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Recorded at CAPA Live April

Asia Aviation: Inspiring clear action for aviation growth

The Asia-Pacific region was initially hit hard by the pandemic, probably more so than the other regions. But some of the key Asia-Pacific markets have also recovered more quickly than those in other parts of the world. While borders generally remain closed, or are subject to quarantine restrictions that have a similar effect on travel, there have been some so-called green lanes established for essential travel, but in general the hoped-for travel bubbles have been slow to develop.

Recent weeks have seen increased waves of the virus resurfacing in countries who had believed to have COVID-19 under control. This return however is not unexpected and has emphasised the need for practical, data-driven steps to opening up in a safe means. In this session we explore these methods and provide clear examples of required action.

  • How are markets performing in Asia-Pacific?

  • What practical, data-driven steps should each country take to opening up?

  • Are governments investing enough in technology, processes, infrastructure? 

  • What impact are continued waves in countries such as Japan and South Korea have on the region?

  • What impact is this having on hubs like Singapore?

  • Are bilateral corridors effective in opening up markets?

Transcript

Adrian Scofield:

Hi. I'm Adrian Scofield, senior air transport editor for Aviation Week. In this next session, I have the distinct privilege of speaking with Guoxiang Wu, China Southern senior vice president for international and corporate relations. We'll be talking about how his airline and the broader industry have adjusted to the COVID-19 crisis. Welcome, Mr. Wu, and thanks for joining us.

Guoxiang Wu:

Thank you. Thank you for your invitation.

Adrian Scofield:

Great. Principally, could start by talking about how your home market is fairing at the moment. For China, has domestic capacity and demand fully recovered, or have the subsequent COVID waves effected that?

Guoxiang Wu:

From my view, and especially from the start of this year, I think the domestic amount have fully recovered. As you know, thanks to the government's great work for the prevent, the pandemic, the control of the pandemic, I think domestic travel in China is very safe. Just from January to February, during the peak season, the normal peak season of the spring festival for China, because the government advocate people to stay home for their holidays, it's a little decrease of this season. But after the spring festival, the demand has increased very quickly. I think from last month, from March, the domestic demand is fully recovered in time.

Adrian Scofield:

Right. Very good. And I think your capacity is now above pre COVID levels again, isn't it?

Guoxiang Wu:

The peak season of the [inaudible 00:02:33] because we have short holidays for the [inaudible 00:02:39] festival. All the airlines in China take their full capacities of the domestic network. Compared to the 2019, the capacities this year is fully recovered for the domestic network.

Adrian Scofield:

Right.

Guoxiang Wu:

But for the international network, because of the restriction of the government, we still have very low capacities for international travel.

Adrian Scofield:

Right. Yes. I was going to ask you about that. For international, how much of your network is actually operating?

Guoxiang Wu:

Nearly 10%.

Adrian Scofield:

Right. Okay. What sort of restrictions remain on international travel into and out of China?

Guoxiang Wu:

We still implement the flight one policies for the airlines to operate international routes. For every single airlines, operate single route to single country, once a week. That means flight one policies. We still have some green line to some certain countries, have different policies, just like Korea and some countries. But the capacity is still very low because we need to prevent the inbound pandemic.

Adrian Scofield:

Right. Okay. Are you seeing any signs of international recovery?

Guoxiang Wu:

Let's see. From last year, I think the demand is very strong because as you know, at that time, many business people, many travelers, many students still in overseas countries, they need to come back to China. So at that time, the demand is very strong. But in this year, the international demand is decrease a little because not knowing, because many countries close their boat. So few people can travel overseas. So the inbound passengers, the inbound demand is decrease.

Adrian Scofield:

Right. Do you have any sense of when you might start to see recovery in international demand or traffic for your airline?

Guoxiang Wu:

I think the international demand is still exist, but the most headache and the most important things is to relax the restriction of the international travel. I think, especially the pandemic is still increase in many countries, recently. So the people still afraid to go out. So I think maybe in a little long time, the situation will be remain from now.

Adrian Scofield:

Right. Okay. What fleet changes has China Southern had to make in response to COVID, in terms of parked aircraft, early retirements, lease returns or that sort of thing?

Guoxiang Wu:

Yeah, that's very important. That's very important for this [inaudible 00:06:52] season, for every airlines. We need to restructure our fleet, including return some old aircraft, some wide-body aircraft, and cut some orders of the new aircraft, and restructure the financial or liaising structure. I think it's very important for every airlines to reduce the costs, even though from our view, the international networks still face many difficulties in the future. So we must rethinking about our structure, our business model, our future.

Adrian Scofield:

Right. Are you able to say what particular types have been retired early due to COVID?

