Can the Southeast Asian market regain its momentum

Transcript

Alan Tan:Good afternoon, everyone. It's good to be back at CAPA to see old friends. Welcome to Singapore for all of you who are not from Singapore. So I hope you're here in Singapore for this particular event, which is as good as Taylor Swift and Lady Gaga, I can promise you. Can I welcome my panellists? First, we have Marisa Lucas, Vice President for Customer Marketing at Airbus, right, and followed by Subhash Menon, Director-General of the Association of Asia-Pacific Airlines, and Pak Eddy Grismidi Somawilaga, Head of Indonesia Affairs and Policy at Indonesia AirAsia, and Thomas—

Subhas Menon:Thomas.

Alan Tan:partner at Deloitte in Singapore.

Thomas D. Pellegrin:Deloitte.

Alan Tan:Deloitte in Singapore, very good. Please have a seat. My name is Alan Tan. I'm a professor of aviation law at the National University of Singapore here, and my main area of research is into air traffic rights and the aeropolitics in the industry. So it'll be interesting to take all of you through the theme for today's panel and infusing some aeropolitics into the discussion. Can the Southeast Asian market regain its momentum? So we would like to challenge this proposition a little bit and not take it for granted that there has been a bit of sputtering. We hear from the previous speakers that growth is there, growth is still good, but it's sputtering like any engines do. And that there's been a loss in momentum. We'd like to challenge that, but we'd like to also remind everyone that we are not just talking about Southeast Asia. We'd like to take Southeast Asia in its greater locality and vicinity, which is Asia and Asia-Pacific, and also not to mention intra-regional travel as well as domestic travel within particular countries. All right, so I'm going to start off with Subhash to give us a good overview. Do you agree that there's been a sputtering and a loss in momentum?

Subhas Menon:Well, I think you'll have to take a longer-term view of things, you know, rather than what happens, you know, in a month or in a quarter even, you know. So I was looking at it from the first 6 months of 2025 together. better idea on how the market is doing. It is tempting when you see so many things happening in the macroeconomic environment to conclude that things are not going so well, but I think you have to differentiate between what is essentially a fly in the ointment with what is really a spanner in the works. So some of the things that we are seeing really is they are like flies in the ointment. For example, the skirmishes between Thailand and Cambodia, it went off as quickly as it came. So we don't worry too much about it. But tariffs, like the pandemic, that is probably a spanner in the works, so we have to worry of that. But then tariffs have not really started to change things, because they have not really been implemented. And I mean, you see a lot of talk of Trump going around and trying to ease things and things like that, but he's the only one who can ease things. So it's like turning to a pyromaniac to put out the fire, so what are the chances of that? Not very likely. So if you look at the Southeast Asian market, market really from that 6-monthly perspective, yes, growth is slowing down, you know, but if you look at the growth pattern, it is really sort of moving towards historical trends, right? I mean, we had 4 years of stupendous growth, you know, after the borders reopened, you know. In 2022, we are talking about, you know, upwards of 300%. And then slowly in 2023, it came down to 150%, 200%. And then last year, it was double digits, and now into single digits. And you have to look at all the traffic flows to get a good idea.

Alan Tan:So can I jump in and prod you a little bit on that? It's tempting for the analysts to compare us to the figures in 2019, because that's the pre-pandemic high figures. And all these projections of how long it will take for us to reach pre-2019 or pre-pandemic levels, and it does seem to be taking a while. So is it because the initial euphoria of recovery is over and it's now a more stable, systematic, consolidated growth? Or is it because there are fundamental issues like the Chinese economy not really taking off?

Subhas Menon:No, actually, if you take Asia-Pacific as a whole, already recovered above 2019 levels. So once that is done, you have to throw it out of the window. You have to look at it as just year-on-year growth.

Eddy Krismeidi Soemawilaga:Right.

