Asia Regional fleets exploration: A region in need

Transcript

Adrian Schofield:For this session, we are going to go a little bit beyond what we have on the agenda. We're going to take a broader look at some of the issues confronting Asia-Pacific aircraft fleet development. And I think we have got a couple of panellists here who can give us some very interesting perspectives. on those dynamics. So on my left, we have Chu Viet Quang, who is a member of the board of directors for Vietjet, and down the end, we have Bence Szabo, who is head of marketing for Asia Pacific for Airbus.

Chu Viet Cuong:Yeah.

Adrian Schofield:So without further ado, if we can look at— first of all, I just want to talk about the amount of aircraft orders that are due to arrive in the Asia-Pacific region. And according to CAPA data, there's over 6,000 aircraft on order for the Asia-Pacific region. So the question is, and, you know, this is a question that gets asked a lot by a lot of people, can the industry in this region absorb this massive number of aircraft?

Bence Szabo:Yeah, the answer is absolutely.

Adrian Schofield:Absolutely.

Bence Szabo:Asia-Pacific is the most vibrant region in the world. It's growing as a proportion of global aviation. And at Airbus, we look at 2042 in our global market forecast, which we just released. So beyond 10 years beyond what Paul showed earlier. And we see in APAC, and here I'm looking only at North Asia, Southeast Asia, and the Pacific, we see 6,600 deliveries Until 2042. So that's huge growth, but it can handle it because the propensity to travel is still very low here. The economies have a long way to go to develop economically.

Adrian Schofield:Right. Okay. Chu, do you have any thoughts on the more broader Asia-Pacific question?

Chu Viet Cuong:First of all, thank you, CAPA, to invite me to be here. And I think that's maybe next year in Hong Kong, and we hope that's 2025. We'll be in Vietnam for this Asia Summit, and we are very welcome all of you to attend and to enjoy Vietnam. Come back to, I mean, aircraft fleet. You know very well, Vietjet just in operation just 20 years. First, I was fly commercial flight, it is 20 years ago. At this time, we have just only 3 aircraft, but now we have 103 aircraft for trial. We need more, more, more aircraft, new one, not just only to replace. You know, Vientiane currently from small airline, budget airline in the region. To be quite a big one. We have 125 destinations. Domestic, just only 45, but we have more 80 international destinations. After COVID, we expand our very huge market to Australia, India, Eastern Europe, Kazakhstan, Currently, we have planned more long-haul aircraft. We need it to go to Eastern Europe, Western Europe, and to go to Russia as well. I think we need, at least from next year to 2028, about 400 aircraft. Yeah, especially we have signed with Boeing 200 aircraft, but so far not yet received any. We are expecting next year's first batch to come to us. Yeah.

Adrian Schofield:Right.

Chu Viet Cuong:Okay.

Adrian Schofield:In looking at Southeast Asia as a, you know, a subregion of Asia Pacific, there's more than 1,600 aircraft on order just for Southeast Asia. Very high percentage of those are narrowbodies, 88% are narrowbodies. And of course, those narrowbody orders are dominated by the LCCs. So we have got a number of LCCs in the Southeast Asian region with very large order books. And I'm just curious, you know, can— is there room for all of those business plans? Like, you know, can all of these LCCs grow that much, or is someone going to lose out, do you think? Ben, do you know?

Bence Szabo:Yeah, again, absolutely, there's room. The big LCC groups have a pan-Asian strategy, which I think during COVID was a little bit paused, but I think the logic is still there to expand beyond your original hubs into different countries. And I think there's a lot of air travel still to be made in Asia and for the airlines to serve them with that very, very Right.

Adrian Schofield:Chu, from a competitive perspective, do you think that there are too many LCCs with big orders in Southeast Asia?

Chu Viet Cuong:I don't think it is. I'm not sure 100%, but I don't think it is over— I mean, loaded of aircraft. I think it is especially for Vietjet, We need more aircraft, not just solely narrow-body, but long-haul bodies as well.

