Outlook 2023: Asia-Pacific airlines return to growth: part two – Northeast Asia, Australasia & India
Asia-Pacific airlines will be looking to 2023 as the year that their recovery from the COVID pandemic period really starts to gain momentum.
A lot of heavy lifting has been done in the past three years to adjust to the new market environment, and the removal of onerous travel restrictions in most of the region's markets in 2022 has also laid the groundwork for sustained recovery.
Now the focus will shift to making that pay off in terms of network and financial growth.
Airlines have used the restructuring process to phase out some of their less efficient or older types, and some are now considering how to rebuild their fleets with newer aircraft.
Domestic recovery has been strong in the Asia-Pacific region, but its international capacity rebound has lagged other global regions. However, starting from a lower base means the rate of increase has been higher for Asia-Pacific airlines.
Part two of this analysis discusses dynamics to watch in the Northeast Asia, Australasia and India markets in 2023.
Part one examined some data points for the broader region, as well as identifying important themes in the Southeast Asia subregion and in China.
Summary:
- Strengthening outbound leisure travel is a priority for Japanese airlines.
- Korean Air looks to clear final hurdles to close Asiana takeover.
- Virgin Australia will likely rebuild at least some of its international network.
- Air India is planning major fleet growth as new owner targets expansion.
Japan outbound travel and Korean Air merger will be key factors in Northeast Asia
In the Northeast Asia subregion (excluding China) major reopening moves by Japan and Taiwan in Oct-2022 have dramatically improved the chances of an accelerated international recovery in these markets.
Japan's important inbound tourism market has surged following the relaxation of entry requirements. This will help Japan get back on track to achieving the government's lofty ambitions for tourist growth.
However, outbound leisure traffic has been much slower to recover, and this will be a major area of focus for Japan Airlines and All Nippon Airways.
The two airlines both expect international demand to support a return to net profitability in the fiscal year ending 31-Mar-2023.
In South Korea the most significant dynamic to watch is Korean Air's proposed takeover of its rival, Asiana. Korean Air has gained approvals from South Korean competition authorities but is still attempting to obtain clearances from overseas governments in countries served by both airlines.
Even after all necessary approvals are gained, it will still take some time to fully integrate Asiana and align fleets and order books. But eventually this will boost Korean Air into the top 10 largest global airlines.
Another important factor will be the status of Russian airspace.
Most airlines are avoiding flying over Russia due to the ongoing conflict in Ukraine, and this is a particular problem for routes between Northeast Asia and Western Europe. Alternative routes are adding hours to flight times, causing operational headaches for airlines.
Virgin Australia's international plans will influence Australasian market
The continuing restoration of international capacity will be the main priority for airlines in Australasia.
As of the week of 28-Nov-2022, international capacity was at 68% of 2019 levels for Australia, and 69% for New Zealand.
The means to achieving this is putting more aircraft in the air. Qantas, in particular, has said that it would love to get its remaining parked widebodies reactivated faster, but this process is taking longer than it would like. Delivery delays on new aircraft have also proved a frustration.
Something to watch in this subregion will be the potential return of Virgin Australia to more international markets.
Virgin Australia dropped all of its international routes and its widebody fleet in 2020 during its restructuring process. Since then, the airline has only resumed a handful of short-range international routes using its narrowbody fleet, with services to Fiji, Bali and Queenstown, New Zealand.
The airline is likely to restore more of its pre-pandemic New Zealand network, particularly since demand is soaring between Australia and New Zealand.
It is also planning a return to long-haul. Virgin Australia recently announced its intention to launch flights from Cairns, in northern Queensland, to Tokyo Haneda Airport in Jun-2023. It will operate Boeing 737-8 narrowbodies on this route, and will finally get to use a Haneda slot it was awarded before the pandemic.
Virgin Australia is relying even more heavily on its international partners for long-haul connections now, but it may consider adding its own widebody aircraft.
Meanwhile, competition is set to heat up even further in the Australian domestic market in 2023.
Regional Express (Rex) intends to grow its narrowbody fleet to compete more strongly against the incumbents on trunk routes, and the start-up Bonza also plans to launch narrowbody services.
Air India is poised for major fleet and consolidation moves
The coming year promises to be a very interesting period in the world's second largest market.
There have been some significant changes in the Indian airline industry, and the competitive ramifications of these shifts will become clearer in 2023.
Air India is emerging from the pandemic revitalised under new ownership, after the government completed a privatisation deal in Jan-2022. The new owner, Tata Group, has growth ambitions for Air India, which include significant fleet expansion.
The airline recently signed deals for more than 40 additional leased aircraft as a short term measure, and it is in the process of negotiating a large order with the major manufacturers.
Consolidation is also under way.
Tata Group struck a deal with partner Singapore Airlines to merge Air India with joint venture Vistara Airlines, and Tata intends to merge the low cost carriers Air India Express and AirAsia India.
IndiGo will still be the dominant force in the Indian domestic market, currently holding a 43% capacity share. IndiGo has about 500 Airbus narrowbodies on order, and it intends to expand in the international market in particular.
Meanwhile, the newcomer Akasa Air launched service in Aug-2022 and plans to grow rapidly. The new owners of grounded Jet Airways are also intending to relaunch operations in 2023, although the timeline for this remains unclear.
All of these moves will not make life any easier for smaller incumbents in the Indian domestic market, such as SpiceJet and Go First.
External uncertainties will temper growth ambitions somewhat
Growth in international services is primed to accelerate in the Asia-Pacific region in 2023.
However, this region is made up of a diverse range of markets, and growth will be uneven. Some countries and airlines will get very close to pre-pandemic levels, while others will likely still be a considerable distance behind by the end of 2023.
Even if demand is strong, there will be constraints, including workforce shortages and difficulties in expanding fleets.
Developments in the Mainland China market will be a key factor. Recent moves to ease domestic COVID-19 restrictions are a good sign, although it is still uncertain how this will translate into changes for international entry requirements and flight limits.
It could still be many months before cross-border travel is fully reopened.
Many Asia-Pacific airlines are forecasting a return to profits, thanks to surging demand and high yields. Airlines are balancing their strategies between maximising short term capacity and ensuring that they do not add too much in case demand weakens next year. This means they want to get enough aircraft back in service to leverage the current strong demand, without overcommitting.
There are enough challenges on the horizon to justify a somewhat cautious approach.