Globally, up to November 2023, aviation had reached approximately 99% of pre-pandemic traffic levels. Asia-Pacific—the last of the regions to embrace the recovery—achieved 93% of 2019 traffic levels thanks to the reopening of major markets in China, Japan, and Korea.
“In the context of the previous three years it was a positive 12 months for the region,” says Philip Goh, IATA’s RVP for Asia-Pacific. “But international traffic was at 83% of the 2019 level in November 2023 so we continue to lag the other regions.
“China’s opening was a surprise and greatly benefited Asia-Pacific as it can comprise 30% of some countries’ international traffic,” he explains. “But that opening is not yet fully realized. Group travel, which is a big element of Chinese travel, only really started again in the second half of 2023.”
Overcoming headwinds
For a complete recovery and a return to sustainable growth, the region will have to overcome some strong headwinds.
Exactly how far and how effectively the China market will rebound is open to debate and therefore the country’s influence on traffic patterns is called into question. Essentially, if the Chinese recovery stalls, so too will air traffic throughout the region.
There are also supply chain issues. Not only new aircraft but also aircraft spare parts are in short supply. Airlines looking to expand quickly could be affected by these constraints. They will also need to find enough manpower to sustain growth and train them. That will take time and could also anchor the speed of development.
Finally, geopolitical issues, such as the war in Ukraine and the Middle East crisis could push fuel prices up. For all airlines this is a concern and will lead to more cost, unavoidable ticket price increases, and possibly a subsequent drop in demand. A lot of travel in Asia-Pacific is price sensitive and with many airlines in the region still struggling financially, they will have little ability to absorb significant cost.
“Even so, we expect that Asia-Pacific will be the fastest growing region over the next 20 years,” says Goh. “You have to weigh the challenges against the opportunities. I’m sure that in the years ahead China, India, Indonesia, and many others will be among the top aviation markets in terms of growth and absolute numbers.”
Infrastructure support
Such a positive outlook requires support on the ground and in the air. In terms of airports, at first glance Asia-Pacific seems to be in a good position. New airports are due to open in India and there are several other projects ongoing, from Sydney to Vietnam to T5 in Singapore. Incheon, Seoul’s international gateway, also has ambitious plans.
But Goh notes that it is important for infrastructure development to be well-timed and well planned. “That is why we need to keep a careful eye on the strength of markets in 2024 as the region competes its recovery,” he says. “We don’t want airports that are not aligned to demand. And most importantly infrastructure costs need to be managed to avoid an increased burden on users.”
“That means there must be greater consultation with airlines,” he continues. “Carriers must be involved in the design and planning of facilities but too often there is a lack of transparency. Remember, airlines have to forward plan as well, so they need to be included in any major aviation projects.”
Goh advises that new facilities should be as future-proof as possible. Sizable infrastructure in many key cities will likely be increasingly difficult to build so what is being developed today must have longevity. That is easier said than done. Notable changes in the existing processes are anticipated, including contactless travel for travelers, streamlined border controls, and driverless vehicles on the apron. Moreover, bag drops are being transformed and air cargo is going through its own digital transformation.
“We have to think through these topics carefully and ensure that infrastructure is fit for purpose, now and for years to come,” Goh suggests. “This can’t just be about building a bigger airport. We must be smarter than that.”
Meanwhile, air traffic management is falling behind the pace of demand. Again, there is a lack of consultation with the airlines, but the larger concern is the absence of regional collaboration. “Air navigation service providers have to think beyond their own borders,” says Goh. “Cost-effective, regional ATM solutions are desperately needed and though there are some positive individual performers and regional programs, ATM in Asia-Pacific needs to improve.”
Gearing up for SAF
As for sustainability, like carriers in all regions, Asia-Pacific airlines are suffering from a lack of sustainable aviation fuels (SAF). There is one of the biggest SAF producers, Neste, in Singapore, but far more production capacity is needed if the industry is to meet its 2050 goal. There are also intermediate targets to consider, such as Japan’s goal of replacing 10% of aviation fuel with SAF by 2030.
The airline demand for SAF is clear as every drop produced has been purchased. But governments must kickstart the supply side of the equation. A global, robust accounting framework will be crucial for the Asia-Pacific airlines as it will allow them to progress their SAF aspirations even if there is not enough supply locally.
“Of course, many countries in the region have the right conditions and feedstock for SAF production and this sector could be a major new employer and contributor to local economies,” says Goh. “But governments will have to take the first step to incentivize SAF production and lobbying for that will be a strong focus for IATA in 2024.”
Goh doesn’t worry that the multitude of elections in the region in 2024 will cause governments to lose their focus. He believes that even with a change of leadership, the direction of the world in terms of sustainability is clear. “We have the COP commitments, for example, so we should have good strong policies in place regardless of election results.”
More of a concern for Goh is new governments looking to increase aviation taxes. “Governments are looking to boost their coffers following the pandemic,” he concludes. “But many airlines are still struggling. Yes, there is a profit at industry level, but it is small, and airlines are still carrying a lot of debt. There is geopolitical volatility and many other factors to consider, such as purchasing SAF and other sustainability initiatives.
“Governments must help airlines and not hinder them with more taxes and mandates. In 2024, we will be having robust discussions with them.”
Source: https://airlines.iata.org/2024/01/20/preparing-asia-pacifics-resurgence
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