Subhas Menon:Right? And that is why I said it's historical trends. If you look at the 6-month growth, Southeast, intra-Southeast Asia travel has grown 6%, just like Southeast Asia to Southwest Pacific. Then you look at North Asia, it's growing at 9%. And the same thing for West Asia. China, for instance, Southeast Asia-China is inbound as well as outbound, 117% in the first 6 months. China and India, it is— sorry, Southeast Asia and India is growing at about 15%. Overall, I would say it's about 7%. So that's quite healthy if you look at historical trends. But that's not to say that there have not been a lot of problems. I mean—

Alan Tan:And hiccups along the way.

Subhas Menon:Supply chains, we talk about supply chains, right? I mean, that is really affecting, and there's not a single airline in Southeast Asia would say that, you know, they are not affected by supply chain issues.

Alan Tan:I'm going to move to Thomas, right? Thomas, you've got some figures, you've got some statistics for us. Would you like to pick up on what Subhash has talk to about and give us more granularity?

Thomas D. Pellegrin:Yeah, with pleasure, Alan. I think a lot of the thunder was provided earlier by Paul and Simon, so thanks to them. But I think, you know, glass half full side of things, everything is relative, right? We are talking about a slowdown, but the region remains the barycentre of growth, right? I think year on year, our PK growth has been 9%, which is 1.7 times the global average if we exclude Asia-Pacific, right? 7 out of the 10 fastest-growing routes, busiest routes are in Asia. And I think Chan Kiat this morning was mentioning the 52% of the global growth in RPKs comes from AP overall. So I think what we're seeing is we had, you know, 2 years of rebound. We're now going back to a normalisation of China.

Marisa Lucas:Mm-hmm.

Thomas D. Pellegrin:In fact, if you look at the pre-pandemic forecasts issued by IATA or the OEMs, um, you know, before we knew there would be COVID, right, you had this, this slope And now we're obviously, we in, in the actual, we had this massive dip in, in 2020, '21, '22, and now we're getting back to the same slope, just one quantum of traffic below, which we're never going to recover, that's lost to the pandemic. But the slope is now arguably parallel to what it used to be. If we look at capacity, which is kind of the forward-looking indicator, because obviously the schedules are published 6 months ahead, We see that there was double-digit growth last year in capacity across the region. It's now back to single digits, to Subhas's point earlier. So that's roughly 4% growth in domestic capacity, 6% in international capacity. But those are just averages, and the problem with averages is they obfuscate a lot of variance at the individual market level. So if we take Malaysia, for instance, Malaysia is still growing tremendously, 16% internationally, in capacity, 26% in domestic capacity. This is well above any other market. Vietnam is also growing 16%, both international and domestic capacity. But then at the other end of the spectrum, we have Indonesia, which is the single largest aviation market in Southeast Asia, and yet has lost 5 to 6% capacity between international and domestic over the last year, right?

Alan Tan:Which is more acute, domestic or international?

Thomas D. Pellegrin:So I think, I think it's 4% international, 6% domestic. domestic, roughly. In fact, we just ran some analysis, we can talk about connectivity later, but Indonesia has lost quite a bit of both international and domestic, and is the only country in Asia-Pacific to have done so, to have lost on both sides of capacity. So there's quite a bit of disparity within the region, and really, unless you look at the market level, I think you lose out that nuance.

Alan Tan:Okay, good. Let's move on to Eddy. Now, Eddy and I share a lot in common. Eddie, as many of you know, had a previous life in the ASEAN Secretariat, the Association of Southeast Asian Nations Secretariat in Jakarta, and he was the Senior Transport Officer in charge of air traffic rights and the creation of the ASEAN Single Aviation Market, that grand-sounding concept, right, which if you ask me is anything but single. So the problem, of course, is that 3rd, 4th, and 5th freedoms are relaxed and open, but 7th freedom, which is the capacity of an airline to connect 2 foreign spots the way easyJet and Ryanair can fly around everywhere within the European Union, that's taboo, that's untouchable, that's not something that's even raised within ASEAN. So the low-hanging fruits have been picked, and now it's the difficult part, and that's something nobody wants to talk about. So I want to pose the question then to Eddy, both in your current capacity in Indonesia AirAsia and in your previous capacity. Is this going to be a potential block on further growth, air traffic rights?

