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Asian airline recovery: slow vaccines rollout, new waves and....

Analysis

Asian airlines are suffering deeply as international doors remain closed. What's more, borders are unlikely to open at any scale until well into 2022.

The slow and uneven pace of vaccine rollout in the region will play a very significant part in delays – probably magnified by the apparent disparities in recognition of vaccines, for example in the EU's Green Pass conditions, and in China's insistence on use of Sinovac.

Also, hopes of even a series of bilateral bubbles appears a fragile hope, illustrated by the regular postponement of the Singapore-Hong Kong arrangement and the constant readjustment of the Australia-New Zealand bubble. The resurgence of the coronavirus in many markets across the region only serves to diminish those aspirations.

But there is one other major factor that is much less visible and considerably harder to measure.

It is the underlying health-based strategic approach and almost region-wide governmental levels of risk tolerance that will lock in a slow recovery. This is in stark contrast to the approach followed for example by the US, and promises a patchwork of renewal in what is the world's fastest growing economic region.

In practical terms it also means that international airlines in the region will go to the wall unless government support is forthcoming. But merely propping up airlines that have been unprofitable for years is not a strategy; it is time to look at what the market needs in future, and to devise ways of ensuring national markets emerge with aviation systems that truly benefit their best national interests.

Summary

  • Asia's borders are unlikely to open to aviation and travel, at any scale, until well into 2022.
  • Slow vaccination rollout will be a major stumbling block.
  • Several markets are suffering from a new wave of COVID-19.
  • The region's governments have a much lower health risk tolerance than the US, for example.
  • The region's international airlines will not survive without substantial government support – but it should be strategic, not same-old-same-old.

The Great COVID-19 Divide. Asian governments' lower health risk tolerance

There is a stark statistic that speaks much more loudly than mere words.

The US alone has suffered more than three times as many deaths from COVID-19 as the entire East Asia Pacific region, with its 2019 population of 2.34 billion.

To 1-Jul-2021, there have been 274,000 deaths in the region.

This compares with the US' Jun-2021 population of 333 million, being a little more than one eighth the size, where 926,000 have died.

COVID-19: deaths in East Asia and Pacific to 1-Jul-2021 and projections to 1-Oct-2021

COVID-19: deaths in the USA to 1-Jul-2021 and projections to 1-Oct-2021

How are those numbers relevant to an airline report?

They are not intended to be judgmental on the respective performances – and it is obvious that there is a long way to go before the end of the COVID-19 tunnel is in sight. The region is staring down the barrel of a serious period ahead.

Yet, as the US domestic airline market climbs back to near its 2019 levels and US airlines aggressively seek international expansion, it does clearly illustrate the massive divide in risk tolerance between the two "regions".

There is no obvious reason why this would change. That will strongly colour the future, not just of the recovery, but also for the region's airlines.

Asian borders will be much more carefully guarded – until at least 2022

Asia has had, and will continue to have, a much more cautious approach to dealing with the pandemic, something that will go a long way to determining the path towards reopening international markets.

In most cases governments have focussed on suppressing the spread, where the US adopted a much more "liberal" approach. No Asian administration – or airline – has urged major changes to this strategy.

Consequently, when combined with the likely resurgence in cases in the Asian region (projected in the IHME chart above – which anticipates deaths from the virus doubling in the next three months), there is little sign that Asia Pacific states will be rushing to reopen borders in 2021. It will be well into 2022 before substantial changes occur.

Thus it was that the Association of Asia Pacific Airlines (AAPA) reported international passenger traffic volumes in May-2021 "remained at depressed levels," and attributed the reductions to "strict border restrictions amidst concerns about the spread of COVID-19 variants".

AAPA continued, "...only 1.3 million international passengers flew on the region’s carriers in May, representing just 4.3% of the volumes carried in the corresponding month of 2019. The international passenger load factor averaged 28.4% for the month, with available seat capacity at 12.3% of levels recorded in 2019...although strong business and consumer demand globally drove demand for air cargo."

International schedule filings for the week beginning 28-Jun-2021 below show negligible increase in capacity since the depths of the 2020 levels. Even the "predictive" levels for later in 2021, which tend to be highly optimistic, suggest a very sluggish recovery. Meanwhile, however, where domestic markets are operating in relatively COVID-free environments, recoveries have been significant.

Asia Pacific: international seats, week commencing 28-Jun-2021 vs previous years, 2018-2021* (projected)

The region is much more diverse than North America and Europe

As Asian and Pacific countries gradually emerge from the worst effects of the coronavirus, it is evident that recovery will be far from even – and that the status quo ante will not be reached, probably for many years; if at all.

The World Bank anticipates a three speed recovery in this diverse region, driven by the varying economy profiles, expecting a shift from divergence to a "three-speed recovery":

  • "In 2021, China and Vietnam’s growth is expected to be 8.1 and 6.6 percent, respectively.  Because they were less scarred by the crisis, they will converge early to pre-COVID projections;
  • The rest of the region will grow about 4.4 percent on average, about 0.4 percentage points slower than pre-crisis growth.  The deeper crisis scars will slow down convergence to pre-COVID projections;
  • Among smaller countries, the recovery is expected to be particularly protracted in tourism-dependent Island economies, with growth expected to be negative in about half of the countries, even though they have been largely spared by the pandemic."

The economies affected by the inevitable downturn in tourism also affect more than just the island nations; major markets like Thailand rely very substantially on international tourism, accounting for well into double digit percentages of GDP.

And inadequate vaccination rollouts will greatly inhibit reopening

AAPA Director General Subhas Menon offered little cause for optimism about any sudden revival either, emphasising how the lopsided rollout of vaccines has delayed the recovery in international air travel:

"In some advanced economies, travel markets are slowly recovering as populations get vaccinated and business activities resume. However, the same cannot be said for the majority of the emerging market economies in Asia, where vaccination roll-outs remain slow due to supply constraints, logistical issues and limited manpower. As a result, the travel and tourism sectors in the region have continued to suffer as strict border controls remain in place. International passenger traffic carried by Asia Pacific airlines amount to barely 5% of pre-pandemic volumes.”

The impact on economies will be immense – but new strategies will be needed if airlines are to survive

As Mr Menon observed, all of these factors "will have a negative impact on airline survival, and additional government support will likely be required as the crisis is prolonged".

Translated into practical terms, that means international airlines in the region will go to the wall unless government support is forthcoming.

That is a point that many of the region's governments appear to be overlooking – or they are looking the other way. Singapore, which relies so heavily on its flag carrier and its Changi hub, has made sure that Singapore Airlines will survive.

But other governments have been much more ambivalent, partly because they cannot afford to underwrite the key airlines, but also because they have not come to grips with the need to re-evaluate their national aviation goals.

Several of the region's flag carriers had already been undergoing revolving "restructuring" for years, or even decades, consisting of little more than rearranging the deckchairs. Merely providing lukewarm support for these airlines will not achieve any more of a sustainable industry than existed before.

It is time to be looking to the future. Markets have changed, consumer preferences have altered immeasurably over the past decade. It is time to look at what the market needs in future and to devise ways of ensuring national markets emerge with aviation systems that truly benefit their best national interests.

Sources

  • https://data.worldbank.org/country/Z4
  • https://www.worldometers.info › us-population

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