Over the past decade, the Asia-Pacific region has become the fastest-growing in the world for airline activity.
The Asia-Pacific’s huge population, and the percentage of that population that now has enough disposable income to make air travel a viable proposition means that well-run airlines are able to find success in the region. Asia is expected to account for approximately 40 per cent of future airliner production.
However, there are some factors that may hold back this growth. A lack of infrastructure, inconsistent regulation, and environmental pressures all potentially conspire to affect airline development. Firstly, however, consider some of the positives.
“We’re in the fortunate position that air travel has been growing at above the trend rate for the past five years, and that continues,” says Andrew Herdman, director-general of the Association of Asia Pacific Airlines (AAPA).
Speaking to Low Cost & Regional Airline Business shortly after his organisation’s 61st Assembly of Presidents in Taipei in late October. “Cargo,” he adds, “after some difficult years, in the last 18 months has picked up quite strongly.”
Within the huge Asia-Pacific region, China is almost a story of its own in terms of its sheer scale. The International Air Transport Association (IATA) predicts that by 2036 the country will be producing an additional 2.1 billion travellers a year – more than double today’s volumes.
That accounts for more than half of the projected growth for the entire world. Perhaps unsurprisingly, given this rising surge of traffic, Chinese carriers have exploded in size over the past decade, some 20 per cent of future airliner production is predicted to be heading for the country, and the Chinese market, both domestically and internationally, is huge.
In the past year, approximately 130 million Chinese were outbound travellers, a figure that would have been unthinkable just a decade ago. And that figure seems certain to continue to grow. That growth brings problems with infrastructure.
One of the major themes at the AAPA conference was the infrastructure challenge – runways, terminal capacity, and airspace management. This situation, of course, is not unique to Asia. All-round the world, airports, and airspace are becoming increasingly congested.
And the extremely long lead times for major infrastructure projects, together with their capital-intensive nature, mean that this congestion is not easy to remedy swiftly.
“In China, they’ve got a lot of airport capacity but, even so, the major airports are congested at peak times of the day and airspace within China is congested because of the rapid growth of commercial air travel,” Herdman states.
“Elsewhere in the region, developing markets like Vietnam, the Philippines and Indonesia are other examples where market growth has outpaced expectations. You have capacity problems at major airports. There are some projects underway, but it’s often a case of ‘too little, too late’ and there have to be more ambitious plans.”
In his speech to AAPA in Taipei, IATA’s director-general, Alexandre de Juniac, emphasised these points and noted that in India, its experience in funding airport development with private capital had eased congestion, but burdened the industry’s development with high costs.
De Juniac said that, from his experience in Europe, privatised airports might be extremely well-run, but there was a question as to whether they were motivated to be efficient and to control costs.
“The private sector is encouraged to bid high to get the project in the first place and they have to recoup that. Once established, they have a degree of market power and are in a very strong position to negotiate.” In many cases, they were effectively monopolies: “Airports aren’t really competing with each other.”
IATA’s experience over the past three decades was that airports perform better in public hands. Privatisation had been “largely disappointing,” he commented. “We have some of the world’s best airports,” adds Herdman.
“Some are government-owned, or government-owned but run by a corporation. There’s a role for the private sector finance but there’s a problem if the government is conflicted as to whether it’s selling the assets or reaping the rewards. You need a balance between the needs of the users.”
Regardless of who owns or funds new ground infrastructure, the fact that it involves not just airports themselves but connecting road and rail links mean that the planning discussions invariably need government involvement.
Another major problem facing low cost carriers (LCCs) and others in the region is a shortage of pilots, says Herdman: “You can buy as many planes as you like, but you’ve got to have pilots to fly them. That’s being addressed, but it’s evident that people are competing to attract pilots. The range of pilots’ salaries from one country to another is growing, as pilots move from one country to another. There’s upward pressure on those salaries.”
Philippine LCC Cebu Pacific (CEB) is looking at investing in training to curb the pilot crisis. In October, the airline launched its cadet pilot training programme aimed at addressing the airline’s expansion requirements over the next five years.
The programme, to be conducted in partnership with Flight Training Adelaide, will create 240 professional pilots who will subsequently join the corps of pilots of Cebu Pacific. It is a 56-week programme that recruits candidates from the beginning and puts them through integrated flying training, flight theory and education courses to become licensed commercial pilots.