Eddy Krismeidi Soemawilaga:Okay, thank you, Alan. I think, yes, since you mentioned about my role before, The development of this ASEAN Single Aviation Market has been stalled. Even in the case for, in my case in Indonesia, for example, within the ASEAN Open Skies, I think Indonesia is only open for 5 airports, Jakarta, Surabaya, Bali, Medan, and Makassar.

Alan Tan:Coincidentally, the biggest 5 cities, thankfully.

Eddy Krismeidi Soemawilaga:Well, actually, recently Indonesia has just reopened 36 international airports where they are governed by bilateral, mostly.

Alan Tan:Bilaterals.

Eddy Krismeidi Soemawilaga:So I think this situation also clear indication on how actually Indonesia participate in ASEAN Open Skies, right? So I think that's another challenge that we have, we are facing in terms of how we can move forward between Indonesia and ASEAN. And so much currently is really driven by how bilateral agreement is there, because some of cities are not covered even in bilateral sometimes. Like for example, Previously, Bandung, for example. If we want to fly from Bandung to Brunei, I think there is no such thing in bilateral, and even not in ASEAN as well. So there's no such thing now.

Alan Tan:Can you elaborate? If it's not pursuant to the bilateral, you call up the Bandung mayor to say, can I fly there?

Eddy Krismeidi Soemawilaga:Exactly. Then we do some air talks with Brunei, between Malaysia and Brunei. So I think that kind of arrangement is still happening. in our part of the region, on top of what you mentioned earlier. Even for, I think, fee freedom traffic rights, it's still quite minimum in terms of operation in ASEAN countries. And yet, you're already aware on how the application of fee freedom, because in ASEAN Open Skies, actually, you are allowed to have backtracking.

Marisa Lucas:Yeah.

Eddy Krismeidi Soemawilaga:Say, for example, you fly from KL, Singapore, Singapore, Yangon is allowed actually.

Alan Tan:That's a real-life example that you just brought up. KL, Singapore, Yangon, an application that if you ask AirAsia in their words, was stalled by Singapore, right?

Eddy Krismeidi Soemawilaga:Yeah, I know.

Alan Tan:I said it, you didn't. I think that's because it's backtracking, you see. It's a V-shaped route, what we call a V-shaped route, which means that everyone getting on board in Kuala Lumpur would presumably get out in Singapore, and you have an empty plane, and that empty plane will then go on to Yangon in competition with the incumbents, and that is effectively a 7th freedom, which is not on the table, which is not in the ASEAN agreements, right? So both sides have their legalistic points, if you like.

Eddy Krismeidi Soemawilaga:Yeah, I think, and in fact, within the agreement it says there is no limit of capacity, type of aircraft, frequency. The limit is really on the airport itself. So I think there's still a lot of work to be done for achieving fully ASEAN open skies.

Alan Tan:So quick question for you before we move to Airbus and the manufacturers. What about ownership and control? So we had a quick talk and chat about this. The audience will know that the ASEAN Single Aviation Market attempts to do what the Europeans have done, which is to create a nascent community carrier concept, meaning that a community carrier that is able to fly subject to the rights everywhere if the ownership and control, right, is reposed in the region. So it's no longer 51% Malaysian or 51% Bruneian, you could have 51% in the family, the ASEAN family, a bit of the EU idea here. And that's in the ASEAN agreements.

Eddy Krismeidi Soemawilaga:It is.

Alan Tan:But it's not gotten anywhere because no community carrier has been created or established in the Southeast Asian region because of the risks involved, the uncertainty, given that the destination states have the right to veto because it is their consent that is needed before you can even fly there as a community carrier. The result is that all the new airlines that you see in the region resort to the old substantial ownership and effective control 51-49% rule. So any anecdotes to share on that, Eddy?

