Analysis Reports

Many overseas airlines are taking advantage of a strong demand recovery in the Australian market by ramping up their services to that country. Because of this, Australian routes are playing a particularly large role in their post-pandemic strategies.

Several airlines have increased Australian capacity levels up to – or beyond – 2019 levels, and there have also been some new entrants and new routes in this market.

Part two of this analysis looks at two examples of airlines that have started new routes – United Airlines and Vietjet (part one focused on Cathay Pacific and Philippine Airlines). Some of the challenges facing airlines in the post-pandemic environment are also discussed.

This report draws on information presented during the CAPA Australia Pacific Aviation Summit held 14-15-Sep-2023 in Brisbane. A wide range of industry executives addressed these and many other topics affecting the Australasian airline and travel sectors during the CAPA event.

When considering tourism in Türkiye, which is the world’s fourth most visited country, one tends to think of the magnet that is Istanbul. But many of its coastal resorts, especially on the west and south coasts, have drawn increasing numbers of tourists over the past three decades – and many of them away from the Spanish resorts.

Antalya Airport is the main gateway to many of these Turkish resorts and is the third busiest airport in the country.

Now managed under concession by two of the leading lights in airport operations, Fraport and TAV (with that concession recently extended for another 25 years), the airport has embarked on an ambitious renovation and enhancement programme that will cater ultimately for 80 million passengers a year.

That is a very high figure to aim for when growth is expected to come mainly from tourists, and no one can say for sure that they will become an extinct species by the time the expansion works are complete. With that in mind, it is perhaps not surprising that two key lenders, European and Asian development banks, have included exacting environmental and governance clauses in their loan agreements – a portent for the future.

This is part one of a two-part report.

The boom in demand for travel to and from Australia shows no sign of abating, making this market a key part of the international recovery strategies of many overseas airlines.

United Airlines is making a major push into Australia in the upcoming southern summer season, while Cathay Pacific and Philippine Airlines have quickly rebuilt towards their pre-pandemic levels.

Vietjet has been a notable addition to this market, with the launch of new routes to the largest Australian cities and plans for further expansion.

Senior executives from these four airlines talked about their Australian operations and plans during the CAPA Australia Pacific Aviation Summit held in Brisbane on 14-15-Sept-2023. Tourism Australia also gave some insights into the bigger-picture trends in the Australian market.

Part one of this report will look at the market overview, and Cathay Pacific and Philippine Airlines.

Part two will discuss United Airlines and Vietjet, along with some of the continuing post-pandemic challenges facing airlines.

On 13-Sep-2023 the European Parliament voted to increase the use of sustainable aviation fuels (SAF) at EU airports.

Under the legislation, which still needs approval by EU member states, the share of aviation fuel that must be sustainable will rise from 2% in 2025 to 70% in 2050. These percentages have increased since the EU's SAF mandate, known as ReFuelEU, was first drafted in 2021.

Airlines and fuel suppliers, both old and new, are working to increase production of SAF from its current very low levels. Government and regulators also need to implement policies to grow SAF supply.

SAF mandates are one element of this, although IATA has criticised this approach for resulting in higher prices, thereby diverting resources from other environmental investment.

Tax credits and other incentives, as introduced in the US, are another government intervention to stimulate SAF production.

Fraport had a hard enough time of it when it dipped its toe into the Russian airport scene well over a decade ago, in the form of taking an equity stake in the underperforming Saint Petersburg Pulkovo Airport.

It would be fair to say that they were both good for each other, but all good things come to an end – in this case by way of the Russian invasion of Ukraine, immediately after which Fraport walked away from the operational side for which it had responsibility.

But Fraport couldn’t sell its 25% share, as the contract did not permit it to do so until 2025. Now local news sources say a sale could be possible by the end of 2023.

Western operators will surely eschew the ‘opportunity’. But Russian operators (and there are many) assuredly will not, and bids could also emerge from some countries that have offered tacit support to Russia, including those in the existing and to-be-expanded BRICS bloc.

The airport has remained profitable, and it was the location of an innovative ‘open skies’ policy just before the COVID-19 pandemic.

