Outlook 2024: Asia-Pacific airlines look to finishing international recovery and ordering aircraft
For Asia-Pacific airlines, the main theme of 2023 was recovery of international markets - which happened overwhelmingly fast in some cases, but slower than expected in others.
Completing the international recovery will still be a major focus in 2024 for most Asia-Pacific airlines. However, there is also a raft of other factors that will shape airline planning in the new year.
These include industry consolidation, the growing importance of LCC subsidiaries, major aircraft orders and fleet availability headaches.
Looming over these - as always - are broader macroeconomic and geopolitical trends that represent risk for the airline industry.
- Asia-Pacific international capacity is at 85%, and will move closer to other regions during 2024.
- All Nippon Airways' (ANA) planned Air Japan launch highlights Japanese airline groups' focus on LCCs.
- Korean Air, Air India will look to finalise takeovers in their respective markets.
- Full service carriers and LCCs are preparing to place significant aircraft orders.
- Macroeconomic factors will have a major bearing on airline financial health in 2024.
Asia-Pacific international recovery is likely to catch up with the global average in 2024
So where does the international recovery stand as 2024 approaches?
The chart below shows that Asia-Pacific international capacity had climbed above 85% of 2019 levels by late Dec-2023.
This is significantly less than the recovery rate of nearly 100% in Europe and over 110% in North America, but the gap is gradually closing.
Capacity recovery by region versus 2019 levels, as measured in weekly seats
Of course, the lower recovery rate for the Asia-Pacific region is due to the weaker rebound in certain markets - most notably in the Northeast Asia sub-region, which is at 76% of 2019 levels.
China recovery will once again be a crucial factor for Asia-Pacific airlines
The recovery of the mainland China market will be particularly closely watched in 2024.
Even though many travel restrictions in this market were lifted in early 2023, demand and traffic did not surge back as quickly as many airlines expected.
This led to some airlines dialling back the capacity they had allocated to China routes in anticipation of greater gains - as featured in the two-part China's international demand slow to gain momentum report. China's international capacity is currently at 62.6% of 2019 levels.
Improvement in the Chinese international market will continue in 2024, although a full recovery appears unlikely before the second half of the year at the earliest.
Until then, airlines are focusing more on markets where there has been stronger improvement, such as India.
LCC subsidiaries will play a greater role in Japan's continued international recovery
Another market where recovery has been disappointing is Japan. Outbound leisure traffic has been slow to improve, whereas inbound tourism has been much stronger.
Airline executives estimate that the next summer season will be better for outbound travel, but full recovery may not occur until late 2024.
The roles of Japanese widebody LCC subsidiaries will continue to grow in 2024: All Nippon Airways is due to launch Air Japan in Feb-2024, using Boeing 787s.
The Japan Airlines subsidiary ZipAir Tokyo launched in 2020, and will continue to expand its fleet and network in 2024.
Like many airline groups, the Japanese major airlines have increased their focus on their LCC subsidiaries during the post-pandemic period.
The Cathay Pacific subsidiary HK Express is an example of an LCC that has rebuilt its capacity to pre-pandemic levels much faster than the parent airline.
Korean Air-Asiana merger is taking longer than expected, but key approval decisions will come in 2024
Some major developments in airline consolidation are likely to occur in the Asia-Pacific region in 2024.
The most significant is Korean Air's proposed takeover of Asiana. Important regulatory approvals for this merger were expected to be completed in 2023, but decisions on these have been pushed into 2024.
While multiple overseas and Korean authorities have cleared the merger, approvals from the EU, US and Japan are still pending.
European Commission regulators have expressed concerns about the effect of the takeover on cargo and passenger competition. However, there have been positive signals that concessions by Korean Air and Asiana will help them gain approval.
In addition to giving up slots on certain routes, the airlines have offered to split off and sell Asiana's cargo unit.
It appears that Korean Air is prepared to do what it takes to gain the necessary approvals, so it is a question of how much the airline will have to give up to satisfy the remaining competition authorities.