Eddy Krismeidi Soemawilaga:Okay, actually within the agreement itself we have 2 options for countries to apply, as you mentioned. One is substantial ownership, and second is also on the PPOB, principal place of business. Where some countries that are now in ASEAN have already opened for 100% ownership, but some others is really strictly on SOE.

Alan Tan:Yeah, so the Philippines is interesting because under its internal domestic laws, you can now own 100% of a Philippine carrier even if you're a foreigner, right? You could have a 100% owned carrier in the Philippines if you're Malaysia. And that's exactly what Philippines' AirAsia has done. Am I right that it's now 100% owned by AirAsia Berhad?

Eddy Krismeidi Soemawilaga:Yes.

Alan Tan:Right? Now that's interesting and that would be fully consistent with the ASEAN model that we talked about a while ago, which is this capacity for a community carrier to emerge because majority ownership is still within the region, still within ASEAN. But what happened?

Eddy Krismeidi Soemawilaga:Yeah, I think we have some issues applying to some countries in ASEAN.

Alan Tan:Can you mention which country?

Eddy Krismeidi Soemawilaga:I think currently we are in process of Thailand.

Alan Tan:Thailand, right.

Eddy Krismeidi Soemawilaga:There's some light in the tunnel, end of the tunnel, that they are giving to us.

Alan Tan:There's some light at the end of the tunnel, but there's some darkness before that because—

Eddy Krismeidi Soemawilaga:Yeah, we're still in the process.

Alan Tan:Because the Thais have apparently said we have the right to object. subject to our consent, and we want it to be SOEC, we want it to be 51/49, and we don't want it to be a community carrier. So that's a real spanner in the works because it's provided for in the treaty, but at the same time, the way ASEAN works is that you repose the power to consent and to object in the receiving state, in the destination state. So that's going to be a difficulty. if you're talking about the grand project to make growth happen.

Subhas Menon:Yeah.

Alan Tan:Okay, good. We'll come back to some of these questions, but I want to move on to Marissa in her capacity as a manufacturing person, right? We've talked about parts, we've talked about backlogs, we've talked about airlines that want to grow facing difficulties in getting new planes, new parts. Do you see that as a problem fitting into the theme we're discussing today, which is sputtering momentum?

Marisa Lucas:Well, obviously, if there is a need for capacity and the capacity is not there, it is obviously one of the things that could slow down momentum. We were talking about the shape of the curve for traffic and demand. And that was the same for manufacturing. The problem is that when you go down, there is a full ecosystem of suppliers that have to reshape and go up. It takes a long time. So that shape, when you were saying it was supposed to be here and it's there, that's the capacity in terms of the capacity that we can put on the market. that is never going to get to that level. We lost thousands of airplanes that were not produced in those years, and that we will never recover. But we are doing our best to, you know, catch up, and we are on a good track to reach rate 75 on single-aisle by 2027. We are increasing the production on A220 and also on widebodies, so ramping up in all products. Thank you.

Alan Tan:Okay, so can I ask you, the ramping up problem has got to do with the pandemic and the fact that there was massive layoffs, and is it an issue of rehiring, or is there something more systemic in terms of the difficulties in recovery?

Marisa Lucas:It is not that much an Airbus problem, and, uh, we, we, I think we manage well, you know, the sizing of the company and keeping the necessary skills in-house, even though we suffer like everybody else. But we have a huge change of suppliers, tier 1, 2, 3, 4, and some of them, you know, they really struggle through those pandemic times. So we had to take care of the entire ecosystem to be able to rebump again. And, um, and we were talking a lot about communication earlier on. We really need to make a lot of efforts so that everybody will keep that faith that traffic was going to come back. But it was very difficult to believe for some manufacturers, and not even tier 4 or 5. Uh, it took us a lot of effort to convince the engine manufacturers that we would need that, and we are still kind of struggling with that. So the biggest issue is the inertia, the industrial inertia that was created. But I think we're doing really well. And just this month, and I think it's a very important point to make, we have delivered for the first time more single-aisle airplanes, more A320 family airplanes, that Boeing had delivered 737s. And when we put the A320 in service, there were already 1,500 737s flying. So that's how fast we are ramping up and how seriously we are taking our, you know, role in the industry just to bring all that capacity so that growth can can take place.

