Asia Pacific airlines: state of the industry; part two - the key dynamics to watch in the region
This two-part report on the Asia Pacific airline industry is based on a presentation by Adrian Schofield, CAPA - Centre for Aviation and Aviation Week Network senior air transport editor for Asia-Pacific, at the CAPA Airline Leader Summit | Asia in Hong Kong on 5-Nov-2024.
Part one of this report discussed overall recovery trends in the Asia Pacific market from multiple angles, as well as looking at the important Thailand market as an example of how these trends are playing out.
This second part looks at further market examples with mainland China, Japan, Hong Kong and India, as well as examining aspects such as aircraft order backlogs, LCC market penetration, and challenges for 2025.
- China international capacity is at 78% of 2019 levels, although the 'Big Three' (China Eastern, Air China, and China Southern) are closer to 100%.
- Chinese airlines are well above pre-pandemic levels on China-Europe routes, whereas European airlines are much lower.
- Hong Kong market has recovered to 83%, and Cathay Pacific Group’s capacity share is unchanged, at 55%.
- Japan’s inbound visitors are 26% higher than before the COVID-19 pandemic, but outbound flows are still lagging.
- There are 7,200 aircraft on order by Asia Pacific airlines – about twice the number on order by North American or European airlines.
- LCCs have a 31% share of capacity in the Asia Pacific market, although this varies widely by sub-region.
China's international recovery has been gradual
The recovery rate of the international market in mainland China has significant implications for the broader Asia Pacific airline industry.
When China started removing pandemic-era international travel restrictions in early 2023, the expectation was for a relatively quick rebound in demand.
But the international recovery in this market was slow to gain momentum, and now economic factors are affecting demand.
The next chart shows that overall international capacity in the mainland China market was at 78% of 2019 levels for the week of 21-Oct-2024.
However, the "Big Three" mainland airlines have higher recovery rates than the average - China Eastern Airlines at 96%, Air China at 95%, and China Southern Airlines at 86%.
This indicates that the recovery rate of overseas-based airlines in this market is well below the 78% average.
Mainland China: international capacity, by year (measured in weekly seats), 2019 to 2024
Of course, there are some complicating factors in the US-China and Europe-China markets.
Most European airlines have to make a big detour around Russian airspace to reach Chinese cities, and US-China traffic is limited by strict caps on flight numbers.
Uneven recovery in the China-Europe market, and others
The next chart looks at the competitive dynamics in the China-Europe market. Overall capacity between mainland China and Europe has reached 95% of 2019 levels.
However, the recovery has differed dramatically between Chinese and non-Chinese airlines.
This chart shows that four of the mainland airlines are operating significantly more capacity to Europe than before the COVID-19 pandemic, whereas the main four European airlines are still down by more than 40% on their China routes.
Some of the European airlines are now cutting back their mainland China flights even more, mainly due to the Russian overflights issue.
China-Europe market: selected airline recovery rates, by airline
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Hong Kong international capacity is still recovering, although Cathay Pacific Group share has not suffered
Since the CAPA Airline Leader Summit | Asia was in Hong Kong this year, it is appropriate to take a closer look at that market.
Overall capacity is at 83% of 2019 levels, although this percentage is inflated a bit due to favourable comparisons with depressed capacity in the last quarter of 2019.
There are a total of 80 passenger airlines serving Hong Kong, making it a very vibrant market. LCCs have approximately a 20% share of the total.
The next two charts show market share for the top 10 airlines in the Hong Kong market.
There is something interesting to note about the Cathay Pacific Group airlines.
In the top chart, for 2019, Cathay Pacific, Cathay Dragon and HK Express had a combined 55.1% market share.
Fast-forward to the bottom chart - for the same week in 2024 - and there is no Cathay Dragon, which was shut down in 2020.
However, Cathay Pacific and HK Express have picked up a lot of its market share. Combined, these two have 55.1% - exactly the same share as in 2019.
So while capacity is generally lower in the Hong Kong market, the Cathay Pacific Group's share has remained stable.
Top 10 airlines in Hong Kong market, week of Oct. 21, 2019
Top 10 airlines in Hong Kong market, week of Oct. 21, 2024
Japan's international demand is still unbalanced
Another interesting market that has been watched closely in the post-pandemic era is Japan.
Japan's overall international seats have gradually closed the gap through 2024, and are now essentially at 2019 levels.
Japan's international capacity, by year (weekly seats), 2019 to 2024
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However, behind this capacity figure is a significant imbalance between inbound and outbound demand.
Inbound tourism has been very strong, and Sep-2024 visitor numbers were up by 26% versus 2019 levels.
This also means that outbound leisure travel from Japan is still well below 2019 levels.
The weak yen is a major reason, encouraging inbound tourists, but making international leisure travel very expensive for Japanese.
India's growth potential is highlighted by massive order backlog
While many Asia Pacific markets are still below 2019 international capacity levels, there are some notable exceptions.
India is one such country, with international capacity running 26% ahead of 2019 levels. Domestic is up by 12%.
This market is booming for both overseas and local airlines, and it has also become one of the world's hottest markets for aircraft manufacturers.
As the next chart shows, there are nearly 1,900 aircraft on order by Indian airlines, far exceeding the fleet in service.
The order total was boosted by massive orders placed by Air India and IndiGo in 2023.
Indian airlines' fleet status and orders
Asia Pacific order backlog dwarfs other regions
Aircraft orders also reveal a lot about how the centre of gravity in the aviation industry is increasingly shifting towards the Asia Pacific region.
There are 7,200 aircraft on order by Asia Pacific airlines - about twice the number that are on order by North American or European airlines.
Asia-Pacific: aircraft orders, by aircraft type
LCCs have a healthy share of Asia Pacific market
So let's take a look at LCC market penetration in Asia Pacific.
This chart shows that LCCs account for 31% of overall weekly seats in this region, with full-service carriers accounting for approximately two thirds, and regional airlines accounting for 3%.
This is only slightly lower than the 33% LCC share in North America, although European LCCs have a 46% share in their market.
Asia Pacific: current airline seats, by business model, FSC, LCC and Regional
Because Asia Pacific is a very large region geographically, it helps to drill down into the sub-regions.
Within Asia Pacific, South Asia has the highest LCC share, at 64%, which you would expect, given the strong growth of IndiGo and others in India.
Southeast Asia also has an LCC share of more than half, thanks to airlines like AirAsia, Lion Air, Vietjet and Cebu Pacific.
There are some sub-regions with a lower LCC penetration than the Asia Pacific average.
Southwest Pacific, which is mainly Australasia, has an 18% LCC share.
Northeast Asia has 17%, partly because LCCs have relatively low share in the mainland China market.
Key dynamics to watch in Asia Pacific region
In conclusion, here are some of the issues facing airlines in the Asia Pacific region as we look ahead to early 2025.
Firstly, comparisons with pre-pandemic levels are becoming increasingly less relevant. After all, 2019 was five years ago, so at some point current conditions become the new normal.
Indeed, many airlines have recognised this, and are not listing 2019 comparisons anymore. So we're less likely to hear about 2019 in 2025.
One major question facing the industry will be whether supply chain bottlenecks ease significantly in 2025.
Related to this is whether aircraft and engine maintenance backlogs will start to reduce, and how delivery delays will affect fleet strategies.
Also outside the control of airlines are economic factors such as inflation, fuel costs, exchange rate movements, and cost-of-living increases.
And there are geopolitical dynamics, such as the need to avoid Russian airspace, and international tensions in many parts of the world.
Airline consolidation will be an important trend to watch - particularly the big mergers between Korean Air and Asiana, and between Air India and Vistara.