Analysis Reports

Many Asia-Pacific airlines are reporting that the rebound in traffic on their mainland China routes has been slower than anticipated, causing them to adjust their plans in this market.

Part one of this analysis showed that China’s overall international capacity growth has levelled off, aside from some peaks in holiday periods. Comments from executives at Malaysia Airlines, Batik Air and AirAsia X underlined this trend.

Part two provides another similar example, with the AirAsia short haul group pulling back slightly in the China market as growth cools.

However, some airlines are having more success on their China routes. The LCC Scoot is performing better than its full service cousin, Singapore Airlines. And Cathay Pacific is seeing strong demand for connecting traffic to and from mainland China.

Australia’s fifth largest city is not one considered to be an air gateway to and from the country from much of the world. With only half a dozen international routes at the main airport, it isn’t likely to be, even if the city has attractions worth making the journey for.

Now Adelaide Airport’s leaseholders want to help change its perception by way of an AUD1 billion capital investment over the next five years.

And that will go hand-in-hand with a push to attract up to 40 new international services – but over a lengthy time span that stretches to 2050.

North Asia, Southeast Asia and the US figure highly, with route gains targeted for no later than 2030; but China is not mentioned, despite 15.2% of tourists coming from that country in 2019 (2022: 2.7%).

The airport benefits from the financial sturdiness of profits achieved throughout the COVID pandemic period and the solidity of the 99-year lease with committed partners.

CAPA ANALYST PERSPECTIVE - a new series where CAPA - Centre for Aviation's analyst team provide their personal views on a hot topic facing aviation around the world.

Aviation is now close to pre-pandemic traffic levels. Pent-up demand from the COVID-19 pandemic years has been unleashed and passengers are enjoying air travel again.

They have an innate understanding that it connects friends, families and businesses, with significant benefits in cultural and social exchanges, in facilitating international understanding, and for the global economy. However, a return to reliable long term growth cannot be taken for granted.

Aviation is like a 'guilty secret'. Everyone likes to fly, but nobody likes to admit it, and there are many challenges to growth.

Jonathan Wober, Chief Financial Analyst at CAPA - Centre for Aviation shares his viewpoint. 

A slower-than-expected rebound in travel from mainland China is inhibiting the full recovery of many airlines in the Asia-Pacific region, although it is also prompting them to focus more heavily on booming markets, such as India.

China was the leading source of tourists for several Asia-Pacific countries before 2019, making it a key part of airline international networks. So its cautious approach to reopening borders after the COVID-19 pandemic was a major reason why the Asia-Pacific airline industry lagged the recovery seen in other regions.

Most of China’s pandemic-era restrictions were lifted in Apr-2023, raising optimism for a rapid return of traffic flows. But after an initial surge, the growth in demand for international travel from China has lost some of its momentum, according to airline executives.

This meant Chinese demand recovery was a major theme at two recent airline gatherings – the CAPA - Centre for Aviation Asia Aviation Summit in Kuala Lumpur 2-3-Nov-2023, and the Association of Asia Pacific Airlines annual meeting in Singapore 9-10-Nov-2023.

Two of the five Nordic countries have already applied aviation taxes. The taxes are not universally popular, but because they are nominally ‘environment’ taxes, the populations of both countries have tended to go along with them.

Now Denmark will introduce one from 2025 – but with several twists in the way the income will be used.

Fundamentally, taxes on all flights will be employed to improve the operations of essentially domestic airports, vaguely – to ‘restructure’ the sector and to trial an entirely ‘green’ route, the lessons from which can be used to secure 100% domestic green aviation by 2030 (although precisely what that means has yet to be clarified).

It all seems laudable, but airlines, airports (especially Copenhagen) and trade bodies have been quick to criticise its downsides and to propose alternatives. And promoting rail travel as an alternative is one that does not seem to have been considered.

One issue that may arise soon is the unusual decision that part of the tax will be used to fund (wholly) general retirement pensions – which may not go down well, not only with indigenous travellers, but also with those from other countries.