Alan Tan:Okay, good. Now, we have a few questions from the floor, so perhaps we can see who amongst you would like to jump in and respond. Can the LCC model still scale in Southeast Asia due to staff shortages, or has it reached saturation, making virtual interlining and OTA partnerships the next solution?

Eddy Krismeidi Soemawilaga:Maybe I can answer that. I think in the case of Indonesia, for example, our fleet is depleting actually compared to before pandemic. Before pandemic, we have around 700 aircraft totally in Indonesia serviceable. Now, I think last month the DGCA announced that there are only 320, so less than half even. So with this situation, actually, Of course, there are some homework for us to return the fleet back, but at the same time, I think in terms of workforce in Indonesia, we have oversupply actually in terms of pilot, especially on the pilot cabin crew. But in terms of engineering, it's totally different because MRO are really busy in all the places, including Indonesia. I think MRO engineering having a lack of, I think we have a lack of supply in terms of talent that support the MRO. But I think in terms of cabin crew, pilots are still there. That's why I think we are expecting that within the follow-up from the ASEAN Open Skies, there's one MRA initiative which would allow actually transfer for workforce from one country to another country, but it's not yet up to the cabin crew and pilot, still in the discussion. For others, I think there are, I think training equipment is there already, but not into workforce.

Alan Tan:So this is really the next stage in ASEAN Open Skies, the higher hanging fruits that are difficult. It's technical harmonisation.

Eddy Krismeidi Soemawilaga:Yes.

Alan Tan:Even the Europeans struggle with technical harmonisation.

Marisa Lucas:Yes.

Alan Tan:And we all know that the single air traffic control system is perhaps the most difficult. But even for technical harmonisation like pilots' training, ramp inspections, and what you were mentioning a while ago, that's going to take a long time for countries in the region to kind of like reach a more or less stable and equal level of technical capacity before you can even talk about technical harmonisation. Right, okay. I want to come back to Subhash and Thomas. We talked about capacity, right? What about the related point of connectivity? Right, connectivity just being at its simplest level city pairs. Do we see the same sputtering momentum for connectivity? And again, what's the Granular difference between intra-region, between Southeast Asia and Northeast Asia, for instance, and of course another level which is domestic.

Subhas Menon:Yeah, well, I think as far as the intra-market is concerned—

Alan Tan:Intra-ASEAN.

Subhas Menon:Intra-Southeast Asia, I don't see connectivity as a big problem because I think generally the desire is to travel point-to-point. So even referring to the issue of whether LCC model has reached saturation point, I don't think so, because the driver really is demand, and demand is going to grow. Asia-Pacific as a whole is going to— it's already the largest market, and it's going to account for close to 50% of total traffic. So demand is the driver. I mean, when the pandemic happened, everybody said that that's the end of air transport, international air transport, right? The moment borders reopened and supply came on stream, you know, the demand returned and it's still going strong. So supply, I think, is the most important thing, you know. So it's not so much connectivity, but as much as whether we have enough aircraft, you know. And don't forget, most of the ASEAN countries The airlines of the ASEAN countries placed their orders for new aircraft quite late in the day. By the time they placed the orders, the supply chain issues were already there.

Alan Tan:Right. But again, also subject to air traffic rights, because while we have an open 3rd, 4th freedom point-to-point within the region, 5th freedoms and the 7th freedom model is still limited. And so AirAsia is a prime example. of a strategy that gets around it by establishing the AirAsia babies and subsidiaries, Thai AirAsia, Indonesia AirAsia, and now you've got Cambodia AirAsia, Philippine AirAsia, essentially to get around the lack of a real single aviation market, right? Okay, Thomas, anything to add on connectivity?

