Listen in as Association of Asia Pacific Airlines (AAPA) Director General Subhas Menon sits down with Aviation Week Network's Karen Walker to discuss key topics and resolutions at the organization's 68th Assembly of Presidents.
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Rush Transcript
Karen Walker:
Hello everyone and welcome to Window Seat, our Aviation Week Air Transport podcast. I'm ATW and Aviation Week Network Air Transport editor-in-chief Karen Walker. I'm delighted to welcome you on board.
Now, this week we have seen the 68th Assembly of Presidents of the Association of Asia-Pacific Airlines, or AAPA. And that this year occurred in Brunei and was hosted by AAPA member Royal Brunei Airlines. So, I'm absolutely delighted to be joined now by the AAPA director general Subhas Menon to talk about key events at that assembly and the very important Asia-Pacific air transport market.
Subhas, thank you so much for joining me. I really appreciate your time. Now, can I ask you to just start maybe with just a little bit of an overview? I know you track the global air transport industry, but clearly you are very focused on the Asia-Pacific market. As we're closing into 2024, where do you see things standing financially and in terms of air travel demand? What's it looking like right now?
Subhas Menon:
Actually it's looking pretty good Karen, because I think at this assembly as usual, we take stock of everything with regards to the travel market, including air cargo. So I know it is a favorite pastime of commentators to look at recovery in relation to a 2019 benchmark. I think this is an obsolete notion because as far as recovery is concerned, I think it is water under the bridge. So there are two parts to the business, of course there is demand and supply, and I think what we are more concerned about is actually on the supply side of the equation.
As far as demand is concerned, just to give you a quick update on the quantities, so Asia-Pacific air travel has reached close to 98% of 2019 levels. But the real metrics which the airlines monitor, things like load factors, operating margins and yields, these are already above 2019 levels. So that is why I say recovery is already very strong. And we should be talking more about growth.
And if you'll take that in perspective, you find that we are actually a bit slow in terms of growth. The growth is of course still strong, but it could have been stronger if the supply side of the equation was in good nick, which is not the case at the moment. In fact, supplies—there are a lot of problems with supply. And if I could put it in a nutshell, I think this was what was occupying the minds of our CEOs. And we had two panels for discussion, and very quickly both panels descended on a discussion of supply chain issues.
Karen Walker:
Yes. Yeah, that's an interesting aspect. I mean the Asia-Pacific market, like I say, is so important. It is the big growth market for this industry. And the supply chain issues, of course, that we've seen in disruptions have affected everybody all around the world. But what you really are seeing is the real impacts of that on an important growth market because many airlines in that region are looking for growth and the demand is certainly there, but they're being constrained.
Let's pick up on that a bit more later because I believe that was one of the resolutions, a subject of one of your resolutions. So I would like to hear a little bit more of that.
But just before we do that, can I ask about the air cargo market because, again, this is a region where cargo is very important. How is that doing as we get towards the end of this year?
Subhas Menon:
Air cargo is doing very well. As you know, air cargo already exceeded 2019 levels in 2021 because there was a pivot to cargo when air transport ground to a standstill.
But in 2022—late 2022 through most of 2023—air cargo was in decline. But this has recovered, the air cargo market has recovered strongly. On the face of it, it seems to be more because of sea lane closures and shift from maritime cargo to air cargo. But actually if you look at it, it's more to do with the strong growth in e-commerce. E-commerce in the last quarter alone went up by close to 90%. And looking forward it's continuing to be very strong and it's driving air cargo growth. So we are not worried about air cargo anymore. So I think we can bring out the bubbly.
Karen Walker:
That's good. So it sounds to me like the mood of the member airlines at the assembly was good in general terms. And it sounds like they really enjoyed the location as well. It sounds like it was a very successful assembly. Is that fair to say?