Bence Szabo:Okay.

Adrian Schofield:Andrew, in the shorter term, can you talk about how many you have in the fleet now, how many more deliveries you're expecting this year, and maybe looking into 2024, how many aircraft you're expecting to receive?

Chu Viet Cuong:This year, we have just received, I mean, it is 12 aircraft already.

Adrian Schofield:Yeah.

Chu Viet Cuong:For mainly it is long-haul, I mean it is A330. Yeah, because we export this for Australian and Kazakhstan market. But I think it is for short-haul, I mean it is we need narrow as well.

Adrian Schofield:Yeah.

Chu Viet Cuong:To explore, I mean it is Northeast Asia. We expect so much from, I mean, it is Boeing, 737 MAX.

Bence Szabo:Right.

Chu Viet Cuong:Just really next year, we hope to receive it, the first batch of this one.

Adrian Schofield:Of the MAX?

Chu Viet Cuong:Yes. That's why so far, we need aircraft even short haul.

Adrian Schofield:Yeah. So you're adding both new orders and you're also looking to the used and lease market, I guess?

Chu Viet Cuong:Yeah, as well. But currently we need long-haul, especially A220neo. Yeah, we can reach to, I mean, Eastern and Western Europe because we have planned to go to Paris. Yeah, we go to Frankfurt and to go to Moscow and Dubai as well.

Adrian Schofield:I don't know, and I'll talk about that a bit later about the long-haul LCCs, but it is an exciting area. And interested about how Thai Vietjet fits into your plans as a subsidiary of Vietjet.

Chu Viet Cuong:Thai, currently we have 18 aircraft, mainly Airbus, but next year maybe we will provide more for them. 6, I mean, it is Boeing as well. They are doing very well and they need, I mean, especially China market, so they need more, I mean, narrow, I mean, Yeah, yeah, okay, great.

Adrian Schofield:And I guess the intention is to grow Thai Vietjet as well as the parent company?

Chu Viet Cuong:Yeah, exactly. So yeah, currently we have 103 aircraft and they have 18. Yeah, right.

Adrian Schofield:Vince, looking at it on a broader perspective, the industry went through this phase during COVID like the initial reaction was defer orders, postpone orders, push everything back. Now that's changed. Now everybody is looking for aircraft. Talk about how, you know, how that dynamic changed, and quite quickly as well.

Bence Szabo:Yeah, yeah, it was actually— I remember catching a taxi on January 16th, 2020 to KL Airport from downtown, hearing for the first time about COVID And, you know, for our industry, that was an existential crisis. Airlines had to adapt and had to adapt quickly. to protect their balance sheets. We at Airbus had to adapt, and we did so by reducing our production rates. And then the market came back with a vengeance, much more so, much faster than we all expected. So I think the whole industry is surprised and happily surprised. And airlines now, I think, are driven by 2 reasons, that they want aircraft medium term, they don't want to lose market share to their competitors, They don't have aircraft. In the short term, as our speaker earlier said, the yields are great. Now's the time to be flying the aircraft. Airlines are back into growth mode, which is great.

Chu Viet Cuong:Chu, did Vietjet defer any orders during COVID You mean, well, just I think COVID changed everything. Before COVID You just think that's because we, our business model, it is a budget airline. You just really focus, or I mean, it is a shorthaul, point-to-point. We never think about we have, I mean, long-haul business. We rely quite much on China market. When COVID came and collapsed, not just like collapse, just like, I mean, China market stopped. Before we have, I mean, every day you have even 100 charter flights to China and suddenly we have zero. That's why we thought that, oh, if you need to survive, we have to go new market like Australia and like India. Because India, 1.3 billion people, a huge market for us. Currently, we have more 13 flights to 13 cities of India. We, Australia, we fly to 5 biggest cities of Australia, including Melbourne, Sydney, Brisbane, Perth, and Adelaide. Yeah, and Now we change very good business there, make us profit. Before, just domestic and short haul. Now it is long haul market, make us profit. Yeah, and we turn daily, fly to Melbourne, Sydney, Brisbane, and 5 times a week to Perth and Adelaide.