Thomas D. Pellegrin:Yeah, so just maybe before I circle back to connectivity, just on the LCC point very briefly, I think we've seen the market penetration of LCCs grow about 3 to 5 times more slowly in the last 6 years than in the previous 6 years. So essentially, the pandemic marks an inflection point where the international seat capacity was growing at about 9% CAGR, essentially almost doubled in the, in the previous 6 years, and domestic was also very robust. But since then, it has slowed down considerably. And, and I think that's an interesting measure to look at market penetration for, for capacity because it kind of normalises for aircraft availability because everybody's chasing the same aircraft. Well, maybe more narrowbodies, of course, for LCCs. But so whether there is a saturation point, I don't know. There are markets with higher penetration of LCCs. So I don't know if demand, how much ceiling, how much headroom there is for additional demand. I'm sure there is plenty. But right now, yes, availability of capacity is a big issue. But we're seeing this structural slowdown in the growth rate of LCCs relative to FSCs.

Alan Tan:Thank you.

Thomas D. Pellegrin:That's, that's a fact. Now, coming back to connectivity, I think this is a very interesting story because everybody is very focused on the recovery of RPKs. And I think Ching Kiat was mentioning this morning, we're, you know, above, at or above 100% in most markets. Yes, but that's only part of the story, right? So we, we looked recently, we just issued a study on air travel connectivity in Asia-Pacific. at Deloitte, in partnership with OAG and my good friend, Mac, who I think is at the back of the room. So thanks to OAG for, for giving us the data. And what we found was actually quite staggering in my view. So this is where perhaps I depart a little bit from what Subhas was saying. Asia-Pacific is the only region in the world that has lost net international connectivity. When I say net, it means offsetting gains and losses. It's been an attrition of 238 net international routes in the region, when the—

Alan Tan:How much of that is due to China?

Thomas D. Pellegrin:So the majority of that is coming from China, right? So China has lost, I think, somewhere like 300 international routes, but has shifted obviously to domestic, right? I think China has gained 71 domestic pairs over that same period of the last 6 years. And also India, right? So India has been growing domestic pairs 3 times faster than international pairs. But then you take markets like Indonesia. Again, I don't want to harp on Indonesia, but it is striking that Indonesia, being an archipelagic country, has actually lost 20 international pairs and 113 domestic pairs over the last 6 years. But the fact that Asia-Pacific as a whole has lost so much of intra-regional flows, and then also a few outside of the region, means that the region is far more isolated than it used to be, and that has downstream implications to trade, to tourism, to GDP growth. And I cannot stress enough how remarkable this is, I think, that it is the only region in the world that has gone through this experience in the last 6 years.

Eddy Krismeidi Soemawilaga:All right, okay.

Alan Tan:But again, a lot of that is due to China and losing a lot of its pre-2019 flights to the United States. Right, we heard that the US-China market is a fraction of what it used to be, the nonstop point-to-point market.

Thomas D. Pellegrin:And group tourism as well out of China, even within SEA.

Eddy Krismeidi Soemawilaga:Right, okay.

Alan Tan:Now I've got an aircraft manufacturer here, I have to ask you this question, Marisa. A couple of years ago at the same, at this same CAPA Summit, I had Embraer with me, right? And the big hot topic then was again Southeast Asia, and the thesis then, perhaps now, is that the engine for growth is going to be secondary markets. It's not going to be hub-to-hub, Singapore to Jakarta. It's going to be Penang to Chiang Mai, Davao to Da Nang in Vietnam, right? Bali to Phuket. For the longest time, we never even had a nonstop direct between Bali and Phuket if I wanted to do beach hopping, right? And I know AirAsia came out with a Bali to Phuket subsequently.

Eddy Krismeidi Soemawilaga:Yeah.

Alan Tan:So what is the potential in secondary markets given that we do have an ASEAN Open Skies unlimited 3rd, 4th freedom for secondary point to secondary point? Very importantly, bypassing the congestion in spots like, in airports like Manila and Jakarta, right? So the argument therefore for right-sizing, for smaller planes, And that's where Embraer came in guns a-blazing, and back then we all predicted that there will be an inroad made, and true enough, today we've got Scoot for the first time operating Embraer regional jets within the region. Where do you come in? And I'm thinking specifically of your A220 programme. I have to ask this.