Pulkovo certainly has potential, but it won’t be realised for a long, long time.

This is part two of a two-part report.

United Airlines believes an inversion is occurring in the US airline industry with ultra-low cost airlines, which were previously outperformers, battling margin pressure while legacy airlines are holding their own. 

Now the question is if this is a permanent reversal of fortune, or just an aberration due to a myriad of factors ranging from air traffic control and supply chain constraints to shifting preferences among passengers to a more upscale experience. 

Only time will tell how long legacy airlines will have the upper hand, but for now those operators are confident in their prospects for the near future. 

Fraport had a hard enough time of it when it dipped its toe into the Russian airport scene well over a decade ago, in the form of taking an equity stake in the underperforming Saint Petersburg Pulkovo Airport.

It would be fair to say that they were both good for each other, but all good things come to an end – in this case by way of the Russian invasion of Ukraine, immediately after which Fraport walked away from the operational side for which it had responsibility.

But Fraport couldn’t sell its 25% share, as the contract did not permit it to do so until 2025. Now local news sources say a sale could be possible by the end of 2023.

Western operators will surely eschew the ‘opportunity’. But Russian operators (and there are many) assuredly will not, and bids could also emerge from some countries that have offered tacit support to Russia, including those in the existing and to-be-expanded BRICS bloc.

The airport has remained profitable, and it was the location of an innovative ‘open skies’ policy just before the COVID-19 pandemic.

Pulkovo certainly has potential, but it won’t be realised for a long, long time.

This is part one of a two-part report.

In the week of 18-Sep-2023 capacity in Europe is at 95.5% of the equivalent week 2019, which is a shortfall of just 4.5%. This puts Europe in last place in the regional ranking for the week, just behind Asia Pacific, where capacity is down by a low single digit percentage.

Seat capacity in North America is up by a low single digit percentage compared with the equivalent week of 2019, while capacity in Middle East, Latin America and Africa is above 2019 by mid-single-digit percentages.

With 3Q2023 now in its final week, Europe's capacity for the quarter has reached almost 96% of 2019 levels, which is an improvement on 2Q2023's 94% and the best quarterly performance since the COVID-19 pandemic.

Schedules filed by airlines point to further increases to the end of the year, with 4Q2023 projected at close to 97% – split as intra-Europe at 95% and intercontinental routes back to 100%.

However, the quarterly rising trend is not reflected in the month-by-month trend in 4Q projections, with Nov-2023 and Dec-2023 easing back relative to Oct-2023.

Manila’s Ninoy Aquino International Airport is one of several around the world that have been badly in need of a makeover for years, with annual passenger numbers running at 50% over capacity.

A dreadful experience suffered by Fraport almost 20 years ago when its work on a new Terminal 3 was forcibly abandoned, well into the project, queered the pitch for external investment for many years.

But it picked up again from 2017, with several unsolicited bids made to modernise the facility.

Now the government of the Philippines has firmed up a formal bid procedure for a 25-year PPP contract to rehabilitate, operate, optimise, and maintain the airport, and this has attracted three bids, all from parties previously to have shown an interest. Each has its strengths and weaknesses.

Whichever of them wins will face hefty investment demands, an upfront payment, and annuity fees to rescue a creaking airport that before long will face direct local competition from three others.

This is part two of a two-part report.

Manila’s Ninoy Aquino International Airport is one of several around the world that have been badly in need of a makeover for years, with annual passenger numbers running at 50% over capacity.

A dreadful experience suffered by Fraport almost 20 years ago when its work on a new Terminal 3 was forcibly abandoned, well into the project, queered the pitch for external investment for many years.

But it picked up again from 2017, with several unsolicited bids made to modernise the facility.

Now the government of the Philippines has firmed up a formal bid procedure for a 25-year PPP contract to rehabilitate, operate, optimise, and maintain the airport, and this has attracted three bids, all from parties previously to have shown an interest. Each has its strengths and weaknesses.

Whichever of them wins will face hefty investment demands, an upfront payment, and annuity fees to rescue a creaking airport that before long will face direct local competition from three others.

This is part one of a two-part report.