Korean Air has recently begun adding Airbus A321neos to its fleet.
For airlines in the Asia-Pacific region, 2023 should be the year that international capacity returns almost to pre-pandemic levels. But even though COVID-19 restrictions have eased, there are still some major hurdles on the path to recovery that the industry must overcome.
Asia-Pacific airlines have generally lagged those in other global regions in terms of international capacity recovery. As of Nov. 28, international weekly seats in this region were at 54% of 2019 levels, according to data from CAPA – Center for Aviation and OAG. This was much less than the 98% in North America and 86.5% in Europe.
- Rebuilding international fleets and networks will be a priority
- The Mainland China question looms over the broader region
While the post-pandemic rebound has been slower to start in the Asia-Pacific, this also means there is greater scope for rapid improvement in the region than elsewhere.
Recovery challenges include fuel prices, inflation, the possibility of global recession, uncertainty regarding the reopening of the important mainland China market and system bottlenecks caused partially by workforce shortages.
It is also hard to predict what travel demand will look like as 2023 progresses. Demand is strong now, due to a combination of pent-up appetite to travel after the pandemic and limited capacity. But next year both these factors will ease.
Airlines are balancing their strategies between maximizing short-term capacity and ensuring they do not add too much in case demand weakens next year.
Rebuilding fleets and workforces is a major priority. Airlines are increasingly looking to place new orders to restart modernization plans that were put on ice during the pandemic years.
Workforce is more of a challenge, however, as luring people back to the cyclical aviation industry is proving difficult in many markets.
Southeast Asia
Many of the major legacy carriers in the Southeast Asia subregion—including Thai Airways, Garuda Indonesia, Philippine Airlines (PAL) and Malaysia Airlines—have been through court-led restructuring proceedings during the pandemic.
These airlines will be better positioned in 2023, as they have reduced their debt burdens and restructured many of their costs. They will now look for these efforts to pay off with improved financial performance.
Strategy revisions and restructuring have also meant significant fleet changes. Carriers have used the restructuring process to phase out some less efficient or older types, and some are now considering how to rebuild their fleets with newer aircraft.
Airlines such as Garuda and PAL have deferred deliveries, but Malaysia Airlines is an example of a carrier placing orders to continue its fleet renewal. Thai Airways also has plans to begin gradually growing its widebody fleet from next year, after disposing of several older aircraft.
In the short-term at least, fleet cuts mean capacity will be lower in many international markets in Southeast Asia. This may also reduce competitive pressure for connecting traffic at the region’s major hubs.
Singapore Airlines (SIA) stands out as an exception in Southeast Asia. The carrier was in much better financial condition than its neighbors before the pandemic, and it has emerged more strongly, thanks in part to supportive government policies.
SIA has been able to reactivate more international capacity than most other Asia-Pacific airlines. It will be well-placed to further strengthen its market position in 2023, using its dual-model approach.
Independent low-cost carriers such as AirAsia, Lion Air and VietJet have also suffered setbacks to their growth plans due to the pandemic. However, they still have massive narrowbody orderbooks and will be looking to resume their expansion.
China
The biggest issue facing the mainland Chinese airlines is the heavy restriction of international routes due to the government’s COVID-19 policies. The strict entry rules and flight limitations appear likely to persist well into 2023, and the timing of their relaxation will determine when Chinese carriers can see a meaningful recovery in their international traffic.
China’s domestic capacity recovered to 77.6% of 2019 levels for the week of Nov. 28, according to data from CAPA and OAG. In contrast, international capacity was still at a paltry 8.6% of 2019 levels.
Little detail has emerged as to when, or how, the cross-border travel restrictions will be eased. There are political and logistical aspects to this issue. The Chinese government is expected to take a very cautious approach to reopening, and it will want to make sure vaccination programs and its health system are completely prepared. A phased approach is likely.
While the entry restrictions are obviously of particular concern to mainland China’s carriers, they are also a major challenge for other Asia-Pacific airlines and travel-related industries.