Marisa Lucas:Well, we—

Alan Tan:And there's been reports, tantalising reports, in the media about certain big players contemplating the A220, but of course there are other suitors.

Marisa Lucas:Yeah, so we kind of agree with Embraer. This is not always the case, but on this particular one, we do see a big potential on the secondary city markets. It's really big, and we see more than 600 routes where And the A220 is really well suited for this market, not only because of those secondary cities, but it brings a lot more than that. It's an airplane that brings a lot of range and more capacity than the E2 could bring. And that opens other opportunities as well, because we were talking about the E2, which is a single-engine airplane.

Subhas Menon:Yeah.

Marisa Lucas:You know, when we listen to all the airlines and how important it is to be profitable, how important it is to master the cost basis of the operation and also be productive, right? And that's what the A220 can bring. And it has the right size, but also the right performance. Thank you.

Subhas Menon:range.

Marisa Lucas:And what we see here as well, and we were talking, you were saying, we are talking about Southeast Asia, but we cannot delink Southeast Asia from the rest of Asia-Pacific. So something that the A220 can bring is something like what the XLR has brought in many markets, which is the capability with those 7 hours range flights to do overnight flights, for example, and connect Southeast Asia with North Asia or with the Pacific, and being able to increase significantly the utilisation of those assets. So it is a mix of, yeah, potential for opening secondary routes. It is the flexibility that the module offered you to do more overnight flights.

Eddy Krismeidi Soemawilaga:Yeah.

Marisa Lucas:And also this morning we talked about, you know, the importance of having daily flights on every route you open. So that's another, you know, possibility that you have with, you know, using these modules in the right combination and just, you know, supporting the rest of the operation. So we do see a big market there and we see a perfect match with the A220.

Alan Tan:And again, avoiding the congestion and the slot problems. We haven't even talked about slots. slot problems in the major congested airports. A couple of quick questions, maybe Eddie, the first one. What is the incentive and rationale for countries to reject the community carrier model in ASEAN? To preserve their own home carrier performance, but of course protectionism, right?

Eddy Krismeidi Soemawilaga:Yeah, I think that could be one, to protect the home carrier performance. The other one will be, I think many of ASEAN countries are very nationalistic, Yes. Patriotic. I think once you talk about something foreign, it's against what the intention of the government. I think that's the case in—

Alan Tan:Because let's not forget, the community carrier model opens up foreign neighbouring countries' airlines to more sources of investment.

Marisa Lucas:Yes.

Alan Tan:Right, so you could have a Cambodian carrier getting capital from all over the region, not just from Cambodia, and so management expertise, as well, and so you could have a potentially more powerful rival competing against your own homegrown carriers.

Marisa Lucas:Indeed.

Alan Tan:Right, so inherent protectionism is still very much alive in Southeast Asian countries, right? And we don't have the mechanism of the European Union, which by law can override the interests of the individual member states, right, because they have supranational institutions. In ASEAN, it's a very different animal and everything goes by consent, and there is no equivalent of the European Commission in Southeast Asia to force through the community agenda over and above individual protectionist national agendas. Very quickly, AirAsia has a plan to be a world LCC network airline. Do you think this will work well? Well, subject to air traffic rights and subject to protectionist concerns in the different areas that they want to operate in, right?

Eddy Krismeidi Soemawilaga:Yeah, I think for us, I think for AirAsia as a group, one of the advantages that we are offering to the public is actually we are serving secondary up to tertiary city. Like in the case of Indonesia, now we are serving 16 airports already. I think intention is to support Kuala Lumpur and DMK, Bangkok, as Mega hubs, and we are planning already an order for new XLR to come in 2028, I think. And the vision that we have is actually we are trying to create a virtual hub somewhere in the Middle East and connect with Europe with XLR, more narrowbody rather than widebody.

Alan Tan:But you don't have inside intelligence on regional jets, right?

Eddy Krismeidi Soemawilaga:Nothing. Nothing, okay.

