Asia Aviation: The challenges of airline operations in a pandemic

Transcript

Hi. Thanks for joining this CAPA Live session today. I'm Adrian Schofield, I'm a senior air transport editor for the Aviation Week Group. I think we've got a fantastic panel today representing different business models and different sectors of the industry from some of the key markets in the Asia Pacific region. So I'd like to introduce Ching Kiat Lim, who's managing director of air hub development for Singapore's Changi Airport Group. Ben Wong, VP operating for Hong Kong Airlines, and Javed Malik, who's group Chief Operating Officer for AirAsia.

I have a few specific questions I'd like to put to all of you first, just to set the scene before we move into some more general topics. So I wonder if we can start with you, Javed. I wonder if you could just talk a little bit about how much of your network is actually operating at the moment, both international and domestic. And if you can also talk about what the effects of the recent Malaysia lockdown has been on your operations.

Javed Malik:

Sure. Thanks very much, Adrian and to the CAPA community and look forward to working with everybody here and my fellow panelists. For us, it's been quite devastating clearly, like any airline around the world, but for us to mystically, we've seen our network... In Malaysia alone, we have several airlines, but the Malaysia AOC as we refer to is operating at about 9% of pre COVID levels. So 91% impact to us on the domestic Malaysia side. And as a group we're around 6% of pre COVID levels domestically in each of the countries, and about 1% of international network is operating right now. So huge 95, 91 percent range impact to us at this point in time.

In terms of effect, well, clearly Malaysia has just gone onto another lockdown, its third major one, which started on the 1st of June. And what that's had is a huge, massive effect to us in our domestic market. And of course, in our inter and intra-state travel, which has got restrictions with bans again. We think that's going to be on for probably realistically about four to six weeks, although the government says two weeks, but realistically we can see it roll on for another four weeks. And of course, internationally, we're only able to operate on cargo and charter flights. So thank God for those right now.

Adrian Schofield:

Right. So no scheduled international really happening at the moment at all?

Javed Malik:

No, it's about 0.2% of pre COVID numbers. So it's negligible. It shouldn't even be there. It's probably costing me more to fly with those, I'd say.

Adrian Schofield:

Okay. So any idea when you can start to ramp up domestic capacity again for the Malaysia market?

Javed Malik:

I think for the Malaysia market it's probably realistic somewhere towards August because this current lockdown will have phase down effect, and we'll start to see some interstate intra-state movements domestically, but I don't think we'll see complete... I have 17 airports that we cover in Malaysia. I don't think we're seeing all of those 17 operate until somewhere around October, between August and October, when we'll see those 17 all operate. And then we start to see some small Asian connections take firm.

Adrian Schofield:

And what about in terms of your fleet? How much of that do you actually have operating now versus parked or grounded?

Javed Malik:

Well, we have an overall fleet of just over 296 aircraft. That was our number of pre COVID. So it's a large [crosstalk 00:04:11] fleet, group wide, absolutely. And in Malaysia now, Malaysia had 105 aircraft. 7% of that fleet is currently operating, 7%. And as a group, only 10% of our current fleet is operating. So 90% is grounded or in long furlough, long storage.

Adrian Schofield:

Okay. And are negotiations still going on with Airbus? And when do you think you might be able to start taking deliveries again?

Javed Malik:

Well, discussions are always ongoing, whether they're COVID or no COIVID. You never stop talking to your lessors and to your air friend providers. I'm always looking for good deals, always looking for the next best innovation. So we are in ongoing discussions related to our current situation, as well as our future order. So something that's just going to keep progressing even out of COVID, to be honest. Like every airline, I think we'll be assessing the future direction of the type of fleet we have and how many you have and the way you bring them into the business.

Adrian Schofield:

Okay. Excellent. And Ben, please if we could turn to you, I know that Hong Kong Airlines' operations have been pretty severely effected by the pandemic. So how much of your network is actually operating now?

Ben Wong:

Yeah, actually I think the pandemic has given a severe impact to the whole industry, particularly airlines. We opened more than 100 flights a day pre pandemic, and down to around 10 flights a day. So that's about a 90% deductions of the flights, but recently we have managed to have some kind of cargo, particularly belly cargo flights, rise to about 18 to 20 in some sectors a day. So that's around the 18 to 20% of resumptions compared to the pre pandemic level.