Bence Szabo:Right.

Chu Viet Cuong:And load factor over 85%. Great. Yeah, and India as well.

Adrian Schofield:Yeah.

Chu Viet Cuong:So we expect to go to Eastern Europe and Eastern, Western and Eastern Europe, including Paris, Frankfurt, Kazakhstan, now we are going, but Moscow as well.

Adrian Schofield:Right.

Bence Szabo:Yeah.

Adrian Schofield:Okay, great. And those are pretty important markets.

Chu Viet Cuong:Yeah.

Adrian Schofield:Something else I'm wondering, how tight is aircraft availability right now for used, lease and new orders? Vince, do you have a sense of that?

Bence Szabo:I can talk about new orders. So we're basically in our single-aisle A320 family, we're basically sold out until 2030, a few slots available in 2029. So that means our customers in the short term have to go to the leasing market. The A220 family as well is seeing good momentum. So just yesterday we signed a deal with Air Niugini for A220s here in the region. And then earlier in the year, Qantas signed for 9 A220s to top up their order. So that's seeing traction, and then that's becoming further away, the possibilities to get aircraft. And then of course, on widebodies, which is the segment that recovered a bit later in APAC, we're seeing the rebound. So this year, Philippine Airlines ordered A350-1000s, Qantas ordered A350-1000s, and then globally, the big order from Air France a couple of weeks ago for A350s. So yeah, even on widebodies, we're really seeing the demand pick up. And of course, if you want aircraft in the near term, that's becoming more difficult from us.

Adrian Schofield:Right, right. Okay, um, Chu, what about you? You're, you're in the market for, for a lot more narrowbodies at the moment. Is it difficult to find narrowbodies on the leasing and used market?

Chu Viet Cuong:Uh, well, uh, currently in our fleet, we have 7 A320s. Yeah, widebody. We need more, at least for this year, 3 to 4 aircraft, but not easy, not easy to find this in the market. We expect so much about A330neo, and neo, it can reach too far. Not easy to find this one at this moment.

Adrian Schofield:What about, Chu, what the situation with obtaining aircraft financing? Is that difficult right now? Because I know the market did tighten up a little bit. Is it becoming easier to obtain aircraft loans?

Chu Viet Cuong:Well, for us, currently, we are not facing any difficulties to access to financial institutions, including, I mean, fund, include bank, domestic and international, because I think there's maybe we have good business.

Bence Szabo:Performance.

Chu Viet Cuong:We turn— I mean, after COVID, we turn profitable airline, and we have very fast— I mean, international— I mean, it is business development. That's why, I mean, all financial agencies and banks, they are happy to find money for us.

Bence Szabo:Right.

Adrian Schofield:Pete, it's a question for you. Like, a lot of airlines went through some difficult restructuring over the pandemic and had to sort of renegotiate a lot of contracts and that sort of thing. Do manufacturers assess airlines making orders differently now? Like, do they assess the viability of airlines a little bit differently now?

Bence Szabo:Honestly, we had good risk management before and we have it after the pandemic, so no, that hasn't really changed.

Adrian Schofield:Right, okay, good to know. Yeah, okay, and moving on to looking at some of the new aircraft types that are coming up, I'm interested in how the advent of longer-range narrowbodies is changing the dynamic for airlines and giving them a lot more flexibility in, you know, what routes they can look at and how they serve them and how they think about their fleets. And, you know, particularly from an Asia-Pacific context, could you talk to that a bit?

Bence Szabo:Yeah, so we, we at Airbus, I think, have pioneered the, the longer range narrowbody aircraft, the single aisle, even with the A320 family with auxiliary fuel tanks. So a good example is Jetstar took delivery last year of an A321 with 2 auxiliary fuel tanks that they fly Melbourne-Bali with, replacing a widebody.

