CAPA State of the Industry | Sept 2026

Transcript

Adrian Schofield:Thank you, Claudia, and good morning, everyone. As Claudia mentioned, my name is Adrian Schofield, and I cover commercial aviation for CAPA and Aviation Week. Today, I'll be presenting some observations on the state of the Asia-Pacific airline industry, just to set the scene for our discussions today. Set the scene a little bit and provide some background to some of the things that we'll be talking about over the next few days. And I should note that some of the slides might be a little difficult to see, but, but don't worry, the slides will be made available afterwards. So first of all, we'll step back and take a big picture look at the Asia-Pacific region. The region's international capacity grew by a healthy margin in 2025, represented by the grey line on this chart. However, growth would have been stronger if not for the supply chain headaches, delivery delays, and engine shortages that affected many airlines. These issues were showing definite signs of improvement in early 2026. As you can see from the red line, the year started well with more year-on-year capacity growth. But then the line dropped from late February to below 2025 levels with the onset of the Middle East crisis and the fuel price spike. International capacity was down 1 to 3% year on year from March through June. Many Asia-Pacific airlines cut capacity due to higher costs, although there was also some benefit for those with flights to Europe as many travellers avoided Gulf transit hubs. This prompted airlines such as Cathay Pacific, Singapore Airlines, and Malaysia Airlines to increase capacity on their Western European routes. If you look at the right-hand end of the red line, you can see that capacity in the region has bounced back somewhat from around August and is once again above 2025 levels. It's interesting to look at the ranking lists for busiest air routes, as they often highlight some interesting trends. This chart from OAG data shows the world's top routes in terms of international capacity for September. 7 of the top 10 are within the Asia-Pacific region, and 4 of the top 5. Something that really stands out is the gains on 3 routes between Japan and South Korea. Incheon-Narita is up 41% in the top spot, and 2 other Korea-Japan routes at 4th and 10th have also shown strong increases. This is partly due to the shift in timing of one of Korea's peak travel periods, but also reflects airline response to strong demand for travel between these countries. Turning to domestic rankings, you can see that 9 of the world's top 10 routes are in the Asia-Pacific region. There's no surprise to see Seoul-Gimpo-Jeju in the top spot as usual. However, the gap to the second busiest route between Sapporo and Haneda has shrunk dramatically. The Sapporo route is now only slightly behind the Seoul-Jeju route, and in some weeks is even slightly ahead. This is mainly due to the steep drop in capacity between Seoul and Jeju. A major reason is that while Korean Air and Asiana gave up slots on this route in advance of their merger, other airlines have been reluctant to take them up or have trimmed capacity. They have seen more benefits in raising international capacity instead. It is also worth noting that the top Vietnamese and Australian domestic routes have seen declines, mainly due to airline responses to the fuel crisis. However, Delhi to Mumbai has seen a healthy gain, reflecting the demand strength and fierce competition on India's busiest domestic route. Focusing now on the low-cost carrier sector, We can see that LCCs account for 32% of system capacity in the Asia-Pacific region. This is higher than in North America and the Middle East, but lower than in Latin America and Europe. Of course, Asia-Pacific is a vast region, so it's worth zooming in on the main sub-regions. LCC market penetration is highest in South Asia, thanks to the dominance of IndiGo in India. Southeast Asia also has a relatively high share of LCC seats, and there is a significant step down to Southwest Pacific, which is basically Australasia. Northeast Asia has the lowest LCC share at 19%, largely because this subregion includes China, where LCC activity is relatively low. This slide takes a look at the trend of LCCs and hybrids operating widebodies. Asia-Pacific LCCs are still leading the way in this approach, operating far more widebodies than their counterparts in other regions. This model has yet to prove itself elsewhere but appears to work best in the Asia-Pacific context. However, a major caveat is that some Asia-Pacific LCCs or hybrids are moving away from widebody operations, at least for now. AirAsia X is phasing out its A330s and has cancelled its widebody orders. IndiGo is returning its wet-leased 787s and hybrid 787 operator Air Japan has shut down. At the same time, there has been growing interest from Asia-Pacific LCCs in long-range narrowbodies such as the A321XLR, which can serve some of the routes that would otherwise need widebodies. Since we're here in Japan, now we'll take a look at international travel in this market. Since soon after the pandemic, the prevailing trends have been the relatively slow recovery of Japanese outbound travel and a massive surge in inbound tourism, helped by favorable exchange rates. International visitor numbers to Japan exceeded pre-pandemic levels in 2024 and were up by another 16% in 2025. However, growth has stalled somewhat this year. In fact, visitor numbers through August were down by 2.7%. The red line at the top of this chart shows monthly visitor arrivals in 2025, and the dark blue line, 2026. As you can see, most months in 2026 are below 2025 levels. No doubt this is partly due to rising travel costs and economic concerns in many source markets, but another major factor has been the steep fall in Chinese tourism to Japan. So this chart shows what has happened to visitor numbers from mainland China to Japan. The grey line is 2024. And the top red line is 2025. Chinese visitor numbers saw increases in the range of 20 to 45% through most of 2025, but you can see how the red line dips in November. That is when political tensions between China and Japan escalated. The bottom blue line is 2026, and it is well below 2024 and 2025 levels. The year-on-year decline is 50 to 60%, for most months so far this