Adrian Schofield:

Okay. Do you have any plans to add more of your network back or more capacity back?

Ben Wong:

Well, as you may already know that we have reduced a certain alarm for flights, particularly flights to North America a few years ago. And the that's actually before the pandemic. Nowadays, we mainly focus on local regional strategy, we changed it from international to regional for time being, to cope with this pandemic difficulty to everyone. Currently we do not have a aggressive plan, but particularly no plan for passenger flights, but we do still have some small, maybe charter flights for belly cargo or even cabin cargo. Like for example, we also have cargo demands to even from Hong Kong to Sydney for daily flights. So in short, we do not have a plan for passenger flights development from now until probably at least the end of the year, but for the cargo charter flights, maybe some small portion the charter cargo flights.

Adrian Schofield:

Okay. And you briefly touched on this, but to what extent did the restructuring that you went through before the pandemic put you into a better position to cope with this crisis?

Ben Wong:

Actually, we have reduced a certain long furloughs and also the fleet size. So for currently we're only operating around eight aircraft, wide-body 330. Some other aircraft are parked. And for networking as mentioned, we have more than half. We mainly focus on the local regional and mainly cargo. The later status where we got the data is we're currently running more than 90% on cargo flights, more than 95% of cargo flights. So passenger flights really, we do not see any significant increase before the end of this year.

Adrian Schofield:

Okay. And I know you have no aircraft orders at the moment after the restructuring. Is that something you'll need to address at some point, some more aircraft orders?

Ben Wong:

I do not see that there's a department for the aircraft new owners to increase if we know we have some aircraft parked in the airport. So I think everybody has facing this more than the capacity required. So hopefully we can get over this difficulty and can resuming of the business. So that may be in future, but now, as I said, how can I say? It's changing from a international focus to a local regional focus first. So that's why maybe only we focus on what we are currently operating for now.

Adrian Schofield:

Great. Okay. Thank you very much. And if we could turn to you, Ching Kiat. I see you have that magnificent background of the Jewel facility, I think that is. Could you talk a little bit about how and why you've consolidated your terminal operations since the pandemic began?

Ching Kiat Lim:

Hi, Adrian. First of all, thanks for inviting me for today's conference. Good to be on this panel with Ben and Javed. I think very quickly, about 12 months ago, I think when the pandemic struck and different countries went onto different border closures and all that, we did some calculation and today our traffic is about 3% of pre COVID levels. I think at the start 12 months ago, that was around that state as well. So we quickly made the decision that let's consolidate the terminal footprint, because it's not just our own finances, our partners as well, the retail partners, the ground handlers, for them to sustain a larger footprint than required, I think everybody will be burning cash.

So the original plan for terminal two was to undergo renovation while operating, because pre COVID, while now we are sitting here, we forget pre COVID actually the biggest nightmare for everyone was lack of capacity. The stores was bursting at the seams. So original plan was to renovate while operating it, but we said, "Hey, I think with the current situation, it probably make better sense to just suspend it completely for renovation." And terminal four, which I think Javed, AirAsia was operating on terminal four, again, because due to the suspension of the flights, I think we suspended the terminal as well. So now we are down to two of our terminals, one in pre, but in fact, within the terminal, we are not using the full terminal. So effectively it's about one quarter of pre COVID capacity in terms of terminal footprint.

Adrian Schofield:

Okay. Right. And in sense of traffic, passenger traffic and [crosstalk 00:11:04] regional traffic?

Ching Kiat Lim:

Passenger traffic, I mentioned has been quite steady at about 3% of pre COVID levels today. In terms of flight movements though, because if you add in the cargo flights and all of the flights, flight movement total is also around a quarter of the pre COVID levels.

Adrian Schofield:

Okay, right. And what about the extra challenges from the changes to terminal access that you've had to impose just very recently?

Ching Kiat Lim:

Yes. So just very recently, about a few weeks ago, I think there was a cluster of infected cases for airport workers. So I think even before the recent developments, we had already taken quite a few steps to ensure that the passengers and the staff were kept safe, but now I think we have to strengthen some of those measures. So we tiered the terminal access into even more precise risk tiering, so that for the areas where passengers from certain higher risk regions are coming in from, I think we stepped up the level of protection for the passengers and for the staff in terms of PPE, which levels of PPE you are supposed to wear and all that. And some of the transfer passengers from certain regions as well, they are segregated into a special area that is separate from the other passengers, so that to minimize the risk to everyone.

