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Asia-Pacific international capacity still lags other regions – but is catching up

Analysis

International airline capacity in the Asia-Pacific market is continuing its upward momentum as it gradually closes the gap with the other major global regions that recovered sooner.

Asia-Pacific international seat capacity is still well below pre-pandemic levels, but is nevertheless rising during its rebound year. While the increase is significant, it would no doubt have been steeper without some of the growth constraints confronting the airline industry.

Demand has roared back, and many airlines have struggled to keep pace in terms of seat supply as they seek to return the remainder of their parked aircraft to service and obtain additional aircraft. Supply chain bottlenecks have not helped the situation either.

But overall the trend is encouraging, and the data points from CAPA and OAG in this analysis provide a snapshot of the recovery dynamics in the Asia-Pacific region.

Summary
  • Asia-Pacific international capacity has recovered to nearly 75% of pre-pandemic levels.
  • Northeast Asia subregion has the lowest recovery rate but is climbing rapidly.
  • Mainland China's international recovery is heating up, particularly in markets such as China-Thailand.
  • Asia-Pacific international flows are still lower in rankings compared to pre-pandemic levels.
  • Airline financial health has recovered faster than capacity, with some airlines surpassing pre-pandemic levels.
  • Rising fuel costs, inflation, and weaker currency pose financial pressures for airlines in Japan.

Summary:

  • Asia-Pacific international capacity has recovered to nearly 75% of pre-pandemic levels.
  • Despite a rapid increase this year, the region still trails the global average by more than 20 points.
  • Subregions have widely varying rates of recovery, with Northeast Asia still well below the others.
  • Most of the formerly strong Asia-Pacific international markets remain outside top-10 rankings.
  • International demand has been very strong, leading to improved financial performance for airlines.

While it still trails other regions, Asia-Pacific international capacity is improving faster

Asia-Pacific international seat capacity for the week of 29-May-2023 has recovered to 74.8% versus the same point in 2019, data from CAPA and OAG shows.

This is a big improvement from a recovery rate of 57% at the start of 2023, but still substantially below the other global regions: Europe's international capacity is now at 96.2% compared to 2019 levels and North America's is at 101.2%, the first week it has exceeded like-for-like pre-COVID levels.

International capacity: recovery rates by region versus 2019 levels, as measured in weekly seats, Jan -2020 to May-2023

The chart below isolates the Asia-Pacific region and the global average to provide a clearer comparison.

The Asia-Pacific international recovery rate is about 25 percentage points below the global average of 98.9% for the week of 29-May-2023. This gap in May-2023 is narrower than at any point since late May-2021.

Asia-Pacific and global: average recovery rates versus 2019 levels, as measured in international weekly seats, Jan -2020 to May-2023

Northeast Asia subregion still has the lowest recovery rate, but the rate is climbing rapidly

There continue to be major differences between the recovery rates of the main subregions within the Asia-Pacific market.

Southeast Asia's international capacity is at 74.6% of pre-pandemic levels, which is similar to the Asia-Pacific average.

The Southwest Pacific subregion is much higher, at 85.6% of 2019 levels, and in South Asia international capacity is actually 6.4% above its pre-pandemic total.

The laggard continues to be the Northeast Asia subregion. In the week of 22-May-2023 its international seat capacity was still at just 59% of 2019 levels - although this was up by 20 percentage points from the recovery rate at the start of 2023.

Northeast Asia includes some major markets that were slower to remove restrictions - most notably, Mainland China and Japan.

Mainland China's international recovery is heating up, particularly in markets such as China-Thailand

The Mainland China market has now recovered to 42.1% of pre-pandemic international capacity and is rising quickly as airlines race to resume more flights on routes to China.

One recent example is Thai AirAsia, which plans to operate 140 flights per week from Thailand to China by the end of this year, versus 114 per week now. This increase would restore its mainland China frequencies to pre-COVID-19 levels.

The China market was very important to Thailand before the COVID-19 pandemic, and travel between these markets has been recovering rapidly since China removed many travel restrictions. Seat capacity between Thailand and Mainland China is now 17 times higher than at the start of 2023, although it is still at 41.3% of 2019 levels.

Mainland China-Thailand capacity, as measured in one-way weekly seats, May-2019 to May-2023

Asia-Pacific international flows are generally still much further down the rankings than before the COVID-19 pandemic

A good indicator of the relative strength of the Asia-Pacific market is the ranking list for the world's top international traffic flows.

For the week of 20-May-2019, four of the top 10 international flows involved Asia-Pacific markets: Japan-South Korea at sixth, Mainland China-Thailand at seventh, China-Japan at eighth, and China-South Korea at tenth.

Top 10 ranking for country-to-country international capacity, as measured in seats for the week of 20-May-2019

Four years later, the list has less Asia-Pacific representation.

For the week of 22-May-2023, two of the top 10 international markets involved Asia-Pacific countries: UAE-India at number seven, and Japan-South Korea at number nine. The highest ranked traffic flow involving Mainland China was 31st on the list.

Top 10 ranking for country-to-country international capacity, as measured in seats for the week of 22-May-2023

Airline financial health has recovered much faster than capacity - in some cases beyond pre-COVID pandemic levels

Factors such as soaring demand, recent restructurings and constrained capacity have allowed many Asia-Pacific airlines to improve their yields and financial results dramatically.

For example, Singapore Airlines reported a record quarterly profit for the three months through 31-Dec-2022 - its fiscal third quarter. The airline also posted a record profit for the first nine months of its current fiscal year.

Qantas is another airline with a strong financial rebound, as it has projected an underlying profit of up to AUD$2.5 billion (USD1.6 billion) for its financial year ending 30-Jun-2023.

Of course, these impressive results come after a period of extreme financial pressure for the airline industry. Profits will help airlines recover from the damage the COVID-19 pandemic wrought on their balance sheets.

And as always with the airline industry, it pays to make hay while the sun shines. As more capacity returns, fare prices will moderate slightly. The threat of broader economic recession also looms.

While Japan Airlines and All Nippon Airways recorded robust returns to profitability for the fiscal year ending 31-Mar-2023, they warned of increasing financial pressures. The two airlines have highlighted rising fuel costs, inflation and the weaker Japanese yen versus the US dollar as important factors.

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