Memo: Asia-Pacific Recovery Is Still Gaining Pace, But Economic Factors Are A Handbrake

SINGAPORE—The fact that the Asia-Pacific passenger traffic recovery still lags international averages gives hope that there is greater scope for improvement in this region than elsewhere.

As the aviation industry gathers in Singapore for the region’s premier air show, the question of the demand outlook and its underlying trends is extremely pertinent for the manufacturers looking to secure more sales.

The slower recovery in Asia-Pacific region was initially because some major governments took a conservative approach to removing COVID-19 restrictions. The more complete rebound in North American and European demand indicates that the Asia-Pacific region will eventually follow.

The trajectory of growth in the region certainly supports this, with international traffic in particular rising more quickly from a lower base.

However, there are now many more factors hindering the Asia-Pacific recovery than just the lingering effects of the pandemic years and associated travel restrictions.

IATA Director General Willie Walsh highlighted statistics comparing Asia-Pacific and global averages.

The global traffic volume in 2023 was 94% of 2019 levels, Walsh said Feb. 19 at the Changi Aviation Summit, held in parallel with the Singapore Airshow. This was based on domestic traffic rising to 104% of pre-pandemic levels, and international traffic reaching 88%.

For the Asia-Pacific region, the overall recovery rate was 86%, with domestic at 102% and international at 73%.

The good news for Asia-Pacific airlines is that the rebound in the region’s international traffic picked up pace dramatically through 2023. Traffic was only 57% of pre-pandemic levels in January last year, but had increased to almost 83% in December, according to IATA.

While China’s international traffic has been amongst the slowest to recover, domestic travel there is booming. Chinese domestic traffic accounted for a remarkable 11% of the global total in 2023, Walsh said.

Comparisons with 2019 help to indicate the potential for further growth. However, a very important caveat is that these comparisons with the pre-pandemic world grow less relevant as time progresses.

The factors influencing traffic growth are no longer related to the hangover from the pandemic period, said Subhas Menon, director general of the Association of Asia Pacific Airlines, in an interview before the air show.

Instead, the airline industry has essentially returned to “business as usual,” with macroeconomic and geopolitical trends and other external dynamics affecting traffic levels, Menon said.

He cited the example of the China market, where weaker economic conditions and higher unemployment levels are hindering traffic growth. “Whatever is happening in [the China travel market] has very little to do with the pandemic,” Menon said. “You have to look at the China market’s [rate of] recovery from an economic perspective.”

In many Asian markets currency devaluation plays a large role in determining travel tendencies. In Japan, the weaker yen is one of the main reasons outbound leisure traffic has been slow to recover.

Factors such as these are also helping drive a faster growth in trips within the Asia-Pacific region versus longer-haul travel.

Supply chain issues are obviously a large part of the equation. Aircraft availability constraints mean airlines are often unable to meet travel demand, noted Menon.

The appetite for travel is generally very strong in the Asia-Pacific region, both for international and domestic travel, Menon said. This is evident in the fact that load factors have returned to 2019 levels. Airlines’ financial health has also recovered well, despite higher costs and the external challenges.

All of this means that it is important for the industry to “not be so hung up on 2019 levels,” said Menon. Borders are open, and people can travel wherever they want, so industry dynamics have returned to a more familiar pattern with demand more a function of economics.

It is becoming noticeable that airline reports are focused increasingly on year-on-year changes rather than comparisons with 2019 numbers. There is still some value in pre-pandemic comparisons as indicators, particularly between regions, but this may be the last year where that will be true.

IATA’s Walsh agrees. “To be honest, looking at 2019 becomes irrelevant probably around now,” Walsh said. “It is just an option for people to see where we are relative to where we’ve come from.”

Walsh noted that the industry overall is close to its size and shape from 2019. This means that “going forward, we should expect [reports] to stop making references to 2019 and start looking at the industry in a normal way,” he said.