And I think one of the key risks that we looked into is over time, once we are used to a certain method, sometimes people do get complacent. So we have stepped up in terms of the training of our airport staff, in terms of donning of PPE gear, and in terms of the safe practices as well. So I think it has been tough for everyone, but I think Changi airport, we have always worked very closely as a community. So I think with the support from the airlines, the ground handlers, security staff, we are adjusting well to the new changes.

Adrian Schofield:

Right. Thank you very much. Hey, to move into some more general topics now that I'd like to put to the whole panel, first of all, I'm very curious to hear your thoughts on how difficult it is to do operational planning at the moment when restrictions can change very quickly and requirements can change very quickly, just within days' notice. How do you deal with that challenge when you're doing your operational planning? Javed, do you have any thoughts on that?

Javed Malik:

Yeah. Of course, it is a challenge. For us, it's been about exploiting technology a bit better. We have our super app now through airasia.com and leveraging what we do technology wise, for an example, the changing PCR in vaccination requirements, which is one of the most challenging, significant changes that come in literally by the hour by borders and different authorities. We've automated our process through something called scan to fly, where we integrate the changes live from the internet, into our booking system and allow customers to see that information as they try to book for a certain destination, allowing them to be compliant with the latest criteria before we accept them for checking in, making sure that we're then compliant, but also the guest knows what is the requirements.

The hardest thing we've got feedback from our customer, our guests is knowing the rules of travel from point A to point B as there's so much social media information, advisory boards, emails, but they don't know to go to one place and we try to create it in one place, where you do your booking process on our super app.

Adrian Schofield:

Great. Okay. Ben, did you have any thoughts on that, the new challenges of operational planning>

Ben Wong:

Yeah, actually it's quite challenging. As everyone knows that the constant change in the environments of the pandemic situation, also the frequently change and modification of the restriction of both policies from different countries, that come up is a few concerns that we have been handling and putting resources in. One is about some of the safety concerns, the crew and also other ground staff, there may be lack of recency of the work. So we have to make sure those crew operating aircraft or other ground staff are really handling [inaudible 00:15:34] are really having enough sufficient recency of their working level and experience level of doing their daily work.

Secondly, we have to adjust our operation patterns. Some of the rosters, some of the shift arrangements will have to cope with the government requirements, particularly the quarantine requirements, some for example, if we have a crew layover in a Sydney flight, when they come back they have to go through some of the requirements for quarantine in the hotel. This has been changed now, but before we had arranged that the core crew group, that those crew will be running a confined shift arrangement for that. So we have to deal with the passenger concerns on some of the passenger flight. We still have some passenger flights on Beijing, Shanghai and there are safety preventive measures also for how to issue a passengers, safety preventative measures to be safe for their safe flights, so as the crew

So really it's challenging, and also the corporate level from the company at the financial level is also a big issue for all the stakeholders. Nowadays, particularly the revenue from passenger flights really, really diminished. So to be honest, we are relying on cargo flights, but at the same time, how could we balance the manpower that together with the company's conditions? We have to reserve certain people, particularly the key position to maintaining their skill level, recency, experience to prepare for a resuming. And this resuming we planned and they have been keeping dragged on, delay and delay, but we're hoping to come soon.

So some other words that probably not only the airline, but also our CTO or MRO, all the industry stakeholders have to really think about how to adjust their operations, maybe even have to think about the downsizing the company or offering skills to overcome the difficulties, which is difficult, but challenging and we have to do it and do it quickly.

Adrian Schofield:

Okay. [crosstalk 00:17:58]. Thank you. Ching Kiat, just before we move on, do you want to add anything from the operational aspect?

Ching Kiat Lim:

Yeah. Maybe one key point. I think one key learning we have from operating the last 12 months is that the situation is really quite complex in terms of decision making. I think at the initial stage, because a lot of the decisions were made by different authorities, the health authorities and other parts. So from aviation side, we only know about some of the decisions right after they happen. So I think the key part, the key learning for us, the public private partnership is very important, getting all the key players onto the same platform. So for example, for vaccine distribution, very quickly, we formed a Changi task force to get both the authorities, the cargo handlers, everybody onto the same platform and to reassure them because some of the new vaccines you have low temperature consideration, we were not very sure are all the players ready for this.

