengthy period with very little M&A activity in the sector these two potential transactions took it by surprise, and they suggest that there may be more to come.

Listed companies are the easiest target because there may be private investors to be swayed along with institutional ones that are ‘in airports’ because they once felt they should be, but which are open to an offer they can’t refuse in these uncertain times. But there are comparatively few of those.

This report examines examples of other airports and groups that might be takeover targets or open to minority investment from new sources, and at how the coronavirus pandemic might have changed the outlook for the privatisation of airports – including in some countries where there is little of it so far.

Travelport, the travel retail specialist, and Amazon Web Services (AWS) have now entered into a strategic, long term collaboration to use advanced cloud technology to accelerate the digital transformation of retailing in the travel industry.

The collaboration, which unites globally renowned expertise in travel technology, cloud technology, and hyper-personalised retailing, will focus on optimising Travelport’s recently launched next-generation platform: Travelport+.

It will also drive innovation in travel merchandising with the launch of a new accelerator program that will incorporate talent from the tech start-up community.

“The travel industry has struggled to keep up with the pace of change in digital retail”, acknowledged Greg Webb, chief executive officer at Travelport. “This landmark collaboration is specifically designed to address just that.

According to Mr Webb, AWS’s retail heritage “makes them uniquely qualified” to optimise digital retail platforms, simplify complex environments, and “enable game-changing innovation” in the travel retailing space. “With AWS as our preferred cloud partner, we are going to create a simpler, smarter, and better future for travel retailing”, Mr Webb says.

As part of the long term collaboration, Travelport will migrate its global platform that connects travel agencies and travel suppliers to AWS. It will also use AWS technologies, including High Performance Compute (HPC), storage, security, analytics, machine-learning and databases to deliver a faster, easier, and more personalised travel booking experience.

In addition, Travelport will use AWS Managed Services to provide trusted operational expertise to help optimise platform efficiency and security.

European aviation's capacity recovery is continuing.

A month ago Europe ranked as the worst performing region by capacity as a percentage of the equivalent week of 2019. Now it has risen to fourth out of six. The improvement has been led by international markets, responsible for 11.2 million additional weekly seats out of a total of 14.7 million added over the past three months.

Europe's total seat numbers are 37.0% below 2019 levels in the week commencing 19-Jul-2021, after -40.7% in the week commencing 12-Jul-2021.

The Middle East, where seat capacity is down by 46.0% versus 2019, has now had four weeks as the worst performing region on this measure. Asia Pacific is down by 35.8%, Africa by 40.0%, Latin America by 29.7%, and North America by 23.5% this week.

However, Europe's recovery to reach 63% of 2019 seat numbers has so far been led by short/medium haul. Its domestic markets are at 93% of 2019 levels, while international capacity within the continent is at 61%. The main long haul markets to North America and Asia Pacific are only at 34% and 26% respectively.

The Brazilian airport concession process is in its 11th year and rumbles on remorselessly through economic crises and pandemics alike. Now its tentacles have spread away from the main state-run airports to embrace the locally controlled ones.

Even so, two important big city airports in Rio de Janeiro and São Paulo have never figured in the auctions because they were held back for strategic reasons. Until now, that is. Both domestic airports and are for the most part feeding each other; they are historically profitable.

They will inevitably attract the big hitters from the global airport financing and operation community as the big city international airports did in earlier rounds.

But as the very first concession, from 2011, is readied to go back under the hammer, warning bells are sounding and lights flashing.

One of the most intriguing trends in the Asia-Pacific region in the post-pandemic phase will be how much of an advantage the LCCs will have versus their full service brethren. It has become widely accepted that the LCCs will recover faster from the COVID-19 crisis.

But why is that, and where does that leave the FSCs? Airline executives from both business models gave some interesting insights into these questions during the latest CAPA Live event.

In many markets in this region the FSCs were already under severe pressure from the LCCs before the coronavirus pandemic, and the legacy airlines will likely find it even tougher in the next few years. Any post-COVID advantage could further entrench the LCCs in certain countries where they were already dominant.

Another intriguing question is whether long haul/widebody LCCs will find better conditions to thrive. They have suffered more than their short haul LCC cousins during the latest crisis, and will likely continue to do so in the short term at least.

But the promise of new aircraft types could give this business model a boost.

The Hungarian government, in the form of the current ruling party, Fidesz, has a chequered history where its gateway airport in the capital, Budapest, is concerned.

Having once owned the airport, it had cancelled a contract with a foreign company to build a terminal (at some cost) and then subsequently threatened to renationalise it and/or list it on the stock exchange on several occasions after it was privatised when Fidesz was out of power. Latterly a consortium with connections to the government had sounded the owners out, late in 2020.

Now the government has made an unsolicited bid to buy the majority share that is held by the German company, AviAlliance.

It looks for all the world as if this is a political manoeuvre by the Prime Minister, Viktor Orbán, who faces a make or break general election in 2022 or sooner, and who is embroiled in yet another conflict with the EU to settle the issue before Hungary potentially quits the EU – or is even ejected.

It could lead to a bidding war as the sector starts to clamber out of the COVID pit it has been in for 18 months.