Subhas Menon:
Actually, you hit the nail on the head. The location was fantastic. I am not sure if you have been to Brunei, but they have this hotel called the Empire Hotel, which I think has been in operation for 25 years. It's probably the best hotel I've ever stayed in. All the rooms are like suites. And the meeting facilities and everything was fantastic. It's like the word “Brunei” is actually from a Sanskrit word, which means “seafarer.” And “Darussalam” means an “abode of peace.” So considering the hectic nature of air travel, it is a perfect setting. And a board of peace to discuss all the hurly burly that's going on as far as the air transport industry is concerned.
So that was good, but the CEOs were in optimistic mode because of the recovery of the industry, but the mood was a bit tempered by the fact that they are not able to take advantage of all the opportunities out there because of the problems on the supply side.
Karen Walker:
Right. Well, let's pick up again on that. As I said, we made a number of resolutions, which is typical at an assembly. These typically are picking up on the key things that the members are telling you, this is important. And as you've said, supply chain, the conversation kept going back to that, so that was one of the resolutions.
So just tell me here, in this industry, we know that the ongoing problems and how long they've been going on, and people are still talking about '25, '26, we're still going to see all of these problems in terms of not just the aircraft and engine deliveries, but cabin materials, and it goes the whole way through. It doesn't matter, if you haven't got those right bits in ... I think it was the gentleman from Malaysia Airlines last year in Singapore talking about the fact that the taps, they couldn't get the taps for the bathrooms on board, and so they couldn't fly the aircraft. It really goes right through. And it's clearly becoming, as you say, a real burden to airlines who are ready to grow.
So give me a little bit of an insight as to the frustrations here, but in particular your resolution, and what you talked about in terms of what you're asking governments to do here.
Subhas Menon:
I mean, the taps was referred to by the CEO of Thai Airways.
Karen Walker:
That's right.
Subhas Menon:
Chai Eamsiri. And at this conference he was talking about chillers. And he put it very nicely. He says he's thinking of putting a little tab on the chillers to say that this is not working because of the suppliers.
Karen Walker:
Wow.
Subhas Menon:
So because the airlines CEOs are frustrated that regulators are just addressing the symptoms of the problem. So in Malaysia, for instance, the Ministry of Communications has shortened the AOC of Malaysia Airlines and also implemented a mandate that all delays of five hours or more, as long as it is not weather-related or a forced measure, should be compensated in full to passengers. So this is the nub of it. As far as consumers are concerned, as far as the governments are concerned, airlines are responsible for all these disruptions, but these disruptions are actually a result of a supply chain issue. And of course suppliers are B2B businesses. They don't have to front-up for this. So that is where the frustration is coming from. There are no solutions on hand. And the IATA [director general] Willie Walsh said that this would last for another five, six years.
So at the same time, these problems are an impediment to growth. When the market in Asia-Pacific is the largest, both the air transport, the air travel, as well as air cargo is more than one-third of the total travel and air cargo markets of the world. So there are opportunities there which they cannot take advantage of. On top of that, it is very disappointing for consumers.
And there's also a safety angle. The reason why the airlines are cutting flights—or, for example, Malaysia Airlines has cut something like close to 15% of capacity to bring some schedule reliability into the whole process—is because of safety. So safety is a key factor. So while supply chain was not a key resolution that we passed, safety is a resolution. And we are calling on governments to leverage data to understand what the problems are, what are the things that are really failing, what are the components, and parts, and engine issues that the airlines are confronting.
Aircraft manufacturers also have to take advantage of the data that is being produced. This industry has moved forward significantly, making use of big data AI to really do a lot of data monitoring. So it is there, and governments should also elaborate on this so that they understand the problem and the size of the problem rather than just addressing the symptoms of the issue. So that is one resolution that we passed.
And this thing, when we talk about supply chains, also apply to sustainable aviation fuel because the supply of SAF is inching up but not fast enough. And the main problem is really the conventional aviation fuel suppliers, the big oil and gas majors, they are not participating in the supply chain. And the governments have to do something to get them into the supply chain. We talked about the US, changes in the US, but the US is actually a good example of how to get it done because they have offered revenue guarantees as well as tax credits to the suppliers. And therefore more than 90% of the production of SAF today is in the US. Mandates do nothing. Mandates do not increase the supply, it just increases the cost of travel.