So having such public private platforms for discussions, I think keeps everybody informed of what's the changes and that's the best we can do in terms of getting everyone ready for the unpredictable nature.

Adrian Schofield:

Right. For the next question, perhaps, I guess mainly for Ben and Ching Kiat, what is the importance of the proposed Hong Kong-Singapore travel bubble? And when do you think we might actually see that?

Ben Wong:

Ching Kiat, you go first, please.

Ching Kiat Lim:

Yeah, sure. Thanks. I think this is another painful story, but it is very important. I think number one for the airport, for Changi, in terms of real numbers, Hong Kong has always been the top 10 reps for Changi airport. So in terms of numbers, it is key for us. But I think more importantly in terms of the significance that both the regions for Hong Kong and Singapore, both the government come together, we endeavor to start really a concept that is quarantine free travel. I think the only other one that would come closest to that is the [inaudible 00:19:59] bubble, which I think Australia and New Zealand has started.

I think so in terms of significance, it's very key for us. So I think, but the timing is always not right. It's either with certain cases happening in Hong Kong or Singapore, but I was told that both sides in government, they have reaffirmed their determination to get this started as well. So now we just see a postponement for a few weeks, maybe a couple of months and we are ready to get it started again. Ben, thanks.

Adrian Schofield:

Ben, anything on that topic?

Ben Wong:

Yeah. Actually I agree with Ching Kiat. This Hong Kong-Singapore travel bubble is actually crucial for not only the economy level, but also confidence for all the not only business traveler, but also even tourists. For now, we understand the mechanism that have been set up by two governments, two countries governments, but it has been affected by the constantly changing environments of the pandemic situation. But as long as there's a mechanism there, the two governments will check and ensure that the mechanism will be escalated, depends on the situation.

So for some we have situation, both give the zero or very low infection just for a certain time, that can resume. And if either party or both parties found some cases, maybe suspend for a certain time, but as long as the mechanics there, that will test a trial for the similar arrangement with other countries. So that will be initiation for a successful points for a mass resuming of the flights. But right now it's difficult for a resumption of the flights for every country together.

You have to start with big points, one by one. So this one, if successful, prove to the not only government, but also the travelers, gain the confidence for the traveler to utilize the current mechanism like a travel bubble, or even some mechanic like digital travel solutions. So that's the crucial for getting the confidence for those traveler to plan their traveling. Of course, it all depends on the situation about the effectiveness of the virus, vaccination and also the government's quarantine policies.

Personally, and also, I think on behalf of quite a lot of people living in Hong Kong, even my staff, quite a lot of staff are actually from Singapore. They have done actually the vaccination very earlier. They have been preparing for enjoying this bubble for quite some time. But actually they're still waiting. And thanks for the efforts from both governments, we will see the very fruitful result. The first flight may be coming in very soon. Thank you.

Adrian Schofield:

Very good. And just for you, Javed perhaps, what do you think would be the most important factors in restarting international travel? Do you think travel bubbles will still be important as vaccination rates increase and focus turns to that?

Javed Malik:

No, vaccination's the key. Travel bubbles are too much of a short term and restricted level of type of travel still in this region, particularly for us. And we're not so interested on the wider international market, our region as Asian is important for us, that's where we play. And you need to be able to freely travel. The way that our model works is people come and spend a week in Singapore or a week in Indonesia and a week in Malaysia, Bali, et cetera. So you need ability to travel around the region rather than just within two pairs in most cases. Vaccination is the key. We've all got to get the herd immunity mindset, get up to that 75, 80, 90% number and create confidence.

You look at what's happening in the US particularly in the UK, you can see that those numbers have driven confidence of getting the economic environment back up. And so that's for us. Our whole push our whole focus from our ownership down is to encourage everybody to get vaccinated.

Adrian Schofield:

Okay, great. Hey, our time unfortunately is racing by far too quick. It's such an interesting panel, but just something I'd like to put to all of you. I know this is crystal ball gazing, but for your markets, when do you think we'll start to see significant levels of international travel again?