year. But there have been some bright spots elsewhere. For example, visitors from South Korea are up 32% year on year, and South Korea has replaced mainland China as Japan's top tourist market. There has also been strong growth from Taiwan. Before we move off Japan, let's take a quick look at the low-cost carrier and hybrid sector. LCCs, including those based overseas, now account for about 27% of system capacity in Japan. This chart shows that LCC domestic capacity has remained relatively flat, with a market share of 20 to 21% from 2023 to 2026. But growth has been higher in the international market, with the LCC share rising from 29% in 2023 to 37% in 2026. There have been some structural changes in Japan's LCC and hybrid sector. The ANA Group suspended hybrid carrier Air Japan in March, although of course the group still has an LCC in the form of Peach. On the Japan Airlines side, Qantas is selling its shares in LCC Jetstar Japan. This will allow it to be rebranded, and more details on that are expected soon. JAL Group also has the Zipair long-haul LCC and Spring Japan, which is aimed at the mainland China market. Next, we'll take a look at a couple of other interesting Asia-Pacific markets, starting with Thailand. One of the main themes in Thailand in the past few years has been the decline and bumpy recovery of Chinese visitor numbers. Mainland China was Thailand's top market by far in 2019, accounting for 28% of its visitors. In 2025, however, the share had halved to 14%. This chart shows how Chinese tourism growth reversed in 2025 following some high-profile incidents in Thailand that caused safety concerns in China. The top grey line represents 2024 and the red line is 2025. In 9 of the months in 2025, visitors from mainland China were down by 30 to 50% year on year. The blue line is 2026, and it shows there was a recovery in February before another dip occurred. Chinese visitors have been above 2025 levels but are still not back to 2024. The government, tourist industry, and airlines have been looking to diversify their source markets and reduce their reliance on mainland Chinese visitors. But this has been difficult this year, as most of Thailand's markets have been down as a result of the Middle East crisis. Thai Airways also plans to grow Bangkok's role as a connecting hub to increase the ratio of transit versus point-to-point traffic. So the major development in the South Korean market, of course, is the merger of Korean Air and Asiana, which is set to be completed on December 17th after years of preparations. The merger will lift Korean Air from 20th 10th on the global list of full-service carriers based on international seat capacity. It will be, it will be 2nd in the Asia-Pacific region, just behind Cathay Pacific. This pie chart helps illustrate the impact of the merger on the Korean market. Korean Air and Asiana combined will account for more than 30% of international seats. Korean's LCC subsidiary, Jin Air, will also absorb Asiana subsidiaries Air Busan and Air Seoul. They will have a combined 11% share of international capacity, making Jin Air the largest LCC in this market. I'd like to turn now to fleet. Asia-Pacific airlines see lots of growth potential in this region, which has prompted an avalanche of new aircraft orders in recent years. This momentum has continued in 2026. Boeing has disclosed orders for 47 aircraft from Asia-Pacific airlines through the end of August, And on top of that, Korean Air announced orders for 103 aircraft in September. Airbus had 582 Asia-Pacific orders through August, 70% of which have come from mainland Chinese airlines. Political issues have meant Boeing has not been receiving new orders from China for years, which has obviously put it at a disadvantage. However, this could change soon as China has outlined plans to order at least 200 Boeing aircraft. There are also more widebody orders on the radar from other Asia-Pacific airlines, although the timeline for these remains uncertain. Cathay Pacific, Qantas, and Malaysia Airlines have all signalled their intent to place significant orders, and Singapore Airlines is also reportedly in the early stages of order discussions. So all this fleet growth is great, but of course these new planes will all need somewhere to land. Governments in the region are aware of this, and there are many major airport projects either just completed, under development, or planned. India has opened 2 new airports over the past 12 months in Mumbai and Delhi. Hong Kong has completed its 3-runway system, which will allow it to progressively increase capacity. Flights are due to start at the new Western Sydney Airport this month, and a major new hub airport near Ho Chi Minh City is expected to open in December. Many other airport infrastructure projects are underway, including the 3rd runway at Narita and a new airport north of Manila in Bulacan. Both will open up new opportunities for airlines. And of course, airport development continues on a remarkable scale in mainland China. Multiple projects are underway, including new airports in Dalian and Xiamen. The last point I'd like to make is that while fuel prices are a real headache for airlines, geopolitical tensions are also a big problem for the industry. Here are some examples. Bilateral restrictions between the US and China that were imposed in the COVID years are continuing to limit capacity. There are many factors involved here, but the net result is that US-China capacity remains at about 30% of 2019 levels. As we've already discussed, strained relations between Japan and China have hurt travel demand between these countries. On the operational side, the need to avoid Russian airspace has been a handicap for Japanese and South Korean airlines in particular, adding hours to flight times to Western Europe. The Middle East conflict has had major network ramifications for services to and from Gulf airports, as well as creating overflight problems. And the continued closure of Pakistani airspace to Indian airlines has also caused costly reroutings. So this reinforces what we already know. The airline industry remains extremely vulnerable to external forces outside its control. And on that cheerful note, thank you very much for listening, and I hope you enjoy the rest of the conference.

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