So there's another resolution where we are saying that we should take a multi-prong approach because this industry is a technology-driven industry. Surely the manufacturers can come up with some plans from breakthrough technology, for carbon friendly and carbon abating technology, because this is really the hallmark of industry. We have come this far because of technology. Rather than putting all our eggs in one basket, the SAF basket, we should rely a bit more on technology. And of course there is also offsets that are there. And with technology we can also improve our operational efficiency. So these supply chain issues is also a concern as far as decarbonization is concerned because now airlines are forced to operate their existing equipment for longer than they should, and that is also increasing their carbon emissions. So that is also a resolution.
And also as we have seen, the climate change also impinges on safety because all these turbulent events, and extreme weather events are on the rise; it impinges on safety. So that is why the airlines are focusing so much on the supply side of the equation. It's not a resolution, but it undercuts everything that we are saying.
And then of course there is a resolution on streamlining regulations which is crafted by [inaudible 00:14:34]. Basically, we feel that governments are doing their own thing, everyone is doing their own thing. And the resolutions do not ... I mean, the government regulations do not really address the problem, the root cause of the problem. They're just addressing the symptoms and they're putting on a heavier burden on the airlines. The cost burden on the airlines are increasing without any beneficial effects. So we are calling on governments to take a closer look at what is happening and what are the reasons for the problems that we are facing, disruptions, cancellations, delays, and try and address the problems.
Of course, governments don't interact with the OEMs, but if they stop putting the pressure on us in terms of compensation and things like that, we can at least devote our resources together with the OEMs. And OEMs also need to come to the party and discuss some resolutions. And IATA,—IATA represents 147 airlines. We only represent 16 airlines—16 since Wednesday because Lion Air joined us. But they have 147 airlines that they represent. And surely IATA has enough clout to get the OEMs to come to the party, and come to the table, and discuss with us what are the resolutions.
The aircraft manufacturers, of course, we don't have many problems with the aircraft that are rolling out, but the aircraft that are being produced, the new generation aircraft are delayed by very much. But also the aircraft cannot fly without engines. Aircraft cannot fly without the avionics, cannot fly without all the other things that we discussed like chillers and taps and any in-flight entertainment, and things like that. So they can also play a lead role in bringing the different parts of the supply chain together.
Karen Walker:
It's very interesting because what you're really saying here, and which is the truth, is that all these things are intertwined. Sustainability, safety, supply chain, meeting demand, they're all, you can't just have one of these things going right, that they all affect each other and your ability.
And you made a good point there about when you're not able to get the new aircraft and engines, which are the ones that are most fuel-efficient, least emissions-emitting, then you're stuck with the older aircraft. And nobody wants to do that. That wasn't the plan. That's why the airlines put in big orders for these new aircraft and engines.
And the other thing you raise there is Asia is an amazing region, but it's lots and lots and lots of cultures, and lots and lots of countries and leaders. But when it comes to aviation, they're all intertwined. People are going from one country to another. And it's better if governments actually do coordinate on their plans. Because essentially what's happening at the moment is the airlines are getting whacked twice, aren't they? They want these new aircraft, etc. They want affordable, sustainable aviation fuel, but they can't get them. And then the government's penalizing them for what they can't do.
Subhas Menon:
They joked about this one night, and I said that the airline industry is firing on all cylinders, but we are not getting the cylinders.
Karen Walker:
That's a good point. Obviously that was a very good conversation and that was on the minds of everyone. Just there, you mentioned Lion Air, Lion Air Indonesia. It's a low-cost carrier. And so, one of the announcements was that they have now joined AAPA. I think the interesting thing about that is that it is a low-cost carrier. And Asia, that's an increasingly important market for low-cost carriers. So nice to have Lion Air on board, yes?