Alan Tan:Good. So we have a couple of minutes for questions from the floor. So would anyone like to have the mic to ask questions of our panellists? Do I see a hand? Going once, twice. Otherwise, do my panellists have questions for each other?

Marisa Lucas:I do actually have a question because there's subject that has not been treated yet today, and we see a clear trend everywhere in the world about increase of premium traffic.

Eddy Krismeidi Soemawilaga:Mhm.

Marisa Lucas:And we haven't talked— it's been a bit just, uh, Tai talking about going to the US, not going to the US from the region. How do you see that market, and how do you see that link to the increase or the bigger demand for premium, from premium travelers?

Subhas Menon:Talking about traffic to the US? Well, one route I didn't mention is Southeast Asia-USA route. That's the one that is really coming down.

Alan Tan:It's coming down?

Subhas Menon:Yeah, it's coming down. I mean, the amount—

Alan Tan:Partly due to the tyranny of distance? partly due to the fact that there are very few players. You're talking nonstop, right? You're not talking 6 freedom stops in Korea, Japan.

Subhas Menon:Total traffic.

Alan Tan:Total traffic, OD traffic.

Subhas Menon:I think there are several factors. One is the capacity. As you mentioned, capacity is down. A lot of Southeast Asians used to go via China to the US, for instance. So capacity is a problem. The second is simply perception. People don't want to go to the US.

Alan Tan:Yeah, it's become more unfriendly. Yes.

Subhas Menon:Yeah, you know, so we see that, but premium traffic actually in Southeast Asia, I talked about 7%, 9%, and all that, but business travel actually picked up 26% in the first 6 months of this year. So what does that tell you? You know, actually growing middle class, a lot of business activity in Southeast Asian region, so premium traffic is in demand. So I don't think it is LCC or full-service carrier, but the entire demand pattern is really on a growth cycle, if not for some of these other extraneous—

Alan Tan:I would jump in and say happier news for the European market, because as many of you will know, there is now an ASEAN-European Union Comprehensive Air Transport Agreement. that has unlimited 3rd and 4th freedoms. So all the previous bilaterals that had restrictions, you know, France-Singapore for example, it's now all gone. Subject to slot constraints, you can have point-to-point unlimited for ASEAN and for EU airlines. 5th freedom is more problematic because the Europeans didn't like the idea of Singapore Airlines crossing the Atlantic to go to the US, you see. And so 5th freedoms are all limited to 7 per week. which is once daily per country pair. So that's not bad because it's an improvement from previously.

Marisa Lucas:So we will need another panel to talk about the A350-1000 because we see a lot of potential there as well.

Alan Tan:You want to talk about the A350-1000? Well, you have 3 seconds.

Subhas Menon:Ah, nice.

Marisa Lucas:Okay, next one, next one.

Alan Tan:Excellent.

Marisa Lucas:But that big potential there as well for that increase in premium, in the premium cabin.

Alan Tan:Right, no orders from Southeast Asia yet today, right?

Marisa Lucas:Yes, we do have orders.

Alan Tan:No, Southeast Asia.

Marisa Lucas:Yeah, yeah, Philippine Airlines.

Alan Tan:Oh, Philippine Airlines, good, okay.

Marisa Lucas:And a lot of direct traffic to the US, a lot of premium direct traffic from the US where the North Asia carriers really, you know—

Alan Tan:Yes, they dominate.

Marisa Lucas:Dominating, and the 1000 is playing, is going to play a big, big role. There, so there's a big potential in the region.

Alan Tan:Good, good.

Marisa Lucas:And that is reached to the US direct with these airplanes, so.

Alan Tan:So I'm glad Marissa got her A350-1000 spiel inserted into this discussion.

Eddy Krismeidi Soemawilaga:I made it.

Marisa Lucas:Good.

Alan Tan:You owe me for that. Okay, all right, ladies and gentlemen, thank you very much. Will you please give your usual measure of appreciation to my panellists?

Eddy Krismeidi Soemawilaga:Thank you.

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