Analysis: APAC airline chiefs raring to grow
Despite the lingering effects of the pandemic on supply chains, growth beyond pre-pandemic levels was unequivocally back to the agenda for Asia-Pacific airline chiefs speaking at the recent Aviation Festival Asia in Singapore.
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By Vanessa Gu with additional reporting by Naomi Neoh
As carriers begin operating close to or above pre-Covid capacity levels amid robust passenger demand, many are locking in future growth ahead with sizable aircraft orders – even as they grapple with managing delivery-timeline slippages and manufacturing issues.
INDIA LOOKS INTERNATIONALLY
All eyes remain on India as the bright spot for growth in the region, the nation’s market having long rebounded past pre-Covid levels.
Two of India’s largest privately-owned carriers, Air India and IndiGo, placed huge aircraft orders in mid-2023, underscoring confidence in future growth amid rapid development in airport infrastructure and network expansion.
With strong domestic operations secured, the carriers indicated a major push to grow their international networks as the next frontier, with Air India focusing on long-haul destinations while IndiGo’s priorities remain closer to home.
Air India chief executive Campbell Wilson says the carrier’s strength is its international long-haul network, and the country’s huge diaspora population with close links to India and increasing affluence mean it does not have to “grow that much traffic”.
He explains: “There is a huge volume of traffic to and from India that is ongoing nonstop, and we only need to shift a couple of percentage points on that and we’re really good position.”
The irony, he says, is that the “the ‘cream’ currently [flies] indirect because Air India’s proposition just wasn’t up to mark. As we put Air India’s proposition with the best of the world, the cream moves to us.”
Wilson adds, however, that the carrier is working to improve the product proposition and its aircraft, bringing in Airbus A350s, and “that’s where we will be spending most of our effort is building a long-haul international effort to connect India to the world”.
IndiGo, meanwhile, has a network heavily focused on domestic traffic, with international accounting for 25% of capacity.
The airline’s chief executive Pieter Elbers says this will rise to 30%, which means, “by definition, stronger growth internationally, but keep[ing] the momentum on the domestic side”.
With IndiGo’s fleet and orderbook mostly made up of narrowbodies, Elbers observes that “priorities for us today are, I would say, a little closer home in terms of network developments, into Southeast Asia, the Middle East, and Central Asia”.
UNFAIR COMPARISONS
India has overtaken China as the world’s most populous country and is set to become the world’s third-largest economy in the coming decade, behind the USA and China, and with orders from Air India and IndiGo envisioning the injection of a thousand new aircraft, observers have been quick to compare the country to China.
However, both Campbell and Elbers shut down comparisons between the two countries, noting that unlike China, India’s fleet size is currently undersized compared with its population.
Elbers says India’s orders match “the size, potential and opportunity of the nation itself”. He also notes that even with when the Air India and IndiGo orderbooks have been delivered, India will not even reach the number of aircraft in China today.
Campbell sees comparisons of the countries as apples and oranges, likewise stressing the disparity in fleet size.
At the same time, both chiefs note that their airlines’ huge orders have allowed them to have constructive discussions with local authorities on building up infrastructure in the world’s most populous country.
Elbers calls IndiGo’s orderbook of close to 1,000 aircraft a “wonderful, fantastic asset”.
“That really helps us to have very good discussions with the aviation ecosystem in India because we know the number of planes we’re getting for the next decade… is helping us to have very good discussions with the airports on what infrastructure we need, what traffic control we need, what transfer facility we need. I think that whole ecosystem in India is developing,” he adds.
PIVOTING FROM CHINA
As China recovery continues to lag, carriers based in Southeast Asia, which have relied on Chinese tourists, are shifting their focus to other markets.
Delivering a keynote address, Thai Airways chief executive Chai Eamsiri said that the carrier last year had to pivot its capacity to India as Chinese tourists were slow to return.
He notes that Thai currently operates 72 flights a week to Indian cities, compared with 42 to Chinese cities. And even with the 40-odd flights, Eamsiri says load factor on most routes are still “nowhere near 80%”, leading the carrier to pause capacity increase.