China was the leading source of visitors for several countries in the region including Thailand, Vietnam and Australia. Many Asia-Pacific airlines were therefore heavily exposed to the mainland China market.
This is certainly true for Cathay Pacific, based in the Hong Kong Special Administrative Region. The removal of quarantine requirements by Hong Kong authorities in September has improved the prospect of Cathay rebounding strongly in 2023. However, it will likely need its mainland network to resume before it can achieve full recovery.
Northeast Asia
Elsewhere in the Northeast Asia subregion, major reopening moves by Japan and Taiwan in October have also dramatically improved the chances of an accelerated international recovery in these markets.
In Japan, the important inbound tourism market has surged following the relaxation of entry requirements. This will help Japan get back on track to achieving the government’s lofty ambitions for tourist growth.
However, outbound leisure traffic has been much slower to recover, and this will be a major area of focus for Japan Airlines and All Nippon Airways.
The two airlines both expect international demand to support a return to net profitability in the fiscal year ending March 31.
In South Korea, the most significant dynamic to watch is Korean Air’s proposed takeover of rival Asiana. Korean Air has gained approvals from South Korean competition authorities, but is still attempting to obtain clearance from overseas governments in countries served by both airlines.
Even after all necessary approvals are gained, it will still take some time to fully integrate Asiana and align fleets and orderbooks. But eventually this will boost Korean Air into the top 10 largest global airlines.
Another important factor will be the status of Russian airspace. Most carriers have been avoiding flying over Russia due to the ongoing conflict in Ukraine, and this is a particular problem for routes between Northeast Asia and Western Europe. Alternate routes are adding hours to flight times, causing operational headaches for airlines.
Australasia
The continuing restoration of international capacity will be the main priority for airlines in Australasia. As of the week of Nov. 28, international capacity was at 68% of 2019 levels for Australia, and 69% for New Zealand.
The means to achieving this is putting more aircraft in the air. Qantas in particular has said it would love to see its remaining parked widebodies reactivated faster, but this process is taking longer than it would like. Delivery delays on new aircraft have also proved frustrating.
Something to watch in this subregion will be the return of Virgin Australia to international markets.
Virgin dropped all its international routes and its widebody fleet in 2020 during its restructuring process. The carrier has since then only resumed a handful of short-range international routes using its narrowbody fleet, with service to Fiji, Bali and Queens-town, New Zealand.
The carrier is likely to restore more of its pre-pandemic New Zealand network to take advantage of soaring demand. Virgin also plans to launch a flight from Cairns, Australia, to Tokyo in June, using Boeing 737-8s.
The airline is relying even more heavily on international partners now, but it may consider adding its own widebody aircraft.
Meanwhile, competition is set to heat up even further in the Australian domestic market in 2023. Regional Express (Rex) intends to grow its narrowbody fleet to compete more strongly against the incumbents on trunk routes, and startup Bonza also plans to launch narrowbody services.
India
The coming year promises to be a very interesting period in the world’s second-largest market. There have been some significant changes in the Indian airline industry, and the competitive ramifications of these shifts will become clearer in 2023.
Air India is emerging from the pandemic revitalized under new ownership, after the government completed a privatization deal in January. New owner Tata Group has growth ambitions for the airline, which include significant fleet expansion.
Air India recently signed deals for 36 additional leased aircraft as a short-term measure, and it is in the process of negotiating a large order with the major manufacturers.
Consolidation is also underway. Tata Group struck a deal with partner Singapore Airlines to merge joint venture Vistara Airlines into Air India, and Tata intends to merge low-cost carriers Air India Express and Air-Asia India.
IndiGo will still be the dominant force in the Indian domestic market, currently holding a 43% capacity share. IndiGo has about 500 Airbus narrowbodies on order, and it intends to expand in the international market in particular.
Meanwhile, newcomer Akasa Air launched service in August and plans to grow rapidly. The new owners of grounded Jet Airways are also intending to relaunch operations in 2023, although the timeline for this remains unclear.
All of these developments will not make life any easier for smaller airlines in the Indian domestic market such as SpiceJet and Go First.
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