Javed Malik:

Well, I'll take us. Significant for us, it would be pre COVID levels, not any less than that. And I don't see that happening until somewhere towards quarter three of 2022. I don't see that happen before that, to that level. I think between quarter three of this year, 2021, we will start to see improvements, but they will be slow and then we will keep growing. But the mass pre COVID level type numbers will start to come between end of quarter two and beginning of quarter three of next year, 2022.

Adrian Schofield:

Right. Ching Kiat, any thoughts on that, when international resumption might start occurring?

Ching Kiat Lim:

I guess for us, IATA has announced that the latest projection is about 2023, 24, before we get to pre COVID levels of total traffic. I think we are also working on Sydney aerospace around there. For the near term I think we're hoping to get to around between 30 and 50% of pre COVID level. We think that that gives us and our allied partners a critical mass to at least move towards cash neutrality or thereabouts. So I think near term for the next 12 to 24 months, we are looking more for, let's say around 20, 30 to 50% of the pre COVID traffic. I think that's the first milestone that we are gunning for. Vaccination is key, I agree with the rest of the panelists. Singapore now has about 40% of people in Singapore have at least one dose and we are pushing ahead on that front. So hoping to get a lot of progress on the vaccination front. Thanks.

Adrian Schofield:

Right. And Ben, what about from a Hong Kong perspective?

Ben Wong:

Actually, we think it depends on three factors. One is the vaccination rate. The second is the quarantine restriction policies from a different country. The third will be the digital health pass solutions adopted by different countries. So although I have to mention that maybe the initial way of recovering to the pre pandemic level in 2024, but it still depends on these three factors, whether sooner or later. We see from Asia compared to Europe and American, we understand Europe and American, it looks like they are getting faster than we expected. But now some of the countries in Asia are very cautious about these provisions and measures implemented, but we still joint efforts, maybe also supported by [inaudible 00:27:40] level or down IATA level might help the different countries, provided you have a vaccination radar to a certain level.

And then by using the digital health pass solutions, for example, we just tried recently the IATA travel pass, and also some of the local safety preventive measures, like we also recently implemented the boarding gates with no touch, no boarding with just a facial recognitions. There's no need to check the documents by people facing your face, so on, so forth.

So if all these factors have been addressed quickly, we do believe that the impact can be reached maybe earlier than 2024, but if the changing of the virus, the fifth wave of changing virus, or the effects of the vaccine, not be able to overcome the fifth wave or changing the new virus, that's different level. So we have to remain vigilant. We have to see the plan, but that plan is still uncertain to us. 2024 is probably a target plan but we plan for earlier or depends on the situations.

Adrian Schofield:

Great. Hey, and that's just about all we have time for, but Ben just very quickly, if I could, I did want to ask you the recent quarantine changes from the Hong Kong government, some of the quarantine reductions for certain markets, will that have much of an impact for you on traffic? Will that help a lot?

Ben Wong:

Yes. Yes, it does. It does. All the crew has to go through around 40 days, more than 40 days to confined [inaudible 00:29:28]. So not many crew are willing to do so. It is really, really harsh, but now with the vaccination rate and also the arrangement relief from the quarantine restriction in the destiny hotel, that can help the airline to better utilize their crew force. Right now is the promise for the airlines, Javed will agree with me that you may have many has approved, but they are out of recency. It's difficult for them to fly. Not only pilot, even cabin crew, they're out on six months for recency. Pilot are out on 35 days. So it's difficult for us to maintain those particular crew force with recency to ensure the certain increase of the resuming flights in the coming months. So we have to maintain a certain or resolve certain flights, particularly for building the crew recency to prepare for the resuming plan. So this is the government's relief provision we are having.

Adrian Schofield:

Great. Okay. Hey there, unfortunately, that is all the time we have. Such a shame because it's such an interesting conversation and I have a lot more I'd like to talk to you all about, but that's pretty much the end of our time. So I'd like to thank the panelists very much for such a great conversation and some really interesting points came out of that. And thank you to everyone that's listening in as well. I hope you got as much out of that as I did. So thank you again, and please do tune into some of the other CAPA live sessions.

Ben Wong:

Thank you, Adrian. Thank you Javed. [crosstalk 00:31:02].

Javed Malik:

Thank you everyone. Take care.

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