Adrian Schofield:Yeah.

Bence Szabo:So you had that there. You then obviously have the XLR with the, the big fuel tank that allows you to go as far as a widebody with widebody comfort but single-aisle economics. And then even the A220 has a significant range advantage over the Embraer. So our whole family of single-aisle products have range. And I think for airlines, it gives them 2 real benefits, flexibility benefits. One is utilisation. They have more destinations they can fly to on thinner markets. They can fly at night. instead of sitting the aircraft on the ground in the airport, in their home hubs. So that increases utilisation, which makes the asset more valuable. And then the second benefit of the extra range is more destinations, more choice, because you've got a smaller aircraft, you can go here, there, everywhere, which means you can mitigate the risk of the market changing over the 20-year life of the aircraft. And in APAC, to answer your question, we have a growing market, more secondary destinations, more point-to-point markets that these aircraft can take advantage of. So I think it's— personally, I think it's quite a good aircraft, or our aircraft's range is really valuable for APAC.

Adrian Schofield:Right, yeah, so it could be particularly well suited for the Asia-Pacific market.

Chu Viet Cuong:Yeah.

Adrian Schofield:So I know there's a lot of airlines in this region that have ordered the XLRs and LRs.

Chu Viet Cuong:Yeah.

Adrian Schofield:But Shu, what sort of— Vietjet has XLRs on order. Interested in hearing about what sort of role you envisage for the XLRs And what sort of opportunities that they may create for you?

Chu Viet Cuong:Well, just like I mentioned before, you know, when you reach new market, you need a long-haul, you need a wide-body aircraft, especially A330, and then A330neo. Because I know there's Airbus, they have new one, A350, but this is quite expensive for, I mean, LCC. I think this is a good opportunity for us to reach to further market for Vietjet. Before, we have just a short haul. Short, I mean, it is Asia market, but now we can reach to Europe, to Eastern, and even we can go to American market.

Adrian Schofield:With the XLR?

Chu Viet Cuong:A330neo. You can reach to, I mean, California, yeah, or something like this from US, then you have a very huge market there. Because I just last month I was in US. So we have not just only Vietnamese communities there, very big one, 4 million people. And this is a good market for Vietjet in the future if you have long-haul, I mean, aircraft.

Bence Szabo:Yeah.

Adrian Schofield:And Vince, would you be able to give us a quick update on where things are up to with the XLR certification?

Chu Viet Cuong:Yeah, absolutely.

Bence Szabo:So, I mean, before that, I'll say we've got 500 orders across a range of customers with the XLR. So that's very exciting.

Adrian Schofield:Wow.

Bence Szabo:But yeah, we've got 3 flight test aircraft flying around, one with Pratt Whitney engines, one with CFM, and one with the cabin. So they've been doing the certification flights. And a couple of weeks ago, we actually did the route proving. So we took the aircraft with the cabin and flew it on routes as if an airline was operating it. We went out to the US from Dublin and Madrid and so on. So it's all on track for certification by the end of this year, and then the EIS, the first flight will be— is expected in Q2 next year.

Adrian Schofield:Right, okay. And just again very quickly, Vince, I'm curious about the emergence of the longer-range narrowbodies. Does that start to eat into the market for widebodies in some markets?

Bence Szabo:I think they complement each other, so You know, you can— you've got more flexibility, as we talked about earlier. You can have a single-aisle flying alongside a widebody. You can release a widebody to grow different markets. So I think they're absolutely complementary.

Adrian Schofield:And it's interesting, we've seen a lot of LCCs going for the XLR, but we also have this trend, as with Vietjet, of LCCs operating widebodies. So do you see this trend continuing to increase, or is that Is that kind of plateaued?

Bence Szabo:No, and I think it will increase. It's remarkable actually that in APAC, and this is the whole region, we have 11 LCCs operating about 90 widebodies. And, you know, contrast that to North America, to the US, where you've got zero.