After completion of the programme, the cadet-pilots become first officers at CEB and can join the corps of aviators at Cebu Pacific, flying domestic and international routes. CEB will be investing a total of $25 million over a five-year period for this pilot programme.
The third major problem, Herdman says, is over-regulation, particularly when it came to aviation security and passengers’ rights.
“Let’s separate the two things. On aviation security the topic of interest, this year we’ve seen several governments, notably the US, introducing additional security requirements for anybody heading to the US; one of the deadlines for implementation of this new requirement has just passed. It affects a lot of major airports in Asia.
“Procedures have changed; it’s time-consuming. It’s also unfortunate that the security procedures vary, depending on where you’re going. If you’re going to the US, you may be subject to procedures different from elsewhere. That’s challenging for airports and airlines.
“Lack of consultation with the industry has been a problem – the most notable example was the ban on taking laptops and large electrical devices into the cabin, although that applied to the Middle East.”
The latest measures imposed by the US involve random interviews of passengers heading for the US when they arrive at airports. There is also additional security screening at gates and increased explosive trace screening.
Taken together, this is leading to some airlines in Asia advising their passengers to turn up at the airport earlier than normal. “There are still too many examples of states in this region not complying with global standards,” agreed de Juniac in his AAPA address.
“I don’t want to pick on China, but there is a worrying trend of non-standard developments. Recently, and without any consultation, China issued new and unique requirements for the handling of portable electronic devices and China is also considering major deviations from the worldwide slot guidelines.”
De Juniac said the wheel is being reinvented in the region on issues as wide-ranging as developing punitive consumer protection, ignoring just culture in accident investigations and making non-standard security requirements.
“The idea that each country implements destination-specific requirements is both illogical and not scalable. We were urging governments to work collaboratively with each other, preferably through ICAO. If we’re going to have new regulations, let’s agree what they are,” he continued.
On the topic of consumers’ rights, ICAO has a set of passenger rights, but the fact is that national governments and authorities – for example, the European Commission – have introduced their own passenger rights regimes. There’s a proliferation of these regimes in around 70 countries.
It does make it confusing for passengers because aviation is a globally-integrated system. If a complaint depends on where you start your flight, it may be subject to the interpretation of courts.
Although LCCs have been more successful in the intra-European market, Asia boasts some very successful examples of the breed, such as Indonesia’s Lion Air, the Philippines’ Cebu Pacific, and India’s IndiGo.
It has been notable, says Herdman, that several of the region’s successful full-service carriers, such as Qantas and Singapore Airlines, have established their own LCCs – in those two cases, Jetstar, SilkAir and Scoot.
In East Asia, meanwhile, Japan’s ANA has established at least two low cost subsidiaries, which began as purely domestic operators but were now stretching their wings internationally. However, the regional market is very dynamic, and the fiercely competitive atmosphere has also seen some LCCs fail.
Herdman notes that the markets don’t segment neatly into full-service and low cost sectors: “All the major routes are contested by at least five airlines. You see full-service carriers going head-to-head with each other and with low cost carriers.”
In the low-cost sector, there were some similarities with Europe, in that the business models were converging. Just as Norwegian is blending low cost with long-haul, Australia’s Jetstar always had wide-bodied aircraft and the AirAsia Group had its AirAsia X long-haul operation.
These airlines got passenger feed from short-haul routes, Herdman says. “What we see are some of these low cost groups starting off domestically and are expanding internationally.” They were having to add aspects to their operation, such as network planning and code sharing, that they had not previously envisaged.
And, like virtually every other region of the world at present, Asian carriers were experiencing considerable yield pressure, due to the intense competition, he adds. Typically, over the 2015-16 period, Asian carriers were making just $5-6 profit per passenger, a similar situation to that in Europe, but much lower than the profit levels US airlines had been enjoying in recent years.
In 3Q of this year , yields seemed to have bottomed out, notes Herdman, “which you would expect, given that fuel price is now around $63 a barrel compared to $53 last year. So, yield pressure is starting to ease a little”.
Despite the challenges facing the region, the region’s airlines and LCCs, seem in it for the long haul.
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