Guoxiang Wu:

We are just starting to return some old aircraft-

Adrian Scofield:

Right.

Guoxiang Wu:

... such as Airbus 330. We also think about how to ... We can ... The largest aircraft in our fleet, such as Airbus A380, is still on our consideration, how we can solve this problem. But up to now, we still just on starting and only touch some aircrafts on our airports.

Adrian Scofield:

I see.

Guoxiang Wu:

But I think in the future, especially for the long haul, wide-body aircraft, we still need to have some ways to solve it.

Adrian Scofield:

Right. Okay. I'm glad you brought up the A380s, because I was going to ask you about that. What future do you think the A380s have at China Southern? You indicated that maybe you're reconsidering their future at the airline. I know a lot of airlines are reconsidering the A380s.

Guoxiang Wu:

Yeah. I think, not only for China Southern, but also for many airlines, we must rethink about the A380. Maybe it's too large for the route, and the operation cost is very high. And the future demand for the international route is ... Up to now, we still have not get the signals to recover in the coming years. So we must rethinking about our structure of the fleet, especially for the wide bodies.

Adrian Scofield:

Right. Okay. And in terms of your future growth plans, have you had to defer any aircraft orders? And do you expect to receive any deliveries this year?

Guoxiang Wu:

We're very cautious about the new aircraft introduction. But for the future, I think for the domestic network, is still increasing. For the narrow-body aircraft, for the short haul or short to middle haul, narrow-body aircraft is still on demand for our network.

Adrian Scofield:

Right. Okay. So you have had to defer some orders? Some deliveries?

Guoxiang Wu:

Yeah, we still introduce some new aircraft, even last year.

Adrian Scofield:

I see. Okay. But you think primarily, narrow bodies.

Guoxiang Wu:

Yeah.

Adrian Scofield:

Right. Okay. Just switching gears a little bit, there've been some big changes related to the bankruptcies of other airline companies. I'm just wondering what effect, if any, that might have on China Southern, and particularly thinking about the HNA bankruptcy. Do they have any effect on your position in the market?

Guoxiang Wu:

I think the whole industry is now serve a performed change. Not only the bankruptcy, but other changes. I think for every airlines, we must think about how to, can face the difficulties in the future. So China Southern, we still just the studying about the situation of the global industry. Just watching about the industry in every areas. But for the decision for the make, I think is still very difficult to make in a very short time, because I think, the landscape of the future is not evidence. We still watch out, step by step, and thinking about the lesson of the industrial recovery.

Adrian Scofield:

Right. Okay. Do you think there'll be any more consolidation or mergers, or bankruptcies in the Asia Pacific region? Or do you think we've seen most of the ones that are going to happen?

Guoxiang Wu:

I think it's hard to say. Maybe consolidation, maybe some acquisition can work for some region. But it's determine timing how long where the pandemic will last. For some consolidation, it's still a big burden for them, for the cashflow, for the cost. I think up to now, it's hard to say which choice is what.

Adrian Scofield:

Right. Okay. You mentioned the green lanes and the travel corridors earlier. I'm just curious, even with the start of the vaccine programs and the vaccine roll-outs, is it still important to introduce more of the travel corridors and green lanes?

Guoxiang Wu:

It's determine on the effectiveness of the vaccine program. I think the implement of the vaccine program is effective ways to recover the international travel, but every government is very cautious to reopen their port, to prevent the incoming pandemic. China have some green line to some certain countries, but the traffic, the volume is still very low. So I think in the future, we just watch the situation will be changed. If one country can control the epidemic, I think it's a good signals for the bilateral travel. But it's very difficult to connect different countries. So I just think about maybe in the future, it's a bit difficult for the hub, because they have the effective for the many points that you can connect via the hub.

So the pandemic control may some effective in some certain country. Just the bilateral can open their boat, relax their restriction, but it's hard to relax every point, every [inaudible 00:16:11] of their whole network. So the cost is huge to [inaudible 00:16:19] the hub.

Adrian Scofield:

Right. Okay. And related to that point, what new technologies and processes will be most important as we start back into international travel, do you think?

Guoxiang Wu:

Many aspect talking about the new technology implement in this industry, but I think before the pandemic, some new technologies have already introduced to this industry, such as the contactless technology. Some infrastructure use the digital platform and the technologies. But for the situation after the pandemic, I think is not the key point to recover the future demand, the future connection, because if the people want to travel, that process not only in the airports, in the cabin, they must travel to the destination, the society. They need many contactless. So the vaccine program and the control of the pandemic is most critical to recover of the future travel demand.