Subhas Menon:
Very much. I mean, we don't want to be seen as a crony club for full-service airlines. And as you rightly pointed out, budget carriers are really expanding rapidly in the Asia-Pacific region. Indonesia is a huge market. So that is why we have targeted Lion Air for some time. And we are very, very happy that they embraced our overtures and they have joined our industry. So I would say it's cool for us.
As you know, we have been adding members in the last few years, but I would say that this is a very significant step for the industry, and not just because they're a budget carrier, but also because they are located in a very big market in Indonesia. Surely we can have more than one member from the Indonesian market. So yeah, that's a big step up for us. And we will continue to do this. We want to be an association that represents all parts of the industry.
Karen Walker:
And then I'd just like to ask you: two very important markets in the greater region, really, India and China. And Air India is a member of the association. China, as we know, has had a real stop-start post-pandemic recovery, I think is the kindest way of putting that, but it's a very important market. What was the sorts of discussions about India and China as markets in general? What was the mood?
Subhas Menon:
Well, China's recovery, we still want to go back to 2019 levels. It's 82% of 2019. But in 2019 there used to be 20% of the international air traffic in the Pacific region. Now they're already up to 19%. And that's thanks inbound travel. So, China has concluded several visa-free travel agreements, close to 30 if I'm not mistaken. And some of the Western carriers have pulled out from China because they cannot overfly Russian airspace. But the Chinese carriers have taken over the gap left by Western carriers, and also in Southeast Asia, as well as to Australia. And the inbound is growing great guns.
The problem with the Chinese market is really the outbound, and this has got to do with economic factors. So with the Trump administration coming in and the threat that Donald Trump has voiced, which is to increase the tariffs on the Chinese, it doesn't hold very well for the recovery of the outbound Chinese market. So that is the concern that we have.
Karen Walker:
There was concern. Yeah.
Subhas Menon:
The outbound Chinese market, the Chinese outbound market, not only for the Asia-Pacific region, but in most parts of the world, was one of the big contributors to growth.
As far as India is concerned. India is 150% of 2019, but it was a small base, low base. But India is growing great guns. And not only Air India, but also IndiGo has placed a lot of orders for aircraft—470 in the case of Air India, new aircraft, and IndiGo more than 500. But when are they going to be delivered? When are these new aircraft will be delivered? So the concern is really from the supply side.
Karen Walker:
Well, the IATA AGM, of course, next year will be in New Delhi, so we'll be ... and IndiGo, the carrier you just mentioned is the host, so certainly there will be a lot more discussion on that. It'll be interesting to see where things stand by them. So this is the airline industry—everything could be changed in a few weeks or months, but hopefully changed for the better.
Subhas Menon:
Yes, I think so. I think it is about time that they had an IATA AGM in India again, because my last few trips to India, I was amazed at how fast things have changed. And I'm sure we haven't seen anything yet. It's really just starting. We are in a very infant stage.
There was the second ministerial conference of civil aviation ministers held in New Delhi in September. The first one was held in Beijing in 2018. So there's been a huge gap. It was held in 2019. And India managed to get all the attendees, 29 states in total, to make a declaration. And they covered all parts, sustainability, safety, to harmonize some of this.
I mean, on the safety front, the industry has already integrated a lot of the regulations, so can we have the same approach to sustainability as well as cross-border regulations?
Karen Walker:
Subhas, thank you so much again for joining us. And thank you for giving me that update on the assembly. It sounds like it was a very meaty assembly and also an optimistic one. And also it sounds like it was incredibly enjoyable. An amazing thing to hear from you that it was just one of the nicest hotels you've ever been in. That really is saying something. So thank you very much for your time.
Thank you to our producers, Cory Hitt and Guy Ferneyhough. And of course a huge thank you to our listeners for following Window Seat.
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This is Karen Walker disembarking from Window Seat.
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