Adrian Schofield:Right, yeah.

Bence Szabo:So it's our region, that's something unique to our region, and I think, you know, as, as Chu was saying, that you want to do more. So it's definitely Exactly.

Adrian Schofield:Yes, and Chu, can you— I know you touched on this earlier, but could you talk a bit more about, you know, why, you know, what you think of the LCC widebody model? And obviously you do think there's some growth there, and, you know, you mentioned the neos. Maybe you talk about when you might be thinking of looking at some orders for the A330neos.

Chu Viet Cuong:Yeah, so I just mentioned before, Because before all, and I mean many, I mean LCC in Southeast Asia, we rely so much on China market. Yeah, but suddenly stop it. So we need to go further to go to Australia, you go to, I mean, East Western Europe, to go to, I mean, our friend like Kazakhstan and Moscow or something like this. So we need, we need long-haul aircraft. This is tendency for NCC. I think this after COVID, it seems to be changed, I mean, business model of NCC. Before, we never think that we use wide-body aircraft to go far away to Australia, to India, to go Eastern, Western Europe, but now everything changed. Because the situation, I mean, changed. So, so I think this, we have to adopt, I mean, new, new kind of aircraft and quite new, I mean, it is a business model, right? And sometimes this is a look like, I mean, hybrid, hybrid, but in fact it is a thin LCC.

Adrian Schofield:Yeah, I guess this bringing widebodies into the fleet and operating longer range routes for an LCC, it does bring in a lot of new sort of issues to consider, doesn't it?

Chu Viet Cuong:Yes, of course.

Adrian Schofield:So, you know, and you have to have a slightly different product for your long-haul widebody services, I guess. So what are the challenges of bringing widebodies in? And does that sort of push you more towards the full-service carrier model?

Chu Viet Cuong:Yes, of course, so many challenges in terms of, I mean, even with pilots, you know, in terms of our cabin crew, we need to retrain them. Everything and all services, even ancillary, you know, for— because before it just only take 4 or 5, less than 5 hours flight. But now if you go to Australia, 8 or 9 hours flight. So we need something change for your staff, for your— I mean, it is a service, everything. But the most important thing, you can make money, you can make profit. And you can make your business, you can survive, the most important thing. Right.

Adrian Schofield:Yeah, right. Okay, Vince, any thoughts on that, on some of the additional challenges that brings to LCCs?

Bence Szabo:Well, it's clearly a bigger challenge, but you put it perfectly. If the opportunity is there, then it's worth tackling.

Adrian Schofield:Yeah, right. Okay, I'd like to talk about, you know, this— we do have this vast number of orders for the Asia-Pacific region, but there's a, there's a lot of future constraints that could impact you know, the ability of airlines to take delivery of all those aircraft, some externals like workforce, infrastructure limitations, supply chain limitations. Can you talk about how some of those aspects may limit or not the future flow of aircraft deliveries?

Bence Szabo:Well, I think I'll start by infrastructure. So I think APAC is somewhere where airports are expanding. We're seeing it in Singapore and Hong Kong with new runways, new terminals. We're seeing it Bangkok just recently, new airports in Manila. So I think APAC will step up and create the infrastructure. And then on the people side, which is what we found in COVID to be the real bottleneck, we have time to do it. And to put in the plug, I think at Airbus we play an important role with training both of pilots and mechanics and engineers through our digital solutions. So we We're completely aware of it, and it can definitely be managed in APAC. The huge growth up until now has been managed. The likes of Vietjet and other LCCs have grown quickly and very well, so I think that proves it can be done.

Adrian Schofield:Hmm, okay, right. Chu, what about from your perspective? I know, for starting with infrastructure, I know airport development's been a big thing in Vietnam. Could you tell us a bit about that, about how Airport developers is trying to prepare for this big wave of aircraft orders we have coming in?