However, Eamsiri is optimistic that traffic between the two countries will return with the implementation of two-way visa-free entry between them, and as the Chinese economy improves. Indeed, traffic is already beginning to increase, he adds.
At the same time, he sees the slower-than-expected ramp-up in traffic as an opportunity for the carrier to build up its capacity.
“Because we are building up capacity, the longer [the] wait, the better it is for us,” he notes.
Cebu Pacific Air chief executive Mike Szucs highlights a similar trend. The Philippine budget carrier’s capacity to China is at only “about 25-28%” of pre-Covid levels, “frankly because there’s no demand”.
However, the China gap has not made much of a dent in Cebu Pacific‘s overall recovery, with systemwide capacity at 106% of pre-pandemic levels, reflecting gains made in other parts of its network, such as Japan, which Szucs observes has strengthened compared with pre-Covid.
The airline’s international network has returned to “round about 100%”. Domestic is at 110%.
Moreover, Szucs believes that the full return of international capacity to and from China will put downward pressure on currently high yields.
“When China opens up in the right sense and capacity gets back towards pre-Covid levels, that will create the sixth-freedom opportunities, which will undoubtedly bring pricing down for the carriers that are making a lot of money right now,” he predicts.
“The pricing is going to come down in long-haul premium.”
HK Express’s chief executive Jeanette Mao, meanwhile, expresses confidence in the mainland China market as the airline seeks to grow its network with a second Chinese destination, Beijing Daxing, set to be served from 12 March. The carrier currently serves only Ningbo on the mainland.
There are also plans to grow the mainland Chinese network to become a larger proportion of the overall network.
The current split in the HK Express network is 70% Northeast Asia, 25% Southeast Asia and 5% mainland China, Mao says, adding that there are long-term plans to make it one-third each, creating “a more diverse, resilient, and balanced network”.
CHAIN REACTIONS
Tight supply of aircraft, delivery delays and supply-chain issues continue to plague the industry, but APAC airline chiefs remain largely optimistic they can weather the storm with planning and a degree of flexibility.
IndiGo chief Elbers acknowledges that the current challenges are “not the normal part of running the business”. However, he sees them not as a new challenge but as something the airline has been dealing with for the last five quarters.
“And at one point in time, we will be back to – I would say – a more normalised setting, even with the supply challenge,” says Elbers, adding: “Our orderbook of a little short of 1,000 planes is helping us to make sure that [our] long-term ambition and even the five-year ambition of doubling the aircraft … would be achievable.”
During a 2 February earnings call, IndiGo said that more than 70 aircraft were grounded as a result of GTF engine issues, but it still expects capacity growth for the 2024 financial year to surpass its original guidance.
It added that it was mitigating the situation by extending the use of older aircraft and also procuring additional capacity through damp and secondary leases. Furthermore, IndiGo is maintaining its goal of receiving one aircraft per week in the coming financial year.
Air India chief Wilson says his airline has faced significant delays to two retrofit programmes and its white-tail programme. The three programmes have three different suppliers, and delays range from between two and nine months, he adds.
However, he says the carrier is still on track to receive one aircraft every six days from its substantial orderbook. The carrier has 560 aircraft on order (plus options), including the 470 it ordered in 2023 and 36 aircraft coming in on lease, he notes.
Wilson observes that the leased aircraft “generally speaking have come in on time”, with any slippages a result of MRO constraints, while 56 white-tail aircraft taken over from other airlines are likewise generally on time, “within a couple of months”.
The carrier’s strategy for now is to work with everyone involved and accommodate as best it can, says Wilson.
“The fact is, we’re not a driver of this, we’re a taker. And to be fair to the OEMs too, these airframers, they’re dependent on their own supply chain and they’re also dependent on regulatory processes. It’s just such an interdependent industry that there’s only so much that banging the table and shouting is going to achieve.
“Oftentimes, if you’re a constructive partner, people would try and find a way to help.”
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