So, while more steps are needed, the odds are still in favour of the takeover being completed in 2024.
Tata Group consolidation will have significant ramifications for the India market
The Indian market is also set for some major consolidation in 2024, through takeovers, and possibly by the exit of financially struggling airlines.
The Tata Group is a major driver of this due to its efforts to consolidate its multiple airline brands. Tata intends to merge Air India with Vistara, which is a joint venture between Tata and Singapore Airlines.
Indian competition authorities approved the merger in Sep-2023, but more clearances are needed from agencies inside and outside India.
Tata is also planning to merge its LCC brands, with AirAsia India to become part of Air India Express.
A combined Air India and Vistara will account for 18.4% of India's domestic capacity, and AirAsia India and Air India Express another 8%. The four airlines combined would contribute more than 23% of the country's international capacity.
Some other names may also disappear in the Indian airline industry.
Efforts to revive the grounded airlines Go First and Jet Airways continue to face hurdles, and every month that passes increases the likelihood that they will not fly again - at least, under their own names.
After phasing out older aircraft during pandemic, many airlines are now preparing to order new aircraft
Several Asia-Pacific airlines are planning major aircraft orders that will likely be placed in 2024.
Malaysia Airlines is aiming to place an order for the second half of its narrowbody replacement programme. The airline already has 25 737 MAX aircraft on order to begin replacing its fleet of approximately 50 737-800s, but has stressed that it will consider all manufacturers for its next narrowbody order.
Cathay Pacific is considering a widebody order to replace the A330s, and some older 777s that it uses on medium haul routes within the Asia-Pacific region.
This will follow its recent orders covering narrowbody and freighter replacement.
Thai Airways appears to be getting close to placing a large order for widebody and narrowbody aircraft. The airline has been discussing its intention to secure such an order for several months.
Thai currently has no aircraft on order, according to the CAPA - Centre for Aviation Fleet Database. It phased out older aircraft during the COVID pandemic.
Japan Airlines is considering its options to replace its Boeing 767 fleet and some of its narrowbodies, although it has not set a timeline on the decision process.
Low cost carriers are also in the market for large aircraft orders.
Cebu Pacific has confirmed that it is holding talks with Boeing and Airbus regarding an order for more than 100 narrowbodies.
India's Akasa Air has signalled that a triple-digit aircraft order is imminent.
Grounded aircraft and delivery delays are disrupting airline planning for 2024
One of the major issues for airlines, as they look to ramp up capacity, has been supply chain slowdowns, delivery delays, and engine problems that have caused aircraft to be grounded.
The discovery of further issues with Pratt & Whitney Geared Turbofan (GTF) engines has meant that several operators of A320neo-family aircraft will have to ground aircraft for lengthy periods in 2024.
Asia-Pacific airlines affected by this include Air New Zealand, All Nippon Airways, IndiGo, Cebu Pacific, and Philippine Airlines.
These airlines have had to adjust their 2024 fleet plans as they look to mitigate the reduced narrowbody capacity by extending leases, securing extra lift, or in some cases - cutting back flights.
Economic and geopolitical issues outside airlines' control will also have a major influence
All of these trends will be worth watching in 2024. But from a broader perspective, one of the big questions will be what happens to demand.
International demand has generally been strong in 2023, but some airlines report signs of demand easing. This could be a natural reaction after the surge of post-pandemic travel, as demand settles to its new normal.
It could also be caused by a softening economic outlook, and higher prices dictated by rising airline costs.
If demand does ease, particularly as capacity increases, it would obviously affect airline profitability.
Time will tell if 2023 represented peak profitability for airlines.
With costs likely to remain elevated, airlines will have to be careful not to overextend themselves in 2024.
Geopolitical factors will also be important. The continuing war in Ukraine will likely mean that Russian airspace will remain closed for most overflights by Asia-Pacific airlines, and tensions may still be high between China and some other countries.