Chu Viet Cuong:Of course, we have some difficulties so far for infrastructure. Everyone in Vietnam, because of aviation, I mean, it grows very fast. Infrastructure development cannot meet the demand. Fortunately, the government pay much attention and investment For new airport, for instance, 2 years to come, we have new international airport, very big one in in the South because Ho Chi Minh City, I mean Saigon Airport, is now it is crowded as well. So this is like I mean opportunities for the government to invest more for infrastructure to meet demand of aviation. So I think it is a good thing, not just really for ours, but for the government investment as well.

Adrian Schofield:And it's airports outside the main centres too that I think development's going on.

Chu Viet Cuong:Yes, yes, yes. Long Thanh, yeah, very big one.

Adrian Schofield:So we think that there is enough airport development going on to support the order pipeline in general?

Chu Viet Cuong:Yeah, there will be.

Adrian Schofield:Yeah, great. Okay. And workforce, is that an issue for Vietjet as it has been for for other airlines in the region?

Chu Viet Cuong:Yeah, not easy to say about this thing, but well, I think we are doing well. We are doing well. I think it is because we are private airlines. We have more incentive, we have dynamic, and we think that we focus so much about ours. We change, we have changeable, I mean, Ally, and it is to move forward to become, I mean, the biggest airline in Vietnam.

Adrian Schofield:Yeah, including—

Chu Viet Cuong:Yeah, including— so currently, we have just only 12 years in operation, but now we are the biggest airline in Vietnam. We account for 40% of domestic Oh, wow. And I mean, national Vietnam Airlines, just only 20, uh, 32%. So we are biggest one.

Adrian Schofield:Okay, right.

Chu Viet Cuong:Yeah.

Adrian Schofield:And, and so you're, um, I know some airlines are starting to see pilot shortages constrain their plans a little bit. Is that, is, is the difficulty in, in, in getting, getting enough pilots inhibiting your, your growth plans at all?

Chu Viet Cuong:Currently, I think everything under our control about pilots. Even in Vietnam currently, because we have not competitors, but just one second hybrid airline, Bamboo, but it seems to be they are going to stop. That's why we have a reserve pilot and they're HR for ours.

Bence Szabo:Thank you.

Chu Viet Cuong:Yeah, they love to move to work for us, the first one. And in international market, we are— I mean, it is— I think we do with, I mean, HR pilot, I mean, companies. So, so far, we have no problem with pilot.

Adrian Schofield:Okay, we're fast running out of time. But something I do want to ask you about, Chu, is the Pratt Whitney engine issue. I know it's been a big deal for a lot of airlines around the region. And I know it is impacting you. So could you talk about how the Pratt Whitney engine issue is impacting your current operations and your plans?

Chu Viet Cuong:Yeah, I think this is a very sensitive question, but very difficult question. I think there's— yeah, this is our partner, Airbus, and with the— I mean, Pratt Whitney, we negotiate with them and As soon as possible, we hope that to resolve this. It's not easy one, but of course, big impact to our business as well as our business development, our expansion. But from next year, so far I have not yet, I mean, answers to this one, but I hope that we can work with Airbus.

Adrian Schofield:Yes.

Chu Viet Cuong:With Pratt. Whitney can resolve this.

Adrian Schofield:So you don't know yet how many aircraft you'll have to have on the ground?

Chu Viet Cuong:I think Airbus know better than us, but I think that we have some, some, and not just only Vietjet, many, I mean, airlines in Asia. Yeah, including I heard that IndiGo, some the same.

Adrian Schofield:Right, right.

Chu Viet Cuong:Yeah.

Adrian Schofield:So it makes it very difficult to plan for next year, I guess.

Chu Viet Cuong:Yeah.

Adrian Schofield:Okay. Well, that is about all the time we have. So, I'd like you to join me in thanking the panellists for, I think, some really interesting discussions on Asia-Pacific Link.

Chu Viet Cuong:Thank you.

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