Adrian Scofield:

Right. Okay, thanks. What business models or types of airlines do you think will do best in their recovery? Do you think LCCs will have a larger advantage in the post COVID environment?

Guoxiang Wu:

Yeah. I think they have the privilege. I think after the pandemic, I think it's very important for airlines to increase their efficiencies. And also, the point to point business model is very important. Just to as I say, if one country opened their port to a certain country, the point to point travel will be increased in a certain time. But it's difficult for every point, every countries to open their port one day, in the same day. But the hub spoken business model is based on the connection between any point where the hub. But in the future, maybe the point to point will recover first.

Adrian Scofield:

Right.

Guoxiang Wu:

For the LCC is efficient, connect point to point. So I think it's quite a privilege.

Adrian Scofield:

Right. Okay. Has the pandemic effected your hub strategy at all? And related to that, what are the challenges and advantages of your double hub operation?

Guoxiang Wu:

I think for China, the situation is different because we have a huge [inaudible 00:20:09] market.

Adrian Scofield:

Right.

Guoxiang Wu:

So for the double hub, for China Southern, I think it still have great chance for us. Not only for the international travel, but for the domestic travel. We need to coordinate our hub spoken change and the point to point network, that those effective.

Adrian Scofield:

Right. Okay. Is it possible, with all of the changes and the cutbacks with some other big Asian connecting carriers, that the big three Chinese airlines, could it increase their share of international connecting traffic in the post COVID environment?

Guoxiang Wu:

It's hard to say right now, I think. It's depend on the control of the pandemic. If some country can control the pandemic and have the privilege to connect the world, connect a different country, I think it has the privilege to grasp the map to share. But for China, think we need to face new challenge. Not only the big three, but also the other counterparts of the industry.

Adrian Scofield:

Right, right. Okay. And regarding domestic demand, do capacity and traffic levels tell the whole story? I'm interested, what are yield and average air trends looking like in China at the moment, for the domestic market?

Guoxiang Wu:

As you know, because the restriction of the international network, so for the network, is over capacities.

Adrian Scofield:

Oh, the capacity.

Guoxiang Wu:

The price war is [inaudible 00:22:25] everywhere.

Adrian Scofield:

Right.

Guoxiang Wu:

So it's hard to control the price. Based on the relation between the demand and the supply, we must adapt. So in certain periods, I think is still being challenged.

Adrian Scofield:

Right. So there is overcapacity in the domestic market, is there?

Guoxiang Wu:

Yeah.

Adrian Scofield:

Okay. Wow. Right. I know that China has embarked on an amazing airport and infrastructure building program. Has that slowed down any, due to the pandemic, or is that still going at the same pace?

Guoxiang Wu:

It's still going as normal, I think, because as you know, the facilities in China, Chinese airports, is need to renew and to enlarge. Many airports in China are very congested before the pandemic. So we need to restructure and [inaudible 00:23:44] facilities.

Adrian Scofield:

Great. Okay. Do you think there'll be any changes to business or premium travel demand resulting from the pandemic? I know there's been a lot of talk about that in the industry, and everyone wants to know if premium and business demand will come back, or if online meetings like this might damage that a little bit. What do you think about that?

Guoxiang Wu:

I think the business travel will come back. I have the [inaudible 00:24:18], very confident. Even some new technology such as the virtual meetings and some virtual social network, the face to face meeting is still very important. And some businessmen need to travel to their on site thing, and we need to coming together to face-to-face meeting, face-to-face drinking, face-to-face party partying. I think [inaudible 00:24:54] very important.

Adrian Scofield:

I agree. All of those are important. Just as a final question, this is a very broad question, and it's a little bit looking into the future, but when do you think, just approximately, international travel will start to gain momentum again in Asia Pacific? And do you think the Asia Pacific region will be slower to recover than other regions?

Guoxiang Wu:

I think it will be more sooner for the Asia Pacific to recover than the other region of the world.

Adrian Scofield:

Right.

Guoxiang Wu:

As you know, many countries in Asia Pacific, and especially for the short haul connection, I think it will be recovered sooner than the long haul. So I think it will be recovered first,. after the pandemic.

Adrian Scofield:

You think the Asia Pacific region will recover sooner, you think?

Guoxiang Wu:

Yeah.

Adrian Scofield:

Okay. Great. Very good. Well, that's all the time we have today. I'd like to thank Mr. Wu very much, again, for taking the time to talk with me, and giving us such a great insight into China Southern and the China market. Also, thanks to all of you who have tuned in to listen. I hope you all enjoy the rest of your day, and hopefully you can catch some more of the CAPA live sessions.

Guoxiang Wu:

Thank you. It's my great pleasure. Thank you all.

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Speaker 4:

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