This is part two of a two-part report.

Two of the five Nordic countries have already applied aviation taxes. The taxes are not universally popular, but because they are nominally ‘environment’ taxes, the populations of both countries have tended to go along with them.

Now Denmark will introduce one from 2025 – but with several twists in the way the income will be used.

Fundamentally, taxes on all flights will be employed to improve the operations of essentially domestic airports, vaguely – to ‘restructure’ the sector and to trial an entirely ‘green’ route, the lessons from which can be used to secure 100% domestic green aviation by 2030 (although precisely what that means has yet to be clarified).

It all seems laudable, but airlines, airports (especially Copenhagen) and trade bodies have been quick to criticise its downsides and to propose alternatives. And promoting rail travel as an alternative is one that does not seem to have been considered.

One issue that may arise soon is the unusual decision that part of the tax will be used to fund (wholly) general retirement pensions – which may not go down well, not only with indigenous travellers, but also with those from other countries.

This is part one of a two-part report.

Asia-Pacific international passenger demand is swiftly catching up to that of other regions, despite the continuing slow pace of recovery in the key China market.

Data from the Association of Asia Pacific Airlines (AAPA) shows that this region has the lowest demand recovery globally – by a large margin in some cases. However, the rate of increase is also far higher in Asia-Pacific compared to the other regions, which signals that the gap is continuing to close.

The mainland China market remains the wild card, as it has been since the start of the region’s post-pandemic recovery. Although other markets have increased their relative importance, China international travel growth would need to accelerate for the broader region to fully recover.

AAPA Director-General Subhas Menon discussed these trends during the group’s annual assembly on 9-10-Nov-2023. This occurred just a week after the CAPA - Centre for Aviation Asia Aviation summit in Kuala Lumpur on 2-3 November 2023, where the China market was also a major topic of conversation.

CAPA ANALYST PERSPECTIVE - a new series where CAPA - Centre for Aviation's analyst team provide their personal views on a hot topic facing aviation around the world.     

Are the heydays of large ultra-low cost carriers in the US market over?

It’s a question that’s gaining traction after profits evaded Frontier Airlines and Spirit Airlines in 3Q2023. 

Lori Ranson, Senior Analyst, Americas at CAPA - Centre for Aviation shares her viewpoint.   

There are few better examples of countries that are putting the COVID-19 pandemic behind them than Spain, where the airport operator AENA will probably record more passengers in 2023 than in 2019, both holistically and at its principal Madrid Barajas Airport.

Barajas will now be further developed, with a EUR2.4 billion investment into two projects covering all the terminals, although no new ones will be built.

Madrid is in an unusual position for a capital city of a large European country, in that there is only one commercial airport serving it and that is unlikely to change. But physically, Barajas is one of the largest airports in Europe, with space to expand.

The parent AENA has strong finances, and has been buoyed recently by dispensation within the law that governs it to increase charges to airlines in 2024 – those charges having originally been frozen as part of the privatisation process eight years ago.

Although the leasing of airports by the private sector in the US has been permitted since 1997, it has never really taken off – as CAPA - Centre for Aviation has frequently reported, despite the manipulation of the regulations that has taken place to help it to do so.

In recent years, though, there has been a continuing momentum towards public-private partnerships, or P3s as they are known in North America, to construct essential infrastructure at large, primary airports. At the same time, at smaller ones the P3 initiative has allowed for a greater degree of private-sector investment, mainly to enable growth infrastructure (typically a new or extended terminal), without the degree of commitment that a formal lease agreement would place on both parties.

Two P3 projects have been completed in recent years, on the west and east coasts, and both seem to be progressing well so far. A third remains in abeyance while an environmental audit is completed.

Common to two of those deals is Avports – the largest private manager of small airports in the US, which seems to be shifting its ambitions in favour of these P3 deals. In the latest one it has taken on the airport at Manassas in Virginia, close to Washington DC, where it finds itself with numerous challenges, but also plenty of opportunities.

This is part two of a two-part report.